Thursday, August 26, 2010

My Arguments on other People's Blogs

I've been arguing about the meaning of Adam Smith's invisible hand on one blog and about whether it is obviously wrong for people such as orthodox Jews or Amish to bring criminal charges to their own authorities before reporting them to the police on another. Some readers may find one or both argument of interest.


Anonymous said...

Perhaps you're interested in another argument?

Gene Callahan on competing "defense agencies", and feudalism.

TGGP said...

Since your discussion with Gavin will eventually fall off the front-page of his blog, here's a link for all posts there mentioning you.

If those two blogs plus Gene Callahan aren't enough, there is also Nick Szabo. I know I've mentioned him before, but no harm in doing so again.

Anonymous said...

Thanks for that stuff on orthodox Jews and the law. I genuinely love the way you argue there.

TGGP said...

I think you did a very good job of arguing at Volokh except for one bit: you questioned why it was important for punishment to be certain rather than severe. There is an explanation right out of behavioral econ (or, should I say, the heuristics & biases literature from psychology): people engage in hyperbolic discounting. This is Mark Kleiman's big shtick in "When Brute Force Fails: How to Have Less Crime and Less Punishment". He gives a short version here for, and a longer one here for AEI.

The quote from David is this:
"But it doesn’t tell us whether a certain penalty of X provides more or less deterrence than a penalty lottery that provides some probability of punishment Y, some probability of punishment Z, ... . So I don’t see why you assume that certain outcomes deter more than uncertain ones."
The evidence from Hawaii's H.O.P.E program is that certainty has much larger deterrent effect than an equivalent increase in severity. Kleiman also likes to reference the High Point open-air drug markets and Los Angeles "Cease Fire" programs to show the benefits of certainty, although I don't recall if the specific penalties threatened were lower than usual.

David Friedman said...

"The evidence from Hawaii's H.O.P.E program is that certainty has much larger deterrent effect than an equivalent increase in severity."

I've certainly seen that claim made, but I'm not sure I believe it. The problem is that an "equivalent" increase is defined proportionally--the claim is that if you (say) double probability and reduce punishment in half, deterrence goes up.

But how do you measure the amount of punishment in order to know by what proportion it increases? A jail sentence of two months appears twice as serious as a sentence of one month, but it isn't true--because both sentences carry with them a fixed reputational cost, and each involves some amount of time and money spent defending against the charges.

So the result of such studies can be taken as evidence not that criminals are risk preferers but that the increase in punishment wasn't by as large a proportion as it appeared to be.

Anonymous said...

Should people be selfish, or should they work for the common good? Adam Smith said that this is a false dichotomy -- that you promote the common good even while acting selfishly. I think this is the import of his "Invisible Hand" metaphor.

In a free market economy, each transaction is structured so that both parties believe they make a profit. But, when billions of such mutually profitable transactions take place, can we also say that the net result is that society as a whole benefits? The "Invisible Hand" theory says: Yes! (And it's not obvious.)

So, we have system where action takes place according to local interactions, and yet we claim that we are achieving a globally desirable result. Is this believable? Actually, in the physically sciences, there are many analogous theorems. For example, in a chandelier, each part interacts only with the stuff it's connected to, and with gravity. Yet, in the equilibrium situation, the chandelier attains a global minimum of potential energy.

In a free market economy, the analogous statement is that total utility is maximized at the point of general equilibrium, where said general equilibrium is attained through the selfish interactions of the participants -- a formal confirmation of Adam Smith's intuition! (Even Paul Krugman asserts this theory in one of his economics textbooks.)

In order to get this result, you need to assume that externalities are negligible and that the players have good info. So, the upshot is that it's OK to go ahead and look out for #1, as long as you don't try to deceive your counterparty, or dump your garbage on your neighbors.