Tuesday, October 22, 2013

Figuring It Out / Demonstrating Personal Commitment to the Class

I sensed a good deal of skepticism in class today about my message that students should embrace a "figure it out" approach.  A reasonable counter argument is might be as follows.  We're not planning to go to econ grad school.  Why should we learn these models from Milgrom and Roberts as extended by Arvan?  We'll never use those models after this class.

For the most part, that is true.  However, figuring it out is a meta skill that has many uses completely outside of economics.  Consider the following, from a blog post I wrote about a year ago (not related to this course).

Then I recalled one of my favorite lines from George Orwell: 
          To see what is in front of one's nose needs a constant struggle. 
This is the first sentence of the closing paragraph in an essay about people's intellectual schizophrenia, particularly in regard to political life.  By this Orwell is talking about maintaining truth in a proposition that we should know is false simply by reviewing other things we already know to be true. This essay is a very good read and serves as a rather frightening warning about all the stupidity the collective mind seemingly can lock onto.  If you juxtapose Orwell with Kahneman, you come to the inescapable conclusion that what you don't see may very well include things that you did see before but are now buried in memory.  It's not just the potentially knowable things that we've not yet experienced that matter.  It's also those things we know but don't immediately come to mind.  (Why don't those things come to mind?)

Now let me bring that down to issues that we've discussed in our class.  We've talked about trust relationships since day one.  For example on that first day we talked about why in your apartment you do housework you might not like to do much and why your roommates do likewise (and not shirk).  More recently we talked about Akerlof's Gift Exchange model and today we briefly discussed that Haidt piece on whether the kids would share the marbles.  

What we haven't yet discussed much at all, but there is no time like the present to get started thinking about it, is that not everyone is trustworthy.  Some people are predatory in that they take advantage of other people being too trusting.  Bernard Madoff is a very well know such predator.  It therefore becomes a crucial life skill to determine whom you should trust.  What the Orwell piece says is that while it isn't easy to do this, sometimes you can determine somebody is trying to scam you, by putting together what the person is saying now with other information you know.

On Madoff, in particular, read this particular Wikipedia entry on Harry Markopolos, who figured it out quite early on but wasn't listened to by the SEC.  This paragraph is telling on how he figured it out.

In his interview with Steve Kroft of 60 Minutes, Markopolos said the biggest warning he'd noticed during his initial 1999 analysis of Madoff was that he reported losing months only four percent of the time. To Markopolos' mind, no one could possibly be that good given the volatility of the markets. "As we know, markets go up and down, and his only went up," he said. Markopolos noted that during his tenure at Rampart, he traded with some of the biggest derivatives companies in the world, and none of them dealt with Madoff because they didn't think his numbers were real. He admitted that he had some financial incentive to eliminate Madoff, as the two competed against each other from 2000 to 2004. However, he said, he felt compelled to pursue it because "when someone's competing on your playing field, who's a dirty player, you want him tossed off the field." He assailed the SEC once again for ignoring his warnings, saying that the only reason Madoff was caught was because he ultimately collapsed under the weight of his own lies.

What Markopolos did requires the ability to make inference from the data.  (Freakonomics is a book that talks about that skill a lot - if you read it, recall how Levitt detected whether instructors were cheating on behalf of their students.)   It also requires substantial critical thinking/problem solving/deductive reasoning.  Our class should help you prepare for that second part.  I'm less sure that the statistics classes you take help with the first part, but that you must have some Sherlock Holmes type skill in assessing what is going on is crucial if you are to make headway on the issue of assessing whether somebody is trustworthy.  It is not something that a Gladwell "thin slice" analysis (from Blink) is good for.

Finally on this point, there is the following issue.  If figuring it out is hard to do, will you persist at it?    The life skill I discussed above comes from extensive practice.  I don't want to fool anyone by suggesting you'll get all the practice you need in our class.  You won't.  It's just a place to start.  The answer on the persistence front is that this is more about habit formation than it is about deliberate choice.  If you develop a routine for doing it, you will do it.  If it remains an option to exercise or not, you probably won't.  But a funny thing happens in the developing of the habit.  After a while it becomes enjoyable.  It's not just a compulsion to do the routine.  It's a reward to make sense of something that is puzzling, so having the challenge placed in front of you is something you start to welcome.

Not that this sort of delight will come from slugging through the algebra of the econ models we do, but sometimes it helps to know what sort of pot of gold you'll find if you follow the rainbow.

* * * * *

I said in class today that students would do okay grade-wise in class, even if their exam scores are middling, as long as they do the other out of class work that is required and do so in a serious and timely way.  This means the blog posts come in when they are due and they show you've thought about the prompt, the comments on other student posts happen with enough time so the student can respond before we discuss the posts in class, and the Excel homework is also completed before the deadline.

If you do those things I will know you are trying.  Then I will complete my part of the bargain.  The commenting on your teammates blog posts, in particular, is the sort of thing that is like Haidt's sharing of the marbles example.  It is something that improves the learning of your fellow students and in that way makes the class better for me too.

If you don't do those things, I will be much less empathetic to your situation.  This, too, is in accord with what Haidt reports in that piece.

And I can say, purely as a matter of logistics, that tracking late submissions is a pain.  I'd rather put my efforts elsewhere.

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