Friday, November 22, 2019

How to do an audiobook of Hidden Order

As I mentioned in a recent post, I have now brought Hidden Order back into print. I am considering producing an audiobook of it, but there is a serious problem.

The problem is that the book contains more than forty figures. I could make the figures available on my web page or on a pdf included with the audiobook, but most people will not be sitting in front of a computer while they listen to the book. Viewing figures on a cell phone while driving down the highway, although not impossible, would be hazardous. So either they ignore the figures entirely and skip over passages that depend on them or they listen to parts of the book that don't have figures on their way to work and go over the parts that they have skipped sometime later when they have access to a computer or smart phone. Not impossible, but clumsy.

The alternative is to rewrite the book to eliminate everything that depends on the figures. That would not be impossible but it would be a rather different book, one that was no longer a substitute for a college class in economics. And it would be a lot of work.

Opinions?

I have been assuming that people who listen to audiobooks mostly do it in situations, such as driving, where looking at a picture on a computer screen is not a practical option. Is that true? Are there a substantial number of people who enjoy listening to an audiobook while sitting at home and could easily enough switch to looking at a figure while listening to the text that discusses it?

Perhaps I should forget about Hidden Order and do an audiobook of Legal Systems Very Different from Ours instead. No figures.

Thursday, November 21, 2019

WoW Economics

Now that the new edition of Hidden Order is out, I'm thinking about doing another nonfiction book. One intriguing possibility is a book using World of Warcraft to teach economics. For example ...

Consider the economics of the auction market. To first approximation—perfect competition, zero transaction costs—the price of crafted goods equals their production cost. If we ignore the player's time, that's the cost of the materials to make them.

That breaks down for a variety of reasons, all economic. Crafting and selling takes time, time when some players would rather be doing something else — although that doesn't matter if there are enough who enjoy the auction house game. The market for many crafted items has only a small number of sellers at one time, giving imperfect competition and the possibility of cartels. To craft an item you need the pattern, bought from a trainer or other NPC or on the auction house, possibly at a high price. To learn the pattern, you need sufficient skill. It looks like a product with a fixed cost and a constant marginal cost — except that materials may get more expensive if you want to buy more of them, which gives an upward sloping supply curve.

On the other hand ... making things can give you skill. One would expect, and sometimes observes, products that consistently sell for less than their materials cost, the difference being the price players are willing to pay in order to skill up.

For many, indeed most, goods the market is thin. One result is price changes over time, most obviously between low population and high population hours and days. Some of them are predictable, but to make money by arbitrage you need a predictable price difference that more than makes up for the 5% auction house cut.

As all of this suggests, the auction house itself, the most obviously economic part of the game, could be used to teach a lot of fairly sophisticated economics. But there is much more.

Consider the matter of forming two player teams to do quests or kill things for loot and experience. The optimal team is probably a paladin and a mage. Why? The mage is the highest dps class, the paladin is both a good healer and a tolerable tank, so the team benefits from division of labor. A druid is also both a healer and a tank but also a tolerably good dps, so a druid has less need of a mage companion than a paladin does and will be willing to offer less favorable terms. That gets us to an important insight of comparative advantage: You want to trade with people who are not only good at what you are bad at but bad at what you are good at.

For an entirely different insight ... Of the first three fire elementals you kill, farming them to make the money to buy your mount, two drop (very valuable) elemental fire. The next ten drop nothing. Obviously Blizzard's random number generator is broken, perhaps deliberately.

It probably isn't. Humans are equipped with very good pattern recognition software, good enough to find patterns that are not there. Which raises the question of whether the business cycle is really a cycle or a random walk made to appear cyclic by the same mechanism.

There are a few of the examples that have occurred to me. The purpose of this post is to invite readers who have played WoW to offer more.

Note: My examples are based on Classic WoW, since that is what I now play, having given up on the standard version of the game some time back.

Hidden Order is Back in Print

I have just republished Hidden Order: The Economics of Everyday Life as a kindle and a paperback, both available from Amazon.


(Lovely new cover by Anna Krupitsky)

The book is intended for readers who would like to learn economics for the fun of it, economics understood not as the study of the economy but as a tool for understanding human behavior: crime, marriage, politics, and much else.

Some quotes:
“In David Friedman’s hands, economics becomes a sprightly science. Friedman has the rare knack of introducing fundamental principles with humorous examples. . . . a dazzling array that runs the gamut from supermarkets to pirate ships. . . . A clear picture of how simple assumptions about individual preferences and human rationality can increase our understanding of ordinary market behavior and a wide range of social institutions from marriage, to crime, to voting.”
Richard A. Epstein, The University of Chicago Law School

"The book of the month is HIDDEN ORDER: The Economics of Everyday Life. One doesn't normally think of an economics book as light and pleasant reading, but David makes it seem so. If you have any interest in economics at all, you'll find this book both readable and fascinating; and I guarantee you'll learn something from it."
Jerry Pournelle in Byte

“Hidden Order helps us look at everyday experience from the perspective of basic economics. Readers will be surprised to learn how much economics explains about their own behavior as well as about that of others …”
James M. Buchanan, Nobel Laureate in Economics, 1986

"The author is a talented teacher, and he moves effortlessly from the traffic jams and grocery stores to the efficient-market hypothesis, price theory and backward-bending labor curves. He fine-tunes his approach along the way -- starting with what he calls a "static" set of circumstances and tackling the real world, with its change and uncertainty, later in the book. Economics, he acknowledges, involves a "continual balancing act between unrealistic simplification and unworkable complication."
Deborah Stead in The New York Times

“David Friedman's gift is making some of the more complicated concepts of economics simple. In _Hidden Order_, he does this with his trademark wit and ingenuity. The most esoteric yet essential aspects of modern economic thought - marginal utility, indifference curves, opportunity costs, Nash equilibria, rent-seeking, etc - all come to life in this modest paperback.”
Amazon reviewer

David Friedman apparently has written the book for the purpose of teaching you something, something which many textbook writers apparently don’t feel the need to take into consideration.”
Webbed review by Garret Wilson

“A surprisingly lucid and useful book, and about as appealing as economics gets."
Kirkus Reviews

Thursday, October 17, 2019

Anyone Want a Talk in or Near Australia?

I am attending a conference in Sydney, Australia, from May 22nd to May 24th. I plan to spend about two weeks on the trip, so would be happy to give other talks in Australia or possibly places nearby — as viewed from the U.S. — such as New Zealand or Singapore. If you are interested in arranging such, let me know here or by email (ddfr@daviddfriedman.com) or both.

Anyone want a talk in or near Europe?

I am going to be in Madrid, March 6-8th, for the European Students for Liberty convention. I plan to spend about two weeks on the trip, so would be happy to give other talks before or after. If you would like to arrange one, get in touch either here, via email (ddfr@daviddfriedman.com), or both.

Saturday, July 06, 2019

It Feels So Good When You Stop

The stock market is also soaring, with the Dow Jones Industrial Average setting a new record high this week on optimism about an end to the U.S.-China trade war (News story)
I have a new explanation for Trump's trade war with China. It makes us poorer. Ending it will make us richer, raise the stock market, make Trump less unpopular with tech firms. Voters vote largely on current information. So if he ends it a few months before the election ...

Which reminds me of the story of the man in the insane asylum for hitting himself in the head with a hammer. When one of the doctors asked him why he did it, the answer was "Because it feels so good when I stop."

Andre Norton on C.J. Cherryh

I recently started rereading Gate if Ivrel, C.J. Cherryh’s first novel. The introduction is by Andre Norton, at the time a very successful author.

Cherryh, in that novel, is doing the sort of thing Norton did, but doing it much better. And Norton, to her immense credit, realizes it and is willing to say so. The end of the introduction:
My personal question rises:
“Why can’t I write like this?”
I very much wish that I did.
How many successful writers would have the humility to say that, in print, about a new author?

Friday, June 14, 2019

Why Many Scientific Articles are Wrong

Suppose you are a professional academic who wants to publish a journal article in order to improve your chance of getting an offer, getting tenure, getting a raise. One way to do so is to produce and write up research that provides support for a novel theory. One problem is that, if the theory is true, it is quite likely that someone else in your field, over the past century or so, has already discovered it and published it, making your result not novel, hence likely to be rejected by the journal you submit it to.

If, on the other hand, your theory is false, the odds are much better that nobody else will have come up with it, found evidence to support it, and published. So if you can produce what looks like good evidence for a false theory, the odds that it will be novel, hence publishable, hence will contribute to your career, is much higher than for a true theory.

How do you produce evidence good enough to be publishable for a result that is not true?

One solution is a specification search, aka p-hacking. Your theory is that eating onions reduces the risk of Alzheimers disease. To test it, you find a sample of old people who have been tested for symptoms of cognitive decline and survey them on their dietary habits. As a first crude test, you run a regression with degree of cognitive decline as the dependent variable, estimated previous onion consumption as the independent variable.

Unfortunately, that doesn't work—there is no significant correlation between the two. You rerun the regression, this time doing it separately for men and women. Then separately by race. Then by race and gender. Then limited to people over 80. Then to people over 90. Then making your independent variable not estimated onion consumption but whether they report eating onions frequently, occasionally, or not at all. Then do that version for all your racial and gender categories. Then ...

When you are done, you have run a hundred different regressions, testing different variants of the theory that onions are protective against Alzheimers. You are gratified to discover that three of them are significant at the .05 level, with the right sign. You pick the best one and publish it: "Cognitive Effect of Self-Reported Onion Consumption on Elderly Afro-American Women."

The fact that a regression result is significant at the .05 level means that, if your theory is not true, the chance that the evidence in favor of it will, by pure chance, be as good as what you found is only .05. It follows that, if your theory is false, a hundred separate experiments can be expected to produce about five that support it at the .05 level.

In this version of the story, the researcher is deliberately trying multiple experiments and only reporting the results that support his theory. The same effect could occur via multiple experiments by multiple researchers. If a hundred different researchers produce one experiment each, all for false theories, about five will show evidence for the theory at the .05 level.

And get published.

Monday, March 25, 2019

Project I: Why do States Spend Money?

I have a file drawer full of research projects that I at some point started and then abandoned. Since I am unlikely to ever get back to them I thought it would be worth describing some here in the hope that someone else, earlier in his career, would be interested in reviving them, perhaps for a PhD thesis or a book. This is the first such post.

At a crude level, there are two theories of government expenditure. One is that it is determined by the need for government services. The other is that it is determined by the ability of the government to get money. It would be interesting to know the relative importance of the two in the real world.

One obvious test is the behavior of government finance before, during, and after a war. The war sharply increases the need for government spending. Its end eliminates most of the need but leaves standing the higher taxes used to pay part of the cost of the war. On a pure need theory, one would expect government expenditure to fall back to something close to its pre-war level. On a pure revenue theory, one would expect expenditure to remain high—not as high as during the war, when it was financed in part by borrowing and/or inflation, but at least as high as the taxes enacted during war time would support.

That is one approach to the question, but I thought of another. Different U.S. states have different sources of revenue, different tax structures. Different taxes respond differently to exogenous changes such as inflation. If a state is financed by a progressive income tax, inflation pushes taxpayers into higher brackets and so raises real revenue; if prices and incomes double, tax revenue should more than double. If, at the other extreme, a state is financed by regressive income taxes or by property taxes in a system where reassessment of property values is infrequent, inflation should reduce real revenue; if prices and incomes double, tax revenue should less than double. Keeping tax laws is easier than expanding them, so, if expenditure is driven by the availability of revenue, we would expect the first sort of states to have real expenditure increased, the second sort to have it decreased, by inflation. One could do a similar analysis for other changes in the economic environment that could be expected to change, in one direction or another, real revenues, and then see how the expenditure of states was affected by those changes.

To test the alternative, need, hypothesis, you need changes that affect needs for revenue. The largest expenditure of state and local governments is schooling. The cost of schooling largely depends on the number of school age children, which changes over time. On a need theory, when the fraction of the state’s population that is school age goes up, as it did for (I think) all states as the baby boom reached school age, state expenditures should go up. When it goes down, as it did in the years when the baby boom was coming out of the schools and onto the labor market, it should go down. While this effect would apply to all states, its strength should depend on how large a fraction of state expenditure goes to schooling. And other changes that affect the need for state expenditure may vary more across states.

For both hypotheses, the best evidence would be differences in what happened in different states, since that eliminates causes you are missing that affect all states equally, such as changes in technology that make schooling or tax collection more or less costly. But you would also want to look at changes that affected all states similarly, such as demographic changes that affected the fraction of the population of school age.

That’s the project. Calculate, for each state, how real revenue would be expected to respond to changes in its environment. Calculate, for each state, how the demand for government services would be expected to respond to changes in its environment. See which plays how large a role in predicting what actually happened.