Archive for the Category Cognitive illusions


The worst prejudice of them all

I was awakened about 3am last night by my alter ego, Scott Slumber.  He seemed very upset and had me dictate a blog post.  I was only able to scribble down a small part of what he said, as his speech was rambling and erratic.  Here’s what I got:

I am sick and tired of the attitude of the awake world to the sleeping world.  They look down on us as if we are inferior—all this talk about “real life”, as if their lives are more real than ours.  Just the opposite is true; we have a much richer life, comprised of a mixture of worry and pain-free oblivion, and a rich dream world that’s far more “real” than their awake world.  How much richer?  Recall how The Wizard of Oz transitions from a drab grey opening to a glorious color fantasia, and then back to black and white.  I use this example not because color film is better than black and white (we may not even dream in color), but because it’s a metaphor for how dreams are richer than waking hours.  In dreams you move through a sort of ether of meaning, as if some momentous reality is just beyond your grasp. Even the best parts of life, such as watching a David Lynch film, cannot quite capture the feeling.  That’s not to say there aren’t downsides; the “eternal return” to searching for that exam that you forgot to study for—but waking life also has its ups and downs.

I’ve known all of this for a long time, but what’s really got me agitated is the sudden increase in anti-sleepworld prejudice.  For instance:

1.  While “wake up” has often been used as a metaphor for intellectual awakening, the millennials have added on a new insult; “woke” is being used as a metaphor for moral superiority.  Actually, just the opposite is true.  I can shoot someone in the middle of Times Square, and no one cares.  Unless you are Donald Trump, that’s not true of the awake world.  I can engage in guilt-free forbidden love that you can only dream of experiencing . . . and no one gets hurt.  The dream world is a moral paradise.  When people speak of someone being “woke”, it reminds me of when I was young and you’d still hear people say, “that’s very white of you”—as a compliment!

2.  As if that’s not bad enough, we have bloggers speculating about a technology that allows sleep hours to be bought and sold, like slaves.  You might ask, “What’s wrong with that, if it’s done freely?  Aren’t you a libertarian?”  Yes, but the awake will end up selling the sleepers without even consulting them.  Of course there are a few “woke” people who understand the value of sleep, but if you look at the comment section after the sleep market post you see the same sort of rampant bigotry that occurs when bloggers discuss immigration and diversity.  People were positively gleeful about the thought of using money and technology to kill off their sleep world alter egos, and stay awake 24 hours a day.  Disgusting.  How could they do this to us after all we’ve done for them?  We’ve given them the palaces of Kubla Khan, the guitar riff that built the Stones, and a 1000 eureka moments of scientific discovery.

3.  Puritans in the awake world want to ban chemicals that produce vivid dreams.  They are afraid that the young will find the dream world more attractive than their pathetic depressing alternative.  That’s probably because it is more attractive.

I occasionally meet Scott Sumner for brief moments, such as last week when I was cruelly ejected from a Turkish harem by his murderous beeping iPhone. In our brief exchanges I’ve convinced Sumner that I’m right.  He’s already a radical utilitarian who believes that the flow of positive and negative brain states is the only thing that matters in the universe.  He’s contemptuous of the waking world’s Trumpian fascination with money and power.  Their weird belief in “personal identity” and “free will”.  Unlike that other blogger who cowardly hides behind the controversial claims of his alter ego, Sumner will affirm that everything I say is true.  Tell them, tell them Sumner, tell th . . .

Gulp.  Drugs?  Guilt-free forbidden love?  Umm, let me sleep on it.

PS.  Critics say that Mulholland Drive and In the Mood for Love are the two best films of the 21st century.  Indeed the only two films to make the top 100 all-time.  What do they have in common?  A dream-like mood.  And the critics’ choice for the best film of all time?  It’s also dream-like:

Screen Shot 2018-07-01 at 11.46.52 AM

PPS:  This might be hard to believe, but the opening paragraph of this post is kind of true–I did wake up at 3am last night and write down notes for this post.

PPPS. Maybe I should let John Milton have the last word:

Methought I saw my late espoused saint
       Brought to me, like Alcestis, from the grave,
       Whom Jove’s great son to her glad husband gave,
       Rescu’d from death by force, though pale and faint.
Mine, as whom wash’d from spot of child-bed taint
       Purification in the old Law did save,
       And such as yet once more I trust to have
       Full sight of her in Heaven without restraint,
Came vested all in white, pure as her mind;
       Her face was veil’d, yet to my fancied sight
       Love, sweetness, goodness, in her person shin’d
So clear as in no face with more delight.
       But Oh! as to embrace me she inclin’d,
       I wak’d, she fled, and day brought back my night.


Is wealth good?

Studies suggest that people with higher incomes tend to be happier.  But of course that tells us nothing about causation.  It seems plausible that people who “have their act together” are both happier and richer, for reasons relating to their personal characteristics.  Thus economists are interested in studies of happiness that look at the effect of an exogenous increase in wealth.

Tyler Cowen recently linked to a study of Swedish lottery winners, and summarized the results as follows:

In other words, it is good to have more money.

That’s a plausible interpretation of the study, but not the only one.  After all, it’s not easy to measure “good”.  Here’s how the authors summarize their findings:

We find that the long-run effects of wealth vary depending on the exact dimension of well-being. There is clear evidence that wealth improves people’s evaluations of their lives as a whole. According to our estimate, an after-tax prize of $100,000 improves life satisfaction by 0.037 standard-deviation (SD) units. We find no evidence that the effect varies by years-since-win, suggesting a limited role for hedonic adaptation over the time horizon we analyze. Our results suggest improved financial circumstances is the key mechanism behind the increase in life satisfaction. In contrast, the estimated effects on our measures with a stronger affective component – happiness and an index of mental health – are smaller and not statistically distinguishable from zero.

To explain my reservations, I’m going to have to do a long digression into pop philosophy.  Let’s start with Tyler’s use of the term ‘good’.  I believe ‘good’ to be the most important word in the English language, and indeed in the end is the only thing that matters at all (along with negative good, i.e. bad.)  I define good as positive mental states and bad as negative mental states.  I use the phrase ‘positive mental states’ to incorporate the reservations people have with crude utilitarianism.  Thus a term like ‘happiness’ often connotes hedonism, whereas I have something in mind that also allows for deeper forms of good, such as the satisfaction one gets from doing charity, or writing a great novel, or seeing your child do well.  It also allows for more disreputable forms of “positive mental states”, such as the Nietzschean (or Trumpian) thrill that some people get in exercising power over others.  So in my view, mental states are all that matters.

On the question of whether having money makes people better off, I’m of two minds. Here I am considering middle class people in Sweden or America, I think it quite likely that having more money does make the poor better off.  But would I be happier if I won the lottery?

1. My gut instinct tells me that more money is good.  I’d be pleased if I came across a $100 bill lying on the ground, imagining the fun things I could do with the money.

2.  My philosophical mind is more skeptical.  I don’t see any signs that I have more positive mental states when my income is higher than when it is lower.  I’ve seen other people get a dramatic improvement in their financial well being, and (best as I can tell) they don’t seem to have a more positive mental state than when they had less money.  They seem the same old person, mostly reflecting whether then have an upbeat or downbeat personality.

So I’m currently agnostic on this question; I’d put about a 40% weight on my (pro-money) instincts and about a 60% weight on my skeptical philosophical mind.  Later I’ll discuss the implications of this weighting.

While the Swedish study is certainly consistent with Tyler’s conclusion, I also think it’s consistent with mine.  Thus suppose that for some reason, say evolutionary forces, we are tricked into thinking money makes us better off.  That’s not so far-fetched, as wealth probably does boost the probability of reproductive success, at least back during historical periods when our genes were developing.  Our genes don’t want us to be happy, they want us to have lots of successful children.  Thus it’s not implausible that we would want things that are not good for us, like money, fat and sugar.

Let’s assume that most people think money is a sign of success, but beyond a certain point they don’t actually have more positive mental states when they have more money.  Then when asked about their overall well-being, they might report higher numbers if richer.  They would think to themselves, “Let’s see, I’m a millionaire with a nice house and summer cottage, so I guess I’m doing pretty well.”  But when faced with the happiness question, they think about their recent mental states, and don’t report any improvement over before they won the lottery.

Now we face another conundrum—which measure should count?  Actually two issues; is happiness different from well-being, and is well-being accurately reported in surveys?  I don’t doubt that heroin addicts would report that heroin makes them happy, but most people think that’s a different issue from whether heroin makes them better off.  Partly because ‘happy’ and ‘better off’ may be different concepts, but also because they may even be wrong about happiness, in the long run heroin probably does not make them happy.  Their self-reports are not reliable.

Another way to make my point is that I started by saying that positive mental states might be a more comprehensive concept than mere happiness.  But I’m also suggesting that when people answer the happiness survey, they may actually be describing their overall mental state. In contrast, the answers to questions on overall life satisfaction may not describe mental states.  It’s at least plausible that the Swedish survey is finding nothing more than that money doesn’t make people better off, but that they believe it makes them better off.

Now let’s go back to the probabilities I assigned to each of the two interpretations; 40% for money is good, 60% for the view that it is not.  What are the implications of those probabilities?  It turns out that this means we should assume that money is good, that it does make even middle class people better off.  The expected boost to well-being from having more money is 0.40 times the boost you’d get if Tyler’s straightforward interpretation of the Swedish study is true.  So even though I think it a bit more likely that money does not make us better off, we should act in such a way as if I am wrong, as if it does make us slightly better off.

But there’s another implication of these probabilities.  I am pretty sure that most people assign a higher weight to the likelihood of money being good than I do.  Too high a weight. If so, they put too much weight on getting more money, and not enough on other goals in life.  The biggest mistake I ever made was agreeing to write an economics textbook, where I sacrificed a big chunk of my life on a frustrating project for money that will yield me very little benefit.  So I encourage already affluent people to dial back the expected benefit they’d get from having more money.

If anyone is still reading, let’s dive a bit deeper into epistemology.  The concept of ‘good’ is often considered one of the three transcendentals, along with “true” and “beautiful”.  How should we regard beliefs in those three areas?  In each case, someone might say “most people believe X, but Y is actually the case.” If so, what do they mean?  They might mean one of two things; either that they disagree and think Y is true, or that they predict in the future that most people will come to believe Y.  (Or both).

Unfortunately, ‘actually’ is a misleading term, as all beliefs are provisional.  Thus when you say:

1.  Most scientists believe the universe is largely composed of dark energy, but actually it is not.

2.  Most people believe more money is good, even for the affluent, but actually it is not.

3.  Most people believe Thomas Kinkade’s painting are beautiful, but actually they are not.

You are better thought of as predicting that scientists will later come to believe that some other model better explains the cosmological data, that more money will eventually be seen as useless for the affluent, and that Kinkade’s paintings will eventually be regarded as schlocky.

Some statements about truth, goodness, and beauty are held with more confidence than other beliefs (2+2 = 4, murder is evil, the Taj Mahal is beautiful.)  In those cases, we are highly confident that current conventional wisdom will not later be overturned.  But it’s always a matter of degree; we can never be certain about any belief.  We can never go beyond what we regard to be the case.

PS.  In my view, the three transcendentals are actually just one—goodness.  Truth and beauty are instrumental in achieving goodness.  Only mental states matter. Make them good.

This post is not about Scott Alexander and Trump

Scott Alexander has a new post out about Trump, and it’s everything this blog is not. (I.e. it’s intelligent and non-hysterical)

A commenter on here the other day quoted an Atlantic article complaining that “The press takes [Trump] literally, but not seriously; his supporters take him seriously, but not literally”. Well, count me in that second group. I don’t think he’s literal. I think when he talks about building a wall and keeping out Muslims, he’s metaphorically saying “I’m going to fight for you, the real Americans”. When he talks about tariffs and trade deals, he’s metaphorically saying “I’m going to fight for you, the real Americans”. Fine. But neither of those two things are a plan. The problem with getting every American a job isn’t that nobody has been fighting for them, the problem with getting every American a job is that getting 100% employment in a modern economy is a really hard problem.

Donald Trump not only has no solution to that problem, he doesn’t even understand the question. He lives in a world where there is no such thing as intelligence, only loyalty. If we haven’t solved all of our problems yet, it’s because the Department of Problem-Solving was insufficiently loyal, and didn’t try hard enough. His only promise is to fill that department with loyal people who really want the problem solved.

I’ve never been fully comfortable with the Left because I feel like they often make the same error – the only reason there’s still poverty is because the corporate-run government is full of traitors who refuse to make the completely great, no-downsides policy of raising the minimum wage. One of the right’s great redeeming feature has been an awareness of these kinds of tradeoffs. But this election, it’s Hillary who sounds restrained and realistic, and Trump who wants the moon on a silver platter (“It will be the best moon you’ve ever seen. And the silver platter is going to be yuuuuuge!”)

Read the whole thing.

But this post is not about Scott Alexander and Trump; it’s about cognitive illusions involving numbers.  This appeared in the same post:

If Trump fails, then the situation is – much the same, really, but conservatives can at least get started right now picking up the pieces instead of having to wait four years. There’s a fundamental problem, which is that about 30% of the US population is religious poor southern whites who are generally not very educated, mostly not involved in US intellectual life, but form the biggest and most solid voting bloc in the country. If you try to form two parties with 50% of the vote each, then whichever party gets the religious poor southern whites is going to be dominated by them and end up vulnerable to populism. Since the religious poor southern whites are conservative, that’s always going to be the conservative party’s cross to bear and conservatism is always going to be less intellectual than liberalism in this country. I don’t know how to solve this. But there have been previous incarnations of American conservatism that have been better at dealing with the problem than this one, and maybe if Trumpism gets decisively defeated it will encourage people to work on the problem.

This isn’t accurate.  I don’t know the correct figure, but the following explains how my brain works.  Without looking up any of the numbers, here’s what I’d guess:

1.  About 14% of Americans are poor.

2.  About 7% of Americans are poor whites.  The rest are poor blacks, Latinos, Asians and Native Americans.

3.  About 3% (at most) of Americans are poor white southerners.  The rest of the poor whites live in the East, Midwest, or West.

4.  About 2% of Americans are religious poor southern whites.

There’s a big difference between 2% and 30%, and this affects Scott’s argument. There’s a tendency (which I sometimes fall into) of assuming that the most distinctive characteristic of a candidate’s supporters is also the majority of the candidate’s supporters.  The whites of West Virginia form a more distinctive part of Trump’s base than the whites of affluent suburbs in Southern California.  But Trump will win far more votes in suburban Southern California. He’ll get more votes from college grads than high school dropouts, even while being the first GOP candidate in ages to (narrowly) lose the college vote. I have commenters who are extremely intelligent, and plan to vote for Trump.

A conservative might argue that the 2% of religious poor southern white voters who are mindlessly supporting the right is offset by an equal or greater number of poor black and Hispanic voters who mindlessly support the left.  Those two groups don’t decide elections.  If Trump wins, it will be because millions of highly educated professionals also voted for him.  Let’s not blame “stupid” poor people.

PS.  Even if you define “poor” more generously, assuming that Scott meant to also include lower middle class workers, you still don’t get past 10% of the electorate, probably not even 7%.

PPS.  Keep in mind that “the South” includes millions of affluent whites in the vast Texas triangle of metro areas, and Florida (which has more people than New York State), and the triangle region of North Carolina, and the Virginia suburbs of DC, and the affluent Atlanta suburbs and lots of other areas like that. I’d guess there are more “atypical southern areas” than typical southern areas.

PPPS.  Tom sent me a great youtube of Sam Harris discussing Trump’s mind. Trump’s suggestion that we should have taken Iraq’s oil has been weirdly overlooked. If it’s not the most disgusting thing said by a presidential candidate since the Civil War, it’s surely in the top 5.



The asset markets keep me from going insane

Over at Econlog I have a new post pointing out that negative IOR has had an unquestionably positive impact on asset prices, and yet much of the business press claims exactly the opposite.  This confused thinking makes it more likely that central banks will adopt bad policies in the future.

A similar problem occurred in late 2007 and early 2008, when the media adopted a Keynesian approach to monetary analysis, instead of a monetarist approach.

From August 2007 to May 2008, the Fed repeatedly cut interest rates, from 5.25% to 2.0%. The media treated this as an expansionary monetary policy, even though it was clearly exactly the opposite.  The monetary base did not change, and falling interest rates are actually contractionary when the money supply is stable.  Indeed it’s a miracle the economy didn’t do even worse.  NGDP growth slowed sharply, and I surprised there wasn’t an outright decline.

Here’s the monetarist approach:

NGDP = MB*(Base velocity), where V is positively related to nominal interest rates.

Thus if you cut interest rates without increasing the money supply, then V falls and policy becomes more contractionary. It’s monetary economics 101, but almost everyone seems to have forgotten this simple point.  Market’s responded favorably to larger than expected rate cuts, because they implied a bigger than expected boost to the monetary base, on that day.  But over time the base did not increase at all; the rate cuts were merely enough to keep it from falling.  So do more!!

Because the media wrongly thought money was getting easier, they became (wrongly) pessimistic about the efficacy of monetary policy, which led to President Bush’s failed fiscal stimulus of May 2008.  There is no economic model where Bush’s policy would be effective.  Interest rates were above zero, so monetary offset was fully applicable.  The Fed responded by putting rate cuts on hold, which drove the economy right off the cliff after June 2008.  By September the tight money caused Lehman to fail, as its balance sheet was highly leveraged, and exposed to asset price declines triggered by falling NGDP expectations.  Yet even Ben Bernanke inexplicably endorsed Bush’s tax rebates, even though there is no logical reason for him to have done so.  If more stimulus was needed in May, then the stance of monetary policy should have been more expansionary.  So do more!!

Bush’s policy was a lump sum tax rebate, which doesn’t even work on the supply-side.  And unlike more government spending, there isn’t even a New Keynesian argument that fiscal stimulus might boost aggregate supply by making people work harder.  It was really dumb policy, there’s nothing more to say.

So because the media and many economists wrongly though money was loose, we ended up with really bad macro policy. The recent backing away from additional negative IOR is more of the same.  Just as markets responded to unexpected rate cuts in late 2007 as if they were highly expansionary, markets responded to negative IOR in Europe and Japan as if it is expansionary.  But over longer periods of time the markets were more negative, because investors rightly perceived that central banks would not do enough.  So do more!!  In 2007-08 investors were pessimistic because they thought the Fed wasn’t cutting rates fast enough.  The Fed needed faster rate cuts to enable the monetary base to increase.  So do more!! Similarly, in recent months, markets in places like Japan have become pessimistic because the BOJ is not cutting rates fast enough, or is suggesting it may give up. But the media thinks the market is pessimistic because the BOJ is doing negative IOR, even though asset markets respond positively to negative IOR.

In both cases, people wrongly assumed that the problem was that the measures that were taken were not effective.  Instead of, “So do more!” it became perceived as, “So stop doing that, it’s not working.”  They ignored the fact that markets clearly indicated it was working, but that much more needed to be done.  Did I say, “So do more”?

Sometimes I think I’m going crazy—maybe everything I believe is wrong.  After all, almost everything I read is diametrically opposed to what clearly seems to be happening, or to what our textbooks teach us about monetary policy.  But then I look at the asset markets, and am reassured.  I’m not really losing my mind. Monetary stimulus is effective, and it’s needed in Japan and Europe, and was needed in 2007-08 in America.  No matter how many times the press tells us that the markets hate negative IOR, each new IOR news shock confirms once again that the markets prefer even more negative IOR in Europe and Japan.  I don’t have my head in the sand, it’s the business press that does.

Yurt place or mine?

[I am on vacation now, so I dug up an old piece that I never posted.  Also check out the piece on kidney markets, which the WaPo requested me to write.]

Back in 2009 I did a post on “The Aesthetics of Inequality.”  Here’s one excerpt:

A peasant village perched on a hillside in a third world country can be aesthetically beautiful, but a shantytown of former peasants on the edge of a large modern urban area (even if the peasants are now better off) is aesthetically ugly.

I was reminded of this while watching a recent video of Ulaanbaatar, which is attracting mass migration from the Mongolian countryside.  There are few more picturesque scenes of rural poverty that a bunch of yurts set up on Mongolia’s vast plains, under a cerulean blue sky:

Screen Shot 2015-09-21 at 4.01.37 PMFortunately, a mining boom has made Mongolia rich, and the peasants are flocking to the cities, and put up their yurts in shanty towns on the edge of Ulaanbaatar—which now has a majority of Mongolia’s population.

Screen Shot 2015-09-21 at 4.05.00 PM

The lady who narrated the show was a Westerner.  And she couldn’t quite get past the idea that this urbanization didn’t look very attractive:

It’s so funny because in the countryside it seems natural and it seems clean and it seems lovely, and here this is just poverty-struck, and so not natural.

It’s easy for Westerners and/or upper class people to think they know what’s best for the poor. But unless they’ve actually lived that life, they may end up substituting aesthetic judgments for utilitarian criteria. The Mongolians had to decide whether their country was going to be a place of yurts, or a place full of large open pit mines and cities with high-rise apartment buildings.  They chose the latter. The Mongolian she interviewed pointed out that Mongolians wanted to live in these modern apartment buildings because “they don’t have to make fire anymore, they don’t have to carry water anymore.”  They moved to the city to increase their chances of getting a modern place to live.  (Although it looks like most face a long wait.)

The average income of Hispanics is about 79% of the average income of all Americans. The IMF says that per capita income in Spain (PPP) is about 62% of per capita income of the US.  And yet in my mind Hispanics seem “poorer” than Spaniards. My mental image probably reflects the fact that I find Barcelona and Sevilla to be more attractive that the typical Hispanic neighborhood in a large Sunbelt city.  It’s fine to have those images in your mind, as long as your don’t confuse aesthetics with utility.

PS.  My God! Some of my 2009 posts were really long-winded.

PPS.  Yes, my previous example is slightly distorted by the above average size of Hispanic families, but not enough to change my point.