Mokka mit Schlag » Economics

Here’s an example of an all-too common fallacy in assessing the rationality of economic actors. It comes from Daniel Kahneman and Jonathan Renshon in Foreign Policy in an otherwise interesting article:

Imagine, for example, the choice between:

Option A: A sure loss of $890

Option B: A 90 percent chance to lose $1,000 and a 10 percent chance to lose nothing.

In this situation, a large majority of decision makers will prefer the gamble in Option B, even though the other choice is statistically superior. People prefer to avoid a certain loss in favor of a potential loss, even if they risk losing significantly more.

Kahneman and Renshon believe Option A to be the rational choice, but in fact Option B should be preferred by most people, most of the time. Do you see why?
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It always amuses me when economists go out of their way to claim that economics is a science (more or less true) and that they base what they say on purely on the scientific principles and not value judgments (very often false). It’s especially amusing when they blow the science to get the value judgment they’re looking for. Here’s the latest example I’ve seen. George Mason economics professor Walter E. Williams attempts to explain why for-profit entities sometimes spend on unnecessary luxuries:

You say, “Professor Williams, for-profit entities sometimes have plush carpets, have juicy expense accounts, and behave in ways not unlike non-profits.” You’re right, and again, it’s a property-rights issue. Taxes change the property-rights structure of earnings. If there’s a tax on profits, then taking profits in a money form becomes more costly. It becomes relatively less costly to take some of the gains in non-money forms.

Actually taxes have little to nothing to do with this. There is a real economic reason for this behavior (as well as several psychological and sociological ones, but economists like to ignore those factors so let’s stick to the purely economic for the moment) and it has nothing to do with taxes. (more…)

What Kelley L. Ross and Captain Ed have is a failure of the imagination when examining the economics of Star Trek:

Politically and economically, it operates outside of the realm of science fiction and into fantasy. Nothing in its universe explains how human society manages to build the massive ships that comprise Star Fleet, nor the brilliant technology that enables them. Who builds these things — and how and why? It’s all well and good to say that money no longer exists, but people have to be compensated in some manner — otherwise, the Star Trek society is based on benevolent slavery. The reference to “Imagine” is particularly appropriate; this view of human nature seems particularly flaccid, where all creative impulses have been subordinated and all enterprise has been discouraged, pun particularly intended.

Nonetheless, I think a little thought about the implications of the technologies that exist in the Star Trek universe indicates that the economy doesn’t have to be anything like the fascist state Ross envisions. In fact, it seems likely to be far superior to our own.
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Unlike some, I don’t particularly object to outsourcing. If Office Depot wants to hire Indians instead of Americans to answer their phones, that’s OK with me. Working in technology and science for the last twenty years or so, I’m pretty used to Indian accents, and don’t find them any harder to understand than a Texas accent (and considerably easier than a Scottish accent). I do object to bad service, but experience has taught me that an American isn’t any more likely to be able to tell me why they’ve missed two confirmed delivery dates than an Indian is.

However, I really, really hate being lied to. When I talk to someone on the phone, I want to know their name. I can recognize an Indian accent within a few syllables, and I know that Indian men are not customarily named “John Kelly”. Does Office Depot really think I’m that stupid? That just because someone introduces themselves as “Eugene” I’m not going to realize I’m talking to someone in India? The scam is so transparently obvious, it’s almost laughable.

Folks: stop insulting my intelligence. If the the person on the other end of the phone is named Bhaswan or Nirav or Amee, then tell me that. You’re not fooling anyone by insisting your employees use American names. All these little lies do is convince me I can’t trust you for the bigger things either.