New research says that people are driven to drink when Democrats are in charge, and other assorted links

1. From Freakonomics - discussion of new paper that finds people in left-leaning states drink more:

The abstract: 

Recent research in psychology and sociology has established a connection between political beliefs and unhealthy behaviors such as excessive alcohol, tobacco, and illegal drug consumption. In this study, we estimate the relationship between political ideology and the demand for beer, wine, and spirits using a longitudinal panel of fifty U.S. states from 1952 to 2010. Controlling for various socioeconomic factors and unobserved heterogeneity, we find that when a state becomes more liberal politically, its consumption of beer and spirits rises, while its consumption of wine may fall. Our findings suggest that political beliefs are correlated with the demand for alcohol.

The author says at the end that political beliefs are correlated with demand for alcohol.  That's one way to read the results.  Another way to interpret the results is people who live in states where liberals/Democrats are in charge drink more.  Why?  I have my guesses.  :)



2. From Jayson Lusk - More information is not always better.

Excerpt:

In a one-good case with unlimited attention, we show consumer welfare is always improved with the provision of accurate information. However, in a two-good case with limited attention, we show that consumer welfare is not always improved with the provision of accurate information. When attention is constrained, welfare may fall with information provision policies irrespective of their costs. The results suggest information and labeling polices may sometimes be counterproductive when attention is limited.

Given limited cognitive processing skills, this makes sense.  I've found similar results in my research.  In a paper I published with Jay Corrigan, we assessed the value of several labels for fair trade foods to consumers.  We found consumers did not benefit much from the label that had the most information.  A label with less information actually was more valuable.



3. Strategies in Final Jeopardy betting.

Very interesting throughout!

Excerpt:

Wednesday night, something rare happened on Jeopardy!

A player bet to allow a tie, letting another contestant also get a big payday.

To some Jeopardy! fans that makes Arthur Chu a hero.

Obama is misleading the public about the gender pay gap

Obama's statement:

“Today, women make up about half our workforce. But they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment.”

Another story here about gender pay gap differences across states

On average, women made an average of 80.9 cents for every dollar a male earned in 2012, according to recent statistics from the Bureau of Labor Statistics. But from state to state, the numbers vary dramatically. Female workers in Wyoming, for example, earn just 65.5 percent of what men earn, worst of any state. In the nation's capital, women fared best and are nearly at parity, making 94.8 cents on the male-earned dollar.

There are many areas where pop-economists give insight that is different from what's actually occurring.  One of these areas is with the gender wage gap.

First, let's mention a few things that the statement of "women made an average of 80.9 cents for every dollar a male earned in 2012", is not saying:

1. This is not saying that women in the same job as men are being paid differently.
2. This is not saying that firms are discriminating against women.  
3. This is not saying that men and women in the labor force have the same work experience.
4. This is not saying that men and women in the labor force have the same jobs.

All that statement is saying is that the average salary for all women is, on average, 81% of the average salary for all men. But differences in job choice, education choices, and time to raise children explain just about all of this gap.  Firms are not paying women less than men for the same work.

New research by myself and Nicole Caviris (under review now) shows that women should expect to earn about 5% less than men annually solely because of their college major choice. That doesn't factor in work experience, time off of work to raise children, or other factors and we still find a quarter of the current gap is explained by these factors.

What about income tax inequality? And other inequality links

1. Thomas Sowell on inequality

Excerpt:

Too many discussions of large fortunes attribute them to "greed" -- as if wanting a lot of money is enough to cause other people to hand it over to you. It is a childish idea, when you stop and think about it -- but who stops and thinks these days?

2. Greg Mankiw and Tyler Cowen discuss the new assortive mating paper.

The abstract:

Has there been an increase in positive assortative mating? Does assortative mating contribute to household income inequality? Data from the United States Census Bureau suggests there has been a rise in assortative mating. Additionally, assortative mating affects household income inequality. In particular, if matching in 2005 between husbands and wives had been random, instead of the pattern observed in the data, then the Gini coefficient would have fallen from the observed 0.43 to 0.34, so that income inequality would be smaller. Thus, assortative mating is important for income inequality. The high level of married female labor-force participation in 2005 is important for this result.

This finding makes sense and has enormous implications.  To put it crudely, the smart people are marrying each other and having super-smart kids.  Dumb people are marrying each other (or not) and having really dumb kids.   This will lead to increases in inequality than what we saw 40+ years ago when the marriage market was different.  


3.  What about income tax inequality?

Excerpt:

"We are now at a point where the top one percent pay more in federal income taxes than the bottom 90 percent," said Tax Foundation economist Kyle Pomerleau.

That means roughly 1.36 million taxpayers pay a larger share of the federal income tax than the bottom 90 percent -- or 122 million taxpayers, according to data compiled by the nonpartisan Tax Foundation.

Best political sign ever?

Unions today were protesting a bill.  Right now, in Pennsylvania, taxpayers are forced to collect dues for unions.  The bill would force unions to collect their own dues.  This seems pretty straightforward and logical, but unions don't like this.  

Link here

The Commonwealth Foundation (who's had great stuff on this issue) posted this photo:

Love it!

Obama's (illegal?) minimum wage increase and other assorted links

1. Cato article on why raising the minimum wage will cause significant pain and suffering and won't do any good.

Excerpt:

The law of demand is more powerful than the minimum wage law: when the price of anything, including labor, goes up, the quantity demanded goes down, other things constant.  No one has ever disproven this economic law—and neither the President nor Congress can overturn it.

2. Dartmouth to offer MOOCs

Excerpt:

The Ivy League school in Hanover said Thursday it has joined edX, a non-profit online learning platform that provides courses from elite colleges for a mass audience. Students of any age in any location can take courses free of charge without academic credit.

3. Obama to raise the Federal minimum wage to $10.10/hour without Congressional approval.


By raising the minimum wage by executive order, he's raising taxes.  Everyone will either have to pay higher taxes now or in the future to fund this.

Didn't we fight a war 230 years ago so we wouldn't have a dictator make decisions unilaterally?

4. Another story on the economic impact of Super Bowl.

 

Gun control laws and gun crime

A new study titled "An examination of the effects of concealed weapons laws and assault weapons bans on state-level murder rates" has been published by Applied Economics Letters - link here.

Here's the abstract (I bolded the relevant sentence):

The purpose of the present study is to determine the effects of state-level assault weapons bans and concealed weapons laws on state-level murder rates. Using data for the period 1980 to 2009 and controlling for state and year fixed effects, the results of the present study suggest that states with restrictions on the carrying of concealed weapons had higher gun-related murder rates than other states. It was also found that assault weapons bans did not significantly affect murder rates at the state level. These results suggest that restrictive concealed weapons laws may cause an increase in gun-related murders at the state level. The results of this study are consistent with some prior research in this area, most notably Lott and Mustard (1997).

More on economic impact of Super Bowl

1. From Catherine Rampell

Excerpt:

“It’s going to be a huge economic boon,” Representative Carolyn B. Maloney, the New York Democrat, declared in a celebratory Times Square news conference earlier this month. Super Bowl revelers will generate $550 million to $600 million for the local economy, according to a variety of sources, including Ms. Maloney’s office and N.F.L. officials. 

Those numbers sound big, round and fairly specific. There’s a problem, though: Where do they actually come from? 

Unfortunately, I’ve been unable to come up with a clear answer. Everyone who cites that estimate credits someone else for producing it.

2.  From the AP

Excerpt:

"Move the decimal point one place to the left," said Robert Baade, a professor at Lake Forest College in Illinois, who has studied the Super Bowl's impact on local economies. "The NFL says $500 or $600 million? I think $50 to $60 million would be a generous appraisal of what the Super Bowl generates."

Assorted Fracking Links

1. Minnesota film festival won't show pro-fracking documentary, will show anti-fracking documentary

Excerpt:

A Minnesota film festival is being accused of pushing a political agenda by yanking a pro-fracking documentary from its lineup while keeping two anti-fracking films on the program. 

Organizers of the Frozen River Film Festival in Winona, Minn., decided last week to cut “FrackNation,” a widely discussed 2013 documentary about hydraulic fracturing, reportedly citing concerns about the film’s financial links to the oil and gas industry and the filmmakers’ inability to attend the screening.

2. Outline of Tom Corbett's plan for PA

Excerpt:

• In 2012, Pennsylvania ranked 3rd among 33 states that produced natural gas and ranked 2nd in 2013.

• Pennsylvania went from importing 75% of its natural gas just 5 years ago to being a net exporter of natural gas for the first time in 100 years.

3. Prime Minister Cameron pushes for fracking

Excerpt:

Addressing the World Economic Forum in Davos, the Prime Minister said the development of "cheap and predictable" energy sources could help to reverse the "off-shoring" of European jobs to the rising economic powers of Asia where labour costs are lower.

But he warned that the opportunities presented by shale gas - which had helped transform the US economy - could be undermined if the European Union sought to impose unnecessary new regulations.

Orazem on how to promote economic growth in rural areas

My alma mater is now hosting an "ask an economist" series.  One of my dissertation advisers (and all around great person) Peter Orazem was asked about how to promote economic growth in rural areas.

Link here

Excerpt:

Research we have done here at Iowa State has shown that job growth in one county leads to population growth in a two county radius. We also found that even in rural areas, agglomeration economies are important for new firm entry. That means that some local labor centers such as Carroll, IA can attract firms and the small towns in a two county radius rely on Carroll for jobs.

Economics Teaching Workshop

On February 21st, I'll be presenting on ways that economics educators can improve their teaching in Detroit, Michigan.

WW Norton is hosting, and the event is free for any economics educators who would like to attend.  It should be a great workshop!

Seattle teenager fired from job for wearing Broncos' jersey

Link here

KING5 reports 17-year-old Nathaniel Wentz claims his employer, Odyssey 1 family entertainment center, told its workers they could wear football jerseys to support their team in the NFL playoffs Sunday. 

Wentz, a diehard Broncos fan and a high school quarterback, tells the station he wore a Denver jersey to support his squad in its matchup against the New England Patriots. However, Wentz says his boss told him only Seahawks jerseys were allowed and he must go home and change.

Later, he was fired for this transgression.

My thoughts on when it's OK for a boss to fire somebody in a manner like this:

1. The customers may have been Seahawks fans, and by wearing this jersey he decreased the customers' happiness.

2. The boss (probably correctly) views that any person living in Seattle that wears an opposing team's jersey (in the playoffs) to work lacks common sense and shouldn't be retained.  (That said, as a teenager, I did things far worse than this.  I likely still do today.  :) )

3. He irritated the boss, so the boss fired him.  The worker has the right to leave a firm at anytime, and the firm has the right to fire the worker at anytime.  The boss may suffer in the marketplace if he/she fires good workers without cause, and the market will take care of issues like this..

P.S. I don't have a team in the Super Bowl, but I'm probably cheering for the Broncos because I like Payton Manning.  However, as a father of a son with hearing aids, this story makes me think about cheering for the Seahawks.

In defense of sweatshops and the 1%

1. Video in defense of the 1%.  Only one minute, but this guy makes me laugh.  He's awesome.





2. In defense of sweatshops

Which passes the benefit-cost test more easily: Alcohol or marijuana?

Link here

Excerpt:

Now that the War on Drugs seems to be winding down — and it’s about time — we’re going to hear more about the benign effects of smoking pot when compared to the hazards of consuming alcohol. This is a longstanding talking point for legalization advocates — and for many people a handy justification to sign on to the cause. For others, it’s a way to create an equivalence between one of man’s greatest innovations and what amounts to a big waste of time.

What is the economic impact of the Super Bowl?

Link here to article

This article focuses on the economic impact for the area that's hosting the game.  In theory, the area hosting the game could see a positive economic impact if it draws in visitors it otherwise wouldn't have.

What about the US as a whole?  For the US the economic impact of the Super Bowl is close to zero.  Many people will spend significant amounts of money on travel, tickets, etc.  Others will spend lesser amounts on food items for parties and souvenirs.  Each dollar spent is one dollar less to spend elsewhere, however, so the overall impact to the economy is negligible.

Sean Hannity leaving New York?

Sean Hannity leaving New York?

The article starts:

In a radio interview last week, Gov. Andrew Cuomo (D-NY) made some disparaging comments about pro-life conservatives, stating they had “no place in the state of New York because that’s not who New Yorkers are.”

Those remarks drew the ire of conservative talk show host Sean Hannity, who on his Monday radio program declared he had enough and was abandoning his home state, where he hosts his widely syndicated radio show and his high-rated Fox News Channel television program.

“Now I want to tell you something – I was born and raised in New York,” Hannity said. “I want you to know that and I can’t wait to get out of here. I really can’t. I don’t want to pay their 10-percent state tax anymore. I live in the second-highest property taxed county in the entire country in Nassau County. I can’t wait to sell my house to somebody who wants it. I can’t wait to pay no state income tax down in Florida or Texas. I haven’t decided yet, but I’m leaning Florida because I like the water and I like to fish.”

My thoughts:

1. Governor Cuomo, saying there is no place for people who disagree with him, is a lousy human being (and not a bright politician).

2. This shows that tax rates matter!  Hannity will likely get a $1 million per year raise by leaving New York.  The highest state tax rate is almost 9%, and New York City taxes another 3% of incomes. Just ask France about whether this can matter.

3. New York politicians shouldn't think that financial firms will stay in NYC regardless of tax policies.  There's no reason to think that Wall Street will remain a dominant financial center forever.  Why couldn't businesses choose to go to Florida instead?

Misleading economic impact study and other assorted links

1. An interesting Marginal Revolution post on tennis wagering.


2. Lies, damn lies, and economic impact studies

Excerpt: 

The S.C. Sea Grant Consortium generated $8.9 million in economic impact in South Carolina in 2012, and $11.5 million in the tri-state region, according to a Sea Grant-funded study completed by the University of South Carolina Darla Moore School of Business.

In addition, the study notes that every $1 the state invested to support the consortium and its coastal and ocean research, education and outreach activities generated $26 in statewide economic output.

The actual economic impact figure they report may or may not be accurate.  But the statement about the state funding is downright misleading.  You see this with universities and other entities often.  So often, in fact, that Siegfried et al.'s published review on economic impact studies discussed it here:

Regarding presentation, studies of public universities should stop claiming “For every $1 the state legislature spends, the university returns $X dollars to the state…” At best such statements are meaningless. At worst, they may delude decision-makers into thinking (incorrectly) that the marginal return on investment in higher education is several orders of magnitude more than returns on other public investments. If the returns to higher education were as high as these statements imply, states and the private sector would be building universities frantically.

3.Senator Mike Lee (Utah) writes about the higher education system.

Excerpt:

Under the federal Higher Education Act, students are eligible for Title IV student loans and grants only if they attend formally accredited institutions. That makes some sense, for purposes of quality control. Except that under the law, only degree-issuing academic institutions are allowed to be accredited. And only the U.S. Department of Education gets to say who can be an accreditor.

That is, the federal government today operates a kind of higher-education cartel, with federally approved accreditors using their gatekeeper power to keep out unwanted competition.

Quoted in article on bitcoin

Link here.  A local business owner started accepting bitcoin and I was asked to comment on this.  

Excerpt:

“A currency pretty much by definition is anything used to facilitate transactions. So by definition Bitcoin is currently a currency,” he said. “The U.S. dollar only has value because people think it will have value in the future.”

Great blog post by Kevin Erdmann on minimum wages and teenage labor

Link is here

The author shows how teenage employment fluctuated during seven different minimum wage increases.  He has graphics for all seven, but I think this one below that he includes does a great job summing up the evidence:

Source: Idiosyncraticwhisk.blogspot.com

The trend after a higher minimum wage is enacted clearly is followed by a decrease in teenage employment.

PA House Democrats line up to raise minimum wage

I'm quoted in this story.  Link here

Excerpt:

Most research suggests that hiking the minimum wage forces some people out of work, though a few studies show that raising the minimum wage doesn’t translate into lost jobs, said Matthew Rousu, an economics professor at Susquehanna University.

Review of Sandefur's "The Conscience of the Constitution"

Over my winter break, I read Timothy Sandefur's The Conscience of the Constitution: The Declaration of Independence and the Right to Liberty.  Those who read this blog regularly will know that I met Mr. Sandefur when he came to visit Susquehanna University and gave a talk on The Right to Earn a Living.

This book is outstanding.  For a book examining legal issues, it's quite easy to read.  (And easier than his book "The Right to Earn a Living", which is good, but uses more legalese.)  For non-lawyers, The Conscience of the Constitution has a lot of value in thinking about how our government was formed and should work and why.

Even if you don't intend to read this book, download the preview of it onto an e-reader.  Most e-books allow you to read the first 5-10% of a book for free before purchasing.  Reading that alone is valuable as this introduction is outstanding.  It starts to examine the (timely) issue of order vs. freedom.  Is our governments main responsibility to provide order?  Sandefur thinks no.  It should only provide order when needed to ensure as much freedom as possible.

I admittedly haven't spent too much time thinking about this issue.  So, on page 5, when Sandefur put in a quote from Supreme Court Justice Breyer indicating that democracy was the most important part of the constitution, I initially didn't think that was a problem.  Sandefur convinced me otherwise.  As he writes: "the word democracy is nowhere to be found in either the Constitution or the Declaration of Independence".  That makes Breyer's answer more puzzling.  His answer seems downright disturbing when you realize that Breyer thinks its acceptable for 51% of people to take away freedoms of the other 49%.

The whole book is good, so I'll just comment on one other specific item.  Chapter 5 shows that the debate over judicial activism really boils down to issues of "democracy vs. freedom" as well.  Here he brings up public-choice theory (which, speaking loosely, examines how governments fail).  When governments can redistribute wealth, those getting the wealth will do what they can to keep that government in power.  What you end up seeing is rent-seeking behavior by some individuals and corrupt politicians in power.  Sandefur then goes on to say how judicial review, if applied properly, could prevent this.

It's rare to see scholarly books that are accessible to people outside the field.  This book is exactly that, however, which is part of the reason why I recommend it.

China holds record US debt, and other assorted links

1. Bob Murphy on the folly of those supporting minimum wage increases.


2. China's holding of US debt reaches record levels.

This shouldn't be a surprise, as our debt has gone up dramatically during the last few years.  We'd be crazy to think that more debt wouldn't be owned by foreigners.  However, this has big implications.  When I teach macroeconomics I have discussions about why one should be more-concerned about the debt and why to be less-concerned about the debt.  When I first started teaching, one reason to be less-concerned about the national debt was that it was mostly owned by other Americans.  The reason is that in the future, paying down the debt meant some Americans are paying other Americans, so the country as a whole wouldn't be hurt.

When more debt is owned by foreigners, the national debt is more problematic.


3. Obama says he'll change laws himself, without congress.

How should one react when a president admits he'll break the law?  I'm a bit speechless.

A problem I'm giving my game theory students ... survivor pools and probability

You are in a football survivor pool.  You have to pick a winner each week, and you can never repeat a choice.  Once someone you pick loses, you’re out.  It’s down to two players from about 1,000 starting entrants.  Note: If you both choose a loser, you tie in the contest.

Note that based on previous picks, you can’t pick New England and your opponent can’t pick Seattle.

Games this week are: Seattle vs. San Francisco and Denver vs. New England.  The winners of these games play in the super bowl.  Based on all information, we know that Seattle beats San Francisco 64% of the time and Denver beats New England 68% of the time. 

In the Super Bowl, there are four potential matchups.  Here are the estimated probabilities of each team winning based on the matchup:

Seattle beats New England 65% of the time

Seattle beats Denver 60% of the time

San Francisco beats New England 60% of the time

San Francisco beats Denver about 50% of the time.

Your task: Who should you pick this week and why?  Be thorough and show your work

Study finds proposed minimum wage will cost over one million jobs

That's the result of a new study. Link here.

Excerpt:

“No amount of denial by the president and his political allies — and no number of ‘studies’ published by biased researchers — can change the fact that minimum wage hikes eliminate jobs for low-skill and entry-level employees. Non-partisan economists have agreed on this consensus for decades, and the laws of economics haven’t changed,” Michael Saltsman, research director at EPI, said in a statement.

Learning economics through pictures: $15 minimum wage

Source: weknowmemes.com

Firms have a decision on how to provide their products: they can use labor (workers) or they can use capital (machines).  For some tasks, the choice is pretty obvious.  For home construction, much labor is required.  For farm production, its mostly capital.

For many tasks, however, the decision is close, and it is possible to use either people or machines.  This is true of many jobs that need minimum wage workers.  A $15 minimum wage will make machines more cost-effective.  If the minimum wage increases, we'll see more machines replacing workers, and an increase in unemployment among low-skill workers.

Economists supporting minimum wages?

Some economists sign a petition in favor of higher minimum wages.  Link to article here

These economists are ignoring the most comprehensive research, by Neumark and Wascher, which provides a detailed and object review and analysis of the literature.  Neumark and Wascher do an outstanding job summarizing the scholarly articles that have studied minimum wages. (And they find that the "consensus" is that minimum wages are damaging in many ways.)

These economists who signed the petition also ignore new scholarly work that shows that the biggest effect of the minimum wage is in the long term, which won't be easily estimated in the short run (which most studies are).

Many of these economists just ignore or place a lower weight on the evidence above.  I don't have as much of a problem with them, as this is a scholarly disagreement. Many of these people, however, are putting their politics ahead of objective research.  That isn't good.

This graph says all you need to know about the effects of the minimum wage:

Confirmed illnesses from genetically modified foods

Click here for a complete list of confirmed cases of people who became sick because our food supply contains genetically modified foods.

Govt. regulations for a "Made in PA" label? ... And other links

1. Politician wants a "Made in Pennsylvania" label and standard.

Excerpt:

Under Goodman's proposal, the state Department of Community and Economic Development would create a website detailing products made in Pennsylvania and information on their manufacturers. It would serve as a reference for consumers and as a portal for businesses seeking finished goods or component sources for their own production.

Qualifying manufacturers also would be able to place a blue-and-gold "Made in PA" label on products that are manufactured and sold in-state.

This is a useless idea that would waste taxpayer money.  This program would:

1. Create a new government bureaucracy.
2. Convey information that firms could include now anyway on their labels without a government program.

It may go without stating, but any government program that has no benefits but tremendous costs is bad.

2. Greg Mankiw with a well-written piece on why minimum wages are a bad way to help the poor. 

Excerpt:

Before turning to President Obama’s proposal, let’s consider two other possibilities. For lack of better terms, call them Plan A and Plan B:

PLAN A The government subsidizes the incomes of low-wage workers. These subsidies are financed by increasing taxes on middle- and upper-income Americans.

PLAN B The government again subsidizes the incomes of low-wage workers. But under this plan, the subsidies are financed by taxing those companies that hire low-wage workers.

3. Here's a beneficiary of the govt. shutdown.  State park attendance totaled a record 8.8 million visitors last year.

Some organizations have tried to discuss the economic costs of the shutdown.  Let's not forget that many entities benefited from it.

The economic impact of paid parental leave

How many ways is this economic impact study flawed?

Excerpt:

A new study on Connecticut’s paid sick-leave law concluded that the measure had little economic impact on employers in the state.

The preliminary report, released Monday by the  Center for Economic and Policy Research in Washington, D.C.,  surveyed 251 employers since Connecticut’s law — passed in 2011 as the first of its kind in the U.S. — went in to effect in 2012.

I think this was the hope of the organization, as little economic impact means they can say: "it doesn't hurt firms, but helps families, so we should pass this law."

Why do I put no faith in this paper? let me count the ways ...

1. A quck google search shows this is a left-leaning think tank that would advocate for this policy without any numbers.  They support higher minimum wages, and have a picture with the name "sprawlmart" on their webpage.  They aren't objective.

2. A survey?  So many problems ...
-- They may or may not have talked to the person in charge
-- The person they spoke with may have tried to guess at what the caller wanted to hear and then responded accordingly.  There are hundreds of articles on how responses to surveys are biased.
-- Given we know this institutes biases, were the data collected by an independent organization?  Or, at least double-keyed?  (Or the phone calls recorded?)  How do we know this isn't just made up?

3. You can't accept a null hypothesis.  Statistically, you start out with the assumption of no difference and look for enough evidence to reject that assumption.  This isn't a statistical analysis, but an exercise in hand-waving analysis.

The biggest economic effect isn't discussed.   It will be that firms will be more hesitant to hire somebody if there's a reasonable probability they'll be forced to pay them sick leave.  That will push the demand, and wages, down for these workers.  Further, I don't think many firms will admit this.

You can ignore the laws of demand and supply, but it doesn't mean they go away.

Do Likert scale scores over-estimate behavior changes?

This is the question I examine, along with my coauthor Jim Thrasher, in our newest publication at Health Education Research.  The title is Examining the relationship between psychosocial and behavioral proxies for future consumption behavior: self-reported impact and bidding behavior in an experimental auction study on cigarette labeling.

Here's the abstract:

Experimental and observational research often involves asking consumers to self-report the impact of some proposed option. Because self-reported responses involve no consequence to the respondent for falsely revealing how he or she feels about an issue, self-reports may be subject to social desirability and other influences that bias responses in important ways. In this article, we analyzed data from an experiment on the impact of cigarette packaging and pack warnings, comparing smokers’ self-reported impact (four-item scale) and the bids they placed in experimental auctions to estimate differences in demand. The results were consistent across methods; however, the estimated effect size associated with different warning labels was
two times greater for the four-item self-reported response scale when compared to the change in demand as indicated by auction bids.  Our study provides evidence that self-reported psychosocial responses provide a valid proxy for behavioral change as reflected by experimental auction bidding behavior. More research is needed to better understand the advantages and disadvantages of behavioral economic methods and traditional self-report approaches to evaluating health behavior change interventions.

What I've been reading

With winter break, I tend to stay busy but shift my work load.  The breaks give me the opportunity to read a few books.  Some are more for entertainment, while others more for work.  Here's the list:



1. Double Down.  Game Change 2012.

The authors are leftists, but once you get beyond that its pretty good.  The story of how all the Republicans who could have seriously challenged Romney (and/or Obama) decided not to run was quite interesting.

2. The Bet

A fascinating book telling the story of a population-control advocate and an economist.  The population control advocate thought that science would stop advancing lead to mass-starvation.  He was a Malthusian, basically (called neo-Malthusians in the book).  The economist disagreed.  The Malthusian echoed many of the wolf-cries you still hear today from the left.  (If we don't do something now, in just five years things will be terrible.)  Of course, this story started in the late 1960s, which puts some well-needed perspective on the cry-wolf mentality of many today.

3. College Unbound

An outstanding look at the current state of higher education with thoughts on what will happen in the future.  Susquehanna University is mentioned in the list of schools that are doing something extra-special to give students who attend value.

4. The Assumptions Economists Make

Boring, dry, and not that useful.  The author is sometimes successful at showing how assumptions might be unrealistic.  However, I am not at all convinced that we should reach an alternative conclusions.

5. Inferno

An entertaining book, although coincidentally, the main antagonist is also a population-control nut job.  

6.  Ship it Holla Ballas!

An absolutely wonderful book for any poker fan and probably for others who just enjoy a good story..  The author describes the lifestyle of a group of young poker players as they discovered they could do well with Internet poker.  It's a fun and quick read, and - unlike many other poker books I know - seems 100% consistent/true based on stories I've heard/read.

Learning economics through pictures: free markets vs. communism/socialism

Here's a picture of North Korea vs. South Korea at night: 

Source: Anthony Watts


We see virtually no lights  in North Korea, while South Korea is well-lit.  North Korea is a centrally planned economy, whole South Korea is more market-based.  You could call North Korea communist or socialist, and either term is probably OK.  This picture shows the devastating consequences of a centrally planned economy.

A centrally planned economy relies on central (government) planners to determine prices (and incomes).  The market system is removed, and central planners decide on what should be produced.

To help understand the difficulty of this task,  I tell my students to imagine they are central planners of a town of about 5,000.  Then imagine purchasing pants for everybody in the town.  Here are the questions you'd have to ask:

* How many pants should you purchase?
* What sizes would you purchase?
* What type of variety (jeans, khakis, etc.)?
* And more

Even for a small town, this would be incredibly difficult, and we've only focused on one item.  Imagine that you're on this committee and you have to deal with the coordination of every product in the economy.  It is an impossible task to do perfectly, and incredibly difficult to do well.

Even if you're not corrupt (and we know some politicians are corrupt), you won't be able to do as well as the market system at setting prices.

Nothing has done more to encourage economic growth than free markets.  Part of the reason is it can handle all these production and allocation decisions seamlessly.  It also encourages entrepreneurship, which further affects growth.

Over a number of years, the differences become noticeable, even by satellite pictures.

Should we pay our students?

Should we pay our students?  How Monetary Incentives Affect Students' Learning

That is the title of the poster I'll be presenting this Saturday at the ASSA meetings in Philadelphia.  We ran a prisoner's dilemma game in principles of economics classes and varied whether the students were paid for playing the game, or whether the game was hypothetical.

Below is a preview of our findings:

Overall, using games that employed monetary incentives lead to higher test scores, but not for students at all universities.

The session is at 2:30 Saturday afternoon.  Hope to see you there!