Money For Nothing

Personally, I thought $1 billion for security for the Winter Olympics was high. But spending over $1 billion to host a weekend G8/G20 summit is truly absurd. At some point the Conservative hide-under-the-bed-cause-the -terrorists-are-out-to-get-us security mania will have to give way to common sense. Right?

Instead of buying sonic cannons to attack protestors with, how about the leaders try a conference call next time and give us a transit line or a hospital instead - thanks in advance.

54. Types of Interpersonal Preferences

Note: This post is the fifty-fourth in a series. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs.

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Many models of human behaviour start with a notion that people care only for themselves and have no interest in what happens to other people. i.e. That people have independent preferences. This notion is generally a part of the economic model of humanity known as Homo Economicus.


As David Hume noted back in 1777, the primary reason for making this assumption is that it is the simplest approach.

We can call this personality type, Mr. Selfish. Note that Mr. Selfish would kill you for a $5 bill in your pocket if he felt that there was no risk of getting caught.

Compared to Mr. Selfish, every other behaviour type places more weight on the interests of others and less on their own interests. The alternatives vary based on why and how they take into account the interests of others.

The opposite to Mr. Selfish would be Mr. Selfless, who places 0 weight on his own interests, with 100% weight on the interests of others.

Another possibility would be Mr. Equal who treats all people's interests equally.

Then there is Mr. Fair. Mr. Fair weights people equally if they are equally deserving, but will weight them differently where circumstances dictate it.

Mr. Reciprocate is a special case of Mr. Fair that places a positive weighting on those who cooperate and a negative weighting on those who don't.

Mr. Referee is a special, impartial case of Mr. Reciprocate who will go out of his way to punish people who deserve it (because they aren't playing by the rules) regardless of whether the breach of the rules affected Mr. Referee personally or not.

Another possibility we can call Mr. Hume, since it was Hume who posited the possibility that our sense of empathy works a bit like our sense of perspective, in that we place more weight on the interests of those we know best (i.e. the objects that are closer appear larger in our calculations) while we place little weight on the interests of those we don’t know as well.

Then there is Mr. Spite. Mr. Spite places a reverse weighting on the preferences of those he dislikes, or considers enemies, taking pleasure in their misfortune, and being pained by their success.

Mr. Team Player places an equal weighting on all members of his team, including himself (or alternatively, places a 100% weighting on the team's interests), but places 0 weighting on people who are not part of the team (or on any non-team interests).

Mr. Obedient places 100% weight on whatever he is told to do by someone in authority, only reverting to his own pattern of behaviour in the case where there is no authority figure to follow.

Mr. Leader places 100% weight on the interests of those he leads, with 0% weighting on his own interests.

Mr. Fiduciary places 100% weight on the particular person he is acting on behalf of, in the particular context that he has a fiduciary duty, and places 0% on his own interests in this context.

Mr. Patriot places 100% weighting on the interests of his country and either a 0% weighting on the interests of other countries, or perhaps a positive weighting on the interests of allies and a negative weighting on the interests of enemies.

Mr. Imitate simply does what the people around him do. If they weight people’s preferences equally, he will do the same, if they weight their own preferences 100%, he will do the same, and so on.

Finally, Mr. Pareto places 100% weighting on his own interests and 0% weighting on other people’s interests, just like Mr. Selfish, but places an additional restraint on his actions to avoid any action that would have a negative impact on other people's interests. Note that this approach requires a benchmark to differentiate between a positive impact and a negative impact, where the logical benchmark would be the state of the other person if they never encountered Mr. Trade at all.


Considering the bewildering array of potential behaviour types, it is understandable that people attempting to construct models of human behaviour have sometimes taken the easy way out and assumed the simple case of Mr. Selfish applies to everyone, much like Hobbes did in Leviathan.

However, as I mentioned back here, both common sense and empirical research tell us that different people operate using different approaches and that even the same people use different approaches in different contexts. Just looking at your own behaviour and motivations, I imagine that, like me, you can recall situations where you were driven by concern for others interests, situations where you were trying to help your team, situations where you felt you should retaliate against someone who did you wrong, situations where you felt you should punish someone for breaking the rules, even if they didn't harm you personally, situations where you placed more weight on the interests of those you know better, situations where you were annoyed by someone else's success or pleased by their failure, situations where you simply went with the flow and behaved like everyone else, situations where you refrained from using fraud or force even though it would have been to your benefit to do so, and so on.

Briefly cross-referencing this (no doubt incomplete) list of behaviour types with the two syndromes from systems of survival, my initial guess would be that the commercial syndrome is based primarily, if not solely, on Mr. Pareto type behaviour while the guardian syndrome is a more complicated mix of Mr. Team Player / Mr. Patriot (be loyal, be exclusive), Mr. Obedient (be obedient, respect hierarchy), Mr. Leader (dispense largesse, respect hierarchy) and Mr. Spite / Mr. Referee / Mr. Reciprocator / Mr. Fair (deceive for the sake of the task, exert prowess, take vengeance).

53. Personal, Group and Public Interests

Note: This post is the fifty-third in a series. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs. Just a short post this week as I'm going to be on the road for a bit, so time is a bit tight.

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"Ask not what your country can do for you, ask what you can do for your country"

- John F. Kennedy.

"By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."

- Adam Smith



To a large extent, people pursue their own interests, and this is in the public interest as well. For example, people don't want to starve to death so they take care that they have enough food to eat, and similarly society has no interest in its members starving to death either.

In some cases, people form groups to better pursue their goals. The reasons people form groups generally were covered previously in a post on the types of cooperation - in order to take advantage of economies of scale, to share risk or to share information, groups are generally helpful*.

But once groups form, the potential for conflict between group goals and personal goals, as described by Mancur Olson is unavoidable. Olson makes the point that one way to overcome the weakness of large groups due to the conflict between personal and group interest is through moral values which 'reward' people for contributing to group activities and 'punish' them for free-riding on the efforts of other group members.

For the most part, society places a (positive) moral value on cooperation, where cooperation means putting the group interest ahead of the personal interest. To me, this suggests that society recognizes that cooperation is beneficial in ways that free-riding on the cooperation of others is not.

But to say that group interests are better than personal interests is overly simplistic. Naturally, it's possible that groups can be formed with interests that are inimical to the wides social interest. Where a group is formed with an intention that is hostile to the public interest, the action generally goes by the name conspiracy rather than cooperation.

But there is one particular case, the case of the marketplace, where cooperation goes by yet a different name, collusion.

One of the fundamental insights that Adam Smith had in 'The Wealth of Nations' was that, in the case of a market, cooperation could be harmful to the public interest, while competition - which is inimical to the pursuit of the other forms of cooperation - is helpful in this particular case.

If all the grocery store owners get together and agree to raise prices, this will be good for their group, but will, most likely, be harmful to the public interest because the higher prices will prevent win-win transactions from taking place.

A common view of this is that the difference between the competing market participants and the cooperating group members is that the market participants are acting in a self-interested manner while the group members are acting in a selfless manner (but the invisible hand yields a public benefit from the self-interested market behaviour).

But we know that the market participants are doing something more than simple pursuit of self-interest - they are also following a moral code that restricts them from taking actions that would harm other people through the use of force, through fraud or through breaking promises. By the other side of the same token, we wouldn't necessarily say that OPEC members, for example, are sacrificing their self-interest by maintaining a cartel.

The point I'm trying to make is that the distinction between pursuit of the benefits of cooperation through groups vs. pursuit of the benefits of cooperation through trade is not a distinction between self-interest and selflessness, it is really just a distinction between cooperation and competition. In the case of (market) competition, the interests outside of the self that we take into consideration are those of the person we exchange with (and possibly any third parties affected by externalities). In the case of cooperation, the interests outside of the self that we take into consideration are those of our fellow group members.


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* The case of gains from trade is different in that it does not require forming a group to take advantage of this gain, it merely requires that each individual entity respect the commercial precepts in its dealings with other entities.

52. Leviathan

Note: This post is the fifty-second in a series. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs.

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The problem with reading Leviathan, by Thomas Hobbes is that, unlike say the works of say, Weber or Nietzsche, its impossible to find an English translation. Nevertheless, I persevered so that I could write this post.

In Leviathan, Hobbes attempts to build a model of how society should be governed from first principles, in the same way that the newly developing (at the time) field of geometry was able to generate interesting conclusions starting from a seemingly self-evident set of axioms and building from there using logical reasoning.

Hobbes starts with the individual human as his basis and then builds from there based on the characteristics shared by all individuals.

Typically, when reading a book adorned by a cute black and white bird from the southern hemisphere, I make a point of skipping any preamble/introduction and going straight to the text. However, it's worth making an exception in this case for the excellent introduction by C.B. Macpherson who has done a fair bit of interesting work in his own right on ethics and economics. Macpherson makes the point that Hobbes defines power such that power consists of power over other people, each person's power offsets the powers of other people, and there are people who desire more power than others would like them to have¹. It is this dynamic which forces a competition for power and which makes that pursuit of power harmful, in a manner that the pursuit of other things (e.g. food and shelter) is not.

We can see that, in modern terms, what Hobbes was getting at is that power is a positional good, and that, given the internalities and externalities imposed by the search for this positional good, the net result of a competitive pursuit of power is negative. He characterized this eloquently in his description of the state of nature (where there is no 'Leviathan' to prevent people from using force on one another) as a state in which life is 'nasty, brutish and short.'

Given the trouble caused by the pursuit of power in a state of nature, this pursuit must be curtailed by placing all the power in a single source that is so strong, nobody will dare to challenge it (the Leviathan of the title). Hobbes sees civil war as the greatest evil, even more so than tyranny or dictatorship.

It seems to me that Hobbes' argument is really an argument for a single world government. After all, as Hobbes acknowledges, the conflicts between states have the same negative sum character that conflict within a state has. However, with his overriding concern for avoiding civil war and less concern for was between states, Hobbes seems to implicitly accept that government must govern a particular territory. It is one thing, for Hobbes, to have two different governments occupying different territory, but a far worse thing to have two (potential) governments competing within a particular territory. As far as I could tell, he never really delves into why there is such a distinction.

Hobbes imagined that a person (who Hobbes refers to as 'the foole') might see their best course of action to be in agreeing to set up Leviathan if that's what everyone wants, but then still using force when it suits them and they feel the risks of being caught or punished by the state are outweighed by the potential gain. This is similar to David Gauthier's concerns that it made sense for people to make promises, but not necessarily to keep them.

Hobbes counter-argument is as follows,

"He therefore that breaketh his Covenant, and consequently declareth that he thinks he may with reason do so, cannot be received into any Society, that unite themselves for Peace and defence, but by the errour of them that receive him; nor when he is received, be retayned in it, without seeing the danger of their errour; which errours a man cannot reasonably reckon upon as the means of his security; and therefore if he be left, or cast out of Society, he perisheth; and if he live in Society, it is by the errours of other men, which he could not foresee, nor reckon upon; and consequently against the reason of his preservation; and so, as all men that contribute not to his destruction, forbear him onely out of ignorance of what is good for themselves."

Basically, Hobbes is invoking the 'shadow of the future' suggesting that anyone who violates the rules will be expelled from society and therefore suffer more than they might gain from their covenant-breaking. This of course, relies on some assumptions about the government's power to catch and punish covenant-breakers, as well as assumptions about the rationality of potential covenant-breakers.

Another potential puzzle for Hobbes view is how the same people can on the one hand have the foresight to institute a sovereign power to have a monopoly on violence, but on the other hand, have the lack of foresight to get stuck into a violent state of nature if that sovereign power is lacking.

There are at least a couple of answers to this problem:

1) Instituting leviathan doesn't require everyone to go along, it just needs a large enough group, whereas in the state of nature, even a few people who prefer power to peace will cause a chain reaction of violence and vengeance.

2) Hyperbolic discounting means that people can see, from the vantage point when they are setting up leviathan, that peace is preferable to the state of nature, even though when they are in the heat of a conflict they may prefer attack or vengeance for an attack to peace.

For the most part, Hobbes' viewpoint reflects the movement in his time away from older hierarchical notions of status towards a commercial syndrome minded, 'all humans are created equal' view, with Hobbes justifying this on the basis that every human has the capability to kill another, and thus inflict 'infinite' harm upon them, so based on the fact that infinity is the same in all cases, all people are equal on this basis. Macpherson makes the same point in his introduction although he says that Hobbes employs a 'bourgeois mentality' rather than a commercial mindset, but he means the same thing. The commercial mindset is well reflected in Hobbes' rules for how men should behave with respect to one another (a long list of rules that Hobbes says basically amounts to 'do unto others as you would have them do onto you,' - a good commercial syndrome sentiment).

But even with a commercial mindset, Hobbes still saw the need for a single, all-powerful sovereign power that would take on the role of society's guardian. Once instituted, the sovereign could never be replaced (respect for tradition), it could not be usurped (respect for hierarchy), it must be obeyed, it was just for the sovereign to take vengeance (but unjust for anyone else to take vengeance), the sovereign was expected to exert prowess and it was just for it to employ deceit, force or whatever means were necessary to maintain order. Under Hobbes, the (guardian) rules that apply to the sovereign are completely different than the (commercial) rules that apply to everyone else.

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¹ It's interesting that Hobbes has a section of the book tiled 'On Man' which is generally written as if all people are the same, but in his discussion of the pursuit of power he allows that there may be variation in that it is only some people who desire so much power that there is inevitably conflict.

Sun Run 2010

2009 post here
2008 post here
2007 post (with details on what the Sun Run is) here.

After running the Sun Run in 45:43 last year, I wasn't too optimistic about beating that time this year, and with good reason as it turns out, since I think I finished in around 46:35 or so, similar to my time from two years ago.

Running the half marathon last summer, and moving to the hilly land of Port Moody a month ago helped with my stamina, as I didn't feel fully out of breath at any point in the race, and I think I could have maintained a similar pace for a few more kilometers (both of these points were definitely not true the past two years), but what I lacked was speed training on the flats, and I wasn't able to maintain a fast enough pace on the long flat stretches (km 4 and km 7 in particular) - due to leg fatigue and stomach and shoulder cramps - to match last year's time.

It was a beautiful sunny day for spectators of the run, albeit definitely too warm for my tastes for running (every underpass was a sweet 3 seconds of shade...) - not that it was super warm (maybe 12C) but my Irish genes and Vancouver training lead me to prefer overcast skies and a temperature around 5 degrees for running!

In last year's sun run post, I suggested I might try a different distance at some point, which I did, running the Scotia half marathon last June. This year, I'm thinking about possibly training for a triathlon at some point, although this would require buying a bike and learning how to ride it at a decent speed, not to mention learning how to swim properly (I was never keen on putting my head in the water!) I guess we'll see, I wouldn't hold my breath.

Until next year...

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Updated to add that my official time was 46:33, good for 1,694th place, two places better than last year, despite the slower time - either people suffered due to the 'heat' or more likely there were fewer entries this year, possibly due to the delay due to the Olympics, fewer corporate sponsors, or the conflict with Mother's Day. The time was 185th best out of the 1,753 men in the 35-39 age bracket who ran the race.

Mythbusting

Contrary to what some people seem to believe:

1. Wind farms are NOT a a meaningful threat to bird life (as compared to, say, cell phone towers, or buildings in general)

2. If something causes your ring finger to swell up, the hospital CAN cut a titanium or tungsten-carbide ring off of your finger rather than amputating your finger.

That is all.

51. Types of Cooperation

Note: This post is the fifty-first in a series. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs.


The topic of this post is an essay by Joseph Heath on 'The Benefits of Cooperation (pdf)'

Heath posits that there are 5 different ways that people can benefit by working together:
1) Economies of Scale
2) Benefits from trade
3) Risk sharing
4) Self-binding
5) Information sharing

Heath notes that the first theorem of welfare economics demonstrates that competitive markets (which achieve benefits by allowing people to trade with one another) will achieve a perfectly efficient outcome, but that the assumptions behind the theorem rule out all other forms of cooperation:

"The 'invisible hand theorem' (or 'first fundamental theorem of welfare economics'), shows that the competitive equilibrium of a market economy will be Pareto-optimal as long as certain 'standard' conditions obtain. The list is quite long, but includes inter alia constant returns to scale, individuals with well-behaved utility functions, symmetric information, a complete set of futures markets, and in cases of
uncertainty, a complete set of insurance markets.

In other words, the theorem shows that markets achieve perfect efficiency, so long as every other mechanism of cooperative benefit is excluded from consideration – either by assuming that no such benefits are possible, or that all such benefits are freely available. To see how uninformative this is, consider how we would respond
to someone who proposed a model for the 'optimal' production of scientific knowledge, based upon the assumption that both material resources and labor were available in unlimited supply and at zero cost. Whatever its technical merits, such a model would give us very little assistance with real-life policy questions."

Heath goes on to point out how circumstances often force us to choose between pursuing different types of benefits. In the case of economies of scale, there is an obvious conflict between having a large number of firms to make a market more competitive, and having a smaller number of firms so that the bigger firms can achieve greater economies of scale. It's worth nothing that, due to network externalities, any organization that physically extends across geographic territory (i.e. power grid, sewer system, road network) tends to be operated as a monopoly, with the economies of scale overwhelming the gains from competition leading to more trade in this particular case.

The story (conflict between benefits from trade vs. benefits from other forms of cooperation) is similar with risk sharing. Heath gives the example of the enclosure of the commons that occurred in England prior to the industrial revolution. Allowing individuals to take ownership of parts of the commons created far more opportunity for specialization and trade to take place by ensuring that anyone who took the trouble to improve or develop a piece of land could expect to reap most of the benefits from their efforts, rather than sharing them with everyone else in the commons. But the commons system provided a great benefit by insulating individuals from the uncertainties of having their fortunes entirely dependent on one piece of land. Splitting the land into privately owned chunks removed the benefit that arises from reducing uncertainty for individuals by diversifying risks across a large group of people.

By self-binding, Heath means situations where we want to pre-emptively prevent ourselves from taking actions we know we will regret (due to hyperbolic discounting) and enlist others to aid us. The thought reminds me of this passage from Plato's Republic,

"Tell me then, O thou heir of the argument, what did Simonides say, and according to you truly say, about justice?

He said that the repayment of a debt is just, and in saying so he appears to me to be right.

I should be sorry to doubt the word of such a wise and inspired man, but his meaning, though probably clear to you, is the reverse of clear to me. For he certainly does not mean, as we were just now saying, that I ought to return a deposit of arms or of anything else to one who asks for it when he is not in his right senses; and yet a deposit cannot be denied to be a debt.

True.

Then when the person who asks me is not in his right mind I am by no means to make the return?

Certainly not.

When Simonides said that the repayment of a debt was justice, he did not mean to include that case?

Certainly not; for he thinks that a friend ought always to do good to a friend and never evil.

You mean that the return of a deposit of gold which is to the injury of the receiver, if the two parties are friends, is not the repayment of a debt,—that is what you would imagine him to say?

Yes."

On the topic of self-binding, Heath makes the same analogy between borrowing and substance abuse that I did in last week's post,

"Economist David Laibson has argued that financial innovation, by increasing the overall liquidity of assets, has made it increasingly difficult for individuals to create 'golden eggs.' The difference between savings and checking accounts has become purely nominal; the introduction of ATMs has meant that everyone has access to their money at all hours (and so withdrawing a fixed amount at the beginning of the week can no longer be used as a self-control mechanism); reverse mortgages allow people to drain the asset value of their homes; and, of course, consumer credit has rendered the practice of 'saving up' for a major purchase almost obsolete. This sort of 'easy money' is a mixed blessing to consumers, in the same way that a 24-hour beer store is a mixed blessing to the alcoholic."

Again, making it easier to complete trades conflicts with a different form of cooperative benefit.

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What this notion of 5 different forms of cooperative benefits means with regard to the two syndromes identified by Jacobs is not entirely clear to me. The view I'm drifting towards is that the guardian syndrome represents cases where perfect monopoly is required and the commercial syndrome represents something close to the perfect competition ideal.

Cases where economies of scale are all that matters would seem to lead to a monopoly which would fall under the guardian syndrome. Cases where there the benefits to risk sharing far outweigh gains from trade would be similar. Self-binding relies on a hierarchical relationship (the one who is binding themselves submits to the authority of the person who will bind them) such as we find in the guardian syndrome and measures to encourage the generation of new information (intellectual property) often seem to do so by guaranteeing a monopoly to the producer of the information.

Cases where gains from trade need to be balanced against one of these other sources of cooperative benefit would seem to involve a grey area of competition mixed with monopoly in some measure. Perhaps it's not surprising that these areas tend to be an ongoing source of controversy.