The Price Elasticity of Belief: Beavers are Fish edition

I am so using this when I lecture on the price elasticity of beliefs in my public choice class next semester.

Suppose that you're trying to convert to your religion a bunch of people who eat a lot of beaver meat. And suppose that you want to ban them from eating meat on Fridays in Lent. And suppose that they don't want to give up beaver during Lent. What do you do?

In addition to disease, the European settlers also brought Catholicism with them, and successfully converted a large proportion of the indigenous population. And the native Americans and Canadians loved their beaver meat.

So in the 17th century, the Bishop of Quebec approached his superiors in the Church and asked whether his flock would be permitted to eat beaver meat on Fridays during Lent, despite the fact that meat-eating was forbidden. Since the semi-aquatic rodent was a skilled swimmer, the Church declared that the beaver was a fish. Being a fish, beaver barbeques were permitted throughout Lent. Problem solved!

The Church, by the way, also classified another semi-aquatic rodent, the capybara, as a fish for dietary purposes. The critter, the largest rodent in the world, is commonly eaten during Lent in Venezuela. “It’s delicious,” one restaurant owner told the New York Sun in 2005. “I know it’s a rat, but it tastes really good.”

Chalk this one up on the supply-side in the market for irrational beliefs.

Alcohol wage puzzles: Churchill-Stalin edition

There's a longstanding alcohol wage puzzle: drinkers earn more than non-drinkers even after correcting for a bunch of stuff. Chris Auld found that moderate drinkers earn 10% more than non-drinkers and that heavy drinkers earn 12% more than non-drinkers; plenty of other studies have found similar effects.

One not-unreasonable explanation is that drinking together builds trust among co-workers, making them jointly more productive (and higher paid) despite the occasional productivity-reducing hangover.*

Radio New Zealand provides a nice bit of anecdotal evidence.

Josef Stalin and Winston Churchill had an all-night drinking session in Moscow that lasted until 3am during World War II.

Relations between the Russian and British leaders were stiff until Churchill arranged a late-night banquet in August 1942 with Stalin, according to files held by Britain's National Archives.

The event was recorded by Foreign Office permanent under-secretary Sir Alexander Cadogan.

The mood was "merry as a marriage-bell," he added, though Churchill was complaining of a "slight headache" when Cadogan came to find him at 1am.

The two men did not engage in much military talk during the meeting, which went on until 3am.

The evening was dubbed a success by Cadogan, as the two men got on.

"Certainly Winston was impressed, and I think the feeling was reciprocated," he wrote in a letter.

"We broke up soon after 3(am), giving me just time to get back to the hotel, pack, and leave for the aerodrome at 4.15(am)."

The BBC reports the letter was among almost 600 government files dating from World War II and the early years of the Cold War, released by the National Archives.

Do all-nighters really end at 3am?

I wonder whether the anti-alcohol activists of 1942 would have bemoaned the wartime losses caused by Churchill's slight hangover the next day while ignoring that getting on well with the Soviets was rather more important.

* Note that Google Insights for Search provides reasonable evidence that hangovers are concentrated on the weekend. I mean, look at this and tell me that the folks who take average weekly hangovers as a measure of productivity losses aren't just a bit mischievous.

Comorbidity and costs

Another for the "underlying variables very likely cause both substance abuse AND negative outcomes" file, via +Ole Rogeberg . It appears that novelty-seeking and conduct disorder strongly predict future alcohol, tobacco, and other drug use among youths.

They suggest that early identification of those likely to be at risk and subsequent management of conduct disorders and of novelty-seeking behaviour might reduce the risk of substance abuse.

Behavioral or pharmacological treatment of disruptive disorders in children and adolescents is likely to have lasting effects across multiple disruptive psychopathologies due to the common thread that underlies ADHD, CD [Conduct Disorder], and NS [Novelty Seeking] — the inability to plan out actions, inhibit actions, and consider the implications of actions (impulsivity) (Miller, Stephen, & Tudway, 2004). For instance, preliminary findings from our lab recently determined that higher levels of CD and ADHD symptoms are associated with higher levels of initial sensitivity (e.g., subjective and autonomic experiences, such as reports of pleasure, liking the taste, nausea, heart rate) to alcohol and tobacco during adolescence, which suggests that these individuals may be primed to be more responsive to substances of abuse (Bidwell et al., 2012; Palmer et al., 2012; Wills et al., 1994).

Think back to how social cost studies tend to attribute the costs of substance abuse. They begin by defining as counterfactual the average outcomes for all individuals of similar age and gender; the monetised difference in outcomes between average non-abusers and substance-abusers is taken as social cost.

But those likely to become heavy substance-abusers would not have had average outcomes had drugs, alcohol, or tobacco never existed.

The relevant counterfactual group are those who were at similar risk of becoming substance abusers and who managed to avoid it. And even that will lead to overestimates because the general-purpose technology that lets those lucky individuals avoid substance temptations would itself drive outcomes.

It's entirely likely that substance abuse aggravates things for those with disruptive psychopathologies and that the costs they impose on others are consequently higher than they would have been. But substance abuse is only responsible for part of that cost - not for the whole she-bang.

It's also worth pointing out that this new study tilts the scales further in favour of Ole Rogeberg in his argument with the Dunedin folks about cohort selection effects. I still wish that Dunedin could be convinced to put up a GSS-style front end for their data so that other researchers could check results while not compromising privacy.

The value of outreach

I enjoyed the CBC's radio show, The Invisible Hand. Rather than take a Freakonomics-style "wow, isn't this counterintuitive" take, they instead simply presented standard economic theory as it is understood by professional academic economists.

• Episode 1 covered price gouging, with a nice contribution from Mike Munger. (audio)
• Episode 2 takes on value theory. In the event of a zombie apocalypse, chickens rise in value relative to gold (as the Lannisters may yet discover when winter comes). (audio)
• Episode 3 explains why profit isn't a bad word and shows that rather a few capitalists - people who make their living from investments - look rather more like our parents and grandparents than like Mr Scrooge. (audio)
• Episode 4 covers love, marriage and economics. (audio)
• Episode 5 explains moral hazard and insurance. (audio)
• Episode 6, on sweatshops, includes Ben Powell along with a former sweatshop worker. (audio)
• Episode 7 demonstrates that David Suzuki knows absolutely nothing about economics: we have ways of dealing with externalities. (audio)
• Episode 8 explains a bit of macroeconomics: the old Paradox of Thrift. (audio)
• Episode 9 walks through one of my favourite topics: perverse incentives (see the masthead). Frances Woolley helps out. (audio)
• And Episode 10 explores some of the behavioural economics literature. (audio)
• [Update: the audio at the CBC link isn't working, but the (audio) link should take you to the podcast version. Thanks to Wobbly in the comments!]

Worthwhile Canadian Initiative's Stephen Gordon provided academic assistance for the project.

The CBC more typically airs standard economic fallacies as fact, or at least it did back when I was in the country, so this was really rather nice.

What reaction did they get? Here's the show's producer Matthew Lazin-Ryder. Start listening at the 14 minute mark. At 15:55 he talks about his "honest to goodness depression" about the show's being criticized for being "brazen right-wing propaganda". He says [transcription errors mine]:

We wanted to make a show that had a completely different perspective from the things most people hear. And our probably naive anticipation was that people would take it in that way. We didn't honestly expect the angry backlash that we got. ... Our agenda was to present how mainstream economists think about things. 

He also tweeted: 

"Lightning Rod For Hatemail" was the working title for the series. RT @danieloong: A show like that'd be a lightning rod for hate mail.
— The Invisible Hand (@CBCTheHand) April 12, 2013

There is a body of things that economists know about the economy. Sure there's stuff we argue about, but especially in microeconomics, we kinda know what's going on. And the basic set of things about which economists agree diverges wildly from how the public thinks the economy works. The profession attaches perhaps too high of reward for deriving the results of some model when you change a plus to a comma in a utility function when the first order welfare gains are in just getting the voting public to appreciate principles-level economics.

I get irritated when bog-standard economics is cast as having a "right wing" agenda. Mainstream economics helps you figure out what works and what doesn't work for achieving any particular end and the trade-offs that are involved. If you want a fair bit of redistribution, that's entirely consistent with mainstream economics so long as you set up the transfers appropriately; heck, it drops out of most models where you assume diminishing marginal utility of income.* But bog-standard mainstream economics in Canada says a lot of unpalatable things: ditch supply management to reduce milk prices; get rid of barriers to both interprovincial trade and labour mobility; get rid of all the zany exemptions in the GST and adopt New Zealand's version instead.

Imagine a genie gave you a button. If you push the button, every voter in the country thoroughly and intuitively understands principles-level economics. At the same time, the most recent n issues of every academic journal in economics disappear along with all knowledge of their results: we would need to re-invent or rediscover every one of them, with some chance of never finding them at all. Up to what value of n do you leap to push the button? 5 years' worth? More?

Imagine a world where the physicists and engineers spent most of their time figuring out how to get internal combustion engines from 20 to 22 percent efficiency but where, outside of the lab, everyone else is riding horses because they think engines are evil and witchcraft and tools of capitalist oppression. Maybe it's not quite that bad in economics, but it isn't far from it.**

Update: Brennan McDonald suggests, or at least this is what I draw from his comment, that there may be little potential trade-off between high-powered theorem building and public conversion efforts since the public broadly isn't truth-seeking. In that he echoes Patri Friedman's complaint about folk activism. But we are all part of the equilibrium, and I do think that we could use to move a bit at the margin.

* But be careful! Cowen points out that utilitarian theories may be less egalitarian than you'd like. I asked a couple years ago about appropriate egalitarian policy when we start opening up the margins:

Pity the borderline Asperger's investment banker who, despite his financial success, seems at a bit of a disadvantage in dating. Reddit posted the 1600 word email that the would-be suitor sent to the woman who dumped him after the first date; it's since shown up all kinds of places. But folks snickering at it seem an awful lot like a rich one-percenter laughing at a pleading email from a starving man.

If I can play armchair psychiatrist, the same Asperger tendencies that helped this poor guy in investment banking have killed him in dating.

If you're an egalitarian, what is appropriate policy? Is this guy better or worse off than the poor musician who dates easily? With whom would you rather trade places, taking both their positions and their characteristics? If we redistribute income because the investment banker's last dollar is worth less to him than it would be to the poor musician, think too about the marginal utility of the musician's last date relative to the banker's.

 And should we compensate the beauty-challenged?

** See, for example:

• Caplan on systematically biased beliefs
• Me on economic thinking in NZ

Is it May already? Asset sales edition

It must be May. The Christchurch Press is reporting that Council is considering selling some assets to pay for the quake.

May 2, 2011: The Press wondered the same thing. I put up the general conditions under which Council should sell assets.

May 21, 2012: Another round of speculation about Council asset sales. Labour was outraged by that the City might contemplate selling dividend-paying assets. I pointed out that, unless there are really serious problems in asset markets, dividend flows get capitalised into asset prices. I'd written:

Cosgrove can only be right where the asset is more efficiently owned by local council, or where there are serious problems in IPO markets, or where the Council has a particular kind of stupidity.

If the asset is best owned by government, then the selling price will be less than the discounted value of the dividend flow. Otherwise, local Councils can do better by selling off the asset and taking the cash.

If there are serious problems in IPO markets, then things sell for less than fundamental value at IPO. But there's no particular evidence of this.

The last one might be more of a worry. Imagine a guy who has a trust fund that pays him a modest annual income. He generally is foolish in how he spends it, but he's always able to pay his bills. If he is given the investment as a lump sum, he blows it all on pop rocks and bungee jumping and has no income flow for the next year. That guy is probably better off not being able to sell off the dividend-paying asset. Is Christchurch Council that guy? Hopefully not. But post-quake, unless they're dumb enough to blow it all on stadiums, there are tons of productive ways they could be spending the money - roads, sewers, turning Red Zone into useful parks.

And, if Council is dumb enough to blow any divestiture returns on pop rocks and stadiums, are they smart enough to handle the asset properly if they own it in the first place? Note that an asset like the Lyttelton Port of Christchurch isn't like a hands-off trust fund; it requires annual decisions about asset maintenance versus dividends. Cosgrove talks about how the revenue stream from assets helped kept rate rises in check; what reports I'd heard on maintenance standards at the Port as of a few years ago suggested that Council was putting a fair bit more weight on current dividend flow than on maintaining the assets. Divestiture may be a bad idea if Council is prudent enough to manage the asset properly while they own it, but profligate if they're handed a lump sum of cash; under the current circumstances, with plenty of really pressing financial needs, I'm less worried about this one.

And here we are, May 2013. In today's Press:

A Christchurch city councillor says the city could offload non-core assets, including its own offices, to help pay its share of big-ticket rebuild projects.

Cr Tim Carter said last night that less important assets were expendable if it helped ease the council's debt burden in funding anchor projects such as the new convention centre and roofed sports stadium.

...He was against selling strategic, money-earning assets such as Christchurch International Airport, Lyttelton Port, Orion, and Enable, which is installing ultra-fast broadband in Christchurch.

His comments come as Prime Minister John Key yesterday weighed into the council asset sales debate.

Key told Firstline it was up to the council to ask whether the people of Christchurch wanted "the nice-to-haves".

"Then they'll ask how are you going to pay? That could be through rates or asset sales," he said.

The case against selling the airport isn't that it's a money-earner. A money-earning airport will sell for a LOT of money at IPO. Rather, the case is that the local monopoly airport would be tempted to set fees to maximise its own profits without considering that reduced traffic into town might have some broader costs. It might even do things like charge really high fees to taxicab companies for the right to operate from the airport, increasing the costs of Christchurch as a travel or conference destination.

I still think that Council should fully divest assets that are managed at least as well by the private sector and don't have the kind of problem that the airport could have, partially divest other assets, and use the money for roads, sewerage, overbridges, and for topping up the costs of rebuilding and repairing Council facilities. But if John Key wants Council to sell off the Port to fund a big covered stadium or a huge convention centre, well, I discussed that case last year.

If it saves only one life... oops.

New Zealand's been pretty gung-ho about banning smoking. Tobacco taxes have been rising pretty sharply; tobacco can't be displayed by retailers and instead has to be kept concealed; the Government's unattainable aspirational goal is a SmokeFree New Zealand by 2025.

As part of this push, New Zealand banned smoking in prisons. And some hospitals have been a bit aggressive in banning smoking not only within the premises but also on the grounds outside of the hospitals. It's pretty easy to argue that folks going to hospital to get well shouldn't be smoking. Hey, maybe that gives them the extra shove they need to quit. Right? Oops.

A mental health patient who killed himself was put off seeking hospital treatment because he was not allowed to smoke onsite, a lawyer leading a judicial review application on smoking in hospitals says.

A smoking ban on hospital grounds including outside psychiatric wards by the Waitemata District Health Board is a breach of human rights, barrister Richard Francois argued at the High Court at Auckland today.

He is calling the proposal "torture" on the hospitals' most vulnerable patients.

"Psychiatric patients are segregated," Francois said in his opening statement.

"They're locked in a room and told they can't smoke cigarettes in a time they're under extreme stress, have been hauled away from family, friends and employment."

He argues that research does not back up the need for psychiatric patients to give up smoking on hospital grounds for their health or the health of others, and is simply a breach of rights which will create a barrier for patients wanting to seek help.

This kind of response shouldn't have been all that surprising.

There is a rather extensive literature on comorbidity of smoking and serious mental illness. Some argue that nicotine can serve as self-medication for those with specific mental illnesses; others say instead that it's a way for those with serious mental illness to impose some structure on their days and is a changeable part of the culture of mental illness. Either way, it's pretty hard to avoid that smoking rates among the mentally ill are much higher than those among the general public. That can provide a pretty decent argument for finding ways of helping those with mental illness to quit smoking. Or, from the other side, you could argue that those with lower life expectancies and who have a harder time enjoying life to start with oughtn't be deprived of those things that they do enjoy.

Either way, banning those placed in psychiatric hospitals from smoking outdoors on hospital grounds seems remarkably punitive. It seems pretty unlikely that enforced cold-turkey treatment while being hospitalised for mental illness is best for anybody.

He [Francois] raised an example of a Hillmorton Hospital patient in Christchurch who used to self-refer himself to the psychiatric ward after attempting suicide.

His mother had said he "quite liked" being there but this changed after a smoking ban came in, Francois said, reading from a Coroner's report.

"He killed himself this time. Smoking was everything to him, it was like the be all and end all of it really."

Wouldn't it have made more sense to have specialised smoking-cessation help for those with mental illness? Pretty sad when smoking is someone's alpha and omega. Even sadder when we get this instead.

Update: just so we're clear, I disagree with the synopsis that I reckon the policy killed the patient. Causality is way to hard to establish to say anything like that. Barriers to entering treatment seem a bad idea; the policy made this kind of incident more likely. And it seems an awfully hard policy to restrict access to pleasurable things to those people who have a harder time experiencing pleasure.

Convention Centre Business Cases

Does the SkyCity convention centre deal have any particular implications for whether Christchurch should have a big convention centre too? I think it's a bit tough to argue that it increases the optimal convention centre size here, but opinions vary. Here's what I told Marc Greenhill from the Christchurch Press when he asked.

"It's possible that Hon. Gerry Brownlee is right that a Christchurch Convention Centre could get a lot of overflow traffic from Auckland. Perhaps the new Auckland centre will generate a ton of international excitement about New Zealand as a convention destination, and conference organisers finding out that Auckland is fully booked will decide to stick with New Zealand and come to Christchurch instead. I'm not sure that I'd bet a lot of money on that happening, but it isn't impossible." 

"And, Minister Brownlee is also right that some parts of Convention Centre business do not cannibalise across different centres. Armageddon Expo visits each of the main centres, for example. And national organisations will often shift their annual conventions across different centres in rotation; again, a nicer Auckland centre doesn't cannibalise that kind of traffic. But whether expansive convention centres in both Auckland and Christchurch would tend to do more to build international demand for New Zealand in total or to split the "let's have our conference in New Zealand this year" market, well, it would be interesting to see the business case backing that call."

As best I'm aware, we as yet have no business case for the proposed Christchurch convention centre. I'd be interested in perusing the document when it comes into existence.