Sunday, March 30, 2008

Cool Concept of the Day

Consider this problem from the third edition of Principles of Microeconomics, by Robert H. Frank and Ben Bernanke: "In an attempt to induce citizens to conserve energy, the government enacted regulations requiring that all air conditioners be more efficient in their use of electricity. After this regulation was implement, government officials were then surprised to discover that people used even more electricity than before. Using the concept of price elasticity, explain how this increase might have occured."

If the price elasticity of demand is greater than 1, then a decrease in the price of energy will increase the quantity demanded by more than the decrease in price. So if the price of electricity drops 10%, then the quantity of electricity demanded might increase 20%. In logic, this is Jevon's Paradox. Suppose that you buy a more fuel-efficient car. Are you going to drive more or less? Some like to point out that energy conservation is futile.

Saturday, March 29, 2008

Non English Speaking Immigrants

This morning on Fox News, Cashin' In featured some man saying that immigrants should only speak English. If immigrants can only speak English than that requirement raises the cost of becoming a US citizen and will restrict the supply of foreign-born workers, entrepreneurs, and new products. In my opinion, the requirement that immigrants only speak English moves us away from a Pareto-efficient equilibrium. A requirement that English is the only spoken language is irrational and an impoverished model of decision making.

Behavior economics is a branch of economics that deals with how consumers frame choices. In one experiment, people were given coffee mugs that retail at $5. Then the coffee mug recipients were asked to sell their mugs. Many would not sell their mugs for as much as $25 because they thought they were special or were entitled to the mug. Economics predicts that the mugs would have been sold at a price higher than their cost. But people don't always behave rationally.

Suppose that you were born in the US and were "given" your citizenship. Would you value your citizenship so much that you would refuse the rewards that foreign workers would offer? Let's say the price of goods would decrease? Would you still insist that you would pay a higher price for American-made products? The next time you eat a taco or a pizza, consider what the food court would supply in the absence of immigration.

Post Hoc and Tort Law

The post hoc ergo propter hoc fallacy translates into "after this, therefore this." Here's a good joke to show you what I mean.

A 30 year old Gentile man falls in love with a nice Jewish girl and wants to marry her. She says that in order to marry her he must get circumcised. So the man goes to a Jewish friend and asks him if the circumcision has any negative side effects. The Jewish man says, "Well, I was only eight weeks old when I had mine, so I can't remember if it hurt. But I do know that afterwards I couldn't walk for a year!"

The burden of proof in a civil court is to prove that the defendant's actions were the proximate cause of the plaintiff's injuries and the actions were more probable than not. In other words, all of plaintiff has to prove is that the defendant could have seen that his actions would probably hurt someone. In the movie, Civil Action, attorney Jan Schichtmann can prove the relationship between the dumping of toxic chemical, TCE, into the water in Woburn, Massacuhetts, with this probablity. In a strawman fallacy, a new fiction novel by John Grisham, The Appeal, illustrates how the courts can be influenced by special interest groups.

My law teacher used to say that everyone has a gut feeling for the truth. That's why judges say, "All evidence is evidence including what the jury believes." This feeling is why attorneys are given preemptive challenges to a juror. So much of law relies on gut feelings. That's why jurors are not allowed to take notes during testimony. Given the casual relationship among cause and effect and how juries process testimony, is it any wonder why there are the Stella Awards?

Friday, March 28, 2008


Another Monk episode raised constitutional questions of the right to privacy. I think it's now reasonable to expect that all conversations are either being recorded with a digital voice recorder or digital camcorder, or phone. The term reasonable has changed as technology has evolved along with microprocessors. What should be the tort of invasion of privacy is now uploaded to YouTube, Facebook, or MySpace in seconds. Again, our privacy rights have been stripped away by technology.

Roe v. Wade imputed the right to privacy into the constitution. The importance of that decision was to give a reasonable expectation of privacy. The courts need to hear a case on how digital recording and file sharing have shaped our right to privacy.

England has cameras on every corner and crime is almost none existent. Should we expect the same positive externality in America? I'm sure that crime would be reduced if the digital recording were admissible evidence in court. That isn't always the case as video recording are hearsay. The courts are going to have to weigh the costs and benefits of a liberal interpretation of "reasonable" and reconstruct tort law in align with this construction.

Nominal Wages and the NEAToday

"To some of you, this is spare change. To us, it's our livelihood," said Wisconsin eduction support professional, Maureen Socha. She was speaking to the Wausau School Board about a living wage, while holding a clear plastic bag with coins. The quote was taken from the April, 2008, NEAToday, a publication for teaching association members.

The publication then heralds the work of the association in raising wages over a 30 year period and cites average teacher pay. The publication lists the average teacher pay in 1979 was $16,715 compared to $52,842 in 2008. Other comparisons are made with stamps, gas, homes, eggs, and milk.

As an association member, I thank by collective bargaining unit daily for their work representing members, contract maintenance, and negotiating our master contract. These volunteers spend countless hours after work helping members who don't even greet the union reps who they don't even know. I wonder if our union is making an error in economic logic when they negotiate. Since the 2008-2009 is a negotiation year, I have been thinking about the master contract. I Think more teachers would appreciate the union if the union asked for a raise in the real wage instead of the nominal wage. Using a real wage will allow educators like Maureen Socha to see that her wage is more than keeping up with inflation. Why do educators, who value education the most, lack the fundamental basics of economics? The NEA should insist that wages be tied to the CPI so that an increase in the inflation rate doesn't eat away at a teacher's nominal wages.

The publication also cites a high turnover for teachers with working conditions given as the main reason for leaving the profession. I think the NEAToday misses the point again by failing to isolate the right variables in making gross inductive statements from survey data.

Henry Ford learned a long time ago that paying an efficiency wage will retain employees who work in adverse conditions. An efficiency wage is a wage that is higher than the employees alternate choices. The employee will remain in employment at a school that pays an efficiency wage since it will cost her too much to leave. An efficiency wage will reduce adverse selection and moral hazards and eliminate market asymmetries.

Every year I hear veteran and rookie teachers vow to make "this year the best year ever." Then everyone does exactly the same thing as they did last year. To do the same thing over and over and expect a different result, is the comedian's definition of insanity. Let's tie our wages to the CPI and end the insanity of teachers begging for more money.

Wednesday, March 26, 2008

Probability, Law, and Evidence

Say that there's an 80% chance that it'll snow tonight. Does that mean it will snow? Now, suppose that the defendant drives a white SUV and a white SUV was seen at the scene of the crime. Let's also say that there are few white SUV's in the area so the probability is 80% that the white SUV belongs to the defendant. Should the jury conclude that the white SUV belongs to the defendant?

Probability and statistics should not be admissable evidence in court since the jury would then convict 100% of the defendants with evidence that happens only 80% of the time.

In Civil Action, Jonathan Harr, the author writes about Blue Cruise Lines. In this scenerio, you are traveling on a narrow road when you see headlights in your lane. The road is meanders so you're not sure that the headlights are in your lane. It's very dark since it's a moonless night and there's no moon. As the headlights get near, you now know that you must get off to the side of the road or get hit. You get off the road just as you are swiped by what you know observe is a bus. You can't see the color of the bus since it's so dark. The next day, you look for buses that travel that particular road at that particular time and you find that Blue Cruise Lines has a bus that runs that route at that time. There's a high probability that Blue Cruise Lines was driving that night you were swiped so you could prevail in a civil court. But not in a criminal court. In a criminal court you'd have to prove beyond a reasonable doubt that it was a Blue Cruise bus.

Now consider the conjunction fallacy from Wikipedia. The conjunction fallacy is a logical fallacy that occurs when it is assumed that specific conditions are more probable than a single general one.

The most oft-cited example of this fallacy originated with Amos Tversky and Daniel Kahneman:
Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.
Which is more likely?
Linda is a bank teller.
Linda is a bank teller and is active in the feminist movement.
85% of those asked chose option 2. However,
mathematically, the probability of two events occurring together (in "conjunction") will always be less than or equal to the probability of either one occurring alone.

Say the probability of Linda being a bank teller is 80% and the probability of her being a bank teller and a feminist is 60%. The probability of option two happening is only 48%. Most people do not make that conjunction conclusion. How should statistics be used in court?

Tuesday, March 25, 2008

High Cost of Pizza

Every Friday night my son, Kathy, and I watch Monk on USA and order a pizza from Pizza Ranch. Sometimes we order from Salvatores. We've noticed the price of pizza increasing. A salute goes to Tim Schilling for pointing out this video on why.

According to MSNBC, many farmers have quit planting wheat to plant corn. Corn is the essential ingredient in ethanol. Wheat has become relatively scarce. In fact, block cheese and tomato paste are transported and the costs of gasoline has increased. The video and article conclude that higher costs have increased the cost of pizza. I think there's more to the story.

According to econ 101 theory, a higher price induces more production of a good. Are more pizzas being sold? Since wheat is a commodity, producers form future expectations of price. If Salvatores sees Dominoes raising their prices, Salvatores must rise theirs or lose profit to a competitor. Macro theory suggests that wages and prices are sticky. Menu costs just don't change as quickly as the video suggests. If the price of wheat is so high, farmers will now find it more profitable to grow wheat again. I think the real reason pizza is so expensive is that many variables are changing including demand. To isolate one factor as the catalyst is to affirm the consequent.

Monday, March 24, 2008

Cereal Boxes

Should cereal boxes be turned sideways so more boxes can be put on the shelf?

Robert H. Frank in The Economic Naturalist, asked "Why is milk sold in rectangular containers, while soft drinks are sold in round ones?" The answer Dr. Frank provides is that milk is sold in refrigerator units that are costly to operate so a rectangular milk carton saves space and maximizes the refrigerator space. In other words, in beneficial to sell milk in the most cost effective way. But what about cereal?

Tonight I hung out in the cereal aisle at Fareway. I figure that no space would be saved if the boxes were turned to the side. What would change is the eye grabbing advertising that captures the attention of shoppers. In an effort to differentiate their product, the front of the box must be displayed. It's my humble opinion that the cereal makers are stuck in an equilibrium where they must have slick pictures on the front to convey information about their product.

Sunday, March 23, 2008

Survey Data and Free Beer

While checking into the Community Y where I workout, Jerry Lange asked me to complete a survey. The questionnaire asked questions about the feasibilty of installing a massage service for its members. All around me were members completing the survey. I asked Mr. Lange, "Do you think your presence might influence the results you receive?' And I asked the city councilman, "Do you think people will lie about the benefit they will receive from a massage when they don't have to share in the cost?" Then I asked, "Do you think those completing the survey are influenced by those completing the survey around them?"

Economic data complied by Dan Ariely shows that people are influenced by those around them. When people are working close to each other a wider variety of selections will be made when survey respondents where offered free beer. Dr. Ariely's tests show that people would order differently if they could order in private. So, in my mind, the presence of a survey administrator influences the results of the survey as well as the proximity of other survey takers.

So how is "data" collected at Muscatine High School? Most of the time the faculty is told to complete the survey and turn it in before we leave a meeting. Most of the faculty completing the survey know how others are completing the survey. Usually, the survey is administered by a principal. Economic tests show that data collection will be biased, yet this is exactly how most of the data on school climate and change is conducted. How much ethos should a school leadership team put into survey data?

Epistemology and Eye Witness Testimony

Have you ever been fooled by an optical illusion? If so, then how do you know if what you are seeing is the truth? In law, I teach that an eye witness might have a biased account of an event since they see only what they want to see. It's also possible that an eye witness might be fooled into thinking an incorrect conclusion when the sense data is an optical illusion. In this video, Dan Ariely shows how you will repeatedly misperceive the color on a cube. In the picture, the woman's shirt appears as "hate" when "love" is in the mirror.

For some cool optical illusions click here. Finally, a joke from Plato and a Platypus Walk into a Bar to illustrate how we see things is often incorrect.
Old "Doc" Bloom, the local hardware store owner, who was known for his miraculous cures for arthritis, had a long line of patients waiting outside his door, when an old lady, completely bent over, shuffled in slowly, leaning on her cane.
When her turn came, she went into the back room of the store and, amazingly, emerged within half an hour, walking completely erect with her head held high.
A woman waiting in the line said, "It's a miracle!" You walked in bent in half and now you're walking erect. What did Doc do?"
The woman answered, "He gave me a longer cane."

Price of iTunes Cards

At the card carousel at Hy-Vee, I nearly dropped my bread when I saw the prices of iTune music cards. The cards are sold for $50, $25, and $15. It wasn't until I read Predictably Irrational that I understood that my behavior was being manipulated by shrewed marketing.

Let's start with the assumption that most people don't know what they want until they see it in context. My son says that most people will buy the $25 card because it's the one in the middle and that's the one that iTunes wants you to buy. The $50 iTunes card is a decoy. Dan Ariely explains that the high priced entrees on a menu boost revenue for the restaurant even though no one buys them. This is because most people buy the second most expensive item on the menu. Consumers need to see items for sale in context or what economists call the relative price.

Robert H. Frank asks in his Microeconomics textbook, "Should you walk downtown to save $10 on a $25 computer game?" Say the walk takes you an hour and your job as a tutor pays $5 per hour. The benefit of walking downtown is $10 and the cost is what you give up or $5. The cost-benefit analysis suggests that you should walk downtown. Now suppose you are thinking about buying a laptop computer that costs $1500 and the laptop downtown costs $1490. Do people still walk downtown to buy their laptop? No. People fail to adequately weigh the costs and benefits when the price of an item is expensive.

So when consumers see the price of a $50 iTunes card they behave irrationally and buy the middle one. Consumers don't rationally weigh the costs and benefits of their decisions and operate in context. The next time you are at the store, see if you buy the middle-priced item.

Saturday, March 22, 2008

Handicapped Parking

Iowa laws mandate that restrooms and parking be handicap accessible. In front of Muscatine High school, half of the parking lot is devoted to those with special needs. Equal opportunity is an unalienable right given by our constitution like the freedom of speech our the right to a speedy trial. So why is the law selective in their application of the law?

On Second Street, where parking is "free" for three hours, there is not one handicap parking space. The nearest parking space for those who need special accommodations, is behind Ace Hardware store. Individuals using these spaces are far removed from the downtown area. So why are there no handicap parking places in downtown Muscatine. I offer a couple of explanations.

(1) Businesses have special interests. To have a handicap parking place in front of the pawn shop would be inefficient. In my observations, the parking spots reserved for those who need accommodations, are seldom used. To dedicate this space in front a downtown business would divert business away from the pawn shop. (2) The parking spaces have to be bigger, but Second Street is a narrow street. To have handicapped parking might actually make parking downtown a hazard to those with special needs. (3) The city only can do what's important now. So snow removal is important now. Repairing potholes are important now. So parking takes a back burner.

A fallacy of logic has to do with consistantcy. If something isn't consistant, then it's illogical. Most citizens want a law uniformly enforced. When a law isn't enforced equally, people wonder about the motivation for the law. Does the parking law in question contribute more benefits to society than costs? If so, then it's a good law.

Behavior Economics and Promixate Placement of Products

While renting Atonement at Blockbuster Video yesterday, I had to wait in line 5 minutes to check out. The checkout line is roped off so it meanders around the store past candy, discounted movies, posters, and other movie paraphernalia. I picked up most of the tempting trinkets, but didn't buy. I noticed that most people pass by these items. I was taught that they are the impluse items that people buy without any rational thinking. Yet, my experiences differ. I offer these anecdotal reasons.

(1) People's choices are constrained by their income. By the time they finally get to the checkout counter, they've spent their disposable income. (2) By the the the impluse items are placed on sale by the checkout counter, the items have reached diminishing utility. In other words, the items are worthless or they would have been already sold. (3) Consumers are rational and know that the items are impluse items and don't want to fall for that old trick. (4) Blockbuster's checkout services are so slow that by the time a customer can checkout, the impluse has been replaced by reason. So customers rationally weight the costs and benefits and decide not to buy. (5) Blockbuster is employing a two tier pricing system trying to capture the consumer's surplus. This is like the theater charging a high price for popcorn. So Blockbuster has captured the consumer's surplus with the high price of their movies and there's no surplus left to be spent on trinkets and impluse items.

I have bought stuff at the checkout counter on impulse. What I'm saying is that as a strategy to move merchandise, placing discounted items near the checkout is a poor strategy. A better strategy would be to enhance the ambiance of the goods by giving them away to those who buy instead of rent movies.

Friday, March 21, 2008

Logic of Teacher Leadership

Muscatine High School is proactive in implementing educational change. Our administrative staff actively educates the faculty on interventions for the reluctant learner, reading strategies to improve standardized test scores, student involvement and much more. Instead of sitting around hoping for the best, our administration is taking a proactive role. As an example, Muscatine recently held a public forum on teen alcohol and drug usage. But how effective are initiatives? Are these initiatives like nailing Jello to a tree?

Ask most teachers why they oppose an initiative, and most likely they will tell that they had no input. Most teachers will feel that the initiative was a top-down policy and they feel unempowered. I am only speculating here, but I think most teachers doubt the ability of the administration to effectively know what's best for the classroom when the administration is not in the classroom. So the teachers object to any administrative-lead initiative since they doubt the authority. Again I speculate, but the Peter Principle states that people are promoted to the point where they are ineffective. So, many administrators were teachers and have been promoted. This means that they are no longer teaching kids and doing harm. Administrators have been promoted to a principal of VP. Principals are ineffective, so what do they know? I'm not saying that this is true with our team (it isn't), but I'm saying that some teachers might hold this belief. In logic, this is a challenge to authority and ad hominem.

But shouldn't all initiatives be data-driven as mandated by NCLB, Comprehensive School Improvment Program, and the Iowa Professional Development Model? In the February 25, 2008, issue of Time, page 31, 42% of teachers quit because they feel "lack of influence in school." The Mid-continent Research for Education and Learning (McREL) institute researched leaderhip practices on student achievement. The McREL institute "...found a statistically significant correlation between school level leadership and student achievement..." The relationship was .25 which translates into a 10 percentile point difference in student achievement on norm-referenced tests.

I'm not sure I understand this relationship. Does this say increasing teacher leadership by one percent leads to a .25 increase in student achievement? This is a weak correlation to me. This is like saying if you bet a $1 you will win 25 cents. Hardly a good bet for the slot machine or education. Teacher time could be better spent directly influencing student learning.

Wednesday, March 19, 2008

Monopolistic Competition Pricing

Do buyers take the price of a product as a signal of quality? On The Power of Price, Dan Ariely, explains why a 50 cent aspirin is more effective than an aspirin that sells for a penny. He concludes that consumers associate a higher price with higher quality. In another chapter, he explains that buyers often ground their pricing behavior based on the first similar item they encounter. So music buyers ground their buying decisions on what they see in a store. If the first price they see is $20 for a CD, they make all relative buying decisions with $20 as an anchor.

When I was trying to sell a CD my economics class produced last year, the only comments we heard was that the CD was crappy. Were consumers basing the quality of our CD on the price?

Questioning the Classical Position

Econ 101 teaches that government spending crowds out investment. The government should keep their hands off the market since the government always makes a mess. Sometimes, I hear people while waiting in line at the post office call the postal workers an oxymoron. If this is true, then I question the rationality of the market.

Suppose I am a government worker--a teacher perhaps. When I am off work, I am now in the private sector. Do I now act rationally? So when I am teaching, I'm a screw up, but when I'm off work, I'm suddenly a utility, hedonistic, sybarite? Since I supply labor and buy in the market, this dichotomy seems to suggest that the market isn't as efficient as economic textbooks proselytize.

Gas Expectations

The price of light, sweet crude closed at $109.42 Tuesday, March 18, 2008. The dollar depreciated as more and more USD will be needed to buy the oil. I am forecasting that higher gas prices will follow as people expect higher prices in the future. In Muscatine, the price of a gallon of 87 Octane, subsidized with Ethanol, retails for $3.129 a gallon. I'll bet you'll see an increase in the price at the pump as gas stations/convenience stores capitalize on the higher crude prices. Note that the price of crude has been steady, but now speculators have come to believe that the price of crude will change. Gas prices will change just a surely as indigestion follows eating hot spice Mexican food.

Tuesday, March 18, 2008

Why Do People Pay So Much For The Economist?

Here’s how the Economist markets it magazine. Say you’re surfing the Internet, and you see the Economist ad. The ad indicates that you’ll receive as a trial membership six weeks free then you will be billed for 39 weeks for $59.95 USD. In my brain, this works out to $1.33 per issue since I include the trial issues. Now, at the end of your 39 weeks, the Economist sends you a renewal notice. You can now renew your membership for $89 for 39 weeks or $2.28 per issue. Why would someone renew at the higher price? Why wouldn’t the subscriber simply go back to the Internet, pick up a new trial membership and save .89 cents an issue and save $34.71? If economists are utility maximizing, rational actors, that’s what they should do. It is ironic that economists don’t act rationally when that is an endogenous assumption to their field.

In Predictably Irrational, Dan Ariely, argues for what behavior economists call self-herding. Self-herding simply means that we believe something is good or bad on the basis of our past experiences. So buying the Economist simply becomes a habit and the relative costs and trade-offs soon are forgotten. As you get elevate to a higher indifference curve, other consumption bundles becomes rational. So you pay more for the magazine. This book is highly recommended.

Sunday, March 16, 2008

Ten Commandments

In Predicatably Irrational, behavior economist Dan Ariely, contrives experiments to see if honest people will cheat. His conclusion is "yes" but not wildly. In other words, otherwise honest workers will take a pencil home from a conference but they wouldn't sack a laptop. In one experiment, he had participants write down the 10 commandments. His results showed that this group did not cheat. He generalized the results to include all professions. If doctors reminded themselves of the oath that they took when they received their license, fewer doctors would prescribe medicine in which they get a kickback from the drug company. The same could be said for all professions including teachers.

At Muscatine High School, we start each meeting with Principles and Agreements that imply that all present will treat each other fairly. Economic research confirms this practice.

Dr. Jekyll and Mr. Hyde

In Predictably Irrational, Dan Ariely, the author asserts that people behave differently in excited states of mind than when they are within their comfort zone. The author discusses research completed on college students while in a heightened state of sexual arousal. The students made many irrational choices inconsistent with the choices the students thought they would make. For example, many participants said they would always use a condom but in the excited state many chose not to. The author concludes that "Just Say No" doesn't work in those situations.

I was wondering if the altered states of consciousness might contribute to the choices students make at parties to use and abuse drugs and alcohol. Besides the opportunity cost of current consumption now compared to later consumption, the mind neurotransmitter composition changes. Indeed, this decision making might be out of the realm of economics and in the realm of psychology. Dan Ariely is a behavior economist who bases his conclusions on empirical data.

Saturday, March 15, 2008


Assume that you know for a fact that gas was going to increase by a $1 per day and you use 5 gallons of gas per day. Would you be better off filling up with gas every day or wait until you are are on empty to fill up? Also assume a six day time frame. You'd be better off filling up every day for a cost of $105. If you waited until day six to fill up, then your cost would be $180. If prices are going up, then you would be rational to buy now. The reverse is true as well.

When consumers see the price of gas increasing, they assume that the stations are taking it to them. However, the profit margin on gas is about 4 cents. If my competitor raises her prices and I don't, then my competitor will make more profit than me. I will go out of business. Although my research is far from complete, I have noticed that the gas stations in Muscatine sell their gasoline for the same price---$3.12. This is anecdotal proof that gasoline is sold in a perfectly competitive market.

Paradise by the Dashboard Lights

Meatloaf sang a song about two teenagers in the heat of passion. She makes him promise the rest of his life for sex now. The boy promises his life for a couple of minutes of sexula satisfaction. In a new book by Dan Ariely, he tests how college students behave in an impassioned state. His chapter on The Influence of Arousal is brilliant an empirical. Few of us make the cold, rational choice we think we'll make when the heat is on and paradise is by the dashboard lights. The book can be bought at local bookstores and Recommended.

Monday, March 10, 2008

Golden Arches Theory

Tom Friedman who penned The World is Flat wrote that countries that have a McDonalds would not go to war with each other. The reason is that the countries are inter wined by trade and to go to war would hurt them both economically. Both countries reap benefits greater than the cost of war so they would develop an equilibrium peace.

The March 10, 2009, Time, on page 17, has a blurb The Potato Panic. According to Time, the price of a bushel of wheat has reach $12. The article thinks that the $100+ of crude oil, an input into the manufacture of wheat is a cause. The high cost of food has caused the inflation rate in Saudi Arabia to hit 6.5%. Seems to me that both countries have the mutual incentive to keep costs low as both are economically tied. For those who think that OPEC is raising prices to hurt consumption capitalistic westerners, should rethink their argument.

Sunday, March 09, 2008

Bush is Certain about Uncertainty

This CNN clip might be fun to watch.

Logic and Econ

Last June Muscatine High School was in a head-on collision course with a tornado. As we huddled in the halls with our heads covered, many students had their Zunes dialed into the 93.1, our local news radio channel. They were able to trace the path of the tornadoes around the city. We learned what's it's like to be in a tornado and some meteorological facts. But, did we become experts because we survived a tornado?

simply because I'm a survivor doesn't make me an expert. Yet, survivors are often called upon to give their opinion as fact. Take for example, our school improvement team. Recently, they visited Adlai Stevenson HS in Chicago, Illinois. They spent the day learning about the Pryamid of Interventions and block scheduling. Since they experienced the day at this model high school, does that make them an expert to testify? More data must be obtained and analyzed empirically before decisions are made. To rely on two or three people's experiences is to commit the fallacy of composition.

Saturday, March 08, 2008

Logic and Econ

Economics tries to predict how people will behave. Is it any wonder that economics is often wrong when people act irrationally?

Appeal to Authority

Suppose you and your friends are watching a movie and you want to order a pizza. Your group can’t decide on what kind of pizza to order. Joe wants pepperoni. Juan wants vegan. Maria wants the meat lover’s. Flad wants a pepperoni. Flad might appeal to the wisdom of the crowd and say, “Let’s take a vote.” Flad’s logic is that the group has the authority to decide what’s best for everyone. He might reason that we should do what’s best for the most people.

At an the Monday, March 3, 2008, in-service, the faculty was given a survey which showed with empirical data that 60% of the faculty believes that all students can learn at a high level. Only 20% did not believe the statement. The conclusion is that the majority is right.

I believe you can lead a horse to water but you can’t teach him the backstroke. I don’t believe that all students can learn at a high level. The problem with using a survey like the one our faculty was given is that it lacks a clear standard of definition of “high level.”

For example, suppose you say that vegan pizza is good and I say that vegan pizza is bad. What is the relative worth of our words? If I list things that are “bad” I would include the Iraq war, African civil war, Gang violence, and vegan pizza. Where on that list would the pizza fall? I could make a list of things I think are good. Perhaps this list includes benevolence, philanthropy, and kindness. Where does the pepperoni pizza fit? So when teachers are discussing a “high level” of learning, they are using what relative benchmarks? The survey results are invalid and unreliable.
When attempting to change the school, survey data is often relied upon to make the change. Many times teachers are allowed to give their opinion. The collective opinion is given the weight of authority. Many of my colleagues are indeed experts in their discipline and pedagogy. Even experts make mistakes which should not stop us from seeking their opinion. But change at the high school has to come from reliable metrics and not survey data which is largely anecdotal.

Friday, March 07, 2008

Institutional Change

Suppose you have been elected as president of a corporation. You want to take the business in another direction but you don't want to management to be top down. You want the management to come from the employees so they have ownership. What will happen?

I think employees will look at the new ownership as a stealth attempt by management to transfer the cost of decision making to them. Then employees will result in game playing to ameliorate coworkers attempts at change. A static equilibrium resembling a prisioner's dilemma will emerge and nothing will change.

Suppose everyone wants flextime but can't agree on the schedule. So a committee is formed driven by the committee. When the committe makes recommendations, there will be opposition from those who don't like the committee members or fear them. The conclusions will be objected to. Nothing will change. This is a prisioner's dilemma because there is a binary choice: change or not change. But all of the cost has been transferred to the employees. The cost takes the disquise of a committee. The management shirks the responsiblity but gives the illusion of empowering.

What I am really saying is that institutional change is heavily influenced by game theory. If someone would own the responsibility, then change will occur.

Thursday, March 06, 2008

Skin Hunger

In between passing times at Muscatine High School, students often stop in the middle of the hall and congregate. The crowd that forms often clogs the hallways making it difficult to get to class on time. These students congregate without any regard to the costs they impose on others. This is the classic externality. To compound the matter more, no one really owns the institution so the hallway becomes overused to the point where all rents have been dissipated. This is the classic tragedy of the commons. The high school administrative team asked students to find solutions for the externality and commons problems. In this blog, I want to explain why I think that students congregate, clog, and over-consume the public good.
Dr. Eric Berne of Transactional Analysis fame, Games People Play, postulates that everyone needs a certain amount of stokes both physical and mental in order to live. Kelley Morgan, a co-worker years ago, used to call these strokes "skin hunger." Skin hunger describes the proximity that students stand to each other, the constant touching, the text messaging, the clogging. Kelley used to say that "You'll find more acceptance in this group than anywhere else." It's no wonder that the most eclectic group of students are found in the hall between classes. Each student in this crowd is rationally seeking to maximize their utility and gain as many strokes as possible. Is it possible that these students are not receiving the stokes they need from teachers? One of the buzz concepts that I hear from our administrative team is that teachers need to build "Rigor, Relevance, and Relationships." When teachers fail to build relationships with students, the students transfer the cost to third-parties by clogging the hall.
Some of the students might have deep emotional problems with relationships. Tyler Cowen in Discover Your Inner Economist, opines that students might be late for class for fear that they will arrive before their friends. These students take the asymmetrical arrival times personally. The students who arrive early will wonder why their friends are late. These students reason, "Did my friend have something more important to do than talk to me? Did my friend abandon me?" So in order to protect their ego, students who clog the artery of the halls, might cling to their peer groups as security. To arrive early without their friend is interpreted as painful rejection. It is therefore rational to remain in the hallway.
Neoclassical economics predicts that individual actors will maximize their utility or pleasure. By waiting in the hallway, many opportunities to gain strokes or utility might arise. Maybe, Juan is waiting for Mary to walk by to ask her for a date. Maybe Juan wants to talk to his friends about a assignment before class or finish eating before going to class. In order to maximize his utility, Juan will wait to the last second before bolting to class. So Juan, and many others, will wait in the hall exerting a cost on innocent third parties.
In order to alieve the congestion problem, property rights must be assigned or a Coase Theorum must be sought. Until someone "owns" the hallway it'll continue to be oversued to the point where marginal benefit equals marginal cost.

Tuesday, March 04, 2008

How to Build a Sidewalk

If you had to build a sidewalk into a school or work, how would you do it? One way is to take a survey and ask people questions like, “If there was a sidewalk here, would you use it?” Another way to find out how to build a sidewalk is to ask their opinion. For example, “Where is the best place to build a sidewalk?” Both ways of gathering data to build a sidewalk are a poor paradigm since the incentives are misaligned. In the first case, respondents might lie especially if they did not have to share in the cost of building the sidewalk. In the second case, respondents will answer in a way that maximizes their benefit and minimizes their cost. In the second case there’s also a game being played. The game goes something like, “If Juan wants a sidewalk there, I’ll say I don’t like that sidewalk just so Juan does not feel empowered by his decision.”

The right way to build a sidewalk is to not build the sidewalk at all. People will choose a path to the front door that minimizes their cost and maximizes their benefit. The paths that have worn out the grass or packed down the snow are the most popular paths. Choose to build the sidewalk on those paths since the paths don’t lie and appear to be the most efficient entrance to the building for the most people.

The way to build a sidewalk is to look at what people do and not what they say. The same approach could be used to determine the best schedule.

Teen Drinking

Say it’s Christmas Eve and you are sitting at a beautifully decorated table with glazed ham, mashed potatoes, stuffing, and all of your favorites. You have gained weight lately and want to start a diet. You have two choices. You can start your diet now or later. Which one would you choose?

Most people would choose to eat today and diet later. In their choice, they have weighted the costs and benefits in two different time periods or intertemporal choice. If that situation sounds contrived, try this. Suppose you are considering buying something but you’re short of cash. You can borrow the money or use your credit card. In this case you chose to spending money now and forgo consumption later. You might think that the benefit of consumption now is greater than the cost of not consuming later. Teens do this all of the time. They watch a television show then do homework. Or they go to work then come home late and try to study.

We face hundreds of these decisions daily. Do you buy or rent? Do I marry or stay single? Rational consumers consider both present and future time periods when making choices.

Now, put yourself in the shoes of a teenager at a party where there’s alcohol. Should the teen drink now or wait until the teen turns 21? The teen has to weigh both costs and benefits in making this intertemporal decision. Suppose that the teen thinks there’s no way he’s going to get caught or become addicted. In addition, suppose the benefits of being cool and fitting in with his peers is great. I believe that when teens are faced with this choice, they will choose to drink.

Recently, Bob Weaton held a community forum on what the administration is doing to curb teen drinking. I applaud him for his proactive approach to attempting to solve this long time a problem. I don’t think the problem can be solved with changing the tastes and preferences of the demand curve. Instead, teens must be encouraged to avoid the parties altogether.

Tim Harford states in his book, The Logic of Life, that people make decisions by considering the present and the future. So if a teenager is at a party and is offered alcohol, the teen will weight the moment’s pleasures with the future’s costs. The teen most likely will drink just like the reveler on Christmas Eve will eat.

For Mr. Weaton to curb teenage drinking, he’ll need to change the incentives the teen faces when making choices at the moment. Information will help. Information about how alcohol will hurt them or impair driving might influence their choice. I tell a story about a frog who gives a spider a ride. But to truly influence choice, teens need to be removed from the party so there’s no choice to make. In other words, the teens should not even be at the party. This is like not carrying your credit card with you when you shop or not turning on the television until your homework is complete.

Sunday, March 02, 2008

Flad Commits Post Hoc Fallacy

After school I go to the Community Y. While checking in, the worker always says, "Why do always bring all of these kids with you?" Although the comment is made tongue in cheek, the fallacy is because I arrive and kids follow, I bring the kids with me. The worker is saying that I bring a lot of work and discipline problems too.

Every night I come home and have to park in the public parking place behind Ace Hardware. The front door of Hubbles, bar, faces me as I park. For the last month, I have thought as I parked, "Look at that. Muscatine Electric truck is parked right in front of the bar. I'd never hire anyone from there to work on my house because they are always at the bar." I was smug. It didn't occur to me that Muscatine Electric could see my car parked in front of Hubbles and draw the same conclusion. I had committed a stupid post hoc fallacy. Just because their van is parked by the bar doesn't follow that the workers are patronizing the bar.

One day, I saw the workers exiting their second floor apartment on the way to work. Now I know why the van is parked by the bar. I was wondering how many others have made the same erroneous conclusion.