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Matthew Philips

A Subway Ride to the Past — Compliments of Nucky Thompson

This past weekend, I was waiting for the subway when an old, 1920s-era train pulled to a stop on the express line. My first thought was that it was one of those worker trains you sometimes see (especially on weekends) that ferry MTA crews along the line as they make repairs. But passengers were getting on. Guys in MTA gear hauled open the manually sliding doors and did an old-fashioned call-out: Downtown express train. Next stop 72nd Street. Getting on seemed the obvious thing to do. It helped that neither I nor my wife had seen the news that HBO paid the MTA $150,000 to run a 1920s-era vintage subway train up and down the express line, as a way to promote the second season of Boardwalk Empire.
So the effect was as they’d intended: stupefaction, followed by slow realization, followed by total bemused wonderment. It felt like being at an amusement park. I was amazed at how fast it went, how comfortable the seats were (compared to the current plastic ones), and how loud it was with the windows down. Here’s a video:

9/26/11

Physical Activity During the Recession: More Voluntary Exercise, Less Exertion

Last month, we wrote about data pulled from the American Time Use Survey (ATUS), examining how Americans spend their lost work hours during the recession. While 32% of foregone work hours were spent watching TV and sleeping (not great, though sleeping is helpful), 15% of that time went to “other leisure,” among which, there is “listening to music” and “being on the computer,” as well as “exercise and recreation.”
Two new studies (both coauthored by Dhaval M. Dave of Bentley University) drill further into that ATUS data to paint a more complete picture of our exercise and physical activity habits, and ultimately, what impact they have on our health. The first finds that during the recession, we engage in more voluntary exercise, but have less exertion. Part of this has to do with the difference between exercise and physical activity — the latter is seen as the healthier of the two. (Better to walk to work everyday than do sit-ups twice a week.) With the loss of work, comes a loss of physical activity — particularly with the types of jobs we’ve lost.

9/16/11

What's the Best Way to Measure Poverty: Income or Consumption?

Yesterday we learned that 15.1% of Americans were living in poverty in 2010, the highest level since 1993, and up nearly 1 percentage point from 2009, when it was 14.3%. That data is based on an income measurement which shows that in 2010, 46.2 million Americans were living below the poverty line, defined as $22,314 a year for a family of four.
But income is just one way to measure poverty, and a particularly tricky (and narrow) way at that – so says Notre Dame economist and National Poverty Center research affiliate, James Sullivan, who believes that to measure poverty strictly by income fails to accurately reflect people’s true economic circumstances. Income alone ignores the effects of things like the Earned Income Tax Credit, Medicaid, food stamps, and housing subsidies. From a Notre Dame press release on Sullivan’s recent poverty research:

“Income received from food stamps, for example, grew by more than $14 billion in 2009. By excluding these benefits in measuring poverty, the Census figures fail to recognize that the food stamps program lifts many people out of actual poverty,” Sullivan says. “If these programs are cut back in the future, actual poverty will rise even more.”

9/14/11

Day After the Debate: Intrade Odds of Republican Candidates Securing Presidential Nomination

Today, it seems that everyone has their own opinion on who helped themselves and who didn’t in last night’s Republican presidential candidates’ debate. And consensus is hard to come by, even in the same news room.
Take the Washington Post, for example. On its PostPartisan blog, first Richard Cohen wants us to think that Rick Perry was the “Big Loser” of the night. But then 90 minutes later, his colleague Marc Thiessen weighs in saying that Perry “had a very good night.” Rather than relying on Beltway journalists to decide won and who lost, I figured: why not see what the market is saying? So I headed over to Intrade to take a look at the odds for who will wind up as the 2012 Republican Presidential Nominee.
It does appear that Perry is slipping after last night’s debate. Even in the time it took me to put this blog post together, he’s lost a percentage point, going from 37.5% to 36.4%. While Mitt Romney has remained even so far today at 36.3%. These markets are of course fluid, but here’s a snapshot of the current Intrade odds for each candidate at last night’s debate, and how they’ve moved over the last week.

9/8/11

Are Sex Offender Laws Backfiring?

A pair of new studies raise questions as to whether sex offender registries and community notification laws actually reduce recidivism of sex offenders, or even lead to lower sex crime rates overall. Both are published in the University of Chicago’s Journal of Law and Economics.
The first study by Jonah Rockoff of Columbia Business School, and J.J. Prescott, a law professor at the University of Michigan, parses out the effectiveness of the two basic types of sex offender laws. While they find that the registration of released sex offenders is associated with a 13% decrease in crime from the sample mean, public notification laws proved to be counterproductive, and led to slightly higher rates of sex crime because of what the authors refer to as a “relative utility effect”:

Our results suggest that community notification deters first-time sex offenders, but may increase recidivism by registered offenders by increasing the relative attractiveness of criminal behavior. This finding is consistent with work by criminologists showing that notification may contribute to recidivism by imposing social and financial costs on registered sex offenders and, as a result, making non-criminal activity relatively less attractive.
…[C]onvicted sex offenders become more likely to commit crime when their information is made public because the associated psychological, social, or financial costs make crime more attractive.

9/1/11

Our Future Looks Fat: Study Predicts Nearly Half the U.S. Population Will be Obese by 2030

The results of a new study by public health researchers at Columbia University and Oxford University forecasts that by 2030, there will be an additional 65 million obese adults living in the U. S., and 11 million more in the U.K. That would bring the U.S. obese population up from 99 million to 164 million, roughly half the population. The findings suggest that as a result, medical costs associated with the treatment of preventable diseases (diabetes, heart disease, stroke, cancer) will increase somewhere between $48 billion and $66 billion per year, in the U.S. alone
The study, published in the Aug. 27 issue of The Lancet, was led by Y. Claire Wang of Columbia’s Mailman School of Public Health.

8/31/11

What if We Paid Bank Regulators for Performance?

Well then they probably wouldn’t make much money would they? Zing! No but seriously. A new paper by two law professors, Frederick Tung of Boston University and M. Todd Henderson of Chicago, proposes just that. Here’s the abstract (with a link to the full paper):
The authors are essentially proposing giving regulators stakes in the banks they oversee, by tying their bonuses to the changing value of the banks’ securities, theoretically giving them a motive to intervene when things look dicey. If the incentives are well designed, the authors argue, regulators would capture the benefits that accrue from making banks more valuable, and suffer the negative consequences when banks fail.

8/30/11

Michael Vick: The $100 Million Man (Again)

So two years after getting out of jail and being cleared to play football, three years after filing for Chapter 11, and four years after pleading guilty to federal felony conspiracy charges, Michael Vick has signed a new $100 million contract with the Philadelphia Eagles; six years, $40 million guaranteed. Back in 2008 when his lawyers told a bankruptcy judge that Vick would likely be able to “earn a substantial living” again, they weren’t kidding.
In terms of sheer size, this one isn’t quite the $130 million, 10-year contract he signed with the Atlanta Falcons back in 2004, which made him the highest paid player in the NFL. But the new deal actually comes with more guaranteed money, and a higher yearly salary. As far as I can tell, this makes Vick the rare pro athlete to sign two contacts worth $100 million or more, and perhaps the only NFL player ever to do so.
Two weeks until the regular season opens, the Eagles better hope that shaky offensive line jells sooner rather than later. That’s an awfully expensive 31 year-old asset they have behind it.

8/30/11

Who Is Alan B. Krueger?

President Barack Obama nominated a new chair of the White House Council of Economic Advisors on Monday: Princeton labor economist Alan B. Krueger will replace outgoing chair Austan Goolsbee. Krueger, 50, is known as a strict “empiricist” with a broad range of economic knowledge, having researched topics as diverse as subjective well-being to the relationship between the minimum wage and employment.
His 2007 book, What Makes a Terrorist, explores the economic roots of modern-day terrorism. Which Levitt has blogged about here on several occasions. Krueger was also presented Freakonomics with an award in 2006 at the National Council on Economic Education.
Krueger’s biggest asset in the job will likely be his expertise as a labor economist, as the Obama administration is desperate to reduce unemployment heading into the 2012 election.

8/29/11

New York City Media's Hurricane Overkill

By last Friday, New York City was in full-on hurricane panic mode. Public transportation was scheduled for a Saturday shut down, stores were selling out of batteries and flashlights, windows were being taped, sandbags stacked; three-hundred and seventy thousand people were evacuated. This was going to be bad, the local media kept telling us. Really, really bad. Even the number-crunching, data-driven Nate Silver got in on the action, posting an extensive piece on his fivethirtyeight blog that if Hurricane Irene got close enough to New York City, it could be the costliest natural disaster ever. And by Friday, it was heading straight for the Big Apple.
By midnight on Saturday, things (in the words of NBC anchor Brian Williams) were “getting a bit sporty” in NYC. Wind was gusting, rain was coming sideways. The streets were empty, save for dozens of intrepid local TV news reporters deployed throughout the city, standing ready to report on the impending damage. Which, remember, was going to be bad.
The center of Irene hit New York around 9am Sunday. Winds reached 65 mph, the strongest in 25 years. By 10 am, the worst was over. No hurricane-shattered skyscraper windows, no preemptive power outages, no real flooding to speak of. The general tone among New Yorkers Sunday morning was, “That’s it?” But to watch the local TV news on Sunday, the storm had been epic. Rather than call in their battalion of reporters stationed around the area, the NYC TV news media kept reporting. All day.

8/29/11

Hurricane Shopping in NYC: And Then There Were But Keychain Flashlights Left

A weird week in New York City is only getting weirder. On Tuesday, for the first time since 1884, earthquake tremors were felt in the Big Apple; which, not surprisingly, came with no warning from earthquake prognosticators. Now, NYC is bracing for its first hurricane since 1985. (Any readers game for trying to calculate the odds of NYC getting hit by an earthquake and a hurricane in the same week, I’d love to see your estimates.) As I write, I’m watching out my window as people in the building across the street tape their windows. Which reminds me, I need duct tape!
Now that the MTA has announced that all NYC public transportation will be shut down beginning on noon Saturday, people are out in force doing some last minute hurricane shopping. So we decided to venture out and do a little reporting on what’s left, and what’s not.

8/26/11

Was Steve Jobs' Retirement Already Priced into Apple Stock?

When news broke last evening that Steve Jobs was stepping down as Apple CEO, shares of the company fell by more than 5% in after hours trading. By the opening bell this morning, they’d recovered half of those losses. And during the first hour of trading, shares of Apple were only down between 1.1% and 1.6%.
Compare that to when Jobs announced that he was taking a leave of absence back in January of this year (his third leave since 2004), when shares fell by more than 8%. Within ten days, the stock had regained the lost ground, off news that Apple’s revenue grew 70% in the fourth quarter. Back in January 2009, when Jobs left for health reasons, and ultimately a liver transplant, Apple shares dumped more than 10% in the immediate aftermath. Way back in the summer of 2004, when Jobs first announced that he’d had a cancerous tumor removed from his pancreas, the market’s reaction was a slow sell-off, but nothing too drastic. Back then shares were trading at only around $16, so there wasn’t nearly as much to chew off.
So, the market’s now had seven years to get used to the idea of life without Jobs at Apple. And there still seems to be plenty of optimism about the future share price. Check out the odds from Irish bookmaker Paddy Power on where Apple’s stock price will end 2011.

8/25/11

How the "Accident Hump" Tells Us Boys Are Maturing Faster

We’ve known for a while that girls have been maturing at a faster rate for much of the last 100 years, if not longer. Disease reduction and better nutrition are thought to be the biggest factors. But what about boys? Researchers have long thought they were maturing faster too. But lacking the obvious (monthly) data, the evidence proved tricky.
Now, a German researcher believes he’s found the answer by looking at, of all things, male teenage death rates. When girls hit puberty, they get their period. When boys hit puberty, they start doing stupid stuff, hence what’s called “The accident hump,” a spike in mortality rates that coincides with the peak of male hormone production during puberty. That hump it seems has been shifting to earlier and earlier in life.
The new study, by Joshua Goldstein, director of the Max Planck Institute for Demographic Research in Rostock, Germany, finds that the age of sexual maturity for boys has been decreasing by about 2.5 months each decade, since at least the middle of the 18th century.

8/24/11

College Athletes and Sudden Cardiac Death: Why Do Male Basketball Players Have Such a High Risk?

There’s an interesting story in today’s Wall Street Journal, by Katherine Hobson about a new method some cardiologists have come up with to better diagnose life-threatening heart conditions among student athletes. Apparently, since the hearts of well-conditioned athletes sometimes put out more electrical voltage than average, their ECG’s can often look like that of someone with a heart problem. This has led to an underestimation of the risks that sudden cardiac death (SCD) poses to student athletes, according to the study, even though it’s their leading medical cause of death during exercise. The findings were published this month in the American Heart Association journal Circulation. You can read the abstract here.
What really caught my eye though was an info-graphic the WSJ ran next to the story. Using data from Circulation, the graphic depicts the overall rates of SCD, from high to low, per year among NCAA college athletes, broken out by different sports.

8/23/11

As Gold Prices Soar, Criminals Catch On

It seems like nearly every day this summer, the price of gold hits a new high. Today is no exception. Not surprisingly, criminals around the world are starting to take notice. First, from Stuart Pfeifer writing in the LA. Times:

So far this year, gold chains have been snatched from the necks of at least 110 people during street robberies in Olvera’s South Los Angeles division. His officers are circulating fliers and showing up at churches and community centers to warn residents to stop wearing gold in public, or at least to tuck it under their clothes.

8/22/11

The End is Nigh: Let's All Move to Barter Village!

Let’s face it: things aren’t great right now. The economy is on its back. Our political system is a mess. The South is stuck in a record-breaking drought. And Tiger Woods has apparently forgotten how to play golf. Clearly, the apocalypse is upon us.
Where to turn in such dark times? How about Barter Village. Located in a tiny castle (yes, castle) in northeast Arkansas, Barter Village is an “experimental educational project” where people who’ve been particularly hurt by the down economy can go to learn survival skills such as organic farming, sewing and, yes, bowhunting. Villagers hunt, fish and learn to dress their own game.

After providing for their own needs, Barter Village residents take their excess produce, meats, and handmade goods to the nearby castle market. Items sold there generate a meager income to help cover the costs of their stay at Barter Village. Any excess is divided evenly among the villagers to help fund their own survival community.

8/18/11

Abercrombie's "Situation" Subsidy Sunk its Stock Price Right? Not Quite

So this morning, Abercrombie and Fitch reported solid earnings for the second quarter. Its revenue was up 23% off strong international sales, and its net income rose 64% to $0.35 a share, beating Wall Street estimates of $0.29. So how come its stock price closed down nearly 9% today?
If you believe the knee-jerk mythology of the Internet, the answer’s simple: The Situation. Here’s the story: On Tuesday, the market closed with Abercrombie stock above $70 a share. That night, the Ohio-based company released a statement (strangely dated Aug. 12) titled “A Win-Win Situation,” in which it announced that it had “offered compensation” to Michael “The Situation” Sorentino to “cease” wearing its clothes. Here’s the entire statement:

We are deeply concerned that Mr. Sorrentino’s association with our brand could cause significant damage to our image. We understand that the show is for entertainment purposes, but believe this association is contrary to the aspirational nature of our brand, and may be distressing to many of our fans. We have therefore offered a substantial payment to Michael ‘The Situation’ Sorrentino and the producers of MTV’s The Jersey Shore to have the character wear an alternate brand. We have also extended this offer to other members of the cast, and are urgently waiting a response.”

8/17/11

Narcissists Look Like Good Leaders. But Are They?

Generally speaking, narcissists tend to do well in life. Which is strange, since we usually look down on traits such as arrogance and inflated self-image. And yet, for all the reasons we hate them, society usually rewards narcissists in one crucial category: leadership. For some reason, even though we claim to see through all the trappings of self-love and big egos, we tend to think that narcissists make good leaders, and in group settings, consistently lift them to positions of power. Apparently, we’ve been duped. While narcissists may look like good leaders, according to a new study by a group of psychology researchers from the University of Amsterdam, they’re actually really bad at leading.
The study is due to be published in the October issue of the journal Psychological Science. Here’s the abstract:

8/17/11

The Markets are Mad: Is High-Frequency Trading Making Things Worse?

Thursday’s 423-point gain by the Dow marked the first time ever that the industrial average has posted four consecutive days of 400-point moves. Less than two weeks into August, there have already been six trading days that saw triple-digit swings this month. While the recent sell-off has been swift (the Dow is off more than 12% since July 21), it’s also been choppy. Volatility is back in a big way. The VIX Index, also known as the fear index, has shot up recently, nearly doubling over the last week. The VIX tracks the expected price of a range of protective S&P 500 options over the next 30 days.
While your average investor generally hates volatility, there are those who feed off it, namely high-frequency traders. These are the guys who use complex algorithms and super-fast computers to scour the markets for tiny price differentials, often executing trades in microseconds (one millionth of a second). The more volatile the market, the easier it is for them to make money jumping in and out of stocks across exchanges.
Now, it’s not quite fair to lump all high-frequency traders together. They don’t all necessarily do well in volatile markets. While some are killing it, there are certainly others who’ve been getting killed; it all depends on their strategy. But generally, traders need two things: 1) a price, and 2) movement. Recently, they’ve had plenty of both.

8/12/11

The Irony of the S&P Downgrade

At Columbia last year I took a class called “Modern Political Economy” from Ray Horton. One of Horton’s favorite things to say was that sooner or later, if the U.S. didn’t solve its debt issues through the political process, the world’s capitalists would do it for us — as in the debt markets would punish us for our profligate ways, and raise the cost of borrowing.
And yet, here we are: a ratings agency has downgraded our credit for the first time ever. But on the first day of trading, rather than going up, rates on our government debt fell to near record lows as money poured out of riskier assets in a flight for safety. When the markets closed last Friday, and the U.S. still had a AAA rating from S&P, the yield on the 10-year Treasury was 2.55%. It ended Monday down to 2.34%. The same thing happened during the stock market sell-off in the fall of 2008, when the rate on the 10-year Treasury went from around 4% to less than 2.5%. U.S. government debt is still the safest, most liquid market in the world. The S&P downgrade doesn’t change that. In fact, the immediate effect has been to make it safer. How strange.

8/9/11

ESPN's New QB Rating System: Who Benefits?

This season, ESPN has decided to challenge the NFL and roll out its own system for rating the play of quarterbacks. Its Total Quarterback Rating (QBR) is meant to be an improvement on the NFL’s official quarterback passer rating system, which was designed in the early 1970s and grades QB’s on four basic metrics: completion percentage, passing yards, touchdowns and interceptions.
The idea behind the QBR is to offer a more nuanced approach that teases out how a quarterback contributes to the success (or failure) of a particular play, and ultimately how he impacts the outcome of a game. For example, under the passer rating system, a ten-yard throw that a receiver turns into a 50-yard touchdown, rewards the quarterback exactly the same had he thrown the ball 50 yards into the endzone for a touchdown. The new system differentiates the two by taking into account the run after the catch, a familiar stat known as RAC to fantasy football players. The QBR also accounts for dropped passes, QB rushing yards, avoiding sacks, giving up fumbles, and something called a Clutch Index — which gives extra weight to plays when the game is on the line.

8/8/11

Operation Rolling Thunder: South Carolina's Annual Police Dragnet

Last week was the sixth annual Operation Rolling Thunder police crack-down in Spartanburg, SC. Each year, law enforcement from North and South Carolina converge on the Spartanburg interstate highways for a five-day dragnet aimed at drug trafficking. This year officers made 18 felony arrests, netting $215,000 of seized cash, 11 pounds of cocaine, and eight pounds of marijuana.

“The numbers are a bit lower than in the past, I’m proud of that, meaning they are staying out of Spartanburg County, which that is our desire,” said Sheriff [Chuck]Wright. “I try to tell everybody that every piece of drug paraphernalia or drug you can find and get off the street, that’s one more somebody’s son or daughter that’s not having to deal with that.

8/8/11

Odds of a Double Dip: A Sampling of Opinions. Plus, Wolfers on Twitter

So by now you’re hopefully aware that the stock market completely bombed today. As I type, the Dow is down more than 500 points, its worst day since December 2008. (Official day’s tally is -512.76) And just like that it seems, the recovery is over. Well it was fun while it lasted; kind of.
Our resident macro economic guru Justin Wolfers has come up for air from his Twitter experiment (follow him @justinwolfers) and sent over this interesting sample of recent opinions from a handful of economically savvy folks, all giving their odds of the economy entering another recession:
Larry Summers: “at least a 1-in-3 chance.”
Marty Feldstein: “now a 50 percent chance.”
Ryan Avent: “more likely than not.”
Justin Wolfers: “40% chance and peak was 4 months ago” and “The guacamole has spoken.”
Don Kohn, Vincent Reinhart, Brian Madigan: “between 20% and 40%.”
Matt Yglesias: “precisely 31.22%.”
Brad DeLong: “the odds now are 50-50.”
Christy Romer: “The risks have gone up…compared to where we were six months ago.”
Bob Hall: “We certainly are in a more vulnerable situation now.”
Jeff Frankel: “not necessarily enough to push the probability over one half.”
Jay Carney: “we do not believe that there is a threat there of a double-dip recession.”
Justin has had a busy today on Twitter. Clearly, he flipped heads this morning. Here’s a sampling of what he’s been tweeting about:

8/4/11

Why Do Black Men Live Longer in Prison?

A recent Reuters headline got a lot of attention on the Web. It read: “Black men survive longer in prison than out: study.” Gawker picked it up; so did The Atlantic, Yahoo, and the Grio. I tracked down the study’s author David Rosen, an epidemiology PhD and a post-doctoral fellow at the University of North Carolina, to see if this was actually the case. Rosen focuses his research on the health-care system inside prisons. For this latest study, he matched North Carolina prison records against state death records from 1995 to 2005, in order to compare the mortality rates of black and white male prisoners against their general population counterparts.
The results of his sample (100,000 men aged 20-79) were striking in how much they differed by race. While the total death rate of black men in prison is half that of black men in the general population, white prisoners die at about a 12% faster clip than their general population counterparts. This is essentially what a previous report by the U.S. Bureau of Justice Statistics found in 2007.
Rosen was good enough to answer questions about what he feels his study says about health-care, prisons and race.

8/3/11

How Best to Realign Major League Baseball: A Freakonomics Quorum

Earlier this summer, ESPN’s Buster Olney reported that Major League Baseball and the players’ association had recently discussed a form of realignment that would result in two leagues of 15 teams, rather than the current structure of 14 teams in the American League, and 16 in the National League. This sent the sports world into a tizzy as baseball geeks everywhere weighed in on how best to realign MLB. There are a lot of ideas out there: shorten the season so each team gets one day off a week (said to be a favored position of Commissioner Bud Selig), move the Houston Astros or Florida Marlins to the American League; create three divisions of five teams each; do away with the divisions entirely; add an extra wild-card team to expand the playoffs.
There’s also a discussion about finding ways to address the disparity in miles traveled. According to this neat interactive graphic put together by Paul Robbins at the New York Times, in 2009, the Dodgers traveled a league-high 59,742 miles, while the Nationals traveled less than half that, 26,266 miles.
Not to be left out, we decided it was a good time to convene a Freakonomics Quorum. We rounded up a handful of sports economists and asked them the following question:

What proposed realignment changes seem to make the most sense from a competitive and economic standpoint for Major League Baseball?

8/1/11

Mobility in the U.S. is Down. What's More of a Factor: the Housing Slump, or Air-Conditioning?

It’s always been one of the supposed strengths of the American economy: the relative ease with which we’re able to pick up and move. This is particularly useful when times are tough and you need to unhinge from a weak local economy. The thing is, mobility tends to sag during economic downturns. The entire 1930s marked a period of relatively low internal migration, just as the booming post-war decades saw a significant rise.
The conventional wisdom today is that mobility is being dragged down by the housing crisis, that people underwater on their mortgage or reluctant to sell their home into a soft market are choosing to stay put.
But a new study from Notre Dame economist Abigail Wozniak, along with two colleagues at the Federal Reserve, Raven Molloy and Christopher L. Smith, throws some water on that theory by showing that states with high percentages of homeowners with negative equity are no more likely than other states to see a decline in long-distance migration of their residents.

8/1/11

Minority Rules: Why 10 Percent is All You Need

What does it take for an idea to spread from one to many? For a minority opinion to become the majority belief? According to a new study by scientists at the Rensselaer Polytechnic Institute, the answer is 10%. Once 10% of a population is committed to an idea, it’s inevitable that it will eventually become the prevailing opinion of the entire group. The key is to remain committed.
The research was done by scientists at RPI’s Social Cognitive Networks Academic Research Center (SCNARC), and published in the journal Physical Review E. Here’s the abstract:

We show how the prevailing majority opinion in a population can be rapidly reversed by a small fraction p of randomly distributed committed agents who consistently proselytize the opposing opinion and are immune to influence. Specifically, we show that when the committed fraction grows beyond a critical value pc=10%, there is a dramatic decrease in the time Tc taken for the entire population to adopt the committed opinion. In particular, for complete graphs we show that when p<pc, Tc~exp[a(p)N], whereas for p>pc, Tc~lnN. We conclude with simulation results for Erdos-Rényi random graphs and scale-free networks which show qualitatively similar behavior.

7/28/11

Did Rating Agencies Give Preference to Big Banks?

At the heart of the financial crisis was the market for mortgage-backed securities (MBS). These are the “toxic assets” that larded up bank balance sheets and all but froze the credit markets in the fall of 2008. Turns out a lot of those assets are still sitting there. Though they’ve mostly been downgraded to junk status, many of them began life as gold-plated investment products thanks to the AAA ratings they received from the rating agencies Moody’s, S&P, and Fitch. These firms that allowed so much junk to be passed off as gold were essentially the enablers of the financial crisis.
The relationship between the rating agencies and banks is a perfect case study of flawed incentives. With banks paying them to rate their investment products, and so much money pouring in at the height of the mortgage-boom (driving record profits for the highly competitive rating agencies), Moody’s, S&P, and Fitch had a strong incentive to play along.
A new study adds more fodder to the argument that these agencies were unduly influenced by the institutions whose products they were grading. It basically posits that the more MBS an institution issued, the better rating their stuff received.

7/26/11

Why It's Better to be Beta than Alpha

“Uneasy lies the head that wears a crown.”

That’s from William Shakespeare’s Henry IV, Part 2. The point is that it’s not easy being No. 1; constantly having to watch your back, stressing over who might be angling to knock you off, and steal your crown.
Four hundred years later, scientists are finally getting around to proving that axiom. A new study of baboons shows that being the alpha male in a group dynamic may not be worth the stress the position imposes. Here’s the abstract:

In social hierarchies, dominant individuals experience reproductive and health benefits, but the costs of social dominance remain a topic of debate. Prevailing hypotheses predict that higher-ranking males experience higher testosterone and glucocorticoid (stress hormone) levels than lower-ranking males when hierarchies are unstable but not otherwise. In this long-term study of rank-related stress in a natural population of savannah baboons (Papio cynocephalus), high-ranking males had higher testosterone and lower glucocorticoid levels than other males, regardless of hierarchy stability. The singular exception was for the highest-ranking (alpha) males, who exhibited both high testosterone and high glucocorticoid levels. In particular, alpha males exhibited much higher stress hormone levels than second-ranking (beta) males, suggesting that being at the very top may be more costly than previously thought.

7/25/11

The Costco Effect: Why Does the Wholesaler Cause Inflation?

There’s a lot of data showing that Walmart causes prices to decline when it enters a local market (see here, here and here). Why then, according to a new study, does Costco have the opposite effect, and cause competitors to raise their prices? The answer boils down to the complex ways that stores choose to compete against each other, and shows that not all big box retailers are created equal. Here’s the abstract:

Prior research shows grocery stores reduce prices to compete with Walmart Supercenters. This study finds evidence that the competitive effects of two other big box retailers – Costco and Walmart-owned Sam’s Club – are quite different. Using city-level panel grocery price data matched with a unique data set on Walmart and warehouse club locations, we find that Costco entry is associated with higher grocery prices at incumbent retailers, and that the effect is strongest in cities with small populations and high grocery store densities. This is consistent with incumbents competing with Costco along non-price dimensions such as product quality or quality of the shopping experience. We find no evidence that Sam’s Club entry affects grocery stores’ prices, consistent with Sam’s Club’s focus on small businesses instead of consumers.

7/25/11

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