Tuesday, April 8, 2008

And Behind Door No. 1, a Fatal Flaw (New York Times)

Really interesting article by John Tierney in the New York Times on cognitive dissonance.

"The Monty Hall Problem has struck again, and this time it’s not merely embarrassing mathematicians. If the calculations of a Yale economist are correct, there’s a sneaky logical fallacy in some of the most famous experiments in psychology."

Sunday, January 27, 2008

Unintended Consequences (New York Times)

Interesting article by Steven Levitt and Stephen Dubner about how well-meaning attempts to regulate complicated systems are likely to to have unintended consequences. Here is a short excerpt:

"Acemoglu and Angrist found that when the A.D.A. was enacted in 1992, it led to a sharp drop in the employment of disabled workers. How could this be? Employers, concerned that they wouldn’t be able to discipline or fire disabled workers who happened to be incompetent, apparently avoided hiring them in the first place.

How long have such do-good laws been backfiring? Consider the ancient Jewish laws concerning the sabbatical, or seventh year. As commanded in the Bible, all Jewish-owned lands in Israel were to lie fallow every seventh year, with the needy allowed to gather whatever food continued to grow. Even more significant, all loans were to be forgiven in the sabbatical. The appeal of such unilateral debt relief cannot be overestimated, since the penalties for defaulting on a loan at the time were severe: a creditor could go so far as to take a debtor or his children into bondage.

So for a poor Jewish sandal maker having trouble with his loan payments, the sabbatical law was truly a godsend. If you were a creditor, however, you saw things differently. Why should you lend the sandal maker money if he could just tear up the loan in Year Seven? Creditors duly gamed the system, making loans in the years right after a sabbatical, when they were confident they would be repaid, but then pulling tight the purse strings in Years Five and Six. The resulting credit drought was so damaging to poor people that it fell to the great sage Hillel to fix things."