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Archive for 2011

The Perils of Automatic Pricing

In response to our post about the Amazon.com price difference for Caucasian and African-American dollhouses comes this interesting e-mail from a reader named Stephen Fidele:

Back in the day, I used to work at CD-Now, which was the largest retailer of music on the internet right around 1999-2002. For some strange reason, I was placed in charge of “pricing.” Say our normal price for a CD was $17.99 … but if that CD hit the “Top 100” we reduced the price to $13.99. Now imagine that we have a CD by a rap artist that has some pretty strong lyrics in it. We also have a “toned down” version, so that parents can protect their children. Invariably, the hardcore version would hit the Top 100 and the price would automatically fall, and I would receive boatloads of complaints from parents asking why the “toned down” version cost more … just one of the problems when you automate a system. We had a similar problem when Joey Ramone (of the Ramones) died. All of their old stuff went back to the Top 100, and the system automatically lowered the price … I fixed that in a hurry! Anyhow, I am not sure if the “powers that be” at Amazon are aware of even the possibility of this situation. Again, it’s more of a systems problem than anything else.


What Makes a Rogue Trader Tick? A Q&A with FT Columnist John Gapper

The rogue trader is a recurring character in the story of finance over the last 20 years. This is the guy who makes secret, unauthorized bets with his bank’s money, driven by some seeming combination of inadequacy and a huge appetite for risk, and abetted at times by an amazing lack of internal controls.

The deeper he goes, the harder he has to work to conceal his deception until one day, it inevitably comes crashing down. The bank loses billions, the trader (sometimes) goes to jail. The story is repeated every several years. The latest version broke in September when UBS announced it had lost more than $2 billion as a result of rogue trader Kweku Adoboli.

In his new e-book, How to Be a Rogue Trader, Financial Times columnist John Gapper explains why this story has become so familiar over the years. As he puts it, the rogue trader is a species of sorts within the world of finance, a special breed with certain behaviors and characteristics that are consistent through time. Gapper delves into evolutionary biology and the research of Daniel Kahneman to better understand the nature of men like Nick Leeson, Joe Jett, and Jerome Kerviel.


Why Is It Easier to Copyright an Unhealthy Yoga Routine than a Healthy One?

You might wonder first how yoga, dating back thousands of years in India, can be copyrighted at all. (Not easily, as we will explain in a moment.) But the question we raise emerges from a very current dispute between two rival yoga studios.

Bikram Choudhury is the founder of Bikram Yoga, a popular chain of yoga studios frequented by celebrities such as Lady Gaga and David Beckham. In Bikram Yoga classes, students enter a room heated to 105 degrees Fahrenheit to perform a set of 26 traditional poses and two breathing exercises. While you might think demand for this would be low, “hot yoga” has made Choudhury very rich. He has a villa in Beverly Hills, and a collection of more than three dozen Rolls-Royces and Bentleys.


Who Wants to Sell a Soul?

In the comments section for a Q&A with professional skeptic Michael Shermer, a reader named Caleb B. writes:

Here’s my question: what is it about the idea of a soul that even people who confess to not have one are hesitant to sell it? I have been trying, for the better part of ten years, to buy a soul. I’ve offered a dollar amount, between $10 and $50, for someone to sign a sheet of paper that says that I own their soul. Despite multiple debates with confessed atheists, no one has signed the contract. I have been able to buy several people’s Sense of Humor and one guy’s Dignity, but no souls. Additionally, will any Freakonomics reader take me up on this? I’m willing to spend $50 on souls.

He has so far received at least one offer, from reader Jared Doom:

Caleb B., I will absolutely sell you my soul. To be fair, this won’t preclude me from selling it again to other suckers who (a) believe in souls and (b) believe they can be readily transferred on purchase. To be clear I’m offering because I don’t believe (a)

If nothing else, perhaps this blog has a future as a market for hard-to-purchase goods?


Will Capitalism Survive?

Will modern capitalism survive this financial crisis? The Occupy protesters camped out around the country may hope that it won’t, at least not in its current form. Economist Kenneth Rogoff sees few alternatives, but plenty of challenges to the system in a new essay for Project Syndicate:

I am often asked if the recent global financial crisis marks the beginning of the end of modern capitalism. It is a curious question, because it seems to presume that there is a viable replacement waiting in the wings. The truth of the matter is that, for now at least, the only serious alternatives to today’s dominant Anglo-American paradigm are other forms of capitalism.


U.S. Nuclear Power to China?

In our “Weird Recycling” podcast, Nathan Myhrvold talks about TerraPower, the nuclear-power firm that he and Bill Gates are promoting, which would use depleted uranium (castoff waste from traditional nuclear plants) as fuel. TerraPower has impressive plans but has yet to build its first plant.

It was a long interview, only a sliver of which made it into the podcast. One leftover part concerned the U.S.’s skittishness about nuclear power:


The Folly of Prediction, Cont'd.

Our “Folly of Prediction” podcast included an interview with Joe Prusacki, who directs the statistics division at the USDA’s National Agricultural Statistics Service. This means he helps make crop forecasts (read a primer here). As hard as the USDA works, the fact is that predicting the future of even something as basic as crop yield can be maddeningly difficult. The Wall Street Journal has the latest in an article headlined “Erroneous Forecasts Roil Corn Market“:

Government reports about the U.S. corn crop have become increasingly unreliable of late, contributing to wild swings in corn prices, a Wall Street Journal analysis shows.

Over the past two years, the Department of Agriculture’s monthly forecasts of how much farmers will harvest have been off the mark to a greater degree than any other two consecutive years in the last 15, according to a Journal analysis of government data. This year’s early-season forecasts also appear to have been way off. The next monthly report is due on Friday.


Straight A's If Your Roommate Dies?

Several students claimed in class that our university will give you straight A grades in the semester in which your roommate dies. I said I doubted this claim for two reasons. First, it creates a moral hazard: you are more likely to engage in behavior that would kill your roommate; you might even kill him/her yourself. Second, it will generate adverse selection — people will be more likely to want to room with the dying or those in bad health.

Given these difficulties (and the absurdity of the story), I am 99.99 percent sure that this is a local urban legend. A similar, equally implausible student urban legend at U.T.-Austin is that you receive free tuition for the rest of your college career if you are injured by a university-owned vehicle. I don’t see any adverse-selection problem here, but it sure creates a moral hazard!


Worldwide Carbon Emissions No Longer Dropping — Is Anyone Surprised?

In our SuperFreakonomics chapter about global warming, a central argument was that greenhouse-gas emissions (and pollution in general) are an externality, and it is inherently difficult to control and/or price externalities. So, while it might seem sensible to encourage fewer emissions by taxation or price controls — or international agreements — the reality is complicated:

Besides the obvious obstacles — like determining the right size of the tax and getting someone to collect it — there’s the fact that greenhouse gases do not adhere to national boundaries. The earth’s atmosphere is in constant, complex motion, which means that your emissions become mine and mine yours. Thus, global warming.

If, say, Australia decided overnight to eliminate its carbon emissions, that fine nation wouldn’t enjoy the benefits of its costly and painful behavior unless everyone else joined in. Nor does one nation have the right to tell another what to do. The United States has in recent years sporadically attempted to lower its emissions. But when it leans on China or India to do the same, those countries can hardly be blamed for saying, Hey, you got to free-ride your way to industrial superpowerdom, so why shouldn’t we?


Here's What a Lunch of Chicken Feet Looks Like

Our latest Freakonomics Radio podcast, “Weird Recycling,” included a field trip to Golden Unicorn in New York’s Chinatown to eat some chicken feet. Our guest was Carlos Ayala of Perdue Farms. Ayala told us that the export of chicken feet, primarily to China and Hong Kong, is such a big part of Perdue’s business that the firm might be in trouble if that export market didn’t exist. Here are some snaps from Ayala and Stephen Dubner‘s chicken-feet lunch at Golden Unicorn.


Does the McRib "Pork Price" Theory Make Any Sense?

The McRib is the Brigadoon of the food world, and inspires similar passion. Consider Willy Staley‘s long and entertaining report at the Awl, which wonders if the McRib’s very occasional appearances are related to low pork prices. Dan Hamermesh found this line of thinking sensible too.

But … really? Aside from the fact that the correlation between McRib reintroductions and pork prices isn’t very robust, I always wondered if a firm of McDonald’s size could be so nimble as to strike fast on something like this. In the comments on Hamermesh’s post, a reader named Jeff Birschbach tells us what he knows:


Is The Big Bang Theory Producing More Physics Majors?

That’s the (tenuous) claim of this Guardian article:

According to the Higher Education Funding Council for England (HEFCE), there was a 10% increase in the number of students accepted to read physics by the university admissons services between 2008-09, when The Big Bang Theory was first broadcast in the UK, and 2010-11. Numbers currently stand at 3,672. Applications for physics courses at university are also up more than 17% on last year. Philip Walker, an HEFCE spokesman, said the recent spate of popular televisions services had been influential but was hard to quantify.

Hard to quantify, indeed.

FWIW, we’ve been told by a lot of youngish readers that Freakonomics and SuperFreakonomics led them to major in economics. John J. Siegfried addressed this possibility in a Journal of Economic Education paper called “Trends in Undergraduate Economics Degrees, 1991-2010”:


Roland Fryer Identifies Five Habits of Successful Charter Schools

Harvard economist (and Freakonomics friend) Roland Fryer has a new paper out (full version here) that takes a look at the specific successful habits of charter schools. Along with co-author Will Dobbie, Fryer collected “unparalleled data” on 35 elementary and middle charter schools in New York City by conducting extensive interviews and videotaping classrooms.

Their results are fairly counter-intuitive. They showed that traditional solutions like class size, per-pupil expenditure, and the number of teachers with advanced degrees are not correlated with effectiveness, and in fact, “resource-based solutions” actually lowered school effectiveness.

Instead, they found five qualities that made up about 50 percent of a charter school’s effectiveness. These are:

1. Frequent teacher feedback
2. Data driven instruction
3. High-dosage tutoring
4. Increased instructional time
5. Relentless focus on academic achievement.


Was the Russian Election Fraudulent?

The Times today published a compelling report of first-hand observations of election fraud in Russia’s recent parliamentary elections. There are mounting protests; Secretary of State Hillary Clinton voiced “serious concerns” about the election and called for a “full investigation of electoral fraud and manipulation.”

But what if those first-hand observations were anomalous? What if the outcome for Vladimir Putin‘s United Russia Party, as disappointing as it was for him, truly represents the will of the Russian people?


Why the NBA Players Keep Losing to the Owners

The following is a guest post by David Berri, a Professor of Economics at Southern Utah University. He is also the lead author of Stumbling on Wins, the general manager of the sports-economics blog Wages of Wins, and is a frequent contributor to the Freakonomics blog.

In the past couple weeks I have written about labor negotiations in the NBA and the recent labor agreement in Major League Baseball. Now that we have agreements in both sports, thanks to the new NBA deal, I would like to address why the two unions involved in these negotiations have historically achieved such different outcomes.

Let’s begin with how the outcomes are different.


An ATM Gone Wrong — The Triumph of Little Computers?

I recently switched banks, to Chase. So far, it’s been a pretty good experience. Indeed, the bank does a lot of very good things from a customer-service perspective.

But:

While using an ATM, I wasn’t able to pull up a list of recent transactions. I was sure I just wasn’t finding the right menu. I could print out the recent transactions but I didn’t want to print it out; I just wanted to look at it on the computer screen. Having failed to figure it out after a few ATM visits, I wrote to the very helpful and smart Chase employee who helped me set up my accounts. He confirmed that I couldn’t get recent-transaction data via the ATM screen. Furthermore, he wrote:

Your only other options at this point are:

1) Enroll your mobile phone for Chase Mobile which will allow you to receive a text message of recent history

2) Download the Chase iPhone application which will allow you to access real-time transactions

3) Stop in and sit with a banker who can show you recent transactions/pending or posted

At this time, there is no alternate way to view recent history at a Chase ATM.

I apologize for the inconvenience.

Wha? “Sit with a banker” to see my recent transactions? Shall I bring my collection of buggy whips to pass the time while waiting?


What Happens When You Ice Your Own Kicker?

In our Freakonomics Football episode “Why Even Ice a Kicker?”, Stephen Dubner explores the NFL fad of calling a timeout just before the opposing team’s kicker attempts a crucial field goal. The idea is to get into the kicker’s head, and make him think about all that pressure he’s under to make a big kick. The practice has become all but routine in the NFL, even though, according to the data, it doesn’t work, and in some cases even backfires.

But what about when a coach ices his own kicker?

That’s essentially what Dallas Cowboys head coach Jason Garrett did on Sunday during a game against the Arizona Cardinals. With the score tied at 13, and just seven seconds left in regulation, Dallas rookie kicker Dan Bailey lined up for a potential game-winning 49-yard field goal. Right before the snap, Garrett called timeout. Bailey kicked it anyway, and nailed it. His second attempt? Not so good— he shanked it, wide left. The game went into overtime, and Dallas ended up losing 19-13 to the Arizona Cardinals.


A Nudge Photo Contest

What is this photo about? It came to me courtesy of Jan Chipchase, a design guru who spoke at a great meeting last week on how to help microfinance meet the needs of clients better. As an aside, the most poignant question posed at this meeting of donors, investors, policymakers and researchers on microfinance: Why oh why did it take so long for “client needs” to be the topic of conversation? And the most important question posed: How can we go beyond understanding something about client behavior and choices and translate that knowledge to scalable policies for banking to the poor?

Anyhow, I digress, back to the contest.


More People Are Quitting Their Jobs. How Good of a Sign Is That?

Fact: in September, we put out an hour-long Freakonomics Radio podcast called “The Upside of Quitting.”

Fact: in September, more Americans quit their jobs than in any month since Nov., 2008.

Coincidence?

Actually, it’s not even a coincidence. The podcast was out on Sept. 30; the resignations (2 million of them) covered the month of September.

That said, more resignations would seem to indicate an improving economy. From Time:

According to a recent survey by job-search site Snagajob, 44% of respondents who quit in the past year did so believing they would find a better opportunity elsewhere, up from 31% the year before.

Why, you might wonder, is Time citing Snagajob rather than a government source? And should we believe those numbers?


Bring Your Questions for Skeptic-in-Chief Michael Shermer

Michael Shermer is perhaps the world’s only professional skeptic. As the founding publisher of Skeptic magazine and executive director of the Skeptics Society, Shermer has turned his innate skepticism into a full-time job. In our recent podcast “The Truth Is Out There…Isn’t It?” Stephen Dubner talks to Shermer about the evolutionary basis for our tendency toward “magical thinking” and why humans are conditioned to see threats often where none exist. Here’s an excerpt:


"Football Freakonomics": Is the N.F.L. a Quarterback-Driven League?

We launched the Football Freakonomics series in the spring with an episode called “The Quarterback Quandary.” It examined the difficulty of drafting QB’s since they tend to be a) vital to a team’s success; and b) relatively expensive; but c) hard to assess coming out of college even if they have a substantial track record.

One thing we can all agree on, however: the NFL today is a quarterback’s league — isn’t it?

That’s the question we ask in our latest Football Freakonomics segment.

The numbers certainly line up in support of the quarterback’s dominance. As you can see in the accompanying graphic, there has been a sea change in the pass/run ratio over the past few decades. In the 1970’s, NFL offenses averaged roughly 26 passes and 35 runs per game. By the 2000’s, those numbers had essentially flip-flopped, with about 32 passes and 28 runs per game.


The Trouble Behind the New Unemployment Data

The November unemployment data that came out on Friday has Democrats crowing about the drop in the unemployment rate; yet Republicans are rightly pointing out that much of the drop was due to labor-force withdrawal. Neither party, however, seems to be noticing the most remarkable thing: the continuing, constant and historically high share of unemployment accounted for by the long-term unemployed, around 43 percent. This is bad for society for two reasons:

1. The burden of unemployment—the loss in utility—must increase the longer one is unemployed (and has perhaps exhausted savings and unemployment benefits).

2. With unemployment concentrated so narrowly, fewer people than otherwise experience the pain, so the political pressure to do anything to ameliorate the situation is lessened.

The huge rise in long-term unemployment, and the huge rise in the share of income accruing to the top 1 percent of households, both work to dis-integrate American society.


Welcome to the N.F.L.

The “first minority to be a controlling owner of an NFL team” isn’t an African-American.

I find this story interesting and am surprised it has been so lightly commented upon.

The team is the Jacksonville Jaguars (that may be one reason why it’s so lightly commented upon), and the new owner is Shahid Khan.


Did Racism Cost Obama Votes in 2008?

A new paper (PDF here) by Seth Stephens-Davidowitz, a Harvard Ph.D. economics student, attempts to measure whether “racial animus” cost Barack Obama votes in 2008. Using location-specific Google searches for racial epithets collected on Google Insights, and comparing Obama’s 2008 performance to John Kerry‘s in 2004, the study concludes that racism cost Obama 3 to 5 percentage points in the popular vote.


Does Marijuana Legalization Lead to Fewer Traffic Fatalities?

That’s the claim of a new paper by D. Mark Anderson and Daniel I. Rees, put out by the IZA, titled “Medical Marijuana Laws, Traffic Fatalities, and Alcohol Consumption”:

To date, 16 states have passed medical marijuana laws, yet very little is known about their effects. Using state-level data, we examine the relationship between medical marijuana laws and a variety of outcomes. Legalization of medical marijuana is associated with increased use of marijuana among adults, but not among minors. In addition, legalization is associated with a nearly 9 percent decrease in traffic fatalities, most likely to due to its impact on alcohol consumption. Our estimates provide strong evidence that marijuana and alcohol are substitutes.


FREAK-est Links

This week, does eating fish reduce the risk of Alzheimer’s? How to use Google to pick your baby’s name; the brains of psychopaths are structurally different; impatient people have lower credit scores, and an interactive chart of all the money in the world.


Why Does a Caucasian Dollhouse Cost Nearly 70% More Than an African-American Dollhouse?

If you were shopping on Amazon.com last night for a Fisher-Price “My First Dollhouse” with a Caucasian family, you would have been asked to pay $63.99. If, however, you wanted to buy what looks to be a nearly identical “My First Dollhouse” with an African-American family, the price was only $37.99.

Amazon reviewers have taken note, and aren’t pleased. When my son Solomon (11 years old) wandered past my computer last night as I was looking this over, he didn’t need any prompting: “That’s so racist!” he said.

Is it? What is it that we’re seeing here on Amazon — racial discrimination? Price discrimination? Neither?


The Violent Legacy of Africa's Arbitrary Borders

Even if they haven’t heard the term Scramble for Africa, most people know that something went wrong when the continent was divided into nation states by European colonial powers.

Some economists, however, have taken the time to quantify the destructive nature of Africa’s national borders. Authors Stelios Michalopoulos and Elias Papaioannou have released a new working paper showing how arbitrary border decisions have affected war and civil unrest in Africa, particularly among split ethnic groups and their neighbors. Not surprisingly, the length of a conflict and its casualty rate is 25 percent higher in areas where an ethnicity is divided by a national border as opposed to areas where ethnicities have a united homeland. Examples of divided (and conflicted) groups are the Maasai of Kenya and Tanzania, and the Anyi of Ghana and the Ivory Coast. The conflict rate is also higher for people living in areas close to ethnic-partitioned hot-spots.


There Used to Be Such a Thing as a Free Lunch

Tyler Cowen writes books more often than some people brush their teeth. He also blogs many times each day, including weekends, and does a variety of other productive, interesting things.

His latest book, An Economist Gets Lunch: New Rules for Everyday Foodies, is probably my favorite thing he’s written. (It’s not out ’til spring; I am lucky enough to have scored an advance copy.) It does such a good job exploring the economics, culture, esthetics, and realities of the food network that I don’t even mind the short shrift he gives Japanese cuisine (while being more thorough with Vietnamese, Korean, Indian, Thai, Filipino, and especially Chinese food).

There are a number of mind-blowing ideas and facts in the book, the most interesting of them in a chapter called “How American Food Got Bad.”