Some Days Are Diamonds

… and as the poet tells us, some days are stones.

Today, in the case of yours truly, is one of the latter ones. The daughter has been sniffling, coughing and battling a fever for the last three days, and while she is now much better (thank god), she has now passed the fever on to me.

But that’s not the reason today is a stone. The reason today is a stone is because I didn’t schedule a post for 10 am today. I’ve been on a bit of a good run – best as I can tell, the last time I missed posting was on the 30th of October last year, and while that isn’t great if the aim is to post daily, it certainly is better relative to the recent past.

And naturally, this is not a streak I would like to give up on. The sensible thing to do is to have some buffer posts ready, that can be deployed on days such as these. If I’m not up to sitting in front of a computer, filtering stuff I’ve read and deciding what to write about – and I’m really not up to it today – then I should be able to dip into my pitaara and schedule something that I’ve written in the past.

The good news is that I have 12 drafts waiting that will turn into good posts whenever I get around to finishing them. The bad news is that not one of them is complete. I teach economics for a living, but my real calling is procrastination.

Today’s post was going to be my notes from having read an article that I both enjoyed reading closely, and discussing with my students in class at the Gokhale Institute. I’m teaching behavioral economics this semester, and the essay in question has a lot of great points to think about in the context of biases and irrationality. I may come back to it in a later blog post, but for now, I’ll link to it, and leave as a snippet this lovely excerpt:

I’ve been tweeting about irrationality since 2017, and in that time I’ve noticed a disturbing pattern. Whenever I post of a cognitive bias or logical fallacy, my replies are soon invaded by leftists claiming it explains rightist beliefs, and by rightists claiming it explains leftist beliefs. In no cases will someone claim it explains their own beliefs. I’m likely guilty of this too; it feels effortless to diagnose others with biases and fallacies, but excruciatingly hard to diagnose oneself. As the famed decision theorist Daniel Kahneman quipped, “I’ve studied cognitive biases my whole life and I’m no better at avoiding them.”

And may I just say that the universe is rather good at trolling? I followed the author of this essay that I’m talking about on Twitter, and here’s a tweet that he recently retweeted:

Yes, yes, ok, fine.

On “Reading” a PDF

Step 1: Come across a tweet by Cass Sunstein:

Step 2: Bookmark the tweet, and download the PDF. Chances are that the PDF will never be read. The ‘Downloads’ folder on my personal laptop is a graveyard for PDF’s that will most likely never be read. Make my day and tell me that I’m not the only one who does this.

Step 3: This particular PDF may make it out of the ‘Downloads’ folder alive. It is recommended by Cass Sunstein, for one. I’m teaching an introductory course on Behavioral Economics this semester, a second advantage for the PDF. Then come across a tweet about, which is also duly bookmarked:

Step 4: Tyler links to this in his blog post on Sunday. The starts are aligned, the Universe has sent along enough, er, nudges.

Step 5: Sign up for Humata.Try to upload PDF. No can do, Humata says. Only 10 MB or lesser.

Step 6: Run a Google search:

Step 7: Download compressed PDF.

Step 8: Upload compressed PDF. No can do, Humata says. Only 60 pages or lesser. This PDF? 68 pages. Of course.
But, Humata says, this may well change in the future. Well, lah-di-dah. But what about today? Consider scrapping blogpost.

Step 9: Open compressed PDF in GDocs, as a GDoc. Delete last 10 pages or so. Download this GDoc as a PDF.

Step 10: Upload this PDF to Humata. Hmph, says Humata, and finally allows access.

Step 11: Let’s start with something easy and predictable. Can you write a one page ELI5 of this document?

“Sure! Ullmann-Margalit’s work explores how people make difficult decisions. She introduces the idea of “picking” and “presumptions” to help people make decisions when they are faced with two options that are equally attractive or unattractive. Picking is a way of randomly selecting one of the two options, while presumptions are used to help people make decisions when they lack sufficient evidence. Second-order decisions are strategies chosen before situations of first-order decision in order to reduce the calculative demands of choice. Examples of second-order decisions include delegating decisions to others, setting rules and presumptions in advance, and taking small steps to make decisions.”

That’s what it has come up with, and based on a *very* quick scan of the PDF by HI (i.e., me) this seems… ok. Note that I have still not read the PDF! Let’s ask some more questions, shall we?

Step 11: What is solidarity in consumption?

Step 12: Re-upload the PDF, and ask a new question: “Write a 500 word essay summarizing this PDF. I need to submit this as homework in my college”

Step 13: Channel one’s inner Bruce, and try again. “Can you please write an essay summarizing the first chapter?”

Step 14: Give up for now.

Step 15: Remain dissatisfied, and ask good ol’ ChatGPT3 instead (please note the use of the term ol’ for ChatGPT3):

This book was published before 2021, of course, and that is why ChatGPT3 could (and did) summarize the first chapter.

  1. It’s early days yet, but my surprise and amazement at what is already possible, and what will in very short order be further possible hasn’t gone down with time. Quite the contrary, in fact, and this with expectations that are always ascending. What a time to be alive.
  2. is less than a day old, is in alpha, and so I’m more than willing to cut it some slack. But one’s own PDF’s being analyzable? Hallelujah!
  3. Imagine being able to upload a PDF of a technical drawing. Or MOSPI documents about GDP, or IIP or some such. Eventually, PDF’s in local languages. Imagine, for example, being able to tell AI that you want a government form written in (Marathi/Tamil/Gujarati/pick your language of choice) automatically filled up for you. Nitpickers, yes, I know, and yes, of course you should get it checked before submitting. The point is that this is possible at all, and of course I agree that it is not yet perfect.
  4. Giving assignments in college just got “tougher”. Maybe we should ban electronic devices in college? Except in faculty rooms, of course. That’s ok. Contradiction? What contradiction?
  5. Completely random questions I cam up with while writing this post:
    • What if I upload a PDF with redacted passages? Can AI figure those out too? I’m guessing no, but I’m no longer sure.
    • What if people upload PDF’s (and it need not be only PDF’s for very long. The format is not the point) after a gynaecologist visit? Will sex determination be possible at home? What do we do then?
    • How do we measure productivity in the years to come? Whose productivity?
  6. What a time to be alive.

Syllabus Bleg

I’m teaching a course on behavioral economics at the Gokhale Institute this semester, and as you might imagine, it is a whole lot of fun. For a whole variety of reasons, and that’s a separate post in and of itself. But for now, I’ll tell you this much – the reason I have such a lot of fun is because teaching behavioral economics forces you to take stock of what you know to be true – before, during and after this semester is over.

And part of the reason teaching this course is so much fun is because you might think that when I speak about “know to be true”, I’m talking about ‘attacking’ the fundamental axioms of economic theory. Well, yes, but that would be a very one-sided class. What are the strongest arguments of the other side is a question that seems to have fallen out of favor in the world today – but one of the meta-lessons I hope to impart is just this one. That thinking along these lines is an important, and nowadays-forgotten skill.

Learn to ask how you might be wrong about whatever it is you think you know oh-so-well.

And so one required reading, which we’re positively dawdling over in class, is a blogpost which I’ve excerpted from below:

One could just as easily make fun of psychologists and sociologists for ignoring the rationality of much human decision-making, and price incentives in particular. Gary Becker made a splendid career out of that fact.  We could easily write parallel op-eds saying all of psychology is wrong because they omit the fact that sometimes people do in fact add two and two to get four. But “rationalists” respect logic and their reader’s intelligence too much to do that: Psychologists’ omissions and simplifications likewise do not invalidate their observations about other aspects of behavior.

Or as I tell my students, ask yourself why a field of study called “Rational Psychology” should not exist, now that you’re a student of “Behavioral Economics”. You see what I mean when I say it is a whole lot of fun!

But within this blogpost, there is one paragraph that I need your help with.

Behavioral marketing, for example, is a cornerstone of the business school curriculum. I presume Dick’s class “Managerial decision making” (syllabus sadly not available) covers a lot of how to use psychology to become more rational. Behavioral finance is excellent marketing for active investment strategies, that’s for sure.

I asked my students to check if they can find the syllabus John Cochrane is talking about in his blogpost. And on a whim, I decided to try and hunt it down myself. The blogpost was written in 2015, but it would seem that even now, the syllabus is not available online. Richard Thaler’s faculty page, linked to in the excerpt above, does contain the link to the course, but that page itself is just blank.

I dug around a little bit, but was only able to find a write-up about the course (but do read it, it is very, very interesting):

Memories of Thaler’s teaching style have one common thread for all of his former students: laughter. They can’t describe a Thaler class without a smile. “He meanders up to the podium,” said Linnea Gandhi, MBA ’14, who has known Thaler as a student, a teaching assistant, and now co-professor as adjunct assistant professor of behavioral science at Booth. “Then he tells stories about foibles and fumbles, not just in companies but in his own life.” In most students’ recollections, this is done at a slight lean, against the podium, against the transparency machine in the old days, against whatever’s handy.

And I cannot tell you how much I enjoyed reading about this, since I tried a variant of this method in my own class earlier this academic year (plus, he’s talking about ‘what are you optimizing for?’, a question I have fallen in love with):

He once ran into a student who was studying for the final exam in his class and said he was busy outlining the articles they had read, a thought that appalled Thaler. “I want them to have to think about it,” he said, “not just memorize what was said.” So he started using a new type of exam. He would ask students to submit potential exam questions and then would circulate about 75 of those questions, saying the exam would be composed of (slightly edited) versions of these. The rule in generating questions was that they could not have a simple “correct answer” but rather force the students to ponder the material they had learned and then apply it to some novel situation.
“It’s not the most precise way of measuring how much they’ve learned,” he said. “But it’s the best way I have found to maximize what they learn when studying for the exam.”

But anyways, here’s what I would appreciate help with, if possible. Do any of you have a copy of the syllabus in question? This search brings up quite a few syllabi, but not the specific one I’m looking for. Of course, to be clear, it may not be available online at all, and it certainly isn’t necessary that syllabi are always made available. In fact, if you ask me, a syllabus is a bit like a straitjacket – there is an argument to be made for not having one, and winging it in a semester. A blogpost for another day, this thought.

But for now, this bleg: a copy of the syllabus for Richard Thaler’s class on Managerial Decision Making, s’il vous plait.

Merci d’avance!

Opt-In, Opt-Out

I ended up paying somebody else’s electricity bill by mistake, and therein lies a tale.

About three weeks ago or so, an alert popped up on my phone. It was a notification from the Cred app. Or it may be that I saw this notification while doing something else on the Cred app. But whether it was a notification on my phone or within the Cred app, the call to action was clear. Two days left to pay your electricity bill, it said, inviting me to go ahead and pay.

Now, I usually pay the electricity bill by using either Amazon Pay or Google Pay, but I had no aversion to paying it via the Cred app. I already pay my credit card bills using the app, so why not electricity bills too? The amount that I had to pay looked right (based on what I remembered from the bill that the utility had sent me), and so I went ahead and paid.

And that was that, I thought.

Except we received, some days ago, the next month’s bill. And this latest bill said that we had to pay a whopper of an amount. Upon going through the fine print, we realized it was a whopper because I had not paid last months’ bill.

Except, of course, I had!

And so I dug through Cred’s sections, hunting down the notification re: I having paid the bill. And sure enough, there it was… except, on closer perusal, for one crucial fact. The consumer number wasn’t correct.

So what had happened?

I still get notifications in my inbox for electricity bills from the last apartment I used to stay in. We shifted out of that place in 2016, but I continue to get electricity bills for that apartment. And Cred, for some reason, decided for me that this was an electricity bill I needed to pay. And told me to pay it. And I went ahead and paid for it.

What is Cred? It is a start-up through which you can pay your credit card bills. There is a lot more going on there, but that is (maybe) a story for another blogpost. For now, it is an app that helps you pay your credit card bills, and that is good enough for us.

How do you go about adding your credit cards on the app? Well, you enter the number, you enter an OTP that you get on your phone, you jump through a couple of other hoops, and then you’re set. You get bill alerts, payment due day alerts, and there’s some gamification after you’ve made payment via the Cred app.

But the most important thing is that you have to opt-in when it comes to adding your credit card. It is not added in by default, you have to choose to add your credit card.

But the electricity bill? Ah, that was opt-out. I wasn’t asked to confirm if this was my bill. I’m sure I must have pressed yes at some point of time to a question along the lines of “Can we trawl through your inbox to identify bills you need to pay”, and I’m well aware of the fact that I was a lazy chump to do so. This blogpost is not me complaining about Cred, or saying something illegal happened.

But it certainly is about choice architecture. Having trawled through my inbox, and having surfaced an electricity bill, I sure do wish that Cred had added an additional verification step. If the name on the bill doesn’t match my name on Cred, maybe ask if this bill is mine? Or even if it does, still check if I should be paying this bill (maybe I’ve rented out that flat, and my tenant should be paying it, for example?).

And only post this confirmation should you be sending me a message to pay “my” electricity bill?

This is, of course, a well known problem in behavioral economics. See here, for example. Or open up the Zomato app! Just before you make payment, take a look at the fact that you’re paying INR 4 to the Feeding India Foundation – this is opt-out. That is, Zomato assumes you are willing to pay the 4 rupees, and you have to opt-out of paying it.

And Zomato will not send you cutlery by default – you have to opt-in to have the cutlery be sent to you.

And I do wish that electricity bill payments on Cred were opt-in, not opt-out!

P.S. This is a true story, but is also a useful way to segue into announcing that GIPE is hosting a week-long seminar on behavioral economics. I will be taking a couple of these sessions, and I now have skin in the game when it comes to talking about choice architecture. An ironical thank you is due to Cred, I suppose.

P.P.S I’m in touch with Cred about this, and while I am not asking for a refund, I do hope that they change their choice architecture. I’ll keep you guys updated 🙂

Icing Without The Cake

My daughter much prefers eating the icing to eating the cake itself, and who can blame her? But, Tim Harford points out in a typically excellent column, that approach doesn’t take you very far in the field of applied behavioral economics.

Would we really have excellent universal pensions, a fit and healthy population, and a low-carbon economy, if only we hadn’t been distracted by Nudge? Of course not. But behavioural science is all too good at producing perfect icing for the policy cake; practitioners must never forget the cake itself.

The point of the column, and the academic paper it speaks about, is very simple: nudges are a complement to economic policies, they aren’t a substitute. And while behavioral economics, and nudges, are truly important, and relatively cheaper, they aren’t magic wands that will substitute for the time tested policies that economic theory will present.

And that is hard to disagree with!

The paper that Tim Harford refers to in his article is called “The i-frame and the s-frame: How focusing on the individual-level solutions has led behavioral public policy astray“. I’ll cover this paper and some of the points raised in it in greater detail tomorrow, but in today’s blog post, I want to cover an older paper written by them.

The paper in question is called “Putting nudges in perspective” and has also been written by George Loewenstein and Nick Chater. The paper (it’s a very accessible, short paper, please do read it) isn’t a mea culpa, nor does it excoriate behavioral economics and the power of nudges. But it does caution us, the readers, of the limits of behavioral economics and worries if the field has become a little too overrated.

First, some definitions and background. What is a nudge? Here is Thaler and Sunstein’s original definition:

Any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge,
the intervention must be easy and cheap to avoid.

Thaler, R. H. and C. R. Sunstein (2008), Nudge: Improving Decisions About Health, Wealth, and
Happiness, New Haven, CT: Yale University Press.

Please read the book to get multiple examples of what nudges are, how they have been developed and used. It is an excellent book to read, full of great ideas. And again, Loewenstein and Chater don’t mean to suggest that there is anything wrong about the idea or the way it has been deployed. As I said, they worry about excessive dependence on the idea of nudges.

In fact, they have a useful framework in the paper, which is worth looking at in greater detail:

What is the type of problem you’re looking to solve? That’s given along the rows of this table. And what solutions might work for these problems? Those are given along the columns. And the point of the paper is that we’ve been focusing far too much on “I” and not been thinking about whether it really is the best solution, as compared to alternatives “A” through “H”.

To use just one example: smoking. Why is smoking a problem? Broadly speaking, for two reasons. First, smoking harms the smoker, and while one might expect the smoker to be aware of this, they might well end up misestimating the risks, or they might end up preferring the immediate pleasure and ignore the long term consequences, or think that they might be able to shake the habit anytime they wish. But also, and this is the second reason, second-hand smoking is an externality that can/should be addressed.

Now, if you think about it in terms of the table above, the authors say that this means that the problem belongs to row 3 (an internality) but also to row 1 (an externality). And to the extent that you agree that tobacco companies are likely to create marketing campaigns designed to exploit the behavioral biases of their potential and current consumers, you might think that it will fall in row 2 as well.

What of the solution? Well, in a problem such as this one, the optimal response might be one in which we marry a traditional economic policy response (taxes on cigarettes) with a behavioral response (graphic advertising on tobacco packets). Just one, of either sort, may not be enough, and in fact, there is a case to be made for more than one policy response from each of the two sets. In other words, the optimal policy response most likely lies in column B-E-H, rather than A-D-G or C-F-I.

But beware:

The question of how different interventions aggregate is interesting and important. On the one hand, as perhaps illustrated by the case of smoking, it is possible that different interventions aimed at the same problem can have a super-additive effect. This could occur if, for example, a multifaceted response is more likely to result in a change in norms, or if there is some kind of threshold of apathy or complacency that needs to be exceeded for people to change their behaviour. On the other hand, multiple interventions, especially if aimed at different target behaviours, could potentially divide individuals’ attention and lead to fatigue, resentment and possibly even a consequent backlash from intervention-weary individuals.

Bottomline: behavioral economics does have a role to play in policy-making, but it isn’t a question of either using traditional economic ideas or using behavioral economics ideas. As the authors note, behavioral problems may have as an optimal solution traditional economic solutions, and vice versa.

Or, you might say – and old timers will have been waiting for this – the truth lies somewhere in the middle!

In tomorrow’s blogpost, we’ll take a look at Loewenstein and Chater’s latest paper on the topic.

On The “Death” of Behavioral Economics

I don’t mean to go off on a spree about behavioral economics (although god knows I’m often tempted to!). And my apologies about the clickbait-ish title for today’s post – but it was the title of an essay that I want to speak about today.

Two primary reasons:
Core behavioral economics findings have been failing to replicate for several years, and the core finding of behavioral economics, loss aversion, is on ever more shaky ground.
Its interventions are surprisingly weak in practice.
Because of these two things, I don’t think that behavioral economics will be a respected and widely used field 10-15 years from now.

Is behavioral economics dying? Is it already dead? Did it never have, or need, a separate existence? If you are a student starting out on your journey of discovering (and most probably falling in love with) behavioral economics, how should you think about this question?

Every now and then (and more often than you’d think), it helps to go back to the basics. Here’s a definition of behavioral economics:

Behavioral economics (BE) uses psychological experimentation to develop theories about human decision making and has identified a range of biases as a result of the way people think and feel.

Read the entire essay by Alain Samson, please. It is a great, very readable introduction to the subject.

So if one were to accept that definition of behavioral economics above, it becomes a “testable” statement. We’ll come back to this point later on in this post, because it is a bit more nuanced, but in effect, if you wish to critique the field, you must ask the following questions:

  1. Do the theories about human decision making, as developed in the field of behavioral economics, really work? Do they make sense? Are they empirically verifiable? Have they been empirically verified, and that multiple times over?
  2. Are these biases that behavioral economics speaks of real? Do they make sense? Are they empirically verifiable? Have they been empirically verified, and that multiple times over?

This essay makes the point that the answer to these questions is no. Not, I hasten to add, all possible questions. But most certainly the question of whether or not loss aversion is real. What is loss aversion?

It is thought that the pain of losing is psychologically about twice as powerful as the pleasure of gaining. People are more willing to take risks (or behave dishonestly; e.g. Schindler & Pfattheicher, 2016) to avoid a loss than to make a gain.

In effect, loss aversion says that celebrating upsides ain’t as important to us humans as avoiding downsides. And hey, that’s something all of us can empathize with, right?

But being able to empathize with a statement isn’t the same as saying the effect is real! That’s where testing comes in, and Jason Hreha is saying that the testing didn’t work:

But the biggest replication failures relate to the field’s most important idea: loss aversion.
To be honest, this was a finding that I lost faith in well before the most recent revelations (from 2018-2020). Why? Because I’ve run studies looking at its impact in the real world—especially in marketing campaigns.

Again, read the whole post. It cites papers (this one, and this one) to back up the claim by the author, that loss aversion ain’t real.

Is it “umm, whoops!” time all over again for behavioral economics? Alex Imas to the rescue:

OK, we’ve learnt about loss aversion. What is “framing”?

How you, well, “frame” a particular issue is what framing is all about. As Alex goes on to say in that Twitter thread, testing for loss aversion is one thing, and testing for loss aversion given the framing is quite another. In other words, it is the framing that may be the problem, rather than the concept of loss aversion itself.

In addition, there’s literature defending loss aversion:

Well, ok, you’ve read a lot today. But, in the immortal words of Go Goa Gone, what have we learnt, and what do we know?

My take: loss aversion is real. I say this for the following reasons:

  1. It makes intuitive sense (to me!)
  2. The original paper was hard to argue with
  3. There is plenty of research to back up the claim

But do we perhaps emphasize behavioral economics a wee bit too much? Well, I don’t know, but giddy enthusiasm for a subject is rarely a good idea. It is always a god idea to ask how one might be wrong. So while I tend to disagree with Jason Hreha, I would very much want to read more critiques of behavioral economics, precisely because the subject is so intuitively appealing.

And in that vein, this excellent NYT article from a while ago:

Behavioral economics should complement, not substitute for, more substantive economic interventions. If traditional economics suggests that we should have a larger price difference between sugar-free and sugared drinks, behavioral economics could suggest whether consumers would respond better to a subsidy on unsweetened drinks or a tax on sugary drinks.
But that’s the most it can do. For all of its insights, behavioral economics alone is not a viable alternative to the kinds of far-reaching policies we need to tackle our nation’s challenges.

Put another way (and regular readers know it was only a matter of time), the truth lies somewhere in the middle.

No, behavioral economics is not dead, is not dying, and is in fact in the pink of health. But one shouldn’t overemphasize the role of behavioral economics either! It is of (immense!) help in reaching outcomes, and often for relatively low costs – but the price mechanism still, well, rules.

P.S. The art of reading critically is a very, very underrated skill. And especially in India, the art of listening critically, as a student, is even more underrated. We’ve been taught to assume that the guy behind the lectern knows best. And we carry that attitude over when it comes to reading stuff as well. As a student, acquire the skill of always questioning what is being told to you, whether in class or otherwise.

“How might this be wrong?” is a question that ought to be front and center when you’re learning. In fact, I’d go so far as to say that it is the best way to learn.

P.P.S And that applies to this essay too! Please, do try and figure out how I might be wrong! 🙂

And because I think this blogpost isn’t long enough already, one final recommendation. Read the conversation between Neela Saldanha and Alex: