From a Wall Street Journalarticle about Raj Rajaratnam‘s failed insider-trading defense strategy:
Mr. Rajaratnam is estimated to have paid as much as $40 million for his defense, according to people familiar with the matter and some lawyers not affiliated with the case, about two-thirds of the amount prosecutors said Galleon made from the insider trading addressed in the charges.
I bet I could have gotten him convicted on all 14 counts for $5 million, and I’m not even a lawyer.
Strange how the traditional laws of supply and demand go out the window when it comes to traffic. Studies over the last decade (like this one, this one, and this one; plus the book Suburban Nation) have pretty much dismantled the theory that more roads equal less traffic congestion. It turns out that the opposite is often true: building more and wider highways can increase traffic congestion. If only people like Robert Moses andLe Corbusierhad known this before their grand urban plans left our cities clogged with traffic, and carved up by ugly, value-destroying highways.
Do children behave like adults? Do they make economic decisions the same way we do?
That’s what German economist Martin Kocher has set out to determine. He’s collecting data to measure the utility curves of kids from 7-18 years old, in order to draw some conclusions about children’s attitudes toward risk, time and trust. Playing simple economic games, such as the ultimatum game and various public good games, he measured their risk and time preferences. The experiments were conducted with real money, because “incentivizing kids with money makes it a real decision for them” says Kocher.
From the Soapbox Science blog on Nature.com, here’s an interesting piece by risk consultant David Ropiek on the ways in which we perceive and react to risk. His basic thesis is that our interpretation of risk is almost always subjective rather than fact-based, which gets us into trouble.
We worry about some things more than the evidence warrants (vaccines, nuclear radiation, genetically modified food), and less about some threats than the evidence warns (climate change, obesity, using our mobiles when we drive). That produces what I have labeled the Perception Gap, the gap between our fears and the facts, which is a huge risk in and of itself.
Going through security at U.S. airports is a continuing nuisance. One technology improvement that I saw at Brussels Airport is simple: the conveyor on which you place your computer, bag, etc., slopes downward toward the x-ray machine, so that there is no need to drag bins and bags along the conveyor. Moreover, there is an adjacent conveyor that tilts backward toward the rear of the belt on which the staff can place a pile of used bins.
These devices save passenger time and are labor-saving for the security company too — no need for the workers to drag the bins by hand or hand-truck to the rear of the belt. Are we slow to innovate (how un-American that would be!) or does cheap semi-skilled labor reduce the incentive to substitute capital for labor?
I was going through a pile of old papers in my office when I found a sheet entitled “Blackboard at the University of Chicago October 5, 2005: Future Nobel Laureates.” I have no idea who brainstormed the list that was written up on the board, or why. I can’t even remember whether I took part in the exercise, although seeing how good the predictions have turned out, I’m going to assert (rightly or wrongly) that I was one of the predictors.
For your entertainment, here is the list of names that were on the board, in their original order.
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. Alicia Calzada asked:
Let me know if you have any luck with this one: ‘Never argue with a man who buys ink by the barrel’ It has been credited in case law to both Mark Twain and publicist William I. Greener, Jr. Brown v. Kelly Broad. Co., 48 Cal. 3d 711, 744 (Cal. 1989) crediting Twain as the source of the famous adage; State ex rel. Plain Dealer Publ’g Co. v. Geauga Cty. Court of Common Pleas, Juv. Div., 90 Ohio St. 3d79,89 (Pfiefer, J., dissenting) (‘The majority has elevated Greener’s law’ (‘Never argue with a man who buys ink by the barrel”)’)
It has also been credited as undetermined, which I think is most accurate: Ralph Keyes, the quote verifier: who said what, where and when 64. The Mark Twain House in Connecticut has no record of Twain saying the phrase.
I realized I had been a bit misleading. I looked at my blog post “Ten Reasons You Need to Quit Your Job,” I realized that I said 90% of people “should” quit their jobs and I gave 10 reasons for recognizing if now is the right time for you to leave. But that’s a little different than saying, you have to quit right now.
But the reality is, most people need to begin their exit strategy right now.
So here are the 10 reasons you need to quit your job right now. And below that I have the methods for doing it.
A Walmart in Cleveland that’s more selective than Harvard. Deep budget cuts to “transform” scientific research in the UK. Japan cancels plans for more nuclear reactors. Sergey Brin says only 20% of Google employees use Windows. The Atlantic agrees with Levitt about Groupon.
My friend and I have developed a cutting-edge technology for social media. There are other similar technologies out there for social media but we could never compete with their resources. Should we just point blank say we are the cheap alternative as a selling strategy? Sounds cheesy and flimsy but may be our only avenue.
What do you have to say to him? I don’t expect a lot of you to have experience specific to his product, but I know there are a lot of starter-uppers among our readership (yes, both kinds of starter-uppers), as well as what you might call “psychology of pricing” pros. So let’s see what kind of advice you have for Patrick.
Electric cars are all the rage today, but some of the smartest people I know believe that moving towards electric vehicles is a terrible idea. Looking casually as an outsider at the unappealing economics of electric vehicles (the need for a new and immensely expensive infrastructure, cars that cost much more than either traditional gas engines or hybrids, limited ranges and long recharging times), I find it hard to understand why the Obama administration is pushing electric cars.
One argument I’ve heard is “national security,” the idea being that electric vehicles would make the United States less dependent on imported oil. Be careful what you wish for, however, because if electric cars become a mainstay, we may be trading one dependence for another that is even more troubling. Ninety-five percent of the world’s output of rare-earth metals today comes from one country: China. By some estimates, demand will outstrip supply within five years. At least with oil we know there are fifty years of oil reserves readily available. Moreover, oil is produced all over the world, limiting the monopoly power of any one country.
According to a new study published in the medical journal Human Reproduction, there is a magic number of eggs for successful in-vitro fertilization: 15. Analyzing more than 400,000 IVF cycles in the U.K., the study found that:
There was a strong association between the number of eggs and LBR (live birth rate); LBR rose with an increasing number of eggs up to 15, plateaued between 15 and 20 eggs and steadily declined beyond 20 eggs. … The results showed a non-linear relationship between the number of eggs and LBR following IVF treatment. The number of eggs to maximize the LBR is 15.
The Timesreports on New York City kids who fail to get into any of the high schools they apply to. Al Roth, who helped design the school-choice program but has no hand in running it, reports on why this failure occurs. (One big problem, from the Times article: a school like Baruch College Campus H.S. received 7,606 applications for 120 seats, many of them coming from outside of Manhattan; but the school “has not accepted out-of-district students in many years, a fact not mentioned in the Education Department’s school profile.”
Roth’s advice:
For students: use all 12 choices. The system is designed so listing 12 choices won’t hurt your chance of getting one of your top ones. But if you don’t get one of your top choices, having some other schools on your list that you wouldn’t mind going to will save you some heartache.
For schools and guidance counselors: give these kids more useful advice! They should be told if the lists they are submitting include only schools for which they have little or no chance of being accepted.
Though it has an upside for the biosphere that shouldn’t be ignored, $100/barrel oil definitely isn’t much fun for our pocketbooks or the world economy. And could worse times be ahead?
When we see spikes like this, there are inevitably voices predicting stratospheric prices for crude just beyond the horizon. The basic reasoning is that oil supplies are finite (clearly, in the very big picture they are), and that world oil demand is set to skyrocket thanks in large part to the motorization of India and China (it is—see my last post.) “Peak oil” advocates maintain that at some point we are simply bound to run out of the stuff.
I’ve never been a big fan of the peak oil story. First, price signals will encourage conservation as oil gets more dear, reducing demand pressure. We’ve already come a long way on that front; in 1970, the average car on the road got about 14 mpg, and the average van, light truck or SUV about 10. Today, the averages for new cars and trucks sold are considerably more than double those figures, and things continue to move in the right direction thanks to government regulation (rising CAFE mpg standards), new technology (including but not limited to hybrids), and the fact that consumers respond to oil price increases pretty much like economists predict they should, changing purchasing, travel and location decisions in order to conserve when oil prices rise.
Positive economics attempts to understand the world as it is; normative economics describes how the world should be. Most economists spend most of their time doing positive economics, but most economics columns advocate particular policies, which is implicitly normative economics.
Yesterday, I described my own personal moral code regarding government prohibitions, which led me to be outraged by recent actions by the U.S. government shutting down the three major internet poker sites for American players.
Forgetting about my own moral standards, which are probably of interest and relevance only to myself, there are four other reasons why the government actions make no sense: 1) Prohibitions that focus on punishing suppliers are largely ineffective. Prohibition of internet poker is no exception.
When there is consumer demand for a good or service, it is extremely difficult to fight the problem through government punishments of suppliers. Illegal drugs are a good case in point. Americans want cocaine. Over the last 40 years of the “War on Drugs,” we have expended enormous amounts of resources locking up drug dealers. (Contrary to public opinion, the punishment of drug users has been relatively limited; by my estimates 95 percent of the prison time served has been by sellers of drugs, as opposed to users.) Especially when the demand for a good is inelastic, squashing supply is ineffective. Making life difficult for incumbent suppliers entices new entrants eager to meet existing demand.
Steve Levitt has a new working paper: “The Role of Skill Versus Luck in Poker: Evidence from the World Series of Poker,” with University of Chicago colleague Thomas J. Miles.
Using data from the 2010 World Series of Poker, Levitt and Miles found that high-skilled players earned an average return on investment of over 30 percent, whereas all other players averaged a 15 percent loss. This finding has serious implications on the legality of online poker, as that debate is heavily dependent on whether the game is based on skill or luck.
I’ve known Tim Harford for a while; to me, he’s one of the best writers who also happens to be an economist (although in recent years he’s spent more time as a writer than a practicing economist, which may explain everything). Disclosure: Harford profiled Steve Levitt back when Freakonomics came out, and he’s had the two of us on his BBC radio show More or Less.
He writes a Financial Times column (on Saturdays) called “Undercover Economist,” and that was the title of his first book, published in 2005 (and just updated). His latest book, out this week, is called Adapt: Why Success Always Starts with Failure. It examines the incremental, adaptive ways by which success is achieved across a number of fields. Here’s a taste, in the form of a guest post. It’s very good, and to my mind, here’s the best passage:
[W]here’s the churn in education policy or healthcare policy or policing? These are difficult problems. Why would we expect them to be solved the first time? They are surely no simpler than the business problems which seem so prone to experiment and error.
On the airport bus in Helsinki, a Finnish woman asked my wife, “What is the biggest difference between Europe and the U.S.?” There are lots of possible answers, but the most striking to me is the tremendous diminution of mutual trust in the U.S. over the past few decades. Why does this matter economically? Because a number of economists have shown recently that income levels and real growth depend upon trust—trust greases the wheels of exchange.
I was outraged a few weeks back when the U.S. government cracked down on internet poker. It took me a while to figure out why.
One of the most important roles of government is establishing a set of rules under which society will operate. Governments determine property rights and coordinate the provision of public goods. Some frowned upon activities are deemed illegal (e.g. homicide); other favored activities are encouraged through subsidies (e.g. home ownership, education).
Fill in the blanks. I dare you. And then read the rest of the post to see who wrote this, and what it’s about.
We’re currently finishing up an hour-long radio program called “The Folly of Prediction,” and I have to say that it was bracingly refreshing to read this paragraph and the column that follows it.
After more than a quarter-century as a professional _________, I have a confession to make: There is a lot I don’t know about _________. Indeed, the area of __________ where I have devoted most of my energy and attention — the ups and downs of _________ — is where I find myself most often confronting important questions without obvious answers.
Life is all about incentives, as this paragraph from a New York Times article about Bin Laden makes clear:
“When children playing in the fields let a ball fly into the [Bin Laden] compound by mistake, the owners never let them retrieve it but gave them 50 rupees to buy a new one, said one of the neighbors, a woman with a small boy on her hip who gave her name only as Bibi. When the children began to throw balls into the compound on purpose to get more money, the owners kept paying, she said, laughing.”
(HT Jim Covington)
We put out a call for blegs yesterday — questions or quandaries that you want to put in front of Freakonomics readers — and received a lot of good ones. Let’s start it off with the following request from a reader named tish.
“What interview questions can I ask to help weed out weird people? “Weird” meaning antisocial, incompetent, lazy, disinterested, dishonest, unprofessional, combative and disruptive. I just got out of a work situation where one superior was all of these things, and I’d love to avoid people like this in the future. She seemed normal enough when I interviewed with her. Oh also, the person is in total denial that they are like this, by the way, so outright asking them probably won’t work. These would be questions to ask in both “interviewer” and “interviewee” roles.”
Dubner and I have been thinking a lot these days about pundits who make predictions. The incentives surrounding predictions are completely skewed. If I make a wild prediction, and it just happens to come true, I have strong incentives to constantly remind the world about how my prediction came true. If, as is much more often the case, the prediction is wrong, it is likely to be quickly forgotten because there is typically no one else who cares enough about my failed prediction to go to the time and effort to continually remind others that I was wrong. Thus, even if I am rarely correct, it makes sense to make a lot of crazy predictions.
Which leads me, of course, to the Kentucky Derby. I’ve made Kentucky Derby predictions every year since we started the blog. Rarely have I been correct. But I did, many years ago, publicly and correctly predict that a 50-1 shot would win the race. I cannot tell you how many times I have mentioned that to people. I have been much quieter about the time that the horse I predicted would finish dead last actually won the race, although in its own way that is also quite a feat.
What happens when you match two guitar-playing economics students and a deep recession? Recession Sessions, an entire album of economics-themed songs by Ryan Stotland and Kyle Thompson-Westra, a.k.a. The Bull and the Bear. The two met at Tufts and now make music in the “financial folk” genre, with songs including “Central Banker’s Dilemma” and “Main Street Venting Blues.” Here are a few lines from “Dear Fiscal, Love Monetary”:
We’ll always be the heads of our nation
Can’t you see the way we killed stagflation
I never ever thought that I’d have this much fun
As when I watched you bring the rate down to one
From a Project for Excellence in Journalism report on media coverage of Osama bin Laden’s death:
“In the mainstream press, coverage has focused on trying to parse out the details leading up to and during the dramatic raid, and on sorting through the national and international reaction to it. … On Facebook and Twitter, meanwhile, citizens have used these social media tools to express black humor about bin Laden’s death. The largest share of discussion there, 19%, has involved people sharing jokes. The second largest theme involved the question of whether bin Laden was really dead, and weighing the pros and cons of the proof offered. That discussion accounted for 17% of the conversation.”
Sick jokes and conspiracy theories — when did social media start to behave like Wall Street?
(HT: Romenesko)
The first researcher to systematically investigate human sexual desire was the Indiana University sociologist Alfred Kinsey, more than 60 years ago. Kinsey spent years surveying people’s sexual habits, interviewing thousands of middle-class Americans in the 1940s and ’50s. But what if all that information had been publicly available? What if you could access the secret sexual behaviors of more than 100 million men and women from around the world?
Today, thanks to the internet, you can.
In what is claimed to be the largest experiment ever, two neuroscience PhDs from Boston University, Ogi Ogas and Sai Gaddam, analyzed a billion web searches, a million web sites, a million erotic videos, millions of personal ads, thousands of digital romance novels, and combined it all with cutting-edge neuroscience.
One of the occupational hazards of teaching law is that I often take what Oliver Wendell Holmes called a “bad man’s view” of human motivation (my beloved spouse just told me this is the understatement of the century). Holmes, in his paradigm shifting “The Paths of the Law,” said :
If you want to know the law and nothing else, you must look at it as a bad man, who cares only for the material consequences which such knowledge enables him to predict, not as a good one, who finds his reasons for conduct, whether inside the law or outside of it, in the vaguer sanctions of conscience.
I find that this cynical tool for legal prediction – which parallels a presumption of narrow economic self-interest – often guides the way I interpret actions and events.
We’re quite fond ofBill James in these parts. The baseball-stats guru and sabermetrics pioneer brought a level of scientific analysis to baseball that has changed the game. He’s appeared on this blog a number of times, including a Q&A in which he fielded your baseball questions. So you might be interested to know that James is now trying his hand at another field: crime writing. And he brings to it the same scientific zeal.
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