We are not born risk averse

There is a new working paper that shows risk-seeking behaviour in children. The authors conclude that we are not born risk averse but learn risk aversion throughout our lives.

This surprises me because I have always believed that some degree of risk aversion is inate in us -- it seems to me that most people without the 'risk averse gene' would have long since departed from our gene pool.

Taking more precautions than the risk might merit to avoid the lion seems like a good survival mechanism, and, over enough generations, I would have guessed that those who do not would have died out. This study suggests otherwise.

Understanding statistics could save your life

The current addition of Scientific American Mind has an excellent article on the misuse and misunderstanding of statistics in medicine. They say that “individuals often shy away from statistics because they have an emotional need for certainty”. Unfortunately, almost everything in medicine is about probabilities. Here is one example:

Consider a woman who has just received a positive result from a mammogram and asks her doctor: Do I have breast cancer for sure, or what are the chances that I have the disease? In a 2007 continuing education course for gynecologists, Gigerenzer asked 160 of these practitioners to answer that question given the following information about women in the region:

· The probability that a woman has breast cancer (prevalence) is 1 percent.

· If a woman has breast cancer, the probability that she tests positive (sensitivity) is 90 percent.

· If a woman does not have breast cancer, the probability that she nonetheless tests positive (false-positive rate) is 9 percent.

What is the best answer to the patient’s query?

1. The probability that she has breast cancer is about 81 percent.

2. Out of 10 women with a positive mammogram, about nine have breast cancer.

3. Out of 10 women with a positive mammogram, about one has breast cancer.

4. The probability that she has breast cancer is about 1 percent.

Gynecologists could derive the answer from the statistics above, or they could simply recall what they should have known anyhow. In either case, the best answer is choice 3; only about one out of every 10 women who test positive in screening actually has breast cancer. The other nine are falsely alarmed. Prior to training, most (60 percent) of the gynecologists answered 90 percent or 81 percent, thus grossly overestimating the probability of cancer. Only 21 percent of physicians picked the best answer—one out of 10.

The risk involved in being falsely alarmed should not be overestimated. The article cites a number of examples when the lack of understanding of the statistics led doctors to recommend potentially dangerous invasive surgery; a few examples of individuals who were diagnosed as HIV positive and informed that they were HIV positive and committed suicide, only for it to be subsequently found that the test had showed a false positive.

The link between the mind and health has not yet been understood properly, but stress certainly has an impact on health, and creating unnecessary alarm for patients is likely to have a negative impact on their health.

The full article is here.

Would you borrow at 2,689% interest APR?

I would.

Wonga provides short term low-value loans with pretty high interest rates when you annualise them. For example, you could borrow £100 today and repay £115.91 in 10 days time (APR: 3,003%; Cost: £115.91) or £110.70 in 5 days (APR: 3,253%; Cost: £10.70).

Loan sharks are often criticised for ‘forcing’ people to pay such high interest rates, but the examples above show that it is not so clear cut. In developing countries, the high interest rates charged by informal money lenders are often criticised with disgust and used as a justification for more formal credit such as microcredit schemes.

Although there are some unscrupulous money lenders around, in general money lenders provide a necessary service without which the world’s poorest would find it more difficult to survive. They allow poorer households to access short term loans at very short notice and with a minimum of effort. The high interest compensates for the risk, the ease of access and the short-term nature of the loan. Without the high interest rates a sufficient number of money lenders would not exist. Without a sufficient number of money lenders, a lot of poor households would be forced to go without funds to pay for food, medical fees, education. Finally, this service has come to the UK!

Wonga provides a wonderful little cartoon to illustrate how much other things would cost if we annualised their value:

Are the police efficient law enforcers or efficient bribe extractors?

Insert your own allegedl-ys / ies?

I often drive in South Africa and noticed something that struck me as rather strange. I regularly see two police officers hiding behind a tree or bridge with a radar gun trying to catch speeding motorists. (This doesn’t, it seems, discourage many motorists from speeding despite the fact that there appear to be a lot of police with speed guns around.) Nothing strange about that, but often a few kilometres either before or after the police with speed guns, there is a large group of police who appear to be hanging around not doing too much.

One explanation might be that they are there to offer backup in case the two who are out on a limb get themselves into a sticky situation. But they always seem too far away to me to be of much assistance. Wouldn’t it be better if there were more police officers to catch offending motorists and enforce the fine?

I’m no traffic cop, but it seems to me that if catching speeders and fining them is the aim, there should be more than two of them around. So I searched for another explanation.

It seems that when you are caught speeding, it is possible to negotiate to pay an ‘on-the-spot’ fine which is related in some way to the official fine schedule (the more over the limit you are, the larger the official fine). Would these mutually beneficial (to the individual police officer and the individual driver) be possible with a large group of police officers? I suspect not. That is rather a lot of blind eyes being turned at once.

My suspicion is that there is a tacit agreement to take it in turns to be one of the guys with the speed gun and arrange ‘on-the-spot’ fines. This would be beneficial to all drivers caught speeding and to all police officers who participate, and I suspect, also to those who dislike corruption but whose life would be made hard if they officially witnessed it and felt compelled to act.

The official fine schedule is pretty harsh, but the fact that it rarely seems to be imposed might explain its lack of deterrence. Everyone’s a winner?

Interesting Recent Blog Entries

Portfolios for the poor. The poor are not an undifferentiated mass, but there are a lot of nuances that must be understood. The poor borrow and save and make investments. The poor spend lots of money on things like weddings/funerals.

It reminded me of a book by Prahalad – The Fortune at the Bottom of the Pyramid, of which I am a big fan.

What if you told your kids how much they like eating vegetables? Apparently, they would like them more!

Does Hyundai have a bunch of behavioural economists on its staff? How to market things in a recession. A company who should be hard hit by the current recession actually increases sales thanks to some very clever marketing.

The Dictator’s Handbook. Option 3: Scapegoat a minority.

Racist Comments I

This is a list of comments from random people which I have interpreted as somewhat racist since I’ve been in Lesotho/South Africa:

1. At a well-known steak chain-restaurant in Bloemfontein just after a football match. The (young, white male) waiter asked what we thought of the new work done at the stadium. We said we thought the stadium was excellent. I actually apparently missed what he said next: “Some people are worried that the blacks will take over the stadium [for the 2010 world cup] but I’m not because the prices are too high so they can’t afford them.
   
   I thought he was complaining that the prices were too high for a lot of South Africans to afford so told him that for South African residents, there were tickets for in the region of R140 to R180 but that everyone else had to pay minimum US$60 to $80. I said I didn't think that the price for SA residents was too expensive so he shouldn’t worry. I noticed he looked confused, and after I was told I’d misheard what he said.
   
   Apparently even after 7 months here, I still have a mental block and assume that comments are not racist.

2. My car broke down just outside Pietermaritzburg. I was still able to crawl into town and found a garage that was still open – very lucky just after lunchtime on a Saturday when most things close. The garage was owned by a coloured (in South African parlance) man and his son. They were very, very kind to me, and ran me all over town helping me look for a minibus-taxi, a bus (coach) or a place to hire a car so I could get home. All minibus taxis had left, as had all busses. We tried a few rent-a-car places and I finally managed to hire one at the airport. They drove me around for over an hour, so we chatted quite a bit and I found them very friendly, and they figuratively ‘saved my life’.
   
   I had noticed that the son spoke Zulu with a number of people. He also told me he was married with a son. I was curious what language he spoke at home, and he told me English. He waved vaguely towards some black people walking by and said that he “only speak[s] Zulu with these black things”. I quickly moved the conversation on.

3. Not racist per se, but an interesting insight into people’s lives, thoughts, friendship groups etc. and perhaps an indication of a certain ignorance that might lead people without racist emotions or strict beliefs to act in a racist way. On a night out in Ladybrand, I found myself at what the bar people said was the ‘smallest bar in the Free State’. At some point during the night I ended up chatting with two white South African truck drivers. Both seemed fairly nice people, but inevitably questions start to arise as to why you are in South Africa when half of the white population and half of the educated population (correlated but increasingly imperfectly) want to get out. A comparison of countries ensues.
   
   Then, a fascinating question: ‘Do black people in your country live in shacks?’ The question was asked with a genuine interest, and not a hint of racist emotion.

4. Just over the border in South Africa there is a nice little town called Ladybrand. In the centre is a bar which appears to be Chinese-owned and frequented mostly by black customers.
   
   I was in there watching a football match and chatting with some random people about the teams (I know nothing about South African football). A black guy came up to me and started to tell me that he was not from the area. Fair enough.
   
   He then told me that he didn’t like anyone who lived around here. Especially not the Blacks. He likes only the white people and Xhosas. Very enlightened. I told him he was racist (he looked confused) and looked back towards the screen. He kept on badgering me and telling me how much he hated the Sotho and how much he liked whites and the Xhosa. In the end I got pretty angry and ended up shouting pretty loudly at him about how it didn’t matter and how he was a racist. He eventually left me alone.

Wife-Beating

Before I came to Lesotho, I spent a while searching for information and data so I could learn about the country. One excellent source of data on HIV/AIDS for all over the world are the Demographic and Health Surveys. These give you information not only on the HIV rate (it is around a quarter of the adult population in Lesotho), but also collect various additional attitudinal information.

One thing that caught my eye was questions on situations in which wife-beating is justified. I’ve not yet looked in too much detail at this (it would be interesting to split up responses by sex, age and rural-urban) but this table reports averages from across the country of people who say wife-beating is justified under different circumstances. Here is some information about the survey: (i) it was carried out in 2004; (ii) around three quarters of respondents were female; (iii) no one over the age of 50 is sampled.

% who said that wife-beating is justified if...
...she goes out without telling him	28.3%
...she neglects the children	39.2%
...she argues with him	38.0%
...she refuses to have sex with him	25.7%
...she burns the food	15.3%

It’s easy to be shocked and appalled by these figures if you are either a Westerner or an urban dweller in a developing country (75% of Basotho tends to be classified as rural). But I find it interesting to try to find explanations rather than judge too harshly – it is the first step in changing things – so I am pretty interested in the social and survival reasons why there might be such high support for wife-beating. Here are my thoughts:

• First the easy one – male dominance. It is true that, at the time, females were legally minors in Lesotho. Males should ensure their ‘good’ social behaviour and punish them for breaking the rules as if there were children (ignoring the question of whether or not it’s okay to beat children). The law has since changed and it would be interesting to see if there has been any top-down change as a result.
• Around three quarters of those sampled were females. Even if every male said ‘yes’ to each question, a significant number of females also agreed. It could be argued that they have been ‘made to feel’ that this is how females should behave and therefore they agreed with the males.

In addition to the above, I think that there might be issues related to social order and survival.

• Burning food could be seen as a question of immediate survival in a time and place in which food is scarce. I am almost surprised that this had the lowest agreement.
• Neglecting the children might carry a large ‘disgust’ factor by any community.
• Neglecting the children and refusing sex might both be related to a natural human instinct to pass on genes – a survival of the gene. Admitting that this exists might be the first step in altering our behaviour.
• Arguing, going out without telling him and neglecting children might all be about a desire to keep a social order and a generally harmonious environment. Arguing couples and child neglect (when the burden might fall on other people) both carry negative externalities for the wider community.

What are other reasons that I might have missed?

Artists and Secret Identities

Banksy has a new exhibition in Bristol, but no one knows who he actually is.

Why do some some famous and talented people choose to keep their identities secret? 

For some people, there are clear incentives - for example, George Sand could not have published during the mid-19th century as a woman. But what are the economic, social or psychological reasons why Banksy might choose to keep his identity secret? Who are other "famous" people who choose to keep their identity secret?

Trolley-Pushing – A man’s world?

When I go to my supermarket of choice in Maseru I find that there is often someone to help me pack. It tends to be a lady who assists me. However, on the occasions that I have a trolley, something interesting happens. The female gets very quickly displaced by a man.

The sequencing goes something like: a female is packing at any given tillà Someone with a trolley joins the queueà Watch closely and at some point between the trolley joining the queue and arriving at the checkout, the female is replaced by a maleà The trolley is unpacked and on the other side of the till the man then packs everything up into a new trolley.

Sometimes, quite extraordinarily, I can be carrying a well-stocked basket and, if it is well enough stocked, a man will arrive to help me pack, and with amazing talent, will manage to use enough plastic bags and careful packing to fill an entire trolley!

I find this an interesting phenomenon; I can think of no reason, a priori, why it should require a man rather than a woman to help me pack a trolley (ignoring entirely the question of whether I really need any help at all). Some light can be shed when we add tipping into the equation.

It seems that not many people tip those who just help you pack your bags, or if they do, it is very little. If you have a trolley on the other hand, the person (always, always a man) will insist that he roll the trolley down to your car, whilst you walk helplessly alongside him. You will then thank him very much for his very hard work and (if you are me) make a sarcastic remark about how you don’t know how you would have managed without his help or how weak you are feeling today and how grateful you are. Crucially, you will then tip him.

So any job (in the supermarket) that attracts significant tipping is done by men. Why? On a superficial level, it could be argued that men are stronger than women so that heavier work should be done by men. This might be true, but the strength required to pack a trolley and push it to a car would exclude no more females than males, and, I suspect, any comparative advantage argument is unlikely to hold too strongly.

Despite this, the traditional role of men doing the harder physical work might well be used to justify this even though it is stretched close to breaking point (but apparently without breaking). This, I assume, would then be an excuse rather than the explanation.

I am not sure exactly where the real explanation does lie however. It might be linked to this excuse, in that men are fighting hard to maintain their traditional gender roles – even if only superficially. Alternatively it might be more linked to tips.

Men might simply be using their physical advantage over women to ensure they earn the tips at women’s expense. This might be for the sake of the money in general, or it might be in order to maintain their gender role as household income earner within their own households.

I am still confused as to why the women let this happen? Next time, I might try to insist that a female pack my trolley and see what happens. Any suggestions?

Government and Toilet Roll

Inspired by a story in today's Scotsman that 'Toilet Roll Contributes to MSPs GBP10million Expenses" (link here), I thought I should write about the toilet roll regime at the Ministry of Finance and Development Planning in Lesotho (that's where I am working).

There is no toilet paper in the toilets. Instead everybody gets allocated one roll per week. Which you can collect on Mondays, and only Mondays. If you miss it, you get none for the week.

I am not sure how this happened. I can only assume that toilet paper used to be freely available in the toilets and that there was massive over-use of this luxury item. Essentially, toilet paper was a freely available common resource, and this resulted in over-consumption (for anyone with an economic mind) - a tragedy of the commons, if you will.

Giving everyone their own allocation then makes sense. You are far more cautious in using your own resources than common resources. Even better, if you can use less (think of it as cutting costs in economic terms), then you get to take the rest home (that is, you get to keep the profit by being more efficient).

A brilliant scheme! And almost certainly one that only a Finance Ministry, packed with economists, could dream up.

Of course, getting the incentives correct is difficult. Who decided that 1 toilet roll per week was the correct amount? At the moment, in case anyone is interested, a lot of toilet rolls are being taken home. But is this because too much toilet roll is being given out, or because people, being allowed to keep the profits, are being particularly efficient? I couldn't tell you.

Out of curiosity, I am wondering if anyone else's work allocates surprising resources to individuals, when, at first sight, it should be a common resource (?)

Oh! I need to open the door myself?!

When I was studying, I lived in a university residence. There was an external gate that had to be unlocked before you could enter the compound. Walking back during a cold British night, both I and my then flatmate started to take our keys from our pockets a little before we reached the gate and she commented that there was an optimal time to do this so that your keys are ready before you reach the gate but that your hands are out in the cold for as short a time as possible.

I started to notice that most people do this whenever they are arriving home, when they are walking to their car, or whenever there is a door they know they will need to unlock.

Strangely (at first glance, at least), this doesn’t seem to happen at the Ministry of Finance in Lesotho, where I work. Time and time again I observe people walking right up to door and then stopping. Dead. Then there is a brief search inside a pocket or (hand) bag before the card that is used to unlock the door is removed.

This seemed like rather curious behaviour to me, and I started to ponder why this differs from the behaviour I had noticed in Europe. I have two potential explanations:

1. People do not think in advance. Or rather, the cultural perception of time – and in particular, the (immediate) future – is different;
2. People are hoping someone else will open the door for them.

Neither of these ideas is controversial, but both have some interesting implications. That perception of time differs across cultures is fairly well researched (see here and here for a couple of papers I found with more references and here for a short summary). It is also obvious to most ‘Westerners’ who have lived in Africa that the ‘pace of life’ and general urgency is somewhat different.

Economically, the first explanation would suggest one of two things:

• Either time is a lot less important including, presumably, the time spent working, with the result that there is less production, so there are fewer goods and services to consume, so people are poorer. This is a perfectly fair social choice to make: on average, Europeans choose to work fewer hours than Americans, and prefer to take the extra leisure time rather than the extra goods and services that working longer hours would have produced. But I have to wonder whether the time spent searching a bag for a key-card is not simply lost time.
• Or, the future – even the immediate future – is very heavily discounted. That is, even at the moment I am approaching the door, I care so little for the time that will arrive in just a few seconds, that I do not think about it. This has severe economic consequences when it comes to investing in the future.

Whilst the first explanation is cultural, the second is more linked to incentives. The door is a busy one, and there are often people walking in and out. Why make any effort yourself when someone else will make the effort for you? This is very rational behaviour, and was given some support when, a few days ago, I walked to the door behind a lady who had stopped right in front of it with my card ready in hand. She thanked me and explained that there is always someone else to open the door for her, so she doesn’t need to do it.

I smiled at her and remembered that, walking to the University compound, I and my flatmate both took out our keys ready to open the gate.