Tim Harford The Undercover Economist

Undercover EconomistUndercover Economist

My weekly column in the FT Magazine on Saturday’s, explaining the economic ideas around us every day. This column was inspired by my book and began in 2005.

Undercover Economist

How to catch a cheat

Should the rules and targets we set up be precise, clear and sophisticated? Or should they be vague, ambiguous and crude? I used to think that the answer was obvious — who would favour ambiguity over clarity? Now I am not so sure.

Ponder the scandal that engulfed Volkswagen in late 2015, when it emerged that the company had been cheating on US emissions tests. What made such cheating possible was the fact that the tests were absurdly predictable — a series of pre-determined manoeuvres on a treadmill. VW’s vehicles, kitted out with sensors as all modern cars are, were programmed to recognise the choreography of a laboratory test and switch to special testing mode — one that made the engine sluggish and thirsty, but that filtered out pollutants.

The trick was revealed when a non-profit group strapped emissions monitors to VW cars and drove them from San Diego to Seattle. In some ways, that’s a crude test: outside the laboratory, no two journeys can be compared precisely. But the cruder test was also the test that revealed the duplicity.

The VW case seems like a strange one-off. It isn’t. Consider the “stress tests” applied by regulators to large banks. These stress tests are disaster scenarios in which a bank calculates what would happen in particular gloomy situations. But, in 2014, US regulators started to notice that banks had made very specific, narrow bets designed to pay off gloriously in specific stress-test scenarios. There is no commercial logic for these bets — but they certainly make it easier to pass the stress test. VW all over again — with the difference that what the banks were doing was apparently perfectly legal.

If tests and targets can fail because they are too predictable, they can also fail because they are too narrow. A few years ago, UK ambulance services were set a target to respond to life-threatening situations within eight minutes of receiving an emergency call. Managers soon realised that they could hit the target more easily if they replaced a two-person ambulance with an independent pair of paramedics on bikes. And many responses were written down as seven minutes and 59 seconds, but few as eight minutes and one second — suspiciously timely work.

Perhaps we’d be better off handing over the problem to computers. Armed with a large data set, the computer can figure out who deserves to be rewarded or punished. This is a fashionable idea. As Cathy O’Neil describes in her recent book, Weapons of Math Destruction (UK) (US), such data-driven algorithms are being used to identify which prisoners receive parole and which teachers are sacked for incompetence.

These algorithms aren’t transparent — they’re black boxes, immune from direct scrutiny. The advantage of that is that they can be harder to outwit. But that does not necessarily mean they work well. Consider the accuracy of the recommendations that a website such as Amazon serves up. Sometimes these suggestions are pretty good, but not always. At the moment, Amazon is recommending that I buy a brand of baby bottle cleanser. I’ve no idea why, since all my children are of school age.

A teacher-firing algorithm might look at student test scores at the beginning and end of each school year. If the scores stagnate, the teacher is presumed to be responsible. It’s easy to see how such algorithms can backfire. Partly, the data are noisy. In a data set of 300,000, analysts can pinpoint patterns with great confidence. But with a class of 30, a bit of bad luck can cost a teacher his or her job. And perhaps it isn’t bad luck at all: if the previous year’s teacher somehow managed to fix the test results (it happens), then the new teacher will inherit an impossible benchmark from which to improve.

Just like humans, algorithms aren’t perfect. Amazon’s “you might want to buy bottle cleanser” is not a serious error. “You’re fired” might be, which means we need some kind of oversight or appeal process if imperfect algorithms are to make consequential decisions.

Even if an algorithm flawlessly linked a teacher’s actions to the students’ test scores, we should still use it with caution. We rely on teachers to do many things for the students in their class, not just boost their test scores. Rewarding teachers too tightly for test scores encourages them to neglect everything we value but cannot measure.

The economists Oliver Hart and Bengt Holmström have been exploring this sort of territory for decades, and were awarded the 2016 Nobel Memorial Prize in Economics for their pains. But, all too often, politicians, regulators and managers ignore well-established lessons.

In fairness, there often are no simple answers. In the case of VW, transparency was the enemy: regulators should have been vaguer about the emissions test to prevent cheating. But in the case of teachers, more transparency rather than less would help to uncover problems in the teacher evaluation algorithm.

Sometimes algorithms are too simplistic, but on occasions simple rules can work brilliantly. The psychologist Gerd Gigerenzer has assembled a large collection of rules of thumb that perform very well in predicting anything from avalanches to heart attacks. The truth is that the world can be a messy place. When our response is a tidy structure of targets and checkboxes, the problems really begin.

Written for and first published in the Financial Times.

My book “Messy” is available online in the US and UK or in good bookshops everywhere.

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Undercover Economist

How being wrong can help us get it right

There’s an academic I know — very well respected — who especially values one of his collaborators. This particular colleague isn’t invaluable because of his creativity or intellect, says my professor friend, but because “he is willing to tell me when I’m wrong, and that’s rare”. It is indeed rare. Perhaps even rarer is the practice of seeking out colleagues because they give frank criticism.

I certainly don’t enjoy being told that I’m wrong. And it seems that I’m not alone. A recently published working paper from Paul Green and Francesca Gino of Harvard, and Bradley Staats of the University of North Carolina, caught people in the act of avoiding criticism. The particular kind of criticism that interested the researchers was where I think I’m doing a good job, and then you tell me that I’m not. (In the jargon, this is “disconfirmatory feedback”.)

Green, Gino and Staats looked at data from an internal peer feedback process in a medium-sized company over several years. They were able to show that when disconfirmatory feedback arrived, workers would then avoid contact with the people who had given them the unwelcome comments. This is the exact opposite of my professor friend’s behaviour — but, I think, a much more typical response. We don’t like it when people tell us that we’re failing.

The irony is that disconfirmatory feedback is the most useful kind of feedback imaginable. If I’m making serious mistakes while cruising along in a complacent bubble of self-satisfaction, I badly need someone to explain exactly what I’m doing wrong. But what I need and what I might enjoy are, of course, quite different.

In certain corners of the business world, it’s become fashionable to talk openly about failure — some would say to “celebrate failure”, although that’s a lazy description. A botched surgical procedure or a fatal traffic accident aren’t things to be celebrated, but they should be discussed, analysed and learnt from. The most obvious way to do this is through a postmortem: all is lost, the project failed, the patient died, so let’s at least try to do better next time.

Less painful, though, is psychologist Gary Klein’s idea of the “pre-mortem”. The pre-mortem is an exercise in which you try to imagine scenarios in which your project fails. Such scenarios are likely to suggest simple ways to prevent disaster.

Alternatively, one can try to learn from other people’s mistakes rather than one’s own. In 2009, Cass Phillipps, a conference producer based in San Francisco, found herself feeling alienated by Silicon Valley conferences packed with gung-ho founders describing their runaway successes. She set up an alternative, “FailCon”, where people came to dissect their failures — in many ways, an enormously more informative experience for attendees.

Phillipps has now stopped organising FailCon — in part, she tells me, because the urgency has gone: “The internet is filled with postmortem stories.” But the basic idea is sound and has spread. For instance, a new book by development economists Dean Karlan and Jacob Appel, Failing in the Field (UK) (US), is simply a catalogue of all the mistakes they’ve made while trying to evaluate projects, and a discussion of what others might do to avoid the same errors.

Still, the real trick, says Cass Phillipps, is to spot and fix your mistake before it becomes fatal. But while “how I failed and what I learnt” is a safe enough topic for a conference or a book, “Help! Help! I need help now!” is a much rawer message.

So I turned to Ashley Good, the CEO of “Fail Forward”, a consultancy that helps organisations turn failures into more productive experiences. I asked her why it’s difficult to cope with failures in real time. One reason: panic.

“Failure tends to push us into a stress response,” she says, and that promptly leads to denial, finger-pointing, self-flagellation, cover-ups or “any number of dysfunctional reactions that limit our ability to learn”. That means that the first step after discovering some major screw-up is to take a deep breath and try to calm down.

The second step, says Good, is to “be respectful and kind”. That’s good advice at any time, of course — but particularly when emotions are running high and there’s a problem to be solved. And a third step is to take some individual responsibility: to ask, “What could I, personally, do differently now to avoid this sort of thing in future?”

Ultimately, the aim of all this is not to “celebrate” a disaster but to make things better, by fixing the current problem, if possible, and by preventing a recurrence. That means asking cool questions about what the problem really is.

When the dancer and choreographer Twyla Tharp earned scathing early reviews for her musical Movin’ Out, she asked a trusted colleague to transform the pile of criticism into a checklist for improvement. This depersonalised the criticism and turned it into a to-do list. And it worked: the revised show won Tony awards and enjoyed a long run.

Tharp has something in common with the professor who values his frankly critical collaborator: both of them recognise that thoughtful criticism isn’t something to be avoided — or, for that matter, something to be celebrated. It’s something to be used.

 
Written for and first published in the Financial Times.

My book “Messy” is available online in the US and UK or in good bookshops everywhere.

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Undercover Economist

Remind me what was so great about trade?

When our first child was born, I had an office job. My wife’s exhausting and non-remunerated profession was stay-at-home mother. Later, she retrained as a portrait photographer. To let her return to the labour market, we needed to hire a nanny. There is more to such a decision than money but, on purely financial terms, this was a no-brainer: the nanny earned less than either of us, so by freeing us to earn money in other ways, the Harford household was richer as a result.

Yet what makes obvious sense for a household can become strange and threatening in a different context. Imagine: the proud independent nation of Harfordia had a thriving childcare sector (my wife), but it was undercut by cheap foreign competition (the nanny). There was a vast bilateral trade deficit with the nanny, and Harfordia’s homegrown childcare sector was devastated. Bad!

Though Harfordia’s photography sector boomed as a result, you can bet that’s not what the populists would be pointing to.

Free trade suddenly seems to have few supporters. Some of Britain’s more effervescent Brexiters are free-traders, it is true, but with friends like that, who needs enemies? So I thought it was worth reminding ourselves just what was supposed to be so great about free trade in the first place.

The first and most fundamental insight is that all human civilisation is built on some sort of trade. I’m not much of a farmer but, fortunately, I am able to trade the books I write for food and for the electricity that lets me cook. Even my books rely on others to make the paper, design the word-processing software, bind the pages, design the covers, handle the logistics . . . Some of this I could do myself, albeit slowly and incompetently. Other things I couldn’t begin to attempt.

The second insight is that while international trade seems to involve competing with foreigners, it’s often more illuminating to see it as a battle between domestic producers. My home town of Oxford makes Minis, which we can export in exchange for camembert. But what if a post-Brexit government decides to hammer the camembert trade? It’s not impossible: cabinet minister Liz Truss did once describe the UK’s reliance on foreign cheese as a “disgrace”.

French cheese makers would lose out but so, too, would the Mini factory in Oxford. The French use their camembert to buy our cars; if we’re buying less camembert, it means they’re buying fewer cars.

This isn’t because of any French retaliation. It’s simply a reflection of the fact that there are two ways to make cheese in the UK: the obvious way, using cows, and the indirect way, by making cars and then trading the cars in exchange for cheese. The British cheese industry is, in a very real sense, directly competing with the British car industry. Protect one with a tariff, and you hurt the other.

Economists disagree about most things, but for a couple of centuries they’ve agreed about the merits of free trade, basically for the reasons outlined above. But some readers may be faintly aware of cracks in that consensus — haven’t economists realised that free trade is sometimes bad?

Broadly, the answer is “no” — economists remain thoroughly persuaded of the merits of international trade. But there are cautionary notes. First, modern trade agreements tend to be loaded with rules — food safety, financial regulation, intellectual property — that are not about tariffs. Some of these rules are closely connected with trade itself: long arguments at customs can restrict trade just as surely as a border tariff. But others have little to do with trade, and sometimes the rules are simply bad. So you can favour free trade yet oppose some “free-trade” agreements, as many economists do.

An important paper, “The China Shock”, published by economists David Autor, David Dorn and Gordon Hanson, showed convincingly that US manufacturing sectors that have been particularly exposed to competition from China have been hurt deeply and lastingly. Just like Harfordia’s childcare sector, they’ve been wiped out. That’s not a surprise to an economist. What is a surprise is that, many years after the initial shock, people hadn’t managed to retrain or relocate and find good new jobs. The US economy, more flexible than most, is less flexible than we’d thought.

One can’t help wondering how easy it will be for the UK economy to replace deeply established patterns of inter-EU trade with something more global. Such changes can be wrenching.

But deep down, trade is just another kind of productive technology — a technology that turns Minis into camembert. Like any productive technology, it makes us richer. But it creates winners and losers, and the winners may take their good fortune for granted while the losers are acutely aware of what they’ve lost. The losers have votes too. And if they’re frustrated about China, let’s see what happens if self-driving vehicles put several million truckers and taxi drivers out of work.

We need to find a better response to the strains of the modern world. “Build a wall” is clearly a message that sells, but it’s not a policy that will help. Our international trading system has helped boost both prosperity and peace. It would be a shame if something were to happen to it.

Written for and first published in the Financial Times.

My book “Messy” is available online in the US and UK or in good bookshops everywhere.

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Undercover Economist

Brexit as a game of Chicken

At times such as these, I wish I could hear what Thomas Schelling had to say. It might be too much to claim that Schelling was one of the most intriguing characters of the 20th century but he was certainly one of the most interesting economists. He began his career working on the Marshall Plan before advising the administrations of Presidents Kennedy, Johnson and Nixon on nuclear strategy.

As well as studying deterrence, segregation and addiction, he was one of the first economists to ponder climate change. In 2005, he shared the Nobel Memorial Prize in Economics. Schelling died in December 2016 at the age of 95. Schelling was one of the fathers of nuclear non-proliferation, and I think I know what he might have made of Donald Trump apparently welcoming the idea of a new nuclear arms race. But it’s Schelling’s insights on the Brexit negotiations that I’d really like to have.

In his absence, I’m going to have to guess.

First: to be an effective negotiator often means accepting some risk of disaster. The simplest model of this is the game of “Chicken”, in which two leather-clad rebels get into their cars, and drive towards each other at a furious pace. The first one to veer off the road loses his dignity, unless neither of them swerve, in which case both of them will lose a lot more than that.

Chicken is an idiotic game, whose players have little to gain and much to lose. But Chicken teaches us that you can gain an advantage by limiting your own options. Imagine detaching your steering wheel and flamboyantly discarding it as you race headlong towards your opponent. Victory would be guaranteed. Nobody would drive straight at a car that cannot steer out of the way. But here’s a worrisome prospect: what if, as you hurl your own steering wheel out of the window, you notice that your rival has done exactly the same thing?

All this matters because both the UK and the EU are doing their best to give the impression that they’ve thrown their steering wheels away. Control of immigration is non-negotiable, says Theresa May. Fine, says the EU — in that case membership of the single market is out of the question. Fine, says May: we’re out. Don’t let the door hit you as you leave, says the EU.

It’s easy to see why both sides are behaving like this — it’s the logic of Chicken. But the eventual result may be something no sane person wants: a car crash. In May’s recent speech, she set out her willingness to risk such a crash by saying she might walk away without a deal. That does make some sense: it’s how you act if you want to win a game of Chicken. But there are games of Chicken that nobody wins.

That leads to a second insight from Schelling: the difference between deterrence and what he called “compellence”. Deterrence dissuades action, but compellence means persuading or threatening someone so that they do act. In his 1984 book Choice and Consequence (US) Schelling pointed out that deterrence is easier. A deterred person does nothing, so need not admit that the deterrence worked, but a compelled person must visibly acquiesce.

Unfortunately, the process specified under Article 50 leaves the UK in the awkward position of trying to achieve compellence. The default option is the car crash, a disorderly fracture with the EU. Anything else requires all 28 countries involved to take prompt constructive action. May and her chancellor Philip Hammond have made some (faintly) threatening noises about how the EU should play along, but such threats can only work if they compel an energetic and active response. That’s far from certain — compellence is hard.

Of course, a broad, constructive agreement is in everyone’s interest. As May rightly said: “Trade is not a zero-sum game: more of it makes us all more prosperous.” It stands to reason, then, that the EU should embrace free trade in goods and services with the UK — as should the many other trading partners that foreign secretary Boris Johnson tells us are “queueing up” to sign deals with the UK.

To which Schelling might respond: just because a mutually beneficial deal is achievable doesn’t mean it will be achieved. Mutual benefit isn’t enough. If it was, we wouldn’t need a free-trade deal at all. Every country would have unilaterally abandoned all barriers to trade long ago. Back in the real world, trade deals are stubbornly difficult and time-consuming to negotiate. To add to the difficulty, May badly needs to sign a deal with someone — Trump, perhaps, or China’s president Xi Jinping. But neither Trump nor Xi badly need to sign a deal with her. This is not a great starting point.

It’s quite possible that a sensible deal will be reached. But not certain. Sometimes, in international relations, events take on their own unwelcome momentum. Consider the dark comedy Dr Strangelove (1964) in which — spoiler alert — civilisation is destroyed by a series of highly amusing miscalculations. One of the script advisers for the movie? An economist called Thomas Schelling.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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Undercover Economist

Why economists should be more like plumbers

What kind of economist should I be when I grow up? The opening weeks of the year have brought an embarrassment of answers.

Andrew Haldane, chief economist of the Bank of England, won headlines for comparing economists to weather forecasters. Alas, it was not a flattering comparison: Haldane mentioned Michael Fish’s infamous October 1987 forecast on primetime British TV, which offhandedly reassured viewers that there wouldn’t be a hurricane so “don’t worry”. The warning was followed by a severe storm that killed 18 people in the UK and four in France.

But if economists are like weather forecasters, the lesson is that they should keep trying. Meteorologists have a difficult job yet they do it well — partly with the help of half-a-million weather measurements a day and powerful supercomputer simulations. Perhaps economic forecasting should emulate that approach. For now, many serious economists think that economic forecasting is for fools and charlatans, and that real economists have a different job entirely.

What, then, is that job? Beatrice Cherrier, a historian of economic thought, points out that economists have long looked for an appealing metaphor. In the 19th century, economics was part science, part moral philosophy and part art. Later, economists liked to compare themselves to physicists, borrowing the jargon, the methodology and the mathematics of physics. With the discipline inspiring awe after the splitting of the atom, it must have been tempting for economists to seek the same quality of insight — not to mention the prestige and the funding.

Whether economics has really been strengthened by ideas from physics remains a matter of controversy. Some critics say that economists should embrace ideas from psychology. Others simply argue that economists have copied the wrong kind of physics and, if they used more up-to-date technical tools, they’d achieve better results.

An alternative view is that economics should be a practical, problem-solving discipline. The most famous proposal along these lines is a throwaway remark from John Maynard Keynes, who looked forward to the day when economists would be “humble, competent people on a level with dentists”.

Humility and competence sound good to me — and dentistry seems an appealing model in other ways. Dentists don’t forecast how much tooth decay you might suffer over the next decade; they tell you to floss and to lay off the fizzy drinks. Dentists know that their job is not forecasting but preventing or solving problems.

But Tony Greenham, a programme director at the RSA, recently declared that Keynes was quite wrong. Dentistry is built on objective science, says Greenham, but economics is not: economic analysis should involve clashing schools of thought, debating ideas in front of a public who must then make their choices at the ballot box. Greenham has a point, of course. Economics will never be a hard science, so there must always be room for debate. And most economic policy decisions produce winners and losers, each with a right to be heard.

Still, if dentistry offers a practical, evidence-based approach to solving problems, I’m not sure that Greenham is wise to warn economists away from that goal unless there really is no hope. Several leading economists have argued that economics should have a more practical bent. Al Roth, Nobel laureate in economics, says that economists should be like engineers. Roth has designed systems for matching students to schools and kidney donors to recipients, and his argument is that when designing such a system it’s not enough to get the broad outlines right — as a physicist or an economic theorist might — but the details too.

Meanwhile Esther Duflo — too young for a Nobel but hugely celebrated in the profession — recently gave the prestigious Ely Lecture in Chicago. She argued that economists should act like plumbers, or at least that, “some of us should do some of it some of the time.”

For Duflo, plumbing is even more practical than engineering: not only must the plumber install the system, she must observe and tinker with it as leaks and blockages become apparent. Issues that weigh heavily in theory may be trivial in practice, and vice versa.

So perhaps I should be a meteorologist, or dentist, or engineer, or plumber — or, as others might advise, psychologist, epidemiologist, historian, anthropologist or data scientist? Of course, the wonderful and frustrating thing about economics is that each of these approaches — and others — has something to offer as we try to comprehend the dizzying interactions of the economy all around us. No wonder economics is so much fun — and so hard to do well.

As I pondered all this career advice, I couldn’t help but think of Bill Phillips. Phillips was born in 1914 to a New Zealand farming family. He learnt engineering via correspondence course, and was a gold miner, crocodile hunter and war hero. He studied sociology but became an economics professor at the London School of Economics. He produced perhaps the most-cited macroeconomic paper ever written, describing the “Phillips curve”. He learnt several languages and, later in life, was fascinated both by complex dynamic systems and by the economy of China. He also built the first computer model of the British economy. It was a hydraulic computer — a system of equations, crafted in plumbing.

Now that’s an economist.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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Undercover Economist

An Optimist’s Guide to 2017

Unless you are paid to write obituaries, 2016 was a grim year. In the UK, half the voters were so aghast at the state of the nation that they voted to leave the EU; the other half were aghast at the result. If my colleague Gideon Rachman is right, a train-crash Brexit negotiation is likely to disappoint both sides. In the US, a similar situation prevails: half the country is appalled at the prospect of President Trump, while the other half elected him because they were appalled at the status quo.

We can remind ourselves that things would be very much worse if we lived in Syria — but while that’s reason for gratitude, it’s hardly a source of comfort. Yet there’s a lot going right in the world. Noticing the good news as well as the bad is not just reassuring — it’s also essential for making reasoned policies. So, here are five reasons to be cheerful in 2017.

• We’re healthier than ever before. A century ago, global average life expectancy at birth was just 35. When I was born, it was 60. Recently it rose above 70. Even in Africa and the former Soviet Union, where life expectancy fell in the 1990s, the upward trend has resumed and longevity is now at the highest level yet recorded. Partly this progress is thanks to far more widespread access to good sanitation. And it’s partly because there are treatments — vaccines and antibiotics, for example — that were not available for any money 100 years ago but now cost pennies. Charles Kenny, author of Getting Better (UK) (US), wrote: “Countries as poor and wretched as Haiti, Burma and the Congo have infant mortality rates today that are lower than those that any country in the world achieved in 1900.”

There is a much-noted exception to this finding. Late in 2015, economists Anne Case and Nobel laureate Angus Deaton found that mortality has recently been increasing in middle-aged non-Hispanic whites in the US. The finer details of that finding have been disputed but it’s certainly clear that this particular group hasn’t been enjoying the advances in health that are so widespread elsewhere. Yet it’s only striking news because lack of progress in health is so unusual.

• Despite this increase in life expectancy, the number of people living on the planet is increasing much more slowly than in the 20th century. World population growth, which was an unsustainable 2 per cent a year in the 1960s, has been falling steadily and is about to drop below 1 per cent a year. This is good news for the planet.

• The world economy continues to grow and, despite a decade of economic distress in the US and Europe, world growth rates have reliably exceeded 3 per cent. At such a rate, the world economy itself doubles in size every 20-25 years. Such growth poses serious environmental challenges but, on balance, it’s a lot better than stagnation. According to data assembled by the economist Max Roser, the proportion of the world’s population living in the most extreme poverty has fallen from about 95 per cent two centuries ago to about 60 per cent 50 years ago to about 10 per cent today.

• The fruits of this growth are not quite so unevenly distributed as some commentary would have us believe. There is no one simple way to measure global income inequality but it’s reasonable to describe it as falling: China and India, after all, are large, poor and growing quickly. In the US, income inequality has risen. But in the UK, it has not — at least, not for a generation. Income inequality across most of the UK population increased dramatically in the 1980s but has fallen a little since then. At the very top of the UK income distribution, inequality continued to increase for longer. Yet it fell after the financial crisis, and the share of income enjoyed by the top 5 per cent, top 1 per cent and top 0.1 per cent is lower today than it was in 2000. Inequality is still high in the UK, but this is an old problem rather than a worsening one.

• Finally, there’s the decline in war, murder, torture and many other kinds of violence over the long run, certainly since 1945 and, arguably, over a much longer period. It was most famously documented by Steven Pinker in his 2011 book The Better Angels of Our Nature (UK) (US). Is this certain to continue? Perhaps not in a world where nuclear war is possible. Nevertheless, so far, so good.

None of this is to suggest that all is well. There’s plenty to concern any reasonable person, from the growth of nationalism in Europe, to Donald Trump’s apparent belligerence, to the alarming changes in the planet’s climate, to the ability of terrorists to strike in Europe’s capitals. So I’m worried about what 2017 has in store for us. But it’s not because I think the world is going to hell. It’s because I think we have so much progress to celebrate — and so much to lose.

Written for and first published in the Financial Times.

My new book “Messy” is available online in the US and UK or in good bookshops.

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Undercover Economist

Embrace the digital pile-up

One of my resolutions this year is to get more done. I seem to make the same vow every year and I suspect that many discerning readers of the Financial Times have a similar perennial yearning. But thanks to the research I did for my latest book, Messy, and a fascinating new book from Ofer Bergman and Steve Whittaker, I now feel I have a better sense of why some tactics work and others fail.

Their book, The Science of Managing Our Digital Stuff (US), is an academic tome addressing a deeply practical pair of questions: how do we all cope with the ever-increasing influx of emails, documents, photographs and bookmarks? And how can we do better?

Two strategies suggest themselves: organise and label everything meticulously (the “filer” approach), or organise nothing at all and search when you need something. We could call this latter tactic the “search everything” approach — or “hoarding”.

Both strategies can work in certain circumstances but both also turn out to have serious weaknesses. Filers struggle because getting so carefully organised takes too much time, and filer strategies often break down as users become busier and busier. But, more importantly, filers often suffer from “premature filing”, as they try to categorise incoming messages they don’t yet have the context to understand fully. Folder structures that make sense at the time are often incomprehensible later. And far too much low-value stuff is filed when it should have been deleted, becoming digital chaff that obscures the target.

Meanwhile, hoarders risk drowning in a sea of email: it’s impossible to make sense of an inbox with 14,284 emails. Yes, one can use email search — in 2011 Whittaker and four colleagues showed that when you’re trying to find an email needle in your archive haystack, search works at least as well as navigating through a folder structure. But Bergman has shown why we tend to resist searching: it feels like hard work. It’s more cognitively taxing than clicking through folder trees, a process that uses visual memory without much effort. We like folders because they feel natural in a way that search does not. And most important: search only works if you remember what you’re searching for.

When coping with paper documents, there’s a handy intermediate strategy between filing and hoarding: “piling”. Pilers let documents accumulate on their desk, sometimes informally grouped by topic or project. The piles are self-organising because recently handled documents end up going back on top. Whittaker and Julia Hirschberg have shown that pilers tend to keep smaller archives. The stuff in their piles is well used, unlike the redundant folders of the tidy filers. Piling looks messy but it works.

But email poses a particular challenge — is there a strategy that imitates the informal accessibility of the desktop piles, yet works in a fast-moving inbox? I think there is.

Here are the principles of “email piling”. First, email piling should be simple — crude enough that it’s quick and misfiling is almost impossible. Second, it should be organised around taking action. Ultimately, you’re not building a library, you’re keeping track of stuff that you need to do. Therefore, third: it should be visible. Your piles are reminders to take action, so they shouldn’t be hidden away.

So: crude, visible and built around taking action. The corollary of all this is that if you have an email that doesn’t require your action, you can archive it, safe in the knowledge that the search box will produce it again if needed. As a result, your email pile will be a jumble but a small one — just like the paper piles that Whittaker and Hirschberg studied.

That’s the theory, then. And in practice? I use Gmail’s “multiple inbox” function to sort my emails into three categories: yellow star for stuff to do, blue star for stuff to read and red star for stuff that’s waiting for someone else. (Assigning the star requires just a click or two.) Unlike normal folders, all three of these categories are in plain sight whenever I open Gmail itself: three simultaneous colour-coded inboxes.

***

I find this digital piling works remarkably well, at least for me. Most emails don’t fit in any of the categories — a sign that it should be replied to and/or archived immediately. The “to do” inbox is small enough that I don’t feel anxious that things will be lost. And, as an added benefit, if I check email on my phone and see that it requires a proper reply from a proper keyboard, I can dump it in my “to do” inbox and it vanishes from the phone to reappear on the computer, where it can be properly handled. When the email disappears, so does the compulsive anxiety to tap out a response with one thumb.

I have a few other folders but only for very well-defined bits of information I know I need to keep.

This isn’t a system that tries to organise emails once and for all, or tidy them away out of sight. The aim is to manage them as they come through. Rudimentary and unsophisticated might not be the ideal approach to life in general. It works very well for email.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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Undercover Economist

Why family traditions make for happy holidays

The Japanese have a particularly engaging ritual at this time of year: Kurisumasu ni wa kentakkii, which may sound like great wisdom but in fact refers to “Kentucky for Christmas”, the national habit of eating Kentucky Fried Chicken as their Christmas feast.

It began as an inspired bit of marketing. In the 1970s, KFC noticed that western expatriates in Japan were turning to fried chicken because they couldn’t get hold of turkey. Now it has become a ritual with enough selling power that there are queues around the block, and customers will order their chicken in November or even October. What’s particularly impressive is that Christmas isn’t even a holiday in Japan.

Kurisumasu ni wa kentakkii is an audacious piece of commercialisation, but it’s not the first time Christmas has been boldly hijacked to sell something; indeed, Christmas itself piggybacked on earlier midwinter festivals. Many Christmas traditions are fairly recent — in the UK, Christmas cards, turkey, crackers and trees are all 19th-century innovations. On the other hand, Christmas consumerism, which we tend to think of as a modern vice, is also a 19th-century habit. Joel Waldfogel’s book Scroogenomics shows that the boom in December spending can be traced back many decades. (In 1867 in New York, Macy’s decided it was worth keeping its doors open until midnight on Christmas Eve.)

So I don’t begrudge the Japanese their southern-fried Christmas ritual. In fact, I have been intrigued by Christmas rituals in general; some are good and some less so. As I pointed out last week (and last year), the ritual of giving gifts at Christmas is extremely wasteful, channelling valuable resources into ill-fitting clothes and tacky golf memorabilia that nobody would choose if they were buying for themselves.

Over the past decade or so, we’ve seen a new combination of two older traditions: giving gifts, and donating to charity. With much the same cheek as Kentucky Fried Chicken in Japan, Oxfam has been pushing the idea that you can “give twice” by donating to Oxfam on someone else’s behalf. In effect, you’re “giving” a dozen chicks, or a vegetable garden, or, notoriously, a goat. “A unique, symbolic gift,” says Oxfam, although a moment’s reflection will reveal it not to be unique at all.

And what does it symbolise? For some, it represents wit, anti-consumerism and the true spirit of Christmas. For others, it represents smug self-obsession. After all, if I give you an Oxfam goat, what have I really done? I’ve made a donation to charity, marinated in my own sense of superiority, and then mailed you the receipt. To add injury to this insult, I’ve also not bothered to buy you a gift. We can only hope that Oxfam, at least, is able to find someone who actually needs the goat.

Three researchers, Lisa Cavanaugh, Francesca Gino and Gavan Fitzsimons, recently published research into this sort of “socially responsible” gift. They found evidence that people systematically overestimate how welcome such gifts will be, particularly when they are given to people they don’t know terribly well. As I described last week, Gino has contributed to other research on gift-giving, discovering that recipients are often happier with gifts chosen from a wishlist or otherwise explicitly requested, even though that does seem to lose some of the charm. Combining the two insights suggests that if you want to make a donation to charity on someone’s behalf, it might be wise to ask for their blessing first.

***

What of the Christmas rituals we share as a group? Different families will have their own rituals — perhaps the gifts are to be opened at a particular time or in a particular order. Perhaps the Queen’s Speech must be watched, respectfully. My wife’s family, religiously minded, would delay opening gifts until after a Christmas Day service. My own family were more secular but fond of delayed gratification — many gifts had to wait until after Christmas lunch. For some families, there’s a particular film to be watched; for others, a board game to be played.

Ovul Sezer, Michael Norton, Francesca Gino (again) and Kathleen Vohs have been examining the effect of rituals on the way we experience Christmas and New Year’s Eve. The researchers find a correlation between these rituals — sacred or secular — and various positive experiences of the holiday season, including feeling more curious, paying closer attention, liking the family more, enjoying the seasonal holiday, and life satisfaction in general. Of course, causation may run the other way — it may be that disliking your family causes you to avoid sharing Christmas rituals with them rather than the other way round.

Still, Sezer and her colleagues seem to be on to something. Life is full of social rituals but their details often do not seem to matter much: the wake, the prom night, the baby shower, even Kurisumasu ni wa kentakkii — we form our social habits and we stick to them. And the research suggests we’re absolutely right to do so. The rituals seem to make our lives richer and more enjoyable.

And without going into too much detail, there is one Christmas tradition that’s unlikely to disappear any time soon: the number of children conceived peaks over the Christmas holidays, leading to a bump in birth rates in September. That’s certainly one way to bring a family closer together.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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Undercover Economist

The economist’s guide to gift-giving

“There are worlds of money wasted, at this time of year, in getting things that nobody wants, and nobody cares for after they are got.” That was Harriet Beecher Stowe in 1850, reminding us that concerns over Christmas consumerism aren’t new.

 Also not new is Joel Waldfogel’s notorious research paper, The Deadweight Loss of Christmas, published 23 years ago in American Economic Review, a respected journal. Waldfogel, now a professor of economics at the University of Minnesota, expanded on his ideas in 2009 in a brief and witty book, Scroogenomics. He showed that gifts typically destroy value, in the sense that the giver had to pay more to buy the gift than the recipient would ever have been willing to spend on it. The total deadweight loss of Christmas in the US alone was $12bn.

Alas, what sounds like wisdom from Stowe tends to be mocked when published in an academic journal. But the problem that Waldfogel quantifies is quite real. If you give someone a jumper that doesn’t fit, a book they’ve already read or a box of chocolates when they’re on a diet, this is a waste of valuable resources. Fossil fuels have been burnt, tedious hours have been worked, trees have been felled, all to produce products that were unwanted. The same resources could have been devoted, instead, to goods that people actually do value.

Still, one cannot simply spit “Bah! Humbug!” and have done with Christmas gifts; people have their expectations. Nor can one simply dole out cash — at least, not to grown-ups. So, then, what to do? I asked Waldfogel himself, and several other social scientists, how they resolve the tension between the fact that Christmas gifts are a shameful waste and the fact that they are socially obligatory.

It’s not easy. Andrew Haldane, chief economist at the Bank of England, tells me: “I start out with the best of intentions — some small, inexpensive but deeply meaningful gifts that will stir the soul of the recipient — and then, at the last minute, end up panic-buying rather thoughtless, often expensive and largely unwanted stuff.” It is good to know that the Bank is in touch with how the rest of us act.

Dan Ariely, a psychologist at Duke University and author of behavioural economics books including Payoff, might encourage Haldane to forgive himself. Ariely rejects the basic Waldfogel premise. Economists, he told me, just don’t get it. They are seduced by their own training to be selfish and narrowly focused on efficiency. Giving gifts, says Ariely, is “inefficient economically but efficient socially”.

Well, perhaps. Certainly, if I give you a bruise-blue cardigan that you detest, we can all agree that this is no tragedy because it’s the thought that counts. But we can also agree that it would have been better if I had chosen a nicer cardigan.

One approach, independently advocated by Kimberley Scharf of the University of Warwick and Francesca Gino of Harvard Business School, is to buy only what has been explicitly requested.

This idea has some science behind it. Gino, the author of Sidetracked, has published research (with Stanford’s Frank Flynn) into how people feel about wishlists.

“Gift recipients prefer to receive items they’ve asked for, and they think givers who fulfil this ideal are more thoughtful,” says Gino. “Yet when we’re the one who is doing the giving, we fail to realise that people tend to prefer receiving what they told us they want.”

Basically, when we’re the giver, we scorn the wishlist and get creative, imagining that we’re smarter choosers than we really are; when we’re the receiver, we would simply be delighted to receive exactly what we asked for.

Gino herself looks for a wishlist whenever possible, and can recall several occasions when she was on the brink of buying an expensive and entirely inappropriate gift, only to be saved by having an honest conversation with the target of her generosity.

But what of poor Waldfogel himself? When the subtitle of your book is Why You Shouldn’t Buy Presents for the Holidays, you’re setting yourself up for a lifetime of giftless ostracism. But, says Waldfogel, he does still receive gifts, often “coffee, chocolate, or cognac . . . things I am known, by my friends and family, to use.”

He adds: “Honestly, how bad can any of these things turn out to be?”

Well, quite. Although my wife wouldn’t touch any of the three items — a reminder that there is no such thing as the all-purpose gift.

Waldfogel argues that it’s possible to do even better than the wishlist. The ideal, he says, is to find a gift that transcends what a person would be able to buy for themselves. And his answer is the gift of permission. “If I want something that’s a little extravagant, then I run it past my wife, who gives me permission to buy it.”

This does make a strange kind of sense. Last Christmas I bought my wife an expensive piece of camera kit — after carefully quizzing her to make sure I had exactly the right thing. We have a joint bank account, so what was I really giving her? Not money, and not effort. I was giving her my blessing.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

Undercover Economist

Game changers: the importance of the puzzle

Looking forward to a few family board games at Christmas? Good, good. Steer clear of Monopoly — a dreadful, grinding game. Settlers of Catan is the game that Monopoly wishes it was although, for committed players, Puerto Rico is even better. (Agricola is the best game. But you knew that already.)

 Games are a serious business in the Harford household these days but they, along with puzzles and other fripperies, have long been important elsewhere.

Consider the puzzle of the bridges of Königsberg — 18th-century Königsberg had seven bridges connecting two sides of a river and two large islands. The puzzle was: is there a walking route through the city that crosses each bridge only once? When the great mathematician Leonhard Euler heard about the problem, he found it “banal” but was intrigued by the fact that, despite its apparent simplicity, “neither geometry nor algebra nor even the art of counting” could solve it. And so Euler invented an entirely new branch of mathematics, graph theory.

“That was the beginning of all network analysis,” says Alex Bellos, the author of Can You Solve My Problems?, a new book celebrating the joys and history of puzzles. Euler’s graph theory has been enormously fruitful in chemistry, physics, sociology and, of course, computer science. The internet relies on Euler’s analysis. And it all started with a brain-teaser.

Perhaps it’s no surprise that a puzzle might lead to a mathematical breakthrough: after all, puzzles are designed to be intellectual challenges. But other pastimes have also spurred fresh ideas — for example, gambling. Perhaps the first gambler to draw inspiration from this vice was the Renaissance mathematician Girolamo Cardano, who produced the foundations of probability theory.

Three-and-a-half centuries after Cardano died, the smartest man in the world decided to use mathematics to work out how best to play poker. John von Neumann was one of the driving forces behind the development of both the atomic bomb and the computer, and he wanted to apply mathematics to social sciences — for example, analysing the success or failure of negotiations, or the formation of alliances. His contention was that a mathematical theory that could explain life should start by explaining poker: “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.”

The result of von Neumann’s musings — first alone, and then with the economist Oskar Morgenstern — was “game theory”, one of the building blocks of modern economics and an important tool in evolutionary biology.

This is an impressive list of ways in which games have inspired us — and we haven’t even touched on the way that computer scientists have used chess as a testing ground for their machines.

But it would do games a disservice to treat them merely as a source of intellectual inspiration. They have inspired us in other ways too. In his new book, Wonderland, Steven Johnson makes a convincing case for the transformative power of play and delight — for example, the Victorian designer of paleo-computers, Charles Babbage, was inspired by a captivating mechanical toy dancer.

This wasn’t the last time that pure fun changed the world of computers. The first video game that mattered, Spacewar!, was designed in the early 1960s by enthusiastic students at the Massachusetts Institute of Technology who wanted to demonstrate just what the latest computers could do. And what they could do went way beyond the technical: they could hijack our attention, trigger Pavlovian responses, even addict us, by providing a compelling and engaging challenge.

Silicon Valley visionary Stewart Brand wrote about Spacewar! in Rolling Stone magazine in 1972. He saw what the game represented: computers that ordinary people would come to love. “I saw them having some kind of out-of-body experience,” he said recently of Spacewar!’s players. “Their brains and their fingers were fully engaged.” That curious compulsion felt by every PlayStation junkie or Instagram addict was felt first by the players of this early game.

Now, researchers at DeepMind, Google’s artificial intelligence outfit, are turning to computer games to train artificial intelligences. The AI is shown the game screen, given access to the score and a controller, and then — with no further information — figures out how to master the game. At first, DeepMind started with simple games such as Atari’s Breakout but it has recently moved on to Starcraft II, a game that requires tactics, military strategy, surprise and economic planning. Like von Neumann’s poker, learning to play Starcraft II is good training for the rigours of reality.

One of Alex Bellos’s puzzling heroes is Hubert Phillips — the man who coined the word “mezzobrow” to refer to “people of the highest intelligence who enjoy such things as crosswords, chess problems, inferential puzzles and parlour games”. Even as a child I knew about Phillips, the author of a veritable bible of card games. Phillips also wrote 200 detective stories, compiled crosswords and championed a number of classic puzzles — including the “logic grid” problems that are such a staple of the genre.

But that is not how Hubert Phillips began his career. He was a noted economist, adviser to the Liberals in the 1920s and the head of Bristol University’s department of economics. All very respectable, but thank goodness he turned to the far more important practice of having fun.

Written for and first published in the Financial Times.

My new book “Messy” is now out and available online in the US and UK or in good bookshops everywhere.

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