Archive for the ‘economics’ Category

Ideas of Choice

Monday, 11 November 2019

I have been more actively working on the decision-theory paper off of which the probability paper was spun. And this effort has me thinking about the meanings of choice.

As I noted in an earlier entry to this 'blog, my paper on indecision used choice to mean no more or less than selection. I defined relations of preference in terms of choice functions, which are functions that select a subset from a set of options. Defining relations of preference in this manner seems to explain preference in terms of something called choice rather than explaining the thing called choice in terms of preference. But something called choice is often said to result from preference. Certainly, we want somehow to explain selection by persons of alternatives (even if that which explains cannot itself be observed directly!), and some notion of preference represents an attempt at explanation.

(However, if preference is the proper explanation, then preference must be very changeable; much of real-world behavior does not conform to a constant set of preferences. And people do such things as regularly selecting {A} from a set {A, B, C} yet consistently selecting {B} from a set {A, B, D}; perhaps in such cases we can still contrive an explanation in terms of preference, but we should be dubious of such explanation. I don't think that we should reject the word choice if the selections that people actually make aren't driven by preference. If preference does not provide a proper explanation, then perhaps some more general concept does. And perhaps by teasing-out what people intend by the word choice when they intend something narrower than selection, we can arrive at that generalization. That's one of the reasons that I sometimes press some people, especially fellow economists, to tell me what they intend by the word choice or by coördinate terms, when they reject its application where it seems to me to fit. I'm not trying to catch them in error or Socratically to teach a lesson to them; I'm trying to engage with them in an important investigation. But, important doubts about the use of preference in descriptive theory not withstanding, preference makes considerable sense in prescriptive use. Indeed, that sense in prescriptive use is one of the reasons that we so easily accept it in descriptive use, and even assures us that it must at least approximate a realistic description fairly well, because unreasonable behavior is costly.)

Identification of a preference is sometimes itself called choice; but sometimes preference is instead expressed in terms of whom or of what one would choose, if given the choice; and, sometimes, after a preference is expressed, the response is something such as You don't get to make that choice! In conscious identification of a preference, one selects an ideation; in reporting such an identification, one selects an utterance; and these ideations or utterances are selected in a different way than are their subjects, except in odd, self-referential cases.

In discussion of decision-making in a world of uncertainty, I've found use for an idea that I call practical choice, by which I mean selection of an option which selection causes that option to be effected with certainty.

In a world without uncertainty, there would be a simple division between what one could attain and what one could not. Preference amongst the unattainable would ex definitione be without practical significance. Discussion of preference amongst the possible would be operationally equivalent to discussion of practical choice, and rational agents would always attain that possible state-of-the-world that they most desired.

When we begin to speak and write of uncertainty, we are actually speaking and writing of cases in which we may make practical choices amongst options that would, in turn, affect the state-of-the-world in imperfectly predictable ways. Hypothetically, I might not care about those effects; I might only care about the options that I can practically choose; but, with those options properly identified, that hypothetical is highly implausible and sterile. And, otherwise, it now becomes quite relevant to consider the difference and relationship between preferences amongst things that are subject to practical choice and preferences amongst things that are not subject to practical choice. Preferences amongst things that an agent cannot practically choose will determine preferences amongst things that she can.

(Our practical choices are more limited than some might at first realize. An agent has practical choice of no more than some mental states; and selecting amongst these mental states delivers no more power over other possibilities than to increase or decrease the probabilities of those possibilities. Given the selection of one mental state, one's arm is more likely to move, but there is at least some terrible possibility that it will not. Indeed, given the selection of one mental state, one is more likely to recall a desired datum, but there is a possibility that one will not. Still, in many cases we might, without doing too much violence to realism, pretend that our practical choices include operations that we think almost surely to follow upon our exercise of actual practical choice. For example, one might calculate as if one had a practical choice of whether to propose marriage, while acknowledging that one did not have a practical choice over whether one would marry the other party.)

The concern of my paper on indecision was in identifying a difference in observable behavior distinguishing indecision from indifference, and I didn't want that distinction to be simply self-reported. When an agent was undecided between X and Y rather than indifferent, I needed a difference in selection from a set in which X and Y options, rather than a difference in selection amongst utterances or somesuch. In hindsight, I wish that, in that paper, I'd discussed conceptions of choice more than I did, and had explicitly written of practical choice. Perhaps accordingly I will someday revise the working version of the paper.

Acceptance

Monday, 23 September 2019

On 22 September, I was informed that my article Formal Qualitative Probability had been accepted for publication by The Review of Symbolic Logic. I do not yet know in what issue it is to be published.

Up-Date (2019:11/03): I have not yet received a galley-proof of my paper nor a copyright-assignment form. I have learned that the journal publishes papers on-line before scheduling them to a specific issue of the journal, so I will probably be in the odd position of having a DOI and a URI before I know the issue in which the paper is to appear.

A Suggested Reform of Educational Institutions

Sunday, 17 March 2019

For some decades, one of the clear and worsening problems with American institutions of formal education has been administrative bloat. I suggest a legislative response.

For institutions at each level of education, the mean and standard deviation can be determined for administrative expense per pupil in 1975. That is to say that these figures could be computed for kindergartens, for elementary schools, &c. For each level, these two figures can be summed and then that sum adjusted for price-inflation. In 2020, both the legislatures of the constituent states and the US Congress could pass laws such that, beginning five years after passage of the legislation (which in this case would be in 2025), no educational institution would receive any direct funding from the states (including the federal state) if its administrative expenses per pupil exceeded that computed amount, and no grants or guaranteed loans would be given to students beginning degree programmes at institutions whose administrative expenses exceeded that amount.

Energy Costs and the Costs of Energy Exchanges

Saturday, 9 March 2019

From technocrats, I often hear or read a claim that it would no longer make sense to extract petroleum when reserves were depleted to the point that extractions took more energy than could be got from the petroleum. What is unstated in the reasoning is that the value of an energy source is solely determined by the quantity of energy that it could yield; but that proposition is mistaken.

When petroleum is extracted, not only is one quantity of energy exchanged for another, but a quality of energy is exchanged for another. Petroleum is extracted by the use of mechanical or hydraulic energy. Those forms of energy might be derived ultimately from the burning of petroleum, but they might come from other sources instead.

When energy is converted from one form to another, as when a motor converts electrical energy into mechanical energy, that conversion too is an exchange, and as a practical matter those exchanges invariably involve a loss in the useable quantity of energy; that consistent loss is a matter of thermodynamics. Yet the change in form is implicitly deemd to be worth the loss in quantity.

A world in which the extraction of petroleum involved a net loss in the quantity of available energy would be very different from the present; if that state were somehow reached to-morrow, it would be catastrophic. Even just a decline in the net gain in the quantity of energy from extraction is note-worthy when it occurs (as is an increase). But, in a more gradually changing world, petroleum could and probably would continue to be produced even under circumstances that required a sacrifice in the net quantity of available energy.

Submitted Anew

Thursday, 21 February 2019

On 20 February, I submitted my paper on probability to yet another academic journal. To my surprise, the journal in question gave me a choice as to whether my review would be doubly blind — with my identity withheld from the reviewers; I chose that option.

Although in my initial reading of the longer of the two reviews that I most recently received I found no worthwhile criticism, I thought that I should pore over that review carefully, to ensure that I didn't overlook anything in it that would cause me to improve my paper. However, though the review was not written with abusive intent, it is none-the-less abusive, and I was averse to reading it. To impel myself to read it carefully, I decided to write a response to each of the criticisms within it, as I would then have to take care to find and to consider each criticism. I completed a draft of the response without finding any good reason to revise my paper. Having gone that far with the draft, I proofread it on 21 February, and posted a version on-line. It is written more in the manner of a 'blog entry than of something intended to go into a journal or book; and I don't know that any of you would want to bother with reading it in any case. But it's available.

Between the time that I previously submitted the paper and the time that received the most recent decision, I more efficiently organized the citations in one paragraph and I compressed one appendix by removing formula numbers and by suppressing logical quantifiers so that its eleven formulæ could be placed into a one-page grid.

Up-Date (2018:03/02):

In the early morning of 2 March, I received e.mail indicating that my probability paper had been assigned to a handling editor (who was named), and that I would be contacted after a reviewer had returned a report. It seems that the threat of a desk rejection has passed. I made a very cursory check on the handling editor; she seems quite qualified.

l'usage

Thursday, 3 January 2019

In the course of a present investigation of how the main-stream of economics lost sight of the general concept of utility, I looked again at the celebrated article Specimen Theoriæ Novæ de Mensura Sortis by Daniel Bernoulli, in which he proposed to resolve the Saint Petersburg Paradox[1] by revaluing the pay-off in terms of something other than the quantity of money.

The standard translation of his article into English[2] replaces Latin emolument- everywhere with utility, but emolumentum actually meant benefit.[3] Bernoulli's own words in his original paper show no more than that he thought that the actual marginal benefit of money were for some reason diminishing as the quantity of money were increased. However. before Bernoulli arrived at his resolution, Gabriel Cramer arrived at a resolution that had similar characteristics; and, when Bernoulli later learned of this resolution, he quoted Cramer. Cramer declared that money was properly valued à proportion de l' uſage [in proportion to the usage]. The term uſage itself carries exactly the original sense of utility. (Cramer goes on to associate the usefulness of money with plaiſir, but does not make it clear whether he has a purely hedonic notion of usefulness.) Bernoulli did not distinguish his position from that of Cramer on this point, so it is perfectly reasonable to read Bernoulli as having regarded the actual gain from money as measured by its usefulness.

Of course, both Cramer and Bernoulli were presuming that usefulness were a measure, rather than a preördering of some other sort.


[1] The classic version of the Saint Petersburg Paradox imagines a gamble. A coin whose probability of heads is that of tails is to be flipped until it comes-up tails; thus, the chance of the gamble ending on the n-th toss is 1/2n. Initially, the payoff is 2 ducats, but this is doubled after each time that the coin comes-up heads; if the coin first comes up tails on the n-th flip, then the pay-off of the gamble will be 2n ducats. So the expected pay-off of the gamble is ∑[(1/2n)·(2n ducats)] = 1 ducat + 1 ducat + … = ∞ ducats Yet one never sees people buying such contracts for very much; and most people, asked to imagine how much they would pay, say that they wouldn't offer very much.

Cramer's resolution did not account for the preëxisting wealth of an individual offered a gamble, and he suggested that the measure of usefulness of money might be measured as a square root of the quantity of money. Bernoulli's resolution did account for preëxisting wealth, and suggested that the actual benefit of money were measurable as a natural logarithm.

I'm amongst those who note that one cannot buy that which is not sold, and who believe that people asked to imagine what they would pay for such a contract instead imagine what they would pay for what were represented as such a contract, which could not possibly deliver astonishingly large amounts of purchasing power.

[2] Exposition of a New Theory on the Measurement of Risk in Econometrica v22 (1954) #1 (January) pp 22–36.

[3] In a footnote, translator Louise Sommer claims that mean utility is a free translation of emolumentum medium and then that the literal translation would be mean utility; I believe that she had meant to offer something else as the literal translation, but lost her train of thought.

Again into the Breach

Monday, 15 January 2018

As occasionally noted in publicly accessible entries to this 'blog, I have been working on a paper on qualitative probability. A day or so before Christmas, I had a draft that I was willing to promote beyond a circle of friends.

I sent links to a few researchers, some of them quite prominent in the field. One of them responded very quickly in a way that I found very encouraging; and his remarks motivated me to make some improvements in the verbal exposition.

I hoped and still hope to receive responses from others, but as of to-day have not. I'd set to-day as my dead-line to begin the process of submitting the paper to academic journals, and therefore have done so.

The process of submission is emotionally difficult for many authors, and my past experiences have been especially bad, including having a journal fail to reach a decision for more than a year-and-a-half, so that I ultimate withdrew the paper from their consideration. I even abandoned one short paper because the psychological cost of trying to get it accepted in some journal was significantly impeding my development of other work. While there is some possibility that finding acceptance for this latest paper will be less painful, I am likely to be in for a very trying time.

It is to be hoped that, none-the-less, I will be able to make some progress on the next paper in the programme of which my paper on indecision and now this paper on probability are the first two installments. In the presumably forth-coming paper, I will integrate incomplete preferences with incompletely ordered probabilities to arrive at a theory of rational decision-making more generalized and more reälistic than that of expected-utility maximization. A fourth and fifth installment are to follow that.

But the probability paper may be the most important thing that I will ever have written.

Meta-Games

Sunday, 19 November 2017

It has famously been argued that the word game cannot be defined in a way that adequately captures the various senses in which it is used. I believe that, in everyday use, the term game most often means a system of contrived challenges properly imposed or undertaken for purposes of amusement. Hence, someone might assert something such as Love is not a game! But, even in lay-use, game can have other meanings. For example, when a person proceeds deceitfully or insincerely, he or she may be said to be making a game of things, without necessarily seeking amusement in proceeding in this way.

Economists and mathematicians applying themselves to problems of economics or proximate to those of economics can use the term so very broadly as to refer to any problem of optimization. But, most often, they mean a system in which multiple parties interact with the potential for one or more parties to advance an interest or something that is treated as an interest (such as reproduction). It is in this sense that I here use the term game.

The rules of games are often subject to to change, and those changes may be affected or effected by players of the governed game. There is thus a meta-game — a system in which multiple parties interact with the potential for one or more of them to advance an interest by changing the rules of the game; or, in the context of others trying to changing the rules, by preserving the rules. The concept of meta-games is hugely important for understanding social processes.

Of course, a meta-game might have its own meta-game — a meta-meta-game. For example, the determination of a legal frame-work might be the meta-game of the social processes that the frame-work governs, and a struggle over social values might be the meta-game of the determination of the frame-work and thus the meta-meta-game of those social processes. But it can be difficult — without necessarily being useful — to work-out an actual hierarchy.

Sometimes, all that we really need to recognize is that some activity is a meta-game of some other game, without concerning ourselves as to whether the other game is itself a meta-game. People might readily recognize meta-gaming in activities such as political lobbying, but they generally don't recognize it when it's effected by psychologists, by teachers, or by screen-writers.

I want to draw upon this notion of meta-games for at least one 'blog entry, but I will probably want to draw upon it for multiple entries, so I will leave this entry as infrastructure. And I may later and without notice rework it, in an attempt to improve it as infrastructure.

Responsible Voting

Wednesday, 18 October 2017

It was once socially accepted that people were not responsible for acts of a wide variety if the persons engaged in them while intoxicated, even if the intoxication were quite voluntary and the engagement active. Over time that attitude has eroded. After all, a person who chooses to be intoxicated chooses to engage in increased probability that he or she will effect those acts. If a person who chose to drink passes-out on the front lawn, drives his vehicle into a pedestrian, or beats his domestic partner, few people would insist that he didn't choose to do such a thing. And, should we meet one of those few people, we rightly suspect that they cannot be trusted to use intoxicants responsibly.

In response to the campaign of Bernard (Bernie) Sanders, a great many people embraced things that they called democratic socialism. They didn't actually agree amongst themselves as to what this term meant. Many of them insisted that democratic socialism weren't socialism, which insistence did not provoke as often as it should a question as to why then its name should contain socialism. The answer simply was that Sanders had long referred to what he advocated with this term; they were stuck with socialism if they held onto Sanders. Whether they admitted that democratic socialism referred to socialism or not, all of the folk calling for something by that name sought to neutralize the dire associations of socialism with various outcomes that had been observed when regimes had been identified by that label. And all of these folk, whether or not they acknowledged that they were referring to socialism, agreed that what they called democratic socialism would indeed be democratic.

That insistence has afforded them a rhetorical ploy for dealing not only with socialistic regimes that were never democratic, but with socialistic regimes that have lost popular support, such as that in Venezuela. Absenting that support, these regimes are said not to be democratic, and hence plainly not to represent whatever might properly be called democratic socialism. But when a socialistic regime is brought to power by democratic means, in a framework of law that was effected by democratic means, and then uses that law to take unpopular actions, to insist that the regime is undemocratic begins to resemble claiming that the neighbors passed-out on the lawn, driving their cars into pedestrians, or beating their domestic partners did not choose to do such things. Oh yes they did. And anyone who insists otherwise is to be regarded as dangerous with the relevant intoxicants, including ballots.

Indeed, for most of recent history, popular opinion was not treated as particularly important in application to America by most Americans who came to call for democratic socialism. They had earlier thought it perfectly democratic when the Democratic Party, democratically elected to majority control of both Chambers of Congress and to the Presidency, effected various measures that were in fact widely unpopular with the more general population. President Obama advised the Republicans to win some elections. When they did, so that the Democrats lost first the House of Representatives and then the Senate, he and most of these folk for democratic socialism held to the idea that his democratic election to the Presidency legitimized his actions in defiance both of the votes of the Congress and of popular opinion amongst the wider population. Popular opinion in Venezuela and elsewhere has emerged as ostensibly relevant to democratic socialism exactly and only because, once again, socialism — even socialism within a framework democratically effected — has devolved as it always will if allowed to persist. There is no magic in democracy.

The state is a terrible institution, to be checked by an institutional framework that resists its growth, instead of enabled to grow by fantasies that amateurs or experts can use it expansively to bring about a more humane world.

On Deductibility of Local Taxes

Monday, 8 May 2017

In my field of awareness, there has recently been more discussion than usual about deductibility of constituent-state taxes and of municipal taxes from income computed for purposed of Federal taxation. I think that most of the discussion has been fundamentally wrong-headed.

In the textbooks of middle-schools, of high-schools, and of introductory courses in college on civics, on politics, or on economics, there are discussions of various proposed guidelines for taxation, based on ostensible or insinuated theories of justice. One commonly offered theory is that people should be compelled to pay based upon supposed ability; another is that they should be compelled to pay based upon the amount of services that they receive from the state.[1] I've yet to see such a discussion in such a textbook that could withstanding much critical examination.

In any case, these homilies don't serve to explain how-and-why taxation is effected in the real world, except in-so-far as some of their prescriptions are invoked to argue for a tax of one sort, even as conflicting rationalizations are offered (often by the very same people) to argue for taxes of other sorts. Historically and to the present day, taxation has been fundamentally opportunistic. That which has been taxed is whatever seemed to be most readily taxable. Targets of convenience have been wealth or income that has been thought to be easily tracked and measured, difficult to relocate outside of the jurisdiction, or for the taxation of which there is wide-spread acquiescence if not support within the community. (It is with respect to that last aspect that textbook theories have their real relevance.)

The state is not satiated by some steady extraction of wealth from the community. When extractions are greater than were expected, the state will not return the surplus to the taxpayer as such, except under extraordinary pressure; and, here-to-fore, states have always moved towards attempting to extract as much tax from their communities as the communities will suffer. This tendency is natural, as the people who make-up the state generally see their positions within society improve as they have increasing command over resources; mechanisms that exist in sectors whose rewards are determined by markets which cause participants to identify and pursue efficiencies simply have no correspondents within the state; the state is able to cultivate dependencies in the wider population; and many people imagine a very extensive rôle for the state within society (especially those people who lose sight of the distinction between the state and its subjects). The state grows ever larger and becomes ever worse at the allocation of resources, and so seeks ever greater extractions.

When, within the jurisdiction of a constituent state or within a municipality, there is greater community resistance than elsewhere to taxation, there is less taxation than there otherwise might be. That difference is a target of opportunity for a federal state, whose jurisdiction encompasses a wider community. There is a mechanism for obtaining the acquiescence of that wider community without typically triggering a significantly intensified resistance on the part of the communities subjected to a federal surtax in the face of lower taxes by other entities. That mechanism involves allowing taxpayers to deduct what taxes they pay to those other entities from the calculated worth of something that the federal state taxes; because, in the face of those deductions, parts of the wider community become less resistant to rate increases.

Let's say that people in jurisdictions A, B, and C, which are all of roughly the same size, face a federal tax of 30% on income, and that people in jurisdictions A and B face a more local 10% tax on pre-tax income, while people in jurisdiction C face a no such tax. If the federal tax is increased to 1/3 on taxable income, but local income taxes are made fully deductible, then the people of jurisdictions A and B face no net increase in income tax, and so may acquiesce; the people in jurisdiction C may thus find themselves out-voted and their taxes increased by about 3%.

A great many people imagine what thus happens is that, given deductibility of more local taxes, people in jurisdictions with lower local taxes are force to subsidize those in jurisdictions with higher local taxes; but that conclusion is spurious. It would in some sense follow if the quantity or quality of goods and services delivered by the state were well correlated with the amount of resources that it extracts from the community, but there is no such correlation, except in transitory cases in which the state deliberately impairs performance to provoke acquiescence to greater extractions. The people paying lower taxes than they otherwise might are not getting something from those paying higher taxes than would be tolerated without the mechanism of deductibility. They are simply less victimized. One would be no less mistaken in claiming that people who live in other nations with lower income taxes are ipso facto subsidized by American taxpayers.

(For purposes of economic analysis of some sorts, tax-cuts and subsidies are equivalent, but those in the jurisdictions that are less taxed by the federal state have not received a tax cut, they have instead not been subjected to tax increases imposed elsewhere. And the aforementioned equivalence holds only if either there is no prior property in resources, or the state has a prior claim on whatever resources are involved. If no one has a claim prior to taxation and subsidization, then no one is paying taxes; they are being extracted from resources that are un-owned. If the state has a prior claim, then there are again no tax-payers; there are people who are granted more or less wealth or income belonging to the state. And, if there are no tax-payers, then the tax-payers subsidize no one.)

Eliminating the deductibility of other taxes would create greater resistance to federal taxes, as some who had previously not been subjected to higher levels then would be. But not everyone thus penalized would previously have been a supporter of imposing those levels on others. Innocent by-standers would be dragged into a fight; there could not be justice in that.


[1] When I say state, I don't necessarily mean one of the constituent states of a federation such as the United States. I certainly don't mean the jurisdicational area of one of those states, nor the inhabitants of such an area. A state is an organization that successfully claims an effective monopoly of some sort in the control of violence.