Tag: Diminishing Marginal Returns

Diminishing Returns to Incarceration

Diminishing Returns to Incarceration

Posted on by jabittan
Prison is often thought of as an important crime deterrent and tool against crime. Prison sentences discourage the bad guys from committing crimes, because they know there is a possible lengthy stay in jail waiting for them if they get caught. Additionally, when individuals are incarcerated they are not out on the streets committing more crimes. The deterrence and lock-up benefits of incarceration are part of what make incarceration such an appealing option for those who wish to be seen as tough on crime in the United States.
 
 
But there also seem to be diminishing returns to incarceration, and at a certain point incarceration can begin to be counter productive and even harmful. Specifically thinking about diminishing returns to incarceration in his book The Better Angels of Our Nature, Steven Pinker writes, “once the most violent individuals have been locked up, imprisoning more of them rapidly reaches a point of diminishing returns.” Each prisoner you lock-up after you have locked up the worst offenders, is marginally less bad. Their crimes, or potential crimes, become marginally less serious, and as a response, the benefit of locking them up is decreased. The crimes they may be deterred from may be less severe to begin with, and the time for which they are incarcerated is doesn’t equate to more serious crimes being avoided, but more marginally less bad crimes being averted.
 
 
Pinker continues, “since people tend to get less violent as they get older, keeping men in prison beyond a certain point does little to reduce crime.” We can boast about how long we lock up the bad guys, but if that term extends beyond the point at which that individual may be a threat to society, then it is fair to ask whether their continued punishment is worthwhile. Perhaps an exceptionally long prison sentence, beyond the point at which an individual is likely to still be a threat, is a good deterrent before any crimes are committed, but if it is not, then we use important resources to incarcerate a person who otherwise could be a productive member of society or at least otherwise not drain resources while incarcerated.
 
 
The diminishing returns to incarceration are not discussed as much as the idea of tough on crime prison sentences is. We like locking people up, we like having a major deterrent in the form of incarceration, and we like the sense of justice we receive from imprisoning a bad guy for a long time. But we don’t like knowing that our criminal justice system in the United States has more people incarcerated that almost any other country on earth. We don’t like knowing that our prisons are costing society and that individuals released from prison may not have any avenue back into productive society as a result of being locked up for such lengthy times. It is important to consider the diminishing returns to incarceration to determine whether it is truly the best form of punishment to pursue and whether we would be better served by alternatives means of deterring sever crime.
When to Stop Thinking

When to Stop Thinking

Posted on by jabittan
My last post was about closed-mindedness and focused on how closed-minded people fail to make appropriate inquiries to gain the necessary information to make good decisions and accurately understand the world. What the post didn’t ask, is when we should stop thinking and make a decision, versus when we should continue our investigations to gain more knowledge. A serious problem, and one we avoid when we are closed-minded, is often referred to as paralysis by analysis. It occurs when you lack confidence in decision-making and continually seek more information before making a decision, potentially delaying your choice or any action indefinitely.
Writing about this idea in Vices of the Mind, Quassim Cassam writes, “our investigations can be open-ended and there is often, though not always, scope for further investigation.” Sometimes we are asking questions and doing research on continually evolving topics. Sometimes we are working at a cutting edge where changes in politics, markets, social trends, and scientific breakthroughs can influence what we do from day to day. There never is a final answer, and we have to continually seek new information in order to adapt. However, this doesn’t mean that we can’t make important decisions that require thoughtful deliberation.
“A good investigator,” Cassam writes, “has a sense of when enough is enough and diminishing returns are setting in. But the decision to call a halt at that point isn’t properly described as closed-minded. What allows us to get on with our lives isn’t closed-mindedness but the ability to judge when no further research into the question at hand is necessary.”
Closed-minded people make decisions while ignoring pertinent information. Open-minded people make decisions while ignoring extraneous information. Over time, for each of us if we practice long enough, we should improve our judgements and become better at recognizing the diminishing returns of continued research. We might continue to learn a bit more as we continue to study, but the value of each new bit of information will be smaller and smaller, and at some point won’t truly impact our decisions. A novice might have trouble identifying this point, but an expert should be better. A closed-minded person doesn’t look for this optimal point, but an open-minded person does, continually updating their priors and judgements on when they have enough information to make a decision, rather than rigidly locking in with a specific set of information. This is how we avoid analysis paralysis and how we improve our decision-making over time to get on with our lives as Cassam writes.
Risk Averse and Risk Seeking - Joe Abittan

Risk Averse and Risk Seeking

Posted on by jabittan
I would generally categorize myself as somewhat risk averse, but studies from Daniel Kahneman in Thinking Fast and Slow might suggest that I’m not really any different than anyone else. I might just be responding to the set of circumstances that I typically experience, similar to anyone else, and I might just be more aware of times when I am risk averse rather than times when I am more risk seeking. In particular, I might be risk averse in certain situations and categorize those situations correctly, but risk seeking in other situations without recognizing it.

 

Kahneman uses examples throughout his book to demonstrate to the audience that common cognitive errors and psychological tendencies are shared with even the most savvy readers who would pick up a book like Thinking Fast and Slow. Kahneman even uses anecdotes from his own life and his own thoughts to demonstrate how deep knowledge of cognitive biases and errors doesn’t make one immune. After demonstrating how our minds can lead us to be risk averse in some settings and risk seeking in others, Kahneman cautions us against a typical pattern that many of us will find ourselves in. “It is costly to be risk averse for gains and risk seeking for losses.”

 

On its own, this quote doesn’t seem to reveal anything to interesting, but in the context of Kahneman’s experiments and examples, it reveals a lot about the way we behave whether we are risk seeking or risk averse. When we are offered a flat sum or a gamble with the potentially win more than the flat sum, we often won’t be willing to take the gamble. The guaranteed money is more appealing to us than the prospects of a higher winning with a small chance of gaining nothing. When it comes to gains, we are often risk averse, preferring the sure thing rather than the possibility of getting more with the risk of getting nothing or facing a cost.

 

However, we become risk seeking when we stand to lose something. As long as there is a small outside chance that we won’t lose anything, we will avoid a certain loss, risk a larger loss, and take a gamble. In Kahneman’s example he demonstrates how people will quickly turn down a sure loss of $750 for a 25% chance of losing nothing, even when there is a 75% chance of losing $1000.

 

When you do the math over numerous trials, you see that taking the loss at $750 is better. However, our minds don’t perceive things this way. When we stand to win something, we tend to become conservative and risk averse, but if we stand to lose something, we suddenly become more risk seeking. Combining these two tendencies can be dangerous. It means we can stand to gain much less than we might if we flipped our biases around, and it also means we are more likely to face greater losses with greater frequency than if we had been less risk seeking with regard to losses.

 

If we think about this in the context of our lives more generally, we can see that categorizing ourselves and most of our friends as either risk averse or risk seeking doesn’t necessarily make sense. When you are young, you really don’t have anything that you will be worried about losing. It makes sense that you might be more risk seeking, more willing to take on behaviors and ideas that are risky, but might have a big upside. You might procrastinate with important homework, retirement savings, and household chores because you know you will lose time (the only thing you may have if you are really young), and you can gamble on the consequences. As you get older, once you are established in a career, own a home, have a 401K, and move through life in general, you stand to lose more. Gains throughout your life become less significant due to Tyler Cowen‘s favorite idea, diminishing marginal returns. It becomes harder to give up the guaranteed gains because the marginal increase in a potential gain through a gamble is less appealing. You become risk averse as you get older and in more situations as you grow to have more things to worry about losing. Therefore, categorizing people as generally risk averse or generally risk seeking is meaningless. You need to look at the circumstances of their lives to understand where they find themselves in terms of social status, what material possessions they have, what their family structure is like, and you will start to understand why they make generally more risk averse or generally more risk seeking decisions. There is probably some variability across people, but I would expect the structures and systems in place around us shape our behavior more than any genetic or inherent factors.