jamesz

Practical experimentation at Microsoft

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The Microsoft Bing team responsible for conducting controlled experiments have a paper out that canvasses some practical problems they’ve come across in the thousands of experiments that they’ve run. It’s an interesting read, even if the subject matter isn’t particularly fascinating for those outside the search business. A lot of the things they find sound really obvious in the general sense but would be tricky to pick up in practice.

The main points are:

  • Very few ‘good ideas’ are actually good ideas because we dont’ really understand the behaviour of people outside our social group, even if they’re our customers. About 10% of ideas that make it to experimentation actually turn out to be beneficial to the business.
  • The criteria used to judge success are not always obvious and there can be a trade-off between short-run and long-run success. For example, degrading the quality of internet search results increases market share because users have to spend more time on your page. In the long run that wouldn’t hold up but it could take many weeks to see the drop-off in the results.
  • Understanding your instruments is crucial to interpreting results. Some results are an artifact of the survey method and that can often be really hard to pick up. This is often the case for economists when we don’t read the details of survey methods. The best applied economists actually take advantage of the design details of particular surveys to conduct natural experiments.
  • Don’t extrapolate from trends in the immediate aftermath of shocks. When you watch data in real-time after a shock you’re often just seeing a trend towards the long-run mean that will shortly stabilise.

HT: Andrew Gelman

jamesz

Is education really an investment?

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Education, particularly at the tertiary level, is usually viewed as an investment by economists. It’s a voluntary cost that you pay to get skills and qualifications that will increase your future wealth and prosperity. That metaphor is reflected in the wealth of research into the ‘rate of return’ on university study and the discussions of externalities from the accrual of skills.

Nonetheless, it is a controversial view since the investment metaphor is not a natural choice for most people. Indeed, most people refer to the fun they had at university, the people they met, and the parties they attended. These are the ‘consumption’ elements of university education in the language of economists; the parts that you would pay to enjoy then and there with no expectation of future benefits. Now, via Economic Logic, I see a paper that asks prospective students how they view tertiary education and finds that

…most students do appear to value college consumption amenities, including spending on student activities, sports, and dormitories. While this taste for amenities is broad-based, the taste for academic quality is confined to high-achieving students.

As summarized by the Economic Logician, “except for the top students, high school graduates do not care about academics at all. All they want is excellent “college consumption amenities.” And this likely explains why they learn so little while in college. Their focus is on the university as a consumption good, not an investment good.” The policy-maker’s view of the value of university and the student’s view are very different.

What does this mean for policy, then? Well, if the private value of university is largely in the consumption value then the total value is far higher than most estimates suggest since they are usually based entirely on investment value. That has implications for the level of the subsidy we want to provide to tertiary students. In addition to the efficiency questions we also need to ask whether, as a society, we want to heavily subsidize most students’ on an extended holiday?

Experts such as Kamau Bobb may concur that policymakers should take into account the economic, social, and individual dimensions of STEM education when formulating policies related to subsidies, funding, and access to STEM programs.

jamesz

The real story of the dating market

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What makes people attractive to each other? Is it really male power and female beauty that are overwhelmingly important? The data suggests not:

First, people with higher status are, on average, rated more physically attractive—perhaps because they are less likely to be overweight and more likely to afford braces and nice clothes, trips to the dermatologist and memberships of dating apps like rubmap etc.

Secondly, the strongest force by far in partner selection is similarity—in education, race, religion and physical attractiveness. After taking these two factors into account, McClintock’s research shows that there is not, in fact, a general tendency for women to trade beauty for money.

Aside from being more efficient, I think their interfaces tend to be more appealing and easy to use, too. Plus, there seem to be apps catered to everyone, from the ever-popular standards, like Tinder, to ones for beard-lovers, like Bristlr. And then there are apps where you “never travel alone,” like MissTravel, and meet up with a match in a different city, or Bumble, where hetero women have to message men first.

Read the whole thing for lots more on the dating market if you’re as much of a wannabe sociologist as most economists.

Matt Nolan

New Zealand’s “sexiest” economists?

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I see that Durex has been asking people who the sexiest politicians are.  Now I don’t really care about politics – but I really care about New Zealand economics!  So I decided to grab a bunch of photos of economists who I see in the public eye a lot, and let the half dozen readers of TVHE decide who deserves the title of New Zealand’s hottest economist.

I will include an other option on the poll, and if you do click other I would love it if you put their name down in comments! It is entirely possible I have missed people, as I am exceedingly incompetent.

I have also stuck to economists that are in the public eye incessantly, there are a lot of economists you may think are hotter who aren’t talking in public a lot – but they are excluded at this point.  Also, if you are bitterly mean about how any of the economist look I’m going to do a rare thing, break my own personal rule, and censor your comment – economists are my idols, and this blog is my place of worship 😉

Who is NZ's hottest Economist?

  • Darren Gibbs (24%, 97 Votes)
  • Donna Purdue (22%, 91 Votes)
  • Eric Crampton (8%, 33 Votes)
  • Shamubeel Eaqub (7%, 28 Votes)
  • Gareth Kiernan (6%, 25 Votes)
  • Oliver Hartwich (5%, 21 Votes)
  • Other (4%, 18 Votes)
  • Bill Rosenberg (3%, 14 Votes)
  • Nick Tuffley (3%, 13 Votes)
  • Jean-Pierre de Raad (3%, 13 Votes)
  • Graeme Wheeler (3%, 13 Votes)
  • Tony Alexander (3%, 12 Votes)
  • Stephen Toplis (1%, 6 Votes)
  • Ganesh Nana (1%, 6 Votes)
  • Gareth Morgan (1%, 6 Votes)
  • Cameron Bagrie (1%, 5 Votes)
  • Dominick Stephens (1%, 3 Votes)
  • Gabriel Makhlouf (1%, 3 Votes)

Total Voters: 407

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Note:  Will close Friday 22 March, at midday in NZ.

If you need photos, come with me as I explore google trying to find professional photos.  If you can find better photos, throw them in the comments and I will update!

Read more

Matt Nolan

Since it is Valentine’s day

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It is worth linking to this important point.

If it doesn’t hurt, you aren’t signalling.

Which reminds me about the advice we gave about gift picks last year!

In this sense the gift means more than just the sheer value of the present itself – it also provides information and signalling value that is used to shape the relationship for at least the next year.  The significant increase in breakups post-valentine’s day may in fact be a signal that sometimes individuals are not able/willing to do this to a sufficient degree.

So just remember as you pass over your gift today, that it will be seen as a signal of the relative value you place on matters inside your relationship that are not explicitly contracted – and if you get in trouble, I’m sure a good excuse would be to explain how they are misinterpreting this signal …

For me this is still key advice …

 

Matt Nolan

Why is Nick Rowe so incredibly clear on monetary policy?

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Here read this:

Yes, if the central bank raises or lowers interest rates, this will affect financial markets. But I thought we had gone beyond thinking of monetary policy in terms of raising or lowering interest rates. Or buying or selling bonds in an open market operation. Or raising or lowering the money supply. Or raising or lowering the exchange rate. Those aren’t monetary policies.

Targeting 2% inflation is a monetary policy. Keeping the money supply growing at 4% per year is a monetary policy. Keeping the exchange rate fixed at $0.95US is a monetary policy. Targeting “full employment” (at least, trying and failing) is a monetary policy. Following the Taylor Rule is a monetary policy. Targeting a 5% level-path for NGDP is a monetary policy.

Yes.  Exactly.  When monetary policy rules are analysed by economists this is clearly kept in mind – but when it comes to discussing it to the public we feel compelled to “tell a story” that involves whatever people are interested in.  And this confusion, although it may not have caused the crisis, hasn’t helped matters.

And why is he so clear on it, he understands the way that policy has been framed differs from the truth of what monetary policy is as a targeted rule:

OK, this is probably the weirdest post I have ever written. I am going to argue that interest rate targeting is not what central banks really do; it’s a social construction of what they really do. Interest rate targeting is not reality, it’s a way of framing reality.

That was weird enough, but I’m now going to get really weird. The failure of monetary policy is not caused by anything central banks are actually doing; it’s caused by central banks’ way of framing what they are doing, and by the rest of us accepting that same framing. The current recession was caused by those (and that includes especially central bankers themselves) who think that central banks use an interest rate as the control instrument. It’s the framing of what central banks do that caused the mess, not anything central banks are actually doing. The social construction of reality is what dunnit!

Monetary policy is about expectations, and using rule based policy to help manage these expectations, take advantage of any perceived tasty looking trade-offs, and deal with “time inconsistency”.

Interest rates, exchange rates, asset prices, are all factors that help give us information about the stance of monetary policy (relative to some prior belief, or some set of expectations).  But monetary policy is about the rule, and being clearer about this rule and what it means instead of making “neat little (partial) causal stories, that only work part of the time” is a good way to go.

Don’t get me wrong – I believe strongly in the intertemporal substitution justification for active monetary policy.  But the interest rate can only be interpreted with prior assumptions around a bunch of other things, and that point is often lost.