Marginal Revolution

Exotic Ethiopian Cooking

That's the book Yana gave me for Christmas.  I hadn't realized how much the cuisine relies upon red onion and how many of the dishes require a full cup of red pepper paste.  Spiced butter is common too.  The recipe for red pepper paste starts by suggesting "15 lbs." of New Mexico red chiles.  I'm trying it with...15 red chiles.  We'll see how that goes; I've also scaled back the "5 lbs. fresh ginger" to 5 pieces of fresh ginger.

If you're ready with the spiced butter and the red pepper paste (neither is totally simple), most of the recipes take 5-10 minutes and sound quite delicious.

The menu for tonight includes fesenjan chicken, Parsee sweet and sour fish, Parsee lamb with stewed apricots, Ethiopian sauteed beef with injera, and red lentils.  I'll also make Ethoipian pumpkin if I have red pepper sauce left over.  Natasha is preparing Russian vegetable salads.

Assorted links

1. Doug Elmendorf (another good pick) to head the CBO

2. What really happened to AIG?

3. Top ten food trends of 2008, via Craig Newmark with the meta-list here.

4. Does it matter if judges know some economics?

5. Overall, was 2008 a year of *good* news? 

Chess is now a young man's game

Here are the latest ratings.  You have to go down all the way to #61 (Nigel Short) before you find a player older than 40.  It didn't used to be that way.  For instance in 1963 Mikhail Botvinnik was world champion at age 53.

The game is more competitive, more players come from countries where chess is relatively new (China and India will give you young stars, not old stars), and there is great value from training with computers.  If you didn't start training with computers until you were thirty-five years old, you are at a serious disadvantage. 

Consistent with these hypotheses, there are also more and more prodigies in chess.  Can you think of any other reasons for the falling ages of top chess players?  I also see a general principle operating: the more exact a "science" the game becomes, the smaller is the value of accumulated experience relative to sheer skill.

Intelligent agent modeling

I am more optimistic about intelligent agent modeling than is Tyler. For one we already have an important, convincing, and Nobel-bestowed variant of intelligent agent modeling, namely experimental economics. Experimental economics uses one particular type of intelligent agent, the type based on...genetic algorithms. True, the intelligent agents used in I-A models are typically not as sophisticated as the agents used in experimental economics but they are rapidly improving. (Moreover, such agents are already important economic actors in their own right in limited areas, e.g. portfolio insurance, and they will continue to become more important as time continues.)

I see bringing experimental economics and I-A modeling closer as an important goal with potentially very large payoffs. Here, for example, is my model for a ground-breaking paper.

1) Experiment
2) I-A replication of experiment (parameterization)
3) I-A simulation under new conditions
4) Experiment under the same conditions as 3 demonstrating accuracy of simulation
5) I-A simulation under conditions that cannot be tested using experiments.

Now that would be a great paper. I-A agent modeling is already very useful for modeling contagion, peer effects, and highly non-linear environments. It will become even more useful when combined with experimental economics in a way that demonstrates the equivalence of the two types of intelligent agents.

Should the government peg the S&P 500?

The very well known macroeconomist Roger Farmer says yes:

It is time for a greatly increased role for monetary policy through direct intervention of central banks in world stock markets to prevent bubbles and crashes. Central banks control interest rates by buying and selling securities on the open market.

A logical extension of this idea is to pick an indexed basket of securities: one candidate in the US might be the S&P 500, and to control its price by buying and selling blocks of shares on the open market.

That is from the FT.  Though he says he is warming to the idea, to my ear Mark Thoma sounds skeptical as am I.  Public choice considerations aside, if the Dow is valued at 7000 in market opinion and the Treasury (Fed?) is propping it up at 8500, a lot of people will sell shares into the hands of the government.  How much are the shares worth then?  How hard will the government try to break the shorts who speculate on lower prices?  Will this work any better than currency pegs?  What are the implications for pursuing other monetary targets, such as the rate of inflation?  If the peg succeeds who would hold other, riskier assets?

Some people might even say that the "Greenspan put" was part of what got us into this hole in the first place.

Farmer is working on a book How the Economy Works and How to Fix it When it Doesn’t.

Why not oppose TARP?

Alex J., a loyal MR reader, asks:

How come no prominent politicians carved out the underutilized political resource of opposing TARP?

The Democrats thought they will get their hands on some of the money (true) plus they were happy to see a Republican President take part of the fall.

As for the other party, how many prominent Republican politicians are there?  John McCain thought, rightly or wrongly, that he was acting in the national interest by supporting this part of the bailout.  McCain supporters were scared away from challenging him on that issue.  So only some of the more radical and less recognized Republicans opposed the bailout.  Sooner or later a few of them will become prominent and then the premise of this question will no longer hold.

Why haven't I been to Portugal yet?

Nick, a loyal MR reader, asks:

Well, Portugal is one place I've never visited - and I believe you've never been there; why is that? As a gormand & traveller it appears to have everything - influencing the world's cuisine (from Japan to Brazil & back) & with a beautiful, unique (if rather mournful) musical cannon... Is there a reason you've never been to Portugal? 

The first reason is intertemporal substitution, namely that I often wait for people to pay me to go places.  In general this factor leads small countries, especially with Romance languages, or in geographic corners, to be visited late.  The small country has a bigger place in your mind's eye than it does on the conference and lecture circuit.  The American Midwest ends up being overvisited, as does New Orleans, and Nova Scotia ends up being undervisited (I want very much to go there). 

If you are invited to a lot of talks and conferences, your non-work travel should avoid centrally located hub cities and focus on poor corners, such as Albania and Yemen.  You'll get to Paris and London anyway.

That said, I have an invitation to Portugal for this April and I will be going.  Since I'm not sure I need to go twice, I am glad I waited.

Intelligent agent modeling in economics

One request was this:

The role and future of intelligent agent modeling in economics.

Call me a stuck up sticky bit but I don't see a bright future for this technique.  We already have, and have had, computable general (and partial) equilibrium models for decades.  In those models you try to estimate the parameters from empirical data.  The models rarely impress me but there are plenty of situations, such as estimating the effects of changes in the tax code, where we don't have anything better.  And so those models survive, and will continue to survive.

What's the important innovation behind intelligent agent modeling?  To introduce lots of arbitrary assumptions about behavior?  Greater realism?  Complexity?  Considerations of computability?  Learning?  We already have enough "existence theorems" as to what is possible in models, namely just about everything.  The CGE models already have the problem of oversensitivity to the initial assumptions; in part they work because we use our intuition to calibrate the parameters and to throw out implausible results.  We're going to have to do the same with the intelligent agent models and the fact that those models "sound more real" is not actually a significant benefit.

What can be done will be done and so people will build intelligent models for at least the next twenty years.  But it's hard for me to see them changing anyone's mind about any major outstanding issue in economics.  What comes out will be a function of what goes in.  In contrast, regressions and simple models have in many cases changed people's minds.

Sometimes a theory model tells you there are many many equilibria, as in much of game theory. I believe that result is to be taken seriously and we should conclude that many different things can happen in that situation.  I am suspicious of trying to solve for the correct or most likely equilibrium by introducing many more specific assumptions.

In my possibly overdogmatic view, economics is most useful when its models are relatively simple and intuitive.  We've run out of new models which are simple and intuitive.  So the theory game is over.  The standard, old data sets have been data mined to death.  We're now on to the "can you build/create your own data set?" game.  That game can and will last for a long time; in some ways it will favor go-getter extroverts just as the theory game favored introverts.

I don't yet see that there is a new game in town.  My preferred reform of economics involves more history and anthropology, I might add.

Addendum: Bob Murphy asks:

It may be apocryphal for all I know, but I once read that the editor of the journal to whom Einstein sent his paper on special relativity put it down and realized that physics would never be the same (or something like that).

Is something like that even possible in economics?  What would it be like?  Say, the Lucas critique times 10?

The answer is no, in my view this is not possible, for reasons given above.

Russian metaphor of the day

“I can describe the Russian economy as water in a sieve,” Yulia L. Latynina, a commentator on Echo of Moscow radio, said of the chronic waste in Russian industry.

“Everybody was thinking Russia had succeeded, and they were wondering, how do you keep water in a sieve?” Ms. Latynina said. “When the input of water is greater than the output, the sieve is full. Everybody was thinking it was a miracle. The sieve is full! But when there is a drop in the water supply, the sieve is again empty very quickly.”

The article, which focuses on the financial comeuppance of Gazprom, is interesting throughout.

Request for requests

What do you wish to hear about?  I know I haven't finished all of your older requests, but I surveyed them a bit yesterday and I thought that perhaps the list has evolved since April.