Monday, November 10, 2008

all possible evidence does not support your theory

Greed has been in the news recently because it apparently explains the current financial crisis. I’m not sure how this really deepens our understanding of what’s going on but it does remind me of a post I’ve been meaning to write for a while now about the relationship between greed and price rises.

A snippet of history I’m sure Trevor will enjoy is that the US imprisoned Japanese people during World War II. This was not very nice but the reason for it was clear enough, maybe they were conspiring to launch an attack from within US borders. So there was the theory (Japanese conspiracy) and one fact influencing the probability of the theory being true is weather or not there had been any Japanese attacks.

Some people took the absence of such an attack as evidence in favor of the theory. Now it’s easy to imagine the plotters attempting to lull people into a false sense of security to make the attack all the more devastating when it happened, but this is not the same as lack of attacks being evidence for the conspiracy. If it’s just “attack” or “not attack” you can’t have both counting in favor of your hypothesis. If you did, every single piece of evidence increases the likelihood of your theory being correct, which is crazy. In fact treating lack of attacks as incriminating necessarily implies that an attack would lower the odds of your conspiracy theory, which would be a strange way of looking at things.

The point is that if you have a theory (greed) and an event that you think counts in favor of your theory (price increase), then a price decrease must necessarily lower the odds that your greed theory is right (increase the odds of altruism). Most people seem reluctant to take the low prices of Wal-Mart as evidence of Wal-Mart’s altruism which is perfectly sensible because big companies are always greedily attempting to maximize profits by whatever price they set.
So I’m not saying that companies are not greedy, just that increasing prices can only count as evidence for this if you count price decreases as evidence for altruism. If you don’t think this, price increases tell us nothing about current levels of evil.

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