Can You Outsmart an Economist?

100+ Puzzles to Train Your Brain

Steven E. Landsburg

• Publisher: Mariner Books
• Year: 2020
• eBook ISBN: 9781328489821
• Topic: Business
• Subtopic: Decision Making
• Index: Business

This entertaining way to learn economics "will delight and inform anyone who enjoys rigorous thinking and the unexpected conclusions it delivers" (Jamie Whyte, author of  Crimes Against Logic).
Can you outsmart an economist? Steven Landsburg, acclaimed author of The Armchair Economist and professor of economics, dares you to try. In this whip-smart, entertaining, and entirely unconventional economics primer, he brings together over one hundred puzzles and brain teasers that illustrate the subject's key concepts and pitfalls. From warm-up exercises to get your brain working, to logic and probability problems, to puzzles covering more complex topics like inferences, strategy, and irrationality,  Can You Outsmart an Economist? will show you how to do just that by expanding the way you think about decision making and problem solving. Let the games begin!
 
"Ingenious…enables you to think like an economist without incurring a Keynesian headache or a huge student loan." —George Gilder, author of Life After Google
"Entertaining as well as edifying. Read it, expand your mind, and have fun!" —N. Gregory Mankiw, Robert M. Beren Professor of Economics, Harvard University

CHAPTER 2

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Inferences

The single dumbest thing I’ve ever seen in an academic journal—and believe me, the competition is stiff—is an article by two “researchers” about the relative generosity of college students taking different classes.

It turns out that students taking economics classes are, on average, less willing to contribute to certain left-of-center political organizations. From this, the authors conclude that students taking economics classes are, on average, less generous.

It apparently never entered their heads that economics students might, on average, be less sympathetic to those particular organizations, and therefore inclined to direct their generosity elsewhere. Or even that economics classes might teach precisely the sort of critical-thinking skills that could lead students to be skeptical of certain agendas.

This becomes pretty plausible when you read a little more about the organizations involved. One of them is dedicated to the cause of lower tuition at state universities. Now, I am guessing that the average economics student is somewhat more aware than, say, the average anthropology or chemistry student, that lower tuition for college students is likely to entail higher taxes and/or reduced services for families who are less well off than the families of college students. I might therefore expect that the very most generous economics students—those, that is, who care the most about families worse off than their own—would be the least likely to support this organization.

One might just as well conclude that among all students, physics majors are the least compassionate because they are the least likely to offer encouragement to the inventors of perpetual-motion machines. Or that history majors are the least open-minded, because they are the least willing to consider the possibility that Millard Fillmore might have served as Abraham Lincoln’s vice president. Or that chemistry majors are the least ambitious, because they are the least likely to invest in lead-to-gold conversion kits, even when they are easily available on the Internet. Or that geology students are the least socially conscious, because they are the least willing to join in coordinated meditation to prevent earthquakes, even when hundreds of thousands of lives might be at stake.

At first the whole thing seemed so absurd that I had to believe I’d misunderstood it. But this theory was laid definitively to rest in the comments section of my blog, where one of the authors showed up to repeat and defend his conclusions. You can make your own judgment about his logical skills by reading the conversation that followed at www.TheBigQuestions.com/yoram.html.

Interpreting evidence is always perilous, even when you’ve brought quite a few more IQ points to the table than these authors appear to have done. When a university admits 46 percent of its male applicants and only 30 percent of its (equally qualified) female applicants, can we infer gender discrimination? Several high-powered attorneys thought so, which is why they brought suit against the University of California at Berkeley in 1973. They managed to run up a lot of bills before someone observed that not a single one of Berkeley’s individual departments appeared to be discriminating.^* Instead, women were being disproportionately rejected because women were disproportionately applying to the most selective departments.

Here are the actual admissions statistics. (The numbers are part of the public record, but the names of the departments are not, so they are referred to here simply as Departments A, B, C, D, E, and F.)

	Dept. A	Dept. B	Dept. C	Dept. D	Dept. E	Dept. F	Total
MEN	^512/825 (62%)	^353/560 (63%)	^120/325 (37%)	^138/417 (33%)	^53/191 (28%)	^16/272 (6%)	^1192/2590 (46%)
WOMEN	^89/108 (82%)	^17/25 (68%)	^202/593 (34%)	^131/375 (35%)	^94/393 (24%)	^24/341 (7%)	^557/1835 (30%)

As you can see, four out of six departments admitted women at a higher rate than men, and the other two (Departments C and E) admitted men at only a slightly higher rate than women. When this was pointed out in court, the lawsuit against Berkeley collapsed—but not before a lot of lawyers had spoken a lot of nonsense.

The mistake those lawyers made was to focus on the aggregate statistics—that is, the numbers in the “total” column—without breaking things down. That’s what created the illusion of discrimination where none existed. But exactly the same mistake can just as easily create the opposite illusion, by creating the illusion of nondiscrimination where discrimination does exist.

For example:

1

Jury Selection

A political activist complains that blacks are systematically underrepresented on American juries. An investigation reveals that exactly 25 percent of white Americans have served on juries and exactly 25 percent of black Americans have served on juries. Can we dismiss the activist’s complaint?

SOLUTION: Not at all. Those aggregate statistics tell us practically nothing. Suppose, for example, that blacks live primarily in cities, where it’s very common to be called for jury duty, while whites live disproportionately in rural areas, where jury service is rare. In that case, you’d expect to see a much bigger fraction of blacks than whites serving on juries. If you don’t see that bigger fraction, you’re right to suspect discrimination—no matter what the aggregate statistics seem to show.

Here’s a concrete (though hypothetical) example:

	Urban	Rural	Total
Whites	^50/100 (50%)	^50/300 (17%)	^100/400 (25%)
Blacks	^10/30 (33%)	^0/10 (0%)	^10/40 (25%)

The chart tells us, for example, that there are 100 urban whites, 50 of whom have served on juries. If you prefer a more realistic (though equally hypothetical) example, just tack a few zeroes onto all the numbers in the chart, which won’t affect the percentages.

What you can see here is that even though 25 percent of blacks and 25 percent of whites have served on juries, blacks are apparently being discriminated against in both the urban and rural areas.

In the case of the Berkeley lawsuit, a focus on aggregate statistics created the illusion of discrimination where in fact there was none. In the jury example, a focus on aggregate statistics creates the illusion that discrimination is absent when it is in fact pervasive. The moral, then, is not that discrimination is always either more or less a problem than it appears. The moral is to beware of aggregate statistics.

Here’s another example, where aggregate statistics mislead in a slightly different way:

2

Income Trends

In a recent 25-year period, the median income of all American workers increased by a paltry 3 percent. Over the same period, the median income of white male American workers increased by a much heftier 15 perce...

Table of contents

• Title Page
• Contents
• Copyright
• Acknowledgments
• Introduction
• Warm-Ups
• Inferences
• Predictions
• Explanations
• Strategy
• How Irrational Are You?
• Law School Admissions Test
• Are You Smarter Than Google?
• Backward Reasoning
• Knowledge
• Now Are You Smarter Than Google?
• How to Make Decisions
• Matters of Life and Death
• The Coin Flipper’s Dilemma
• Albert and the Dinosaurs
• Money, Trade, and Finance
• Appendix
• About the Author
• Connect with HMH
• Footnotes