Elster (2000) on emotions as credibility enhancers

As part of my summer reading program, I recently read Jon Elster’s Ulysses Unbound (2000) and will be posting some thoughts on it here. In this first installment I’ll discuss the idea that emotions may provide a form of self-binding that can help to overcome self-interest.

In section I.5, Elster considers provocative work by Frank and Hirschleifer that claims (separately) that emotions like envy, anger, guilt, or honesty “could have evolved because they enhance our ability to make credible threats.” The basic idea here is that in some situations an actor would benefit from being able to make threats, such as the threat to refuse a small offer in an ultimatum game, but that those threats are not credible without the actor feeling anger or another “irrational” emotion. The purpose of some emotions, in this view, is to produce privately-experienced costs and benefits that can allow players to make threats and promises that are otherwise non-credible. As Elster points out, it is not the emotions per se that can help actors overcome commitment problems; rather, it is the reputation for being emotional that does it (i.e. other actors’ knowledge of one’s privately-experienced emotional costs and benefits), and actually experiencing these emotions could be a good way to develop that reputation.

On page 51 Elster makes a nice move in linking ideas about self-interest and morality to Frank and Hirshleifer’s ideas on the evolutionary advantages of the moral emotions. First he clarifies that the emotions Frank and Hirschleifer are inserting into behavior are really standing in for side benefits and side penalties that make a given behavior sustainable in a repeated game with a given payoff structure and discount rate. He then goes on to point out how this is “essentially turning an old argument on its head”:

From Descartes onward it has often been argued that prudence or long-term self-interest can mimic morality. Because morality was thought to be more fragile than prudence, many welcomed the idea that the latter was sufficient for social order. By contrast, if one believes that self-interest is likely to be shortsighted rather than farsighted, the moral emotions might be needed to mimic prudence.

To restate the point somewhat, if we can define a type of behavior that is the “moral course of action” (e.g. to give generously in a dictator game), and we can identify the purely self-interested course of action (e.g. give nothing), then any discrepancy between the two can be bridged by “moral emotions” that the players experience (e.g. a warm glow from giving, or guilt from not giving). This clarification highlights what might be dissatisfying about this work (as reported by Elster), in common with e.g. the classic work on the paradox of voting or even Levi’s invocation of normative values in explaining tax compliance: any apparently paradoxical behavior can be explained by saying that the payoffs have been misjudged. But this is not what Frank and Hirshleifer are doing, presumably: they want to explain the existence of emotions, which are privately experienced costs and benefits provoked by interactions with others, not the paradox of cooperation; their interesting point is that these emotions may serve at least in part to help us develop reputations that make our (self-serving) threats and promises credible.


Here is what Peter Schweizer says about Gabe Lenz and Kevin Lim’s paper on the wealth of members of Congress:

One study used a statistical estimator to determine that members of Congress were ‘accumulating wealth about 50% faster than expected’ compared with other Americans.

Is that a fair summary of their research? Here is a quote from the abstract of the paper:

We thus conclude that representatives report accumulating wealth at a rate consistent with similar non-representatives, potentially suggesting that corruption in Congress is not widespread.

Schweizer’s claim is strictly true, in that Gabe and Kevin did reporting using a “statistical estimator” that suggested faster-than-expected wealth accumulation. But they also reported that, based on their analysis, it was the wrong estimator; using a better estimator reversed the findings.

I guess Schweizer stopped reading after the fourth sentence of the abstract, so he simply didn’t realize that by the ninth sentence the paper was completely contradicting the argument of his book.

Political investing in the news

There is suddenly a lot of attention being paid to investing behavior of members of Congress. As Jens and I work on finishing up our two papers on the topic, I am trying to keep up with the public discussion.

Larry Lessig alerted me to this Newsweek/Daily Beast article about a new book by Peter Schweizer called Throw Them All Out (subtitle: “how politicians and their friends get rich off insider stock tips, cronyism, and land deals that would send the rest of us to prison”). I had given a talk at Larry’s weekly seminar in the spring about our (Jens and mine) work on this issue, in which the general message was that members of Congress overall are not very good investors, and that existing investigations of “insider trading” in Congress (and ethics issues more generally) suffer from a general bias toward finding wrongdoing even when the evidence is more ambiguous. So, given that I was saying that things weren’t so bad and Peter Schweizer is now publishing this book saying that things are very bad, Larry asks me, “Is he wrong?”

I have not read the book (it just went on sale today I believe), but here are some thoughts on what I could learn about it from the article, and how it relates to our work on the investments of members of Congress:

a) Our work so far is about average behavior, and not isolated instances of wrongdoing. If there is wrongdoing, it probably is at the level of isolated instances — not everyone in Congress, not all the time. It is perfectly consistent for Congress as a whole to do poorly and for improper trading to be going on, and even for an individual to do poorly overall and to be doing some improper trading. Our work responds in part to an earlier study that showed extremely good average performance, which would really only be possible with widespread wrongdoing; showing poor average performance (as we do) does not prove the absence of wrongdoing.

b) Also, some of the behavior Schweizer is talking about is outside of what we analyze, e.g. options on index funds — our analysis is about equity holdings.

That said:

c) John Kerry may have had some conveniently timed trades, but our analysis suggests he would have done better overall had he invested in an index fund. That doesn’t mean he acted ethically, but it does take some of the edge off of this “politicians get rich while we suffer” narrative.

d) There is deep cherry-picking going on here. You could write a book of completely bone-headed investments that come from the same data. If well-timed trades prove corruption, what do poorly-timed trades prove?

e) The current discussion talks a lot about how Congress has exempted itself from insider trading laws, but I think (not being a securities law expert) that is kind of bogus. They are just as exempt from insider trading laws as I am. It’s simply that the SEC regulations on insider trading apply to information held by corporate insiders, but don’t address other types of information that might be gathered by politicians, academics, journalists, bankers, bloggers, hedge fund managers, and others who are in a position to learn about market developments. It seems like an exaggeration to say (as Schweizer does here) that members of Congress “have legislated themselves as untouchable as a political class.” Also, there are ethical restrictions in both houses of Congress against profiting from your political position. Perhaps these should be enforced more strictly, but this places members of Congress roughly in the same category as journalists, who learn a lot of stuff about the market but are prohibited by self-regulation from profiting from it — except that members of Congress are required to disclose their investments while journalists are not.

Overall, I think the whole story lends itself to the kind of argument Larry makes in his book Republic, Lost — it’s hard to tell whether corruption is going on, but why bother allowing it to seem as if it is? If I were in Congress, I would not be trading stocks: I would own broad index funds of U.S. equities and bonds, and/or have my money in a qualified blind trust. I would also probably vote to require other members of Congress to do the same. I would do these things because I would not trust the public to really figure out whether corruption is occurring or not, and because I don’t think losing the flexibility to play around in the stock market is much of a cost to pay at all. (In fact, overall it would have helped members of Congress, according to our study!) I wish we could count on the public to accurately identify instances of corruption, but I think the rewards to “finding” wrongdoing (and reporting on it) are large enough, and the rewards to arguing otherwise small enough, that the public will generally conclude the worst whether or not there is legitimate cause for concern.

What time is lunch?

When people in London suggest a time for lunch, they suggest 1pm. In the US it would be noon, right? I find that curious.

I suspect this is a case where it’s kind of arbitrary what time you go to lunch, but people have just converged on a standard practice, and that practice is different in the US and the UK. (You would think there would be an incentive to go a little earlier to avoid the crowds, but on the other hand it’s probably useful for remembering lunch dates to just go with the standard time.) This is therefore a case of what social science types call a coordination game, in which there are “multiple equilibria.” If everyone else is going to lunch at 1, you go at 1; if everyone else is going at noon, you go at noon; so once a society has converged on a equilibrium lunchtime, it is hard to shake (even if you started down that route for random reasons).

I have not yet determined whether the workplace calendar is generally shifted back an hour or not. I walked to work at around 8:45 this morning and it seemed like rush hour to me.

Also, I checked, and sunrise and sunset are not generally later here in London than in NYC.

I wonder if there’s an interesting story explaining why London started down the 1pm path and e.g. NYC went with noon. Also, is it the same in other cities in the UK? In Europe?

Kahn and Kotchen on unemployment and environmental concern

Matthew Kahn (a teacher of mine during my MA at Tufts) and Matthew Kotchen have an interesting sounding paper showing that people appear to be less concerned about the environment when the economy is doing worse. Fewer people search Google for “global warming” and fewer survey respondents say they think global warming is occurring when their state’s unemployment rate is higher. (This is with state and month-year fixed effects, meaning that the difference is not just capturing over-time changes in attitudes or stable geographical differences between people in richer and poorer states.)

Some of the results, like the one about Google search terms or another finding about people’s responses to a “most important problem question,” are consistent with the idea that economic concerns crowd out environmental concerns. But the fact that survey respondents say global warming is not happening when their local economy is doing poorly says something different: it suggests that economic problems do not simply change people’s priorities, they also change their views. (Or that, when someone’s priorities are changed, his or her views adjust to become consistent with those priorities: if I don’t spend much time worrying about the environment, the problem must not be happening.) (Sorry: or that it takes time to learn that global warming is happening, and people don’t have that time when they are worried about the environment.)

Started at LSE

After last year’s very enjoyable post-doc at Yale’s Leitner Center, I have shipped off to the LSE to start as a Lecturer (asst. prof, in US terms) teaching in the MPA program. I am still settling into my office in Connaught House, and still working out housing for next month, but so far I am really enjoying both the city and the school. I met some of the students last week at the introductory session for MPA first-years and I was extremely impressed with their sharpness and the variety of interesting experiences they bring to London.

More soon — I’m going to try to do some more writing here.

Stock trading project written up in Bloomberg/BusinessWeek

The project on the stock portfolios of members of Congress that Jens and I have been working on for over two years is finally almost done, and now it has been written up by Bloomberg. The paper is tentatively titled “Political Capital: The (Mostly) Mediocre Performance of Congressional Stock Portfolios, 2004-2008”. The writeup looks pretty accurate to me. I was curious what aspect the media would end up focusing on, given that the story is kind of subtle and doesn’t play directly into a corruption narrative. In this case the writer chose to focus on the local premium while telling the rest of the story further down.

(Finally) set up on new MacBook Air

I am fully up to speed now with my new MacBook Air.

I’ve had it now for a little over a week, and yesterday finished installing my rails environment and downloading the databases I have been working with. (For setting up the Rails environment on Snow Leopard, I recommend this guide.)

I love this computer. Above all I love how light and sleek it is: this weekend I went to NYC for a bachelor party and a baby shower and brought only my violin case — with my MacBook Air, a change of clothes, and a toothbrush slipped in the space where you can store sheet music. I just love that efficiency.

I also really like the screen resolution, the way the computer starts up and shuts down very quickly, the way it makes basically no noise (no moving parts!) and does not get hot. I still have my early 2008 15″ MacBook Pro around, and it’s funny how it feels so big and clunky. The old screen does look massive now that I’m accustomed to the 13″ MBA, but somehow I don’t seem to miss the extra space, and I certainly love how portable the new machine is.

So — now that I’m really set up it’s back to work.

Working on a remote server

Since I figured out how to install R on my Dreamhost VPS, I’ve started sending some computations to the server to run. I’m sure my workflow will be honed as I do this more, but I just wanted to share a bit about how this works for me.

The key element of my approach is SVN. If you don’t know what SVN is: SVN is kind of like a cross between TimeMachine and GoogleDocs for geeks — a way to backup your work and collaborate with others. If you do know what SVN is, you probably think I should use git; I know, I know. At least I’m not using CVS.

So, I write code on my laptop and as I go I test it out on data and check the code in to my SVN repository (hosted incidentally at Assembla). When I am ready to do something on the server, I create a space on my VPS and, from that directory, do an SVN “checkout” of the project I’m working on, which grabs the code from my SVN repository and makes a copy on the server. I may in addition need to FTP some data to the server; I could check the data into SVN as well and I may do that going forward, but because I was somewhat constrained in my SVN repository I have not done this so far.

By this stage, I have basically replicated a chunk of my laptop — the code and data I need to do my computations — on the server. So now I ssh into the server and run the code there as I would locally. When it’s done I fetch the results from the server to do more processing locally.

In my current project I had not been planning to work this way, so I had written a lot of absolute paths (e.g. “~/data/X”) in my code. Because things were not set up that way on my server, I had to change a lot of paths to make them relative, which is fine. But I’m thinking in the future I could set up my laptop and server space to look more similar, so that the transition would be more seamless. I guess in the extreme you could check in a whole directory of your harddrive (code, data, etc) into SVN and thus have a complete copy of that repository both on your local machine and on the server. The only issue is how to deal with stuff you don’t want checked in — huge datasets, images/output from code, etc. I’ll keep honing it.

Until we’re all seamlessly in the cloud I think this setup will help me be more productive. I had had enough of trying to do work while running CPU-intensive stuff in the background, or having my computer chugging along overnight.

Installing R on Dreamhost VPS

I have had an account at Dreamhost since this summer, and have been using it for web hosting and some storage. But I’ve now started using it to run computations in R;. As I went through the installation process I could find very little guidance so I wanted to share what I’ve learned for the next person who is looking to do this.

First, you need superuser privileges. I believe this is not possible on the shared host plan, but with a Dreamhost VPS in the dashboard it’s under “VPS => Manage Admin Users.” The new user will get his own space on your server. I guess it might make sense for your main user (i.e. you) to be an admin user; since I had not done this, I found that after ssh’ing as the admin user I needed to cd up and over to the space on the server in which I had been working, i.e. the space belonging to the existing user.

Then you need to install R under debian linux. I found what I needed here:

sudo apt-get install r-base-dev

The server will ask for your password, to confirm that you are a superuser. Then installation should proceed.

To confirm that it worked, and to begin working, type “R” on the command line. (I was actually confused about this, because on my Mac I typically type “r” but this was not recognized on the server even after installing R.) I was very happy to see when this worked, because I wasn’t sure exactly what I could install on Dreamhost.

In my next post I’ll talk a bit about my workflow using R on the server.