http://www.theatlantic.com/doc/print/200812/financial-bubbles
"Pop Psychology"
by Virginia Postrel
December 2008
The Atlantic
More on the subject of a previous post. The article discusses lab research into the behavior of markets where there is absolutely no uncertainty about the risks and returns on certain securities: in other words, where the fundamental worth is exactly known by everyone. And yet bubbles still happen. This is because, the author states, each person doesn't know that everyone knows that everyone is rational. The very possibility of irrational actors, even if there aren't any, can result in bubbles (remember your Hobbes!). The author writes:
"Based on future dividends, you know for sure that the security’s current value is, say, $3.12. But—here’s the wrinkle—you don’t know that I’m as savvy as you are. Maybe I’m confused. Even if I’m not, you don’t know whether I know that you know it’s worth $3.12. Besides, as long as a clueless greater fool who might pay $3.50 is out there, we smart people may decide to pay $3.25 in the hope of making a profit."
And once I am willing to pay 3.25, that starts to drive the price upwards - creating all the more reason to buy the items at prices above their fundamental worth - which drives prices up further.
Another interesting aspect of the article is that it argues that there are two characteristic investment strategies: speculation and momentum. Speculators rush in at the beginning and buy as much as they can. Then they get out during the bubble. Momentum investors (so-called because they follow the market's momentum), on the other hand, start off rational: they know the fundamental value, and aren't willing to pay too much for it. But then the market starts to go up, and they realize that it's reasonable to start buying (unfortunately, prices have already risen, so they buy less than speculators). And, of course, eventually the speculators get out and the momentum buyers run out of cash to drive further price increases - and the market crashes. And momentum buyers all try to sell! And of course they get screwed and the speculators make a killing (an $80 difference).
What is interesting about this is that the momentum strategy looks like a reasonable, rational course to pursue. And the speculation strategy looks weird - buying the items for more than they're clearly worth, then selling them while their prices are still increasing. But the speculators have it right! (At least in this instance).
Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts
Friday, December 12, 2008
Thursday, December 11, 2008
a game-theoretic analysis of the economic crisis
http://www.theatlantic.com/doc/200812/blodget-wall-street
"Why Wall Street Always Blows It"
by Henry Blodget
December 2008
The Atlantic
Blodget discusses the causes of the economic crisis. I'm going to pull out three factors which he doesn't really focus on.
"Having already learned the most obvious lesson about bubbles, which is that you don’t want to get out too late, I now discovered something nearly as obvious: you don’t want to get out too early."
"But the future is always uncertain—and amid uncertainty, all sorts of faith-based theories can flourish, even on Wall Street."
"Now Wall Street firms are primarily owned not by partners with personal capital at risk but by demanding institutional shareholders examining short-term results."
The first quote indicates that what we have here is a problem very similar to the Prisoner's Dilemma. People have two options: invest (e.g. take out a loan and buy a sweet house) or save (e.g. stick with your current house and mortgage). The way to maximize profit is to invest right up until the market crash (e.g. the ratio of investors to savers falls below a certain tipping point), and then shift to a saving strategy.
The second quote introduces the essential element of uncertainty. As in the Prisoner's Dilemma, if everyone knew exactly when the tipping point would be reached (the analagous case is knowing the exact number of iterations of the Dilemma you and your partner will face), then the rational thing to do would be to switch to saving immediately, precipitating an immediate market crash. Uncertainty makes it rational to continue to invest.
The last aspect, closely related to uncertainty, is that of timeframe. The longer one's planning timeframe, the greater the likelihood of a market crash - sure, this bubble probably won't burst in the next year, but in the next decade it's almost inevitable. Uncertainty is created by shorter timeframes. (In addition, one could talk about one's inductive timeframe - the distance into the past one looks to understand the present. Look only a few years and all you see are rising prices; look back decades and you see a business cycle).
"Why Wall Street Always Blows It"
by Henry Blodget
December 2008
The Atlantic
Blodget discusses the causes of the economic crisis. I'm going to pull out three factors which he doesn't really focus on.
"Having already learned the most obvious lesson about bubbles, which is that you don’t want to get out too late, I now discovered something nearly as obvious: you don’t want to get out too early."
"But the future is always uncertain—and amid uncertainty, all sorts of faith-based theories can flourish, even on Wall Street."
"Now Wall Street firms are primarily owned not by partners with personal capital at risk but by demanding institutional shareholders examining short-term results."
The first quote indicates that what we have here is a problem very similar to the Prisoner's Dilemma. People have two options: invest (e.g. take out a loan and buy a sweet house) or save (e.g. stick with your current house and mortgage). The way to maximize profit is to invest right up until the market crash (e.g. the ratio of investors to savers falls below a certain tipping point), and then shift to a saving strategy.
The second quote introduces the essential element of uncertainty. As in the Prisoner's Dilemma, if everyone knew exactly when the tipping point would be reached (the analagous case is knowing the exact number of iterations of the Dilemma you and your partner will face), then the rational thing to do would be to switch to saving immediately, precipitating an immediate market crash. Uncertainty makes it rational to continue to invest.
The last aspect, closely related to uncertainty, is that of timeframe. The longer one's planning timeframe, the greater the likelihood of a market crash - sure, this bubble probably won't burst in the next year, but in the next decade it's almost inevitable. Uncertainty is created by shorter timeframes. (In addition, one could talk about one's inductive timeframe - the distance into the past one looks to understand the present. Look only a few years and all you see are rising prices; look back decades and you see a business cycle).
more stuff on virtual economies / societies
http://en.wikipedia.org/wiki/Corrupted_Blood
http://kol.coldfront.net/thekolwiki/index.php/Black_Sunday
The first article discusses the accidental release of a deadly plague into World of Warcraft, which rapidly wiped out whole cities, leading many players to avoid populated areas and groups of players. (An accidentally released plague!!!). Eventually, Blizzard fixed the problem by cutting the plague off at the source - the boss that infected players was changed to cast a different spell.
The second article discusses a sudden market failure in the game Kingdom of Loathing. Essentially, an game glitch dumped trillions of units of currency into the game; a simultaneous glitch allowed players to duplicate all their items easily. The basic equivalent in the real world would be everyobdy finding out that they could have as much money and as many things as they wanted. This crashed the market. What is interesting is the strategy used to combat these events: rather than simply resetting things to an earlier, backed-up state, the game creator found ways to suck currency out of the economy - basically by inventing useless shit to buy at gigantic prices (also some useful stuff was sold).
These two examples illustate contrasting approaches to sudden failures. Blizzard essentially used "the hand of God" - they reached in and removed the plague from the game. The makers of KoL, on the other hand, used (for the most part) in-narrative devices. They worked within the rules of the game in order to stabilize the economy.
Consider the possibility that governments could also try for the hand-of-God approach to their economies. The United States could abolish the dollar, if it wanted, and issue ten thousand "new dollars" to every citizen of the United States. Consider the market adjustments and fluctuations that would result in!
Of course, we could hardly stop other nations from trading in USD's. And perhaps individuals could still negotiate to use the old currency. What is interesting is that the same problem could occur in a virtual economy - so long as people had records of their finances, and were willing to set up an economy parallel to the "official" one.
http://kol.coldfront.net/thekolwiki/index.php/Black_Sunday
The first article discusses the accidental release of a deadly plague into World of Warcraft, which rapidly wiped out whole cities, leading many players to avoid populated areas and groups of players. (An accidentally released plague!!!). Eventually, Blizzard fixed the problem by cutting the plague off at the source - the boss that infected players was changed to cast a different spell.
The second article discusses a sudden market failure in the game Kingdom of Loathing. Essentially, an game glitch dumped trillions of units of currency into the game; a simultaneous glitch allowed players to duplicate all their items easily. The basic equivalent in the real world would be everyobdy finding out that they could have as much money and as many things as they wanted. This crashed the market. What is interesting is the strategy used to combat these events: rather than simply resetting things to an earlier, backed-up state, the game creator found ways to suck currency out of the economy - basically by inventing useless shit to buy at gigantic prices (also some useful stuff was sold).
These two examples illustate contrasting approaches to sudden failures. Blizzard essentially used "the hand of God" - they reached in and removed the plague from the game. The makers of KoL, on the other hand, used (for the most part) in-narrative devices. They worked within the rules of the game in order to stabilize the economy.
Consider the possibility that governments could also try for the hand-of-God approach to their economies. The United States could abolish the dollar, if it wanted, and issue ten thousand "new dollars" to every citizen of the United States. Consider the market adjustments and fluctuations that would result in!
Of course, we could hardly stop other nations from trading in USD's. And perhaps individuals could still negotiate to use the old currency. What is interesting is that the same problem could occur in a virtual economy - so long as people had records of their finances, and were willing to set up an economy parallel to the "official" one.
Monday, December 8, 2008
hips and guns
http://blog.newsweek.com/blogs/labnotes/archive/2008/12/03/hourglass-figures-we-take-it-all-back.aspx
"Hourglass Figures: We Take It All Back"
by Sharon Begley
December 3, 2008
Newsweek
The article discusses new research into the trope that a .7 waist:hip ratio is evolutionarily and (consequently) aesthetically ideal shape for women. The gist of it is that men only prefer that shape in societies in which women are economically dependent on men. Moreover, hormones of the androgen family (including testosterone) lead to both higher waist:hip ratios, as well as increased stamina, strength, and competitiveness. This perhaps explains the difference in preferences across societies. Frankly, I think this is a nice piece of analysis - it doesn't get bogged down trying to fight a nature vs. nurture style fight. It combines perspectives from biology, evolution, sociology, and economics.
Of course, take this all with a grain of salt:
http://economix.blogs.nytimes.com/2008/12/01/the-gun-show-loophole-revisited
"The 'Gun-Show Loophole,' Revisited"
by Catherine RampellDecember 1, 2008
The New York Times
Here, we have an example of a first analysis of whether gun shows result in crime - which may have appeared very convincing and scientific - but which in fact appears to be flawed, once we take a closer look at the facts. But then again, maybe even the new analysis is not final. For example, the new analysis discusses the fact that it is a long time between when most guns are sold and when the are recovered by law enforcement after being used in a crime. But isn't the more important statistic the time between sale and use? Moreover (as the authors of the new analysis are right to point out), it is entirely possible that a more fine-grained analysis, conducted with better data, might result in some correlation or other between gun shows and gun crime. After all, not all gun crimes are the same.
(To return to the first article - the link between economic dependence, testosterone, and competitive fitness is a rather tenuous and speculative one. DIY: How would we go about testing that?)
So consider this: the first article remarks, offhand, that a lot of young women, upon hearing that the .7 ratio was ideal, ran off to check their own measurements. Why would that be? Why is it so important, on a personal (rather than a policy, perhaps) level what people in general find attractive? (In other words, we have to be careful with what we believe, and also with how we respond to the "facts" or facts).
"Hourglass Figures: We Take It All Back"
by Sharon Begley
December 3, 2008
Newsweek
The article discusses new research into the trope that a .7 waist:hip ratio is evolutionarily and (consequently) aesthetically ideal shape for women. The gist of it is that men only prefer that shape in societies in which women are economically dependent on men. Moreover, hormones of the androgen family (including testosterone) lead to both higher waist:hip ratios, as well as increased stamina, strength, and competitiveness. This perhaps explains the difference in preferences across societies. Frankly, I think this is a nice piece of analysis - it doesn't get bogged down trying to fight a nature vs. nurture style fight. It combines perspectives from biology, evolution, sociology, and economics.
Of course, take this all with a grain of salt:
http://economix.blogs.nytimes.com/2008/12/01/the-gun-show-loophole-revisited
"The 'Gun-Show Loophole,' Revisited"
by Catherine RampellDecember 1, 2008
The New York Times
Here, we have an example of a first analysis of whether gun shows result in crime - which may have appeared very convincing and scientific - but which in fact appears to be flawed, once we take a closer look at the facts. But then again, maybe even the new analysis is not final. For example, the new analysis discusses the fact that it is a long time between when most guns are sold and when the are recovered by law enforcement after being used in a crime. But isn't the more important statistic the time between sale and use? Moreover (as the authors of the new analysis are right to point out), it is entirely possible that a more fine-grained analysis, conducted with better data, might result in some correlation or other between gun shows and gun crime. After all, not all gun crimes are the same.
(To return to the first article - the link between economic dependence, testosterone, and competitive fitness is a rather tenuous and speculative one. DIY: How would we go about testing that?)
So consider this: the first article remarks, offhand, that a lot of young women, upon hearing that the .7 ratio was ideal, ran off to check their own measurements. Why would that be? Why is it so important, on a personal (rather than a policy, perhaps) level what people in general find attractive? (In other words, we have to be careful with what we believe, and also with how we respond to the "facts" or facts).
Sunday, December 7, 2008
economics and information
I've remarked a couple of times that economics is really about incentives. But consider this: if economics were just about incentives, then theoretically, we could get out of this economic crisis by just abolishing the system as it is, and telling people to go back to work - and then we'd have jobs and productivity and health care, etc. (Let's assume that people actually would go to work).
There's a problem, though. How would people know what work to do? The market system, in a way, is about distributing information: about letting people know what work needs to be done. It is a system for collecting, determining, and distributing information.
(these remarks are rather abstract and general and light on the details).
There's a problem, though. How would people know what work to do? The market system, in a way, is about distributing information: about letting people know what work needs to be done. It is a system for collecting, determining, and distributing information.
(these remarks are rather abstract and general and light on the details).
more economics: virtual economies
http://www.wired.com/gaming/virtualworlds/magazine/16-12/ff_ige
"The Decline and Fall of an Ultra Rich Online Gaming Empire"
by Julian Dibbell
November 24, 2008
Wired
The article basically discusses one instance of the real-money trading industry. Basically this involves accumulating stuff in MMORPG's, and then selling it to other players for actual money ("actual money," considering that virtually all modern currencies are fiat money).
To get back to the thought that economics is about the "allocation of scarce goods and services": that thought is really complicated by how virtual economies work. For one thing, a couple of programmers at Blizzard could, at first glance, alleviate scarcity completely with a couple of lines of code. Suddenly, everyone has everything! Problem solved! But we all know that nobody would play WoW if that were the case. Moreover, all these "goods" could just disappear, with another couple of lines of code. No more WoW! So what happened to all those "goods"?
This is why I say that economics is really about incentives. Blizzard has figured out how to get people to do things, how to incentivize them (an incredibly detailed alternate reality). And so they do it.
"The Decline and Fall of an Ultra Rich Online Gaming Empire"
by Julian Dibbell
November 24, 2008
Wired
The article basically discusses one instance of the real-money trading industry. Basically this involves accumulating stuff in MMORPG's, and then selling it to other players for actual money ("actual money," considering that virtually all modern currencies are fiat money).
To get back to the thought that economics is about the "allocation of scarce goods and services": that thought is really complicated by how virtual economies work. For one thing, a couple of programmers at Blizzard could, at first glance, alleviate scarcity completely with a couple of lines of code. Suddenly, everyone has everything! Problem solved! But we all know that nobody would play WoW if that were the case. Moreover, all these "goods" could just disappear, with another couple of lines of code. No more WoW! So what happened to all those "goods"?
This is why I say that economics is really about incentives. Blizzard has figured out how to get people to do things, how to incentivize them (an incredibly detailed alternate reality). And so they do it.
flatscreen tv's, the marines
http://online.wsj.com/article/SB122835660256478297.html
"Discounters, Monitors Face Battle on Minimum Pricing"
by Joseph Pereira
December 4, 2008
The Wall Street Journal
The article discusses in detail various efforts by manufacturers to enforce minimum prices on their products, but, maddeningly, barely discusses why. Maybe this second article can explain why:
http://online.wsj.com/article/SB122853554335685149.html
"Marine Corps Speeds Ahead on Growth"
by Yochi J. Dreazen
December 6, 2008
The Wall Street Journal
"Unlike the Army, the Marines doesn't try to entice would-be recruits with cash bonuses, money for college or other financial inducements. The Marines instead plays off its image as an elite fighting force. It has used the same advertising slogan for decades: "The few. The proud. The Marines.""
One possible explanation for the seemingly irrational behavior of the manufacturers (after all, they've already sold their merchandise and made their profit - what do they care what retailers do with it?) is that they are trying to maintain brand integrity. Just like the Marines, they want to be perceived as elite - and, for some reason, quality is thought to vary directly with price.
Another thought, of which I am more suspicious, is that somehow the price manufacturers will be able to charge will decrease if retailer discounts start driving the sale price down. What makes me suspicious is that, in the end, it is basic supply and demand. You can set any price for your goods that you want, but if people don't actually buy them, then they won't sell. Being inflexible on the price only leads to inefficiency and (ultimately) lost profit. So I want to say that this is not the reason.
"Discounters, Monitors Face Battle on Minimum Pricing"
by Joseph Pereira
December 4, 2008
The Wall Street Journal
The article discusses in detail various efforts by manufacturers to enforce minimum prices on their products, but, maddeningly, barely discusses why. Maybe this second article can explain why:
http://online.wsj.com/article/SB122853554335685149.html
"Marine Corps Speeds Ahead on Growth"
by Yochi J. Dreazen
December 6, 2008
The Wall Street Journal
"Unlike the Army, the Marines doesn't try to entice would-be recruits with cash bonuses, money for college or other financial inducements. The Marines instead plays off its image as an elite fighting force. It has used the same advertising slogan for decades: "The few. The proud. The Marines.""
One possible explanation for the seemingly irrational behavior of the manufacturers (after all, they've already sold their merchandise and made their profit - what do they care what retailers do with it?) is that they are trying to maintain brand integrity. Just like the Marines, they want to be perceived as elite - and, for some reason, quality is thought to vary directly with price.
Another thought, of which I am more suspicious, is that somehow the price manufacturers will be able to charge will decrease if retailer discounts start driving the sale price down. What makes me suspicious is that, in the end, it is basic supply and demand. You can set any price for your goods that you want, but if people don't actually buy them, then they won't sell. Being inflexible on the price only leads to inefficiency and (ultimately) lost profit. So I want to say that this is not the reason.
economics
http://www.nybooks.com/articles/22151
"What To Do"
by Paul Krugman
December 18, 2008
The New York Review of Books
Krugman lays out his prescription for a way out of this current economic crisis. He concludes with the following sentence:
"Some people say that our economic problems are structural, with no quick cure available; but I believe that the only important structural obstacles to world prosperity are the obsolete doctrines that clutter the minds of men."
This is interesting. It's been a while since I've had any formal study of economics, so take what I have to say with a grain of salt, but: I remember hearing economics defined as the study of the distribution of scare goods and services. These days, that strikes me as wrong. I'd rather say that economics is about the study of incentives. Consider Germany in the 1930's. Their economy had pretty much gone to shit, with hyperinflation etc. And then one day (more or less) everyone went back to work and a few years later they'd conquered continental Europe (which took an enormous amount of resources). How in the hell did that happen?
"What To Do"
by Paul Krugman
December 18, 2008
The New York Review of Books
Krugman lays out his prescription for a way out of this current economic crisis. He concludes with the following sentence:
"Some people say that our economic problems are structural, with no quick cure available; but I believe that the only important structural obstacles to world prosperity are the obsolete doctrines that clutter the minds of men."
This is interesting. It's been a while since I've had any formal study of economics, so take what I have to say with a grain of salt, but: I remember hearing economics defined as the study of the distribution of scare goods and services. These days, that strikes me as wrong. I'd rather say that economics is about the study of incentives. Consider Germany in the 1930's. Their economy had pretty much gone to shit, with hyperinflation etc. And then one day (more or less) everyone went back to work and a few years later they'd conquered continental Europe (which took an enormous amount of resources). How in the hell did that happen?
Friday, December 5, 2008
capitalism and the humanities
http://www.mercatornet.com/articles/view/a_weakened_economy_needs_strengthened_humanities/
"A Weakened Economy Needs Strengthened Humanities"
by John Armstrong
November 12, 2008
MetaCornet
originally in
The Australian's Higher Education Supplement
November 5, 2008
The author makes several points. One of them I want to resist, initially. This is the claim that a background in the humanities makes one more economically rational (and if people were more economically rational then we wouldn't be in such a mess right now). I definitely don't want to rest the value of the humanities on this claim; whether it is true or not is difficult to determine. The author writes:
"When a society is in the grip of a powerful, repressive and traditional culture, there is much to be said for the role of the humanities as voices and agents of liberty. When even to question received opinion is dangerous, then critique is crucial. The first tasks are to create the liberal space of speculation, to tear down the idols, to encourage self-expression, to be sceptical of the rules, to see authority as inherently dangerous. It's entirely understandable that, in some societies in the past, these should have looked like the crucial tasks of the humanities.
But we do not live in such a society. Free expression is everywhere; for us the urgent questions are those around quality, depth of meaning, lasting value. Self-determination is the basic mode of modern life; we don't need to argue for that very much. In other words, we are due an epochal change. We should accept that the project of liberty is intellectually complete.
A second self-image in the humanities derives from the vision of neutral scholarship. This has been extremely important. The humanities in this guise were the fact checkers, the record keepers, the impartial line judges of culture. That may have been a sufficient role once. But it depends on having a high level of acceptance in your society."
If the humanities encourage the discovery of blind spots, and in general an eye for reality - for the importance of the facts - then I suspect that they would indeed make people more economically rational (if they help people to see the world aright...). (It is an interesting fact that economics courses have precisely this effect).
The author does discuss a final value to the humanities: their ability to help us determine what it is right to want. Frankly, I think this has nothing to do with economic rationality, or the state of the economy. But I do think it has a lot to do with the value of the humanities, and I don't think it's terribly detached from the first two values the author discusses. And frankly, I think it's a value that stands on its own - who could deny the value of knowing what is right? What is valuable? We do not need to turn to external sources to validate this value.
"A Weakened Economy Needs Strengthened Humanities"
by John Armstrong
November 12, 2008
MetaCornet
originally in
The Australian's Higher Education Supplement
November 5, 2008
The author makes several points. One of them I want to resist, initially. This is the claim that a background in the humanities makes one more economically rational (and if people were more economically rational then we wouldn't be in such a mess right now). I definitely don't want to rest the value of the humanities on this claim; whether it is true or not is difficult to determine. The author writes:
"When a society is in the grip of a powerful, repressive and traditional culture, there is much to be said for the role of the humanities as voices and agents of liberty. When even to question received opinion is dangerous, then critique is crucial. The first tasks are to create the liberal space of speculation, to tear down the idols, to encourage self-expression, to be sceptical of the rules, to see authority as inherently dangerous. It's entirely understandable that, in some societies in the past, these should have looked like the crucial tasks of the humanities.
But we do not live in such a society. Free expression is everywhere; for us the urgent questions are those around quality, depth of meaning, lasting value. Self-determination is the basic mode of modern life; we don't need to argue for that very much. In other words, we are due an epochal change. We should accept that the project of liberty is intellectually complete.
A second self-image in the humanities derives from the vision of neutral scholarship. This has been extremely important. The humanities in this guise were the fact checkers, the record keepers, the impartial line judges of culture. That may have been a sufficient role once. But it depends on having a high level of acceptance in your society."
If the humanities encourage the discovery of blind spots, and in general an eye for reality - for the importance of the facts - then I suspect that they would indeed make people more economically rational (if they help people to see the world aright...). (It is an interesting fact that economics courses have precisely this effect).
The author does discuss a final value to the humanities: their ability to help us determine what it is right to want. Frankly, I think this has nothing to do with economic rationality, or the state of the economy. But I do think it has a lot to do with the value of the humanities, and I don't think it's terribly detached from the first two values the author discusses. And frankly, I think it's a value that stands on its own - who could deny the value of knowing what is right? What is valuable? We do not need to turn to external sources to validate this value.
the use and abuse of science
http://economix.blogs.nytimes.com/2008/12/05/why-does-us-health-care-cost-so-much-part-iii-an-aging-population-isnt-the-reason
"Why Does U.S. Health Care Cost So Much?"
by Uwe E. Reinhardt
December 5, 2008
The New York Times
This article is very nice, for some reasons. The one I'm most interested in is its use of these two graphs:
Basically, it argues that, by means of the first graph (combined with another which I omit), it can be made to appear that health care costs for the eldery are going to explode and add a ton of cost to the U.S. health care system. However, if we draw the graph differently, it becomes clear that this is not the case, and that the aging of the U.S. (as is stated) is a very gradual process.
The funny thing is that, if one thinks about it, even an 8% shift in the balance of elderly / non-elderly could have a tremendous impact on health care costs. That is, neither of these graphs really tells us anything. As it happens, the author backs up his claims with some studies that (purport) to show that increasing health care costs are not driven by aging. But the general point remains: it is very easy to lie with science, if one's audience is not attentive.
So, consider another graph provided by the author to prove his point:
"Why Does U.S. Health Care Cost So Much?"
by Uwe E. Reinhardt
December 5, 2008
The New York Times
This article is very nice, for some reasons. The one I'm most interested in is its use of these two graphs:
Basically, it argues that, by means of the first graph (combined with another which I omit), it can be made to appear that health care costs for the eldery are going to explode and add a ton of cost to the U.S. health care system. However, if we draw the graph differently, it becomes clear that this is not the case, and that the aging of the U.S. (as is stated) is a very gradual process.
The funny thing is that, if one thinks about it, even an 8% shift in the balance of elderly / non-elderly could have a tremendous impact on health care costs. That is, neither of these graphs really tells us anything. As it happens, the author backs up his claims with some studies that (purport) to show that increasing health care costs are not driven by aging. But the general point remains: it is very easy to lie with science, if one's audience is not attentive.
So, consider another graph provided by the author to prove his point:
This graph makes it appear that there is no correlation between the age-ratio of a population, and health care costs. But one might want to ask: what about controlling for other variables? Maybe if we control for, say, total population size, or economic output per capita, or who knows what, all of a sudden that cloud of dots will snap into a sharp line. So again, while it is a powerful image, there needs to be a lot more science and statistics done to back it up.
------------------------------------------
In other words, to return to some comments made earlier in this blog about the power of science: the lesson to be drawn is that it's easy enough to use the trappings of science - graphs, charts, statistics - to give the appearance of truth and validity to what are, in reality, questionable conclusions. But where do we go from here? Do we claim that science (as everything?) must rely on a degree of mutual trust - trust that people are working honestly and to the best of their abilities? Or do we say that people need to be more aware in their own dealings, and need to spend more time on analyzing the various facts they are presented with? (Do we all need to have taken courses on statistics?)
Thursday, December 4, 2008
the news
http://ideas.blogs.nytimes.com/2008/12/04/thinking-outside-the-idiot-box/
http://www.youtube.com/watch?v=2I0QN-FYkpw
"Thinking Outside the Idiot Box"
December 4, 2008
by Tom Kuntz
The New York Times
Here we have an example of someone who was predicting exactly this current economic crisis, to the laughter and derision of all the talking heads around him. As it turns out, he was correct.
The question is: did his beliefs and predictions actually track the truth, or did he just happen to be right? After all, if we look hard enough, for any given event, we'll probably find someone who predicted it. (A broken clock is right twice a day). The question is: how do we tell who's tracking the truth (especially ahead of time)? How do we distinguish them from all the idiots populating discourse?
Science?
http://www.youtube.com/watch?v=2I0QN-FYkpw
"Thinking Outside the Idiot Box"
December 4, 2008
by Tom Kuntz
The New York Times
Here we have an example of someone who was predicting exactly this current economic crisis, to the laughter and derision of all the talking heads around him. As it turns out, he was correct.
The question is: did his beliefs and predictions actually track the truth, or did he just happen to be right? After all, if we look hard enough, for any given event, we'll probably find someone who predicted it. (A broken clock is right twice a day). The question is: how do we tell who's tracking the truth (especially ahead of time)? How do we distinguish them from all the idiots populating discourse?
Science?
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