Saturday, April 19, 2014

Assume a Can Opener

Which ball will you be?
Once upon a time, O Dearly Beloved, a cruise ship carrying a convention of scientists and social scientists collided somewhere in the South Pacific with a floating shipping container full of remaindered Greg Mankiw textbooks. The textbooks had been bound for the newly founded Jack Welch School of Neverending Business in Shenzhou before the container fell off a freighter during a storm. Sadly, the cruise ship foundered and sank to the bottom with almost all hands and passengers on board, with the exception of one physicist, one chemist, and four economists.

Being practical, quick-acting folk, the physicist and chemist salvaged a shrink wrapped pallet full of Principles of Economics (4th ed.) from the open container to float upon in the open sea, where they were shortly joined by one of the economists. The other three economists swam to another pallet floating nearby, which happened to contain Denver Broncos Super Bowl XLVIII Champion t-shirts, and were able to climb onto that. Eventually, the drifting current separated our two little bands of survivors, and a few days later they each washed up on small, isolated atolls about five miles apart.

Upon their atoll, as luck would have it, the three economists found a large cache of perfectly preserved canned food, left no doubt by local fishermen for just such an eventuality. Unfortunately, however, the fishermen had forgotten to provide can openers or indeed tools of any kind to open the food, and of course the survivors had carried nothing off the ship with them but their clothes. After considering the situation, the three economists agreed to separate and come up with solutions to their predicament which they could discuss and agree upon. The economists spent some time wandering the beach in thought. Then they reconvened to discuss their ideas.

The first economist stated that, based on his calculations, the joint probability of the three of them surviving the shipwreck, landing on a habitable atoll in the middle of thousands of square miles of empty ocean, and finding a cache of edible foodstuffs was so infinitesimal they might as well curl up and starve to death, content in the knowledge they had beaten the odds spectacularly so far. The second economist countered that, based on his proprietary DSGE model, the normalized incidence of unopened canned foodstuffs in an economy in equilibrium should comprise no more than 17.2% of all available consumables. He therefore proposed a thorough exploration of the 500 square meter atoll to find the remaining edibles—theoretically consisting of canned goods already opened and uncanned foods edible without the aid of openers—which his model predicted were just waiting to be discovered. The third economist demurred, contending that, even if they were able to find some means of opening and cooking the canned food, eventually the stores would run out and they would starve to death. He argued that expending tremendous amounts of effort trying to extend their lives in the face of certain death was foolish. Instead, he proposed the three spend their remaining days in relative ease and comfort, arguing about Paul Krugman’s latest op ed in The New York Times.

Naturally, being economists, the three could not agree on which solution to follow, so they parted company and went their separate ways. The first economist, true to his word, curled up under a palm tree and waited to die, taking comfort in his distress from the even more unlikely fact he could shelter under a blanket made of Denver Broncos Super Bowl shirts. The second economist set off on an expedition around the atoll to look for the missing food his model predicted. Within minutes, he stumbled into a sinkhole and broke his neck. The third decided that, since he was now alone, going for a pleasant swim would be easier than attempting to discuss a Krugman piece with himself, so he waded into the ocean and was promptly eaten by a large shark.

* * *

Meanwhile, five miles away, the physicist and the chemist killed the fourth economist with a rock, roasted and ate his body over a bonfire of economics textbooks, and waited for a ship to respond to their smoke beacon. After they were rescued, they got married, got tenure, and lived happily ever after.

So who said economists are useless?1

Related reading:
Bryan Caplan, Try Harder or Do Something Easier? (EconLog, April 16, 2014)

1 As someone who has made giving advice his living, this kind of nonsense irritates me no end. Advising people to take or forgo risks based on averages isn’t good advice. It’s lazy advice. Good advice includes a clear discussion of the odds of success—or what you think might be the odds (which are normally not quite so clear cut in most instances)—but it doesn’t stop there. You discuss the risks, the odds, and the special talents and resources your advisee intends to bring to the situation to come to a specific, tailored recommendation. “Don’t start a restaurant, because 60% of them fail” is lousy advice. “You realize on average 60% of new restaurants fail, right? What makes you think you can succeed?” is a better start to advice that might actually do the advisee some good. Notwithstanding many economists’ predilection to think in aggregates and averages, virtually nobody lives an average life. And a hell of a lot of outliers contribute to socioeconomic averages.

Consider the quincunx.

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