Social Security

The second post I made to this blog concerned Social Security.  I recently was a bit startled to learn that while the general thrust of the post was correct I had misunderstood a significant detail.  For some reason (perhaps because I had over generalized an example for someone who retired at age 62) I was under the erroneous impression that only earnings before age 62 count in determining your benefit.  However as this example clearly shows such is not the case.  Your highest earning 35 years (which determine the amount of your benefit) can include years in which you are 62 or older.

This means it will be possible for me to earn a maximum benefit (one based on 35 years of maximum earnings).  Through 2009 I had 26 such years from my job with IBM.  Through 2013 I have 4 more from my new job.  And if I continue to work through 2018 (when I will be 64) I will have 5 more for a total of 35.  So by continuing to work (after being laid off from IBM) I can potentially be credited with as many as 9 additional years of maximum earnings (instead of the limit of 6 I had assumed in my earlier post) and increase my benefit by about 15% (instead of 10%).  However it remains the case that the increase in the benefit is considerably less than the increase (35% for 9 additional years) in years worked.       

While looking into this I noticed I hadn't gotten my annual Social Security Statement since 2010.  This is because the government (in a somewhat dubious effort to save money) stopped sending them out in 2011.  I found this a bit annoying but it turned out to be fairly easy (for me at least) to create an online account with Social Security and print out my current (based on my earnings through 2012) statement.

Early Retirement

If you have a high paying job the key to retiring earlier rather than later is to avoid developing expensive tastes.  This wins in two ways, you can save more of your income and you will need less savings to maintain your accustomed standard of living in retirement.  Of course there is no free lunch, by retiring early you are reducing your lifetime earnings and hence your potential lifetime consumption.  But past a certain point there are diminishing returns to additional spending and you may sensibly prefer the additional leisure time early retirement makes possible.  Of course you may also prefer to keep working (especially if you like your job) but people with good incomes should realize they have a choice and not just default to spending whatever they make.

This is a point the "Mr. Money Mustache" blog (which I recently added to my blog list) makes with which I agree.  Although in my view the blog has a tendency to go overboard veering towards "what doesn't kill you makes you stronger" territory which discussing biking in lousy weather and the like.

Spider Solitaire

Recently I have been wasting a lot of time playing the Spider Solitaire game which comes with Microsoft Windows.  Playing the 4 suit version (without using the undo feature) I managed to win 37 out of 100 games.  This is quite consistent with internet claims that a 40% win rate is possible as I am certainly making mistakes.  Of course 100 is not a very big sample, 37 wins out of 100 is reasonably likely given a true win rate anywhere between 30% and 45% or so.

John G. Fletcher

I have set up an author page on Google Scholar for my stepfather, John G. Fletcher, who died last year.  He worked at the Lawrence Livermore National Laboratory (LLNL) from 1962 until he retired in 1993.  Although he had a PhD in Physics from Princeton (with a thesis on general relativity), at LLNL he soon moved to the computation department and most of his papers are in the field of Computer Science.  I used the Google Scholar clustering algorithm to generate the list of his papers.  It didn't work too well in his case, a fair number of the papers suggested obviously weren't by him and some papers were missed.  I removed the interlopers and added a couple of early general relativity papers.  However there may still be errors.

The Winner's Curse

I also recently read "The Winner's Curse", a 1992 book by Richard Thaler.  Like Ariely's "Predictably Irrational" it discusses situations in which people don't behave as some economic theory predicts they should.  My evaluation is similar, the book while not totally devoid of interest is not worth recommending.

This book largely consists of revised versions of a series of articles Thaler (often with coauthors) published in the Journal of Economic Perspectives between 1987 and 1991 on the general theme of economic anomalies, situations where people behave contrary to theory.  These articles summarized academic research on each topic.  I found this preferable to Ariely's book which in my view unduly emphasized his own research.  However the articles are now over 20 years old and so potentially dated.  And they are written in a style which I didn't find particularly engaging. 

But my main objection is the same as to Ariely's book, it is not clear how significant these anomalies are.  I think most people understand that economic models are approximations which are not exactly correct.  So finding a few cases where their predictions are off doesn't by itself mean too much.  As Thaler concedes near the end of this book, what is really needed are models (or theories) that predict better. 

So in summary I don't think this book offers a lot to the lay reader. There were a few points of interest but in general it isn't going to be of much help in understanding current economic issues or in making better personal finance decisions.

Predictably Irrational

I recently read "Predictably Irrational", a 2008 book by Dan Ariely, then a professor of behavioral economics at MIT.  Based largely on his own experimental work it discusses situations in which people often behave in ways which are at least arguably irrational.  Unfortunately I didn't think the book was very good.

My main problem with the book is that it is weak on the big picture.  By way of analogy human vision is generally pretty good but not perfect as the existence of optical illusions shows.  But a book just describing various optical illusions would not be a particularly good way of giving an overview of human vision.  Similarly it is hard to know what to conclude from a book describing a few experimental situations (often quite artificial) in which people behave irrationally.  I didn't get much more from this book than the observation that people sometimes behave irrationally which I already knew.   

One reason for the book's problems with the big picture is as mentioned above it is largely based on Ariely's own experimental work.  I believe a book like this should present a general overview of the field suitable for the lay reader.  This would include summarizing the most important and well established experimental results.  Just describing your own work (in what I sometimes thought was excessive detail) is not as useful.  Among other things it is difficult to be objective about your work, its importance and weaknesses.  Also I suspect there is a publication bias at work in this whole field.  I doubt it is as easy to publish experimental results concerning situations in which people do behave more or less rationally.  Which could give an unbalanced view of how pervasive irrational behavior actually is.

The book does present an useful general principle, namely that people like to evaluate things relative to other things rather than on an absolute basis.  So  B may appear more attractive when presented with a clearly inferior alternative C than when considered in isolation.  So experiments can be devised in which people prefer A to B when given 2 choices but prefer B when given 3 choices with C an inferior version of B added.  The addition of C makes B appear more attractive although this violates models which assume A and B have a definite absolute value.  Similarly people tend to evaluate their circumstances relative to their recent past (or compared to people they consider their peers).  So happiness is not as related to income as much as you might expect.  A rich person whose life is getting worse will tend be unhappy while a poor person whose life is getting better will tend to be happy even though objectively the rich person is still much better off.       

There are a few more worthwhile observations in the book but not in my view enough considering its length.  And I didn't think the book was particularly well written.  So while I don't think the book is totally worthless I would not recommend it.

Blog Roll

I have removed Nate Silver's 538 blog from my blog roll until such time as it restarts following Silver's move from the NYT to ESPN.  I have added educationrealist a blog by a high school math teacher which seems mostly consistent with my views on education.  Namely that the public schools are doing about as well as can be expected and that the main reason some kids do better academically than other kids is that some kids are smarter than other kids.

I have also added the Mr. Money Mustache blog by a man who retired (sort of) at age 30 by saving a ridiculous fraction of his income.  I find his point of view interesting although I often disagree with it.  And there would be problems if everyone tried to adopt his ideas.

I would like to add Kevin Drum's blog at Mother Jones to my blog roll but I have never been able to get the link to work properly in the Blog List widget.  For some reason it sends you someplace else in the Mother Jones website although the link works fine in the body of a post as above.  If anyone knows how to fix this let me know.