A couple years ago NPR's Planet Money podcast had an episode about Somali pirates. (The pirate part starts at 9:35). There was all sorts of interesting stuff about division of labor, allocation of shares, pirate venture capital, etc. Some of this paralleled early modern piracy (as given a scholarly analysis in Peter Leeson's work and a romantic perspective in innumerable books and movies since Treasure Island) but in other respects it's very different. In particular, whereas early modern piracy was mostly about seizing cargo and the crews were left alone if they surrendered promptly, Somali piracy is more similar to piracy in antiquity in that it's basically maritime kidnapping. The typical instance of Somali piracy isn't that different from what a young Julius Caesar experienced when he was kidnapped by pirates and held for ransom on his way home from political exile in Asia Minor. One interesting detail in Plutarch's report is that, "When these men at first demanded of him twenty talents for his ransom, he laughed at them for not understanding the value of their prisoner, and voluntarily engaged to give them fifty."
It's not entirely clear if we should take Plutarch's report at face value (he also tells us that Caesar constantly insulted his captors as being, for instance, too uncivilized to appreciate his poetry) but for the sake of argument let's accept that Caesar rather brashly gave away too much information in the game of price discovery. According to a hostage negotiator quoted by This American Life, giving away this information is apparently typical of hostages and is counter-productive to their release as it narrows the bid-ask spread. Economists would describe hostage negotiation as a bilateral monopoly price negotiation that is structurally just a special case of chicken. That is, unlike a barrel of oil or a freight car full of soybeans which can trade on an extremely liquid market with innumerable buyers and sellers, a hostage has exactly one seller (the kidnappers) and exactly one buyer (the employer and/or family of the hostage). When there is only one buyer, the opportunity cost for ransoming the hostage is zero. Likewise, the employer and/or family has no realistic alternative means to recover the hostage. In order for everybody to walk away happy, we need a cooperate-cooperate outcome: the kidnapper has to give up the hostage and the employer/family has to give up a ransom. This structure also characterizes art theft, which in practice is not a matter of fencing art on the black market but ransoming art to a museum's insurance company.
If we model a bilateral monopoly negotiation only two things should matter. The first is, as always in a game of chicken, the willingness to accept failure. The more willing you appear to walk away, the more bargaining power you have. In a more protracted game this can cash out as willingness to delay which we can treat as a defect-defect outcome on the installment plan. In fact in the Planet Money episode on Somali piracy, the hostage's party did balk and break off negotiations for weeks at a time until the pirates were willing to come down on price.
The other thing that should matter is the capacity to pay. If the pirate knows for an absolute fact that the hostage's people simply can't raise more than a million dollars then it would be pointless for them to demand two million dollars. Of course there is an issue of information asymmetry in that the hostage's party has much better information on its assets than do the pirates and so the pirates may be skeptical of the hostage's party pleading poverty (especially if the hostage has foolishly told them how much money they can get). We see this at work in the TAL story's point that kidnapping insurance holds the condition that you can't tell anyone you have kidnapping insurance.
Here's something that the econ model tells us shouldn't matter: the going rate. In normal markets the going rate matters, but only because it provides the opportunities for substitutes and this creates the "law of one price." For instance, when I go to a grocery store and see a loaf of bread for $4 I won't buy it. An economist would say I forgo this purchase because I know perfectly well that the going rate for a loaf of bread is about $2.25 and so I can go elsewhere and get bread cheaper. Similarly if I go to the Honda dealer to buy a Honda Accord, it is relevant for me to mention price quotes offered by other Honda dealers for an Accord or even how much Toyota dealers ask for a Camry because it is entirely credible that I'll walk off the lot and go to rival car dealers offering very close substitutes for this dealer's cars. However if my sister is locked in a basement in Ciudad Juarez and the kidnappers can credibly commit to not letting her go unless I raise $x, it is completely irrelevant that in the past kidnappers accepted ransoms of $x/2 since I don't have the relatively good fortune of dealing with a kidnapper who demands $x/2 but am stuck with one who demands $x. There are no other places where I can buy the freedom of my sister and so the only price that matters is the one being demanded by her particular kidnappers. (Note to any cartels reading this: I don't have a sister).
And nonetheless, much like how most people who haven't studied statistics balk at the idea that the ratio of sample size to population size is irrelevant to statistical inference, people seem to have a strong intuition that the "market price" is relevant to a bilateral monopoly even though the whole idea of a bilateral monopoly is that there is not really a market but only a series of discrete one-off transactions. In the absence of substitutability, "comparable" transactions are irrelevant as they don't imply opportunity cost. This is the main thing I found so fascinating about the Planet Money episode, over and over again the hostage's party balked at the pirates demands as unreasonable in being out of line with the "market price." We only get the pirates' story second hand, but apparently at no point did they explain to the hostage's party that "market price" doesn't really exist in a bilateral monopoly. (Maybe Mogadishu University needs a better econ department).
There are two ways, which are only partially incompatible, to look at why people insist that there is a market price. The simple model is to see us as making Bayesian inferences about the price the other party is willing to accept. If a pirate asks me for $10 million when I know that previous ransoms for similar hostages from similar pirates were about $1 million, I face two possibilities. It may be that I'm facing an usually greedy or unreasonable pirate and $10 million really is the price from which he will not budge. However it seems more likely that I'm dealing with a regular pirate, who like most pirates in the past will ultimately settle for about $1 million but who is just floating a high initial figure in case I'm especially bad at this. In this sense the distribution of prices for similar transactions may not be directly relevant in the sense of providing opportunities for substitution (or the credible threat to avail myself of them) but it is still relevant as information about the zone of possible agreement. This is consistent with the Planet Money story in that Filipinos are cheaper to ransom than Europeans by an order of magnitude. Presumably this reflects Bayesian inference on the part of the pirates from the hostage's nationality as to how much the hostage's party should be able to raise. Alternately we could imagine that pirates always start with the same bargaining position but the Filipinos are less able to pay and so the pirates eventually reach this through ad hoc price discovery on a case-by-case basis. This strikes me as implausible though and I think pirates probably learned pretty quickly what they can reasonably expect for each nationality.
This is a nice explanation and it has the appeal of bending but not breaking the economic model of the actor, but it's not clear how seriously we want to take it and even if it's ultimately true it may not reflect the subjective experience. For instance, one of the main explanations for racial discrimination is that it reflects Bayesian inference about aspects of human capital that aren't readily observable. This model was devastated by Devah Pager's audit study showing that employers prefer to hire white men with a criminal record rather than black men without a criminal record, whereas the "statistical discrimination" model predicts that ascriptive discrimination should be weaker than and diminish greatly in the presence of information about relevant traits at the individual level. In the wake of the Pager study the best case you can make for the statistical discrimination model is that our intuitions are Bayesian in the aggregate but are too low level for us to override with directly relevant information (or, for that matter, with the conscious desire to avoid stereotyping on legal or ethical grounds). It's not unlike the argument that evolution made sex feel good so that we will propagate our genes, but it still feels good when you use birth control. So we might prefer a model that is ultimately consistent with people using prevailing price as information in bilateral monopoly negotiations, but is proximately and subjectively more about meaning.
Although the discipline of economics has many valuable things to teach us about how markets work, especially in the long-run, the subjective experience of someone bargaining does not necessarily reflect thinking through how a rational actor would apply price theory (competitive markets) or game theory (monopolistic markets) to the situation. Rather people take moralized approaches to exchange and seem to apply various relational models to exchange, which includes not only market exchange but also gift exchange, patron-client ties, and primitive communism. Moreover, even when people accept that a situation is one of market exchange it does not come naturally to think of price like modern economists think of it, as "market clearing." Rather much as people intuitively expect physical objects to behave by Buridan's impetus rather than Newton's inertia, people's intuitive notions about price can have less to do with how economics thinks of it than how Aristotle, Aquinas, and Marx thought of it, as "just price" or "fair price." We see the Aristotelian/scholastic/Marxist understanding of price institutionalized in price controls and laws against gouging. The intuition many people seem to feel is that the long-run prevailing price has moral weight and deviations from this price (as for instance in a supply or demand shock leading to "gouging") are immoral. Hence historical bread riots often involve not exactly stealing food but rather mobs enacting vigilante price controls. Most recently we saw this is in a class action lawsuit against concession prices in movie theaters. As an American and someone who studies exchange professionally, economics comes naturally enough to me that my immediate reflex to this story is to think this guy needs to understand two-part tariffs and tell him if he doesn't like the theater's prices nobody is forcing him to go there or to eat once he arrives. However the fact that somebody felt sufficiently indignant to sue over being offered the opportunity to buy a bucket of popcorn for $6 shows us that the perspective assumed by academic economics doesn't necessarily come naturally to people. Similarly, when the hostage's party is negotiating a ransom with pirates both the pirates and hostages may be behaving in ways that are ultimately consistent with a game of chicken under conditions of bounded rationality and Bayesian inference about asymmetric information, but in the immediate subjective sense they may simply be feeling that the recent run of ransoms sets an expectation of what it is fair to pay for this particular hostage.
Oh, and one more thing about Caesar. Plutarch tells us that after he was ransomed he got some ships, raided the pirates, and had them all crucified.
What do we actually know about the candidate’s health?
Cameras rolling, Manhattan gastroenterologist Harold Bornstein was confronted last week with a letter that carried his signature. In that letter, the writer “state[d] unequivocally” that Donald Trump “will be the healthiest individual ever elected to the presidency.”
Donald Trump would be the oldest individual ever elected to the presidency. He sleeps little and holds angry grudges. He purports to eat KFC and girthy slabs of red meat, and his physique doesn’t suggest any inconsistency in this. His health might be fine, but a claim to anything superlative feels off.
Bornstein might have jumped on that opportunity to get out of this mess—to say that Trump had dictated the letter, and Bornstein only signed it. Or that Trump had at least suggested phrases. Because it’s not just the facts of Trump’s life that don’t add up, but the linguistics of the letter.
Hillary Clinton champions a concept the Republican Party has embraced and Donald Trump has disavowed.
Hillary Clinton is making a case for American exceptionalism. “The United States is an exceptional nation,” she said on Wednesday at the American Legion’s national convention in Cincinnati. “It’s not just that we have the greatest military, or that our economy is larger than any on Earth, it’s also the strength of our values.” Clinton added: “Our power comes with a responsibility to lead.”
The Democratic presidential nominee believes talking up her commitment to American engagement abroad will help her secure the White House. Focusing on foreign policy allows Clinton to showcase her experience as a former secretary of state and emphasize how high the stakes are in the election. Elect Trump, her campaign argues, and America hands over its nuclear codes to a man with poor judgement and a history of erratic behavior. Yet what is most remarkable about Clinton’s embrace of American exceptionalism is how it highlights the inverted politics of foreign policy in the 2016 presidential race.
The San Francisco quarterback has been attacked for refusing to stand for the Star Spangled Banner—and for daring to criticize the system in which he thrived.
It was in early childhood when W.E.B. Du Bois––scholar, activist, and black radical––first noticed The Veil that separated him from his white classmates in the mostly white town of Great Barrington, Massachusetts. He and his classmates were exchanging “visiting cards,” invitations to visit one another’s homes, when a white girl refused his.
“Then it dawned upon me with a certain suddenness that I was different from the others; or like, mayhap, in heart and life and longing, but shut out from their world by a vast veil. I had thereafter no desire to tear down that veil, to creep through; I held all beyond it in common contempt, and lived above it in a region of blue sky and great wandering shadows,” Du Bois wrote in his acclaimed essay collection, The Souls of Black Folk. “That sky was bluest when I could beat my mates at examination-time, or beat them at a foot-race, or even beat their stringy heads.”
In the age of the digital hermit, a psychologist explains what it means to avoid other people—and what to do about it.
People today might not actually be avoiding social interaction any more than they did in past decades, but they’re certainly more vocal about it. The rise of digital communication seems to be spawning a nation of indoor cats, all humble-bragging about how introverted they are and ordering their rides and groceries without ever talking to a human.
Sometimes reclusiveness can be a sign of something more serious, though. Social anxiety is one of the most common mental illnesses, but it’s still poorly understood outside of scientific circles. The good news is that it’s highly treatable, according to Stefan G. Hofmann, the director of the Social Anxiety Program at Boston University.
I recently talked with Hofmann about how social anxiety works and what people who feel socially anxious can do about it. An edited transcript of our conversation follows.
Practices meant to protect marginalized communities can also ostracize those who disagree with them.
Last week, the University of Chicago’s dean of students sent a welcome letter to freshmen decrying trigger warnings and safe spaces—ways for students to be warned about and opt out of exposure to potentially challenging material. While some supported the school’s actions, arguing that these practices threaten free speech and the purpose of higher education, the note also led to widespread outrage, and understandably so. Considered in isolation, trigger warnings may seem straightforwardly good. Basic human decency means professors like myself should be aware of students’ traumatic experiences, and give them a heads up about course content—photographs of dead bodies, extended accounts of abuse, disordered eating, self-harm—that might trigger an anxiety attack and foreclose intellectual engagement. Similarly, it may seem silly to object to the creation of safe spaces on campus, where members of marginalized groups can count on meeting supportive conversation partners who empathize with their life experiences, and where they feel free to be themselves without the threat of judgment or censure.
Dean of Students John Ellison gets an A for initiative, a B-minus for execution, and extra-credit for stoking a useful debate.
When I was a heretical student at a Catholic high school deciding where to apply to college, I thrilled at the prospect of an educational institution where free inquiry would reign supreme and forceful debate would never be hemmed in by dogma.
A letter like the one that University of Chicago Dean of Students John Ellison sent last week to incoming first-year students––reminding them of the school’s “commitment to freedom of inquiry and expression," and affirming that those admitted to it “are encouraged to speak, write, listen, challenge, and learn, without fear of censorship”––would have struck me as a glorious affirmation: that robust intellectual communities truly did exist; that I would finally be free to follow my brain; that college would be a crucible that tested the strength of all my beliefs.
The meeting between the president and the man who would be president will bring together two of the least popular men in Mexico.
A meeting in Mexico City on Wednesday will bring together two of the most unpopular men in Mexico.
On the one hand, there’s Donald Trump, widely reviled and frequently bashed in papier-mâché effigy over his derogatory comments about the country and its citizens—from the suggestion, in his campaign launch, that Mexicanimmigrants to the United States are by and large criminals and rapists, to his declaration that Mexico is an “enemy” of the United States.
On the other, there’s Mexican President Enrique Peña Nieto, a telegenic and glamorous politician who has nonetheless been plagued by scandals and tainted by alleged ties to organized crime, a plagiarism scandal, and deep unfavorable ratings among women. Perhaps the two men will have some things to talk about when they convene at Los Pinos, the Mexican executive residence.
Education experts offer their thoughts on how—if at all—schools should assign, grade, and use take-home assignments.
This is the third installment in our series about school in a perfect world. Read previous entries on calendars and content.
We asked prominent voices in education—from policy makers and teachers to activists and parents—to look beyond laws, politics, and funding and imagine a utopian system of learning. They went back to the drawing board—and the chalkboard—to build an educational Garden of Eden. We’re publishing their answers to one question each day this week. Responses have been lightly edited for clarity and length.
Today’s assignment: The Homework. Will students have homework?
Rita Pin Ahrens, thedirector of education policy for the Southeast Asia Resource Action Center
Homework is absolutely necessary for students to demonstrate that they are able to independently process and apply their learning. But who says homework has to be the same as it has been? Homework might include pre-reading in preparation for what will be covered in class that day, independent research on a student-chosen topic that complements the class curriculum, experiential learning through a volunteer activity or field trip, or visiting a website and accomplishing a task on it. The structure will be left to the teachers to determine, as best fits the learning objective, and should be graded—whether by the teacher or student. Students will be held accountable for their homework and understand that it is an integral part of the learning process.
People can get addicted to almost any product. Do manufacturers have a responsibility to stop them?
“A day doesn’t go by that I don’t see people come in with Q-tip-related injuries,” laments Jennifer Derebery, an inner-ear specialist in Los Angeles.
And yet there’s a scary warning on every box of Q-tips. It reads, “CAUTION: Do not enter ear canal. … Entering the ear canal could cause injury.” How is it that the one thing most people do with cotton swabs is also the thing manufacturers explicitly warn them not to do? It’s not just that people do damage to their ears, it’s that they keep doing damage.
Some even call it an addiction. On an online forum, Q-tip user associates ear swabbing with dependency: “How can I detox from my Q-tips addiction?” MADtv ran a classic sketch on a daughter having to hide Q-tip use from her parents like a junkie.