I’m so sorry to have to write that Gary Becker passed away on Saturday, at the age of 83. Gary was not only the most creative and influential economist of the last 50 years, but also a kind and gentle person, a mentor, and a close friend.
Others will write at length about Gary’s contributions to economics. I want to say just a few things in that regard. About ten years ago, Pierre-Andre Chiappori and I analyzed which economic theorists have had the greatest impact on empirical research by looking at the key motivating citations in papers published in top journals in recent years. Becker was by far the most influential theorist by our metric. What was most remarkable was that thirteen different works of his were cited; no one else had more than three or four. He published influential research in every decade from the 1950s to the present – incredible longevity. No one else had longevity like that.
I make public predictions about anything exactly three times a year: who will win each of the three Triple Crown thoroughbred horse races. Other than that, I predict nothing.
The nice thing about making so few predictions is that by the time next year’s predictions roll around, no one can remember how last year’s predictions turned out. My very worst year, I named with confidence the horse that I believed would finish dead last, when in fact that horse won the race! Nonetheless, people still asked me for my picks the next year.
This year, I even got invited to do a live Q&A on the Kentucky Derby, which you can check out at Deadspin.
So who do I like this year in the Kentucky Derby?
My twenty-five year college reunion is right around the corner. In advance of the event, my classmates were asked to write a short summary of their post college life. Next to each write-up was the picture from our graduating yearbook twenty-five years ago. Many of the entries also include current pictures.
Flipping casually through the book, I noticed two things. First, it is amazing how old we all look. Time really takes its toll, that’s for sure. Second, men were much more likely than women to submit pictures of what they look like now.
There was a third thing that also seemed to be true. Many of the people who were really attractive twenty-five years ago don’t look so good now. And even more interesting, there were a surprising number of people who were unattractive in college, but look great (relative to the rest of us geriatrics) now. If I had been asked to guess, I would have estimated that the correlation between attractiveness twenty-five years ago and today was zero or even negative for women. For men I would have guessed a small positive correlation.
I was so struck by the pattern that I decided to do a more systematic data analysis.
Psychologists have long argued about the power of priming, i.e the power of subtle cues and reminders to influence behavior. For instance, there are a number of academic papers that find that if you make a woman write down her name and circle her gender before taking a math test, she will do substantially worse than if she just writes her name. The idea is that women perceive that they are not good at math, and circling their gender reminds them that they are women and therefore should be bad at math. I’ve always been skeptical of these results (and indeed failed to replicate them in one study I did with Roland Fryer and John List) because gender is such a powerful part of our identities that it’s hard for me to believe that we need to remind women that they are women!
In an interesting new study, “Bad Boys: The Effect of Criminal Identity on Dishonesty,” Alain Cohn, Michel Andre Marechal, and Thomas Noll find some fascinating priming effects. They went into a maximum security prison and had prisoners privately flip coins and then report how many times the coin came up “heads.” The more “heads” they got, the more money they received. While the authors can’t tell if any one prisoner is honest or not, they know that on average “heads” comes up half the time, so they can measure in aggregate how much lying there is. Before the study, they had half the prisoners answer the question “What were you convicted for?” and the other half “How many hours per week do you watch television on average?” The result: 66 percent “heads” in the treatment where they ask about convictions and “only” 60 percent “heads” in the TV treatment.
That is what the headline of this fascinating article says. Here is a quote from the news report:
In lay language,” [Samah] El-Tantawy said in a U of T news release, “the [traffic lights] act as a team of players cooperating to win a game — much like players in a soccer match, where each player endeavors to score, but at the same time considers the ultimate goal of the entire team which is winning the match.
According to the article, travel times were reduced by 26 percent, which is fantastic, and which is what matters.
This doesn’t, however, seem to have much to do with game theory. Game theory is about one of two things: strategic behavior or finding sustainable equilbria. But the traffic lights don’t care about their own private utility. There is no sense in which they are actors at all, as traffic lights just do what you tell them to do. In economic terms, there is a central planner who sets the rules which the traffic lights obey. This new scheme provides a new and better set of rules (which, again, I emphasize is great), but I don’t think game theory should get the credit!
(Related: see our “Jane Austen, Game Theorist” podcast.)
Seven years ago, I blogged about how nonsensical many airline rules and regulations seemed to be.
At the very top of my list was the prohibition on the use of electronics before takeoff and landing. The FAA finally gave into logic on this one, and airlines have been remarkably speedy in instituting the change.
(If you go back and look at the post, you will see that another thing I railed against was the announcement about “in the unlikely event of a water landing.” There is no doubt this announcement is a complete waste of time, but not long after the post went up, Captain Sullenberger pulled off a water landing. Thanks for nothing, Sully!)
I awoke yesterday to the happy news that two of my friends won the Nobel Prize in economics.*
Gene Fama was one of the three recipients. He and I share two important beliefs about the world. First, we value empirical research in economics — i.e., getting deep into the data to understand what is going on. Second, we both believe that golf should be played quickly! So every weekend, at least once, Gene and I get up before the sun rises and get in 18 holes (walking) in about 2.5 hours. Gene is 74 years old — he didn’t take up golf until his sixties, and I’ve seen him post a scorecard with multiple birdies on it.
Gene believes deeply and fundamentally in markets, which is why pairing his prize with Robert Shiller, a market skeptic, is quite odd. But Shiller is a wonderful economist — someone whose work I read a lot and was inspired by early in my own career — and I’m glad he was chosen.
University of Arizona economist Price Fishback, who has been on this blog before, is one of the leading scholars of the economics of the New Deal. He has a great new set of insights to share on the U.S. mortgage mess. He’s also the co-author of the forthcoming book Well Worth Saving: How the New Deal Safeguarded Home Ownership
The Folly of Eminent Domain Takings of Failing Mortgage Loans
By Price Fishback
Several cities around the country are considering using eminent domain to take control of troubled mortgages in their cities. An Associated Press example of how the proposal will work calls for the city to use eminent domain to force the lender to accept $150,000 for a $300,000 mortgage on a home that has a current market value of $200,000. The city would then refinance the loan while cutting the principal owed by the borrower to $190,000.
Eminent domain requires a public purpose for the taking of an asset. The public purpose claimed here is that property values and property tax revenues can be boosted by preventing a mass of foreclosure sales. Real estate studies do show that increasing numbers of foreclosure sales are associated with lower housing values in nearby neighborhoods. However, the spillover benefits of preventing foreclosures, tend to be focused on houses in nearby neighborhoods.
I was at a restaurant the other day which had an interesting feature: the two menus they gave us listed different prices for the same items. One menu quoted $12 per margarita and the other offered the exact same drink for $11.
For a split second I wondered whether the restaurant was carrying out some sort of pricing field experiment. I’m pretty sure, though, that wasn’t the case. Just regular old incompetence, I suspect.
I wouldn’t usually pay $11 or $12 for a margarita, but I was so curious in this circumstance that I went ahead and ordered one. (Well, actually, I ordered three by the time I was done.)
What was the true price? Strangely, it turned out not to be $12, or even $11. They charged me exactly $7.94 per drink.
Luckily, I didn’t know that in advance or I might have had a fourth margarita, which definitely would have been a bad idea.
A while back we held a contest for the new popular economics book
Before I tell you which title won, let me tell you about the naming of Freakonomics. We had such an impossibly hard time coming up with a good name until my sister Linda came up with “Freakonomics.” To make a long story short, the publishers hated that name for a long time, but finally gave in. The rest is history. Of course we were all just guessing — it would have been nice to have data, the way Uri and John did.
So what do the data say? The winner of the beauty contest, with 33 percent of the votes, was The Carrot that Moved A Mountain: How the Right Incentives Shape the Economics of Everyday Life. Congratulations to Ivy Tantuco who proposed that title and collected the $1,000 prize.(Congratulations also to Jenna Dargie and Melinda Reiss, who were the randomly chosen beauty contest winners and pocketed $500 each.)
Last week, we solicited your questions for economist Emily Oster, a Freakonomics favorite and author of the new book Expecting Better: Why the Conventional Pregnancy Wisdom Is Wrong-and What You Really Need to Know. Oster’s answers are below and address everything from how fertility declines with age to whether pregnant women can still safely indulge in caffeine, fish, and transatlantic travel. A big thanks to Emily — and to all of you for your excellent questions.
If you’ve ever been pregnant, or been close to someone who is pregnant, you know how many prohibitions there are. You can’t smoke or drink. Shellfish are to be avoided. In my house, conveniently (for the pregnant woman), scooping the cat litter was absolutely out of the question. Of course, there are also a large number of things you have to do when you are pregnant or are thinking of getting pregnant, like take folic acid.
Is there any evidence to support all these pregnancy rules? My good friend and colleague Emily Oster (whose research has been featured in SuperFreakonomics and many times on the blog), has just written the definitive book on the subject, entitled Expecting Better: Why the Conventional Pregnancy Wisdom Is Wrong-and What You Really Need to Know
Here’s the Table of Contents to get you started:
A couple weeks ago, Uri Gneezy and John List asked our blog readers to come up with titles for their new book. And our readers did not disappoint! There were over 400 suggestions, many of them brilliant.
The authors and their editors have now narrowed it down to five choices, and they once again are asking for your help in deciding on the final title. There is no better way to solicit that input than — you guessed it — a field experiment. To get you interested, they are putting up another $1,000 in prizes to participants.
The rules are simple: You go here and answer two simple questions.
First, you will be asked to choose which of the five titles you think will be the most popular among all the respondents. They don’t want to know your favorite title, they want to know the title you think other people will like best.
I whiffed on the Kentucky Derby and caught lightning in a bottle at the Preakness.
Let’s see if I can do it again.
All eyes are on Orb and Oxbow, the winners of the first two legs of the Triple Crown. Those two horses are likely to be heavy betting favorites in the Belmont. And according to my model, they look okay, but not attractive at the odds they will go off at.
Instead, my numbers suggest a trio of long shots are the place to put your money: Palace Malice, Overanalyze, and Golden Soul. Each of those horses should pay about 15-1 if they were to pull off an upset victory.
My close friend, colleague, and frequent co-author John List has written a popular (non-academic) book with another economist, Uri Gneezy. John and Uri are pioneers in the area of “field experiments” which bring the power of randomized experiments into real-world settings. In my opinion, field experiments are the future of empirical economics. We’ve written at length in our books and on our blog about the amazing work these two have been doing. I’ve had the chance to read John and Uri’s book, and I loved it.
The thing they can’t figure out, however, is what to call the book! If only my sister Linda – the greatest namer of things the world has ever known — were still around, she would figure out a great title for sure. In her absence, they’ve asked if I could mobilize the collective genius of you, the Freakonomics blog readers.
Okay, so here is the deal. Below, I’ve provided some information on the book and links to some materials that might prove useful to you in coming up with a name. You have two days to generate great titles for the book, which you can submit as comments on this blog post.
I made a mess out of this year’s Kentucky Derby. The worst part is that a bunch of friends placed bets using my picks, collectively losing a large stack of money.
After the Kentucky Derby, I blogged about the misery, noting what a strange race the Derby was:
The race is 1.25 miles long and there were 19 horses in the race. Of the eight horses who were in the front of the pack after one-fourth of a mile, seven ended up finishing in back: 12th, 14th, 15th, 16th, 17th, 18th, 19th. Only one horse that trailed early also finished poorly, and that horse started terribly and was way behind the field from the beginning. In contrast, the horses who ended up doing well were in 16th, 15th, 17th, 12th, and 18th place early on in the race. Basically, there was a nearly perfect negative correlation between the order of the horses early in the race and the order of the horses at the end of the race!
My condolences to anyone who bet my picks in the Kentucky Derby. Of the four horses I liked, the best finisher was Revolutionary in third place, but even that was unimpressive because he surprised me by going off as the second favorite in the betting. Just be glad I didn’t post my picks for the entire day’s racing at Churchill Downs…the few friends I did give those picks to are cursing me today!
The Kentucky Derby was extremely interesting, however, from a statistical perspective. Here is a link to the results chart for the race. If you don’t study horse racing, it will just look like gibberish. If you know how to read a results chart, you will see a remarkable pattern jump out of the numbers. The race is 1.25 miles long and there were 19 horses in the race. Of the eight horses who were in the front of the pack after one-fourth of a mile, seven ended up finishing in back: 12th, 14th, 15th, 16th, 17th, 18th, 19th. Only one horse that trailed early also finished poorly, and that horse started terribly and was way behind the field from the beginning. In contrast, the horses who ended up doing well were in 16th, 15th, 17th, 12th, and 18th place early on in the race. Basically, there was a nearly perfect negative correlation between the order of the horses early in the race and the order of the horses at the end of the race!
Every year I post my picks for the Kentucky Derby. Last year I actually did well, for a change. In a twenty-horse field, I picked three horses to do well, and two of them ended finishing first and second. The winner was 15-1. I also made a correct prediction as to which horse would finish last. I got that one right as well.
So here we go again…
Let me start by saying that the crystal ball (actually the computer algorithm) is a little fuzzy this year. There are four horses that all look equally good to me: Falling Sky, Java’s War, Itsmyluckyday, and Revolutionary. All will be longshots, I suspect, with odds between 15-1 and 25-1.
The model also kind of likes Verrazano, who might be the favorite in the race. If I were betting, I might include him in my exotic bets.
Have you ever noticed that whenever you rent a car, when they give you the keys to the vehicle, there are always two sets of keys? But the two sets of keys are attached to the same key chain, and no matter how hard I’ve tried, I have never figured out a way to detach one set of keys from the other.
What could possibly be the point of giving customers two sets of keys that can’t be separated? The downside is that if the keys get lost, two sets of keys are gone. Also, the keys are much bulkier in my pocket than otherwise would be the case.
The only possible explanation I can see is that since no one carries around two attached sets of keys to the vehicle they own, people are less likely to confuse their own car keys with those of the rental vehicle. It just doesn’t seem like that could be the logic, however.
So can anyone explain to me the real reason rental car companies do this?
I have spent the last 20+ years of my life doing academic research and popular writing on economics. I’ve been lucky, and my work has gotten a lot of exposure. I certainly have had a lot of fun along the way.
But, I think I can honestly say that no government has ever changed a law or a public policy as a result of my work. Sometimes politicians cite my research in pushing an agenda but having talked to these politicians, it is clear they had the agenda first, and then they went looking for research – any research – that would support their position. When I’ve taken unpopular stances (like saying children’s car seats don’t work well), there has never been even a sliver of political movement on the issue.
Finally, however, I think I may be on the verge of my first policy victory.
Three of my colleagues and friends at the University of Chicago — Kerwin Charles, Erik Hurst, and Matt Notowidigdo — recently presented some new research that aims to understand the ups and downs in the U.S. labor market. It’s more serious and important than the usual stuff we deal with on the blog, but every once in a while we deviate from trivialities when something really good comes along.
They’ve been kind enough to put together a layperson’s version of the research below. For those looking for the full-blown academic version, you can find that here.
A Structural Explanation for the Weak Labor Market
By Kerwin Charles, Erik Hurst, and Matt Notowidigdo
In the aftermath of the Great Recession, the labor market has remained anemic. Between 2007 and 2010, the employment-to-population ratio of men between the ages of 21 and 55 with less than a four-year degree fell from 82.8 percent to 73.8 percent. As of mid-2012, the employment-to-population ratio for these men remained depressed at 75.6 percent.[1]
In our new working paper (abstract; full PDF), we show that the recent sluggish labor market in the U.S. – particularly for prime age workers without a college degree – can be traced back to the large sectoral decline in manufacturing employment that occurred during the 2000s. After decades of relative stability, total manufacturing employment in the U.S. fell by 3.5 million jobs between the beginning of 2000 and the end of 2007 (see chart below). These manufacturing jobs were lost even before the Great Recession started. During the recent recession, another 2 million manufacturing jobs were lost. While there is talk of a recent manufacturing rebound in the U.S., the recent increase is only a tiny fraction of the total manufacturing jobs lost during the 2000s.
I’m not sure how I got talked into it, but I agreed to do an AMA (Ask Me Anything) on Reddit today.
These are the sorts of questions I’m looking forward to:
Q: Would you rather fight one hundred duck-sized horses or one horse-sized duck?
And here are the kinds of answers I’ll be giving.
A: I would take the one big duck, for sure. I’ll be an underdog either way (that is true in most fights I’m in). When you are the underdog, you want luck to play as big a role as possible. With one big duck, maybe I manage to get in a lucky swing with my 7-iron and end it quickly. With 100 little horses, even if I get lucky and wipe out a few of them, there are still 97 more to deal with. Plus, I’ve been bit by a horse, and it is no fun. I also recently got attacked by fire ants, and that was no fun either. The thought of horse jaws on those fire ants makes my skin crawl.
To check it out, just go to Reddit IAmA at noon, ET.
The outgoing leader of China, Hu Jintao, has made fighting corruption one of the centerpieces of his party’s agenda. Perhaps because of that, my corruption antennae were working overtime while I was in China.
In Beijing, it seemed like our tour guide was perhaps a little corrupt. For example, we attended an acrobatic show one night. Included in the tour package were regular tickets to the show. There were also two more expensive classes of tickets available, we were told, that would afford a better view. The difference in price was not that great – maybe an extra $10 per person for the best tickets, and $5 more for intermediate tickets. We gave the tour guide the extra $10 per person and told him to upgrade us to the most expensive tickets. Our seats were indeed not bad, roughly the twentieth row of a theater that had perhaps 60 rows. The back of chair was emblazoned with the letters “VIP.” But here is the thing: almost every seat in rows 16 to 20 was filled. Rows 3 to 15 were completely empty (as were rows 40-60…it was not a big crowd on hand). Rows 1 and 2 were completely full. The only logical conclusion I could draw was that within each price range, the theater filled seats from front to back, and that our tour guide had taken the extra $10 per person, pocketed half of it, and bought us tickets in the intermediate price range. Had the theater not been so empty, his scheme wouldn’t have been at all obvious – we would have thought it was just bad luck that we were in the back of the VIP section, but the empty rows gave him away.
I’m always suspicious of companies who tout how environmentally friendly they are, when being green happens to coincide with cost savings for the firm. The best example is the ubiquitous message you see in hotel rooms asking the guest, in the spirit of the environment, not to have the sheets and towels washed during your visit. I have a hard time believing that if the situation were reversed – that the green answer was quite costly – the hotels would be such tree huggers. (For the record, I don’t care at all whether my sheets and towels get washed, so I cooperate.)
At a hotel in China, I finally found a “green” message that I found compelling:
Official statistics would certainly suggest that crime in China is extremely low. Murder rates in China are roughly one-fifth as high as in the United States. According to the official crime statistics there, all crimes are rare. China certainly feels safe. We walked the streets in rich areas and poor and not for a moment did I ever feel threatened. Graffiti was completely absent. The one instance where I thought I finally found some graffiti near a train station in the city of Shangrao, the spray painted message on a bridge turned out not to be graffiti, but rather a government warning that anyone caught defecating under the bridge would be severely punished.
Yet, there were all sorts of odd behaviors that made it seem like some crimes were a big problem.
First, there seemed to be an obsession with the risk of counterfeit money. Our tour guides felt the need to teach us how to identify fake money. Whenever I bought something with currency, the shopkeeper went through a variety of tricks to validate the legitimacy of the bills.
I spent 12 days in China with my family over Christmas this year, a whirlwind tour that took us to seven different cities, including the birth-cities of my two adopted daughters. In a series of blog posts this week, I recount a few observations from the trip.
Last I heard, the Communist Party in China wasn’t that enthusiastic about Christianity. You never would have known it spending Christmas there with my family a few months back.
We arrived in the Beijing airport to the sounds of Rudolph the Red-Nosed Reindeer playing in the background. Pretty much the only music we heard the whole trip was Christmas music. This was true not just in places frequented by tourists, but also in shopping malls and restaurants as far-flung as Nanchang and Zhenjiang — two cities where we didn’t see a single American in two days.
In academia, it is seen as an honor when someone wants to reprint one of your published papers in an edited volume of collected papers. It is really an honor if someone wants to take the time to translate it into another language.
Roland Fryer and I feel so honored.
Back in 2004, Roland and I published a piece in the journal Education Next describing our research on racial test-score gaps. That paper was recently translated into ghetto English. The new version is here. It is a must-read (although very, very NSFW). Usually something gets lost in the translation, but I would say in this case it is an improvement.
Starbucks recently came out with an ultra-high end cup of coffee. Wondering whether that cup of coffee was really worth $7, Kimmel took to the streets and ran some experiments. He didn’t however, do what you might expect. Rather, he pulled a page out of the old wine tasting experiment I ran twenty years ago. It is definitely worth watching.
Last week, the governing bodies of golf announced a ban on anchored putters. Historically, when golfers putt (i.e. roll the ball along the green to try to get it into the hole), they swing the putter back and forth freely. In recent years, a growing number of golfers have used a different technique, wedging the butt end of the putter into their stomach, or resting it against their chin. For a variety of reasons, the head honchos of golf are against anchoring the putter. I don’t have a strong opinion pro or con on this decision. My hunch is that a careful data analysis would show that anchoring the putter doesn’t do much to help or hurt most golfers. (For instance, I am about equally bad either way.) Golfers who don’t play in tournaments can continue to use anchored putters if they like. Tournament golfers will adjust.
In my view, the attention given to anchored putting is a distraction from the real issue that bedevils golf: pros hit the ball too far and everyday golfers hit the ball too short. Pros hitting the ball too far is a problem because there is a huge stock of old golf courses, the value of which are greatly depreciated by the increases in distance. Classic old courses aren’t hard enough to challenge the pros. In response, large investments are made to stretch the distance of these courses to keep up. And changes in the tournament courses alter the perceptions of golfers. The course I grew up playing was hard enough when I was a kid, but now is perceived as too easy because it doesn’t compare to the championship courses.
I’ve long been puzzled by the almost complete disconnect between real-world businesses and academic economics. After I graduated from college, I went to work as a management consultant. Almost nothing I learned as an economics major proved helpful to me in that job. Then, when I went back to get a Ph.D., I thought what I had learned in consulting would help me in economics. I was wrong about that as well!
Ever since, I’ve felt that both business and economics would benefit from a greater connection. Why don’t businesses set prices the way economics textbooks say they should? Why are randomized experiments so rare in business? Why do economists write down models of how businesses behave without spending time watching how decisions are actually made at businesses? The list goes on and on.
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