Bluematter.

Are double-blind trials underestimating drug effectiveness?

2009-11-09T02:18:00.003Z

In a double-blind trial, patients exhibit the placebo (and nocebo) effects because of the expectation they might be on a real drug.

If expectations are so important, could it be that patients being administered the real drug don't react to it fully due to the expectation they might be on the placebo?

Addendum: Steve Waldman (of Interfluidity and Naked Capitalism) posts in the comments:

@llimllib on twitter - Bill Mill - posted a cite (in response to a tweet on this post) that seems like a nice confirmation of your conjecture. Almost perfect.

Wow.

New developments in econometrics, by Wooldridge and Imbens

2009-11-08T15:10:00.000Z

Jeffrey Wooldridge (a hero of mine) and Guido Imbens delivered this excellent 3-day cemmap masterclass a few months ago, with yours truly in attendance.

The lecture notes and presentation slides are now available online. If you were looking for a book offering an overview of developments in econometrics in the past decade or two, you've just found it - and it's absolutely free, so get downloading.

You can also find more cemmap goodies here (make sure you go through the different years, and navigate a bit around the site). Their seminars and masterclasses are consistently excellent, so if you are interested in econometrics this is a little treasure chest waiting to be discovered.

Corruption explained

2009-11-06T19:54:00.000Z

Most corrupt acts don't take the form of clearly immoral choices. People fight those. Corruption thrives where there is a tension between institutional and interpersonal ethics. There is "the right thing" in abstract, but there are also very human impulses towards empathy, kindness, and reciprocity that result from relationships with flesh and blood people.

I've been an occasional visitor to Interfluidity, but after reading these four sentences I'll never miss another post.

The making of a significant object

2009-11-05T01:35:00.000Z

A talented, creative writer invents a story about an object. Invested with new significance by this fiction, the object should -- according to our hypothesis -- acquire not merely subjective but objective value. How to test our theory? Via eBay!

This is the idea behind the Significant Objects project, and I really like it. At last count, the cost of objects stood at $112.02, with sales 'post-Significance' at $2,857.22.

Tip o' the hat Justin Wehr.

Has there really been a housing boom?

2009-11-04T01:40:00.002Z

The answer is no. There has been a boom all right, but it has been a land price boom. This is not semantics - the fact there was no housing boom has a stark implication: society does not need to move resources away from construction in the long-run as has been suggested or assumed time and again (see for example this related discussion). We - meaning most of the western world - have not been building too much.

Development is generally severely constrained by the planning system, so the returns to developing land to the landlord are way above normal. Unless the price of housing falls below construction costs (impossible in Europe, extremely unlikely in most of the metropolitan US), landowners that offer their land for development will keep enjoying a pure windfall gain, albeit one that is smaller the lower
house prices go. The point is that whether the windfall gain is small or large is irrelevant; in both cases there's profit to be made (and societal gains to be reaped) by developing the land. Keep in mind that agricultural land (the alternative use) is next to worthless - in the UK it's £7k/hectare on average, and this is probably amongst the most expensive in the world - while land carrying planning permission is worth more than 15 times that.

The reason you don't see development now is that landowners are holding back for higher prices in the future - it is fundamentally a short-term thing. If expectations about future prices adjust, there will be a renewed supply of land offered up for development. Unless land prices reach zero, no resources should move away from construction in the long-run.

Henry George's thinking on optimal taxation is also related to this observation.

Google's broken hiring process

2009-11-03T23:55:00.000Z

From Google's director of research:

One of the interesting things we've found, when trying to predict how well somebody we've hired is going to perform when we evaluate them a year or two later, is one of the best indicators of success within the company was getting the worst possible score on one of your interviews. We rank people from one to four, and if you got a one on one of your interviews, that was a really good indicator of success.

Ryan Tate uses this as evidence that Google's interview process is broken.

Craig Newmark sets the record straight.

On related news, I was surprised by suggestions that Larry Page still reviews CVs personally, and half-surprised to find out that lots of Google employees struggle with bureaucracy within the company.

Russian butter, Greek potatoes and Chinese cigarettes

2009-11-02T00:40:00.000Z

The Russians, the Greeks and the Chinese choose what to consume.

I've wondered the same thing so many times

2009-11-02T00:32:00.000Z

But are the Brits really so productive? If so, why can't they get both hot and cold water coming out of the same tap?

More.

Friday Special 128

2009-10-30T01:00:00.002Z

Best wildlife pictures

Excellent interactive graphic that helps explain the scale of small things

How will history judge the Almost-Depression of 07-09?

2009-10-26T02:30:00.001Z

In 20 years time, the concensus amongst economic historians will be that the prime reason behind the Almost-Depression was central bankers' reluctance to pursue aggressive enough monetary policy, either by generating some inflation so that real interest rates can come down, or by other means.

They will argue that a few percentage points additional inflation would have worked wonders in softening the recession, and they will dismiss arguments that long-term central bank credibility would have suffered as a result. They will marvel at how anyone could have let below target inflation (let alone deflation) take hold, and they will label as disingenuous claims that the tools available to central bankers and policy makers at the time were insufficient to generate the required degree of inflation at will.

They will comment extensively on the shocking lack of international co-ordination, both amongst central banks and governments. Finally, they will have some rude things to say about using fiscal policy, with all its adverse effects on public finances, when a small tax on monetary assets (i.e. inflation) could have done a better job, and much more neatly.

In other words, the consensus in 20 years' time will be what Scott Sumner is already saying today.

Global poverty and inequality 1970-2006, by Sala-i-Martin and Pinkovskiy

2009-10-24T14:23:00.000Z

Maxim Pinkovskiy and Xavier Sala-i-Martin have an important new NBER paper out parametrically estimating the world distribution of income. Some highlights on poverty:

Defining poverty as less than $1/day, world poverty rates fell by 80% from 27% in 1970 to slightly more than 5% in 2006.
The corresponding total number of poor fell from 403 million in 1970 to 152 million in 2006.
Similar findings apply if other poverty measures are used ($2/day, 5$/day, etc)
These estimates are much lower than what is suggested in other research.

The paper is an obvious must-read. I haven't yet had more than a quick look at the methodology, but it all looks decent enough for this sort of thing and even impressive at parts, and of course Sala-i-Martin's name is a gold seal of quality.

People doing crazy stuff with a football

2009-10-24T14:06:00.001Z

I don't even know who these people are, or how american football is played, but this video is impressive. (Thanks Keiju)

Friday Special 127

2009-10-23T01:40:00.000Z

Why once-wealthy Argentina has performed economically so poorly in the past century

Give condoms, save the world

2009-10-22T05:15:00.000Z

One of the cheapest ways to curb emissions in coming decades would be to provide access to birth control for tens of millions of women around the world who say they desire it.

U.N. data suggest that meeting unmet need for family planning would reduce unintended births by 72 per cent, reducing projected world population in 2050 by half a billion to 8.64 billion.

The 34 gigatons of CO2 saved in this way would cost $220 billion. However, the same CO2 saving would cost over $1trillion if low-carbon technologies were used.

Dot Earth has more, and here's the link to the numbers (pdf).

Wonders on sand

2009-10-22T00:01:00.003Z

Kseniya Simonova performs Germany's invasion of Ukraine by drawing with sand on a lightbox. You have to see it to believe it, this is simply awe-some.

HT Kottke.

Aleka's shoes

2009-10-21T03:38:00.003Z

One of my parents' good friends is a very successful (and rich) lawyer in her late fifties who grew up near Nafpaktos in western mainland Greece.

Back in the 60's when she was graduating from primary school, pupils needed to pass a challenging set of exams if they were to proceed to high school. Aleka almost didn't make it, and the reason was this: her father was dead worried that, if she failed the exams, the family wouldn't have any use for a girl's pair of shoes - and he refused to make the investment up to a few days before the exams. Aleka had no shoes up till then, and shoes were necessary to be allowed in the exam hall.

Going further back to the 1930's, my grandfather also passed his high-school exams, one of only two people in his entire (very large) village to achieve the feat that year. To get to the school, he had to walk 40 kms (a full marathon) every Sunday to get to the city, and 40 kms every Saturday to get back to his village. My great-grandfather made sure shoes were provided, but there was never any thought of my grandfather wearing them during his twice-weekly marathon: that would wear them out, and with no shoes there would be no school.

Fast-forward to the present, and I'm tutoring 15-year olds in economics. The subject turns to economic growth (shockingly, not part of the syllabus), and I ask them whether they think people today are better off in material terms than they were 40 or 60 years ago. They usually hesitate to answer economics questions, and they often disagree with each other. This time, there was no need to pause for thought: they all confidently told me that people today are much, much poorer.

Charter cities

2009-10-21T02:35:00.000Z

This economist thinks that Paul Romer's charter cities are an amazing idea, one that is very likely to speed up the process of eradicating poverty across the planet. I also think that they they will be easier to establish, politically, that perhaps even Romer believes. I may be naive, but I can very easily picture a Nobel-Peace-Prize-winning Obama ceding control of Guantanamo to the Canadians or the Norwegians for a limited time period before it is returned to Cuba. (for background on Charter cities and the US-Canada-Cuba scenario, see after the jump at the end of this post)

Chris Blattman disagrees:

Fundamentally, I think this is a problem not of economy, but political economy. Even if we know what an ideal Charter City looks like, have we mapped out how to get there amidst the lobbyists, big business, and international interests?

I think the crucial thing Chris is missing here is that, unlike say health-care reform, there really isn't any powerful constituency that would oppose Charter Cities. Lobbyists of all and any colours have no reason to fight them. Big business - all big business - has much to gain and nothing to lose. I find it hard to think of many scenarios where 'international interests' take offence. There are gains from Charter cities that can be split between stakeholders so that everyone's happy.

Even if you think there are cases where some interest group objects, Charter Cities are small enough to ensure no-one stands to lose so much that they can't be brought around.

Maybe it's time someone started tracking membership of the Charter City club (modeled along the lines of the Pigou club). In that case, count me in.

Here is Paul Romer's excellent TED talk on the promise of charter cities. The Charter Cities website summarises the concept and offers some indicative examples:

All it takes to grow a charter city is an unoccupied piece of land and a charter. Action by one or more existing governments can provide the essentials. One government provides land and one or more governments grant the charter and stand ready to enforce it. What might a charter city look like?

Case 1: Canada helps a Hong Kong blossom in Cuba
For decades, the Unites States and Cuba have been parties to a treaty that gives the United States administrative control over a portion of Cuban territory straddling Guantanamo Bay. In a new treaty signed by the United States, Cuba, and Canada, the United States could give up its treaty rights, and Canada could take over local administration for a defined period of time.

An administrator appointed by the Canadian prime minister would be responsible for setting up and enforcing the rules that apply in this special territory. The legal protection and institutional stability that the Canadians provide would attract foreign investors and foreign citizens to the city. As the city grows, the Cuban government would gradually allow freer movement of people and goods between the land it governs and the charter city. At the same time, supporting cities and suburbs would grow up on the Cuban side of the city’s boundaries. The charter city itself would eventually return to Cuban control.

In this case, a treaty creating a special administrative arrangement already exists and Hong Kong provides a model for how a city might be governed. An interesting variant would be one in which several countries (e.g. Canada, Spain, Norway, Mexico, and Brazil) stand in place of Canada alone.

Case 2: Australia and Indonesia create a new regional manufacturing hub
In a treaty that Australia could sign with Indonesia, Australia would set aside an uninhabited city-sized piece of its own territory. An official appointed by the Australian prime minister would apply Australian law and administer Australian institutions, with some modifications agreed to in consultation with the government of Indonesia.
People from Indonesia, many of them lower-skilled workers, could come live as temporary or permanent residents in this zone, but would remain citizens of Indonesia. A portion of their labor income could be taxed and return to the government in Indonesia. Levels of free public services and welfare support would be comparable to those in Indonesia. As citizens of Indonesia, the Indonesian inhabitants of the city would have no claim on residency or citizenship in Australia proper. They would be subject to the same immigration controls whether entering Australia from this zone or from Indonesia.
Highly skilled workers from all over the world would be welcomed as well, but would be subject to the same immigration controls they would face from their home countries. Australian citizens and firms would be able to pass freely between Australia proper and the new charter city.
As part of the treaty, the Indonesian government could agree to award the chance to move to the new city preferentially to residents from a small number of rural areas where people practice environmentally harmful forms of subsistence agriculture and forestry. The government could designate part of the land to be freed up in this way as a nature preserve, setting aside a much smaller portion of the now uninhabited land for a charter city of its own.

The Brawn fairytale

2009-10-20T19:55:00.000Z

Andrew Benson chronicles a remarkable year for Brawn GP. Apparently (although not in the track), the car was 'a botch job':

[The Brawn car] was the fastest thing in the field by a mile, and Jenson Button went on to win six of the first seven races, the foundation for the championship he finally clinched on Sunday.

What is less well known, though, is that the car is, in the words of my source, "a botch job".

It was designed for a Honda engine, and it was not until December that the team knew they would be using a Mercedes. That necessitated some pretty crude changes.

"The chassis had the back six inches cut off to fit the engine in - the sort of thing you wouldn't normally do even with a test car," says my source. "And the gearbox was in the wrong place because the crank-centre height is different. There's a massive amount of compromise in the cars."

Never buy insurance for small things

2009-10-20T01:28:00.001Z

You should never buy insurance for anything you can afford to replace, and you should always buy insurance for those things that you wouldn't be able to cover yourself (healthcare and fire insurance are good examples).

This way, you won't have to pay the insurance premium (moral hazard, adverse selection and overheads go away), and you will save money in the long run, even if stuff breaks from time to time. If you want some more solid numbers, Tim Harford suggests in an excellent Slate piece that by doing this you could save more than 90%* of what you would pay on buying insurance from third parties.

Whenever a retailer offers you an extended warranty, simply transfer that amount of money into a dedicated savings account.

When problems arise, you can simply pay for the repairs (or replacement) out of your warranty fund. And once the fund builds up to a sufficiently healthy size, you can back off on your contributions.

Remember… These warranties are designed to be profitable. Thus, more often than not, you’ll come out ahead by skipping them entirely.

Fivecentnickel has more, HT Argmax.

*More than 90%, because the profit insurers make only reflects their overheads, and does not take into account the additonal efficiency generated by solving the moral hazard and adverse selection problems.

Modern women

2009-10-20T00:01:00.006Z

Man, you gotta understand - they are in a hard place. On the one hand they are hardwired to want kids, and on the other there are all the stimuli of modern society, and the two don't mix easily. It's all a bit of a mess, really.

The wisdom of Frag. The analysis is spot on for the 22-38 demographic.

Mad Men creator Matthew Weiner on consuming culture

2009-10-19T21:59:00.001Z

I met this guy who was creating software where you could watch Mad Men and you could chat with your friend while you're watching it, and things would pop up, and facts would pop up, and I said, "You're a human battery. Turn the fucking thing off! You're not allowed to watch the show anymore. You're missing the idea of sitting in a dark place and having an experience."

He is Tyler Cowen's nemesis - Tyler walks out of almost every movie and leaves most books unfinished. A small part of me wants to be more like that, but in the end I can't really bring myself to disagree with Matthew Weiner.

And by the way, here's an (unrelated) excellent interview at Vulture (it starts getting interesting 4-5 paragraphs in).

Technorati

2009-10-19T00:46:00.002Z

Picture taken at Technorati today about 30 seconds before posting (1:44am UK time).

I'm sure they'll fix it shortly, but I really want to say: Thanks Technorati, you made my day.

It scares me

2009-10-18T23:24:00.000Z

Milgram redux, and I'm not at all surprised by the results. I observe this trait every day, everywhere, and it scares me to bits. I have never personally witnessed it culminate to brutal violence, but no violence is needed; I have seen much evil come of it at my workplace, in public debate, and even amongst my friends. All that is needed is blind loyalty to authority, to prevailing moods and cliches. A willingness to take a mental shortcut even though someone's welfare or dignity is on the line.

There are too many Hanna Schmitz; and the thought I may unwittingly become one myself - even in a much smaller way - horrifies me.

I think about Milgram's experiment almost every day. My desire to be someone who refuses to continue may define who I am, or would like to be, more than anything else.

Friday Special 126

2009-10-16T15:26:00.000Z

Cranberry harvest in Wisconsin and more fall 2009 scenes from around the world

Funny graphs

2009-10-16T02:27:00.000Z

Dave sent those via email - I've seen some of them before, but they are still hilarious (note: there's more graphs under the fold).

Btw, this is the only kind of pie chart that doesn't make me angry.