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Matthew Philips

How Much Do Mood Swings Drive Business Cycles?

Every month, the Conference Board releases its consumer confidence index. Last month, confidence was up. The index is supposed to be a reading of how we feel about the current economic climate, a measurement of what Keynes referred to as our animal spirits. But while these surveys indicate how we’re reacting to the economy, they also influence it, creating a sort of self-reinforcing feedback loop. So, is the economy dictating our mood? Or is our mood dictating the economy?

A new working paper (pdf here) by Paul Beaudry, Deokwoo Nam, and Jian Wang attempts to untangle the two by asking whether (and if so how much?) mood swings drive business cycles:

12/19/11

The Economics of Chicken Feet… and Other Parts

Our latest podcast, “Weird Recycling,” featured Carlos Ayala, the Vice President of International at Perdue Farms. Stephen Dubner‘s interview with him centered on chicken feet — or chicken paws, as they’re called in the industry. Until about 20 years ago, paws were close to value-less for a U.S. chicken company. But thanks to huge demand in China, paws have become big profit centers. The U.S. now exports about 300,000 metric tons of chicken paws every year. Perdue alone produces more than a billion chicken feet a year, which according to Ayala brings in more than $40 million of revenue. In fact, Ayala says that without the paw, chicken companies would be hard-pressed to stay in business:

12/9/11

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

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

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

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

12/8/11

What Happens When You Ice Your Own Kicker?

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

But what about when a coach ices his own kicker?

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

12/5/11

Bring Your Questions for Skeptic-in-Chief Michael Shermer

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

12/5/11

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.

11/17/11

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.

11/14/11

FoxConn Is Building an "Empire of Robots"

Chances are, if you’ve heard of the Chinese technology giant FoxConn, it’s because it manufactures the iPhone and iPad. Last year, at an iPhone manufacturing complex in South China, there were a number of worker suicides that made news.

In apparent attempt to fix some of its labor issues, Foxconn’s parent company, Taiwan-based Hon Hai Precision Industry, is now making a big push into robots.

From the AFP:

The project, which is initially forecast to cost the Taiwan-based Hon Hai Precision Industry Tw$6.7 billion ($223 million), was unveiled Saturday when Terry Gou, chairman of the conglomerate, broke ground for the construction of a research and development unit in Taichung, central Taiwan.

“The investment marks the beginning of Hon Hai’s bid to build an empire of robots,” the Central Taiwan Science Park authorities said in a statement.

11/4/11

Does Democracy Make Us Richer and Better Educated? Or Is It the Other Way Around?

It’s one of the ultimate chicken or egg questions: Does democracy lead to increases in education and income, or do education and higher income lead to democracy? It’s a tricky one, considering that over the last 200 years, they’ve essentially moved in tandem across much of the developed world.
So which is affecting which? A new working paper (full version here) by Fabrice Murtin and Romain Wacziarg attempts to untangle the two to understand whether democracy grows from education and higher income, or vice versa.

11/2/11

Martin Lindstrom Answers Your Questions on Brandwashed

Last week we solicited your questions for Martin Lindstrom, a marketing consultant and author of the new book Brandwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy.

Now, Lindstrom, returns with his answers to a few of them. As always thanks for every one who participated.

 

Q One more question occurred to me: Marketing is intended to persuade us to buy products, but it also serves another latent function which is to educate us about new products, about differences between products, or about the products themselves. Given this educational benefit, among other benefits, do you think marketing is a net good or a net bad for society on the whole? – NZ

10/31/11

Charles Darwin: Fiscal Alchemist? Bring Your Questions for Cornell Economist Robert Frank

Back in 2007, we had a lively debate around a series of excerpts that Cornell economist Robert Frank contributed to the Freakonomics blog. We’re hoping an excerpt from his latest book,  The Darwin Economy: Liberty, Competition, and the Common Good, will spawn a similar conversation.
In it, Frank makes a rather bold prediction: within the next century, Charles Darwin, the naturalist, will unseat Adam Smith as the intellectual founder of economics. Frank believes Darwin’s insights into the nature of competition describe our current economic reality far better than Smith’s invisible hand. Frank argues that we live in a world where competition doesn’t channel self-interest for the common good, but rather into unbridled “arms races” where relative position is pursued above all else: who has the biggest bank? The biggest house? These races rarely benefit group interests. In fact, Frank argues, they have done enormous harm to our economy and provided no lasting advantages or benefits, since gains tend to be relative and offsetting.

10/31/11

Cost of College on the Rise (Again)

The numbers are in on how much it costs to go to college this year, and (surprise) they’re up again, thanks largely to decreases in state funding and increasing enrollments. The biggest price hikes came in the public sector: An 8.7 percent increase for in-state tuition at public two-year schools, and an 8.3 percent jump in the price of four-year public institutions, for in-state students.

If you remove California (which enrolls about 10 percent of the nation’s full-time public four-year college students), those numbers drop to 7.4 percent and 7 percent, respectively. That’s because California jacked its prices for public four-year colleges a whopping 21 percent this year. Hence the student protests last spring.

Here are the highlights:

10/27/11

Too Much Trash? Get Rid of the Trashcans

New York City’s Metropolitan Transportation Authority is trying a counterintuitive approach to cleaning up the subway by removing trash cans from some of its dirtiest stations. According to the New York Times, a subway stop in Queens and another in Greenwich Village have been entirely without trashcans for the last two weeks:

The idea is to reduce the load on the authority’s overtaxed garbage crew, which is struggling to complete its daily rounds of clearing out 40 tons of trash from the system.

But it also offers a novel experiment: will New Yorkers stop throwing things away in the subway if there is no place to put them?

Results have so far been mixed. While one bin-less station appeared relatively clean to a Times reporter, the experiment is obviously having some knock-on effects.

10/25/11

Bring Your Questions for Brandwashed Author Martin Lindstrom

Though the exact percentage is debatable, the fact is that the vast majority of U.S. GDP is made up of personal consumption. The American consumer doesn’t just drive the U.S. economy, for decades he’s been driving the global one as well. Though that dynamic is slowly changing as Americans cut back on just about everything we buy, for the better part of the last 60 years, the U.S. consumer has been king. And from this has sprung a massive marketing and advertising industry coldly focused on a singular goal: getting us to buy as much stuff as they possibly can.

In his new book Brandwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy, marketing guru Martin Lindstrom trains a bright light on his own industry to uncover all the unsavory things that marketers do to subtly, or not so subtly, influence our buying habits. Lindstrom’s agreed to answer your questions, so fire away in the comments section. As always, we’ll post his replies in due course.

10/24/11

Goldman Sachs Stumbles: The End of the "Vampire Squid"?

A few years ago, a friend of mine who used to work on Wall Street told me that the only stock anyone needed to own was Goldman Sachs. He was of course half-joking (I sure hope this wasn’t the advice he was giving clients), but his point was clear: whatever price increases were happening out in the world, whatever profits were there for the taking, no matter the market, you could be fairly certain that Goldman was on the scene.

The image of Goldman Sachs as some sort of omnivorous, ever-present beast was perpetuated by Matt Taibbi in his 2010 Rolling Stone article, in which he dubbed the firm “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” And that was just the second sentence.

It would appear that the squid has since had a few of its tentacles lopped off, or at least been shrunken down to size. For only the second time since it went public in 1999, Goldman Sachs has posted a quarterly loss.

10/19/11

Are We Really Losing 1% of GDP Due to Poor Health? Also, a Poll on Polling

We’ve been writing a lot about obesity recently. First, it was this study about projected future obesity rates, then we covered Denmark’s saturated fat tax, which Steve Sexton then criticized for being inefficient. So, if you’re tired of reading fat-related posts on our blog, I get it. But as long as reports like this one from Gallup keep coming out, we’re going to keep writing about them, especially when they include so many interesting conversation points.

Here are the top-line numbers:

About 86% of full-time American workers are above normal weight or have at least one chronic condition. These workers miss a combined estimate of 450 million more days of work each year than their healthy counterparts, resulting in an estimated cost of more than $153 billion in lost productivity per year. That’s roughly 1% of GDP.

10/18/11

How Will Sean Payton's Injury Affect the Saints' Offense?

On Sunday, in a game against the Tampa Bay Buccaneers, New Orleans Saints head coach Sean Payton tore his MCL and fractured his knee when one of his own players was tackled out of bounds and crashed into him on the sideline. You can watch the replay here if you have a thing for gruesome knee injuries.

Payton is the rare NFL head coach who still calls the offensive plays, so the injury presented a pretty big problem for the Saints, especially since it happened early in the first quarter. Rather than going to the training room, Payton gutted it out on the sideline and kept calling plays while trainers tended to his knee. By halftime though, with the Saints trailing 20-10, Payton had had enough and passed play-calling duties over to his offensive coordinator Pete Carmichael.

It’s tough to say what effect the injury had on the Saints’ offense Sunday; they lost 26-20. By the numbers, the Saints’ output was fairly even through the first to second half.

10/18/11

More Research on Why Nice Guys Lose

A couple months ago, we wrote about a study by researchers from Notre Dame and Cornell that showed how “agreeableness” negatively affects monetary earnings, particularly for men. Translation: it pays to be a jerk. Well, not exactly, but it apparently doesn’t pay to be overly nice.

Now, a recent paper from a host of researchers (from Stanford, Northwestern and Carnegie Mellon) fleshes out this notion by showing why nice guys who watch out for others generally fail to become leaders. The study looks at how contributing to the public good (i.e. taking care of outsiders, and even others in a group setting) influences a person’s status on two critical dimensions of leadership: prestige and dominance. People who shared resources with their group were seen as prestigious, while those who protected their resources and even sought to deprive members of another group were seen as dominant.

10/17/11

How the Internet Is Restoring the Market for Hitchhiking

In our latest Freakonomics Radio podcast, “Where Have All the Hitchhikers Gone,” we looked at how hitchhiking is essentially a market. Specifically, as Levitt puts it, it’s a “matching market” where supply (a person who’s willing to give a ride) matches up with demand (a person who needs a ride) in natural equilibrium. Over time, that equilibrium, as facilitated by people thumbing on the sides of roads, eventually vanished.

But the supply remained; actually it increased — as the average number of passengers in a car during the work commute went from 1.3 in 1977, to 1.1 today. (Click here for more data.) And as gas prices have steadily risen, and the economy flat-lined, the demand has seemingly come back. Enter the Internet as the new facilitator.

As many of you have pointed out in emails and comments, an entire online ecosystem of ride-sharing ventures has cropped up in the last few years. So here are the highlights:

10/14/11

Why Do Only Top MBA Programs Practice Grade Non-Disclosure?

Last spring while I was finishing my fellowship at Columbia Business School, much of the student body was busy trying to overturn the school’s grade disclosure policy. Back then, Columbia was one of the few top MBA programs that did not practice grade non-disclosure, meaning recruiters were allowed to ask Columbia students about their grades. By the end of the year, the issue had passed a student referendum, and this semester Columbia became the latest business school to have a grade non-disclosure policy, which encourages students not to disclose their grades to employers until they’ve been hired.

Grade non-disclosure policies are a quirk of MBA programs. You won’t find them in medical or law school. In fact, the only place you do find them is among top business schools. Of the 15 most selective MBA programs, 9 of them have some form of a grade non-disclosure policy. But of the schools ranked from 20 to 50, none do.

A new paper from a pair of Wharton economists examines why this is.

10/12/11

Is Mitt Romney Less Well-Known Than He Was in 2007?

According to a new Pew Research Center poll, while 54 percent of Americans are able to name at least one GOP presidential candidate, the leading candidates aren’t named as often as in previous years. Only 27 percent of Americans named Mitt Romney and only 28 percent named Rick Perry. That’s below the same measure taken four years ago in October 2007, when 45 percent could name Rudy Giuliani and 30 percent could name Romney. So, well into his second campaign for president, Romney is now less well-known than he was four years ago, when he ran the first time around. Not exactly encouraging.
Also, it’s interesting that Perry is still more recognizable than Romney, despite having fallen in the polls recently — especially since Perry got into the race only about two months ago, and Romney’s been running for much of the last four years. Chalk it up to the Texas swagger versus consultant technocrat?

10/6/11

What if They'd Just Called it the iPhone 5?

Unless you’re living under a rock, you’re probably aware that Apple unveiled a new iPhone yesterday. At what turned out to be a relatively muted Apple product launch, it was new CEO Tim Cook‘s first chance at replacing Steve Jobs as product pitchman. It seems he did just fine.
The new iPhone is loaded with cool new features that the market was anticipating, with one exception: it’s not called the iPhone 5, it’s called the iPhone 4S.
By the time it became obvious that Cook wasn’t going to introduce anything called an iPhone 5, (about 1:50 pm EST yesterday), the stock price began to plummet pretty quickly, as you can see in the chart below. From 12:15 pm to 3:15 pm, the price dropped more than 6%. Also, note the spike in volume at the bottom.

10/5/11

Denmark Levies the World's First Nationwide Fat Tax

This week, Denmark begins a large-scale incentives trial of sorts by becoming the first country to impose a nationwide fat tax. From now on, foods in Denmark with saturated fat content above 2.3% will be taxed 16 Danish kroner ($2.87) per kilogram of saturated fat; which works out to a tax of about $1.28 per pound of saturated fat. The tax was reportedly preceded by weeks of Danes stocking up on items like butter, red meat and pizza.
The issue of taxing fatty or sugary foods (and more broadly, the effectiveness of behavioral nudges) has been a topic of repeated discussion on this blog. James McWilliams posted last December on studies which indicate that while taxing sugary sodas reduces consumption, others have shown soda taxes to be ineffective at reducing obesity rates. Proof, McWilliams argues, that taxing specific food items is ultimately ineffective, since consumers can simply substitute sugar from other non-soda sources.

10/5/11

Banana Arbitrage

Bananas are a popular topic on this blog. In February, a reader wrote in with this odd banana stand pricing phenomenon. And in 2008, Dubner explored the potentially tenuous economics of the far-flung fruit.
I’ve recently run across something similar to the banana stand case: the Starbucks closest to my apartment now sells bananas at the counter for $1 each, while right outside the door, a fruit stand sells them for 25 cents each, or 5 for $1. And the fruit stand bananas are always better looking than the ones at the Starbucks register.

10/4/11

Do Lower Wages and Higher Unemployment Increase Voter Turnout?

A recent study by Kerwin Kofi Charles and Melvin Stephens Jr argues that increases in wages and employment reduce voter turnout in gubernatorial elections, though not in presidential contests.
From the abstract:

This paper argues that, since activities that provide political information are complementary with leisure, increased labor market activity should lower turnout, but should do so least in prominent elections where information is ubiquitous. Using official county-level voting data and a variety of OLS and TSLS models, we find that increases in wages and employment: reduce voter turnout in gubernatorial elections by a significant amount; have no effect on Presidential turnout; and raise the share of persons voting in a Presidential election who do not vote on a House of Representative election on the same ballot.

10/4/11

School Bus Ads: Good Use of Space, or Crass Commercialization?

Facing a combined budget deficit of more than $100 billion for fiscal year 2012, a lot of states are cutting education budgets to make ends meet: laying off teachers, reducing hours and services. But recently, a handful of states have found a creative way to raise revenue from public education by putting advertisements on school buses.
Seven states, the latest being New Jersey, now allow school districts to sell ads on the sides of public school buses. Florida is currently considering it. So is Guam apparently. There are even two companies, Alpha Media and Steep Creek Media (both in Texas), that specialize in nothing but school bus advertisements.

10/3/11

The 21st Century Another American Century? Don't Bet on It

In conjunction with our latest Freakonomics Radio podcast, “The Folly of Prediction,” I decided to reach out to a former professor of mine, Raymond Horton, whose modern political economy class is a student favorite at Columbia Business School. I wanted to know what Horton thought the worst prediction ever was, particularly regarding the intersection of politics and economics. He immediately pointed to a Foreign Affairs essay written by Mortimer Zuckerman in 1998, in which Zuckerman boldly lays out the case that, like the 20th century, the 21st will also be marked by American dominance.
We’re barely a decade into the new century, so you may think it’s too early to pass judgment on Zuckerman’s prediction. But given the way things have played out over the last several years, it does look to be on shaky ground. At least that’s the opinion of Ray Horton.
Once you’ve finished reading Horton’s essay, we’d love to hear what you think count as some of the worst predictions ever.

9/28/11

What's the Median Income for a Fashion Model in the U.S.?

Take a wild guess: How much do you think fashion models make? It’s one of those professions that unless you know someone, or work in the biz, there’s not a lot of information out there to have a good view into. Judging by models’ perceived glamour and high society status, not to mention the cut-throat competition they deal with, you might think it’s a lot. I think I did. Which is why this line from a TNR review of the new book Pricing Beauty: The Making of a Fashion Model struck me as amazing:

The median income across America in 2009 for a model was $27,330—income that includes no benefits.

The book is by Ashley Mears, a former fashion model and current Boston University sociologist.

9/28/11

An Algorithm that Can Predict Weather a Year in Advance

In our latest podcast, “The Folly of Prediction,” we poke fun at the whole notion of forecasting. The basic gist is: whether it’s Romanian witches or Wall Street quant wizards, though we love to predict things — we’re generally terrible at it. (You can download/subscribe at iTunes, get the RSS feed, or read the transcript here.)
But there is one emerging tool that’s greatly enhancing our ability to predict: algorithms. Toward the end of the podcast, Dubner talks to Tim Westergren, a co-founder of Pandora Radio, about how the company’s algorithm is able to predict what kind of music people want to hear, by breaking songs down to their basic components. We’ve written a lot about algorithms, and the potential they have to vastly change our life through customization, and perhaps satisfy our demand for predictions with some robust results.
One of the first things that comes to mind when people hear the word forecasting is the weather. Over the last few decades, we’ve gotten much better at predicting the weather. But what if through algorithms, we could extend our range of accuracy, and say, predict the weather up to a year in advance? That’d be pretty cool, right? And probably worth a bit of money too.
That’s essentially what the folks at a small company called Weather Trends International are doing. The private firm based in Bethlehem, PA, uses technology first developed in the early 1990s, to project temperature, precipitation and snowfall trends up to a year ahead, all around the world, with more than 80% accuracy.

9/27/11

Computers vs. the News: What's Behind the Stock Market Chop?

Today marked another triple-digit move for the Dow Jones Industrial Average, which closed up 272 points. Of the 45 trading days over the last two months, 28 of them (including today) have seen triple-digit moves, meaning the Dow has gone up or down by 100 points (or more) 62% of the time since July 25. The average daily move for the Dow during that time has been 188 points, or 1.6%.
Here’s a snapshot showing the performance of the Dow over the last two months:
Pretty choppy, right? I’m no stock market historian, but I’d imagine that you’d be pretty hard-pressed to find such a sustained period of volatility. Which brings up the question: what’s causing this? Obviously, there is a lot of uncertainty (and fear) in the market right now. From Europe’s sovereign debt problems, to America’s toxic political climate, to the sputtering global economy, there is a lot to be anxious about. Anxiety breeds indecision, which characterizes the bumpy market pretty well.

9/26/11

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