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Will Wilkinson has a great interview with Dan Ariely, author of Predictably Irrational: The Hidden Forces That Shape Our Decisions, which is about behavioral economics and the effects of human irrationality. Listening to the interview convinced me to read the book. Ariely also has a blog, but I have not found it very interesting.

One segment (“Throwing away the keys to your own chastity belt” starting around minute 42) I found particularly interesting was the section where Ariely discusses procrastination, and specifically one mechanism to get students to procrastinate less. Ariely mentions a teacher for a class which has three papers which will not be graded until the end of the quarter. However, the teacher offers the students the ability to pre-commit to turning the papers in on dates of their choosing. Students who turn in their papers after their dates loose points for each day late they turn their paper in. Students who are completely ‘rational’ would choose dates at the very end of the quarter, but work on their papers throughout the quarter none-the-less. Unlike these students, real students, who are well aware of their inclination to procrastinate, would choose dates which are somewhat spaced out, in order to motivate themselves to work on their papers in a timely manner and thus produce higher quality work and expose themselves to less stress.

I think this is a wonderful idea. I struggle with procrastination, and I know a lot of bright students who also struggle with procrastination to some extent. Thus, I appreciate teachers who give weekly quizzes and mandatory homework, because they help me time my review of class material appropriately. This scheme would do something similar.

One potential problem is see with this scheme is that it might be a bit time consuming to administer. Keeping track of students’ individual due dates and when they actually turned them in could consume a many hours of a teacher’s time if they had to do it all manually. Luckily, it also seems like it would be fairly easy to automate. A software program could take students due dates and their actual turn in dates, and compute the loss of points for all students. The teacher would simply need to pass around a form in the beginning of the class for students to assign themselves due dates, and enter those into the program. Then as the students turn in their assignments, the teacher would enter in when each paper was received, and the program would generate point losses for every student at the end of the quarter. The system could also be set up to send out personalized e-mail reminders to the students.

I am reading Predictocracy: Market Mechanisms for Public and Private Decision by Michael Abramowicz, about how prediction markets can be used for decision making in various places. Since I talk about governance mechanisms a lot on this blog, I intend to review the book later on.

In the mean time, here is a series of posts that Abramowicz did for The Volokh Conspiracy on prediction markets which I found pretty interesting. It includes some good-back-and-forth with Robin Hanson about Futarchy vs. Predictocracy (which I have discussed before).

Michael Munger gives an intro to the theory of the firm, which answers the question “If markets are so great, why are there firms?”

This is a topic I’ve been interested in exploring for a whole, but I am not sure what the best resource is. The Nature of the Firm seems like a relatively good resource, but it appears to be largely a collection of essays by Coase and others. I am suspicious of primary sources as resources for learning. It seems doubtful that even after quite a long time and significant  theoretical developments the original essays would be the best at explaining the concepts. I would prefer a book which has more synthesis and empirical evaluation of the different theories of the firm.

I started reading An Economic Theory of Democracy with high expectations, but I quickly became frustrated. The book has some good points but there were numerous parts that disappointed me.

I liked the main point of the book, which is that in two party democracy parties converge on the views of the median voter (wiki entry). The broad point that uncertainty can make parties diverge was also a well made, although I thought that the specific mechanisms the book used to make the point were not very good. I suspect that one of the major contribution was viewing political parties as working to reach political office for the private rewards of political service, prestige, pay and seedier rewards, but I tend to discount this because I am so familiar with this argument.

I was disappointed by the lack of mathematical models used in the book, by the presence of omissions and by the use of numerous arguments which I thought were poor. I was probably wrong to expect formal models to be used in the book because those are generally reserved for academic papers, but I want to give examples of what I perceived as omissions and faulty reasoning.

First, although the low individual returns to voting are repeatedly discussed, the idea that intelligent voting is a public good was completely omitted. There are two distinct ways to think about this. If assumes that voters vote in their material self-interest, then voting intelligently for those material self-interests is a public good to those who share those material interests. If one assumes that voters vote altruistically, then intelligent voting is a public good to everyone. Either way, intelligent voting is very likely to be under-provided. The book continually skirts this issue; it mentions the fact that any given vote has a very small probability of affecting the outcome and therefore has an extremely low individual return, and it mentions that government is largely in the business of providing collective goods, but it does not connect these ideas.

Second, I was disappointed that Downs’ work failed to apply the logic he had developed earlier about party convergence to multiparty systems. Downs argues that multiparty systems lead to less centrist government than two party systems, but uses faulty reasoning to reach this conclusion; his logic works like this:

Consider 5 parties on a one dimensional spacial political spectrum (see figure 1), and assume that each party receives an even proportion of the vote.

political spectrum
Figure 1. The distribution of political parties with equal voting power.

No one party or even two parties can rule by themselves; three parties must form a coalition in order to form a government. Downs assumes that party C can come together with the two parties on either extreme (A/B and D/E) to form a government which is centered on either middle extreme party (B and D), and therefore produces more extreme political results than two party democracy.

However, this logic ignores individual party incentives. Assuming that parties A/B and D/E automatically form coalitions (for simplicity), according to Downs’ own logic, the coalitions at both extremes have incentives to offer party C the chance to be in coalition with a policy point which is closer to C’s ideal point than the one center point in the offer given by the coalition on the other side, because the parties want to be in office. These incentives ensure that the equilibrium policy point converges on the median party’s (party C in this case) ideal point.

I think Downs’ error here lies in that he thinks of people voting to “select a government” and not to influence which government is selected. He does not seem to consider how parties in a multiparty system can act as good agents for voter’s political desires.

My overall opinion of An Economic Theory of Democracy is much like that of The Calculus of Consent. Both books include numerous dubious arguments, but both manage to make some very important arguments. I like both books in retrospect, even if I didn’t appreciate them very much when I was reading them.

I’m starting to read the Federalist and Anti-federalist papers, and in the introduction to the anthology I am using, I learn that the federalists believed that “in modern political systems,  it is the power of the legislature, not the executive, that is the greatest threat to the liberty and security of individuals.” I am a embarrassed to admit that I didn’t pay too much attention in my high school history classes (until quite recently, I thought the social sciences were pretty much bunk), so I am ignorant of what the historical reasons for this view are. Could someone enlighten me? Why did the framers have this view?

I had gotten snippets of this view before, but I had never seen it stated explicitly before. The view seems strange today.  I am not sure if there is any reason to believe either one is naturally a greater threat to liberty, so making the legislature and the executive branch roughly equal seems the most reasonable to me.

I am curious why Anthony Down’s An Economic Theory of Democracy sells for $45 used, while other famous public choice books sell for much less. For example, The Calculus of Consent sells for $10, and others sell for even less. Perhaps the book has reached some sort of “classic” status in many circles, that allows the publisher to restrict supply extract some monopoly rents.

UPDATE: The Amazon reviews for Down’s book (in the link above) suggest that part of the answer is that the book appears to be regularly assigned to political science majors for class.

I just finished reading Ralph Rossum’s Federalism, the Supreme Court, and the Seventeenth Amendment, which I enjoyed a great deal. The book discusses how the framer’s intended to protect the federal balance structurally by allowing the state legislatures to elect the Senate, and how the 17th Amendment, which provided for the direct election of Senators, largely eliminated federalism, which I have discussed briefly before. The book also covers the Supreme Court’s efforts to maintain federalism. I am baffled why Public Choice theory has not picked up on this line of reasoning, the reasoning is very economic.

I will probably give a full review of the book later on.

UPDATE: Instead, I decided to immediately prove myself wrong: Todd Zywicki has a Public Choice analysis of the 17th Amendment, via the Repeal the 17th Amendment blog. I am still unsure why this topic is not more widely covered in Public Choice; for example, Government Failure: A Primer in Public Choice, fails to mention the 17th Amendment in its discussion of Federalism.

Justin Wolfers points to the new book, The Tyranny of the Market by , about “the ways in which markets can fail us”. In a recent Slate article, Waldfogel summarizes his argument:

After all, free-market economists have told us for decades that we should rely on market decisions, not the government, to meet our needs, because it’s the market that satisfies everyone’s every desire.


Two simple conditions that prevail in many markets mean that individual taste alone doesn’t determine individual satisfaction. These conditions are 1) big setup costs and 2) preferences that differ across groups; when they’re present, an individual’s satisfaction is a function of how many people share his or her tastes. In other words, in these cases, markets share some of the objectionable features of government. They give bigger groups more and better options.

Perhaps I am missing something, but, while what Waldfogel discusses could be described as a market disappointment, I don’t think it can be called a “market failure.” Fixed  certainly do stop some markets from emerging, but this is actually efficient; those fixed costs are real, and if we (government) decided to somehow force society to pay those fixed costs in order to serve those markets it would have a real, negative effect on welfare. There are some niche markets for which it doesn’t make economic sense (in a social sense) to serve. If Native Americans greatly valued specially designed Nike shoes, they would have been willing to pay a high premium for them, and Nike probably would have invested in the Native American shoe market earlier. If they are not willing to pay premium for them, it is and indication that it  does not make economic sense (in a non-distributional sense) to serve that market.
Waldfogel’s point seems so obviously wrong, that I feel as though I must have missed something, so perhaps I will read his book.

It is also possible that I simply misunderstand the origin of Waldfogel’s concerns. Perhaps Waldfogel means that people in general have a strong preference for seeing niche markets served. Then there would a positive externality created by serving a niche market and that could certainly be described as a market failure (though not one very high on my list of market failures to fix). This seems like a very contestable empirical question. I certainly haven’t seen any data, but I doubt this feeling is type of preference is widespread. It is also possible that Waldfogel is concerned about the distributional effect of these fixed cost, perhaps more poor people have out-of-the-mainstream needs and desire, but I don’t think this is what he is talking about.

I don’t think I agree with more than three or four of the 23 proposals, but I am still really looking forward to this book.

I just found out that Brian Tamanaha, the author of On the Rule of Law: History, Politics, Theory, blogs over at Balkinization. On the Rule of Law is a great introduction to the concept of the rule of law. The book is short (141 pages), but it does a great job explaining the different conceptions of the rule of law and how they developed. I recommend the book to anyone who anyone who is not quite clear on what the rule of law is or why people use it in different ways.

Here is Brian responding to the claim that the morality of atheists should be suspect.