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.
Math professor R. Andrew Hicks has come up with an amazing new rear-view mirror for the driver’s side of the car that eliminates blind spots. The secret is that standard mirrors are flat, but this one has subtle curves that greatly widens the field of view, but without being distorting. If you look at the photo accompanying the link above, it is amazing how much better the new mirror seems to be.
Alas, you won’t see Hicks’s mirror on many cars any time soon. U.S. regulations require that driver’s side mirrors be flat, and this mirror is not flat. So if you want one, you will have to buy it and install it on the car yourself.
Last week something that has never happened to me before in my life, occurred twice, independently, in two days.
What was it? First correct answer in the comments section gets Freakonomics swag.
Although that is a meager set of hints, I’ve found that no matter how hard the quiz, Freakonomics blog readers can answer just about any question within an hour. I’ll be curious to see what happens on this one.
We use direct financial incentives to motivate so many different activities in life. No one expects workers in a fast food restaurant to flip burgers for free. No one expects teachers to show up and teach without getting paid. But when it comes to kids in school, we think that the distant financial rewards they will earn years or decades later should be enough to motivate them, even though for most kids a month or two feels like an eternity.
To learn a little more about whether kids’ school effort responds to financial incentives, John List, Suzanne Neckermann, Sally Sadoff, and I carried out a series of field experiments we recently wrote up as a working paper (PDF here). Sally Sadoff (who you might remember from the Freakonomics movie as the woman who works tirelessly to help the students in Chicago Heights), talked about the research on Fox Business News.
Unlike most previous studies involving kids, schools, and payments, in this research we aren’t trying to get kids to study hard or learn more, we were going after something even more simple: just get the student to try hard on the test itself. So we don’t tell the kids about the financial reward ahead of time — we just surprise them right before they sit down to take the test by offering them up to $20 for improvements.
The dangerous thing about gambling is that you happen to win sometimes just by chance. The gambler is quick to take credit for successes, but can always find some external factor to blame for losses.
Case in point: my Kentucky Derby picks. I picked three horses out of twenty starters: one to win, one to place, and one to show. The horse I picked to win had some terrible luck, hurting his ankle and eventually finishing 19th.
The horse I picked for second, I’ll Have Another, ended up winning the race. Bodemeister, my third-place pick, finished second. A two dollar exacta-box on my top three horses would have cost $12 and would have returned $306.
I also picked a horse to finish last, Daddy Long Legs, and he indeed finished dead last.
So, like the gambler I am, I take credit for the good outcomes, and write off my horse finishing 19th as merely bad luck.
And, of course, that means I will push my luck on the Preakness, which goes off today.
I wish I had more exciting picks, but this time my algorithm likes the two favorites, Bodemeister and I’ll Have Another. For third, I’d go with Optimizer.
Every year I post Kentucky Derby picks.
Every year they turn out to be terrible.
Every year I vow I will not embarrass myself again next year.
Every year two or three loyal readers email me and ask why I didn’t post my picks this year, so then I post picks after all.
So, against my better judgment, here they are.
About a year ago, I blogged about how odd the pattern of chicken wing prices was at my local Harold’s Chicken Shack. Here was what they were charging for their wings:
2-wing meal $3.03
3-wing meal $4.50
4-wing meal $5.40
5-wing meal $5.95
6-wing meal $7.00
It is quite odd because they gave you a big discount on the fourth and fifth wings, but charged you a lot for the sixth wing. There were many incongruities throughout the menu.
Since that time, Harold’s has invested in a fancy new menu up on the wall above the bulletproof glass that protects the workers from the customers. I’ve also invested in a fancy new phone that actually takes pictures, unlike the phone I carried a year ago. So this time, instead of having to write down all the prices, I just snapped a photo.
Time magazine has a poignant story (which is gated) and video (which is available) on Dr. Peter Goodwin, one of the advocates who helped get assisted suicide laws in place in Oregon and Washington.
Goodwin himself, at the time of the interview, suffered from a degenerative disease that was in the process of killing him and had to decide whether he wanted to take his own life.
The interview is the last one he gave before his death.
Blog reader Becky Roser sent an interesting email recently:
My father pointed out something interesting the other day – almost no one runs out of gas anymore. When gas was $0.60 a gallon, he maintains it happened all the time. Now that it’s $4.00, you almost never see it. I have vague memories of my father running out of gas when I was very young, but I’ve never done it. What changed?
Last week, we solicited your questions for economist Daron Acemoglu and political scientist Jim Robinson, who just published a new book called Why Nations Fail: The Origins of Power, Prosperity, and Poverty
Their thoughtful responses below cover everything from robber barons to the artificial construction of African nations to whether the race of a country’s leaders determines its success. A big thanks to Daron, Jim, and all our readers for another great Q&A.
First, a note from Daron and Jim: “We thank everybody for these excellent questions and comments. We had to pick a few to be able to provide detailed answers.
When it comes to economic ideas, Daron Acemoglu never thinks small. Widely acknowledged as one of the most insightful economists alive, Daron seems to have brilliant things to say about any and all things economic.
When you have that sort of gift, you might as well go after the biggest problems imaginable. Thus his latest book, Why Nations Fail
It is an awesome piece of work. So full of ideas and wisdom, but still so easy to read. I just love it. Daron and Jim have agreed to take your questions about their new book, so please leave them in the comments section below. To get you started, here’s the table of contents:
My colleague Glen Weyl and Eric Posner at the University of Chicago Law School, argue in a recent white paper, that new financial products should be subject to regulatory approval analogous to that for new drugs by the Food and Drug Administration. Here is the abstract:
The financial crisis of 2008 was caused in part by speculative investment in sophisticated derivatives. In enacting the Dodd-Frank Act, Congress sought to address the problem of speculative investment, but merely transferred that authority to various agencies, which have not yet found a solution. Most discussions center on enhanced disclosure and the use of exchanges and clearinghouses. However, we argue that disclosure rules do not address the real problem, which is that financial firms invest enormous resources to develop financial products that facilitate gambling and regulatory arbitrage, both of which are socially wasteful activities.
Close your eyes. Imagine what it would feel like to run a marathon. Now imagine that you’ve run not just one marathon, but two marathons in a single day. Seems crazy. Now imagine you’ve run two marathons in a day, every day, for 10 months straight without a day off!
Meet Pat Farmer. He’s an ultramarathoner from Australia who is in the process of running from the North Pole to the South Pole. He covers 50 miles a day, except when he is using snow shoes near the poles. He only manages 16 miles a day in snow shoes.
A blog reader sent a message to her congressman, Tim Walz, complaining about SOPA, the bill that aims to protect intellectual property rights online that has sent many internet folks into a tizzy.
Here is the response she got from Congressman Walz:
…SOPA approaches the problem as a criminal matter when in fact, study upon study shows that online piracy is best dealt with as an economic matter. Instead of using the Justice department as a sledgehammer amongst the delicate weeds of the internet, corporations must embrace the free market and adapt their business models to compete in a new reality. The ability to adapt and compete is the cornerstone of capitalism, we should promote this rather than rushing to insert ourselves in the market in ways that could severe disrupt internet commerce and progress.
Now, I don’t 100 percent agree with this answer, but I love the spirit of it – especially coming from a Democrat! That last sentence sounds like the argument you would get over faculty lunch in the University of Chicago department of economics.
I don’t particularly like math. I’ve never been a fan of magic either. For some reason, however, when I heard about a new book entitled Magical Mathematics
I have to say that it is really good, and I would highly recommend it to any nerd. It is a really artful melding of card tricks that are remarkable, with explanations of the underlying math concepts that are at one level so simple and clear that almost anyone could get the basic intuition for what they are talking about, but at another level so deep and difficult that it is probably hopeless for someone like me to ever truly understand.
Last spring, I jokingly (okay, maybe half-jokingly) wrote about my quest to make the Champions Tour, the professional golf tour for people over the age of 50. In that post, I made reference to the ideas of Anders Ericsson, an old friend whom Dubner and I wrote about in our New York Times column back in 2006, and whose ideas later became the centerpiece of a number of popular books. Anders is the one who thinks that talent is unimportant. Oversimplifying a bit, he argues that with 10,000 hours of the right kind of deliberate practice, more or less anyone can become more or less world-class at anything. I’ve spent 5,000 hours practicing golf, so if I could just find the time for 5,000 more, I should be able to compete with the pros. Or at least that is what the theory says. My scorecards seem to be telling a different story!
It turns out I’ve got a kindred spirit in this pursuit, only this guy is dead serious. A few years back, twenty-something Dan McLaughlin decided he wanted to play on the PGA tour. Never mind that he had only played golf once or twice in his life and had done quite poorly those times. He knew the 10,000 hour argument, and he thought it would be fun to give it a test. So he quit his job, found a golf coach, and has devoted his life to golf ever since. So far he is 2,500 hours into his 10,000 hour quest, which he chronicles at thedanplan.com.
I recently visited India for the first time, spending a grand total of 30 hours there. During that time, however, my experiences ran the gamut. I spent the day in the Zakhira slum in New Delhi, and then just a few hours later, enjoyed a sumptuous dinner sitting next to former Australia Prime Minister John Howard, his wife Janette, and other luminaries.
My first impression of India was that the chaos on Indian roads was beyond belief: people walking and riding bikes on what appear to be freeways, motorcycles with three riders, open trucks crammed with people, the constant din of honking everywhere by everyone. On top of that, the people driving me never seemed to know how to get anywhere. It took over an hour to get from the airport to my hotel, a seemingly endless series of turns (including numerous u-turns) and my driver rolling down his window and yelling for directions at nearly every stoplight. I was surprised when the return trip to the airport, with a different driver, took only 20 minutes and was nearly a straight shot. I will say, however, that I saw only one cow on the trip.
We’ve had the good fortune over the last few years here at the blog to bring you occasional nuggets from University of Arizona economist Price Fishback, whose research on the Great Depression often offers powerful insights about our current economic situation.
Price’s latest contribution to the blog, this time joint with Ken Snowden from UNC-Greensboro, discusses the Home Owner’s Loan Corporation, which bought and refinanced 1 million severely delinquent loans between 1933 and 1936. Did things works out well or poorly? You’ll have to read on to find out. And if you like what they’ve written, keep an eye out for their soon to be released book (with Jonathan Rose as a third author).
Learning from the Last Great Mortgage Mess
By Price Fishback and Ken Snowden
For the past four years, the U.S. has faced a housing crisis that shows no signs of ending. The situation was similar in June 1933 when the Home Owners’ Loan Corporation was created to address the nation’s last severe mortgage crisis. Some have suggested that a new HOLC could help resolve the current crisis, but their characterizations of the HOLC have been incomplete. Our goal here is to summarize recent research that provides a fuller picture of the HOLC and its impact on housing markets in the 1930s.
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