An exchange economy

Once upon a time there was a woman named Alicia. Alicia lived alone on the edges of a big forest. In fact, not only did she live alone, she didn’t even know if there was another person in the whole world. In her whole life she had never come across anyone else at all.

Alicia was unusually good at catching fish. Her skill and her intuition in fishing meant that she never went hungry. It was just a bit boring sometimes, that’s all, eating fish every day. Once in a while she scrounged up some berries from the forest, but other than that it was an awful lot of fish.

One day Alicia was walking home from the river, her basket full of fish, when, lost in thought, she wandered down a path she’d never traveled before. She came to a clearing in the woods. It was beautiful and cool, with sunlight dancing through the leaves, and it seemed like a lovely place. But that wasn’t the most important thing to Alicia. There was someone else in the clearing.

Will was unusually good at growing vegetables. His garden would have been the envy of the forest if he’d ever met anyone to show it to, but, like Alicia, he was all by himself. He ate well, but it wasn’t much fun eating nothing but vegetables every day. He caught a rabbit once, he remembered.

One day Will was taking a stroll in the forest, as he liked to do after gathering some vegetables from one of his many little gardens, when he arrived at a clearing in the woods. He thought he had a pretty good idea of the lay of the land, but this was a new place to him. But at that moment Will wasn’t thinking about maps. He was thinking about the person across the clearing.

Alicia and Will were wary at first, but they could each see that the other had something exotic and unusual to them. Happily, they both were peaceful folk and it would never have crossed their mind to try to swindle or wrestle away the other person’s bounty. Instead they realized that each of them could have a delicious dinner if they would only swap some of Alicia’s fish for some of Will’s vegetables. That night, back at their respective camps, ate more contentedly than either could ever remember. They’d go back to their clearing the next day, they thought, to enjoy another dinner like this again.


Alicia and Will quickly became at least allies, if not quite friends. Each day seemed a bit brighter and each dinner a bit tastier with new, exotic food to enjoy. And so it went, for a while, Alicia’s fish and Will’s vegetables on two plates, across the forest.

Then, one day, Alicia set off with her basket full of fish (she even had a tiny onion that she’d managed to grow, just to see what Will would say). She arrived at the clearing in the woods, the one she’d become so fond of, but she couldn’t see Will. All she could see was a vast, cold, gray wall as far as she could see.

The only interesting thing on the whole smooth surface of the wall was a little rectangular hole, with a screen in front that slid back and forth. She looked around, listened carefully, even knocked with the knuckles on the wall a few times (“clang”), but other than the birdsong there was no sign of anyone else at all.

And then, suddenly:

“Ahem,” came a voice, from everywhere around at once, “I say. I see that you have a lot of fish with you there.”

Alicia stood very still but she wasn’t scared. She waited to see what this voice had to say.

“Hm. What if, just to suggest something, I could give you some money for some of that stuff there? How would that be, hm?”

Now, money was a new thing to Alicia, so she didn’t quite follow at first. After some time, she and the big voice came to an understanding: if she put some fish into the little hole in the wall, the voice would give her numbers, one number for each fish. If she put her tiny little onion in, well, that would be worth a number too, a different number, but a number just the same. These numbers, she felt, were important somehow to the voice, and, perhaps, to her as well.

“So, the number,” said the voice, “there’s a point, you see. You can give me the number back, or some of it at least, and I could give you some vegetables in exchange. Of course, it’s the same amount of vegetables you’d have had to give me to get that number in the first place, that’s only fair.”

Alicia had to think about that one for a minute.


Now, as you might have guessed, Will was there too, on the other side of the wall. He couldn’t see Alicia and Alicia couldn’t see him, but there they were, curious and confused (not quite annoyed, since, after all, they both had nice, quiet lives and no particular place to be) on either side of the wall.

The voice had spoken to him to, just the same as Alicia, but with vegetables and fish precisely the other way around. It took him a minute or two, but he came to understand that he could put vegetables into the wall in exchange for numbers, and he could give those numbers back to get fish, if he wanted. He heard the numbers that the voice told him, and he thought about how many numbers his basket of vegetables was worth.

He wondered if Alicia was there on the other side of the wall.

But the sun was slipping across the sky and Will was getting hungry, so soon he made a decision. He marched up to the hole in the wall, lifted up the screen, and put in a big handful of vegetables from his basket. Schoop! Away they went, to who knows where.

“… Aha! Very well! Please, wait just one moment,” said the voice, “here it is! Your number, it’s… ten!”

Ten? Will had thought he understood, but it was still bizarre to hear the voice’s confident declaration. Ten? He remembered the number for fish that the voice had told him. He waited for what he felt was a polite amount of time, but the voice didn’t say a word.

“Um. I’d like some fish, please,” Will said, “with my number. Ten, was it?”

“Excellent!” said the voice, quicker this time (it was as if he’d expected such a thing all along), “… one moment, please.”


Alicia waited patiently. She had put her fish into the hole in the wall. She’d gotten her number, or at least the voice had told her so. And she’d asked for vegetables, which, as far as she’d come to understand things, was something she was quite entitled to do. Some minutes passed.

“… I don’t quite understand,” the voice said, quietly but unmistakably directed to Alicia, “but I don’t seem to have enough vegetables.”

“Whatever do you mean?” said Alicia.

“I was hoping to be able to take the number you gave me and give you those vegetables, just like I said, it’s just… I don’t have the vegetables after all. I’m sorry.”

The voice did sound sorry to Alicia.

“If it’s alright with you, maybe I could try again?” said the voice, and just then schoop! In the hole in the wall, Alicia’s fish were back, just as she’d left them. She took them back into her basket and decided to sit down to wait. Not much happened in the forest most days, so she was in no great hurry to get back home.

Eventually, and now the shadows were a little longer, the voice cleared its throat and Alicia looked up at the wall again.

“I have some new numbers!” the voice said, abruptly, “forget all about those old numbers! Wrong numbers!”

The voice said new, different numbers. The number for vegetables was bigger now. Alicia listened to the new numbers, and, since she knew the rules by now, thought for a moment. If she put a fish in the hole in the wall, what number would the voice tell her? If she gave the voice back that number, how many vegetables had it promised? She looked at her basket, pulled out a few fish, and walked towards the hole in the wall, as if it was the most normal thing in the world.


Well, this went on for some time. The voice was not impatient, exactly, but at least agitated, each time seeming a little more bemused not to have the amount of vegetables that Alicia wanted nor the amount of fish that Will wanted. Alicia and Will patiently picked from their basket each time an amount of fish and of vegetables to put in the hole in the wall in exchange for a number. Often it was a different amount from the last. They were patient, the two of them. and they were thoughtful, and so each time the voice called out its numbers they considered carefully how much to take from their basket to exchange for some numbers.

But each time when they tried to give the number back to get some vegetables and some fish, the voice had the same thing to say.

“Wrong numbers! Just one moment! Please!”

And so the afternoon passed, until, at last, after the voice had called out yet more numbers, and after Alicia had, yet again, put her fish into her hole in the wall and Will had, after so many times he’d quite lost count, put his vegetables into his hole in the wall, and after each of them had asked to swap their number for some different food, finally, after all of that, the voice said:

“… Yes! I mean, yes, of course! Here you are, as you asked!”

Alicia was shocked from a trance she hadn’t know she was in. It seemed to her that the voice was pleased or, at least, relieved after all this time. Schoop! In the hole in the wall was sitting there, precisely, to the tiniest fraction, exactly the amount of vegetables that her number had been worth. She slid open the hatch. It seemed to her that these might have been just the kind of vegetables that Will would have swapped her, on other days that seemed strangely far away now.

On the other side of the wall, Will looked at the fish that had appeared. He was happy, he supposed, to have a nice plate for dinner. He would have been sad to have had to go back to his boring old vegetables. He wondered where Alicia was. He took a good, long look at the wall, but it didn’t seem to mind, and the voice hadn’t said a word since it had proudly delivered his number’s worth of fish.

Will put the fish into his basket, alongside his remaining vegetables, and set off for home.


As Alicia prepared her dinner that evening, her mind drifted back to the clearing in the woods. She wondered if she would ever see Will again. She wondered what the numbers meant. At least, she thought, she had a nice plate of fish and vegetables to eat again tonight. She ate well and decided not to worry too much about the strange day she’d had. Soon, inevitably, it was time to sleep again.

But Alicia couldn’t sleep. There was a thought in her head that she couldn’t forget, even after a nice meal and a warm fire. She lay awake and looked at the stars and she thought to herself:

“Where did that voice come from?”

Killing EJMR, redux

Once again economics Twitter is being forced to confront the racist, misogynistic, and abusive website called Economics Job Market Rumors. This time the catalyst is abuse directed towards graduate students who have been discussing how to advocate for anti-racist changes in their home institution. This is taking place in the context of anti-racist protests and the Black Lives Matter movement across the U.S. and the world, and the associated discussions of the economics of racism and racism within economics.

Three years ago I wrote about killing EJMR in the context of its misogyny, where it is a symptom of toxic attitudes in the profession at large.Now we are talking about its racism, where EJMR is a symptom once again. Two resources to begin to learn more about the broader context of racism within the profession is William Spriggs’s open letter to economists and Lisa Cook’s work on how the economics profession excludes Black women. I argued before that, in addition to taking positive steps to enhance diversity in our ranks, we could take concrete steps to reduce the demand for EJMR by better supporting students. I want to continue to make that argument here.

I’m reluctant to give oxygen to the dumpster fire that is EMJR. I want to make quite clear that I think that to the extent possible we should never, ever visit the site. Clicks and traffic are the currency of the internet, and we should not spend ours there. I realize that sometimes it is unavoidable—when targeted abuse is being perpetrated, for example, we may have to learn what is being done in order to combat it and protect its victims. But I felt like I wanted to write about it once more to continue to advocate for changes in our behavior and mindset as economists that might contribute to undermining the site.

When we as economists find ourselves in situations where we have power or privilege—because of our professional role, our status in the profession or our institutions, our appearance to the world—we can try to use our power or privilege in a positive way. I want to suggest a few ways in which I think we might be able to, slowly but surely, diminish the influence of EJMR and the role it plays for graduate students by taking concrete actions.

  1. Intervene and speak up in a constructive way when an economist speaks or acts in an explicitly or implicitly racist and sexist way.

When we witness discrimination, harassment, or marginalization, we should try to say something to try to contribute to a change in attitude or behavior. I think this is important because it shows the person who has displayed implicit or explicit bias that you notice, you care, and you would prefer them to behave differently in the future. Even small acknowledgements could make a big cumulative difference, particularly if you belong to a common in-group with the person whose words or actions were offensive or damaging.

It can be exhausting or humiliating to have to engage with racist or sexist attitudes in a respectful way. But we have to do so, particularly because members of the groups being targeted don’t have a choice. They have to navigate the dilemma of speaking up or staying silent in the face of those attitudes every time they hear them.

2. Understand and engage with the fears and insecurities of non-“superstar” graduate students and job market candidates.

If we are in contact with graduate students in our home institutions or at conferences and so on, we must talk to and engage with all grad students. We must not neglect those who are not perceived to be on a trajectory to a top department, top publications, and positions of power.

This is important because economics is a rigidly hierarchical profession and doctoral programs tend to inherently valorize the narrative of academic superstardom. It can be discouraging and scary to be a graduate student in general, but it can be worse for those who are either implicitly or explicitly told by their home department that they are lesser in the eyes of those who should be their mentors and teachers. It is not enough that departments have some faculty who are “nice” to grad students—when there are some faculty members who treat graduate students as the embodiment of their research and not as people, it becomes clear to students that this is a risk that they may face in the profession.

3. In job searches and in hiring, be as transparent as possible with candidates at every step of the process.

This is important because the job market for graduate students is intimidating and stressful but also opaque. An alleged reason for EJMR to exist is to provide scraps of unverified information to anxious students as they navigate a process that, unfortunately, is cruelly deterministic of their professional future.

We have to do this even when it makes our lives as recruiters more difficult or more inconvenient. I understand why we don’t want to tell candidates that interview offers have all been made or that a job offer has gone out to a particular candidate. But it is a generous and kind act to do so, and it undermines a key role that EJMR plays for grad students, even those students who do not at all subscribe to the abusive attitudes and behaviors that flow from the site. We’ve seen a rise in the use of hashtags like #EconJobMarket to try to increase the flow of public information in the last few years, and I think that kind of thing is a nice way to try to reduce demand for EJMR at the margin.

4. Learn, understand, and internalize the truth that there are many ways to be a good, successful, fulfilled economist.

There are many paths to a successful career as an economist—not just becoming a “top academic researcher” with “top publications” at a “top department”. This is a more abstract cultural issue, but I think it’s important that each of us take steps to “deprogram” ourselves from this infectious idea.

That means taking the time to educate ourselves about career paths, research topics and methods, job types, journals, and pedagogy that are outside the area of our own personal experience. I confess that I learned this one the hard way, though years of my personal career journey and choices. Economists who are primarily teachers, who write about less popular topics, who publish in different journals than you or not at all, who work outside academia, who have chosen a different work-life balance, or who have prioritized different things in their life from you are not worse than you. Luckily, this can be as simple as learning about people who are in different positions in the profession and about their experiences and journeys. There are many economists in the world doing work, living their lives, and traveling their careers. We must not only recognize and celebrate those who we perceive as “successful” according to our own personal measures.

In summary: whenever we can, let’s support members of the economics community in situations where they are less powerful. Our active learning, generosity, and intervention can help us to lift each other up, and wouldn’t that be a great thing?

 

Genius / madness

I’m happy to report that my research note “Investment in ideas when genius and madness look alike” (pdf) was published yesterday in Economics Bulletin. The paper is about what happens when it’s hard to tell a really creative and ingenious idea apart from a totally ridiculous and terrible idea. (This makes the paper both reflexively immune to criticism and reflexively immune to praise. ¯\_(ツ)_/¯)

What I find is that you don’t need a complicated model of asymmetric information to generate the kind of fat-tailed, bimodal returns to innovation that you see in data. All it takes is that extreme ideas look a little bit like genius and a little bit like madness. Some of the things that are predicted by the model are rational overinvestment in the very worst ideas, rational underinvestment in the very best ideas, abnormally high variation in IPO returns for firms with novel technology, and unfunded “missing ideas” that are much better than some of the truly terrible ideas that receive investment capital.

Economics Bulletin is an open access journal for short articles across all fields of economics. That means that this paper, like all others in the journal, is completely free and available to anyone. As always I wholeheartedly support anything that helps us move away from the unjustifiably expensive world of for-profit journals.

Naïvely Dialectic Belief Formation

I have a new working paper up today on my writing page on dialectic belief formation. It’s a model of a person who forms beliefs based on a heuristic that takes a weighted average of the best and worst case explanations for observed data. The weights carry a penalty for the more unlikely explanation, captured in the model by a skepticism parameter. 

I’m arguing that a person who is excessively credulous of far-fetched explanations looks a lot like the type of exploitable, behaviorally anomalous person we see in data across a few superficially different applications: non-Bayesian belief formation, subjective probability assessment, and political spin. 

As an added bonus, I cite, among others, Stephen Colbert, the NPR Code Switch podcast, Hegel, and the Supreme Court!