Tag: tyler cowen

Happy New Year

AshishLeave a comment

Many years ago, and this happened soon after our daughter was born, my wife and I finally got a chance to go out on a date. Our daughter, we felt, was now old enough for us to be able to step out of the house for a while.

Lunch and a movie was the plan.

Lunch was very good indeed, both the meal itself, and the rare ol’ pleasure of being able to enjoy each other’s company in diaper-less surroundings. And then we went for the movie.

And that, unfortunately, explains the title of today’s post.

For the movie that we chose that day has the same title as does this post.

And it was an abomination of a movie.

It is difficult to put into words exactly how bad it was, for I don’t remember much of it (which is a blessing, I suppose). Within the first five minutes or so, it became painfully clear that this movie was going to be a complete dud. We could have sat outside in the lobby instead, and it would have been a better use of our time. We could have gone up and down the escalators in the mall that we saw the movie in for three hours, and that would have been a better use of our time. We could, in short, have done absolutely anything else for those three hours, and it would have been a better use of our time.

And yet, in spite of knowing this with the kind of crystal clear certainty that is rarely afforded to us humans, we still sat through the entirety of that – for lack of a better word – movie.

Not our proudest moment, especially because both of us have PhD’s in economics – we clearly fell prey to the sunk cost fallacy.

What is the sunk cost fallacy?

Rather than share the Wikipedia page about the topic, as I would have done until now, I asked our new overlord its opinion on the matter:

https://chat.openai.com/chat

We’ve got the chance to come out on a date after such a long time, we figured. Who knows when we’ll get another opportunity like this? We shouldn’t waste it. That’s how our reasoning went.

Failing to realize, of course, that watching that damn thing was the most horrible waste of our time. As I’ve already mentioned, we could have done just about anything else with the time that we had, and we would have been better off. But as ChatGPT3 so smugly told me, our “tendency to justify continued investment in a decision based on the amount of resources already invested” is what caused our downfall.

And that’s the tricky thing about the sunk cost fallacy. Explaining it is easy, and understanding it is easy. Applying it? Ah, that’s the difficult bit. And it happens to the very best of us!

I drove to the store last night only to find on arrival that I had forgotten my wallet. I returned home frustrated and ready to veg out in front of the tv. It occured to me, however, that my earlier trip was a sunk cost. If the trip was worthwhile the first time it must be worthwhile to return (not so much time had passed as to change the utility of the calculation). I still felt frustrated and I didn’t really want to return but I forced myself to behave like a rational utility maximizer. As I headed back, however, I felt better. Reason and emotion cohered once again as the sunk cost became psychologically sunk.
Score one for economics. A sunk cost is only sunk if you choose to ignore it and economics helps us to do this. But note to self: have more sympathy for students who find the economic way of thinking to be unnatural. Often, they are right.

https://marginalrevolution.com/marginalrevolution/2003/12/behaving_like_a.html

(Something I found myself wondering about while I was pasting this blogpost here. Note that the extract above is the entire blogpost! Woud this blogpost have been written at all in the age of Twitter? Were we better off then, or are we better off now? Along which dimensions? But anyway, back to our regular programming.)

But let me go back to the point about explaining and understanding sunk costs being “easy”. Is it, really? What are you optimizing for when you “succumb” to the sunk cost fallacy?

What if you choose to finish a task in spite of knowing that it isn’t “worth it”? Are you necessarily an “irrational” person? What if you choose to finish the task to make a point? What if making the point matters more than succeeding at said task? What if attempting to complete a task is more about signaling to others about the kind of person one is? Would this then still be a fallacy?

Many years ago, Tyler Cowen wrote a blogpost about the sunk cost fallacy (in fact, a response to Alex Tabbarok’s post excerpted above), and had this quote within it:

One might prefer that, if others have made significant sacrifices in attempting to realize some valuable state of affairs S, then their sacrifices not be in vain. That is, one might prefer that these sacrifices causally contribute to the realization of some valuable state of affairs…Interestingly, one sometimes is in a position to determine, by one’s own actions, whether the past efforts of others will have been in vain. This is true, for example, when it is within one’s power to finish some valuable project in whose service others have labored, but which they are now not in a position to complete. Let us say that when one acts so as to prevent the past efforts of others from having been in vain one redeems those efforts.

https://marginalrevolution.com/marginalrevolution/2004/03/when_is_it_rati.html

What does this mean, exactly? Consider this:

Dus is a 2005 Indian Hindi-language action thriller film directed by Anubhav Sinha, based on the lives of seven fictional SIT (Indian Special Investigation) Team officers. It stars Sanjay Dutt, Sunil Shetty, Abhishek Bachchan, Zayed Khan, Shilpa Shetty, Esha Deol, Dia Mirza and Raima Sen.
Dus is a tribute to late celebrated director Mukul S. Anand, who had died while filming the incomplete 1997 film of the same title, which starred Dutt and Shetty with Salman Khan. It was a critical and commercial success.

https://en.wikipedia.org/wiki/Dus

I have not seen Dus, and I don’t know if it was “the realization of some valuable state of affairs”. But if one is able to determine, by one’s own actions, whether the past efforts of others will have been in vain, what then? It might be the right thing to make sure that “their sacrifices not be in vain”. Honoring somebody’s memory – is that a sunk cost fallacy or not?

Maybe it is not so easy, after all, to explain and understand the sunk cost fallacy.

Has it been all a waste of time then, I writing this post and you reading it?

Ah well, in any case, Happy New Year to all of you!

Complements, Substitutes, AI and the Way Forward

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One of the most popular blogposts on this blog is one that I wrote over five years ago: a simple explainer post about complements and substitutes.

It’s part of the arsenal of an economist, an understanding of the concept of substitutes and complements, and it is useful in many surprising and unexpected ways. But never has its use been as important as it is in understanding the importance, the threat and the advantages of AI. A video that I have often linked to in the past, and will probably link to many times again helps make this point clear:

When Steve Jobs says computers are like bicycles for the mind, he is saying that our mind becomes more powerful when we work with computers, rather than instead of them (substitutes) or infinitely worse, without them (almost all examinations conducted in higher education in India today).

And if you want to think about your career in this brave new world of ours, you really should be thinking about working with computers. Not against, or without. As it turns out, this is surprisingly hard to do for most of us. I invite you to walk into a higher education institute of your choice and listen to professors talk about how many students are copying during examinations. Nobody seems to ask why it is right and appropriate to check how good students are at doing work without computers. Why is this a skill that we’re building for folks who will be working in the 21st century?

And if you are learning how to work “effectively” without a computer – and again, that is what we train you for when we make you write three hour pen-and-paper examinations in higher education – you are destroying your ability to earn more in the future.

I’m being quite serious.

The key questions will be: Are you good at working with intelligent machines or not? Are your skills a complement to the skills of the computer, or is the computer doing better without you? Worst of all, are you competing against the computer?

Cowen, Tyler. Average is over: Powering America beyond the age of the great stagnation. Penguin, 2013.

A lot of people are scared about job losses as a consequence of the rapid development of AI, and with good reason. AI can today do quite a few jobs better than humans can, and more than its current capabilities, what keeps a lot of us up at night is the rate of improvement. Not only is AI very good already, but it is noticeably better than it was last year. And for the pessimists among us, the scarier part is that not only will AI be even better next year, but the rate of improvement will also improve. That is, the improvement in AI’s abilities will not only be more in 2023 compared to 2022, but the difference between 2023 and 2022 will be higher than was the difference in 2022 compared to 2021. And that will be true(er) for 2025, and for 2026 and, well, there’s no telling where we’re headed.

But this is exactly why studying economics helps! Because both Steve Jobs and Tyler Cowen are, in effect, saying the same thing: so long as you plan your career by using computers/AI as a complement, you’re going to be just fine. If you think of your job as being substitutable – or if your job is, or will be, substitutable by a computer – well then, yes, you do have problems.

An underappreciated point is the inherent dynamism of this problem. While your job may not yet be a substitute for AI, that is no reason to assume that it will not be substitutable forever:


For example: is Coursera for Campus a complement to my teaching or a substitute for it? There are many factors that will decide the answer to this question, including quality, price and convenience among others, and complementarity today may well end up being substitutability tomorrow. If this isn’t clear, think about it this way: cars and drivers were complementary goods for decades, but today, is a self-driving car a complement or a substitute where a driver is concerned?

https://econforeverybody.com/2022/04/18/supply-and-demand-complements-and-substitutes-and-dalle-e-2/

But even so, I find myself being more optimistic about AI, and how it can make us more productive. I haven’t come across a better explainer than the one that Ethan Mollick wrote about in a lovely post called Four Paths to the Revelation:

I think the world is divided into two types of people: those obsessed with what creative AI means for their work & future and those who haven’t really tried creative AI yet. To be clear, a lot of people in the second category have technically tried AI systems and thought they were amusing, but not useful. It is easy to be decieved, because we naturally tend try out AI in a way that highlights their weaknesses, not their strengths.
My goal in this post is to give you four experiments you can do, in less than 10 minutes each, with the free ChatGPT, in order to understand why you should care about it.

https://oneusefulthing.substack.com/p/four-paths-to-the-revelation

All four examples in this post are fantastic, but the third one is particularly relevant here. Ethan Mollick walks us through how AI can:

  1. Give you ideas about what kind of business you might be able to set up given your skills
  2. Refines a particular idea that you would like to explore in greater detail
  3. Gives you next steps in terms of actualyl taking that idea forward
  4. And even writes out a letter that you might want to send out to potential business collaboarators

His earlier posts on his blog also help you understand how he himself is using ChatGPT3 in his daily workflow. He is a professor, and he helps you understand what a “mechanical” professor might be able to do

To demonstrate why I think this is the case, I wanted to see how much of my work an AI could do right now. And I think the results will surprise you. While not nearly as good as a human professor at any task (please note, school administrators), and with some clear weaknesses, it can do a shocking amount right now. But, rather than be scared of AI, we should think about how these systems provide us an opportunity to help extend our own capabilities

https://oneusefulthing.substack.com/p/the-mechanical-professor (emphasis added)

Note the same idea being used here – it really is all about compementarity and substitutability.

AI can already create a syllabus and refine it; it can create an assignment and refine it; it can create a rubric for this assignment; it can create lecture notes; and it can write a rap song about a business management concept to make the content more interesting for students. I loathe the time spent in creating documentation around education (every single teacher does) and it would take me a long time to come up with even a halfway possible rap song about substitutes and complements.

That last statement is no longer true: it took me twenty seconds.

Here are examples from outside the field of academia:

The question to ask isn’t “how long before I’m replaced?. The question to ask is “what can I do with the time that AI has saved me?”. And the answer to that question should show that you are thinking deeply about how you can use (and continue to use!) AI as a useful complement.

If you don’t think about this, then yes, I do think that you and your job are in trouble. Get thinking!

Argue The Point, Not The Person

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There’s no end to the number of scenes in movies and television series in which you’re told to play the man, not the hand, when it comes to poker.

This is because the objective is to win, and poker is, by definition, a zero sum game.

But arguments are not zero-sum games, although most (all?) of us tend to think so, at least when we’re actually arguing. We get so caught up in winning that we often choose to defeat the person making the argument, rather than the argument itself. And we’re much likelier to do this if we realize that our own argument is unlikely to carry the day. The fancy-pants word for what we are likely to do next is ad-hominem. We’ve all used this strategy, if nowhere else, at least in school while growing up. And I’m not proud of this, but I’ve used it well into adulthood too.

And the reason this happens is because we think the point of an argument is to win it. Which is wrong, of course. The point of an argument is to figure out what is right (or true). But this simple point is hard to remember, and so we end up turning arguments into a battle for preserving our egos.

There has been a bit of a kerfuffle in a subset of Twitter in the recent past, and while you will be able to click your way through and figure out what it has all been about, I’d much rather you didn’t, not right away at least. Focus, instead, on what the thread is telling you about how to argue:

While the thread itself doesn’t mention it, my biggest takeaway from reading it is to ask myself what the point of an argument is. Or, to put it in a way that resonates with one of my favorite questions, what should one be optimizing for in an argument? And my own answer is that one should be optimizing for figuring out what is right (or what is true), rather than winning the argument.

Note that this is hard to do, and note that the person dispensing this gyaan to you right now (i.e., me) often isn’t very good at following his own advice!

But that being said, it still is advice worth pondering over.

By the way, if you’ve been wondering why I’ve been careful to distinguish between that which is right and that which is true, I have a movie recommendation for you.

And on a related note, learn to read the news in such a way that you end up updating or changing your beliefs, rather than being in a rush to confirm them. Statisticians will say that I’m simply asking you to be more Bayesian in your outlook, and they wouldn’t be wrong (click here and read hansn’s answer).

I’d urge you to spend some time in thinking through the paragraph immediately above this one, making sure you understand what Baye’s theorem is and why I bring it up in the context of reading the news, and then read this excellent post by Tyler Cowen. It is excellent (to me) precisely because it isn’t clear the first time you read it.

But the reason I bring that post up here is because I would argue that the Twitter thread and this post are making the same point: arguing should not be about feeding your ego, and neither should learning more about the world be about feeding your ego. Arguing and learning more about the world should, instead, be about figuring out that which is right (or true).

Note to self: this is, of course, much easier said than done.

Let me be clearer: whether while reading something or while arguing with someone, continually ask yourself this question: in what ways might I be wrong? How does this article/video/movie/podcast/argument help me update my understanding of how the world works?

And if you find yourself resolutely saying “it doesn’t! I’m obviously right!”, be very afraid!

Do border regions have better food?

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Do border regions have better food? What exactly counts as a border region? The parts of the United States near Canada? The best food in Italy is not obviously at the (rather skimpy) borders. China and India might be the best food countries in the world, but because they are so large most of their cuisine is not “border cuisine.” So I say no.

https://marginalrevolution.com/marginalrevolution/2022/11/requests-from-benedikt.html

As always, read the whole post – and in particular, the Wikipedia link to James Steuart (not a typo). But given my deep love of all things gastronomical, I wanted to expand on this point a bit.

  1. Tyler’s first question is worth thinking about (what exactly counts as a border region?), and the way I choose to define it more or less defines the direction in which this post is going to go. A border region, for the purposes of this post, is where a confluence of two or more cultures is observed. That is a ridiculously loose definition, I know, but this is a blogpost, so please let’s go with this for the moment.
  2. Does that definition necessarily mean better food? Well, that requires a definition of the phrase “better food”, but more variety and a greater degree of syncretism can reasonably be expected.
    • Think Massaman curry in Phuket, for example. Read this paragraph from that Wikipedia article to get a sense of what I’m trying to get at. This spice, frequently used in both Chinese cuisine and coastal Indian cuisine(s) is another good example.
    • Will the food in Chennai be necessarily better than in the interior parts of Tamil Nadu? Not necessarily, but it will be more varied in terms of influences, and especially as a tourist, that’s a good thing. It’s a good thing in general too, if you ask me!
  3. A confluence of culture is likely to be positively correlated with greater commerce, and that is likely to imply higher rent for real estate. Higher prices will imply a greater incentive to be better at making and selling food, so the quality will likely be higher (so long as you know where to look and how to choose). You could make the same point for costs of labour.
  4. More trade is also likely to imply fresher ingredients, and therefore better food.

What else am I missing?

So my answer would actually be yes, but it very much depends on how you define “border cuisine”.

Choosing Where to Eat

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I just got back from a lovely holiday in Goa. Oodles of good food, loads of fantastic beer, hours of staring out at the sea, and not a laptop in sight for miles and miles. Just wonderful.

But if you know me at all, you’ll know that the first of these was the most important bit. Duh.

I spend a large chunk of my day thinking about food – what to make next, what to eat next, where to eat next. And today’s blogpost is about the last of these – where to eat next. How should one go about choosing where to eat?

  1. The book to begin with if you want to use economist-y principles is Tyler Cowen’s excellent “An Economist Gets Lunch”. The book is full of delightfully Cowenian advice:
    • Choose a restaurant where the patrons aren’t smiling (because that means the regulars are here to eat, not socialize)
    • When it comes to cuisines not native to the town you are in, choose a restaurant located on the outskirts of town rather than in the centre, it is more likely to have genuinely good food (lower rents, closer to recent immigrants into said town, both of which are likely to be good indicators of genuinely good food.)
    • The weirder a dish sounds relative to the rest of the menu, the more likely it is to be worth ordering (for why else would the restaurant choose to include it in the menu in the first place)
  2. Krish Ashok had a nice post on Instagram recently, where he pointed out that you should ignore negative reviews of restaurants, since the internet incentivizes one to be nasty and negative with one’s opinions.
  3. Here are my own tips, noting that your mileage may vary when it comes to adopting them:
    • Triangulate – if a restaurant has good reviews on Zomato, and on Google Maps and on blogs, it is likely to be good. A high rating only on Zomato is, to me, a worrying sign.
    • I tend to rate reviews on Google Maps higher because Google Maps seems to go out of its way to make putting up reviews more difficult (a somewhat unintuitive interface) and unrewarding (the gamification for reviewers simply isn’t good enough). So if somebody has taken the time and trouble to write a review, and that too a positive one, it is likely to be a very good restaurant.
    • YouTube reviews merit their own separate bullet point. There’s tons of stuff out there, but rely on folks who have put out a lot of stuff regularly, and tend to have a balance of 60:30:10. That is, 60% positive reviews, 30% so-so reviews and 10% negative ones. Note that this is a thumb rule! Once you find a channel you like, optimize for the very top of the 60%.
    • A limited menu and only one cuisine is a huge plus. This implies that the restaurant is focusing on what it knows best, and is not pandering to everybody. I’m even more reassured if the waiter informs me that certain items are not available, and my confidence in the quality goes up even more if they do so brusquely. I take it as a sign that they are focused on quality, and that they couldn’t care less if you leave. This must mean that there are enough “regulars”, and that can only be a good thing, right? I am from Pune, please note, so this may just be my genes having gotten used to rude service.
    • Make friends with the chef, the senior most waitstaff member, or both. I am a hopeless introvert in most social settings, but people who talk about food with passion are my people, and I have no problem striking up a conversation. Ask them to teach you how to appreciate the food they’re serving – what should you be looking out for on your palate, what details should you not be missing, and what variants of this dish are possible. Folks love to teach self-declared amateurs, and this will go a very, very long way in a restaurant.
    • I wish this weren’t true, but there is a very low bar for striking up a conversation in a restaurant in India. Politeness and a friendly demeanor are seriously underrated, use this fact to your advantage.
    • A corollary to the last point: try and visit a restaurant as early as possible. Most folks in urban India prefer to have late dinners – if you sit for dinner at 7 pm, you are likely to have fresher food and a not quite so busy staff who will be that much more willing to chat with you.
    • Avoid buffets like the plague. Unless you know the chef or the senior most staff member (or both). They will then not only recommend the best things to try, but will also give you freshly made dishes that they would like you to try. If you find such a restaurant, you’ve struck gold.
    • Avoid glitzy restaurants that are prominently located. They are more likely about signaling then about eating.
    • Well established and cheap watering holes are likely to have very good food. My favorite example in this regard is Pecos, in Bangalore, but there are lots of examples in all cities in India.

DallE-2 and Microsoft Designer

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I’ll be the first to put my hand up and admit that I’m a sucker to try out new things. But even discounting for my puppy-like enthusiasm for new shiny tech baubles, it’s hard not to get excited about Microsoft’s announcement regarding Microsoft Designer:

For the first time ever, I’m excited to announce Microsoft Designer, a graphic design app in Microsoft 365 that helps you create stunning social media posts, invitations, digital postcards, graphics, and more, all in a flash.
Microsoft Designer is powered by AI technology, including DALL∙E 2 by OpenAI, which means you’re able to instantly generate a variety of designs with minimal effort. Our cutting-edge AI supercharges your ideas.
With Designer, there’s no need to spend time building cards or social media posts from scratch. And you no longer need to search through thousands of pre-made templates. Designer invites you to start with an idea and let the AI do the heavy lifting. For example, with ‘start from scratch’ within Designer, you can simply describe an image you want to see, and the app does the work for you to create something totally unique. As you work in Designer, every surface of the app is powered by AI to help ensure consistent, aligned, properly scaled, and beautiful designs, even with or without any inherent design ability.

https://www.microsoft.com/en-us/microsoft-365/blog/2022/10/12/new-tools-from-microsoft-365-edge-and-bing-bridge-the-gap-between-productivity-and-creativity/

Students introduced me in the past couple of years to Canva, and I have been trying to develop some sort of a design aesthetic ever since. I can’t say I’ve become very good at it, alas, but I’m certainly better than before. Which is not saying much, but leave that be for the moment.

With Designer, I no longer have to try to be good, it would seem. Most excellent.

And please do read this blogpost by Tyler Cowen:

It almost goes without saying that the AI revolution currently underway is impressive. It is likely to have a huge impact in some parts of art world, such as the commercial sphere — consumers are generally not interested in who made any given ad or logo. It either works or it does not, and those conditions favor the machine. AI will also give the world quality (automated) personal assistants and autonomous vehicles, among many other advances.

https://marginalrevolution.com/marginalrevolution/2022/10/how-much-will-ai-succeed-in-the-arts.html

AI will also give students the ability to submit excellent assignments:

There will undoubtedly be many collaborations between AI and human creators, with the humans put forward as the public face of the joint effort. Periodic scandals about authorship will surface (“did he write any of that song?”), just as allegations of cheating with AI have risen to prominence in chess. AI-generated art will attract the most interest when the aesthetic of the creation and the personality of the human accompanist appear to be in sync.

https://marginalrevolution.com/marginalrevolution/2022/10/how-much-will-ai-succeed-in-the-arts.html

What a time to be alive.

Which Textbooks Are We Recommending Our Students Read?

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I chanced upon this excellent website via Marginal Revolution yesterday.

What is Open Syllabus?

Open Syllabus is a non-profit research organization that collects and analyzes millions of syllabi to support novel teaching and learning applications.  Open Syllabus helps instructors develop classes, libraries manage collections, and presses develop books.  It supports students and lifelong learners in their exploration of topics and fields.  It creates incentives for faculty to improve teaching materials and to use open licenses.  It supports work on aligning higher education with job market needs and on making student mobility easier.  It also challenges faculty and universities to work together to steward this important data resource.
Open Syllabus currently has a corpus of nine million English-language syllabi from 140 countries.  It uses machine learning and other techniques to extract citations, dates, fields, and other metadata from these documents.  The resulting data is made freely available via the Syllabus Explorer and for academic research. 
The project was founded at The American Assembly, a public policy institute associated with Columbia University. It has been independent since 2019.

https://blog.opensyllabus.org/about-the-open-syllabus-project/

Tyler Cowen linked to a Davis Kedrosky thread about the most cited papers, and the thread is well worth your time. Here are the top five papers assigned as readings in economics since 1990, worldwide:

https://twitter.com/dkedrosky/status/1566617470122635266

But I dug around on the website to see what textbooks have been recommended. And worldwide, this is what comes up:

https://opensyllabus.org/result/field?id=Economics

If you’re wondering, The Wealth of Nations comes in at number 13, and the General Theory comes in 22. I don’t intend this as snark or criticism, and I would in fact argue that the General Theory is not the best book to read if you’re starting on a study of macroeconomics – but that’s a topic for another blogpost. The top 5 is actually a pretty good list, although my personal preference would be to have it reversed. That is, a book on the principles of economics ought to be number one, in my opinion. Should it be N. Gregory Mankiw or some other book? Some other book(s) if you ask me, but that too will be a topic for another blogpost!

Take a look, however, at India’s most recommended textbooks (you can filter by country):

https://opensyllabus.org/result/country-field?id_country=IN&id_field=Economics

And personally, I find it worrying that a Principles text doesn’t make the top 5, and neither does an introductory text on micro or macro! Modern Microeconomics by Koutsoyiannis makes an appearance at number 7 and the first macro text is Shapiro, in at number 10.

I have nothing against any of the textbooks mentioned in this list, and I have (genuinely) fond memories of doing battle with all of them when I was a student, but I do ask myself if these five ought to be the most assigned texts for Indian students.

Which, of course, begs the obvious question, and that will be tomorrow’s blogpost. But for now, a request: if you are (or have been) a student of economics in an Indian university, what would your top 5 list look like? Much more importantly, if you are a professor of economics in India, what would your top 5 look like?

If you can spare the time, I would love to know!

Econ Ain’t About Money

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A somewhat less sexy, but more accurate title would have been ” Economics Isn’t Just About Money”.

But the decision to jettison the word “just” is deliberate, and not just for the sake of a headline that makes you want to click through. It is, instead, to emphasize the point that economics is about so much more than just about making money.

I have some close friends to thank for inspiring this post, with whom I had a conversation about tomorrow’s blogpost. They told me that they had been under the impression that economics is about money, and to my surprise, that seems to be an idea that most people I have spoken to are comfortable with.

But these people I have spoken with, and whoever has taught them economics, have less than half the right answer. Economics isn’t about money alone.

I’d written a post a while back about Choices, Horizons, Incentives and Costs. And to me, that’s what economics is about.

No matter what you do in life, you have a range of choices to choose from. Should I watch Netflix for an hour or study for an hour? Should I read a couple of pages from a book, or should I quickly scroll through Twitter? Should I enroll in an engineering course, or should I pursue law instead? Should I start with the salad at a buffet, or should I start with desserts instead?

Life is all about choices, every single second of your life. Economics helps you be clear about your choices, and also helps you potentially expand your choice set. One option regarding the last question in the paragraph above, is to say neither, and fast instead. Be aware of your entire choice set, and only then set about choosing one.

Horizons is about thinking about the long term, rather than the short term. My favorite example in introductory economics is to ask my students if I should have a second gulab jamun for desserts after lunch today. I tell them that present day Ashish will definitely say yes, and seventy year old Ashish (assuming I live for that long) will definitely say no. Because the consequences of choices I make today truly matter in the long run, bur are underestimated in the short run.

Incentives are about what motivate you to do (or not do) things. Economics teaches you how to use your own incentives, and those of others, to Get Things Done. My favorite example comes from Tyler Cowen, who helps us understand how to use incentives to not be bored in a museum. Ask yourself, he suggests, which painting would you choose to steal from each room, to install in your own home – and you cannot choose more than one per room. Your incentives have flipped – now it’s not about “seeing” each and every painting having paid the price of admission, but instead about asking yourself which painting will look best in your home.

And costs are about the realization that nothing in life comes for free. No matter what you are doing, you could always be doing something else. Instead of having read this far (thank you!), you could have given up halfway through and watched funny cat videos instead. Opportunity costs are everywhere, and whatever your choice, it ain’t for free.

The point that unites each of the examples above is that none of them are about money! They are economics-y concepts: choices, horizons, incentives and costs. But what to have in a buffet, whether to have a second gulab jamun, deciding which painting to steal and watching cat videos are not about money.

You could put a monetary value to all of them using subjective valuations, of course, but some things shouldn’t have numbers attached to them. Not because they’re not important, but because they’re fundamentally unquantifiable. What price (and I’m not joking here) can you possibly put on a parent choosing to read a story to a child? Economists have an answer to this question, of course, but it isn’t one that I am entirely comfortable with, especially if it involves a definitive number.

And that’s what I mean when I say that economics is about so much more than just money.

That still does not answer the question of what economics is about – I have written about it earlier, and will defend my answer in tomorrow’s post.

The Economist on What To Read To Understand How Economists Think

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Here’s the article, and I hope you’re able to access it.

Just in case it is behind a paywall for you, here is a quick summary:

  1. The Economist says that thinking like an economist is primarily about two things:
    1. There is no such thing as a free lunch, which is another way of saying you can never avoid opportunity costs
    2. When possible, try to put numbers on things
  2. The article then lists out five books that help you think along these lines:
    1. Capitalism and Freedom, by Milton Friedman
    2. The Worldly Philosophers, by Robert Heilbroner
    3. Africa: Why Economists Get it Wrong, by Morten Jerven
    4. Capitalism Alone, by Branko Milanovic
    5. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

I’m about to share my own list, but before I do that, a couple of points.

I’ve read the first, second and fifth book, and they’re all great books to read. I look forward to reading the other two, and the description of the fourth in particular sounds particularly exciting to my ears:

This is the book to read if you want to understand why capitalism—and economists’ way of thinking—has triumphed the world over. By the beginning of the 1990s, it was clear that the capitalist system had defeated the communist one. Today, however, many people yearn to move to a new system, such as “millennial socialism”. A left-leaning scholar, Mr Milanovic sympathises with these feelings. But ultimately he finds many radical prescriptions unconvincing. A country which tried to de-marketise on the scale envisaged by socialists would, he says, be unstable and dissatisfied in other ways. Shifting towards a much shorter working week, for instance, would leave it poorer than its neighbours. For how long would people put up with that? Capitalism is far from perfect, his book shows, yet it is hard to shake the notion that it is the only system that broadly works.

https://www.economist.com/the-economist-reads/2022/08/09/what-to-read-to-understand-how-economists-think

In a way, this reminds me of Churchill’s quote about democracy being the worst form of government, except for all the others that have been tried. And it rings true – there’s many things that we all wish could be “better” when it comes to capitalism, but one of my favorite econ questions is very apposite here: relative to what? That is, if you say capitalism is not good/not perfect, you need to answer the question “relative to what”?

Second, please don’t interpret this blogpost as a critique of the list put out by the Economist. This blogpost is very much in the spirit of “Yes, and” rather than “No, but”. But that being said, my own opinion of the main features of thinking like an economist are slightly different. I couldn’t agree more with the first feature (opportunity costs), but I do disagree with the second one. I would argue that it is entirely possible to get the most out of life without having to put a number on it. In fact, as Russ Roberts recently pointed out in a podcast, it simply isn’t possible or desirable to put numbers on some things. I haven’t read the book yet, but the podcast was instructive in many different ways. Here’s one apposite quote (Russ is answering a question by Tim about how to decide whom to marry):

Alain de Botton has a wonderful YouTube video I recommend on that; I think the title is “You’re going to marry the wrong person.” Fantastic short video. Don’t show it to my wife because she thinks she married the right person, I don’t want her to see it and depress her. But seriously, there’s no best. And part of the theme of my book is that most of life is a matrix. And by that, I don’t mean the movie, the red or blue pill. What I mean is that it’s a set of complicated attributes that are pluses and minuses for all kinds of things.
So the person you’re with, that you’re seeing now, whoever’s listening out there, there are certain levels of attractiveness, there’s a certain level of kindness, there’s a certain level of intelligence, or a certain level — many, many, many attributes. And then there’s chemistry and sexual attraction. We’ve got all those things working. And so, which is the best one? Oh, well I need a formula to add up all those measurements so I can get a single number, and then I’ll just pick the one that gets the best score. And I’d argue that’s the wrong way to think about life. It’s the wrong way to think about how to pick your friends. It’s the wrong way to think about how to find the best job. It’s the wrong way to think about most things.

https://tim.blog/2022/08/07/russ-roberts-transcript/

As I mentioned, I haven’t read the book yet – sometimes I think I should get a T-Shirt with this line printed on it. But I very much belong to the school of thought that would argue that not everything in life need be quantified.

So if I disagree with “if possible, put numbers on everything”, what according to me are the main features of thinking like an economist? If I had to pick just two, here they are (and I’m going to cheat, so there):

  1. Opportunity costs are everywhere
  2. Incentives matter
  3. Life is a non-zero sum game

Getting incentives right, and worrying about what happens if incentives go wrong ought to be part and parcel of your toolkit an an economist. And if you asked me to recommend a book about this topic, my pick would be Discover Your Inner Economist, by Tyler Cowen.

Bonus: check out the podcast between Russ Roberts and Tyler Cowen on this book.

Bonus Bonanza: reflect on the very first comment at the top of the page!

More Bonus Bonanza: Learn about callbacks.

And re: life being a non-zero sum game, I would recommend In The Company of Strangers, by Paul Seabright. If you do end up reading the book, you might end up coming away with the “complaint” that it is about much more than just life being a non-zero sum game, but in my world, that’s a feature, not a bug. But for the moment, here’s a relevant excerpt from the book:

Once bands were willing to make tentative peaceful contact with other bands, they could exchange with them, thereby enormously expanding the kinds of foods, tools, and resources to which they had access. We have evidence of exchange between hunter-gatherers from many thousands of years before the foundation of agriculture, although their lifestyle must have made such contacts sporadic and limited by comparison with the opportunities available to sedentary farmers in later millennia. Some of the oldest known symbolic artifacts, carved beads dating back over forty thousand years, may have played a role in facilitating such exchanges.7 In more recent times, the Yir Yoront aboriginals of Northern Australia had stone axes even though they lived many hundreds of kilometers from the nearest stone quarries (they exchanged stingray-tipped spears for them with neighboring tribes) and even steel ones, well before their first contact with European traders at the end of the nineteenth century. Trade allowed access not only to their neighbors’ skills but to those of their neighbors’ neighbors, and so on.

Seabright, Paul. The Company of Strangers (pp. 46-47). Princeton University Press. Kindle Edition.

And a final recommendation: please also do read The Undercover Economist and The Undercover Economist Strikes Back, both by Tim Harford.

Showing Up For Work

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I ended up not posting on these pages this past Wednesday.

I’m not proud of it, and I wished I had posted on that day, but let’s talk about showing up for work. The phrase isn’t mine, in the sense that I associate it with Seth Godin. And this practice, of trying to write here every weekday, and post links to interesting Twitter threads and videos over the weekend, is partly because of Seth’s practice of writing daily without fail. And also, of course, due to that other blog that has daily updates, come rain or shine.

And trust me, it is hard to do! I don’t feel quite so bad about not posting for long stretches over the past two years, because there were days where I simply didn’t feel like writing. And I was completely fine with that. But this past Wednesday, it was part laziness, part lots of other things to do, and part logistical issues.

But I should stop wussing around and ‘fess up. These are all excuses, and if I aim to post daily, then failure to post is I not prioritizing this task above all else. Generally speaking, I try to schedule posts a week ahead, and a good Friday is when I have posts lined up all through next Sunday.

But alas, this doesn’t always happen. And so you might see me hunched up over my laptop, a gently sympathetic cup of coffee next to me in a café, typing away furiously to meet my self-imposed deadline of posting by ten am. A bad day is one on which I miss the deadline, and a horrible day is one on which I don’t post at all.

The reason I’m writing this post today, and the reason I’ve spoken at length about my failure this past Wednesday, is because I want to leave you with two messages:

  1. If you write (and preferably post publicly) regularly for long enough, you will reach a stage where it becomes an almost compulsive habit, and that is A Very Good Thing. As Seth himself says, there is no such thing as writer’s block. Just sit and write. Some days will be diamonds and some will be stones, but the point is to first write. Worry about quality later.
  2. If you feel as bad as I do about missing a day, that is An Even Better Thing! But keep at it, and show up for work the next day, and then the day after, and then the day after that. Each day is, as it were, a marginal revolution.

And while you are at it, wish me luck. For today is Friday, and I don’t yet have any posts scheduled for next week.

Ah well, onwards!