Halloween is kind of a weird holiday.

Oct 28 JDN 2458420

I suppose most holidays are weird if you look at them from an outside perspective; but I think Halloween especially so, because we don’t even seem to be clear about what we’re celebrating at this point.

Christmas is ostensibly about the anniversary of the birth of Jesus; New Year’s is about the completion of the year; Thanksgiving is about the founding of the United States and being thankful for what we have; Independence Day is about declaring independence from Great Britain.

But what’s Halloween about, again? Why do we have our children dress up in costumes and go beg candy from our neighbors?

The name comes originally from “All Hallow’s Eve”, the beginning of the three-day Christian holiday Allhallowtide of rememberance for the dead, which has merged in most Latin American countries with the traditional holiday Dia de los Muertos. But most Americans don’t actually celebrate the rest of Allhallowtide; we just do the candy and costume thing on Halloween.

The parts involving costumes and pumpkins actually seem to be drawn from Celtic folk traditions celebrating the ending of harvest season and the coming of the winter months. It’s celebrated so early because, well, in Ireland and Scotland it gets dark and cold pretty early in the year.

One tradition I sort of wish we’d kept from the Celtic festival is that of pouring molten lead into water to watch it rapidly solidify. Those guys really knew how to have a good time. It may have originated as a form of molybdomancy, which I officially declare the word of the day. Fortunately by the power of YouTube, we too can enjoy the excitement of molten lead without the usual fear of third-degree burns. The only divination ritual that we kept as a Halloween activity is the far tamer apple-bobbing.

The trick-or-treating part and especially the costume part originated in the Medieval performance art of mumming, which is also related to the modern concept of mime. Basically, these were traveling performance troupes who went around dressed up as mythological figures, did battle silently, and then bowed and passed their hats around for money. It’s like busking, basically.

The costumes were originally religious or mythological figures, then became supernatural creatures more generally, and nowadays the most popular costumes tend to be superheroes. And since apparently we didn’t want people giving out money to our children, we went for candy instead. Yet I’m sure you could right a really convincing economics paper about why candy is way less efficient, making both the parents giving, the child receiving, and the parents of the child receiving less happy than the same amount of money would (and unlike the similar argument against Christmas presents, I’m actually sort of inclined to agree; it’s not a personal gesture, and what in the world do you need with all that candy?).

So apparently we’re celebrating the end of the harvest, and also mourning the dead, and also being mimes, and also emulating pagan divination rituals, but mainly we’re dressed up like superheroes and begging for candy? Like I said, it’s kind of a weird holiday.

But maybe none of that ultimately matters. The joy of holidays isn’t really in following some ancient ritual whose religious significance is now lost on us; it’s in the togetherness we feel when we manage to all coordinate our activities and do something joyful and out of the ordinary that we don’t have to do by ourselves. I think deep down we all sort of wish we could dress up as superheroes more of the time, but society frowns upon that sort of behavior most of the year; this is our one chance to do it, so we’ll take the chance when we get it.

The game theory of holidays

Dec 25, JDN 2457748

When this post goes live, it will be Christmas; so I felt I should make the topic somehow involve the subject of Christmas, or holidays in general.

I decided I would pull back for as much perspective as possible, and ask this question: Why do we have holidays in the first place?

All human cultures have holidays, but not the same ones. Cultures with a lot of mutual contact will tend to synchronize their holidays temporally, but still often preserve wildly different rituals on those same holidays. Yes, we celebrate “Christmas” in both the US and in Austria; but I think they are baffled by the Elf on the Shelf and I know that I find the Krampus bizarre and terrifying.

Most cultures from temperate climates have some sort of celebration around the winter solstice, probably because this is an ecologically important time for us. Our food production is about to get much, much lower, so we’d better make sure we have sufficient quantities stored. (In an era of globalization and processed food that lasts for months, this is less important, of course.) But they aren’t the same celebration, and they generally aren’t exactly on the solstice.

What is a holiday, anyway? We all get off work, we visit our families, and we go through a series of ritualized actions with some sort of symbolic cultural meaning. Why do we do this?

First, why not work all year round? Wouldn’t that be more efficient? Well, no, because human beings are subject to exhaustion. We need to rest at least sometimes.

Well, why not simply have each person rest whenever they need to? Well, how do we know they need to? Do we just take their word for it? People might exaggerate their need for rest in order to shirk their duties and free-ride on the work of others.

It would help if we could have pre-scheduled rest times, to remove individual discretion.

Should we have these at the same time for everyone, or at different times for each person?

Well, from the perspective of efficiency, different times for each person would probably make the most sense. We could trade off work in shifts that way, and ensure production keeps moving. So why don’t we do that?
Well, now we get to the game theory part. Do you want to be the only one who gets today off? Or do you want other people to get today off as well?

You probably want other people to be off work today as well, at least your family and friends so that you can spend time with them. In fact, this is probably more important to you than having any particular day off.

We can write this as a normal-form game. Suppose we have four days to choose from, 1 through 4, and two people, who can each decide which day to take off, or they can not take a day off at all. They each get a payoff of 1 if they take the same day off, 0 if they take different days off, and -1 if they don’t take a day off at all. This is our resulting payoff matrix:

1 2 3 4 None
1 1/1 0/0 0/0 0/0 0/-1
2 0/0 1/1 0/0 0/0 0/-1
3 0/0 0/0 1/1 0/0 0/-1
4 0/0 0/0 0/0 1/1 0/-1
None -1/0 -1/0 -1/0 -1/0 -1/-1

 

It’s pretty obvious that each person will take some day off. But which day? How do they decide that?
This is what we call a coordination game; there are many possible equilibria to choose from, and the payoffs are highest if people can somehow coordinate their behavior.

If they can actually coordinate directly, it’s simple; one person should just suggest a day, and since the other one is indifferent, they have no reason not to agree to that day. From that point forward, they have coordinated on a equilibrium (a Nash equilibrium, in point of fact).

But suppose they can’t talk to each other, or suppose there aren’t two people to coordinate but dozens, or hundreds—or even thousands, once you include all the interlocking social networks. How could they find a way to coordinate on the same day?

They need something more intuitive, some “obvious” choice that they can call upon that they hope everyone else will as well. Even if they can’t communicate, as long as they can observe whether their coordination has succeeded or failed they can try to set these “obvious” choices by successive trial and error.

The result is what we call a Schelling point; players converge on this equilibrium not because there’s actually anything better about it, but because it seems obvious and they expect everyone else to think it will also seem obvious.

This is what I think is happening with holidays. Yes, we make up stories to justify them, or sometimes even have genuine reasons for them (Independence Day actually makes sense being on July 4, for instance), but the ultimate reason why we have a holiday on one day rather than other is that we had to have it some time, and this was a way of breaking the deadlock and finally setting a date.

In fact, weekends are probably a more optimal solution to this coordination problem than holidays, because human beings need rest on a fairly regular basis, not just every few months. Holiday seasons now serve more as an opportunity to have long vacations that allow travel, rather than as a rest between work days. But even those we had to originally justify as a matter of religion: Jews would not work on Saturday, Christians would not work on Sunday, so together we will not work on Saturday or Sunday. The logic here is hardly impeccable (why not make it religion-specific, for example?), but it was enough to give us a Schelling point.

This makes me wonder about what it would take to create a new holiday. How could we actually get people to celebrate Darwin Day or Sagan Day on a large scale, for example? Darwin and Sagan are both a lot more worth celebrating than most of the people who get holidays—Columbus especially leaps to mind. But even among those of us who really love Darwin and Sagan, these are sort of half-hearted celebrations that never attain the same status as Easter, much less Thanksgiving or Christmas.

I’d also like to secularize—or at least ecumenicalize—the winter solstice celebration. Christianity shouldn’t have a monopoly on what is really something like a human universal, or at least a “humans who live in temperate climates” universal. It really isn’t Christmas anyway; most of what we do is celebrating Yule, compounded by a modern expression in mass consumption that is thoroughly borne of modern capitalism. We have no reason to think Jesus was actually born in December, much less on the 25th. But that’s around the time when lots of other celebrations were going on anyway, and it’s much easier to convince people that they should change the name of their holiday than that they should stop celebrating it and start celebrating something else—I think precisely because that still preserves the Schelling point.

Creating holidays has obviously been done before—indeed it is literally the only way holidays ever come into existence. But part of their structure seems to be that the more transparent the reasons for choosing that date and those rituals, the more empty and insincere the holiday seems. Once you admit that this is an arbitrary choice meant to converge an equilibrium, it stops seeming like a good choice anymore.

Now, if we could find dates and rituals that really had good reasons behind them, we could probably escape that; but I’m not entirely sure we can. We can use Darwin’s birthday—but why not the first edition publication of On the Origin of Species? And Darwin himself is really that important, but why Sagan Day and not Einstein Day or Niels Bohr Day… and so on? The winter solstice itself is a very powerful choice; its deep astronomical and ecological significance might actually make it a strong enough attractor to defeat all contenders. But what do we do on the winter solstice celebration? What rituals best capture the feelings we are trying to express, and how do we defend those rituals against criticism and competition?

In the long run, I think what usually happens is that people just sort of start doing something, and eventually enough people are doing it that it becomes a tradition. Maybe it always feels awkward and insincere at first. Maybe you have to be prepared for it to change into something radically different as the decades roll on.

This year the winter solstice is on December 21st. I think I’ll be lighting a candle and gazing into the night sky, reflecting on our place in the universe. Unless you’re reading this on Patreon, by the time this goes live, you’ll have missed it; but you can try later, or maybe next year.

In fifty years all the cool kids will be doing it, I’m sure.

Happy Capybara Day! Or the power of culture

JDN 2457131 EDT 14:33.

Did you celebrate Capybara Day yesterday? You didn’t? Why not? We weren’t able to find any actual capybaras this year, but maybe next year we’ll be able to plan better and find a capybara at a zoo; unfortunately the nearest zoo with a capybara appears to be in Maryland. But where would we be without a capybara to consult annually on the stock market?

Right now you are probably rather confused, perhaps wondering if I’ve gone completely insane. This is because Capybara Day is a holiday of my own invention, one which only a handful of people have even heard about.

But if you think we’d never have a holiday so bizarre, think again: For all I did was make some slight modifications to Groundhog Day. Instead of consulting a groundhog about the weather every February 2, I proposed that we consult a capybara about the stock market every April 17. And if you think you have some reason why groundhogs are better at predicting the weather (perhaps because they at least have some vague notion of what weather is) than capybaras are at predicting the stock market (since they have no concept of money or numbers), think about this: Capybara Day could produce extremely accurate predictions, provided only that people actually believed it. The prophecy of rising or falling stock prices could very easily become self-fulfilling. If it were a cultural habit of ours to consult capybaras about the stock market, capybaras would become good predictors of the stock market.

That might seem a bit far-fetched, but think about this: Why is there a January Effect? (To be fair, some researchers argue that there isn’t, and the apparent correlation between higher stock prices and the month of January is simply an illusion, perhaps the result of data overfitting.)

But I think it probably is real, and moreover has some very obvious reasons behind it. In this I’m in agreement with Richard Thaler, a founder of cognitive economics who wrote about such anomalies in the 1980s. December is a time when two very culturally-important events occur: The end of the year, during which many contracts end, profits are assessed, and tax liabilities are determined; and Christmas, the greatest surge of consumer spending and consumer debt.

The first effect means that corporations are very likely to liquidate assets—particularly assets that are running at a loss—in order to minimize their tax liabilities for the year, which will drive down prices. The second effect means that consumers are in search of financing for extravagant gift purchases, and those who don’t run up credit cards may instead sell off stocks. This is if anything a more rational way of dealing with the credit constraint, since interest rates on credit cards are typically far in excess of stock returns. But this surge of selling due to credit constraints further depresses prices.

In January, things return to normal; assets are repurchased, debt is repaid. This brings prices back up to where they were, which results in a higher than normal return for January.

Neoclassical economists are loath to admit that such a seasonal effect could exist, because it violates their concept of how markets work—and to be fair, the January Effect is actually weak enough to be somewhat ambiguous. But actually it doesn’t take much deviation from neoclassical models to explain the effect: Tax policies and credit constraints are basically enough to do it, so you don’t even need to go that far into understanding human behavior. It’s perfectly rational to behave this way given the distortions that are created by taxes and credit limits, and the arbitrage opportunity is one that you can only take advantage of if you have large amounts of credit and aren’t worried about minimizing your tax liabilities. It’s important to remember just how strong the assumptions of models like CAPM truly are; in addition to the usual infinite identical psychopaths, CAPM assumes there are no taxes, no transaction costs, and unlimited access to credit. I’d say it’s amazing that it works at all, but actually, it doesn’t—check out this graph of risk versus return and tell me if you think CAPM is actually giving us any information at all about how stock markets behave. It frankly looks like you could have drawn a random line through a scatter plot and gotten just as good a fit. Knowing how strong its assumptions are, we would not expect CAPM to work—and sure enough, it doesn’t.

Of course, that leaves the question of why our tax policy would be structured in this way—why make the year end on December 31 instead of some other date? And for that, you need to go back through hundreds of years of history, the Gregorian calendar, which in turn was influenced by Christianity, and before that the Julian calendar—in other words, culture.

Culture is one of the most powerful forces that influences human behavior—and also one of the strangest and least-understood. Economic theory is basically silent on the matter of culture. Typically it is ignored entirely, assumed to be irrelevant against the economic incentives that are the true drivers of human action. (There’s a peculiar emotion many neoclassical economists express that I can best describe as self-righteous cynicism, the attitude that we alone—i.e., economists—understand that human beings are not the noble and altruistic creatures many imagine us to be, nor beings of art and culture, but simply cold, calculating machines whose true motives are reducible to profit incentives—and all who think otherwise are being foolish and naïve; true enlightenment is understanding that human beings are infinite identical psychopaths. This is the attitude epitomized by the economist who once sent me an email with “altruism” written in scare quotes.)

Occasionally culture will be invoked as an external (in jargon, exogenous) force, to explain some aspect of human behavior that is otherwise so totally irrational that even invoking nonsensical preferences won’t make it go away. When a suicide bomber blows himself up in a crowd of people, it’s really pretty hard to explain that in terms of rational profit incentives—though I have seen it tried. (It could be self-interest at a larger scale, like families or nations—but then, isn’t that just the tribal paradigm I’ve been arguing for all along?)

But culture doesn’t just motivate us to do extreme or wildly irrational things. It motivates us all the time, often in quite beneficial ways; we wait in line, hold doors for people walking behind us, tip waiters who serve us, and vote in elections, not because anyone pressures us directly to do so (unlike say Australia we do not have compulsory voting) but because it’s what we feel we ought to do. There is a sense of altruism—and altruism provides the ultimate justification for why it is right to do these things—but the primary motivator in most cases is culture—that’s what people do, and are expected to do, around here.

Indeed, even when there is a direct incentive against behaving a certain way—like criminal penalties against theft—the probability of actually suffering a direct penalty is generally so low that it really can’t be our primary motivation. Instead, the reason we don’t cheat and steal is that we think we shouldn’t, and a major part of why we think we shouldn’t is that we have cultural norms against it.

We can actually observe differences in cultural norms across countries in the laboratory. In this 2008 study by Massimo Castro (PDF) comparing British and Italian people playing an economic game called the public goods game in which you can pay a cost yourself to benefit the group as a whole, it was found not only that people were less willing to benefit groups of foreigners than groups of compatriots, British people were overall more generous than Italian people. This 2010 study by Gachter et. al. (actually Joshua Greene talked about it last week) compared how people play the game in various cities, they found three basic patterns: In Western European and American cities such as Zurich, Copenhagen and Boston, cooperation started out high and remained high throughout; people were just cooperative in general. In Asian cities such as Chengdu and Seoul, cooperation started out low, but if people were punished for not cooperating, cooperation would improve over time, eventually reaching about the same place as in the highly cooperative cities. And in Mediterranean cities such as Istanbul, Athens, and Riyadh, cooperation started low and stayed low—even when people could be punished for not cooperating, nobody actually punished them. (These patterns are broadly consistent with the World Bank corruption ratings of these regions, by the way; Western Europe shows very low corruption, while Asia and the Mediterranean show high corruption. Of course this isn’t all that’s going on—and Asia isn’t much less corrupt than the Middle East, while this experiment might make you think so.)

Interestingly, these cultural patterns showed Melbourne as behaving more like an Asian city than a Western European one—perhaps being in the Pacific has worn off on Australia more than they realize.

This is very preliminary, cutting-edge research I’m talking about, so be careful about drawing too many conclusions. But in general we’ve begun to find some fairly clear cultural differences in economic behavior across different societies. While this would not be at all surprising to a sociologist or anthropologist, it’s the sort of thing that economists have insisted for years is impossible.

This is the frontier of cognitive economics, in my opinion. We know that culture is a very powerful motivator of our behavior, and it is time for us to understand how it works—and then, how it can be changed. We know that culture can be changed—cultural norms do change over time, sometimes remarkably rapidly; but we have only a faint notion of how or why they change. Changing culture has the power to do things that simply changing policy cannot, however; policy requires enforcement, and when the enforcement is removed the behavior will often disappear. But if a cultural norm can be imparted, it could sustain itself for a thousand years without any government action at all.