Book Reviews

Book review: Breakdown of Will, by George Ainslie.

This book analyzes will, mainly problems connected with willpower, as a form of intertemporal bargaining between a current self that highly values immediate temptation and future selves who prefer that current choices be more far-sighted. He contrasts simple models of rational agents who exponentially discount future utility with his more sophisticated and complex model of people whose natural discount curve is hyperbolic. Hyperbolic discounting causes time-inconsistent preferences, resulting in problems such as addiction. Intertemporal bargains can generate rules which bundle rewards to produce behavior more closely approximating the more consistent exponential discount model.

He also discusses problems associated with habituation to rewards, and strategies that can be used to preserve an appetite for common rewards. For example, gambling might sometimes be rational if losing money that way restores an appetite for acquiring wealth.

Some interesting ideas mentioned are that timidity can be an addiction, and that pain involves some immediate short-lived reward (to draw attention) in addition to the more obvious negative effects.

For someone who already knows a fair amount about psychology, only small parts of the book will be surprising, but most parts will help you think a bit clearer about a broad range of problems.

Book review: Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India by Pranab Bardhan.

This short book has a few interesting ideas.

The most surprising ones involve favorable claims about China’s collectivist period (but without any claim that that period was better overall).

China under Mao apparently had a fairly decentralized economic system, with reasonable performance-based incentives for local officials, which meant that switching to functioning capitalism required less change than in Russia.

Chinese health apparently improved under Mao (in spite of famine), possibly more than it has since, at least by important measures such as life expectancy. This is reportedly due to more organized and widespread measures against ordinary communicable diseases under collectivism.

Book Review: Simple Heuristics That Make Us Smart by Gerd Gigerenzer and Peter M. Todd.

This book presents serious arguments in favor of using simple rules to make most decisions. They present many examples where getting a quick answer by evaluating a minimal amount of data produces almost as accurate a result as highly sophisticated models. They point out that ignoring information can minimize some biases:

people seldom consider more than one or two factors at any one time, although they feel that they can take a host of factors into account

(Tetlock makes similar suggestions).

They appear to overstate the extent to which their evidence generalizes. They test their stock market heuristic on a mere six months worth of data. If they knew much about stock markets, they’d realize that there are a lot more bad heuristics which work for a few years at a time than there are good heuristics. I’ll bet that theirs will do worse than random in most decades.

The book’s conclusions can be understood by skimming small parts of the book. Most of the book is devoted to detailed discussions of the evidence. I suggest following the book’s advice when reading it – don’t try to evaluate all the evidence, just pick out a few pieces.

Book review: This Time is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth S. Rogoff.

This book documents better than any prior book the history of banking and government debt crises. Most of it is unsurprising to those familiar with the subject. It has more comprehensive data than I’ve seen before.

It is easier reading than the length would suggest (it has many tables of data, and few readers will be tempted to read all the data). It is relatively objective. That makes it less exciting than the more ideological writings on the subject.

The comparisons between well governed and poorly governed countries show that governments can become mature enough that defaults on government debt and hyperinflation are rare or eliminated, but there is little different in banking crises between different types of government / economies.

They claim that international capital mobility has produced banking crises, but don’t convince me that they understand the causality behind the correlation. I’d guess that one causal factor is that the optimism that produces bubbles causes more investors to move money into countries they understand less well than their home country, which means their money is more likely to end up in reckless institutions.

The book ends with tentative guesses about which countries are about to become mature enough to avoid sovereign debt crises. Among the seven candidates is Greece, which is now looking like a poor guess less than a half year after it was published.

Book Review: A Splendid Exchange: How Trade Shaped the World by William J. Bernstein.

This book starts off as a relatively ordinary history book, then toward the end offers a moderate number of valuable insights. Those insights don’t appear to be original, but he performs a valuable service by drawing attention to ideas that aren’t as widely known as they should be.

He argues that the Boston Tea Party was intended to keep tea prices high, and instigated by the merchants who were threatened by increased competition, using the much of the same rhetoric that modern protectionists use.

He describes a strong connection between a decrease in the price of mailing a letter and the ability of people of ordinary wealth to organize opposition to the Corn Laws.

He has an interesting argument that the benefits of international trade is the resulting desire for peace between people who have business relationships with each other, rather than the more obvious but apparently small benefits that are more direct. I wish there were stronger evidence that trade generates peace.

He makes a moderate number of claims that seem poorly thought out. E.g. “a national or central bank” is “the bedrock financial institution of the modern world”.

Impro

Book review: Impro: Improvisation and the Theatre, by Keith Johnstone.

This book describes aspects of the human mind and social interactions which actors often need to analyze more explicitly than others, because actors need to be aware of the differences between various roles/personalities that they play, whereas unconscious understanding is adequate for people who only interact as a single personality.

The best chapter is about status, and emphasizes the important role that status games play in most social situations and how hard it is to be aware of one’s status-related behavior.

One disturbing claim he makes is that “acquaintances become friends when they agree to play status games together”. I’m very tempted to deny that I do that (as he predicts most people will deny acting). But I know there’s more happening in social interactions than I’m aware of, so I’m hesitant to dismiss his claim.

The chapter on spontaneity has apparently important insights about the role self-censorship plays in spontaneity and creativity. But I find it hard enough to change my behavior in response to those insights that I can’t be confident he’s correct.

He has the insight that “personality” functions as a public-relations department for the mind. Personality doesn’t seem like quite the right word here, but this is remarkably similar to an idea that Geoffrey Miller later developed from evolutionary theory in his excellent book The Mating Mind.

The chapter on masks and trance is strange and hard to evaluate.

Book review: City of Gold: Dubai and the Dream of Capitalism by Jim Krane.

This book describes how a nearly barren piece of land became a prosperous city. Dubai sounds like what you’d expect if Bill Gates had taken over a small desert tribe and turned it into a real estate development company.

Part of its success is due to having the right amount of oil given its population size. Most non-industrialized countries that find enough oil to affect their economy are corrupted by dependence on it and by political fighting over who profits from it. Dubai found enough to finance a good deal of growth, but quickly saw that oil revenues would decline before long. Also, it had few enough people that the ruling family could afford to buy off any potential opposition.

But Dubai’s development started before it had much hope for oil money, and is partly due to the ambitions of a few people who ruled it. There must be a fair amount of luck involved – it seems to be an accident that Dubai is ruled by competent businessmen who are uninterested in politics (one ordered his reluctant brother to become the ruler). British rule over the region early on also helped ensure political stability.

The book’s description of Dubai’s legal system is confusing. How did a tribe with no tradition of private property make investors feel safe? I’ve read elsewhere that importing a British judge and British common law to the financial district is part of the explanation. The rest of Dubai seems to manage with virtually no legal system. I’m still puzzled about how Dubai provides enough predictability to attract large investments.

He describes Dubai’s lack of democracy as “an embarrassment”. But most of the book suggests that Dubai has been doing better than a democracy could. It makes much faster decisions than a democracy, and it forces bureaucrats to compete for performance scores that would be too easily gamed if voters were in charge.

Dubai’s ambitious expansion has made it resemble a financial bubble for much of the past 55 years, but most of its gambles have succeeded. This makes me wonder how to distinguish similar expansions from bubbles in the future (or in China, the present).

Dubai is an important model for how seasteads might develop, and will compete with any seastead.

The author has a modest pro-Dubai bias, but reports some serious problems such as workers being unable to leave because their passports has been confiscated, and wasteful subsidies of energy and water prices.

He claims that until 2008 the region “hadn’t experienced a financial shock for more than three decades”. Was the 1982 Kuwaiti stock market crash in a different region? It’s not obvious where to get enough financial data to say how the shock from that affected Dubai.

Book review: Moral Machines: Teaching Robots Right from Wrong by Wendell Wallach and Collin Allen.

This book combines the ideas of leading commentators on ethics, methods of implementing AI, and the risks of AI, into a set of ideas on how machines ought to achieve ethical behavior.

The book mostly provides an accurate survey of what those commentators agree and disagree about. But there’s enough disagreement that we need some insights into which views are correct (especially about theories of ethics) in order to produce useful advice to AI designers, and the authors don’t have those kinds of insights.

The book focuses more on near term risks of software that is much less intelligent than humans, and is complacent about the risks of superhuman AI.

The implications of superhuman AIs for theories of ethics ought to illuminate flaws in them that aren’t obvious when considering purely human-level intelligence. For example, they mention an argument that any AI would value humans for their diversity of ideas, which would help AIs to search the space of possible ideas. This seems to have serious problems, such as what stops an AI from fiddling with human minds to increase their diversity? Yet the authors are too focused on human-like minds to imagine an intelligence which would do that.

Their discussion of the advocates friendly AI seems a bit confused. The authors wonder if those advocates are trying to quell apprehension about AI risks, when I’ve observed pretty consistent efforts by those advocates to create apprehension among AI researchers.

Book review: What Intelligence Tests Miss – The Psychology of Rational Thought by Keith E. Stanovich.

Stanovich presents extensive evidence that rationality is very different from what IQ tests measure, and the two are only weakly related. He describes good reasons why society would be better if people became more rational.

He is too optimistic that becoming more rational will help most people who accomplish it. Overconfidence provides widespread benefits to people who use it in job interviews, political discussions, etc.

He gives some advice on how to be more rational, such as thinking the opposite of each new hypothesis you are about to start believing. But will training yourself to do that on test problems cause you to do it when it matters? I don’t see signs that Stanovich practiced it much while writing the book. The most important implication he wants us to draw from the book is that we should develop and use Rationality Quotient (RQ) tests for at least as many purposes as IQ tests are used. But he doesn’t mention any doubts that I’d expect him to have if he thought about how rewarding high RQ scores might affect the validity of those scores.

He reports that high IQ people can avoid some framing effects and overconfidence, but do so only when told to do so. Also, the sunk cost bias test looks easy to learn how to score well on, even when it’s hard to practice the right behavior – the Bruine de Bruin, Parker and Fischhoff paper than Stanovich implies is the best attempt so far to produce an RQ test lists a sample question for the sunk costs bias that involves abandoning food when you’re too full at a restaurant. It’s obvious what answer produces a higher RQ score, but that doesn’t say much about how I’d behave when the food is in front of me.

He sometimes writes as if rationality were as close to being a single mental ability as IQ is, but at other times he implies it isn’t. I needed to read the Bruine de Bruin, Parker and Fischhoff paper to get real evidence. Their path independence component looks unrelated to the others. The remaining components have enough correlation with each other that there may be connections between them, but those correlations are lower than the correlations between the overall rationality score and IQ tests. So it’s far from clear whether a single RQ score is better than using the components as independent tests.

Given the importance he attaches to testing for and rewarding rationality, it’s disappointing that he devotes so little attention to how to do that.

He has some good explanations of why evolution would have produced minds with the irrational features we observe. He’s much less impressive when he describes how we should classify various biases.

I was occasionally annoyed that he treats disrespect for scientific authority as if it were equivalent to irrationality. The evidence for Big Foot or extraterrestrial visitors may be too flimsy to belong in scientific papers, but when he says there’s “not a shred of evidence” for them, he’s either using a meaning of “evidence” that’s inappropriate when discussing the rationality of people who may be sensibly lazy about gathering relevant data, or he’s simply wrong.

Book review: Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas E. Woods Jr.

This book describes the Austrian business cycle theory (ABCT) in a more readable form than it’s usually presented. Its basic idea that malinvestment creates business cycles, and that central bank manipulation of interest rates can cause malinvestment, is correct. But when Woods tries to argue that only errors by a government can cause business cycles, his ideological blinders become obvious. He’s mostly right when he complains about government mistakes, and mostly wrong when he denies the existence of other problems.

He asks why businesses made a “cluster of errors” that added up to a big problem rather than independent errors which mostly canceled each other out. The only answer he can find is misleading signals sent by the Fed’s manipulation of interest rates. He doesn’t explain why businessmen fail to learn from the frequent and widely publicized patterns of those Fed actions. It’s unclear why groupthink needs a strong cause, but one obvious possibility that Woods ignores is that most people saw a persistent trend of rising housing prices, and didn’t remember large drops in housing prices over a region as large as the U.S.

He shows no understanding of the problems associated with sticky wages which are a key part of the better arguments for Keynesian approaches.

He wants to credit ABCT with having predicted this downturn. If you try to figure out when was the last time it didn’t predict a downturn (the early 1920s?), this seems less impressive than, say, Robert Shiller’s track record for predicting when bubbles burst.

His somewhat selective use of historical evidence carefully avoids anything that might present a picture more complex than government being the sole villain. He describes enough U.S. economic expansions to present a clear case that credit expansion contributed to the ensuing bust, and usually points to a government activity which one can imagine caused excessive credit expansion. But he’s unusually vague about the causes of the expansion that led to the panic of 1857. Could that be because he wants to overlook the role that new gold mining in California played in that inflationary cycle?

He mostly denies that free market approaches have been tested for long enough to see whether we would avoid business cycles under a true free market. He points to a few downturns when he says the government followed a wise laissez faire policy, and compares the shortness of those downturns with a few longer downturns where the government made some attempts to solve the downturns. When doing this, he avoids mention of the downturns where massive government actions were followed by mild recessions. Any complete survey comparing the extent of government action with the ensuing economic conditions would provide a much murkier picture of the relative contributions of government and market error than Woods is willing to allow.

The most interesting claim that I hadn’t previously heard is that a large decrease in the money supply in 1839-1843 coincided with healthy GNP growth, which, if true, is hard to explain without assuming Keynesian and monetarist theories explain a relatively small fraction of business cycle problems. My attempts to check this yielded a report at http://www.measuringworth.org/usgdp/ saying GDP in 2005 dollars rose from $31.37 in 1839 to $34.84 in 1843, but GDP per capita in 2005 dollars dropped from $1884 in 1839 to $1869 in 1843. Declining GDP per capita doesn’t sound very prosperous to me (although it’s a mild enough decline to provide little support for Keynesians/monetarists).

He tries to blame the “mistakes” of credit rating agencies on an SEC-created cartel of rating agencies. That “cartel” does have some special privileges, but he doesn’t say what stops bloggers from expressing opinions on bond risks and developing reputations that lead to investors using those opinions in addition to the “cartel”‘s ratings (Freerisk is a project which is planning a sophisticated alternative). I say that anyone who understands markets would expect the yield on the bonds to provide as good an estimate of risk as any alternative. Credit rating agencies must be performing some other function in order to thrive. An obvious function is to mislead bosses and/or regulators who don’t understand markets into thinking that the people making investment decisions are making choices that are safer than they actually are. It appears that the agencies performed that function well, and helped many people avoid being fired for poor choices.

His discussion of whether WWII spending cured the Great Depression points out that mainstream theories falsely predicted a return to depression in 1946. But it’s unclear whether all versions of Keynesianism make that mistake, and it’s unclear how ABCT could predict the U.S. would be much more prosperous in 1946 than at the start of the war.
Here’s an alternative explanation that lies in between those theories: wages were being kept too high for supply and demand to balance through 1941. Inflation and changes in government policy toward wage levels during WW2 eliminated the causes of that imbalance.

Arnold Kling has a good quasi-Austrian alternative here and here.