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Archive for 2011

The Economic Battlefield of the NBA Lockout

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.

With the NBA away, sports fans are looking for something to satisfy their need to watch teams strive for victory. Well, why not take a look at the teams competing in the lockout? Okay, maybe this is a contest only a sports economist could love. But while it may not appeal to everyone, the labor dispute is still best thought of as a contest between two teams.

The first team is the NBA owners. The owners are the dominant buyer in the world market for elite basketball talent, so they have substantial monopsony power. In the other corner are the players, who are currently trying to disband their union. This union gave the players monopoly power in the sale of elite basketball talent (more specifically, in helping to determine the conditions under which individual players would sell their services). When a monopsony meets a monopoly on the economic battlefield, the outcome is determined by bargaining.


One More Time: Most Notable Quote of 2011

Since my last posting elicited many helpful comments, let me repeat it this week in hope of getting even more input:

I’m starting to think about my annual list, run by the Associated Press, of the top 10 most notable quotations of the year. By “notable” I mean “important” or “famous” or “particularly revealing of the spirit of our times” rather than necessarily being eloquent or admirable. Last year’s winners were a tie between Tony Hayward‘s “I’d like my life back” and Christine O’Donnell‘s “I’m not a witch.”

I would welcome suggestions of notable quotations from 2011, particularly ones from politics or popular culture or entertainment or sports or business or technology.


Paying People to Quit: What Law Schools Can Learn From Zappos

My favorite incentives book tells the story of how after a week of training, Zappos offers new employees a one-time, one-day offer of a cash bonus if they will quit (As noted in the Freakonomics Radio hour, “The Upside of Quitting”). I describe this as an anti-incentive because even though the Zappos offer on its face gives employees an additional reason to quit, in practice it keeps employees on the job longer.

The vast majority of trainees turn down the offer during training – resisting the temptation to take the money and run. Then almost no one quits in the initial months after training because they’d feel like fools to quit for nothing when they could have quit for money. The cognitive dissonance would be too great. This is the power of resisted temptation.

But in a recent Slate piece, Akhil Amar and I deploy the Zappos idea for a different purpose – to reduce the concern that law schools are admitting students who are unlikely to pass the bar.


Turkey Sex: The Way It's Done Now

Our latest Freakonomics Radio on Marketplace podcast, “Unnatural Turkeys,” looks at the origins of all those 40 million turkeys that Americans are going to eat this Thanksgiving. We’ve talked about why this happens; now we bring you the details of how it happens. USDA researcher Julie Long walks us through the process of what a day inseminating turkeys looks like. It’s an act that is almost unchanged since turkey insemination became the industry standard in the 1960s.

When you get down to it, artificially inseminating a turkey is a pretty labor-intensive, hands-on process. First, you have to get the “contribution” (semen) from the male. That means that each breeder male, which will weigh between 50 and 70 pounds, gets picked up and placed on the handler’s lap.Then another person helps get him ready to make his contribution to the artificial insemination process.


Utility vs. Price: Southern France or Jersey Shore?

I got an invitation to give a keynote address at a conference in southern France next June. A great conference, but I had to decline, since we’ve planned a week with the extended family on the New Jersey Shore (the only week we are all available). The man who invited me said,“… southern France would not have been a bad place to spend this holiday….”

Even though we love the Jersey Shore, he’s right—the relative utility from the French week would be higher; and if the relative price were one, we’d be off to France. However, the prices aren’t equal—it would cost over $1000 extra for each of 12 people to do the French week. Too bad—we’ll stick with the New Jersey week, a sensible and still very enjoyable economic decision in the face of income, price and time-constrained optimization.

(HT to NG)


Boo Journal: There Goes the NASCAR Vote

So the First and Second Ladies (Michelle Obama and Jill Biden) were brought in as grand marshals for the NASCAR season finale at Homestead (won in spectacular fashion by the absurdly entertaining Tony Stewart), and there was enough booing from the crowd to turn the story into “Michelle Obama, Dr. Jill Biden Draw Boos at NASCAR Event.” Video is here.

In our podcast “Boo…Who?”, we poked into political booing and sports booing, and how the two occasionally intersect. Bottom line: it’s often not pretty.

A couple twists worth noting in this case: these weren’t politicians getting booed but the wives of politicians (which would make the booing seem particularly hardcore); and they were there as part of a charitable campaign to help military personnel and veterans (which would make the booing seem to be a complaint about trying to score political points).

Now imagine for a moment that you were the person who handled this event from the White House side.


"Football Freakonomics": Is Momentum a Myth?

The following is a cross-post from NFL.com, where we’ve recently launched a Football Freakonomics Project.

Is momentum a myth? That’s the question we ask in our latest installment of Football Freakonomics. It’s the kind of topic that academic researchers are increasingly interested in – and the kind of topic that makes a lot of sports fans hate academic researchers.

Why?

Because they take all the fun out of our arguments! Do we really want to haul out a spreadsheet to talk about whether Mike Smith was a bonehead for gambling on 4th down? Or whether icing the kicker is a good idea?

As someone who has one foot in both camps (fandom and academic research), I can see both sides of the argument. In the case of momentum, however, I really want to know the truth – perhaps because it’s the kind of phenomenon that is harder to prove than most.


The Problem with Recalls

This week, Apple announced that it will be recalling the first-generation iPod Nano.

I happen to have one, and it’s been working without a hitch since 2006. I’ve never had an incentive to replace it for a few key reasons: I think it’s aesthetically pleasing, storage space isn’t a problem for me, and battery life isn’t a problem either — I use it on my daily commute. I also prefer buttons to touch screens.

But after seeing photos of a melting iPod due to the battery problem, I’m inclined to take part. Especially after I learned I’d be getting the same product, just new and without the fear of fire.

Here’s the hidden cost of a recall, though: Apple will send the new product to me 6 to 8 weeks after they’ve received my old one.


Does Raising the Minimum Wage Increase Unemployment?

Conventional wisdom holds that instituting or raising the minimum wage will increase unemployment. But a recent paper by Jeremy Magruder, an economist at Berekley, finds the opposite effect. Magruder examines the case of Indonesia in the 1990s, “where real minimum wages rose rapidly in a varied way and then dropped quickly with the inflation rate in the South East Asian financial crash.” Here’s an excerpt:

When minimum wages rose in one district relative to their neighbors, that district observed an increase in formal sector employment and a decrease in informal employment. It also observed an increase in local expenditures, which is consistent with the hypothesized mechanism of the big push: that local product demand increases labor demand. Moreover, this increase was only observed in local industries which can be industrialized and do supply local demand, supporting the model further. Tradable manufacturing firms saw no growth in employment, and un-tradable, but non-industrializable services saw an increase in informal employment.


SAT Strategy by Gender: Men Guess, Women Leave it Blank

To guess or not to guess? Most students wrestle with this question at least once during their multiple choice test-taking years. A new paper by Harvard economics grad student Katherine Baldiga examines whether men and women approach the issue differently. From the abstract:

In this paper, we present the results of an experiment that explores whether women skip more questions than men. The experimental test consists of practice questions from the World History and U.S. History SAT II subject tests; we vary the size of the penalty imposed for a wrong answer and the salience of the evaluative nature of the task. We find that when no penalty is assessed for a wrong answer, all test-takers answer every question. But, when there is a small penalty for wrong answers and the task is explicitly framed as an SAT, women answer significantly fewer questions than men.


FREAK-est Links

This week, crowd-sourcing your commute; mapping American migration; did behavioral economics backfire on Obama? McKinsey says U.S. needs 190,000 data scientists by 2018; data-mapping parking spaces, and even more on doctor handwashing.


Photo Gallery: Amateur Night at the Apollo

In our podcast “Boo…Who?” , the Freakonomics Radio team went to the Apollo Theater, where booing is openly encouraged, in Harlem to check out its Amateur Night. The Apollo is credited with launching the careers of Ella Fitzgerald, Aretha Franklin, and The Jackson 5, and is famous for having a very tough crowd. You can hear all the booing from the Apollo on the podcast (download/subscribe at iTunes, get the RSS feed, or read the transcript here) and check out the photos here.


Want Smarter Kids? Space Them (At Least) Two Years Apart

A new study (PDF here) by University of Notre Dame economist Kasey Buckles and graduate student Elizabeth Munnich finds that siblings spaced more than two years apart have higher reading and math scores than children born closer together. The positive effects were seen only in older siblings, not in younger ones.

The authors attribute at least part of the difference to older children getting more of their parents’ time during the first formative years of their lives before a younger sibling comes along.


The World's Most Expensive Photograph

A photograph of a river, some grass, and sky was auctioned at Christie’s in New York last week for a record-setting $4,338,500 to an unknown buyer. “Rhein II,” created in 1999 by German artist Andreas Gursky, beat out Cindy Sherman‘s previous photo auction record of $3.89 million in May, 2011.

We can’t repost an image of it, copyright and what not; though you can see it in the link above. But “Rhein II” measures 6 feet by 11 feet. The picture is one in a series of six photographs – the other five live in museums around the world, including the Museum of Modern Art and the Tate Modern.


What's Unique About "Kine"?

If you like words even a little bit, you should take advantage of Anu Garg‘s wordsmith.org. It is an idiosyncratic exploration of how language works; his “word a day” e-mail is particularly fun.

The “word a day” theme this week is “words with unusual arrangements of letters.” The first word in this series was “verisimilitude,” which Garg notes has perfectly alternating consonants and vowels. (Not bad, Anu, but my son’s name is even better, as it has perfect consonant-vowel symmetry while using only a single vowel: Solomon. An even longer example is Tunku Varadarajan‘s last name.)

“Verisimilitude” was followed by “syzygy” (“one could hyperpolysyllabically contrive a longer word having four Ys, but syzygy nicely lines up three of them organically in just six letters,” Garg notes) and “yob” (the rare word created by spelling a different word backward).

But today’s word is my favorite. It’s “kine.” Before you click this link, or look the word up elsewhere, try to guess what is unique about it. A slight hint: the answer is related to the topic of this post and, marginally, this one one too. The answer is below.


High IQ in Children Linked to Drug Use Later in Life

A new British study has found that people who scored well on IQ tests as children are more likely to be drug users as adults, especially women. Authors James White and G. David Batty published their study online in the Journal of Epidemiology and Community Health, and looked at data from almost 8,000 people over several decades to test what habits and qualities are tied to drug use.

The results suggest that men with high IQ scores at 5 years-old are 50 percent more likely to use drugs by the age of 30 than those with low IQ scores. High IQ scoring women at 5 years-old are twice as likely to use drugs than their low IQ counterparts.


Unnatural Turkeys (Ep. 49)

In our latest Freakonomics Radio on Marketplace podcast, we’re talking turkey, literally. (Download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript.) Americans are expected to eat more than 40 million of the big birds this month for Thanksgiving, so we asked the same question everyone’s thinking: where do they all come from? The answer might surprise you – it certainly seemed to surprise Kai Ryssdal.

Specifically, the question is this: of all the commercially raised turkeys in the U.S., what percentage are the product of artificial insemination?

The answer, oddly enough, is 100 percent. Why? Well, it’s a supply-and-demand story. Because Americans particularly love to eat turkey breast meat (a great delivery platform for gravy!), turkeys have been selectively bred over the years to have bigger and bigger breasts. So big, in fact, that when it comes time for a male turkey to naturally reproduce with a female, his massive breast prevents him from getting close enough to complete the act.


National Treasure Puzzler

During a break in my contracts class the other week I told the students about a strange dream I had. Here’s what I said:

I don’t know whether it’s because we just read a case about the War of 1812, but I dreamed a kind of screenplay that begins with a tight close up with two identical faces of Andrew Jackson. As the camera pulls back, we see that the Jacksons are struggling to break free from being inside a cramped triangle. To make matters worse, we see that their bodies are jerking about because they are holding between them an electrified neon equation blinking “2+3=5”. The equation is encased in some kind of phosphorescent circle.

They aren’t willing to drop the circle, because on closer inspection one can make out a miniature Andrew Jackson who is trapped inside the circle. To make matters worse, out of nowhere an airplane swoops in and hooks the top of the triangle so that the Jacksons and the rest of the triangle’s contents are suddenly dangling in midair behind the aircraft.


How Do Recessions Affect the C-Suite?

According to research by Yale labor economist Lisa Kahn, beginning your career during a recession can be a real drag, for a real long time. Finding that first job is obviously harder, and even when you do, the pay is usually much less. Kahn found (full paper here) that people who get their first job during a recession have a starting salary that’s on average 25 percent lower than it would be during a boom. Seventeen years later, those people are typically earning 10 percent less than they would had they started during a better economy.

But what about CEOs who start their business career during a recession? Is it any different for them?

According to a new study (full version here) from Antoinette Schoar (“The Church of Scionology” podcast contributor) and Luo Zuo, recessions have a peculiar effect on the career trajectory and management style of CEOs.


Has the Pill Led to an Increase in Prostate Cancer?

That is the possibility raised in a new paper published in BMJ Open and summarized in Science Daily. The presumptive culprit would be environmental estrogen exposure. Add this to the bulging files of Unintended Consequences of Birth Technology (the theme of a recent podcast called “Misadventures in Baby-Making.”) First, from the paper:

Prostate cancer (PCa) is the most common male malignancy in the Western world, and risk factors associated with this cancer remain ill defined.1 The only acknowledged risk factors thus far are: age, ethnicity and family history.1 Several studies have suggested that oestrogen exposure may increase the risk of prostate cancer,2–4 while other studies have not found an association.5 6


Agnostic Carnivores and Global Warming: Why Enviros Go After Coal and Not Cows

There’s not a single person who’s done more to fight climate change than Bill McKibben. Through thoughtful books, ubiquitous magazine contributions, and, most notably, the founding of 350.org (an international non-profit dedicated to fighting global warming), McKibben has committed his life to saving the planet. For all the passion fueling his efforts, though, there’s something weirdly amiss in his approach to reducing greenhouse gas emissions: neither he nor 350.org will actively promote a vegan diet.

Given the nature of our current discourse on climate change, this omission might not seem a problem. Vegans are still considered as sort of “out there,” a fringe group of animal rights activists with pasty skin and protein issues. However, as a recent report from the World Preservation Foundation confirms, ignoring veganism in the fight against climate change is sort of like ignoring fast food in the fight against obesity.


Economists in Charge

We’ve noted in the past that various countries routinely elect economists to be president or prime minister — a trend that has decidedly escaped the U.S.

We also released a podcast a while back called “What Would the World Look Like if Economists Were in Charge?” — which, despite the title, was about the U.S. more than “the world.” (Yes, I am as synecdochically myopic — or is that myopically synecdochal? — as any other American.)

Now, a British reader named Peter Bennett writes in with this challenge:

Looking forward to hearing your take on these new technocratic economists in charge in Italy and Greece.

Just how bad would things have to get in the U.S. before they’d call in the economists?

We will try to scare up a worthy contributor to answer both those questions in the near future.


Need Your "Weird Recycling" Stories, Please

We’re working on a Freakonomics Radio episode that will probably be called “Weird Recycling” (or, possibly, “What Do Chicken Paws and Tongue Depressors Have in Common?”). It’s about people who find or create value from things that are typically thought to be worthless (or worse!).

I’d love to gather a few more examples and I can think of no population in the world better suited for this task than the Freakonomics readership.

What say you?

Thanks in advance.


Hamermesh on The Daily Show: Ugly People

Our friend and contributor Dan Hamermesh was featured on The Daily Show last night, in a piece about ugly people. Hamermesh has done extensive research on the economic disadvantages of being unattractive. His most recent book, Beauty Pays: Why Attractive People Are More Successful, shows how all kinds of economic benefits flow toward physical beauty, from higher salaries, to better loan rates, to attractive, educated spouses.
In the bit, Hamermesh and Daily Show correspondent Jason Jones have some fun discussing whether “uglo-Americans” should be given special legal protection.


Ed Rendell on the Rules of Booing

In our most recent Freakonomics Radio podcast, “Boo…Who?”, we talk to former Pennsylvania Gov. Ed Rendell about Philadelphia’s reputation as the city with the meanest sports fans. Philadelphians are passionate, Rendell argues, but they don’t make exceptions for poor performance, not even for Santa Claus.

Still, sometimes things can go too far, which is why Rendell came up with his rules for booing. Sort of an Emily Post handbook for rowdy sports fans. Since Rendell’s rules are aimed mostly at the sports crowd, we decided to expand and ask him a few some non-sports booing questions. He has replied with direct answers.


Lawn Mowing Economics

As a teen Max had a great business mowing lawns. He used his hand-pushed power mower to build up a large clientele in a radius of his family’s house. When his friend and neighbor Charlie entered the business, ending Max’s local monopoly, Max didn’t have to cut his price—Charlie just expanded the radius of the client area.

Max knew he had problems, however, when he saw Charlie drive out of his garage on a riding mower. Charlie could now do four times as many lawns/day as Max. Max started losing customers when Charlie cut prices, as he could afford to (because his average cost/lawn was lower than Max’s and had a minimum with a higher output.) Not wanting to compete on price, and unable to get his parents to buy a riding mower, Max decided his opportunity cost was above his now lower lawn-mowing wage, and he quit the business to open a lemonade stand. (HT to MF)


Electric Cars Moving in the Wrong Direction?

A small (?) bad-news item about electric cars:

Electric cars face new scrutiny after a fire in a Chevrolet Volt prompted a federal investigation into lithium ion batteries, even after U.S. regulators said their own crash test likely led to the blaze.

And a big bad-news item about electric cars:

Accounting for more than half of the about 216,000 new cars sold sales in Israel by leasing to corporations, rental agencies are balking [at buying electric vehicles] because of uncertainty regarding the cars’ resale value. Mr. Bar said that he fears vehicles with switchable batteries might lose as much as 70% of their original value in four years instead of the typical 40% loss by gasoline-powered vehicles over the same period.

“It’s going to be a nice niche, a gimmick, for people who are environmentalists, and corporations who want to show they are saving the environment, but I don’t see a savings in costs,” Mr. Bar said.


Catholic Losses Are Baptist Gains

In the zero-sum game of competitive markets, one company’s misstep is often a rival’s gain. But what about in the marketplace of religion?

A new study (PDF here) titled “Substitution and Stigma: Evidence on Religious Competition from the Catholic Sex-Abuse Scandal,” by Notre Dame economist Daniel Hungerman, looks at whether other religious faiths gained from the Catholic Church sex abuse scandal. Using data from 1990-2007, Hungerman finds significant spillover effects on other religious groups.

The big winner? Baptist churches, both financially and in membership growth.


Daniel Kahneman, Nobel Laureate and Author of Thinking, Fast and Slow Takes Your Questions

One of the first times I met Danny Kahneman was over dinner, just after SuperFreakonomics was published. Shortly after we were introduced, Danny said, “I enjoyed your new book. It will change the future of the world.” I beamed with pride at this compliment. Danny, however, was not done speaking. “It will change the future of the world. And not for the better.” While I’m sure many people would agree with his last sentence, he was the only person who ever said it to my face!

If you don’t know the name, Danny Kahneman is the non-economist who has had the greatest influence on economics of any non-economist who ever lived. A psychologist, he’s the only non-economist to win the Nobel Prize in Economics, for his pioneering work in behavioral economics. I don’t think it would be an exaggeration to say that he is among the 50 most influential economic thinkers of all time, and among the ten most influential living economic thinkers.