About the readings

Note that we aren't doing, Chapter 16 "A Dozen Nudges" in class. We are doing Chapter 17 "Objections" on Wednesday. If you haven't commented yet, you might post about that chapter.

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I did a quick Google search on Marriage and Income Distribution. One of the references was this working paper for which, the introduction begins with the observation that income and marriage are positively correlated. I will leave you to draw any further conclusions from that observation, but we should spend some time on it tomorrow.

Men Drinking in College - A Theory to Explain Why

Since the topic has come up more than once in class and in th blogging, I thought you might find this one interesting.

1089 Why College Men Drink: Alcohol, Adventure, and the Paradox of Masculinity via kwout

Presentation by Team Cadenza

Here is the presentation on Privatizing Marriage.

Follow up on today's class and where we are going next

I thought it was a good session today, with a fairly lively discussion. I omitted discussing one obvious thing - in the mode of Econ 102. If the underlying issue with health care cost is that doctors qua entrepreneurs with their own private practice are aggressively ordering procedures to enhance their own revenue, then an increase in the supply of doctors would be the standard intro econ textbook remedy. How would that increase in supply come about? One way would be to encourage foreign doctors to immigrate to the U.S. They might also be the ones who would take the "salary jobs" that would offer an alternative to the doctor as entrepreneur model. (In fact I believe this is already happening, but in what volume I do not know.) Being aggressive about this as a policy matter may have all sorts of politics associated with it that makes the suggestion untenable. But looking at this as a straight economic issue we do teach that expanding supply lowers the market price. So at a minimum we needed to get that idea on the table.

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Next week is our last on Nudge. We will be covering the chapters on Privatizing Marriage and Objections. Both should be lively discussions.

The last week of class I plan to do as follows. On Monday we will read/discuss both Akerlof's Gift Exchange paper and this paper by Ericsson et. al. on Deliberate Practice. I will try to provide a bit of motivation below, then more next week when you are closer to reading those pieces. On Wednesday I want to apply those ideas to our class as we do a debrief. I hope you will blog a bit on both of those. My post next week should give you a sense of where this is heading.

Now for the motivation. In ongoing exchange that happens over time much of that (interior to the firm or organization) happens via a "trust relationship." Gift exchange is, in essence, the economic model of trust relationship. Much of what you get in the relationship should be viewed as a surplus or a rent. Both parties in the relationship understand that. We've seen this notion before, in Akerlof's Nobel lecture talking about efficiency wages, and in Simon's Nobel lecture where he talks about eliciting performance in organizations.

Akerlof in the Gift Exchange paper applies the idea to industrial work. I want to reconsider the idea in the context of knowledge work. With knowledge work, a good part of the motivation of the worker comes from their own learning. In turn, a lot of effective learning comes in the form of "Deliberate Practice." Deliberate Practice means taking effort to learn things just out of reach until that becomes routine and then going a step or two beyond that in an ongoing cycle. Video games where you go from a beginner level to higher levels have a built in deliberate practice aspect to them. It can both be fun - mastering the next step - and challenging - unsure that you can conquer what's ahead when it looks difficult. So I'd like to put that sort of learning into the workplace and talking about the economic incentives that would make it work well. I then want to argue that jobs so structured are the type we'd all like to have. But I also want to suggest that such structuring of the job has challenges to it. Earlier I encouraged people to watch a Daniel Pink video. I think he gets into a bit of a trap with what he presents. So we need to discuss that trap too.

School Choice Presentation

This is the Presentation from the Lipshitz Continuum on Improving School Choice.

A week from tomorrow on Malpractice Insurance a la Nudge

I will be leading the discussion on: Should Patients Be Forced to Buy Lottery Tickets. In addition to that chapter, I would like you to read this very engaging essay by Atul Gawande, The Cost Conundrum. Gawande is an M.D., not an economist. (He is also a winner of one of the MacArthur Genius Awards.) I believe you will find this piece extraordinarily interesting and give you a different perspective on the issue.

I will not produce a PowerPoint for this session, but below I will provide a brief essay as fodder for the discussion. Part of this is to note that Thaler and Sunstein have some good nuggets to extract, but the picture is incomplete. The Gawande reading should help to fill that in. Also, in places Thaler and Sunstein say things I disagree with and I'd like to put that into some context.

I believe it is helpful to parse health care as follows.

Initiation - This can be either regular "maintenance" a la an oil change for your car or it can be patient initiated because of some problem. Our health care system can be critiqued that there is too little maintenance - the uninsured don't. But it is broader than that, since lifestyle matters. So even insured people who lead an unhealthy lifestyle are under investing in maintenance.

Post Initiation we can divide further into these categories: Diagnosis, Treatment, Repair.

Diagnosis - If this happens as part of maintenance we need to include in this category, "you are in good health." The alternative is "you have problem x." In thinking about malpractice, one issue is whether mis-diagnosis is a big deal or not. Diagnosis is typically done by physical exam, or by having tests (blood tests, x-ray, ekg, etc.) but is also done on occasion by having a procedure (an exploratory operation or a colonoscopy for example). The different modes of diagnosis have differing costs and a question is whether based on the urgency of the purported initial problem one goes for expensive modes first or if one tries the least cost ones initially and then move to more expensive modes only when the early ones produce inconclusive results.

Treatment - Usually this is by drugs or by therapy. So again considering malpractice, there is a question of mis-treatment. Drugs can produce harmful side effects. It is not unusual for a doctor to monitor progress under a given treatment and change the recommended treatment based on what is observed. This is also the issue of whether patients take the treatment or not. Some possible reasons for not taking the treatment are: (a) it is painful, (b) it is time consuming, (c) doing so denies personal freedoms, and (d) the patient forgets. There might be an additional economic reason - the out-of-pocket expense the patient experiences from taking the treatment.

Ignoring the economic reason for a moment because it is probably not in the doctor's sphere of control, there is a question of whether the doctor can influence the patient into taking the treatment by addressing (a) - (d) above and if doctors vary in their abilities to do this. Another piece by Gawande, The Bell Curve, offers a fascinating story about patients with Cystic Fibrosis and the wide variation in outcomes based on differing approaches to treatment. We will not discuss this piece because there isn't enough time to do so, but in relation to Thaler and Sunstein we can raise the relevant question of whether it is malpractice to rely on under-performing treatments. This speaks to question that they raise about whether medicine becomes too conservative. It turns out the high performing treatments are largely experimental and go beyond what is in the published literature.

Repair - Here we are thinking about surgery that is not diagnostic and procedures (like childbirth) that may not involve surgery strictly considered but that take place in a hospital. When one thinks about malpractice this is typically the category that people have in their minds, so to modify the definition in Nudge, malpractice is the negligence during surgery.

Let's next consider outcomes (and here keep in mind the Gould piece on the Streak of Streaks). People have expectations going in about the consequences of treatment and repair as well as about the correctness of diagnosis. When they are unpleasantly surprised - a worse outcome than anticipated - they demand an explanation and are often quite angry because of the outcome. The cause may simply be bad luck, not malpractice, but how is the patient and the patient's family to determine that? One wonders whether the media influence the thought process that happens then, for example via movies like The Verdict.

I believe that Thaler and Sunstein are thinking about Repair only when they make their recommendation to buy the insurance with the largest deductible and it is in that case too where the doctor's premiums for malpractice insurance are highest. But they also seem to have in mind the doctor as a solo practitioner.

The main lesson from the Gawande piece, in my view, is that team production is best practice in medicine and that as a general matter team production will push health care toward treatment and away from repair, but then lower doctor incomes because the big bucks are in repair. When you do have team production where presumably the doctors co-insure, the question then is whether you still want to follow Thaler and Suntein in having patients forego their right to sue up front so they can have lower health care insurance premiums. I'm not sure on that one. It seems to me that to show negligence in the team production case would require "the mistake(s)" to be more egregious and if that is correct perhaps that is sufficient without eliminating the right to sue altogether.

Drafts of papers

I announced this in class yesterday but I will repeat here because not everyone was there. For those teams that have already presented, it is time to be getting your first draft of your paper to me for my reactions and suggestions. Please make that a priority in your efforts as we get into the last quarter of the semester.