Bad Estimates

May 3, 2021 at 10:55 am

People are bad at esti­mat­ing. We over­sim­pli­fy to get faster answers. We aver­age out com­plex­i­ties because they can’t fit neat­ly into our model. Unresolved prob­lems are uncom­fort­able. It’s incon­ve­nient to wait for data so we quick­ly move things along. We cre­ate starter solu­tions. We label things work in progress. We pro­pose tem­po­rary solu­tions and acknowl­edge that things will change over time as we col­lect more infor­ma­tion. We say we’ll get bet­ter as we go along.

Then, iner­tia takes over. The first takes become the stan­dard. The imper­fect model morphs into guide­lines and “the way it’s always been done.” Systems are built around the orig­i­nal find­ings. When the rest of the data comes in, when base assump­tions are proven as flaws, when extra exter­nal fac­tors are includ­ed — it’s no longer seen as a progress of knowl­edge, but as a chal­lenge to convention.

Here are two such chal­lenges I found this week­end. Carbon off­set cred­its for pre­serv­ing for­est land are com­ing up short on the amount of car­bon diox­ide they actu­al­ly sequester. The real estate mar­ket in the United States is not prop­er­ly account­ing for flood zones.

That’s because the state was using aver­ages to esti­mate how much CO2 each par­cel of for­est could hold. In real­i­ty, some pieces of for­est can store more than oth­ers based on what kinds of trees are there and how dense the for­est is. Forest man­agers also “gamed the sys­tem” by sell­ing cred­its from parcels that inflat­ed how much car­bon they stored, ProPublica and MIT Technology Review reported.

By Justine Calma at The Verge

Our find­ings indi­cate that hous­es in flood zones in the United States are cur­rent­ly over­val­ued by a total of $43.8 bil­lion (95% con­fi­dence inter­val: $32.6 to $55.6 bil­lion) based on the infor­ma­tion in pub­licly avail­able flood haz­ard maps alone, rais­ing con­cerns about the sta­bil­i­ty of real estate mar­kets as cli­mate risks become more salient and severe.

The effect of infor­ma­tion about cli­mate risk on prop­er­ty values

The Chicken and Egg of Money Creation

December 7, 2020 at 12:10 pm

Which came first — the pro­duc­tive work or the pay­ment? That depends great­ly on the sce­nario. You reim­burse the chef after they cook your meal. A home con­trac­tor might get half of the money before start­ing work and the other half upon com­ple­tion. Hourly wages are for the time spent before the pay­check, not in advance.

Here’s an eas­i­er sce­nario. Which came first — the dol­lar or the income tax? The American dol­lar came into exis­tence on April 2, 1792 with pas­sage of the Coinage Act of 1792 by the 2nd United States Congress. A short lived income tax dur­ing the American Civil War last­ed from 1861 to 1872. Our mod­ern incar­na­tion of income taxes began in 1913 with the rat­i­fi­ca­tion of the Sixteenth Amendment. Similar pay­roll taxes did­n’t appear until 1934 with the cre­ation of Social Security by Franklin D. Roosevelt.

Modern Monetary Theory appears to be new eco­nom­ic thoughts grap­pling with a dif­fer­ent answer to the fun­da­men­tal nature of what comes first when talk­ing money. The fol­low­ing pod­cast from Slate Money is a good wake up call for dis­pelling some of the fact-myths that have formed in our cur­rent eco­nom­ic systems.

Professor Stephanie Kelton joins Slate Money to talk Modern Monetary Theory. June 20, 2020

Money has no value and what­ev­er value we want all at the same time. We for­get that because it has num­bers print­ed on it. One dol­lar can get you a soda out of a vend­ing machine or a tooth from under your kid’s pil­low. No value and infi­nite value all at the same time. Money is just a medi­um of exchange and can be what­ev­er we want it to be. If we can agree on some values.