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Freakonomics Blog

The True Rise in Cost of Living

For more than eight decades, some of the smartest people in the economics business have worked on index-number theory.  The basic issue is how to measure price inflation.  A few years ago the government (Bureau of Labor Statistics) started publishing measures (chain-weighted price indexes) that no longer fail to account for consumers constantly shifting the bundle of goods they buy toward those whose prices are rising less rapidly, as the standard CPI does.  Consumers do substitute when relative prices change, and the new measures recognize this.

This issue is technical, but it has become crucial in the “fiscal cliff” discussion.  Republicans wish to use the new measure to index (link to inflation) benefits of transfer programs, particularly Social Security (OASDI).  Liberals don’t like this — it will slow growth of incomes among Social Security recipients (me included).  I hate to say it, but the Republicans have it right on this one: using a chain-weighted price index better reflects the true rise in the cost of living.  If we are indexing benefits, as we have now for many years, it should be done properly.  And here’s a case where economic theory, coupled with careful applied research by a government agency, has produced the right answer.  It’s time to use it.


Everything You Need to Know About the Immaculate Reception

Tonight, at 8pm ET, the NFL Network is airing an hour-long documentary about the Immaculate Reception (video preview here), which took place 40 years ago this weekend.

If you are any kind of football fan, you know the Immaculate Reception as one of the unlikeliest and most dramatic moments in sports history. It is also loaded with myth and conspiracy theories, which makes it ripe for a documentary. The play remains such a big deal in Pittsburgh that the city’s airport features, right alongside a statue of a young George Washington, a statue of a young Franco Harris, mid-reception. It is the kind of monument that fathers show their sons when they take their football pilgrimages to Pittsburgh:


A Solid Fiscal-Cliff Plan

As Republicans and Democrats continue to bicker about spending and taxes, the Onion has stepped in with an excellent plan for averting a fiscal crisis:

STEP ONE: Eliminate school breakfast and lunch programs, Medicaid, the Consumer Product Safety Commission, the Environmental Protection Agency, Medicare, PBS, New Mexico, elk, the Coast Guard, and all dams.

And, our favorite, Step Three:

STEP THREE: Eliminate federal prison system by converting U.S. territory of Guam into an unsupervised penal colony known as “The Gauntlet.”


Will Florida's Python Hunt Get Hit By the Cobra Effect?

A number of readers — an astonishingly high number, in fact — alerted us to a story about Python Challenge 2013, an effort by Florida’s Fish and Wildlife Conservation Commission to “enlist both the general public and python permit holders in a month-long harvest of Burmese pythons” for the sake of “[i]ncreasing public awareness about Burmese pythons and how this invasive species is a threat to the Everglades ecosystem.”

The hunt, starting Jan. 12, offers a cash prize of $1,500 for “the participant harvesting the most Burmese pythons” and $1,000 for “the participant harvesting the longest Burmese python.” (There are actually two prizes of each amount: one for the General Competition and one for the Python Permit Holders Competition.)


Adventures in Ideas: How Music Gets Popular, Q&A with Jennifer Lena

I recently read a terrific book by sociologist Jennifer Lena, Banding Together: How Communities Create Genres in Popular Music. She explores the factors that influence the spread of musical taste — why some genres, bands, etc., gain popularity. Jennifer’s research is impressive because of the range of her exploration — according to her publisher’s website, she covers “rap to bluegrass to death metal and South Texas polka.”

Jennifer is helping redefine our understanding of social influence — what and who matters, and how ideas and tastes spread in complex social networks. I had a chance to ask Jennifer a few questions about her work. 

Q. You are interested in factors that determine whether particular musical styles, genres, etc., will gain mass appeal — or remain circumscribed to a small niche. Have you discovered something about the process of “influence” or “contagion” that the social network scholars have ignored or underemphasized? What does your work tell us about the role of networks in shaping popular tastes? 

A. The most common way for music to blow up from a small scene into global pop is for a controversy to erupt.


The Opportunity Costs of Cheap Paper Towels

My university uses thin brown paper towels in all bathrooms. They cost less than white paper towels.  My student claims that the opportunity cost of student and faculty time in extra hand-wiping because the brown towels absorb so little moisture means that the social cost of brown towels exceeds those of white ones. (I sympathize—my practice on this is take towel, rub, then finish drying hands on jeans!) This makes sense to me—with a captive group of users, the university is minimizing its private cost, not social cost.

Another student, an Iraq veteran, writes that the armor on the vehicles he rode in was too thin to offer proper protection to soldiers, government behavior that he claims is similar to that of the university—in this case, undervaluing its soldiers’ lives.  This seems less logical—surely the U.S. Army is greatly interested in protecting its soldiers and is willing to incur huge costs in doing so.  I hope/pray that my soldier-student is wrong.  (HT: JC.)


Don't Walk and Text

Our motto has always been “friends don’t let friends walk drunk.” We might have to add texting to that list. A new paper from BMJ Group shows that walking and texting is really not a good idea. The study looked at more than 1,000 pedestrians in Seattle, and found texting to be a particularly troublesome distraction:

Texters took almost two seconds (18%) longer to cross the average junction of three to four lanes than those who weren’t texting at the time.

And they were also almost four times more likely to ignore lights, to cross at the middle of the junction, or fail to look both ways before stepping off the curb. 

In a country where more than 4,000 pedestrians are killed each year in traffic accidents, it seems sensible to do what we can to decrease our chances. The authors write:

Individuals may feel they have “safer use” than others, view commuting as “down time,” or have compulsive behaviors around mobile-device use. … Ultimately a shift in normative attitudes about pedestrian behavior, similar to efforts around drunk-driving, will be important to limit the … risk of mobile-device use.


Have a Very Homo Economicus Christmas (Ep. 105)

Our latest Freakonomics Radio on Marketplace podcast is called “Have a Very Homo Economicus Christmas.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) 

It’s the latest in our annual series of explanations about how economists can take all the fun out of the holidays. In the past, we’ve looked at gift cards, deadweight loss, and gift registries.

This year, we have one simple mission: ask economists how they go about shopping for the holidays.


FREAK-Shots: Tequilanomics, and Fenway Gas

From a reader in Annandale, Va., named Christopher Galen, who earlier sent in his daughter’s third-grade economics quiz (never too young to start!), comes this pricing quirk:

That’s right: the cost per unit is cheaper on the smaller version, which isn’t the kind of pricing we’re accustomed to in this supersize-me era. (For an interesting related read, see “Does Food Marketing Need to Make Us Fat?” and a Forbes summary of same.) As Christopher writes:

I’m passing along a photo I took Friday at one of the state-run ABC liquor stores in Fairfax, Va. … Neither [bottle] was on sale, and it contrasts with most other liquor offerings, where larger product offerings tend to have a lower unit cost.

Which led me to wonder — and no, I had not done any in-store sampling — is this simply the counterintuitive marketing strategy of a state-run enterprise? Is the store trying to discourage excessive alcohol consumption by making smaller product sizes less expensive?


From Horse Power to Horsepower to Processing Power

Some thinkers make their reputations by focusing on social justice, economic progress, or global sustainability. I took the low road and went for horse manure. It was my article on filth, flies, and putrefying horse carcasses in the 19th century city that brought me to the attention of Dubner and Levitt and, for better or worse, to this site. FYI, the article is here.

If you do peruse it, you’ll see I ended with the hope that technology will bail us out of our transportation problems just like it bailed us out of those caused by the horse. At that time, a deus ex machina descended from the heavens to improbably solve the insoluble. The savior was known as the automobile, and as it went from obscurity to ubiquity in a few decades it banished the working horse—a primary mode of transportation for thousands of years—to oblivion.

There was only one problem with my call for a miraculous technological fix: I did not have the slightest idea what that technology would be.


The Cost of Booing

From a reader who goes by grunzen:

I heard you talk about booing in your podcast and you mentioned Santa Claus getting booed by Philadelphia’s notorious “boo birds.”  I think I can do you one better.  In ESPN’s “30 for 30” documentary on the Baltimore Colts marching band [The Band That Wouldn’t Die, directed by Barry Levinson], they mention how they were going to take the field before a Philadelphia Eagles game and that they were scared.  This was because just prior to that, they had booed a little kid that had missed four passes in a contest.  Now I can kind of understand booing some scraggly, disheveled Santa Claus (they mention this in the documentary).  But a little kid in a contest?  That’s the most extreme booing story I’ve heard.


Fryer and Levitt Go Ghetto

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.


Demand for Movie Ads

The hit movie of a few weeks ago was Breaking Dawn Part 2, which several of my grandkids saw on opening night.  A grandson reports that at the first showing there was a full 30 minutes of advertisements before the movie, more than he’d ever seen. He figured correctly that the captive audience (people lined up for hours to see the first showing) would fill the theater immediately, implicitly increasing the demand for advertisements.  That made the advertising time more valuable, so the theater responded by offering more ads. I would bet too that they charged the advertisers more per minute for the right to show their ads—implicitly thus increasing price as well as quantity.  (HT to SCH)


Bad Incentives That Work Quite Well: The Opportunity Cost of Political Partisanship

Nick Kristof, writing in the N.Y. Times:

This is what poverty sometimes looks like in America: parents here in Appalachian hill country pulling their children out of literacy classes. Moms and dads fear that if kids learn to read, they are less likely to qualify for a monthly check for having an intellectual disability.

Many people in hillside mobile homes here are poor and desperate, and a $698 monthly check per child from the Supplemental Security Income program goes a long way — and those checks continue until the child turns 18.

And:

This is painful for a liberal to admit, but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in a soul-crushing dependency. Our poverty programs do rescue many people, but other times they backfire.


Do Politicians Respond to Emails?

Writing at the Monkey Cage, political scientist Cristian Vaccari describes his research about how  political candidates, who often rely heavily on email lists, actually respond to emails:

As part of a broader study of the online presence of parties, party leaders, and Presidential candidates in Australia, France, Germany, Italy, Spain, the U.K., and the U.S., I tested whether and how rapidly their staffs responded to two types of emails (sent from separate fictitious accounts in the official language of each country): one asking for their positions on taxes (a cross-cutting issue that should not strongly differentiate between different types of parties), the other pledging to be willing to volunteer for them and asking for directions on how to do so. Emails were sent in the two weeks prior to national elections between 2007 and 2010 to a total of 142 parties and candidates. The results speak volumes to the lack of responsiveness among political actors: excluding automated responses, only one in five emails received a reply within one business day.


The Man Who Changed Professional Sports

Marvin Miller passed away last week.  When this happened I immediately began work on a post detailing the important impact Miller’s work — as the first leader of the Major League Baseball Players Association — had on sports.  And then I noticed that many other people had the same idea (see Jayson Stark, Jon Wertheim, Lester Munson, and Richard Justice – among many others).  Given all the wonderful writing on Miller’s life and career, I decided to focus on how Miller impacted our understanding of both sports and economics. 

Such a post… well, I could write more than a few thousand words on just that topic.   Since few people want to read that many words at a blog, I am going to focus on Miller’s work to end baseball’s reserve clause (and what that has meant for baseball, sports, and economics).

Our story begins back in the 19th century. As noted in a wonderful article by E. Woodrow Eckard in the Journal of Sports Economics, the National League began in 1876 with a labor market quite similar to the markets we tend to observe outside of sports. 


Americans Inconsistent on Financial Risk

A new paper in the American Economic Review (abstract; PDF), summarized here, finds that Americans aren’t very consistent when thinking about financial risk. Liran Einav, Amy Finkelstein, Iuliana Pascu, and Mark R. Cullen, analyzing how people choose health insurance and 401(k) plans, found that “at most 30 percent of us make consistent decisions about financial risk across a variety of areas.”  Their data set includes 13,000 Alcoa employees:

Because employees were making decisions in both the health-care and retirement domains, the researchers had the opportunity to see how the same individuals handled different types of choices. Or, as Finkelstein puts it, the economists could ask: “Does someone who’s willing to pay extra money to get comprehensive health insurance, who doesn’t seem willing to bear much financial exposure in a medical domain, also tend to be the one who, relative to their peers, invests more of their 401(k) in [safer] bonds rather than stocks?”


Thanks for the Stitcher Award!

Freakonomics Radio, which recently celebrated its 100th episode, got a piece of happy news the other day: a Stitcher Award. Thanks to Stitcher and to everyone who voted, and thanks especially to our amazing production team: Suzie Lechtenberg, Katherine Wells, David Herman, Bourree Lam, Collin Campbell, and Chris Bannon. Congrats also to all the other winners. It is amazing how much talent and great content is floating around in the podcast pool these days.


Charitable Giving: Why Fewer Is More

December is the holiday giving season for many, but there are a lot of charities competing for your dollars, and it can be hard to know where they will do the most good.

I’ve written before about why you should be wary of sites that rank charities by administrative expenses. It tells you nothing about if the actual effectiveness of a charity’s activities. The recent Freakonomics Radio episode “Free-conomics” also pointed out that many charities themselves don’t even know if what they’re doing actually works.  This was one of the reasons I founded a non-profit which carries out research around the world to find out exactly which efforts to fight poverty work best. 

As well as choosing which charities to support, we also make choices about how we support them. Often overlooked, this choice can be just as important in influencing what our money actually achieves. Below, two experts in philanthropy, Caroline Fiennes and Phil Buchanan, explain one crucial effect of how we give. Fiennes is the founder of Giving Evidence and the author of It Ain’t What You Give, It’s the Way That You Give It: Making Charitable Donations That Get Results. Phil Buchanan is president of the Center for Effective Philanthropy. 


"Homicide Victims Rarely Talk to Police," and Other Horrible Headlines

From a friend, who got them from a friend, who got them from someone else, here’s a collection of newspaper headlines that don’t quite accomplish what the writer set out to accomplish. Anyone who has ever written or published anything can surely sympathize — and laugh.


More Thoughts on the Rise of Management Consulting

A very interesting response to our recent podcast “I Consult, Therefore I Am,” from a consultant who blogs here.

Thanks for the podcast. Six years in management consulting, and a tremendous amount of what you said is true. A few additional hypotheses on the rise of management consulting:

1) The massive turnover of executives (CMOs average less than 2 years) creates a type of rotating vacuum on the leadership team. Someone is either leaving, or just arrived.

2) CXO are running out of time to think. Drucker said that executives should have 1/2 of their time to think through problems. That is certainly not the case with reporting requirements (SOX), end-of-quarter sales push, conference calls all day long that stretch from India to California.

3) Executive have become a bit lazy. They seek “benchmarking” and “best practices” as a surrogate for real strategy (know what activities to NOT do).

4) Consulting costs have become a fixed cost (like audit, or advertising). For the budgeting cycle, it is copy/paste to the next fiscal year x 103 percent to adjust for inflation.


Forget About Anchored Putters…This Is What the USGA Should Really Be Doing

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. 


The Hidden Upside of Crowdfunding?

Reader Noah Dentzel claims that crowdfunding has overlooked virtues, and that it is giving rise to products that may never have happened via the traditional business model:

Most companies either a) raise money through traditional financing avenues or b) build a business slowly and invest first and then bring a new product to market. Crowdfunding allowed us to do everything backwards: by pre-selling a product before the tooling for it even exists, we get a good feeling for market demand and we then gain a clear picture of whether or not to move forward.

Meanwhile, because companies like us are financed through consumers (pre-selling), it’s essentially consumer driven business growth and innovation. We don’t have to wait around for angels or VCs, we can allow anyone from around the world (and a good third of our orders are from overseas) to invest in new ideas, new businesses and whatever will be crowdfunded next. What’s also pretty cool is that we’re making this product right here in California which isn’t too typical for a consumer electronic device these days. People ask why we’re not doing it in China and I just tell them that both in terms of quality and cost, we couldn’t afford it if we wanted to–these are some of the twists and turns that you see in the Crowdfunding consumer product long tail of manufacturing.

Check out Noah’s project here. Crowdfunding can, of course, also give rise to products like this.


Sudhir Venkatesh Responds to the Freakonomics Community

Dear Freakonomics readers,

A profile of me and my work appeared in the N.Y. Times yesterday. There were two story angles: how I conduct my research and allegations of questionable financial dealings in which I was involved. I wrote a formal statement to the Columbia University student paper and online blog, but you are also my community, so let me address you directly.

Three years ago, at my request, I began working with Columbia University on an internal initiative to develop greater clarity and transparency of an institute that they had asked me to direct. Together, we systematically reviewed grants management and research procedures as we sought to establish new, higher standards of reporting and accountability. Part of that review included the grants managed by my position. An audit was conducted, it was completed, and ethically I felt it was my responsibility to pay back $13,000 in previously reimbursed expenses for which my own recordkeeping did not meet these new standards. That matter is closed, and has been for over two years.


Are Independents More Immune to Bias Than Liberals or Conservatives?

Dan Kahan‘s research at the Cultural Cognition Project has found that even very smart people fit their knowledge to their ideology. (He has appeared on this blog a few times, and in our podcast “The Truth Is Out There…Isn’t It?”) Kahan has a new working paper (abstract; PDF) on political affiliations and bias, which argues that independents seem to show immunity to the bias that afflicts both conservatives and liberals:

Social psychologists have identified various plausible sources of ideological polarization over climate change, gun violence, national security, and like societal risks. This paper reports a study of three of them: the predominance of heuristic-driven information processing by members of the public; ideologically motivated cognition; and personality-trait correlates of political conservativism. The results of the study suggest reason to doubt two common surmises about how these dynamics interact. First, the study presents both observational and experimental data inconsistent with the hypothesis that political conservatism is distinctively associated with closed-mindedness: conservatives did no better or worse than liberals on an objective measure of cognitive reflection; and more importantly, both demonstrated the same unconscious tendency to fit assessments of empirical evidence to their ideological predispositions.


Skipping the Free Buffet

Rational? I’m at a hotel and was given a coupon allowing me to eat the excellent breakfast buffet at no cost. Sounds good; but instead, I go next door to Caribou Coffee and buy a coffee and blackberry scone for $5. Is this utility-maximizing? 

I think so. I know that if I get the “free” buffet, I’ll eat a lot—probably orange juice and a large Belgian waffle with lots of syrup. Having pigged out over Thanksgiving, my weight is already up. Spending the $5 is a self-control mechanism: I know that once I’m done at Caribou, I’ll be sufficiently less hungry that I won’t want to spend time at the buffet (and won’t have eaten more than I should). There’s more to utility than increasing income and/or reducing spending!


How a Microfinance Program Encouraged School Dropouts

A new working paper (abstract; PDF) by Britta Augsburg, Ralph De Haas, Heike Harmgart, and Costas Meghir uses a randomized trial to assess a microcredit program in Bosnia:

[W]e randomly allocated loans to a subset of applicants considered too risky and “unreliable” to be offered loans as regular borrowers of a well established MFI [micro-finance institution] in Bosnia. Our group is poorer and generally more disadvantaged than regular borrowers. What is particularly interesting is that they have applied for the loan and thus believe they have a profitable investment opportunity; however, they were turned down. This is exactly the group we need to analyze if we are to understand whether alleviating liquidity constraints in this way can be an effective anti-poverty tool.