The meta-epistemology of the rate hike

Soon after I started blogging, Tyler Cowen joked, “You’re not really a blogger.” His point: Unlike most of the competition, I wasn’t reacting to the latest news or whatever’s hot. My goal as a blogger has always been to write think-pieces that stand the test of time.

https://www.econlib.org/a-fond-farewell-to-econlog/

I don’t know about standing the test of time where posts on EFE are concerned, but my approach to blogging is very similar: I prefer to not write about events immediately after they’ve occurred. This for a variety of reasons, not least of which is the fact that I’m lazy, and reading a lot of stuff at very short notice is something I would rather not do.

Another reason is that the very best pieces on any event usually take time to bubble up in my feed, and waiting therefore makes sense.

By the way, if you aren’t yet subscribed to Bryan Caplan’s new blog, please do!


But that being said, let’s talk about yesterday’s rate hike.

One of the pieces that I enjoyed writing last year was on the concept of meta-epistemology, after reading a post about it by Zeynep Tufekci.

I’m going to post a screenshot rather than an extract, because the formatting of the post helps:

https://econforeverybody.com/2021/02/05/zeynep-tufekci-on-metaepistomology/

Honest question: does this apply to the Reserve Bank of India as well?

Is it the case that the cost of downplaying inflation as a major problem now exceed the benefits of doing so? Have the incentives flipped for the RBI? If so, on what basis? Is there a sense, based on preliminary data, that inflation is a problem that can no longer be ignored?

And if so, how should we be interpreting not just the fact that rates have been raised, but the manner and the timing of the raise? In other words, are there two messages being sent out by the RBI: the message itself, and the implicit message encoded in the timing of the message?

And have (or will) the markets internalize this message, and if yes, what is to follow?


Learning about inflation, monetary policy, and the efficient market hypothesis via textbooks is less than half of the story. Take your view/model of how the world works to the world itself, and update your model as the years roll by.

Fun, exhilarating and occasionally nerve-wracking.

But it is the best way to learn.

The Difference Between a Sociological and Psychological Story

I grew up in an age where the television series “Friends” was revered.

People considerably younger than me tell me that Friends is still revered, and there is probably some truth to that hypothesis. Every time I open up Netflix on my TV, Friends is regularly in the Top 10 shows in India.

Don’t worry, this is not about to turn into a snooty ol’ discussion about how Friends could be different/better. But I will say this much: I much preferred the first two to three seasons to the rest of the show. And the reason I preferred the first two or three seasons is because in my opinion, the first two or three seasons were about life happening to those six people in New York. It was observing New York through the eyes of these six people.

It helped that these six people were attractive and young. That helped in generating the kind of appeal that Friends has had for years now. But the reason why the first two or three seasons were, in my opinion, better than the latter ones is because they were sociological observations, using these lives of these six characters as a canvas. The latter seasons? Oftentimes, it seemed as if they were an extended riff on the “We were on a break” theme. In other words, it became a psychological story about what happened to these six people, and what about their psychological make-up made them take the decisions they do.

Not my phrasing (I wish it was). It simply is me applying Zeynep Tufekci’s model to the television series Friends. Here is Zeynep talking about Game of Thrones:

COWEN: TV show Game of Thrones — why does it interest you as a sociologist?

TUFEKCI: It interested me until the last season and a half —

TUFEKCI: — because before that, it was a very, very sociological thing. Here’s the thing. Here’s the difference between a sociological story and a psychological story.

In a sociological story, you can imagine yourself being almost anyone. Instead of terrible, evil characters and good people, where you just identify with the good ones — which is the classic Hollywood narrative, which is also most of human narrative, you have the good one, the bad one — it’s more like a complicated mythology where you can imagine yourself being any one of those characters, even the ones that do the terrible things, you can see yourself doing it.

The second sign of a sociological story, for me, is when nobody has plot armor because it’s the setting that’s carrying the story, with lots of people, but it doesn’t rely on one person dying or not dying. For six seasons, you have a very institutional sociology, very interesting. It’s like The Wire. People can die, but the story is still gripping because it’s sociological.

Here comes season — whichever the last season is — and all of a sudden, Arya can walk through fiery dragons and nothing happens. It just misses her by an inch. I’m like, “All right, you lost the plot here.” Plot armor essentially means you no longer have a solid sociological story.

I watched it with great interest until the end, and in the end, I’m like, “What just happened?” I wasn’t really very clear with the novel world. I learned that the novelist had run out of material, and the Hollywood showrunners were now writing the script. I’m like, “Ah, that’s what happened. They switched to the good-versus-evil story.”

They took a great story that was going to be how power corrupts, which clearly was the story, and in the end, they made the dragon lady snap just because she heard the church bells or something. [laughs] That’s not a good sociological story.

https://conversationswithtyler.com/episodes/zeynep-tufekci/

It’s a really good way (to me, at any rate) to think about why people say Seinfeld is better than Friends. Of course, you may not agree, and that’s obviously fine. But one reason why people say this might be is because Seinfeld is, to go back to my first example, about life happening to these people.

Roger Ebert, my favorite movie critic, often used to say that one shouldn’t ask what a movie is about. One should, instead ask how a movie is about whatever it is about. I can’t find the exact quote right now, but I think he was getting at the same point.


So ok, if you’re a student reading this, you’ve got one way to frame what everybody has felt about Game of Thrones. And you’ve got a way to think differently about Friends. But the large point is this: when you watch a movie, get lost in the plot and its intricacies, sure. But please, also ask yourself what you are learning about the society in which the plot, and the characters are based.

And here’s homework, if you are so inclined. How much of Michael Corleone’s decision making is a function of he being Michael Corleone, and how much of it is a function of he being who he is, in the family that he is from, the society in which he grew up, and his army background?

Or put another way: the really interesting question isn’t whether Michael and Sonny were different. In what ways were they similar, and why?

A fun thing to think about, if you ask me.


Final point: are you, like me, reminded of the Mahabharat when you read this paragraph?

In a sociological story, you can imagine yourself being almost anyone. Instead of terrible, evil characters and good people, where you just identify with the good ones — which is the classic Hollywood narrative, which is also most of human narrative, you have the good one, the bad one — it’s more like a complicated mythology where you can imagine yourself being any one of those characters, even the ones that do the terrible things, you can see yourself doing it.

https://conversationswithtyler.com/episodes/zeynep-tufekci/

Past EFE posts on Zeynep Tufekci here. Past EFE posts on sociology here.

About Ergodicity

Anything that Zeynep Tufekci writes is worth reading, and people like Navin Kabra make Twitter a place of learning and knowledge. Therefore this tweet is worth the price of admission twice over.

But it gets better!

Because the replies took me to this excellent essay on ergodicity:

In an ergodic scenario, the average outcome of the group is the same as the average outcome of the individual over time. An example of an ergodic systems would be the outcomes of a coin toss (heads/tails). If 100 people flip a coin once or 1 person flips a coin 100 times, you get the same outcome. (Though the consequences of those outcomes (e.g. win/lose money) are typically not ergodic)!
In a non-ergodic system, the individual, over time, does not get the average outcome of the group.

https://taylorpearson.me/ergodicity/

… And therefore this set of essays and this newsletter.

As the kids say these days: sorted.

Zeynep Tufekci on Metaepistomology

I know, I know.

Here’s what metaepistomology means:

“the theory of theory of knowledge”

And you should now be asking, “what does that mean?”

The latest post on her Substack (god, I can’t afford to subscribe to all the substacks I want to!) is a wonderful essay on how she learnt about the pandemic last year, and how she learnt about how to learn – but I’ll get to that in a bit.

First things first, who is Zeynep Tufekci?

Zeynep Tufekci (Turkish: Zeynep Tüfekçi; [zejˈnep tyˈfektʃi]; ZAY-nep tuu-FEK-chee) is a Turkish sociologist and writer. Her work focuses on the social implications of new technologies, such as artificial intelligence and big data, as well as societal challenges such as the pandemic using complex and systems-based thinking. She has been described as “having a habit on being right on the big things” by The New York Times and as one of the most prominent academic voices on social media by The Chronicle of Higher Education.

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

I learnt about her for the first time when I cam across a review of her book, Twitter and Tear Gas over on Aadisht’s blog. I haven’t read it yet, but I still remember this from his review, because it resonated a fair bit:

A point this book makes often is that digital tools mean that networked protests are enabled, and that protests can spring up much quicker than they used to. But prior protests used to be much more organised, because the threshold to start a protest used to be so high that it would take a long time and lots of organisation to hit it – and that meant that there would be an organisation capable of pushing for change after the protests. The digitally fuelled protests haven’t quite figured out what change to ask for, and how to push it, yet.

https://aadishtlogseverything.wordpress.com/2020/01/26/twitter-and-tear-gas-zeynep-tufekci/

(We also did a podcast about his review – and some other posts from his blog besides.)

But Zeynep’s writing reached another level altogether (both in terms of relevance and in terms of impact) during the pandemic. This, for example in the NYT (note the date!), or this from The Atlantic.

But her latest post, on the 31st of January, is worth pondering at great length. And that’s because while it speaks about the pandemic, and how she learnt about how serious it is going to be, it also contains lessons that are applicable everywhere else in life.


Please – pretty please! – read the whole post, but here are my key takeaways:

China’s attempts at downplaying human-to-human transmission and the WHO’s complicity in it are of course wrong, but this is also a good lesson in understanding why exponentials are worth learning about – if nothing else, at least because manufactured lies cannot stand up to the steep part of an exponential curve. And no matter your opinion about whether or not we underestimated the current pandemic and its impact, you should ask where else this lesson can be applied:

Let’s call this the Principle of “You Can’t Finesse the Steep Part of an Exponential,” after a Dylan H. Morris quote included in a previous article of mine trying to warn about the more transmissible variants.

https://zeynep.substack.com/p/lessons-from-a-pandemic-anniversary

Second, this sentence:

Let’s call this the “Principle of Always Pay Attention to Costly Action.” 

https://zeynep.substack.com/p/lessons-from-a-pandemic-anniversary

Principles of economics: incentives matter. Up until the point in time when Wuhan was locked down, China’s incentive was to try and suppress news about the upcoming pandemic. Wuhan being locked down was drastic action, yes, but it was also a signal. And the signal was that from here on in, China’s incentive was to warn the rest of the world about how severe and catastrophic (both in terms of health outcomes as well as economic outcomes) this virus was going to be.

Why did the incentive flip? Because the costs of downplaying the virus (in terms of being blamed for the origin, the suppression and therefore the inevitable spread) now outweighed the benefits.

Put another way, if China (if not through its statements, then through its actions) is signaling that its message has flipped, well, things must be really bad.

When it comes to political leadership, ignore what they say, and study what they do.

Political leadership doesn’t just mean governments. This applies to every single political unit, from the United Nations down until your family. Actions, as they say, speak louder than words.

Outrage and counter-outrage on Twitter is words. Action is action, and a far more reliable signal.


And I learnt from this post about the criterion of embarrassment

The criterion of embarrassment is a type of critical analysis in which an account likely to be embarrassing to its author is presumed to be true as the author would have no reason to invent an account which might embarrass him.

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

If the guy giving you the bad news is embarrassing himself in the process, then the payoff from making the announcement must be more than the cost of being embarrassed.

If intellectual honesty is at a low premium today in society (and if you ask me, it has always been the case) then a leader being (or allowing others to be) honest isn’t about morality, it is about the cost calculus.

So, the thumb rule: if the leader of any kind of group fesses up, be very worried. Think of it this way: map out, consultant style, two axes about public announcements.

Is the announcement good news or bad news (that is, is the leadership that is making the announcement going to be benefit from it, or be embarrassed by it)?

Second: Is the news real and credible, or is it straight out of Narnia territory? (Detecting this is a skill, and we should all possess it)

That leads us to this chart:

Three things that you need to keep in mind:

  1. The upper left quadrant will rarely be an announcement. That is why one should study what leaders do, not what they say
  2. If what the leadership is doing (or saying) matches up with our assessment of how bad things really are, get really worried, and start preparing accordingly.
  3. The third is the second last sentence in Zeynep’s post: “Everything we needed to know to act was right there in front of us, but it required not just knowledge, but a theory of knowledge to turn it into actionable, timely information.”

And that, my friends, is the point of metaepistomology.