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Freakonomics Blog

Getting Married? Then Get Ready for Price Discrimination

A reader named Elliot Millican writes in to say:

At one point in SuperFreakonomics you mentioned a particular brand of hair clippers that are offered for humans and for pets. You noted that the human clippers carried a higher price even though they appeared almost identical. You went on to say that the pricing scheme is a simple result of the consumer’s willingness to pay more for their clippers than they would their dog’s. [Yes indeed: this is known as price discrimination.]
These hair clippers reminded me of something I experienced when my wife and I were engaged (8 years ago). Let me quickly give the background: due to limited wedding budget, we had our wedding at church and a reception at the church with cake, punch, and light food. This allowed us to invite as many people as we wanted because the church was free and the cake/food prices weren’t terribly expensive. But we had a second reception just for family and wedding party at a hotel (for about 60 people). This second reception was more like your traditional wedding reception… open bar, sit-down dinner, and a DJ. In short, it was expensive, but affordable with only a fraction of the guest list.


The Fixed Costs of Retailing Bourbon

The Bourbon Outfitter in Lexington, Kentucky sells souvenirs and paraphernalia related to bourbon distilling and drinking. Its only physical retail outlet is a kiosk in a shopping mall; and its selling season is the Christmas shopping period. Its difficulty is that the mall will only rent kiosk space in three-month intervals—the kiosk is a fixed cost to The Outfitter, which has come up with the following solution: It rents the kiosk from November through January, and opens on November 1, sufficient time before Black Friday to make an impression on shoppers. It stays open until New Year’s and then closes down.
The owner tells me that this is a profit-maximizing policy, since the variable cost of remaining open after New Year’s Day far exceeds the trickle of revenue that might flow in.
[HT to BK]


Dear Occupy Wall Street: Are You Sure You're in the Right Place?

I get it – people are angry. Very, very angry. I’m angry too. And Wall Street sure makes a great scapegoat, hence the Occupy Wall Street protest. Wall Street is a symbol of the “greed and corruption” that took over America and caused this whole mess.
But let’s take a minute to examine the facts and see if we can’t find some better scapegoats:
In 1997 Andrew Cuomo, the Secretary of Housing and Urban Development under Bill Clinton, allowed Fannie Mae to reduce the standards by which they would secure loans. This helped create the entire subprime category. Was this a bad thing? Of course not – it allowed more people to leave the ghetto, move to the suburbs, and achieve the American Dream of owning a home. Who knew that “Dream” would turn into a nightmare in a mere decade. Andrew Cuomo is not Nostradamus. We can blame him of course, but he had good intentions despite the negative results.


A Common Joke About Common Knowledge

If you enjoy this joke (which is discussed here, and comes from the folks at Spiked Math Comics) as much as I do, you might be a gearhead.
It illustrates one of the many surprising and subtle impacts of common knowledge. Yale’s John Geanakoplos provides an even more perverse version of the bar cartoon, in this incredibly helpful chapter :

Imagine three girls sitting in a circle, each wearing either a red hat or a white hat. Suppose that all the hats are red. When the teacher asks if any student can identify the color of her own hat, the answer is always negative, since nobody can see her own hat. But if the teacher happens to remark that there is at least one red hat in the room, a fact which is well-known to every child (who can see two red hats in the room) then the answers change. The first student who is asked cannot tell, nor can the second. But the third will be able to answer with confidence that she is indeed wearing a red hat.


The Controversial Legacy of Slum Clearance

A new study by Vanderbilt economist William J. Collins and Ph.D. candidate Katharine L. Shester looks at the long-term economic impact of the ambitious (and highly controversial) Housing Act of 1949, which used federal subsidies and the powers of eminent domain to “revitalize” American cities, i.e., to clear out the slums. By the time the program ended in 1974, 2,100 distinct urban renewal projects had been completed using grants that totaled about $53 billion (in 2009 dollars).
In one of the rare papers to collect and analyze data related to the program, Collins and Shester come up with a positive picture of its effects – at least in some ways. The authors are clear that the ugliness involved with pushing people out of low-income housing was the reason the program was shut down, and that their results do not “imply that the dislocation costs for displaced residents and businesses were unimportant.” From the abstract:

We use an instrumental variable strategy to estimate the program’s effects on city-level measures of median income, property values, employment and poverty rates, and population. The estimates are generally positive and economically significant, and they are not driven by differential changes in cities’ demographic composition.


FREAK-est Links

This week, it’s official: coffee helps women with depression, charting the world mood through Twitter; our gloomy consumer confidence levels over the last three years; a marijuana DNA database; how geo-thermal plants can help produce lithium for electric car batteries; and Harvard and Yale’s endowments post killer returns.


The Absence of Proof

I’m back to inviting readers to submit quotations whose origins they want me to try to trace, using my book, The Yale Book of Quotations, and my more recent researches.
James A Smith asked:

“‘Absence of proof is not proof of absence.’ Attributed to William Cowper, as a retort to one who claimed God does not exist because we can’t prove his existence.”


Can You Copyright a Football Play? Ask Bill Belichick

Just about a year ago we posted about the incredibly innovative game of football. As we described, all of the innovation we’ve seen in football – the spread offense, the zone blitz, the wildcat, and dozens of other offensive and defensive formations, strategies, and counter-strategies – occurs without anyone ever asserting ownership. Rival teams are free to copy new plays, and they do.
It’s not as if ownership would be impossible – existing intellectual property rules might cover at least some football innovations as copyrightable “choreographic works,” or as patentable processes. The fact remains, however, that no one has ever tried to copyright or patent a new play or formation.


Census Bureau Cuts Number of Same-Sex Married Couples in Half

This week the Census Bureau came out with revised statistics on the number of same-sex married couples. As of 2010, there were 131,729 same-sex married couples living in the U.S., and 514,735 same-sex unmarried partner households. These numbers are way below the previous estimates released last summer, which tabulated the number of same-sex married couples as 349,377, and same-sex unmarried partner households 552,620.
So, did 217,648 same-sex married couples simply vanish in the span of a couple months? No, the error seems to be due to a small number of people checking the wrong gender box on the door-to-door census form. Here’s the explanation:


The Myth of Common Sense: Why The Social World Is Less Obvious Than It Seems

This is a guest post by Duncan Watts, a principal research scientist at Yahoo! Labs, and the author of Everything is Obvious: Once You Know The Answer.

The Myth of Common Sense: Why The Social World Is Less Obvious Than It Seems
By Duncan Watts
“Mankind, it seems, makes a poorer performance of government than of almost any other human activity.”
–Barbara Tuchman, The March of Folly
“This is not rocket science”
–Bill Frist on fixing health care, The New York Times
As these two quotes illustrate, there is something strangely conflicted about contemporary views on government and policy. On one hand, many people are in apparent agreement that government frequently accomplishes less than it ought to, sometimes embarrassingly so. Yet on the other hand, many of these same people are also of the opinion that the failings of government do not imply any great difficulty of the problems themselves—that they are not rocket science, as it were.


The Heirs of Creativity

A short paper published this week by NBER from authors Albert N. Link and Christopher J. Ruhm takes a simple but oft-neglected look into patents and creativity; namely, how creative parents influence their potentially creative children.
The abstract states:

In this paper we show that the patenting behavior of creative entrepreneurs is correlated with the patenting behavior of their fathers, which we refer to as a source of the entrepreneurs’ human capital endowments. Our argument for this relationship follows from established theories of developmental creativity, and our empirical analysis is based on survey data collected from MIT’s Technology Review winners.


The Ten Commandments of The American Religion

This is a cross-post from James Altucher‘s blog Altucher Confidential. His previous appearances on the Freakonomics blog can be found here.
If I stood in the center of Times Square and said something like “Moses didn’t really part the Red Sea,” or “Jesus never existed,” people would probably keep walking around me, ignoring what I said.
But if I stood there and said, “Going to college is the worst sin you can force your kids to commit,” or “You should never vote again,” or “Never own a home,” people would probably stop, and maybe I‘d lynched. But I would’ve at least gotten their attention. How? By knocking down a few of the basic tenets of what I call the American Religion.
It’s a fickle and false religion, used to replace the ideologies we (a country of immigrants) escaped. Random high priests lurk all over the Internet, ready to pounce. Below are the Ten Commandments of the American Religion, as I see them. If you think there are more, list them in the comments.
The below is an excerpt from my just released book, I Was Blind But Now I Can See.


The 21st Century Another American Century? Don't Bet on It

In conjunction with our latest Freakonomics Radio podcast, “The Folly of Prediction,” I decided to reach out to a former professor of mine, Raymond Horton, whose modern political economy class is a student favorite at Columbia Business School. I wanted to know what Horton thought the worst prediction ever was, particularly regarding the intersection of politics and economics. He immediately pointed to a Foreign Affairs essay written by Mortimer Zuckerman in 1998, in which Zuckerman boldly lays out the case that, like the 20th century, the 21st will also be marked by American dominance.
We’re barely a decade into the new century, so you may think it’s too early to pass judgment on Zuckerman’s prediction. But given the way things have played out over the last several years, it does look to be on shaky ground. At least that’s the opinion of Ray Horton.
Once you’ve finished reading Horton’s essay, we’d love to hear what you think count as some of the worst predictions ever.


Nazis, Sunken Ships, and a 67 Year-Old Game of Telephone

This is a guest post by Jeff Mosenkis, a freelance producer with Freakonomics Radio who holds a Ph.D. in psychology and comparative human development.
Nazis, Sunken Ships, And a 60 Year-Old Game of Telephone
By Jeff Mosenkis
Did you hear the one about the two statisticians who go deer hunting? The first one misses his shot ten feet to the right of the deer; the second one misses ten feet to the left of the deer. They then high five each other and shout “Got him!”
While the quantitative method might not work for hunting, it apparently does for finding sunken warships. NPR’s Alix Spiegel reported this remarkable story about two Australian cognitive psychologists who used a statistical distribution to find two sunken World War II ships, 67 years after they were lost.
On the evening of November 19, 1941, the HMAS Sydney was off the coast of Western Australia when it exchanged fire with the German HSK Kormoran, and sunk with all 645 crewmen aboard. It was a national tragedy, particularly because nobody knew exactly what happened to the ship and why it sunk. The German crew scuttled their damaged ship, and 317 surviving German sailors were picked up in lifeboats at sea or on shore and interrogated.


Taking Risks to Improve Government: Kenya and Georgia

McKinsey is out with a new report on government innovation in Kenya and the Republic of Georgia. It’s basically the story of how developing countries can harness technology to circumvent entrenched bureaucracy and make government both cheaper and more efficient.
Here are both cases in a nutshell, with a couple snippets from each:
Kenya:

Challenge: Nearly 40% of Kenyans live on less than $2 a day, and corruption is still cited as an ongoing challenge for citizens and businesses. The World Bank has reported, however, that if Kenya can sustain its recent growth rate, it’s on track to become a lower-middle-income country in the next decade. And a new constitution establishes the citizen’s right to access government information—a right that must now be implemented.


Nation of Texters: A Third of People Prefer a Text to Talking

A new poll from the Pew Research Center asked Americans about how they use their phone, and in particular, their phone’s non-voice features. They got predictable but still staggering results about sending and receiving text messages, especially from the younger demographic. The summary states:

Some 83% of American adults own cell phones and three-quarters of them (73%) send and receive text messages. The Pew Research Center’s Internet & American Life Project asked those texters in a survey how they prefer to be contacted on their cell phone and 31% said they preferred texts to talking on the phone, while 53% said they preferred a voice call to a text message. Another 14% said the contact method they prefer depends on the situation.


What's the Median Income for a Fashion Model in the U.S.?

Take a wild guess: How much do you think fashion models make? It’s one of those professions that unless you know someone, or work in the biz, there’s not a lot of information out there to have a good view into. Judging by models’ perceived glamour and high society status, not to mention the cut-throat competition they deal with, you might think it’s a lot. I think I did. Which is why this line from a TNR review of the new book Pricing Beauty: The Making of a Fashion Model struck me as amazing:

The median income across America in 2009 for a model was $27,330—income that includes no benefits.

The book is by Ashley Mears, a former fashion model and current Boston University sociologist.


Sperm Bank Rejecting Redheads

A recent story in the NY Daily News reported that Cryos International, one of the world’s largest sperm banks, is refusing to accept donations from redheaded men.
Apparently, this is a result of a sharp increase in supply that the company needs to reduce before more donations are accepted. Like most temporary surpluses, this one will be removed, in this case probably not by the price system (although one can imagine that potential recipients, hearing of the surplus and being indifferent about their donor’s hair color, might offer Cryos a below-market price).
More likely, Cryos’ refusal to accept any more supply will cause the surplus to disappear, so that redheads’ donations will soon be accepted again.


An Algorithm that Can Predict Weather a Year in Advance

In our latest podcast, “The Folly of Prediction,” we poke fun at the whole notion of forecasting. The basic gist is: whether it’s Romanian witches or Wall Street quant wizards, though we love to predict things — we’re generally terrible at it. (You can download/subscribe at iTunes, get the RSS feed, or read the transcript here.)
But there is one emerging tool that’s greatly enhancing our ability to predict: algorithms. Toward the end of the podcast, Dubner talks to Tim Westergren, a co-founder of Pandora Radio, about how the company’s algorithm is able to predict what kind of music people want to hear, by breaking songs down to their basic components. We’ve written a lot about algorithms, and the potential they have to vastly change our life through customization, and perhaps satisfy our demand for predictions with some robust results.
One of the first things that comes to mind when people hear the word forecasting is the weather. Over the last few decades, we’ve gotten much better at predicting the weather. But what if through algorithms, we could extend our range of accuracy, and say, predict the weather up to a year in advance? That’d be pretty cool, right? And probably worth a bit of money too.
That’s essentially what the folks at a small company called Weather Trends International are doing. The private firm based in Bethlehem, PA, uses technology first developed in the early 1990s, to project temperature, precipitation and snowfall trends up to a year ahead, all around the world, with more than 80% accuracy.


Bring Your Questions for Author Steven Pinker

With Libya finishing off a bloody revolution, the war in Afghanistan nearly a decade old, and Mexico engulfed in a savage drug war — it might not seem like it, but we’re living in the most peaceable time in history. That’s more of a commentary on just how violent our past is, rather than the tranquility of the present.
In his new book, The Better Angels of Our Nature: Why Violence Has Declined, Harvard psychology professor Steven Pinker lays out the difference in stark contrast, quantifying the dramatic decrease in violence over the ages, and uncovering the reasons for its decline. Pinker operates under the premise that the past is like a foreign country, and that we need to be reminded of its brutality. Starting with a tour of human history that stretches back to 8000 BCE, Pinker offers glimpses along the way, and shows how in the early going, violence persisted even as society and culture evolved.


Enlisting in the Military Increases Earnings, But Only If You Stick Around

A new RAND research report prepared for the U.S. Army explores the effect of military enlistment on individual earnings and the labor market. The authors used data from applicants to “active-component enlisted service” from 1989 through 2003, and followed them for up to 18 years. From the report:

The authors find that military enlistment increases earnings in both the short and long-term: The percentage increase in earnings attributable to enlistment is about 40 percent in the first few years following application and diminishes to about 11 percent 14–18 years following application. Enlistment significantly delays college education in the short run. In the longer run, enlistment slightly increases the likelihood of attaining a two-year college degree, but it also decreases the likelihood of attaining a four-year college degree, especially among higher-aptitude youth.


Green-Collar vs. Blue-Collar Jobs: A Difference in Name Only?

Amid ongoing inquiries into the prudence of government loans to failed solar firm Solyndra, and a spate of other bad news on the green jobs front, there is growing concern that the green economy may not be the juggernaut President Obama promised when he vowed after his election to invest $150 billion to generate “five million new green jobs that pay well and can’t be outsourced.” To counter critics, the administration is greenwashing large swaths of the economy—defining “green jobs” down to the point that they are virtually indistinguishable from what we used to call “manufacturing jobs.”
Green jobs are central to arguments that new environmental regulations should be pursued even in a down economy. Supporters of the policies, like California’s carbon cap-and-trade system, claim that even if the cost of regulatory compliance causes job losses in the traditional economy, the regulations will create jobs in the green economy. And green jobs are better jobs, as the President says: high paying, reliably American, and yielding environmental benefits.
Success of the green economy supports the economic defense of environmental policy, which may explain why administration officials were on Capitol Hill last week defending the notion that millions of Americans, from bus drivers to car makers, are employed in “green jobs.”


College and the Widening Wealth Gap

If a picture is worth a thousand words, then a few Economic Policy Institute snapshots might be the Great Novel of our time. A few weeks ago, Heidi Shierholz at EPI brought us yet another harrowing tale from the front lines of the recession generation. In an “Economic Snapshot,” she writes:

As college students head back to the classroom this semester, a harsh reality confronts them — the rewards for the time, energy, and money that young people put into college are less than they were a decade ago. Since 2000, America’s young college graduates have seen wages, adjusted for inflation, deteriorate. This lack of wage growth may be particularly surprising to those used to reading about the vast unfilled need for college graduates, which if true would lead to increases in their earnings.

But how is this happening? Maybe it has something to do with a more recent snapshot from Lawrence Mishel at EPI on the growing wealth gap in America. He writes:


Italian Seismologists Charged with Manslaughter for Not Predicting Earthquake

In our latest Freakonomics Radio podcast, “The Folly of Prediction,” we talk about the incentives behind making predictions, and how wrong predictions often go unpunished, which is why people make so many of them.
But recent news out of Italy seems to take the premise of punishing bad predictions a bit too far. From the New York Times:

Seven Italian seismologists and scientists went on trial on manslaughter charges on Tuesday, accused of not adequately warning residents of a central Italian region before an earthquake that killed 309 people in April 2009. Prosecutors say that the seven defendants, members of a national panel that assesses major risks, played down the risk of a major earthquake’s occurring even though there had been significant seismic activity near L’Aquila, the capital of the Abruzzo region, in the months before the quake.


The Price of Friendship, as Measured by Radiohead Tickets

This morning, I got a hurried whisper-screaming call from my good friend Jonathan C.:
“I. Have. Radiohead. Tickets.” he breathed. “Do you want one?”
If you don’t know what I’m talking about, Radiohead is a very very popular UK rock band. Tickets for the band’s 2 New York shows, the first U.S. performance in 3 years, went on sale this morning on Ticketmaster and sold out in a couple minutes.
Radiohead is famous for doing price experiments with fans. At the height of illegal downloads, the band asked fans to pay-what-you-want for their album. They picked a small venue in New York — the Roseland Ballroom which accommodates 3,000 instead of Madison Square Garden which seats about 20,000 — and limiting ticket sales to 2 per customer. But can limiting supply like this really stop a black market from emerging?


Computers vs. the News: What's Behind the Stock Market Chop?

Today marked another triple-digit move for the Dow Jones Industrial Average, which closed up 272 points. Of the 45 trading days over the last two months, 28 of them (including today) have seen triple-digit moves, meaning the Dow has gone up or down by 100 points (or more) 62% of the time since July 25. The average daily move for the Dow during that time has been 188 points, or 1.6%.
Here’s a snapshot showing the performance of the Dow over the last two months:
Pretty choppy, right? I’m no stock market historian, but I’d imagine that you’d be pretty hard-pressed to find such a sustained period of volatility. Which brings up the question: what’s causing this? Obviously, there is a lot of uncertainty (and fear) in the market right now. From Europe’s sovereign debt problems, to America’s toxic political climate, to the sputtering global economy, there is a lot to be anxious about. Anxiety breeds indecision, which characterizes the bumpy market pretty well.


A Subway Ride to the Past — Compliments of Nucky Thompson

This past weekend, I was waiting for the subway when an old, 1920s-era train pulled to a stop on the express line. My first thought was that it was one of those worker trains you sometimes see (especially on weekends) that ferry MTA crews along the line as they make repairs. But passengers were getting on. Guys in MTA gear hauled open the manually sliding doors and did an old-fashioned call-out: Downtown express train. Next stop 72nd Street. Getting on seemed the obvious thing to do. It helped that neither I nor my wife had seen the news that HBO paid the MTA $150,000 to run a 1920s-era vintage subway train up and down the express line, as a way to promote the second season of Boardwalk Empire.
So the effect was as they’d intended: stupefaction, followed by slow realization, followed by total bemused wonderment. It felt like being at an amusement park. I was amazed at how fast it went, how comfortable the seats were (compared to the current plastic ones), and how loud it was with the windows down. Here’s a video:


A Sports Economist’s Thoughts on Moneyball: A Guest Post by J.C. Bradbury

J.C. Bradbury is a long-time friend and contributor to the Freakonomics blog. An associate professor of economics at Kennesaw State University, Bradbury is the author of two books on baseball: The Baseball Economist: The Real Game Exposed, and Hot Stove Economics: Understanding Baseball’s Second Season. For years, he covered the intersection of baseball and economics on his Sabernomics blog.
So with the new movie Moneyball out, we wanted to get J.C.’s thoughts on how well the book translates onto the big screen, and whether it does justice to the wonky, sabermetrics approach to baseball.
An Economist’s Thoughts on Moneyball
By J.C. Bradbury
When it was published in 2003, the book Moneyball generated a buzz in the field of economics because it covered several topics economists like, such as constrained maximization, market efficiency, entrepreneurship, and statistical analysis. To most people, economics is boring: it’s a class they took because they had to. Author Michael Lewis introduced important economic concepts through a venue that millions of Americans pay to watch. As a book, it succeeded, but I was skeptical that it could work as a movie. I was wrong. Even my wife, who only reluctantly agreed to see the movie with me, enjoyed it.


An Alcohol Tradeoff

Fifteen years ago, on a visit to Peru, I drank many pisco sours and decided I had to buy a duty-free bottle of pisco. It has sat unopened in our liquor cabinet since then. A colleague mentioned he had bought a number of bottles of a South African liqueur, Amarula Cream, that tastes a lot like Baileys Irish Cream, which we love. Chatting, we suggested a trade, since he’s a pisco sour fancier, as is his wife.
The trade is now consummated, and both we and our wives are happier for it. No monetary transaction, but I am convinced that everybody is better off—this is a real Pareto improvement.
(HT to LL)


Probabalistic Auctions: Why Don't Universities Raffle off Chair Endowments?

A recent post of mine was addressed to the super-rich who are considering endowing a chair in order to garner public recognition. But what about the merely rich who wish to have their names recognized in perpetuity with an eponymous endowed chair at their university? Is there anything they can do?
Yes. There are two things.
First, a much larger swath of people can follow the Benjamin Franklin strategy and endow a delayed chair. Franklin famously bequeathed about $4,000 in 1790 to the Commonwealth of Pennsylvania. Franklin:

instructed that [his bequest] be invested for two hundred years and at the end of that period, the money should be used to do good. Franklin died in 1790. In 1990, his gift had grown to over $2 million.