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Archive for May, 2011

The Daughter Test and Why Steve Levitt is Angry About the Online Poker Crackdown

As an economist, Steven Levitt says he has an underdeveloped moral compass. In the past, the University of Chicago professor and Freakonomics co-author has tricked colleagues into drinking cheap wine and opined that drug dealers in Sao Paulo would do a better job keeping communities safe.
But his moral compass went spinning when the U.S. recently cracked down on the top three online poker companies, resulting in 11 indictments. The federal government accused PokerStars, Full Tilt Poker and Absolute Poker of running their operations illegally, including paying banks to secretly process transactions.
“I think it makes no sense at all,” Levitt says. “Most things that are made illegal, everyone agrees on: homicide, theft–there’s a general agreement. And then there are these other activities that fall into a gray area. I think poker is so obviously on one side of the gray area relative to legality that it just doesn’t make any sense to me.”
Levitt says he doesn’t usually get riled up over such issues, but then he realized why he got so angry: his daughter.


Deciding How to Decide: Taste-Matching Or Expert-Based?

This blog post is co-authored with Jacob Appel, co-author of my recent book, More Than Good Intentions.
Among the many questions David Gomberg and Justin Heimberg pose in their hilarious book Would You Rather is the following:

“Would you rather…
Become increasingly intelligent with the consumption of alcohol, but also become increasingly convinced you are Gloria Estefan
OR
Have a firm grasp of Roman numerals but look exactly like Weird Al Yankovic?”

Well, that’s a tough one. Seriously. It’s a classic problem of apples and oranges—or maybe, given the absurdity of the alternatives, a problem of apples and, say, cut-off jeans shorts—two things that are thoroughly incommensurable. Fortunately, those are not real choices.


Why Trademark Tarnishment Laws Are Dubious

We recently wrote about Disney’s attempt to trademark “Seal Team Six”–the name of the Navy SEAL unit that killed Osama bin Laden. Disney’s bid to make a buck off the SEALs didn’t go down very well – the public response was overwhelmingly negative. It also caught the attention of the Navy, which made clear that it had a better claim over the name. Last Thursday, Disney gave up.
But just as one bizarre trademark dispute recedes, another one springs up.
Last Wednesday, the New York Stock Exchange threatened to sue the widely-read liberal blog Talking Points Memo over TPM’s use of a file photograph of the NYSE trading floor. (Copy of letter here).


Experts Continue to Express Amazement at Declining Crime

It was like the 1990s all over again when the FBI released the latest crime statistics last week. Violent crime fell by five percent; property crime fell three percent. Those are the sorts of crime declines that were commonplace in the 1990s.
But what was really reminiscent of the 1990s was the way the media covered it. The New York Times is a perfect example. For starters, the set of criminologists who give quotes in the story are the exact same criminologists who were called upon by the Times each year in the 1990s to assess the latest numbers: James Alan Fox, Alfred Blumstein, and Franklin Zimring. (You may remember James Alan Fox as the portent of doom in the abortion and crime chapter of Freakonomics.)
And these experts are just as puzzled by the recent crime drop as they were 20 years ago. “Remarkable,” says James Alan Fox. “Striking,” says Blumstein.


The Value of a 70-Year-Old Software Engineer

I was chatting with a 70-year-old man who is an independent “software engineer”—a programmer. I asked him how he keeps up with all the young hot-shots who know the latest fancy programming languages. Simple, he said: There are many companies that are just converting very old systems, and the young programmers don’t know the older languages.
Being technically obsolete gives him an advantage. Economists believe that human capital and technology are complements (something I show by negative example when I can’t get my Powerpoint presentations to work on a projector!). But so long as companies don’t introduce new technologies, those workers with “obsolete” human capital will do OK. Indeed, this man charges higher than average fees, because there are so few other programmers left who can deal with the old technology!


A SuperFreakonomics Contest: Underappreciated Complements?

Iced tea and lemonade are hardly perfect complements — they can each be happily consumed individually — but more and more I see them being served together. I have always known this combo as an “Arnold Palmer”; increasingly, however, as in this ad at the New York chain drugstore Duane Reade, it is known simply as “half-iced tea, half-lemonade.”
I like an Arnold Palmer just fine, but to my taste the best combo drink of all time is a cranberry juice and Fresca. What? You’ve never tried it?! Thank me later.
This has gotten me thinking about other wonderful complements in life. Surely many of them are in the realm of food and drink. But there’s also driving a convertible in cold weather with the heat on, e.g.
What are some of your favorite — especially underappreciated — complements? Tell us in the comments section and we’ll take five of the best and vote for the favorite. Winner gets a free copy of new SuperFreakonomics paperback.


Bloomberg BusinessWeek on Economist John List, And How To Incentivize Potty Training

More well-deserved attention for University of Chicago economist John List, whose research is the star of Chapter 3 of SuperFreakonomics and also featured in the last segment of the Freakonomics movie.
Oliver Staley crafts a long piece that both describes some of List’s recent research endeavors and gives the reader a feel for his personality.
Like all economists, apparently, he has a story about potty training his kids:

List believes so strongly in incentives that he offers his own children lottery tickets to do extra math homework, he says. He promised a daughter a trip to Disney World in exchange for her becoming potty trained. The day he made the offer, she used the toilet and was trained, he says.


Heart + Mind? Or Just Heart? Experiments in Aid Effectiveness (And a Contest!)

When signing our book, More Than Good Intentions, Jacob Appel and I often sign “Heart + Mind = Good Giving.” Nobody argues with the premise that we should act with compassion, but be smart about it. Of course nobody would ever say they do not care about the effectiveness of the charity they support.
But in practice, does evidence about charitable effectiveness impact donations? Or does the presentation of dorky evidence turn off the emotions that cause us to donate in the first place?


The Numbers Game: Is College Worth The Cost?

According to a new report from the Pew Research Center, 57 percent of Americans say “the higher education system in the United States fails to provide students with good value for the money they and their families spend.”
Does that mean that college isn’t worth it? Not exactly. In fact, given the crappy economy, a college degree is more valuable than ever, a point that Levitt makes in a recent Freakonomics Radio podcast. The most telling statistic as to the value of college: the unemployment rate among college graduates is less than half (4.5%) that for people with only a high school diploma (9.7%) (See the BLS employment status table here.)


No Worries, Mate: Australia Is Happiest Industrialized Nation

Growing up in Australia, I always knew it was true. And now The Wall Street Journal confirms it:

No worries, mate: Australia may be the world’s happiest industrialized nation by one reckoning, even as it grapples with rising inflation, pricey housing and worries that it is developing a two-track economy.
The resource-rich nation ranked highly in areas such as overall satisfaction, health, leisure time and community networks, according to a new survey released Wednesday by the Organization for Economic Cooperation and Development of the 34 nations that make up its membership. The index found that 75% of Australians were satisfied with their lives, above the U.S. average of 70% and well above the OECD’s average of 59%, while 83% expect things to be even better in five years from now.

Strangely enough, a few years back Danny Blanchflower and Andrew Oswald—perhaps unsurprisingly, a pair of Brits—wrote a paper, “Happiness and the Human Development Index: The Paradox of Australia,” arguing that Australia was surprisingly unhappy. But there really never was a paradox. Instead, the authors were simply over-interpreting two datapoints.


Road Blocks: The Strange Things That Cause Traffic

The cause of a lot of the traffic congestion we battle everyday is pretty simple: too many people want to travel at the same time in the same direction to the same place, usually a job center. Since telework has been slow to replace the traditional workplace, it looks like this problem will be with us for a while.
For decades we have known about a way to deal with chronic congestion: levy tolls which vary depending on how crowded the road is. I’ve written about this here and here.
But pricing is not as well-suited for dealing with congestion related to unusual incidents, like breakdowns and wrecks. Even when these are relatively minor, incidents can start shock waves that cause serious amounts of delay as they ripple back through the traffic flow.


FREAK-est Links

MIT turns 150, women prefer sad men to happy ones, an interactive map of wages in cities across the U.S., and more.


If You Can't Beat Them, Join Them

I’m back to inviting readers to submit quotations whose origins they want me to try to trace, using my book, The Yale Book of Quotations, and my more recent researches.
Barry Ritholtz asked:

“I keep hearing variations of the following as Twain: ‘History may not repeat but it rhymes.’ But I have never been able to track that back to Twain anywhere.”


Parents Are Less Happy. So What?

Bryan Caplan’s new book, Selfish Reasons to Have More Kids, (which he blogged about for us here and here) has people talking about happiness and kids, again. Over at Cato Unbound, my better half Betsey Stevenson takes Bryan to task on some of his claims. It’s worth reading the full essay. Jeff Ely at Cheap Talk says you should take note of her views on the distinction between happiness and utility. Instead, I want to highlight an insight that comes from thinking through a formal framework:


The New GDP Data Is Bad. The Hidden Data Behind It Is Worse

This morning the Bureau of Economic Analysis (BEA) released its latest estimates of GDP. And there’s bad news, hidden in the details. Most analysts are focused on the fact that GDP growth in the first quarter of this year was unrevised, remaining at 1.8%. But they’re focused on the wrong number.
National accounting aficionados know that hidden beneath the headline number is an alternative estimate of GDP. This alternative is often called GDP(I), because it is based on income data, rather than spending data. And GDP(I) is actually a more reliable estimate. Unfortunately, this more accurate indicator tells us that GDP grew by only 1.2%. That’s bad news.


Did Lobbying Contribute to the Financial Crisis?

The answer is a firm yes, at least according to three IMF economists who studied the correlation between firms’ lobbying efforts, financial risk-taking, and default rates. Their findings (abstract here; full report here) show that:

[L]obbying was associated with more risk-taking during 2000-07 and with worse outcomes in 2008. In particular, lenders lobbying more intensively on issues related to mortgage lending and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing originations of mortgages. Moreover, delinquency rates in 2008 were higher in areas where lobbying lenders’ mortgage lending grew faster.


DSK Collateral Damage

The Dominique Strauss-Kahn affair has been good business for many journalists and writers, but it’s caused some blowback too. Consider this IMF bloggers’ event that bit the dust:

 
 
 
 
 
And then there’s the admiring DSK cover story in Washingtonian magazine, called “The Invisible Man.” From the Washington Examiner:
 

“It was actually sitting at the printer, printed, when he was arrested,” explained the publication’s editor, Garrett Graff. … “The most ironic part of this is that the reason we were writing the piece is that nobody had ever heard of this guy,” Graff said. “You could be standing next to him at the supermarket check-out line and not recognize him.”


Google's New Correlation Mining Tool: It Works!

You may have heard of Google Trends. It’s a cool tool which will show you the ups-and-downs of the public’s interest in a particular topic—at least as revealed in how often we search for it. And you may have even heard of the first really important use of this tool: Google Flu Trends, which uses search data to try to predict flu activity. Now Google has released an amazing way to reverse engineer the process: Google Correlate. Just feed in your favorite weekly time series (or cross-state comparisons), and it will tell you which search terms are most closely correlated with your data.
So I tried it out. And it works! Amazingly well.


Another Chance to Win a Free Copy of SuperFreakonomics

Yesterday, we ran a contest to give away five copies of the new paperback edition of SuperFreakonomics (which can be bought on Amazon and elsewhere). There were more than 640 entries! Thanks for all the support, and for betraying your thirst for free stuff.
So let’s have another contest right now. Last week, when we asked the best way to give away books, your second preference was “really hard contests on blog.” Okay then. But instead of having a quiz here on the blog, we’ve put it on our new Facebook page. So go ahead and “like” our page (if indeed you like it), and try your hand at the quiz. We’ll send a free SuperFreakonomics paperback to the first five people who receive perfect scores. (The tricky part is that you’ll do much better on the quiz if you’ve read the book but hey, the world’s not perfect is it?) Good luck!


Europe's Stolen Goods Problem

Stealing a truckload of goods in Sweden is apparently as easy as waiting for the driver to go on his lunch break. Each year, billions of euros worth of goods are stolen while in transit across Europe, but no one seems to be doing much about it. Dr Luca Urciuoli, a researcher in engineering logistics at Lund University has studied the problem and finds a transportation system ripe for criminal exploitation. From Science Daily:

Luca Urciuoli’s research shows that many haulage companies do not make any security investments at all, even though it is fairly easy to find security measures such as theft-proof doors or windows, truck alarms, track and trace systems and mechanical locks on the market.


Is The Fed Responsible for Higher Oil Prices?

Vincent R. Reinhart thinks so. Reinhart, an economist at the American Enterprise Institute and a former director of the Federal Reserve Board’s Division of Monetary Affairs, argues that the Fed’s quantitative easing program has raised the price of oil for American consumers:

Since the Fed firmly signaled in August its intent to launch the latest round of QE, oil prices have risen from $76 to around $100 per barrel.
Why does the Fed’s balance sheet matter for oil prices? The producers of oil as well as other commodities typically sell their output in a worldwide market priced in U.S. dollars. Thus, they care about the current and expected future purchasing power of the dollar and how that will translate into goods and services back home. But QE has been associated with higher inflation and dollar depreciation, which combines to erode the purchasing power of the foreign producers of commodities. Thus, some of the rise in the nominal price of oil has been to catch up with that erosion.


Politics Pays: Evidence of Insider Trading Among Congressmen

It’s funny — when we ran a quorum recently asking what should be done about insider trading, no one mentioned cracking down on Congress. Maybe they should have?
A new working paper from Feng Chi, an economics PhD. student at the University of Toronto, is called “Insider Trading on K-Street: Are Politicians Informed Traders?” Here’s the abstract:

I investigate whether politicians take advantage of their privileged information that comes with their positions in power. Analyzing the trading records of Congressional members, I find that informed trades beat the market by 8.2%. As these gains accrue over the short term, my findings are suggestive of informed trading based on time-sensitive information.

And a couple of choice paragraphs:

Despite the potential for exploitation, Congressional members are generally free to invest in companies they help oversee. In addition, existing insider-trading laws do not apply to lawmakers. Probably to no one’s surprise, proposed bills to eliminate insider trading among Congressional members garnered little support on Capitol Hill.


How To Better Incentivize Labor Economists?

The annual conference that I organize with the Institute for the Study of Labor in Bavaria begins Thursday. Each year we receive about 150 submissions, and pick 24 to fill the available time slots. Typically we’ve had one or two withdrawals, but this year we have five. If I had known this, we would have accepted more papers—the conference works best with 22 or 23 papers. Is there any way to solve this problem? I could accept more papers, but the program would be too long if nobody withdrew. I could require authors of accepted papers to post a bond, perhaps $250, forfeitable if they withdraw. While that sounds very economic, I bet we would get fewer submissions—posting bonds for conference participation is not part of our culture—and possibly even lower average quality submissions.
Of course, I punish those who withdraw by disqualifying them from the conference for the next few years. But other than that, I see no solution.


Announcing the Winners of the SuperFreakonomics Paperback Giveaway

Yesterday, the paperback edition of SuperFreakonomics was published in the U.S. (only $10.54 at Amazon!). And we used a random-ish contest to give away five copies. If I had known there would be so many respondents — more than 600 as of this writing — I would have had the winning comments correspond to higher values! Anyway: thanks to all for playing, and congratulations to the winners, who are:

Michael Mehrotra: comment No. 9, which corresponds to the episode number of our “Power of Poop” podcast.
Paulius Ambrazevicius: comment No. 10, which corresponds to our publisher’s street address.
Wade P.: comment No. 22, which corresponds to Hungary’s suicide rate (per 100,000).
“Power Pooper” (do we sense a theme here?): comment No. 32, which corresponds to the jersey number of my favorite football player, Franco Harris.
Pat Long: comment No. 43, which corresponds to Steve Levitt‘s age (at least for another few days).

Note: we counted the order of original comments, not replies, so as not to skew results.
Also: this was fun. We should do it again sometime soon, yeah?


R.I.P. John Delaney, Prediction Market Entrepreneur

I’m saddened to learn that John Delaney died attempting to reach the summit of Everest. Readers of this blog will know John as the leader of my favorite prediction market, InTrade (and before that, TradeSports). John, or his data, and sometimes his stories, have long graced the pages of this blog, including this Q&A with Dubner. His colleagues know him as an energetic entrepreneur, always trying new things. I also know John as a friend and a collaborator, who was also willing to help crazy academics like myself run new prediction markets, crunch data his markets had generated, or debate what it all means, over a Guinness.
And as much as I knew John as a madcap Irishmen, and true sports fan, I never expected to hear of him drawing his last breath just meters short of the highest peak in the world. Press reports — which include the agonizing detail that John died without knowing his wife just gave birth to a baby girl – are available here and here.


Global Poverty Shifting Toward Middle Income, Failed States

A new report from The Brookings Institution examining global poverty rates since 2005 notes two primary trends: poor people are increasingly found in middle-income countries and in fragile states.
Brookings notes the obvious success of the one:

Over the past decade, the number of countries classified as low-income has fallen by two fifths, from 66 to 40, while the number of middle-income countries has ballooned to over 100. This means 26 poor countries have grown sufficiently rich to surpass the middle-income threshold. Among those countries that have recently made the leap into middle-income status are a group of countries – India, Nigeria and Pakistan – containing large populations of poor people. It is their “graduation” which has brought about the apparent shift in poverty from the low-income to middle-income country category.
 

And troubling failure of the other:


How I Self-Published a Book, And How You Can Too

I just self-published a book called How to Be the Luckiest Person Alive! I published it in paperback form, Kindle form, and free PDF (see directions below to get free PDF). The entire process took me three weeks. Using an established publisher would’ve taken over a year. [If you want Kindle version, click directly on kindle link above.]
I’ve written a prior post on my sales and advances on my first five books which were all published with major publishers. But I’m never going to publish in the morgue of the publishing industry again. This post today is about why I did it and how you can do it.
The book publishing industry is dead but they don’t know it. It’s like how the typewriter industry died. And the reason companies like Blockbuster and Borders can’t survive. And the entire music industry is dying. And broadcast television might be on the way. And the tablet industry is the first sign that companies like Dell might be in major trouble. And companies like Sirius mean the radio industry is dead.


I Feel Your Pain: The Empathy of Torture, a Guest Post by Jeff Mosenkis

A guest post from Jeff Mosenkis, on how empathy affects how we feel about torture. Mosenkis holds a Ph.D. in Psychology and Comparative Human Development from the University of Chicago. His research has focused on the intersections of social, cultural and organizational psychologies.
 
I Feel Your Pain: The Empathy of Torture
By Jeff Mosenkis

Senator John McCain re-entered the waterboarding/torture debate this month, first with an op-ed in The Washington Post, then on the Senate floor, taking issue with both the efficacy and morals of enhanced interrogation techniques, asserting that several of them are indeed torture. From McCain’s op-ed:

Much of this debate is a definitional one: whether any or all of these methods constitute torture. I believe some of them do, especially waterboarding, which is a mock execution and thus an exquisite form of torture. As such, they are prohibited by American laws and values, and I oppose them.

McCain’s anti-torture stance is well-documented and been consistent throughout his political career. But a new study adds some scientific insight into why he feels the way he does.


Are Bad Storms Good Long-Term News for Insurance Companies?

According to the National Weather Service’s Storm Prediction Center in Norman, Okla., there have been 1,151 tornadoes reported (though not confirmed) so far this year. By comparison, there were 1,282 tornadoes during all of last year, and a total of 1,156 in 2009. This is resulting in billions of dollars in damage claims across much of the South and Midwest. According to EQECAT, which provides disaster and risk models to insurance firms, weather-related losses could cost insurers upwards of $10 billion in the U.S. this year, up from an average of between $2 and $4 billion per year.
But while the short-term impact will obviously be difficult as insurance companies cover record losses, the recent rise in weather-related disasters could end up being good for their stock prices.


Who Wants a Free Copy of New SuperFreakonomics Paperback?

The paperback is published in the U.S. today. Here’s what the cover looks like.
You can buy it on Amazon (and elsewhere).
There is a Facebook quiz forthcoming.
It includes lots of bonus material.
And just for kicks, we’ll give away five copies right here and now. Earlier, we asked your preferred method of giveaway and your strong preference was “random.” So why don’t we do things the way radio stations used to give away free records (maybe they still do this?) — you know, “The 28th caller will receive …” All you have to do is post a comment below. We’ll pick five comments from the lot, including the numbers represented by:
1. Steve Levitt’s age
2. Our publisher’s street address
3. The uniform number of my all-time favorite football player
4. The suicide rate (per 100,000) in Hungary
5. The episode number of our “Power of Poop” podcast
Good luck!