Category Archives: People

308 – Vote yes for marriage equality

Australians currently have a chance to vote for marriage equality by postal ballot. I know this is a bit off the usual topics for this blog, but it’s something I feel strongly about. If you have the right to vote, here are six reasons to vote yes.

1. Because it’s the kind and decent thing to do. It would create joy for many thousands of people without hurting anybody.

2. Because gay people still face prejudice in many forms, and still attempt suicide at higher rates than their peers. Voting yes would be one small step towards turning this around.

3. Because we should not let the religious beliefs of a minority dictate how the rest of us live our lives. There is and should be a separation of church and state in Australia. Nobody should be required to follow the dictates of a religion to which they do not voluntarily subscribe. That is the real issue of religious freedom here – quite the opposite of what some “no” advocates are claiming.

4. Because the position of some Christians against same-sex marriage is not supported by the Bible anyway (Whitaker, 2017). The Bible has vastly more to say about being kind and generous than the few vague fragments it includes on homosexuality. Nowhere does it actually proscribe same-sex marriage. In the Old Testament, it does say that a man lying with another man instead of his wife is an “abomination”. But (a) this is about adulterous sex, not marriage between a loving couple, and (b) there is an interesting list of other things that the Old Testament also describes as abominations, including wearing mixed-fabric clothing, tattoos, mocking the blind by putting obstacles in their way, and trimming your beard. Why are we not having a postal plebiscite on the trimming of beards? The highly selective focus of some Christians on homosexuality is hypocritical. Neither testament of the Bible says anything whatsoever against lesbians.

5. Because Australia is lagging behind the rest of the civilised world. Same-sex marriage is already legal in The Netherlands, Belgium, Spain, Canada, South Africa, Norway, Sweden, Portugal, Iceland, Argentina, Denmark, France, Brazil, Uruguay, New Zealand, the UK, Ireland, the US, Luxemburg, Colombia, Greenland, Finland, Slovenia, Germany and Taiwan.

6. Because this change is inevitable, and saying no now would needlessly delay us doing the right thing. It prolongs the debate and increases the number of public expressions of anti-gay prejudices.

Post your completed survey form back by 31 October to be sure of meeting the deadline.

Further reading

Whitaker, R.J. (2017). Same-sex marriage: What does the Bible really have to say? Here

305 – Feeling virtuous: what’s it worth?

We all like to feel good about ourselves. A product that makes us seem virtuous to others, or even to ourselves, would be worth paying more for than its strictly utilitarian value.

That was one of our hypotheses behind a surprising result in some recent research. We were trying to measure the benefits of installing a rainwater tank on an urban property in Perth. We did this by measuring the premium in house sale prices for houses that already had a rainwater tank installed, compared with similar houses that did not.

The results left us deeply puzzled. First, the price premium was enormous: around $18,000. Now the water in a typical tank, when full, is worth about $3, and a tanks lasts for about 15 years. That means that to use enough tank water to make the $18,000 price premium worth paying, you would you would have to use a full tank of water and refill it from rainfall about twice each day every day for the whole 15 years (assuming a 5% interest rate on your home loan). But that’s way beyond actual levels of rainwater use, and it doesn’t rain that much or that frequently in Perth anyway!

We were left scrambling for explanations for the high price premium. As I started off saying, an obvious one is the feel-good factor from knowing that one is contributing to water conservation. It could be a bit like organic food. Some of the price premium for that could reflect people’s concerns about environmental impacts of agricultural chemicals (as well as perceived health impacts).

Another possible explanation is that people may misjudge how much the water captured in the tanks is worth. Water from the tap really is most extraordinarily cheap, whereas the most common experience of paying for water for most people is bottled water, which is most extraordinarily expensive. So it would be understandable to some extent if people got this wrong. We cannot tell from the house sale data what is in peoples’ minds (e.g. about water cost), only the overall result.

A third explanation could be that our statistical analysis was faulty. If you look at the paper you’ll see that we tied ourselves in knots, testing the robustness of the stats in ways that are far beyond my own statistical skills (thanks co-authors), but we couldn’t make the result go away.

There was one more puzzle we couldn’t solve, as well. The price premium for rain tanks is far above the cost of installing a tank, so why doesn’t everybody with a house to sell invest in a rain tank? In fact only a small minority of houses sold do have them. I guess they aren’t aware of the potential price hike.

On the other hand, we don’t know what would happen to the premium if the proportion of houses with installed tanks was to increase substantially. It is likely that the greater supply of tanks would drive down the price premium to some extent.

Further reading

Zhang, F., Polyakov, M., Fogarty, J. and Pannell, D. (2015). The capitalized value of rainwater tanks in the property market of Perth, Australia, Journal of Hydrology 522, 317-325. Journal web site ♦ IDEAS page (includes link to freely downloadable version of the paper)

301 – Inequality in the USA

Following the catastrophic result of the US unpopularity contest last week, one of the many suggested explanations was the level of economic inequality in the country. This made me think of the graph below, which I saw last year. It shows that, when it comes to inequality, the US is truly exceptional.

The graph shows the Gini coefficient (a measure of inequality) for 115 countries, plotted against their GDP per capita (a measure of their average income). There is a very clear pattern. Above a certain level of inequality (Gini coefficient of about 37), almost all countries have really low average income levels, while above a certain level of average income (GDP per capita of $12,000), almost all countries have fairly low inequality.

 

gini

Source: http://visualizingeconomics.com/blog/2006/01/04/gdp-per-capital-vs-gini-index

 

The exception is the US, which has both high average income and high inequality. There is a lot of wealth in the US but it is concentrated into a minority of hands. As one illustration, between 2009 and 2012, 95% of income gains in the US accrued to the top 1% of income earners. Other data seems to show that their inability to share around the wealth has become worse over time. Other countries with a similar level of inequality have about one eighth as much average income.

If it is true that inequality is behind this incredible electoral result, we can perhaps draw some solace from the fact that inequality is so much less in all other wealthy countries.

On the other hand, inequality was clearly not the only factor. Already, like-minded politicians around the world are feeling empowered and emboldened to spread their noxious views throughout their societies. We can see that happening in Australia, France and The Netherlands, for example.

And there seems plenty to worry about from what could now happen in the US. The world’s most powerful country will soon be led by a deeply ignorant man of appalling values and character. Even by the low standards of politicians, he tells obvious lies to an extraordinary extent. I feel angry that so many Americans were taken in by this conman, and now the whole world will have to suffer the consequences.

The other thing I can’t stop thinking about is a certain historical parallel. Can you think of another prominent national leader from the 20th century who was elected on a promise of making his country great again? This other leader also used an ethnic minority group as a scapegoat for his society’s problems, and found a sympathetic ear from countrymen who felt they had been badly treated. He had notable authoritarian tendencies, fomented hatred and resentment, was not averse to jailing his political opponents, did not respect the rule of law or democratic institutions, and was unable ever to admit that he had made an error. He excited mobs with messages that were simple and bold but facile and dangerous. He was friendly with other authoritarian leaders (although that didn’t last). And he had a distinctive hair style.

I’m not expecting that the US will now proceed to annex Alberta as a prelude to invading all of the countries they can practically get to, but I do think there is a serious risk that voices of reason, balance, kindness and openness within the country will be repressed and perhaps even persecuted. We have to hope that good Americans will be able to moderate or even prevent the barrage of stupid and repugnant policies that will now come forth.

273 – Behaviour change comes in pairs

Some key factors that drive adoption of new practices come in pairs: one aspect related to the performance of the new practice, and one aspect related to how much people care about that performance. Many models of adoption miss this, including famous ones.

Whatever work or hobbies we do, there are regularly new practices coming along that we are encouraged to adopt: new technologies (e.g. a new iPhone, an auto-steer crop harvester), or different behaviours (e.g. reducing our usage of energy or water, changing the allocation of land to different crops).

The agricultural examples above reflect that some of my research is on adoption of new practices by farmers, but the issue I’m talking about today is relevant in all spheres where people adopt new practices.

It is well recognised that people vary in the personal goals that drive their choices about whether to adopt new practices that are promoted to them. Amongst commercial farmers, for example, there are differences in the emphases they give to profit, risk and environmental outcomes.

Any attempt to understand or model adoption of new practices needs to recognise the potential importance of these different goals. Many studies do include variables representing these three goals, and sometimes others.

However, it is less often recognised that there are two aspects to each of these goals when looking at a new practice:

  1. The extent to which the new practice would deliver the outcome measured by that goal: more profit, less risk, or better environmental outcomes.
  2. How much the decision maker cares about those particular outcomes.

These two aspects are closely linked. They interact to determine how attractive a new practice is, but they are distinctly different. One is not a proxy for the other.

extension 1For example, suppose a farmer is considering two potential new practices for weed control. The farmer judges that new practice A is much riskier (less reliable) than new practice B.

How much will this affect the farmer’s decision making? That depends on the farmer’s attitude to risk. For a farmer who has a strong aversion to risk, practice B will be strongly favoured, at least from the risk perspective. (Other goals will probably also come into play as well.) For a farmer who doesn’t care about risk one way or the other, the difference in riskiness between practices A and B is of no consequence. Some farmers (a minority) have been found to be risk-seeking, so they would prefer practice A.

The same sort of pattern occurs with other goals as well. The attractiveness of a new practice depends on how much difference it makes to profit and on how strongly the farmer is motivated by profit. Or how much it affects the environment and how strongly the farmer cares about the environment.

Amongst the thousands of research studies of farmer adoption of new practices, most represent only one goal-related variable where two are needed. For example, they include a measure of risk aversion, but ignore differences in the level of riskiness of the new practice amongst different adopters. Or they represent differences in the profitability of the new practice, but not differences in how much the adopters care about profit.

It doesn’t help that the issue is not recognised in common conceptual frameworks used by social scientists studying adoption behaviour, such as the Theory of Reasoned Action (Fishbein and Ajzen 1975) and the Theory of Planned Behaviour (Ajzen 1991).

It should be recognised in a sound economics framework (e.g. Abadi Ghadim and Pannell 1999 do so for risk), but it often isn’t included in the actual numerical model that is estimated.

The only framework I’ve seen that really captures this issue properly is our framework for ADOPT – the Adoption and Diffusion Outcome Prediction Tool. Hopefully this insight can diffuse to other researchers over time.

Further reading

Abadi Ghadim, A.K. and Pannell, D.J. (1999). A conceptual framework of adoption of an agricultural innovation, Agricultural Economics 21, 145-154. Journal web page ◊ IDEAS page

Ajzen, I. (1991). The theory of planned behavior, Organizational Behavior and Human Decision Processes 50, 179-211.

Fishbein, M. and Ajzen, I. (1975). Belief, Attitude, Intention and Behavior: An Introduction to Theory and Research. Reading, MA: Addison-Wesley.

270 – Violence and economics 2

Last time I talked about the way that economic trade has contributed to reductions in certain types of violence. Another economics-related influence was the establishment of powerful centralised governments, which claimed a monopoly in the rights to apply violence within the community. The links to economics are various.

Steven Pinker (2011) refers to this influence on violence as “The Leviathan”, meaning a state that claims a monopoly on violent force and uses that monopoly to protect its citizens from each other.

This reminded me of the economic concept of a natural monopoly – a situation where a monopoly can deliver an outcome more efficiently and cheaply than can multiple players in a competitive market. Normally this is thought to apply to services like trains, roads or domestic water, but the discerning use of violent force to reduce general violence does seem like a good candidate for a natural monopoly. Imagine what would happen if there was more than one provider of this “service”!

violence1The Leviathan idea also relates to the economic theory of public goods, which have either or both of two characteristics: the provider cannot exclude people from benefiting from the goods in question (and so cannot charge a voluntary fee in exchange for their consumption) and/or consumption of the good by one person does not diminish its availability to other people (see PD22). Violence-reduction services would have both of these characteristics, and so economists would consider them to be prime candidates for being provided by a centralised government, rather than by multiple firms in a free market.

Next, there would be positive externalities (PD35) resulting from individual decisions not to apply violence to others in their community. A positive externality is where somebody gets a spill-over benefit from someone else’s activities. Pinker showed that the violence-reduction benefits of a benevolent central government diffuse throughout the society. One way is through growth of culture and technology, as people have more time and resources to devote to these things rather than to self-defence. Fostering of positive externalities is another classic economists’ rationale for government getting involved in an issue, rather than leaving it to solely to the market.

We heard about the violence-reducing benefits of trade (PD269), but this too depends on a strong centralised government to provide the conditions and institutions for trade to occur. A benevolent Leviathan helps us all by defining and enforcing property rights, providing the rule of law, creating a system of contracts, and punishing violators of these systems. Without these things, trading would be much more expensive and therefore less common. In other words, the strong centralised government, by providing these systems and institutions, reduces our “transaction costs” (see PD192), making trade practically possible. Transaction costs have been a growing area of study in economics, recognised with recent Nobel prizes.

One of the mechanisms for reducing transaction costs is increasing trust. It’s easy to see how the systems and institutions put in place by a benevolent Leviathan would lead to increased trust between people. Social scientists, including economists, have studied trust as a key element of “social capital” (see PD170), looking at how it contributes to making economies and societies work effectively, for the benefit of all.

So there are at least three or four ways that economic theories can add richness to Pinker’s Leviathan idea.

Overall, it is striking how many connections there are between economics and the long-term reduction in violence outlined by Pinker. He doesn’t talk about these connections (apart from the “gentle commerce” one), but it seems there could be scope to explore them further.

Further reading

Pinker, S. (2011) The Better Angels of Our Nature: The Decline of Violence in History and its Causes, Allen Lane, Penguin, London.