A new NBER paper [pdf] from Enrico Moretti finds that films which outperform expectations on their opening week continue to outperform expectations - but not if the outperformance was the result of weather. The effect is stronger for previously unknown films about which audience has weak preconceptions:

Using box-office data for all movies released between 1982 and 2000, I test the implications of a simple model of social learning in which the consumption decisions of individuals depend on information they receive from their peers. The model predicts different box office sales dynamics depending on whether opening weekend demand is higher or lower than expected. I use a unique feature of the movie industry to identify ex-ante demand expectations: the number of screens dedicated to a movie in its opening weekend reflects the sales expectations held by profit-maximizing theater owners. Several pieces of evidence are consistent with social learning. First, sales of movies with positive surprise and negative surprise in opening weekend demand diverge over time. If a movie has better than expected appeal and therefore experiences larger than expected sales in week 1, consumers in week 2 update upward their expectations of quality, further increasing week 2 sales. Second, this divergence is small for movies for which consumers have strong priors and large for movies for which consumers have weak priors. Third, the effect of a surprise is stronger for audiences with large social networks. Finally, consumers do not respond to surprises in first week sales that are orthogonal to movie quality, like weather shocks. Overall, social learning appears to be an important determinant of sales in the movie industry, accounting for 38% of sales for the typical movie with positive surprise.

This is the Moretti who studied peers at work with a huge database of scanner information from a supermarket, finding that when fast workers are sitting behind you and looking at your back, you also work fast. When fast workers are sitting in front of you and facing away from you, you don’t bother. So there’s a peer effect, and it seems to be driven by embarassment or fear rather than inspiration. (More on this research in The Logic of Life, or here.)

Fabio Rojas, in impish form, thinks so:

Economics, as understood for hundreds of years, has played out. The major problems of econ 101 have been solved. We know about supply and demand, marginal utility, choice under uncertainty, and budget constraints. We have a wide variety of tools, ranging from game theory to econometrics, that help us identify  these processes in situations ranging from war, to car sales, to dating. We are also seeing how these processes plug into classic macroeconomic issues, such as growth and international trade.
However, the market system itself, as indicated by Tim’s concluding chapter, depends on population, innovation, and liberal economic institutions. These, in turn, depend on psychology, group culture, and networks, the domain of sociologists, psychologists, historians, and anthropologists. Economists have shown how the market system processes the inputs, but there’s still much, much more to be said about where the inputs come from. That’s what’s going to be exciting in the decades to come, and I can’t wait to see it.

Nice try, Fabio… I am not convinced. But I am in favour of cross-disciplinary work, with some cautions.

I was astonished when the enormous Old Theatre at the LSE was packed out at least fifteen minutes before I gave my talk on 6 Feb. Lots of people were turned away, including some for whom I’d reserved seats. I’m a bit embarassed about that, although obviously pleased that the event was popular.
But… there will be another chance to hear me talk about “The Logic of Life” at the Cass Business School on 12 March. Details are here - along with details of other talks in The Lake District, Glasgow, Oxford, Cambridge, Bristol, Singapore, Wellington and several Australian cities too. Looks like we’ll arrange a couple more London events later in the spring, too.

We just moved our blog platform and none of my posts seem to be going live at the moment, but in a spirit of hope, let me link to the latest from Bryan Caplan on whether racial discrimination means that African-Americans have little incentive to become educated (randomised trial says no incentive, Bryan’s regressions say otherwise) and Kevin Grier, who is discussing my chapter on cities.

In the New Statesman, Mario Pisani, a former Nico Colchester fellow at the FT, asks how economics got to be so cool all of a sudden:

One of the earliest examples of what many call “pop economics” was Steven E Landsburg’s book The Armchair Economist. He recalls how “in 1991, when I first approached publishers, my covering letter began thus: ‘When lawyers or executives meet for lunch, they more often speculate about economics than about evolutionary biology. Yet bookstore shelves are well stocked with books on evolution and almost empty of economics.’ Nobody could say the same thing today. Dozens of good writers have stepped in to explain the economic way of thinking to a wider audience.”

The essay is pegged on the publication of The Logic of Life, but ranges widely. Even readers who are fed up of my linking to reviews of The Logic of Life should enjoy this one.

Yesterday I reported on Bryan Caplan’s thoughtful criticisms of chapter six of The Logic of Life. One of the things that worried me most in that chapter is the possibility that employers don’t value qualifications or experience of minority groups, which in turn means that the victims rationally invest less in education and work experience, which in turn feeds statistical discrimination.
Bryan is quite right to point out that there is nothing inevitable about this. It might well be that a victim of discrimination had a higher return to education, not a lower one. I argue that this is true for women and that is a likely explanation of the fact that women tend to be better educated than men. Bryan thinks the same story is true for African-Americans:

I tested these claims using one of the world’s best labor data sets, the NLSY. The results directly contradict Tim’s self-fulfilling prophesy story. Blacks actually get a substantially larger return to education than non-blacks! The same goes for experience, though the result is not statistically significant. The real lesson of the data is that if you are young, gifted, and black, you should get a ton of education, because it has an exceptionally large pay-off.

Bryan is very smart so I take that claim seriously. But it’s informal work, not published in a journal. Bryan says he will tell us more, and I’ll look forward to that. I set it against the results of a large (n=5000) randomised audit trial from Marianne Bertrand and Sendhil Mullainathan, who find that qualifications and experience on an apparently-black CV do not result in a higher chance of being invited to interview. Qualifications and experience on an apparently-white CV, of course, substantially improve those chances.
Let’s recognise the limitations of that trial. It is just one experiment, and focuses on employers only in Boston and Chicago. It’s also true that a distinctively black name may indicate something about social class as well as race. And I admit that an interview call-back is not the same thing as a job. But I still find a randomised trial awfully persuasive even when set against peer-reviewed econometrics, let alone Bryan’s informal analysis.

One commenter (at Bryan’s blog, EconLog), writes:

Bryan, this is a good post, but you need to cite your sources…If this isn’t published, Hartford [Harford, please - TH] can’t be faulted.

I wouldn’t put it quite that way. Bryan can be unpublished but right. I can still be wrong even if I “can’t be faulted”. For now, I think Bryan’s critique is powerful but unproven.

For CV-audit junkies, this paper by Judith Rich and Peter Riach is well worth a read: shows discrimination in favour of men in a traditionally-male occupation (engineering) and in favour of women in both traditionally-female and mixed occupations. All the firms surveyed are based in England.

Update: Bryan links to further research supporting his calculations.

Bryan Caplan has an excellent post criticising the discussion of racial discrimination in "The Logic of Life". I’m going to read it a few more times but I think I’m sticking to my guns for the most part. But it is well worth reading:

Tim could object that I’ve overlooked a subtler way for statistical discrimination to harm a group. After all, he heavily emphasizes a few experiments showing that statistical discrimination could be a "self-fulfilling prophesy." For example, he describes a resume experiment where otherwise identical fake resumes with "black names" were less likely to get a response. "High-quality applicants were more likely to be invited for an interview, but only if they were white. Employers didn’t seem to notice whether black applicants had extra skills or experience." If that is how employers treat black applicants, what’s the point of trying? As Tim asks, "Why bother to get a degree or work experience if you are young, gifted, and black?"
But is it really true that the market fails to reward blacks for getting more education? Is it even true that the market rewards them less? I tested these claims using one of the world’s best labor data sets, the NLSY.  The results directly contradict Tim’s self-fulfilling prophesy story.  Blacks actually get a substantially larger return to education than non-blacks! The same goes for experience, though the result is not statistically significant. The real lesson of the data is that if you are young, gifted, and black, you should get a ton of education, because it has an exceptionally large pay-off.
Why would this be so?  I’m not sure, but one simple story is that counter-stereotypical behavior stands out. When my sons were young, my wife was working a lot, so I often took my kids places on my own. Funny thing: Time and again, strangers came up and said, "Wow, you’re such a great dad!" But there were moms of young kids doing the same thing in plain sight, and the strangers rarely praised them.  Why not?  Because a dad taking care of two babies is counter-stereotypical, which grabs people’s attention.
Purely anecdotal, yes. But it is consistent with the small academic literature on counter-stereotypical behavior. If you clearly violate expectations, people not only notice; they often over-react.
The upshot is that stereotypes may actually be self-reversing rather than self-fulfilling. The marginal payoff of distinguishing yourself from the pack is high if people think poorly of the typical member of the pack.

I agree with the last paragraph, and discrimination against women seems to have this quality: educated women are paid something much closer to educated men, while uneducated women seem to be paid substantially less than uneducated men. Rational response: women should go to college. Actual response: women now outnumber men at college 4 to 3 in the US. (I think this discussion made the final edit and stayed in the book, but I’ll forgive Bryan because it was in chapter three anyway, not the chapter he’s currently discussing.)
I also suspect that one reason Bryan is complaining is that he expected a full chapter on statistical discrimination, a subject which he has studied quite closely, and read it in that light. My aims were broader (and therefore, yes, less focussed). What looks to an academic like "sugar coating" or digression looks to me (and I hope, most of my readers) like a wide-ranging treatment of a complex subject.

All that said, I’ll be re-reading Bryan’s post and thinking hard.

Seamus McCauley has an interesting thought, inspired by, um, me. In The Logic of Life, I write:

"the experimenters offered the subjects a snack: fruit or chocolate. Seven out of ten subjects asked for chocolate. But when the experimenters offered other subjects a different choice, the answer was different too: ‘I’ll bring you a snack next week. What would you like then, fruit or chocolate?’ Three-quarters of subjects chose fruit."

This is just one of many examples when our short-term, dopamine-fired preferences conflict with what we might choose given an opportunity to reflect in tranquility. Seamus then asks what that story implies for online news:

Apply for a moment this understanding of decision-making to newspapers and we arrive at a not-very-comforting conclusion. A newspaper is a package of information, the celebrity gossip and TV listings bundled in with the op-ed and the current affairs. Choose the bundle of news in a newspaper and you satisfy both parts of your decision-making brain. The dopamine system gets the immediate gratification of reading about the fabricated erotic misadventures of some soap actress or the Spurs result; the cognitive system gets the glow of knowing there’s real, hard, investigative news in there somewhere too (don’t worry, you don’t ever have to actually read it to get the effect).
Online, the news package is unbundled (we already know this) and hard news outside the bundle is hard to monetise (we already know this too). But the effect on reading habits of unbundling hard news from the newspaper package seems likely, from this understanding of how decisions are made, to have a disastrous impact on the propensity to read that news (this might be new). Online, news consumption is all about immediate gratification: you choose the story you want to read now every single time.

I think Seamus is saying that you shouldn’t be getting cheap thrills from this blog but should read something worthier instead… His whole post, with lots of tempting short-termist links, is well worth a read.

The latest round of the Marginal Revolution book forum on "The Logic of Life" has been outsourced to Megan McArdle at Atlantic Monthly - and I am way behind, apologies. The subject of the chapter is "Why Your Boss is Overpaid". Megan is focusing especially on CEO pay.

Using some remarkably clever techniques and imaginative perspectives, a bold new breed of economists is busily demonstrating that life makes more sense than anyone would have thought. Using every clue that comes to hand, from a laboratory brain scan to the hidden patterns in old maps, they are discovering that there is a surprisingly rational basis to the seemingly irrational world around us.
This is new territory for economics. Some early attempts to popularise economics read more like a book of cute logical puzzles than an investigation into the nitty-gritty of the world around us. But don’t blame the popularisers too much: that was actually a fair reflection of the way economists used to do their work.
Things are different now.

That is me, writing for Waterstones Book Quarterly. The piece is posted here with permission.