Ambiguity aversion

Will Wilkinson is back from Turkey and it doesn’t look like he had a good time (something to do with goat rodeos). Apparently, like most places that aren’t here, retail prices in Turkey aren’t posted. Instead there’s an expectation that buyer and seller will negotiate a deal.

Will suggests the equilibrium quantity is less under “haggling” than under Walmart-like posted pricing. His argument is that buyers don’t exactly know their value of the good in question, posted prices are information about the buyer’s own value of that good and, given ambiguity aversion, the haggling system reduces quantity.

Clearly, people are uncertain about the value of goods to them and because they don’t have the good yet, they’re uncertain about their uncertainty (i.e. the probability they’ll have positive surplus from buying the good is unknown). Lots of economists believe people have ambiguity aversion and given how much attention the theorists are given it these days, I assume its grounded in some serious results in psychology ((or more likely the math is neat)).

Its not so clear that a posted price would help the buyer reduce his ambiguity, though. Post bargaining, the price is not uncertain, so the remaining (post bargaining, pre purchase) ambiguity is the same under both pricing systems. Its not clear, then, why posted prices would reduce ambiguity.

Maybe Will is thinking that the transaction costs under haggling systems are higher and this would imply lower equilibrium quantity. But what was all that about asymmetric information and uncertainty about surplus?

I think Will’s on to something. Especially if we lived in a culture that made haggling into sport and we actually got enjoyment out of participating in it, but in any case, those transaction costs wouldn’t be that large… Maybe some micro dude(tte) will pick this up and run with it?

Old fashioned nuturing mothers

Mother’s Day was meant to be — and still is — a celebration of a nineteenth-century ideal of motherhood, when mothers were supposed to dedicate themselves completely to nurturing their children and making a cozy, safe home

Laura Prieto, an associate professor of history and women’s studies at Simmons College in Boston

Well, I don’t celebrate the 19th century version of motherhood on mother’s day. My mother worked all through my childhood and was a single mother through a good chunk of it and yet — and yet! — I celebrate her on Mother’s Day every year. Maybe the professor is right, though. Mom did nurture me and home was always cozy. Let’s all look forward to the day when those stodgy old ideals go by the way side ((There’s a possibility this quote was taken out of context.)).

Abortion and adoption

(Wow, never noticed how similar those word are…)

This graph is cool ((In the “wow, look at the pretty data” sense not the “wow, isn’t abortion cool” sense. See this.))

Abortion and adoption

In 1968 abortion was legalized in the U.K. Adoption rates declined dramatically, but children taken into State custody remained at about the same rate. The authors of the article suggest this is one more chink in the armor of the abortion caused lower crime hypothesis. In the Levitt story, unwanted children — who are future criminals (obviously) — stopped being born after abortion was legalized, i.e. if a woman didn’t want a kid, she’d get an abortion instead of having the kid and raising it to be a criminal. However, adopted babies are, if nothing, the definition of wanted children so if abortion reduced adoptions significantly, its safe to say there weren’t that many “unwanted” kids being born before the legalization of abortion. Adoption and abortion are substitutes.

The best ((ibid)) part of this new thesis is that because of mass substitution from adoption to abortion, the adoption infrastructure suffered. This means for the marginal unwanted baby, it was harder for her mother to get an adoption and thus more likely for that baby to be raised in a bad, criminal creating, home. Creating marginally more restrictive abortion laws ((e.g. roe v. wade?)) would generate more crime.

Another explanation for the constant number of State interventions, though, is that fixed-budget child welfare bureaucrats started taking less marginal children away from their parents. In other words, in absolute terms, less unwanted kids, even accounting for adoptions, were being born, but more kids were being taken from their homes than would have been otherwise. The bureaucrats have to justify their budgets.

The above is a discussion of the supply side factors, but what about demand? Are “unwanted” children being underproduced?

(h/t SM,CI & SS… Andrew Gelman has a good discussion of testing long term mechanisms via short term effects. I call this, “testing the other implications of a theory.”)

I really, really hate… oh wait

My prank detector may be fried by now, but I can’t detect an April Fool’s joke in this essay. So, I’ll stick my head out of my shell and call this out as a great post:

For instance, all to often, when people announce that they are suspicious of markets, they come out instead in favor of some sort of centralization and distribution. Many today announce that they believe markets are bad for society in regards to health care, and that instead the federal government should provide us all with a single payer health plan. Similarly, a fair number of people believe that the centralized state should provide a comprehensive “safety net” against unemployment and poverty, rather than requiring that people rely upon their own work and resources (and the charity of others) to provide for all their needs.

Marglin, however, takes things in a very different direction. He makes the following example: He’s looking out the window at his barn. Now, if his barn burned down, he would call his insurance company, they would send out an adjuster, the adjuster would certify that the barn had burned down, the insurance company would issue a check, he would hire a contractor, and eventually the barn would be rebuilt. However, if this were two hundred years ago, if his barn burned down, he would need to rely on his neighbors to rally round him and help him rebuild his barn. He would rely on them because it was more work than he could perform or pay for himself, and they would rely on him in their turn.

In other words, insurance helps people avoid the need of relying on their neighbors. Insurance frees you from needing to have a strong, mutual aid relationship with your community. He points to the modern Amish, who refuse to use insurance, as an example of a group of people who have chosen to avoid individual goods such as insurance, have done so because they believe that the reliance upon each other which is central to community will be destroyed by such things.

Now, Marglin doesn’t go into this, but it strikes me that one of the forces that, in a world without individual protections such as insurance, unemployment benefits, etc., one of the forces that keeps community together is the implicit fear that if one does not cleave to one’s community, one will be left alone when one is in one’s hour of need.

And yet, it is precisely this fear that one may be abandoned by the community that drives us to want insurance, unemployment benefits, welfare, etc. Our fear that the other members of our family, parish, neighborhood, etc. may not take care of us lead us to seek guaranteed protection from the biggest kid on the block — the national state. And yet, this very move is what is most likely to both enable us to be on the outs with our families, parishes and neighborhoods, and also make those communities feel that they have less responsibility for us

If the market kills local communities, government does too.

This is surprisingly unoffensive

This:

This provides the core rationale of what I’ll call, for short, the ‘socialist’ idea, going on to explain what I mean by it. This idea is that [wa: individual?] morality is not enough. (In wrong-headed versions of the idea, that claim is put more strongly to say that morality is irrelevant. But the stronger claim is wrong.) Morality is not enough, it is necessary but not sufficient, because the extent of possible human need may always outstrip the uncoordinated results of individual moral effort, leaving some to live lives of unrelenting misery or hardship, others to die unrescued, or what have you. The socialist idea is that we, as a community, renounce this state of affairs, that we sign up to a code according to which people do not die unrescued or live lives of penury, so far as we can help it.

(emph added)

Its pretty uncontroversial to say caring for others in need is a public good and as such is under financed in the decentralized economy.

But the absence of a discussion of implementation suggests a point of departure between Liberals and Socialists. Maybe each of us needs to be forced to care more about the community than we would otherwise, but why does that mean each of us need to be concerned with “the needs of distant strangers”? My local community overlaps with the neighbor local communities and those neighbor communities connect me to their neighbor communities. In this way, a distant stranger is connected to my community and any public goods financing my community forces on me will spill over to him. Furthermore, if the public goods problem is solved in each community, then its solved for the “distant stranger” ((If that doesn’t do it for you, then imagine all the people in the world line up in a single line. If each person scratches his neighbor’s back then everybody will get their back scratched.)).

In this way, the public goods problem, what Geras calls the socialist idea, is solved via many interconnected local communities. There is no need for a concept of global community (which is usually implied by socialists and is explicit with nationalist social democrats).

I don’t think Liberals are worried by the potential for tyranny of the local community as long as there’s free mobility between them. Should we worry, though, about the potential for a “race to the bottom” where communities compete with each other to attract members by reducing the public goods burden?

UPDATE: Another issue with the implementation of the socialist ideal that I think is interesting. Its probably true that different levels of community (e.g. city vs. state, state vs. nation) are substitutes for each other. If this is true, what do we lose by having less and less granular units of community? Are the social democrats killing local communities? Should we care?

Poverty and abortion

Here’s a good discussion of the link between abortion and poverty. The number of abortions (and pregnancies) skyrocketed after Roe v. Wade, but in the last couple of decades both numbers have declined. Poverty has fluctuated between 11-15%, but at much higher frequencies. So while there’s only been one “abortion cycle”, there’s been 3-4 “poverty cycles” since the Supreme Courts landmark decision.

DarwinCatholic concludes there isn’t much of a relationship between poverty and the level of abortion:

The trend is actually very interesting. As the poverty rate was rising sharply from 1979 through 1982, the abortion rate dropped. The same thing happened during the poverty rate rises of 1990-1993 and 2001-2004. Even more interesting, however, is that during these first two downturns, although the abortion rate levelled in the first case and continued dropping in the second, the abortion ratio increased during both of those periods. What that means is that although women were not getting abortions at a higher rate during these periods, they were conceiving at a higher rate. People avoided pregnancy at a higher rate (thus decreasing the number of planned pregnancies) but did not abort at a higher rate.

If people were aborting more because of the rise in poverty, one would expect to see the actual abortion rate go up during these periods. Instead, we see that people avoided pregnancy (thus decreasing the percentage of total pregnancies which were “planned pregnancies”) but actually reduced the rate at which they aborted.

I’ve done some back of the spreadsheet (xls here) analysis to more or less confirm this conclusion. The regression of abortions on lagged abortions and 10th percentile income level suggest increasing the poor’s income by one standard deviation (about $700) reduces the number of abortions by about 34 thousand (or about 3% of the total, less than a third of the standard deviation in the number of abortions).

To explain the dynamics of abortion, he has some interesting things to say:

Why has abortion really been falling? I think it’s significant that the abortion rate is falling in such a tight correlation to the number of years since the peak. This indicates, it seems, some sort of self-correcting mechanism going on. Perhaps it’s partly a re-introduction of restrictions on abortion, both cultural and legal. Perhaps it’s partly a build-up of painful experience, which has overcome the initial impression that the costs of getting pregnant (and getting out of getting pregnant) are not as high as they were before 1973. Either way, it seems that some force that is building with time is continuing to drive the abortion rate down without any current signs of slowing.

Update: minor typos

Humboldt County

I was born and grew up there and now its a movie. The movie looks like it might be pretty good.

I can tell you that the movie, if the trailer is an indication, gives entirely the wrong impression about the weather in Humboldt County. Its cloudy and in the 60s every day. Every day. I’m sure those views of the ocean would be spectacular if you ever actually got to see the ocean through the fog and rain.

That said, I’m not just being sentimental when I say that my birthplace is one of the most beautiful places of all those places I’ve been to. Craggy mountains, lush rivers, slopping green hills, wide valleys, giant redwood forests and those partially obscured ocean views were my backyard. Ironically, because these things were so normal I didn’t really appreciate them until I left. If fact, I hadn’t visited the famous Redwood National Forest nor the other tourist attractions ((Ye gawds, what a terrible web site my home town has.)), as a tourist, until a couple years ago

Beautiful, all if it.

Oh, they’ve made a couple other movies up there: Salem’s Lot, Outbreak and The Majestic.