Archives for



Why the CFPB’s Qualified Mortgage Rule Misses the Mark

This post grows out of two working papers (downloadable here and here) I’ve written with Joshua Mitts, a former student of mine who is now working at Sullivan & Cromwell.

Why the CFPB’s Qualified Mortgage Rule Misses the Mark
Ian Ayres & Joshua Mitts

Last Friday, the Consumer Financial Protection Bureau’s “qualified mortgage” rule went into effect.  This rule is designed to put an end to the risky lending practices that led to the financial crisis.  But a simpler rule could better assure borrowers’ ability to repay and simultaneously create greater repayment flexibility.

The purpose of the QM rule is to help assure that borrowers have sufficient monthly income to make their required mortgage payments, lessening the risk of large-scale defaults like those experienced after 2008. The rule creates a lender safe harbor for qualifying mortgages.  Lenders can still make non-qualifying loans, but must instead meet more onerous multi-factored underwriting standards. Qualifying loans reduce the risk that lenders will be held liable under Dodd-Frank for failing to make a “reasonable, good faith determination of a consumer’s ability to repay.”  Read More »



An Economist’s Tipping Strategy

I have a friend with whom I regularly eat out at restaurants and from time to time we disagree on how much to tip.  Traditionally, I have been a hard-wired 20% tipper.  But since studying the racial effects of taxi-cab tipping, I’ve been more attracted to tipping less – sometimes closer to 15%.  This has at times created disagreements between my friend and I on how much to tip.  He always wants to tip 20%.  But when we’ve disagreed, we’ve always resolved the issue by tipping the larger amount.  We always split the bill—including the tip—50/50. 

But a few weeks ago, my friend and I were eating dinner and experienced exceptionally bad service.  The server twice put in the wrong order and charged us for items that we had not ordered.  I suggested that we reduce our tip to 10% (I note that while I’m high maintenance in many aspect of my life, I’m not persnickety about restaurant service and the last time I reduced my tip to 10% was probably more than 1000 restaurant meals ago).  My friend agreed that the server had made these errors (and indeed, the sever himself acknowledged that the service was subpar),  Nevertheless, my friend still wanted us to leave a 20% tip.  Read More »



And the Financial Institution Most Likely to Be Late Responding to a Consumer Complaint Is . . .

One day last spring, I saw in a Google alert that the Consumer Financial Protection Bureau (CFPB) had announced that it was for the first time making public a consumer complaint database.  At the time, I was teaching a course in Empirical Law & Economics at Yale and decided to call an audible.  I came into class that day and projected the raw data (which you can see for yourself by clicking here) and asked the class how we might make use of the information.

With incredible dispatch, Jeff Lingwall and Sonia Steinway merged the complaint data with other datasets and together we started to put together an initial draft analyzing the complaint information.  When the CFPB made the database public, they actively encouraged “the public, including consumers, analysts, developers, data scientists, civic hackers, and companies that serve consumers, to analyze, augment, and build on the public database to develop ways for consumers to access the complaint data or mash it up with other public data sets.”  This paper is our attempt to respond to the Bureau’s call to action. Read More »



Is the “Bing It On” Challenge Lightweight?

Microsoft has now responded, with a blog post and a letter, to my post about an experimental study that I coauthored with Yale Law School students Emad Atiq, Sheng Li, Michelle Lu, Christine Tsang, and Tom Maher.  Our paper calls into question the validity of claims that people prefer Bing nearly two to one.

In response to several commenters: I do not work for and do not have any consulting relationship with Google.

Microsoft claims that our study is flawed because it relied on their own blind comparison website.  They now say that “Bing It On” is meant to be a “lightweight way to challenge people’s assumptions about which search engine actually provides the best results.”  To be sure, companies often use fantastical or humorous scenarios for free advertising. However, Microsoft’s television commercials present the site as a credible way that people can learn whether they prefer Google or Bing.  These commercials show people who discover that they really prefer Bing to Google.  The challenge site that they created is either sufficient to provide insights into consumer preferences or it isn’t.  The advertisements give the impression that the challenge site is a useful tool.  Microsoft can’t have it both ways.  If it is a sufficient tool to “challenge people’s assumptions,” then it is sufficient to provide some evidence about whether the assumed preference for Google is accurate.  Read More »



Should I Send $550 Back to Ford?

My family liked our new Ford C-Max hybrid so much that we bought a second one just a few months later.  But in between the two purchases, I learned something that made me think that in buying the second car I might also be buying a cause of action. 

Before the second purchase, I learned that Richard Pitkin of Roseville, Calif., had brought suit against Ford for overstating the C-Max’s fuel efficiency.  It apparently is too good to be true that a C-Max can achieve 47 mpg both in the city and on the highway.  

Sure enough, two weeks ago, two $550 checks arrived in the mail because Ford had dropped its official mileage estimate from 47mpg to 43mpg.  Ford calls the money a “goodwill payment.”  Read More »



Challenging the Bing-It-On Challenge

Did you find this blog post through Bing?  Probably not—67% of worldwide searches go through Google, 18% through Bing.  But Microsoft has advertised in a substantial TV campaign that — in the cyber analog to blind taste testing — people prefer Bing “nearly 2:1.”  A year ago, when I first saw these ads,  the 2-1 claim seemed implausible.  I would have thought the search results of these competitors would be largely identical, and that it would be hard for people to distinguish between the two sets of results, much less prefer one kind 2:1.

When I looked into the claim a bit more, I was slightly annoyed to learn that the “nearly 2:1” claim is based on a study of just 1,000 participants.  To be sure, I’ve often published studies with similarly small datasets, but it’s a little cheeky for Microsoft to base what might be a multi-million dollar advertising campaign on what I’m guessing is a low six-figure study. 

To make matters worse, Microsoft has refused to release the results of its comparison website, Bingiton.com.  More than 5 million people have taken the Bing-It-On challenge – which is the cyber analog to a blind taste test.  You enter in a search term and the Bing It On site return two panels with de-identified Bing and Google results (randomly placed on the right or left side of the screen).  You tell the site which side’s results you prefer and after 5 searches the site reveals whether you prefer Bing or Google. (See Below)

Microsoft’s soft ads encourage users to join the millions of people who have taken the challenge, but it will not reveal whether the results of the millions are consistent with the results of the 1,000. Read More »



When Should You Use a Condom?

Recently I spoke about condom use at TedxYale. It’s based on the article “A Separate Crime of Reckless Sex” I co-authored with Katharine K. Baker. Read More »



A Conservative Wishtory of the United States

My friend Jack Hitt has a funny piece in The New Yorker listing misstatements about American history by conservative politicians, beginning with these doozies: 

1500s: The American Revolutionary War begins: “The reason we fought the revolution in the sixteenth century was to get away from that kind of onerous crown.”—Rick Perry

1607: First welfare state collapses: “Jamestown colony, when it was first founded as a socialist venture, dang near failed with everybody dead and dying in the snow.”—Dick Armey

1619-1808: Africans set sail for America in search of freedom: “Other than Native Americans, who were here, all of us have the same story.”—Michele Bachmann

1775: Paul Revere “warned the British that they weren’t going to be taking away our arms, by ringing those bells and making sure as he was riding his horse through town to send those warning shots and bells that we were going to be secure and we were going to be free.”—Sarah Palin

1775: New Hampshire starts the American Revolution: “What I love about New Hampshire… You’re the state where the shot was heard around the world.”—Michele Bachmann

[Ed. note: One of these claims seems much closer to being true: see page 1336-38 of Property in Land].

Freakonomics Nation: can we produce an analogous list of historical misstatements by liberal pols? We’ll give out some Freakonomics swag to a clear winner or two.