Tim Harford The Undercover Economist

Articles published in October, 2019

Steve Levitt plays poker with the FT

“I used to play poker a ton and then I quit. It’s too time consuming and toooo boring.” There’s something boyish about the way Steve Levitt drags out the word. But then his inner economist reasserts itself: “What you come to realise about poker over time is that the ratio of luck to skill in the short term is too high to make it feel productive.”

Here’s what you need to know about Levitt. He used to be a rising star in academia, with prestigious positions at Harvard and then Chicago. He picked unusual topics: cheating sumo wrestlers; the link between legal abortion and falling crime. His detective work with data was influential. In 2003, when he was just 35, Levitt won the John Bates Clark medal, often a precursor to the Nobel memorial prize. The journalist Stephen Dubner profiled him in The New York Times Magazine; a book deal followed for the pair, and the result, Freakonomics, sold four million copies. So, I’m playing poker with a data-savvy millionaire genius, a game I understand only in the sense that I’ve written about it. The good news is that Levitt doesn’t play any more. The bad news is that on his last outing, five years ago, he was within one hand of the final table at the World Series of Poker … I am doomed.

We’re at a casino in Mayfair: just me, Levitt, and the dealer, JD. At 47, Levitt has greyed since I first interviewed him nine years ago. But he still looks young and he’s better dressed than he used to be, in a silver-grey jacket and a midnight-blue shirt. JD, who deals for the poker professionals on late-night TV, looks the part in a black suit and waistcoat. Your correspondent has just come from a radio studio and is dressed accordingly. The game is Texas Hold’Em, the modern standard for poker, in which each player constructs a hand from his two concealed cards plus five communal cards on the table. The stakes: £100 each, winner takes all.

Like any good economist, I understand how to play poker in theory but am not sure how to do it in practice. (It takes me a couple of dry runs to figure out whose turn it is to bet.) We have 10,000 chips each and I have a king in my very first hand. The “flop” of three communal cards reveals a second king so, after a couple of small raises, I go in hard with a bet of 2,000 chips. Levitt chuckles, which is unnerving. After pausing, he folds. I get the impression he’s not convinced of my expertise – but I’ve won the first pot, even if it is tiny.

I’m trying to write down all the hands for posterity but that quickly becomes ludicrous. So, too, is the idea of conducting an interview while playing. Concentration is required – from me at least. I guess that Levitt wouldn’t break sweat if he had to play and chat simultaneously. I fold, and Levitt opts to show me his cards. I ask what the thinking is behind showing me that he was bluffing. Both JD and Levitt rush to explain that he had two pairs, and wasn’t bluffing at all. I realise that I have no idea what’s happening. This could be a long afternoon. Or, more likely, a short and expensive one.

“I think the statistics of poker are actually probably overrated,” Levitt says. “Most of poker is based on pretty easy rules of thumb. In a game like this there’s not many hard calculations to do.” He tells me about some research he conducted in Las Vegas, with a range of poker players including 18 winners of World Series events. “Almost all of them continued to use the rules of thumb that you use in regular poker. Even though they were not the right rules to use in the game we ran.” He concludes that experts can quickly be undone. “If you change the rules or the incentives, they tend to do very poorly.”

As our appointed break time approaches, Levitt’s getting into his stride. He’s more aggressive than I am, pushing me out of hands. But when I do stay in until our first showdown, I lose: it’s a pair of fives against Levitt’s pair of sevens. There have been no dramatic moments, yet I am slowly bleeding chips. JD is encouraging. “The play hasn’t been that bad,” he says. Levitt agrees. Still, I am losing.

Then, the very last deal before the hour, I have a decent hand: two pairs. The pot’s not a bad size and Levitt might be drawing to get a flush, so I decide to shut things down: I bet big. Levitt folds, and, as we break, I’m not far behind, with 8,900 chips to Levitt’s 11,100. I observe that since I first met Levitt, he has become a celebrity. He snorts. He’s relieved that nobody ever recognises him because he looks “so generic”.

“The nice thing is, the perks that come with the success of our book are opportunities. People come to me all the time with great opportunities.” Such as what? Money? Secrets? Power? For Levitt, the answer is simple: fun. That could mean anything from a round of golf at Augusta to working with the US Defense Advanced Research Projects Agency to prevent sex trafficking. He designs algorithms to catch credit-card fraud, and for horseracing syndicates. “The horseracing is the most fun thing.”

At one point, Levitt talks about his academic career in the past tense. “I view everything I do as a hobby now,” he says. “I no longer feel like an adult. I feel like what has happened is that I’ve been given so many opportunities that I am somehow back into a very childlike phase that I’m in the candy store and I get to pick and choose whatever I want.”

Immediately after the restart, I’m dealt a 9-7; it’s trash. But Levitt doesn’t raise the stakes so I stay in and see the flop: 4-6-8. Now either 5 or 10 will give me a straight; I call Levitt’s diffident bet. The next card is the 5. I do have a straight. It’s a monster hand in two-player poker. With 4, 5, 6 and 8 on the table, Levitt might have a straight too. But I know something he doesn’t: I have a 9, so my straight will be higher than his.  Levitt comes in with a solid bet, I raise, and he calls. Then the final card comes: another 9. That’s annoying because it might allow Levitt to split the pot with me. If Levitt has the 10 and 7, he will beat me. But that’s vanishingly unlikely. I go all in. Levitt calls.

If I win, I’ll be 18,000 chips to 2,000 chips ahead. If Levitt wins, game over. And … he has the 10 and 7 of spades. I’ve lost it all. Just like that.

“He called with the nuts,” says JD. JD and Levitt are quick to commiserate. Levitt had no idea that I had him beaten all along. JD admires how I reeled Levitt in. Levitt says that I was incredibly unlucky; that last card, the 9, killed me. And the 10-7 was the only combination in the deck that could have beaten me.

“Now that’s a hand worth writing about,” says JD. I’m feeling pretty good: I’ve lost to a “bad beat” in true poker-pro fashion. But gradually the congratulation fades into criticism. Levitt points out that I should never have gone all-in. It was a small risk but a pointless one, because Levitt would never have called me except in the unlikely event that he had the 10.

“That’s an essential rule of thumb you need to know,” Levitt says. “But that’s not Poker 101. That’s Poker 403. That’s Master’s Level Poker. PhD level Poker.” Maybe. But I’ve been schooled.

 

Written for and first published in the Financial Times on 27 June 2014. (I’m not sure why I didn’t post it at the time, but you might enjoy it now.) Levitt was promoting his book Think Like A Freak.

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12th of October, 2019HighlightsComments off

How this climate change economist changed my world

I read a lot of economics papers, but I don’t often read economics papers that make me think, “this changes everything”. But Martin Weitzman wrote one. I still remember exactly where I was when I read it. Even for a nerd like me, that’s not normal.

Professor Weitzman took his own life in late August. He was 77 and had reportedly been worried that he was losing his mental sharpness.

Weitzman’s sad death prompted me to reflect on what it was about his essay that so struck me. It was a commentary on Lord Nicholas Stern’s Review on the Economics of Climate Change. Weitzman gently pulled the Stern Review apart — “right for the wrong reasons” — and offered an alternative view of the problem.

For those of us who think climate change requires bold, urgent action, there are two awkward facts to contend with. The first is that its most worrying impacts — including floods, crop failures and diseases — are unlikely to manifest at full strength for decades or even centuries. The second is that because the world has been getting dramatically richer, future generations are likely to be much wealthier than we are.

Both these awkward facts militate against doing anything too expensive in the short term.

Here’s an analogy: imagine that I discover an incipient damp problem in my house. A surveyor tells me that if I spend £1,000 now, that will spare my great-grandchildren £5,000 of repair works in a century. At first glance it seems that I should fix the damp.

On reflection, though, spending money now would be foolish. Investing £1,000 in the stock market on their behalf would be better. At a modest 3 per cent real rate of return, it should be worth about £20,000; at 5 per cent it will be worth £130,000.

In any case, won’t my great-grandchildren be vastly richer than I am, just as I am vastly richer than my great-grandparents? Why worry? They’ll cope.

This oversimplification of the complexities of climate change gets at something important. Lord Stern’s case for action depended on arguing that our super-rich descendants living in the far future should weigh very heavily in our calculations. It is hard — not impossible, but hard — to square that with how we behave in respect to any other issue, personal or social. We simply do not set aside nine-tenths of our income to benefit future generations.

Weitzman was among several prominent economists to raise this concern. But he then asked us to contemplate the risk of runaway effects. An example: as arctic permafrost thaws, a huge volume of methane, a powerful greenhouse gas, may be released. Other economists have recognised the issue of “tail risks”, well outside the most likely scenarios. None have thought more deeply about it than Weitzman.

Central estimates can lead us astray. The most likely scenario is that climate change will cause real but manageable suffering to future generations. For example, the World Health Organization estimates that between 2030 and 2050, climate change may cause an extra 250,000 deaths a year because of threats such as malaria, heat exposure and malnutrition — a less serious problem than local and indoor air pollution, which kill 8m people a year. If we focus on the central forecast, it is local air pollution that should get most of our attention.

It is only when we ponder the tail risk that we realise how dangerous climate change might be. Local air pollution isn’t going to wipe out the human race. Climate change probably won’t, either. But it might. When we buy insurance, it isn’t because we expect the worst, but because we recognise that the worst might happen.

The truly eye-opening contribution — for me, at least — was Weitzman’s explanation that the worst-case scenarios should rightly loom large in rational calculations. If there’s a modest chance that the damp problem will give all my great-grandchildren fatal pneumonia, I shouldn’t ignore that. And my great-grandchildren wouldn’t want me to: the probably rich great-grandchildren would happily sacrifice some trivial amount of income to avoid being the possibly dead great-grandchildren. But they won’t have the choice. It’s up to me.

Weitzman was a stupendously creative man. Other celebrated contributions studied the trade-off between pollution taxes and pollution permits, the “Noah’s Ark” problem of what to focus on when preserving biodiversity, and an early argument in favour of companies sharing profits with their employees.

“If you don’t think an idea might be worthy of the Nobel Prize, you shouldn’t be working on it,” he told one colleague. Some economists would say that he reached that impossibly high standard more than once — and were surprised that he was not named as a joint Nobel Prize winner last year, when William Nordhaus was recognised for his work on climate change economics.

Nevertheless, the message of Weitzman’s recent work has influenced the policy debates on climate change: the extreme scenarios matter. What we don’t know about climate change is more important, and more dangerous, than what we do.

Written for and first published in the Financial Times on 13 Sep 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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Two evenings with Randall Munroe

I’m interviewing Randall Munroe of xkcd on stage twice this week. Being the straight man for Randall is something that would have been on my bucket list, if it had ever occured to me in my wildest imaginings.

Speaking of wild imaginings, Randall’s new book,  How To, is a think of strange beauty. As I mentioned before,

“it’s in much the same style as What If? and just as funny and informative. I loved it, then my twelve year old daughter stole it and she loved it, then my eight year old son stole it and he loved it. I suspect we’re all getting something different from the book, which explores such questions as: If you wanted to fill a swimming pool with bottled water, could you open the bottles with atomic weapons? (There is actually a study of this question…) If you wanted to ski down a hill with no snow, would it work to drag a snow-machine along with you? How feasible is it to boil a river dry with a big array of kettles? “

Come along, if you’re free. Randall is speaking at the Royal Festival Hall in London tomorrow (October 7th) and at the Sheldonian Theatre in Oxford on Friday. And other places too, although I won’t be there to witness.

 

 
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6th of October, 2019MarginaliaComments off

When it comes to productivity hacks, are you an Arnie or an Elon?

Returning from the summer with a head full of good intentions, I have become aware of a philosophical schism in the world of productivity hacks. In one corner, Arnold Schwarzenegger. In the other, Elon Musk and the “timeboxers”. (I swear, I am not making this up.) The philosophical divide is over a simple question: how much should you schedule blocks of time in your calendar?

Mr Schwarzenegger reportedly kept his diary clear as a film star, and even tried to do so when he was governor of California. “Appointments are always a no-no. Planning ahead is a no-no,” he once said. Visitors had to treat the Governator like a walk-in restaurant — show up and hope for the best.

The opposite approach is timeboxing: timeboxers advocate transferring the entire “To Do” list to a calendar. Need to do some laundry? Set aside time on the calendar. Have a column to write? Block out the necessary hours. Want to chill out on Instagram? Put it in the calendar. Not getting enough sleep? You guessed it: calendar.

Since any productivity hack needs a celebrity endorsement, timeboxers claim (on thin evidence, it seems to me) that the technology entrepreneur Elon Musk uses the technique. Most of us have to compromise a little more with the rest of the human race than do either Mr Musk or Mr Schwarzenegger. Yet the divide is real: schedule as much as possible, or as little as you can get away with? We must all decide if every minute of productivity or rest should be planned in advance, or whether it’s better to be more flexible.

Timeboxing originated as a collaborative technique for software developers, and in that context it may work well. Yet, as a personal productivity tool, it seems infantilising. Calendars work for time-specific commitments, such as flights or nights at the opera; everything else should go on a to-do list, a much more flexible way of keeping track of commitments.

I do not want to dismiss those who claim timeboxing works for them. I’m just not persuaded. Some say timeboxing helps them avoid being overwhelmed by a long list of tasks; I say prioritise. Timeboxers note Parkinson’s law: work expands to fill the time allocated. I say, set deadlines.

More recently, I’ve seen timeboxing praised as a strategy for avoiding distractions. Nir Eyal, the author of Indistractable, says that timeboxing helps him confine Facebook and YouTube to narrow slivers of the day. If that works for you, fine; I suspect it’s more productive to have a more fundamental rethink of your relationship to social media.

David Allen, author of the cult book Getting Things Done, reckons that timeboxing is a psychological crutch. We all need to feel on top of the commitments we’ve made to others and to ourselves, and it’s not easy. For those of us who feel we’re losing our grip, he tells me, “structuring time for social media, walking the dog, prepping for dinner, might make you feel more comfortable. If you’re like me, though, you plan as little as you can get by with”.

Todd Brown of Next Action Associates, a management training firm, agrees. People like blocking out time because it feels like they can “grab control of the situation”, he says. At the end of the week, however, what if everything has changed?

I agree with both of them. Commitments do not become easier to manage simply because you decide in advance when it is all going to happen. Life has a habit of producing surprises: the boss has an urgent task; the car won’t start; an old friend texts to tell you she is on a flying visit from Australia. The most inevitable surprise of all is that everything always takes longer than you think it will.

Still, that is just my opinion. If a serious study of the rival techniques exists, I have yet to find it. One relevant experiment was conducted nearly 40 years ago by the psychologists Daniel Kirschenbaum, Laura Humphrey, and Sheldon Malett. They recruited undergraduates and gave them some basic productivity tips. One group was counselled to plan their goals and activities in broad monthly blocks. Another group was instead advised to plan their activities and set their goals on a daily basis.

Neither approach is precisely analogous to timeboxing, but the daily schedule is similar because students would draw up detailed plans. These plans backfired disastrously: day after day, the daily planners would fall short of their intentions and soon became demotivated, spending less time on studying and falling behind over the course of the academic year. The more amorphous monthly planners proved far more successful, presumably because they had more flexibility to adapt to events, as well as wasting less time fiddling around with their calendars. A plan that is too specific soon lies in tatters.

It is clear that some people have made timeboxing work for them. Everyone is different, and every job is different. For me, however, my To Do list is long, and my diary is as clear as I can keep it. And if Arnie is on my side, so much the better.

 

Written for and first published in the Financial Times on 6 September 2019.

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