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As Jonah Goldberg points at NRO:
As many as 20,370 low-income households in Sangamon County could qualify for a free cell phone and 60 minutes of free monthly talk-time, according to a spokesperson with TracFone Wireless, Inc., a national prepaid cell phone provider.
Jose Fuentes, TracFone’s director of government relations, announced earlier this month that the company would add Illinois to the list of 17 states that offer SafeLink Wireless — a new extension of Lifeline, a government program that has provided affordable landline telephone service to low-income families for 25 years.
“There’s never been a jump into 21st century communications,” Fuentes says. “TracFone came up with this device to bridge that gap.”
The Federal Communications Commission created Lifeline in 1984. SafeLink Wireless will now take the service a step further by offering free cell phones and service for a year to any household that receives federal public housing assistance, food stamps, low income home energy assistance, supplemental security income, temporary assistance for needy families or Medicaid.
I wonder what analogous slippery slope healthcare reform will create.
Ventilation mine in desired are which air movements regular, slow with the intefere seriously would which currents strong produce tunnels and subways in trains of movements the but different with dealt be to impurities the are only not.
That’s from The Air and Ventilation of Subways. What does it mean that I was bored by page 5, then skipped to page 97, read every odd-numbered page after that and then realized that the best way to appreciate what this book has to offer was to read it backwards starting from chapter 10?
Here is Bryan Caplan on getting dates.
Jane Austen updated: It is a truth universally acknowledged that it is easier for an older man to marry a second wife that for an older woman to meet a second husband. Women on the prowl can join this symposium to get some tips.
Amos Poitvein, a loyal MR reader, asks the following question.
I am a longtime reader of MR and there is a question I have been wondering about for a long time. I was hoping you could share your thoughts on meatball heterogeneity. My girlfriend made dinner for me and the entree was Swedish meatballs. I never knew how small their meatballs are. It seems inefficient to roll all that meat into such tiny balls. Wouldn’t it make more sense to roll them into big balls like we do in the US?
A few points:
- Its tempting to cite elasticity of labor supply here. Swedish meatballs are served in the home and Sweden’s high marginal tax rates on labor income encourages household production. However, American meatballs grew out of Italian-American restaurants in immigrant neighborhoods where labor was relatively cheap. Also, Americans have fatter hands.
- The Hansonian take is that meatballs are an important cultural symbol and the size of the American meatball is a signal. To understand Swedish meatballs, think ABBA with pork.
- It helps to compare with the massive Bulgarian meatball which dwarfs them both.
- Perhaps the real puzzle is not why the meatballs are so different in size but the striking geometrical regularity of spherical meat throughout the world’s cuisines.
- Need I mention baseball versus bandy?
- Then again bandy is played on ice and we all know what that does to balls.
- Also Americans believe in the rule of law.
- Ligonberries are over-rated but I could spend a whole day just riding the subway in Stockholm.
- Don’t get me started on New Jersey.
- I wonder if anybody noticed that I skipped over #9.
- I’ve been at this for six years and nobody has yet figured out that this blog is a cry for help.
- Mankiw was in the Bush Administration, Krugman is flying all over the planet and I am still teaching “Law and Literature” to undergraduates and enjoying scinillating lunchtime conversation with the likes of Arnold Kling.
- Will someone please tell me what Paul is saying at the end of “Rocky Raccoon?”
- Is this on?
- Number Nine, Number Nine, Number Nine …
- What, oh, yes, um… Everyone knows the Swedish are plagued by nearsightedness and their national health service barely covers basic optometry. Objects on the plate appear larger than they actually are…
The bottom line: I think the most likely explanation is some combination of #5 and #14.
What topics would you like me to write about? I have a few minutes of spare time today, I promise I will answer your first 50 requests.
A mere Youngling yes, she has just completed the 7th grade, but she will not be under-appreciated for long. She has just won the “Picture is Worth a Thousand Words” contest at the Illinois Council of Economics Education. Her work may well be the most significant advance on the subject of specialization since von Mises. There is too much here that trying to excerpt from it would not do it justice so you should read the whole thing.
Why do boys love sweets so much? When 6-year old Joey uses his allowance to buy a Clark Bar, this raises demand for sugar. Brazil is a major exporter of sugar so this raises wages for sugarcane farmworkers in Brazil, diverting Brazilian youth away from their next-best employment as footballers. Because Brazil is dominant in international soccer, this levels the playing field and makes soccer more exciting internationally thereby raising the demand for soccer balls. Most soccer balls are made in China where labor and resources in China are now diverted to the production of soccer balls away from other uses. Hannah Montana CD’s are also produced in China and the resulting drop in supply makes it too expensive for Joey’s sister Clara to buy *The Best of Both Worlds* and Joey gets a kick out of that.
That’s the opening of Chapter 3 “Comparative Advantage and International Trade” in our new textbook Modern Principles: Microeconomics which we are excited to announced has just been published this week. We want to teach you to see how everyday decisions like Joey’s can have important consequences for the world you live in. And our book breaks the mold for principles textbooks in microeconomics:
- All existing Microeconomics textbooks print the Income Expansion Path in blue. We print it in orange.
- After over a century of futility we have finally figured out how to make the Short-run Average Cost Curves tangent to the Long Run Average Cost curve at their minimum points. (That was my work, I don’t mind saying.)
- Its not written by Greg Mankiw (so you can sleep well at night.)
You can learn more and order the book at SeeTheInvisibleHandTakeYourPoorStudentsMoneyYearAfterYearWhenWeReleasePointlessRevisions.com
- The Kindly Ones. Jonathan Littel is an American who adopted the French language to write this massive novel on the experience of a rising star in the SS during the Second World War. I found that the detailed descriptions of torture and sodomy don’t work well in the English translation. On the other hand Littel’s French seems forced so I opted for the Japanese translation which kept my attention through page 467.
- The World According to Mr. Rogers: Important Things to Remember. Ostensibly a memoir of a man who raised a generation’s children via television, but you can read this book as an intellectual history of the golden age of falsetto puppetry.
- Working with Power Tools (New Best of Fine Woodworking.) Among a handful of the best technical manuals specifically covering portable power tools I have read all year. There is something good on every page and this is now my standard reference on the rotary lathe.
- The Alex Studies: Communicative and Cognitive Abilities of Grey Parrots. Irene Pepperberg’s seminal masterwork. Perhaps the vegetarian’s most compelling case against persuadable carnivores – requires extrapolation from parrots to other species.
- Michael Jackson’s Complete Guide to Single Malt Scotch. Indispensable for the moon-walking sophisticate. Intriguing chapter on how wearing a glove challenges the tastebuds.
- Return to the Hundred Acre Woods. The wisdom of Christopher Robin and Owl for a new generation. Even Yana was transported to a kinder world.
How do you like our costume? Check back later in the day for more fun 🙂 Readers using rss will want to click through to the main site to get the full effect.
- The acrosticnator
- Go to google.com, type in “why do” and see what google predicts you are curious about. (dunce doff: storn.)
- Corn smut.
Via The Sports Economist comes a report that Las Vegas bookmakers are seeing big losses on NFL games this year owing to the large number of very bad teams and the difficulty of getting the point spreads right.
The Golden Nugget sports book, for instance, opened with St. Louis getting 12.5 points (the half to help with ties). That way, if you bet the Rams and the actual game ended 21-10 Indy, you’d win the bet with a score of 22.5-21 St. Louis.
A betting line is fluid though and will correct itself as money pours in for the favorite or underdog. Despite the Rams getting all those points, at home no less, the money kept going to Indy. The line reacted by moving all the way to 14 points at kickoff.
Still 90% of the money was on the Colts at game time and the Colts won 42-6. Perhaps the problem is that there is a large variance in the market’s estimate of the likely point spread. The bookmaker has to make a good guess the first time becuase too much adjustment of the line allows arbitrage. And a bad guess can be costly.
Here is an experiment that as far as I know has not been done. (Please correct me if I am wrong.) Offer contestants the choice of two raffles. Raffle A pays the winner $1000, Raffle B pays the winner $1000+x where x is a positive number. Contestants must pick one of the raffles and can buy at most one raffle ticket. They choose simultaneously. There will be one winner from each raffle and the winners will be determined by random draw.
In equilibrium the expected payoff in the two raffles should be equalized. This means that more people should enter raffle B to compete away the extra $x prize money. My hypothesis is that in fact too many people will enter raffle B so that raffle A will have a higher expected payoff. I am thinking that the contestants will inusfficiently account for the strategic effect of free entry and will naively assume that B is the better choice. And I believe this effect will be large even when x is very small.
If this is true then it has important consequences for markets. Suppose two job market candidates are almost equally qualified but candidate A is a little better than candidate B. Candidate A will get too many interviews and candidate B will get too few. Candidate B’s slight disadvantage will be amplified by the market and will go too often unemployed.
In the economics job market for new PhD’s, economics departments are often asked by potential employers for rankings of their candidates. Departments are often unwilling to give more than coarse rankings and I believe that the effect I describe is the reason.
Larry David is a good source of material for this blog (though hbo may force youtube to delete the clip!):
Apple is opening a new retail store on a neglected chunk of land in the middle of a gentrifying part of the North side of Chicago. Before moving in they will tidy up a bit by landscaping an adjacent lot and refurbishing a run-down CTA subway station entrance and underground train platform (the North and Clybourn red line station) with a total cost of up to $4 million.
Over the years, the CTA’s building has fallen behind on maintenance. The paint is peeling, the windows are filthy, an electrical sign has dangling wires, and metal framing is rusting. Inside the building and underground, the station features white tile walls and fluorescent lighting, with hallways leading to two narrow platforms underground.
In the agreement approved at an August 19th Chicago Transit Board meeting, in exchange for the improvements the CTA will lease the bus turnaround to Apple at no cost for 10 years, with options on four, five-year extensions. The CTA will also give Apple “first rights of refusal” for naming the station and placing advertising within the station, if the CTA later decides to offer those rights.
Memo to Steve Jobs: you will probably also want to take care of the crater-sized potholes on North Avenue just West of your new home. Thanks.
Via Mac Rumors.
You are attending a conference or other event which brings together a large group of people vaguely acquainted but not tightly connected. There is a dinner where there are many tables seating 6-8 people each. There is no assigned seating. Assuming you care about whom you will sit with, what is your strategy for finding a place to sit?
- To the extent possible, the high-status people will contract early and grab a table to themselves. This is usually possible because in groups like this it is the high-status people who are most likely to know each other well.
- Low-status people often prefer to sit with higher-status people, so they tend to play the waiting game and hop in on a table with some open seats. This usually turns out to be a bad idea (dull and awkward conversation) but it takes a few bad experiences to figure this out. By that time the lesson is irrelevant because your status has improved.
- Middle-status people have learned to care less about the status of those they dine with. And they are not yet so visible that everyone wants to sit with them just out of status-mongering. So their optimal strategy is to move early and find an empty table and sit there. They will be joined by people who are really interested in them and those are the people you want to sit with.
- The latter is generally my strategy. However, usually people don’t want to sit with me. Consistent with the logic of the strategy, this is optimal when it happens.
- There is must be something unique about weddings because there is almost always assigned seating.
- The closer people are to being total strangers the stricter the status ranking becomes, in my experience. Without anything to go on, it boils down to attractiveness. A strict, linear status ranking leads to unraveling as everyone waits to join the best table. This is when assigned seating is necessary. But I don’t think this explains weddings.
The question is ripe for experimental research.
That’s the question taken up at Wired’s GeekDad blog. My third-grader gets weekly “homework” which is supposed to teach her cursive writing. I am sure that a lot of time is being wasted. But I am not sure that it’s cursive that should go. Handwritten text is losing its practical purpose, so if we are going to retire something, perhaps the fancy stuff should surive.
Its one of the many novel ideas from David K. Levine: the non-journal. You write your papers and you put them on your web site. Congratulations, you just published! Ah, but you want peer review. The editors of NAJ just might read your self-published paper and review it. We supply the peer-review, you supply the publication. Peer-review + publication = peer-reviewed publication. That was easy.
(NAJ is an acronym that stands for NAJ Ain’t a Journal.)
Its been around for a few years with pretty much the same set of editors. Its gone through some very active phases and some slow periods. David is trying to breathe some new life into NAJ by rotating in some new editors. So far so good. Arthur Robson is a new editor and he just reviewed a very cool paper by Emir Kamenica and Matthew Gentzkow called “Bayesian Persuasion.”
The paper tells you how a prosecutor manages to convict the innocent. Suppose that a judge will convict a defendant if he is more than 50% likely to be guilty and suppose that only 30% of all defendants brought to trial are actually guilty. A prosecutor can selectively search for evidence but cannot manufacture evidence and must disclose all the evidence he collects. The judge interprets the evidence as a fully rational Bayesian. What is the maximum conviction rate he can achieve?
The answer is 60%. This is accomplished with an investigation strategy that has two possible outcomes. One outcome is a conclusive signal that the defendant is innocent. Since the judge is Bayesian, the innocent signal occurs with probability zero when the defendant is actually guilty. The other outcome is a partially informative signal. If the prosecutor designs his investigation so that this signal occurs with probability 3/7 when the defendant is innocent (and with probability 1 when guilty) then
- conditional on this signal, the defendant is 50% likely to be guilty (we can make it strictly higher than 50% if you like by changing the numbers slightly)
- 3/7 of the innocent and all of the guilty will get this signal. (3/7 times 70%) + 30% = 60%.
The paper studies the optimal investigation scheme in a general model and uses it in a few applications.
One of the major bones of contention derives from just how good this year has been. The Rioja is the only wine-producing region in Spain that bears the label DOC (denominación de origen de calidad), and therefore is subject to especially stringent controls regarding quantity and quality of production. Each farmer may sell a certain amount of grapes, no more, depending on the amount of land under cultivation.
This year the grapes have been wildly abundant, and it is estimated that some 80 million kilograms have been left on the vine because they exceeded the quotas permitted for sale. Indeed, due to the weather conditions during harvest week, the grapes left on the vine are probably the very finest quality ones. For economically-pinched farmers, it is a blow to the heart to see those grapes left for the birds, and many demand to be allowed to sell the surplus as well, despite DOC regulations. Others claim this would flood the market and imperil the status of the DOC product.
The story is here.
Iran is worried that it ships uranium overseas to be processed, it will simply be stolen. The Obama administration is worried that Iran is playing the Charles Grassley strategy. Grassley dragged along health care negotiations, hoping “death panel” furor would explode and bring the whole enterprise to an end. Iran might want to drag along negotiations while it secretly expands uranium production behind the scenes. There is a kind of joint hold-up problem and it brings to mind an old paper of Oliver Williamson’s – Credible Commitments: Using Hostages to Support Exchange.
In Williamson’s model, a seller makes an investment to sell a product to a buyer. If the buyer cancels the order, the seller is held up and his investment is wasted. Knowing this, he may underinvest. One way for the buyer to guarantee payment is to give the seller an asset that he values but the seller does not. If the buyer should cancel payment, he loses the hostage. And the seller has no incentive just to keep the hostage as it is useless to him, unlike say a monetary hostage. Williamson offers a cute interpretation where the buyer is a king and he has two daughters whom he loves equally but one is uglier than the other. The ugly one should be sent as a hostage to the seller according to Williamson.
We can do the same thing with Iran. They are giving us a hostage, uranium, and we must give them a hostage in return. It should be something we value but they do not. If we take their uranium, they keep our hostage. This gives us good incentives to return the uranium. If we value the hostage, Iran will be willing to transfer the uranium and we will have profitable exchange.
Malia and Sascha are out of the question of course: Dick Cheney would suggest we take the uranium and let Iran keep the Obama daughters. Well actually, if we really have no intention of keeping the uranium – after all we are refining it so it is useless in weapons production, we can hand over a valuable hostage to facilitate the transfer. They’ve got to be seen an asset for those of all political persuasions. The answer is obvious: Dick Cheney and Jimmy Carter have to live in Tehran while the uranium is being processed in Russia.
The Boston Globe has an interesting article about the unique playout of the creationist/Darwinist debate in the Islamic world.
Unlike in the West, creationist beliefs are not associated in the Muslim world with religious fundamentalism, but instead are often espoused by members of the mainstream intellectual elite – liberals, by their own lights, who see the expansive, scientific-sounding claims of creationism as tracing a middle way between the guidance of religion and the promise of modern science. Critics of the movement fear that this makes it more likely that creationism will find its way into policies there, especially when the theory of evolution is portrayed among Muslim thinkers, as it often is, as an instrument of Western intellectual hegemony.
Despite my vast legion of Twitter followers, every one of my attempts to start a new trending topic has failed to catch on. Now I think I understand why.
Suppose that your goal is to coordinate attention on a topic that seems to be on a lot of minds. Attention is a scarce resource and you have only a limited number of topics you can highlight. But suppose, as with Twitter, you see what everyone is talking about. How do you decide which topics to point to?
You probably shouldn’t just count the total number of people talking on a given subject, counting everyone equally. You might think that you would instead give extra weight to the few people that everyone is listening to. Because whatever they say is more likely to be interesting to many, and will soon be on many minds. On Twitter, those would be the people with the most followers. But there is a strong case for doing the opposite and giving extra weight to people with few followers, especially people who are relatively isolated in the social network. This is not out of fairness (or pity) but actually as the efficient way to use your scarce resource.
Efficient coordination means making information public so that not just everyone knows it, but everyone knows that everyone knows it (etc.) If we all have to choose simultaneously what to focus our attention on and we want to be part of the larger conversation, then it matters what we think others are going to focus their attention on. Coordinating attention thus requires making it public what people are talking about.
Suppose we have two topics that are getting a lot of attention, but topic A is being discussed by well-connected individuals and topic B is being discussed more by a diverse group of isolated individuals. Topic A is already public because when you see it discussed by a central figure you know that all other of her followers are seeing it to. Topic B therefore has more to gain from elevating it to the status of trending topic, which immediately makes it public.
I always knew that my Twitter followers were among the wisest. Now I see the true depth of their wisdom. By adding to my follower numbers, they reduce the weight of my comments in the optimal weighting scheme thus ensuring that the crazy things I say will be ingored by the larger network. Join the cause.
Suppose you are the dictator of an African country and we would like to get you out and establish a well-functioning democracy and economy. What should we do?
Billionaire Mo Ibrahim has come up with an idea from finance: pay for performance. He has established a prize of $5 million to go to a democratically elected leader three years after he leaves office. The prize also gives you an income of $200,000 for the rest of your life.
Seems like a nifty idea in principle but the prize seems too small. As a non-African example, think of Hamid Karzai in Afghanistan. His brother is reputed to be heading the heroin trade out of Afghanistan. If he is sharing the revenue with his Hamid K, the Ibrahim Prize is small potatoes. Soros etc. have got to pony up too to make the prize bigger (the name of the prize may have to be changed!).
And there is a second problem – we would like well-established non-elected or fishily-elected leaders to step down too. The Ibrahim Prize could be extended to Ahmadinejads, Musharrafs or Gaddafis too. This creates an “ex ante moral hazard problem”: you might fight to become a despot and then magnanimously step down having set up clean elections. This might be fanciful – are strongmen so forward-looking or patient? Even if they are, presumably this strategy is only feasible in weakly institutionalized countries where despots would arise anyway. Finally, the precise rules for getting the prize might be kept deliberately vague to discourage such gaming by strongmen.
I think the benefits of broadening the class of potential recipients is worth the risk.
Rochester, NY
Summer is over. But that’s old news. My buddy Dave maintained a tradition of polling us for the album of the summer around the time that the season was drawing to a close. Of course in SoCal, summer never really ends, but at some point you have to start climbing the fence to get into the neighborhood pool and that’s as good a demarcation line as any.
The album of the summer is not necessarily one that came out that summer. Its not even necessary that you listened to it that summer. But it should be the album that will always remind you of that summer whenever you hear it. This summer I had my midlife crisis and the background music was Seven Swans by Sufjan Stevens.
I spent the first 25 years of my life a few miles from the Pacific Ocean and never really learned to surf. I am a fine body surfer and boogie boarder but around the time that most of my buddies got into surfing I was spinning my wheels playing chess (I suck.) I turned 40 last fall and now I live on the shores of Lake Michigan. There’s no surf here.
Fortunately I spend a month in California in the summer and this summer it was time to learn. My buddy Dave gave me a surfboard. It’s about twice as tall as me and weighs more than my 8 year old. Its also about 5 inches thick which made it impossible for me to get my arm around it to carry it like a regular cool surfer dude. I looked like a dork carrying it on my head.
But I can’t imagine a better board to learn on. Its more like a canoe than a surf board. It was hilarious to me looking at all of these really cool surfer guys sitting on their tiny little boards that sunk from the weight until they were submerged nearly to their shoulders. Meanwhile I could dip my toes in the water as I lounged around on my Steve Behre (pronounced berry) cruise liner waiting for waves. Dave said “It’s massive, its dangerous, and its embarrassing but just in terms of having fun surfing… the next one’s going to be a lot better.” Thanks Dave.
I got myself a wet suit. The water stays around 70F in San Diego in August so I probably could have got by without one but (again relying on Dave’s advice) since I was going to be surfing in the morning and since, thanks to Steve Behre, my most temperature-sensitive parts would be afloat and exposed to the morning air, I broke down got myself a spring suit. When I tried it on, the dude at the surf shop (Rusty’s in Del Mar) says “Its a little loose in the arms, but you’ll grow into it.” He either thought I was 13 years old or he could just tell that I was going to grow tremendous muscles from paddling.
So I was set. Every morning at 5AM I would start my day with these objects:
You will notice the Advil which is pretty much indispensible when you are a 40 year old man trying to paddle a barge through crashing waves by yourself in the dark. OK not exactly dark, but I was in the water every morning before sunrise. I would surf until about 7:30 and then head back to the apartment, usually before the kids were awake. Parenting advice: arriving at breakfast with your wetsuit on and harrowing surf tales makes you the coolest Dad in the world. Not to mention the tremendous muscles.
I stood up the very first day. Fleetingly. By the end of the first week I could consistently catch waves and stand. They were small waves thankfully. I was bragging to my buddy Storn and then I got this email back.
If you are just standing in front of the whitewater after the wave has broken then it doesn’t technically count. (Not that it isn’t fun.)
How did he know?? In my defense, the Steve Queen-Behre was almost impossible to turn. I guess that’s the tradeoff. Storn came down from the Bay Area and he brought his board, which while still technically a longboard was about half the width and weight of mine.
We swapped boards and I could actually get my arm around his (that’s me on the left.) Didn’t catch any waves though. Turns out that if you want a surfboard with some degree of maneuverability, you also have to paddle with some finesse. I put that on the todo list for next summer and went back to my trusty Steve Buoy. (When you can’t catch a wave you can’t ride the last one all the way in. “The paddle of shame” is what Storn called it.)
That day was the only time I surfed in daylight so I had Jennie bring the camcorder. Here’s some shredding on video.
Not video of me, mind you, Jennie was too busy making drip castles with the kids. Anyway, I don’t need help from no jet-ski. By the end of the month I could turn and ride the shoulder.
Sufjan Stevens was in my CD rotation that whole month. It’s a powerful album and one that was made to be played before sunrise. In your rented Toyota Sienna with a boat strapped to the top:
What’s your album of the summer?
Spousal compromise led to going to Damned United over Where the Wild Things Are.
It was great! I grew up in England so kids reading the Wizard comic, Michael Parkinson on the telly, people eating fish and chips actually out of a newspaper etc. takes me wistfully back to Dear Old Blighty. My wife doesn’t get the cultural references and finds the idea of using newspaper as a wrapper really revolting. The movie is about Bryan Clough, the brilliant, ambitious and vain soccer manager and she has never heard of him.
Despite all this, she loved the movie too. So, I think it can fly in America. It’s totally un-Hollywood. The people are ugly, the weather sucks in many scenes (it is England after all!) and it’s about Clough’s short and terrible spell as manager of Leeds United. Pretty original movie idea (most sports movies involve a struggle leading to improbable victory) and could have failed miserably. But it succeeds on many levels.
The two main protagonists are Clough and his partner Peter Taylor and their relationship is rich and complex. The competitiveness between Clough and the manager of Leeds United is deep but childish. And underlying it all it, of course, there is the class system creaking along with upper class members of the football association doling out fines and suspensions to vicious working class players. England has a North-South divide with the once wealthy North now subservient to the prosperous South. And Clough is a Northener and you see the world through his eyes. None of this is as obvious as I make it here and that’s the charm of it.
All of this hangs on a story of Clough’s rise and fall which is exciting even if you know nothing about soccer. The director does a wonderful job. There is a scene where Clough cannot bear to watch the game and waits in his office. He follows the score via the shouts he hears through the frosted glass windows of his office. As the fans jump and cheer, their shadows darken the office and we see are as exhilarated as Clough. The acting is superb too. Now I’ve oversold the whole thing and you will hate it. Talk yourself down and go see it.
We all know about generic drugs and their brand-name counterparts. The identical chemical with two different prices. Health insurance companies try to keep costs down by incentivizing patients to choose generics. You have a larger co-pay when you buy the name brand. Except when you don’t:
Serra, a paralegal, went to his doctor a few months ago for help with acne. She prescribed Solodyn. Serra told her he’d previously taken a generic drug called minocycline that worked well. The doctor told him that the two compounds are basically the same, but that you have to take the generic version in the morning and the evening. With Solodyn, you take one dose a day.
Serra told her that if the name-brand medicine was going to cost a lot more, he’d prefer the generic. “And then she presented this card,” he says. She explained that it was a coupon, and that he should give it to the pharmacist for a break on his insurance copay.
Without the card, Serra’s copay would have been $154.28. But when he got to the pharmacy, he presented his card. “They went to ring it up at the register,” he remembers. “And when it came up, the price was $10.”
NPR has the story. Chupulla chuck: Mike Whinston.
In a much-discussed post at one of my favorite blogs, Language Log, Mark Liberman christens a new game:
We might call this the Pundit’s Dilemma — a game, like the Prisoner’s Dilemma, in which the player’s best move always seems to be to take the low road, and in which the aggregate welfare of the community always seems fated to fall. And this isn’t just a game for pundits. Scientists face similar choices every day, in deciding whether to over-sell their results, or for that matter to manufacture results for optimal appeal.
(Aside on the game name game: when I was a first-year PhD student at Berkeley, Matthew Rabin taught us game theory. As if to remove all illusion that what we were studying was connected to reality, every game we analyzed in class was given a name according to his system of “stochastic lexicography.” Stochastic lexicography means randomly picking two words out of the dictionary and using them as the name of the game under study. So, for example, instead of studying “job market signaling” we studied something like “rusty succotash.” I wonder if any of our readers remember some of the game names from that class.)
(Stay tuned for my next Matthew Rabin story which will involve a hackey sack and a bodily fluid.)
There is indeed a strong incentive for pundits to distort what they say, and it has the flavor of contrarianism. Its based on an old paper by Prendergast and Stole (requires JSTOR sorry. Support Open Access publishing.) Suppose that what pundits want is to convince the world that they are smart. (Perhaps they want to influence policy. They will be influential later only if they can prove they are smart today. So today the details of what they are saying matters less than whether what they are saying is perceived to be smart.)
The thing about being really smart is that it means you are talking to people who aren’t as smart as you. (Sandeep faces this problem all the time.) So they can’t verify whether what you are saying is really true (especially when we are talking about climate change policies where if we ever do find out who was right, it will be well past the time that punditry is a profitable enterprise.) But one thing the audience knows is that smart pundits can figure out things that lesser pundits cannot. That means that the only way a smart pundit can demonstrate to his not-so-smart audience that he is smart is by saying things different than what his lesser colleagues are saying, i.e. to be a contrarian.
The Vatican just cut the price for Anglicans to join the Catholic Church. Converts can keep some Anglican traditions and still become Catholics. For instance, married Anglican priests can convert and become Catholic priests!
As the Anglican Church loses market share to the Catholic Church, what will they do? Traditional economics would imply some sort of price cut by the firm under attack. If Catholics can allow married priests, surely Protestants can allow some confessions and indulgences (i.e. payments for absolution from sins) for Catholics wanting to move the other way. Over-indulgences led to the Protestant Reformation but the Catholics Church’s aggressive move to get market share is going to lead to a price war and a reduction of product differentiation. Of course, if there is very little switching as Protestants are very loyal to their faith, the Catholic Church will end up cannibalizing its own market – for instance, Catholic priests may demand the same marriage rights granted to their converted brethren.
Looking forward to seeing what’s going to happen.
Update: Thanks to all the commenters who helped to reveal my lack of knowledge on religious matters. It seems that the potential for cannibalizing the Catholic market has been recognized. Here is today’s Times story Pope’s Offer Raises Idea of Marriage for Catholic Priests:
“The invitation also extends to married Anglican clergy. And so some have begun to wonder, even if the 82-year-old Benedict himself would never allow it, would more people in the Catholic Church begin to entertain the possibility of married Catholic priests?
“If you get used to the idea of your priests being married, then that changes the perception of the Catholic priesthood necessarily,” said Austen Ivereigh, a Catholic commentator in London and a former adviser to Cardinal Cormac Murphy-O’Connor of Westminster.
“We face the prospect in the future of going to a Catholic church in London and it being normal to find a married Catholic priest celebrating at the altar, with his wife sitting in the third pew and his children running up and down the aisle,” he said.”
There is also an arbitrage opportunity dismissed by the Catholic Church:
“Could a Catholic man convert to Anglicanism, be ordained as an Anglican priest, then rejoin the Catholic Church under the new Anglican rite? (The Vatican spokesman, the Rev. Federico Lombardi, dismissed that idea as “a trick.”)”
Swoopo.com has been called “the crack cocaine of auction sites.” Numerous bloggers have commented on its “penny auction” format wherein each successive bid has an immediate cost to the bidder (whether or not that bidder is the eventual winner) and also raises the final price by a penny. The anecdotal evidence is that, while sometimes auctions close at bargain prices, often the total cost to the winning bidder far exceeds the market price of the good up for sale. The usual diagnosis is that Swoopo bidders fall prey to sunk-cost fallacies: they keep bidding in a misguided attempt to recoup their (sunk) losses.
Do the high prices necessarily mean that penny auctions are a bad deal? And do the outcomes necessarily reveal that Swoopo bidders are irrational in some way? Toomas Hinnosaar has done an equilibrium analysis of penny auctions and related formats and he has shown that the huge volatility in prices is in fact implied by fully rational bidders who are not prone to any sunk-cost fallacy. In fact, it is precisely the sunk nature of swoopo bidding costs that leads a rational bidder to ignore them and to continue bidding if there remains a good chance of winning.
This effect is most dramatic in “free” auctions where the final price of the good is fixed (say at zero, why not?) Then bidding resembles a pure war of attrition: every bid costs a penny and whoever is the last standing gets the good for free. Losers go home with many fewer pennies. (By contrast to a war of attrition, you can sit on the sidelines as long as you want and jump in on the bidding at any time.) Toomas shows that when rational bidders bid according to equilibrium strategies in free auctions, the auction ends with positive probability at any point between zero bids and infinitely many bids.
So the volatility is exactly what you would expect from fully rational bidders. However, Toomas shows that there is a smoking gun in the data that shows that real-world swoopo bidders are not the fully rational players in his model. In any equilibrium, sellers cannot be making positive profits otherwise bidders are making losses on average. Rational bidders would not enter a competition which gives them losses on average.
In the following graph you will see the actual distribution of seller profits from penny auctions and free auctions. The volatility matches the model very well but the average profit margin (as a percentage of the object’s value) is clearly positive in both cases. This could not happen in equilibrium.
The Times has a great excerpt from “Too Big to Fail: How Wall Street and Washington Fought to Save the Financial System — And Themselves” by Andrew Ross Sorkin. It recounts Lehman’s efforts to sell itself to Morgan Stanley and Bank of America. The Morgan Stanley deal failed as Lehman was not clear about what it wanted – a merger, selling a part of itself etc. But there was also an issue of what Lehman was really worth and Morgan Stanley tried to find that out in tense questioning:
“The Morgan team began to throw out a barrage of questions: How are things marked? they asked, Wall Street jargon for how the assets were valued. Were you able to sell them inside your marks? How much business has left the firm?”
In other words, there was asymmetric information: Lehman knew the value of its assets but Morgan Stanley did not.
The next attempt was Bank of America. They called their main deal maker at B0A Greg Curl on a Saturday night and
“Mr. Curl, though intrigued to be getting a call on a Saturday night, was noncommittal; he could tell they must be desperate. “Hmm … let me talk to the boss,” he said. “I’ll call you right back.” The boss was Ken Lewis, the silver-haired chief executive of Bank of America.)”
There is a potential lemons problem triggered by asymmetric information – you do not want to pay more that the value of Lehman Bros to acquire it. The fact they are trying to sell it signals it may not be worth that much. It is combined with incentives to misrepresent information to strike a good deal:
“Mr. Fuld [Chair of Lehman] explained that he would want at least $25 a share from Bank of America to buy Lehman; Lehman’s shares had closed that day at $18.32. Mr. Lewis thought the number was far too high and couldn’t see the strategic rationale. Unless he could buy the firm for next to nothing, the deal wasn’t worth it.”
The deal fell through. A question remains: was there a trade that could have made both parties happy? This would rely on a synergy between the potential buyer’s assets and the assets of Lehman. The bluffing and lemons problem makes it hard to see gains from trade. I’m going to buy the book but this excerpt makes it seem that Fuld did not do a good job selling Lehman and tried to get too much for it. For example, opening up the books might have saved it. This is a bad option in the sense that it puts you in a terrible bargaining position. But it is better than what happened
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