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Archive for October, 2011

A Study in Child Cooperation: Sweden vs. Colombia

The behavior of children continues to be of interest for both economists and Freakonomics. Back in May, we looked at research by the German economist Martin Kocher showing that young children are generally less risk-averse than adults.
Now, a working paper by Juan-Camilo Cardenas, Anna Dreber, Emma von Essen and Eva Ranehill at the Stockholm School of Economics compares the cooperative behavior of Swedish children and Colombian children using the Prisoner’s Dilemma game, which explores how two parties cooperate in the absence of communication.


Surprise: Money Still Beats Goodwill as Incentive for Organ Donors

If you’re a regular reader of this blog, you know we write a lot about organ donation and incentives. Like whether registered organ donors should get priority when it comes time to get in line themselves. Or whether the transplant market is too restrictive.

A recent Bloomberg column by Virginia Postrel highlights the difference between goodwill and cold hard cash as incentives to donate, not to mention the legal limits that exist to prevent transplants going to the highest bidder.


Freakonomics Radio Tops the iTunes Charts; and a Contest: Which Episodes Do You Most Love (or Hate)?

With the help of our latest podcast, “Where Have All the Hitchhikers Gone?”, Freakonomics Radio has jumped to No. 1 on iTunes.

This happens once in a while, but is still rare enough to be a big treat. (Ira Glass — who once gave us some podcast advice — has pretty much taken up permanent residence on No. 1 iTunes Place; the rest of us mortals camp out down the street.)

If you visit iTunes this week, you’ll see a lovely promotional banner (below) for our program. That certainly helped with the No. 1 ranking. But so did you! Thanks to all of you for listening, downloading, and spreading the word. We have a great lineup of new episodes coming this fall, and our podcast has just gone weekly.

If you feel like letting us know your favorite (and/or least favorite) episodes in the comments below, that’d be helpful. Good feedback is valuable, in life and in art, but it can be devilishly hard to come by. So we’ll give you an incentive: we’ll send some Freakonomics swag to whoever writes the most interesting positive review and whoever writes the most interesting negative review as well.


Does Fingerprinting Food Stamp Recipients Save Money?

What do New York City and Arizona have in common? No, this is not a trick question; there is one thing: currently, they are the only jurisdictions in the country that require food stamp recipients to register their fingerprints in an electronic database. California and Texas recently lifted their fingerprinting requirements.

Not surprisingly, this has touched off a debate over social utility and costs in New York. Proponents say that the resulting fingerprint database saves the city millions of dollars a year in duplicate fraud. Last year, the Human Resources Administration said it found 1,900 cases of duplicate applications for 2010, with savings of nearly $5.3 million.

Detractors claim this estimate is unproven and that fingerprinting keeps a certain amount of needy people out of the system through intimidation.


Why Do Only Top MBA Programs Practice Grade Non-Disclosure?

Last spring while I was finishing my fellowship at Columbia Business School, much of the student body was busy trying to overturn the school’s grade disclosure policy. Back then, Columbia was one of the few top MBA programs that did not practice grade non-disclosure, meaning recruiters were allowed to ask Columbia students about their grades. By the end of the year, the issue had passed a student referendum, and this semester Columbia became the latest business school to have a grade non-disclosure policy, which encourages students not to disclose their grades to employers until they’ve been hired.

Grade non-disclosure policies are a quirk of MBA programs. You won’t find them in medical or law school. In fact, the only place you do find them is among top business schools. Of the 15 most selective MBA programs, 9 of them have some form of a grade non-disclosure policy. But of the schools ranked from 20 to 50, none do.

A new paper from a pair of Wharton economists examines why this is.


When Young People Need the Elevator

An e-mail from Brazil:

My name is Mauricio Castro, I have a social communications degree and teach interface design and multimedia systems.
I have a story I’d like to share with you guys.
I live in a nice neighborhood in the city of Vitória, Brazil. Being close to the beach, the city code forbids tall buildings in order to maintain sunlight in the sand all time. The maximum floor number is three.
So it’s only natural that most buildings here don’t have elevators. Even some new ones are presented only with stairs, especially those built for the younger customers.
So I went to the health clinic the other day and the nurse was telling me about the rising numbers of youngsters suffering from strokes. There are lots of explanations for these numbers rising, but mostly lifestyle and drug abuse.


Incentivizing the School Commute

We’ve written about bribing kids to get better grades. But what about bribing them to walk or ride their bike to school?
A new working paper examines a program in Boulder, Colorado that attempted to incentivize kids to bike or walk to school over a span of several years. The program began with a $10 cash prize for the first two years, but then switched over to a $10 bike store coupon thereafter. One lucky student who rode and walked to school every day during a “prize period” won the coupon.
Even considering the small, non-cash winnings, biking and walking to school increased 16 percent during the prize period. Here’s the abstract:


Security Overkill, Diaper-Changing Edition

I’ve been thinking a bit lately about security overkill. This includes not just the notion of “security theater” — security measures meant to inspire comfort by mere show of force/complexity — but the many instances in which someone places a layer of security between me and my everyday activities with no apparent benefit whatsoever.
My bank would surely argue that its many and various anti-fraud measures are valuable but in truth a) they are meant to protect the bank, not me; and b) they are cumbersome to the point of ridiculous. It’s gotten to where I can predict which credit-card charge will trigger the bank’s idiot algorithm and freeze my account because it didn’t like the Zip code where I used the card.
And security overkill has trickled down into the civilian world. When the class parents at my kids’ school send out a list of parent contact info at the start of each school year, it comes via a password-protected Excel spreadsheet. Keep in mind this list doesn’t contain Social Security numbers or bank information — just names, addresses, and phone numbers of the kids’ parents. I can imagine the day several months hence when someone actually needs to use the list and will find herself locked out by the long-forgotten password.


What Happens When Nobody Is Better Off? Pareto Deterioration

A tenured senior professor at another university, one of his department’s top researchers and best teachers, asked his department chairman for a temporary one-course teaching reduction for this Fall. The chairman refused but offered a terminal three-year appointment that included this reduction for all three years, at the same salary as if this professor taught a full load each year.
The professor accepted the deal, as he desperately wanted the teaching reduction this Fall, figuring he could get a teaching job elsewhere after three years. But he tells me he would have been happier teaching a full load over the next two years, and would rather not have to search for a job in two years. He is worse off. The department and university are also worse off, since they lose his courses in each of the next two years, and thereafter will not get the benefit of his teaching and his research/publication luster; and students are worse off too.
Is this really a Pareto deterioration—a new economic phrase denoting a change in which at least one person is worse off, and nobody better off? And is the phrase Pareto deterioration the best name for this unusual phenomenon?


Economist Allen Sanderson Answers Your Questions on Taxing College Football

Last week, we posted an essay by University of Chicago economist Allen R. Sanderson on why he thinks a “sin tax” should be levied against Division I college football. His basic point is that student-athletes essentially serve as unpaid labor, and since most of them never make it to the NFL (or end up out of the league after just a few years), the extra tax revenue should go toward supporting them in their effort to finish their education.
You responded quickly with a variety of comments and opinions; though not so many direct questions. So Allen has written a response that’s broadly aimed at some of the points brought up by a number of readers. Overall, it’s a good (and provocative) read that focuses on the bizarre economics of Division I college football.
Taxing College Football
By Allen Sanderson
First of all, thanks for all the great comments, suggestions and complaints. Good conversations!
In terms of Alex’s comment about “where’s the harm” (or the negative externality), I think the best way to look at it is not unlike the Antebellum South and slavery. To be sure, today’s Division I college athletes are not slaves, nor were they drafted; they volunteered, and expected to benefit more by playing football for Big State University than from their next best alternative.


The Agreeable Power of Sugar

New research (summarized in the BPS Research Digest) confirms an old cliche: you are what you eat. A team of psychologists recently found that not only are sweets-lovers perceived as more agreeable, but they may actually be more agreeable:

Students who rated their own personality as more agreeable also tended to have a stronger preference (than their less agreeable peers) for sweet foods and drinks. Among a different set of students, a stronger preference for sweet foods correlated positively with their willingness to volunteer their time, unpaid, for a separate unrelated study – considered by the researchers as a sign of prosocial behavior.


What Should Be Done About Violent Crime in Mexico?

A reader named Rodolfo Ostolaza writes in with a most heartfelt plea about violence in Mexico. He would welcome all suggestions.

I live in Mexico City and, although the wave of violence in my country has not yet fully reached this area, I’m worried because we are living a state of terror, with bloody attacks, and a lack of humanity. That is why I am requesting your help.
What do you think we can do to change this? According to the chapter on crime reduction in Freakonomics, a judge’s decision was more influential than a change in public policy and law enforcement bodies in reducing crime in the U.S. I wish we could apply this “recipe” (allowing abortion throughout Mexico, which is currently legal only in Mexico City) to keep the hope that, in the future, things will be brighter. However, considering the Mexican idiosyncrasy, with strong influence of the Catholic Church, I believe that this measure would have, at best, a marginal impact.
I want you to share this question with your readers. Give us suggestions, ideas, different perspectives to analyze the problem. What follows are some thoughts and questions of how, I think, the problem should be analyzed.
First we must understand precisely the problem itself. It is true that the violence began to grow exponentially after President Calderón declared war.


Harvard Shuts Down its Nobel Prize Pool

Last week we posted about Harvard’s Nobel Prize Pool, where people could place bets predicting this year’s winner of the Nobel Prize in Economics for $1 per entry. The Harvard economics faculty ran the site for a few years, dubbing it, “the world’s most accurate prediction market.” Apparently, Harvard wasn’t too keen on the idea, as the following notice now appears on the site:

Unfortunately, we have been advised by Harvard University to immediately shut down the Nobel pool due to legal reasons, and we have decided to comply with this request. We will fully reimburse the money of all participants, and we apologize for any inconvenience this creates for you. All participants will be contacted by email.

For anyone who watched the site closely over the last week, do you remember the odds for the actual winners, Thomas J. Sargent and Christopher A. Sims?


Do Home Prices Affect the Birds and the Bees?

A new research paper by Lisa Dettling and Melissa Schettini Kearney from the University of Maryland examines whether the fluctuation in home prices affects fertility rates. The authors used Vital Statistics data from 1990 – 2007, and Federal Housing Finance Agency Price Index (and alternately the Case-Shiller Index) to simulate equity/fertility correlations.
From the abstract:

Our estimates suggest that a 10 percent increase in house prices would lead to a 4 percent increase in births among home owners, and a roughly one percent decrease among non-owners.


The Orwellian Efficiency of a "Being Fat" Tax

The Danish policymakers who implemented the world’s first “fat tax” last week are remarkable not for their directness in addressing the growing Western challenge of obesity, but for their indifference to the plight of the poor, their deference to political correctness at the cost of economic efficiency, and their willingness to punish certain segments of society.
The Danes may have been the first, but headlines throughout the western world assessed the likelihood of other countries to follow, including this one. A fat tax in the U.S. (or the U.K. for that matter) would add to the growing thicket of regulations across local and federal jurisdictions intended to address weight gain and the external costs that obesity imposes on society— both through higher private insurance premiums and ballooning government outlays for the uninsured.
Whether the tax will improve health outcomes is an empirical question that won’t be answered for several years or more.


Customers, Social Media and the Internet's Silent Majority

A new article in MIT’s Sloan Management Review written by marketing professors Wendy W. Moe, David A. Schweidel and Michael Trusov sheds some light on how people use the internet to interact with products and with each other, specifically in terms of what spurs and defines social media comments. In recent research, the authors examined the comment ratings and sales of a popular unnamed company, studying 2,436 individuals writing about 200 products. They ask: “[H]ow accurately do these conversations represent the true underlying sentiment of a product’s customers?” Here’s what they found:


Economics Run Amok: What's Your Price?

Freakonomics is no stranger to studying prostitution, as discussed in Superfreakonomics.  We are slightly less familiar, however, with a gray area of prostitution — “dating websites” that connect rich customers with attractive poor customers.  Though these are by no means a new phenomena, a website has recently come to our attention that uses a dating website platform to ask what we all wonder about in one context or another: what’s your price? Whatsyourprice.com auctions off dates and claims to be inspired by the charity dating model.  It is divided into two halves: “Date Generous People” and “Date Attractive People” — apparently you’re either looking for one or the other.  Upon a cursory read, the generous users seem to be overwhelmingly male, and the attractive users overwhelmingly female (and pictured in bathing suits).   Each profile includes an “About Me” section and a “First Date Expectations” section. Several “attractive” members, it should be noted, specify that they will not fly Economy Class.


Rules of The Game

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.
Michael asked:

“The best swordsman does not fear the second best, he fears the worst since there’s no telling what that idiot is going to do.”


Radio in Progress: Boo!

A few months ago we asked readers a basic question: “Do you boo?” Judging by the number (and nature) of comments the post solicited, the answer is yes. The question was asked as part of an upcoming Freakonomics Radio episode that’s all about booing. To borrow the words of one of our guests, writer Robert Lipsyte, we ask: Is booing verbal vandalism, or is it one of the last true expressions of democracy?
For the audience at the Apollo Theater in Harlem, it’s the latter. We recently visited for its talent showcase, Amateur Night. There, booing—and cheering—is a way of voting, to decide who advances to the next round of competition.


Get Your Free Sperm Here!

The Daily Beast reports on an interesting phenomenon: sperm donors who donate for free.  One couple, stymied by the $2,000-and-up cost of acquiring sperm the usual way (sperm bank), started exploring alternative options online…


Can Google Searches Predict Stock Price Performance?

A recent study in the Journal of Finance by Zhi Da and Paul Gao of the University of Notre Dame shows that data from public Google searches can be used to beat the stock market by up to ten percentage points per year. Similar findings were released last month by researchers at the University of Kansas.
The Notre Dame authors argue that the frequency of Google searches received by a stock (its SVI number) is a better, more direct method of measuring investor attention (a precursor to buying the stock) than traditional, indirect methods of measurement, such as news and advertising expense.


Paying the Rent After the Pink Slip

A recent national survey indicates that “[o]ne in three Americans would be unable to make their mortgage or rent payment beyond one month if they lost their job.” Even higher-income households would find themselves in trouble quickly: “Ten percent of survey respondents earning $100K or more a year say they would immediately miss a payment.”
Even more Americans — 61 percent — wouldn’t be able to pay the rent or mortgage after five months of unemployment. Given the current state of the economy, it’s perhaps wise to heed Suze Orman‘s 2008 advice on this blog — she recommended an eight-month emergency savings fund.


FREAK-est Links

This week, the suffering French nobility; adjusting for crime inflation, is New York really safer? Climate concerns: getting closer to that garden hose to the sky? And two signs of the times: Sesame Street debuts an impoverished Muppet, and Friendly’s goes bankrupt.


Should College Football Be Taxed? Bring Your Questions for Allen Sanderson

Allen R. Sanderson is an economist at the University of Chicago who enjoys, among other things, writing about sports. Some of his past work includes pieces on the puzzling economics of sports, why ties should be allowed in baseball, and how football highlights America’s least flattering features.
Sanderson’s most recent piece comes from the November 2011 issue of Chicago Life magazine, entitled “Taxes and Touchdowns.” In it, Sanderson argues in favor of imposing “steep” taxes on college football (and perhaps basketball) and that a college sports tax should be seen as the fifth sin tax, next to taxes on alcohol, cigarettes, gasoline and fat/sugar. And he’s not just talking about taxing certain aspects of college football; he’s talking about taxing the whole shebang: advertising, television broadcasts, logo merchandise sales, gate receipts. And then using that money to help support those “student-athletes” who don’t make it pro in their effort to finish up their education.


Why Gun Traffickers Should Live in Arizona

A new study by Brian Knight, an economist at Brown, explores the flow of the illegal firearm market in America and compares the source of guns used in crimes to gun laws in and around that state.
How big is the market for illegal firearms? Pretty big. Knight writes: “ATF investigations into tracking between July 1996 and December 1998 identify over 84,000 firearms that were diverted into this secondary market (ATF, 2000).” Meanwhile, each state in America legislates its own gun laws, resulting in cross-state externalities. For example, Knight cites anecdotal evidence showing that a gun purchased legally in Virginia for $150 – $200 typically resells in New York City for $500 – $600. This is the sort of thing that keeps Michael Bloomberg up at night.
Here’s the abstract:


Confessions of a Steve Jobs Fanboy

This is a cross-post from James Altucher‘s blog Altucher Confidential. His previous appearances on the Freakonomics blog can be found here.
I saw the news this morning when I looked at my iPad. Whenever I wake up, the first thing I do, before even going to the bathroom, is turn on the iPad and check the news. My heart sank when I saw the headline: Steve Jobs, dead at 56.
From my first Apple product (an Apple II+), to doing all my homework in college on the first Macintosh, to reading this news on my iPad, to typing this sentence on my Macbook Air, so much of my life has been influenced and changed by this man. Very sad day. My question for readers (please answer in the comments section) is: what was your first Apple product?
And now, here’s an essay I’ve written about Jobs:
I was standing right next to Steve Jobs in 1989, and felt completely inadequate. The guy was incredibly wealthy, good-looking: a nerd super-rockstar who had just convinced my school to buy a bunch of NeXT computers, which were in fact the best machines to program on at the time. I wanted to be him, badly.


Explaining the Black-White Wage Gap

As of 2010, black men in America earned 74.5 percent of a typical white man’s wage; black women earned 69.6 percent. A new paper from Harvard’s Roland Fryer (certified genius), Princeton’s Devah Pager and Jorg L. Spenkuch of the University of Chicago examines some of the factors driving the black-white wage gap.
Using data from unemployed workers in New Jersey who sought employment for up to 12 weeks, the authors show that racial discrimination accounts for one-third of the wage difference. They also estimate that blacks have a 7 percent lower reservation wage than their white counterparts at a comparable job that demands a comparable skill level. Fryer and his colleagues control for skill level by measuring the job applicants’ wage at their previous job against the wage they were seeking.
Here’s the abstract:


Is Mitt Romney Less Well-Known Than He Was in 2007?

According to a new Pew Research Center poll, while 54 percent of Americans are able to name at least one GOP presidential candidate, the leading candidates aren’t named as often as in previous years. Only 27 percent of Americans named Mitt Romney and only 28 percent named Rick Perry. That’s below the same measure taken four years ago in October 2007, when 45 percent could name Rudy Giuliani and 30 percent could name Romney. So, well into his second campaign for president, Romney is now less well-known than he was four years ago, when he ran the first time around. Not exactly encouraging.
Also, it’s interesting that Perry is still more recognizable than Romney, despite having fallen in the polls recently — especially since Perry got into the race only about two months ago, and Romney’s been running for much of the last four years. Chalk it up to the Texas swagger versus consultant technocrat?


Immigration, Elasticity and Why Americans Won't Pick Onions (Yet)

A study released this week by NBER measures the elasticity of substitution between American workers and their immigrant counterparts — in non-economic speak, the study asks whether immigrants are good substitutes for equally skilled native workers. While some comparisons remain murky, it appears that non-native workers are actually “perfect substitutes” for equally skilled native workers. The authors write:

In terms of the elasticity of substitution between equally skilled immigrants and natives, we conclude that the OP data, correctly analyzed, imply that the two groups are perfect substitutes. In fact, by using a statistically valid set of regression weights and by defining the earnings of a skill group as the mean log wage of the group (rather than the unconventional log mean wage used by OP), we find that the OP data reveal an effectively infinite substitution elasticity. The evidence thus implies that native workers are exposed to adverse effects from immigration-induced increases in labor supply.

The study sheds some light on the thinking behind (and backlash against) Alabama’s court-upheld crackdown on illegal immigrants.


What if They'd Just Called it the iPhone 5?

Unless you’re living under a rock, you’re probably aware that Apple unveiled a new iPhone yesterday. At what turned out to be a relatively muted Apple product launch, it was new CEO Tim Cook‘s first chance at replacing Steve Jobs as product pitchman. It seems he did just fine.
The new iPhone is loaded with cool new features that the market was anticipating, with one exception: it’s not called the iPhone 5, it’s called the iPhone 4S.
By the time it became obvious that Cook wasn’t going to introduce anything called an iPhone 5, (about 1:50 pm EST yesterday), the stock price began to plummet pretty quickly, as you can see in the chart below. From 12:15 pm to 3:15 pm, the price dropped more than 6%. Also, note the spike in volume at the bottom.