tag:blogger.com,1999:blog-4464222071440015933.post9217244020445329197..comments2024-01-23T17:14:04.067-05:00Comments on Jaltcoh: Are misconceptions worse if they're about facts or concepts?John Althouse Cohenhttp://www.blogger.com/profile/11703450281424023177noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-4464222071440015933.post-32732969439807527812010-10-13T01:17:41.771-04:002010-10-13T01:17:41.771-04:00Cost benefit analysis is really not all it's c...Cost benefit analysis is really not all it's cracked up to be.<br /><br />I offer you either a free Mars bar or a free Snickers bar. You value the Mars bar at $1. You value the Snickers bar at $1.<br /><br />While any rational person would see this as a pure win, anyone with an understanding of economics would see this as the nightmare scenario.<br /><br />To take the Mars bar, I must give up the opportunity to have a free Snickers bar, that's break even. To take the Snickers bar, I must give up the opportunity to take a free Mars bar. So neither bar is worth taking. And taking neither bar gives up only two opportunities each with a net value of zero. So taking neither bar is just as good as taking either bar.<br /><br />Really.JoelKatzhttps://www.blogger.com/profile/09840865938897877532noreply@blogger.comtag:blogger.com,1999:blog-4464222071440015933.post-43234383527180095652010-10-12T19:15:34.490-04:002010-10-12T19:15:34.490-04:00I think your remark about tiny vs. huge percentage...<i>I think your remark about tiny vs. huge percentages undermines your general thesis here. Students needn't be able to estimate exact figures closely, but they should know conceptually whether a quantity is likely to be huge or tiny -- and that is all that was asked of them here. It is a conceptual error to give a "mid-range" guess when your theoretical background suggests the number should be approximately zero. Like you say, they reveal that "they really have no idea" about the underlying mechanisms that should guide their answers.</i><br /><br />I don't know that this undermines my thesis. My thesis might still be wrong, but I think what I've said is at least internally consistent. I'm saying people are simply, across-the-board <i>bad</i> at estimating percentages. When they give guesses like "25%," they don't actually mean much at all. That could be code for: "OK, you got me — I can't even come close to getting this right, but I don't want to be embarrassed, so I'll just stick with something in the middle so I'll have something to say."<br /><br />The fact that they're bad at answering these questions is, by definition, less-than-ideal. But it's not obvious why this is <i>such</i> a bad thing. Instead of bemoaning economics students' "conceptual errors," why don't we just accept that this is a trivial glitch in a lot of people's thinking and focus on the ways people <i>are</i> good at thinking?<br /><br />Here's an example. One of the questions is how many people are earning the minimum wage. The median answer is 35%. The correct answer is "2.3% of hourly-paid workers and a smaller share of all workers." As the first comment on the post says, it's not clear why we should even care about students botching this question, when the question itself seems almost designed to throw them off:<br /><br /><i>I have to say that I find the % working at minimum wage highly misleading. As a student, I never knew anyone who worked at exactly minimum wage. Instead, it was minimum wage + 50cents or the like. When minimum wage rose, so did their wages. I think if you measured how many people's wage rates depend directly on the minimum wage, you would get a far more relevant answer.</i><br /><br />In the real world, how often does one need to be able to give a close guess about an arcane statistic off the top of one's head? My theory is that this is a skill that's not very useful or common. So if you try to test this skill, you'll get people desperately clinging to the middle range between, say, 10% and 90%, rather than guessing a figure that seems "extreme." People just aren't inclined to pull figures like 0.1% or 1,000% out of the blue. I don't see why this would impede them from doing a good job of thinking about such numbers if they actually come up in a concrete situation.John Althouse Cohenhttps://www.blogger.com/profile/11703450281424023177noreply@blogger.comtag:blogger.com,1999:blog-4464222071440015933.post-11398850896497409272010-10-12T18:50:32.862-04:002010-10-12T18:50:32.862-04:00The bad figures plausibly stand for conceptual mis...The bad figures plausibly stand for conceptual misunderstandings. For example, economics students should know that profits are generally competed away -- this is a consequence of the one micro model everyone should understand. Grasping the concept should lead students to guess a small figure for profits; 30% is a large figure (and half of students guessed more). (Now, in real life, businesses do seem to earn profits sometimes. Perhaps this highlights a limitation of the very simplest models. Perhaps some students guessed 30% because they grossly overestimated the share of firms that are in monopolistic markets, or something. But the simpler interpretation of the data, I think, is that most of them just didn't get it.)<br /><br />I think your remark about tiny vs. huge percentages undermines your general thesis here. Students needn't be able to estimate exact figures closely, but they should know conceptually whether a quantity is likely to be huge or tiny -- and that is all that was asked of them here. It is a conceptual error to give a "mid-range" guess when your theoretical background suggests the number should be approximately zero. Like you say, they reveal that "they really have no idea" about the underlying mechanisms that should guide their answers.<br /><br />The survey of economists on opportunity costs is disturbing.Grobsteinhttps://www.blogger.com/profile/05964699430818239961noreply@blogger.comtag:blogger.com,1999:blog-4464222071440015933.post-33697841569734468762010-10-12T16:08:36.429-04:002010-10-12T16:08:36.429-04:00I think the corrective that people are not good at...I think the corrective that people are not good at estimating, and want to make a safe guess, is reasonable. However, the general topics are much in the national discussion. The questions measure current events knowledge, especially in relation to economics. For that reason, I would be less concerned if students were making safe guesses, but in the right direction. With 0% inflation, I'm not worried if they are afraid to guess an extreme like zero and guess 3%. Guessing 11% does concern me. Similarly, had the students guessed that incomes since 1950 had almost doubled, I would not be concerned that they didn't get anything like 248%. (We also get into a modern history general knowledge problem, wondering if they know it was just after WWII and what the economy was then.)Assistant Village Idiothttps://www.blogger.com/profile/01978011985085795099noreply@blogger.comtag:blogger.com,1999:blog-4464222071440015933.post-29190181470142412292010-10-12T15:48:35.344-04:002010-10-12T15:48:35.344-04:00Ed, really? Doesn't the fact that you would n...Ed, really? Doesn't the fact that you would never, never go to LP on your own account indicate that $150 cash is worth more to you than the dinner? So, 3 would give the most pleasure; burn the review without reading it, cash the check, and spend the $150 on whatever alternate thing is better than the LP dinner.<br /><br />If you can't do that because burning the review would be impolite, then the three options don't have the same dollar value because you have failed to account for the cost of cashing in.BJPhttps://www.blogger.com/profile/06867066934092219225noreply@blogger.comtag:blogger.com,1999:blog-4464222071440015933.post-92127520892598697332010-10-12T15:45:01.159-04:002010-10-12T15:45:01.159-04:00Interesting thought-experiment. I agree that "...Interesting thought-experiment. I agree that "1" seems best, although "2" and "3" are tempting.<br /><br />As you mentioned, economists can easily dismiss the value of traditional gift-giving. Joel Waldfogel came out with a book last year called <a href="http://press.princeton.edu/titles/8972.html" rel="nofollow"><i>Scroogenomics.</i></a> His pitch said:<br /><br /><i>When we buy for ourselves, every dollar we spend produces at least a dollar in satisfaction, because we shop carefully and purchase items that are worth more than they cost. Gift giving is different. We make less-informed choices, max out on credit to buy gifts worth less than the money spent, and leave recipients less than satisfied, creating what Waldfogel calls "deadweight loss."</i><br /><br />I notice that even the first blurb quoted on his own promotional page did not give unambiguous praise:<br /><br /><i>"Leave it to an economist to make an impassioned argument for why we shouldn't give gifts, especially during the holidays."--Los Angeles Times</i><br /><br /><a href="http://graphics8.nytimes.com/images/blogs/freakonomics/pdf/WaldfogelDeadweightLossXmas.pdf" rel="nofollow">Here's a PDF</a> of an academic economics article by Waldfogel, where he made a similar case. You mentioned cash gifts, and Waldfogel analyzes these as an alternative that often has higher utility (though he says it depends on who gives them). Of course, if everyone gave each other cash gifts, the value would partly or even entirely cancel out. I know of a brother and sister who used to give each other presents for Christmas but apparently weren't too enthusiastic about the exchanges. Then, one Christmas, they each decided to give each other cash -- in the same amount. They stopped exchanging Christmas presents after that. Yet Waldfogel would presumably consider this an optimal outcome, since he thinks gift-giving tends to waste value, unlike individuals buying things for themselves in conventional market transactions (in which the giver and receiver each value what they get more highly than what they give up).<br /><br />I got those links from <a href="http://economix.blogs.nytimes.com/2009/12/29/in-the-public-arena-economi/" rel="nofollow">this NYT blog post</a> by Harvard economics professor Edward Glaeser, who defends gift-giving against Waldfogel's attack. Glaeser has the insight that "value" isn't the only relevant economics concept; there's also "signaling":<br /><br /><i>Signaling has many virtues, and it is hard to think of anything more valuable than showing affection for others. In the schooling context, signals allow the matching of people to jobs. In the context of gift-giving, providing presents increases the welfare of others by giving them the sense that they are loved.</i><br /><br />Similarly, the first commenter on the NYT post demolished the <i>Scroogenomics</i> thesis in a single sentence:<br /><br /><i>Joel Waldfogel completely misses the point by viewing the annual holiday tradition of gift-giving as a mere transfer of goods rather than a more complex process of emotional connection between those people who care about each other.</i><br /><br />The economist's devaluing of gift-giving seems to ignore our "revealed preferences": we keep giving gifts year in and year out. Now, one could impute this to blind, irrational tradition. But many people would be genuinely distraught if we all stopped giving gifts. This suggests there's something limited about economics. The old saw that economists "know the cost of everything but the value of nothing" is too simplistic. Perhaps economists can take into account subjective value. But I don't know of any way to do this that wouldn't be highly ad hoc.John Althouse Cohenhttps://www.blogger.com/profile/11703450281424023177noreply@blogger.comtag:blogger.com,1999:blog-4464222071440015933.post-28734876590866541202010-10-12T13:02:24.522-04:002010-10-12T13:02:24.522-04:00Good post. Opportunity cost is hard to understand ...Good post. Opportunity cost is hard to understand and full of paradoxes. Here is one I sometimes try on my students:<br /><br />Suppose La Pavilion is way above your usual choice of restaurants. Dinner there will cost you $150. It is good, but you would never, never go there on your own account.<br /><br />So, which birthday present would give you the most pleasure?<br /><br />1. A nonrefundable gift certificate for a meal at La Pavilion<br /><br />2. A gift certificate at LP that you can turn in for $150 in cash if you choose<br /><br />3. A check for $150, paper-clipped to a review of the glories of LP, hinting that you should spend the money on a meal there.<br /><br />My answer is "1". Why? Because there is no opportunity cost to using the nonrefundable gift certificate. Your enjoyment of the meal is pure pleasure, no regrets. With 2, and even more with 3, while you are eating, you are thinking about what else you could have spent the money on instead, so the pleasure you would have gotten from the other uses is mentally being subtracted from the pleasure of the meal even while you sip your Paulliac.<br /><br />Furthermore, looking back, you remember the nonrefundable meal with pure fondness. With option 2 or 3, every time you are short of cash, you look back on the meal at LP with regret that you didn't take the $150 instead.<br /><br />Nonetheless, every econ textbook will tell you the gift of cash gives maximum utility. The moral: don't ask an economist for a recommendation when you are trying to think of what to give your beloved for his/her birthday!Ed Dolanhttps://www.blogger.com/profile/08757995049056872214noreply@blogger.com