Networking past citations

Take the fact that people don't like getting tickets, add in some 21st century technology and a dash of entrepreneurship...and we've got a system that's fought back in the persistent battle of cops versus drivers.

The story goes like this: Cops get radar guns, tickets go up. Drivers get radar detectors, tickets go down. Cops get fancier laser radar detectors, tickets go up. Now, if Trapster has its way, tickets will hopefully go down again.

Customers sign up for a free service, download some software onto their cell phone or PDA, and off you go. You type a quick command into your cell phone when you pass a speed trap and, thanks to GPS and other locational technology, other users are notified before they pass the same point; presumably, once the system gets into full swing, everyone just pays it forward.

Of course, with systems like this, it's all about network effects. The more people that join, the more valuable it becomes for each member. As such, there should be a tipping point whereby this system will either peter out and die or become wildly successful.

A quick note about the hilarious comment by the National Association of Police Organizations at the end: You know that can't be their stance because one could make the exact same argument about radar detectors, and numerous states have banned their use (Virginia comes to mind). Further, with the confidence of knowing when not to speed comes the confidence of knowing when to speed. Police departments don't like this and, seeing their own profit opportunities speeding past them, will continue to find a way to generate revenue through issuing tickets.

Let's assume this program is wildly successful; what do the heat do next? This isn't just a technological advance, a la the newest and best radar detector, but a structural change in game itself. Cops are successful in giving tickets because of asymmetrical information; they know you're speeding, you don't know where they are. This advance eliminates the information advantage. I suppose there's always a first mover advantage-- go after the first driver through the zone before notification goes through. That would lead to a lot of moving around by officers as opposed to the hours of stationary patrol.

Would frustrations in signing up for the system and going through the growing pains of imperfect notification discourage users? Possibly; repeatedly typing "#1" might get annoying if your efforts are (purportedly) helping others while you're still acquiring tickets. Then again, if you're left to fend for yourself, you might be willing to incur the minor repeated cost in the hopes of things working out.

Getting the snowball rolling down the hill is always the hardest part; I'd love to see this work.

More Support for Caplan's Irrational Voter

In a commentary in TIME Magazine, Samantha Power rails against these kids today that don't get their news from paper media and inadvertently gives support for Caplan's book:

When I'm abroad these days and have to go without my newspaper, I often turn to the most e-mailed stories on news websites, which are generally opinion pieces (rather than news stories), from which I cherry-pick arguments or facts that comport with my pre-existing views. Reading this way, I rarely stray from the familiar and soothing.

The more commentaries I read, the more I think Caplan is right. By the way, TIME most definitely does not get the TPS Seal of Approval. If you are wondering why I keep reading a magazine I find so poorly written...a subscription was a gift from my Mother-In-Law for XMas.

Signaling

I finally finished the latest EconTalk with Robin Hanson on signaling. The best description I can give it is "non-linear and interesting." I enjoy thinking about signaling because it makes you think hard about how markets work, if for no other reason than to debunk the signaling explanation.

One interesting discussion in the podcast was when Roberts and Hanson ask why, if you take a date out to an expensive dinner to signal your prosperity, you do not just show them a bank statement instead? If they answered this in the podcast, I missed it, which is possible because the discussion seemed to lack path dependence. It seems like it has a simple explanation:

1. A bank statement signals wealth, but not your propensity to spend it on your new potential mate.
2. A bank statement does not send as much information about future wealth as an expensive meal does, which you must pay off on your next credit card bill.

By the way, EconTalk receives the TPS Seal of Approval.

Are we sure it wasn't Cantillon flying the plane?

Somewhere, somehow, Richard Cantillon is smiling.

All said, the author dropped about $10,700 from the plane, and as millions of Indonesians live on less than $2/day, you can do the opportunity cost math. I wonder what his book is selling for? Is he just providing the funds to make the best-seller list again?

How Many Serial Killers Equal One Genius?

After my class the other day, one of my students asked me about population growth and its effects over the next few generations for humanity. Paraphrased, it went like this:

Student: Our population cannot grow indefinitely, can it?
Me: Population growth in market societies is good for the forseeable future. It is not something that will likely ever need a planned solution to solve.
Student: Our resources are fixed though, just one planet.
Me: The only true natural resource is the human brain. Oil is a water and land ruining nuisance until a brain figures out how to turn it into energy. The more people, the more brains, the more likely we are to come up with geniuses who increase our possible resource set. We have a much larger population today than we did 100 years ago, yet we use much fewer resources to feed it.
Student: More people also mean more potential serial killers.
Me: Yes, but even a very successful serial killer is bad for 10 or 15 people, maybe 200 if you include extended family. But a genius benefits the entire population.

My last comment inspires this post. How many serial killers would it have to take before we would offset the gains by a single genius? The comments are open. My take is that it would have to be large, very large. If you were told that in the next 1 million people born there would be one genius that will make enormous contributions to the welfare of society, but also in that million people is X number of serial killers, how large would X have to be in order for you to be disappointed by this knowledge? No trick answers to this, like stating that the serial killers will kill the geniuses. You can comment that my calculus is cold, but your comment will not be interesting. Solve for x!

Questions I've been pondering recently...search costs and music edition

Over beers last night, we got to talking about the evolution of music delivery-- records, 8-tracks, cassette tapes, compact discs and now the digital age. Recent in my mind was a page on one-hit wonders, and I got to thinking:

Many people say that music consumers now appreciate single songs more than entire albums, and that this is a trend that didn't start recently. Could it be that the popular method of music delivery might be playing a role? On an 8-track or cassette tape, it is relatively costly to search and find a particular song; you have to wait through the time needed to fast forward or rewind to where you needed to be on the tape, and relative to the length of the song, it is definitely nontrivial. (I had a friend in elementary school whose rewind button didn't work, and when he wanted a repeat listening of "Mr. Brownstone," would have to fast forward through the remainder of Side A, flip the tape, fast forward through the entirety of Side B, flip the tape again, then fast forward to the beginning of the song-- and hope not to overshoot.) Consuming albums relative to individual songs may be the cost minimizing way to intake music.

Of course, the advent of the compact disc made the cost of finding a particular song almost zero. If people all along truly want to listen to just their favorite songs, then this shock downwards in the cost of doing so may be enough for people to stop listening to entire albums and just focus on their favorite songs. Recognizing this, bands can move away from supplying albums to supplying songs, meant to be searched directly to. Of course, the MP3 player reduces the cost even more-- with CDs, you would want a disc with a lot of good songs (remember the popularity of burning your own CDs with your favorite songs?), since changing to a different disc is relatively costly. Now, individuals effectively have one huge CD that never needs to be changed-- and search costs are still very low.

It's not that costs of selecting songs have always dropped; my experience is limited, but finding a particular track on a vinyl record is relatively less costly than on a cassette. (Which is probably why radio stations never went with tapes.) Cassettes, of course, eventually won the war due to portability.

Final Second Fouls

Sports Illustrated's David DuPree has an article about last second fouls, which have been prevalent no-calls throughout the NBA playoffs this year:

From stars such as LeBron James to backups like Barry, players haven't gotten last-second, game-deciding calls during the playoffs, partly because officials want the players to determine the outcome just as much as the fans do.

DuPree goes on to argue that by not calling the fouls they are still changing the outcome of the game. I agree, but I think the argument should be about the incentives created by no credible threat of being called for a foul. Even King James chances of hitting the game winner decline if you hit him hard enough. Ironically, the less likely the referees are to call a foul at the end of the game, the greater influence their refereeing has on the outcome.

There are many analogies which make this a flawed style of refereeing. Suppose I catch a student cheating on their final exam in the semester prior to their graduation, should I not fail them because my enforcement of the rules change the outcome of their graduation? I think that would be absurd. Imagine if it was informally accepted that professors would not fail students who cheat on their last final exam of the semester, what would that do to the incidence of cheating? Very curious logic on the part of the NBA.

P.S. I'm not a Lakers fan.

Test time

Here's a piece on colleges moving away from the SAT.

I don't see this as being a wide-spread trend; schools still need a metric to compare students and I'd say that the SAT probably does better than most give it credit for. Note also that having these schools making the SAT arbitrary won't in an way reduce the number of students that actually take it; further, I'd imagine that reporting the score is optional and, as such, imposes an effective signaling mechanism through whether you choose to reveal your score or not. These are also small schools (though Wake Forest has over 4,000 undergrads, which is moderately sized) that likely place more emphasis on the full portfolio of a student, so the SAT didn't carry as much weight anyway. The value of the signal could well be stronger than the information from requiring the score. Large institutions still need a quicker way to judge a student and, rightly or wrongly, the SAT provides this nicely.

For what it's worth, I'd be willing to bet that of the TPS regulars, Dana or Tom Johnson top the SAT list...

My baseball thought of the day: Rick Ankiel's throws against Colorado

Just a brief pointer to something most baseball fans have already seen a little while ago-- the two throws outfielder Rick Ankiel made on May 6 against the Colorado Rockies. The video of it is here. The first throw is solid; the second is the best throw I've ever seen. The only throw that comes to mind that would be comparable is the Mays' catch and throw off the bat of Vic Wertz in Game 1 of the 1954 World Series, but I think that's known more for the catch and throw as a whole, the circumstances (tied in the 8th inning of a World Series game), and the ultimate result of the entire play (keeping the runner from scoring the go ahead run). Strictly on the basis of the throw, I've got to give it to Rick Ankiel. (New to me upon checking the play-by-play of that game: Wertz was 4-for-5 that day, his only out being the famous Mays catch.) I know Ichiro made a well-known throw against Oakland early in 2001, but was sprinting in on a single and did not throw the ball as far. Ankiel was sprinting away from 3rd base.

I did some rough calculations based on the dimensions of Coors Field in Colorado for the second throw; conservatively, I put it at 335 feet in the air.

Absolutely incredible. This video gets the TPS Seal of Approval.

Nudge

So I've made my way through Nudge, the new book from Richard Thaler and Cass Sunstein; thank you to TPS regular Thomas Johnson for the book. People are lazy, so default or path-of-least-resistance choices should be well thought out since a lot of people will (irrationally) end up there.

On the plus side, there do exist a lot of scenarios where the "easy" choice gets the nod, and this is important to recognize. In general, there are categories of choices that tend to fall into the nudge-able range, like those with large intertemporal disconnects between costs and benefits and choices where feedback is low.

I think it falls a little short in a few areas; namely, that we could design a government capable of steering people in better directions. It felt a bit like the foreign aid arguments-- it's not that foreign aid is bad, it's just that we haven't done it correctly up until this point. Information issues that would prevent people from wise choices in the first place would be information issue for our utopian government as well. (The 1950s called, they want their assumptions back.) And that's independent of any public choice problems we may have; that issue gets only two pages at the back of the book.

There also was an interesting part about needing to worry about private sector nudgers at least as much as public sector ones; I'm hesitant to agree, only because I have the choice of opting out of a private sector scenario if I want. On top of that, any choices that fall into the typical nudge range from the private sector seem to have a decent amount of aggregated information to be had. I know the tradeoffs for smoking and fast food; you can't categorically say that people who smoke or eat unhealthy food and die sooner are making illogical choices any more than someone who forces himself to eat healthy food and doesn't live any longer-- or perhaps dies an early death. In the case of large scale purchases, there's a big profit incentive to provide this information. I'm not certain people are making consistently poor decisions here. Transactions costs in figuring out the "right" choice for yourself need to be factored into all of this as well.

An interesting read nonetheless.

Questions I've been pondering recently...school edition

I frequently drive by an elementary school here in Morgantown, as I live just down the road from one. Which got me to thinking...

If school were not compulsory at any grade level, what percentage of kids at any age would end up going?

If this were to actually happen, I think you'd see a very high rate initially, but would steadily drop off. I think elementary education would be something most would choose, though not necessarily at as young of an age. I think you'd see some decent reductions in attendance rates as the years go on as well. Once kids can watch themselves I think you'd see a drop; if you have to pay someone to watch them, why not have them in school? So, as a jumping off point: Elementary school and middle school: 90%, and high school: 60%.

Thoughts?

Singing the Recession Blues

Justin is the TPS source for all things recession, though this article got me to thinking:

- Why do people care so much if we're in a recession? People know if their own situation is more tenuous now than a year ago; does it make them feel better if others are doing badly too? Further, if it's relative measures that are so important, couldn't we just flash some pictures of sub-Saharan Africa and then everyone would feel better? The scary thing might be if people know they're in a recession, they might want the government to do something about it.

- The article is purposely inflammatory, as most articles of this ilk are, but this one seems to bother me more than most.

"...led more people to report that their personal finances have worsened than at any time since 1982, according to a recent consumer survey..."

What does that even mean? Could that be any more vague-yet-foreboding? And mind you, again, that's a relative statement, so it says nothing about the absolute state of welfare.

"They predict the unemployment rate will jump by one percentage point to 6.0% by year end."

How people could estimate this, how they could arrive at 6.0%, why we're asking them, and why this figure even matters is all beyond me. Maybe we should ask them what the unemployment rate will be in 2036? Asking a lot of people (and betting markets for that matter) works well when there's dispersed information to be aggregated; information concerning the unemployment rate in the future is not out there. (I guess the best you could do would be to survey all employers, but that's still a best guess, and certainly not what the survey did.)
"A survey from the Conference Board released Tuesday found that only 13.4% of respondents said they expect their incomes to rise in the next six months, the lowest level since the study began 41 years ago."

Note that the initial reaction is "wow, 87% of people think their income is going to fall." I'd be willing to bet "stay about the same" is a large chunk of that other 87%. Again, the sky is falling...

"Their inflation expectation has hit an all-time high."

Now this is actually interesting, as it has real macroeconomic implications. Too bad that's all they said about it. If we're going to have surveys, I would love to see a set of questions getting at this issue. To what do they attribute their high inflation expectations? Worldwide factors? The Fed? That I would like to see.

Is This Actually A Good Sign?

From CNN:

The 50-year-old actress suggested last week that the devastating May 12 earthquake in China could have been the result of bad karma over the government's treatment of Tibet. That prompted the founder of one of China's biggest cinema chains to say his company would not show her films in his theaters, according to a story in The Hollywood Reporter.

Sharon Stone's comments were inappropriate. Did those individuals who suffered through 9/11 on the receiving end of karmic retaliation for American foreign policy? Since those individuals had nothing to do with the policy, much like those suffering in China, I would say no.

However, when I first read "China bans" I thought it was a government action, but it appears it is not, but instead the choice of the person who bears the consequences - the owner. Is this a good sign? Consider:

1. A foreigner criticized the Chinese government, and a private citizen of China actually heard them.
2. The government did not ban Sharon Stone movies, an individual who is under no compulsion to show her movies in the first place is declining to do so in the future.

Maybe the Chinese government didn't have a chance, maybe they are pushing this person behind the scenes to ban it, and maybe they let this criticism be heard because Chinese nationalism seems to be at an all-time high. But maybe it is a good sign that the Chinese are inching closer to a freer society.

What Do the Experts Know Anyway?

Good question, one that has been dealt with extensively in the book Expert Political Judgment by Philip Tetlock. The Bing Blog brings this criticism to economists, which apparently means Alan Greenspan. Greenspan made the "mistake" of giving the economy a 50/50 chance of being in a recession, while Warren Buffet (who has a M.S. in economics) ambiguously stating "I believe we already are in a recession" is clearly the superior forecaster. The author then proceeds to offer up some of the worst advice you could take:

I go back to my suggestion. I think we should all take as much money out of the bank as we can, every day, and spend it on something other than gasoline. Shop at places whose owners need our money to pay their rent. Press the politicians and the banks to work out some alternative to foreclosures. And stop reading other people’s opinions.

If you are willing to disregard his/her last sentence...A few points:

1. Follow this advice and enjoy the poverty knowing how "smart" you are. I will not be giving you change on the street, however.
   
2. In the media, as part of an effort to be "fair and balanced," they present an equal number of economists with differing opinions. Even if 95% of the field say "yes" and the remaining say "no," the media will give 50% of the air time to the 5% to stir the debate. It's the nature of the news business.
   
3. This blog was tagged "Depression," which would be amusing were it not so disrespectful to those who actually had to experience the terrible Depression of the 1930's.
   
4. The 1930's Depression had a lot to do with politicians and banks being forced to work together to "do something" by the public.
   
5. More than one observation (Greenspan) is generally required for the "experts" to be considered wrong. Perhaps citing some economists other than Greenspan would be a start. No, economists working for special interest groups or Unions (redundant, I know) do not count.
6. Forecasts longer than 1 year are mostly worthless, especially at the national level. We usually do not know what has happened with much precision over the current year because the data is still being collected. Our ability to forecast the future has an error at least as large as the error in our understanding of what is happening now.
7. Note that this forecast error is better than weather forecasts, so we got that going for us.
   

FYI: I tried to go back and see if the bloggers at this cite offered up any "forecasts" of their own to check their error rate. They only date back to April 2007, and much of it seems to be incomprehensible ranting. I don't read Fortune Magazine, but I must infer that it is like the blog it sponsors here.

Housing Market Blues and Wha-Hoos!

Business Week and CNN each report on the decline in the Case-Shiller index by 14%. Let's be clear on one thing, which is that in most cases houses haven't disappeared. When Hurricane Katrina ripped through Louisiana and Mississippi, houses disappeared and society was poorer because something it produced disappeared. Here the price is falling, which is bad for home sellers but is equally good (by and large) for new home buyers. Considering that the news was riddled over the past few years with stories on how "outrageously expensive" housing was, I can see no way for the housing market to experience anything but "bad news." Price can only be either too high or too low, according to the media.

Radiohead

Here is a piece on Radiohead from CNN; some of the TPS faithful are big fans, so I'll pass the word along.

I was under the impression that I had posted previously about their pay-what-you-feel album release, but I don't see it in the archives. It was actually a great vehicle by which to address a lot of issues in my Public Economics section last fall. Public goods, strategic thinking both by the band and the consumer, it really covered it all. For the record, I gave five pounds.

For the record, Radiohead is the most (only?) consistently popular-while-experimenting band of my lifetime, and probably the most since Pink Floyd. I personally am not a huge fan of Pablo Honey, and the Bends really hasn't grown on me either, though I would attribute that at least partially to not getting into Radiohead until around 1997. Ok Computer, Amnesiac and Hail to the Thief are all absolutely stunning works, and will continue to be for a long while.

File this under.....demand curves slope downwards

Who'd have thought. That's almost an Onion-esque headline, too.

Montreal

I'm back from Montreal with a few comments.

- The Great Cash Free Challenge, International Edition, ended on Saturday at 2:15pm EST, that was 98.25 hours beyond the starting time, so the over paid. (Though barely, Rob Holub can price a bet.) There were a couple of circumstances that combined to end the scenario-- the nearby subway station was not large enough so as to sell day-long passes (and therefore having an attendee to accept a credit card), and the automatic ticket seller was non-functional. Thus, cash for subway tickets.

- I was told that Montreal would sporadically accept credit cards; either I went to the right places or that was false.

- Cabs accepted credit cards, no problem there. I suppose I could have cabbed myself around Montreal on credit cards, but that realization came after throwing down some cash for subway tickets.

- I've been told Montreal is an expensive town; I wouldn't disagree, though seemingly expensive meals do include a goodly portion of food (soup, salad and dessert were all included every place I ate) and good deals can be found with a bit of hunting. Mussels were great, as was the calamari.

- Montreal strikes me a currently clean, yet aging, town that will seem run down in about 20 years. The subway is functional and awfully frequent (thank you government over-provision) but, again, will seem outdated in the near future.

I'll still be keeping cash-free here in the U.S. for as long as possible to complete the spirit of the challenge. I can see the upcoming Pearl Jam concert as being slightly trying...otherwise, Great Wall and Jimmy John's accept credit cards, onwards and upwards.

Non-Taxation Non-Profit

Tyler Cowen at Marginal Revolution points to an interesting article regarding the difficulties of distinguishing between profit and non-profit organizations for tax exempt status. I have thought about this before, and I have come to the conclusion that taxation of profit-firms put non-profits at a competitive disadvantage in many places. When Michael Moore decries the problem of health insurance industries to be that they are "for profit," I ask why then there are no major non-profit health insurance agencies if profit is the problem? One reason being is that their profit margins are not that large, despite what he says. However, the nature of that industry is such that it relies heavily in maintaining portfolios and trading in asset markets (resulting in lower premiums for consumers), but this would violate an NPO's tax-exempt status. We actually don't know for certain that NP health insurance companies would be competitive, but they have no chance if they are not permitted to trade in asset markets. In fact, NPO access to capital is significantly hampered in many ways in the name of protecting their tax-exempt status.

This sounds counterintuitive, but there are many industries in which the tax exempt status prevents NPOs from emerging and competing rather than encouraging it. The solution is then to end taxation of firms, so as to end the need maintain NPO tax status. There is no such thing as taxing a firm anyway, only households.

Frankly Pigouvian

Robert Frank in the New York Times says:

THAT the invisible hand often breaks down is actually good news. After all, we need to tax something to pay for public services. By taxing forms of consumption that generate negative side effects, we could not only generate enough revenue to eliminate budget deficits, but also help steer resources toward their most highly valued uses.

I found much in this article to draw argument with, but I'm going to focus on this statement alone. The idea that, "fortunately" we may have a institutional market failure so that we may tax, collect revenue, and provide public services is circular reasoning. The economic argument for public goods in the first place is to provide something the market has some problem with providing. If the invisible hand does not break down, there is no need for public services, hence no need for taxation. Unfortunately there are areas where we do not, for the time being, have the correct institutions that assign property rights in a manner that allows the invisible hand to work as efficient as possible.

This is an article sure to be critiqued heavily by classical liberals in the coming days over the blogosphere, this is my contribution.