On rationality

I bought two books during the winter break: one is Evolution of Consciousness which I just finished, and the other one is The Story of Philosophy. I did not plan to buy them when walking into the bookstore: I just bumped into them and found them quite interesting.

I think the part of the reasons I was attracted to the first book was that I have always been a big fan of evolutionary theorizing, be it biology, psychology, fitness, or sexuality. Now this is about how our mind becomes what it is now. The basic idea is that we are stuck with the Same Old Brain(SOB) as that of hunter-gatherers, our mind is adaptive, but not that rational, at least not as much as we would assume, basically it's a squadron of simpletons: many individual minds as opposed to a unified one.

The other book is about philosophy, kind of the opposite of the first book: philosophy, after all, is all about rationality. We ask the most fundamental questions about the universe, knowledge, and how people ought to live in the society.

On surface these two books might not appear related to economics, but they both touch upon on the most important( and controversial, you might say) assumption in economics: the assumed rationality of utility-maximizing individuals. As always I am kind of in-the-middle-of-the-road guy, my take on rationality is two-handed: rationality is what has made human achievements possible, but probably we have overestimated our rationality.

Give cash or buy a gift?

Here is the economics of gift giving from Mankiw. In short, you buy a gift when you need(want?) to signal something to the recipient, and give cash when your affection is not questioned.

People care most about the custom [of gift giving] when the strength of affection is most in question. Thus, giving cash to a girlfriend or boyfriend is usually a bad move. But when college students receive a check from their parents, they are less often offended. The parents' love is less likely to be in doubt, so the recipient probably won't interpret the cash gift as a signal of lack of affection.

Does the popularity of gift cards mean that people are increasingly seek a middle ground?

Envy is local

I saw the new Bond movie, Casino Royale, the other night. It's a very entertaining movie and I enjoyed it very much. As usual Bond's got everything a man would dream for: smarts, the look, the body, and of course a absolutely stunningly beautiful woman. And I have to say that I am a man and I am no expection to it. But the moment I walked out of the theater, I knew it's just a movie: Neither would I ever come anywhere close to Bond, nor would I ever get my hands on such a beautiful woman.

The next morning I went to Barnes & Noble to spend some quiet time there. As one of my tradition I stopped by Dennys' for a hearty breakfeast before my readings. Usually I am quite strict with what I put into my mouth since I try my best to follow the evolutionary diet, but once a while I cut myself loose and eat whatever I desire. So I ordered the Ultimate Omelette with Hash Browns. As I sat there and waited for my order, I could not help noticing that everyobdy there except me were overweighted to some extent: they either had trouble sitting down or getting up. And I admit that a sense of good feeling arose from that and I enjoyed it.

That reminded me of something Cowen said about envy: Few Americans resent Bill Gates or Warren Buffett. The real definition of a wealthy man is one who earns more than his wife's sister's husband.

Incidentally this week's Economist runs a cover article about happiness, and here is the gist: Doing well is not enough: we also want to do better than our peers. This status anxiety runs deep.

Another support for evolutionary fitness

From NY Times' ideas of the year: Empty Intelligence:

Based on the experiments with mice, scientists find out that the hungry mice are smarter and sharper, and they suspect that this is also true for human beings.

“When you are hungry, you need to focus your entire system on finding food in the environment.” In fact, some biologists believe that human intelligence itself evolved because it made early hominids more effective hunters, gathers and foragers.

Facing the LSAT, a final exam or a half-day job interview? Go in mildly hungry, not carbo-loaded for endurance, and snack to maintain that edgy state.

I will find out soon how I did in last night's exam: I was quite hungry walking into the classrom.

A little bit of something could be dangerous

There have a been a lot of discussion on the issue of minimum wage in the econ blogspere even since Dems took over the Congress. According to one survey among economists, majority of them are not in favor of setting minimum wage due to the concern of possible reduction in employment. Probably this is one of the least controversial issues for economists(another one could be free trade).

The way the impact of minimum wage is explained to the public is often the Econ 101 style: supply and demand with the implied assumptions of perfect competition and labor market equilibrium. Those who are against increasing minimum wage treat this simple exposition as Bible and dogmatize it that setting minimum wage will always lead to welfare loss. Those who are in favor of it, on the other hand, attack the assumptions here and claim that this simple supply and demand explanation does not hold water in the real world.

The actual theory of minimum wage is actually far more sophisticated in modern labor economics, and the conclusions are more subtle: it really depends, but it's more likely to cause harm than not.

There are there phases of understanding: simplistic, complex and profoundly simple. Too often people are trapped in the first phase and don't know that they don't know the real issues. I am all in favor of people having the basic economics, but at the same time there is a lurking danger of a little bit econ 101.

Update: Right after I posted this one, I found out there is a surprisingly similar post on this. Of course Dr. Chinn puts it in a much more elaborate way.

It's scary

The eviornmental problem in China is staggering:

...[r]ealistic estimates put environmental damage at 8-13 per cent of China’s GDP growth each year, which means that China has lost almost everything it has gained since the late 1970s due to pollution.

One-quarter of China’s people drink substandard water; one-third of urbanites breathe polluted air. Moreover, the country recently witnessed a spate of environmental accidents. Indeed, on average, China suffers a major water pollution accident every other day.

I am all for establishing strong property rights for enviornment quality and natural resources, without which it would be so hard to solve such enormous externalities.