Pragma Synesi – interesting bits

Compendium of interesting bits I come across, with an occasional IMHO

Technology and Inequality

Eye-opening article from MIT — read it in the original to see the graph.

Technology and Inequality

David Rotman | October 21, 2014 | MIT Technology Review

The disparity between the rich and everyone else is larger than ever in the United States and increasing in much of Europe. Why?

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January 16, 2016 Posted by | AI, economics | , , , , , , | Leave a comment

What I Learned from Losing $200 Million

In summary: illusion of control. And that stress amplifies it.

What I Learned from Losing $200 Million

The 2008 financial crisis taught me about the illusion of control, and how to give it up.

By Bob Henderson | December 24, 2015 | Nautilus

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December 25, 2015 Posted by | behaviour, economics, statistics | , , , , | Leave a comment

It’s ok to be irrational — as long as you know it

Would we make better decisions if we knew we are acting on the same decision-making principles as slime molds? The article below argues yes.

Yes, You’re Irrational, and Yes, That’s OK

By David Berreby | February 26, 2015 | Nautilus

The insight that will save you from being manipulated. Continue reading

October 2, 2015 Posted by | behaviour, decision making, economics, evolutionary psychology | , , , , | Leave a comment

Economic Inequality: It’s Far Worse Than You Think

“…the reason they call it the American Dream is because you have to be asleep to believe it….”

— George Carlin

Economic Inequality: It’s Far Worse Than You Think

The great divide between our beliefs, our ideals, and reality

March 31, 2015 |By Nicholas Fitz | Scientific American

In a candid conversation with Frank Rich last fall, Chris Rock said, “Oh, people don’t even know. If poor people knew how rich rich people are, there would be riots in the streets.” The findings of three studies, published over the last several years in Perspectives on Psychological Science, suggest that Rock is right. We have no idea how unequal our society has become.

In their 2011 paper, Michael Norton and Dan Ariely analyzed beliefs about wealth inequality. They asked more than 5,000 Americans to guess the percentage of wealth (i.e., savings, property, stocks, etc., minus debts) owned by each fifth of the population. Next, they asked people to construct their ideal distributions. Imagine a pizza of all the wealth in the United States. What percentage of that pizza belongs to the top 20% of Americans? How big of a slice does the bottom 40% have? In an ideal world, how much should they have?

The average American believes that the richest fifth own 59% of the wealth and that the bottom 40% own 9%. The reality is strikingly different. The top 20% of US households own more than 84% of the wealth, and the bottom 40% combine for a paltry 0.3%. The Walton family, for example, has more wealth than 42% of American families combined.

We don’t want to live like this. In our ideal distribution, the top quintile owns 32% and the bottom two quintiles own 25%. As the journalist Chrystia Freeland put it,  “Americans actually live in Russia, although they think they live in Sweden. And they would like to live on a kibbutz.” Norton and Ariely found a surprising level of consensus: everyone — even Republicans and the wealthy—wants a more equal distribution of wealth than the status quo.

This all might ring a bell. An infographic video of the study went viral and has been watched more than 16 million times.

In a study published last year, Norton and Sorapop Kiatpongsan used a similar approach to assess perceptions of income inequality. They asked about 55,000 people from 40 countries to estimate how much corporate CEOs and unskilled workers earned. Then they asked people how much CEOs and workers should earn. The median American estimated that the CEO-to-worker pay-ratio was 30-to-1, and that ideally, it’d be 7-to-1. The reality? 354-to-1. Fifty years ago, it was 20-to-1. Again, the patterns were the same for all subgroups, regardless of age, education, political affiliation, or opinion on inequality and pay. “In sum,” the researchers concluded, “respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates.”

These two studies imply that our apathy about inequality is due to rose-colored misperceptions. To be fair, though, we do know that something is up. After all, President Obama called economic inequality “the defining challenge of our time.” But while Americans acknowledge that the gap between the rich and poor has widened over the last decade, very few see it as a serious issue. Just five percent of Americans think that inequality is a major problem in need of attention. While the occupy movement may have a tangible legacy, Americans aren’t rioting in the streets.

One likely reason for this is identified by a third study, published earlier this year by Shai Davidai and Thomas Gilovich that suggests that our indifference lies in a distinctly American cultural optimism. At the core of the American Dream is the belief that anyone who works hard can move up economically regardless of his or her social circumstances. Davidai and Gilovich wanted to know whether people had a realistic sense of economic mobility.

The researchers found Americans overestimate the amount of upward social mobility that exists in society. They asked some 3,000 people to guess the chance that someone born to a family in the poorest 20% ends up as an adult in the richer quintiles. Sure enough, people think that moving up is significantly more likely than it is in reality. Interestingly, poorer and politically conservative participants thought that there is more mobility than richer and liberal participants.

According to Pew Research, most Americans believe the economic system unfairly favors the wealthy, but 60% believe that most people can make it if they’re willing to work hard. Senator Marco Rubio says that America has “never been a nation of haves and have-nots. We are a nation of haves and soon-to-haves, of people who have made it and people who will make it.” Sure, we love a good rags-to-riches story, but perhaps we tolerate such inequality because we think these stories happen more than they actually do.

We may not want to believe it, but the United States is now the most unequal of all Western nations. To make matters worse, America has considerably less social mobility than Canada and Europe.

As the sociologists Stephen McNamee and Robert Miller Jr. point out in their book, “The Meritocracy Myth,” Americans widely believe that success is due to individual talent and effort. Ironically, when the term “meritocracy” was first used by Michael Young (in his 1958 book “The Rise of the Meritocracy”) it was meant to criticize a society ruled by the talent elite. “It is good sense to appoint individual people to jobs on their merit,” wrote Young in a 2001 essay for the Guardian. “It is the opposite when those who are judged to have merit of a particular kind harden into a new social class without room in it for others.” The creator of the phrase wishes we would stop using it because it underwrites the myth that those who have money and power must deserve it (and the more sinister belief that the less fortunate don’t deserve better).

By overemphasizing individual mobility, we ignore important social determinants of success like family inheritance, social connections, and structural discrimination. The three papers in Perspectives on Psychological Science indicate not only that economic inequality is much worse than we think, but also that social mobility is less than you’d imagine. Our unique brand of optimism prevents us from making any real changes.

George Carlin joked that, “the reason they call it the American Dream is because you have to be asleep to believe it.” How do we wake up?

 

ABOUT THE AUTHOR(S)

Nick Fitz is graduate student at the National Core for Neuroethics at the University of British Columbia. He primarily studies social norms around technology, health, and illness.

April 25, 2015 Posted by | economics | , , , | Leave a comment

The future of jobs

Insightful article worth reading from The Economist, Jan 18th, 2014:

The future of jobs: The onrushing wave

Previous technological innovation has always delivered more long-run employment, not less. But things can change.

February 1, 2014 Posted by | business, economics | | Leave a comment

Scarcity lowers IQ and self-control

Having read the article below, which is adapted from the book Scarcity: Why Having Too Little Means So Much, by Sendhil Mullainathan and Eldar Shafir, I was struck by several points. For one, it is amazing how much scarcity affects our decisions and actions, on a level we don’t even notice.  But more importantly, the effect scarcity has on IQ and self-control sheds new light on the plight of the poor.  If you don’t have time to read the whole book, makes sure you read these articles highlighting different aspects of the book: Scarcity: Why Having Too Little Means So Much and Scarcity changes how we think.

If you are really pressed for time, below is an excerpt from the first article:

Scarcity: Why Having Too Little Means So Much (excerpts)

by

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December 31, 2013 Posted by | behaviour, decision making, economics, psychology | , , , , , , | 1 Comment

Irrational Valuations

How much is it worth? Forget rationality, your answer may depend on the last number you have heard. From Advisor’s Edge, April 2012:

Irrational valuations

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April 23, 2012 Posted by | behaviour, economics | , , , | Leave a comment

The unfairness effect on ‘Homo economicus’

Economic theories are based on certain assumptions — one of them is that humans act in self-interest. Dr. Falk’s work suggest that this is not entirely true — “fairness” has a great deal of effect on human decision making.  From The Globe and Mail Metro,  April 20, 2012:

The unfairness effect on ‘Homo economicus’

CHRYSTIA FREELAND
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April 21, 2012 Posted by | decision making, economics | , , , | Leave a comment

Aging and asset prices

The aging population of the western world may bring lower asset prices.  From the Sep. 24th, 2011 print edition of The Economist:

Economics focus: Bringing down the house

The effect of ageing on asset prices may make the rich world’s problems worse
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January 30, 2012 Posted by | economics | , , , , | Leave a comment

Game theory in practice

Advances in predicting human behaviour as applied to economics and politics.  From the September 3, 2011 The Economist:

Game theory in practice

Computing: Software that models human behaviour can make forecasts, outfox rivals and transform negotiations

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January 5, 2012 Posted by | behaviour, economics | , , | Leave a comment