We Dare You.

EconTalk Extra
by Amy Willis
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Tim Harford on the Virtues of ... Erik Hurst on Work, Play, and ...

disorder.jpg How messy is your desk? Do you shy away from face-to-face conversations in favor of text messages? What sort of strategy do you use to allocate your retirement savings? These situations and more were on the table in this week's delightfully "messy" EconTalk episode, as host Russ Roberts welcomed author Tim Harford (aka the Undercover Economist) back to the program.

Harford, with his affinity for (most) things messy, is a man after my own heart. (I posted a photo of my own messy desk on twitter earlier this week, and got some great pics in response. Please add yours to the collection!) Of course now we're wondering about more than what your desk looks like...So have a go at some of our prompts, and share your thoughts with us. As always, we love to hear from you.

1. How does Harford's notion of a "more metaphorical mess" spark creativity? To what extent have you experienced such a phenomenon in your own life? (And have you listened to the Keith Jarrett recording yet??? You won't be disappointed. We'd love to hear your reaction to that, too!)

2. Roberts makes the claim that diversity is overrated, and Harford counters that while it may be over-rated by social scientists, he believes it is under-rated by "people who actually do things." What does he mean by this, and to what extent do you think he's right? How can diversity be "messy" in productive ways?

3. In discussing the challenges of targeting, Harford used the Basel Accords as an example. As Harford described this set of regulations, did you perceive them as "messy" or "tidy," and why? (Full disclosure: Roberts tells Harford he thought they were "messy," while in my own listening I was thinking "tidy.") Does "messiness" have the same value in policy as it does personally?

4. OK, here it is. We dare you. Roberts and Harford discuss the norms of personal interaction that govern face-to-face conversation (and many people's discomfort with it) at some length. Roberts bemoans typical cocktail party "chatter," and our frequent failure to have deeper conversations with one another. So come up with what he calls some "crazy cocktail party questions" and share them with us. And we dare you to try at least one out. If you do, share your story with us...We'd like to use them in a future piece!

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COMMENTS (2 to date)
SaveyourSelf writes:

2. Roberts claims diversity is overrated; Hartford that diversity is an effective and underappreciated tool. I think they are both correct.

Specialization leads to gains in productivity. This is an accepted fact in economics, but there is more than one scale touched on by that statement. At the unit scale—the individual—specialization leads to frequent repetition. Repetition allows humans to minimize the down side of their rapid forgetting and terrible long term memory. Repetition also allows the individual to shape the local environment and their brain to facilitate the repetitive activities necessitated by the specialty.

But specialization has at least one major downside in that it leads to an abundance of a single product. Human beings have many needs which cannot all be met by any single item. Thus specialization, by its very nature, requires trade to be viable. Not just any trade, either, but trade with people who make different products. Thus we can confidently deduce that diversity of outputs is required for specialization along with the ability to trade.

Therefore, I am inclined to believe diversity cannot be overrated. Diversity is required for a market to exist.

However—and this is a great big, ‘however’—once markets have developed [so we are talking about a third scale. The other two were the individual alone and the individual trading] we know that competition is necessary to avoid the pitfalls of monopoly in established markets. Avoiding monopoly is important because monopoly undermines market efficiency by reducing options available to traders. But competition necessarily implies some lack of diversity. Thus some lack of diversity among specialists is healthy and desirable!

So that’s the model that I think economics gives us. Diversity is key, but some lack of diversity is healthy. Applied to the scenario Tim Hartford and Russ Roberts painted of a small group of physicists inviting a single person from outside their field to help them solve a problem, the economics model above would suggest they would have been better off if they’d made their group much larger so that many different fields could be represented while still allowing some redundancy—perhaps two or three people representing each of the diverse fields represented in the large group. A different application based on the same model is to have everyone in their group come from different fields, but have the whole group compete with other, outside groups on the same problem. The race to uncover the structure of DNA comes to mind an excellent example of the efficacy of that very approach.

SaveyourSelf writes:

(Continued.)
So why is it that conclusions drawn from discussions of specialization and trade seem to apply to a question of how to best “get things done?” Could it be random coincidence? Perhaps, but I wouldn’t have bothered writing anything if I thought that was the case. If it isn’t coincidence, does it imply that the voluntary market is a problem solving instrument?

I can say with great confidence that specialization allows people to capture more information about a particular subject than is possible for a generalist—more minutia, if you will. If the entire body of knowledge contained in a society is the sum of that contained by each individual, then the information in a voluntary market society is far greater than a society composed of generalists—hunter gathers and the like. The “voluntary” adjective is required because only when it is satisfied as an assumption does the information contained within each individual reliably and inexpensively flow to other individuals in the society when they are in need of that particular knowledge that someone else possesses. Asking someone else who already knows is a much faster way of learning, and therefore getting things done, than trial and error from scratch. Since the voluntary market has more information than any other human organization, it is undoubtedly the best human solution to the general question of how best to “get things done.”

But what if the information in question is not known by anyone in the society? Does the market have anything to say about discovery at the frontier of human knowledge? F.A. Hayek seemed to think so. In The Fatal Conceit he wrote, “Competition is a procedure of discovery. A procedure involved in all evolution that led man unwittingly to respond to novel situations. And through further competition, not through agreement, we gradually increase our efficiency.” The competition of which he speaks is limited by rules of Justice. Killing your competition decreases the total knowledge in the society since each person is both an information gathering machine and, to a much lesser extent, an information storage machine. If the loser in a competition is left alive, he is able to change his tactics and compete anew in the future. Thus a cycle of competition, adaptation, competition, adaptation, etc. is the norm in a non-violent civilization. Hayek even goes so far as to use the word, “civilization”, only in respect to human organizations that abstain from violence.

So, at the macro scale, models of voluntary, non-violent, competitive markets do appear to function as problem solving instruments, but do those macro conclusions apply at a small group scale? Say I have a small hotel that employs six people. Is it likely to be more successful if its employees are from varied backgrounds, or would it make more sense to hire people who think just as I do—the owner? I guess, at this scale, it comes down to world view. If I believed I knew all the possible problems that could arise in a hotel and how best to solve those problems, then training people to act like robot clones of myself would be an ideal solution. However, if I thought the universe was complex and unpredictable; that problems would frequently arise that I could not anticipate for which I had no prior experience, then it would be best to hire individuals who thought very different from myself and teach them closely, through an apprenticeship, how to solve the problems with which I was familiar and work with them as equals when confronting problems which were novel. I believe the universe moves constantly towards entropy, so I favor the latter, which leads me back to the same conclusion derived from the economic model discussed in the first essay: Diversity is key, but competition is healthy. I can now add that that statement holds true at both macro and micro levels and that its utility when applied to the question of how best to "get things done"--at least from a deductive reasoning standpoint--is not accidental.

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