

The Dangers of Thinking Like an Economist - mkr-hn
https://unlearningeconomics.wordpress.com/2013/04/16/the-dangers-of-thinking-like-an-economist/

======
brianchu
> Furthermore, even if the probabilities were known, what matters is not just
> the weighted relative costs and benefits, but the potential for absolute
> disaster. If there is a 1% chance the world will end unless we do x, we
> shouldn’t do a cost-benefit analysis. Instead, assuming x is feasible, we
> should simply do it.

This is extraordinarily dangerous thinking. The "One Percent Doctrine" [1] is
and was a huge driver behind the rationale for all the national security and
counter-terrorism efforts in the post September 11th era - former Vice
President Cheney is recounted as saying "If there's a 1% chance that Pakistani
scientists are helping al-Qaeda build or develop a nuclear weapon, we have to
treat it as a certainty in terms of our response." That very same logic was
likely extended to Iraq - if there is a 1% chance Saddam is building WMDs, we
must invade (it helps that the Bush Administration believed the chance was far
greater than 1%).

Another problem with this 1% kind of thinking is that it's not even clear _if_
many of the kinds of events that are purported to end the world would actually
end the world - global warming won't cause human extinction; it will just
cause hundreds of millions, if not a billion, deaths (through disease,
flooding, displacement); the same applies for nuclear holocast.

[1] <http://en.wikipedia.org/wiki/The_One_Percent_Doctrine>

EDIT: I realized the irony is that you could call this the "Dangers of
Thinking Like a Politician."

~~~
AnthonyMouse
It's even worse than that, because the example being used to condemn
cost/benefit analysis actually reinforces it.

If you have a 1% chance of _destroying the world_ , you're pretty much going
to want to avoid taking that chance in almost every case according to a
cost/benefit analysis, since 1% times the trillion trillion dollars that _the
world_ is worth to us will end up being more valuable than any alternative.
The exception is when the next best alternative is even worse, i.e. a much
higher probability of something only slightly less catastrophic.

On the other hand, suppose the calculated probability is not 1%. Suppose the
alleged world-ending calamity is that the Flying Spaghetti Monster is going to
be displeased and set fire to all of reality if you don't pay me a billion
dollars. The probability of that actually happening is not 1%. It isn't 1% of
1%. It's close to, but not exactly, 0%. Is the argument that you should still
pay me a billion dollars? After all, the risk if you don't is that the world
will end. I accept payment as cashier's checks or wire transfer.

~~~
Someone
_"If you have a 1% chance of destroying the world, you're pretty much going to
want to avoid taking that chance in almost every case according to a
cost/benefit analysis"_

No, you aren't. If that 1% chance is balanced by a 99% chance to increase the
world's wealth by 2%, the expected gain is .98%, so anyone using pure expected
cost/expected benefit analysis would give the go ahead if the cost of this
were, say 0.5%.

The problem, I think, is that those statistical calculations do not handle the
case where there are outcomes that imply that one cannot repeat the game often
enough to filter out statistical variations. In that sense, it is related to
<http://en.wikipedia.org/wiki/Martingale_(betting_system)>: Yes, you can beat
roulette, if (and that is a big IF) you don't go broke in the process.

~~~
AnthonyMouse
>No, you aren't. If that 1% chance is balanced by a 99% chance to increase the
world's wealth by 2%, the expected gain is .98%, so anyone using pure expected
cost/expected benefit analysis would give the go ahead if the cost of this
were, say 0.5%.

If you could actually improve the world by 2% in doing that, maybe you should
-- but don't discount what that would mean. You're not talking about a 2%
increase in GDP. GDP measures commerce per year, we're talking about
_everything, forever_. You have to account not only for the loss of the
economy, but the loss of human life, family, humanity itself and all future
endeavors of any nature by anyone. And if the alternative is a gain rather
than a competing loss, you have to put a value on our desire to avoid losses
as being greater than our desire to make gains. If you still think you can
create a gain that would balance that loss, let's hear it.

And the fact is that we do as a factual matter make decisions like that. We
built nuclear weapons because the risk of blowing up the world was calculated
as being a better choice than the risk of fascism taking over. We grow
genetically modified food because the ability to feed the population is deemed
more important than the risks it entails. You can dispute decisions like
these, but then you're just disputing the value we've placed on each
alternative, not the process of comparing relative values in order to make the
choice.

The idea that some risks are insufferable doesn't break economics, it just
changes valuations. You have to consider both the consequence and the
probability. Otherwise the world should pay me the billion dollars, because
there is some risk that the alternative will be world-ending.

People object to putting a number on things like life and love, but there is
no avoiding it. At the end of the day you have to make decisions. You have to
weigh love against safety against money and make a choice.

------
enoch_r
>This found its reductio in Bryan Caplan, who suggested that voters are
rationally ignorant of politics because the costs outweigh the benefits, and
so economists (who are obviously right about everything) should dictate public
policy. You know, like in Chile.

At his most extreme, Caplan proposed a weighted voting system, where higher
education led to more votes. That's a far cry from "dictating public policy,"
and even further from the Chilean system, where some Chicago-school economists
had moderate influence on a dictator's economic policies and essentially zero
influence on other aspects of governance (i.e., whether people should be
disappeared).

~~~
guylhem
And to all the people who like to bash Chile and the Chicago School, there are
other good things in Chile besides the startup program, just take a second to
look at the GDP per capita growth :

[http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#...</a><p>It
started lower and below average, it's now at the #1 spot. [because it is well
know Argentina is lying on its number since ~2008]<p>On other development
rankings, Chile also is in the top scores - like fighting against
corruption.<p>Maybe, just maybe, some good things were done, or it wouldn't
work as well. Just saying that as someone who seriously consider Chile (along
with India).

~~~
m0th87
Isn't the parent referring to Pinochet? He was ousted in 1990. I'm not sure
how much you can attribute the modern Chilean economy to his work. He was also
a brutal dictator, so you know, there's that...

~~~
guylhem
Since the current non-strop trend started in 1983 (click the graph), yes I
would attribute some of the current performance to him and the Chicago School,
with however great respect too for the presidents elected ever since 1990, who
have keep the economy in working order, and by behaving properly, kept the
democracy working as well : it's a country of laws (Allende gross disregards
for that were reproached to him by the supremes) Anyway it's all past history.
Let's wonder more about the bright future.

------
zeteo
I'm no big fan of die-hard economic thinking. (I don't think many have been
since the Great Irish Famine.) But the arguments in this article are weak and
do disservice to actual criticism.

> Is there some level of carbon tax at which we would forego every lake on
> earth rather than apply it?

Of course. If the neo-nazi party had an infallible way to preserve all lakes
on Earth for a mere 99% of our income, I think we'll all pass up the
opportunity. (Don't tell me it's not a carbon tax. You do breathe out CO₂.)

>If there is a 1% chance the world will end unless we do x, we shouldn’t do a
cost-benefit analysis. Instead, assuming x is feasible, we should simply do
it.

Unless paying x leaves us unable to deal with a 2% threat. Really, by this
logic we should just follow the fantasies of whoever comes up with the most
catastrophic scenario - no matter the likelihood. Cthulhu rising from the
deep, anyone?

~~~
comicjk
> by this logic we should just follow the fantasies of whoever comes up with
> the most catastrophic scenario - no matter the likelihood.

This is called "Pascal's Mugging."
[http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilitie...](http://lesswrong.com/lw/kd/pascals_mugging_tiny_probabilities_of_vast/)

------
colemorrison
Hmm, this is ridiculous. Every person who goes through a serious education in
economics knows of the fallacies that you can arrive at by only "thinking"
with complete, dry rationality. In fact we have two terms for it:

Positive Economics: "What is"

Normative Economics: "What ought to be"

The majority of focus stays inside of positive economics because the "What is"
analysis leads to a much higher amount objective results. It keeps the fucking
"opinion" out of it (or at least attempts to at a much greater degree).

Case and points:

1\. All economists are aware of going down the dead-dry rational rabbit hole;
In fact, he points this out in the last paragraph by quoting one of the
greatest ones.

2\. Most fields lack the level of objectivity and mathematical proofing that
economics contains; Bringing that power over to other fields is beneficial.

3\. Making a blanket statement that all economists approach things in a
blanket statement manner, in and of itself makes this article ridiculous.

Someone start a blog called "Learning Economics." The only people who oppose
it so heavily are often the ones who don't understand it enough.

------
iansimon
> If there is a 1% chance the world will end unless we do x, we shouldn’t do a
> cost-benefit analysis. Instead, assuming x is feasible, we should simply do
> it.

What is the chance the world will end even if we do x? What does feasible
mean? Is killing 10% of the population feasible? Is this potential end of the
world happening in a year, or in a thousand years?

I'd go on, but this is starting to look a bit like a cost-benefit analysis.

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guylhem
It stars well, then gets weird.

 _"Is there some level of carbon tax at which we would forego every lake on
earth rather than apply it?"_

Obviously, there isn't (+infinity), because of diminishing marginal returns.
Everything is a tradeoff.

That's basic economic theory, so yes it applies to the environment. And if you
want to figure out how much people care about lakes and nature, you can use
existing data about cities adding or removing parks - you'll see people like
nature, but not so much as to pay +infinity tax.

Because, you know, diminishing marginal returns - again.

------
skybrian
Inefficiency can in itself cause injustice. For example, the cost and
inefficiency of the court system discourages people from using it. This can
lead to things like settling even when it's unfair. Or for a more spectacular
example of inefficiency you could look at the court system in India. [1]

For a positive example, look at small claims court in the U.S. A case decided
in a few minutes might result in more errors, but an efficient court system,
even if somewhat less accurate, could result in better outcomes on average.

[1]
[http://en.wikipedia.org/wiki/Judiciary_of_India#Judicial_bac...](http://en.wikipedia.org/wiki/Judiciary_of_India#Judicial_backlog)

------
freefrancisco
So, those who want to give politicians the power to redistribute our money
don't like the results of economic analysis, and now they are telling people
to avoid thinking like economists because economics is wrong. Fascinating.

------
tgflynn
_What is the opportunity cost of me writing this blog post? ... I could also
be sleeping, cooking, at the pub, or any number of things, but weighing up the
various trade offs and benefits of these actions ‘like an economist’ is simply
not possible._

And yet somehow the author's brain does make these decisions, mostly
subconsciously.

It seems like a big part of the author's criticism of "economic thinking" is
that it oversimplifies reality. The conscious human brain simply does not have
the capacity to consider all of the possible inputs and outcomes of problems
in a system as complex as the world economy.

Human consciousness seems to be a very low-bandwidth single-threaded process
while the amount of information processing occurring in the brain which we are
not consciously aware of is immense. This may explain why when it comes to
complex systems naive common sense often seems to work better than the careful
analytic thinking that has been so successful in simpler fields such as
physics and engineering.

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spindritf
> This found its reductio in Bryan Caplan, who suggested that voters are
> rationally ignorant of politics because the costs outweigh the benefits, and
> so economists (who are obviously right about everything) should dictate
> public policy. You know, like in Chile.

Allende was overthrown for his abuses of power after calls from the parliament
and the supreme court. Economic policy was a complete afterthought.

> Chicago School economists managed to persuade first legal theorists, and
> then those involved in the legal system itself, of the efficacy of their way
> of thinking, eventually forming the ‘law and economics’ ... Nor should it
> surprise you that the movement had a large degree of – ahem – ‘support’ from
> various moneyed interests.

Sasha Volokh: Is Law and Economics a Right-Wing Plot?
<http://www.ustream.tv/recorded/28943137> (the audio gets better)

~~~
rafcavallaro
Allende was unacceptable to the US before he even became president, so the
claim that he was deposed due to your so called "abuses of power" is absurd on
its face - he can't possibly have a abused power before taking power.
Declassified documents prove indisputably that the US plotted his removal
before he even took office: "Recent documents declassified under the Clinton
administration's Chile Declassification Project show that the United States
government and the CIA sought the overthrow of Allende in 1970 immediately
before he took office ("Project FUBELT"). Many documents regarding the U.S.
intervention in Chile remain classified." from:
<http://en.wikipedia.org/wiki/Salvador_Allende>

~~~
spindritf
> he can't possibly have a abused power before taking power

He came into office in '70, and the coup was in '73. From the very link you
posted: "29th President of Chile In office 4 November 1970 – 11 September
1973." What CIA planned doesn't take precedence over what actually happened.

~~~
wnight
Yes. By the time they enacted the plan they had an excuse, but they had
planned to depose him before they had evidence.

------
rz2k
Perhaps magical thinking serves a psychological purpose when managing stress
during the early stages of entrepreneurship and long odds of success. However,
this ode to eschewing analytical thought, and going with "what we know" or
whatever alternative it is proposing is an embarrassment.

It is an epistemologic absurdity, since, if we simply "know" anything, we have
to question provenance of that knowledge. Our unscientific random biases and
assumptions may be as likely to be right as they are wrong, but analytical
thinking improves upon them, especially at the multiple perspectives and
scales for appreciating outcomes as allowed by economic analysis. Critical
thinking does require more effort than going with your gut, but that extra
effort is justified when the improvements are great.

Anyway, the post kind of disproves its own point, since the straw men it uses
are low-effort applications of heuristics rather than economic analysis. The
author seems to believe that economics is a discipline defining a specific set
of aphorisms that can be universally applied to any situation.

Perhaps there's a joke in there somewhere about learning a more rigorous
version of economics before you can "unlearn" it or even advocate the virtues
of "unlearning" it. Presently, it resembles the work of people who claim that
science can't explain how bees fly or other similar nonsense as justification
for reveling in ignorance.

Incidentally, though it isn't really central to the subject of the article,
the quote about sociology is out of date, since modern sociology involves a
fair deal of modelling and mathematics.

------
zmjones
The funniest part was where he said politicians were not self-interested.

~~~
nblaisdell
There certainly are those who are self-interested, but there are many more who
really do care about the public good. You hear about the ones doing backdoor
deals and shady stuff like that on the news because it makes a more
interesting story than someone who goes to work each day trying to make their
city a little nicer, or pay teachers a bit more, or cut down on crime, etc.

~~~
zmjones
You can't do much public good if you don't get re-elected. Since public
opinion suggests people want more services and less taxes, something is going
to have to give.

------
aaron695
> If there is a 1% chance the world will end unless we do x, we shouldn’t do a
> cost-benefit analysis. Instead, assuming x is feasible, we should simply do
> it.

To me it's pretty simple this has a value and if doing the alternative is
valued worse then no you don't do it.

Everything has a value - smog, a lost lake, all lakes lost, death, extinction
of animals, happiness. They can be hard to find but we can make approximations
around probability curves.

The real issue is when you start valuing things like the environment and life
people turn off because they can't handle the fact a Starbucks coffee has a
higher value than millions of the worlds humans. And while they blank this
stuff out it makes change hard.

------
rayiner
The dig at Chicago School Law & Economics was off-base. L&E wasn't some
attempt to subvert the justice system by "moneyed interests." It was an
attempt to put parts of the legal framework on a rational economic footing. At
it's best, it gave justifications for things in the law we always believed but
didn't have a formal way to talk about.

He does make some good points re: environmental laws. We overestimate how well
we understand probabilities, and worse, humans generally tend to diminish the
weight of uncertain benefits in the face of certain costs, by a factor greater
than what the underlying probabilities warrant. Global warming is a perfect
example. Even if you believe that there is not consensus on whether there is
anthropogenic global warming, does that mean the rational thing to do is spend
$0 combatting the possibility? Of course not, not unless you think the
probability is 0%.

On the other hand, putting environmental law on a firm economic basis has also
been a boon. Speaking in terms of negative externalities and cost shifting
instead of "hippie treehugger values" has salvaged the movement even during a
time of a hard political shift to the right in the U.S.

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bcoates
It's an interesting read mostly because he links to a bunch of interesting
sources but the ones I've read so far don't actually support his claims.
"Knights, Knaves or Pawns?" barely touches on public choice theory at all, and
public choice theory in turn isn't incompatible with welfare agency employees
"being generally public spirited and less motivated by money than those in the
private sector".

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LolWolf
No economist, not even a mathematical finance major thinks about a cost-
benefit analysis when considering something more complicated and more chaotic
(e.g. everything else in life) than purchasing options or other such cases.

This really does nothing to talk about Economists, as [brianchu] points out,
it should be more along the lines of "Dangers of Thinking Like a Politician."

------
macco
There is no problem in thinking like an economist. There is danger in
thinking, we could use this knowledge to predict everything.

Thinking like an economist, helps people to make better decisions - in a lot
of cases.

------
davidw
Actual interesting criticism of economics by Charlie Munger:

<http://www.tilsonfunds.com/MungerUCSBspeech.pdf>

------
steveklabnik
This blog is great, and the Twitter account is pretty awesome too.

I don't always 100% agree with it, but I do find almost every post
_interesting_, either something that's relevant to my own thoughts, something
that makes me think a different way, or whatever.

This post is one of the ones I wish I had read a few years ago. I basically
now distrust any opinion that makes a claim to 'economics' without at least
mentioning what particular brand of economic religion they adhere to. (I, of
course, have my own as well...)

