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There is a story in the Wall Street Journal about user ratings on web sites such as Amazon or eBay. It seems that raters are unduly generous with their stars.
One of the Web’s little secrets is that when consumers write online reviews, they tend to leave positive ratings: The average grade for things online is about 4.3 stars out of five.
And some users are fighting back:
That’s why Amazon reviewer Marc Schenker in Vancouver has become a Web-ratings vigilante. For the past several years, he has left nothing but one-star reviews for products. He has called men’s magazine Maxim a “bacchanalia of hedonism,” and described “The Diary of Anne Frank” as “very, very, very disappointing.”
I have noticed that Amazon reviewers are highly polarized with 5 stars being the most common with 1 star reiews coming in second. And in fact it makes a lot of sense. Say you think that a product is over-rated at 4.3 stars and you think that 4 stars is more appropriate. If there are more than just a few ratings, then to bring the average down to 4 you would have to give the lowest possible rating.
Once enough ratings have already been counted, subsequent raters will be effectively engaging in a tug of war. Those that want to raise the average will give 5 stars and those that want to reduce it will give 1.
I have read and heard anecdotal evidence that litigation in the United States is countercyclical. Usually this is cynically explained by saying that when times are tough everybody is looking to make an extra buck. But of course everybody is looking to make an extra buck when times are good too.
All of business activity relies on relationships that are partially supported by contracts and partially supported by trust. Trust fills in the gaps of incomplete contracts. When the contract is not followed to the letter, your interest in maintaining a healthy relationship smooths things over.
Bad times raise uncertainty about whether there are any gains left from this relationship in the future. This undermines trust and the result is that the courts are called in to fill the gaps.
There are a couple of natural ways to test this theory. First the countercyclical nature of litigation should vary across sectors. Thick markets with relatively anonymous actors should see less impact of economic downturns on the rate of litigation. Also, the effect outlined above is based on the assumption that contracts are written in good times and litigated in bad times. If the downturn is expected to last, then new contracts should tend to be more complete, taking into account the increased appetite for litigation. The result should be less litigation in longer downturns than in shorter ones.
I thank Rosemary for the conversation.
I have a simple system for organizing recipes. I try out recipes I find in cookbooks, blogs, magazines, whatever. When one hits I do the following.
- Take a picture of it.
- Write down a list of the ingredients I wouldn’t typically have stocked.
- Email the above plus a link to the recipe (or what page in what cookbook) to myself.
Because the time you really need recipes is when you are shopping and you see, say some really good looking okra and you need to know what else to get. You pull out your iPhone, you search for okra in your mail folders, you get a picture and a list of ingredients. You go home and cook.
The picture is absolutely key. Think of your cookbooks at home. Which recipes do you most often cook? Its the ones with the beautiful photos in the middle of the book. The photo reminds you how yummy its going to be. Wouldn’t you love to cook this tonight?
Remember the browser wars? Resistance to open web standards, and “best viewed in Internet Explorer.” Remember “polluted java?” Here are paragraphs that caught my eye from ars technica’s overview of Google Wave.
In September, Google released Chrome Frame, a plugin for Internet Explorer that makes it possible for Microsoft’s browser to use Chrome’s rendering engine. Microsoft was not happy about this sudden but inevitable betrayal. Google later revealed that Wave was one of the catalysts that compelled them to launch the Chrome Frame project.
The developers behind the Wave project struggled to make Wave work properly in Microsoft’s browsers, but eventually determined that the effort was futile. Internet Explorer’s mediocre JavaScript engine and lack of support for emerging standards simply made the browser impossible to accommodate. In order to use Wave, Internet Explorer users will need to install Chrome Frame.
While we are on the subject I highly recommend the ars technica piece on Google Wave. In addition to lots of detail on the technology and implementation, it talks about Google’s commitment to open standards, open source, and decentralization. I came away less worried.
I have not been invited yet to try the beta.
Via kottke, here is a paper proposing A Unified Theory of Superman’s Powers. The abstract reads as follows.
Since Time immemorial, man has sought to explain the powers of Kal-El, a.k.a. Superman. Siegel et al. Supposed that His mighty strength stems from His origin on another planet whose density and as a result, gravity, was much higher than our own. Natural selection on the planet of krypton would therefore endow Kal El with more efficient muscles and higher bone density; explaining, to first order, Superman’s extraordinary powers. Though concise, this theory has proved inaccurate. It is now clear that Superman is actually flying rather than just jumping really high; and His freeze-breath, x-ray vision, and heat vision also have no account in Seigel’s theory.
In this paper we propose a new unfied theory for the source of Superman’s powers; that is to say, all of Superman’s extraordinary powers are manifestation of one supernatural ability, rather than a host. It is our opinion that all of Superman’s recognized powers can be unified if His power is the ability to manipulate, from atomic to kilometer length scales, the inertia of His own and any matter with which He is in contact.
The paper goes on to show how the theory can explain Superman’s super strength, ability to fly, super senses, and even his heat vision and freeze breath. It’s an elegant theory but the analysis has one significant gap. It is not enough to find a simple principle from which all of Superman’s powers follow. It is necessary to also show that the principle would not imply powers that Superman does not have.
If we do not insist on the latter, then there is an even simpler theory that does the trick: Superman can do everything. (Although that comes with its own difficulties.)
Steve Levitt links to his paper with Sudhir Venkatesh documenting some stylized facts about street prostitution in Chicago. It’s definitely worth a read, and one part is fodder for theory:
Prostitutes in their sample report using condoms 90 percent of the time, compared to only 25 percent in our sample for vaginal sex, and 21 percent for anal sex. Among their Mexican prostitutes, condom use is the default from which customers must bargain away, potentially inducing large increases in prices. In contrast, in our sample no condom appears to be the default choice, perhaps making it harder for the prostitute to credibly argue for a higher price if no condom is used. Moreover, in an equilibrium in which condom use is infrequent, infection rates among prostitutes are likely to be extremely high, so that the primary value of condoms to women may be protecting the women from becoming pregnant and hygiene, rather than the spread of disease. Indeed, one would expect that the johns would likely gain more in disease reduction from condoms than the prostitutes.
SOME DISCUSSION OF HOW CONDOM USE VARIES ACROSS PROSTITUTES IN OUR SAMPLE. SOME QUOTES ABOUT WHY THEY DON’T USE THEM. SOME FACTS ABOUT AIDS RATES AMONG JOHNS AND PROSTITUTES FROM MEDICAL LITERATURE.
(hmmm, it appears they are not quite done with the paper 🙂 ) They focus on the cost to the prostitute due to increased infection and the like, but there is already some unusual aspects to the demand side.
A John values unprotected sex over protected sex but even moreso if he is the only John, or among very few, who get that privelege. Holding fixed her frequency of unprotected sex, there is a downward sloping demand for unprotected sex as a function of the price premium over condom-clad. But that frequency is not verifiable, except insofar as it can be inferred from the price. Thus, as an equilibrium response the demand curve itself shifts with adjustments to the price.
This means that the prostitute cannot just choose any price. The price must be such that x% of Johns are willing to pay that price when they assume that x% of other Johns are having unprotected sex. Typically there will be just a few values of x that satisfy this fixed-point relationship.
So a cross-section of pricing patterns will exhibit a bang-bang (quiet down Beavis) or bi-modal (Beavis!) histogram with high prices and low prices and none in-between. The high prices correspond to the equlibria in which few Johns have unprotected sex so Johns are willing to pay a lot, and the low prices correspond to the equilibria in which many Johns have unprotected sex and Johns place lower value on it.
It could even happen that the price premium is for protected sex. In fact it could even be profit maximizing to distort downward the price of unprotected sex in order to signal how risky that would be, enabling the prostitute to raise the price of protected sex.
Read about it in the Wall Street Journal.
Many of his papers have been highly theoretical works focusing on imperfections in financial markets. “He’s probably the most abstract thinker ever to head a Federal Reserve bank,” said Robert Lucas, a Nobel Prize-winning economist who is serving as a consultant to the Minneapolis Fed.
Mr. Kocherlakota’s colleagues say he is a pragmatic person who is hard to identify fully with any one camp.
“He believes in the freshwater world, but he’s not that radical,” says Luigi Pistaferri, a frequent co-author with whom Mr. Kocherlakota worked for three years at Stanford University. “He agrees that there are market failures, and his attitude is, ‘How do we make the best of a world in which there are such failures?’ “
I once took Narayana to see The Bad Plus in Minneapolis on a visit there. Narayana is Canadian I believe and that night they busted out Tom Sawyer. I don’t think he was all that into it.
I assume this means we will need a new macro co-editor at Theoretical Economics. Volunteers?
Many Senators who support health care reform have made public commitments not to vote for any bill without a public option. Such pronouncements are not cheap talk. The pledge can be broken of course but constituents and fellow legislators will hold to account a Senator who breaks it.
And they can be relevant. A commitment not to vote for the Baucus bill raises the costs of proposing that bill because the pledged Senator would have to be compensated for breaking his pledge if he is going to be brought on board. In a simple bargaining game, the pledge will be made if and only if the cost of breaking the pledge is higher than the proposer is willing to pay. In this case the Baucus bill would not be proposed.
But legislative bargaining is not so simple. Each Senator has only one vote. A Senator who commits not to vote for the Baucus bill effectively moves the median voter (for that bill) one Senator to the right. This changes things in three ways by comparison to simple bargaining.
- The committed Senator will not be the median voter and so he will not be part of the bargaining.
- There is presumably a relatively small gap between the old median and the new so the costs imposed by the pre-commitment are much smaller.
- In the event that the gambit fails and the Baucus bill is proposed, it will be a worse bill from the perspective of the gambiteer (it will be farther to the right.)
This means that the commitment is a much less attractive strategy in the legislative setting and it loses much of its relevance. That is, those who are making this commitment would probably not have been willing to vote for the Baucus bill even without any pledge.
abdominal pain, anorexia or/and weight loss, attention difficulties, burning or/and flushing, chest discomfort, chills, diarrhea, dizziness, dry mouth, dyspepsia, fatigue, heaviness, injection side reaction, insomnia, language difficulties, memory difficulties, nasal signs and symptoms, nausea, numbness, paresthesia or/and tingling, pharyngitis, somnolence or/and drowsiness, stinging or/and pressure sensation, taste disturbance, tinnitus, upper respiratory tract infection, vomiting, weakness
Most interestingly, the side effects of a sugar pill depend on what illness it is “treating.” And they resemble the side effects of the active medicine the placebo is standing in for. Mindhacks offers the most likely explanation.
One explanation may be that before taking part in a clinical trial, patients are informed of the possible side-effects that the active drug may cause, regardless of whether they are going to be given placebo or the actual medication.
Another is that getting better by itself has side effects. The theory would be that the body adjusts to the illness in certain ways and recovery is followed by undoing those adjustments, the physiological effects of which appear to be side-effects of the medicine.
Iceland is seeing a small baby boom.
The Icelandic press buzzed with the good news. One article quoted a midwife in the town of Húsavik who noted a bump in births in June and July — an auspicious nine months after the worst of Iceland’s meltdown. Wrote blogger Alda Sigmundsdóttir: “I think many, many of us must have sought solace in love and sex and all that good stuff.”
Italians too, and condom sales were brisk at the low point of the recession in the US. But historical pattern has been procyclical procreation*
“total fertility” — roughly, the average number of children per woman during her childbearing years — was 2.53 in 1929 and had slid to 2.15 by 1936. Then came the baby boom of postwar prosperity: The birth rate crossed 3 in 1947 and remained above that threshold until the mid-1960s. The next trough, 1.74, came in 1976 — a year earlier, unemployment had hit a postwar peak of 8.5%.
The article is in the Wall Street Journal.
__________
*The pun involving “hump” is an exercise left to the reader.
Should punishment depreciate as time passes? As usual the answer probably depends on whether you think of punishment as justice or as a mechanism to internalize externalities.
I can see how the demands of justice could be reduced and even expire after many years pass. One view is that identity evolves and eventually the accused is a different person from the criminal of the past and justice is not served by punishing someone who is effectively a third party.
On the other hand, if the purpose is to deter crime then the passage of time should arguably increase the punishment. What matters is the perceived cost of the act evaluated at the time of acting. A fixed penalty (possibly) deferred far in the future imposes a smaller cost. To compensate for the discounting, the size of the penalty must be larger when it begins later. Its tempting to say that because the time for acting has already passed there is no retroactive incentive effect from extending the punishment. But this logic would undermine all penalties after the fact. Indeed, the incentive theory of punishment relies on prosecutors holding to their commitments presumably because of reputational concerns.
Working against this is the incentive effect on prosecutors. One reading of a statute of limitations is that it compels prosecutors to make reasonably prompt decisions to bring charges. We can model this by supposing there is a flow cost of maintaining a defense: keeping track of the whereabouts of witnesses, preserving documents, coordinating the memories of all involved. The freedom to delay induces prosecutors to optimally impose costs on the innocent in order to maximize chances of conviction.
Presumably the latter is less of a concern when the criminal has already confessed.
Mindhacks discusses a surprising asymmetry. Journalists discussing sampling error almost always emphasize the possibility that the variable in question has been under-estimated.
For any individual study you can validly say that you think the estimate is too low, or indeed, too high, and give reasons for that… But when we look at reporting as a whole, it almost always says the condition is likely to be much more common than the estimate.
For example, have a look at the results of this Google search:
“the true number may be higher” 20,300 hits
“the true number may be lower” 3 hits
There are two parts to this. First, the reporter is trying to sell her story. So she is going to emphasize the direction of error that makes for the most interesting story. But that by itself doesn’t explain the asymmetry.
Let’s say we are talking about stories that report “condition X occurs Y% of the time.” There is always an equivalent way to say the same thing: “condition Z occurs (100-Y)% of the time” (Z is the negation of X.) If the selling point of the story is that X is more common than you might have thought, then the author could just as well say “The true frequency of Z may be lower” than the estimate.
So the big puzzle is why stories are always framed in one of two completely equivalent ways. I assume that a large part of this is
- News is usually about rare things/events.
- If you are writing about X and X is rare, then you make the story more interesting by pointing out that X might be less rare than the reader thought.
- It is more natural to frame a story about the rareness of X by saying “X is rare, but less rare than you think” rather than “the lack of X is common, but less common than you think.”
But the more I think about symmetry the less convinced I am by this argument. Anyway I am still amazed at the numbers from the google searches.
The most important development in the way we interact on the web will come when a system of micropayments is in place. The big difficulties are coordination problems and security. The strongest incentive to build and control a massive social network is that it will enable Facebook to host a micropayments economy within its closed environment, solving both the coordination problem and a big part of the security problem.
Here’s the future of Facebook. You will subscribe to your friends. A subscription costs you a flow of micropayments. Your friends will include the likes of Tyler Cowen, The Wall Street Journal, gmail, Jay-Z, Harry Potter and the Deathly Hallows, etc.
Remember that the next time you hear somebody say that there is no way to monetize Facebook or Twitter.
Wired reports that the Soviet Union actually had a doomsday device and kept it a secret.
“The whole point of the doomsday machine is lost if you keep it a secret!” cries Dr. Strangelove. “Why didn’t you tell the world?” After all, such a device works as a deterrent only if the enemy is aware of its existence. In the movie, the Soviet ambassador can only lamely respond, “It was to be announced at the party congress on Monday.”
So why was the US not informed about Perimeter? Kremlinologists have long noted the Soviet military’s extreme penchant for secrecy, but surely that couldn’t fully explain what appears to be a self-defeating strategic error of extraordinary magnitude.
The silence can be attributed partly to fears that the US would figure out how to disable the system. But the principal reason is more complicated and surprising. According to both Yarynich and Zheleznyakov, Perimeter was never meant as a traditional doomsday machine. The Soviets had taken game theory one step further than Kubrick, Szilard, and everyone else: They built a system to deter themselves.
By guaranteeing that Moscow could hit back, Perimeter was actually designed to keep an overeager Soviet military or civilian leader from launching prematurely during a crisis. The point, Zheleznyakov says, was “to cool down all these hotheads and extremists. No matter what was going to happen, there still would be revenge. Those who attack us will be punished.”
The logic is a tad fishy. But it is not obvious that you should reveal a doomsday device if you have one. It is impossible to prove that you have one so if it really had a deterrent effect you would announce you have one even if you don’t. So it can’t have a deterrent effect. And therefore you will always turn it off.
What you should worry about is announcing you have a doomsday device to an enemy who previously was not aware that there was such a thing. It still won’t have any deterrent effect but it will surely escalate the conflict. (via free exchange via Mallesh Pai.)
Put aside the question of why customers give tips. That’s certainly a huge mystery but the fact is that many diners give tips and the level of tip depends on the quality of service.
In this article (via foodwire), a restauranteur explains why he decided against a switch to the European system of a fixed service charge.
We looked very hard at this [servis compris] policy fifteen years ago. We were going to call it “hospitality included.” We felt people who worked in the dining room were apologizing for being hospitality professional. I felt there was a resulting shame or lack of pride in their work. My assumption was that it was fueled by the tipping system, and I was troubled by the sense that the that tipping system takes a big part of the compensation decision out of the employer’s hands. So we brought up the “hospitality included” idea to our people. To our surprise, it turned out the staff actually enjoyed working for tips.
The tipping system encourages servers to put more weight on the diner’s welfare than the restauranteur would like, at least at the margin. You can think of the waiter as selling you extra bread, more wine in your glass, and more attention at the expense of less generous (-looking) diners. The restauranteur incurs the cost but the server earns the tip.
On the other hand, a fixed service charge provides too little incentive to take care of the customers. You can think of a tipping system as outsourcing to the diner the job of monitoring the server.
(I once had a conversation on this topic with Toomas Hinnosaar and I am probably unconsciously plagiarising him.)
We talked a lot before about designing a scoring system for sports like tennis. There is some non-fanciful economics based on such questions. Suppose you have two candidates for promotion and you want to promote the candidate who is most talented. You can observe their output but output is a noisy signal that depends not just on talent, but also effort both of which you cannot observe directly. (Think of them as associates in a law firm. You see how much they bill but you cannot disentangle hard work from talent. You must promote one to partner where hard work matters less and talent matters more.)
How do you decide whom to promote? The question is the same as how to design a scoring system in tennis to maximize the probability that the winner is the one who is most talented.
One aspect of the optimal contest seems clear. You should let them set the rules. If a candidate knows he has high ability he should be given the option to offer a handicap to his rival. Only a truly talented candidate would be willing to offer a handicap. So if you see that candidate A is willing to offer a higher handicap than candidate B, then you should reward A.
The rub is that you have to reward A, but give B a handicap. Is it possible to do both?
The centerpiece of Greg Mankiw’s column in the New York Times is this paragraph about the little white pill he takes every day:
Not long ago, I read that a physician estimated that statins cost $150,000 for each year of life saved. That approximate figure reflects not only the dollars patients and insurance companies spend on the treatment but also — and just as important — an estimate of how effective it is in prolonging life. (That number is for men. Women have a lower risk of heart disease.)
Mankiw used the word cost but I would be that what he is referring to is price. With monopolized drugs and dysfunctional health care insurance there is a huge difference between price and cost. And with this in mind, Mankiw’s column completely misses the real economic problem exemplified by his pills.
That seems to be the thesis of this paper by neurobiologist Jerome Siegel:
Sleep can be seen as an adaptive state that benefits animals by increasing the efficiency of their activity. It does this by suppressing activity at times that have maximal predator risk and minimal opportunity for efficiently meeting vital needs, and by permitting activity at times of maximal food and prey availability and minimal predator risk.
I read this as arguing that if an animal is not sleeping it will do things that are not in its interest. So sleep stops it from doing those things. Of course natural selection could instead have simply taught the animal not to do what’s against its self interest but instead, under this theory, sleep acts like a commitment device to blunt a self-control problem.
Via neuroskeptic.
Start when he is 13 months old:
(sorry for the low quality. two years ago = ancient technology.) Yes at that age a child can be taught to float. In fact almost no teaching is required. You place the child on his back, he floats. He cries too, it turns out. A lot. That’s why its not me there teaching him to float. Instead it is a highly trained swimming teacher and one of the most inspirational people I have ever known. That year was our kids’ first year of swimming lessons with him and we have been spending the summer in La Jolla, CA every year since primarily because of him and these swimming lessons. 10 minute lessons, daily for four weeks.
Here is what he learned last year when he was 2. (rss readers probably need to click through to the blog to see the video.)
A 2 year, 2month old child can learn to kick with his face in the water, roll over onto his back when he needs to breathe, and then continue on. And at this early age he learns something which is subtle but which is central to swimming at every level: looking at the floor to point the top of your head in the direction you are swimming and getting a breath by rotating on that axis. The hardest thing to teach the child is not to look where he is going. Looking where you are going means tilting your head up and that pushes your body down and makes you sink. For a two-year-old that is a deal-breaker, but even among adults head orientation is what distinguishes good swimmers from the best swimmers.
Here is how you teach a two-year-old to look at the floor.
Many repetitions of placing the child in the water, putting your hand deep under water and tell him to swim and grab the hand. He has to look down to find your hand. The typical swimming teacher hold out his hands near the surface of the water which instead trains the child to look up, a disaster. This tiny difference has an enourmous impact on how smoothly the child can learn to swim.
It also teaches the child to go slow. Another subtlety with swimming is that moving your arms and legs faster usually makes you go slower. Slowing down all of the movements teaches him how to move more efficiently through the water.
This summer, at age 3 years 2 months he reached the stage where he could swim by himself without an adult in the pool with him, keeping himself going with the swim-float-swim sequence. Then he began to learn to swim with his arms.
Next summer: how to tech a four-year-old to snorkel.
- The unbundled economy.
- Not a placebo.
- A man’s salute to Patrick Swayze. (consider yourself warned.)
We all work for google now. Previous posts on reCAPTCHA here and here. beanie bow: lance fortnow.
I wrote
If I am of average ability then the things I see people say and do should, on average, be within my capabilities. But most of the things I see people say and do are far beyond my capabilities. Therefore I am below average.
I am illustrating a fallacy of course, but it is one that I suspect is very common because it follows immediately from a fallacy that is known to be common. People don’t take into account selection effects. The people who get your attention are not average people. Who they are and what they say and do are subject to selection at many levels. First of all they were able to get your attention. Second, they are doing what they are best at which is typically not what you are best at. Also, they are almost always imitating or echoing somebody else who is even more talented and specialized so as to have gotten their attention.
Its healthy to recognize that you can be the world leader at being you even if you suck at everything else.
WordPress give statistics on keyword searches that led users to Cheap Talk. I am amused and intrigued by many of the leaders:
#1 cheap talk
#2 tv
?? About 20 times a day somebody googles tv, they are offered up a link to our blog and they click through. The clicking through part I can understand but why a search on tv hits us is beyond me (when I try it I go through several pages of google hits and do not find a cheap talk link.) And who googles “tv” ?
#8 hefty smurf
That one is my favorite. I get a daily chuckle out of that one.
#9 flatfish
~#20 Wynne Godley
~#30 talking robots
~#33 model men
nice!
~#50 men and their mothers
oops.
~#60 Guinness serving temperature
I am pleased to be the go-to authority on the proper serving temperature of this important beverage.
If I am of average ability then the things I see people say and do should, on average, be within my capabilities. But most of the things I see people say and do are far beyond my capabilities. Therefore I am below average.
Let’s say you read a big book about recycling because you want to make an informed decision about whether it really makes sense to recycle. The book is loaded with facts: some pro, some con. You read it all, weigh the pluses and minuses and come away strongly convinced that recycling is a good thing.
But you are human and you can only remember so many facts. You are also a good manager so you optimally allow yourself to forget all of the facts and just remember the bottom line that you were quite convinced that you should recycle.
This is a stylized version of how we set personal policies. We have experiences, collect data, engage in debate and then come to conclusions. We remember the conclusions but not always the reasons. In most cases this is perfectly rational. The details matter only insofar as they lead us to the conclusions so as long as we remember the conclusions, we can forget about the reasons.
It has consequences however. How do you incorporate new arguments? When your spouse presents arguments against recycling, the only response you have available is “yes, that’s true but still I know recycling is the right thing to do.” And you are not just being stubborn. You are optimally responding to your limited memory of the reasons you considered carefully in the past.
In fact, we are probably built with a heuristic that hard-wires this optimal memory management. Call it cognitive-dissonance, confirmatory-bias, whatever. It is an optimal response to memory constraints to set policies and then stubbornly stick to them.
China is threatening to cut off imports of American chicken, but poultry experts have at least one reason to suspect it may be an empty threat: Many Chinese consumers would miss the scrumptious chicken feet they get from this country.
“We have these jumbo, juicy paws the Chinese really love,” said Paul W. Aho, a poultry economist and consultant, “so I don’t think they are going to cut us off.”
The story is in the New York Times.
Cheap Talk 