Progress Daily

The term “endowment effect” refers to people’s tendency to place an extra value on things they already own. John List, an economist at the University of Maryland, tested the existence of the endowment effect in a new way. Instead of using callow students, he went to a real market with traders of varying degrees of experience: a sports-card exchange, one of many such, where Americans trade pictures of their favourite athletes. There, traders dealing in hundreds of cards mix with browsers who might buy only one.

In one experiment (”Does Market Experience Eliminate Market Anomalies?“), List took aside a group of card fans and gave them an assortment of other, less familiar, sporting memorabilia, such as autographs, badges and so forth. He then let them trade. The less card-trading experience a subject had, the less likely he was to trade, even when a good deal was on offer. More experienced traders were less prone to the endowment effect, and traded as keenly as neoclassical theory predicts.

Although consistent with an endowment effect, this was not proof of one. Novice traders could simply be wary of dealing with those who might get the better of them. To rule this out, Mr List concocted another experiment along the lines of the Cornell study (”Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace“). He gave a similar cross-section of fans chocolate and coffee mugs, whose values are well-known even to the most inexperienced bargainers, and let them trade. Again, Mr List found evidence for an endowment effect — but also that long experience as a card trader spilled over into his experimental mug-and-chocolate market. Only novices, like the students in earlier experiments, tended to be swayed by what they had been given.

This implies that experienced buyers or sellers in well-established markets get over their psychological “flaws,” and can transfer their trading skills from one market to another.

“To Have and to Hold,” The Economist

A professor purchases school mugs, selects at random half the members of a group of students, and gives one to each of them. He then asks each student with a mug to state the price at which he would be willing to sell it and each student without a mug to state the price he would be willing to pay for one. Finally, he calculates the market clearing price — the price at which there is exactly one seller for each buyer — and reallocates mugs and money accordingly.

At the end of this process, the mugs should be in the possession of whichever students most value them. Since they were originally handed out at random, we would expect that about half of the students who most valued them would have gotten them and half would not, hence that about half of the mugs should change hands.

In fact, almost none of them did. On average, people value a mug more (about twice as much) when they have it than when they do not. (Kahneman, D., J. Knetsch and R. Thaler, 1991, “Experimental Tests of the Endowment Effect and the Coase Theorem,” Journal of Political Economy, 98, 1990, pp: 1325-1348; reprinted in Richard Thaler, Quasi Rational Economics, pp: 167-188.)

This is known as an endowment effect. On average, someone who owns something values it more than someone who does not. An experiment involving choosing between one package containing a mug and ten dollars and another containing no mug but fourteen dollars reveals inconsistent preferences — whichever package a subject starts with, he prefers it to the alternative.

Some species of animals exhibit territorial behavior. An individual fish, bird, or mammal in some way claims a particular territory for his own and attacks other members of his species that trespass on it. Even if the trespasser is somewhat larger and stronger than the claimant, the claimant usually wins such conflicts — at some point the trespasser retreats. (See Konrad Lorenz, On Aggression, Chapter 3, pp. 23-48.)

Unless the trespasser is much stronger a fight to the death is a losing game for both parties, since even the winner risks substantial injury. The claimant has somehow committed himself to fight more fiercely the closer the trespasser gets to the center of the territory.

It is a familiar observation that a dog will fight harder to keep his own bone than to take another dog’s bone.

Imagine a human society in which each individual considers every object in sight, decides how much each is worth to him, and then tries to appropriate it, with the outcome of the resulting struggle determined by some combination of how much each wants things and how strong each individual is. It does not look like a formula for a successful society. But there is an alternative solution: some method is used to define what belongs to whom. Each individual commits himself to fight very hard to protect his property — much harder than he would be willing to fight in order to appropriate a similar object from someone else’s possession. The result is both a lower level of (risky) violence and a more prosperous society.

Imagine a population in which some individuals have adopted the commitment strategy described above, some have adopted no commitment strategy, and some have adopted different commitment strategies — for example, a strategy of fighting to the death for whatever they see as valuable. Individuals in the first group will, on average, do better for themselves — hence have (among other things) greater reproductive success — than those in the second and third. So the same behavior pattern that shows up as territorial behavior in fish and ferocious defense of bones in dogs shows up in Cornell students as an endowment effect. Behavior that was functional in the environment in which we evolved continues to be observed, even in a context where it now serves no useful purpose.

“Economics and Evolutionary Psychology” by David Friedman

A study led UCLA psychologist Shelley Taylor showed that females of many species, including humans, respond to stress by “tending” and “befriending.” Rather than the classic fight-or-flight response, believed to be shared by both men and women, the study showed women under stress were more likely to reach out to a friend or make some kind of social contact. It could be something as simple as talking on the phone to a friend or asking for directions. There’s a biological basis for this, says Taylor: people with high levels of the hormone oxytocin, released as a response to stress, tend to be more calm and sociable and reach out to others. Women tend to have it more than men.

“The Cult of the Mean Girl” by Leslie Scrivener

In a controlled experiment at the University of Michigan a team of psychologists bumped into random students in the corridor and loudly called each one “asshole,” then measured their reactions. Students from the southern part of the United States reacted far more violently and aggressively than those from the North, were shown to have much higher levels of cortisone and testosterone, and in tests regularly suggested more belligerent solutions to problems.

From the earliest days of the American Republic, the code of honor was strongest in the South (one theory postulates that this was because of the Celtic, free-ranging herder origins of many southern settlers). Among the poor, this took the form of no-holds-barred gouging and scratching contests, the aim of which was to tear out an opponent’s eye or otherwise permanently disfigure him. Among the rich, it took the more formal shape of the duel.

It was southern honor that caused the War of 1812. The areas of America that were suffering most from the British impressments of American sailors, and who had most to gain from expansion to the West and a possible conquest of Canada, were opposed to the war. In the vital vote in Congress to declare war on Britain, senators from the maritime areas of northeastern America voted against war. It was the senators from the South who voted in favor, not because they were suffering from British policy, but because they regarded it as an insult.

The Civil War was, according to James McPherson, one of its foremost historians, America’s first pre-emptive war. The South’s way of life was not immediately under threat. Lincoln was not proposing the abolition of slavery, and even if he had been, he could not have enacted it. Pro-slavery elements continued to control both houses of Congress and the Supreme Court. But southerners chose to pre-empt what they saw as a potential future threat: precisely the logic of GW Bush’s national security strategy.

The South’s political influence has possibly never been greater. It was Al Gore’s failure to win a single state in the old Confederacy that lost him the presidency.

The years before the Civil War saw a rapid expansion in the number of military institutes and academies in the South. After years of decline, these schools and colleges are now enjoying a revival. Confederate armies were famous for their religiosity. The modern United States Army is remarkably similar. It is not uncommon to find American generals beginning meetings with prayers, just as they might have under Stonewall Jackson.

The antebellum South was famous for its militarism. Contemporary southerners continue to be disproportionately represented in the U.S. military, and opinion polls consistently show far greater support for all forms of military action among the states of the South than in those of the North.

“Sword of Honor” by Paul Robinson

Evolution applies positive feedback in that the more capable methods resulting from one stage of evolutionary progress are used to create the next stage. As a result, the rate of progress (e.g., the speed, cost-effectiveness, or overall “power”) of an evolutionary process increases exponentially over time.

As a particular evolutionary process (e.g., computation) becomes more effective (e.g., cost effective), greater resources are deployed toward the further progress of that process. This results in a second level of exponential growth (i.e., the rate of exponential growth itself grows exponentially).

The evolution of life forms required billions of years for the first steps (e.g., primitive cells). During the Cambrian explosion, major paradigm shifts took only tens of millions of years. Humanoids developed over a period of millions of years, and Homo sapiens over a period of only hundreds of thousands of years. The first technological steps — sharp edges, fire, the wheel — took tens of thousands of years. In the nineteenth century, we saw more technological change than in the nine centuries preceding it. Then in the first twenty years of the twentieth century, we saw more advancement than in all of the nineteenth century. Computer speed (per unit cost) doubled every three years between 1910 and 1950, doubled every two years between 1950 and 1966, and is now doubling every year.

There are a great many examples of the exponential growth implied by the law of accelerating returns in technologies as varied as DNA sequencing, communication speeds, electronics of all kinds, and even in the rapidly shrinking size of technology.

“The Law of Accelerating Returns” by Ray Kurzweil

Researchers now have access to technology such as MRI and PET scanners. These can report where brain activity takes place. Emotion is regulated in part by the frontal cortex of the brain, the last part to expand as mammals evolved. The orbitofrontal cortex, just above and behind the eyes, is one of the most consistently active areas of the brain during emotional reactions. People who suffer damage to the frontal cortex can lose most of their ability to experience emotion while retaining their ability to think rationally. But they don’t therefore see the world with crystalline logic. On the contrary, they find themselves unable to make simple decisions or set goals, and their lives fall apart. When they look out at the world and think, ‘What should I do now?’ they see dozens of choices but lack immediate internal feelings of like or dislike. In the absence of feeling they see little reason to pick one or the other.

Psychologist Mihaly Csikzentmihalyi made people carry a pager and told them that every time it went off they should write down what they were doing and how much they were enjoying it. The idea was to avoid the memory’s tendency to focus on peaks and troughs. The study showed that people were most content when they were experiencing what Csikzentmihalyi called “flow” — the state of total immersion in a task that is challenging yet closely matched to one’s abilities. We are at our happiest when we are absorbed in what we are doing.

“Pursuing Happiness” by John Lanchester

The gist of Malthus’ theory was that population growth must eventually outstrip the growth of resources, primarily food. According to Malthus, “the power of population is indefinitely greater than the power in the earth to produce subsistence for man. Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio.”

But exponential growth need not be faster than linear growth (a straight line). Exponential growth of any arbitrary value only exceeds arithmetic growth in one uninteresting case: infinite time.

Since Malthus first published more than 200 years ago, arguably enough time has passed to determine whether or not he was correct.

From 1600 through 1974, the percentage of the population in Great Britain employed in agriculture dropped from 67 percent to about 6 percent.

From 1800 through 1990, the price of wheat in the United States — expressed as a percentage of wages — fell 96 percent.

From 1800 to 2000, the population of England and Wales increased from about 9 million to more than 50 million while the inflation-adjusted price of wheat fell by more than 90 percent.

From 1961 through 1998, the world population increased from 3.1 billion to 5.9 billion — but over the same time period world daily average consumption of food calories increased from 2,250 to 2,800.

The preceding facts would seem to falsify Malthus’ hypothesis.

The birthrate necessary for zero population growth is 2.1 births per woman. Japan has a total fertility rate of 1.3 births per woman. The total fertility rate for Europe in 2002 was 1.4 births per woman. Developed regions of the world — Europe, North America, Australia, Japan and New Zealand — have 19 percent of the world’s population and an average fertility rate of 1.6 births per woman. In the 1950s, the average woman in Africa, Asia and Latin America gave birth to 6 children; by 2002, the average fertility rate in these less areas had fallen to 3.1 births per woman.

Among the reasons that have been given for the falling birth rates that accompany economic development:

In agrarian societies, children are an economic asset, whereas in technological societies they are an economic liability.

Birth control has become increasingly available and culturally acceptable.

Infant mortality has fallen.

Women in technological societies spend more time on education and work, and less time on childbearing and rearing.

From 1962 to 1963, the Earth’s population reached its highest growth rate — 2.2 percent per year. Since then, the growth rate has decreased, reaching 1.2 percent in 2001. If this trend continues, the world’s population will likely stabilize and perhaps even begin declining before the end of this century.

“Malthus Reconsidered” by David Deming

Over the 40-year period from 1960 through 2000, world population grew from about 3 billion to 6.1 billion, or at an annual rate of 1.7 percent. Over this same period, total world production grew much faster than population, from $6.5 trillion in 1960 to $31 trillion in 2000. (All the dollar magnitudes are in units of 1985 U.S. dollars.) That is, world production was nearly multiplied by five over this 40-year period, growing at an annual rate of 4 percent. Production per person — real income — thus grew at 2.3 percent per year, which is to say that the living standard of the average world citizen more than doubled.

Total world production has been growing at over 4 percent since 1960. Compare this to annual growth rates of 2.4 percent for the first 60 years of the 20th century, of 1 percent for the entire 19th century, of one-third of 1 percent for the 18th century. Up to 1800 or maybe 1750, no society had experienced sustained growth in per capita income. Up to about two centuries ago, per capita incomes in all societies were stagnated at around $400 to $800 per year.

What occurred around 1800 is not technological change by itself but the fact that sometime after that date fertility increases ceased to translate improvements in technology into increases in population.

As family income rises, spending on children increases, as assumed in Malthusian theory, but these increases can take the form of a greater number of children or of a larger allocation of parental time and other resources to each child. Parents value increases both in the quantity of children and in the quality of each child’s life.

“The Industrial Revolution — Past and Future” by Robert E. Lucas, Jr.

A study, by the London Guildhall University, stated that short men and plain or overweight women are taking home thousands of dollars less than their colleagues.

(”Tall men and slim women ‘earn more’,” BBC News)

With better nutrition, height has steadily increased in the past century, particularly the height of members of the upper classes, who have been taller than the lower classes in every country since the late 18th century. Relatively greater height within a given population suggests tall ancestors who garnered a good share of the resources, and a good food supply when young. Shorter stature is associated with hunger, food intolerance, and illness. In general, taller individuals have better reproductive histories.

In the animal world, the dominant animal tends to be the largest. In human villages throughout the world, the chief is known as “the big man.” The easiest way to predict the winner in a US presidential election is to bet on the taller man. Only James Madison and Benjamin Harrison were below average height.The average height of a man in the United States is five feet nine. More than half of the CEOs in American Fortune 500 companies are six feet or taller. When corporate recruiters were asked to choose between two applicants who were matched on all qualifications except body size 72% of the recruiters preferred the taller man.

Examining the employment patterns of the University of Pittsburgh Master’s in Business Administration program, psychologist Irene Frieze found that height had a significant impact on men’s salaries but not women’s. A study of young men and women in a wide range of jobs found significant effects of height for both men and women, though the effects were larger for men. There were no differences of work performed based on height.

71% of the time people overestimate their height.

In one study of personal ads, 80% of the women who mentioned height wanted a man who was at least 6 feet tall. Tall men get more responses to personal ads but tall women do not. According to a study by psychologist Linda Jackson, taller men are assumed to be more athletic, masculine, psychologically attractive, and higher in professional status than shorter men.

In one study of married couples, only about one in three hundred of women were taller than their husbands, a percentage considerably less than would have been expected by chance.

Survival of the Prettiest by Nancy Etcoff

It is well established that facial features rated as masculine (square-jawed, rugged, etc.) are the result of high testosterone levels, and that such faces indicate a strong immune system.

One of the unfortunate side-effects of being male is a higher death rate, at any given age, than if you are female. Part of the cause of this is that testosterone suppresses the immune system, leaving high-testosterone individuals particularly vulnerable to infection. So a man who has made it to sexual maturity despite his high testosterone levels probably has a particularly good immune system, which he can pass on to his children. On the other hand, a man with high testosterone is more likely to love you and leave you, so a woman might want to settle for Mr Nice-guy and his more effeminate features.

In a paper just published in the Proceedings of the Royal Society, Lisa DeBruine and her colleagues at the University of St Andrews, Scotland, found that women do vary in the degree of masculinity they prefer. Moreover, women’s preferences as measured by the test agreed closely with the perceived degree of masculinity of the real-life partners of those who were in stable relationships.

Past research has suggested that, regardless of their average preferences, women are most attracted to hyper-masculine features when they are most likely to conceive, and that the effect is particularly exaggerated in women who are in stable relationships.

“Facing the Truth,” by The Economist