Tuesday, August 31, 2004

Fiqh and Utility

This post by my friend, Aria, is very insightful. He neatly links between utility theory and the principles of ushul fiqh. Namely, 1) "... Select the higher of the two benefits, or incur the lesser of the two harms when faced with them both", 2) "... Repelling harm takes precedence over procuring benefits", and 3) "... Certainty is not invalidated by doubt".

Now, with the risk of misinterpreting Aria's insight, let me take it to the current Indonesian politics. Given that there are only Megawati and SBY, I will vote for SBY. Why? (I personally don't see that not voting in this election is wise. You can't give your support; nor you can scream at a game if you keep avoiding paying for admission ticket -- you are simply outside. Some say that letting the ballot uncast wil give room for manipulation: ballot committee can be bribed to put a check on the empty ballot. Right. But the solution is not to put check mark on both options so as to invalidate the ballot. It might reduce modes available for cheating, true. But there are ways -- many ways -- other than that for manipulation (remember Florida case?). Then, why would I bother to vote if it might as well be manipulated? Well it will give me my ticket -- at least emotionally -- to support or to scream or to curse the players. Secondly, I don't feel good being indifferent -- and not voting is not a strategy (in the Game Theory sense) here. I will choose and bear the consequence. I won't use the oxymoron "choose not to choose". It's a little irresponsible) .

OK, back to Aria's points. Mega and SBY are "the harms". I think SBY is less harmful, though (the "contract" with PKS, and not with Golkar is an indication. Some doubt it. I say, give it a chance, and smash it if it turns lie -- you've got a ticket!). Next, I tend to believe that those in PKS have better intention than those in the other big parties. History has examples. The fact that they choose SBY as their "ticket", in my opinion, is more of a way to put control over him (this is "repelling harm") rather than to secure positions in the cabinet (or, "procuring benefits"). It is obvious that PKS can't capitalize on SBY being president -- too many interests around him, but at least it can remind him of his promises. And the people saw the sworn. Why not Megawati then? Don't tell me you don't know the answer. "Certainty is not invalidated by doubt".

Tuesday, August 24, 2004

Dirty coalition

While Krugman is worried about the "Rambo Coalition" in US, I'm scared of the 4-party coalition in the ongoing Indonesian presidential race. Our case is even worse: it's a coalition between the biggest three parties (PDI-P, Golkar, and PPP) plus a strong new comer (PDS) to support Megawati. Why bad? Because it's an unholy alliance. The former three have been known as long time enemies, as they are the traditional competing parties thus far from 1950s until the fall of Soeharto. (The latter one is only a new kid on the block, but has scored quite a success in the legislative electorate). This coalition (they call it "Koalisi Kebangsaan" or "nation-state coalition"-- what a misleading name!) is simply a bunch of greedies trying to beat another running party. Wanna bet? If -- I say if -- SBY, the other candidate, happens to be the one elected as president, these people -- Akbar Tanjung of Golkar, and others-- will immediately leave that coalition (and most likely start kissing SBY's a**, for a position in the cabinet).

So much for shallow politics. Where is the economics? Kevin Murphy and Andrei Shleifer write in May 2004 AEA Papers and Proceedings (subscription required) about "Persuasion in Politics". Murphy-Shleifer insightfully present a model of social network creation and how politicians might use it to obtain support. The idea is that "... people are influenced by those inside their networks, but not by those outside, because those inside a network talk to and persuade each other...". Who forms the network? It's entrepreneur. Such "entrepreneurs" use core issues important to members and then "rent-out" the networks to politicians who seek votes. Sounds familiar? Yes, Akbar Tanjung, Hamzah Haz, and ... -- who's that guy from PDS again? -- are all entrepreneurs trying to lure out Golkar, PPP, and PDS constituents to joint force and then rent them out to Megawati. Money talks, bulls**t walks. But wait a minute? Will that work? Murphy and Shleifer argue that such network should have at least some close "distance" among its elements, in order to be effective. Distance here can be regarded as "circle of influence" (my marks). And that influnce comes from "friendships, emotion, or group identity". OK, now you know why I call Akbar Tanjung's coalition as "unholy alliance". It won't work. Distance between Golkar and PDI-P is well too far. So is between Golkar and PPP. (Well, they do have close distance: greed! But that's not what it should be). No wonder, within a week of its declaration, the coalition already have to face resistance and reluctance from their constituents. Even, there are heavyweights in each party opposing the coalition. This coalition is a joke.

Monday, August 23, 2004

Once again: are choices rational?

Am I betraying my students? I have to teach a matriculation course for new students. It is supposed to make economics attractive, less dismal, and ... well, easy. So, should tell them that all choices are assumed rational. (To make it more jocular, I borrow David Friedman's -- or is it Steve Landsburg's? -- "Economists assume everybody as rational, except... themselves"). Almost simultaneously I also teach this course on how "irrational" choices can be. This is challenging, but more realistic. Take for example, a recent paper by Thaler and Sunstein (AEA Papers and Proceedings, May 2003 -- subscription required), "Liberal Paternalism". I quote, "... Research by psychologists and economists over the past three decades has raised questions about the rationality of the judgments and decisions that individuals make. People do not exhibit rational expectations, fail to make forecasts that are consistent with Bayes' rule, use heuristics that lead them to make systematic blunders, exhibit preference reversals,...". I remember we discussed this in Carl Nelson's class on Risk and Uncertainty (e.g. Kahneman-Tversky fanning-out utility function). Yet, he never mentioned the word "irrationality", as far as I recall. I am worried, that our problem is on how we define rational (or lack thereof). Who are we to call somebody acting differently with what we think he would, irrational? Who says I am irrational just because I refuse to do something known as my hobby so far? Assumptions? The failure to define rationality (or, the mistake of calling their models "rational") has caused economists to call the opposite "irrational". While what they mean is in fact the deviation from the models they use. They (oops, "we") fail to model complicated behaviors. So we just call them irrational. Nice.

Thursday, August 12, 2004

I love this country # 3

What's good about riding in a public transportation? Many. First, information. There are things you would miss if you keep away from interacting with lay people. It's ironic that you talk about poverty on TV while you don't have the slightest idea on what poverty really means out there. Using traditional mass transportation is one way to get in touch with them ("them" -- for lack of better term, sorry). Second, reality. You surely know how bad the traffic situation in Jakarta is, by driving every morning and evening. But you don't know tidbits beyond that. When you drive your car, you close your window; turn on your AC and maybe, your radio. You feel the fresh air and enjoy your morning news -- to ease your frustration out of the traffic jam. But you certainly "miss" these: the toxic combustion from, especially, buses, trucks, minibuses, and motorcycles; the ammoniac smell from abandoned rainwater (even, human-) drainage/runoffs by the street (really, BY the street, uncovered and blackish!); and of course, the many-kind of "human fragrance"!

This morning, I rode a "mikrolet", again. This is the kind of Toyota-made economy car modified for use as a public mode of transportation. Many of you might not have seen it, so click here (you will also see other modes: "bajaj", "becak", "bemo", "bis", "ojek", etc). Now, look closely at the mikrolet. Do you know how many passengers it can take? Six? Seven? No. Thirteen! Including the driver, we are thus looking at 14 persons in one mikrolet. How so? Well, 2 passengers can sit next to the driver (if you are lucky enough, you can assume the by-the-window seat; otherwise, you have to sit in the middle: should prepare your right thigh and knee to meet with the manual transmission stick every now and then. Girls, don't sit there with miniskirt -- don't say you haven't been warned, later). Now, put 4 people on the left side (by the door) and 5 (or 6, sometimes) on the right side (behind the driver). That makes it 12 or 13 persons. Hey, there is more room. See that brownish, wooden box on the side door? That's a seat! And it can be used by... 2 more persons. There we go.

A little economics quiz. Where is the safest place to seat in a mikrolet? Remember the dictum: one, "people respond to incentive"; two, "people act rationally". From the first dictum, we know that a person will move to where (s)he can gain marginal increase in utility. Talk about "safety" as "utility" for now. So "incentive" here means "extra safety". By the second dictum, we realize that everybody maximize his/her own utility (let's assume away altruism for now). As for the "safety" story, think about the situation in the mikrolet. Do you care with other's safety? Honestly, I care with my OWN safety. Everybody cares with his/her OWN safety. So, the driver cares with his own safety. Naturally he (I haven't seen a female mikrolet driver so far) will act as to protect himself.

Now, look at the situation on the street. Traffic lights are to be violated. Vehicles cross one another, from either side, within 3 centimeters apart. Motorcycles intercept cars every second -- sometimes in high speed. In short: traffic is chaotic. What would you do? Thinking economically, I would sit as close as possible to the driver. Why? Because he cares with his own safety. The closer you are to him, the safer you are. If another mikrolet rear-ends yours, you have less likelihood to feel the impact. If your driver crosses another car, your mikrolet might bump that car from its left side (or if it happens to be its right side, he would surely have been more careful, because ... he IS on that right side. Note: To add to your confusion, in this country we drive on the left side of the street). Now, there are only two seats closest to the driver. Right behind him, or right to his left. I would choose the first one. Why? First, I hate that transmission stick. Second, accident can always happen regardless of how your driver drives. Suppose, a truck run into your mikrolet from the opposite direction. Who would get hit the most? What's the downside of sitting right behind the driver? He, and many I have seen, smokes! Wind will blow the smoke to your face. But, well, any passenger might smoke, too. You cannot really avoid this one.

By the way, the driver of the mikrolet I was riding in this morning was constantly grumbling. Instead of the expected total of 13 passengers he would have gotten, he only got 4, including me. What a "diseconomies of scale". "Damn motorcycles!", he said. I asked him why. It turns out, these days, people have been switching from using mikrolets and other public modes to owning motorcycles. (Not to mention those who use them as another mode: "ojek" -- go back to the picture). The driver explained to me that now you can buy motorcycle "very easily". Meaning, you don't even need to pay "downpayment" (big chunk of money in advance prior to a series of flat installments). Before, if you choose installment scheme, you have to provide Rp 4 million (about $ 500, assuming Rp 8000 per $ 1 rate -- conservative) in advance as the downpayment. Installments thereon were around Rp 500 thousand ($ 75) each month for 2 years. Crudely calcualted, at the end you actually needed to spend around Rp 16 million or $ 2,000 for claiming that motorcycle (yes, vehicles are expensive here, relative to, say, there in the US. With that amount you could have bought a 1990 Corolla DX in Illinois). But, now, as the driver said, you don't need to pay down-payment! You can get that motorcycle "just" with flat installments as much as Rp 500 thousand each month for 3 years. The only "down-payment" which they call "insurance" is Rp 800 thousand ($ 100) in the very first month. And... the driver said, "this one is easier". Well my back-of-the-envelope (again, ignoring inflation and interest rates) calculation makes it Rp 18.8 million or $ 2,350 (a 1990 Camry DX in Illinois). It appears to me that the driver perceived the Rp 4 m down-payment as "too hard". It is very likely that others think the same. And translates to more and more motorcycles on the street.

Note, the motorcycle I am using in this illustration is the most expensive one for its class. I have been talking about Honda Karisma 125 cc which is priced at Rp 13.5 m ($ 1,688) for without installments. In fact, you can have a "cheaper" one (a Chinese-made Honda! I'm not kidding!) for Rp 8 m ($ 1,000) -- again, if you pay everything in advance. But the story remains.

And... as "people respond to incentives" -- no matter how misleading the incentives are, there are now more motorcycles on the street then ever... To the mikrolet driver's headache.

Tuesday, August 10, 2004

Too much beautification kills

Remember that stupid show in Fox? Talk about cosmetic surgery. That reality show -- "Swan" -- is about some girls having plastic surgery, lipposuction, etc. And Fox follows and reports the metamorphosys from not-so-good-looking women into some ... swans. No, actually, they mean beautiful girls (hey, who wants to marry a swan?). The show -- or so reported -- has been a hit for Fox channel, the TV station with so many dumb reality shows. (The only thing I like from Fox is ... The Simpsons). And, this beautification story of course spreads. Many teenagers and young women think cosmetic surgery is the easy way to go. Forget about diet or fitness programs. Just "cut and paste".

But this business is going too far now. Kompas (yet, the paper confuses it with "fetishism") reports (in Bahasa) that a female student wanting for more beautiful breasts died right after being injected collagen -- something to bury under your skin so you look more "curved" . Surely, this is sad. The girl (and many other victims reported thus far) might as well have known the fatal risk of such treatment. Especially since, many of those who perform the injection services are not medical doctors. They are just certified beauty counsellors. Risks are there. But being beauty seems to be more attractive, even in the highly probabilistic world. In the girl's case above, risk-loving has cost her life. She prefers doing it the ramdom way over having it through the natural one: eat healthy food, practice healthy life, exercise. In von Neumann-Morgenstern's words, we say, her utility function is "strictly convex" in being beautiful, i.e. her "expected utility for being beautiful" is higher than her "utility of getting expected beauty".

Thursday, August 05, 2004

I love this office

So frustrating. Every morning you wake up with plenty of ideas. Then you rush to office with a smile on your face (assume your smile is bigger than traffic jam). Only to find out that you're ... back in Jurassic Park! No internet connection. Wait, there IS internet connection. Just, .... EXTREMELY slowly. Wait, maybe not always, but ... ALMOST ALL THE TIME.

It's a privilege if you can work in the cyberspace an hour effective, each day. (Wondering now how I could blog this post). Many times, you find only 15 minutes of smooth connection, followed by total pause for the rest of the day. They say this is an unavoidable problem. Lack of infrastructure. I start to doubt it. This is also a matter of incompetency: you rely on one --repeat: one-- person to handle your IT problem. Once that guy is on leave or sick, then your office is practically dead. Nobody knows what to do. If it's pure infrastructure problem, why in the world do those offices in the Sudirman-Kuningan CBDs not have such problem? And, mind you, ours is listed as "one of the best research institutions" in the nation, or so we say. "Research"? How many persons in this world today doing research by reading newspapers? Welcome to Offline Academy.

OK, I'm burnt out. Talk about office more. This is supposed to be a group of so-named reseacher-cum-educators. On economics. We talk about efficiency. We are for development and against corruption. Add to that, for social (Neoclassical socialist? Social neoclassic?) reason. We (well, "we"? I am not sure) believe in market. We (well, "we" again?) discourage big government. But mind you, I said we TALK, and that doesn't necessarily mean we DO it. In contrast, we show you here "counterexamples" of our mantras. Anybody interested in "disguised unemployment"? You're welcome. We here don't really do MP = w, as we promote in the class rooms constantly. We are practically doing w = AC -- in that order. So, yes, we are family labor, not wage labor. We are actually in Lewis' traditional world, but ... hey, we talk about modernity, don't we?

Yet, I think I (am willing to) love it.

Sunday, August 01, 2004

I love this country # 2

I was driving back to office after a student's final defense (next time, I will discuss the sad quality of students nowadays). There was this oil truck (the kind of truck with gallons of kerosene) to my right, in the midst of traffic jam. Suddenly, a 30-something man approached the truck with two plastic bags (I was so close I could see those plastic: he had bundled one after another to make them thicker). Without hesitation, he went directly to the cranes. He was ... stealing those oil! Wait, "stealing"? Not really. He did that openly! There were two policemen regulating the traffic -- the "stealing" was right within their reach. Other street users looked at him as if it was normal. Guess me the only one amazed? I was so worried that some motorcycle guy could have passed by the truck and ... drop his cigarette butt very close to the draining kerosene...

My class had just discussed the Lewis model of urban and rural labor dualism, two or three days before. That oil-stealing guy above might be a correct example of the loser in Harris-Todaro model: a rural/traditional labor migrating to urban, finding extremely high wage rate in formal sector and therefore could not afford to deserve it; finally pushed to the urban informal sector. In Debraj Ray's words, informal sector people who are "failed aspirants to the formal sector dreams". Crime is cheaper. Or, should I not call it "crime"?