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Freakonomics Blog

Using Lottery Payouts to Fight Tax Evasion?

Yesterday we gave an update on how attaching a lottery payout to bank accounts can help people save more money. A reader named Drew writes in about a different lottery nudge:

When I was studying abroad in China (2006) a friend told me that I should always insist on getting the receipt whenever I ate at a restaurant, because the receipts are scratch-off lottery tickets.

I didn’t think very much of it at the time (as a visitor, I didn’t think I’d ever collect any winnings), but one of the Freakonomics podcasts that talked about capturing unreported income (I think it was “The Tax Man Nudgeth“) reminded me of their ingenious system to encourage customers to demand that restaurants report their income.

I wasn’t sure if it was still going on, but this blog suggests that it still was at least a year ago. Here is an older post with a little bit more detail about the system.


Your Singapore Suggestions, Please

I will be in Singapore soon — first visit — with only a little bit of spare time but I’d like to see and learn and do some worthwhile things. Suggestions? Many thanks in advance.


The Multiplex Strikes Back

In The Knockoff Economy,we wrote about how turning products into experiences is one way to blunt the detrimental effects of copies. Products – especially digital ones – are often very easy to copy. But experiences can be highly copy-resistant.  Just think of music: it’s easy to pirate a song, but it’s very difficult to effectively pirate a live show. Or movies: it’s easy to pirate a film, but it’s impossible to pirate the experience of watching a movie at a premium theater like The Arclight Hollywood in Los Angeles.  You can’t cheaply copy the comfy reserved seats, the fancy food and drink, the great sight lines and sound.

All this, of course, comes at a price. But it helps justify the idea of going to a movie theater in an age when home downloads, on a widescreen computer monitor, can be pretty good.


With a Lottery Option, Saving Is Easier

Back in 2010, we put out a two-part podcast (Part 1; Part 2) about Prize-Linked Savings (PLS) plans, which combine the safety of a savings account with the thrill of a lottery payout. It is one of the most intriguing ideas we’ve run across in some time. Maybe not earth-shattering, but potentially an important way to help people save more money.

Now a group of scholars (including the University of Maryland economist Melissa Kearney, who was featured in the podcast) have put out a working paper (abstract; PDF) that set up experiments to determine whether a PLS plan would actually induce better savings behavior. Their answer is yes.


The Ultimate Telemarketing Database

Playing “My Country, ’Tis of Thee” on the piano for my evening relaxation and hearing my daughter sing about the “sweet land of liberty,” I thought of the NSA’s Prism surveillance system. The U.S. government should thank whistle-blower Edward Snowden for providing a way for them to reduce the U.S. budget deficit. Now that everyone knows that the U.S. government harvests data on every person on the planet not living in a cave, why doesn’t the U.S. government mine the data — after all, it has the most computing resources — and sell the results to telemarketers?


Black-Market Tour Guides at Disney World

The Week (and, earlier, the N.Y. Post) reports a new way for high-wage people to economize on time: when visiting Disney World, hire a “tour concierge” — a disabled person who uses his/her disability privileges to ignore waiting lines (and take the high-wage person and family with him/her ahead of the crowd).  At $130 per hour, the time saving is easily justified economically (just think of the lines at Space Mountain, or at my personal favorite, Small World).  It would be nice too if people would rent me their toddlers to board Southwest Airlines flights ahead of the mob.  Clearly, there is room for beneficial exchange like this in many areas.

These are not, however, Pareto improvements: while the “concierge” and his/her customers gain, everybody else in line loses. It doesn’t seem fair to me, and perhaps not efficient, since the externalities of extra waiting time for the whole line can be substantial.


FREAK-est Links

1. A German cafe offers free coffee, but charges by the minute for seats. (HT: David Wigram)

2. Harvard and the Rockefeller Foundation to offer social impact bonds in several states.

3. In Spain, a new step in dog-waste management: unscooped poop is hand-delivered back to the owner. (HT: Peter Kauss)

4. The power of words and names. (HT: RealClearScience)

5. New study shows that lack of sleep decreases men’s ability to determine if women want sex or not. (HT: V Brenner)


Fewer Helmets, Higher Healthcare Costs

We’ve written before about an unintended consequences of state repeals of motorcycle helmet laws: more organs available for transplant.  Here’s one more consequence, from Michigan, which stopped requiring helmets last year:

State legislators changed the law last year so that only riders younger than 21 must wear helmets. The average insurance payment on a motorcycle injury claim was $5,410 in the two years before the law was changed, and $7,257 after it was changed – an increase of 34 percent, the study by the Highway Loss Data Institute found.

After adjusting for the age and type of motorcycle, rider age, gender, marital status, weather and other factors, the actual increase was about 22 percent relative to a group of four comparative states, Illinois, Indiana, Ohio and Wisconsin, the study found.

“The cost per injury claim is significantly higher after the law changed than before, which is consistent with other research that shows riding without a helmet leads to more head injuries,” David Zuby, chief research officer for the data institute and an affiliated organization, the Insurance Institute for Highway Safety, said.

(HT: Kevin Murphy)


President Obama Appoints Betsey Stevenson to the CEA

Some big news: the White House has recently announced that the newest member of the Council of Economic Advisers will be my favorite economist, and a long-time friend of this blog, Betsey Stevenson.  She’ll be joining Harvard’s Jim Stock and the newly announced CEA Chairman, Jason Furman on the three-member council,  which serves as the President’s main source of advice on economic policy. 

When I say that I’m thrilled about this news, I’m speaking not just as a dismal scientist, but also as Betsey’s co-author, colleague, co-parent and domestic partner.  The CEA has a special role as a bridge between ivory tower academic economists and the levers of public policy.  They’re our best hope for ensuring that the sharpest insights of economists can elbow past the political machinations that dominate D.C., and the list of past CEA members reads like a who’s who of the economics profession.  And there’s never been a more important time to be working as a labor economist than during a period of mass unemployment.

Honestly, I’m about as proud as an economist is allowed to be.


Why Are There Cronut Scalpers?

Between the din of the cicadas appearing up and down the East Coast and the media frenzy over the government’s mass surveillance programs, you might not have heard much about New Yorkers’ real obsession at the moment: the “cronut.” A cross between a croissant and a donut, the cronut is the invention of baker Dominique Ansel, who operates out of a shop in SoHo. Cronuts are so popular that lines form at 6 a.m. — 2 hours before the shop opens — and Ansel runs out within minutes. Thanks to the wonders of the Internet (and Craigslist) there is even a cronut black market, with unauthorized cronut scalpers charging up to $40 apiece for home delivery (a mark up of 700%). And of course there are cronut knockoffs appearing all over the world. Ansel has even trademarked the name “cronut.”

Which brings up two questions:

1. Why did it take so long for someone to invent a croissant-donut mash-up? 
2. And, perhaps more importantly for those who want to eat them, why do we see a cronut shortage? The genius of capitalism is that it matches supply with demand – and if there’s a lot of demand for cronuts, supply should quickly expand. Especially here. Cronuts aren’t especially hard to make, don’t require expensive equipment, and are currently unregulated (although give Mayor Bloomberg time.)


Another $1,000 at Stake in the Gneezy-List Book Title Experiment

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.


Does Juvenile Incarceration Act as a Deterrent?

Is putting a juvenile offender in jail a useful deterrent or one big step in the wrong direction? That’s the question asked in a new working paper (abstract; PDF) by Anna Aizer and Joseph J. Doyle. It appears that the deterrence argument doesn’t hold much water:

Over 130,000 juveniles are detained in the U.S. each year with 70,000 in detention on any given day, yet little is known whether such a penalty deters future crime or interrupts social and human capital formation in a way that increases the likelihood of later criminal behavior. This paper uses the incarceration tendency of randomly-assigned judges as an instrumental variable to estimate causal effects of juvenile incarceration on high school completion and adult recidivism. Estimates based on over 35,000 juvenile offenders over a ten-year period from a large urban county in the US suggest that juvenile incarceration results in large decreases in the likelihood of high school completion and large increases in the likelihood of adult incarceration. These results are in stark contrast to the small effects typically found for adult incarceration, but consistent with larger impacts of policies aimed at adolescents.


Minute-Wise, Hour-Foolish

In my kitchen cabinet, with the richest aroma, live baggies of ground cumin, coriander, turmeric, curry powder, cinnamon, and cloves. Four feet away are their labeled spice jars. The jars are easier to use but sit mostly empty. Whenever I cook, I need the spice now, before the main food ingredient releases its water and stops the spice from browning.

So I don’t dig out the funnel to transfer the spice into its jars. Nor do I cut up scrap paper and fold it into a funnel. I just fish out each spice from its baggie, and fumble around to reseal the plastic zipper. Each choice is rational, in the short run. In the long run, by not transferring the spices to their jars, I waste time and stress out my cooking.

Having noticed this reasoning anti-pattern, I see it all around.


Does Living With Children Make the Elderly Miserable?

A new working paper (gated) by Angus Deaton and Arthur A. Stone is called “Grandpa and the Snapper: the Wellbeing of the Elderly who Live with Children”:

Elderly Americans who live with people under age 18 have lower life evaluations than those who do not.  They also experience worse emotional outcomes, including less happiness and enjoyment, and more stress, worry, and anger.  In part, these negative outcomes come from selection into living with a child, especially selection on poor health, which is associated with worse outcomes irrespective of living conditions.  Yet even with controls, the elderly who live with children do worse.  This is in sharp contrast to younger adults who live with children, likely their own, whose life evaluation is no different in the presence of the child once background conditions are controlled for.  Parents, like elders, have enhanced negative emotions in the presence of a child, but unlike elders, also have enhanced positive emotions.  In parts of the world where fertility rates are higher, the elderly do not appear to have lower life evaluations when they live with children; such living arrangements are more usual, and the selection into them is less negative.  They also share with younger adults the enhanced positive and negative emotions that come with children.  The misery of the elderly living with children is one of the prices of the demographic transition.


"Freakonomics Ruined My Life"

An e-mail from a reader named Eric Durchholz:

Too smart? Yes and it sucks. I am smarter than everyone I know. I hate it. I had to “come out” as smart recently because for years I dumbed myself down just to be able to communicate with people. I constantly quote books and blogs and podcasts to keep from sounding crazy. Between Freakonomics and the works of Malcolm Gladwell, my relationships have suffered from being smart because thanks to you I see the hidden side of everything. Most people don’t want to see or know the hidden side. The more I quote, the crazier I sound. Is this the downfall that Levitt touched on?

I moved to Chicago from Nashville to study improv and it broke my brain. I came to improv late in life and all those years of study and life experience are available for quick access at all times in my brain. Not only that, when I see things now, I see the hidden side automatically and it has made functioning in the world (of non-academia mind you) very difficult. I worked for big tobacco in promotions for years and we couldn’t promote smoking or cigarettes so I learned the value of the hidden side from the front lines.


Looking for a Long Shot: My Belmont Predictions

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.


An Easy Way to Cut Down on Pill Suicides?

Ezekiel Emanuel, who’s popped up in our blog and podcasts, writes in the Times about a simple way to reduce suicides:

We need to make it harder to buy pills in bottles of 50 or 100 that can be easily dumped out and swallowed. We should not be selling big bottles of Tylenol and other drugs that are typically implicated in overdoses, like prescription painkillers and Valium-type drugs, called benzodiazepines. Pills should be packaged in blister packs of 16 or 25. Anyone who wanted 50 would have to buy numerous blister packages and sit down and push out the pills one by one. Turns out you really, really have to want to commit suicide to push out 50 pills. And most people are not that committed.


The Persistence of Financial Illiteracy

Annamaria Lusardi, the doyenne of financial (il)literacy reseach (she has appeared on this blog and on Freakonomics Radio), is back with more depressing news.  The Wall Street Journal summarizes:

In fact, Americans’ grasp of concepts such as investment risk and inflation has weakened since the recovery began in mid-2009. Research released last week shows that on a five-question test (take the test here), respondents did worse in 2012 than in 2009. The average number of correct answers fell to 2.9 in 2012 from 3.0 on the test in 2009.

Unfortunately, the research indicates that most people aren’t aware of their own shortcomings:

Although many respondents were short on financial education, they didn’t lack confidence about managing their books. Researchers said they found “a disconnect between self-perceptions and actions in day-to-day financial matters.” Many people who gave themselves high marks for managing their finances also were using non-bank borrowing methods, such as payday loans, or had overdrawn their checking accounts.

On the plus side, more respondents indicated they were able to cover their monthly expenses (40 percent as compared to 36 percent in 2009).


More Stories About Tipping

Our latest podcast, “Should Tipping Be Banned?,” has stirred up a lot of response. Below are a few interesting e-mails from listeners. First one is from Spencer Doren:

Like Levitt, tipping makes me uncomfortable. He’ll be happy to know that Sushi Yasuda (my favorite sushi in NYC) doesn’t accept tips in order to stay true to Japanese tradition. In Japan, tipping isn’t practiced as it is considered rude.

A listener named Heather Rush doesn’t like tipping reform at all (and plainly didn’t know me back when I bussed tables, and worse):

As someone who has spent her whole life working in an industry that offers servers no job security, tolerates rampant sexual harassment, long unregulated work days and no fringe benefits, your suggestion that tipping should be banned because it’s unfair seems trite. Try standing on wet mats for 12 hours while enduring abusive customers, crooked managers, criminal owners, no sick leave, no unemployment and no job security and then I’ll listen to your musings on what the real value of a tip is to the people that served you dinner. Until your first bus-boy shift, however, perhaps you ought to research the real cost of service and why people are content to ignore the “unfairness” of an entire industry so long as their drinks and appetizers arrive on time.


Is Paying for Blood a Good Idea After All?

An article in Science by Nicola Lacetera, Mario Macis, and Robert Slonim summarizes their research on economic incentives and blood donation (abstract; PDF). Contrary to previous studies, the researchers found that various incentives, from gift cards to a day off, increased blood donation: 

Overall, 18 of the 19 distinct incentive items offered in observational and field experimental studies increased blood donations, and the effects were larger for items of higher monetary value; only one reward offer, a free cholesterol test, had no effect. When data were available (for 15 of the items), no effect on blood safety was detected. Finally, although temporary rewards might affect long-term motivations, no post intervention effects on donations were found, including any negative effects deriving from potential motivation loss.


Marlo's Monopoly

We are belatedly watching The Wire, nearing the end of Season V. [N.B.: see Sudhir Venkatesh‘s series of blog posts called “What Do Real Thugs Think of The Wire?”] By Episode 6, Marlo Stanfield has killed off the competing retail drug lords and also the chief wholesaler, Proposition Joe.  At the next meeting of Baltimore drug lords, Marlo allocates territories among his subordinates and announces to everyone a large rise in the wholesale price of drugs.  Not surprising—he has turned an oligopoly into a monopoly, with him as the monopolist. 

Marlo doesn’t realize it yet, but his monopoly status gives others a bigger incentive to attack him.  Don’t spoil the suspense for me, but I wouldn’t be surprised, although I would be pleased, if Marlo is bumped off by his own subordinates—it’s hard to maintain monopoly power.


Should We All Just Give Cash Directly to the Poor?

Silicon Valley heavyweights like Facebook co-founder Chris Hughes and Google have a new favorite charity: GiveDirectly, an organization that makes direct transfers (via M-Pesa) to poor people in the developing world. From Forbes:

“Instead of building hospitals, why don’t we just give poor people money? Research shows it’s effective,” [Hughes] said. Hughes, who purchased The New Republic magazine in early 2012 and serves as publisher, also joined the board of GiveDirectly.

Backing up Hughes’s point was Jacquelline Fuller, Director of Giving at Google. She told the crowd Thursday night that one of her superiors at Google was extremely skeptical when Fuller first suggested that Google back GiveDirectly. “I was told, ‘You must be smoking crack,’ ” Fuller recalled. But GiveDirectly had exactly what Google wanted: lots of data on how the recipients of cash used it to improve their nutrition, their health and their children’s education. After looking at the data, Google donated $2.5 million to GiveDirectly.

GiveDirectly stems from economist Paul Niehaus‘s research in India, where to limit corruption the government  makes direct cash transfers via mobile phones.  “A typical poor person is poor not because he is irresponsible, but because he was born in Africa,” says Niehaus, adding that GiveDirectly’s transfers have had positive impacts on nutrition, education, land, and livestock — and haven’t increased alcohol consumption.  The charity is also No. 2 on Givewell’s list of recommended charities.

(HT: Marginal Revolution)


Does High Home Ownership Lead to Higher Unemployment?

That is the surprising question asked (and answered) by David Blanchflower and Andrew Oswald in a new working paper. If this effect is real, and if the mechanisms by which it occurs are true, then this paper is hugely important for policymakers, civic planners, and the rest of us:

We explore the hypothesis that high home-ownership damages the labor market. Our results are relevant to, and may be worrying for, a range of policy-makers and researchers.  We find that rises in the home-ownership rate in a U.S. state are a precursor to eventual sharp rises in unemployment in that state.  The elasticity exceeds unity: a doubling of the rate of home-ownership in a U.S. state is followed in the long-run by more than a doubling of the later unemployment rate.  What mechanism might explain this? We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. Our argument is not that owners themselves are disproportionately unemployed. The evidence suggests, instead, that the housing market can produce negative ‘externalities’ upon the labor market. The time lags are long. That gradualness may explain why these important patterns are so little-known.

Blanchflower, a Dartmouth economist who regularly writes for the Independent (U.K.), recently published an op-ed in that paper which applied these findings to the European situation:


Is Driving Drunk Rational?

I doubt this statement will shock you or light up the blogosphere, but drunk driving is bad. Our own Levitt has looked at the costs, and found that those who have had even one drink are seven times more likely to cause a fatal crash, while for those over the legal BAC limit the risk is multiplied by 13. This equates to a cost to society of more than 40 cents per drunk mile driven (2013 dollars), implying that a fine of $10,500 would be appropriate if drunk drivers were to bear the full cost of their actions.

The good news is that we have made tremendous progress. According to the National Highway Traffic Safety Administration, road fatalities due to drunk driving have dropped from 21,113 in 1982 to 9,878 in 2011. The decrease is even more remarkable given that total miles driven almost doubled during that period. So the drunk driving fatality rate per billion miles traveled has dropped from 13.4 to 3.4 in the last 30 years.

Some of this is due to general improvements in driving safety, such airbags and increased seatbelt use. But this is only a part of the equation. A suite of policies specific to alcohol has also been implemented, with considerable success. These have been recently analyzed by Susan A. Ferguson and Koyin Chang, Chin-Chih Wu, and Yung-Hsiang Ying, among others. Successful policies have included toughening laws and their enforcement, such as reducing permissible blood alcohol content (BAC) levels, especially for underage drinkers. Sobriety checkpoints are a very effective enforcement mechanism, particularly if properly publicized. Other policies that have been found to be effective are higher alcohol taxes (very), and to a lesser extent laws banning open alcohol containers in cars and higher legal drinking ages.


A Former NBA Coach Argues That Coaches Are Not Responsible for Outcomes

The coaching carousel continues to spin in the NBA.  In recent days, the Los Angeles Clippers – coming off the best season in franchise history – have decided not to bring back Vinny Del Negro as head coach.  The Phoenix Suns — coming off their worst season since they were in expansion team in the late 1960s – have decided to turn to Jeff Hornacek to lead their team back to respectability.   And the Atlanta Hawks – who were essentially average this last season – have turned to Mike Budenholzer to lead the team next year.

These are hardly the only teams to make a change.  Since the end of the 2012-13 NBA season, the Brooklyn Nets, Charlotte Bobcats, Cleveland Cavaliers, Detroit Pistons, Milwaukee Bucks, and Philadelphia 76ers have all decided that the person who coached the team at the end of this past season shouldn’t be around for the next season. In all, at least nine of the 30 NBA teams will have a new coach next year. 

These changes – as I have argued before –will probably not make much difference.   A study published in the International Journal of Sport Finance (full PDF here) – which I conducted with Mike Leeds, Eva Marikova Leeds, and Mike Mondello – found that most NBA coaches across a sample covering 30 years did not have a statistically significant impact on player productivity. And in other sports, we also have evidence that coaches cannot systematically change outcomes.


Baby, You Can Program My Car (Ep. 128)

Our latest Freakonomics Radio on Marketplace podcast is called “Baby, You Can Program My Car.” Yes, it’s about driverless vehicles. (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript here.)  

I recently had the good fortune to go for a ridealong in a self-driving Cadillac SRX4 with three of the engineers responsible for making it go: Raj Rajkumar, John Dolan, and Jarrod Snider, all key players in the General Motors-Carnegie Mellon Autonomous Driving Collaborative Research Lab. We rode around a large track that the university has built on the site of an abandoned steel plant in Pittsburgh.

What was most remarkable, to me at least, was how unremarkable it felt to ride in a vehicle that no one was steering or braking. In other words, it felt normal — not like a science experiment or a rocket ride — and, as amazing a feat of engineering as a driverless car is, I also realized how much of the technology to go driverless already exists in the modern cars we’ve been driving for years (cameras, sensors, automation, etc.).