Pretty Game Theory

This is a really great article about sea slugs. The below point however got me thinking about how they became so beautiful:

Many mobile nudibranchs - vulnerable as they move in daylight between feeding spots—announce their weapons with garish color designs, a palette millions of years in the making. Contrasting pigments make them highly visible against a reef's greens and browns, a visual alarm that turns predators wary—bold nibblers quickly learn to avoid the color patterns that announce unpalatable flesh. Animals able to mimic the designs, including nontoxic nudibranchs and other invertebrates like flatworms, are similarly left alone.

That last sentence made me wonder how free-riders can exist in an evolutionary sustainable equilibrium with the nudibranchs, which in turn made me think about what sort of evolutionary game they must be playing.

There are costs associated with any of these strategies: costs for being poisonous and costs for distinguishing yourself physically. If it is already "known" among predators that a certain body form is poisonous, then there is an incentive for all slugs (and free-riding flatworms) to assume that body plan. However, it becomes similar to the prisoner's dilemma: the more free riders there are, the less chance there is for a predator to pick a poisonous animal of a specific body type. Therefore, predators will begin to start eating those types of animals.

On the surface, it would seem that the evolutionary equilibrium would not really hold in this way. It would not make sense to expend the costs on complex body plans to serve as a signal to predators, since the free-riders would end up watering down that signal and making it useless. Everyone would adopt the lowest cost form and only some would be poisonous.

However, there is another way out of this. If the poisonous nudibranches were to constantly change their body into new and unique forms, then the signal would remain effective. Starting from a point where all slugs look the same and are eaten with the same frequency, their body plans begin differentiating randomly. Those body plans associated with the "poison" genes will begin getting eaten less and less by predators, as predators evolve to avoid certain types of animals. Once the body plan becomes safe, non-poisonous slugs will begin assuming this poisonous body plan. Predators will now start to lose their evolved fear of this type of the poisonous-looking slug. A few poisonous slugs evolving their looks randomly that look even more unique will start this whole process over again.

In short, the evolutionary incentive of the slug is to just get more and more weird and unique. This sort of evolutionary path IS sustainable, and can continue as long as the slugs don't gather too many competitive disadvantages as a result of their accouterments.

Think about that. It's one thing to see the odd things that arose in nature. Imagine knowing that a certain weird animal is only going to continue to get more bizarre. How beautiful is that?

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Los Angeles is a Lot Like Paris?

This article on development in Los Angeles is an incredibly fascinating read. I love the conclusion: nothing I ever would have thought of but so true! It describes how the urban form of Los Angeles is more similar to Paris than New York in its decentralized nature.

Unlike New York, there isn't really a reason to be in downtown Los Angeles. On the surface, you could say this is because the city is too suburban and has cut off the air supply to its downtown hub. However, this type of development can not only be ok in some circumstances, but it's ingrained in the DNA of the city. Rather than being suburban, it's more comparable to a city like Paris (which has suburb problems of its own). There, the center of the city is paralyzed because it is a historical "museum" where there is resistance to change, and the main business district La Défense developed on the outskirts.

The article goes on to show how rail lines are different in these two cases: it's focused in a more dispersed rather than hub-and-spoke model (something I always used to wish for when I wanted to get to middle of nowhere Queens from the middle of nowhere Bronx!) However, I think another conclusion to draw is this dispersed development ends up being more equitable than a monocentric form.

Suburbs may be unsustainable in the long term, but so are diverse city centers when looked at in this angle. There is by definition a limited amount of space within a reasonable distance to the center, and the most efficient transit system in the world won't change this. Jobs will concentrate in the center. The rich will concentrate and create a homogeneous downtown that takes away from the diversity that actually makes city centers desirable. The poor and middle classes are dispersed with little access to centralized public services and economic activity, and everyone suffers from the lack of income diversity in the city.

In a dispersed city, there is no "center" to encourage this concentration and its ill effects. Of course there will still be rich and poor and middle class neighborhoods, but their distribution will be more random and not focused into groups on a metro scale. There will be no such thing as being marginalized from the city center and probably less of a disparity between commuting times of the rich and the poor. No one will be able to live in their isolated bubble and ignore marginalized populations.

The one downside to this versus a centralized city is that there is no natural inclination to dense less-car-dependent development, which is why Los Angeles is Los Angeles. Incentives have to be carefully managed to encourage dense development, because the natural inclination with no center to be close to will be sprawl. Getting back to the point of the article, if you have a transit system that connects various "mini-hubs" in a grid-like way, it will provide a nice skeleton for future transit oriented development.

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My Neighborhood is Officially Better Than Yours

I was supposed to go sledding on the cliffs across the street from my new apartment with this girl today. Unfortunately, when I tried to buy a sled at my local target the salesman just laughed at me and said they were out. And it's not worth coming to Fort Tryon Park from Brooklyn if there's not a sled involved.

Luckily, I ended up heading into the park by myself and made some friends.

According to a passer-by, the third from the right was supposed to be a full bust with her arms cut off. I missed it!

Look at that little guy!

How amazing is this skull?

Further into the park, I found this guy. That's a flag pole behind him. He was huge!

This smaller guy was standing on the ledge.

His hair was very pretty.

Walking back, I caught the sculptor in the act!

Aaand he made the 2010 Vancouver Olympic symbol. I'm so glad I decided to go in there. It was hot enough to have a picnic on the snow there. These guys will not be around for long!

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Framing Effects and Solving Social Problems

I'm sure if you've read anything below that you'd know I absolutely love this speech!


Sendhil explains a few particular behavioral economic problems as a "last mile problem". This problem occurs after a technological problem is solved. Due to models of the way the world works that people have in their heads, they may not implement solutions that while empirically sound, are counter intuitive.


Essentially this is what behavioral economics is. First try to come up with a rational framework of how people should act, test how people are actually acting, and explain why.


Tyler Cowen explains these sorts of framing effects masterfully in his book Create Your Own Economy. He explains how framing effects are normally viewed as a negative. In this light it would almost seem that the job of a behavioral economist is to "trick" people into doing irrational things. For example, studies have shown that, when given the exact same bottles of wine, even the most sophisticated sommeliers would say a wine tastes better if told it is more expensive.


However, most of these situations involve forcing people to frame a situation in a way that is known to be wrong. To make a truly rational decision, you have to keep every piece of information about the situation in your head, and this obviously has a psychological cost. It is true that price correlates with the taste of wine (Two Buck Chuck being an outlier), so most of the time framing the situation in this way and ignoring other inputs is actually a good thing. You arrive at a correct conclusion using less psychological resources. As Tyler explains, most of the time we choose how to frame situations as a shorthand way of dealing with the world. This is the best definition I've ever read of the type of rationality the human mind operates under.

Tyler explains the internal experience here, but Sendhil gets into the external ramifications. Policies are normally seen as aligning incentives to guide people towards a certain type of behavior. However, Sendhil adds a more complicated dimension to the policy maker. Instead of just focusing on rational incentives, policy makers should focus on more nuanced framing effects that people have, and learn to manipulate them. Instead of just being a statistical wonk assuming everyone is rational, they should be part marketer as well.

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Pathology

I hate it when people say that trying to use micro and game theory approaches to explain how people act are wrong because people don't behave rationally. At least in my own thinking, I always try to make adjustments based off of how people actually act, whether or not that's traditionally rational (if I wanted to I could make a profit based off of knowing people's irrationality).

I explain it by widening the definition of rationality. Given all circumstances, irrational biases, and psychological ticks, you can still get a tweaked rough cost benefit analysis done and explain what people will do. In this framework, the only irrational act would be someone consciously knowing what is best and subconsciously driven to perform one act, yet doing something completely different.

For example, it is known that people are loss averse. The negative effect of a loss is greater than the positive effect of a gain if both amounts are the same. This is something that could be easily quantifiable and taken into account if you knew how loss averse someone was.

I like David Gruen's explanation a lot better however. It seems to take what I'm saying a step further, and think about how this thinking will affect Macroeconomics in the future. Pathologies are the perfect way of injecting irrationality into economics. This sort of thinking does not lead to the conclusion that people are irrational and therefore unpredictable. Rather, the conclusion is a list of pathologies that people, whether in groups or as individuals, fall prey to. It complicates economics, but it doesn't destroy it.

The end of the article is particularly insightful in how economic thinking may change:

In an asset price bubble, Gruen points out, investors expecting to earn 15 or 20 per cent returns on their funds are unlikely to be deterred by increases in official interest rates of half a percentage point.

''If you tighten monetary policy early and the bubble keeps growing, what do you do then? You've managed to slow the economy down, unemployment has risen a bit, and the bubble is still growing.

This sounds like any macroeconomic problem! Business cycles happen when we alternate between trying to control inflation and trying to control unemployment. Pathologies can easily be inserted into macroeconomic problems, and be balanced along with the classic macroeconomic variables.

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I'm Smarter Than The New Yorker

This article got me thinking...

The article makes a point against investing in hybrid technology. Their argument is that by making cars more fuel efficient, you essentially lower the cost of driving, which would cause people to drive more. This would negate the positive environmental effects of lowering emissions. However, as someone who would rather see investment in public transit over hybrids, I wish they would have taken it farther.

The article is right in that increasing fuel efficiency affects driving in a similar way as declining gas prices.

But, it's not a simple linear relationship. There is a large chunk of driving that people are going to do regardless, and gas prices affect marginal trips (for example, someone has to go to work everyday, but maybe they'll cut out some errands).

Here is where there is a benefit to increasing fuel efficiency: Lets say prices are at the point where drivers have already cut out most of their discretionary driving (in other words, inelastic demand for driving). These changes in elasticity however don't apply to changes in fuel efficiency. In an environment with inelastic demand, increases in fuel efficiency will always be good, since you'll lower emissions and the resulting lower price of driving will not have that much of an effect on behavior.

The amount someone drives is also not only a function of gas prices, but a function of preferences. Preferences can change. For example, if better public transit alternatives are made available, people will move away from driving without any change in prices.

So, this means that the decision of whether to invest in hybrid technology or public transit can be based off of how people are responding to gas prices. I always thought high gas prices would be better, and would lead towards all sorts of good changes, including moving towards hybrids, but mostly moving away from cars in general and towards public transit.

However, it would be better for prices to stay low! If prices remain low, demand changes a lot with changing gas prices, and increased fuel efficiency wouldn't have that much of an environmental effect.

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