In Defense of Professor Coppock's (Rational) Ignorance

As you all may remember, this past Tuesday's lecture involved Professor Coppock discussing the first part of Caplan's book that he assigned to us. During the lecture, he discussed the concept of rational ignorance and the miracle of aggregation, for which he provided an example with two candidates named Buttigieg and Putin, respectively. As some of you may noticed, Professor Coppock wasn't sure how to pronounce either of the candidates names, something we all innocently joked about. At first, I was kind of surprised that Professor Coppock didn't know how to pronounce "Buttigieg" and "Putin" given that a lot people know how to. I wondered why this was the case until I realized the answer was in the material we were being taught that day: rational ignorance.

I don't know if any of you have noticed, but Professor Coppock is pretty good at the whole teaching economics thing (I'm really trying for that 5 on this blog post, if you couldn't tell), meaning that the opportunity cost of his time is extremely high because the cost of educating himself on these pronunciations is significantly higher than the expected benefit of doing so. The cost is so high because learning how to pronounce "Buttigieg" and "Putin" takes time away from Professor Coppock's schedule that he could be using to do things related to teaching economics (i.e. lesson planning, grading, etc.) — something he is good at and therefore would derive more benefit from (ex: if he spends more time perfecting his lectures, his teaching/economics skills will become more apparent and he may win an award, perhaps) than he would doing virtually any other activity (assuming that teaching economics is what he's best at). As a result, it is rational for Professor Coppock to be ignorant about how to pronounce these politicians' names because it provides such little benefit to him than doing teaching-related things would, therefore it is not worth his time to do the former. So, all of this to say: sorry for silently judging you for approximately five seconds this past Tuesday, Professor Coppock. I totally get it now!

Herman Cain's Rational Ignorance

In the Republican primary leading up to the 2012 presidential election, candidate Herman Cain was asked if he is ready for "gotcha" questions, such as "who is the president of Uzbekistan?" Cain responded -- almost proudly -- that he does not know who the president of "Ubeki-beki-beki-beki-stan-stan" is. While Cain had been rising in popularity, this comment drew huge amounts of criticism, turning him into a punchline rather than a serious presidential candidate. "Knowing who is the head of some of these small, insignificant states around the world," Cain continued, "I don't think that is something that's critical to focusing on national security and getting this economy going."

While this confession may not have been the most politically savvy move we've ever seen, perhaps the media and the public were going a bit too rough on poor Herman. After all, the nation was still trying to claw its way back from the Great Recession, and Cain was simply arguing that there are more productive ways for him to spend his time than memorizing names of leaders around the world. While the public would perhaps rather not admit it, there is a cost to acquiring any types of knowledge. Any minute that Cain would have spent memorizing the names of foreign leaders is a minute that he could have spent perfecting his plans for combatting the recession, altering our involvement in Iraq and Afghanistan, or tackling any of the other hot-button issues of the time. But alas, people do not earn their way to the White House by boasting that they are rationally ignorant. In spite of the fact that Cain's argument was economically coherent, it would not sell on the campaign trail.

And by the way, the president of Uzbekistan is Shavkat Mirziyoyev. Obviously.

Miracle of Marshmallows

Today in Experimental Economics with Professor Holt, we were asked to guess how many marshmallows were in a box and the person closest to the number won the amount of marshmallows in pennies. I was way off, only guessing around 400, but the rest of the class overestimated, with some guessing around 1500. The number in the box was 1250 and although our median was around 700-800, it was cool to see the attempt of having the miracle of aggregation on something as trivial as marshmallows.

Caplan shows us that the reason for the miracle of aggregation straying from the median voter is due to systematic biases such as the pessimistic bias, make work bias, anti-foreign bias, and anti-market bias.

I tried to think of some biases as to why the miracle was not so miraculous in our class and I came to the conclusion that there were a couple of biases that us students could have suffered from. Those being, like me, in the back corner of the room so we do not have a good view of the box, another being that there was only five minutes left of class and people were probably thinking about the next activity in their day.

Rational Grocery Shopping

Our discussion about how Economics has changed the way we think reminded me of a blog post drafted deep in my notes, so here it is. I have to admit that Econ has truly affected my decision making, even at the grocery store.

When I visit the grocery store, I pretty much buy the same things every time, resulting in a total around $80. I usually buy Amy’s Veggie Burgers, which come in packs of four for $5.99. If I’m feeling frivolous, I will buy Beyond Burger Plant Based Patties, which taste better and come in packs of two for $5.49. During my recent shopping trip, I remember walking up to the Beyond Burgers, contemplating picking them up, but then looking at the price. In that moment, I had remembered that I had an entire package of Amy’s burgers at home. So, I turned around and did not purchase the Beyond Burgers. 

What I didn’t realize until after the shopping trip was that I had subconsciously evaluated my marginal benefit versus marginal costs. The marginal cost of one Beyond Burger is $2.75, while the marginal cost of one Amy’s burger is $1.50. Plus, I knew I had previously purchased Amy’s burgers, a sunk cost of $5.99, and hadn’t even opened the package yet. My marginal benefit would've decreased if I had increased my possession from four to six veggie burgers, since I would've felt irrational about spending more money on veggie burgers when I already had four patiently waiting to be eaten. Personally, the marginal benefit for one Beyond Burger is not equal to the marginal cost of one ($2.75), and I can only eat so many veggie burgers before the marginal utility rapidly drops. If more people took Economics classes maybe they would be rational grocery shoppers like myself. 

(Note: On subsequent shopping trips I did not act rationally and bought the Beyond Burgers anyway, despite already having veggie burgers at home). 

Siblings or Congress: Who Is More Dysfunctional?

As it turns out, the industrial organization of siblings is a lot like that of Congress when logrolling is involved and committees are not. Much like in Congress, logrolling agreements between siblings are dangerous because of the lack of explicit contract and lack of paper trail. The Schulz family needs to come up with the equivalence of a committee system to solve the “logrolling” problems that occur in agreements between myself and my two siblings, Olivia and Jack.

Last winter break I went home with a desire to get back into a good exercise routine. Knowing that I needed an accountability partner, I asked Jack to workout with me each morning starting the day after Christmas and ending when I returned for the start of spring semester. He agreed to be my workout partner as long as I let him use my car on New Year’s Eve. Agreeing to these terms, Jack and I started working out together every morning. On New Year’s Eve, Jack used my car just as we had agreed. Then, come January 2^nd (because let’s be real—we weren’t going to work out on New Year’s morning), Jack was still in bed when the time of our workout came around. He informed me that he would no longer be my workout partner—he simply didn’t see the value in carrying on our agreement after he was able to use my car. This was a perfect (and disappointing) example of noncontemporaneous benefits flows. The benefits flowing from our agreement occurred over different time horizons: mine were constant over the multiple weeks of winter break while Jack’s were constrained to one night. Therefore, once Jack’s benefits were realized, he felt no pressure to continue on with our agreement. 

Don’t cry for me, guys. I’m guilty of my own agreement betrayals. Going home gives Olivia and me plenty of opportunities to go to the restaurants that we miss going to while at school. My favorite restaurant, Paul’s, and Olivia’s favorite restaurant, Peking, are often pitted against one another in the family debates on where to eat out for dinner. One evening when my craving for Paul’s was particularly high, I asked Olivia to vote for Paul’s, assuring her that next time we went out I would vouch for Peking. Olivia, the reliable partner that she is, was the swing vote that got us to Paul’s that night. Satisfied, I quickly forgot about our agreement. Two weeks later, when another vote on where to go to dinner came up in our family group message, I voted for Plaza Azteca. Jack also voted for Plaza; Olivia, not paying attention to her phone, was outraged when she realized that we had decided to go to Plaza without her vote (hey, majority rules). This instance of nonsimultaneous exchange occurred because the votes did not come up at the same time. Unwittingly, I demonstrated ex post opportunism by backing out of my promise to vote for Olivia’s restaurant when the opportunity arose.

Non-Excludability and Morality

In a different public economics class, my professor was discussing the properties of public goods: non-rivalry and non-excludability. And in order to illustrate an example of a good that falls very near the non-rivalrous, non-excludable ends of the respective spectra, my professor mentioned knowledge as a good that comes quite close to meeting both criteria. Certainly, one individual acquiring knowledge does not harm anyone else's ability to "consume" the same good. And, in the main, it is hard to prevent people from acquiring knowledge. This example, however, led me to think of contradictions to the non-excludability principle as it relates to knowledge.

In my first year at UVA, I was in a dorm called Gibbons, which was named after William and Isabella Gibbons, a couple that had been enslaved at UVA before being emancipated at the end of the Civil War. While the Gibbons family was owned by professors at UVA, Virginia law dictated that it was illegal for any slaves to become literate (most Southern states had this law). Yet despite this law, and in spite of the will of the UVA faculty, William and Isabella learned to read and write by themselves. And after emancipation, Isabella became a long-time teacher at the Jefferson school, while William became a prominent minister, founding two Baptist churches.

Of course, nobody in our society today believes that it should be illegal for anyone to be literate. But considering their story led me to think of a slightly different angle on the non-excludability principle. Instead of asking, "can this good be excludable?" we might ask "should this good be excludable?" Or, in economic terms, does there exist a sizable social benefit in making a good non-excludable? Instead of excludability being an inherent feature of a good, perhaps there are social aspects at play in which a community can make this assessment for itself.

TurboTax Rent-Seeking

While not a monopoly, TurboTax still has the largest corner of the internet-based tax filing programs by far, with about 40 million users in 2019 alone. Recently, ProPublica has done a series of articles and a podcast examining how Inuit (the company selling TurboTax) used rent-seeking to create an opportunity to amass profit. In 2003, the IRS made a deal with 17 companies, allowing online tax filing services. Due to millions of dollars spent in rent-seeking lobbying, the IRS promised to not offer a competing software (which effectively acts as a license for these online tax filing companies). In exchange, the majority of Americans should be able to file their taxes for free. However, this poses a principal-agent problem, as the agent (Inuit) is not incentivized to make tax filing simpler for the principal (taxpayers), and they also do not face any sanctions if they shirk. This is an interesting case, as the agent works within the private system but also as a necessary actor appointed for government processes, and therefore similar to an autonomous bureaucrat. 

Rational ignorance increases as the tax system becomes more complex, and many Americans were unaware that 70% of people qualified for free tax filing. In 2005, when the program was just starting, 5.1 million people used the free version, with only 2.7 mil accessing it by 2019. This decrease in usership was intentional. Inuit created a program called “TurboTax Free Edition”, a misnomer which led most people to pay for services that the IRS deemed should be free. Their other program, TurboTax Free File (also called TurboTax Freedom Edition), is really free but was nearly impossible to find. At one point, Inuit had even manipulated the website’s source code such that it would not appear on Google searches. This is a problem many other countries cannot understand, as most have a government-based efficient tax system (e.g. Mexico, South Africa, Philippines). However, every time the agreement comes back into Congress, Inuit is able to use more of their profit to continue rent-seeking and ensure the government does not compete. 

Recently, a Taxpayer First Act passed in the House, which would have made it illegal for the IRS to pass its own tax filing system. However, due to articles written by ProPublica, the Senate was pressured to remove the permanent banning of IRS software from the bill. Now there is a state of limbo, as the IRS will still likely not make their own competing website. While increased information has reduced some slack, Inuit still has no binding incentive or sanction to sway them to act in the best interest of their principals.

Potential Government Shutdown Thursday due to Problems with Bureaucracy?

With the next funding deadline coming up on November 21^st, the threat of another federal government shutdown again dominates the news.  With talk of the potential shutdown comes the discussion of the federal budget.  This fiscal year, the federal government is projected to spend “roughly $1 trillion more than it brings in from revenue.”  This is due, in part, to the fact that both Democrats and Republicans have agreed to increase the funding for numerous agencies, including Defense and Homeland Security.

If the federal government has so much debt, why do Defense and Homeland Security keep getting more money?  There are three major problems with bureaucracy that allow these agencies to spend so much. First, the output of these agencies is non-market and its units are ill-defined.  For example, it is difficult to define units of Homeland Security and you cannot buy Homeland Security in the market.  Second, these agencies are the monopoly suppliers of Homeland Security and Defense, so they do not have incentives to cut costs.  Furthermore, there are no alternative sources of information for the federal government to compare costs.  Third, the compensation of bureaucrats in these agencies is not tied to their performance, so they are not incentivized to cut costs.  These three problems lead these agencies to over produce. Additionally, because demand for Defense and Homeland Security is inelastic, these agencies over produce to an even more extreme level than their peers and consistently require increases in their budgets.  The debate over the increases in the budgets of these and other agencies may cause a government shutdown this week if Democrats and Republicans cannot come to an agreement on another short-term spending bill.

Applying Borda Counts to Spring Break

This year, a group of friends and I want to spend our last spring break together all on the same trip. However, after a short discussion, we quickly realized many of us have different utility functions when it comes to spring break locations and activities. Some want cold, some want warm, some want active, and some want relaxing. The only thing we really have in common is that we want to do a group trip.

We decided to have our group present ideas to everyone on why they thought the group should go to each location. After hearing all the ideas, we would vote on where to go. Taking public choice, I knew a majority runoff voting method has many undesirable characteristics, so I proposed something to my friends that we talked a great deal about in class.

I proposed the Borda-counts voting method instead. I talked about how a majority run-off system often does not pick the Condorcet winner and how a rank choice voting system has the best chance of doing so, if one exists. My final point was that a system like this gives incentives to ideas that have more general appeal as well as ones that are less polarizing. Simply put, the greater degree someone dislikes an idea, the less of a chance that idea has of being the winner. Ideas that appeal to everyone and not a small majority fraction will have more success in this system.

After a little discussion, everyone agreed rank choice voting would lead to the idea, and thus spring break, that everyone would enjoy most. Now that our voting method is agreed upon, the only thing left is to work on my presentation.

I'm a Madison House Bureacrat

As a Program Director for Madison House, it pains me to say I am part of a bureaucracy. Under the Madison House name there are many different autonomous programs. Each program is given a yearly budget and the program directors essentially have full discretion over how those funds are used. Madison House’s overarching goal is to have as many volunteers completing as many hours of volunteer work as possible. To be perfectly aligned with their mission, I should spend the majority of the money on volunteer recruitment and on supplies for the site. I on the other hand, prefer to spend it on Bodo’s egg sandwiches for my volunteers at the end of each semester. This is a Principle-Agent Problem because Madison House’s goal to efficiently spend money on volunteer resources, contrasts with my goal to make my volunteers (and myself) happy with bagels.

There is no close monitoring for the reasons given by Mueller. First, the output of our programs is nonmarket. While Madison House can measure the number of volunteers and hours, it’s hard to calculate the value and quality of the actual work. Secondly, there is a monopoly supplier, so programs don’t compete for efficiency or have alternative sources of information. Finally, compensation is not tied to performance. The budgets are generally the same each year and are decided by outside factors.

If we don’t use all of our budget, we will get less money the following year. Given that no one else knows the true cost of my program, I spend everything even if it’s wasteful, to maximize our potential budget the following year. However, we may not be as autonomous as we think. Madison House wants to allocate funding efficiently, so they are incentivized to grow programs that attract more donors and are more impactful in the community. This means I have to inadvertently spend at least some of the money to continue growing my program  This aligns with Weingast and Moran’s perspective and suggests that even though we may be inefficient with some funds, we still receive funding because we provide an overall net benefit to Madison House that they approve of.