Risky Business

I ran across this great Helen Keller quote:

"Security does not exist in nature nor do the children of men as a whole experience it. Avoiding danger in the long run is no safer than exposure."

Recently, I have found myself in two rather lengthy discussions (translation: I started two arguments) about how people’s inability to gauge risk leads to irrational behavior—or, at least, irrational justification for their decisions.

My basic argument is this: Ultimately, good decisions will be based on preferences over outcomes and objective, precise measurements of the probability of those outcomes. People tend to be quite risk averse, but they are also very bad at measuring both absolute and relative risk. If mistakes are random, then this just leads to random error in decisions…no big deal so long as the error is reduced to a minimum. But if the measurement of risk is driven by a personal bias such as fear, then the error will be systematic. In other words, you will be making bad decisions.

Now, one reply is that fear is subjective, but it is a real emotion and therefore a meaningful barometer for risk. This, I think, is either sloppy reasoning or sloppy language and both lead to bad decisions. Ex ante risk and probability are known—or at least knowable—so disagreements should be minor. (At a bare minimum, two people should be able to agree on relative risks.) When someone expresses "fear" as justification against something, what they are really revealing are preferences, not probabilities. Consider the following:

• Suppose someone opposes traveling to foreign country X because they might become a victim of crime or terrorism when, in fact, the likelihood of something bad happening to them is probably greater in parts of some U.S. city they have been to (or some remote part of the U.S. wilderness). What this person is really saying is that travel to country X just isn’t that appealing to them for whatever balance of reasons including, but not especially, danger.
• Suppose someone opposes adventure activity Z (skydiving, rock climbing, etc.) because they might get hurt. True, they might get hurt, but that same person engages in a number of routine activities with a larger probability of injury (e.g. driving). What they really mean, is activity Z just doesn’t sound like very much fun even when the risk is small.

One possible explanation is that if you have a strong taste for the known, then you may be willing to literally risk your life for peace of mind. I think this is what we observe in human nature. But it seems really perverse to let fear be such a dominate force in your decision making that you are willing to accept greater real risk to reduce falsely perceived risk.

Admittedly, feeling afraid sucks, but if we get in the habit of couching decisions and measuring probabilities in terms of fear then we risk making systematically biased and bad decisions. That, is a risk I suggest eliminating.

Update: If interested, check out this brilliant podcast with Cass Sunstein on worst case scenarios. (And by "brilliant" I mean he supports my argument.) Among other things, he discusses climate change, terrorism, healthcare and shark attacks.

Malcolm Gladwell's book "Blink" also talks about this idea, but more in the context of instinct. He basically presents several exceptions to the idea that well-informed, well-reasoned decisions lead to the best outcome. He concludes that we should trust instinct and decisions made in the blink of an eye more often--a conclusion I reject. Finding exceptions in this case does not disprove the rule. Rather, it proves that the outcomes were just probabilistic. Showing that one person always ends up winning the lottery does not make playing the lottery less of a gamble. Pointing to one calamitous event does not make that event more likely to happen.

Seperated at Birth

Revelations from Sunday morning political news.

Hillarys and Huckabees

Boaz of Cato takes a Lakoff view of the "Hillarys" and the "Huckabees" in American polictics...and rejects both.

Protecting the Masses #4723

From R. Balko:

...in Nevada it is illegal to move a large piece of furniture for someone else under the title of "interior designer"? In fact, 21 states and the District of Columbia have enacted "titling" regulations or registration requirements for people who want to arrange other people's furniture for a fee.

I'm glad I don't run the risk of hiring an unregistered interior designer. Oh, the horrors.

Cheap Meats, Part II

So, I went for a run this afternoon and started thinking some more about the last post. I revisit it because I think it is a simple illustration of what is a dominate thread in political discourse and the implicit agenda of liberal-Democrats.

Ezra Klein thinks meat is too cheap: "A situation in which meat were a bit costlier and we were thus forced to eat more grains and vegetables would not exactly be a tragedy." Poor Ezra, someone must be holding a gun to his head an forcing him to eat inexpensive meat.

For starters, this is not an externality problem. No one besides the livestock is harmed when I chose to eat meat. Perhaps you think slaughtering animals is detestable under any circumstances. But if that’s the case, you should be arguing for it to be illegal to eat meat, not that it should be more expensive. (There is, no doubt, a group who would argue for a ban on meat. I’ll have that debate as soon as you find one reasonable person who would support an outright ban on all carnivorous activity. Good luck.)

Once we’ve dispensed with the externality issue, Ezra’s argument is effectively that people should be poorer. He’ll be happy to know that there was a time when meat exhausted a much larger percentage of income and, indeed, the average individual in Western society consumed much less meat. I believe the age is referred to as Medieval. If anyone would like to revisit that time period, I suggest he move to some remote village in Eastern Europe…perhaps an ex-Soviet bloc would suit him. Better yet, he could found an isolated, self-sufficient commune in Montana where he and his brethren are free to eat meat in any quantity and quality they agree upon. This would be a perfectly legal and inoffensive endeavor. True, the standard of living and life expectancy in his commune will be lower, but they will have succeeded at getting rid of cheap meat.

Alas, I suspect this is not what Ezra wants. No, what he really wants is to share in the freedom and prosperity our society provides while imposing his preferences and values on others. Not a single person is protesting his trip to Whole Foods, but he is comforted by his narcissistic moralizing when he proposes that others should be refused the right to consume as they see fit.

But Kevin, you say, aren’t you overreacting. I don’t think so; it’s this same attitude that underlies the paternalistic social-fascism that’s inherent in any number of other policies. These policies have the advantage of being deceptively paraded as protecting animal welfare or second-hand smokers or the elderly or home-schooled children or the innocent poor. But sadly, what they are really meant to protect is you, from yourself. And, even sadder, there is very little protection achieved at a great cost to freedom.

You might be surprised by my experience at the dirt-cheap, mouth-watering Tortilla Café for dinner tonight. I had a pork tamale. My girlfriend had a vegetarian burrito. And I’m sure there were trans-fats used somewhere in the process. Shockingly, everyone involved (except the pig) approved of the transaction and not a single person was offended. We didn’t even require that some central authority verify the café was fit to serve us food; we could tell by its reputation. Oh…and I jay-walked to get there.

I challenge liberal-Democrats of the nanny-persuasion to accept the following offer. I will grant you a large measure of redistribution of wealth if you are willing to stop meddling in people’s lives and pretending you know what is best for them.

If you’re feeling real bold, let’s increase the stakes. Once your welfare state fails to achieve the equality you seek and, instead, stymies growth and innovation and diversity and choice, we get to go entirely to a system which respects the sovereignty and responsibility of individuals.

Cheap Meats

Ezra Klein says meat is too cheap. Megan McArdle says it's humans who are the cheap ones.

More expensive meat would mean less to spend on, oh I don’t know, healthcare—something Ezra thinks is too expensive. Sounds to me like we just need some wise and infallible politicians to set all our prices.

With limited resources and a free market it is a safe bet that price tells you EXACTLY what something is worth.

Friendly $kys

WP has an article on the Clear Card program for frequent travelers. For an annual fee of $128 and after passing a background check, Clear Card holders will then be eligible for shorter and faster security lines at airports. Note though, that flyers will still have to pass through the requisite TSA security—the lines will just be faster.

See here and here for not-so-favorable reactions to this policy. I was shocked by the response to this as being “un-American.”

First, flying is a voluntary transaction between individuals and private airlines. There is no reason why someone should not expect to forfeit some of their rights when flying in an airplane. I suspect the current security measures are extreme and largely ineffective. But if you are at all uncomfortable with the intrusiveness or inconvenience of security, you are free to find other means of transportation.

Second, entirely privatizing the function of TSA would make flying cheaper, easier and likely safer. If you track the incompetence of TSA at all, it won’t take long for you to be convinced the private market would provide a much more efficient and effective degree of security. By associating a price with the security process, the Clear Card policy takes a teensy step in this direction.

An improvement on the policy would be to create tiers of security charged on per-flight basis. Budget travelers pay no fee and stand in the typical long lines. Those willing to pay for shorter lines could pony up a few bucks to save some time and inconvenience. Business traveler or those who are really in a hurry could pay an even higher premium. The price could even be adjusted based on peak travel times. This creates a very efficient system of price discrimination without sacrificing any security whatsoever. (Of course, a bureaucracy like TSA is very unlikely to implement such a policy with any success.)

I suspect most opponents of Clear Cards are just expressing a general revulsion to the use of the price mechanism in something like security. This common human bias very often leads to costly and wasteful outcomes. Why deny someone the ability to pay for (or sell) something that is of value to them?

Is Healthcare a Right?

The merits of nationalized healthcare has made its way to the Tombs Night agenda a time or two. Check out this excellent discussion, via Cafe Hayek, on the subject. In the Barish corner we have Physicians for a National Health System. In the Richards corner we have Russ Roberts of GMU. ...Let's get it on.

Makes me want to vote Huckabee

I have been doing my very best to avoid all the press surrounding the comments made by Sen. Obama's minister (Wright). I am particularly bothered by statements indicating that they would be the cause of Obama's downfall.
It seems to me that if the sentiments are mis-attributed to Obama, that's a complete failure of thougth and understanding in the public. As if that would be a big surprise.

Luckily, from the murmerings I can't avoid (as I try to ignore the news in the middle of a "surge" on my thesis), it sounds like Sen. Obama made a pretty compelling speech about race the other day. Hopefully that will convince people to look beyond the assumed surrogate.

If not, I hope people will read and consider what Mike Huckabee has to say about Mr. Wright's comments:

[Obama] made the point, and I think it's a valid one, that you can't hold the candidate responsible for everything that people around him may say or do. You just can't. Whether it's me, whether it's Obama...anybody else...
And one other thing I think we've gotta remember. As easy as it is for those of us who are white, to look back and say "That's a terrible statement!"...I grew up in a very segregated south. And I think that you have to cut some slack -- and I'm gonna be probably the only Conservative in America who's gonna say something like this, but I'm just tellin' you -- we've gotta cut some slack to people who grew up being called names, being told "you have to sit in the balcony when you go to the movie. You have to go to the back door to go into the restaurant. And you can't sit out there with everyone else. There's a separate waiting room in the doctor's office. Here's where you sit on the bus..." And you know what? Sometimes people do have a chip on their shoulder and resentment. And you have to just say, I probably would too. I probably would too. In fact, I may have had more of a chip on my shoulder had it been me.

I don't think he's only speaking this way because he is no longer in the race. Whatever my misgivings about him as a Presidential candidate, I have always felt like he calls it the way he sees it, not the way his pollsters do. And I respect that. A lot.

HT: Alex Massie

Now Gov't Can Even Save Your Marriage

A proposal by MP Tommy Tabermann (SDP) to grant all employees a paid 7-day "love vacation" once a year led to an exceptionally colourful debate in Parliament on Thursday evening.

According to Tabermann, the purpose of such vacations would be to prevent relations from disintegrating and the spouses from drifting apart. During the seven days, couples could devote themselves to each other ”both at an erotic and emotional level” and ”find their way back to the path of love in order to find the wellspring of love again”.

E.J. is Angry!

My academic advisor (who, incidentally, doesn't know who I am) tries desperately to make a political issue out of the credit crisis and Bear Stearns bailout:

Never do I want to hear again from my conservative friends about how brilliant capitalists are, how much they deserve their seven-figure salaries and how government should keep its hands off the private economy.

Border Bouncers

Coyote Blog on immigration in a post-progressive world:

It was as if for 150 years we had been running a very successful party, attracting more and more guests each year. The party had a cash bar, so everyone had to pay their own way, and some people had to go home thirsty but most had a good time. Then, suddenly, for whatever reasons, the long-time party guests decided they didn't like the cash bar and banned it, making all drinks free. But they quickly learned that they had to lock the front doors, because they couldn't afford to give free drinks to everyone who showed up. After a while, with the door locked and all the same people at the party, the whole thing suddenly got kind of dull.

An open bar is rarely optimal.

Hail to the Chief!

Don Boudreaux on responding to an economic downturn:

It's astonishing how prevalent is the view that economies are "run" by people pulling levers -- or should be, or could be, run by people pulling levers. This misconception is the economics equivalent of the belief that the earth is flat, or that volcanoes won't erupt if they are fed a sufficient number of virgins.

I especially like the metaphor for political rhetoric as pacifying the tribe with a few virgin sacrifices. Its amazing what skills democracy rewards.

The Thin Veil of Insurance

The Charlotte Observer might take the cake for displaying the most economic and policy illiteracy on the topic of health insurance:

For at least 450 people in the Charlotte region, though, faith-based charities are the only things standing between them and their doctor bills.

Sweet said she earns $150,000 to $200,000 a year. But her husband is a stay-at-home father and she said an insurance bill of more than $13,000 a year is tough to absorb. Sweet recently took her 6-year-old daughter, Emma, to the dermatologist. Emma was diagnosed with ringworm, an infection common in small children.

The visit resulted in a $110 bill and prescriptions totaling another $111. If Sweet were insured, she would have likely paid a $20 co-pay for the visit, and probably half of the total cost of Emma's medicine. But as members of Medi-Share, the Sweets had to pay out of pocket for both.

What the *&$%?

Just to clarify, this family IS insured and participation in Medi-Share is entirely voluntary.

If your insurance covers routine medical expenses, it doesn’t mean you don’t pay for them. You just don’t see the bill directly. Instead, you pay for it as an insurance premium. Expanding their coverage and lowering their deductible will not lower this family’s medical costs; it will only reduce the variance. Considering most costs like dental, optometry, prescriptions, routine doctor visits, etcetera are expected expenditures, it won’t even reduce variance.

I expect what this family really wants (or what the reporter told them they should want) is government to pay for their medical costs. That’s fine, but with $150K income this family won’t be getting free medicine. More realistically, they will be paying more than they do now. Part of the extra cost will be spent on an inefficient healthcare system that doesn’t respond to prices and part will be transferred to families who are much poorer and more deserving. A $13K medical bill is hard to swallow with $150K of income?!? Give me a *%&ing break!

What these faith-based insurance plans provide are EXACTLY what people should be purchasing: coverage for catastrophic medical expenses. All other medical costs SHOULD be paid out of pocket. Individuals who think insurance that covers routine expenses is cost effective are either (1) really frightened by the thought of medicine having a price or (2) not smart. By definition, that is not insurance; it’s just a thin veil to hide costs.

If people below a certain income/wealth can’t afford what is considered “adequate” healthcare, fine, give them money. But don’t pretend politicians have the recipe for a free lunch.

My Favorite Spitzer Line

…it shouldn't cost that much to get a little action in America. It's like one of those $500 Pentagon hammers. Downright wasteful. And why order a hammer from New Jersey and pay the shipping? There are perfectly good hammers in Washington -- it's a damned city of hammers when you think about it. Where on earth did Eliot get the idea that New Jersey hammers were superior? All he wanted to do was nail something, right?