Friday Special 30

Multicolored: Build your own flag such as the United States of China

Kitchen and style tips from the Bible (hilarious!)

Now, that's an office!

StaTetris is mixing aspects of the popular game 'Tetris' and US. geography

Various objects in an experimental environment

by mendoza | Friday, November 30, 2007
  , , | 1 comments | | Friday Special 30 @bluematterblogtwitter

No visitors from Wyoming! Would you like to help?

This blog has had visitors from every single State in the United States (including Alaska and Hawaii) - except from Wyoming!

Would you like to give me a helping hand here? If you know someone living in Wyoming, email them with a link to this blog or a specific post. If you are a blogger that can spare a couple of lines, post a link to this blog simply saying 'If you are from Wyoming, click here'.

This is a little experiment. I am curious to see how long it will take for the first visitor from Wyoming to arrive following this plea, and then observe the dynamics and report back to you. How far can Wyoming climb in the States' visitors rankings?

Your help is greatly appreciated!

UPDATE: Mission accomplished! Thanks Tim, thanks to all who sent out those emails and thanks to the Wyomingites who dropped by.

It doesn't get geekier than that

You all of course know about Erdős numbers. You might even be familiar with Bacon numbers.

But Erdős–Bacon numbers? This takes it to a completely different level. There are 23 people for whom the number is defined, including such luminaries as Bertrand Russell, Stephen Hawking, Richard Feynman, Carl Sagan and Natalie Portman.

I wonder if one of those will ever be up for sale...

by datacharmer | Wednesday, November 28, 2007
  , , | 0 comments | | It doesn't get geekier than that @bluematterblogtwitter


Zimbabwe's chief statistician has said it is impossible to work out the country's latest inflation rate because of the lack of goods in shops. "There are too many data gaps," the Central Statistical Office's Moffat Nyoni told state media. Many staple goods are often absent from shop shelves after the government ordered prices to be halved or frozen in a bid to stem galloping inflation.

September's inflation rate was put at almost 8,000%, the world's highest. Other reports suggest the rate could be at near 15,000% and the International Monetary Fund had warned it could reach 100,000% by the end of the year. [...]

Maize meal, bread, meat, cooking oil, sugar and other basic goods used to measure inflation largely disappeared from shops after Robert Mugabe's government ordered prices to be slashed.

Manufacturers have said they cannot afford to sell goods at below the cost of producing them. Most basics are intermittently available on the black market at well over the official prices.

Last month, the central bank offered loans, known as Bacossis, to businesses at 25% interest to restore supplies to shops, AP news agency reports. "We hope the situation will improve, especially with the availing of Bacossi funds," Mr Nyoni said.

From BBC News. Given the inflation rate, a loan at 25% interest is free money - but make sure you spend it fast! And sadly for Zimbabwe, even free money won't change the fact it doesn't make sense to sell below cost...

How low is low enough for regime change?

by datacharmer | Wednesday, November 28, 2007
  | 0 comments | | Mugabonomics @bluematterblogtwitter

2008 Election Top Donors

Open Secrets has the full list.

The numbers are based on contributions from PACs and individuals giving $200 or more to federal candidates and parties as reported to the Federal Election Commission. All the numbers are for the 2008 election cycle and are based on data released by the FEC on Monday, September 24, 2007. Source: Center for Responsive Politics.

by datacharmer | Wednesday, November 28, 2007
  | 0 comments | | 2008 Election Top Donors @bluematterblogtwitter

What's in a name?

Andrew Gelman quotes this paper (free access) by Leif Nelson and Joseph Simmons:

In five studies, we found that people like their names enough to unconsciously pursue consciously avoided outcomes that resemble their names. Baseball players avoid strikeouts, but players whose names begin with the strikeout-signifying letter K strike out more than others (Study 1). All students want As, but students whose names begin with letters associated with poorer performance (C and D) achieve lower grade point averages (GPAs) than do students whose names begin with A and B (Study 2), especially if they like their initials (Study 3). Because lower GPAs lead to lesser graduate schools, students whose names begin with the letters C and D attend lower-ranked law schools than students whose names begin with A and B (Study 4). Finally, in an experimental study, we manipulated congruence between participants’ initials and the labels of prizes and found that participants solve fewer anagrams when a consolation prize shares their first initial than when it does not (Study 5). These findings provide striking evidence that unconsciously desiring negative name-resembling performance outcomes can insidiously undermine the more conscious pursuit of positive outcomes.

The explanation? (Keep in mind this is a paper published in Psychological Science)

People like their names and initials (Nuttin, 1987). In fact, this name-letter effect (NLE) is influential enough to encourage the pursuit of name-resembling life outcomes and partners. [...]

Do people consciously or unconsciously pursue name-resembling outcomes? Do a few people named Jack deliberately move to Jacksonville for its Jack-resembling appeal, or are they driven by an unconscious desire? Researchers have certainly argued that the latter is true. The NLE is described as an indicator of implicit egotism (e.g., Koole, Dijksterhuis, & van Knippenberg, 2001; Jones et al., 2004; Pelham, Carvallo, & Jones, 2005; Pelham et al., 2002; Sherman & Kim, 2005), as own-name liking is thought to indicate unconscious self-liking.

I'm not convinced. To refer back to one of the quoted studies, how about students whose surnames start with 'F'? Shouldn't they be performing much worse than the C's and D's?

Two potential explanations here:

1. Omitted variable bias. For example, say that names that start with C or D are way less frequent in the population of Asian students compared to Anglo-Saxon surnames. Further, assume that Asians are discriminated against when it comes to college admission, perhaps due to uncertainty about the quality of the schools they attend. That way, the average Asian in college will be a better student than the average Anglo-Saxon, and he will also be less likely to have a name that starts with C or D.

2. There are an infinite number of hypotheses, and a finite but very large number of original datasets. In other words, datamining - or if we want to be somewhat less harsh on the researcher, pure luck.

And talking of names, here's Levitt and Dubner approaching the issue from a completely different angle.

by datacharmer | Wednesday, November 28, 2007
  , , | 0 comments | | What's in a name? @bluematterblogtwitter

Unions and inequality redux

Paul Krugman says (via Mark Thoma):

All of the world's advanced nations have to compete in the same global economy. Yet America's combination, of soaring incomes at the top and stagnant wages for most workers, is unique.

We're told that unions, once a key support for wages, have become obsolete in the modern world. Yet the collapse of the union movement in America hasn't been matched elsewhere in the advanced world, even in our neighbor Canada. About 30 percent of Canadian workers are union members, compared with only 12 percent of workers here.

Back in June, I said: (and there's more where this came from)

Many economists suggest that the declining fortunes of unions are the main driver behind the increase in income inequality over the past few decades. While I agree that decreases in union membership and increases in wage inequality go hand-in-hand, I believe the standard narrative is somewhat misguided when it comes to causality. Rather than declining unions leading to increased wage inequality, it is the increasing variance of individual worker productivity that lies behind both. [...]

The fall in the power of unions was not a random event that then led to the increase in wage inequality we observe. This development should be attributed to the changing nature of production and the subsequent increase in potential wage inequality: unions were merely a short-run obstacle to achieving that new equilibrium.

I'm not aware of any empirical study looking into this potential endogeneity, and no suitable instruments spring to mind. In any case, Herb Gintis, approaching this from a somewhat different angle, seems to agree.

And if you do follow this last link, for the record, I think the bonobos will not only survive, but they will prosper too. What keeps the pig coalition together is not a love for free markets or opposition to redistribution, it is common social values (anti-abortion, pro-Jesus and the like - so much for 'only caring about what's in their trough'). The bonobos will eventually compromise on these - a process already underway - and the redistributive hand of the state will start moving more boldly once again.

by datacharmer | Tuesday, November 27, 2007
  , | 1 comments | | Unions and inequality redux @bluematterblogtwitter

The Greeks are introduced to the potato

This is the story of an upward slopping demand curve in the absence of information, and one of my favourite anecdotes from childhood:

Ioannis Kapodistrias (in Greek Ιωάννης Καποδίστριας, in Italian Giovanni Capo d'Istria, Conte Capo d'Istria) (February 11, 1776 – October 9, 1831) was a Greek diplomat of the Russian Empire and later first head of state of independent Greece.

On his arrival [to Greece], Kapodistrias launched a major reform and modernisation programme that covered all areas. He re-established military unity, bringing an end to the second phase of the civil war; re-organised the military, which was then able to reconquer territory lost to the Ottoman military during the civil wars; introduced the first modern quarantine system in Greece, which brought epidemics like typhoid fever, cholera and dysentery under control for the first time since the start of the War of Independence; negotiated with the Great Powers and the Ottoman Empire the borders and the degree of independence of the Greek state and signed the peace treaty that ended the War of Independence with the Ottomans; introduced the phoenix, the first modern Greek currency; organised local administration; and, in an effort to raise the living standards of the population, introduced the cultivation of the potato into Greece.

The way Kapodistrias introduced the cultivation of the potato remains famously anecdotal today. Having ordered a shipment of potatoes, at first he ordered that they should be offered to anyone who would be interested. However the potatoes were met with indifference by the population and the whole scheme seemed to be failing. Therefore Kapodistrias, knowing of the contemporary Greek attitudes, ordered that the whole shipment of potatoes be unloaded in public display on the docks of Nafplion, and placed severe-looking guards guarding it. Soon, rumours circulated that for the potatoes to be so well guarded they had to be of great importance. People would gather to look at the so-important potatoes and soon some tried to steal them. The guards had been ordered in advance to turn a blind eye to such behaviour, and soon the potatoes had all been "stolen" and Kapodistrias's plan to introduce them to Greece had succeeded.

The 7 wonders of the totalitarian world

Esquire has an interesting list of monuments to megalomania (via Peter Klein). Make sure you check out this abomination from North Korea, easily the ugliest thing I've seen in my entire life.

(but if you a relatively new Bluematter. reader you should also see this video from Arirang in North Korea, a truly daunting exhibition.)

Asset pricing

Via the Big Picture.

by datacharmer | Sunday, November 25, 2007
  , , | 0 comments | | Asset pricing @bluematterblogtwitter

One two three four

A little something to cheer you up :)

[embedded video]

UPDATE: Youtube removed the video, but found it again.

by datacharmer | Sunday, November 25, 2007
  , | 0 comments | | One two three four @bluematterblogtwitter

Sex of a child may depend on stress

From the Economist (November 15, 2007)

A Boy or a girl? That is usually the first question asked when a woman gives birth. Remarkably, the answer varies with where the mother lives. In rich countries the chances of its being a boy are about 5% higher than in poor ones.

Strange as it might seem, the terrorist attacks of September 11th 2001 shed light on the enigma. Studies noting the sex of babies conceived in New York during the week of the attacks found a drop in the ratio of males to females. That is consistent with earlier studies, which revealed a similar shift in women who became pregnant during floods and earthquakes and in time of war.

Dr Obel suspects the immediate cause is that male pregnancies are more likely to miscarry in response to stress than female pregnancies are, especially during the first three months.

While there are many factors that could potentially influence the gender of a child, the most accurate tool may after all be the ancient Chinese birth chart.

Paul Krugman explains why I can't stand political reporting

Think about what passes for a “tough” question on the Sunday talk shows. It’s not “Senator Bomfog — you say X, but the statistics show that it’s actually Y. How can you explain this discrepancy?” In fact, I’ve never seen that happen. In political reporting, being wrong means, at most, that your claims are “in dispute.”

The excerpt is from his NYT blog, via Economist's view.

Paul is spot on. For some reason (misguided notions of unbiasedness? journalists and politicians that don't know their left hand from their right?) bringing reality to a political discussion is bad manners. Everyone is entitled to their own preferences and opinions, and their own facts too.

Friday Special 29

iPhone heads this year's best inventions

Nice places to relax: Houses with a view

The world's first laptop

What to do with a big apartment, a lot of time and great imagination

Change your car colour with the flip of a switch

by mendoza | Friday, November 23, 2007
  , , | 0 comments | | Friday Special 29 @bluematterblogtwitter

Happy thanksgiving!

Bluematter readers loyal and occasional, thank you ever so much. You deserve all this and more. (Make sure the sound's on!)

by datacharmer | Thursday, November 22, 2007
  | 1 comments | | Happy thanksgiving! @bluematterblogtwitter

Thank me for smoking, and keep the change

The always interesting Zubin Jelveh interviews W. Kip Viscusi:

What are the differences between smokers' cost to themselves and smokers' cost to society?

The other study I've done is looking at the financial ramifications to smoking for the rest of us. These include higher medical costs on the one hand, but lower social security, pension, and nursing home costs on the other hand because smokers die sooner. On balance if you put those together, smokers don't cost us money, but save society $0.32 per pack.

I kinda object to not being counted as part of 'society' - which according to Viscusi consists solely of non-smokers - but I forgive him: I like the idea non-smokers owe me money.

Viscusi also has a new NBER paper out (with Joni Hersch) estimating the personal cost of a pack of cigarettes to be around $220 for male smokers and $90 for females. For what it's worth, $220 sounds a bit high to me - I reckon my reservation price for a pack of 'healthy cigarettes' (if they existed) would be around $100.

Any smokers in the audience who would like to name the maximum they would be willing to pay for a pack of healthy ciggies?

Monkeys and fairness

Two researchers at the Yerkes National Primate Research Center have found that brown capuchin monkeys have a sense of fairness and will reject inequitable rewards, much as humans do.

Frans de Waal, C.H. Candler professor of primate behavior, said his work with Georgia State University professor Sarah Brosnan was based on a study they did in 2003. In that experiment, monkeys responded negatively when a partner received a superior reward for completing the same task, retrieving a pebble and placing it the researcher’s hand.

“As soon as the partner’s getting something better, like grapes, they don’t want to do it any more,” de Waal said. “They throw the food out of the cage sometimes.”

Brosnan and de Waal conducted a follow-up study to rule out alternative explanations for why monkeys would reject slices of cucumber, a previously acceptable reward.

“The most important one was you could argue that the monkeys reject the cucumber pieces because they see grapes and they want grapes,” de Waal said. “We would show them grapes, but we would put them away, and showing them the grapes didn’t make a difference in our test. It had to do with what partner was getting.”

Brosnan and de Waal also varied the amount of effort required to complete the task to see its effect on the monkeys’ reactions.

They found that when monkeys had to expend more effort, they were more sensitive to inequity and less likely to accept cucumber slices when partners had received grapes for equal or less work. But both would accept grapes even if they completed tasks at different levels of difficulty, de Waal said.

“If you gave them grapes, they were not sensitive to effort,” he said. “The grape is such a good reward that they would do whatever to get the grape.”

De Waal said similar behavior has been shown in chimps, and he “wouldn’t be surprised” if other species, like dogs, would react the same way to inequitable rewards.

According to de Waal, the research illustrates inequity aversion, a concept from the field of behavioral economics, which applies behavioral psychology to economic interactions. Like the monkeys in de Waal’s study, humans do not always act as rational profit maximizers and sometimes turn down good offers if someone else is getting a better deal.

“For a monkey to refuse a perfectly fine food like cucumber just because somebody else is getting something better is an irrational reaction,” de Waal said. “Profit maximizing requires that whenever you can get something you take it.”

Some scholars, however, argue that reactions like the monkeys’ make sense in a social context. The capuchins’ sense of fairness has “evolved within the context of cooperation,” de Waal said, because capuchins live in groups and sometimes hunt squirrels together.

“If you don’t get in accordance to your effort, you should be sensitive to that, or everyone will take advantage of you,” he said. “It’s actually a rational response to make sure you get the right rewards for the right amount of work.”

From Emorywheel.

by datacharmer | Wednesday, November 21, 2007
  , | 0 comments | | Monkeys and fairness @bluematterblogtwitter

England's suppresed religion

It is the fourth largest religion in the country, and by some accounts the fastest growing one, with 400,000 recorded believers. Yet there is no temple, no priests, no government funding; politicians and unbelievers dismiss it as foolish and irrelevant.

Stop the injustice now. Give the Jedi the respect they deserve.

Thanks to the England Expects blog for the statistics, from a post on the European Commission's desire to find out when you first got laid.

by datacharmer | Wednesday, November 21, 2007
  , | 0 comments | | England's suppresed religion @bluematterblogtwitter

Apple's new thing - 'All this hype for something so ridiculous!'

No, not the iphone, but the first ipod to be released back in 2001.

A loyal reader emailed me with this fascinating forum discussion at Mac Rumors right after the ipod was announced. How different things turned out to be...

An exquisite 82 words

One of the Vietnamese people I met here asked a question I had a hard time answering, even though she spoke excellent English: why, she asked, did DC have so much crime?

Even with no language barrier, I found myself staring across a cultural gulf I couldn't bridge in the 45 minutes we had to eat lunch. I wanted to say, "they are poor". But that seems a ridiculous statement in a country of 85 million people who are nearly all living at a lower standard of material consumption than the poor of DC.

Megan McArdle from Hanoi.

by datacharmer | Wednesday, November 21, 2007
  | 0 comments | | An exquisite 82 words @bluematterblogtwitter

My favourite Capricho

The Sleep of Reason Produces Monsters

Text caption from the "Prado" etching version:

"Fantasy abandoned by reason produces impossible monsters: united with her, she is the mother of the arts and the origin of their marvels."

More here.

by datacharmer | Tuesday, November 20, 2007
  , | 0 comments | | My favourite Capricho @bluematterblogtwitter

The Laffer curve is all wrong

No, I'm not referring to supply-siders arguing lower tax rates will bring in more revenue, I'm talking about the very foundations of the curve. Yes, I admit this is pedantry, but it may come in handy next time someone at a cocktail party starts explaining what the Laffer curve is all about (if you go to this sort of cocktail parties that is). Here's a recent description at Tim Worstall's blog:

Trying to explain this idea to an eager Cheney, "Laffer pulled out a cocktail napkin and drew a parabola-shaped curve on it," writes the liberal New Republic journalist Jonathan Chait. "The premise of the curve was simple. If the government sets a tax rate of zero, it will receive no revenue. And if the government sets a tax rate of 100 per cent, the government will also receive zero tax revenue, since nobody will have any reason to earn any income.

A 100% tax rate on everything was tried before, of course: they called it communism. Whereas not advisable, government revenues sure weren't zero. And even if you rule out authoritarian methods, it is very likely that even at such high levels of taxation some market activity would take place simply to support non-market, non-taxable activities. And of course, I would expect considerable social pressure on individuals to work (if you don't work alongside me, we all die), plus a lot of activity from people who actually enjoy doing their job.

Thanks for bearing with me - now I got this off my chest I can return to posting mildly interesting stuff again.

by datacharmer | Tuesday, November 20, 2007
  | 8 comments | | The Laffer curve is all wrong @bluematterblogtwitter

Banking crises and the government safety net

Charles Calomiris has a new NBER paper discussing banking crises, and he concludes that the government safety net is the main culprit behind their recent proliferation:

More recent banking system experience worldwide indicates unprecedented costs of banking system distress – an unprecedented high frequency of banking crises, many bank failures, and large losses by failing banks, sometimes with disastrous costs to taxpayers who end up footing the bill of bank loss. This new phenomenon has been traced empirically to the expanded role of the government safety net. [Emphasis DC] Government protection removes the effect of market discipline. It thereby encourages excessive risk taking by banks, and also creates greater tolerance for incompetent risk management (as distinct from purposeful increases in risk).

Ironically, the government safety net, which was designed to forestall the (overestimated) risks of contagion seems to have become the primary source of systemic instability in banking.

Calomiris makes an excellent point here, but the recent events with Northern Rock show that a commitment never to intervene is not a solution.

Firstly, bank runs can sometimes be panic-driven with the amount of information available completely swamped by the noise; in these cases, it makes sense for the government to intervene to stop the fire from spreading, much the same way as with a real house burning due to its owner's carelessness or otherwise.

Secondly, even if that wasn't a consideration, public and 'stakeholder' opinion is miles away from accepting such a solution. Central bank independence in setting interest rates was a walk in the park; with banking crises, there are real, visible victims - even if only due to their own folly. The governor of the Bank of England and the Chancellor were not critisised for intervening, they were critisised for doing 'too little, too late'.

As I said before, given these political constraints, the Northern Rock crisis was handled in the best way possible.

Don't let banks fail, but Give Them Pain. Make their share price go like this and break their CEOs' hearts. The government safety net should deliberately be porous and whimsical, but it should be there - if only because it is impossible to do otherwise.

Markets in everything, pseudo-cannabis edition

More here. Jamaican Ghanja, Amsterdam Gold and Devil's weed are also on offer.

Comparative advantage: please handle carefully

Megan McArdle misuses the term:

The one question everyone here wants answered--including the Vietnamese--is how Vietnam will manage to compete with China. China's mountainous economies of scale loom over every discussion; Vietnam has no offsetting advantages to speak of. [...]

[But] Vietnam does have one comparative advantage I can think of: it isn't so big. To be sure, it's been saddled with textile limits, but it isn't the target of the kind of ire that China's enormous market draws. It's not unreasonable to hope that the 600 pound gorilla may attract the attention of all the big game hunters in the anti-dumping movement, leaving the Vietnamese to trade in peace.

You always have a comparative advantage in producing something. All that comparative advantage requires is that the relative costs of producing different goods in a country are not identical across all countries.

The term Megan should have used here is competitive advantage - a fluffy management term meaning that (because of fixed costs, trade barriers etc) you have some monopoly power as a producer of something, and you can command excess profits.

The bunny boiler!

Bluematter TV brings you The Bunny Boiler! (wikipedia). Not quite work-safe, but you'll enjoy watching it at home.

More episodes here.

by datacharmer | Sunday, November 18, 2007
  , | 0 comments | | The bunny boiler! @bluematterblogtwitter

Angular momentum

And one more.

by datacharmer | Saturday, November 17, 2007
  | 0 comments | | Angular momentum @bluematterblogtwitter

xkcd @ wired

A geek with a paper cut does not bleed CH3, and every nerd has a heart lodged in his chest instead of a TI-85. Behind those thick polycarbonate lenses is a man of flesh and blood, a man who deserves to be loved. Don't believe him? He has the graphs to show it.

Wired has a story on xkcd, but really this is just an excuse for me to post one more of his amazing strips:

by datacharmer | Saturday, November 17, 2007
  | 0 comments | | xkcd @ wired @bluematterblogtwitter

Thinking about dad

For some reason I'm thinking about my dad this year. He left us when I was about fourteen years old, he'd gone to live with his other wife (although he still hasn't remembered to divorce my mum yet...). He's got other children who are probably grown up themselves now. I don't know, I haven't heard from him in over twenty years.

Read the whole thing here, via Tim Worstall.

by datacharmer | Saturday, November 17, 2007
  | 0 comments | | Thinking about dad @bluematterblogtwitter

The right to have sex with a bike

From BBC News:

A man caught trying to have sex with his bicycle has been sentenced to three years on probation. Robert Stewart, 51, admitted a sexually aggravated breach of the peace by conducting himself in a disorderly manner and simulating sex. Sheriff Colin Miller also placed Stewart on the Sex Offenders Register for three years.

Mr Stewart was caught in the act with his bicycle by cleaners in his bedroom at the Aberley House Hostel in Ayr. Gail Davidson, prosecuting, told Ayr Sheriff Court: "They knocked on the door several times and there was no reply. "They used a master key to unlock the door and they then observed the accused wearing only a white t-shirt, naked from the waist down.

"The accused was holding the bike and moving his hips back and forth as if to simulate sex." Both cleaners, who were "extremely shocked", told the hostel manager who called police.

Sheriff Colin Miller told Stewart: "In almost four decades in the law I thought I had come across every perversion known to mankind, but this is a new one on me. I have never heard of a 'cycle-sexualist'."

I find this case very distrurbing. Since when is it illegal to have sex with an object in the privacy of your own home? Robert Stewart was sentented to three years on probation and put on the the Sex Offenders' Register (a list usually reserved for people raping or sexually harassing someone), when his only crime was masturbating in a way that is not to the taste of some. This is a gross miscarriage of justice, and one that has to be put right.

UPDATE: I am not alone.

by datacharmer | Saturday, November 17, 2007
  , | 0 comments | | The right to have sex with a bike @bluematterblogtwitter

Friday Special 28

U.N. launches poverty monitoring site

6 Billion Others - Everybody has a story to tell

Lay back and let us take you back to the sixties

Prisoner buys his own cell

Scientists find oldest living animal, then kill it

by mendoza | Friday, November 16, 2007
  , , | 0 comments | | Friday Special 28 @bluematterblogtwitter

Why do people hate the market?

Stardom sent me this clip about Seva Cafe, a restaurant operating the Radiohead business model: eat first, then pay whatever you feel like.

Instead of a warm glow, I feel depressed. Why are projects such as Seva Cafe so loved? Why is someone volunteering to do social service more respected than, say, an industrialist that creates tons and tons of consumer surplus? What is wrong with commercialism? Why do people hate prices, money, and the market mechanism itself?

One potential reason behind the markets' bad reputation is their worrying tendency to generate inequality when left unchecked. Most people, however, are not simply against free-market libertarian societies; they are suspicious of markets at the micro level, even when these operate within reach of the redistributionist arm of the state.

My feeling is that people suspect markets because the incentives of the seller are diametrically opposed to those of the buyer: the former wants the price to be high, the latter low (with the opposite going for quality); furthermore, and perhaps more crucially, the parties in the transaction are usually better off concealing information from each other, or communicating outright misleading information (seen any ads recently?). This is not a problem in the textbook model of perfect competition, but real-world markets can generate a lot of ill feeling amongst participants. Information is gold, and it's often hard work. In contrast, in a perfectly altruistic 'giving' economy, the incentives of the giver ('supplier') are fully aligned to the incentives of the receiver ('the buyer'): the former is better off the happier he makes the latter. I'm way more confident in the quality of the food my mom serves me than that of my local chinese. I feel way more comfortable with a friend that 'cares for me' than with an explicitly selfish business associate. I prefer a partner who loves me to paid-for company.

One problem with this is that altruism exists in very small amounts, and it tends to constitute a very unstable equilibrium (a few people deviating is usually enough to bring to whole edifice crumbling down). And even if that wasn't a problem and the objective was to organise an economy of angels, there is no technology that is nearly as good as markets in determining the relative value of goods. An 'altruistic' model can work - often very well - only at the most micro of levels (e.g. in the case of Seva Cafe) where the lack of information can be brushed aside and gross inefficiency can be 'subsidised' from outside the system. But it is no way to run a full-blown economy. Alas, this is not immediately obvious.

The implications of the public's mistrust of markets are profound. Simply put, it's the resource allocation equivalent of having invented the chainsaw and insisting on using your nails to cut down trees. What can be done to change public perceptions of markets?

Time-inconsistent preferences or not, this will help you lose weight

I am [...] fat. But now my wife, who is desperate, for some reason, to keep me around for a very long time, is turning the economics of obesity on its head, agreeing to provide me financial incentives to finally drop the pounds. It is a peculiar strategy, but it's not without merit: Economists have recently shown that if you pay people enough money, they will lose significant weight.

I thought of that the other day when I was talking to Barry Nalebuff, a professor at Yale University and one the country's top game-theory economists. He has studied weight-loss incentives extensively. When I told him what my wife was paying me, he said: "It's not going to work. It's not big enough. Not even close." [...] he suggested I enter into a contract in which I agree to pay him if I don't drop some pounds. "As much as people don't like to lose money, what they really don't like to lose is their own money," he said.

In fact, some of his Yale colleagues are in the final stages of launching a business based on this very concept. They have started a company called that will allow people to take out a contract on themselves. They pick a price. If they don't lose a certain amount of weight, they lose the money, either to a charity, friends or family. Ian Ayres, one of the company's founders, said he hopes the Web site makes money by selling advertisements and forming corporate partnerships.

"The basic idea is to let economic incentives have a chance," he said. "It's been very hard to produce successful results through traditional weight-loss methods."

Ayres took out a contract on himself with another of the company's founders. He needed to get down to 185 pounds, losing at least a pound a week or forfeiting $500 for each week he failed. Sure enough, he dropped below 185 pounds. Now if his weight goes above 185 pounds, a penalty kicks in. He has avoided more than $21,000 in potential penalties. "It's been a free way to lose weight," Ayres said.

He added, "Thousands of studies have shown that people work harder to avoid losses than to gain a similar amount."

From the Washington Post, via Greg Mankiw.


This is so good words fail me. xkcd: a webcomic of romance, sarcasm, math and language, I suggest you read all 340 scripts posted. Here's the blag.

by datacharmer | Sunday, November 11, 2007
  | 0 comments | | xkcd @bluematterblogtwitter

Charitable giving

Datacharmer posted recently on the links between charitable giving and wealth, following work by Arthur Brooks. Brooks asserts that:

Emerging evidence—crunchy statistics from real data, not the mushy self-help stuff—supports the contention that giving stimulates prosperity, for both individuals and nations. Charity, it appears, can really make you rich.

To prove this, he regresses income on giving and, to prove causality, he uses volunteering as an instrument for giving. Now for volunteering to be a valid instrument in this case, it would have to be both well correlated with giving levels (fine) and unrelated to income levels (hmmm). While divine favour is promised to those who give, I don’t think this provides us with firm evidence. The trouble is in the number of ways in which income and time spent volunteering could be related. The data on which this work was done comes from the S.C.C.B. survey and a quick look at the variables shows that income is reported at the household level, not the individual. What is often the result of household income rising above a certain level? Stay at home housewives. What do housewives do when the kids are at school (or gone for good)? Volunteer. This is just one possible link between income and volunteering. Another is raised in a comment on the previous post – poor households have to work all hours to make ends meet. As income increases and the budget constraint eases, more time is available to volunteer. I would view the results of this IV work with extreme caution.

The other half of Brook’s work concerns higher levels of giving leading to greater wealth at a national level. I find this story far more plausible. Two of the major recipients of donated funds are universities (at least in the US – in 2006, 14% of total giving went to educational organisations) and organisations working with the socially disadvantaged. It is not hard to imagine a causal chain going from increased funds into education to increased levels of human capital and to increased wealth, or from more social work to greater labour force participation and to increased wealth.

So giving to charity might not make you richer directly, but it probably will benefit your country.

An alternate view of chritable giving is here. The authors propose a view in which giving is a status seeking activity (quite possible with alumni giving in the US) and as such is an inefficient use of resources. They show that under certain conditions it would be optimal to tax charitable donations, rather than giving the usual Pigouvian subsidy. Very interesting.

by Forrest | Friday, November 09, 2007
  | 0 comments | | Charitable giving @bluematterblogtwitter

Friday Special 27

WikipediaVision, a map showing Wikipedia edits in near-real time

Along those lines: FlickrVision

Ski-gliding the Eiger in the Swiss alps

Preview of the 2010 FiFa World Cup venues

by mendoza | Friday, November 09, 2007
  , , | 0 comments | | Friday Special 27 @bluematterblogtwitter

Unintended signals

If you have been to the cinema recently, you might have had the "pleasure" of seeing an anti-piracy advert featuring the cast of the (excellent) Pixar film, Ratatouille. Its main points are that pirate movies are terrible quality, have terrible sound and a terrible picture and that if you watch them, you will have a terrible time (and you run the risk of being called a ‘knock-off Nigel’). This ad is ridiculous for at least two reasons I can think of. Firstly, they’re preaching to the choir (we’re already in the cinema, they’ve already won the battle).

Secondly, the ad tells me precisely the opposite of what its makers want it to tell me. It signals to me that pirated films are actually fairly good quality and would be an enjoyable watch, not far off comparable with buying an official DVD. Why? Because if the reverse were true, if they were rubbish, then no-one would buy them (at least, not more than once). If no-one bought them, the big film companies wouldn't be worried about them and wouldn't spend bundles of cash telling me not to watch them. If something is crap, you don't need to tell me not to consume it, I will work that out all on my own, thanks.

by Forrest | Wednesday, November 07, 2007
| 2 comments | | Unintended signals @bluematterblogtwitter

We was robbed!

Watching Premier League football, you frequently hear claims by away team managers that they have been short-changed by a weak/incompetent ref, more often than not concerning penalties given or not given. Are these managers ever right or are they just suffering from a confirmation bias?

While it is true that opposition teams get far fewer penalties at Old Trafford, Anfield and Stamford Bridge, it is very difficult to determine whether this represents a big-team/home team bias. Man Utd playing at home will normally have more of the play and more penalty box action than their opponents and, as such, would be expected to win more penalties.

This very clever paper seeks to provide an answer by focusing on something that is completely at the referee’s discretion, the amount of time added on at the end of a game. In the authors’ words:

Referees have discretion over the addition of extra time at the end of a soccer game to compensate for lost time due to unusual stoppages. We find that referees systematically favor home teams by shortening close games where the home team is ahead, and lengthening close games where the home team is behind. They show no such bias for games that are not close. We further find that when the rewards for winning games increase, referees change their bias accordingly.

The data is from matches in Spain's La Liga and the authors find that the relevant mechanism is the size of the home crowd. In other words, the more fans a team has at a game, the more they will be favoured by the ref. The authors see this as evidence that social pressure affects referees' decision making. However, it is unclear why this should be the case. It is unlikely that the refs have been bribed (this is Spain, not Italy) and unlikely that refs are afraid of physical harm (again, this is Spain, not Bulgaria). So where is the benefit? Are referees being influenced without realising it, or are Spanish refs all utilitarians, seeking to maximise the welfare of the largest number of people in the stadium? Suggestions in the comments section please.

by Forrest | Tuesday, November 06, 2007
| 3 comments | | We was robbed! @bluematterblogtwitter

IHT - the fairest of them all?

Last week, The Economist wrote this about Inheritance Tax:

Taxes should be assessed on three grounds: how they affect incentives, how fair they are and how simple. Estate taxes score well on the first two, less satisfactorily on the third.

Are they right? On the first point, efficiency, the answer at the moment is that we just don’t know. The efficiency of IHT depends heavily on whether people who die rich have intentionally remained rich to pass on their wealth to their kids. If this is the case (and these parents actually care about how much their kids receive, rather than gaining utility from the act of giving itself) then IHT will distort behaviour, tending to reduce the incentives to work and save. If, however, most people who die with assets were holding them as insurance against living a lot longer, then IHT would cause next to no distortions and would be a very efficient tax. Unfortunately, it is very difficult to empirically disentangle peoples' motives, so we don't currently know which is more prevalent.

The Economist are right, however, in pointing out that IHT improves the work and savings incentives of children of the rich. Expecting to receive a huge inheritance surely can’t be good for your entrepreneurial zeal.

IHT does fare better on the second point, equity, as it is paid exclusively by the rich. Only 6% of estates pay it and the fact that this will rise slightly over the next few years indicates simply that more people are becoming rich (it doesn't matter whether this is from a property boom or from anything else). On the downside, the many loopholes allow the very rich to avoid paying any IHT, leaving the rising middle classes to shoulder the burden. There is also Tim Worstall’s argument that rich kids are an equalising force in themselves, through their profligate spending habits. Overall, IHT does seem to promote a more equal society, based on merit rather than fortune (and would do a better job with a lower threshold than £600k).

On the third point, simplicity, the UK's tax is actually a better option in many ways than a pure inheritance tax (the option favoured by The Economist - along with the crazy French idea of varying the rate according to the closeness of blood ties between bequester and inheritor). While taxing inheritances directly would be far more equitable and would encourage the spreading of bequests, it would be an administrative nightmare compared to the relatively simple single probate system currently in force. It would also create a whole new raft of avoidance possibilities. A better option for the UK would be to simplify the current regime and cut out many of the loopholes currently exploited by the rich, especially the use of trusts.

Guestblogger in the house

I am out of town for a week with limited access to the internet, and a fine economist and good friend has agreed to guestblog here at Bluematter. while I am away. Most of you are not my mom, but I thought I'd let you know anyways.

by datacharmer | Sunday, November 04, 2007
  | 0 comments | | Guestblogger in the house @bluematterblogtwitter

Rational discrimination

Chris Dillow links to this very clever paper (free access):

We provide a test for statistical discrimination or "rational" stereotyping in environments in which agents learn over time. Our application is to the labor market. If profit maximizing firms have limited information about the general productivity of new workers, they may choose to use easily observable characteristics such as years of education to "statistically discriminate" among workers. As firms acquire more information about a worker, pay will become more dependent on actual productivity and less dependent on easily observable characteristics or credentials that predict productivity.

When you start out on a job, employers have to make do with easily available information about you (years of education, race, etc). As the employer observes individual productivity first-hand, however, this information becomes obsolete. So, if employers are fully rational and internalise the additional information efficiently, education and other easily observable characteristics should become increasingly weaker predictors of wages. The way they test for this is by utilising additional variables for characteristics that are not easily observable but are correlated with productivity:

Consider a wage equation that contains both the interaction between experience and a hard-to-observe variable that is positively related to productivity and the interaction between experience and a variable that firms can easily observe, such as years of education. We show that the wage coefficient on the unobservable productivity variable should rise with time in the labor market and the wage coefficient on education should fall. We investigate this proposition using panel data on education, the AFQT test, father’s education, and wages for young men and their siblings from NLSY. [...] Our results support the hypothesis of statistical discrimination.

So far, so good. But the authors also go on to test for discrimination on the basis or race; econometric specification issues aside, their results are worrying:

We use a similar methodology to investigate whether employers statistically discriminate on the basis of race. If our model is taken literally, the small race differentials for new workers and the spread in the race gap with experience is most consistent with the view that race is negatively correlated with productivity and the productivity gap becomes reflected in wages as fims acquire additional information that can legally be used to differentiate among workers. We wish to stress however, that other factors are probably as or more important in differences between whites and blacks in wage profiles, and race differences in human capital accumulation accounts for at least part of our findings.

by datacharmer | Sunday, November 04, 2007
  | 1 comments | | Rational discrimination @bluematterblogtwitter

Discussions on economics

Xenophon, Works on Socrates:

I once heard him discuss the subject of estate management (in Greek: οικονομία, economics) in the following manner.
“Tell me, Critobulus, is estate management the name of a branch of knowledge, like medicine, smithing and carpentry?” “I think so,” replied Critobulus.[...]

“But what do we mean now by an estate? [5] Is it the same thing as a house, or is all property that one possesses outside the house also part of the estate?”
“Well, I think that even if the property is situated in different cities, everything a man possesses is part of his estate.”
[6] “Do not some men possess enemies?”
“Of course; some in fact possess many.”
“Shall we include their enemies in their possessions?”
“It would be ridiculous, surely, if one actually received a salary for increasing the number of a man's enemies!”
[7] “Because, you know, we supposed a man's estate to be the same as his property.”
“To be sure--meaning thereby the good things that he possesses. No, of course I don't call any bad thing that he may possess property.”
“You seem to use the word property of whatever is profitable to its owner.”
“Certainly; but what is harmful I regard as loss rather than wealth.”[...]

[10] “That is to say, the same things are wealth and not wealth, according as one understands or does not understand how to use them. A flute, for example, is wealth to one who is competent to play it, but to an incompetent person it is no better than useless stones.”
“True--unless he sells it.”
[11] “We now see that to persons who don't understand its use, a flute is wealth if they sell it, but not wealth if they keep it instead of selling.”
“Yes, Socrates, and our argument runs consistently, since we have said that what is profitable is wealth. For a flute, if not put up for sale, is not wealth, because it is useless: if put up for sale it becomes wealth.”

Through a few vias originating at The Visible Hand in Economics and a post entitled Was Jesus an early applied economist?

by datacharmer | Friday, November 02, 2007
  | 2 comments | | Discussions on economics @bluematterblogtwitter

Friday Special 26

Google trends on economics: (1) Seasonality (2) Negative trend (3) Top source: Pakistan

The worlds top 5 smallest countries

Are you tone-deaf?

Death, and more death

Simulating the life of bugs

Who owns who in the motor industry

by mendoza | Friday, November 02, 2007
  , , | 0 comments | | Friday Special 26 @bluematterblogtwitter

Science reporting explained

Via Social Science Statistics. The Dilbert blog is, of course, by far the best economics blog amongst nominally-non-economics blogs out there.

Japan's Phillips curve

by datacharmer | Thursday, November 01, 2007
  , | 0 comments | | Japan's Phillips curve @bluematterblogtwitter