Eric Rasmusen’s Weblog

Well, I did reinstall Movable Type, and things seem to be working normally again. As in the previous two times I installed Movable Type, odd things happened in the installation process. This time, I smoothly Imported my old entries from an Export file, and I did not have to delete the old ones (I was afraid I migth end up with duplicate entries. The categories imported too. My old Movable Type installation is still up, so I could go there to get the templates to install.

Why “November” comes out as “Listopad” I don’t know. Since nobody really cares for blog dates anyway, I am not too distressed.

Somehow my Movable Type is now working– but erratically. It I’m not sure what I did to make it come back– I was all set to delete the weblog and reinstall. Comments are working, too, though now my MT-Blacklist plug-in seems not to be working. It probably needs reinstalling… This makes me wonder whether I should return to my home-made HTML weblog. But I’ll keep on with Movable Type for now.

Richard Sander of UCLA has written an article on the effects of affirmative action, and has posted his data on a webpage. It is an empirical article with an unusual angle, addressing the question of whether a student who is admitted to a school but knows he has gotten in by non-standard means and will be in the bottom 10% of the class should accept admission or go to a school where he would be average instead. This is a general point, whether a student gets special admission because of the color of his skin or because his father has political connections, but it is especially relevant to affirmative action because students admitted to it are so likely to be at the very bottom of their class.

Law schools are an especially good case to analyze, because law graduates go on to take the bar exam, so we have an independent measure of success. It has long been known in law school circles that many elite law schools have lower bar pass rates than average law schools, and that within an elite law school, law school grades are a good predictor of whether a student will pass the bar. A student at the bottom of his elite law school class will flunk the bar, where if that same student had gone to an average law school he would have passed it. That is because the elite law school teaches courses in a different style and to a different level, suited to their average or top students and not to their bottom students.

Anyway, Sander’s article– which I have not yet read, and post for reference– looks at how many black students pass the bar exam now and how many would pass if there were no affirmative action programs. Without affirmative action programs, fewer black students would go to law school, but their chances of passing the bar would be better.

I’ve thought of trying to model the “cascade” effect which is part of this. If we had no affirmative action, black students would still go to law school– they just would not go to as good law schools as they do now. The student who under affirmative action goes to Harvard would go to UCLA instead; the UCLA student would go to Iowa, and so forth. Thus, when Harvard started using affirmative action, that meant UCLA did not get as high-quality black students as it did before. If UCLA wanted even to maintain the number of black students it would have in a race-neutral world, it would have to use affirmative action, setting lower admission standards for blacks than for whites. This, in turn, would reduce the number of black students at Iowa, and the cascade would go down to the very bottom law school. If schools value having black students, affirmative action by a school imposes a negative externality on all the schools below it. (Though, on the other hand, a school that does not care about race gets a positive externality: Harvard’s choice of the UCLA black student means some smarter white student has been denied admission by Harvard, and *that* student will go to UCLA.)

I think it could be the case that even if we accept that it is good for an individual school to have more black students, that every school but the very top one would be worse if schools are free to use affirmative action, because of this cascade effect. Every school would like to be the only one to use affirmative action, but when all do it, only the top school ends up better off. Probably the modelling result would be that in the affirmative-action equilibrium, every school but the top school has the same percentage of blacks but with lower ability than if racial discrimination were not practiced by anybody– almost a Pareto-worsening from the point of view of the schools.

I gave my options paper at Georgia State this week at their
department of risk (a neat idea for a department!), and
talked with some people about the Marsh and McLennan scandal. Marsh is a very large
insurance broker, which companies such as Delta Airlines
hires to find the best insurance deal for them. Marsh was
engaged in fraud, it seems, but another practice, more
common and perhaps defensible, was that it took commissions
from both sides of the transaction– from the client, Delta,
and from the insurance company that got Delta’s business.
Moreover, the commission from the successful insurance
company was based on the ex post profitability of its
contract with Delta, I was told.

Could there be an efficiency reason for this “common
agency” problem– in which the agent, Marsh, tries to
satisfy two principals, Delta and the insurance company?
Maybe. Our first thought is that this is simple corruption–
that Marsh is supposed to be acting just on behalf of Delta,
but secretly takes bribes from the insurance company. But
can we imagine a situation in which the “kickbacks” or
“commissions” to the insurance company are known to Delta,
but Delta still wants to hire Marsh?

Here is a possibility. Suppose Marsh’s function is to
warrant that an insurance customer is a customer worth
having–that it has no hidden costs for the insurance
company. When Marsh says that a customer is a “good
customer”, the insurance company gives the customer a low
price for insurance, but asks Marsh to back up its claim by
accepting a financial penalty if the customer turns out to
be a “bad customer”, by agreeing to take 10% of the profits
from the insurance contract. If the customer is bad, that
10% amounts to nothing; if the customer is good, Marsh gets
some money. Marsh would then accept only good customers,
and good customers would agree to this, because it is a way
they can prove they are good to insurance companies.

I don’t know enough about Marsh’s particular situation
to know if this fits it, and formal modelling might show up
some inconsistency in my story, but it has at least slight
plausibility.

I’ve just been inspired, on reading a draft chapter of Burt Monroe’s Electoral Systems in Theory and Practice, to write up a long game theory problem for the next edition of Games and Information. It gets very technical, but I’ll post it in case anybody might be interested.

Uno, Duo, and Tres are three people voting on whether the budget devoted to a project should be Increased, kept the Same, or Reduced. Their payoffs from the different outcomes, given below, are not monotonic in budget size. Uno thinks the project could be very profitable if its budget were increased, but will fail otherwise. Duo mildly wants a smaller budget. Tres likes the budget as it is now.

                   Uno       Duo   Tres 

 Increase         100         2     4
 Same              3          6     9
 Reduce            9          8     1

Each of the three voters writes down his first choice. If a policy gets a majority of the votes, it wins. Otherwise, Same is the chosen policy.

(a) Show that (Same, Same, Same) is a Nash equilibrium. Why does this equilibrium seem unreasonable to us?

… I continue to have severe Movable Type problems. I can’t do Extended entries, so for more, go to Problem 4.7 in this page. When I’ve got time, I’ll think about whether to switch weblog software.
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I’m having problems with Movable Type. For some reason, I can’t enter comments now, and even entering new posts requires an oblique procedure. I’m not sure why this problem suddenly started two days ago, so solving it may be difficult…

RiskProf reports on a RAND Corporation study of who paid compensation for 9-11 damages. Of th 38.1 billion dollars that they quantify, 51% was paid by insurance companies, 7% by charity, and 42% by government. An interesting question is whether the high amount of non-insurance compensation will cause people to rely less on insurance.

Tom Veal’s Stromata has a list of his favorite blogs that is worth noting. Here’s a sampling, without his numbering:

• Hoystory — This guy ought to have his own syndicated column.
• Iraq the Model –The antidote to the American media’s doom and gloom
• Nixatron Blog-Times — Omnium gatherum of political news and opinion
• Armavirumque — Group blog of The New Criterion, a great cultural magazine
• Cronaca — Art, archeology, history, a dash of politics
• Bjørn Stærk Blog — Imagine what it must be like to be a young, right- of-center pundit in Norway!
• Arthur Chrenkoff — An Australian who is best known for publicizing the abundant good news from Iraq and Afghanistan.
• Right Wing News — What the name implies, with a good sense of humor

We sang the Wesley hymn, “I Want a Principle Within,” at church today. It’s a good one, because its theme is that it is good for us to be sensitive to sin, not calloused. “I want a principle within of watchful, godly fear, a sensibility of sin, a pain to feel it near.” A contrary desire is also common: to numb oneself to sin. Mark Twain had a funny story on this topic, “The Facts Concerning The Recent Carnival Of Crime In Connecticut,” in which he meets and strangles his conscience, after making it heavy enough to sink to the floor and catch. But it is usually not so funny. We want to do evil, but we dislike guilt and shame.

There is another danger, too: losing sensitivity to sin in other people and in the world. I feel this loss keenly. I do not think I am a better person for having grown more calloused in my maturity, even though I am perhaps better able to deal with the world. I have grown much harder to shock. Perhaps my children will teach me how to again be sensitive.

I Want a Principle Within

Words: Charles Wesley, 1749
Music (via here: Louis Spohr, 1834; adapt. by J. Stimpson, but there’s a better “Welsh melody” tune we sang at ECC)

I want a principle within
of watchful, godly fear,
a sensibility of sin,
a pain to feel it near.
I want the first approach to feel
of pride or wrong desire,
to catch the wandering of my will,
and quench the kindling fire.

From thee that I no more may stray,
no more thy goodness grieve,
grant me the filial awe, I pray,
the tender conscience give.
Quick as the apple of an eye,
O God, my conscience make;
awake my soul when sin is nigh,
and keep it still awake.

Almighty God of truth and love,
to me thy power impart;
the mountain from my soul remove,
the hardness from my heart.
O may the least omission pain
my reawakened soul,
and drive me to that blood again,
which makes the wounded whole.

06.12b. Pope: “Vice is a monster of so frightful mien”. . Alexander Pope makes a good argument for not talking too much about vice, even to condemn it, as Pastor Timothy Bayly said to me at lunch yesterday at Noodle Town. From Essay on Man (ep. II, l. 217) (1733):

Vice is a monster of so frightful mien,
As to be hated need but to be seen;
Yet seen too oft, familiar with her face,
We first endure, then pity, then embrace.

Via Prof. Leitzel, the Oakland Tribune reports on the failure of a Berkeley ballot proposition to relax prostitution laws:

After receiving national attention, Measure Q, which would have made enforcing prostitution laws the police department’s lowest priority, lost by a 63.9 to 36.1 percent margin. It needed a simple majority to pass.

This is interesting for several reasons. First, even leftwing Berkeley is unwilling to make prostitution easier. Second, this is the first time I’ve heard of a law that would rank law enforcement priorities. Ordinarily, that is up to the prosecutor and the police chief– a huge and unnoticed power of those offices. I’m not sure how Measure Q would have been enforced if it had won, though one way is simply by declaring to the police chief, whose job is, I expect, ultimately up to the pleasure of the voters, what his masters’ desires are.

I’m trying to work on a 4th edition of http://www.rasmusen.org/GI/index.html, and thinking about big ideas.

There is one large class of games in which one player moves first to try to get another to do something– the principal-agent games, broadly construed. These include games of boss and worker, voter and politician, customer and seller. The player in this first class of games are in asymmetric positions– they choose different sorts of actions. In some of these games– the “moral hazard” ones– the problem is that the agent’s action is unobserved. In others– the “adverse selection” games– the problem is that the agent has some information the principal does not know.

In a second large class of games– shall I call them “symmetric player games”?– the players are all in the same sort of position– two countries at war, or five firms setting prices, or two politicians choosing campaign spending. The idea of strategic substitutes and complements applies to these games, and is a unifying idea I’d like to use more. The idea is that in some games, when the other player does more of his strategy, I want to do more of mine. If my competitor raises his price, I want to raise mine. If my rival for elected office spends more on advertising in Wisconsin, I want to spend more too. We call this a situation of “strategic complements”. In other situations, when my rival does more of his strategy, I do *less* of mine. If the rival firm increases capacity, I reduce my capacity. If the other firm spends more on research, I give up on research altogether. This is a situation of “strategic substitutes”….
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Robert J. Vanderbei of Princeton has
posted county-level election maps, blending red
(Republican) and blue (Democrat). Of course the colors
should be the opposite, especially for 2000, when Yale Blue
Bush ran against Harvard Crimson Gore. The first maps are
for 2004. The second one has bumps for where the population
is greatest. The third one has just Red and Blue depending
on who got a majority in the
county.

The second set of maps are for 2000– one of
Prof. Vanderbei’s “Purple America” maps, and one that uses
just Red and Blue depending on who got a majority in the
county.

Yesterday Alan Schwartz of Yale Law was here to give a talk.
His subject was a good one. People make dumb mistakes. They
are not always “rational” in the economic sense. Some of
these mistakes can be viewed as having poor information–
for example, buying astrology predictions even though they
won’t come true. Other mistakes are in processing
information– putting good money after bad into a business
that won’t succeed, for example, because of the fallacy of
sunk cost. We have always known people make mistake, but
recent research, “behavioral economics”, has focussed more
on the precise kinds of mistakes that get made.

But does the tendency to make this kind of mistake actually
result in bad decisions? The market has some tendency to
cure mistakes. If I put my antique chair up for auction, for
example, then even if my information as to its value is
poor, I will still get a price for it that reflects the good
information of other people. If I am buying things, then
sellers will endeavor to make sure I understand that the
apparently good offers of their competitors are actually bad
for me.
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I’ve found this County Election map for 2000: Bush vs. Gore, but not for 2004 yet.

John Tierney’s well-crafted “Recycling Is Garbage,” New York Times Magazine, June 30, 1996, states the case against recycling very well. Recycling can, of course, be a good idea, but only when it is profitable. City programs lose money, and when people spend time sorting garbage, it is a waste of resources, not thrift. If you simply throw all your recyclables in one garbage can and your other garbage in another, private labor costs are small, but the city still must pay extra. If you must sort carefully, home labor costs become the biggest part of the cost.

Here are extensive excerpts, reformatted by me and without ellipses, for the most part:
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1. Bush has an actual majority of the popular vote, the first time this has happened since 1988.

2. My last-day electoral forecast is looking good. So far I’ve no states wrong, and it looks like I was right to call New Mexico for Bush.

3. As usual, almost all the incumbents were re-elected. Maybe we shouldn’t be surprised. After all, we’d naturally find a close fit between a representative and his district– that’s why he was elected in the first place, and that’s why he votes the way he does.

4. There was massive opposition to same-sex marriage in the ballot propositions. See Clayton Cramer on this.

5. Why don’t we stamp people’s hands with invisible, indelible ink, as in third-world countries? Maybe the cost isn’t worth it. Or maybe live double-voting is not a problem. Absentee ballots are no doubt where the biggest fraud is.

6. I’m surprised that it was so close. Not only is Kerry the most leftwing Senator, with few accomplishments and a lot of votes he’d rather not have anybody remember, and not only is the economy in good shape, but there were at least four scandals in his campaign this summer:

(a) Advisor Joe Wilson turned out to be lying about his mission to Niger.

(b) Advisor Sandy Berger was caught stealing secret government documents.

(c) Kerry himself was caught having very dubious grounds for the war medals he boasted so much about.

(d) The Kerry campaign and CBS was caught using obviously forged documents to try to discredit Bush’s war record.

Add to this Kerry’s refusal to release his war records (except selectively) and his wife’s tax returns (except the first two pages).

And what scandals came out about the Bush campaign? Nothing, despite intense attempts to find something damaging about his National Guard record or Swiftvets connections or Halliburton. There was constant abuse and insinuation, but nothing ever panned out.

I think this shows the power of the mainstream media. They are growing ever more aggressive in their bias. Also, it may be that all the money flowing into the get-out-the-vote effort has paid off, and that the new voters don’t really know anything about the candidates except that their recruiter has endorsed one of them.

Update, November 4: Bush says: “I earned capital in the campaign - political capital - and now I intend to spend it,” he said at a news conference 24 hours after securing his second term.

The Wall Street Journal had an editorial yesterday,“The Bush Record: How much leadership do the voters want?” (R) . It made me think about use of political capital, and about whether we really do want principled leaders. Here is an excerpt:
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I’m teaching pollution control methods today, and came across this interesting story about
Bates College econ students buying and retiring sulfur dioxide permits:
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I’m going to switch to using ellipses (…) in a more condensed way. I won’t indicate whether I’ve omitted complete paragraphs or not. This will make my posts slightly shorter and more readable, I hope. It’s interesting how proper documentation changes with the Web. Since I give you a link to easily get to the original document, the niceties of fomratting in quotation are less important.

The Web makes giving page numbers for quotes less important too, since the reader can go to the original document and do a search on one of the phrases in the quotation and get to it more quickly than if he had a page or line number. Were the canto and line numbers in my Sunday quote from Pope’s Essay on Man necessary? I suppose not.

I am usually too optimistic in elections. My September prediction was Bush 328, Kerry 210, based on polling history and voter misperception of Kerry’s leftism. Below is an excellent analysis of the state-by-state vote by Joshua Davidson. I agree with him, except that I’d give Bush New Mexico– the polls are in his favor there, after all, and Bush’s hawkishness plays well with Western voters. That would make the vote Bush 279, Kerry 259, as in the map above. Here is the Davidson analysis (I’ve added some boldface):
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