Do You See What I See?

May 19, 2009
Posted by Jay Livingston

President Obama took a lot of flak from conservatives when he mentioned “empathy” as one quality, among several others, that he would look for in a Supreme Court justice.

We need somebody who has the empathy to recognize what it's like to be a young teenage mom, the empathy to understand what it's like to be poor, African American, gay, disabled and old.

For conservatives, empathy is irrelevant. They take an absolutist position: the facts are the facts, and the Constitution says what it says. The court should not bend that Constitution in order to accommodate the interests of teenage moms, African Americans, or anybody else.

But empathy is not just about the interpreting the Constitution.. It’s also about the facts. And, as Obama seems to recognize, a set of facts – what you see – depends on where you are looking from.

Here’s a video that has nothing to do with gays or blacks or teenage moms. It’s a high-speed chase, shot from inside a police cruiser, It isn’t from Cops. It’s from a 2007 Supreme Court case (Scott v. Harris, 127 S. Ct. 1769) .

Watch the video, then answer the two questions. (Warning: this ain’t Mario Kart. It ends with the Officer Scott using his police car to deliberately ram Harris’s Cadillac, which crashes at high speed into a light pole. Harris suffered a broken neck and was left a quadriplegic.)*



On a six-point scale, from Strongly Agree to Strongly Disagree:

• During the pursuit, Harris drove in a manner that put members of the public at great risk of death.
• During the pursuit, Harris drove in a manner that put the police at serious risk of death.

Harris’s lawsuit depended on the answers to these factual questions. For the Supreme Court justices, the video said it all. Justice Alito: “I looked at the videotape on this. It seemed to me that [Harris] created a tremendous risk [to] drivers on that road.” (Scalia got a laugh her by adding., “He created the scariest chase I ever saw since ‘The French Connection.’”

Justice Breyer says the tape flat out turned him around. “I was with you when I read . . . the opinion of the court below,” Justice Breyer related. “Then I look at that tape, and I have to say that when I looked at the tape, my reaction was somewhat similar to Justice Alito’s.”

But would everyone see it the same facts in this video? Well, yes and no, at least according to a Harvard Law Review article, “Whose Eyes Are You Going to Believe.” The authors, three law professors,** asked a sample of 1350 people – not Supreme Court justices – to view the tape. The overwhelming majority of people said that the chase put the public and police at risk. Three-fourths thought that the use of deadly force was justified, but only a slight majority felt that it was worth the risk.

(Click on the chart for a larger view.)

But the percentages varied among groups. Using mostly demographic variables, the authors created four types of juror – types they identify as Ron, Pat, Bernie, and Linda – who had vastly different responses to the questions. Only 36% of the Linda group felt that the use of deadly force was justified, compared with 87% of the Rons. As to who was at fault, 94% of the Rons but only 29% of the Lindas assigned the fault to Harris.

The paper has several other comparisons as well as correlation tables on specific demographic variables. It’s also the only law review article I’ve ever read that made me laugh out loud (well, chuckle), thanks to the way the authors present their typology (not that I spend much time searching for yocks in law journals). It’s also eminently readable and non-legalistic. Download it here.

The authors’ point is that people may watch the same tape, but they see different things,


* Respondents were also provided the following set of facts:

• The police clocked Harris driving 73 miles per hour on a highway in a 55 mile-per-hour zone at around 11 pm.
• The police decided to pursue Harris when Harris ignored the police car’s flashing lights and kept driving rather than pulling over.
• The chase lasted around seven minutes and covered eight to nine miles.
• The police determined from the license plate number that the vehicle had not been reported stolen.
• Officer Scott joined the chase after it started. He did not know why the other officers had originally tried to stop Harris.
• Scott knew that other police officers had blocked intersections leading to the highway but did not know if all of the intersections were blocked.
• Officer Scott deliberately used his police cruiser’s front bumper to hit the rear of Harris’s car[,] hoping to cause Harris’s car to spin out and come to a stop.
• Officer Scott knew there was a high risk that ramming the car in this manner could seriously injure or kill Harris.
• Harris lost control, crashed, and suffered severe injuries, including permanent paralysis from the neck down.

**Dan M. Kahan, David A. Hoffman & Donald Braman

Congratulations

May 17, 2009
Posted by Jay Livingston

We had our convocation today.

Convocation is better than commencement. It looks pretty much the same – caps, gowns, and the rest – but it’s smaller, just for the College of Humanities and Social Sciences. Commencement is in a big sports arena miles away. Convocation is in our own amphitheater. At commencement, students rise and are recognized en masse. At convocation, each student is called by name and walks across the stage, getting handshakes or hugs from the faculty in his or her department. Plus, the speeches are usually shorter.

(Click on the picture for a larger view.)

The Dean’s Recognition Award this year went to Michelle Newton, a sociology student. The Dean noted Michelle’s many accomplishments – other honors and awards and a GPA of 3.99 (I checked my records to make sure I wasn’t the creep who gave her an A-minus.)

Michelle had also done a poster session at the university’s student research day, presenting her research on empathy and attitudes towards animal rights.


Needless to say, we were all delighted to have her as a student, and we’ll miss her greatly. Next year she starts law school on a full scholarship.

Congratulations to Michelle and all our graduates.

Crowds and Wisdom: The Social Construction of Bubbles

May 15, 2009
Posted by Jay Livingston

I’ve blogged before about my skepticism of the wisdom of crowds (here for example). I had been thinking about sports betting and line shifts. But I’d missed the 800-pound gorilla that could make the wisdom-of-crowds crowd run for the exits: bubbles. Bubbles like the one that got us into the current mess. The Obama administration is calling for more “transparency” for swaps and derivatives. But was opacity the problem? True, these instruments weren’t traded on an open market, but the people who did trade them weren’t keeping stuff secret. The problem with these instruments – instruments designed to manage risk – was that nobody really knew how risky they were. Worse, they thought they knew, and they greatly underestimated the risk. Why? Back in February, Felix Salmon, in an article in Wired, put the blame here: It’s the Gaussian copula, a simple (as these things go) formula for evaluating the risk of a derivative. Derivatives and swaps are complex combinations of risk elements, but those elements are not independent of one another. To figure out the true risk of a tranche of one of these instruments, you’d have to know the myriad of correlations among all the elements.

Falling house prices, affect a large number of people at once. . . . If . . . you default on your mortgage, there’s a higher probability [others] will default, too. That's called correlation—the degree to which one variable moves in line with another—and measuring it is an important part of determining how risky mortgage bonds are.

But defaults are relatively rare, so how could you assess the degree of correlation? Along comes David X. Li, a quant. The formula, the Gaussian copula, is his claim to fame (or now, infamy).*

Li's breakthrough was that instead of waiting to assemble enough historical data about actual defaults, which are rare in the real world, he used historical prices from the CDS market. . . .Li wrote a model that used price rather than real-world default data as a shortcut (making an implicit assumption that financial markets in general, and CDS markets in particular, can price default risk correctly). Using Li's copula approach meant that ratings agencies like Moody's—or anybody wanting to model the risk of a tranche—no longer needed to puzzle over the underlying securities. All they needed was that correlation number, and out would come a rating telling them how safe or risky the tranche was.

The copula uses price. But price, as graduates of Father Guido Sarducci’s Five-Minute University know, is a product of “supply ana demand.” Price, at least in the short run, is based not on some true underlying value. It’s based on what people think. It’s pure social construction. The construction fed on itself.

You could even take lower-rated tranches of other CDOs, put them in a pool, and tranche them—an instrument known as a CDO-squared, which at that point was so far removed from any actual underlying bond or loan or mortgage that no one really had a clue what it included. But it didn't matter. All you needed was Li's copula function.

The socially constructed reality of price eventually came up against the economic reality of value: the Wile E. Coyote moment.**

the real danger was created not because any given trader adopted it but because every trader did. In financial markets, everybody doing the same thing is the classic recipe for a bubble and inevitable bust.

*As the article makes clear, Li is not to be blamed for the way the Wall Street predators misused his formula.

**Is there actually a Road Runner cartoon with such a moment? There must be, but I could not find it on YouTube.

Labor and Capital - The Tipping Point

May 13, 2009
Posted by Jay Livingston

The struggles of organized labor may have had a change of venue since the days of copper mines and Joe Hill, but the melody lingers on. (Full story here.)

(Click on the picture for a larger view.)

I dreamed I saw Joe Hill last night
Alive and looking well.
Says he, “I’ve left the mines. I’m at
The Essex House Hotel.
The Essex House Hotel.”

“Jumeira’s cut the workers’ hours
They’re handing out pink slips,
And if you work the banquet room,
They stiff you on your tips.
Two million bucks in tips.”

“We beat them at the Waldorf
The St. Regis and the Hyatt.
If three-hour strikes are what we need
To win, we’re gonna try it.
We’re surely going to try it.”

“Joe Hill ain’t dead, by God,” says he,
“He hasn’t changed his ways.
He’s standing with the busboys
And the waiters schlepping trays
The waiters schlepping trays.”

“From Mariott to Sheraton
To Plaza Athenée,
Where workers strike, Joe Hill is there
To see they get their pay.
Their tips and hourly pay.”

I dreamed I saw Joe Hill last night
Alive and looking well
Right there beside the workers in
The Essex House Hotel
The Essex House Hotel.