Notes from the 2017 Edge Question

Folks were asked to name a scientific concept that deserves to be better known.

Lisa Randall nominates “effective theory.”

an effective theory tells us precisely its limitations—the conditions and values of parameters for which the theory breaks down. The laws of the effective theory succeed until we reach its limitations when these assumptions are no longer true or our measurements or requirements become increasingly precise.

Matthew D. Lieberman nominates naive realism.

If I am seeing reality for what it is and you see it differently, then one of us has a broken reality detector and I know mine isn’t broken. If you can’t see reality as it is, or worse yet, can see it but refuse to acknowledge it, then you must be crazy, stupid, biased, lazy or deceitful.

In the absence of a thorough appreciation for how our brain ensures that we will end up as naïve realists, we can’t help but see complex social events differently from one another, with each of us denigrating the other for failing to see what is so obviously true.

Matthew O. Jackson nominates homophily.

New parents learn from talking with other new parents, and help take care of each other’s children. People of the same religion share beliefs, customs, holidays, and norms of behavior. By the very nature of any workplace, you will spend most of your day interacting with people in the same profession and often in the same sub-field.

…Homophily lies at the root of many social and economic problems, and understanding it can help us better address the many issues that societies around the globe face, from inequality and immobility, to political polarization.

Dylan Evans nominates need for closure.

However great our desire for an answer may be, we must make sure that our desire for truth is even greater, with the result that we prefer to remain in a state of uncertainty rather than filling in the gaps in our knowledge with something we have made up.

Gary Klein nominates decentering.

Decentering is not about empathy—intuiting how others might be feeling. Rather, it is about intuiting what others are thinking. It is about imagining what is going through another person’s mind. It is about getting inside someone else’s head.

…Being able to take someone else’s perspective lets people disagree without escalating into conflicts.

Adam Waytz nominates the illusion of explanatory depth.

If you asked one hundred people on the street if they understand how a refrigerator works, most would respond, yes, they do. But ask them to then produce a detailed, step-by-step explanation of how exactly a refrigerator works and you would likely hear silence or stammering. This powerful but inaccurate feeling of knowing is what Leonid Rozenblit and Frank Keil in 2002 termed, the illusion of explanatory depth (IOED), stating, “Most people feel they understand the world with far greater detail, coherence, and depth than they really do.”

Cristine H. Legare nominates Cumulative Culture.

Cumulative culture requires the high fidelity transmission of two qualitatively different abilities—instrumental skills (e.g., how to keep warm during winter) and social conventions (e.g., how to perform a ceremonial dance). Children acquire these skills through high fidelity imitation and behavioral conformity. These abilities afford the rapid acquisition of behavior more complex than could ever otherwise be learned exclusively through individual discovery or trial-and-error learning.

If someone had asked me, I would have proposed something similar: cultural intelligence.

Eric R. Weinstein gives us Russell Conjugation.

the human mind is constantly looking ahead well beyond what is true or false to ask “What is the social consequence of accepting the facts as they are?” While this line of thinking is obviously self-serving, we are descended from social creatures who could not safely form opinions around pure facts so much as around how those facts are presented to us by those we ape, trust or fear. Thus, as listeners and readers our minds generally mirror the emotional state of the source, while in our roles as authoritative narrators presenting the facts, we maintain an arsenal of language to subliminally instruct our listeners and readers on how we expect them to color their perceptions.

Sarah Demers nominates blind analysis.

The idea is to fully establish procedures for a measurement before we look at the data so we can’t be swayed by intermediate results. They require rigorous tests along the way to convince ourselves that the procedures we develop are robust and that we understand our equipment and techniques. We can’t “unsee” the data once we’ve taken a look.

John Tooby nominates coalitional instincts.

These programs enable us and induce us to form, maintain, join, support, recognize, defend, defect from, factionalize, exploit, resist, subordinate, distrust, dislike, oppose, and attack coalitions. Coalitions are sets of individuals interpreted by their members and/or by others as sharing a common abstract identity

…to earn membership in a group you must send signals that clearly indicate that you differentially support it compared to rival groups. Hence, optimal weighting of beliefs and communications in the individual mind will make it feel good to think and express content conforming to and flattering to one’s group’s shared beliefs, and feel good attacking and misrepresenting rival groups.

Reframing Financial Regulation

That is a new compendium from Mercatus. I wrote one of the essays, on risk-based capital.

The way I see it, the main purpose of central banking and financial regulation is to try to allocate credit to uses favored by political leaders. These leaders want credit to be cheap and available for government borrowing and for residential mortgages. So we should not be surprised that risk-based capital requirements are used to reward banks that put money into those assets.

In the essay, I explain why risk-based capital regulation has not served the intended purpose of reducing financial risk.

“Normalizing” President Trump

In various places, I am encountering people who say that one should not say anything positive about Mr. Trump, because doing do will “normalize” him. I am trying to come up with a scenario under which this anti-normalization strategy pays off. How about this:

Suppose that Trump is hell-bent on becoming a tyrant.

Suppose that he will go about the process of dismantling democratic institutions gradually, because to do so suddenly would raise alarms.

Suppose that “normalizing” Mr. Trump helps him to take these gradual steps, because people do not mobilize now, while we still have some democratic institutions in place.

etc.

This is either (a) a reasonable concern or (b) the paranoid fantasy of moral narcissists. I vote for (b).

If I am correct, then the anti-normalization strategy will only serve to marginalize those who live by it. It may preclude Mr. Trump from having any success with bipartisanship, which in turn could make his Presidency more ideologically conservative than it might otherwise be.

In any case, I cannot resist evaluating Mr. Trump as I would any other politician. That is, I am more likely to express myself when I disagree than when I agree. But when he does well, as I believe he has done in his appointments of Price for HHS and DeVos for Education, I am not going to keep my mouth shut for fear of “normalizing” Mr. Trump.

Martin Gurri on the Current Media Environment

He writes,

Democratic institutions, as currently structured, require a semi-monopoly over political information. To organize the application of power, democratic governments, parties, and politicians must retain some control over the story told about them by the public. The elite fixation with “fake news,” like the demand that Trump drop out of Twitter, are both a function of the fact that institutional politics live and die by gatekeeping.

Read the entire post. I am skipping the WaPo watch this week–busy with other things. But one way to interpret the WaPo’s behavior is that it is reacting to its loss of gatekeeper function by trying to exert even more control over the narrative. Neither Gurri nor I think that it is likely to succeed.

Another System for Doctors to Game

Thomas D. Campbell writes,

Vermont is now taking steps to address problems that can arise from this opaque system, including rising health care costs. The state will soon implement an “all-payer” health care plan that requires Medicare, Medicaid, and private payers to reimburse health providers at the same rate, based on performance and patients’ recovery.

My prediction is that if this is implemented, health care costs will be higher than they would have been otherwise. Regulatory systems are made for gaming, and the more formulaic the system, the more effective the gaming.

An Approach to Big-company Innovation at Amazon

Tim B. Lee writes,

At a normal company, when the CEO endorses an idea, it becomes a focus for the whole company, which is a recipe for wasting a lot of resources on ideas that don’t pan out. In contrast, Amazon creates a small team to experiment with the idea and find out if it’s viable. Bezos famously instituted the “two-pizza team” rule, which says that teams should be small enough to be fed with two pizzas.

I believe that ultimately, a big company can have only a few big projects. What is interesting about Amazon’s approach for selecting projects is that it seems to be more bottom-up than top-down. That is, lots of employees are allowed to start small projects. Presumably only a few of those succeed sufficiently well at small scale to become big projects. In contrast, Lee’s description of Google’s selection process makes it seem more top-down.

Thanks to a reader for the pointer.

Gita Gopinath on Trade and Exchange Rates

She says,

most of trade invoicing is done in dollars. More recent research shows that these dollar prices tend to be sticky—that is, these dollar prices are far more stable than exchange rates. For non-U.S. economies, therefore, a depreciation of their currency relative to the dollar leads to almost a one-to-one increase in the price of imported goods in their own currency and, therefore, the pressures on inflation are high. On the other hand, because dollar prices of traded goods are relatively stable, the inflationary pressures on the U.S. economy are weak.

Pointer from Timothy Taylor.

It is as if there has been a bottom-up decision to stabilize the purchasing power of the dollar. That consensual hallucination makes U.S. monetary policy less effective at wiggling the inflation rate.

Later, she says,

we instead explored the role of value-added taxes and payroll subsidies or, more specifically, raising value-added taxes and cutting payroll taxes. What we found, surprisingly, is that this form of intervention did extremely well in mimicking the outcomes of a currency devaluation, not approximately but exactly.

The point is that a country like Italy or Greece is not trapped by being in the euro. It could increase its competitiveness by raising value-added taxes on consumption and cutting payroll taxes.

I recommend the entire interview. I do not buy everything she says, but it is all interesting.

My Review of Mokyr

I write,

A fundamental issue in all of the disciplines that study human society, including economics, is the relative role of material conditions versus human agency as causal forces. Many writers focus on material conditions. … Those of us on the other side of that debate, including Mokyr, assign more credit to intangible factors, notably ideas and culture.

WaPo Watch, Week 5

On Tuesday, they used a news story on the Japanese Prime Minister’s visit to Pearl Harbor to remind readers that Donald Trump is going to be dangerous and divisive in the world.

Not in the WaPo, but in the Washington Times, Newt Gingrich wrote,

Unfortunately, The New York Times is trapped within the obsolete establishment mindset which was wrong about Trump throughout the primaries, then was wrong about Trump throughout the general election, then was wrong about who would win. This elite mindset has learned nothing. It is now enthusiastically being wrong about the transition. All of this is great practice for the paper to be wrong about the new administration.

You would think that at some point the NYT and the Wapo would want to write stories about what Mr. Trump is attempting to accomplish and how he is attempting to accomplish it. It is certainly important to write stories about his flaws, but by limiting themselves to that, the papers are giving their readers a very stunted understanding of their world.