My wife and I were watching Guy Ritchie’s “Sherlock Holmes” (2009) last night. There is a chase/fight scene where a large commercial ship being repaired along a dock is detroyed as collateral damage. She asked me “What are the consequences of that ship being destroyed?” I had to admit that I didn’t fully know the state of the insurance market in Victorian England, but suffice it to say a few businesses and/or families were likely ruined. Which led to a conversation about collateral damage outside of the main narrative in movies and insurance. Sorry, that’s just what happens when you marry an economist. Things to consider the next time you’re filtering your prospects.

Which got me thinking: how much does the suspension of our disapproval of the protagonist’s actions (similar to the suspension of disbelief) depend on our undeclared faith in the insurance market of a fictional world? We don’t worry about destroyed livelihoods because we assume everything is simply absorbed as a tail event against which everything is insured. Car through front window? Automotive insurance tail event. Plane crashing onto the Vegas strip? Aeronautical tail event. Godzilla’s tail sweeping through a city? Giant lizard tail tail event.

How about the rise of the antihero? How many heists include a character shouting exposition to a crowd of cowering bank customers that they are there to steal money from the insurance company rather than the customers? The filmmaker needs the audience to suspend disbelief that bank’s have multiple customers inside in the age smart phones and suspend disapproval of the morality of the thieves’ actions as they steal from what they can only hope the audience will deem a souless corporation that can absorb the loss without broader consequence.

There’s two intellectual rabbit holes you can go down when you start thinking about insurance. You can dive in vertically, asking how much of our daily lives, including the consumption of narratives, is dependent on the presumption of insurance. You can also start thinking horizontally: how many dimensions of our lives boil down to creating formal and informal sources of insurance. We acquire formal health, home, pet, and automotive insurance. We also join groups, like churches, synagogues, mosques, and (yes) cults for social insurance. One motive to have children is to insure against the limitations and isolation of old age. Anything and everything we invest in, both individually and as a society, that softens the tail events at the expense of the expected outcome is a form of insurance.

It can go on and on. If anything, it takes care at some point to stop seeing everything as a form of insurance. Why did they feature an actor in the poster and the trailer despite their only appearing for 14 minutes in the film? Why were they paid more than double the lead actors? Oh, right. They’re an insurance policy against a catastrophic opening weekend. If the movie is good, but needs word of mouth to spread for people to starting coming out, you need to survive to a second weekend to start making money. Better to eat a chunk of your expected profits on a big name than risk getting dumped from theaters before the audience can find you.

What’s that you say? No one goes to theater’s anymore? Oh. Well, there’s some risk you can’t insure against.

The median voter wanted a younger candidate. The median voter appears to now have a younger candidate. The immediate result:

Polymarket doesn’t have it crossing over yet, but Biden at his nadir before dropping out was at 34%. Today shares of Harris winning are at 45%. Put in equity terms, a share of the Democrative candidate winning has increased 33% in a month on Polymarket.

Biden got the nomination and eventually won in 2020 by appealing to the median voter, even while pundits from his base whined. Harris will, if she wants to win, do much of the same. It will be interesting to see if the Republican candidate responds in kind, but its difficult to the see the dimensions on which they can depart from their candidate’s highly, ahem…specific brand.

The most interesting new paper in months dropped in last week: “Does Income Affect Health? Evidence from a Randomized Control Trial of a Guaranteed Income“

All the broad strokes are there in the abstract: $1000 per month, 2,000 participants (half treated), for three years. It’s the biggest, highest salience experimental test of a universal basic income program to date. There’s a lot of detail, but the broad strokes findings are that nothing happened. That is to say, there was a lot of precise null effects. And that is absolutely fascinating! I’ve gone back in forth on my feelings about a large scale UBI policy, and this is certainly more evidence that gives me pause, but my biggest takeaway is that policy research really should culimate in a series of field experiments whenever possible. Not because of identification or external validity or any of the other reasons economists fight in intellectual perpetuity, but because it’s easier to accept null results as sufficiently precise. It’s easier to acknowledge and accept that there is no observed effect because the treatment mechanism truly had no net effect within an experimental design.

Conducting research using observational data to produce causally identified conclusions is to fight a battle on multiple fronts. These fronts usually relate to the all the possible sources of bias, of endogeneity, within your analysis. You’re observing x causing y to increase, but the reality is that x is correlated with z, and that is what is actually causing y to increase. That’s a tough fight, believe me, as hypothetical sources of varying degrees of plausibility are hurled at your analysis from all directions. But at least there is an argument to be had. There’s something to fight against and over.

Null results face a far more insidious argument: there’s just too much noise in your analysis. Too many sources of variation, to much measurement error, too much something (that I don’t have to bother unpacking) and that’s why your standard errors are too big to identify the true underlying effect. There’s also a simple, and annoying, institutional reality: there’s no t-test for a precise zero. There’s no p value, so threshold for statistical significance that says this is a “true zero”. All we can say is that the results fail to reject the null. It’s subjective. And in a world of 2 percent acceptance rates at top journals, good luck getting through a review process where the validity of statistical interpretaton is assessed in a purely subjective manner.

Field experiments enjoy far more grace with null results. As random control trials, they can argue that their null effects are, in fact, causally estimated. If conducted within sufficient power (i.e. number of observations relative to feasible impact), then the results are simply the results. There’s no arguments to be had about instrumental variables, regression discontinuity cutoffs, or synthetic control designs. Measurement error will rarely be a problem given an appropriate design. External validity…well there’s no getting around external validity gripes, but should those concerns appear then the opposition has already accepted the statistical validity of your null results. You’ve already won.

I’m not puffing up my own team here, either. I’ve conducted several lab experiments, but never a field experiment. They are large, lengthy, and costly endeavors. I aspire to run a couple before my career runs its course, but I’ve built nothing on them to date. But they’ve grown in my estimation, even admidst concerns over participant gaming and external validity, precisely because you can run your experiment, observe no measurable impact on anything, and proclaim in earnest that that is precisely what happened. Nothing.

A President has about a 1 in 6 chance of dying while in office*, making it by far the most dangerous job in the United States. Sources of danger include stress, public speaking in inclement weather, and targeted violence. They clearly age rapidly, estimated by at least one doctor to be at twice the normal rate. Given this danger, their compensation seems comparably modest. One possible explanation is asymmetric information, though this should diminish after four years on the job, which leaves open the possibility of coercion. In what looks to me to be a truly awful and underpaid occupation, that so few Presidents step down after their first term is at least suggestive evidence that many Presidents serve under the duress of their parties. If it was any other job, OSHA would be inundated with complaints.

I’ve often said that Nixon resigning was the greatest day in the history of American democracy. The commander in chief of the most powerful army in the history of the world to that point was asked to give up power. And he did, with no blood shed, a moment arguably unprecedented in the history of the world. Yesterday the President chose not to run for re-election. He was, with little doubt, pressured by members of his party to do so. This is a truly great thing. Regardless of whether or not he would have won or lost, been a good President or not, the point is that powerful people wanted to influence a decision made by the most powerful person in the world and did so, again without any threat of violence. This is as good a sign as you can ask for that democracy is maintaining its single greatest advantage over other forms of government: the peaceful transition and acquisition of power.

*Yes, I know the 1 in 6 number is based on deaths throughout the 250 years and that it, like other jobs, has probably gotten safer. I still think the relative danger ranking remains accurate but, in any case, maybe just learn to play along.

Spain just defeated England 2-1 to win the UEFA European Championship. I watched a fair amount of the last two European championships and the previous Men’s and Women’s World Cups, and one thing that stood out is the dichotomy in playing styles amongst the top 4-6 teams in their relative risk aversion. Putting aside the bottom teams whose relative talent level make it difficult to play anything but highly defensive soccer (bunkering in with 11 players behind the ball AKA parking the bus), it nonetheless remains shocking their seeming chasm in aggression between teams.

Watching England and Spain over the previous month, it is uncanny how much more willing to lose the Spanish sides were. Pressing hard, playing incisive but risky passes, each and every game they ran the risk of losing to a team that was fortunate enough to score off of an poorly placed pass or chaotic bounce. England, in point of contrast, played incredibly conservatively, themselves looking to win a close match by converting a small number of scoring opportunities at a higher rate through their superior talent and/or settling the match in a penalty shootout.

Playing conservatively is a valid strategy. Jose Mourinho bored countless millions of viewers while coaching superior teams to trophies that should have 1-0 etched onto them for eternity. But while watching these games and the those in the English Premiere League I’ve become aware of the compulsion English announcers have to for ascribing nearly every goal to an error made by the defense rather than an achievement of the offense. Spain scored two stunning goals today and the English commentator could not help but attribute at least (maybe both?) to the English team “falling asleep”.

This to me is another opportunity to ask yourself and others “What we are maximizing or minimizing?” Spain was maximizing the chance of winning the tournament. That meant focusing on nothing but the probability of winning each game. They were maximizing the mean. England, on the other hand, was minimizing the probability of losing to an inferior team. They were minimizing the variance. For two-thirds of the final, they continued to minimize the variance and eventually ended up down 1-0. They then subbed their obviously injured captain (who happens to be the best penalty kick taker in the world, maybe ever), put on a younger player, and were immediately more aggressive. They scored and then were scored upon. The bore the fruits and the costs of greater risk. I don’t know what would have happened if they had taken more risk the whole game, but I suspect their probability of winning would have increased.

When you see an organization that is minimizing variance that is often a good thing. It means they are valuing downside risk in a proper manner. In many sports contexts, however, over emphasis on minimizing downside risk is, to my eyes, an example of actors minimizing expected criticism. If England is looking for an explanation why they, the oft-proclaimed inventors of football, have not won a major international tournament in 58 years, the intense risk aversion within team managers seems a first order concern. Yes, I know, Italy has won plenty of tournaments being boring, but I would note that as offensive tactics have reduced the expected mean outcome of conservative play, they have themselves adapted, while England appears to be “fighting the last war”, so to speak.

I’m not English and have no particularly rooting interest, other than a hatred for boring sports (Audere est Facere). Boring, however, doesn’t offend me quite much as suboptimal outcome maximization and resource deployment. For that I must applaud the Spanish national team on their victory. May they stand as an example of the rewards for bravery, rational bravery, in any market.

Macron calls for a snap election, the gears of political bargaining begin turning after Marine le Pen wins the first round and the threat of a nationalist government becomes very real, a center-left coalition emerges, and et voila a surprisingly strategic median voter snatches victory from the jaws of xenophobic cruelty.

Can such things happen in the US system? Yes and no. The US is neither a parliamentary system nor do we have a two-stage majority-rule electoral rule, but the same bargaining occurs beyond closed doors, yielding new and sometimes surprising coalitions. The political bargaining behind candidates, however, is beholden to the primary system, so it’s not always clear when bargaining plays out and what actually transpires. For example, as the prospects of President Biden winning re-election over former President Trump, there is increasing speculative expectation of an alternative Democratic candidate despite the party already nominating the President.

The process happening as we speak is a messy process, absent explicit institutional rules and, in the case of the Democratic candidate, a player with veto power, both effectively and literally. The gravity of the median voter is far weaker when the rules, or in this case the absence of specific rules, lead to large transaction costs and, in turn, enormous uncertainty. Whether the US median voter will hold in November’s election is unclear. All we can do for the moment is doff our caps to French voters, their (in my opinion superior) voting rules, and the political operators who bargained the country out of a potentially disastrous new administration.

As maybe the least libertarian economist on this blog roll, its interesting that the timing of today’s Supreme Court Decision falls on my watch. The best thing to read is probably Sotamayor’s dissent which lays it out plainly: the President is, by today’s ruling, clear to use their power with almost complete immunity from criminal prosecution. It feels like hyperbole, but this is really dark stuff. The kind of thing I didn’t think I would ever see in my lifetime. I know many are framing this in terms of Trump and his current slate of legal cases, but those costs are comparatively trivial relative to the costs going forward.

How did we get here? It’s tempting to trace back a conspiratorial timeline, but I think the answer is far more banal. It only takes the appointment of a few incompetent careerists to undermine the collective wisdom of a nine person voting body and here we are:

I’m not sure what else to write that isn’t already plainly stated by far more qualified legal observers. This isn’t great.