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Archive for 2012

Garbage and the Herd Mentality

In our recent podcast “Riding the Herd Mentality,” we discussed how the actions of people around you significantly affects your behavior. A new paper studies garbage and litterers, and whether more garbage begets more garbage. Researchers Robert Dur and Ben Vollaard collected data for three months in a densely populated residential area in Rotterdam for some 4,000 households. The abstract:

Field-experimental studies have shown that people litter more in more littered environments. Inspired by these findings, many cities around the world have adopted policies to quickly remove litter. While such policies may avoid that people follow the bad example of litterers, they may also invite free-riding on public cleaning services. This paper reports the results of a natural field experiment where, in a randomly assigned part of a residential area, the frequency of cleaning was reduced from daily to twice a week during a three-month period. Using high-frequency data on litter at treated and control locations before, during, and after the experiment, we find strong evidence that litter begets litter. However, we also find evidence that some people start to clean up after themselves when public cleaning services are diminished.


Question of the Day: Should We Just Let Murderers Do Their Thing?

A reader named Mark Kozel writes to say:

I heard that Chicago will be pouring up to $14 million into police overtime to prevent murder and violent crime.

It got me thinking: is it cheaper to prevent this kind of crime, or to just let it happen and clean up the mess afterwards?

It would be hard to find many people, even economists, who would arguing that “just letting it happen” isn’t an outcome that society should even think about accepting.


Auction Theory and LIBOR

An article in The Economist argues that a little auction theory might solve some of the British Bankers’ Association (BBA) current LIBOR problems:

Some of LIBOR’s failures also have echoes in auctions. Traders at involved banks are accused of aligning their LIBOR estimates in an attempt to affect the final rate. They were able to cross-check what others had done, since the BBA makes individual estimates public. These traders had, in effect, formed a “bidding ring,” analogous to a sort of cartel that is familiar to observers of auctions.

Fortunately, a variety of economists have researched how to break bidding rings.  Their findings suggests that, in addition to relying on actual data (instead of estimates) and creating penalties for false bidding, the LIBOR system would benefit from a few changes focused on the weaknesses of bidding rings:

Once banks’ LIBOR bids actually have some commitment value, the system should focus on the weaknesses that auction cartels are known to have. The cartel-enforcement problem would be more acute if the BBA increased the number of submitting banks and kept those bids private. The entry of outsiders should be actively encouraged, by allowing other lenders to banks (money-market funds, say) to submit estimates, too.


Jimmy the Lock or Break the Window?

My first full day in Berlin and I’m off for a great run in 60-degree weather.  Only problem:  I take my office key, which looks very much like my apartment key.  I return to discover I’m locked out and stand around for an hour on the street in my running shorts  (since there is no information about a house supervisor or any other contact).  Fortunately, a painting crew arrives.  I ask one fellow to help me break a window (the apartment is on the ground floor). He says OK, but it would probably cost me €300 to have it repaired; instead, he claims he can jimmy the lock and will do so for €80. I am dubious, but after 45 minutes of hard work, he succeeds (without damaging anything).  He was pleased. He may have earned producer surplus of at least €60, as I doubt that he earns as much as €20 (untaxed!) for 45 minutes of work.  I’m delighted, got about €220 of consumer surplus, since I would have had to pay that much extra to break the window. This is what exchange is about — both sides gain.


Worried About Unemployment? Find a "High Touch" Profession

Writing for Slate, Ray Fisman (who’s been on the blog before) explains why “the bottom 20 percent of American families earned less in 2010 than they did in 2006, the year before the recession began”:

There are two broad shifts that account for much of this decline: globalization and computerization. From T-shirts to toys, manufacturing jobs have migrated to low-wage countries like Vietnam, Bangladesh, and of course China. Meanwhile, many of the tasks that might have been done by middle-income Americans employed as bookkeepers or middle managers have been replaced by spreadsheets and data algorithms.

Fisman argues that in order to succeed in the new economy, American workers need to shift away from construction and manufacturing jobs to “high touch” professions. “If jobs are being lost to low-wage Indians and computer programs, then what today’s worker needs is a set of skills that offers the personal touch and judgment that can’t be provided by a machine or someone 12 time zones away,” writes Fisman.


Price Controls in the NBA Force Teams to Find Different Ways to Keep Their Stars

The NBA free agent market opened this month and the moves making headlines include:

Steve Nash signing with the L.A. Lakers
Ray Allen signing with the Miami Heat
Jason Kidd signing with the New York Knicks
Deron Williams re-signing with the Brooklyn Nets

And then there is the Dwight Howard saga. 

Each of these stories appears to be summarized by a familiar line: 

Big star signs in Big Market. 


A Geoengineering Tryout

We’ve written a good bit (in Chapter 5 of SuperFreakonomics and also the blog) about potential geoengineering solutions to global warming. This summer, with the SPICE geonengineering trials on hold in the U.K., two scientists are getting ready to try out a small-scale experiment in the U.S. From The Guardian:

Two Harvard engineers are to spray sun-reflecting chemical particles into the atmosphere to artificially cool the planet, using a balloon flying 80,000 feet over Fort Sumner, New Mexico.


The Copyright Wars Come to the Obama-Romney Campaign

Last week, the Obama campaign released this sharp-elbowed political ad featuring Mitt Romney’s off-key rendition of “America the Beautiful.” And the Romney campaign promptly issued a sort of knock off — an ad featuring President Obama singing Al Green’s “Let’s Stay Together.”  The Romney ad uses the song to criticize Obama’s allegedly too-cozy relationship with lobbyists and campaign fundraisers. 

We can’t show you the Romney ad, as it’s been pulled from YouTube.  Why?  Because BMG Rights Management, the music publisher that owns the copyright in “Let’s Stay Together,” has sent YouTube a copyright takedown notice under the Digital Millennium Copyright Act, and YouTube has complied.

And we also can’t show you the original news footage of Obama singing — that’s also been taken down from YouTube following BMG’s copyright complaint.  The Obama ad featuring Romney’s singing is still up there – fortunately for the Obama campaign, “America the Beautiful” is a very old song (first released in 1910) and so the copyright has expired and the song is in the public domain.


A Bill of Goods? Assessing the Transportation Legislation

Do you want the good news, or the bad news… or the bad news… or the bad news… 

Okay, in this post let’s start off on the bright side. At a time when the two parties cannot agree on the menu at the Congressional cafeteria, the Republicans and Democrats have found something they can agree on. After three years of debate and nine temporary stopgap extensions, Congress and the President have enacted new transportation authorization legislation. This bill divvies up the gas tax money, plus some miscellaneous revenue from other sources (more on this later), and funds and regulates the federal surface transportation program for the next 27 months. 

In many respects, this is a pretty remarkable achievement. Things could have been worse: on the same day that the transportation agreement was announced, the Supreme Court handed down its ruling on healthcare. Compared to the stark partisanship surrounding that issue, when it came to transportation, John Boehner and Harry Reid held hands around the campfire and sang Kumbaya.


How Surprise Changes Your Appetite for Risk

From LiveScience:

According to new research from psychologist Heath Demaree, of Case Western Reserve University in Cleveland, Ohio, people who’ve experienced surprising outcomes in various situations — whether those outcomes were good or bad — are less likely to take risks in the future. In other words, it’s not whether you win or lose, but whether the outcome is expected. People appear to decrease their risk-taking levels after experiencing any surprising outcome — even positive ones.

“Surprising events are known to cause animals to stop, freeze, orient to the surprising stimulus and update their schemas of how the world works,” Demaree said. “Our recent research suggests that surprising events also cause people to temporarily reduce risk-taking.”


Wall Street Cheating

A new survey of 500 financial service professionals in the U.S. and the U.K. finds that 26 percent of survey respondents “had observed or had firsthand knowledge of wrongdoing in the workplace” and almost 25 percent “believed that financial services professionals may need to engage in unethical or illegal conduct in order to be successful.”  

Depending on your worldview, you may read that previous paragraph and think, Oh my goodness, that’s outrageous! Or, conversely, you might think Only 26 percent?!


This Is Your Brain on Altruism

We’ve had a lot to say about altruism, and how economists and others have tried to study it. A group of economists at the University of Zurich now claims to have found a spot in the brain associated with altruistic behavior. From Pacific Standard:

It’s called the right temporoparietal junction (or TPJ for short). Along with many other crucial functions, this neural crossroads gives us the ability to understand the perspectives of others—a prerequisite for empathy.

Swiss scholars report they have found a strong connection between the TPJ and a person’s willingness to engage in selfless acts.


Should You Ignore the Weather When Buying a New House or Car?

An NBER working paper (full PDF here) by Meghan R. Busse, Devin G. Pope, Jaren C. Pope, and Jorge Silva-Risso explores the role of projection bias when choosing a new car or house. It turns out that weather conditions are a huge factor when consumers are debating big purchases like houses or cars. The abstract:

Projection bias is the tendency to overpredict the degree to which one’s future tastes will resemble one’s current tastes. We test for evidence of projection bias in two of the largest and most important consumer markets – the car and housing markets. Using data for more than forty million vehicle transactions and four million housing purchases, we explore the impact of the weather on purchasing decisions. We find that the choice to purchase a convertible, a 4-wheel drive, or a vehicle that is black in color is highly dependent on the weather at the time of purchase in a way that is inconsistent with classical utility theory. Similarly, we find that the hedonic value that a swimming pool and that central air add to a house is higher when the house goes under contract in the summertime compared to the wintertime.


Ending the Math Wars in a Treaty of QAMA

As a country, we are often at war. If it’s not against Germany, England, terrorism, or Grenada, it’s the war on poverty (that’s gone so well), the war on cancer (ditto), and, of particular interest to me, the Math Wars, which have been raging for decades. On one side, the traditionalists insist on drilling and back to basics, “on behalf of sanity and quality in math education.” On the other side, the reformers insist on conceptual understanding using computers and calculators, to “promot[e] the rational reform of mathematics education.”

Both are half-right and half-crazy. As the reformers say, students need to understand what the mathematics means. Students whose word problem for “6 x 3 = 18” is of the form “There were 6 ducks, and 3 more showed up, so 6 times 3 is 18,” understand little. (See “Children Learning Multiplication, Part 1,” in the articles by Professor Thomas C. O’Brien.) As the traditionalists say, using computers for everything leads to needing a calculator to compute what 6.5 x 10 is.

However, there’s a tool to combine the merits of both sides: the Quick, Approximate, Mental Arithmetic (QAMA) calculator.


Golfing the Length of Detroit

I overlapped a little bit at the New York Times with Charlie LeDuff and let me just say that his reputation as a one-of-a-kind reporter is thoroughly deserved.

He now works for the Fox TV news station in Detroit. If you have ten minutes to spare, you should check out his recent piece: “Charlie LeDuff Golfs the Length of Detroit”.

Is it a) one of the most interesting pieces of reporting you’ll ever see? b) a kind of cultural criticism that almost never shows up in mainstream journalism? c) a golfing adventure that even the most adventuresome golfers have never considered?


Summer Solar Power

The City of Austin has given us a windfall:  As of October 1, it will pay 12.8 cents per kilowatt-hour for power generated by our new solar system instead of the previous 3 cents/kwh.  Of course, this seems fairer to me—but it also reflects more closely the value of the power we generate for the grid.  Demand varies over the day and season, and the city prices higher when more power is used (in summers, mostly for air conditioning)—it engages in peak-load pricing, a form of price discrimination.  Supply is limited by capacity, and in some cases in summer the capacity constraint is reached.  The power we produce is storable, presumably for release during the peak times when its opportunity cost is highest.  Thus the increased price paid to us reflects the value of what we generate.  Regrettably, my joy at this windfall is tempered by the simultaneous substantially increased price when we must purchase power because our system fails to generate enough for our needs!


Did Thomas Jefferson Really Father a Child With Sally Heming? And If Not, How Did the Story Get Born?

The podcast we’re putting out next week is called “Legacy of a Jerk.” It’s about how people’s reputations change, for better or worse, after their death. We talk at some length about Ty Cobb, widely considered to be one of the greatest baseball players who ever lived — and one of the nastiest humans. Suffice it to say that his reputation gets a second look in our episode.

With that idea in mind, I read with great interest Robert F. Turner‘s essay in the Wall Street Journal today about Thomas Jefferson having supposedly fathering a child with his slave Sally Hemings. Turner, a law professor at the University of Virginia, edited The Jefferson-Hemings Controversy: Report of the Scholars Commission. His Journal essay dismantles many of the arguments that seem to prove Jefferson’s paternity. Most interestingly, he provides a motivation for how the possibly untrue story was spread in the first place (and in this regard, there is a lot of overlap with the Ty Cobb story you’ll hear in our podcast next week).


The Verdict Is in: Sociology and Political Science Deserve the Hatchet

Last week, I asked Freakonomics.com readers “Which Social Science Should Die?” The results are in. Thank you for your clear-eyed, sober judgment. Recall that some of you answered in the comments (see previous link) and others visited the on-line poll (which is still open). As of this writing, more than 1,200 votes have been registered. 

And the winner — er, “LOSER”(!) is: 

Let’s Kill Off Sociology and Political Science!

As you can see from the chart below, nearly 50 percent believed that college/university presidents should eliminate sociology. Nearly 30 percent thought poli sci should be shuttered. [Editor’s note: it is perhaps not surprising that Freakonomics readers wouldn’t vote to eliminate economics.]


Faster Than Light: A Guest Post

I recently had occasion to e-chat with Rocky Kolb, a well-regarded astronomer and astrophysicist at the University of Chicago. Talk turned, of course, to the recent likely discovery of the Higgs boson — but, as Kolb talk about that, he raised an even broader and more interesting point about scientific discovery.

He was good enough to write up his thoughts in a guest blog post that I am pleased to present below:

 

Faster Than Light
By Rocky Kolb

After the news coverage of the past week, everyone now understands what a Higgs particle is, and why physicists were so excited about the July 4th announcement of its probable discovery at CERN, a huge European physics accelerator laboratory.  (The disclaimer “probable” is because it could turn out that the new particle seen at CERN is not the Higgs after all, but an imposter particle with properties like the Higgs.)

For a few days it was common to see, hear, or read my colleagues struggling to explain why the discovery of a Higgs particle is a triumph for science.  But after a week of physics in the news, the media has moved on to cover the Tom Cruise–Katie Holmes divorce and shark sightings near beaches.  Perhaps all the public will be left with is a memory that there was a triumph for science.  Science works: theories are tested and confirmed by experiment.

I think that the CERN Higgs discovery was, indeed, a triumph for science.  However, the Higgs was not the only dramatic announcement at CERN in the past year.  But the other dramatic result is something many physicists would rather forget.


Remembering Chinatown

Learning that Los Angeles’s Chinatown is fighting a Walmart store, including with a lawsuit against the city, reminded me of what I learned in that Chinatown years ago.

One midnight, fed up from revising our dissertations all day, a friend and I drove the 10 minutes from Caltech into Chinatown to dine at Full House Seafood, open until 2 AM. (My Ph.D. adviser once asked why graduate students all seem to live on Guam time.) The restaurant was lively and crowded but not packed, and we quickly got a table. While waiting to give our order, I noticed an African-American man sitting on the chairs near the front counter. Even though several tables were free, the waiters did not offer him a table. Other customers came in, and were seated. As our dumplings arrived and got eaten, and then the spicy tofu, the man still sat on the small chairs.


On Not Following Your Own Advice

A Bloomberg article by Michael J. Moore shows that finance and investment employees frequently commit the cardinal sin of failing to diversify their personal holdings by holding too much of their own company’s stock:

Current and former Morgan Stanley employees, who receive company shares to match their 401(k) contributions, held 24 percent of retirement assets in the firm’s stock before last year’s decline, the highest percentage of any of the banks. They lost $570 million in 2011 as the shares plunged 44 percent.

Bank of America Corp. (BAC) employees lost the most, $1.37 billion, as the lender’s stock dropped 58 percent last year. Workers at JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), both based in New York, also lost hundreds of millions of dollars.

JPMorgan employees, some of whom received stock in the company until last year to match retirement contributions, devoted 18 percent of their funds to the lender’s shares at the end of 2010. Bank of America employees put 13 percent of their assets in the bank’s stock, while the figures for Citigroup and New York-based Goldman Sachs Group Inc. (GS) were 8 percent and 2 percent, respectively.


In Case of Rain

In the town where we stay on the New Jersey shore the local movie theater advertises: In case of rain, we will have an extra show at 1PM on weekdays. Pretty clever. If it’s rainy, the demand curve for going to the movies shifts rightward—who wants to go to the beach in the rain. Accordingly, the theater increases the amount of showings supplied to the market. But why don’t they raise the price of tickets on bad-weather days? Presumably because it would create bad will among customers who might feel exploited, but perhaps there are other reasons. (I can’t imagine that it is difficult to alter prices on a daily basis.)


How Much Do Football Wins Pay Off for a College?

An NBER paper by Michael L. Anderson looks into the how a university’s football performance affects its academic performance:

Spending on big-time college athletics is often justified on the grounds that athletic success attracts students and raises donations. Testing this claim has proven difficult because success is not randomly assigned. We exploit data on bookmaker spreads to estimate the probability of winning each game for college football teams. We then condition on these probabilities using a propensity score design to estimate the effects of winning on donations, applications, and enrollment. The resulting estimates represent causal effects under the assumption that, conditional on bookmaker spreads, winning is uncorrelated with potential outcomes. Two complications arise in our design. First, team wins evolve dynamically throughout the season. Second, winning a game early in the season reveals that a team is better than anticipated and thus increases expected season wins by more than one-for-one. We address these complications by combining an instrumental variables-type estimator with the propensity score design. We find that winning reduces acceptance rates and increases donations, applications, academic reputation, in-state enrollment, and incoming SAT scores.


Macho, Macho Men

New research (summarized in the BPS Research Digest) from psychologists Jonathan Weaver, Joseph Vandello, and Jennifer Bosson indicates that men whose masculinity is threatened become “myopic and more prone to take risks.” Here’s the abstract:

Among the conjectured causes of the recent U.S. financial crisis is the hyper-masculine culture of Wall Street that promotes extreme risk-taking. In two experiments, we found that threats to their manhood motivated men to take greater financial risks and favor immediate (vs. delayed) fiscal rewards. In Experiment 1, men placed larger bets during a gambling game after a gender threat as compared to men in an affirmation condition. In Experiment 2, after a gender threat, men pursued an immediate financial payoff rather than waiting for interest to accrue, but only if they believed their decision was public. When the decision was private, gender-threatened men did not show the same desire for immediate reward. These results suggest that gender threats may shift men’s financial decisions toward more risky and short-sighted public choices.


Saving Money By Converting to Christianity

The Phnom Penh Post reports on a Cambodian village that’s converting to Christianity for economic reasons:

At upwards of US$500, the cost of slaughtering a buffalo to revive a relative condemned to ill-health by the spirits has pushed the Jarai indigenous minority residents of Somkul village in Ratanakkiri to a more affordable religious option: Christianity.

In the village in O’Yadav district’s Som Thom commune, about 80 per cent of the community have given up on spirits and ghosts in favour of Sunday sermons and modern medicine. 


Religion, Crime, and Television

A new survey study by Amir Hetsroni (who has also studied the difference between real doctors and TV doctors) and Hila Levenstein looks at the relationship between TV viewing and crime perception. The study, to be published next year in Psychological Reports, found a difference between religious and non-religious participants. From Ynetnews:

Yet the data collected from the 778 residents of northern Israel who watched channels 2 and 10 during prime time viewing hours in 2009 revealed some unexpected information. 

It soon became clear that among secular viewers there was a certain connection between television viewing and fear of falling victim to a crime. Whereas a situation called Counter-Cultivation was diagnosed among religious viewers. This means that the more they watched television, the less they feared becoming a victim of a crime.