Tag Archives: Economics

Numbersense – Kaiser Fung

“Big Data has essentially nothing to say about causation. It’s a common misconception that an influx of data flushes cause-effect from its hiding place.”

You recently graduated from a law school, and are still searching for a job. You get a voicemail from your school telling you that they are conducting a survey of whether recent graduates have gotten jobs. If you do not respond, they will assume you have a job. Do you bother to call them back to tell them the disappointing news?

Odds are, you don’t. That’s why law schools use this and other techniques to game the law school metrics, disingenuously boosting their entrance GPAs and LSAT scores, reputational reviews, and post-graduation employment statistics. Too often, unfortunately, those metrics are taken at face value.

In Numbersense, Kaiser Fung argues that we are in the age of Big Data – an age of extensive, personalized information useful for purposes including marketing, economics, and sports, but also a source of confusion, doubt, and increased evidence for theories both good and bad. Numbersense is the willingness to probe behind headline figures and decide if the data is actually meaningful, whether law school statistics or the unemployment rate. We turn to data for answers, but it is too often overwhelming, misleading, or evidence only of correlation, not causation.

The last point is perhaps the most critical. Target, a large shopping chain, was so effective at predicting pregnancy from consumption patterns they accidentally informed parents before the daughter had herself let them know – a triumph for Big Data, if something of an awkward one (details can be found in Charles Duhigg’s report here). Unfortunately, this doesn’t mean buying a large purse causes pregnancy, but simply that they correlate. Regardless of the size of the data set, Fung argues, Big Data shows correlations, not causations.

Big Data has become something of a buzzword in recent years, and the explosion in available information is indeed of huge importance. It is not, however, a panacea, and Fung rightly emphasizes this. Whether giving a how-to manual for Law School Deans looking to game the system, criticizing the Groupon business model, or studying obesity, Numbersense is an entertaining read. It will likely have the most appeal, however, to non-statisticians: Fung has succeeded in creating an almost entirely non-mathematical introduction to big data, explaining the challenges of econometrics without requiring knowledge of statistics, and for that reason alone the book is a worthwhile read. Understanding the difference between headline and core inflation may not induce murder-mystery suspense, but Fung makes it both interesting and enjoyable.

Still interested? Keep reading (or in the UK or Canada). Or, sign up for the Subtle Illumination email list to your right! Disclosure: I read Numbersense as an advance reader copy – it is released tomorrow.

Poor Economics by Banerjee and Duflo (1)

Part 2 of review available here.

“The ladders to get out of the poverty trap exist but are not always in the right place, and people do not seem to know how to step onto them or even want to do so.” – Banerjee and Duflo

I’ll be posting a review of Poor Economics on Sunday, but it’s looking like a long one, so in the interim I thought I’d post a summary of their five lessons for economic development, and leave discussion to Sunday.

The poor often lack information or have false beliefs, leading them to do things like ignore potentially useful dietary advice.
The poor are responsible for far more decisions than comparable households in the West, to their cost. We take sanitization of water or the removal and treatment of sewage, for example, for granted: for the poor it can be a conscious choice. Too many conscious choices can be overwhelming, and reducing the number of decisions that need to be consciously made is no more patronizing than sanitizing household water in the US.
There are often good reasons for some markets for the poor to be missing, and so we can’t assume they will always self-form or should be formed. A health insurance market for the poor, for example, though of potential benefit, has struggled to form because the insurance options that can be sustained by the market are not what the poor want.
Poor countries are not doomed to failure because they are poor. We often hear of the failures of aid programs, but in many cases those failures are avoidable through small design fixes, rather than grand institutional change of the social and political structures.
Expectations of outcomes can often become self-fulfilling prophecies. Children drop out of school because they don’t expect to be good at it; adults stay in debt because they don’t expect to be able to stay out of it. Getting a virtuous cycle started can be enormously powerful.

Number 5, I would argue, is a lesson for life, not for development, but nevermind.

As we’ll find out on Sunday, the foundation of their book, however, is that these are not general rules applicable everywhere. Instead, they argue that development cannot be conducted by universal rules and general theories. It must be adapted to suit context, culture, and location, all of which require data, not ideological theorizing.

You can read part 2 of the review here. In the meantime, keep reading (or in the UK or Canada). Or, join the Subtle Illumination email list to your right!

Using Games in Life? Reality is Broken by McGonigal

“The opposite of play isn’t work. It’s depression.” – Brian Sutton-Smith

When was the last time you leveled up? Found a power up? Got a wisdom +1? These motivate us in video games, and Jane McGonigal argues in Reality is Broken that actual reality needs more of them. Millions of people use games to escape reality – why, she asks, can’t we use games to improve reality?

McGonigal thinks games can confer an evolutionary advantage on those who play them, helping us develop our strengths, treat depression and obesity, foster collaboration, increase democratic participation, fix education, and maximize our potential as human beings. As a result, Reality is Broken is stuffed full of interesting examples and facts, and the book shines because of them.

Whether discussing poker in graveyards to remind ourselves of our own mortality; Chorewars creating quests like doing the laundry; Quest to Learn as the framework for a charter school (with among other things students teaching concepts to AI avatars as quizzes); or God games like the Sims, Black and White, and Spore fostering the long view and developing ecosystems thinking, the games she analyzes are exciting. 69% of heads of household in the US play video games, and 97% of youth; this is a resource, she argues, we need to tap.

I’m always a little nervous about these kinds of claims; they remind me of Play Pumps, the systems installed in parts of Africa in which children playing could pump water. When the children bored of the idea, women were left to turn roundabouts by hand, making their task even more laborious. That said, games also have enormous potential to change our lives for the better.

My takeaway though is optimism about humanity. Whether in games or in real life, it’s inspiring to see millions of people seek out challenges to test their limits, working together to build things larger than themselves. World of Warcraft Wikis may not be what all of us would choose to build, but it is nonetheless a common project, and in scale an awe-inspiring one.

Want more games in your own life? Keep reading (or order from the UK or Canada).

Explaining Why Nations Fail – Acemoglu and Robinson

Acemoglu and Robinson present in Why Nations Fail: The Origins of Power, Prosperity, and Poverty an important idea: that it is institutions that determine whether countries are rich or poor. When institutions concentrate power in the hands of only a few, nations fail. Unfortunately, their book can also be frustrating – their focus on institutions can feel like it blinds them to other possibilities, and as a result their examples, though fascinating, can feel repetitive.

A&R argue that political and economic institutions can be extractive (designed to extract resources and centralize power in an elite who will then oppose change or progress) or inclusive (decentralizing power and allowing individuals economic autonomy). Both types of institutions, they argue, must be inclusive for long run prosperity. It’s an important division, and one that has a lot of explanatory power: anyone who’s crossed the American border with Mexico can’t deny that it is the institutions, not the fifty feet of distance, which matters.

The bulk of the book provides examples. Their studies are both well written and compelling, but they also make me wonder whether institutions are really the distal cause: apart from the simple case of countries with a colonial past, there is little discussion of what leads to good institutions. When they do raise the issue, they seem to implicitly assume that institutions are chosen rationally by elites, based on the cost and benefits of each type, an assumption that seems unconvincing.

Economists and development experts often underrate the importance of institutions, and so Why Nations Fail makes a critical contribution. It also makes a strong argument against the centralization of political power, which can be tempting in the short run but corrupts institutions and social norms in the long run. It’s engagingly written and full of interesting facts, and so is well worth the read for anyone remotely interested in these issues (and everyone should be). It just doesn’t seem to entirely meet its (admittedly ambitious) mandate: to explain why some nations fail and some succeed.

Want more enlightenment? Keep reading (or order from the UK or Canada). Why Nations Fail is certainly worth a look.