Tim Harford The Undercover Economist
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Undercover Economist

Hug your enemy rather than wrestling the pig

Brexit has already taken quite a toll on the British economy, and worse may be lying in wait. But the political damage seems graver. Lies, threats and insults have become ubiquitous. So has open contempt both for the opposite side and for once-respected institutions. As for the situation in Northern Ireland, or diplomatic relations between the UK and the rest of the EU, let’s not even think about it. (The English usually don’t.)

It’s tempting to obsess about the tone of politics, but that is a trap. If we spend our time wringing our hands over the form of the political conversation, it leaves little space to think about the content. Remember the lesson of the lie on the bus: a fact-checking dispute about the UK’s contributions to the EU successfully consumed all the oxygen in the 2016 referendum, leaving no breathing space for a discussion of the issues involved. The exact claim didn’t matter: what mattered was that in order to dominate attention it had to be palpably false.

This season’s versions of the lie on the bus are the insult and the threat. Boris Johnson specialises in the insult. A freshly coined one this week was “uncooperative crusties”, although his crass responses to MPs reminding him of Jo Cox’s murder will live longer in the memory. The prime minister’s adviser Dominic Cummings prefers the threat — recall his infamous clash with the MP Karl Turner, who complained, “I’ve had death threats overnight”, to which Mr Cummings retorted, indefensibly, “Get Brexit done”.

Yet it was Mr Turner who started the altercation, with camera in tow. It added to the bitter circus, while distracting from the absurdity of demanding that anyone “get Brexit done” — which makes as much sense as telling a pregnant woman “get the child done”. Mr Cummings will have been pleased enough with that distraction.

A no-deal Brexit would be the beginning of a bitter negotiation about what comes next. Agreeing on a deal would require previously undiscovered capacity for compromise and, again, would begin further discussion. Even revoking Article 50 and calling the whole thing off, presumably after a bitterly fought referendum, would hardly end the matter. There is no “done” here — just a long journey ahead.

Wherever that journey may lead, we need to find a way to get along with each other along the way. So here are three ideas. First, we should do ourselves and each other the favour of engaging with the issues. From the Irish border to the sense of hopelessness in some British towns, there are problems to solve. Next time you’re faced with someone whose politics who dislike, you may get along better if you discuss what can be done to help Blackpool or Merthyr Tydfil rather than which politician is the most despicable.

Second, we should try to avoid scorning people who seem — to us — underinformed. That’s partly because it behoves us to show humility: most of us know less than we think about how the world around us really works. How many of us can honestly say we’d thought through the difference between the single market and the customs union until after the referendum? How many can honestly say we fully understand it now? But it’s also because sneering at someone’s ignorance is a missed opportunity to explore an issue together. Most people we meet have something to teach us, and we have something to teach them.

Third, and most important, we need to remember that the people on the other side of the debate are still people — and usually people who, like us, want the best for themselves and the country. In response to the times we live in, my wife, a portrait photographer, has taken to asking people if they’re willing to be photographed hugging somebody who disagrees with them. Of course, the politicians refuse: Andrew Adonis and Nigel Farage had no interest in cuddling for her camera.

But what has been striking is that nobody else wants to hug across the political divide either. The request is not to hug Messrs Farage or Corbyn or Trump, but to hug an ordinary acquaintance with whom you disagree. As a Remainer, would you be willing to hug a Leaver, or vice versa? People hate the idea. Hugs are nice. But hug one of them? Never.

Fine. Perhaps the hug is too much for we emotionally reserved Brits. But if not a hug, might we at least hope for a handshake and a respectful conversation, rather than ostracism or shouting?

At the moment, everyone seems to agree that half the people in the country are ignorant, wicked or both. The only disagreement is over which half. A few people — some in politics, some in the media — find fertile ground in this outrage. It’s barren for the rest of us. We can do better.

One starting point is the old proverb, “Don’t wrestle with a pig. You get dirty and the pig enjoys it.” There’s truth in that. We just need to find a version that doesn’t dismiss our opponents as pigs.

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

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Cautionary Tales…

Exciting news – I have a new podcast series ready to burst out upon an unsuspecting world. It’s called Cautionary Tales – true stories of catastrophe and fiasco, sparkling with top acting talent, with the aim of making you wiser with every word. I’m writing and presenting the series and will be adding a soupcon of social science to the narrative. [Apple] [Spotify] [Stitcher]

While you wait for the first episodes to drop on November 15th, I thought I’d share a few of my favourite books about making mistakes.

I received Nigel Blundell’s The World’s Greatest Mistakes as a Christmas gift when I was a child – a strange and compelling array of catastrophes, from famous air crashes and military blunders to amusing vignettes such as the bride who accidentally married the best man. The stories seemed well researched (although no list of references) and were briskly told. That book is long out of print, but I suspect that Blundell’s new book A Century of Man-Made Disasters will have similar qualities.

Levy and Salvadori’s modern classic Why Buildings Fall Down is a skilfully illustrated and fascinating way to learn about structural engineering by studying what happens when it all goes wrong.

For books about human error you could take a look at my list of my favourite behavioural economics books but try also Kathryn Schulz’s beautiful meditation on error, Being Wrongand Tavris and Aronson’s excellent Mistakes Were Made (But Not By Me) James Reason’s more technical quasi-textbook Human Error.  

And for the all-important intersection of the maths-comedy-error Venn diagram, Matt Parker’s delightful Humble Pi

 

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Undercover Economist

The risks in raising the minimum wage

You can have too much of a good thing. Somebody should mention this to Sajid Javid, the UK’s new chancellor of the exchequer. This week he announced an increase in the minimum wage to two-thirds of the median wage, bringing it to around £10.50 per hour. His plans are to come to fruition in 2024, assuming there are no unforeseen events in British politics in the interim.

The US House of Representatives has the same deadline in mind for a plan to raise the federal minimum wage from $7.25 to $15. After the 2020 election, they may get their way.

I fear that we are creeping towards a serious mistake — maybe not now, but soon. And it isn’t too late to correct it. There are three elements to the mistake. The first is the scale of the changes afoot. When the minimum wage was first introduced in the UK in the late 1990s, only a few hundred thousand workers were paid it. Last year, 2m workers received the minimum wage. And according to the Resolution Foundation, a think-tank that has been strongly supportive of increases in the minimum wage, if it had been at two-thirds of median income last year, nearly 5m workers would have been covered — rather than 2m. Mr Javid’s proposal is a dramatic expansion in the number of people whose wages are set by the government rather than by supply and demand. The proposals in the US are even more seismic. This is a bigger idea than most people realise; let us hope it is also a good one.

The second element of the mistake is to politicise the minimum wage. That is old news in the US, where it see-saws up and down according to the whims of Congress. Over the decades it has been as low as $4.17 and as high as $11.55 in today’s money. The last sharp increase was in 2007-2009 — that is, in the teeth of the great recession. Most countries use a formula or a technocratic committee to set the minimum wage. The UK was among them, until 2015, when one of Mr Javid’s predecessors, George Osborne, decided there might be some fleeting political advantage in sidelining the committee and claiming credit for raising the minimum wage. Mr Javid has done likewise. British politics, after all, has had enough of experts.

This is unwise because the judgment of where to set the minimum wage is essentially a technocratic one. There is a trade-off. When we forbid an employer to pay less, we hope that low-paid workers will get a pay rise, but fear that they will simply get the sack. The trade-off requires evidence to assess. What’s more, the trade-off is asymmetric. Any rise in the minimum wage earns immediate praise, while the jobs lost are lost gradually, as firms ponder new hires or buy labour-saving machines. When benefits are immediate and costs are delayed and hidden, it is best for everyone’s sake to delegate the decision to someone who isn’t running for re-election.

Nor is it easy to undo a mistake. Once a minimum wage rises too far, and the new machine is installed or the factory is moved offshore, reversing the policy will not easily bring the old jobs back.

The third element of this potential mistake is the rebranding of the minimum wage as a “national living wage”. This is a serious conceptual error. A minimum wage should be set with reference to the trade-off between better pay and fewer jobs. That is true whether it is half what anyone could live on, or 10 times as much.

I’m all in favour of everyone having enough income to live on — and in a rich country such as the UK or the US, “enough to live on” should mean much more than just food, clothes and shelter. But if a decent living wage is higher than a minimum wage that would destroy jobs by the million, that is not a problem that minimum-wage legislation can solve. Instead, it requires the government to provide some kind of basic income or tax credit. Mr Osborne’s rebranding of the minimum wage was coupled with reductions in tax credits; it was the perfect smokescreen. In the longer term, a minimum wage needs to be bolstered by investment in education, infrastructure and other productivity measures that allow every worker a chance to earn a good wage. If workers don’t have an environment in which they can be productive, higher pay cannot simply be wished into existence.

I don’t mean to strike a tone that is too apocalyptic. In the UK, increases in the minimum wage have eaten into the problem of low pay with no apparent impact on employment and only a small sign of an impact on hours worked. The international evidence is mixed: on balance it suggests that minimum wages can and do destroy jobs for the low-skilled, but perhaps not as dramatically as we economists once feared.

It’s possible, but not certain, that further rises will bring further benefits. Yet it is dangerous to view the minimum wage as a free lunch, something to be dished out by politicians without pondering either the evidence or the risks. It is more like a strong medicine with serious side effects. It should be prescribed with caution and under expert supervision — not mixed with sugar and downed in one gulp.

 

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

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Books about seeing into the past and the future

What I’ve been reading…

Steven Johnson’s FarsightedI’m a Steven Johnson fan and enjoyed this book a lot – sufficiently to read it in an afternoon in the library, then head to my local bookshoop and pay full retail. Given the number of books I get sent on spec, that’s a sincere compliment. This book is about taking the long view and thinking about non-obvious effects. Among the topics – diversity and groupthink (Steven may have taken some inspiration from Messy, Wiser and The Difference), prediction (with the now-obligatory mention of the excellent Superforecasting) and some really good stuff on wargaming and scenarios. Some good stories, well written – less surprising than, for example, Johnson’s Wonderland but I still learned a lot and enjoyed it.

Ian Mortimer’s Time Traveller’s Guide to Medieval England – a very clever way to bring history alive. Lots of insights and many things I didn’t know, even though I (like many gamer geeks) have an interest in the middle ages.

Michael Lewis, The Big ShortRe-reading this to refresh my memory about some CDO-related chicanery. He’s SO GOOD. Such lively writing and a lot of serious explanation smuggled in there too.

Andrew Hunter Murray The Last DayI got an early edition of this; you’ll have to pre-order it now and thank me in February. Terrific debut novel – a dystopian near-future account of a world which has literally stopped turning, leaving most of it either uninhabitably cold or uninhabitably hot. This manages to evoke Brexit and climate change and Syria without actually being about any of them. A great thriller – and the low-rent police-state (1984 on a tight budget) is grimly convincing.

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28th of October, 2019MarginaliaResourcesComments off
Undercover Economist

Beware of simple ideas that become serious pains

“An act of economic vandalism,” said the trade union Unite. What did they have in mind? There are all too many candidates. Apparently the vandalism was a failure to prop up a package holiday company, which suggests the bored kids in my neighbourhood are missing a trick.

The collapse of the UK tour operator Thomas Cook is a big blow: 150,000 British residents have been stranded overseas, others have seen long-anticipated holidays evaporate and many thousands of jobs are at risk. The prospect of well-paid executives strolling off into the sunset adds to the stink.

Something must be done! But what? Unite has called for the government to “stand behind” Thomas Cook, which doesn’t sound like a big ask — until you realise that even the temporary survival of the tour operator would cost £100m or more. I often stand behind things — yellow lines, pot plants, the kitchen sink. I hadn’t realised it could be such an expensive business.

Whenever something goes awry — and Thomas Cook is not the only thing going awry in the world — it is tempting to believe that government should roll up one sleeve and plunge its arm in up to the elbow. That is not inevitably a bad idea, but one must always reflect on whether the effort will do more to harm than to help.

The Labour party has no patience for such reflection. For example, rightly worried that houses are too expensive, they propose that anyone who rents a property would gain the right to buy it at a price set by the government. John McDonnell, the shadow chancellor, described this idea to the FT, adding: “I don’t think it’s complicated.”

He should think harder. Who would be a landlord, if the act of letting out a house incurred the obligation to sell it? The entire private rental market would collapse. Some landlords would reject tenants to sell at a price of their own choosing; others would grit their teeth and keep the house empty. Just because the idea would hurt landlords does not mean it would help tenants.

The grand plans don’t stop there. A fringe meeting of the Labour party conference — attended by Mr McDonnell — was even joking about nationalising Greggs, supplier of Cornish pasties and steak bakes to a hungry public. This hilarity aside, there is a slippery slope in action here: the more a government feels it needs to take action when anything in a complex modern economy goes wrong, the closer we are to appointing a Minister for Sausage Rolls.

The left is particularly susceptible to this sort of foolishness, but the right is not immune. One Twitter troll complained to me that an interview with equal pay campaigner Carrie Gracie was “fake news” because unequal pay was illegal — so of course it could not exist. I’m sure Mr McDonnell would find that view as absurd as I do — and yet he and the troll do seem to share a touching faith that when you change the law, problems simply vanish.

Meanwhile, US president Donald Trump has found his government buying dairy products to shield farmers from his own trade war. We’ve been here before, and the story ended with the US administration renting vast underground caves and filling them with government cheese. A simple idea turns into a serious headache.

Then there is “take back control”, the Brexit slogan that sounds good until you think about it. Who exactly is going to get this much-vaunted control, and how do they propose to use it? British citizens already had control over some valuable things — notably the right to travel to, work in or trade with any part the EU. Exactly what sort of “control” will replace those freedoms remains unclear. Instead, Prime Minister Boris Johnson announces “let’s get Brexit done”, as though he were planning to mow the lawn.

It is, of course, possible for governments to develop well-designed interventions. But a £2tn economy with 67m unruly residents is not a toy. The actions of both those in power in the UK, and those who wish to be in power, show no understanding of this. Both sides want radical change but have no deep interest in what it is they would like to change.

The government’s response to the risks of a no-deal Brexit are a good example: after being warned of severe disruption, the minister in charge, Michael Gove, announced that preparations had been stepped up over the previous few weeks — as though protecting the UK’s fragile supply lines from being shredded by the government’s own recklessness was no more complex a task than writing an essay overnight before an Oxford tutorial.

The worst thing about foolish ideas is that draconian policies are needed to make them stick. Theresa May’s policy when home secretary of creating a “hostile environment” for immigrants sounded brutally simple, but turned into the national disgrace of the Windrush scandal. Those on the left who rightly deplore the policy should reflect on how many of the things on their economic wishlist will also require heavy-handed policing if they are to be delivered.

“I don’t think it’s complicated,” says Mr McDonnell. But it is. It really is.

 

Written for and first published in the Financial Times on 27 September 2019.

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Undercover Economist

Why we’re thinking about worst-case scenarios in the wrong way

Such excitement this week. I was about to stand up to give a talk, when I received a text message: I’d been hoping for a lift back from London to Oxford, but the motorway had been closed by an accident. Normally, I’d have cycled on my folding bike to the station, then hopped on the train. But I had not expected to need my lights and cycling after dark without them seemed ill-advised.

So I flagged down a black cab, first checking that it took credit cards because I didn’t have cash. Alas, the card machine went on the blink. I sat outside the station as the minutes ticked away while the cabbie kept turning the thing off and on again. Sprinting the length of Marylebone station in a suit and tie, with a Brompton bike under one arm, was not how I had envisaged the evening unfolding.

This brings me to a question some of us ask all too often, and some of us not often enough: what if it all goes wrong? The motorway, the bike lights, the card machine — when the fates seem stacked against me. Some friends of mine are prone to anxiety over the most unlikely contingencies. Others, particularly the Antipodeans, shrug off risks with a “she’ll be right”.

But I’ve become convinced that we don’t think about worst-case scenarios in the right way.

The first problem is that our sense of risk is pretty crude. The great psychologist Amos Tversky joked that most of us have three categories when thinking about probabilities: “gonna happen”, “not gonna happen” and “maybe”. Much of our intuitive thinking about worst-case scenarios seems to revolve around anxious people upgrading “maybe” to “gonna happen”, while the careless downgrade “maybe” to “not gonna happen”.

Tversky, alas, died before witnessing the UK prime minister Boris Johnson adjust his estimate of the probability of failing to agree a deal with the EU from “a million to one” to “touch and go”. I suspect the probabilistic acrobatics would have made him chuckle.

It would be helpful if our sense of risk was a little more refined; intuitively, it is hard to grasp the difference between a risk of one in a billion and that of one in a thousand. Yet, for a gambler — or someone in the closely related business of insurance — there is all the difference in the world.

And research by Barbara Mellers, Philip Tetlock and Hal Arkes suggests that making a serious attempt to put probabilities on uncertain future events might help us in other ways: the process makes us more humble, more moderate and better able to discern shades of grey. Trying to forecast is about more than a successful prediction.

But there’s another trap here: we can become sidetracked by the question of whether the worst case is likely. Rather than asking “will this happen?”, we should ask “what would we do if it did?” The phrase “worst-case scenario” probably leads us astray: anyone can dream up nightmare scenarios.

On my journey home this week, I could have been killed in the crash that closed the motorway. Oxford could have been hit by a nuclear strike. Neither is a helpful scenario for the purpose of travel planning.

Instead, I should have thought: what if the lift does not work out? What if small change and a card won’t do? Neither contingency was likely, but both were possible and easily dealt with. Worrying about nuclear strikes would not have helped me — but neither would shrugging and assuming nothing could go wrong.

To help us think sensibly about these worst-case possibilities, Gary Klein, psychologist and author of Seeing What Others Don’t, has argued for conducting “pre-mortems” — or hypothetical postmortems. Before embarking on a project, imagine receiving a message from the future: the project failed, and spectacularly. Now ask yourself: why? Risks and snares will quickly suggest themselves — often risks that can be anticipated and prevented.

Contingency planning is not always easy. The UK is currently wrestling with the prospect that the government will fail to agree terms for leaving the EU, triggering disruption in the short-term. The government’s own Operation Yellowhammer planning documents have described the woes that would result both as the “base case” (the truth) and a “worst-case scenario” (the government sucking in its stomach while posing for a selfie).

For a rational policymaker, the difference between base case and worst case is irrelevant: since there are few benefits to the back-to-square-one quagmire of negotiations that no-deal would bring, the short-term disruption is something to be avoided, whether or not it is likely. But since our government set rational policymaking aside some time ago, the rest of us must contemplate the risks and do what we can to prepare. That is true whether the chance of a Halloween horror is 5 per cent or 50 per cent.

In a febrile political atmosphere, it is hard to step back and ask: what if this all goes wrong? But we must try. And we can only regret that David Cameron didn’t perform a pre-mortem before calling a referendum in the first place.

Written for and first published in the Financial Times on 20 September 2019.

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Highlights

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
Undercover Economist

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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Marginalia

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
Undercover Economist

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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Tim Harford is an author, columnist for the Financial Times and presenter of Radio 4's "More or Less".
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