The Shrubbery

Moving Day

2007-12-28T21:44:00.000+01:00

Tomorrow, this blog moves to Essential Economics, essentialeconomics.blogspot.com, where posts will be updated regularly. We hope that loyal readers will follow us to our new location and visit frequently.

Please accept our apologies for any inconvenience that may have been caused.

Aligning (marginal) incentives

2007-12-13T12:46:00.000+01:00

Being a Nobel Laureate possibly the greatest honor a scientist can achieve.
In addition to the honor, the laureates receive a diploma, a medal and 10 million SEK.

As if this was not incentive enough, researchers at University of California get the right to park at designated "NL" (Nobel Laureate) parking spots.

The Milton Friedman Choir

2007-11-27T12:21:00.001+01:00

On this blog, we have previously featured Milton Friedman related posts. Here is another one, where Friedman goes to the music.

HT: Greg Mankiw

The Great Depression Revisited

2007-11-27T12:13:00.000+01:00

Today, in The New York Times, professor Robert J. Shiller at Yale draws for attention as he compares the current decline in housing prices with the decline we saw during the Great Depression. He calls for innovation in the real estate institutions, just as we saw in in the early 1930ies.

After a few months, I'm happy to again contribute to The Shrubbery.

iPhones want to be free

2007-08-29T10:01:00.000+02:00

The waiting is over - iPhones are free! Check out this hack at youtube - it seems promising. Can't wait to see the app :)

Robert H. Frank Speaks at Google

2007-08-26T19:52:00.000+02:00

Cornell’s Robert H. Frank on the principals of economics:

A Rubik's Cube Solution That Could Improve Your Life

2007-08-16T21:50:00.000+02:00

Northeastern University computer scientists Gene Cooperman and Daniel Kunkle has solved all 43 quintillion (one followed by 18 zeros) possible states of the Rubik’s cube in only 26 moves.

They believe that their particular method for searching and enumerating states of the cube can be applied to even bigger problems. For example, their method used to explore the countless routes to a Rubik’s Cube solution could also be used to identify the best flight schedule or the fastest way to route phone calls.

Racial Bias In Baseball Umpiring?

2007-08-16T11:30:00.000+02:00

Economists from McGill University and UT-Austin have just studied racial bias in baseball umpiring, specifically ball/strike calls on pitches at which the batter does not swing. Here's the punch line:

The highest percentage of called strikes occurs when both umpire and pitcher are White, while the lowest percentage is when a White umpire is judging a Black pitcher. What is intriguing is that Black umpires judge Hispanic pitchers harshly, relative to how they are judged by White and Hispanic umpires; but Hispanic umpires treat Black pitchers nearly identically to the way Black umpires treat them. Minority umpires treat Asian pitchers far worse than they treat White pitchers

This is in line with Justin Wolfers claim that Black officials call more fouls on White players in the NBA and vice-versa.

Annoying Airlines

2007-08-15T23:13:00.000+02:00

Flight delays, cancelled flights, lost baggage, poor on-board service, overbooking, we’ve all tried it. Isn’t surprising that the increasing competition amongst airlines hasn’t made the service better? Gary Becker doesn’t think so.

He argues that greater competition among airlines has lowered the prices, thereby making air travel available to millions of people for whom it would have been financially out of reach under other circumstances. He goes on:

When planes are running at or near capacity, even small weather, security, or other shocks to the system can create major headaches. With high occupancy rates, it becomes difficult to rebook on other planes when flights are cancelled, baggage delivery is slowed and more baggage gets misplaced, the limited number of toilets on flights are more intensively used, and have become dirtier and more likely to clogg up, overbooking grows to a much bigger problem, and delays get longer even when the number of flights do not increase because some passengers and baggage are late for connecting flight. In many other ways as well, flights are just much more uncomfortable when all or almost all seats are occupied.

Are Men Promiscuous Or Just Liars?

2007-08-14T10:28:00.000+02:00

NYT reports on a survey, recently reported by the U.S. government, which concluded that men had a median of seven female sex partners. Women had a median of four male sex partners. Another study, by British researchers, stated that men had 12.7 heterosexual partners in their lifetimes and women had 6.5.

Can these surveys be right? In my mind the logical answer must be – no. Men and women in a population must have roughly equal numbers of partners. I think Berkeley professor David Gale explains the intuition well:

By way of dramatization, we change the context slightly and will prove what will be called the High School Prom Theorem. We suppose that on the day after the prom, each girl is asked to give the number of boys she danced with. These numbers are then added up giving a number G. The same information is then obtained from the boys, giving a number B.
Theorem: G=B
Proof: Both G and B are equal to C, the number of couples who danced together at the prom.
Q.E.D.

So, when men report many more relationships than women, are they really promiscuous or just plain liars? It could also be that woman lies because they want to signal that they are chaste and faithful.

Economical Numbers

2007-08-13T15:07:00.000+02:00

David Reiley will be visiting University of Copenhagen in September. He has a nice quote on his website:

There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.

-Richard Feynman, physicist, Nobel laureate (1918-1988)

Zero-Overhead Donating Over At MR

2007-08-13T10:01:00.000+02:00

Tyler Cowen is experimenting with zero-overhead giving (and promoting his new book) over at MR. Cowen want to send money to people in India, to people who are not expecting it and who will not be asked to do much of anything to get it.

Here’s the deal: Cowen is asking the readers of MR to tell him names of people in India he should send money to. By the end of the week he will send $1000 to India. One person will receive $500, the other five recipients will get $100 a piece. If/when his book is published in India, further people will receive transfers equalling at least the net, post-tax value of his Indian advance. Finally, he’s also asking his readers to make merit-based donations to India.

So if you want to be part of his experiment hurry-up because the selection algorithm for persons worthy for receiving the donation will favor early entrants. Read more here.

Hope For Lwala

2007-08-10T11:37:00.000+02:00

Once in your life (or may be twice if you’re lucky) you’ll meet somebody who's story profoundly changes the way you look at the world. For me it was an extremely friendly Kenyan – Milton Ochieng (pictured).

Seven years ago Milton became the first person from his village in Kenya to set foot on an airplane, let alone receive a college scholarship in the U.S. There was only one problem; his family couldn’t afford the airfare. So neighbors in Lwala sold their cows, took out personal loans, and raised nine hundred dollars. At his send-off, village elders handed Milton a plane ticket worth more than their annual incomes and told him to come back as a doctor. The scholarship was to Dartmouth, where I was lucky enough to get to know him.

During his senior year Milton received the devastating news (on email) that first his mother, and late his father had passed away due to AIDS (Milton has now lost seven members of his family to AIDS). Milton’s father served as the village’s only “physician”, though his education in the field of medicine derived from a single book he kept in his hut. His dream was to bring modern medicine to Lwala.

Milton, now medical student at Vanderbilt, set out to finish what his father started. During his first year at Vanderbilt the project gained momentum, and it quickly became a global health project. After more than three years of hard work the clinic finally opened.

Milton has realised his fathers dream while studying full time thousands miles away. He kept his promise to the people who helped pay his way to the U.S. so he could become a doctor. Building the clinic was his payback. But Milton doesn’t stop here; he’s already out fundraising again so he can get the clinic an ambulance and more drugs to treat people. You can help him here.

Milton is one of those people who truly make the world a much better place.

The Key to Success Is Apparently Disorder

2007-08-09T10:10:00.001+02:00

A supermarket chain in India has found that its customers actively prefer noise and congestion when shopping to clean, quiet browsing. So it has redesigned its stores to make them messier, noisier and more cramped. Business has boomed at the company, which is now India's largest retailer.

What I really like is that it doesn't allow haggling, which its customers would probably also enjoy, but it gives them the next best thing: it scatters its produce bins with a few inferior fruits and vegetables so that shoppers can have the satisfaction of picking out the better stuff, and come away with "a sense of victory".

When Television Is Bad, Nothing Is Worse

2007-08-08T12:30:00.000+02:00

Samwick believes that the best television programs have gotten better, and the worst programs have gotten worse. Why? Because that's what competition does when there is variety in tastes and a lofty standard for performance.

Bonds Now King Of Swing After No. 756

2007-08-08T10:42:00.000+02:00

Barry Bonds joined the pantheon of the baseball gods Tuesday night by hitting his 756th homer, passing the legendary Hank Aaron to take over perhaps Major League Baseball's most hallowed record: first place on the all-time home run list.

This settles the Barry Bonds contest over at Freakconomics Bolg. The unlucky (perhaps lucky) pitcher who gave up the home run was Mike Bacsik from the Nationals (the last guy on my list). And no - I didn’t win the contest.

Freakconomics Bolg Has Moved

2007-08-08T10:27:00.000+02:00

From now on the Freakconomics Blog will reside at NYTimes.com.

They promise us that there will be no homer-ism because they are housed in the Opinion section, and that they still can make fun of the Times when warranted, and say nice things about blood rivals like the Wall Street Journal - that’s soothing.

I wonder how much they got paid to move the blog. Remember, back in June it was valued at $1,662,005.

Becker On Social Networks And Obesity

2007-08-07T15:58:00.000+02:00

Gary Becker has also read the study in the New England Journal of Medicine that found that if your friends and family get fat, chances are you will too, thereby suggesting that obesity is "socially contagious" and can spread easily from person to person, and he has some cautions:

…it is impossible with data of the kind in the Framingham Study to be sure that social influences rather than common changes in variables unobserved by the analyst explain why weight changes move together among friends or other social groups. To isolate the effects on behavior of group influences rather than the effects of changes in common forces, one needs evidence like what happened to their weights after college students are randomly assigned to each other as roommates (there is a study of the behavior of students who were so assigned), or evidence from other situations where one can more fully rule out friendships due to common interests and backgrounds…

Still, Becker thinks, it is plausible that eating habits and leisure and work activities are significantly influenced by what peers and family are doing.

Addendum: I believe that the student behavior study Becker is referring to is by one of my old professors - Bruce Sacerdote. You can find his paper on peer effects among college roommates here (it was published in QJE).

More Stephen Colbert At Harvard KSG

2007-08-07T09:07:00.000+02:00

Colbert goes to the belly of the liberal beast to put the future politicians on the right path.

Pt. 1:

Pt. 2:

The Sociology Of Economics

2007-08-06T10:07:00.000+02:00

Mankiw has received a letter from one of his blog readers that was so interesting he had to published it. The letter is about how economists interact with other social scientist.

I especially like this observation:

The economists are the most aggressive people in the room. They have little patience for introductions, motivation, or "being nice". They want to spend the first 10 minutes trying to figure out the -entire- talk. If they're not happy, they tend to disengage. I will note that they're like this with each other also. Why are things this way in economics? There must be pluses and minuses to this way of interacting.

And Mankiw’s answer:

...Perhaps the skills that make a good economist are, for some reason, negatively correlated with the attributes associated with being an agreeable human being. That is, economics may attract people with a particular set of personality attributes, and perhaps these attributes are not the same set of attributes you might choose for your next dinner party.

I believe that Mankiw's answer applies to economist in all walks of life - not only in the ivory towers of academia.

The Economics Of Addiction

2007-08-06T10:01:00.000+02:00

Apparently Tim Hartford just put an end to his caffeine addiction, and that made him think of some wisdom from Becker.

Yes - I know addiction is an unlikely topic for an economist to tackle because most economic theory is based on rational behavior, and addiction seems to be typically irrational. But that was just until Gary Becker and Kevin M. Murphy published "A Theory of Rational Addiction," which changed how economists look at addiction. Their theory states that addicts rationally choose their poison despite knowing that it is habit-forming and dangerous, and they do so because they expect the highs to outweigh the lows.

Hartford explains this better than I can:

…the rational addiction approach is not quite as absurd as it seems. Some habits are rational to acquire. Dating my girlfriend was habit-forming enough to ask her to be my wife. So far, I have no regrets…It seems absurd to compare the decision to drink coffee or start dating with the decision to smoke cigarettes or inject heroin, but if Becker and Murphy are right, the difference is not of kind but of degree…

This flexibility makes it possible to analyze not only rational addiction to alcohol, heroin, and cigarettes but also to work, eating, music, television, their standard of living, other people, religion, and many other activities.

In Silicon Valley Millionaires Don’t Feel Rich

2007-08-06T09:09:00.000+02:00

NYT finds prove of Robert H. Frank’s theory in Silicon Valley.

Two Silicon Valley millionaires are featured in the NYT article; Mr. Steger a 51 year old self-described computer geek who has banked more than $3.5 million, which places him in the top 2 percent in the US; And Mr. Kremen, 43, founder of Match.com a popular online dating service, with an estimated net worth at $10 million, which puts him firmly in the top half of 1 percent among Americans.

Most mornings, Mr. Steger can be found at his desk by 7. He typically works 12 hours a day and logs an extra 10 hours over the weekend. Why does he work so much when he’s amongst the riches in the US? Here’s his answer:

“I know people looking in from the outside will ask why someone like me keeps working so hard,”…“But a few million doesn’t go as far as it used to. Maybe in the ’70s, a few million bucks meant ‘Lifestyles of the Rich and Famous,’ or Richie Rich living in a big house with a butler. But not anymore.”

Mr. Kremen adds:

“Everyone around here looks at the people above them,”…“It’s just like Wall Street, where there are all these financial guys worth $7 million wondering what’s so special about them when there are all these guys worth in the hundreds of millions of dollars.”

In order to keep up with the Joneses the Silicon Valley millionaires has to run faster.

The Owl And The Forest

2007-08-05T11:56:00.000+02:00

About ten years ago the U.S. Department of Agriculture asked people in Oregon about their willingness-to-pay to protect the habitat of the spotted owl - once famously referred to by Bush senior as “that little furry-feathery guy”. The staggering result was that the state as a whole was willing to pay between $49.6 million and $99 million annually to protect the habitat.

I have two caveats though: Did people really know their preference for the spotted owl – a bird that few have ever actually seen? And what incentive did they have to reveal their true preferences – they were not billed directly?

Now NYT reports that the spotted owl may be facing a threat even graver:

… another owl, known as the barred owl. Nobody is quite sure whether barred owls kill spotted owls, force them away from nests or put them under such stress that they cannot reproduce. But ever since barred owls arrived in force in spotted owl country, the number of spotted owls appears to have declined…

I wonder – how much are people willing to pay to protect the spotted owl against the barred owl?

Colbert At Harvard KSG

2007-08-05T10:43:00.000+02:00

Here's Stephen Colbert at Harvard KSG back in December. It’s funny, but also serious at times. It lasts about an hour.

To Keep Up With The Joneses

2007-08-04T19:37:00.000+02:00

In his new book “Falling Behind: How Rising Inequality Harms the Middle Class,” – reviewed in NYT - Cornell’s Robert H. Frank agues that the rise of an overclass is indirectly affecting the quality of life of the rest of the population — and not in a good way. Professor Frank believes we should look at inequality in relative terms, not absolute ones:

…A Web surfer with a 56K modem today knows, intuitively, that he is better off than he was 20 years ago, when he had to rely on a 1,200-baud modem. But when everybody else has broadband, that 56K makes you feel like a cyberloser…

People are especially affected by what Frank calls “positional goods” — things like housing and cars, in which differences in quality and size are readily visible.

…In buying bigger homes, faster computers and more powerful backyard grills, people are driven by the desire to be a part of a community and to keep up with the Joneses. If you happen to live on Park Avenue, it means buying a Monet and a 10,000-square-foot co-op to keep up with the Schwarzmans [co-founder of Blackstone]…

The end result? Frank methodically presents data showing that the typical person now works more, saves less, commutes longer and borrows more to maintain what he or she views as an appropriate standard of living. Frank’s solution? A progressive consumption tax that would discourage those at the top from spending more, thus lowering the bar.

Addendum: In a previous post I explained how we should use our money in order to maximize happiness.