The cultural foundations of capitalism

This is always an interesting topic for me. Here is Cowen's point:

It is harder to convince people to place larger abstract ideas above immediate duties to friends, family, and clan, but that is indeed the central feature of the problem.

A related topic is the cultural foundations of democracy, which I think is a more contraversial issue.

Three books to read this summer

I just ordered three books from Amazon, can't wait to get my hands on them...

Space and Place: The Perspective of Experience by Yi-Fu Tuan

Cosmos and Hearth: A Cosmopolite's Viewpoint by Yi-Fu Tuan

Stumbling on Happiness by Daniel Gilbert

Fasting

I don't have a lunch box today, so most likely I won't eat anything today until dinner time. Random fasting is one key component of Evolutionary Fitness. It makes a lot of sense if you try to image the life of a caveman. There must have been some stretches of time when food was not available. The sustained state of energy deficit servers a vital purpose for our fitness: it forces our body to call for its reserve to deal with this "negative energy shock", after all vitality to a large extent is defined as the ability to handle shocks.

Fortunately or unfortunately, modern men are in constant state of energy surplus, food is available to us everywhere, anytime, right within the reach of our finger tips. We are pounding our body with incessant "positive energy shocks": every time you gulp down a can of sugary drink, your blood sugar level shoots up to a level our body has not yet evolved to handle.

I would argue that our body is more adept at handling negative shocks than positive ones: there were feasts when our ancestors captured big games, but more often they were hunting with a empty stomach. Being hungry and physically active might have played an important role in our evolution.

Personally I feel very much refreshed and energetic the next day after fasting. I guess too much food is just like poison -- you need to give your body a break once a while. Or for that matter too much of anything is poison, perhaps.

I don't have a problem with that, but

This is about how to enjoy life, I am all for it:

[...I] know what I like and I’m going to keep enjoying them until the grim reaper shows up. Because it’s the sensual pleasures, like food and drink and sex, that make life worth living.

Maybe we could all live 20 years longer if we obsessed over carbohydrates, hung out in oxygen bars and exercised to the point of exhaustion. The question then is, with life reduced to such a repetitive, crushing bore, why would you want to stick around another two decades anyway? To do what? Eat more
sprouts?

Give me 70 years full of good food, good drink and good friends. You go to the gym; I’ll go to the steakhouse with that little redhead in accounting who likes her good times.

You’ll live longer, but I’ll have more fun. And isn’t that what life is about? Having a good time while you’re here?

But also I am a staunch preacher and practitioner of EF(Evolutionary Fitness): I pay a lot attention to what I put into my mouth, and I work out regularly. It's not that I don't know how to enjoy ice cream or cheesecake now, I do: I am just making a conscious decision to trade part of my present pleasure for my future joy -- that I will still be able to drive a red Ferrari when I am 90 years old, with my grandchild by my side.

More importantly you don't have to be an unhappy dieter or a gym rat to be healthy. There are plenty of tasty and healthy foods out there, and EF does not demand a lot workout time. Knowledge is the key: eat smart and exercises smart, and live your life to the fullest extent.

Risk

I was reading a paper "The Equity Premium: It's still a Puzzle" yesterday. The puzzle is that over last 100 years the real return of stocks in the U.S. is about 6% higher than that of T-bills, and economists still can not figure out why people are not investing more in stocks. Qualitatively it's easy to say why the return on equity is higher that that of risk-free T-bills, but quantitatively it does not make sense: stocks are not that risky to justify for a 6% spread. One possible reason is that people are more risk averse than economists have thought.

Here is my quirky way of looking at the curse of risk aversion, from an individual's point of view. If one looks at the society at large, a risk-taking entrepreneurial system will do better than a more conservative one, as advocated by these three economists.

But our brain is notoriously bad at assessing risks in modern world: our stone-age brain overreacts to immediate minor risks, but downplays the remote major risks. We tend to take anecdotal evidences as systematic ones, personal observations as universal norm. The security expert Bruce Schneier has an eloquent piece on this.

What's the take-home messages then? I see two here: first of all every educated citizen should take at least one or two courses in statistics: let the data speak for ourselves when it comes to risk assessing; Furthermore, we all should take more risks, not the blind risks, but the calculated risks with good data behind them, that will make the individuals and the society as a whole better off.

Sentences I read today

From comments of this post:

Economics as such just concentrates on the HOW and outsources the WHAT and WHY to politics. But in many discussions the WHAT and WHY are axiomatically assumed not explicitly stated.

Economics is applied psychology with helpful mathematical and statistical tools.

Signaling

Here is the story:

...[O]rdinary least squares (OLS) estimates show that sexually active adolescents have grade point averages that are approximately 0.2 points lower than virgins. However, when information on the timing of intercourse decisions is exploited and individual fixed effects are included, the negative effect of sexual intercourse disappears for females, but persists for males.

Here is one explanation for it:

Teen boys who want sex out of teen girls have to spend a lot of time in sports, fights, clubs, signaling their attractiveness. Teen girls who want sex just have to say "yes", and the sex itself takes little time, especially given that teenage boys are the partners.

While pondering on this, I realize that signaling is such a fascinating topic in the field of economics. Here is my previous post on signaling. Is signaling simply a means to achieve the end? Or people also get utility in the process of signaling? If the answer is the former, probably we need to find ways to cut down the "costs" of signaling. On the other hand, a utility-generating signaling -- courtship for an example -- could well be an end itself. I tend to lean toward the latter.

Structured Procrastination

It makes sense to me. We all are procrastinators to some extent, why not exploit it?

All procrastinators put off things they have to do. Structured procrastination is the art of making this bad trait work for you. The key idea is that procrastinating does not mean doing absolutely nothing. Procrastinators seldom do absolutelynothing; they do marginally useful things, like gardening or sharpening pencils or making a diagram of how they will reorganize their files when they get around to it.

Structured procrastination means shaping the structure of the tasks one has to do in a way that exploits this fact. The list of tasks one has in mind will be ordered by importance. Tasks that seem most urgent and important are on top. But there are also worthwhile tasks to perform lower down on the list. Doing these tasks becomes a way of not doing the things higher up on the list.

The trick is to pick the right sorts of projects for the top of the list. The ideal sorts of things have two characteristics, First, they seem to have clear deadlines (but really don't). Second, they seem awfully important (but really aren't).

One personal experience with SP: On some weekends I have to finish 3 homework: Mirco, Macro and Metrics. The first two are not that time consuming, each would normally take me a few hours. Metrics is really a time sink so I put it off as much as possible. While putting off Metrics homework, I am quite motivated to finish off Mircro & Macro. And finallly when it comes to time I have to do Metrics homework, I use it again as decoy to really go over the notes and pick up really stuff, and at the last moment I can do it as quickly as possible since that homework is graded by effort instead of correctness. And that works out pretty well.

Rational Expectation

The last part of my Macro class talks about Rational Expectation: do people have rational or static expectation in making their economic decisions? The answer is neither.

Empirical study tends to put the ratio at 3 or 4 to 1: about 30% of population make systematic forecasting errors while the rest behave quite rationally; or the other way to put it is that the average Joe makes irrational decisions 30% of the time.

That sounds like a good rule of thumb to me, and I want to take one step further to explore the implications of this for our soundness of decision making. Let's assume(the typical way of starting something by an economist) that if we make irrational decision, we still get it right about 20% of the time ex post, probably it's just pure luck; and if we utilize all the information available and make a rational one, the outcome follows a random walk, i.e., it's a tossup and we get it right 50% of the time. If we just do the simple math to add them up:

0.3 * 0.2 + 0.7 * 0.5 = 0.41

That means for average Joe it's about only about 41% of chance that you will make a correct decision from hindsight. So next time when you realize that you've made a bad decision, don't beat up yourself: you are not alone.

Postmodernism

I did not realize that I've been a subscriber to Postmodernism until I read this. I think a lot of my postmodernism views come from Karl Weick, I wonder if he would call himself a postmodernist.

In essence, it stems from a recognition that reality is not simply mirrored in human understanding of it, but rather, is constructed as the mind tries to understand its own particular and personal reality.

This is very close to Weick's retrospective sensemaking.

Makeup

Finally this semester is over, the four finals in a row this week was quite an experience. It's a very demanding semester, but a fulfilling one at the same time.

The obvious downside of taking four courses was that I did not have as much time to blog as I wanted to do. So I am going to do a series of makeup posts for the topics I was interested but did not get time to take a stab at it.