Daniel Kahneman has done as much to change the way we think about economics as anyone—and yet, he is no economist, or at least not as we would traditionally think of one. Kahneman is a psychologist; a psychologist, however, with a Nobel Prize in Economics and the acclamation for having:
"Pretty much created the field of behavioral economics and revolutionized large parts of cognitive psychology and social psychology."
To illustrate how our brain works, Daniel Kahneman devised two systems of thinking. System 1 is the unconscious thought process that effortlessly manages the majority of our behavior (generally, without error). System 2 comprises our active cognitions and requires concentrated effort to apply. System 1, unbeknownst to System 2, automatically makes a number of serial errors that Kahneman has masterfully identified.
Parking tickets are irritating. They are especially irritating in Los Angeles where a failure to properly feed your meter can run you nearly $70—and even more if you forget to pay it on time, as I regrettably learned this summer.
To be fair, parking violations play a necessary role in deterring scofflaws, easing mobility, and creating equitable opportunities for commerce in commercially vibrant urban centers. There is an economic cost for businesses and consumers if parking spaces are not optimally utilized (consumers may waste fuel searching for parking or forgo shopping altogether) and this must be safeguarded against. As we learned from Seinfeld, the scarcity of parking can be the source of considerable agony:
Comedy aside, there must be a point where the cost of a parking ticket transcends from a socially just deterrent to a punitive and regressive gouge—regressively taxing low income residents who lack access to off-street parking and can least afford to pay.
Cause of death can vary widely across racial groups. According to the Centers for Disease Control, 7% of Hispanic deaths in 2010 were the result of accidents compared with only 4.2% for non-Hispanic blacks (maybe the result of occupational differences?). More worryingly, while homicides accounted for 0.3% of non-Hispanic white deaths in 2010, they accounted for 2.7% of non-Hispanic black deaths. While the overall homicide rate has been in major decline for the past two decades, these lingering racial disparities are proving resilient and there are troubling signs of a resurgence in violence.
Why crime went down
Violent crime peaked in the United States in 1991. Since that time, homicides are down 54% nationally and a once violent city like New York has seen them fall by 76% from a peak in 1985. Policymakers, academics, and special interest groups have offered an array of explanations for this precipitous decline— from imprisonment to less lead in paint. While establishing causality is incredibly difficult outside of a control trial, by examining policy variations over time and across states some insights can be extracted. So, what do we find?
The Brennan Center at NYU Law School econometrically tested many of these theories in What Caused the Crime Decline and arrived at some ballpark estimates.
The authors were able to estimate likely benefits from increased incarceration and policing, aging, income growth, decreased alcohol consumption, and fluctuations in unemployment. Notably, they were unable to estimate a non-zero impact for increased gun-carrying rights or use of the death penalty. In addition to the graphic above, the authors ran regressions on the data from 2000-2013 and found different explanations for the decline in crime—importantly, incarceration no longer played a significant role as its usefulness had apparently been saturated.
A violent summer
It has undoubtably been a difficult year for law enforcement. The media's awakening to disproportionate violence in black communities has made local cooperation with police fraught with tension. In turn, police morale is down. Nowhere more starkly than in New York, where the NYPD very publicly turned their backs on Mayor de Blasio.
Although the summer months are always more violent—people are out on the streets and tempers flare with the heat—this summer appears to be a major step backwards for many cities. According to USA Today, crime rates in 2015 are up 19% in Chicago, 11% in New York, 18% in Washington D.C. and more than 33% in Baltimore, New Orleans, and St. Louis compared with this time last year. While it will be impossible to quantify the exact mechanisms, the post-Ferguson struggle for the future of urban policing is likely leading, unintentionally, to an increased loss of life.
Why? As cooperation with and trust in law enforcement decline, the likelihood of witnesses to testify and for arrests to be made decline with them— altering the decision to commit homicide. As police feel greater scrutiny of their actions, they may have begun patrolling less or less effectively. As a narrative (rather than the longstanding reality) of overt discrimination and economic stagnation spreads, desperation may be leading to more violence.
Time to buy a gun?
The evidence against gun ownership is overwhelming. It is beyond rebuke that having fewer guns in your country drastically reduces the murder rate. In a country of guns, it has been a bit murkier whether an individual is incentivized to buy a gun. However, in a study published by the Annals of Internal Medicine, researchers found that, compared with their unarmed neighbors, gun owners in the United States are on average three times as likely to kill themselves and twice as likely to be the victim of homicide. While there is an inherent difficulty in estimating these figures, as owning a gun is likely correlated with other causal variables like occupation or a personal proclivity for violence, these findings have been replicated so many times now that one can feel confident in their findings. So with 122,000 gun deaths between 2007-2010, why would a rational person still buy a gun?
Expected utility theory tells us that the rational choice for a typical consumer would be against purchasing a firearm. The gun has a (often high) cost to purchase, there is an overwhelming probability of never needing it, an infinitesimal chance of requiring it for life-saving protection, and a much greater chance of its unnecessary use resulting in your death. Weighing the probabilities results in a negative expected value and you not purchasing a gun. However, prospect theory, a much more accurate measure of human decision making, may make the decision less obvious.
Humans do not have the balanced view of expected outcomes that utility theory would have one believe. As anyone who has followed the news of a mass shooting (which have been markedly more common of late) knows, there is a great psychological weight associated with their imagery. The evoked emotion of helplessness in the face of indiscriminate danger, no matter how improbable, and only for those with a high risk aversion, outweighs the much higher (but seemingly controllable) probability of self harm and the financial cost of the gun. To state plainly, while you are three times more likely to use the gun for suicide and twice as likely to have it otherwise lead to your death (the expected gains of not owning a gun), the psychological perception of the loss is greater than the gains—only if the risk of accidental death were exponentially higher would you not buy the gun.
Back to the current crime wave
Gun ownership is a classic tragedy of the commons—individuals acting rationally create massive problems for the public at large and by extension themselves. Because handguns can be easily concealed, police (and the public at large) experience elevated stress levels when in disputes. The associated fear (with an upward bias against racial minorities), and first-mover advantage (you don't want to be the second person to pull their gun), leads to many unnecessary deaths—to say nothing of the role of guns in intentional homicides.
In 2013, there were an estimated 14,196 murders of which 69% involved a firearm. While driving a media narrative against gun ownership might alter the individual calculation for gun ownership on the margin, because of the elevated risk aversion of most gun-owners, it is likely that only imposed regulation would substantially reduce the number of handguns.
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