Friday, January 25, 2008

I have to rush, but...

Ok, I was holding out of doing this for various reasons. But this needs to be done, and hence yours truly shall go ahead. Read this. Especially this bit,

I’m not dissing the armed forces—they keep our borders and engineers safe—but there are better reasons to feel proud of being an army man than the power you have over people’s lives.

The other profession marked out by such lust for power is politics. How staggeringly sad.

Oh dear god! Such farce is not even funny.

Sunday, January 13, 2008

Of momblogs, children and externalities

Dear Mombloggers,

I don't read any of you. I know none of you read me either, but that's immaterial. It does surprise me that you would choose to share details of your life and your children with the world wide web, but I also know that I can't even begin to understand. We all write about what we like, so it's ok I guess.

I am, however, extremely surprised at the way you react to all the people who try to slag you on the blogosphere. It shows the great danger of being emotionally attached to what you write about. We all are, at some level. But when it's one's own children, it's a little too close for comfort. I am genuinely amazed at your willingness to read random people rant about children and be infuriated enough to even try to think of cyber-rebuttals. Feminists fisk stupid things all the time, but I see their point - it's an uphill battle when a large majority of the people don't even share some of your basic views on equality and don't realise that they are being bigoted. Libertarians fisk non-fisk-worthy commie arguments too, but I get their point as well - far too many people have notions of achieving great utopian equality without the slightest idea of how we're going to get there.

You, on the other hand, face no such uphill task. The world at large likes children. Since when did Nilu, Aadisht and Falstaff become representative viewpoint-holders on children? Their rants can be attributed to too much porn, too many graphic novels and too much poetry respectively. I don't agree with them, but I see the point in their rants (except for Nilu, in whose case having a point would defeat the entire point) - they are the ones who face an uphill task. Essentially, people with that extra bit of intelligence and a life that largely revolves around solitude and a computer develop slightly warped views of reality. You need not worry about them. You need to however, think about people like me.

You see, I too have a life that revolves largely around solitude and a computer. However, I am a country boy. I don't pontificate about the US presidential election - I frankly am more interested in the Bharat Ratna controversy. My intellectual rebellion developed much after my initial upbringing had grounded in me the virtues of appreciating the status quo and the constraints of decision makers. I am the one who you should be bothered about, for the majority of people with experiences similar to those three worthies turn out like me, and not like them. Country boys who hopefully understand economics but stop short of seeing Ronald Coase everywhere.

And you will be pleased to know - I don't dislike children. I don't necessarily like them either - but I know that they are going to happen in a few years and am absolutely ok with that. I think I'll like them once they are there, and I see the merits of the status quo. You will never hear me talk in appreciative terms about a growing population (oops, sorry, human capital base) and yet talking ill of children, because it appears terribly inconsistent to me. Don't be bothered yet, because people at large believe that it's not ok to be openly intolerant of children. Not yet.

So am I with you or against you? A bit of both. I sympathise with your predicament and yes kids are cute, but I wish that you'd display some more gravitas and sangfroid. Children rants are not to be replied to - it's a little like trying to beat children at their own game of not listening to reason. You fall into the trap by imitating them, only to realise that its not your core competence. And yes, some emotional distance from what one writes helps.


2) Which brings me to the question of negative externalities. Venu reminds me that to some people, children are akin to pets or smokers that impose negative externalities on other people. There are two questions here - one more fundamental than the other. We shall not even go into the 'pets' argument, for if you bring non-human life into the picture when we are trying to deal with human social systems, I am sorry to say that you've missed the point completely. However, the other aspect is worth examining.

There is obviously a negative externality when a smoker exhales fumes into a setting that involves non-smokers. There is also an obvious externality, though slightly intangible this time, when a child cries through what could have been a perfect rendition of a Mozart concerto. There is also an externality, intangible and not so obvious, to many devout Hindus when they so much as get news of an M F Hussain painting that shows a naked Sita on Hanuman's tail. Or to Muslims when they see their prophet depicted as a terrorist in a cartoon strip. You may want to brush the last two under the 'freedom of speech' carpet (and I would agree) but there's no denying the fact that there exists an externality - it is not for you to judge whether my mother should get angry at MFH or not, the fact that she does get genuinely disturbed is proof enough of the externality's existence. The question is, is the disturbance caused by the child's crying more similar to the MFH example, or more similar to the smoker example? The answer is quite obvious to me, but I would like to know your views on the issue.

Essentially, if you believe that a first principles based, non Coasian solution is the answer to the free speech issue, I fail to see why that should not be the case with children. However, even if you think a child is more analogous to a smoker than to MFH, there is another issue here. Am I the only one who sees the problem with trying to create an analogy between what is a choice, and what is a stage/fact of life that one does not really choose? Being of a particular age is far more like being a boy, a girl, a white or short than being a smoker. Coasian solutions for the gender and race issues as well, sirs?

Of course, private property rights are part of the solution - a theater owner would be well within his rights to ask the family of an unruly child to leave. Restaurants that an the entry of children could easily come up if it was a viable business model. But the point is not that - the point is, does there exist sufficient moral ground to ask for a Coasian solution at the society level?

Which brings me to the last, most confusing point. Is it correct for the government to have legislation that requires companies to have explicit no-discrimination policies? It is coercive, an infringement of absolute private property, and yet necessary if equity forms a reasonable chunk of the social welfare function. What are your views on this?

Thursday, January 03, 2008

The value of human life

We're fresh from a small round of blog discussions about the value of human life and the policy implications of executing murderers and executing 'vermiscripters' (computer virus writers). Steven Landsburg here and Ravikiran here assert that people who claim that a value cannot be attached to human life are making "invalid" and "wrong" statements. The crux of their argument is that we make choices about our lives and our safety all the time. So if I drive a bike at a 100 kmph for half an hour today, and that increases the chances of my death by .01%, then the fact that I am making this tradeoff means that utility (.01 % increased safety of life) = utility (driving a bike at 100 kmph for half an hour). It is easy to see that the RHS of this equation can be replaced in money terms - for e.g if I am willing to pay 1000 Rs to drive a bike for half an hour at 100 kmph, then utility (1000 rs) = utility (driving....half an hour) and by substitution, utility (.01% increased safety of life) = utility (1000 Rs). So far so good - the argument is flawless until here. But truth is a little more nuanced after this.

The flawed leap in the argument comes when people extend utility (1000 rs) = utility (.01% increased safety) to , say, utility (100000 rs) = utility (1% increased saftey). There are two assumptions underlying this extrapolation, both wrong, one more wrong than the other. The first assumtion is that utility (100000 rs) = 100 * utility (1000 rs). The second, and more incorrect assumption, is that utility (1% increased safety) = 100 * utility (.01% increased safety). (Of course, mathematically it is possible to come at the same conclusion without either fo the two assumptions, using a third more integrated one. But the decomposition into its parts will help illustrate the folly in logic better, and hence I take this route).

Let's deal with the first assumption. In classical analysis, goods are supposed to have diminishing marginal utility. Money is the one good that is exempted from this consideration - an extra buck is always as good as any other extra buck. It makes some amount of intuitive sense, plus it is necessary to exempt money from the concept of diminishing marginal utility if one is to compare the utility (and hence prices) of other goods. However, in decision analysis under uncertainity, things change a bit.

Rational people are risk averse. If I was to offer you a game where you could win 150000 rupees with 50% chance and win 50000 Rs with 50% chance, you would typically not accept this gamble at a price of Rs 100,000. The expected value of this game is 100000 - it has an expected return of 0 and it is irrational to take it up. You are bearing some risk, and hence would want a non-zero return. (In fact you would want a return above the risk free rate of interest, but lets not get into that). Mathematically, if U(x) is the utility function of money, U(50000) + U(150000) < 2 * U(100000). What kind of a function would U be? Concave to the x axis. Consider the simple example of U(x) = sqrt (x). It is easy to check that the inequality holds (in fact, it reduces to the RMS-AM inequality, or equivalently, to the statement that variance is non zero). Now, it's easy to see that with U(x) = sqrt (X), U(100000) = 10 U(1000) < 1000 U(1000). This is, of course, a cooked-up example that makes the inequality very strong, but it is easy to see that for any concave function, U(kx) < k*U(x). Hence, U(100000) < 100 * U (1000).

(Through all that not-so-fancy math, all that we're saying is that a 100 times more money will not make you a 100 times more happy. Which is something we all intuitively know. But since we are trying to counter some 'rational' arguments, we will stick with the math. )

The second assumption, and this is where the extrapolation gets hit very badly, can be invalidated by a simple thought experiment at the extreme. You make me two promises - one in which you promise to save me from near certain death, and another in which you promise to provide me with an extra .01% of safety. What is the worth of your first promise vis-a-vis your second promise to me? Is it worth 10,000 times more? Far from it. It is worth a whole lot more. I want to consume, I want to ride bikes, I want to do various things, but most of all, I want to live. I'd give you my entire wealth (everything above subsistence) if you saved me from near certain death. In fact, if someone was willing to take a leveraged position on my life, I'd be willing to give you a huge chunk of my future wealth as well. Put mathematically, the marginal utility of extra safety of life is increasing. U(1% safety) > 100 * U(.01% safety).

(Actually, it will not increase monotonically, for reasons that should be obvious. But we shall sacrifice behavioural assertions and mathematical rigour for the purpose of relevant analysis)

Now, if we put the mathematical formulations of our two intuitive results together, what do we get? U(1% safety) > 100 * U(.01% safety) = 100 * U(1000) > U(100000). The extrapolation of the 'value of life' from a single decision has been hit on two counts. Essentially, extrapolations like this will end up severely understating the actual value that we place on our safety and our lives. And therefore, the time frame of the analysis and the absolute numbers becomes of critical importance. It is useless to compare one exceution of a murderer with one execution of a vermiscripter if over my lifetime, many more than one executions take place.

Hence, dear economists and other rational type people - if you are going to estimate the value of my life by extrapolating from the value I place on .01% of my safety, say it like that. Because the answer that you will get will be different from your answer if you were to extrapolate it from the value I place on 1% of my safety. If you directly ask me the value of my life, I will refuse to put a figure to it. Not because I'm being a moralist. But because I am then thinking about the value of my entire life. 1 or 0. Life or death. Not 10000 times .01% or 100 times 1%. And I can genuinely not answer that, except for saying that my life is rather priceless. Not because I am irrational. But because I am rational and hence risk-averse. Because the marginal utility of money is diminishing while the marginal utility of safety is increasing. Because the way you frame a question will lead to a different answer.

The time frame of policy and an approximation of the utility of safety/life are of critical importance beofre one starts asserting things about the value of life and the costs and benefits of deterrence. If you are only going to multiply two numbers, don't bother. I learnt multiplication and pretty much mastered it when I was 7 years old.