2009 Movies: Seen/Unseen

Movies I saw and liked (a lot!):

1. Avatar 3d
2. Star Trek
3. (500) days of Summer
4. Adventureland

Movies I saw and recommend that you don't see:

1. Whatever works (or whatever Woody Allen's latest movie was called. What a disappointment after VCB last year).
2. Public Enemies (ugh, Johnny Depp's presence is not enough to make a movie good).

Movies on my "to-see" list:

1. Fantastic Mr. Fox
2. Up in the Air
3. District 9
4. Broken Embraces
5. The Hurt Locker
6. The Messenger
7. Invictus
8. The Road
9. Funny People
10. Inglorious Basterds

Tai Long Wan hike

When I thought of Hong Kong before visiting here, I thought of food, shopping, crowds. But I never thought of hiking to a pristine beach with perfect curling waves. On November 14, we did this hike and I would like to share some details in the hopes that others might enjoy this as much as we did.

1. Getting there: Take the MTR to Choi Hung station and catch the green roofed minibus 1A to Sai Kung. This is not what we did. We went to Diamond Hill and caught the 92 double-decker. It makes many stops and struggles with the hills. On the way home we were passed by one minibus after another. It bordered on the intolerable!
2. We started late enough that we decided to have an early lunch in Sai Kung. I would strongly endorse Chuen Kee, an aquarium restaurant on the water front that serves excellent and very affordable dim sum.
3. Back to the bus loop, get the 94 to Pak Tam Au. It is at the top of the rise after you leave the sea shore. Walk down the hill 50 meters and you pick up the MacLehose trail going East. It is paved. After about 1 3/4 hours you arrive at Ham Tin beach. The sand is wide, white and clean. The waves were small but breaking with lovely curling tubes. Sadly it was a little too chilly so we didn't go in.
4. Next we continued along the shore to Sai Wan. There we enjoyed the Tofu Flan (10 HKD) with a great view of another nice beach.
5. You go back via Sai Kung Sai Wan road where you catch the 29R white minibus, the last of which leaves at 4:45pm. If you miss it you'll have an extra 6km to walk on the road. The whole hike takes about 4-5 hours.
6. When you get off the minibus in Sai Kung you'll be across the street from the Duke of York, which has a very nice feel, seemingly populated entirely with regulars (mostly middle-aged Englishmen).
7. Enjoy!

Gravity and Darkness

As a trade economist, much of my recent work has involved what we call the "gravity equation" for bilateral trade (it also works for bilateral migration flows and FDI stocks). Originally (1960s) it was inspired by Newton's gravity equation.  Although it seemed to "work" pretty well, it was not respected within our field because models are supposed to be based on assumptions, not analogies. Thankfully, now there are very compelling derivations of bilateral trade equations that bear a strong resemblance to the gravity equation in physics.  

OK, that's the prologue.  The reason I'm actually writing today (other than the usual procrastination motive) is that I was reading my step-father's Physics World magazine and came across the following quote:

there is always a sort of war between those who tend to assume the absolute correctness of the laws of physics that are in use, even when this requires imagining previously unseen entities governed by those laws, and those who instead are inclined to imagine that new laws of physics must be discovered. The conservatives are more frequently right....[but sometimes] the "new laws" hypothesis turns out to be right... (Giovanni Amelino-Camelia, Physics World, July 2009)

The current incarnation of the "new entities" versus "new laws" debate revolves (so to speak) around the questions of dark matter and dark energy. The problem that dark matter solves has to do with the rotation of speed of stars as a function of the distance of the star to the center of the galaxy.

I love this figure because it is the type of figure I have done in my own work so I can almost feel like I understand it (which I don't of course, having only taken 1 semester of university physics and one "physics for poets" course about light). But anyway, the point is you have to postulate the existence of lots of invisible dark matter in order to fit the data using the existing laws.  Similarly (I guess) you have to postulate dark energy to explain why the universe is expanding at an accelerating rate.

The "new laws" types take another approach: they have a more general theory that reverts to standard Newton/Einstein gravity at the scale of the solar system but is capable of explaining the anomalies at the galactic scale. This article explains it all very well and I more or less understood it except the part about tensors. Vectors and scalars, fine. But what the heck's a tensor?

In another article in Physics World, I find the following intriguing idea.

Moffat and Brownstein, however, argue MOG [the theory of modified gravity] can provide a more natural explanation by removing the need to invoke mysterious dark matter. Essentially MOG adds extra terms to Einstein’s theory of gravitation — general relativity — that allow the gravitational constant G to vary across space and time.

So back to my day job: understanding trade. We already know that there is no gravitational constant for bilateral trade.  In addition to distance and country sizes, bilateral trade depends on large set of linkage indicators (shared languages, laws, currencies).  This question of new laws motivates me to revisit questions that came up in earlier work. Do commercial interactions between people decline in proportion to distance at all scales of observation (inside a country, inside a city, inside a building)?  Do the same gravity equation parameters that apply to high-trading country pairs also apply to low-trading country pairs?

Mystery Achievement: Ambition and Depression

President Obama is to give a speech to schoolchildren.  One of the passages  quoted in a Guardian article caught my attention.

He also references Harry Potter author, JK Rowling, and basketball legend Michael Jordan. "Some of the most successful people in the world are the ones who've had the most failures," he will say. "JK Rowling's first Harry Potter book was rejected 12 times before it was finally published. Michael Jordan was cut from his high school basketball team, and he lost hundreds of games and missed thousands of shots during his career. But he once said, 'I have failed over and over and over again in my life. And that is why I succeed.'"

The problem I have with this is that there are many aspiring authors and basketball players out there.  Most of them will never be published or play a single game in the NBA.  No matter how hard they work, if they keep trying, they will keep failing. 

That's not pessimism speaking; it's statistics.  

Obama is right that highly successful people often had to overcome numerous setbacks and even failures along the way.  But so did everyone who ended up not making it in their desired field.  How do you know who you are? How do you know when to quit?

The Economist recently had an article on the relationship between goals and depression. Recent research suggests

Mild depressive symptoms can therefore be seen as a natural part of dealing with failure in young adulthood. They set in when a goal is identified as unreachable and lead to a decline in motivation. In this period of low motivation, energy is saved and new goals can be found. If this mechanism does not function properly, though, severe depression can be the consequence.

So persistent pursuit of one's "dreams" may not be worth encouraging afterall. Of course no one ever got anything important done by giving up at the first obstacle. So we have to be good Bayesians. After enough failures, we give up.  Of course Harry Potter readers must be very happy that Rowling had such strong prior beliefs in her work. I wonder how she knew to persist.

 I can't resist closing with a favourite quote by Chrissie Hynde:

Mystery achievement, where's my sand beach?

I had my dreams like everybody else.

But they're out of reach. 

I said right out of reach.

something rotten in the state of Macro

Reading Krugman's NYT Magazine article (it's long but well worthwhile to get all the way through) I also thought back to discussions I had in grad school.  Didn't we talk about the idea that macroeconomics needs micro-foundations but not neoclassical ones? That seems to be the final message of Krugman (that salvation will come from behavioural finance).   Another idea I recall vaguely from our discussions is that static maximization--which we use all the time in our micro models--is a decent approximation because people go to the grocery store over and over so they have time to learn... But dynamic optimization over person's lifetime--such as cutting back on spending now so that one can save to pay back expected tax obligations in the future--cannot be instilled by repetition and experience. 

Noting that Krugman referred to Cochrane's claim that Keynesian ideas had been "proven false", I wanted to see what the proof was. Here is a link to his article on stimulus.

http://faculty.chicagobooth.edu/john.cochrane/research/Papers/fiscal2.htm

After reading Krugman and Cochrane, i felt baffled. These are not stupid people. Stupid people can't become full profs at Princeton and Chicago (can they?).

And yet.  Each of them writes as if the other person were a complete moron, incapable of absorbing basic facts and theory.

now i feel like i'm the moron... since i can't really untangle this mess of arguments.

here's one idea i had: Compared to the standards of empirical evidence used in labour economics, macro still depends to an astonishing extent on a priori beliefs.  Krugman dismisses modern macro because it's intuitively obvious to him that recessions aren't vacations and people just don't behave like Ricardian equivalence requires. Over and over in the article he dismisses their ideas not with statistical evidence but, well, with "dismissiveness."

  On the other side, Cochrane doesn't seem to be moved by empirical evidence either. Instead he wants to build up models based on budget constraints ("the money has to come from somewhere"), forward-thinking behaviour, and the notion that government cannot fool people repeatedly. He doesn't actually prove anything false with evidence. Instead, like Krugman's blog entry criticizing Cochrane, he mainly accuses the other side of adhering to "fallacies."

Imagine that in labour economics one side said that the (productivity) return to education was actually zero because it is all just Spence signalling. And the other side said the return was equal to the interest rate because that is what dynamic optimization requires. We'd laugh and say, "look it's an empirical issue. let's just estimate the damn return."

But that's not what either Krugman or Cochrane seem to want to do. Indeed Cochrane tells us the govt spending multiplier is zero.  And he refers to a blog entry by Mankiw. So i went to that entry and discovered that Mankiw says the best estimates of the multiplier put it at one or slightly over.  OK to me these numbers don't make sense because the keynesian theory says the multiplier depends on the amount of slack in the economy, right? but anyway, my point is that macroeconomics not only needs new micro-foundations but it also needs to become evidence-based.  but of course i know next to nothing about macroeconomics so you should have stopped reading this blog entry long ago...perhaps you did!

The Variance of Fat

I was under the impression that the whole distribution of body weight was shifting to the right.

That is, the average person weighs more but there is an approximately constant distribution around the mean. This is wrong.

Check the following figure from a discussion of obesity trends by the Center for Disease Control:

Obesity has almost tripled since the early 1960s (13% to 35%). Extreme obesity has risen by more than a factor of 6 (0.9% to 6.2%). Yet mere overweight status, a BMI between 25 and 30, has remained stable at about 32% of the population. The action is in the tails!

For a more complete view of the distributions for 1976-80 and 2005-6, look at the density figure on page 2 of this data brief.

To me it looks like BMI is distributed log-normally and the sigma parameter has increased. I don't see how this would be predicted by either the biological or economic explanations discussed in my last post. Two ideas occur to me: First there is heterogeneity in the response parameter. As fat becomes cheaper, many are unaffected but some respond a great deal. Second, there are multiple equilibria. Given the opportunity to get fat people take it only when their neighbors do.

Why are people so fat and what should be done about it?

Elizabeth Kolbert has a very nice article in the The New Yorker about the rise in obesity (July 20, 2009). She summarizes some of the competing--and possibly complementary--hypotheses. I have come across some other thought-provoking articles in the Becker-Posner blog. (August 2nd, 2009)

The biological argument, summarized by Kolbert, says we humans were designed by evolution to put on fat whenever possible. Famine situations were much more likely than abundance so it was costless in evolutionary terms to give us insatiable desires for fatty foods.

The economic argument, summarized by Kolbert, Becker, and Posner is that it's now cheaper to get fatty foods than it used to be and opportunity cost of exercise has risen. Becker adds that medical treatments for health consequences of obsesity have also improved. Economic agents naturally do more of things that have become cheaper and less of things that have become more costly.

These explanations don't really conflict with each other in terms of predictions but they have different implications for the optimality of the rise in obesity. The economic story is consistent with the idea that getting fat is a utility-maximizing response to the falling cost of fat.

Posner thinks there are externalities so the rise in obesity may not be socially optimal.

The biological and economic explanations don't address the issue of why we have not ALL become fat. Presumably there is heterogeneity in the desire for fatty foods. Another idea that Posner alludes to is heterogeneity in self-control. He supports this by pointing out that higher educated people tend to be slimmer, and this difference does not seem to be just an income effect. Both education and low-fat diets involve decisions to make costly efforts now for future benefits. Presumably people with more develop pre-frontal cortexes are better able to make both decisions.

I like the idea that I have a better PFC than other people. But actually I think I'm slimmer mainly because of lower appetite.

Outliers I: Far from Obvious

In the next few posts I plan to write about Malcolm Gladwell's book, Outliers. I am about halfway through listening to the Audible.com version that is read by Gladwell. While the book keeps my attention as well as a good novel, the writing and reporting are engaging, the ideas fascinating, I frequently find myself complaining, "No way!" out loud in the car or on the walking path. So I decided yesterday to see what critiques the book has already received. I started with the Wikipedia article of course. And there I found a link to a review in The Independent. The harshest criticism is contained in the following passage:

Not for the first time, you wonder why Gladwell does not yet hold a tenured professorship at the University of the Bleedin' Obvious. Yes, he's right, but too often in a trivial, short-winded and centrifugal style.

The review in The Guardian finds the same fault in the book.

the conclusions he arrives at here are so obviously self-evident as to be banal.

Did we read the same book? While there are some claims that Gladwell makes that may seem obvious, I don't think that is a key problem. Rather I think it is the opposite. There are numerous claims that are not only far from obvious, they just look downright dubious. I don't have a hard copy of the book so I will paraphrase.

1. Every great contributor in a field had to spend 10,000 hours of practice to learn the techniques of the field. It is not totally clear to me whether Gladwell intends this as a necesssary condition or a sufficient condition or both. I think it is a necessary condition because it also seems to matter that the outlier have some particular form of practice, which only a limited number of candidates would have access to (e.g. Bill Gate's computer access and Beatle's Hamburg shows)
2. Intelligence only helps up to a threshold: After about 130, a higher IQ does not contribute to success.
3. Jews dominate the best New York law firms because they had been excluded by the blue-blood firms in the past, when hostile take-overs were shunned, and because their parents and grandparents worked in the garment industry.
4. Cohort is critical. To be a leader in your field, you should have been born in the right window, e.g. 1952-1956 for the modern computer/software industry, and the early 1930s for New York lawyers.
5. "Practical intelligence" is orthogonal to analytic intelligence (what IQ tests measure) and more important in determining success. Also practical intelligence is entirely a learned ability (no genetic component).

I don't believe the threshold effects at 10,000 for hours of practice or an IQ of 130. I have never seen non-linearities like that in the data and I can't think of any plausible mechanism whereby practice less than 10,000 hours would not increase probability of succes and intelligence over 130, would not continue to be of use, other things equal. I will have to look into the evidence underlying these claims, but at this point I would categorize #1 or #2 as totally implausible.

As for #3, it feels like a stretch. The theory (story) is constructed after looking at the data. It is so particular that I don't see this as a provable or easily falsified claim. I find #4 to be plausible but I would like to see rigorous statistical evidence. I have found a paper, "Dissecting practical intelligence theory: Its claims and evidence" (LS Gottfredson - Intelligence, 2003 - Elsevier) that criticises the evidence alleged to support Practical Intelligence. The author argues that practical intelligence is not clearly defined, that the tests used to measure it are not always orthogonal to IQ. Moreover, the tests were administered on groups such that were already selected for high IQ, restricting the range of IQ in the tested subjects and thereby lowering the observed correlations. Furthermore, Gottfredson says that IQ is asserted to have a 0.2 correlation with success whereas the literature finds results in the .2-.5 range.

These are key claims in the book. Gladwell spends large amounts of time explaining them, referring to academic studies alleged to support them, and providing anecdotal support through his own reporting. Not one of them is "bleedin obvious." Tenure denied.

6 things worth knowing about in empirical economics

In the last couple years, I've learned a few new tricks (which, as an increasingly "old dog," makes me feel good):

1. Falsification/placebo tests.
   
2. The Mundlak regression: recover coefficients on time-fixed variables, test for CRE, and get the within estimates on time-varying regressors.
   
3. Simulation before estimation: Make sure your empirical method actually get the right answers when you generate your own data--and hence know the correct answers. (I credit this idea to Sam Kortum who advocated it at a talk he gave at the 2007 EIIT.)
   
4. Graphical display of regression coefficients (especially for letting the variable of interest enter without parametric restrictions on functional form). A helpful referee suggested this.
   
5. "Strict exogeneity tests" Do leads enter significantly? They shouldn't if effects are causal.
6. Use the linear probability model. It gives marginal effects directly and it doesn't have the Ai/Norton problem for interactions in logit & probit models.

Hard work is overrated

In David Brook's April 30 column he seems to have warmed to the thesis that Malcolm Gladwell has been popularizing (see Outsiders and related New Yorker articles), that genius is not an extraordinary draw of talent but rather lots of hard work. Like Gladwell (but without mentioning him) he's talking about the 10000 hour "rule," that holds that it takes 10000 hours to master a skill.  According to this hypothesis, Mozart wasn't born a genius; he became one because his dad made him practice so much from an early age. And the Beatles became great because they had to work so hard in Hamburg. Brooks refers approvingly to a book titled "Talent is overrated."

The key factor separating geniuses from the merely accomplished is not a divine spark. It’s not I.Q., a generally bad predictor of success, even in realms like chess. Instead, it’s deliberate practice. Top performers spend more hours (many more hours) rigorously practicing their craft.

Personally, I think this hardwork revisionism is mainly crap and so I will counter-quote using the Kinks:

You can see all the stars as you walk down Hollywood Boulevard,

Some that you recognize, some that you've hardly even heard of,

People who worked and suffered and struggled for fame,

Some who succeeded and some who suffered in vain.

While I'm sure there are exceptions, I'm willing to concede that most geniuses did indeed work hard.  And yet.  Hard work is not a sufficient condition as the song illustrates. I claim that for every Mozart or McCartney there are 1000s who put in just as many hours of practice. But it got them nowhere and they passed into obscurity.  Because their hard work was not complemented by adequate amounts of talent and luck. Furthermore, I think the willingness to practice a great deal must be strongly correlated with talent. Take me. I wanted to be a great guitarist, but I didn't practice much and my guitar teachers gave up on me and I quit. Why? Partly because I'm lazy but partly because I think everyone involved (my parents, my instructors, and most of all me) at some level recognized that I didn't have any particular musical talent.  With my wife, it was the opposite, she had the innate musical skill and I think that was recognized and that contributed to her decision to work very hard at developing the skill.  But then she got the tendinitis and so we'll never know how har far her combination of talent and hard work would have taken her.  OK, take me again. Why did Daron Acemoglu win the Clark medal instead of me? From what I hear, he does put in more hours than I do. But no one who knows us both would say that's all that separates us.  His talent is not "slightly" greater than mine--from what I hear it's an order of magnitude greater. And it seems likely that this talent difference would explain a good part of the difference in the amount we work.  I'm not a genius but I do know that hard work can only take me so far.

"Stick to what you know"?

In management strategy discussions a familiar command is for firms to do what they have a core competency in. And it sounds sensible enough. Yet I've recently come across examples of firms that departed from "what they were good at" and became world famous as a result.

• Would we have Honda stop making cars and go back to just making motorcycles?
• Should Vestas get out of the wind turbine business and return to home appliances?
• And Nokia? Back to running a wood pulp mill?

Beauty is the eye of the ...group?

Science Now ran a very interesting story this week that I heard on the Science Podcast. It is based on an article that appeared this month in Neuron.

The researchers asked 21 young women to rate the attractiveness of 222 female faces while lying in an fMRI scanner. To avoid any confounding effects of race or sexual desire, all the test subjects and faces were white, and all the subjects were heterosexual. The volunteers saw each face for about 2 seconds and assigned it a score from 1 (least attractive) to 8 (most attractive). They were then told how another group of women had rated the face. These "group ratings" were actually generated by a computer that gave each face a different rating than the test subjects about two-thirds of the time. As the researchers suspected, the rostral cingulate zone and nucleus accumbens [areas of the brain believed to be part of that learning system]  fired up when the group ratings did not match the subject's score. Moreover, brain areas associated with reward were less active when a subject’s predictions deviated from the group's score...

What does this imply? It seems that when the group disagrees with us we modify our beliefs, which is what social learning would imply.  I think economists would be comfortable in fitting this into a framework like the "herding" or "informational cascade" models where we update our beliefs based on the revealed beliefs of others. But there also seems to be a direct "utility" (reward) we get from agreeing with others.  This seems like a pure payoff to conformity. The question is why would evolution instill both mechanisms?  Perhaps conformity is just a good strategy most of the time. So instead of learning from others we have some tendency to just mindlessly copy them. But it suggests that someone with social disorder might indeed be more creative because maybe they don't feel that disutility from having divergent beliefs. This would in turn create benefits for the conformers because every now and then the non-conformist comes up with something so demonstrably better that some of the conformists start doing it despite the psychic penalty from deviating. Can there be an equilibrium where the majority have conformist tendencies but a small minority do not?