Quotes of the night

"And, in the end, there were, perhaps, limits to how much he could let himself change." Lucien

"I wanted a tale of graceful ends. I wanted a play about a king who drowns his books and breaks his stuff and leaves his kingdom. About a magician who becomes a man. About a man who turns his back to magic. Because...I will never leave my island. I am.... in my fashion... an island. I am not a man. And I do not change." Dream

Math is hard.

New York Times online headline, as of 10:33 am:

"Sales of Previously Owned Homes Plunge to 1989 Level"

The actual underlying fact to which the headline-writer is referring:

"The National Association of Realtors said yesterday that sales of existing homes, which account for the vast majority of all home sales, fell 8.4 percent in March. That was the steepest monthly decline since January 1989." [emphasis added]

"Steepest monthly decline since 1989" and a decline "to 1989 levels" are concepts so unrelated that, even after years of quantitative howlers, I'm genuinely surprised at the mistake.

Somebody's got to pick the ten-dollar bill up off the sidewalk

Via Brad DeLong, this five-year old piece from Justin Fox that contains the following:

The dirty little secret of the behavioralists is that, for all their work on investor irrationality and market anomalies, they still believe that markets work pretty well and that trying to outguess the collective wisdom of millions of investors is usually futile.... But efficient-markets theory has a dirty little secret, too, which is that for the market to remain efficient, there have to be lots of rational investors who believe enough in the market's inefficiency to spend their careers trying to beat it....

It seems to me that this is true much more broadly than in financial markets. It's long since been recognized that entrepreneurship is, from the individual perspective, something like ahybrid between buying a lottery ticket and doing exceptionally generous charity work-- because few successful innovators are able to capture any large share of the social value of their innovation, so they bear the downside risk of the bankruptcy that is the fate of such a huge number of entrepreneurs without the full upside potential. The ones who seem to win the lottery by really generating a huge and important new idea rapidly see their profits for that idea whittled away by imitators. (Is this in Schumpeter? Or was this not fully put togther until Knight? I forget.) But we need the steady flow of cockeyed optimists to successfully identify potential innovations; and it's only the flow of them that suppresses the profits of each.

Opening a restaurant is the classic case-- the expected return of this behavior is large and negative, and if one day someone in your family comes home and announces a plan to do it, you should hold their head under running water until they sober up. The expected value of their income would be higher if they went and bagged groceries. But a) this is true because competition in the restaurant business is so intense, which is to say because there are so many other foolish people as well, and b) it's very good for the rest of us that there are these foolish people. Good for me, anyways; my restaurant-rich neighborhood always has places closing, but also always has new places opening...

Has anyone performed the standard behavioral economics experiments on defined subsets of persons such as entrepreneurs or day traders? Do the standard results (e.g. loss aversion) hold?

Infection

Via Hit & Run, a Wash Times review of Landsburg's More Sex is Safer Sex:

The "More Sex" thesis: If prudes occasionally slept with strangers, it would slow the spread of STDs.
Here's how it works. One such prude walks into a bar, and he's uninfected. If he takes home an uninfected woman, great -- he distracted her from a potential disease carrier. If he gets herpes, that's also great, because he's sexually conservative and won't pass the infection along very often. Better him than someone with less self control.
Either way, society benefits when the chaste open up slightly. "Slightly" is key, because too much "openness" spreads more disease than it diverts. After studying AIDS in England, Harvard's Michael Kremer put the cutoff at 2.25 partners per year.

Via my household expert in the mathematics of STDs, I've learned the following: Inefctivity per sexual encounter matters tremendously. (I have no idea whether Landsburg notes this; the review doesn't.) HIV is much, much less infective than herpes. Herpes spreads incredibly quickly by heterosexual intercourse; HIV doesn't. On average it takes a lot more than a one-night-stand to heterosexually contract HIV. If 2.25 partners per year is really the right equilibrium figure for HIV, then the figure for herpes would be a lot less-- maybe two orders of magnitude less.

I'll try to lay hands on the book itself and follow up. But at the very least, no monogamous readers should read this and decide to go have a one-night stand on the theory that they're slowing the spread of herpes...

Advise and consent

Fabio Rojas resumes his series of posts of advice for grad students with one on choosing an advisor.

Piled Higher and Deeper cautions against doing too much of the kind of homework Fabio recommends. I'd err on the side of too much not too little homework, here; I think this is a rare case in which PhD gets things noticeably wrong (though in the service of a funny and true point about advisee-advisor life). As soon as a grad student sees an advisor's CV, which is a pretty routine occurence, he or she would fall into the "google-stalking" category-- that can't be right.

Conference: "Children, Family and the State"

May 18-20, 2007, at the Centre de Recherche en Ethique a l'Universite de Montreal [CREUM]. Participants include Crooked Timber's Harry Brighouse; David Benatar; Amy Mullin; David Archard; Rob Reich; Eva Kittay; Sally Haslanger; Scott Forbes; Elizabeth Brake; Samantha Brennan; Sarah Stroud; Steve Lecce; James Dwyer; Daniel Weinstock; Anne Alstott; Andrew Williams; Colin Macleod; Jody Heymann; Martha Friendly; Nico Trocmé; Shauna Van Praagh.