My coauthor (and 16-year-old daughter) Antonia Ayres-Brown just published a piece in Slate about a project that started 5 years ago when we bleg’d Freakonomics readers to tell us about how McDonald’s refers to Happy Meal toys. Antonia was disturbed by the kinds of questions we encountered when we ordered Happy Meals at the drive-thru. We’d be asked things like “Is it for a boy or girl?” or “Do you want a girl’s toy or a boy’s toy?”
I asked readers whether they encountered similar questions. According to seventy nine reader responses, approximately one-fifth of the time McDonald’s employees did not ask a toy-related question. But when employees did ask a toy-related question:
47.7% Asked “Is It for a Boy or Girl?”
31.8% Asked “Do You Want A Boy’s Toy or a Girl’s Toy?”
15.9% Described the toys in non-gender terms.
I’ve waited this long to report the results because Antonia have I have been engaged in a long-term project to encourage McDonald’s to describe the toys without reference to children’s gender.
Last December, thousands of high school sophomores and juniors learned the results of the 2013 Preliminary SAT (PSAT) test. The juniors’ test scores will be used to determine whether they qualify as semifinalists for the prestigious National Merit Scholarship, which in turn makes them eligible for a host of automatic college scholarships. (Sophomores take the test just as practice.)
The juniors will have to wait to find out for sure if they qualify until September, just before they begin submitting applications to colleges across the country. But it is fairly straightforward to predict, based on their scores and last year’s cutoffs, whether they will qualify as semifinalists.
Many students would be surprised to learn that qualification depends not only on how high they score, but also on where they go to school. The National Merit Scholarship Corporation (NMSC) sets different qualifying cutoffs for each state to “ensure that academically talented young people from all parts of the United States are included in this talent pool.” They have not disclosed any specific criteria for setting the state cutoffs.
Phoebe Clarke recently posted a Deadspin article about an article that we just published in The Journal of Socio-Economics. The article, “The Chastain Effect: Using Title IX to Measure the Causal Effect of Participating in High School Sports on Adult Women’s Social Lives,” adopts an ingenious methodology pioneered by Betsey Stevenson (whose research is frequently featured here) in her 2010 study “Beyond the Classroom: Using Title IX to Measure the Return to High School Sports.” Stevenson estimates the effects of participating in high school sports on women’s economic lives, and finds that sports participation leads women to attain higher levels of education and earn more. I apply the same methodology to social outcomes, and find that sports participation causes women to be less religious, more likely to have children, and, if they do have children, more likely to be single mothers.
This is the second in a series of posts about the problem of excess fees charged to defined contribution retirement plans.
Retirement regulations have largely been successful in giving worker/participant defined contribution plans the opportunity to diversify. Most plans nowadays give participants a sufficient variety of investment options that it is possible to allocate investments so as to diversify away most idiosyncratic risks.
However, the 1974 Employment Retirement Income Security Act’s (ERISA) emphasis on diversification has diverted attention from the problem of excess costs. Courts evaluating whether plan fiduciaries have acted prudently have tended to just ask whether the plan offered a sufficient number of reasonably-priced investment opportunities. For example, in Hecker vs. Deer & Co. (7th Cir. 2009), the 7th Circuit found it was “untenable to suggest that all of the more than 2500 publicly available investment options had excessive expense ratios.”
In 2009, I published a post on this blog about Sarah Dooley, which ended with the words:
I predict she is going to make it big. I’m not sure how, but remember you heard it here first.
A couple of months later, I received a letter out of the blue from a legit movie producer who said he was writing to thank me for that post because from it he learned how talented Sarah is. He wrote that he had just signed a contract with her to develop a screenplay.
Fast forward to the present, and while I can’t find any movies made with Sarah’s scripts, I was happy to hear this NPR interview with her about an album she just released. The album is called “Stupid Things.” My favorite song, “Gym Looks Nice,” is a school dance tone poem that is characteristically moving. My daughter tells me that at one point, it made it into the top twenty downloads on iTunes. Sarah’s also released a music video of her song “Peonies.”
This is the first in a series of posts about the problem of excess fees charged to defined contribution retirement plans, a subject I’ve been researching with Quinn Curtis. Our findings about the pervasiveness of excess fees spurred me to reassess my own retirement investments. I was embarrassed to find that, among other things, my old Stanford University 401k was invested in “CREF Stock Account,” which uses a combination of “active management, enhanced indexing and pure indexing” and charges 49 basis points (.49%) as its “Estimated Expense Charge.” Now 49 basis points is not an outrageously high fee, but it is substantially higher than the fees charged by a low-cost index.
So I called TIAA-CREF and asked for help in rolling over my Stanford account to a Fidelity IRA. The TIAA CREF rollover specialist asked why I wanted a rollover, we had the follow brief exchange:
Watching The Wolf of Wall Street was a guilty pleasure for me. It wasn’t that the movie valorizes Jordan Belfort’s crimes, which defrauded victims of more than a hundred million dollars, but I felt uneasy about being entertained by a work of art indirectly derived from the pain of others – especially since it wasn’t clear that the injured parties were participating in the movie’s profits.
The movie literally and figuratively kept the victims of Belfort’s fraud outside the frame. In only a few scenes do we hear even the disembodied voices of the defrauded investors. But imagine what it would be like to watch the movie in the presence of one of Belfort’s 1,500 real-life victims, whose ranks included architects, engineers, insurance agents, real estate appraisers, and other middle-class professionals.
The movie repeats Belfort’s claim that his firm only targeted the super-rich. The idea is that we needn’t worry so much about who was hurt by these crimes, because these investors were so wealthy that they wouldn’t be as impacted by the loss of a few dollars. But some of his victims’ families tell a very different story: “My father lost practically a quarter-million dollars,” said one man, whose father, an engineer, was cold-called at home by a Stratton broker. His father suffered a stroke under the stress of his losses. As another investor puts it: “I’m not a rich guy, and I’ve been paying for it ever since.”
In 2009, while watching the closing credits of Invictus, the film about Nelson Mandela’s first years as South African president, I heard Yollandi Nortjie sing “9000 days were set aside / 9000 days of destiny / 9000 days to thank Gods wherever they may be.” Mandela spent 9,000 days in prison (about 24.7 years).
For some reason, I started thinking about the power of expressing the passage of time in alternative incremental units, and after playing around on Excel, I figured out that my spouse and I would soon have the opportunity to celebrate our “ten millionth marriage minute” (a little over 19 years).
It struck my fancy that this was a length of time worthy of observing in some way – even if just as an excuse to share a nice bottle of wine. For whatever reason, I loved discovering these additional, arbitrary moments of celebration and I decided it would be pretty easy to alert people when an unusual holiday was about to occur.
This post grows out of two working papers (downloadable here and here) I’ve written with Joshua Mitts, a former student of mine who is now working at Sullivan & Cromwell.
Why the CFPB’s Qualified Mortgage Rule Misses the Mark
Ian Ayres & Joshua Mitts
Last Friday, the Consumer Financial Protection Bureau’s “qualified mortgage” rule went into effect. This rule is designed to put an end to the risky lending practices that led to the financial crisis. But a simpler rule could better assure borrowers’ ability to repay and simultaneously create greater repayment flexibility.
The purpose of the QM rule is to help assure that borrowers have sufficient monthly income to make their required mortgage payments, lessening the risk of large-scale defaults like those experienced after 2008. The rule creates a lender safe harbor for qualifying mortgages. Lenders can still make non-qualifying loans, but must instead meet more onerous multi-factored underwriting standards. Qualifying loans reduce the risk that lenders will be held liable under Dodd-Frank for failing to make a “reasonable, good faith determination of a consumer’s ability to repay.”
I have a friend with whom I regularly eat out at restaurants and from time to time we disagree on how much to tip. Traditionally, I have been a hard-wired 20% tipper. But since studying the racial effects of taxi-cab tipping, I’ve been more attracted to tipping less – sometimes closer to 15%. This has at times created disagreements between my friend and I on how much to tip. He always wants to tip 20%. But when we’ve disagreed, we’ve always resolved the issue by tipping the larger amount. We always split the bill—including the tip—50/50.
But a few weeks ago, my friend and I were eating dinner and experienced exceptionally bad service. The server twice put in the wrong order and charged us for items that we had not ordered. I suggested that we reduce our tip to 10% (I note that while I’m high maintenance in many aspect of my life, I’m not persnickety about restaurant service and the last time I reduced my tip to 10% was probably more than 1000 restaurant meals ago). My friend agreed that the server had made these errors (and indeed, the sever himself acknowledged that the service was subpar), Nevertheless, my friend still wanted us to leave a 20% tip.
One day last spring, I saw in a Google alert that the Consumer Financial Protection Bureau (CFPB) had announced that it was for the first time making public a consumer complaint database. At the time, I was teaching a course in Empirical Law & Economics at Yale and decided to call an audible. I came into class that day and projected the raw data (which you can see for yourself by clicking here) and asked the class how we might make use of the information.
With incredible dispatch, Jeff Lingwall and Sonia Steinway merged the complaint data with other datasets and together we started to put together an initial draft analyzing the complaint information. When the CFPB made the database public, they actively encouraged “the public, including consumers, analysts, developers, data scientists, civic hackers, and companies that serve consumers, to analyze, augment, and build on the public database to develop ways for consumers to access the complaint data or mash it up with other public data sets.” This paper is our attempt to respond to the Bureau’s call to action.
Microsoft has now responded, with a blog post and a letter, to my post about an experimental study that I coauthored with Yale Law School students Emad Atiq, Sheng Li, Michelle Lu, Christine Tsang, and Tom Maher. Our paper calls into question the validity of claims that people prefer Bing nearly two to one.
In response to several commenters: I do not work for and do not have any consulting relationship with Google.
Microsoft claims that our study is flawed because it relied on their own blind comparison website. They now say that “Bing It On” is meant to be a “lightweight way to challenge people’s assumptions about which search engine actually provides the best results.” To be sure, companies often use fantastical or humorous scenarios for free advertising. However, Microsoft’s television commercials present the site as a credible way that people can learn whether they prefer Google or Bing. These commercials show people who discover that they really prefer Bing to Google. The challenge site that they created is either sufficient to provide insights into consumer preferences or it isn’t. The advertisements give the impression that the challenge site is a useful tool. Microsoft can’t have it both ways. If it is a sufficient tool to “challenge people’s assumptions,” then it is sufficient to provide some evidence about whether the assumed preference for Google is accurate.
My family liked our new Ford C-Max hybrid so much that we bought a second one just a few months later. But in between the two purchases, I learned something that made me think that in buying the second car I might also be buying a cause of action.
Before the second purchase, I learned that Richard Pitkin of Roseville, Calif., had brought suit against Ford for overstating the C-Max’s fuel efficiency. It apparently is too good to be true that a C-Max can achieve 47 mpg both in the city and on the highway.
Sure enough, two weeks ago, two $550 checks arrived in the mail because Ford had dropped its official mileage estimate from 47mpg to 43mpg. Ford calls the money a “goodwill payment.”
Did you find this blog post through Bing? Probably not—67% of worldwide searches go through Google, 18% through Bing. But Microsoft has advertised in a substantial TV campaign that — in the cyber analog to blind taste testing — people prefer Bing “nearly 2:1.” A year ago, when I first saw these ads, the 2-1 claim seemed implausible. I would have thought the search results of these competitors would be largely identical, and that it would be hard for people to distinguish between the two sets of results, much less prefer one kind 2:1.
When I looked into the claim a bit more, I was slightly annoyed to learn that the “nearly 2:1” claim is based on a study of just 1,000 participants. To be sure, I’ve often published studies with similarly small datasets, but it’s a little cheeky for Microsoft to base what might be a multi-million dollar advertising campaign on what I’m guessing is a low six-figure study.
To make matters worse, Microsoft has refused to release the results of its comparison website, Bingiton.com. More than 5 million people have taken the Bing-It-On challenge – which is the cyber analog to a blind taste test. You enter in a search term and the Bing It On site return two panels with de-identified Bing and Google results (randomly placed on the right or left side of the screen). You tell the site which side’s results you prefer and after 5 searches the site reveals whether you prefer Bing or Google. (See Below)
Microsoft’s soft ads encourage users to join the millions of people who have taken the challenge, but it will not reveal whether the results of the millions are consistent with the results of the 1,000.
Recently I spoke about condom use at TedxYale. It’s based on the article “A Separate Crime of Reckless Sex” I co-authored with Katharine K. Baker.
My friend Jack Hitt has a funny piece in The New Yorker listing misstatements about American history by conservative politicians, beginning with these doozies:
1500s: The American Revolutionary War begins: “The reason we fought the revolution in the sixteenth century was to get away from that kind of onerous crown.”—Rick Perry
1607: First welfare state collapses: “Jamestown colony, when it was first founded as a socialist venture, dang near failed with everybody dead and dying in the snow.”—Dick Armey
1619-1808: Africans set sail for America in search of freedom: “Other than Native Americans, who were here, all of us have the same story.”—Michele Bachmann
1775: Paul Revere “warned the British that they weren’t going to be taking away our arms, by ringing those bells and making sure as he was riding his horse through town to send those warning shots and bells that we were going to be secure and we were going to be free.”—Sarah Palin
1775: New Hampshire starts the American Revolution: “What I love about New Hampshire… You’re the state where the shot was heard around the world.”—Michele Bachmann
[Ed. note: One of these claims seems much closer to being true: see page 1336-38 of Property in Land].
Freakonomics Nation: can we produce an analogous list of historical misstatements by liberal pols? We’ll give out some Freakonomics swag to a clear winner or two.
My friend and co-author Peter Cramton continues his two-year crusade to improve the workings of “Medicare’s Bizarre Auction Program.” You can watch his YouTube testimony before the United States House Committee on Small Business here.
(See also his Oral Testimony, Transcript of Hearing, Video of Entire Hearing.)
Peter’s supplemental comments are particularly devastating in rebutting two claims of Lawrence Wilson, Centers for Medicare and Medicaid Services (CMS) Director of the Chronic Care Group:
CMS [claim]: “CMS worked closely with stakeholders to design and implement the program.”
Mr. Wilson. “CMS worked closely with stakeholders to design and implement the program in a way that is fair for suppliers and sensitive to the needs of beneficiaries.”
I have no problem with pedestrians pressing crosswalk buttons when they wait for the crossing light to change before crossing the intersection. Crossing lights and crosswalk buttons serve important safety function at busy intersections especially for disabled or elderly pedestrians who need a bit more time crossing the street.
But some pedestrians press the button with a conditional intention to cross the street before the crossing light changes if there is a break in the traffic. One often sees pedestrians approach an intersection, press the button, and then immediately cross the street, before the crossing light changes.
The pedestrian probably reasons a) “I have a right to press the button”; and b) having pushed it, I now see I can walk without inconveniencing anyone because there aren’t any cars coming.
One of the great lessons of contracts (and of the law more generally) is that the timing of actions can dramatically change legal consequences. An offeree who says “I accept” a moment after the offer is withdrawn is in a very different position than an offeree who says the same thing a moment before an attempt to withdrawn.
This past summer three sports stories seemed to turn on matters of timing. Les Carpenter writes that Lance Armstrong could have avoided is downfall if he had stayed retired:
The irony is that Armstrong could have remained a hero. He could have been a saint, as well as a beacon of light to millions who never would have thought he had cheated throughout his career. All he had to do was stay retired.
Several years ago, Felix Oberholzer-Gee, Joel Waldfogel and Matthew W. White, published a fascinating empirical article about the prisoner’s dilemma game embedded in the short-lived U.S. game show “Friend or Foe.” Their core findings:
Using data from two seasons of a television game show, we provide evidence about how individuals implement conditionally cooperative preferences. We show that (1) contestants forgo large sums of money to be cooperative, (2) players cooperate at heightened levels when their opponents are predictably cooperative, and (3) players whose observable characteristics predict less cooperation fare worse (monetarily) over time, as opponents avoid cooperating with them.
I always thought it might be nice to update the study to test to see whether different kinds of “cheap talk” were more or less effective in establishing cooperation.
One of the amazing things about the Super Bowl game this past weekend was that both coaches understood that the Patriots would be better off if the Giants scored a touchdown late in the game and reportedly instructed their teams accordingly. To my mind, this represents a high point in the prevalence of strategic thinking.
Was the failure of Ahmad Bradshaw to follow through on his coach’s instruction merely a failure of execution?
But I wonder whether the Giants failed to strategically optimize on the very next play selection. With about a minute left in the game (and with a timeout remaining for the Patriots), the Giants choose to go for a two-point conversion. My question is not about whether they should have kicked a point after. No, I wonder whether they might have done better by handing the ball to a swift runner, who might have even more perversely attempted to forgo scoring two points and instead tried to burn as many seconds off the clock as possible by merely running away from the other team (toward, but not into, the other endzone!).
Weight Watchers has ads in heavy rotation with Charles Barkley saying: “lose weight like a man.”
You can also hear him mention his success in his Saturday Night Live monologue.
Something is working. Since starting WW, he’s lost 38 pounds. But what about the Weight Watchers program that has him shedding so much weight?
Is it the group weigh-ins?
Is it the famous Weight Watchers point system?
Or is it something else?
Last Monday, Aaron Edlin and I published a cri de coeur op-ed in the New York Times calling for a Brandeis tax, an automatic tax that would put the brakes on income inequality. This is the third in a series of posts (the first and second posts are here and here) explaining more about our rationale and providing more details on how a Brandeis tax might be implemented. You can also listen to my hour-long interview on Connecticut Public Radio’s “Where we Live” here.
Of Lags and Caps: More Details About Possible Implementations of a Brandeis Tax
By Ian Ayres & Aaron Edlin
Remarkably of the hundreds of emails we received in reaction to our op-ed, almost no one questioned Brandeis’s idea that we can have great concentrations of wealth, or democracy but not both. People questioned other aspects of our proposal, asking questions like (1) how would it work in a world of income bunching; (2) would people still have the incentive to work hard; and (2) is it fair to have very high tax rates on the affluent.
Our last post talked about alternative potential triggers. Here we tackle some more detailed questions about implementation including how to trade off different kinds of distortions.
On Monday, Aaron Edlin and I published a cri de coeur op-ed in the New York Times calling for a Brandeis tax, an automatic tax that would put the brakes on income inequality. This is the second in a series of posts (the first post is here) explaining more about our rationale and providing more details on how a Brandeis tax might be implemented.
An Inequality Tax Trigger
By Ian Ayres and Aaron Edlin
A central idea behind our Brandeis tax proposal was to have a tax that is triggered by increases in inequality. Our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down.
On Monday, Aaron Edlin and I published a cri de coeur op-ed in the New York Times calling for a Brandeis tax, an automatic tax that would put the brakes on income inequality. In the next few days, Aaron and I will be publishing a series of posts explaining more about our rationale and providing more details on how a Brandeis tax might be implemented.
There Will Be Rich Always
By Ian Ayres & Aaron Edlin
In one of the more memorable lyrics from the musical Jesus Christ Superstar (based on Matthew 26:11), Jesus tells his disciples “There will be poor always.”
The same is true of the rich. There will always be a top 1 percent of income earners. But what it takes to be rich can change drastically over the course of even a single generation. In 1980, you would have had to earn at least $158,000 to be a one-percenter; but by 2006 the qualifying amount had more than doubled to $332,000. (You can produce an estimate of your own household income percentile – albeit using a different definition of income that produces a much higher 1 percent cutoff – at this wsj.com site.) The rise is not due to inflation as both these numbers are expressed in inflation-adjusted, constant 2006 dollars.
David Stern ran roughshod over owners during the recent NBA lockout negotiations. He was willing to levy stiff fines for any public comments that might undermine an image of management unity.
But the league’s power to control dissident owners possibly changed on Nov. 14, when the union representing NBA players formally dissolved. The league treated dissolution as a bad faith bargaining ploy by the players to gain bargaining power. You see, sports leagues can engage in collusive conduct that would otherwise violate the Sherman Antitrust Act – so long as the collusion takes place as part of a collective bargaining agreement. By disbanding the union, the players were threatening to expose the league to massive antitrust liability.
The league treated the players’ dissolution as though it had no impact on its control of team behavior. But imagine for a moment that one of the team owners took the players decertification seriously.
I was in Tokyo a few weeks ago speaking at IBM’s Business Analytics Forum. At 6:30 in the morning a few hours before my talk, I had a wonderfully rejuvenating swim at the Royal Park Hotel. But I was surprised to see a pool-side sign stating “Persons With Body Tattoos Not Allowed.”
I have swum at dozens of pools in the United States and have never encountered such a restriction. Is there any valid public health reason for tattoo discrimination? Is the pool policy driven by irrational health concerns (a la the early days of HIV hysteria)?
In one of my previous posts, I asked for help interpreting a rather bizarre dream imagining a new plotline for a National Treasure movie. These movies often involve deciphering secret codes, and so did my post. My [day]dream was actually an aid to help me remember 40 digits of the irrational, transcendental constant of Leonhard Euler, e.
Here is the dream again with numeric annotations in brackets:
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.
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.
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