Author Archive

The firm Palantir, named after the seeing-stone from Lord of the Rings, uses Paypal technology to connect the dots between different terror acts.  The WSJ reports:

“In 2003, Mr. Thiel pitched an idea to Mr. Karp: Could they build software that would uncover terror networks using the approach PayPal had devised to fight Russian cybercriminals?

PayPal’s software could make connections between fraudulent payments that on the surface seemed unrelated. By following such leads, PayPal was able to identify suspect customers and uncover cybercrime networks. The company saw a tenfold decrease in fraud losses after it launched the software, while many competitors struggled to beat back cheaters.”

The resulting graph helps intelligence analysts identify terror networks.  And it seems to be paying off:

“The Pentagon recently used it to track patterns in roadside bomb deployment. Officials say analysts were able to connect two reports and conclude that garage-door openers were being used as remote detonators and soldiers on the ground had a new device to look for.

Analysts at West Point recently used Palantir’s software to map evidence of Syrian suicide-bombing networks buried within nearly 700 al Qaeda documents, including hundreds of personnel records that the military recovered in Iraq. The analysts did an initial sweep of the data without the Palantir tool and assembled a report on foreign fighters in Iraq who were paying Syrian middlemen to send over suicide bombers.

A second analysis with Palantir uncovered more details of the Syrian networks, including profiles of their top coordinators, which led analysts to conclude there wasn’t one Syrian network, but many. Analysts identified key facilitators, how much they charged people who wanted to become suicide bombers, and where many of the fighters came from. Fighters from Saudi Arabia, for example, paid the most — $1,088 — for the opportunity to become suicide bombers.

Such details helped local law enforcement break up some of the rings, said one U.S. official familiar with the work. It also revealed the extent to which al Qaeda was relying on mercenary smuggling networks, rather than true believers, to get suicide bombers into Iraq.”

Pretty impressive.  But the writing is bit confused: Is it really the case that suicide bombers are paying for the right to blow themselves up? Or is it the case that operatives in Iraq are paying Syrian middlemen to send suicide bombers over?

The direction of health care reform in Congress is in the hands of the Gang of Six senators on the Senate Finance Committee.  Two of the Republican members, Grassley and Enzi, seem to be in the gang because they are friends on the Head of the Committee, Democrat Max Baucus, and not because they are centrists.  The conventional wisdom is that these two are not going to sign on to anything that might be a win for Obama because the Republican caucus is breathing down their necks just in case they have any inclination to let centrism trump party.  This leaves Olympia Snowe as the only Republican in the gang who might be pliable.

An interesting article by Ezra Klein in the Washington Post offers a paradox.  According to the article, Snowe is on the left of two of the Democrats in the Gang of Six.  The Democrats need sixty votes to avoid a filibuster.  This implies in a first order analysis that the pivotal vote is not Snowe but a more conservative Democrat like Kent Conrad.  This would imply a conservative leaning bill.

But now it gets interesting and I am going to offer my own simple analysis which differs slightly from Klein’s.

Conservative Democrats do not have to prove/signal how conservative they are if a Republican votes for health care reform.  So, actually Snowe is the pivotal voter and if she votes for reform, her preferences will determine the shape of the final program as Conrad can safely vote for something a bit more leftwing.

Suppose she decides not to vote for reform as she is also under pressure from the Republican caucus.  Then the conservative Democrats do have to signal they are not liberals by moving to the right.  This implies the pivotal (Democratic) voter has shifted to the right if a Republican fails to join the coalition voting for reform.  A Republican’s departure leads to a more right-wing bill. This is the paradox.

Snowe can do her own analysis and realize what her vote means for healthcare reform – a more right-wing bill not a more left-wing bill.

More broadly, signaling to constituents matters (for re-election) to policymakers as well as their own preferences.  The two forces together can lead to subtle policy choices by the winning coalition.  Not sure if there is some formal poli sci work on this or not.

In the National Interest, they make an explicit link between the Prisoner’s Dilemma and environmental degradation:

HOW DOES one escape a dilemma in which multiple individuals acting in their own rational self-interest can ultimately destroy a shared limited resource—even when it is clear this serves no one in the long run?

In 1968, Science published Garrett Hardin’s landmark article “The Tragedy of the Commons.” Hardin relied on the metaphor of a small English village in the eighteenth century. Each family has a house with a small plot of land for growing vegetables. In addition, there is a large, common area used by all the villagers to graze their livestock. Each villager has a cow or two that provide the family with its milk. The common area is large enough to support the entire village. Then the village begins to grow. Families get larger, and procure an extra cow. New families move in. Suddenly, the common is threatened; it is being overgrazed. Grass is consumed so fast that there is not enough time for it to replenish itself before rains erode the topsoil. Each cow no longer has quite enough to eat, and thus yields less milk than it did before. If the overuse of the common continues, there will be a slow but sure decrease in the number of animals it can support until, finally, it becomes useless for grazing.

We are now dealing with a tragedy of the global commons. There is one earth, one atmosphere and one water supply, and 6 billion people are sharing it. Badly. The wealthy are overgrazing, and the poor can’t wait to join them. Examples are plentiful: the overharvesting of trees by lumber companies; the overplanting of land by farmers; the overdevelopment of suburban communities; the extraction of petroleum from a common pool by oil companies; and the overcrowding of highways and other public facilities. These behaviors make whatever benefits users derive from those resources vanishingly small. The issues are as far ranging as contamination of water by toxic wastes, pollution of the atmosphere by carbon dioxide and various particulates, and profligate use of water and energy.

(HT: Shimi Lin)

I teach a class at Kellogg on “Strategic Crisis Management”.  It deals with crises that are triggered by a conflict between moral values and profit-maximization.  A student from a class I taught earlier this year, Jason Gilroy, told me about the song United Breaks Guitars by Dave Carroll:

Five million hits later, United is making amends.  If you search YouTube you’ll find further videos by Dave and various responses.

My favorite reality show Top Chef is back and this time it’s in Vegas.  Sin City is not known for any special cuisine so the producers have opted to stir in the town’s most famous ingredient – gambling.  In each episode one chef is eliminated and we get to watch them fight and flirt till one is left standing many, many weeks from now.  So it’s a pretty big deal if you get a pass to the next round.  Because of the Vegas setting, one chef won this great prize by drawing a “gold chip”.  In the previous shows, you had to cook your way into this advantage in the “quickfire” round.  This round still remains but, at least in the first show, there is now the second random route into the next round.

What effect will this have?

As randomization is not a function of the ability of the contestants but winning the quickfire is, the average quality of the chefs in future rounds will go down compared to the previous series.  That’s the statistics angle.  The game theory angle is the impact on incentives.  The good chefs are going to find it easier than before as only the worst chef is eliminated. If a lower quality chef makes it via randomization, the others can slack off in the next round and conserve their energy and best dishes for the future.  The cooking will get worse.  The producers should drop the randomization trick if they want to see the best possible cooking.

The thing with having a blog is that it affects the way you see everything.  You can’t just let go and enjoy a movie, T.V. etc without the odd idea for a post popping into the back of your mind….So, last night I settled down to watch the first episode of “Mad Men” and I thought I concentrated fully and followed the plot. But now all I remember is that the new evil British guy (the Principal) appointed two people, Pete and Ken (the Agents) , “Head of Accounts” after sacking the sole previous incumbent.

This the classic incentive scheme recommended by the tournaments literature in contract theory. The main idea is that you get both Pete and Ken to work hard because if one underperforms relative to the other, he gets punished by lower wages, sacking etc.  Of course this transfers risk onto the agents and Pete particularly looked discomfited by the arrangement even though he got a promotion.  In fact, a classic paper by Bengt Holmstrom (which I already blogged about), recommends that this relative performance evaluation only be done if one agent’s output gives information about the other’s effort, otherwise you are just imposing risk without any incentive benefits.  So, if Pete and Ken were doing totally different jobs, the incentive scheme does not make any sense.  But since they are both working in Accounts if one, say Pete, does well and the other, Ken, does badly it signals that Ken might not have worked as hard as Pete.  If both do badly, it signals that the economy is bad and no-one shirked etc…So, it fits the theory.

One problem with relative performance evaluation is that Pete and Ken have an incentive to collude (Dilip Mookherjee pointed this out in his research).  Ken realizes this and suggests it to Pete but Pete turns him down.  Maybe there’s  a Prisoner’s Dilemma aspect to the collusion game or Pete was too emotional to get it.

Thought you were secure in a tenured job?  I guess if your whole department is eliminated, so are you:  The University of Southern Mississippi is getting rid of its economics department in its entirety:

The elimination of economics, along with five tenured and four tenure-track faculty positions, is part of a plan to reduce spending by $11 to $12 million, universitywide, within a year. While university officials stress the plan isn’t yet final, they are slated to decide by September 1 whether to go forward with the proposed cuts, according to a news release. Tenured and tenure-track faculty are legally required to a year’s notice prior to termination, and economics faculty say they’ve already received such notice.

It seems they are not producing enough graduates.

(HT: Tomas Sjostrom)

Cheney is spilling the beans on “soft” Bush:

Cheney’s imprint on law and policy, achieved during the first term at the peak of his influence, had faded considerably by the time he and Bush left office. Bush halted the waterboarding of accused terrorists, closed secret CIA prisons, sought congressional blessing for domestic surveillance, and reached out diplomatically to Iran and North Korea, which Cheney believed to be ripe for “regime change.”

And

It was clear that Cheney’s doctrine was cast-iron strength at all times — never apologize, never explain — and Bush moved toward the conciliatory.

Paula Abdul has left American Idol.  Apparently,

“Paula didn’t place as much importance on remaining on the show as some other people did,” said a person close to Ms. Abdul who, like several people interviewed for this article who were involved in the negotiations, spoke on the condition of anonymity to preserve relationships on both sides. “She thinks there are a lot of opportunities out there for her, and she will be fine without that show.”  NYT

That is, Paula’s assessment of her value, i.e. her outside option, was greater than American Idol’s assessment of her value for their show.  This is a reasonable possibility.  After all American Idol (AI) has Simon Cowell and then the marginal contribution of Abdul might be lower in AI than her value to a show like “Dancing with the Stars” where there are no recognizable personalities.  In this scenario, there are no gains to trade for Abdul and American Idol and so they have to part.

But there is another possibility.  Abdul and American Idol have private information, Abdul about her outside option and AI producers about her value for their show.  The producers have an incentive to shade their value to minimize the salary they have to pay Abdul.  Abdul has an incentive to exaggerate her value to AI. Even if she might be an American Idle she should pretend she is very busy and has lots of options.  Joint bluffing can lead to no-trade even when there might be real gains to trade if everyone’s information is public not private.  In a famous theorem, Myerson and Satterthwaite proved that for this to happen there has to be chance that there really are no gains to trade.  I made the argument in the previous paragraph that this scenario is a possibility.  But this scenario then affects bluffing behavior even when there are true underlying gains to trade. So, Paula may be leaving AI even though her value is higher there than at Dancing with the Stars.  Tragedy.

Where’s the silver lining?  Well, I think there’s one for me.  I have an English accent.  I can pout like Posh Spice, Paula’s replacement on AI.  And I’m pretty sure people think I’m a bit of a  overcritical d**khead.  In other words, I am an ideal combination of Simon Cowell and Posh Spice.  I have huge potential.  In fact, the phone is ringing.  Maybe it’s Hollywood on the line……

Twitter came into its own in the recent demonstrations in Iran, coordinating protest and reporting on it.  Its everyday uses are more prosaic and even vain but here is another I can applaud: coordinating a countrywide (or even global) wine-tasting.  The Slate wine critic will be tasting the following wines on Aug 26 6.30 (Eastern U.S. time) and encourages others to follow and post on Twitter:

Domaine des Aubisières Vouvray Silex 2007, $16.95
Les Héritiers du Comte Lafon Macon 2007, $21.95
Domaines Ott Côte de Provence Rosé les Domaniers 2008, $18.95
Jean-Paul Brun/Domaine des Terres Dorées Beaujolais l’Ancien 2008, $15.95
Betts & Scholl Grenache O.G. 2006, $24.95
Ruinart NV Blanc de Blancs, $64.95

(FYI: Three are at Binnys for Chicago locals.)

A new study has found that third of students graduate with no debt at all.  To state the pretty obvious: this does not imply that the cost of education is not a barrier to entry to college.  Many students who might benefit from education may simply be staying out of college as they know they would have to take on a huge amount of debt.  At an extreme, if only the wealthy went to college there would be no debt problem at all.

Well, only indirectly but here is my thinking: one comment by Nathan in response to my post yesterday suggested that John Bolton thinks every international interaction is the game of Chicken, not just the recent episode with North Korea.  Schelling thought a lot about Chicken and here is what he said in Arms and Influence in 1966:

Is  a Berlin Crisis…..mainly bilateral competition in which each side should be motivated mainly towards winning over the other?  Or is it a shared danger – a case of both being pushed to the brink of war – in which statesmanlike forbearance, collaborative withdrawal and prudent negotiation should dominate?

He classifies the Cuban Missile Crisis as the second sort of game and the Hungarian Uprising as the first.  He points out that it can be hard to tell which kind of crisis a country is involved in.  So, we have different games and uncertainty about the game one is playing.  This is level of knowledge from 1966. It disappeared in the last 40 odd years.  Hopefully it can be recovered.

The Palm Pre was favorably reviewed relative to the iPhone.  But the iPhone has all those great Apps but the Pre does not.  And your iTunes account ties you to the iPhone too unless your phone runs it too. And that was what the Pre did till Apple upgraded iTunes and it was no longer compatible with the Pre.  Palm is upset and is trying to get Apple to open up iTunes.

Does Apple’s strategy make sense?   Allowing Pre to use iTunes increases sales of music but reduces sales of the iPhone.  Where do the two effects line up?  It seems iPhone margins are almost 60% as ATT is giving Apple a huge subsidy.  And the iTunes profit margin is around 10%.  Not sure what the sales figures are but you’d have to see a huge number of songs to counterbalance profits from iPhone sales.

If it’s worried about iPhone sales, Apple is making the right call on making iTunes incompatible with the Pre.

After reading A.O. Scott’s review, I was itching to see In the Loop.  The writer and director Armando Iannucci is a King of British Comedy.  His big success is the T.V. show The Thick of It which follows the misadventures of a hapless British Cabinet Minister.  In the Loop is a movie version of the the same kind of thing.  It depicts British involvement in the lead-up to the Iraq war.  The anti-hero of the movie is Malcolm Tucker, the Prime Minister’s spinmeister played with great aplomb by Peter Capaldi.  I have always had a soft spot for Capaldi since his role in Local Hero (1983) a gentle Scottish comedy.  In that movie, a Texas oil magnate and his employee are charmed by the easy  and beautiful life on the Scottish coast.  I am easily suggestible and, despite the weather, I wanted to retire to Scotland and own a  pub after watching Local Hero.

Britain’s ability to influence its powerful ally has declined since 1983.  The British poodle wags its tail at the order of its American master.  Even Malcolm Tucker is forced to admit that he is subservient to a sinister Rumsfeldian warmonger, Linton Barwick.  In my imagination, Barwick is a Purell-using fiend.  He prefers his epithets ready-bleeped (“s-star-star-t”).  In the swearing department, Tucker has no equal and I have added to my already large lexicon.  His variations on the f-word would have the Cambridge Police putting him in leg irons.  The swearing -and there is a lot of it- embellishes rather than detracts from the dialogue  It sparkles like an effing diamond.  The intricate plot and the amazing writing are the center of this movie.  In the Age of Obama, we may want to draw a curtain over the build-up to the Iraq War.  But it’s not the war but the politicking and manoeuvring behind it that drive the plot.  British schoolboys will be reciting lines and so will I.  Ending this review is “difficult, difficult, lemon-difficult” so “f-star-star-kitty bye”.

Marginal Revolution, a price theory blog, does “markets in everything”.  Cheap Talk, a game theory blog, should do Prisoner’s Dilemma in everything.

Individual drivers do not take the “negative externality” they impose on others into account when they choose their routes from A to B.  If a benevolent planner could force people down certain routes, that could reduce travel times.  The planner solution is not an equilibrium: drivers have an incentive to deviate because the socially optimal solution implies different travel times on different routes.

This is the the Prisoner’s Dilemma for traffic, discovered by computer scientists. They take the ratio of the equilibrium travel times to the socially optimal times and call that the “price of anarchy”.  Cool name for it but to really determine the price of anarchy, we would need utility information – if the value of time is low, no need to build a public transit system.

Col. Timothy R. Reese widely believed to be the blogger Tim the Enchanter says

As the old saying goes, “guests, like fish, begin to smell after three days.” Since the signing of the 2009 Security Agreement, we are guests in Iraq, and after six years in Iraq, we now smell bad to the Iraqi nose. Today the Iraqi Security Forces (ISF) are good enough to keep the Government of Iraq (GOI) from being overthrown by the actions of Al Qaeda in Iraq (AQI), the Baathists, and the Shia violent extremists that might have toppled it a year or two ago. Iraq may well collapse into chaos of other causes, but we have made the ISF strong enough for the internal security mission. Perhaps it is one of those infamous paradoxes of counterinsurgency that while the ISF is not good in any objective sense, it is good enough for Iraq in 2009. Despite this foreboding disclaimer about an unstable future for Iraq, the United States has achieved our objectives in Iraq. Prime Minister (PM) Maliki hailed June 30th as a “great victory,” implying the victory was over the US. Leaving aside his childish chest pounding, he was more right than he knew. We too ought to declare victory and bring our combat forces home.

According to the Times, “Before deploying to Iraq, Colonel Reese served as the director of the Combat Studies Institute at Fort Leavenworth, Kan., the Army’s premier intellectual center.”

The very same Tim the Enchanter is not enthusiastic on Obama’s healthcare plan going as far as to say

But the Leviathan will truly show its face when your family food purchases will be tied to your medical care.   “Mrs. Brown, here is your new food voucher for the month. It has been encoded to allow the purchase of balanced combination of food items specially tailored to maintain a healthy, “low health care cost you,” based on your medical history and condition. It can be used at any government approved grocery or supermarket, just buy the correct number of each type of item as shown on the attached printout. If you try to purchase an item that doesn’t have the ObamaCare stamp on the label, the cashier will simply remove it from your basket.” Like red meat? Your allotment for the month is unlikely to satisfy your inner barbeque master. Is your kid fat? You can expect to have one government agency tell you how to feed them while another will monitor your compliance with their ukazis. Fail to comply and you’ll be required to take remedial diet and parenting classes at the local organized community center as a condition of maintaining custody of your little health care project.

It’s 1984 meets Hayek’s Road to Serfdom.  So, at the very least, it is less original than the Iraq post.

How are we to take these two opinions? Reject both or accept both as they come from the same person?  Or can we say he is an expert on military matters and not on health economics and pick and choose?

Not only is Amazon embarrassingly removing books you bought from your Kindle but they are accidently deleting any notes you might have taken about the books.  Orwellian.  But it is oddly comforting when Big Brother screws up.

My own experience with my new Kindle 2 is positive so far though some of reported problems have me worried.

1. Basque Separatist Group E.T.A.:

More crucial than its theoretical debates, however, was its commitment to a particular model of armed action, which remains dominant today.  This is the “spiral of action-repression-action,” which operates along the following lines: 1) ETA carries out a provocative violent action against the political system; 2) the system responds with repression against “the masses”; 3) the masses respond with a mixture of panic and rebellion, Paddy Woodsworth, World Policy Journal.

2. Brazilian Terrorist Group, ALN:

The rebellion of the urban guerrilla and his persistance in intervening in political questions is the best way of insuring popular support for the cause which we defend. We repeat and insist on repeating–it is the way of insuring popular support. As soon as a reasonable portion of the population begins to take seriously the actions of the urban guerrilla, his success is guaranteed.
The government has no alternative except to intensify its repression. The police networks, house searches, the arrest of suspects and innocent persons, and the closing off of streets
make life in the city unbearable. The military dictatorship embarks on massive political persecution. Political assassinations and police terror become routine.

In spite of all this, the police systematically fail. The armed forces, the navy and the air force are mobilized to undertake routine police functions, but even so they can find no way
to halt guerrilla operations or to wipe out the revolutionary organization, with its fragmented groups that move around and operate throughout the country. The people refuse to collaborate with the government, and the general sentiment is that this government is unjust, incapable of solving problems, and that it resorts simply to the physical liquidation of its opponents. The political situation in the country is transformed
into a military situation in which the “gorillas” appear more and more to be the ones responsible for violence, while the lives of the people grow worse, Carlos Marighella, MiniManual of the Urban Guerrilla.

3. Al Qaeda strategy:

Force America to abandon its war against Islam by proxy and force it to attack directly so that the noble ones among the masses….will see that their fear of deposing the regimes because America is their protector is misplaced and that when they depose the regimes, they are capable of opposing America if it interferes. Abu Bakr Naji, The Management of Savagery (  p. 24)

Bears are smart and they can teach and learn. And they can eat you.  Colbert is right:

This question is posed but not answered by Isaiah Sheffer in song:

I already mentioned this book in an earlier post related to the Prisoner’s Dilemma.  But that is just one of the techniques suggested by the author who was an interrogator in Iraq.  Here are some others:

(1) We Know All: “We have all the information and we can get you.”  Tell the subject some bit of information that proves you know something.  Entice him to reveal more to cross-check what you claim you already know.

(2) The Threat: “If you do not tell me something, I’m going to send you to Abu Gharib.”  Self-explanatory.

(3) You’re Totally Screwed: “We control him.  If he does not talk, he’s going to swing.” Self-explanatory too.

(4) Fear Down: “Show him the true consequences and then give him an out and become his savior.” e.g. Explain death penalty obtains for organizing terrorist attacks.  Then say that if subject works with friendly interrogator to give information, all will be well.

(5) Love of Family: Reunite subject with loved family member and then use the (huge) favor you have granted to obtain information

(6) More broadly, Alexander suggests creating empathy and a cycle of mutual cooperation to get information.

Apart from (5), all are basically incentive based schemes used to either reward a subject for information (carrot) or punish him if he does not give information (stick).

What is not crystal clear in the book is whether the rewards promised (e.g. a lighter sentence) are actually ever granted.  There is one case described in detail where one prisoner wants a divorce from young wife number two as she is too expensive.  The interrogator draws up fake documents and pretends to start the divorce proceedings.  He then gets information but sends the prisoner off to Abu Gharib anyway.  This strongly suggests that the rewards offered are not ever given out. It’s not like a Mafia informant program where you go into witness protection after giving up the gang.

The prisoners are confused and tired so maybe this leads them to believe the interrogator’s promises.  But can it really work on the truly committed senior terrorists?  It’s pretty obvious where it’s all heading.  Why give information, whether the interrogator uses empathy or fear, when you know your fate does not depend on what you say?

Why won’t Obama clarify what he wants in terms of health care reform?  He identifies principles (e.g. no tax on the middle class) rather than details.  And Congress seems to be confused about what to do.  Why is he not stepping in to fill the gap?  This is all I can think of:

(1) History: Clinton spelled out what he wanted and it was killed by the so-called “Harry and Louise” ads and Congress.  If you define your plan clearly, it is easier for other players to coordinate against it.  If you keep it vague, they do not what to shoot at.  Obama is using vagueness strategically to keep his opponents guessing – a kind of a “mixed strategy” in an informal sense.

(2) Buy-in: By allowing Congress to make up the health care plan, he hopes to get them to buy into it and pass it.

(3) Guaranteed win: If you define your objective, it is easier for your opponents to show you lost.  If you keep your objective vague, you can claim a larger set of outputs as a “win”.

The drawback is obvious: maybe what comes out of Congress is going to a big mess with lots of pork and horrible inefficiencies. A little direction could prevent that.

But the biggest mystery is the trivial one: Why the hell, if you’re so good at using intentional vagueness, did you answer the question about racial profiling so clearly?  You know the Foxosphere and ANBCBSNBCNN channels are going to focus on that..or is that what you wanted you devious, devious guy…?