Category Archives: Main Page

Be happy: think about the Nash Equilibrium

Posted on by

I loved Kaushik Basu’s new book, Reason to be Happy: Why logical thinking is the key to a better life. Mind you, I love most everything he writes. It’s always incredibly thought-provoking. His Republic of Beliefs is one of the books I recommend to almost everyone.

Reason to be Happy is not so much about logical thinking, although a constant theme is the advice not to waste emotional energy on things one can’t influence. I’d have used the word ‘strategic’ rather than ‘logical’. The book is an accessible and highly readable guide to using game theory both in personal or business life, and in policy. It has always amazed me how unstrategic so many people are, in the simple sense of not thinking about how other people will react to an action or statement. This is just as true of policymakers in government as business executives. Policy effectiveness would improve enormously from applying a game theoretic perspective at least as much as from behavioural insights. (I remember once in a meeting *of economists* pointing out that a certain set of decisions around the EU was the Nash equilibrium so why would we choose another course of action in the UK, and jaws around the table dropped. We chose the equilibrium strategy…)

Anyway, Reason to be Happy makes the practical sense of game theory very clear and gives loads of examples of games modelling situations in life. It also has a strong philosophical thread running through it, a kind of stoicism that the author describes as ‘determinism’. I particularly liked two sections. One describes how collective outcomes can deliver worse results for ‘bystanders’ to the game (such as future generations in the context of environmental impacts) even when some or even all of the players have highly moral motivations. This is due to each player’s payoffs and therefore strategies being altered when other players internalise the payoffs of the bystanders. The book labels this ‘Greta’s Dilemma’: moral intentions do not always lead to moral outcomes. The book also describes the obverse, ‘guilt shelters’, complex decision structures that enable individuals to avoid responsibility for bad outcomes; we are all too familiar with this in the case of corporations. (See also the excellent forthcoming book by Dan Davies, The Unaccountability Machine).

The other section I would pick out here in Reason to Be Happy is the one on the paradox that non-rational behaviour can be rational: the example here is labelled ‘the Traveller’s Dilemma’. Two travellers ask their airline for compensation for damage to an identical item. The airline proposes that each writes down a number between 2 and 100 as their estimate of its value. If they choose different numbers, the one with the lower figure gets that amount plus $2 and the other gets the same figure minus $2. The Nash equilibrium is that each writes down $2, assuming that each knows the other is rational: if one were to write $100, they could reason that claiming $99 instead would give them $101. But the other will know this and undercut them with $98 – and so on back to $2. Now, it is easy to see this is not in fact rational and that both players will see this. “The paradox in the reasoning remains unresolved,” Basu writes. I first came across something similar in Ariel Rubinstein’s wonderful Economic Fables. I suspect the resolution lies in the ambiguity of the word ‘rational’: formal logic versus contextual sense-making.

Reason to Be Happy is a lovely read. Its author points out in can be dipped into in chapter-sized chunks. It won’t turn its readers into stoics (or determinists) but might well spread strategic thinking.

Screenshot 2024-02-15 at 09.29.58

A bit less random reading

Posted on by

I’m still reading through the slightly random pile mentioned in my previous post, and the latest has been The Good-Enough Life by Avram Alpert. As the author of a book called The Economics of Enough, I thought this one would be interesting. It threw me at the start by spending quite some pages on the difference between ‘great’ and ‘good-enough’ and why these terms don’t mean what everyone thinks they mean. This is not a wonderful writing tactic. (Of course, economists use terms that mean something different to other people, like rational, efficient, capital etc but tend not to bother explaining the distinctive disciplinary meaning.)

Anyway, what I took from the book in the end was an argument about the pernicious influence of positional goods (following Fred Hirsch’s classic work The Social Limits to Growth – ironically surprisingly highly priced) in the unequal capitalist system western economies have now, combined with advice about how to opt out of the rat race on a personal level, perhaps through religion – the author seems to be a Buddhist. This makes it a contrast to authors like Robert Frank who advocate societal action – taxing positional goods. It has a nice counter-argument to the ‘get as rich as you can then give (some) money away’ perspective; not only would this make us think well of the robber barons of the early 20th century, it also ignores the negative externalities arising from some individuals getting as rich as ever they can. But on the whole this is a book about individual mindset more than policy proposals.

It does have a lovely cover. I like the kintsugi metaphor.

Screenshot 2024-02-12 at 10.33.00

 

Random reading

Posted on by

I polished off a couple of paperbacks in a batch Princeton University Press kindly sent me for doing some reviewing: Lost in Thought: The Hidden Pleasures of an Intellectual Life by Zena Hitz, and Why Size Matters: From Bacteria to Blue Whales by John Tyler Bonner. The latter was more my cup of tea – the former is more about spirituality than about reading and writing, and the author’s journey out of academia to a religious community and back again. Why Size Matters (first published in 2006 although this paperback is new) is very similar to Geoffrey West’s (2018) Scale, although shorter and focused on biology and ecology rather than society at large – although it does note the link in Adam Smith between the division of labour and the size of the market.

Screenshot 2024-02-06 at 08.50.20Screenshot 2024-02-06 at 08.51.27

 

The soul of Silicon Valley

Posted on by

Silicon Valley is a fascinating place. This is partly personal: I almost always have warm, sunny weather there, a treat for visitors from London. There are loads of interesting people to meet. Once you get away from the freeways and undistinguished shed architecture, the countryside is beautiful. I’ve been getting there twice a year, learn a lot, and always enjoy the trips.

It is also of course one of the cultural epicentres of the modern world, and not necessarily for the good. Fairly recently I read The Philosopher of Palo Alto, by John Tinnell, which was a glimpse into how different it might have been. My latest read is Work, Pray, Code: When work becomes religion in Silicon Valley by Carolyn Chen. It’s a really interesting ethnography of tech workers, partly – as the subtitle suggests – looking at how their work has become the nurturing community places of worship used to be; but also at the way versions of Eastern religions have been co-opted by tech firms to make their workforces as productive as can be through effectively mind-altering processes.

The first part of this looks at the wrap-around ‘maternal’ employers, whose HR functions in large part are about ordering in healthy food, providing concierge services, making sure the workplace has a gym and a dentist and yoga classes. Many tech workers hardly ever leave the embrace of their campus or HQ. All their life and their effective family is there. If works is life, no need to worry about their ‘balance’. The HR justification is that this wraparound care prevents burnout and makes life less stressful – although of course expecting fewer hours of work would be less stressful too. Chen points out though that the separation of ‘life’ and ‘work’ has been a phenomenon of the industrial age.

The second part is the use of meditation and mindfulness as a deliberate company technique to ensure employees are focused and always at peak productivity. Executive coaching is part of this; senior or high potential employees are taught how to be their ‘authentic’ selves and discover their purpose and passion (which coincides with raising investment funds or shipping new products). I don’t think I have it in me to be mindful, not that I want to completely mock the whole phenomenon; but there is something deeply creepy and late-capitalism about it being your employer who is concerned with your spiritual well-being and authentic self so that you are passionate about your life/work.

Work, pray, code is a very interesting insight into aspects of Silicon Valley work and life. There are lots of individual stories, which is of course fascinating. I found it cast a thought-provoking light on this strange place that has shaped the modern world.

Screenshot 2024-02-04 at 15.49.04

 

An economist’s righteous anger

Posted on by

I really enjoyed reading Angus Deaton’s Economics in America: an immigrant economist explores the land of inequality. It’s a collection of essays regarding different aspects of the economy, centred on issues of inequality, and also concerning the discipline of economics itself. Many of the essays originated in his ‘Letters from America’ for the Royal Economic Society newsletter, now updated and reorganised. But they are models of clarity and accessibility, and the book would be an ideal read for students, or just people who want to understand better the economic mess we’re in – we, and particularly the US.

For the author’s righteous anger about the deep seated inequalities in America, from historic racial inequalities to the stitch up of citizens by the monopolistic health and pharma industries, or by the successful lobbying of politicians by business, shines out from every page. Many of the chapters cover some aspect of this, and quite a few on the Affordable Care Act and the opioid crisis – one of the factors behind Case and Deaton’s now-classic work on ‘Deaths of Despair’.

In one essay there is a nice tribute to the late Tony Atkinson. I didn’t know him, but it is hard to think of an economist spoken of with more affection by those who did, and his work on inequality and economic welfare was foundational. (Our recent symposium on welfare economics was inspired by him.) Deaton points out that in his Inequality: What Can Be Done (an excellent book too) Atkinson argued that innovations ssuch as self-driving cars or wearables should be vetted for social desirability before being licensed for sale: “As with much else that Tony wrote, I predict this idea will become widely discussed in the near future.”

The book concludes with reflections on economics itself. Deaton writes: “The discipline has becom unmoored from its proper basis, which is the study of human welfare. Lionel Robbins famous definition of economics – the allocation of scarce resources among competing ends – was a wrong turn, a terrible narrowing of scope.” Citing Hilary Putnam, he argues that economics should be a ‘reasoned and humane evaluation of social wellbeing’. The final line: economists need to spend more time with philosophers. I agree.

This is a great read. Highly recommended.

Screenshot 2024-01-30 at 10.01.40