Female Econ Majors: It's Not About Grade Grubbing

Claudia Goldin's analysis of male and female undergraduate economics majors is getting a lot of press. Goldin writes:

"Women who thought they would major in economics often become discouraged when they don’t get sufficiently high grades in introductory courses. Men are far less likely to be discouraged by similar grades. In other words, the gradient of major choice with respect to grades in the “gateway” courses is steeper for women than for men."

Amanda Hess at Slate summarizes the article, "Women May Be Underrepresented in STEM Because They're Too Concerned With Grades." Similarly, Catherine Rampell writes that "Women should embrace the B’s in college to make more later." These articles, I think, miss a bit of nuance. 

I don't think the real issue is that young women are just more "grade-grubby" than young men-- which is actually a pretty harmful stereotype. Grades serve as a signal, both to others and to the student. As Goldin notes, male students disproportionately choose to study economics before entering college. Economics professors are also disproportionately males. Economics grad students, who will be the undergrads' teaching assistants, are disproportionately males. A female undergrad may wonder if she really "belongs" among economists. So if she gets a B in Econ 101, she may put more weight on that than a male student would. If she already had doubts about whether she belonged in the major, she's going to put more weight on the signal from her grade. 

I don't think Goldin meant to imply that college women are just "in it for the grades" more than college men. Their decisions on major are more sensitive to grades, but for reasons other than perfectionism. This is why Goldin emphasizes Janet Yellen's nomination to head the Federal Reserve as an important milestone that could draw more women into the field, by showing them that they belong. She writes, "Yellen’s ascension at the Fed will show more women that economics isn’t an exclusively male field."

Suzanne Scotchmer (1950-2013)

Suzanne Scotchmer, an economics and law professor at Berkeley, recently passed away. From Brad DeLong, here is the note sent out to the Berkeley Law community. An excerpt:

"Suzanne was particularly inspirational as one of very few women writing in the field of theoretical economics. Friends, colleagues and students across the campus and across her disciplines shared a deep appreciation for Suzanne's tirelessly creative mind, her enthusiasm for intellectual engagement at the highest level, and her preternatural ability to see to the heart of a complex problem immediately and describe it with clarity and insight."

The Toulouse School of Economics, where Scotchmer sat on the Scientific Council since 2007, also wrote a very nice tribute.

Joshua Gans leaves a summary of Scotchmer's work in innovation economics. Gans' article also includes some moving recollections of Scotchmer from her former student Neil Gandal. Another of Scotchmer's former students, Diane Coyle, was a graduate student at Harvard in the early 1980s when Scotchmer was there as an assistant professor. Coyle writes, "Then, as now, economics was very male-dominated and it was unspeakably encouraging to have a female role model who was highly supportive of students – and a normal human being too, warm, funny, with outside interests."

In addition to her work in innovation economics and patent law, Scotchmer made numerous contributions in mathematical economics, game theory, and public finance. In one interesting paper, "On the Evolution of Attitudes towards Risk in Winner-Take-All Games" (1999) with Eddie Dekel, she studies endogenous preference formation:

"Economists typically take preferences as given. This sets them apart from other social scientists, such as psychologists, who often try to explain preferences. In this paper we explore an evolutionary model where preferences, in particular attitudes toward risk, are endogenously determined."

In another paper, "The short-run and long-run benefits of environmental improvement," she suggests a technique for calculating the social value of nonmarginal improvements to social goods such as environmental improvement. Another interesting paper is "Risk taking and gender in hierarchies" (2008), which sheds some light on the controversy about gender differentials labor market outcomes. Suzanne Scotchmer left a tremendous intellectual and personal legacy and will be greatly missed.

Diversity in Economics

Bank of England Governor Mark Carney, in an interview earlier this month, pointed out that there are no women on the Monetary Policy Committee (MPC). There also happen to be no female ministers in the Treasury. Carney suggested,

“What we have to do at the Bank of England is grow top female economists all the way through the ranks. That adds to the diversity in macroeconomic thinking, it adds to qualified candidates for the MPC including qualified candidates to be a future governor.” 

This seems like a reasonable message, but Philip Booth at the Institute of Economic Affairs wonders "why Osborne and Cameron are not hauling Carney in for a dressing down." He makes a deeply confusing comparison between Carney and Larry Summers, and then adds:

"It is worth noting that I am quite comfortable with the idea that the sexes are complementary and that, in any business, social or family situation, they may (on average) bring different characteristics to the table. However, if Carney holds this position, there are some interesting conclusions because, if it is accepted that women (on average) might exhibit certain skills in greater preponderance than men, then the opposite may have to be accepted too. But, let’s move on…"

Before moving on, though, what are these "interesting" conclusions? If men do exhibit certain skills (like passive-aggressive ellipses usage) in greater preponderance than women, do we really know that each of these man-skills are beneficial for monetary policymaking? 

Booth writes, "Surely, there can only be two reasons [for Carney's remarks] – that Carney believes that there are intrinsic differences between the ways in which men and women reason and assess evidence or that their social experiences are different from those of men who have similar career patterns."

Really, can these be the only two reasons? Isn't it also plausible that Carney thinks the lack of women on the MPC is a sign that some qualified candidates are, for various and perhaps subtle reasons, not making it into or up the ranks, and that excluding part of a talent pool is a generally bad idea? It is not just that the social experiences are different for men and women who have similar career patterns-- different social experiences also lead men and women to having different career patterns. Does Booth himself think that it is just a big coincidence that there are zero women out of nine on the committee? Surely his manly math skills are good enough that he doesn't chalk that up to random chance. So even though Booth is chiding Carney for implying that men and women are intrinsically different, he seems to be working off of some "interesting" assumptions himself.

Next, Booth manages to list eight female economists, but doesn't personally think that any of them would add diversity to the MPC. He thinks Gillian Tett might add diversity to the group, "but it is the fact that she is an anthropologist that ensures that her views add diversity, not the fact that she is a woman." (In fact, a survey of 400 economists documents notable differences of opinion between the genders.) Then he gets to the most telling paragraph:

"It does not follow that adding those women who choose to become economists to a group of male economists adds to the diversity of thinking of the group of economists. It may be the case...that those women who ‘add diversity’ in intellectual life do not choose to become economists. This would mean that women contribute to diversity in society but not necessarily to diversity amongst economists."

He is inadvertently proving Carney's point, just as he is trying to tear it down. If he thinks that intellectually diverse women do not choose to become economists, he needs to ask himself why that is. It might help to read Neil Irwin's article about what happens when a certain female economist does "contribute to diversity":

Yellen has a perfectly solid relationship with Bernanke, as best as I can tell, but she’s more of her own thinker within the institution. She has spent her time as vice chairwoman urging Bernanke and her other fellow policymakers to shift policy to try to do more to combat unemployment, and thinking through ways to do just that...And people dealing with her within the Fed have viewed her not so much as Bernanke’s emissary but as her own intellectual force within the organization.

Felix Salmon summarizes Irwin's reasons why the White House is uneasy about Yellen:

"The first is the 'team player' attack: Yellen is an independent thinker more than she is a loyal deputy to Bernanke... She never became part of the boys’ club which was making enormous decisions on a daily basis in the fall of 2008... The 'team player' argument, then, is basically the 'one of us' argument, thinly disguised. Which is the first place that the sexism comes in...
This second reason essentially takes the 'team player' argument past its breaking point, to the point at which the Obama team is basically saying 'Yellen needs to share our biggest weaknesses.'"

I hope this post was not too much of a rant. I just wanted to make the point that Governor Carney's remarks are perfectly acceptable and in fact welcome.

Services and the Slow Economic Recovery

The Berkeley Economic History Laboratory (BEHL) launched a series of working papers earlier this year. The BEHL website notes that "These papers are preliminary works, and their circulation is intended to stimulate discussion and comment." To further that goal, as I mentioned in an earlier post, I'll be spotlighting these working papers on the blog. Three new papers are out; the one I'd like to write about today is called "Goods, Services, and the Pace of Economic Recovery," by Martha Olney and Aaron Pacitti.

The authors cite Lazear and Spletzer's argument that “the problem [with the U.S. economy now] is not that the labor market is underperforming; it is that the recovery has been very slow” (2012 pg. 35). Olney and Pacitti offer an explanation for the slow recovery based on a hypothesis that recoveries from downturns should be slower when services are a larger share of the economy. This comes from the simple idea that goods, and not services, can be produced ahead of an anticipated increase in demand, because only goods can be inventoried. Here is the abstract:

Do service-based economies experience slower economic recoveries than goods-based economies? We argue they do. An economy recovers from a downturn when businesses increase production. Both goods and services can be produced in response to actual demand. But only goods—and not services—can be produced in response to anticipated increases in demand, allowing optimistic forward-looking producers to inventory goods until anticipated buyers appear. Services can’t be inventoried. The more services an economy produces relative to goods, the more production is dependent upon only actual increases in demand, and the slower the recovery. We exploit variation across time and states in the share of services in output. Controlling for the depth of the downturn, the higher is the share of services, the longer is the recovery. Extending our results to the current downturn, given the depth of the downturn, the rise in services alone will make the post-2009 recovery last about 1 year longer than it would have a half-century ago.

The authors use national data for the 10 recessions in the United States from 1948 to 2001, and a panel of state data for 50 states and 5 recessions from 1969 to 2001. They use the depth of each recession as a control variable. Getting the state-level data on service sector shares and business cycles was not an easy feat, and is an important contribution of this research. They are able to document interesting, and changing, variation in the share of services by state. My home state, Kentucky, had the second lowest share of services (39%) in the nation in 1967-1969; the share has risen to 50%. Now oil-rich states Wyoming, Alaska, and Louisiana have the lowest share of services. (Take a look at figure 6 and very cool figure 7 in the paper.)

I am left wondering about the other side of the business cycle. The story in this paper is that businesses can anticipate an increase in demand and build up an inventory. What happens when a decrease in demand is anticipated? Wouldn't goods-producing businesses decrease production and start using up their inventory? This would lengthen the downturn part of the cycle by making it start sooner. If this is the case, service-oriented economies would have longer recoveries and shorter downturns. I don't know if the effect would be asymmetrical. For the state-level data, the authors measure recovery as the length of time from one peak to the next peak of the business cycle. This actually captures the length of the downturn plus recovery. I think it would be preferable to use trough-to-peak length instead of peak-to-peak length if the data allowed it, since share of services could plausibly effect peak-to-trough length and trough-to-peak length in different ways.


Overall, I think this working paper documents an intriguing empirical fact. Has anyone out there read (or written) a macro model with two firms with heterogeneous inventory costs? Please comment or send it my way if you have.Setting the inventory costs of one of the firms to infinity could represent the service sector. I think it would be useful to have a model to go along with this paper-- both to help think about my point in the last paragraph and because I am having trouble thinking about GE implications for relative prices and wages in the goods and services sectors and what role that could play. Any other comments or suggestions on the paper are of course welcome, and I will pass them along to the authors.

How I Wish this Book Existed

There already exist many books about the financial crisis and Great Recession, but not the one I am most dying to read. Imagine this: a book about the crisis and recession written each chapter written by a different  top female macro or financial economist. Here is my dream chapter line-up.

Chapter 1: Signs of Impending Crisis, Janet Yellen

Chapter 2: International Integration, Contagion, and Domestic Vulnerability, Graciela Kaminsky

Chapter 3: Bank Competition and Systemic Stability, Asli Demirguc-Kunt

Chapter 4: Minding Our Money: Financial Literacy and the Crisis, Olivia Mitchell

Chapter 5: Unconventional Monetary Policy in Exceptional Times, Lucrezia Reichlin

Chapter 6: Quantitative Easing and Portfolio Choice, Annette Vissing-Jorgensen

Chapter 7: Evaluating TARP, Loretta Mester

Chapter 8: Public and Private Spending, Valerie Ramey

Chapter 9: Inventories and the Delayed Recovery, Martha Olney

Chapter 10: Beyond Unemployment Rates: The Great Recession and Material Hardship, Janet Currie

Afterword: Policy and the Power of Ideas, Christina Romer

What do you think? Would other people be excited to read this too? What chapters and authors am I missing?

Loving the Long Shot

The latest recipient of the 2012 Carolyn Shaw Bell Award is Professor Catherine Eckel of Texas A&M. This award is given annually by the American Economic Association Committee on the Status of Women in the Economics Profession (CSWEP) to recognize an individual who has furthered the status of women in economics. Eckel is an experimental economist who has studied the role of a wide range of social and psychological factors in economic exchange-- attitudes toward risk, gender differences, beauty, trust, corruption, and charitable giving, to name a few.

One of her recent papers is particularly interesting from a macroeconomics and finance perspective: "Loving the Long Shot: Risk Taking with Skewed Lotteries" (2012, with coauthor Philip Grossman). The study addresses a widely noted conundrum, that risk-averse individuals voluntarily play the lottery. The expected payoff of a lottery ticket is less than the price of the ticket. Lotteries are positively skewed, since the vast majority of tickets have low payoff but there is a very small probability of a very large prize. Eckel and Grossman use a laboratory protocol to elicit the skewness preferences of 93 test subjects. They can isolate the effect of positive skewness on subjects' willingness to take risky gambles. If you haven't read an experimental economics paper before, I highly recommend reading Section 3 (pages 7-9) of their paper for an idea of how experimental design works in this field. From the conclusions:

We find that, controlling for risk preferences, individuals are overwhelmingly skewness-seeking in their lottery choices; lotteries with skewed payoffs are more attractive than lotteries with the same expected earnings and risk (variance) but lacking skewness.  Given equal expected earnings and risk, 84.9 percent of our subjects select a lottery with skewness = 1 over a lottery with skewness = 0 and 88.2 percent also prefer a lottery with skewness = 1 or 2 to a lottery with skewness = 0... More importantly, we find that increased skewness in the payoff structure entices a sizeable share of our sample (37.6 percent) to take on greater risk in their choice of lotteries. The change in lottery choices resulting from the skewing of payoffs increases the risk subjects face more than three times as much as it increases their expected payoffs.

The first thing that came to mind when I read this paper was the remarkable lottery loan governemnt fundraising scheme in England in the late 17th and early 18th century, shortly before the South Sea Bubble. An unprecedentedly large lottery was called the "Two Million Adventure." Tickets cost £100 and guaranteed a 6% yield annuity. In addition, tickets won prizes. The maximum prize was £20,000 and every ticket won a prize of at least £10. Prizes were paid in the form of a fixed sum annuity over a period of years, meaning the government held the prize money as a loan until it was paid out to the winners. Investors went crazy for tickets, and all tickets were sold within 9 days. Lottery payoffs were positively skewed. Including the prizes, the great mass of investors earned around a 6.5% yield, but a few lucky winners won much larger amounts, including one grand prize winner. Overall, the average yield was 8%, but the vast majority earned less and a few earned much more. Standard risk preferences suggest that investors would have preferred to buy annuities that simply guaranteed 8% yield, but Eckel's findings explain why investors so loved the lottery tickets. Richard Dale's book "The First Crash: Lessons from the South Sea Bubble" explains how the lottery loans were related to the notorious South Sea Bubble.

Lottery loans were hugely popular in other countries too. The New York Times in 1889 noted that "The new lottery loan has caused a perfect mania among the public of St. Petersburg... At least one hundred times the amount of the 172,000,000 rubles required have already been offered."

Today in the U.S., 42 states and the District of Colombia have lotteries, but positively-skewed payoffs in finance are much more pervasive than explicit lotteries. Most data on stock prices or asset returns has positive or negative skew (unlike normally-distributed data which has zero skew.) For large banks, an implicit or explicit bailout guarantee can put a lower bound on the payoff of risky investments without imposing an upper bound, a widely recognized source of moral hazard which has frequently been blamed for the financial crisis. Prevalent and strong skewness-seeking preferences could make the moral hazard problem stronger than standard models would predict. 

I am glad that CSWEP recognized Eckel's contributions to women in economics and hope the wider economic community will spend some time reviewing and discussing her very interesting research.