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Archive for 2012

Charitable Giving: Why Fewer Is More

December is the holiday giving season for many, but there are a lot of charities competing for your dollars, and it can be hard to know where they will do the most good.

I’ve written before about why you should be wary of sites that rank charities by administrative expenses. It tells you nothing about if the actual effectiveness of a charity’s activities. The recent Freakonomics Radio episode “Free-conomics” also pointed out that many charities themselves don’t even know if what they’re doing actually works.  This was one of the reasons I founded a non-profit which carries out research around the world to find out exactly which efforts to fight poverty work best. 

As well as choosing which charities to support, we also make choices about how we support them. Often overlooked, this choice can be just as important in influencing what our money actually achieves. Below, two experts in philanthropy, Caroline Fiennes and Phil Buchanan, explain one crucial effect of how we give. Fiennes is the founder of Giving Evidence and the author of It Ain’t What You Give, It’s the Way That You Give It: Making Charitable Donations That Get ResultsPhil Buchanan is president of the Center for Effective Philanthropy



"Homicide Victims Rarely Talk to Police," and Other Horrible Headlines

From a friend, who got them from a friend, who got them from someone else, here’s a collection of newspaper headlines that don’t quite accomplish what the writer set out to accomplish. Anyone who has ever written or published anything can surely sympathize — and laugh.




More Thoughts on the Rise of Management Consulting

A very interesting response to our recent podcast “I Consult, Therefore I Am,” from a consultant who blogs here.

Thanks for the podcast. Six years in management consulting, and a tremendous amount of what you said is true. A few additional hypotheses on the rise of management consulting:

1) The massive turnover of executives (CMOs average less than 2 years) creates a type of rotating vacuum on the leadership team. Someone is either leaving, or just arrived.

2) CXO are running out of time to think. Drucker said that executives should have 1/2 of their time to think through problems. That is certainly not the case with reporting requirements (SOX), end-of-quarter sales push, conference calls all day long that stretch from India to California.

3) Executive have become a bit lazy. They seek “benchmarking” and “best practices” as a surrogate for real strategy (know what activities to NOT do).

4) Consulting costs have become a fixed cost (like audit, or advertising). For the budgeting cycle, it is copy/paste to the next fiscal year x 103 percent to adjust for inflation.



Forget About Anchored Putters…This Is What the USGA Should Really Be Doing

Last week, the governing bodies of golf announced a ban on anchored putters.  Historically, when golfers putt (i.e. roll the ball along the green to try to get it into the hole), they swing the putter back and forth freely.  In recent years, a growing number of golfers have used a different technique, wedging the butt end of the putter into their stomach, or resting it against their chin.  For a variety of reasons, the head honchos of golf are against anchoring the putter.  I don’t have a strong opinion pro or con on this decision.  My hunch is that a careful data analysis would show that anchoring the putter doesn’t do much to help or hurt most golfers.  (For instance, I am about equally bad either way.)  Golfers who don’t play in tournaments can continue to use anchored putters if they like.  Tournament golfers will adjust.

In my view, the attention given to anchored putting is a distraction from the real issue that bedevils golf: pros hit the ball too far and everyday golfers hit the ball too short.  Pros hitting the ball too far is a problem because there is a huge stock of old golf courses, the value of which are greatly depreciated by the increases in distance.  Classic old courses aren’t hard enough to challenge the pros.  In response, large investments are made to stretch the distance of these courses to keep up.  And changes in the tournament courses alter the perceptions of golfers.  The course I grew up playing was hard enough when I was a kid, but now is perceived as too easy because it doesn’t compare to the championship courses. 



The Hidden Upside of Crowdfunding?

Reader Noah Dentzel claims that crowdfunding has overlooked virtues, and that it is giving rise to products that may never have happened via the traditional business model:

Most companies either a) raise money through traditional financing avenues or b) build a business slowly and invest first and then bring a new product to market. Crowdfunding allowed us to do everything backwards: by pre-selling a product before the tooling for it even exists, we get a good feeling for market demand and we then gain a clear picture of whether or not to move forward.

Meanwhile, because companies like us are financed through consumers (pre-selling), it’s essentially consumer driven business growth and innovation. We don’t have to wait around for angels or VCs, we can allow anyone from around the world (and a good third of our orders are from overseas) to invest in new ideas, new businesses and whatever will be crowdfunded next. What’s also pretty cool is that we’re making this product right here in California which isn’t too typical for a consumer electronic device these days. People ask why we’re not doing it in China and I just tell them that both in terms of quality and cost, we couldn’t afford it if we wanted to–these are some of the twists and turns that you see in the Crowdfunding consumer product long tail of manufacturing.

Check out Noah’s project here. Crowdfunding can, of course, also give rise to products like this.



Sudhir Venkatesh Responds to the Freakonomics Community

Dear Freakonomics readers,

A profile of me and my work appeared in the N.Y. Times yesterday. There were two story angles: how I conduct my research and allegations of questionable financial dealings in which I was involved. I wrote a formal statement to the Columbia University student paper and online blog, but you are also my community, so let me address you directly.

Three years ago, at my request, I began working with Columbia University on an internal initiative to develop greater clarity and transparency of an institute that they had asked me to direct. Together, we systematically reviewed grants management and research procedures as we sought to establish new, higher standards of reporting and accountability. Part of that review included the grants managed by my position. An audit was conducted, it was completed, and ethically I felt it was my responsibility to pay back $13,000 in previously reimbursed expenses for which my own recordkeeping did not meet these new standards. That matter is closed, and has been for over two years.



Are Independents More Immune to Bias Than Liberals or Conservatives?

Dan Kahan‘s research at the Cultural Cognition Project has found that even very smart people fit their knowledge to their ideology. (He has appeared on this blog a few times, and in our podcast “The Truth Is Out There…Isn’t It?”) Kahan has a new working paper (abstractPDF) on political affiliations and bias, which argues that independents seem to show immunity to the bias that afflicts both conservatives and liberals:

Social psychologists have identified various plausible sources of ideological polarization over climate change, gun violence, national security, and like societal risks. This paper reports a study of three of them: the predominance of heuristic-driven information processing by members of the public; ideologically motivated cognition; and personality-trait correlates of political conservativism. The results of the study suggest reason to doubt two common surmises about how these dynamics interact. First, the study presents both observational and experimental data inconsistent with the hypothesis that political conservatism is distinctively associated with closed-mindedness: conservatives did no better or worse than liberals on an objective measure of cognitive reflection; and more importantly, both demonstrated the same unconscious tendency to fit assessments of empirical evidence to their ideological predispositions.



Skipping the Free Buffet

Rational? I’m at a hotel and was given a coupon allowing me to eat the excellent breakfast buffet at no cost. Sounds good; but instead, I go next door to Caribou Coffee and buy a coffee and blackberry scone for $5. Is this utility-maximizing? 

I think so. I know that if I get the “free” buffet, I’ll eat a lot—probably orange juice and a large Belgian waffle with lots of syrup. Having pigged out over Thanksgiving, my weight is already up. Spending the $5 is a self-control mechanism: I know that once I’m done at Caribou, I’ll be sufficiently less hungry that I won’t want to spend time at the buffet (and won’t have eaten more than I should). There’s more to utility than increasing income and/or reducing spending!




How a Microfinance Program Encouraged School Dropouts

A new working paper (abstractPDF) by Britta Augsburg, Ralph De Haas, Heike Harmgart, and Costas Meghir uses a randomized trial to assess a microcredit program in Bosnia:

[W]e randomly allocated loans to a subset of applicants considered too risky and “unreliable” to be offered loans as regular borrowers of a well established MFI [micro-finance institution] in Bosnia. Our group is poorer and generally more disadvantaged than regular borrowers. What is particularly interesting is that they have applied for the loan and thus believe they have a profitable investment opportunity; however, they were turned down. This is exactly the group we need to analyze if we are to understand whether alleviating liquidity constraints in this way can be an effective anti-poverty tool.




A Small Nudge For College Enrollment?

A new working paper by George Bulman, a Stanford Ph.D. candidate and former Teach for America teacher, looks at whether having an in-school SAT or ACT testing center affects test-taking and college enrollment: Because the additional cost of taking the exam at a neighboring high school is very small, standard economic models suggest that there should be no effect. To . . .



Guilty Thought of the Day

Kenneth Chang, writing in the N.Y. Times about recent findings from the planet Mercury:

Mercury is as cold as ice.

Indeed, Mercury, the closest planet to the Sun, possesses a lot of ice — 100 billion to 1 trillion tons — scientists working with NASA’s Messenger spacecraft reported on Thursday.

Sean C. Solomon, the principal investigator for Messenger, said there was enough ice there to encase Washington, D.C., in a frozen block two and a half miles deep.

My first thought: encase Washington in miles-deep ice? — let’s do it!



Free-conomics (Ep. 103)

Our latest Freakonomics Radio on Marketplace podcast is called “Free-conomics.”  (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) 

The gist: economists are a notoriously self-interested bunch, but a British outfit called Pro Bono Economics is giving away its services to selected charities. Martin Brookes is one of its founders:

BROOKES: When we first set up Pro Bono Economics, there were some economists who thought it was wrong, in principle, to give a service to charity for free. That if the service of analysis of their data was valuable, they should have to pay for it.

If the supply side was reluctant, so was the demand side:



How to Get the Best out of College? Your Questions Answered

We recently solicited your questions for Peter D. Feaver, Sue Wasiolek, and Anne Crossman, the authors of Getting the Best Out of College. Your questions ran the gamut and so do their replies. Thanks to all for participating. And feel free to check out our podcast on the value of a college education, “Freakonomics Goes to College” (Part 1 herePart 2 here, and together as an hour-long special). 

Q. Michael Pollan summed up his philosophy of nutrition in seven words: “Eat food, not too much, mostly plants.” Do you have similarly pithy advice for students trying to maximize their college experience? Don’t feel limited to seven words – I’m just looking for something aphoristic. –Glen Davis

A. Your choices in college matter more than your choices of college, so choose wisely. 



The Benefits of the Safety Net

A new working paper (abstractPDF) by Hilary W. Hoynes, Diane Whitmore Schanzenbach, and Douglas Almond examines the effects of in utero and childhood access to the social safety net, specifically food stamps:

A growing economics literature establishes a causal link between in utero shocks and health and human capital in adulthood. Most studies rely on extreme negative shocks such as famine and pandemics. We are the first to examine the impact of a positive and policy-driven change in economic resources available in utero and during childhood. In particular, we focus on the introduction of a key element of the U.S. safety net, the Food Stamp Program, which was rolled out across counties in the U.S. between 1961 and 1975. We use the Panel Study of Income Dynamics to assemble unique data linking family background and county of residence in early childhood to adult health and economic outcomes.




Putting Microeconomics to Work

I’ve long been puzzled by the almost complete disconnect between real-world businesses and academic economics.  After I graduated from college, I went to work as a management consultant.  Almost nothing I learned as an economics major proved helpful to me in that job.  Then, when I went back to get a Ph.D., I thought what I had learned in consulting would help me in economics.  I was wrong about that as well!

Ever since, I’ve felt that both business and economics would benefit from a greater connection.  Why don’t businesses set prices the way economics textbooks say they should?  Why are randomized experiments so rare in business?  Why do economists write down models of how businesses behave without spending time watching how decisions are actually made at businesses? The list goes on and on.



InTrade, Prediction Market to the Stars, Gets Banned From the U.S.

InTrade, the Dublin-based prediction market (i.e., betting platform) that we’ve written about regularly over the years (including a Q&A with its founder, John Delaney, who has since died), is under legal scrutiny from U.S. regulators and will therefore stop taking bets from U.S. customers. Here is InTrade’s statement, and here is the CFTC’s press release on the shutdown. What will U.S. regulators do next, outlaw online poker?



Massimo Young Reports from Kenya: The Surprising Secret to Banking Success

My good friend Massimo Young recently moved to Kenya, where he is seeing what happens when you mix a little American ingenuity into a thriving but chaotic developing economy.  In what I hope is the first of many blog posts, Massimo reports on just what it takes to succeed in the banking industry in Kenya.  (Massimo does not have a financial interest in any of the companies discussed in his post, although he wishes he did!)

M-PESA: The Story of the Most Successful Bank in Kenya
By Massimo Young 

It’s not easy to do business in Kenya. Business people complain all the time that despite a wealth of opportunities, there are often major roadblocks to accomplishing much on the ground, especially at scale. In fact, Kenya ranks 121st out of 185 countries in the World Bank’s “Ease of Doing Business” survey.

On the other hand, there are some amazing examples in recent years of businesses that have managed to accomplish a lot very quickly. In particular, the wild success of mobile banking in Kenya has changed the way people use money here. Launched just 5 years ago, Kenya’s leading mobile money transfer service, M-PESA, now processes a total of about $5 billion in transactions per year, equivalent to an astounding 15% of the country’s GDP. Before it launched, only 14% of Kenyans participated in the formal banking sector. Today, about half the adult population uses M-PESA.



What's That Database Worth?

Laura Meckler of the Wall Street Journal investigates the value and possible future uses of President Obama’s massive “data trove.”  Here’s a quick rundown of the data at stake:

Mr. Obama’s campaign collected 13.5 million email addresses in the 2008 election, according to people who worked on the effort. Officials say the list has grown since then, but officials won’t say by how much.

The campaign also has lists of volunteers, including the names of neighborhood team leaders who were the most active supporters. A donor database has names of millions of people who made small campaign contributions. Campaigns aren’t legally required to report the names of people who give less than $200 total, and these donors haven’t been made public.

Meckler reports that Obama’s staff plans to enlist supporters’ help in getting the President’s agenda passed, but is still debating what to do with the data over the long-term.



The Demand Curve for Religion

“Render unto Caesar what is Caesar’s”? In many European countries, religion comes at a price: If you want the services of a religious community — for marriages, burial, and other activities — you pay a tax.  (In Germany, for example, there is an 8 percent surcharge on your income-tax bill.) A very nice Finnish study by Teemu Lyytikäinen and Torsten Santavirta, “The Effect of Church Tax on Church Membership” (Journal of Population Economics, forthcoming), uses this institution to examine the demand curve for religion. The price elasticity of demand is fairly small—not more than 0.05—but that is partly because until 2003, Finland made it difficult to opt out of a religious community (and opt out of paying the tax).  Not surprisingly, once the transactions costs of tax avoidance were reduced, the elasticity of demand appears to have risen.



Our Daily Bleg: Something That You Expected to Be Free

Hi everyone. We’re working on a Freakonomics Radio episode about — sorry, I’m going to be cryptic here — a person who expected to get/use something for free but was very surprised to learn that it wasn’t free after all.

I am looking for another good/fun example of this same idea. Do you have any? Ideally, it would be something that happened to you personally but it’s okay if you only read or heard about it, as long as we can verify it and maybe interview someone involved.

Thanks in advance.




Here's a School Incentive You Probably Never Thought of (and That's a Good Thing)

Fourth-graders in Declo, Idaho, faced an unusual incentive scheme for reading: if they didn’t complete their work they could either forgo recess or have others kids draw on their face with marker. Several kids chose the latter punishment and, as you can imagine, this didn’t go over so well. It should be noted that the teacher had let the students choose these rules. From the Times-News:

When Cindy Hurst’s 10-year-old son arrived home from school Nov. 5, his entire face, hairline to chin, was scribbled on in red marker — including his eyelids. He also had green, red and purple scribble marks over the red, and his face was scratched by a marker that had a rough edge.

“He was humiliated, he hung his head and wanted to go wash his face,” said Hurst. “He knows he’s a slow reader. Now he thinks he should be punished for it.” …

As more and more schools look for better ways to motivate students, I am guessing this tactic won’t gain a lot of traction.

(HT: C.P.)



A Perverse Incentive to Not Vote?

From a reader named Kyle Gregory:

I decided about a year ago that I am not going to vote and happened to find a neat little trick for those of us who take this stance.
 
I’m not sure about other states, but in Virginia, jury duty is determined by voter registration. I moved a couple of years ago, but never changed my voter registration since I didn’t plan on voting. I recently received notification of jury duty at my parents’ address where I am still registered to vote. The notification form has a section to fill out stating that you have not lived in that county in the past 6 months, which automatically disqualifies you from jury duty! So, as long as I do not want to vote, I am also exempt from having to do jury duty!




How Vulnerable Is Our Power Grid?

A newly declassified report from the National Research Council analyzes the vulnerabilities of America’s electric-power system. Douglas Birch of Foreign Policy explains:

[T]he formerly secret report to the Department of Homeland Security focuses more on the U.S. electric power system’s older technology and lack of spare capacity, saying the “physical capabilities of much of the transmission network have not kept pace with the increasing burden that is being placed on it.” As a result, it found, sophisticated physical assaults against key facilities could damage difficult-to-replace hardware and cause multiple cascading failures with catastrophic results.

Hurricane Sandy wasn’t a “sophisticated physical assault,” but it still did the job.



What Happens When You Get Rid of Affirmative Action?

A new working paper (abstract; PDF) by economists Peter Arcidiacono, Esteban Aucejo, Patrick Coate, and V. Joseph Hotz looks at the effects of California’s Proposition 209 on university matching:

Proposition 209 banned using racial preferences in admissions at California’s public colleges. We analyze unique data for all applicants and enrollees within the University of California (UC) system before and after Prop 209. After Prop 209, graduation rates of minorities increased by 4.4%. We characterize conditions required for better matching of students to campuses to account for this increase. We find that Prop 209 did improve matching and this improvement was important for the graduation gains experienced by less-prepared students. At the same time, better matching only explains about 20% of the overall graduation rate increase. Changes after Prop 209 in the selectivity of enrolled students explains 34-50% of the increase. Finally, it appears UC campuses responded to Prop 209 by doing more to help retain and graduate its students, which explains between 30-46% of the post-Prop 209 improvement in the graduation rate of minorities.

One caveat: the study doesn’t address outcomes for students who didn’t attend University of California schools as a result of the change.