NY Times - Arg!

And I quote, "Consider the unfortunate story of Rob Paladino." Ahhh yes the unfortunate story of a man who can afford to rent an apartment that costs 3,800 a month. At that price there is little chance he even moved his own stuff in. Why in the worst crisis in housing in 80-odd years, with tent cities across the country, are we using the term "unfortunate" on this guy? It makes me understand why some people hate the "liberal elite" (doesn't exist).

Oh yeah the 37 cent coin thing

I was just abstracting in my post below about some negative aspects of new experimental economics, and it reminded me of this piece I read a while ago:

Do We Need a 37-Cent Coin?

I mean, what? Are we really asking ourselves that? The answer is a definite no but for entertainment purposes let's:

First, a note : The probability of a transaction of value v is not uniform from [0, 99].

From a purely human perspective (as we are not very good adding machines), it helps that our current four coins have a common factor of 5. 5 is nice for many reasons, but they can all be alluded to by merely saying “5 is nice because it is more-or-less half way between 0 and 9 and it relates indirectly to our preference for base 10.”

I mean, seriously, a coin whose value is a prime number? Prime numbers are messy (there-in lies their joy…)!

If you’re measure of efficiency is number of coins per transaction, your root worry is probably weight of coins or size-in-pocket. Solution: smaller, lighter coins (This is why the silver dollar is impractical - trying carrying twenty dollars in silver “ones” around with you).

I think a MUCH better measure of efficiency would be speed of transaction. In this case, I doubt the efficient solution would involve 37 cent coins.

Unless I completely missed something…

Regards,
Nate

So this is primarily an example of optimization with the wrong constraints. The proper constraint is not coins-per-transaction. Like I said, obviously not because it gives us the absolutely ludicrous answer of "37". The proper constraint is speed-of-transaction.

I worry that if people in new experimental economics continue with these sort-of nonsensical approaches, economics is going to lose what little popularity it's managed to gain since "Freakenomics" was published and the populace is going to go back to treating us as boring but vaguely threatening. And communist. Or socialist, or whatever.

Decreasing Marginal Returns

A very interesting post just went up over at RortyBomb, all around awesome blog. I appreciated the chance to think about the topic presented, that some goods appear to have increasing marginal returns.

Anyways, interesting as it is I think it deserves rather harsh criticism for perpetuating some rather bad habits existant in what I guess I'd call new experimental economics (Unless, of course I'm totally wrong on all counts).

Without further ado, my reply to RortyBomb's post:

Interesting, but the greater the "wow" factor of a thought experiment, the more I'm suspicious.

Lets start with a more formal definition of decreasing marginal return. Decreasing marginal return says as x increases by a constant increment, y increases by a diminishing increment (y = f(x)). In other words, second derivate of f(x) is negative.

With your cake argument, it's all good. Each piece of cake is a constant increment - 1/10 of the whole. With the screaming argument I'm less sure. As you say the percieved incremental decrease in volume from one less screaming person is negligable at first and the whole cake at the end, to turn a phrase. To properly determine the curvature of this screamer data, you'd need to impute and determine a constant increment (denominator, x value) over which to measure your change in y (utility).

It's relatively confusing to try and work out how the above analysis effects our comparison of the cake and screamer model, and I think this is further evidence of the simpler point I'm trying to make: the cake and screamer examples are apples and oranges. The experiment is set up incorrectly. If you were to try a constant incremental decrease in decibel volume, I'm quite sure we'd start to see classic marginal decreasing return.

Anyways, I say perceived and that is strictly true, but for the basis of argument percieved means "real". Psychologically speaking, that is certainly true, and I'm bored by metaphysics. The theory of utililty functions seems to capture and subdue the difference between reality and perception, anyway.

Other thoughts:
A fundamentally confusing factor that gives this experiment extra sparkle is the increasing good in the cake example, and the decreasing bad in the screamer example. Graph these two and your blown away by the result - they are nearly opposite!. Well, of course they are - the cake example is the conceptual inverse reflection of the screamer example over x (increments) and y (utility). Graph the cake example against the screamer example reflected over the line x = y and you will see what I mean.

An economics way to accomplish this reflection might involve the use of Hicksian compensation for how much somebody would accept (dollars) to have an increasing number of people start screaming.

Anyways, the important part is the improperly constructed experiment. The new experimental econonomics is great because it involves a lot of interesting questions and though experiments. Again, though, you can "show" all sorts of really crazy things with improper conditions and mangled comparisons.

Once again on hoping I'm not massively horribly wrong. On the internet. God Forbid.