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When Freakonomics.com was launched in 2005, it was essentially a blog (c’mon, blogs were a thing then!). The first Freakonomics book had just been published, and Stephen J. Dubner and Steven D. Levitt wanted to continue their conversation with readers. Over time, the blog grew to have millions of readers, a variety of regular and guest writers, and it was hosted by The New York Times, where Dubner and Levitt also published a monthly “Freakonomics” column. The authors later collected some of the best blog writing in a book called When to Rob a Bank … and 131 More Warped Suggestions and Well-Intended Rants. (The publisher rejected their original title: We Were Only Trying to Help. The publisher had also rejected the title Freakonomics at first, so they weren’t surprised.) While the blog has not had any new writing in quite some time, the entire archive is still here for you to read.

Shifting Gun Sales in Texas

A Texas legislator has proposed exempting handguns from the 6.25 percent state sales tax on March 2, Texas Independence Day.  He claims this will create jobs.

It is likely that this brilliant idea will increase total gun sales, as reducing the net price of guns will increase the quantity demanded.  But it would also shift gun sales away from most other days in the year.  I would bet that employers of gun shops would in the long run cut employment and rely on overtime and temporary workers around March 2.  It’s not clear that retail jobs would be created.  Jobs in gun manufacturing would increase as production increases, but that wouldn’t help Texas very much, since most guns sold in Texas aren’t produced here.  Of course, one also wonders whether more guns in Texas will add to our safety!


The Telltale Signs of Corporate Fraud

A new working paper (abstract; PDF) by Tanja Artiga Gonzalez, Markus Schmid, and David Yermack looks for the telltale signs of corporate fraud. The paper is called “Smokescreen: How Managers Behave When They Have Something To Hide”:

We study financial reporting and corporate governance in 216 U.S. companies accused of price fixing by antitrust authorities.  We document a range of strategies used by these firms when reporting financial results, including frequent earnings smoothing, segment reclassification, and restatements.  In corporate governance, cartel firms favor outside directors who are likely to be inattentive monitors due to their status as foreign or “busy.” When directors resign, they are often not replaced, and new auditors are rarely engaged.  Cartel managers exercise their stock options faster than managers of other firms.  While our results are based only upon firms engaged in price fixing, we expect that they should apply generally to all companies in which managers seek to conceal poor performance or personal wrongdoing.

The authors are wise to note that these findings aren’t necessarily generalizable, and it is also worth wondering if this method could be applied prophylactically to identify fraud. Note: Yermack is the same man who brought us “Tailspotting: How Disclosure, Stock Prices and Volatility Change When CEOs Fly to Their Vacation Homes.”


Are Predictions Getting Better?

If you’re the kind of person who cares about “The Folly of Prediction” and The Signal and the Noise, you may want to read Amy Zegart‘s Foreign Policy piece about predictions. Making predictions within the intelligence community, for example, is a different game than betting on basketball:

In March Madness, everyone has access to the same information, at least theoretically. Expertise depends mostly on how geeky you choose to be, and how much time you spend watching ESPN and digging up past stats. In intelligence, however, information is tightly compartmented by classification restrictions, leaving analysts with different pieces of data and serious barriers to sharing it. Imagine scattering NCAA bracket information across 1,000 people, many of whom do not know each other, some of whom have no idea what a bracket is or the value of the information they possess. They’re all told if they share anything with the wrong person, they could be disciplined, fired, even prosecuted. But somehow they have to collectively pick the winner to succeed.

In other spheres, however, predictions just keep getting better. “Smart people are finding clever new ways of generating better data, identifying and unpacking biases, and sharing information unimaginable 20 or even 10 years ago,” writes Zegart.


Making a Living Through Pay-as-You-Wish

A TED talk by musician Amanda Palmer explores the concept of pay-as-you-wish funding for artists and performers:  

Right at this same time, I’m signing and hugging after a gig, and a guy comes up to me and hands me a $10 bill, and he says, “I’m sorry, I burned your CD from a friend.” “But I read your blog, I know you hate your label. I just want you to have this money.”

And this starts happening all the time. I become the hat after my own gigs, but I have to physically stand there and take the help from people, and unlike the guy in the opening band, I’ve actually had a lot of practice standing there. Thank you.

And this is the moment I decide I’m just going to give away my music for free online whenever possible, so it’s like Metallica over here, Napster, bad; Amanda Palmer over here, and I’m going to encourage torrenting, downloading, sharing, but I’m going to ask for help, because I saw it work on the street. So I fought my way off my label and for my next project with my new band, the Grand Theft Orchestra, I turned to crowdfunding, and I fell into those thousands of connections that I’d made, and I asked my crowd to catch me. And the goal was 100,000 dollars. My fans backed me at nearly 1.2 million, which was the biggest music crowdfunding project to date.

And here‘s a rundown on other performers who’ve explored the pay-as-you-wish strategy.  


The Real Jerk in Pittsburgh

In our “Legacy of a Jerk” podcast, we told a story about how Roberto Clemente‘s earthly reputation was burnished forever by his saintly death. It wasn’t that Clemente was a jerk — far from it — but the story emphasized how a certain kind of death can smooth out the rougher parts of a person’s reputation.

So I read with interest this fantastic ESPN article by Kevin Guilfoile about the bat that Clemente used to get his 3,000th hit. Guilfoile writes about the time he spent as an intern working for the Pittsburgh Pirates, Clemente’s old team, and his interactions with the Pirates’ rising star Barry Bonds. If we ever make a sequel to “Legacy of a Jerk,” we should probably talk about Bonds and to what degree his damaged reputation — as a reputed long-time steroid user — is a product of his personality:

Barry wasn’t the kind of jerk who was nice to people only when he needed something from them. As far as I could tell, Barry was pretty much an ass to everybody all the time. Instead of berating me directly or just ignoring me, Barry would sometimes talk about me like I wasn’t there. Sometimes he would tell Bobby Bonilla, who had the locker next to him, that I was lying to them and these autographs weren’t for fans and that I was just selling these pictures to professional dealers, that I was another no-talent white man exploiting black men who possessed real ability.


Who Listens to Freakonomics Radio? Here Are the Survey Results

Last week we posted a survey for Freakonomics Radio listeners. Your response was fantastic — nearly 2,000 listeners — and very helpful. In return, we thought it’d be nice to share some of the data with you. As a big believer in negative feedback, I have just one regret: that we didn’t ask you to tell us what you don’t like about the podcast. Maybe next time.

WHO YOU ARE: 

Our listeners are, in a nutshell: rather male (77%); relatively young (45% are 25-35 years old, another 24% are 35-44); well-educated (38% have a graduate degree; another 43% have a bachelor’s degree); and — according to the survey data at least — pretty well-off (17% earn more than $150,000 and another 23% earn between $100,000 and $150,000; then there are the 14% who earn between $0 and $30,000, most of whom are likely students).

WHAT YOU DO:

Here is a look at top occupations:


The Retraction Epidemic

In the Washington Post, Peter Whoriskey writes about the rising incidence of fraud in research labs:

It may be impossible for anyone from outside to know the extent of the problems in the Nature paper. But the incident comes amid a phenomenon that some call a “retraction epidemic.”

Last year, research published in the Proceedings of the National Academy of Sciences found that the percentage of scientific articles retracted because of fraud had increased tenfold since 1975.

The same analysis reviewed more than 2,000 retracted biomedical papers and found that 67 percent of the retractions were attributable to misconduct, mainly fraud or suspected fraud.

One of the less-obvious downsides of academic fraud:

The trouble is that a delayed response — or none at all — leaves other scientists to build upon shaky work. [Ferric] Fang said he has talked to researchers who have lost months by relying on results that proved impossible to reproduce.

Moreover, as [Adam] Marcus and [Ivan] Oransky have noted, much of the research is funded by taxpayers. Yet when retractions are done, they are done quietly and “live in obscurity,” meaning taxpayers are unlikely to find out that their money may have been wasted.


A Carpenter No More

A 50-year-old law professor told me yesterday that between college and law school he worked as a carpenter.  I said it was great to hear that, as it must make him more productive at home.  He said no, he never does carpentry work around his house now for two reasons:

  1. Skill depreciation: he isn’t as good at carpentry as he was when he was doing it full time.
  2. His requirement for quality work is such that he wouldn’t use himself as a carpenter—the income elasticity of demand for quality is positive, and his income is much higher now than after college.

He didn’t mention a third reason, which I think is important, namely that the opportunity cost of his time is too high to make carpentry a good way to spend time. (HT: TB)


How to Auction Off an Unwanted Duty

A high-school economics teacher named Steve Fortna writes from Colorado with a clever solution:

The Spirit Week (formerly known as Homecoming) Dance is upon us.  This Friday I will be pressed into service to monitor the dress and dance of around 150 kids while a DJ, who does not care about the moral development of young adults in their formative years, plays whatever music they want to hear.  Loudly.  I really do not want to be there.  I am not alone in that sentiment.  

My school has tried various methods of determining which teachers should be on chaperone duty at each dance over the years without much success.  Either we all go (way too many people but at least we’re all in the same boat), or only a select few (more efficient use of faculty, but it’s not fair).  While most teachers don’t particularly enjoy monitoring dances, there are different levels of unease.  What’s an equitable way to determine who’s on duty?


Are All Research Participants Outliers?

A Pacific Standard profile of noted social psychologist Joe Henrich has some staggering information about how social scientists conduct their research:

Economists and psychologists, for their part, did an end run around the issue with the convenient assumption that their job was to study the human mind stripped of culture. The human brain is genetically comparable around the globe, it was agreed, so human hardwiring for much behavior, perception, and cognition should be similarly universal. No need, in that case, to look beyond the convenient population of undergraduates for test subjects. A 2008 survey of the top six psychology journals dramatically shows how common that assumption was: more than 96 percent of the subjects tested in psychological studies from 2003 to 2007 were Westerners—with nearly 70 percent from the United States alone. Put another way: 96 percent of human subjects in these studies came from countries that represent only 12 percent of the world’s population.


How Good Groupon Leads to Bad Yelp

A paper by Georgios Zervas, John Byers, and Michael Mitzenmacher explores the relationship between a Groupon surge (like when a small bakery has to make 100,000 cupcakes) and a drop in Yelp ratings. Tim Worstall at Forbes explains:

Imagine that you are an enthusiastic and regular consumer of the finest chimichangas that you can find. You’ll likely have scoped out your neighbourhood, tested the chimichangas on offer and zeroed in on those places that make excellent ones. You might even provide reviews on Yelp pointing other enthusiasts for the comestible so as to guide them to the good places.


Investing in a Warmer Future

Bloomberg Businessweek explores how firms are adapting to a future climate:

Investing in climate change used to mean putting money into efforts to stop global warming. Morgan Stanley, Goldman Sachs, and other firms took stakes in wind farms and tidal-energy projects, and set up carbon-trading desks. The appeal of cleantech has dimmed as efforts to curb greenhouse gas emissions have faltered: Venture capital and private equity investments fell 34 percent last year, to $5.8 billion, according to Bloomberg New Energy Finance.

Now some investors are taking another approach. Working under the assumption that climate change is inevitable, they’re investing in businesses that will profit as the planet gets hotter. (The World Bank says the earth could warm by 4C by the end of the century.) Their strategies include buying water treatment companies, brokering deals for Australian farmland, and backing a startup that has engineered a mosquito to fight dengue, a disease that’s spreading as the mercury climbs.

Piet Dircke of the Dutch engineering and flood-prevention firm Arcadis says he was besieged with calls after Hurricane Sandy: “The climate is changing. Sea level is rising. That’s quite obvious. At the same time, the cities that are close to the waterline continue to grow and have more money and need for protection. It’s almost a natural growth market.”


One University That Isn't Cutting Costs

A Washington Post profile of Liberty University, founded in 1971 by Jerry Falwell, says that Liberty has doubled its enrollment in the last six years:

The surging enrollment for a bastion of Christian conservatism in the central Virginia foothills highlights the school as a market leader at the crossroads of religion and higher education. Liberty figured out how to recruit masses of students via the Internet years before elite universities began ballyhooed experiments with free online courses.

Turbocharged growth inevitably raises questions about quality, and Liberty’s academic reputation has not risen as fast as its enrollment. About 47 percent of its first-time, full-time students graduate within six years, federal data show, below the national average of 58 percent. Liberty officials say such statistics reflect an admissions policy geared more toward opportunity than exclusivity.

And Liberty is doing well on the finance front too: “The university ended 2012 with more than $1 billion in net assets for the first time, counting cash, property, investments and other holdings. That is 10 times what the school had in 2006.”

(HT: Marginal Revolution)


Ray Dalio on the Upside of Negative Feedback

Our recent podcast “When Is a Negative a Positive?” is about the productive use of feedback. It argues that, while positive feedback has its place, especially for beginners, it is negative feedback that drives improvement.

This belief is firmly held by Ray Dalio, the founder of the Bridgewater Associates, which has been called (in a fine New Yorker profile by John Cassidy) “the world’s richest and strangest hedge fund.” Bridgewater’s “principles” argue for constant, ruthless feedback, and Dalio attributes Bridgewater’s success to this culture.

Here are some excerpts from an interview with Dalio that, unfortunately, didn’t make it into our podcast:

“Learning about what you’re doing wrong and your mistakes is so much more productive to making improvement because you develop a means for dealing with that — learning about what you’re doing right.”

“Nobody knows what others are doing wrong. It’s a discovery process. So if I think you’re doing something wrong, I convey that to you in a forthright way. You’re an equal partner in that. But the people around us all then are partners in that. And we go through a process of experimenting, because the same things come up over, and over, and over again. So if you’re doing something wrong, it’s going to come up over and over and over again. And pretty soon, when you’re paying attention to it, it then becomes more apparent. So there’s really very little disagreement concerning each person’s strengths and weaknesses. And then of course, everybody sees that converted into productivity, because once they embrace the standing of what they’re doing wrong and have a strategy to not let that stand in their way — to create a compensating mechanism — it’s no longer a barrier to their effectiveness. …


Paying People to Lose Weight

From Science World Report:

The participants were told to achieve the goal of losing 4 pounds per month up to a predetermined goal weight. The researchers kept track of their body weight every month for almost one year. The researchers told the participants in the incentive groups that they would receive $20 per month if they achieved the goal. And those who failed to achieve the goal would need to pay $20 each month that gets into the bonus pool. Participants in both incentive groups who finished the study were entitled to win the pool by lottery.

The researchers noticed that 62 percent of the participants in the incentive group achieved the goal, while just 26 percent from the non-incentive group hit the target. The mean weight loss of participants from the incentive group was 9.08 pounds and the mean weight loss for the non incentive group was 2.34 pounds.

“The take-home message is that sustained weight loss can be achieved by financial incentives,” lead author Steven Driver, M.D., an internal medicine resident at Mayo Clinic, said in a press statement. “The financial incentives can improve results, and improve compliance and adherence.”


"Women Are Not Men," Continued

An interesting followup to our recent “Women Are Not Men” podcast, from a listener named Misty Touchette. This incident might more appropriately be called “Men Are Not Men”:

I have two female friends that are about 30 and 55 years old.  They don’t know each other and have very different backgrounds.  A few weeks ago, both gleefully told me about their new Facebook accounts.  They’d made them under the guise of men.  Both chose a similar figure head: a photo of a white, attractive man. The reason? They were tired of being unfriended by issues/cause/political groups when engaging in … civic discourse.  When presenting themselves as women, their comments, even simple statements of alternate opinions on a topic, were flamed, trolled or deleted and then, of course, they were booted from some pages.  

I realize that women penning under a man’s pen name is nothing new.  As others have before them I’m sure, my friends have reported that the new manly persona are yielding an increase in support, silence/tolerance replacing backlash or a return in civil discourse.  After listening to “Women Are Not Men” and considering my friends, I couldn’t help but wonder, hey, how many Wikipedians labeled as men are actually women?


When Is a Negative a Positive? (Ep. 117)

Our latest Freakonomics Radio on Marketplace podcast is called “When Is a Negative a Positive?”  (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)

So when is a negative a positive? When the negative is feedback. We focus on a clever research project by Ayelet Fishbach of the University of Chicago and Stacey Finkelstein at Columbia. It argues that positive feedback certainly has its role — especially when someone isn’t yet fully invested in a new project or job — but if it’s improvement you’re after, then going negative is where it’s at:

FISHBACH: The more a person is committed to a goal — and by that I mean the more someone thinks that they absolutely have to do it, they like doing it, it’s important for them to do it — the more negative compared with positive feedback will be efficient.


Who Is Listening to Freakonomics Radio?

We’ve now been making Freakonomics Radio for three years. (Here is a complete archive; you can also subscribe at iTunes or get an RSS feed.)

We have a good sense of the number of listeners (we do roughly 3 million downloads a month) but when it comes to who those listeners are, we don’t know very much. So we’ve put together a listener survey, below. If you have five spare minutes, please fill it in. What can we give you in return? If all goes well, more free podcasts!

Thanks.


A New Website on Electoral Systems

Joshua Tucker of the Monkey Cage points to a new website designed to collect information on voter behavior in various electoral systems and educate the public about different systems. Here’s the rundown, from University of Montreal political scientist André Blais:

A team of scientists has launched the website voteforpope.net. The website has two objectives: inform the public about the various electoral systems that exist in the world to elect state leaders, and collect data on voters’ behaviour under these systems.  We provide information about four electoral systems: one round plurality, two round runoff, alternative vote, and approval vote. The electoral system that is used for the election of the Pope is also described. The visitor is invited to imagine how he/she would vote if the pope was elected under each of these four electoral systems. The study is part of a larger international project designed to better understand the functioning of electoral democracy (Making Electoral Democracy Work). For an example of how such data can help us understand how electoral rules affect vote choice, see Blais et al. 2012. “Assessing the psychological and mechanical impact of electoral rules : A quasi-experiment.” Electoral Studies 31 :829-837.


The New Medicare Tax

Friends have warned me about the new Medicare tax, 3.8% of one’s investment income.  Since the tax only applies to people with higher incomes than mine, I am regrettably not liable for this tax. But what is the economic reason for putting an extra tax only on the investment income of the very well-off?

All Americans are eligible for Medicare at 65 (an age minimum that should be raised).  Why should somebody with $100,000 in investment income but no earnings pay no Medicare tax, while someone who earns $100,000 from a job pays $1,450 herself, and $1,450 through her employer to finance Medicare?  This seems inequitable.  The tax on all investment income, regardless of one’s total income, should be the same as what one pays on self-employment income — 2.9%.


A Freakonomics Radio Bleg: What's Your Name?

Want to be part of an episode of Freakonomics Radio? We’re working on a podcast about names and we want to hear from readers and listeners about their own names — common ones, unusual ones, everything in between. So we’ve set up a voicemail line at 646-829-4478. Give us a call and tell us your full name, and then tell us a little bit about your first name – how you got it and what it means. Thanks!

Addendum: Thank you for all your emails and messages! Our line is now closed. Our names podcast will be out on 4/8/2013. 


Why Is No One Talking About the Stock Market's All-Time High?

U.S. stock markets* are flirting with all-time highs (it may happen today) but I am hearing and reading very little about it. Why is that?

I can think of a few possible reasons, and am eager to hear yours.

1. After the spectacular meltdown of 2007-2009, a lot of people are generally gun-shy and/or inattentive.

2. Since so many people sold into the teeth of the meltdown, and stayed on the sidelines since, a new high is to them relatively bad news.

3. Because the economy itself is not quite roaring, a roaring stock market doesn’t seem legit (unless, of course, you consider it a leading indicator, which it usually is).

4. Just “getting back” to an all-time high from more than five years ago is, at best, a muted victory.

All that said, I remain surprised by the lack of chatter.

*The Dow and S&P 500, at least; the NASDAQ is still a very long way off its tech-bubble high.


The Quants and the Airlines Versus the Public

Baggage fees are a small part of the misery of American air travel. There’s also connecting flights, which, to paraphrase the Nuremberg judgment, contain within themselves the accumulated evil of the whole. For if air travel were pleasant, who would mind changing planes and spending more time in the system?

Instead, the airlines make us pay to avoid the extra hours — giving airlines an incentive to make air travel less pleasant. But once in a while you can beat the system.

For a memorial service at short notice, I once had to fly with my 2-year-old daughter to New York (and throw away our return flight to Boston). The price of a nonstop, one-way flight from Phoenix, Arizona to Newark, New Jersey: $1200 (for two people).

But what if I flew slightly farther, allegedly changed planes in Newark, but just left the airport? So I went back to airline’s website and asked for a one-way flight to Manchester, New Hampshire. It was only $400 (for two people). Not only did the flight connect in Newark, but the Phoenix–Newark leg was the same flight that cost $1200 nonstop!


A Better Way to Think About Sustainability

In a recent TED talk for TED2013, design consultant Leyla Acaroglu tackles some persistent sustainability myths and advocates a new way of thinking about sustainability. From the TED blog:

Acaroglu wants you to think beyond choosing a material for your grocery tote. Instead, she encourages us to think about the entire life of a finished product, to think hard about the net impact a product has on the environment. This is life-cycle thinking, not just whether a product can be recycled, but all the parts of its existence: material extraction, manufacturing, packaging and transportation, product use, and end of life.

Electric tea kettles, for example, are an unlikely drain on the environment:

In the UK, 97 percent of households have an electric tea kettle, and 65 percent of tea drinkers admit to overfilling their kettles, boiling way more water than they need for a cuppa. One day of extra energy use from these kettles is enough to light all the streetlights in London for a night. What we need, Acaroglu says, is not better materials for the tea kettle, but a behavior-changing kettle that helps you boil just what you need.


Would You Eat Steak From a Printer?

We’ve talked before about one possible future of food production: food printers.  Andras Forgacs is the CEO of a company called Modern Meadow, which is working on printing leather and meat products. He recently took questions on reddit.com; here’s his take on his company’s progress with replicating hamburger and steak:

Real steak is a big stretch. It won’t be the first product since steak is very hard to make for now. Instead, the first wave of meat products to be made with this approach will likely be minced meats (burgers, sausages, etc.) and pates (goose liver pate, etc.). Also seafood is an early possibility since the texture requires may be easier to achieve than premium cuts.

While I doubt anyone will make commercial quantities of premium steak within 10 years, we will eventually get there but it will be an Nth generation product.


What Will the Sequester Do to Education Spending in Your State?

With the sequester looming large, Business Insider has created a  set of interactive maps to demonstrate which states will be hit the hardest by cuts to the education budget. “The report [from the National Education Association] claims that, if the cuts kick in, 7.4 million students would be affected — which means that either the quality of education they receive will go down or be eliminated entirely. The funding cuts could also lead to 49,365 potential job losses,” writes Lisa Mahapatra. “But not all states will feel the hit equally. With more than $100 million cuts to their education budget, the states that will be most affected by the sequester are California, Texas, Illinois, New York and Florida.”


How to Make School Lunches Healthier

An article in Choices by David R. Just and Brian Wansink illustrates how school administrators can use behavioral economics to nudge kids toward good eating choices and away from the obesity-causing junk food. Just and Wansink point out that administrators often face a difficult choice between nutritious meals and the bottom line:

It may be possible to replace the standard cheese pizza on white flour crust with pizza smothered in spinach, artichoke hearts, and other vegetables on a whole wheat flaxseed crust. But the healthier pizza is more expensive, and fewer children may want to eat it. Hence many school districts walk a tightrope. School districts must increase the health content of their sales while trying to avoid any reduction in their financial viability. Eliminating the less nutritional items often means eliminating the meal budget’s highest margin items. Further, child patronage of the school lunch program is understandably dependent upon schools offering foods that students are familiar with and that they like, and that will satisfy their appetites.


An Economist on the Oscars

The “best” picture of 2012 was Argo. 

At least that’s the film that won the Oscar for best picture.  According to the Oscars, the decision to give this award to Argo was made by the nearly 6,000 voting members of the Academy of Motion Picture Arts and Sciences. As Oscars.org notes, “the Academy numbers among its members the most gifted and skilled artists and craftsmen in the motion picture world.”

In other words, this choice is made by the “experts.”

There is, though, another group that we could have listened to on Sunday night.  That group would be the people who actually spend money to go to the movies.  According to that group, Marvel’s the Avengers was the “best” picture in 2012. With domestic revenues in excess of $600 million, this filmed earned nearly $200 million more than any other picture. And when we look at world-wide revenues, this film brought in more than $1.5 billion.


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