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Freakonomics Blog

What's So Bad About a 50-50 Fundraiser?

Reader Melissa Belvadi writes in with a question about preferences on fundraiser incentives:

Here in northeastern Canada, there is a very popular form of local fundraising called the “50-50.” Basically it’s a raffle, where 50% of the total money collected is then randomly given to one of the donors (odds weighted proportionately by the donation size), and the other 50% goes to the original ’cause’ of the fundraising, whether it be a local homeless shelter, a recent victim of something, or whatever that is of interest to the local community.

This strikes me as an incredibly bad deal, but a bit complicated to explain why, as it contains two components:

  1. As a gamble: poor expected value. I am not sure how to calculate this, but from my experience in Las Vegas where slot machines boast being set to 97% return ratios, a gamble where 50% goes to the “house” seems unlikely to be a good EV.
  2. As a charitable donation: poor “program ratio” — at most, 50% of my donation will go to the “program” (charitable cause) – this is considered a very poor ratio in the philanthropic world where typically 60% is the bare minimum acceptable – the BBB requires 65%.

How to Make Tough Medical Decisions? Bring Your Questions for the Authors of Your Medical Mind

What do you do when the medical experts disagree? Should you have that PSA screening, or mammogram? Should you really be taking statins — and what about vitamins? On these and many other medical issues, consensus is hard to come by; individuals end up weighing the benefits and risks.

Jerome Groopman (more here) and Pamela Hartzband have written a book to address this conundrum, called Your Medical Mind: How to Decide What Is Right For You. The authors are both Harvard physicians, and they are also married to each other. To write the book, they interviewed a variety of patients with different medical problems, including those from various socioeconomic, religious, and cultural backgrounds. Along the way, the authors identified all sorts of different mindsets — proactive vs. passive, “believers” vs. “doubters,” and so on. They synthesize what they learned into a framework meant to help any one person try to figure out what’s the optimal treatment. Along the way, the authors ask a variety of tricky, compelling questions: how much autonomy do people really want in making treatment choices?


Is Not Saying "I Don't Know" a Guy Thing?

Our most recent podcast, “Why Is ‘I Don’t Know’ So Hard to Say?,” continues to draw interesting replies. Here’s one from Erich Knobil, who works in the finance office of the Falls Baptist Church & Academy in Menomonee Falls, Wisc.:

A couple of minor notes about “I don’t know” —

Someone (a consultant) once told me the “Consultant’s Motto” was “Maybe wrong, but never in doubt.”

Someone else (female) once called it “Male Answer Disorder (MAD),” where men seem compelled to always have an answer for everything.

Anyone know of any good empirical work on whether MAD is real?


Learning From the Last Great Mortgage Mess

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.        


How Much Did Americans' Financial Illiteracy Contribute to the Great Recession?

We’re working on a new Freakonomics Radio podcast about financial illiteracy, a topic we’ve visited a few times on this blog. Two guests you’ll hear from in the episode have held the same title: chairman of the White House Council of Economic Advisors.

First up is current chairman Alan Krueger, whom I asked what would improve if Americans were more financially literate:

KRUEGER: I think first and foremost, we’d probably have greater savings. People are often in a situation where they have to live paycheck to paycheck. That’s something I think we need as a country to work to improve. Most importantly I think we can improve income growth for the broad middle class. But many people who seem to have the wherewithal to save for the future find it difficult to save.


Sell Your Stradivarius ASAP

Does it make sense that we have gotten worse at making violins over the last 300 years, when we have gotten so much better at making just about everything else? Not really. Finally there is some experimental data on the subject, and it doesn’t look good for those who pay top dollar for fancy old violins.

(Hat tip to Dean Strachan)


Is It Time to Start a Strange Name Hall of Fame?

We should probably start a Strange Name Hall of Fame at some point to chronicle all the weird, wonderful, terrible names that readers have passed along to us since we first wrote about names in Freakonomics. This one, from Joyce Wilson, would probably make the cut:

I thought of Freakonomics when I was at a St. Louis area grocery store and saw cut-out paper snowflakes taped to the window with the makers’ names on them. The name I particularly noticed? Demonica.

Levitt’s reply when he saw this e-mail: “Perhaps the little girl’s mother is just a heavy metal fan.”


Who Wins (or Loses) in Overtime Exemption?

The U.S. Department of Labor is proposing to end the overtime exemption of “companions” (home assistants typically employed to assist/watch the infirm elderly) employed by an agency. The exemption would remain for companions employed directly by a private individual. This rule would lead to classic results: 1) Higher labor costs through agencies, no doubt passed onto older people in the form of higher prices, leading to less employment through agencies; 2) A shift to more companions employed directly by individuals.

I’m not sure what the demand elasticity for companions is, but it is unlikely to be small.


If All the Economists Were Laid End to End, Would They Reach a Conclusion?

There is an old quip, attributed to George Bernard Shaw, that if all the economists were laid end to end, they’d never reach a conclusion.

My own experience has always been just the opposite. Most economists think very much alike.

If you want to feel like the smartest person in the room, often a good way to accomplish this is to be the only economist. Frequently, the one economist will say things that make a lot of sense that no one else would ever come up with. When I am that one economist, I sometimes feel like a genius. Until a second economist enters the room, that is. Because when the second economist shows up, he or she often says all the smart things I was going to say, before I can say them. It turns out, it is not the economist who is brilliant, but rather the training we get as economists which leads us to think differently from non-economists, that sometimes makes us seem smart.


Typo or Biggest NFL News of the Year?

In today’s Wall Street Journal, Jared Diamond (not this one) has written an interesting article headlined “Belichick’s Coaching Tree Bears Very Little Fruit.” Here, from my iPad edition, is the accompanying photograph:

The caption reads “Bill Belichick of the New England Patriots, who was hired last week as Penn State’s new football coach.” That’s not quite right. The Bill from the Patriots who was hired by Penn State was the Patriots’ offensive coordinator Bill O’Brien, as Diamond’s article makes clear in the first paragraph. Belichick is still very much the head coach of the New England Patriots.


The Season of Death (Ep. 87)

Our latest Freakonomics Radio on Marketplace podcast is called “The Season of Death.” The gist: Summertime brings far too many fatal accidents. But the numbers may surprise you.

(You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)

If you’re a longtime reader, you probably already have an idea of what we’re talking about. Human beings are, in general, quite bad at assessing risk. We tend to be scared of big, noisy, anomalous events – like shark attacks, which in an average year kill fewer than five people worldwide — while overlooking the seemingly quotidian reality of, say, drowning deaths (about 4,000 per year in the U.S. alone) and motorcycle fatalities (about 4,500 U.S. deaths annually). We have been exploring this idea since Freakonomics, where we asked whether a gun or a swimming pool is more “dangerous.”


It’s Not the President, Stupid (Ep. 65)

Our latest Freakonomics Radio on Marketplace podcast is called “It’s Not the President, Stupid.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) The gist: it’s time to admit that the U.S. economy doesn’t have a commander-in-chief.

Over the years, we’ve regularly visited the question of how influential the president of the U.S. really is. This segment focuses on the president’s influence over the economy — which, if you believe polling data, will be the central concern for many voters as the 2012 election unfurls.

In this Marketplace segment, you’ll hear from Austan Goolsbee, the University of Chicago economist who has served President Obama as both campaign adviser and chairman of the Council of Economic Advisers:

GOOLSBEE: I think the world vests too much power, certainly in the president, probably in Washington in general for its influence on the economy, because most all of the economy has nothing to do with the government.


The Perils of Drunk Walking, South African Edition

A while back, a reader sent us this photo, with a warning you rarely see in the U.S.

In light of our recent podcast “The Perils of Drunk Walking,” we got in touch with Kon Scholtz, head of marketing and sales at United National Breweries, the South African company that makes the beer in question, Chibuku Shake Shake. Scholtz told us that Shake Shake is a nickname for traditional African beer made from maize and malt; it has a short shelf life (about five days), a relatively low alcohol content (3.5%) and, is meant to be shaken before consumption. It is also, according to Scholtz, very nutritional.

As for the warning on the carton, Scholtz explained.


Football Freakonomics: Who's Peaking?

The preliminaries are finally over. As we head into the first weekend of NFL playoffs, the conversation shifts. No longer are we talking about the long arc of the season – about working out the kinks, getting schemes in place, or jockeying for position. Now, with every game a do-or-die game, we’re talking about which team is peaking at the right time. Because no matter how good (or bad) your record may be, the final summit is in sight and it’s time to turn on the juice.

In the latest installment of “Football Freakonomics,” we look at the art and science of peaking. What’s the best way to assess a team’s peak position?


More on Saying "I Don't Know"

In our latest podcast, “Why Is ‘I Don’t Know’ So Hard to Say?,” Levitt talked about how it is practically forbidden in the business world to say that you don’t know the answer to a question, lest you be deemed incompetent or irrelevant.

That idea has generated some reader feedback that I thought was interesting enough to share. First, from Mike Wrubel, an office manager for a medical practice in Elkhart, Indiana:

I would generally agree with the notion that people in business are very much inclined to not say “I don’t know.” I have worked in the same hospital for 20 years, and while I am very comfortable saying it, not everyone else is. I think people fear being perceived by others as they are not paying attention to their work, or being seen as incompetent, or that it’s their job to “know.”


Freakonomics Quorum: Can Amtrak Ever Be Profitable?

Amtrak’s ridership and revenue has been steadily increasing over the last 10 years, and 2011 set a new ridership record with 30.2 million passengers, and $1.9 billion in ticket revenue. But, even though it took in $1.42 billion from Congress last year, it still manages to lose $1 billion annually. This is hardly a new development. Amtrak has a long and storied history of functioning at a loss despite government subsidies.

So, as we enter what appears to be a new era (maybe?) of government austerity, it seems worth asking if Amtrak can ever turn a profit without government help. We rounded up some people who pay attention to this issue and asked for their ideas to fix Amtrak, if it can be fixed at all.


FREAK-est Links

1. Danny Kahneman‘s Thinking, Fast and Slow (read his blog Q&A here) named a Times book of the year. Congrats!
2. Is “big data” really ready for primetime?
3. An economist (Laurence Kotlikoff) is running for President. (Did he listen to this?) His books include The Coming Generational Storm and Spend ‘Til the End: Raising Your Living Standard in Today’s Economy and When You Retire
(HT: Peter Coy)
4. Active trading — of military products! — between countries at war. (Especially interesting in light of Iran’s blockade threat.) (HT: David Wigram)


A Land Where the BlackBerry Still Thrives

Research in Motion, the Waterloo, Ontario, company that makes BlackBerrys, has been hemorrhaging market share in North America. But a blog reader named Jon Markman, a lawyer living in Washington, D.C., has discovered a land where the BlackBerry still dominates:

I wanted to send along an interesting thing I noticed on a recent trip to the Dominican Republic to visit my in-laws.

In the past when I’ve been there, I’ve noticed that everyone uses a BlackBerry; my wife and I were the only people I’d ever seen using anything else (other than a “dumb” phone, but those are pretty rare these days everywhere!). I figured it was only a matter of time; trends and technology seem to often lag a little when making it to the island. Given that BlackBerry has fading for years, I thought, soon it would fade there, too.


The Hidden Cost of False Alarms (Ep. 69)

Our latest Freakonomics Radio on Marketplace podcast is called “The Hidden Cost of False Alarms.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)  

The central facts: between 94 and 99 percent of burglar-alarm calls turn out to be false alarms, and false alarms make up between 10 and 20 percent of all calls to police.

There are at least three things to consider upon learning these facts:

1. If a particular medical screening had such a high false-positive rate, it would likely be considered worse than worthless; but:

2. With more than 2 million annual burglaries in the U.S., perhaps it’s worth putting up with so many false positives in service of the greater deterrent; as long as:

3. The cost of all those false positives are borne by the right people.

Can you already figure out whether No. 3 is in fact the case?


Ron Paul Answers Questions From Freakonomics Readers (Encore)

Back in 2008, shortly after the Presidential election, we solicited reader questions for Congressman Ron Paul, who had run for President that year. He happens to be running again this year and, in light of his strong third-place showing in the Iowa caucuses last night, I thought it might be interesting to republish his replies. They are well-considered and interesting throughout, and it is especially interesting to read them four years later in light of how political circumstances have shifted (or haven’t).

Q.What was your first thought when you found out McCain chose Palin as his running mate?

A. At first, I thought it was a pretty savvy choice from a political perspective. I also knew that she had said some nice things about me in the past. At the same time, I knew that to be on the ticket, she would have to toe the line on foreign policy and the war, so that tempered a lot of my enthusiasm.

Q. Who in Congress would you consider to be your closest peer(s)?

A. There are a lot of members who I work with on a variety of different issues. Walter Jones is a good friend and works with me on foreign policy. Often on spending, if there is a 432-3 vote, the other two congressmen voting with me are Jeff Flake and Paul Broun. A lot of times, I work with Democrats on civil liberties issues. I guess my point is that people from all over the political spectrum can side with liberty and the Constitution. The goal is to get a majority to vote that way most of the time.


Credit Scores: Do Nice Guys Finish Last?

A new study takes advantage of the increasing (and somewhat controversial) use of credit scores as a tool for evaluating job candidates to examine whether scores are affected by how nice you are. Jeremy Bernerth, Daniel Whitman, Shannon Taylor and H. Jack Walker found that while there is a positive relationship between “conscientiousness and FICO scores, there is a negative relationship between agreeableness and FICO scores”:

The finding that credit scores accounted for a substantial proportion of variance in externally rated performance variables gives some credence to the practice of using credit scores as a screening tool. However, null findings between credit scores and workplace deviance call into question claims that employees with poor credit will engage in behaviors intended to harm the organization (Gallagher, 2006; Oppler et al., 2008).


Less Work Time = More TV, Grooming Time

What would we do with our time if we suddenly didn’t have to work as much but were just as healthy and had the same income? This question is ages-old, was posed by Keynes in 1930, but is very hard to answer: sudden, permanent drops in work time that change nothing else are very rare. They did occur in Japan in the 1990s and Korea in the 2000s, when their governments induced employers to cut work hours. In a recent paper Jungmin Lee, Daiji Kawaguchi and I use time diaries from before and after the changes to see what happened. In Japan, almost half the free time was devoted to additional TV-watching, while in Korea, much was devoted to increased personal care, particularly grooming. But in neither was there any increase in home production — child care, cooking, gardening, etc. I like to think the same would occur in the U.S. — that we would use permanent cuts in work time to enjoy ourselves and take more care of ourselves. Regrettably in the workaholism champion of the Western world, these cuts don’t seem likely any time soon.


In Defense of the Christmas Tree Tax that Isn't a Tax at All

Millions of Christmas trees will be hauled away this week — some will enjoy a useful life after death and many others will end up in the dumps. But record numbers of Christmas trees will also be boxed up and stored in closets till next year. And that has many Christmas tree growers feeling in the dumps, ever more so after anti-tax crusaders trashed a plan to rescue their declining industry by labeling it “Obama’s Christmas Tree Tax.”

The $0.15 fee on the sale of fresh Christmas trees hardly seems like the stuff of political scandal. But announced in November—just days before many Americans would make the trip to tree farms in search of the perfect tree—and branded by conservatives as an assault on Christmas and a sign of government overreach, the story quickly gained traction, with the Drudge Report driving nearly a million visitors to the Heritage Foundation, which broke the story. Before long, mainstream news outlets were reporting that the administration had caved to conservative backlash and decided to delay the “Christmas tree tax” indefinitely.


TSA Chronicles, Cream Cheese Edition

Alan Pisarski, a transportation scholar featured in our podcast about the disappearance of hitchhiking, writes in to say:

My niece was back home in Milwaukee visiting family and stocked up on bagels, lox, and cream cheese to take home to Kentucky (forget for our purposes the madness of thinking that Milwaukee has a clue about bagels etc. – she is right – at least they have heard of them in contrast to KY). Anyways, the wonderful folk at TSA said she could take the bagels on board and the lox, but the cream cheese was out! But being proud civil servants – an oxymoron if ever there was one — they agreed that it would be okay, and she could bring it on board, if the cream cheese was spread on the bagels. Please write this down for future reference.


A Rose By Any Other Distance (Ep. 73)

Our latest Freakonomics Radio on Marketplace podcast is called “A Rose By Any Other Distance.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)

With Mother’s Day coming up, we thought it’d be interesting to look at the cut-flower industry. Americans spend about $12 billion a year on them. Mario Valle, a wholesaler at the L.A. Flower District, tells us that Mother’s Day is easily his biggest day of the year: “It’s 30 percent of my year. Everyone has a mother!”


"Football Freakonomics": Incentives

Today’s question on “Football Freakonomics” is a tricky one. Which incentive is stronger for an NFL player: landing a big contract or winning the Super Bowl?

It can be devilishly hard to find out what truly motivates people to do what they do. There are a lot of reasons for this. Different people have different preferences; an incentive that works for a while may wear off over time; and it’s dangerous to rely on what people say about their motivation, since most of us are concerned about saying “the right thing.”

It’s better, therefore, to measure actual behavior – in this case, for instance, how players perform before and after signing a big contract.


Can Parking Direction Tell Us Anything About Company Morale?

A reader named Tim Wadlow writes in with an interesting theory:

I spent about 10 years as a operations management consultant, working with dirty, dull, and dangerous manufacturing companies.

After spending time at roughly 100 manufacturing locations around the world, I noticed an odd trend: the direction that employees parked in their parking spots highly correlated with employee morale and satisfaction with their jobs. Most of the cars parked forward? A good company to work for, with employees who want to get to work. Most cars backwards? It seems as though the moment that the employee got to work, he or she was planning a quick exit.

Next time you drive by a manufacturing company check it out.

Maybe CEO’s should study Google Earth maps of their parking lots to determine if they are changing a companies culture?


NBA Fans Give the League a Predictable Present on Christmas

Before labor peace came to the NBA, it was not uncommon to hear stories that the lockout was going to negatively impact fan interest in the game (here is one example in this genre). The story basically went as follows:

1. Fans become angry when the games are taken away.
2. The longer fans go without games, the angrier they become.
3. Stay away too long and the angry fans will never come back.

This story actually gets repeated every time a labor dispute that taken away games in North American sports. And the story certainly seems plausible.

A few years ago, though, Martin Schmidt and I investigated the impact disputes have upon fan attendance; and much to our surprise (yes, we tended to believe the stories sports writers had told us for years) we failed to find an effect. Attendance in the major North American sports is not statistically impacted by labor disputes.