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A week-long series of blog posts at NPR the best of which come from Jeremy Denk. His opener:
Preternaturally happy, cheerful, perfect, organized, clean, boring, popular: I guess the case I’m making is that the Goldbergs are the Martha Stewart of Variations. And like Martha Stewart, you don’t totally absolutely mind if they end up going off for a little while to a very clean and nice prison (sorry Martha, I’m just following the metaphor, I don’t really mean it) so you don’t have to see them being perfectly organized all the time, making a mockery of your unclean life. Maybe a show of hands: who would like a short moratorium on performances or recordings of the Goldbergs, so we could all hear it freshly again? Who will be the first pianist to unilaterally disarm? (Not me!)
Let’s revise the Martha Stewart metaphor. The Goldbergs are like a friend you have who always does everything right. This friend always answers his emails, keeps a clean house, has a kind word for everyone, behaves properly at concerts, writes thank you cards, grooms himself assiduously, knows how to tie a tie, never eats Burger King at 2 AM, and never ever writes silly blog posts saying he hates pieces he really loves. He’s an example to the world. He’s smiling at you over drinks, listening as always with benevolent patience, and you realize through your gritted hateful envious teeth that he is certainly not your enemy, and what would it hurt to admit, you wouldn’t want to face life without him?
Jaapi jab: DoTheMath.
My brother-in-law wanted to sell something with an auction but first he wanted to assemble as many interested buyers as he could. His problem is that while he knew there were many interested buyers in the world he didn’t know who they were or how to find them. But he had a good idea: people who are interested in his product probably know other people who are also interested. He asked me for advice on how to use finders’ fees to incentivize the buyers he already know about to introduce him to any new potential buyers they know.
This is a very interesting problem because it interacts two different incentive issues. First, to get someone to refer you to someone they know you have to confront a traditional bilateral monopoly problem. You are a monopoly seller of your product but your referrer is a monopoly provider of access to his friend because only he knows which and how many of his friends are interested. If your finder’s fee is going to work it’s going to have to give him his monopoly rents.
The interesting twist is that your referrer has an especially strong incentive not to give you any references. Because anybody he introduces to you is just going to wind up being competition for him in the auction for your product. So your finder’s fee has to be even more generous in order to compensate your referrer for the inevitable reduction in the consumer’s surplus he was expecting from the auction.
I told my brother-in-law not to use finder’s fees. That can’t be the optimal way to solve his problem. Because there is another instrument he has at his disposal which must be the more efficient way to deal with this compound incentive problem.
Here’s the problem with finder’s fees. Every dollar of encouragement I give to my buyers is going to cost me a full dollar. But I have a way to give him a dollar’s worth of encouragement at a cost to me of strictly less than a dollar. I leverage my monopoly power and I use the object I am selling as the carrot.
In fact there is a basic principle here which explains not only why finder’s fees are bad incentive devices but also why employers give compensation in the form of employee discounts, why airlines use frequent flier miles as kickbacks and why a retailer would always prefer to give you store credit rather than cash refunds. It costs them less than a dollar to provide you with a dollar’s value.
Why is that? Because any agent with market power inefficiently under-provides his product. By setting high prices, he creates a wedge between his cost of supplying the good and your value for receiving it. If he wants to do you a favor he could either give you cash or he could give you the cash value in product. It’s always cheaper to do the latter.
So what does this say about incentivizing referrals to an auction? How do you “use the object” in place of a finder’s fee? The optimal way to do that is the following. You tell your potential referrer that you will give him an advantage in the auction if he brings to you a new potential buyer. Because you are a monopoly auctioneer there is always a wedge that you can capitalize on to do this at minimal cost to yourself.
In this particular example the wedge is your reserve price. Your referrer knows that you are going to extract your profits by setting a high reserve price and thereby committing not to sell the object if he is not willing to pay at least that much. You will induce your referrer to bring in new competition by offering to lower his reserve price when he does.
Now of course you have to deal with the problem of collusion and shills. Of course that’s a problem in any auction and even more of a problem with monetary finder’s fees but that’s a whole nuther post.
(Ongoing collaboration with Ahmad Peivandi)
Skip ahead to about 13:00. It seems a little too neatly staged but it’s still hilarious.
Hardee heave: Emil Temnyalov
Act as if you have log utility and with probability 1 your wealth will converge to infinity.
Sergiu Hart presented this paper at Northwestern last week. Suppose you are going to be presented an infinite sequence of gambles. Each has positive expected return but also a positive probability of a loss. You have to decide which gambles to accept and which gambles to reject. You can also invest purchase fractions of gambles: exposing yourself to some share 
Here is a simple investment strategy that guarantees infinite wealth. First, for every gamble 
Next, when your wealth level is actually 
If you follow this rule then no matter what sequence of gambles appears you will never go bankrupt and your wealth will converge to infinity. What’s more, this is in some sense the most aggressive investment strategy you can take without running the risk of going bankrupt. Foster and Hart show that any investor that is willing to accept some gambles
Subjects video chat with each other. In one treatment subject A sees her own image in a small window in the corner of the chat, and in the other treatment (the control) there is no small window and she sees only the chat partner.
Subject B is not told about the two treatments and is simply asked to report how attractive subject A is. We want to know whether attractiveness is higher in the self-image treatment versus the control treatment.
This gets at a few different issues but the one I am curious about is this: do people know what it is about them that makes them attractive to others?
Also, we would want to track eye movements during the chat.
From The Chronicle of Higher Education
If you’re a psychologist, the news has to make you a little nervous—particularly if you’re a psychologist who published an article in 2008 in any of these three journals:Psychological Science, the Journal of Personality and Social Psychology,or the Journal of Experimental Psychology: Learning, Memory, and Cognition.
Because, if you did, someone is going to check your work. A group of researchers have already begun what they’ve dubbed the Reproducibility Project, which aims to replicate every study from those three journals for that one year. The project is part of Open Science Framework, a group interested in scientific values, and its stated mission is to “estimate the reproducibility of a sample of studies from the scientific literature.” This is a more polite way of saying “We want to see how much of what gets published turns out to be bunk.”
We should do this in economics. But there is a less confrontational way to do it. Top departments in experimental economics attract PhD students who want hands on experience in the lab. These are departments like NYU and CalTech. They would benefit the profession, their students, and the reputation of their PhD programs, i.e. everybody concerned, if they were to add as a requirement that every student receiving a PhD must pick one recently published experimental article and attempt to replicate it.
Thanks to Josh Gans for the pointer.
A limited time deal on South Africa’s Kulula airlines in celebration of President Jacob Zuma’s recent wedding:
Inspired by regular VIP travellers with sizeable spousal entourages, the offer is open to all fourth wives when the family travels together on the Jo’burg to Cape Town route.
There are of course some peskys Tees and Cees to go with our less than pesky offer:
– The offer is valid on Joburg to Cape Town route from Monday 23rd April ‘til April 30th
– The family must have already bought a kulula.com ticket for all wives and husband
– Simply present ticket and proof of marriage and ID at kulula counter before departure
– A refund will then be made on the fourth wife’s ticket.
– Happy happy
Kufi carom: Toomas Hinnosaar
Here are the paths between me and Lones Smith. Some other numbers:
- My Erdos number is 4
- My Ken Arrow number is 5
- My Tyler Cowen number is 4. (I am not sure I believe all of these paths but some of them are true and interesting.)
- My Barack Hussein Obama number is 4 and the shortest path goes through Hilary Clinton.
- It can happen that the sensory input you experience over a short interval of time makes no sense to your brain until some last thing happens which reveals the theme and gives context to everything that came before. At that moment your brain goes back and reprocesses everything that just happened in order to make sense of it. The feeling is like experiencing a whole chunk of time condensed into one moment together with the satisfying feeling of resolution that comes from making order out of chaos. Musicians use this trick to great effect.
- It’s less of an insult to say someone is “disingenuous” than to say she is a liar. But we all know that the meaning is exactly the same. Disingenuous is a more obscure word and there is less common knowledge of its meaning. Given two words that are synonymous is it generally true that the one with the more nuanced connotation is also the one that is longer, rarer, more obscure?
- In almost all Western music every note begins and ends K/2^n units of time after the last note for some integers K and n. Isn’t that rather limiting?
- A nurse at my kids’ pediatrician tells them she will count to three before giving them a shot but she actually gives the shot at the count of 2, surprising them. It seems to make it less painful. How does that work?
Airlines are using ever more sophisticated pricing strategies, sports teams and theaters are adopting dynamic pricing, even restaurants are using auctions to allocate scarce seating space. And the usual perception of this is that the consumer is being gouged. Auctions leverage competition among buyers and this drives the price up. Sellers are raising profits by eroding consumer surplus.
But as a counterpoint to this, here is a mostly unnoticed but fundamental principle of auction-like pricing schemes: they lead to unambiguously lower prices at the margin even when, indeed especially when, the seller is a coldhearted profit maximizer.
Suppose a theater allocates seats by selling tickets. And suppose they do it the old-fashined way: they set a price for tickets and put them up for sale until they sell out. Setting the right ticket price is a tricky problem because a price is a one-dimensional instrument that has to solve a two-sided problem. On the one hand, you want high prices in order to capture revenue when demand turns out to be strong. But on the other hand, you want low prices in order to ensure the theater isn’t empty when demand is weak. A price is simply too limited an instrument to do that double duty. It’s no wonder that there are so many empty seats on most days while on other days the show sells out way in advance.
An auction (or dynamic pricing or many other pricing systems) has built into it two separate mechanisms for handling those two separate problems. First there is the mechanism that leverages competition. When demand is strong buyers must compete with one another for limited space. When that happens the price is being set not by the seller but by the buyers themselves. A buyer wins a seat only if he is prepared to pay a price larger than the next most aggressive bidder.
The unsung virtue of the competition-leveraging aspect of auctions is that it relieves the other mechanism in an auction, the seller’s (reserve) price, of the burden of capturing revenue at the high-end of the market and allows the seller to use it for a single purpose: to capture revenue when demand is low. And this necessarily leads the seller to reduce his reserve price below the price he would have set if he were just using prices and not auctions.
The reason follows from a simple marginal trade-off. Think of what happens to the seller’s profit when he lowers his price a little. There are gains and losses. The gain is that the lower price leads to greater tickets sales when demand turns out to be low. The loss is that when demand is already high enough to sell out at the original price he will sell the same number of tickets but at a lower price. The seller’s optimal price is chosen to balance these gains and losses.
But with an auction the trade-off changes because the reserve price plays no role in determining revenues when demand is high. That’s when the buyers are setting their own prices. Cutting reserve prices leads to all the same gains but strictly lower losses compared to cutting plain-old prices.
The upshot of this is that the winners and losers from an auction system aren’t who you think. Auctions don’t favor the deep-pocketed compared to the small guys. Exactly the opposite. The marginal consumer is priced out of the market when a seller eschews an auction because then he must keep prices high. When a seller switches to an auction he lowers his reserve price and now the marginal consumer has a chance to buy at those low prices.
Helpful conversation with Toomas Hinnosaar acknowledged.
(Drawing: I Persuade With Carrots from http://www.f1me.net)
Twitter users turned Sunday’s French presidential election into a battle between a green Hungarian wine and a red Dutch cheese in a bid to get round tough laws banning result predictions.
The #RadioLondres hashtag was the top France trend on Twitter during the first-round presidential vote, in homage to World War II codes broadcast to Resistance fighters in Nazi-occupied France from the BBC in London.
But French citizens have written a new codebook in a subversive bid to get round laws that mean anyone announcing vote predictions before polls closed at 8:00 pm (1800 GMT) could be fined up to 75,000 euros (100,000 dollars).
“Tune in to #RadioLondres so as not to know the figures we don’t want to know before 8:00 pm,” said one ironic tweet.
“Dutch cheese at 27 euros, Tokai wine at 25 euros,” read one tweet as poll percentage predictions were published abroad.
The thing is, this would still be prosecuted if perpetrated by broadcast media. So it wasn’t the code per se that allowed them to circumvent the law. So the questions are:
- Why is an in-spirit violation not prosecuted when carried out in a decentralized communication network?
- Would just nakedly forecasting the outcome also escape prosecution if done on Twitter? (As opposed to the usual things people nakedly do on Twitter.)
The pointer was from @handeh.
Everybody is reacting to the Golden Balls video that I and others have posted. They are saying that the Split or Steal game has been solved. I am not so sure.
- First of all I would like to point out that this solution was suggested here in the comments the first time I (or anybody else I believe) linked to Golden Balls in April 2009. Florian Herold and Mike Hunter wrote: “Perhaps a better strategy would be to tell your opponent that you are going to pick steal no matter what, and then offer to split the money after the show. Pointing out that your offer constitutes a legally binding oral contract, which has been taped, and viewed by hundreds of thousands of witnesses. That way your opponent can opt to pick split, and half the money with you. Or defect in which case you both get nothing.”
- Also, Greg Taylor has a good analysis in the comments to Friday’s post.
- But the successful application of the idea in the most recent video ironically shows the flaw in their reasoning. Consider the player who receives the proposal and is suggested to play split. This is the player on the left in the video. He should ask himself whether he believes that the proposing player will actually play Steal. Florian, Mike, and the rest of the Internet make the observation that Steal is a dominant strategy and therefore a promise to play Steal is credible. But Steal is a dominant strategy for a player with the standard payoffs and the guy who makes this proposal has revealed that he does not have the standard payoffs.
- Now you may respond by saying that the proposal to play (Split, Steal) and divide the winnings at the end is in fact a selfish proposal as it avoids the inevitable (Steal, Steal) outcome. So, you say that the proposer is in fact confirming that he has the standard payoffs and therefore that Steal is a dominant strategy and his promise is credible.
- But let’s look more closely. If he intends to carry out his proposal then he expects to end up with half of the winnings. Indeed he expects to have the full check given to him and either because of altruism, fairness, or reputational incentives to prefer to hand over half of it to the opponent. As he sits there with the balls in his hand and the expectation of this eventual outcome, he can’t avoid concluding that the cheapest way to bring about that outcome is to instead just play Split right now and allow the producers of the show to enforce the agreement.
- Given this the player who is considering this proposal should not believe it. He should believe that the proposer is too nice to carry out his nice proposal. A selfish player faced with this proposal should play Steal because he should expect the proposer to play Split.
- Having dispensed with this try, my personal favorite solution is the one proposed by Evan and elaborated by Emil in which the two men commit to randomize by picking each others’ balls.
- In any case, this video is an essential companion to the original for any undergraduate game theory course.
- Finally, does this Golden Balls show actually exist? In the present? How long ago did this happen? Or is this just some kind of Truman Show like experiment you are all subjecting me to?
The Golden Balls strategy we have been waiting for.
Boonie bobble: Emil Temnyalov
Funded by the U.S. Department of Health and Human Services, a panel of experts in psychology and economics, including Nobel laureate Daniel Kahneman, began convening in December to try to define reliable measures of “subjective well-being.” If successful, these could become official statistics.
Alan Krueger, Angus Deaton and Justin Wolfers have cameos in the article.
In Britain, Prime Minister David Cameron has embraced the idea, and last year the government began asking survey respondents things like “Overall, how happy did you feel yesterday?” and “Overall, how satisfied are you with your life nowadays?” The U.K. Economic and Social Research Council is also funding the U.S. panel’s $370,000 budget. In France, President Nicolas Sarkozy in 2008 launched a commission including two Nobel winners, Joseph Stiglitz and Amartya Sen, which opined that the “time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people’s well-being.”
Far ahead in such measures, however, is the tiny Himalayan kingdom of Bhutan, which has embraced the notion of “Gross National Happiness” as a national goal and has created a commission to achieve it.
You poor sap. I know you won’t believe any of this, but you should. How can I get it through your thick, acne-pocked skull? All the stupid things you are so worried about really aren’t very important at all. In fact, they are the opposite of important. What if I told you that all the “winners” around you right now were actually the losers? Well, I just did tell you that, but you still don’t believe me because I’m an adult and 16 year olds can never trust adults.
What if I tried to explain it this way: That feeling you’ve never been able to put a name on — it feels something like, let’s say, a bone-crushing insecurity and cluelessness about your place in the world — just forget about it! That’s right. You can forget about it and go about your days — confident with the knowledge that it’s all going to work out just fine.
Could it be that this kind of confidence would just turn his 16 year old self into one of the winners who will eventually turn out to be a loser? Isn’t that kind of confidence exactly what separates the winners in high school from the losers? And what else but insecurity and cluelessness about your place in the world leads a 16 year old to give up on the present and try to explore ways of being that might one day give him real self-confidence and not just the artificially, socially propped-up kind?
Drawing: Follow Your Heart from http://www.f1me.net
Suppose you and I are playing a series of squash matches and we are playing best 2 out of 3. If I win the first match I have an advantage for two reasons. First is the obvious direct reason that I am only one match short of wrapping up the series while you need to win the next two. Second is the more subtle strategic reason, the discouragement effect. If I fight hard to win the next match my reward is that my job is done for the day, I can rest and of course bask in the glow of victory. As for you, your effort to win the second match is rewarded by even more hard work to do in the third match.
Because you are behind, you have less incentive than me to win the second match and so you are not going to fight as hard to win it. This is the discouragement effect. Many people are skeptical that it has any measurable effect on real competition. Well I found a new paper that demonstrates an interesting new empirical implication that could be used to test it.
Go back to our squash match and now lets suppose instead that it’s a team competition. We have three players on our teams and we will match them up according to strength and play a best two out of three team competition. Same competition as before but now each subsequent game is played by a different pair of players.
A new paper by Fu, Lu, and Pan called “Team Contests With Multiple Pairwise Battles” analyzes this kind of competition and shows that they exhibit no discouragement effect. The intuition is straightforward: if I win the second match, the additional effort that would have to be spent to win the third match will be spent not by me, but by my teammate. I internalize the benefits of winning because it increases the chance that my team wins the overall series but I do not internalize the costs of my teammate’s effort in the third match. This negative externality is actually good for team incentives.
The implied empirical prediction is the following. Comparing individual matches versus team matches, the probability of a comeback victory conditional on losing the first match will be larger in the team competition. A second prediction is about the very first match. Without the discouragement effect, the benefit from winning the first match is smaller. So there will be less effort in the first match in the team versus individual competition.
My son and I went to see the Cubs last week as we do every Spring.
The Cubs won 8-0 and Matt Garza was one out away from throwing a complete game shutout, a rarity for a Cub. The crowd was on its feet with full count to the would-be final batter who rolled the ball back to the mound for Garza to scoop up and throw him out. We were all ready to give a big congratulatory cheer and then this happened. This is a guy who was throwing flawless pitches to the plate for nine innings and here with all the pressure gone and an easy lob to first he made what could be the worst throw in the history of baseball and then headed for the showers. Cubs win!
But this Spring we weren’t so interested in the baseball out on the field as we were in the strategery down in the toilet. Remember a while back when I wrote about the urinal game? It seems like it was just last week (fuzzy vertical lines pixellating then unpixellating the screen to reveal the flashback:)
Consider a wall lined with 5 urinals. The subgame perfect equilibrium has the first gentleman take urinal 2 and the second caballero take urinal 5. These strategies are pre-emptive moves that induce subsequent monsieurs to opt for a stall instead out of privacy concerns. Thus urinals 1, 3, and 4 go unused.
So naturally we turn our attention to The Trough.
A continuous action space. Will the trough induce a more efficient outcome in equilibrium than the fixed array of separate urinals? This is what you come Cheap Talk to find out.
Let’s maintain the same basic parameters. Assume that the distance between the center of two adjacent urinals is d and let’s consider a trough of length 5d, i.e. the same length as a 5 side-by-side urinals (now with invincible pink mystery ice located invitingly at positions d/2 + kd for k = 1, 2, 3, 4.) The assumption in the original problem was that a gentleman pees if and only if there is nobody in a urinal adjacent to him. We need to parametrize that assumption for the continuos trough. It means that there is a constant r such that he refuses to pee in a spot in which someone is currently peeing less than a distance r from him. The assumption from before implies that d < r < 2d. Moreover the greater the distance to the nearest reliever the better.
The first thing to notice is that the equilibrium spacing from the original urinal game is no longer a subgame-perfect equilibrium. In our continuous trough model that spacing corresponds to gentlemen 1 and 2 locating themselves at positions d/2 and 7d/2 measured from the left boundary of the trough. Suppose r <= 3d/2. Then the third man can now utilize the convex action space and locate himself at position 2d where he will be a comfortable distance 3d/2>= r away from the other two. If instead r > 3d/2, then the third man is strictly deterred from intervening but this means that gentleman number 2 would increase his personal space by locating slightly farther to the right whilst still maintaining that deterrence.
So what does happen in equilibrium? I’ve got good news and bad news. The good news first. Suppose that r < 5d/4. Then in equilibrium 3 guys use the trough whereas only 2 of the arrayed urinals were used in the original equilibrium. In equilibrium the first guy parks at d/2 (to be consistent with the original setup we assume that he cannot squeeze himself any closer than that to the left edge of the trough without risking a splash on the shoes) the second guy at 9d/2 and the third guy right in the middle at 5d/2. They are a distance of 2d> r from one another, and there is no room for anybody else because anybody who came next would have to be standing at most a distance d< r from two of the incumbents. This is a subgame perfect equilibrium because the second guy knows that the third guy will pick the midpoint and so to keep a maximal distance he should move to the right edge. And foreseeing all of this the first guy moves to the left edge.
Note well that this is not a Pareto improvement. The increased usage is offset by reduced privacy.They are only 2d away from each other whereas the two urinal users were 3d away from each other.
Now the bad news when r >5d/4. In this case it is possible for the first two to keep the third out. For example suppose that 1 is at 5d/4 and 2 is at 15d/4. Then there is no place the third guy can stand and be more than 5d/4 away hence more than r from the others. In this case the equilibrium has the first two guys positioning themselves with a distance between them equal to exactly 2r, thus maximizing their privacy subject to the constraint that the third guy is deterred. (One such equilibrium is for the first two to be an equal distance from their respective edges, but there are other equilibria.)
The really bad news is that when r is not too large, the two guys even have less privacy than with the urinals. For example if r is just above 5d/4 then they are only 10d/4 away from each other which is less than the 3d distance from before. What’s happening is that the continuous trough gives more flexibility for the third guy to squeeze between so the first two must stand closer to one another to keep him away.
Instant honors thesis for any NU undergrad who can generalize the analysis to a trough of arbitrary length.
Sandeep wrote one of our most popular posts on this topic. There was a survey that showed some correlation between pre-marital cohabitation and divorce. Sandeep said its probably just a selection effect.
First, suppose one partner is reluctant to get married and has doubts about the relationship. More information would be helpful to decide whether to stay together or break up. If the couple cohabit, that will give them valuable information. On the other hand, couples who are more confident about their relationship are more likely to get married straight away. Hence, more stable couples are less likely to live together before marriage than less stable couples. Living together per se is not the problem. The real problem is that a deeper source of instability is correlated with cohabitation.
Second – and this theory is implicit in the research – more religious couples are less likely to get divorced and less likely to live together before marriage. Again, selection explains the data and not cohabiting per se.
Now the Internet is back again with a new theory: “sliding in.”
She was talking about what researchers call “sliding, not deciding.” Moving from dating to sleeping over to sleeping over a lot to cohabitation can be a gradual slope, one not marked by rings or ceremonies or sometimes even a conversation. Couples bypass talking about why they want to live together and what it will mean.
As in, no-sliding-in before marriage. Because if you do, you might actually get locked in:
Sliding into cohabitation wouldn’t be a problem if sliding out were as easy. But it isn’t. Too often, young adults enter into what they imagine will be low-cost, low-risk living situations only to find themselves unable to get out months, even years, later. It’s like signing up for a credit card with 0 percent interest. At the end of 12 months when the interest goes up to 23 percent you feel stuck because your balance is too high to pay off. In fact, cohabitation can be exactly like that. In behavioral economics, it’s called consumer lock-in.
Does this make any sense? Isn’t a couple who goes straight to the sliding in before getting married ultimately just as locked in as a couple who completely abstains from sliding in until they are locked in by the bonds of wedlock?
Reality shows eliminate contestants one at a time. Shows like American Idol do this by holding a vote. The audience is asked to vote for their favorite contestant and the one with the fewest votes is eliminated.
Last week on American Idol something very surprising happened. The two singers who were considered to have given the best performances the night before, and who were strong favorites to win the whole thing received among the fewest votes. Indeed a very strong favorite, Jessica Sanchez was “voted off” and only survived because the judges kept her alive by using their one intervention of the season.
The problem in a nutshell is that American Idol voters are deciding whom to eliminate but instead of directly voting for the one they want to eliminate, they are asked to vote for the person they don’t want eliminated. This creates highly problematic strategic incentives which can easily lead to a strong favorite being eliminated.
For example suppose that a large number prefers contestant S to all others. But while they agree on S, they disagree about the ranking of the other contestants and they are interested in keeping their second and third favorites around too.
The supporters of S have a problem: maintaining support for S is a public good which can be undermined by their private incentives. In particular some of them might be worried that their second favorite contestant needs help. If so, and if they think that S has enough support from others, then they will switch their vote from S to help save that contestant. But if they fail to coordinate, and too many of the S supporters do this, then S is in danger of being eliminated.
This problem simply could not arise if American Idol instead asked audiences to vote out the contestant they want to see eliminated. Consider again the situation described above. Yes there will still be incentives to vote strategically, indeed any voting system will give rise to some kind of manipulation. But a strong favorite like S will be insulated from their effects. Here’s why. An honest voter votes for the contestants she likes least. A strategic voter might vote instead for her next-to-least favorite. She might do this if she thinks that voting out her least-favorite is a wasted vote because not enough other people will vote similarly. And she might do this if she thinks that one of her favorite contestants is a risk for elimination.
But no matter how she tries to manipulate the vote it will be shifting votes around for her lower-ranked contestants without undermining support for her favorite. Indeed it is a dominated strategy to vote against your favorite and so a heavily favored contestant like S could never be eliminated in a voting-out system as it can with the current voting-in system.
In most of the US there is “no-fault” divorce. Either party can petition for divorce without having to demonstrate to the court any reason to legitimize the petition. The divorce is usually granted even if the other party wants to remain married.
In England, you must prove to the judge that there is valid reason for the divorce, even if both parties want to separate. This is particularly problematic when only one party wants to separate but doesn’t have a valid reason for it. Then they must make the marriage sufficiently unpleasant for the spouse so that the spouse will a) want a divorce and b) have a verifiable good reason for it. For example:
One petition read: “The respondent insisted that his pet tarantula, Timmy, slept in a glass case next to the matrimonial bed,” even though his wife requested “that Timmy sleep elsewhere.”
or
The woman who sued for divorce because her husband insisted she dress in a Klingon costume and speak to him in Klingon. The man who declared that his wife had maliciously and repeatedly served him his least favorite dish, tuna casserole.
and most egregious of all
“The respondent husband repeatedly took charge of the remote television controller, endlessly flicking through channels and failing to stop at any channel requested by the petitioner,” one petition read.
Those examples and more here. Gat get Markus Mobius.
Josh Gans gives a handy benchmark model where the answer is no.
MODEL 1: Wholesale Pricing
Suppose that a book publisher charges a price of p to a retailer. Then, based on this, the retailer sets a price to consumers of P and earns (P – p)(a – P).
In this case, the retailer’s optimal price is:
P* = (a + p)/2
Given this, the publisher’s demand is Q = a – P* or Q = (a-p)/2. The publisher chooses p to maximize its profits of pQ which results in a price of p* = a/2. This implies that the final equilibrium price under the wholesale pricing model is:
P* = 3a/4
MODEL 2: Agency
Under an agency model, the publisher sets P directly while the retailer receives a share, s, of revenues generated. The publisher, thus, chooses P to maximize its profits of (1-s)PQ. This generates an optimal price of:
P* = a/2
Conclusion
Regardless of s, the price under the agency model is lower than the price under a wholesale pricing model. The reason is that the agency model avoids double marginalization. The comment here does not reflect other effects arising from ‘most favored customer’ clauses that can apply in both wholesale pricing and agency models and are discussed further in Gans (2012).
You are categorically opposed to some policy. She on the other hand is utilitarian and while she believes the policy is effective based on her current information she could be persuaded otherwise. You would like to persuade her if you could and in fact you have some information that might but it’s not guaranteed.
She opens the debate about the policy, states her arguments in favor and invites you to give any arguments against. But you are not interested in her information. You are categorically opposed to the policy and nothing would persuade you otherwise.
Moreover you are not even going to engage in the debate by trying to persuade her with your information. Because to do so would be to implicitly acknowledge that this is a debate that could be won by the side with the stronger argument. That entails the risk that she and any observer might judge her arguments to be stronger and take an even firmer position in favor.
You are better off shutting down that front of the debate and insisting that it must be decided as a matter of principle, not utilitarianism.
I heard this story on NPR yesterday.
At some point, you likely received a present from a prepaid gift card from the person who wasn’t exactly sure what you’d want. Residents of New Jersey may not be able to buy them for much longer. American Express has pulled its gift cards from the state, and other big industry players are threatening to do the same. They oppose a new law that would allow New Jersey to claim unused gift card balances after two years. NPR’s Joel Rose reports.
As you may know, huge sums of money are loaded onto gift cards that are never redeemed. The gift card “industry” leverages a wedge between your overly optimistic belief that you will not lose your gift card and the vendor’s knowledge that with quite high probability you will. Is it welfare improving to prevent the vendor from profiting from this wedge? Whatever welfare theory you are basing your conclusion on, it is not revealed preference, so what is it? (Never mind that it’s the greedy government essentially trying to capture the same wedge. Let’s assume for the sake of argument the unspent balance was automatically remitted to the purchaser of the card.)
Why doesn’t market competition already erode these profits? (“Try our gift cards instead. You will get any unpaid balance back, indeed with interest.”)
Related question. Peet’s coffee has shrunk the size of their gift cards so that they are even easier to lose. They do give you the choice whether you want a large gift card or a small one. Are they being nice?
This is a personal note for a friend. Read it when you get turned down for tenure.
I was an Assistant Professor at Northwestern, came up for tenure according to schedule and was denied. Fired. Canned. Sent packing. It sucked.
But actually it wasn’t so bad. First of all even if you never get tenure anywhere you have like the greatest job ever. I live in a neighborhood full of people who earn 10 times what I do and they are all 10 times less happy than me. I once asked an investment banker whose daughter is in my daughter’s class how much of his salary he would sacrifice for the non-pecuniary benefits of an academic (doing whatever interests you, freedom to set your own schedule, university culture) and the best estimate we could come up with is that being an investment banker sucks big time.
But you will get tenure somewhere. Some places will want to put you on a fresh, probably shortened clock, you could go for that. But the other option is to ride out your lame-duck year. Universities are civilized enough to give you over one year notice before you are out on your ass. All the papers that have been in journal review purgatory will finally get published in that year and in the next year you will probably have a tenured offer.
It does kinda suck though to be dead man walking for a whole year surrounded by your executioners.
But the joke is going to be on them once you get tenured because here’s a little secret that only you, I, and our chairmen know: when you are finally tenured you will be making more money than most of them. Here’s a simple model. Professor A is employed by Department B and Departments C and D are considering making A an offer. Whatever they offer, Department B is going to match it, and you with your lexicographic preference of money first, avoid-the-hassle-of-moving second, will stay at department B. Since it’s costly to recruit you and make you an offer and that won’t be accepted in equilibrium anyway, Departments C and D don’t bother, B has no offer to match, and A, despite his new higher rank continues to live in Assistant Professor poverty. On the other hand when A is exogenously separated from B, he has a credible commitment to take the highest offer from C or D.
Failure rules.
(I must caution you however. As with any rejection, at first you will not be able to shake the hope that your current department will eventually see the error of its ways and hire you back after one year with tenure, Full Professor even. Don’t get your hopes up. That never happens.)
Drawing: Part of Your World from http://www.f1me.net
People complain that American mainstream media are becoming more and more polarized. There is a tradition in American journalism that the journalist should be objective and report the facts without judgment. Opinion pieces and Editorials are relegated to the back pages.
Nowadays those standards are eroding. Fox News, MSNBC, and CNN have discernible biases but still pander to the idea that they provide objective journalism. Meanwhile there is the perception that this trend is degrading the quality of information.
From a narrow perspective that may be true. I learn less from Fox News if they selectively report information that confirms the preconceptions of their audience. But media bias makes the media as a group more informative, not less.
Suppose I have a vast array of media sources which are scattered across the left-right spectrum. When a policy is being debated I look at all of them and find the pivotal outlet: all those to the left of it are advocating the policy and all those to the right are opposed. Different policies will have different cutoff points, and that cutoff point gives me a very simple and informative statistic about the policy. If the range is more narrow or more sparsely distributed this statistic is simply less informative.
Another way of saying this is that there is social value from having advisors with extreme biases. When I am thinking about a policy that I am predisposed to like, I learn very little from an unbiased source but I learn a lot if a source with my bias is opposed to the policy or a source with the opposite bias is in favor of it. It must be especially good or bad for these extremists to go against bias.
Bicycle “sprints.” This is worth 6 minutes of your time.
Thanks to Josh Knox for the link.
This guy built an actual Turing machine.
My goal in building this project was to create a machine that embodied the classic look and feel of the machine presented in Turing’s paper. I wanted to build a machine that would be immediately recognizable as a Turing machine to someone familiar with Turing’s work.
The video is precious.
This is an absolutely fantastic article, I highly recommend it.
Most of the songs played on Top Forty radio are collaborations between producers like Stargate and “top line” writers like Ester Dean. The producers compose the chord progressions, program the beats, and arrange the “synths,” or computer-made instrumental sounds; the top-liners come up with primary melodies, lyrics, and the all-important hooks, the ear-friendly musical phrases that lock you into the song. “It’s not enough to have one hook anymore,” Jay Brown, the president of Roc Nation, and Dean’s manager, told me recently. “You’ve got to have a hook in the intro, a hook in the pre-chorus, a hook in the chorus, and a hook in the bridge.” The reason, he explained, is that “people on average give a song seven seconds on the radio before they change the channel, and you got to hook them.”
The article goes into great detail about the creative process. They are clearly master craftspeople. Once they have a hit, they find a star to give it to.
Rihanna is often described as a “manufactured” pop star, because she doesn’t write her songs, but neither did Sinatra or Elvis. She embodies a song in the way an actor inhabits a role—and no one expects the actor to write the script. In the rock era, when the album was the standard unit of recorded music, listeners had ten or eleven songs to get to know the artist, but in the singles-oriented business of today the artist has only three or four minutes to put her personality across. The song must drip with attitude and swagger, or “swag,” and nobody delivers that better than Rihanna, even if a good deal of the swag originates with Ester Dean.
You might think that a story like this will confirm your cynicism about pop music but in fact it will make you appreciate it much much more.
If you give them the chance, Northwestern PhD students will take a perfectly good game and turn it into a mad science experiment. First there was auction scrabble, now from the mind of Scott Ogawa we have the pari-mutuel NCAA bracket pool.
Here’s how it worked. Every game in the bracket was worth 1000 points. Those 1000 points will be shared among all of the participants who picked the winner of that game. These scores are added up for the entire bracket to determine the final standings. The winner is the person with the most points and he takes all the money wagered.
Intrigued, I entered the pool and submitted a bracket which picked every single underdog in every single game. Just to make a point.
Here’s the point. No matter how you score your NCAA pool you are going to create a game with the following property: assuming symmetric information and a large enough market, in equilibrium every possible bet will give exactly the same expected payoff. In other words an absurd bet like all underdogs will win is going to do just as well as any other, less absurd bet.
This is easy to see in simple example, like a horse race where pari-mutuel betting is most commonly used. Suppose A wins with twice the probability that B wins. This will attract bets on A until the number of bettors sharing in the purse when A wins is so large that B begins to be an attractive bet. In equilibrium there will be twice as much money in total bet on A as on B, equalizing the expected payoff from the two bets. One thing to keep in mind here is that the market must be large enough for these odds to equilibrate. (Without enough bettors the payoff on A may not be driven low enough to make B a viable bet.)
It’s a little more complicated though with a full 64 team tournament bracket. Because while each individual matchup has a pari-mutuel aspect, there is one key difference. If you want to have a horse in the second-round race, you need to pick a winner in the first round. So your incentive to pick a team in the first round must also take this into account. And indeed, the bet share in a first round game will not exactly offset the odds of winning as it would in a standalone horse race.
On top of that, you aren’t necessarily trying to maximize the expected number points. You just want to have the most points, and that’s a completely different incentive. Nevertheless the overall game has the equilibrium property mentioned above.
(Now keep in mind the assumptions of symmetric information and a large market. These are both likely to be violated in your office pool. But in Scott’s particular version of the game this only works in favor of betting longshots. First of all the people who enter basketball pools generally believe they have better information than they actually have so favorites are likely to be over-subscribed. Second, the scoring system heavily favors being the only one to pick the winner of a match which is possible in a small market. )
In fact, my bracket, 100% underdogs, Lehigh going all the way, finished just below the median in the pool. (Admittedly the market wasn’t nearly large enough for me to have been able to count on this. I benefited from an upset-laden first round.)
Proving that equilibrium of an NCAA bracket pool has this equilibrium property is a great prelim question.
Cheap Talk 