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.
My good friend Massimo Young recently moved to Kenya, where he is seeing what happens when you mix a little American ingenuity into a thriving but chaotic developing economy. In what I hope is the first of many blog posts, Massimo reports on just what it takes to succeed in the banking industry in Kenya. (Massimo does not have a financial interest in any of the companies discussed in his post, although he wishes he did!)
M-PESA: The Story of the Most Successful Bank in Kenya
By Massimo Young
It’s not easy to do business in Kenya. Business people complain all the time that despite a wealth of opportunities, there are often major roadblocks to accomplishing much on the ground, especially at scale. In fact, Kenya ranks 121st out of 185 countries in the World Bank’s “Ease of Doing Business” survey.
On the other hand, there are some amazing examples in recent years of businesses that have managed to accomplish a lot very quickly. In particular, the wild success of mobile banking in Kenya has changed the way people use money here. Launched just 5 years ago, Kenya’s leading mobile money transfer service, M-PESA, now processes a total of about $5 billion in transactions per year, equivalent to an astounding 15% of the country’s GDP. Before it launched, only 14% of Kenyans participated in the formal banking sector. Today, about half the adult population uses M-PESA.
With the U.S. presidential election nearly here, everyone seems to have politics on their mind. Unlike most people, economists tend to have an indifference towards voting. The way economists see it, the chances of an individual’s vote influencing an election outcome is vanishingly small, so unless it is fun to vote, it doesn’t make much sense to do so. On top of that, there are a number of theoretical results, most famously Arrow’s Impossibility Theorem, which highlight how difficult it is to design political systems/voting mechanisms that reliably aggregate the preferences of the electorate.
Mostly, these theoretical explorations into the virtues and vices of democracy leave me yawning.
Last spring, however, my colleague Glen Weyl mentioned an idea along these lines that was so simple and elegant that I was amazed no one had ever thought of it before. In Glen’s voting mechanism, every voter can vote as many times as he or she likes. The catch, however, is that you have to pay each time you vote, and the amount you have to pay is a function of the square of the number of votes you cast.
If there is one thing that politicians love to do it’s to promise people things now and not worry about how we will pay for those promises until sometime far into the future, when some other politician is on the hook to balance the budget.
We see this all the time in the form of budget deficits in the federal government, and also with the accounting tricks used on the Social Security Trust Fund.
These sorts of shenanigans get less press at the state and local level because many state and local governments are required to have balanced budgets (this paper by my thesis adviser Jim Poterba lays out some of the details). There are, of course, ways for states to get around the balanced-budget provisions. The method that currently casts the greatest shadow over the future is underfunded pensions. State governments promise generous retirement packages to state employees, but use accounting tricks to avoid recognizing the full value of what taxpayers will owe in the future to cover those debts.
Hearty congratulations to Harvard economist Al Roth (now at Stanford), whose work has been featured on many occasions here at the Freakonomics blog!
When I talk about economists, one of the greatest compliments I give is to say that they changed the way people think about the world. Al Roth definitely fits into that category. The type of economics he is best known for is what is called “Market Design.” Essentially, it means bringing market-type thinking to areas in which historically non-market allocation mechanisms have been used. A few examples of the areas Roth has explored are matching fledgling doctors to hospitals for their residency, matching students to public schools in school choice programs, and matching kidney donors with those who need a kidney.
I know Roth changed my thinking because the first time I read Roth’s work in this area I had a strong reaction: this isn’t really economics.
The Ryder Cup was about as exciting as golf can get. Down 10-6 going into the last day, the European team eked out a 14.5-13.5 victory.
The headline in USA Today reads “Europe Rallies for Miraculous Ryder Cup Win.” The Ryder Cup website calls it the “Miracle at Medinah.”
So how miraculous was the outcome from a statistical perspective?
Europe needed to win eight of twelve matches for a victory. (If the teams tied, Europe got to keep the trophy, so it is considered a European win.) Let’s assume that each of the pairings was an even match. Then the likelihood that Europe wins after being down 10-6 after two days is given by the binomial distribution: what is the likelihood of at least 8 heads coming up if you flip a fair coin 12 times.
The answer is about 19 percent.
Not exactly the stuff of miracles, but fun nonetheless.
We’ve had this blog for seven years. This is the first time I have ever tried to use it play cupid.
Here’s the deal. I have a close friend here in Chicago. She is in her late twenties. She is really smart. She has an extremely successful career. She is incredibly pretty.
Here is a true story. The first time my wife Jeannette met this friend, she was so shocked by my friend’s beauty that her jaw went slack, and she temporarily lost the ability to speak. My wife later described her as the most beautiful woman she had ever seen in person.
Why, if she is so great, is she still single? I don’t have a good explanation. Partly, she works really hard so she doesn’t have that much opportunity to meet people. Also, I suspect a lot of potential suitors are intimidated by her – I know I would have been. She’s got a Ph.D. from a top university, she’s on top of the world professionally, she’s pretty. A man would need to be very self-confident to ask her out.
I’ve got a lot of smart friends, and they come up with some pretty good ideas. (I even have an idea myself once in a while!)
Occasionally, these ideas take the form of potential internet businesses. Although we have incubated some interesting businesses up until now, there is too much talking and not enough doing.
It is time for that to change, and we want to open up a little Chicago office to pursue these ideas.
We need some superhuman talent to make it a success.
If you think you have what we are looking for, send a resume to stelios@greatestgood.com, and let’s get the fun started!
Every once in a while, there is a mash-up that combines a pop-type song with a hip-hop add-on. I’m not talking about songs like the odd new B.O.B./Taylor Swift duet, but rather, songs that exist on their own, and then get a hip-hop upgrade.
I’m sure there are many examples, but there are only two that I can think of off the top of my head.
The first is “Numb/Encore“, in which a popular Linkin Park song (“Numb”) gets Jay-Z lyrics laid over it. Here are they lyrics from the original Linkin Park song “Numb”:
I’m tired of being what you want me to be
Feeling so faithless lost under the surface
Don’t know what you’re expecting of me
Put under the pressure of walking in your shoes
(Caught in the undertow just caught in the undertow)
Every step that I take is another mistake to you
(Caught in the undertow just caught in the undertow)
And every second I waste is more than I can takeI’ve become so numb I can’t feel you there
I’ve become so tired so much more aware
I’m becoming this all I want to do
Is be more like me and be less like you
Compare the adolescent angst of those lyrics with the words that Jay-Z lays over it such as:
Of the sixteen The Bachelor shows, only four relationships from the show lasted at least a year. Only two couples are still together. In contrast, five of the seven The Bachelorette seasons led to relationships that lasted at least a year. (Although only two of the couples are still together.)
Why the difference? Just chance, or does it tell us something about men, women, and relationships?
This piece on baby names by Drew Magary made me laugh out loud. I sent it to my wife, and she laughed so hard she cried.
Alex Stone, author of the excellent new book Fooling Houdini, was kind enough to take questions from blog readers – and there were some tough ones! Here are his answers:
Q. If you are a highly skilled — but evil — magician, and wanted to use your skills for financial gain through criminal means (or at least highly unethical means), what do you think would be the most profitable routes to take? –Derek
A. Wall Street.
Q. Why is it that magicians are almost all men. Why are there so very few women magicians? –Eric M. Jones
A. I don’t really know, but I think it’s high time for that to change.
I get sent about 200 books a year by strangers who want me to provide blurbs. About 199 out of those 200 will walk away empty-handed. Most of the time I don’t even open the book – it would be a full-time job just to read everything sent my way. Occasionally a subject will really interest me, and I will spend some time with a book, but certainly not read it from cover to cover. And about once a year, I actually start reading one of these books and like it so much I can’t put it down.
That book is Fooling Houdini: Magicians, Mentalists, Math Geeks, and the Hidden Powers of the Mind
Earlier this week I posed a quiz to blog readers: what happened twice to me in the last few days that had never once happened to me in the first 45 years of my life.
Well, it turns out that the answers readers posted turned out to be a pretty interesting data for analysis. At the time that my researcher Sara Kuse crunched the numbers, there were 280 guesses (some commenters guessed more than once, and we counted all their guesses) that fell into roughly 110 different categories.
The most commonly made guesses were getting robbed or mugged, making a hole in one, getting recognized/asked for an autograph, winning a prize, losing something like a wallet being in a car accident, and being stung by a bee. Over 30 percent of all the guesses were one of those items. None of those would qualify, however, because they’ve all happened to me at least once before. Getting robbed and a hole in one were two great guesses – both have happened to me exactly once in my life.
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