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Undercover Economist

Is life a bet, or an experiment?

Since the official Brexit policy of the UK government now seems to be “accidents happen”, it is a nourishing age for those who dine on uncertainty. Most of us, however, started feeling queasy long ago. If you’re looking for guidance as to how to digest the unpredictabilities of life, why not turn to a poker player for advice?

Annie Duke, author of Thinking In Bets (UK) (US), says that “wrapping our arms around uncertainty and giving it a big hug will help us become better decision makers”. Fair enough. If we’re going to have to eat our uncertainty broccoli anyway, it may be best to swallow it down before it goes cold and limp.

As the winner of several million dollars as a professional poker player, Ms Duke has some credibility on this point. But is she right?

One quibble is that games have a more tightly-defined spectrum of uncertainty than reality does. Edward Thorp, a mathematician who achieved considerable success at blackjack and as a hedge fund manager, found (UK) (US) that the true risks he faced in the casinos were not an unlucky turn of the card, but crooked dealers and poisoned coffee. Not for nothing does Nassim Taleb, author of The Black Swan (UK) (US) warn of the “ludic fallacy” — treating the unknown risks of life as though they were the known risks of a game of chance.

Still, poker is a more instructive game than many others. John von Neumann, the brilliant mathematician who laid down the foundations of game theory in the late 1920s, was a poker player. Poker was no mere computational problem like chess, he said: “Real life consists of bluffing, of little tactics of deception, of asking yourself what is the other man going to think I mean to do, and that is what games are about in my theory.”

So what does poker teach us about “wrapping our arms around uncertainty”? Ms Duke offers us several lessons.

One is that, since luck matters as well as skill, bad decisions can have good outcomes, and vice versa. If you drive drunk, you will probably get home without killing anyone, but that would not make drunk driving a good decision.

A second lesson is that we should always be willing to ask ourselves, “do I want to bet on that?” — it’s easy to be overconfident if there are no obvious consequences for being wrong. A bet forces us to think about the odds and the possibility that someone else may know better.

So there is much to be said for thinking in bets. Yet we should not overlook an alternative approach to uncertainty: thinking in experiments. An experimental thinker views the uncertainties of the world as something to be resolved through tentative trial and error. Try something modest or reversible; an experiment doesn’t need to be a double-blind, randomised controlled trial to yield useful information. If it works, do more of it.

Some decisions are by their nature irreversible. Each big poker hand is a one-shot proposition that does not offer much scope for experiment. The same could be said of some investments: if you think shares in Tesla are cheap, there is little to be said for buying just one share and watching it to find out what happens to its price. An experiment cannot help; instead you must figure out whether the odds are in your favour, and take the plunge.

But other decisions are more experimental. In these cases, the choices can be made in stages, with each step designed to reveal some information. From Marvel’s decision to publish the Spider-Man comics (that went well) to Google’s launch of the G+ social network (that didn’t) a company can see what works and then either redouble its efforts or abandon the project. For an individual, anything from a new hobby to a new career can be treated as an experiment.

Many of the decisions we make are reversible. Only our stubbornness makes them permanent. Thinking in bets forces a commitment, which is sometimes helpful but sometimes not. Thinking in experiments allows us to learn.

I thought of all this when reading of poker professional John Hennigan’s $30,000 bet that he could move to Des Moines, Iowa, and live there, just for a few weeks. As Ms Duke tells the story, Mr Hennigan was bored out of his mind within days, and paid $15,000 to buy himself out of the bet and move back to Las Vegas. That’s thinking in bets at its worst: an idle thought (“should I move to Des Moines?”) became a high-stakes zero-sum game. Fun — if you like that kind of thing.

A few years ago, my family were agonising over a similar question (“Should we move to Oxford?”). We vacillated and made lists of pros and cons. What resolved the uncertainty was realising the decision could be an experiment: rather than selling up, we could rent a place in the city for a year to see how things worked out. Running this experiment created some additional costs, but we have never regretted doing it.

Thinking in bets is a rigorous and admirable habit, but not everything has to be a high-stakes poker hand. If you can make it work, thinking in experiments is less painful.



Written for and first published in the Financial Times on 15 Feb 2019.

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Undercover Economist

Why inflation is good for us

Not long ago, I wrote a column in defence of central banks. Some readers were quick to disagree. Central banks had failed to maintain “the real value of our fiat currencies”, wrote one, urging me to ponder how inflation had eroded the true value of savings over the decades.

A glance at Venezuela, where inflation over the past year has been more than 100,000 per cent and the economy is breaking down, reminds us that this is no idle complaint. Central banks must keep inflation under control. But what does “under control” mean? How much inflation is too much? And — a question only an economist could ask — how much inflation is too little? It goes without saying that hyperinflation is an economic catastrophe, so the first thing to check is whether hyperinflation is likely in an advanced economy — or indeed a competently governed country of any sort. It is not.

In 2012, economists Steve Hanke and Nicholas Krus assembled a list of every confirmed episode of hyperinflation in history. There weren’t very many: 56 in total, mostly in the 20th century, to which we might add recent outbreaks in Zimbabwe, Iran, Venezuela and perhaps North Korea. France suffered a bout in the 1790s, but most instances of hyperinflation occurred either in central European states after the first world war (including the infamous crisis in Weimar Germany), or during or immediately after the second world war (including Hungary, history’s worst example of hyperinflation), or in the eastern bloc as the Soviet Union disintegrated.

Hyperinflation does not strike at random, and it does not happen because central banks briefly slumber. It must be manufactured by the relentless printing of money, generally as the last resort in the face of political dysfunction alongside a severe fiscal crisis. Perhaps it is rash to say so, but I think we can set aside fears of hyperinflation in an advanced economy today. If it ever does happen, it will be only one element in a far more comprehensive economic disaster.

But the readers who emailed to complain about inflation did not express concerns about hyperinflation. They are worried about low-level ambient inflation, the kind that central banks not only tolerate, but actively seek. Central banks do not try to maintain “the real value of our fiat currencies”, but to erode them, typically by 2 per cent a year. They have often been explicitly instructed to do so by elected politicians.

Are those instructions wise? Even 2 per cent inflation will halve the value of money in 36 years. That seems bad, but let’s try to pin down why it might matter. It may help to remember what it is that we expect any good currency to do.

First, we want it to serve as a medium of exchange, allowing me to pick up a loaf of bread without having to persuade the baker to swap it for a copy of The Undercover Economist Strikes Back. Inflation at 2 per cent a year — or 5, or even 20 — does not prevent money serving as a medium of exchange.

The second, and perhaps most fundamental, role of money is as a stable unit of account. It helps us understand the economic forces around us, whether a particular product is expensive or cheap, without resorting to a calculator. Hyperinflation destroys that. “Are we ruined or in clover?” asks a character in an Erich Maria Remarque novel set in the Weimar hyperinflation. No one knows. But moderate inflation will not boggle minds on a trip to the shop.

Inflation does more obvious damage to money’s third role, which is as a store of value. If you stick your currency under the mattress then inflation will hurt you. It will also hurt if you have a non-indexed pension, or cannot find a high-interest savings account. Normally, however, a well-functioning financial sector offers returns to compensate for inflation.

That has not been the case since the 2008 financial crisis, of course. But the pain savers are feeling is not because central banks have carelessly let inflation take off. It is the result of a deliberate policy of low interest rates to stimulate spending and investment. Perhaps this policy is a mistake, perhaps not. But it would be wrong to view it as a dereliction of duty.

Another source of pain is governments’ fondness for using inflation as a way to grab a bit more revenue, by taxing nominal interest payments. It’s an insult for savers, but let’s be realistic: the tax would be levied somehow anyway. Inflation is sometimes the taxman’s chisel, but he has other tools.

It is surprisingly difficult to find any serious costs to low levels of inflation. In contrast, the benefits are easily stated: more room to stimulate the economy in a recession, and more room for real wages to adjust if they must. Olivier Blanchard, during his time as chief economist of the IMF, even floated the idea that the inflation target should be 4 per cent, not 2 per cent. He is by no means alone in that opinion. Like a low dose of aspirin, a low dose of inflation is unlikely to do much harm — and it can prevent an economic heart attack.


Written for and first published in the Financial Times on 8 Feb 2019.

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Undercover Economist

How high should the top rate of tax be, and who should pay it?

What should the top rate of income tax be? Should it be 70 per cent, as has been informally suggested by the young star of the US Democratic party, Congresswoman Alexandria Ocasio-Cortez? That instinctively feels too high to me. But, as an economist with sporadic hopes of making logical arguments based on evidence, I admit that “instinctively feels too high” is a weak response.

What about 50 per cent, the official policy of the UK’s opposition Labour party at the last general election? Or zero, the optimal top rate that emerged from a thought experiment posed by the late James Mirrlees, a Nobel laureate in economics?

An alternative is to tax wealth instead of income, as US Democratic Senator Elizabeth Warren has proposed. But — at least in principle — there is not much difference between a small annual tax on total wealth and a large tax on the nominal return generated by that wealth.

To make the case for a top rate of tax above 70 per cent, it helps to believe four things.

The first is that taxable income itself won’t evaporate in the face of a high rate, as it did in the UK when the top tax rate was briefly raised from 40 to 50 per cent in 2010, then cut to 45 per cent. Most high earners found it easy to realise income early, or late, and avoid the 50 per cent rate. A permanent increase is harder to avoid; so is an increase that is enforced with determined (or draconian) measures; as is an increase levied by a large economy with global legislative reach such as the US. In smaller economies such as the UK’s, the very rich are more likely to take themselves elsewhere for any given tax rate.

One academic paper produced by Emmanuel Saez (a star in the study of inequality) and Peter Diamond (a Nobel laureate and colleague of Mirrlees) estimated that the combined rate of tax on the income of high earners could be 73 per cent in the US without proving counter-productive. Another paper, published in the same journal, by Gregory Mankiw and co-authors, put the optimal top rate at just under 50 per cent instead. The difference lies in the assumptions.

The second thing one needs to believe is that the rich will barely miss any extra income if tax rates rise. The truth of this is unknowable, although another famous study from yet more Nobel laureates, Daniel Kahneman and Angus Deaton, suggests that money will not improve your everyday mood and wellbeing after an income of $75,000 a year or so. To reach their conclusions about the 73 per cent rate, Professors Diamond and Saez assume that a dollar is 25 times more valuable to a person on about $50,000 a year than to a person on $500,000. That is not an insane assumption, but it’s an assumption nonetheless.

If you accept these first two beliefs, the economic case for a high top rate of tax follows. A high rate maximises revenue if the tax base doesn’t shrink too much, and revenue maximisation is a reasonable goal if it’s true that the rich would barely notice the lost income.

But this argument ranges far beyond economics. If you like high tax rates, the third thing it helps to believe is that inequality is intrinsically corrosive. Perhaps it undermines democracy. Perhaps it causes stress, envy or resentment. The empirical evidence is not much help here; it is sketchy and often seems tendentious. Causal channels are unclear: does inequality lead to a hollowed-out state? Or does a hollowed-out state enable inequality? Perhaps a thought-experiment is more helpful here: how would you feel about a policy that simply confiscated resources from the super-rich and destroyed them? Would such a policy be a criminal waste and a grotesque infringement of liberty, or a helpful rebalancing of the scales?

Then there’s a fourth, often unstated, belief: that the rich have so much money that a high rate of tax will raise serious revenue. That depends on who you regard as “rich”. Ms Ocasio-Cortez mentioned a threshold of $10m. Profs Diamond and Saez focused on the highest earning 1 per cent of taxpayers, implying that the band would apply above around $500,000 a year. The Labour party wanted its highest rates to apply on incomes over £100,000.

These are very different definitions of “rich” and they have very different implications for revenue. For example, Ms Ocasio-Cortez’s income threshold of $10m is higher than that required to get into the top 0.01 per cent of the US income distribution: about 16,000 families. This tiny slice of the US population receives a less-than-tiny 5 per cent of total US income — which nevertheless implies that 95 per cent of income is earned by those making less.

The super-rich are a tempting target, but a serious attempt to raise revenue cannot stop with them. Whether we are talking about income or wealth, the lion’s share lies not with the billionaires but with the comfortably off. It is nice to talk about taxing somebody else’s money, but in a world of chronic budget deficits and worsening demographics, the ethics and economics of higher tax rates are unlikely to remain someone else’s problem.

Written for and first published in the Financial Times on 1 Feb 2019.

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Some fabulous books about numbers

I had a treat over Christmas avoiding Twitter and reading pre-releases of books about maths. The joys! Two particular pearls are about to be released.

The Art of Statistics (US) (UK) by Sir David Spiegelhalter should be self-recommending, but this is a really first class introduction to the power of statistics. David starts with some basics (categories, proportions, visualisation) but by the end of the book has covered big data analytics, confidence intervals, Bayesian statistics and much else. It’s a remarkably accessible read, full of powerful examples, but covers technical ground too, where appropriate. I can’t think of a better starting point for someone who wants to become a statistician or to use statistics in any professional way, and it covers most of what the lay-person would need. Bravo!

Humble Pi (US) (UK) by Matt Parker is a very funny collection of tales of mathematical, programming or engineering errors, generally with non-fatal consequences, although there are a few billion dollars lost here and there. Matt smuggles in a great deal of wisdom and geeky detail – for example, how to produce a rounding error when asking Excel to subtract 0.4 and 0.1 from 0.5. I loved the book.

I’ve also just caught up with the existence of Is That A Big Number? (US) (UK) by Andrew Elliott, which offers much wisdom for putting numbers into perspective by visualising, estimating or comparing them. One idea I particularly liked was the “landmark number” (for example: a book is about 100,000 words long; it’s a 3000 miles or 5,000km drive from Boston to Seattle) – having a few of these numbers in your head or at your fingertips for comparative purposes is much to be recommended.

Next up, Invisible Women (US) (UK) by Caroline Criado Perez, about the way the data we gather often omits or short-changes women. An important topic and the book is getting good reviews. I’ll report back.

UPDATE Friday 1 March – having read the first 100 pages of Invisible Women I can report that it’s an excellent, powerful and thought-provoking book about the way our lives revolve around the assumption that “man” is the default and “woman” the weird edge-case. Examples from interior design (Le Corbusier designed the proportions of his interiors around average men, dooming the average woman never to be able to reach the top shelf) and snow-sweeping (men are more likely to drive, women are more likely to walk: do we clear the roads first, or the sidewalks?). Despite the subtitle (“Exposing data bias”) there is not much yet about data bias but still time for the book to scratch that particular nerdy itch.

ANOTHER UPDATE Tuesday 5 March – quite a lot of v. interesting stuff in the second half of Invisible Women about subtle (and less subtle) biases in the data we collect. For example – gathering data on household income (rather than individual income) isn’t a crazy thing to do, but it does obscure any question of who in the household is earning and / or controlling the cash. I’ll be writing about the blind-spots in our data for the FT this weekend.

See also: Books about algorithms. Books about statistical bullshit.



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28th of February, 2019ResourcesComments off
Undercover Economist

“Blue Monday” pseudoscience should teach us to be more curious

Given that it is the purest bullshit, the “Blue Monday” meme is showing surprising longevity. While the US this week celebrated Martin Luther King Jr day, the British were reading about what purports to be the most depressing day of the year.

The fantasy that the third Monday of January is Blue Monday was dreamt up by Sky Travel, a holiday company that no longer exists. It is based on an equation linking weather, debt and other factors that is transparently absurd, and was given the faintest air of academic rigour by being endorsed by a psychologist with the title “Dr”. This scheme to sell more package holidays was launched in 2005 — 14 years ago, for goodness’ sake — and is still being used to sell package holidays.

It endures despite some blistering reporting from Ben Goldacre, a psychiatrist, writer, and researcher in evidence-based medicine. A single internet search, a moment’s glance at Wikipedia, should be enough to give anyone pause before citing Blue Monday. Yet we continue; it seems we can’t help ourselves.

Blue Monday is particularly popular, but it is by no means the longest-lived myth. I’ve seen lies about EU cabbage regulations that date back to the mid-20th century and were originally lies about the US government: six or seven decades of misinformation, circulating under the radar to pop up again in the age of social media.

Why do such ideas endure? What do they tell us about our attitude to science, evidence or the truth itself?

The obvious response is that we are too credulous: we’ll believe anything. I’m not so sure. There are plenty of things we should believe, but which many people do not — for example, that Neil Armstrong walked on the moon, that smoking dramatically increases the risk of lung cancer, that carbon dioxide emissions are changing the climate, and that routine vaccines are far more likely to prevent harm than cause it. The risk of believing anything must be weighed against the risk of believing nothing.

In the case of Blue Monday, the basic problem seems to be that nobody cares enough to ask a couple of simple questions. When “experts” “officially” say that it is a depressing day, which experts? What reasons do they give for making the claim? One or two clicks on a search engine reveal the answer: no experts believe this and no good reason has ever been given.

But in the case of climate change or vaccine denial — or, dare I say it, the curious belief in numbers written on the side of a big red bus — the problem is not that nobody cares. It is that people care passionately. They care so passionately that they will go to great lengths to dismiss contrary evidence. The scepticism isn’t lazy; it is energetic. And it’s something we should recognise in ourselves: who can honestly say they have never flipped a newspaper page, turned over the channel, or found someone else to talk to at a party, in search of an opinion that we can agree with?

So should we be more trusting, or more sceptical? Onora O’Neill, whose 2002 Reith Lectures were on the subject of “trust”, sharpens the question — as we might hope a philosopher would. Rather than trying to measure or increase some vague measure of “trust”, she says, we should be aiming for a better ability to trust what is trustworthy and to mistrust what is not.

Restoring trust in the claims of science, statistics, or expertise — while stoking a healthy scepticism of snake oil and pseudoscience — is not something that can be left to any one part of society. If experts — and for that matter, journalists — wish to be trusted, they must provide evidence of their trustworthiness. But the non-experts among us could also do more to keep ourselves well-informed.

How you demonstrate trustworthiness depends on who you are and what you hope to be trusted to do. A good starting point is the list of principles for “intelligent openness” set out a few years ago by the Royal Society in a report, Science As An Open Enterprise. (Baroness O’Neill was one of the report’s authors.)

Intelligent openness requires that the data used to make scientific claims are accessible, understandable, usable and assessable. “Accessible” implies publication online at minimal cost. “Understandable” means claims made in plain language, as clearly as possible. “Usable” may mean supplying data in a format easily analysed by computers, and it also suggests that the conclusions be framed in a way that is relevant to everyday concerns. “Assessable” means that anyone with the time and expertise has the detail required to rigorously test the idea if they wish.

That is something scientists, statisticians, economists and other “experts” can do. What the rest of us owe them — and more importantly, owe ourselves — is to ask a few questions before we spread an idea on social media or rely on it to govern our votes, our diets, or our attitudes to each other.

One or two smart questions, or a moment double-checking with an internet search — that is often all it takes to provide the context we need to make a wiser judgment. It shouldn’t be too much to ask of ourselves.

Written for and first published in the Financial Times on 25 January 2019.

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Undercover Economist

Lessons from the wreck of the Torrey Canyon

On Saturday March 18 1967, around half past six in the morning, the first officer of the Torrey Canyon realised that his vessel was in the wrong place. The 300-metre ship was hurrying north past the Scilly Isles, 22 miles off the tip of Cornwall in the south west of England, with more than 119,000 tonnes of crude oil. The aim was to pass west of the islands, but the ship was further east than expected.

The officer changed course, but when the sleep-deprived captain Pastrengo Rugiati, was awoken, he countermanded the order. A two-hour detour might mean days of waiting for the right tides, so Capt Rugiati decided instead to carry on through the treacherous channel between the Scilly Isles and the mainland.

Most serious accidents have multiple causes. A series of mistakes or pieces of bad luck line up to allow disaster. The Torrey Canyon was hampered by an unforgiving schedule, barely adequate charts, unhelpful winds and currents, confusion over the autopilot, and the unexpected appearance of fishing boats in the intended course. But reading Richard Petrow’s contemporary account of the Torrey Canyon disaster, a clear lesson is that Capt Rugiati was too slow to adjust. He had a plan, and saw far too late that the plan was doomed to failure — and with it, his ship.

Some accident investigators call this “plan continuation bias”. Airline pilots sometimes call it “get-there-itis”. The goal appears within touching distance; it’s now or never. Tunnel vision sets in. The idea of a pause or a change of approach becomes not just aggravating, expensive or embarrassing — it becomes literally unthinkable.

In such circumstances aeroplanes have crashed after trying to land in bad weather because the destination airport was so temptingly close. Patients have died of oxygen starvation because doctors and nurses fixated on clearing blocked airways rather than checking whether an oxygen pump was working. And the Torrey Canyon ran aground, producing the world’s first major oil tanker disaster.

We’ve all experienced “get-there-itis”. For me, it tends to emerge when dealing with family logistics. One child needs to go somewhere, another must be picked up from school. Then it turns out that someone needs to be at home to receive a delivery; the car is in for a service; the babysitter calls to cancel.

The plan seems feasible at first, but as complications mount, it starts to resemble an increasingly precarious assembly of stages and steps, lift-swaps and rendezvous, a Rube Goldberg fever-dream of an itinerary. If I’m lucky, someone finds the mental space to see clearly the fragility of it all. Someone suggests a cancellation or two, replacing the entire time-and-motion nightmare with something radically simpler.

It’s that moment of clarity that is so often missing. Haste makes things worse, as when La La Land was mistakenly announced as the winner of the Oscar for best picture two years ago. When Warren Beatty opened the envelope he’d been given at the Academy Awards ceremony, live on stage in front of Hollywood’s most powerful stars and a TV audience of tens of millions, what he saw in front of him didn’t make a lot of sense. That was because he’d been given the wrong envelope.

With hindsight he should have walked off stage and asked for clarification — but of course, he felt under pressure to continue with the plan, which was to read whatever was in the envelope. In the end it was his co-host Faye Dunaway who blurted out the wrong film name; she had even less time than Mr Beatty to stop and think.

Is there a solution? In their book Meltdown (US) (UK), Chris Clearfield and András Tilcsik argue that even in fast-moving situations, successful teams will find a way to check on each other and reassess the situation. The simpler solution, although it is not always possible, is to slow down.

For those of you wondering whether this column is really about Brexit, you may draw your own conclusions. But Theresa May— who at the final hurdle has managed to get her signature policy crushingly rejected by the UK parliament — is not the only one who has been suffering from get-there-itis.

Her opposite number Jeremy Corbyn, the leader of the Labour party, is obsessed with winning the snap general election that he has no power to call. The hard Brexiters are so fixated on an immediate and extreme Brexit that they seem happy to risk disgrace if they succeed, and no Brexit at all if they fail. The EU’s negotiating triumph may yet be a pyrrhic victory. Even the pro-European parliamentarians, with whom I have considerable sympathy, are now fumbling as they scramble for the contradictory goals of a soft Brexit or another referendum. For each faction, the goal seems so close, the blinkers go on, and the ship hits the rocks.

In an attempt at damage control, the Torrey Canyon was bombed by the Royal Navy. The thickest oil slicks ended up on the beaches of France. Make of that what you will.

Capt Rugiati was haunted by his failure — a broken man, cowering from press attention. If only he’d taken the time to slow down and think again.

Written for and first published in the Financial Times on 18 January 2019.

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How behavioural economics helped me kick my smartphone addiction

The year 2011 was a big one for me. My son was born. We moved to a new city. I published a book. But something else happened that was in some ways more significant: on February 9 2011, I bought my first smartphone.

It didn’t feel like a milestone in my life at the time. I didn’t note it down in a diary or commit the date to memory. Only finding a copy of the receipt helped pin down the day. Yet I have come to realise that the phone was a very big deal indeed.

Daniel Kahneman, Nobel laureate and author of Thinking, Fast and Slow (UK) (US), distinguishes between the “experiencing self” and the “remembering self”. My remembering self dwells upon the landmark moments such as the new baby. But my experiencing self is all about the phone.

I spend more time interacting with it than I do interacting with my children. I am in the presence of the device more than I am in the presence of my wife, although at least I have my priorities straight as to which I go to bed with.

As Cal Newport puts it in a new book, Digital Minimalism (UK) (US), we didn’t sign up for this. My first email account (1994) received a handful of messages a day, most of them newsletters I subscribed to in order to prevent cobwebs forming in my inbox. Facebook (2004) was a curiosity, less interesting than the latest computer game.

The first iPhone (2007) had no app store and was originally conceived as an iPod that made phone calls — although since “crackberry” had just been named the word of the year by Webster’s New World Dictionary, perhaps we should have seen what was coming.

But we didn’t. The hardware and software of the mobile age have gradually and profoundly entangled themselves in most parts of most people’s lives. If you are anything like me, you pick up your phone much more often than you pick up a knife and fork, and spend far longer reading email than reading books.

Not that I wish to grumble. These tools are enormously powerful. Without them I’d need to hire a secretary, spend hours playing phone tag and give up on working during long journeys by train and plane. Yes, they may occasionally distract me during the school nativity play, but the alternative would have been to miss the play entirely, because the office and the school are 50 miles apart.

I am not entirely happy with the role these technologies play in my life, but neither do I want to relinquish them. I know I’m not alone. For several years now, I’ve been dispensing sporadic advice about email overload both to readers and — if I am honest — to myself.

But late last year, I decided to do something more radical: to deploy everything I knew about economic theory and behavioural science, along with a few hard-won practical discoveries, to rebuild my relationship with the digital world from scratch. This is the story of what I learnt.

The power of the status quo
Inertia is always the first obstacle. Richard Thaler, who won a Nobel Memorial Prize for his contributions to behavioural economics, coined the term “endowment effect” to label the behaviour of an oenophile economist.

The economist had snapped up some Bordeaux wines for $10 a bottle, only to see them appreciate in value to $200 each. The economist wouldn’t have dreamt of paying $200 for a bottle of wine, but didn’t want to sell the wine for $200 either. He was happy to drink it on special occasions instead.

This behaviour is illogical: either the economist should prefer $200 or he should prefer the wine, and which he actually possesses should make no difference. Yet his actions seem perfectly natural, and Thaler and colleagues were able to demonstrate similar behaviour in laboratory experiments.

We like what we have, and these experiments suggest that we have no better reason for liking what we have other than that we have it: the disadvantages of choosing something else often loom larger than the advantages. As a result, we are reluctant to relinquish what we have — including the digital tools we’ve grown accustomed to using.

For this reason, digital sceptics such as Cal Newport and Jaron Lanier suggest that the first step in a reassessment of your digital habits should be a sharp temporary break.

If you are anything like me, you pick up your phone much more often than you pick up a knife and fork

Lanier, a pioneer of virtual reality and the author of Ten Arguments for Deleting Your Social Media Accounts Right Now (UK) (US), advises at least a six-month break from all social media. Newport suggests a briefer but broader ban: not only no social media, but no Netflix, no Google Maps, no smartphones — no digital tools at all for 30 days, apart from whatever is professionally essential.

The point here is not a “detox”. There is no intrinsic benefit to taking a month off from computers any more than one might recommend a brief, invigorating break from smoking or opiates.

The aim is to change the status quo to allow a reassessment. It’s only after you put down the electronic rucksack overflowing with digital possibility and stroll off unencumbered that you’re in a position to make a sensible decision about whether you really want to carry it around all day long.

So, I stripped various apps off my smartphone. The first time I dragged an icon to the “uninstall” bin felt like a big step, but it soon became a giddy pleasure. Off went the news apps, and a blog reader called Feedly that absorbed a huge amount of my time and attention. I already eschew games on my phone, but would have removed them too with gusto.

I spared the Financial Times app (which surely passes Newport’s test of professional necessity), and also retained Google Maps, a podcast player, The Economist’s “Espresso” app, the camera and the weather. Newport would have been more radical but I felt satisfied with my choices.

The big question was: what to do with my social media accounts? Facebook was simply too troublesome to delete, especially since my personal account is connected in opaque ways to a “Tim Harford” page maintained by my publishers. But I never had Facebook on my phone and after briefly unfollowing or muting all my contacts, I had no problem staying logged out.

My Twitter habit is more of a problem. I have 145,000 followers, gently persuaded over 10 years and 40,000 tweets to follow me — that’s about 10 books’ worth, or 20 years of weekly columns. This alone was a reminder of just what an effort Twitter could be; but deleting the account felt like the nuclear option.

So what could I do? Two years ago, I hid the “mentions” column so that I don’t see what other people say about me on Twitter. (Much is friendly, some hurtful and almost all superfluous.) Yet I was still wasting a lot of time noodling around there for no obvious gain. So I deleted the smartphone app and on November 23 2018, I tweeted that I was planning to “get off Twitter for a bit”. By a pleasing coincidence, the last person I interacted with before logging out was the man who named the endowment effect, Richard Thaler.

Time for what?
One of the most important — and misunderstood — ideas in economics is that of opportunity cost. Everything we do is an implicit decision not to do something else. If you decide to go to an evening lecture, you’re also deciding not to be at home reading a bedtime story. If you spend half an hour browsing news websites, that’s half an hour you can’t spend watching football. Those 40,000 tweets cost me something, but I am not sure what and I certainly didn’t ponder the cost while tweeting them.

This neglect of opportunity cost is a very human trait; we often fail to bring to mind the opportunity costs of our choices. One fun if slightly dated illustration of this is the choice between a £1,000 high-end CD player or a slightly less excellent £700 unit.

A difficult choice — until it is phrased as a choice between a top-notch £1,000 CD player or a £700 player plus £300 worth of CDs. At that point, most people clearly prefer the second option. The opportunity cost of the more expensive player could hardly be more obvious, and yet bringing the obvious to our attention changes our decisions.

Trying to get work done with an internet-enabled device is like trying to diet when there’s a mini-fridge full of beer and ice cream on your desk

For this reason I was determined not simply to cut back on my digital activities, but to fill the freed-up time and energy with something else. I focused on three activities. First, more exercise: I replaced Twitter with an exercise app that could run me through some brief, vigorous training sessions.

Second, more fun: I looked up some old friends and invited them to play role-playing games with me every other Sunday evening, rolling dice and pretending to be wizards. (I realise that Dungeons & Dragons isn’t cool. But neither am I, so I don’t care.)

And third, since social media is supposed to be about connecting with far-flung people, and since Christmas was looming, I decided to start writing letters to include with Christmas cards. I couldn’t write properly to everyone but I did manage to write serious letters to nearly 30 old friends, most of whom I’d not seen for a while. I reflected on our long friendships, brought to mind good times long past and, in particular, recalled important moments shared just by the two of us, nobody else. The letters were the antithesis of clicking “Like” on Facebook.

The experiment was beginning to get interesting.

Swiping, fast and slow
As Daniel Kahneman explained in Thinking, Fast and Slow: “When faced with a difficult question, we often answer an easier one instead, usually without noticing the substitution.” Rather than asking whether we should buy shares in Amazon, we ask, “Do I like to shop with Amazon?” Instead of pondering the leadership and managerial qualities of a presidential candidate, we ask ourselves whether we’d enjoy having a beer with them.

Tristan Harris, executive director of the Center for Humane Technology, argues that the digital services we use often perform this substitution for us. Imagine, says Harris, a group of friends on a night out, trying to figure out where they can go to keep the conversation flowing. They turn to their phones for a recommendation and find themselves gawping at images of cocktails on Instagram.

The phones, says Harris, replace the question, “Where can we go to keep talking?” with, “What’s a bar with good photos of cocktails?” Phones simply do not suggest options such as going back to someone’s apartment or strolling along the waterfront.

This happens all the time, and we often don’t notice the substitution. Looking for love, we swipe through faces on Tinder rather than searching for local clubs or volunteering activities. Picking up a phone to check the time in the morning, the question “What’s the time?” is quickly substituted with, “What did I miss while sleeping”?

While writing the last paragraph, I was confronted with the perfect example. It started to rain. Wanting to know whether the shower would last, I typed “weather” into Google. I was given an instant answer to my question, but I was also shown a list of weather presenters. Human faces! They are always eye-catching.

An old university acquaintance became a TV weather presenter; I wondered how she was doing. Who wouldn’t? Of course Google substituted an easier question: What does she look like these days? Other photos of weather presenters were also offered and, 30 seconds later, I was looking at pictures of a completely different weather personality, Tomasz Schafernaker, stripped to the waist.

Fifteen years ago, I would have struggled to explain this sequence of events to my wife. But nowadays, no explanation is really needed. We all know how swiftly and easily “When will it stop raining?” can lead to “What do Tomasz Schafernaker’s nipples look like?”

Trying to get some work done with an internet-enabled device is like trying to diet when there’s a mini-fridge full of beer and ice cream sitting on your desk, always within arm’s reach. You can crack open a can and take a swig before you’ve even realised what you’re doing.

Perhaps even worse, the tempting rewards are unpredictable. The psychologist BF Skinner once found himself trying to eke out a supply of food pellets he’d been using to reward rats. To his surprise, he found that “intermittent reinforcement” — sometimes the rats would get a pellet, sometimes not — was more motivating than reliable rewards. Unpredictable treats are highly addictive, just like email, social media or clickbait headlines.

So what to do about this problem? It’s not easy: by definition an intuitive response occurs before we have time to stop and think. The obvious solution is to create some friction. I installed a software plug-in called Strict Workflow on my desktop browser. With one click, it blocks time sinks such as Twitter, YouTube and various clickbait news websites for a period of 25 minutes.

It’s astonishing how many times during those 25 minutes I reflexively check, see the blocking message instead and go back to work. I’m hopeful that a few weeks or months with this blocker may break this fast-twitch habit, but in any case the software works.

Meanwhile, by uninstalling news apps, Twitter and Feedly, I’d made my phone less like a sweet shop. As a testimony to the power of unconscious habit, after uninstalling Feedly, I deleted a few incoming emails, then unthinkingly tried to find it. It took a moment for me to realise I was searching for an app that I’d deleted less than a minute earlier.

It was a reminder that there’s more going on here than poor or short-sighted decision-making: often when we use our phones, we’re not really making any conscious decision at all.

Spillover benefits
Paul Romer won a Nobel Memorial Prize recently for analysing the way different innovations would spill over, enabling other innovations and the process of economic growth itself. Four weeks into my experiment, I was noticing some unexpected spillover benefits myself. The phone was still tempting, but decreasingly so. I took my children to see a Christmas film and, for the first time in years, didn’t feel the urge to check it.

I was getting a real sense of the mutually reinforcing nature of the distraction ecosystem — and how I’d failed to see it clearly when inside it. In November, for example, I would have been scrolling through Feedly looking for interesting material. I told myself I was looking for things to read, but really I was looking for things to tweet about. If pushed for time, I’d sometimes tweet things instead of reading them. This foolishness was evidence of a seriously bad habit.

But having uninstalled Twitter, I found myself less tempted to go and look at my Twitter stats (nothing to see) and also less tempted to flick through the blogs. After all, if I wasn’t going to tweet about them, why not read a book instead? Each new app that I removed from my phone weakened my tendency to pick up the device; often, it made other apps less useful or less appealing. I hadn’t seen this effect coming, but I wasn’t complaining.

Adapting to events
The first of January is usually the date for turning over a new leaf but, with hindsight, beginning my experiment in late November instead was an accidental masterstroke. The run-up to Christmas is a different kind of busy: the volume of email declines, replaced by Christmas cards and shopping lists. It’s a time when we often see people face-to-face instead of on Facebook.

By unplugging various digital services, I was moving with the wind at my back; doing firmly and deliberately what I might anyway have drifted towards.

The experiment was working well. I wasn’t missing Twitter at all. I was spending much less time with the phone. Some old friends were emerging from the woodwork to tell me how much they enjoyed receiving my letter. A few fretted that I was going through some kind of crisis, but overall the letters felt like a vastly better way to contact people than through Facebook.

When I did see friends and family, I found it easier to give them my full attention. Sherry Turkle, author of Reclaiming Conversation (UK) (US), has found that people initially used texts as an add-on to face-to-face conversation, but the texts soon became a substitute: more convenient, more controllable.

The problem with real conversation, one high-school senior told her, was that “it takes place in real time and you can’t control what you’re going to say”.

I sympathise, and we probably all had face-to-face conversations over Christmas that we wish could have been conducted from a thousand miles away. But while real conversation can be tiring, it is also vastly more rich and meaningful than a few dozen bytes of text. The less distracting I found my phone, the more I enjoyed talking to the people in front of me.

At the end of December came a strange and unexpected test: I was awarded an OBE in the New Year honours list. Suddenly the digital hush of the year’s twilight was interrupted by a steady stream of congratulatory messages.

I was out walking with some old friends, catching up on the news of the past few months and chatting about the year ahead. In my pocket, my phone was pinging, and I felt increasingly anxious about letting the messages go unanswered. I snatched moments here and there to type responses, offering slightly embarrassed excuses to my companions.

It’s not an experience I’m likely to repeat, but it taught me a few lessons. First, even friendly digital messages can provoke anxiety. I was fearful of appearing ungrateful by not replying promptly. This was silly. A delay would not have bothered anyone. But I couldn’t help myself. I should have left the phone at home.

Second, it’s easy to reactivate bad habits. After a couple of weeks in which I checked my phone a few times a day instead of several times an hour, the influx of messages pushed me back into the habit of checking my phone like a rat hoping for a food pellet. It took several days more to regain some calm.

Third, and more positively, the investment in spurning social media was paying dividends. I did buckle and log into Facebook for the first time in weeks, not wanting to ignore messages of congratulation. It was completely silent. People had worked out, it seems, that Facebook wasn’t a good way to reach me. I managed to resist logging into Twitter completely.

Still, I did start to wonder whether the new regime would survive contact with the normal working routines of January. I called Jocelyn Glei, author of Unsubscribe (UK) (US) and host of the Hurry Slowly podcast. “The notion that you’re going to change all your habits and be done is absurd,” she cheerfully warned me. Fair enough — but then how to sustain the new pattern?

Glei’s advice was to remain vigilant. It’s one thing to check out at Christmas, another to do so in September. It makes sense to stay off Twitter while writing a book; less sense, perhaps, while marketing it. Each new project, she advised, required a quick re-evaluation of where to draw the digital boundaries. The digital reset was going to be a work in progress.

Lessons learnt
The point of the break was to allow a thoughtful assessment of which digital services were worth letting back into my life. So as the new year starts up and emails start to flow freely again, what did I learn?

First, I didn’t miss being plugged into Twitter at all. I’ve been ignoring notifications for years — thus missing some of the benefit and much of the aggravation of the platform — but have still been tweeting away out of some strange combination of duty and inertia.

My new plan is to log in for a few hours on Friday, set up some links to my columns and other projects that may interest some people, and log out again. If I ever see a good reason to use the platform more intensively, I’ll be back.

Second, I enjoyed having a more boring phone. With very little on it now but an easily emptied email inbox and the FT app, I pick it up less often and for less time, and am more likely to do something useful with it when I do check it.

I did reinstall Feedly — which I find essential for my job — but will keep an eye on my usage. With no tweets to send, the app has become more useful. I read for the sake of learning rather than for the sake of tweeting.

Third, the “strict workflow” blocker worked so well in saving me from my fast-twitch impulses that I added my email inbox to the blocked list. I’d had limited success with an email blocker before, but this time was much more successful, perhaps because the blocker was part of a larger plan.

Finally, it was good to focus on the upside of the digital decluttering. Although it was partly an exercise in habit-breaking or self-denial, it was much more useful to think of it as spending time and attention on things that mattered.

Some old friends seemed genuinely touched to receive a real letter; nobody has ever been touched by a Facebook “Like”. I felt in better shape at the beginning of January than at the beginning of December, which is hardly the usual Christmas experience. I walked, talked, ate and drank with old friends. I even battled a few imaginary wizards.

I’ve no desire to give all this up to spend more time with my phone.


Written for and first published in the Financial Times on 17 January 2019.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now in paperback – feel free to order online or through your local bookshop.

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Undercover Economist

Trump, May and the necessary art of brinkmanship

Brinkmanship is an old idea, but not such an old word. It was first used in 1956, after US Secretary of State John Foster Dulles opined that “the ability to get to the verge without getting into the war is the necessary art . . . if you are scared to go to the brink, you are lost.”

Adlai Stevenson, the Democratic presidential nominee, began to use the term “brinkmanship” in response. He did not intend it as compliment.

Yet we find ourselves surrounded on all sides by leaders who think they have mastered this “necessary art”. The stakes are blessedly lower, but still high enough to deserve examination. In the US, Donald Trump has failed to deliver on his promise to get Mexico to pay for his border wall, and has partly shut down the federal government until Congress agrees that the US taxpayer will fund it instead. Voters will reach their own conclusions as to who is to blame.

In the UK, Theresa May wants parliament to vote for the unappetising Brexit deal she has negotiated with the EU. She offers two simultaneous and mutually exclusive threats, confronting hardliners with the prospect of no Brexit at all, while warning the EU and British moderates that there will be a chaotic “no deal” outcome instead.

Whether we are talking about Brexit, a border wall, or the early stages of the Vietnam war, each situation is different. Yet it is worth pondering similarities in the structure of the problem.

These threats may seem empty. Dulles did not want nuclear war. Mrs May does not want six-day-long traffic jams on the way into Dover. Nevertheless the threat may be made credible enough to achieve results. How?

One option is to use a doomsday machine, made famous by Stanley Kubrick’s dark comedy Dr Strangelove. The doomsday machine is credible because it is automatic. It cannot be switched off, only obeyed. The risks are obvious; in the movie, the doomsday machine destroys civilisation.

Mrs May’s doomsday machine was the Article 50 divorce process, which we were told could not be halted once begun. Without parliamentary approval of a deal, this legal doomsday machine would deliver a disruptive no-deal by default. Triggering Article 50 weakened the prime minister’s negotiating hand with the EU but strengthened it when dealing with those MPs who seem open to reason.

Yet it now transpires that the machine has an off-switch after all. The UK government can simply revoke its notification to leave. Mrs May therefore managed to hobble her bargaining position with the EU while leaving herself hostage to her own party.

The second tactic for gaining credibility is the “madman” strategy: if you are insane, or can fake insanity, then insane threats seem plausible. The strategy was flawlessly executed by Sheriff Bart in the film Blazing Saddles, who managed to escape being lynched by racists by threatening to shoot himself. That achievement is hard to replicate, though. As Bart tells himself, “you are so talented. And they are so dumb!”

Mr Trump is erratic enough to make the madman tactic seem plausible, although he has also frequently backed down. Mrs May does a good line in stubbornness, and is trying hard to make a chaotic no-deal seem as if it is an inescapable force of nature, like an earthquake or a flood. Yet it seems unlikely that she would embrace the chaos when, with a stroke of her pen, she could call it all off. Some leading Brexiters, however, have perfected the madman pose; they’ve convinced me that they simply do not care. Perhaps I’ve been fooled by a brilliant bluff. Perhaps.

There is a third way to make threats credible: create the risk of an accident. Thomas Schelling, cold war strategist and Nobel laureate economist, described handcuffing yourself to your opponent then cavorting on the edge of a cliff. You’re not suicidal, but you are willing to create the risk that things will go terribly wrong. If your counterpart fears that risk more than you, you may extract concessions.

As Schelling and his fellow strategists knew, in situations such as the Cuban missile crisis there was always a risk that something would get out of hand, and all of us would slip off the cliff together. It was this that made world-ending threats plausible.

If you are finding all this discomfiting, you are not alone. Somehow we have managed to produce a situation where democratically elected politicians are threatening substantial harm to their own countries as a bargaining tactic. The tactic is credible because accidents happen. At least we can comfort ourselves that long-range bombers are not involved.

How did we get here? Recall the final scene of Dr Strangelove. With Armageddon inevitable, Strangelove reassures the all-male leadership of the US that they could survive in underground cities. The survival of the human race would be ensured by a ratio of 10 “highly stimulating” women to each man. Everyone seems rather cheered by this thought.

Brinkmanship does not work if it does not create a risk of harm. Yet the people practising the strategy may not be the ones who will experience it.


Written for and first published in the Financial Times on 11 January 2019.

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Undercover Economist

Why there is no need to panic about fake news

A new year’s resolution for all: stop talking about fake news. Perhaps we should have stopped talking about it at the same time as we started. That, according to Google Trends, was the week after Donald Trump won the US presidential election in 2016, which suggests the interest was driven by astonished people looking for an explanation. Fake news was not the only scapegoat but it was, and still is, a popular one. It was even named the Word of the Year in 2017 by Collins Dictionary. Yet the phrase has long since ceased to be useful, and here are five reasons why.

First, fake news doesn’t mean anything — or rather, it means so many different things to different people as to be bewildering. Focus group studies conducted by the Reuters Institute for the Study of Journalism found that people placed various things under the “fake news” umbrella, including annoying pop-up advertisements, politicians making misleading claims, and newspapers with a political slant.

None of these match the original definition of fake news — at least, as I understand it — which referred to stories that were invented to win advertising clicks and impersonated or parodied genuine journalism. The most famous example was when the Pope was “reported” to have endorsed Mr Trump’s presidential candidacy.

Such stories were widely shared, and while some claimed to be humour or satire, the basic motive was monetary. It is cheap to invent lies, and eye-catching lies are a reliable source of clicks and thus advertising dollars. No wonder journalists became irate: for so many outlets, real news had become unprofitable yet fake news is a money-spinner.

But for all the people determined to believe that the Pope’s fictional endorsement had swung the election for Mr Trump, there is little evidence that it — or similar clickbait fabrications — did any such thing. While the most popular fake stories were shared at least as widely as the most popular true articles, that is partly because the fakes were unique while each true article had dozens of imitators or parallels.

A study conducted by economists Hunt Allcott and Matthew Gentzkow found that fake news simply wasn’t as widely shared, seen or remembered as many people think. Close as the 2016 election was, it is unlikely that these stories swung it.

That is the second reason to steer clear of the fake news phrase: in its original form it is aggravating and, occasionally, has constituted incitement to serious violence. But despite a certain degree of moral panic, fake news itself does not pose an existential threat either to democracy or the free press.

What does pose such a threat is a draconian response from governments. Is that likely? The fact-checking organisation FullFact has described the response of some governments, internet and media companies as “frightening over-reactions” — although it adds that the UK government has so far avoided rushed or illiberal measures.

It is all too easy to turn legitimate concerns about false information into a situation where the government decides what can be said and who can say it. We need to be careful that the cure is not worse than the disease — a third reason to avoid panicking about fake news.

The fourth reason is that Mr Trump, with his twisted genius for turning a complex issue into a political cudgel, has deployed the term to demonise regular journalists. Given the number of journalists murdered around the world, including in the US, one might hope for some restraint from the president, but in vain.

Other politicians have also embraced the phrase, including UK Prime Minister Theresa May and Labour party leader Jeremy Corbyn. I worry about a world in which many people believe lies, but I worry far more about one in which many people instinctively refuse to believe the truth.

Here is the final reason to calm down about fake news: it feeds into the tempting but smug assumption that the world is full of idiots. People are sometimes taken in by lies, and some spectacular falsehoods have gained more traction on social media than one might hope.

But if we persuade ourselves that Mr Trump was elected by people who wanted to be on the same side as the Pope, we’re not giving voters enough credit. It is true that most people are disengaged from serious news, and vote with their guts rather than their heads, or being guided by friends rather than a close reading of policy analysis. That does not make them fools.

There is much to concern me in the current political information environment. I worry (partly selfishly) that it is harder than ever to sustain a business that provides serious journalism. I worry that politicians around the world are doing their best to politicise what should be apolitical, to smear independent analysis and demean expertise.

I worry that there is far too little transparency over political advertising in the digital age: we don’t know who is paying for what message to be shown to whom.

The free press — and healthy democratic discourse — faces some existential problems. Fake news ain’t one.


Written for and first published in the Financial Times on 4 January 2019.

My book “Fifty Things That Made the Modern Economy” (UK) / “Fifty Inventions That Shaped The Modern Economy” (US) is out now in paperback – feel free to order online or through your local bookshop.

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