disequilibrium

All asterisks lead to contradictions

2009-09-30T16:26:00.004-05:00

Free!^*

No money Down!^*

Satisfaction Guaranteed!^*

Those ubiquitous asterisks used to point to standard disclaimers about war, riots, or force majeure, but the small print at four point font now occupies tomes. There is a fine line between disclaimers, limitations, conditions, restrictions, and outright fraud. The following examples are nowhere near that line.

"Accident Forgiveness... Helps keep your rates from going up just because of an accident. Even if it’s your fault."

Fine print: "Safe Driving Bonus is based on eligible premium for prior policy period and won't apply after an accident."
[Allstate Auto Insurance]
Translation: "We forgive you! (but you still pay)"

More examples

"You won’t find a more comprehensive price guarantee available on any other travel site today."

Fine print: "Expedia reserves the right in its sole discretion to modify or discontinue the Best Price Guarantee or to restrict its availability to any person, at any time, for any or no reason."
[Expedia]
Translation: "We guarantee our prices! (unless we don't)"

"Unlimited nights and weekends. You never pay roaming or wireless long distance."

Fine print: "If your minutes of use ... exceeds your off-net usage allowance, AT&T may at its option terminate your service ... or change your plan to one imposing usage charges for off-net usage."
[AT&T Wireless]
Translation: "Unlimited! (unless it is too much)"

"Genuine Steakhouse Brand steaks are 100% guaranteed fresh."

Fine print: "Restrictions apply. Please see store for details."
[Wal-Mart]
Translation: This one is just scary. At best, it is 98% fresh?

"Think overnight, guaranteed with Express Mail"

Fine print: "Some restrictions apply, please check with your Post Office for details."
[US Postal Service]
Translation: "We guarantee overnight! (which may take a few days)"

"When you make a reservation, we guarantee to provide you with the equipment size, location, and pickup time as agreed."

Fine print: "The rental location will contact you the day prior to your requested pickup date to schedule the equipment and actual pick up time, date and location."
[U-Haul]
Translation: "Terms are guaranteed! (but changeable, by us)"

"Say goodbye to password hassles—now you can log on to your computer and your favorite Web sites with your fingerprint."

Fine print: "The Fingerprint Reader should not be used for protecting sensitive data ... use a strong password for these types of activities."
[Microsoft]
Translation: "Avoids password hassles! (by not protecting anything)"

"We have your size or its free. We guarantee to have your size in stock."

Fine print: "If we can't have it shipped into your local JCPenny store within 5 working days you will receive the pants FREE!"
[JCPenny] (via Mouse Print)
Translation: "In stock now! (now = soon...ish)"

Have more examples? Post them below. I guarantee to read them!*

*Restrictions apply. Actual reading may not occur.

Gaming the rankings

2009-06-18T14:04:00.006-05:00

Among the many issues with ranking schools, one of the most glaring is incorporating the input of those who are impacted by the result. Students reporting on MBA programs or University presidents ranking schools all put people influenced by the result in a position to influence the results. This creates quite the incentive problem.

Recent evidence comes from the rankings of schools (pdf) provided by University of Florida President Bernie Machen. The surveyed rankings are an integral part of the U.S. News ranking formula, and were obtained by the Gainesville Sun in a public records request. Other Florida university presidents were shrewd enough to "lose" theirs.

See Machen game the rankings

U.S. News treats the surveys as anonymous, meaning that a university president's ranking of his own school carries equal weight as others' rankings. On Machen's survey, the University of Florida was given the highest possible ranking, one that he granted several generally well-regarded schools only after some revision.

(excerpt of Machen's rankings)

More telling is the rankings Machen gave to other Florida public schools which are competitors for State funds. Machen rated more Florida schools as "marginal" (the lowest possible category) than schools from all other states combined.

Editors responsible for the ratings claim that "statistical methods" are used to adjust for such biases. The reality, of course, is that no statistical test can divine thoughts separate from incentives. If you asked me to rate myself as a "good person" on a scale of 1 to 10, a period of reflection would follow. If you added that my results would be anonymous, unverifiable, and come with a million dollar payment if I circled "10," you would learn nothing about me from the exercise except my responsiveness to incentives. So why would U.S. News editors contend that as-yet uninvented statistical methods protect the integrity of their results? Perhaps they, like President Machen, have a stake in the results.

UPDATE: I am not suggesting that UF does not deserve to be ranked highly along several dimensions. For example, one reader reports that UF must be at the top of its peer group in criminology, with over 4% of its students arrested annually.

Circular reasoning and the debasement of science

2009-06-09T18:15:00.013-05:00

Ranking journals is a popular pastime among academics. Each of us has a favorite ranking, largely chosen by the results fitting with our favorite publication outlets. There are more debates over the methodology of journal rankings than of ranking business schools. There may be no universal agreement on the right method but there certainly is a wrong one.

Kristie Engemann and Howard Wall have published a new ranking of economics journals. Their method consists of "a simple rule that considers citations only from a short list of top general-interest journals in economics." In short, they arbitrarily select the "top" journals, count the number of citations from these to other journals, add an adjustment here and there for effect, and presto! We determine the top journals by counting citations from top journals. Seems a bit circular.

If you walk into a random high school and want to know who the popular kids are, the Engemann and Wall method would have you identify them by seeing with whom the popular kids choose to hang out. The procedure might produce slightly different results if you started with the debate team than if you started with the cheerleading squad.^† It might not be a surprise, then, the top five journals in their results are included in the list of top journals by assumption. I don't disagree with the list, intuitively, but science should perhaps take a more objective path.

A more objective path does indeed exist. A commonly-used recursive algorithm initially assigns all journals an equal value. Each iteration of the algorithm assigns value from one journal to another based on citations. The iterative procedure, by the way, is at the heart of Google search results (replace "citations" with "links"). From the Google founders' monumental paper:

PageRank or PR(A) can be calculated using a simple iterative algorithm, and corresponds to the principal eigenvector of the normalized link matrix of the web.

The authors of the new ranking poo-poo this mathy stuff:

[The iterative] procedure is largely a black box: It is not possible to see how sensitive the weights (and therefore the rankings) are to a variety of factors. The obvious objection to our rule is its blatant subjectivity. Our counter to this objection is to point out that the [iterative] procedure, despite its sheen of objectivity, contains technical features that make it implicitly subjective.

Ummm... Sensitivity analysis even has its own Wikipedia page.

If Engemann and Wall were to start their own search engine, the Google formula would presumably be replaced with "pages with links from pages we like."

^† This is not to say that cheerleaders don't often overlap with the debate team. But, seriously, they don't.

Hat tip, Mankiw

I blame the public schools

2009-05-10T11:10:00.016-05:00

Preparing for my upcoming Canada trip, I initiated an online chat with a Sprint rep to find out the roaming voice and data rates. Sending an average-length email would, according to the agent, cost somewhere between a few cents and a few hundred dollars. Transcript below the jump.

Read the transcript

Me: Hi, I will be going to Canada this week, and wanted to know what the voice and data rates are with and without the Canada package.

Lakisha: Hi, my name is Lakisha. Thank you for your chat request. Please wait while I review your information.

Lakisha: I will be more than happy to assist you today.

Lakisha: While roaming in Canada with your Sprint device all calls will be billed $0.59/minute, data service is $0.002/KB. Sprint does offer a Canada Roaming plan for $2.99 per month; this plan reduces the voice rate to only $0.20/minute.

Me: But not the data?

Lakisha: Correct.

Me: And data is 2/10 of one cent per KB, is that right?

Lakisha: Data is $2.00 per kb.

Me: $0.002/KB is very different from $2.00/kb - could you please confirm the rate

Lakisha: $0.002/KB is the same as $2 per kb

Me: $0.002 is 2/1000th, right? Which is very different from 2.

Lakisha: The data rate if you were to use it will be $2 per kb.

Me: Above, you wrote $0.002/KB.

Lakisha: Which is the same.

Me: You're kidding, right? So, a 5KB email is $100 or 10 cents?

Lakisha: It will not be 10 cents because you will pay $2 per kb.

Me: Can you please review the transcript above. The first thing you said is $0.002/KB.

Lakisha: I do understand

Lakisha: The data rate within Canada will be $0.002kb which is compatible to $2 per kb.

Lakisha: Would you be activating the Canada reduce rate plan today?

Me: 1 cent = $0.01 ! There's a difference between using 1000KB and being billed $2 and $2000

Lakisha: You can always call our toll number which is 8882267212

Lakisha: Thanks again for choosing Sprint Worldwide chat. Have a great day.

Lakisha: has disconnected.

So, $1=$0.001 (=1/10 of one cent), and 1 kb = 1 kilobit = 1 KB = 1 kilobyte (=8 kilobits). Using Lakisha's "is compatible to" operator (you'll learn about it in higher-level math classes), a 5 KB email costs 1 cent, which is compatible to $80.

Before you go mocking Sprint, note Verizon isn't much better.

If "English Only" passes

2009-01-19T15:26:00.006-06:00

This Thursday, Nashville votes whether to prohibit public business from being conducted in any language other than English.

In an impassioned speech, Councilman Eric Crafton contends that newcomers to foreign lands must learn the local language. Strangely, this sentiment was not expressed in Cherokee, Iroquois, or Choctaw! Exhibiting his penchant for irony, Crafton delivered the speech in a recently adulterated dialect of the imperialist powers that, for effect, I adopt in this blog post.

Crafton, fresh off a three year crusade affirming Jesus Christ legislatively, is still not content wasting his time in Metro Council on such mundane issues as schools or zoning.

But there's a positive side to this bill if it passes. If English is to be mandated, every time Crafton begins a sentence with "If I was" he can be held in contempt, and required to attend a lecture on subjunctive mood.

Rules are for sissies, not MBAs

2008-09-24T08:45:00.009-05:00

At an online forum for aspiring MBA students, participants are discussing an application essay (400 word limit) for a top ten program:

Applicant 1: Quick question guys! How stringent is the word limit? I am at 423 words.

Applicant 2: I wouldn't worry about it. I've been following the +10% max rule.

Applicant 3: mmm... it's not like they count the words right? I'm thinking if you don't push it too much, they won't even notice.

A suggested essay topic for the above applicants: "Discuss the importance of corporate ethics, respect for the law, and sound editing skills. Compare the above applicant statements to the principles displayed in recent accounting and financial scandals."

The actual essay topic in question: "What is your greatest example of leadership and what personal qualities helped you succeed in that role? (400 word limit)." How about a 500 word essay on thinking outside the box?

Sunspots in Nashville

2008-09-23T10:16:00.004-05:00

Last weekend, Nashville ran out of gas. This was not because of significant shortages, but because of a belief that there were significant shortages. So, people rushed to get gas. And we ran out.

This is a demonstration of sunspot equilibria, one of the items on my still- incomplete list of the five useful things I learned in macroeconomics. What if people believed that sunspots cause the populace to turn into violent beasts who, behind their smiles, "good morning"s, and "bless your heart"s, secretly plot our demise; they appear to act normal in every way but wait for their chance to attack us. In what Charles Gibson incorrectly labeled the "Bush Doctrine," we may all contemplate preemptive self-defense by attacking first. Then, of course, sunspots did cause the populace to turn violent.

A feature of these self-fulfilling prophecies is that there are multiple equilibria; usually one very good one where we expect calm and act calmly, and another very bad one where we expect the worst and, by our reaction to it, cause it.

One simple role of government is to help coordinate the populace on the better outcome. Neither our local Nashville government, nor our presidential candidates, seem to grasp that.

What Erica Gilmore can learn from the Soviets

2008-09-04T17:40:00.008-05:00

Nashville Councilwoman Erica Gilmore has resurrected a bill banning single-bottle sales of beer in a misguided attempt to curb drinking and littering. To understand the unintended consequences of hair-trigger paternalism, we turn to the Soviets.

To curb alcohol and vagrancy, the Soviet Union tried everything from burning some of the oldest grape vines in Europe (fine wine is often the alcoholic's cheap fix) to banning sales of vodka in containers smaller than one liter. Since Ms. Gilmore has not yet suggested a torching of wine stocks, it is the latter experience that is instructive.

Vagrants of the social-drinker ilk would certainly consider a liter excessive, as three is the optimal number of people for splitting such a volume (really!). A simple social convention was born. The first thirsty citizen arriving at the store would stand outside with three extended fingers held against his chest. The symbol conveys an attempt to create a troika, or group of three held by the common interest of securing the appropriate measure of the beverage. A second would arrive and assume a similar loitering stance. Upon a third compatriot's arrival, a bottle would be purchased and shared.

Result: more loitering, more nuisance, more litter, and a slight uptick in violence, partly resolved by bringing a 1/3 liter measure.

Burning the grapes didn't do much, either, except hinder the economic growth of modern Moldova and Georgia.

Hat tip thinktrain, though one who asks "who really needs just one beer" has probably never heard of Trappist ales, imperial stouts, doppelbocks, barley wine, and, well, beer.

The media's shrill sanctimony

2008-09-04T13:04:00.021-05:00

Compare:

New York Times on single-father Biden being sworn in as Senator days after losing his wife:
"After taking office, he refused to move to Washington and commuted daily from Wilmington to help bring up his sons ... The Washington-to-Wilmington train run has since become a leitmotif of Mr. Biden's devotion to family.
[June 10, 1987]

New York Times on husbanded Sarah Palin running for Vice President:
"Ms. Palin has set off a fierce argument among women about whether there are enough hours in the day for her to take on the vice presidency, and whether she is right to try."
[September 1, 2008]

CNN on a civilian contractor choosing to go to Iraq:
"Too old at 34 to start over as a soldier, becoming a contractor is a way for Masonry to fulfill his sense of duty... Masonry is a father of three, his youngest with Down's Syndrome."
[April 26, 2004]

CNN on Sarah Palin's choice to run:
"Children with Down's syndrome require an awful lot of attention. The role of Vice President, it seems to me, would take up an awful lot of her time, and it raises the issue of how much time will she have to dedicate to her newborn child?"
[August 29, 2008]

CBS News on the credibility of the National Enquirer's John Edwards story:
"Even as some national news organizations tried halfheartedly to confirm the tawdry tale ... Only Edwards's belated confession Friday to ABC's Bob Woodruff allowed news organizations to jump"
[August 11, 2008] (10 months after Enquirer story)

CBS News on the credibility of the National Enquirer's Sarah Palin story:
"Running a story about McCain’s running mate, Sarah Palin, allegedly having an affair with her husband’s business partner ... the story is based entirely on unnamed sources."
[September 3, 2008] (10 hours after Enquirer story)

I'm not one to post on national politics (with the notable exception of my quadrennial presidential debate bingo cards), but I was very much looking forward to a proper vetting of the new candidate. Instead, we are treated to hours of self-referential tautologies ("some in the media are saying..."), statements that become true as soon as these six words are spoken.

Gloria Steinem in making the case for Hillary Clinton asked her readers rhetorically if a woman with Obama's resume would ever be taken seriously as a candidate, arguing that "there is still no `right' way to be a woman in public power without being considered a you-know-what." I actually didn't know what, until Ms. Steinem let me know describing Palin's speech as "down-home" and "divisive."

The most obvious example of this sanctimonious scandle-mongering is Politico's electron-wasting columnist Roger Simon. His most recent sarcastic screed demands to know why the media is precluded from questioning Palin's qualifications and beliefs. Three days prior, Mr. Simon demonstrated his noble journalistic inquisition in a piece titled "Sex dominates GOP's opening day," opining: "If the campaign could just manage to arrange Bristol’s marriage on stage at the convention, it might generate some much-needed positive buzz and a good photo op."

Mr Simon, perhaps the main obstacle to your journalistic pursuits is ... you.

Life, liberty, and that other thing

2008-07-08T11:59:00.019-05:00

A local recording studio is being confiscated by the city of Nashville to put it to a "higher valued use." Apparently, the music emanating from Music Row in Music City sounds sweeter from a high-tax-rate high-rise than from an historic, independent label. Joy Ford was unwilling to sell her business of thirty years to the Lionstone Development Group, the Houston-based buyer of "underdeveloped real estate assets." In response, City officials slipped under the covers with the developer to transfer the property from one private interest (its owner) to another—a Robin Hood in reverse.

I blame Karl Dean. I blame Phil Ryan. And yes, I blame (despite this being grounds for revocation of my UVA diploma) Thomas Jefferson. He should have foreseen the impact of his aspirational turning of the phrase. Sandra Day O'Connor did, but she was outvoted.

Let's review...

A bit of history

John Locke's tripartite statement of natural rights, life, liberty, and estate made its way into the first resolution of the Declaration of Colonial Rights, encoding the principles of a new nation. Thomas Jefferson, also borrowing heavily from John Locke, saw the phrase as insufficiently wishy-washy, penning "pursuit of happiness" in the place of property as the third pillar of natural rights. This was partly rectified by the fifth amendment which allows property to be ceased only for "public use."

"Public use" becomes "whatever we want"

Since railroads prefer to run more or less straight, the taking of private property was originally construed as necessary for the establishment of public utilities. Soon, towns stumbled on a remarkable idea: if we "condemn" a building and hand it over to a developer who will build a more expensive building, doesn't that raise our tax base? Isn't a higher tax base in the public interest? Answer "yes" to both questions and you have found a way around the Fifth Amendment. Public use is whatever public officials want it to be.

The Supremes

This self-serving interpretation in the face of constitutional protections is ripe for a vehement smack-down by the Supreme Court Defenders of Liberty. Alas, no. In the 2005 Kelo decision, the five-person majority expanded government's "takings" power even when (i) no blight is present, (ii) the transfer is from one private party to another, and (iii) the land use will not be open to the public. The government need only identify monetary or even "aesthetic" benefits.

In her dissenting opinion, Justice O'Connor wrote

Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms. As for the victims, the government now has license to transfer property from those with fewer resources to those with more. The Founders cannot have intended this perverse result.

Intended, certainly not. But TJ's transmutation of Locke's key word suggests that they didn't foresee it, either.

Justice Stevens, writing for the constitutionally-challenged majority (pun intended), explains that we need not worry as "legislative judgments" would carefully construe public use. Teach a man to fish...fine, but if you legalize tossing grenades into a fish-stocked pond, don't expect a hungry man to exercise "judgment." Perhaps Mr. Stevens should watch a Metro Council meeting.

Back to Music Row

And so Nashville's Metropolitan Development and Housing Agency (MDHA) (ironic motto: "We value integrity") has decided that Music Row needs more high rises, current property owners be (con)dæmned! The MDHA's authority to act as it pleases stems from a ten-year old City Council ordinance that found Music Row circa 1995 "detrimental to the safety, health, morals, or welfare of the community."

Several local bloggers have been following the story (since local purported journalist/advocate can't get off the dime):

Kay Brooks goes on location and finds that Joy Ford's business is the only thing not blighted, with surrounding properties (already owned by the developer) looking a bit neglected.
BlueCollarMuse provides adequate background in her two part series, and is not afraid to name names.
We hear tones ranging from concern to outrage at eminent domain abuses from a local home inspector, real estate investor, professor of entrepreneurship, talk show host, and more. The action is opposed by at least one Metro Council member, State Representative, and local perennial candidate.

But none of those people run the MDHA, whose Director and Board of Commissioners play with a city-sized cookie jar of private-house treats.

Two years ago, MDHA Director Phil Ryan lamented that "public housing is not a priority" at the federal level. Nashville laments that private property is not a priority for Mr. Ryan.

Where I predict a recall

2008-06-27T10:01:00.015-05:00

A parent of a toddler spends approximately half of his time teaching a child the distinction between food (not for playing) and toys (not for eating, especially when they are the choke-hazard kind). Now, a most diabolical joint venture contributes a new traverse to the gauntlet of parenting.

Read about choking children

Compare

Kellogg's, the company founded by a "physician" who espoused yogurt enemas as the key to good health, has teamed up with Lego to reduce the population of children. Here are a few basic product differences:

Lego: Fun Snacks	Lego: Pieces
Look just like Legos ...	... are just like Legos
Fun to eat ...	... will CHOKE your children
Sweet and gummy-like ...	... will CHOKE your children
No nutritional value ...	... will CHOKE your children

Here we see little Stevie approaching his play area where we secretly replaced one of his errant Lego Fun Snacks with a real Lego piece. Let's see if he notices. Good luck, Stevie!

How to become (in)famous in under three hours

2008-06-23T16:11:00.020-05:00

In a recent blog post, I took a tongue-in-cheek approach to the contentious topic of ranking business schools. The genesis of the post was a very different question: how to rank hospitals' success rates with a specific operation when some hospitals only accept less risky cases while others take on more challenging ones. Accepting only less risky cases should imply a higher success rate for obvious reasons having little to do with the quality of care. Business schools endowed with brighter, more capable students likewise should see higher success among their students independent of the quality of education the students receive.

To demonstrate this point, I provided a quick and dirty analysis, completed between the hours of 1 and 3 am, restricted to data on hand, and without the careful statistical standards that would constitute "research." The point was to show that changes to the assumptions underlying rankings can significantly change the results.

The resulting hoopla over the post, which begot university press releases and took my blog's traffic from a handful of loyal-reader friends into the thousands, is both enlightening and frightening. Below I offer a few clarifications.

See the clarifications

"What silly methodology! You've got to be kidding": I received many emails and comments of this form. The answer, of course, is "yes, I am." My friends, the frequent consumers of my blog, have sufficient personal context to inject sarcasm into my written word. I very much believe that there is insufficient discussion about what rankings try to measure, and whether they do this well. This point of my post was quite serious. However, the very aim of the post (literally stated) was to note that rankings (i) fail to account for self-selection, and (ii) are too easy to generate and cause mass hysteria among schools and students. The media coverage, some of which reported on these rankings without any hint of humor, seems to prove this point. A case in point: any ranking which offers "extra credit for sending me money ('investment index'), or publishing my papers ('scholarship discovery index')" was likely not intended to supplant Business Week.

The value of salary: I do not buy the premise that salaries equate to school quality. Assuming that some students care about social, career, and life issues apart from maximizing net present value of future salary stream, starting salaries may say more about the student's priorities than the quality of the school.

I did not "name" any school as a top school: A few universities took to releasing press releases, indicating that "an Economist names SCHOOL X Top Y." While I do consider myself an economist, that hardly confers authority status on business schools. My rankings aimed only to demonstrate that if you accept starting salary as a valid sole measure of schools, then one should contemplate the increase in salary a school provides, not its absolute value. These press releases, issued without any communication with me, became articles in papers (absent the tongue-in-cheek nature of the numerical rankings) heralding my "research."

The self-selection bias is ever-present: An editor at Business Week blogged about my rankings. Despite ever so slightly impugning my motives (and misspelling my name), he seems like an all-round good guy and found "a lot to recommend" about my methodology, though perhaps in part because he viewed my post as more critical of US News than Business Week's ranking methodology. While Business Week does not explicitly include GPA or GMAT in its rankings, recruiter evaluations of students still necessarily conflate the quality of the student with the quality of the school. Recruiters are not asked "how much do you think the school contributed to this individual's market value above what she would likely have had if she went to another school?" Instead, a recruiter simply saying "I like these students" can very well reflect that the kind of students that go to this school would be well-liked by recruiters even if they went elsewhere or did not pursue an MBA.

This is not "research": Not all mutterings by those of us in ivory towers constitute research. Some are just mutterings. While I would love for a journal editor to attest to my PTRC that my blog has contributed to general knowledge, the standards for research are quite different from those for personal blogs. While I was unaware of them at the time (my research priorities have nothing to do with ranking schools), several articles that did survive (or are currently in the process of) peer review offer similar methodologies or conceptual discussions for ranking business schools:

Tracy and Waldfogel, Journal of Business, 70, 1.
Dichev, Journal of Business, 72, 201.
Bednowitz, CHERI Working Paper #6, 2000.
Arcidiacono, Cooley, Hussey, International Economic Review, forthcoming.
Devinney, Dowling, Perm-Ajchariyawong, Australian School of Business Working paper, 2007.

So why did you do this?

geekiness
sleeplessness
curiosity

I should have learned my lesson last year. The only other post of mine ever to receive attention was my ranking of local restaurants by wine prices. It, too, resulted in well-placing restaurants citing my "study" under their list of "awards" and received its share of detractors from those lower down the list.

Methodology versus assumptions: If I was to rank dog breeds by average size, a careful methodology would account for variance, measurement error, etc. If I then labeled this list "The top dogs for kids" one should pause, wondering what breed size has to do with loyal pets. The methodology I employed had significant disclaimers, but was mostly correct. A follow-up by resident statistician extraordinaire Bruce Cooil found an empirical model that improves on mine. This is not surprising since Bruce ranks first on the noted Global Statisticians by Efficacy annual ranking, though his tweaking, while resulting in a statistically superior model, leads to few qualitative changes.

In any event, methodological questions like "did you account for standard error," or "did you account for ..." any of the other million issues miss the point entirely. Clearly, I didn't (though those questions are better directed to the publishers of rankings that people actually use to make life-altering decisions). Instead, ask what the rankings ought to measure, and if the methodology achieves that aim.

The best "breed" of dog, of course, is a mutt.

Where I take a turn at ranking business schools

2008-05-30T04:05:00.028-05:00

Rankings of business schools generally fail to evaluate the inherent quality of an institution, instead ranking the people who choose to attend it.

UPDATE: If you came here from a source that did not make clear the wry, tongue-in-cheek nature of my rankings, also read the clarification.

An MBA student from UC-Davis will graduate, on average, with a starting salary that is $30,000 lower than a graduate from nearby UC-Berkeley. Can we take from this that two similarly-credentialed students at the two schools would have such a high difference in their market values? This reasoning ignores the selection bias. A student accepted by both schools is quite likely to choose the one often ranked in the top 10.

As long as top candidates choose to go to top programs, a higher ranking confounds the quality of students and the quality of a school. The proper interpretation of Business Week's rankings, for example, is not that Harvard is a better school than Blah College, but that the type of students who go to Harvard do better after graduating from Harvard than the type of students who go to Blah College after graduating from Blah. Thus, a high starting salary for Harvard graduates might imply that Harvard's professors can polish rough stone into beautiful rubies, but it is also possible that Harvard has the benefit of students who could have very well succeeded anywhere. (Note: I pick on Harvard because it actually does quite well in my rankings, supporting the rubies theory).

Which schools do best with the students they have? Traditional rankings fail to tell a given student with a given skill set which schools are most likely to increase his market value. That's the goal of these rankings, highlighting that a change in methodology significantly alters the results. Methodological disclaimers (and there are many) are at the very bottom.

On to the rankings ...

Ranking of Business Schools by Efficacy

			Data
Rank	School	Market Value	GMAT	GPA	Adj. Sal
1	Cornell (Johnson)	$14K	682	3.31	118
2	Indiana–Bloomington (Kelley)	$13K	656	3.37	104
3	University of Virginia (Darden)	$12K	688	3.33	120
4	Texas–Austin (McCombs)	$12K	673	3.38	109
5	Harvard	$8K	713	3.63	134
6	Vanderbilt (Owen)	$7K	644	3.27	101
7	Rice (Jones)	$6K	642	3.25	100
8	Minnesota–Twin Cities (Carlson)	$7K	661	3.37	99
9	MIT (Sloan)	$6K	705	3.5	126
10	Maryland–College Park (Smith)	$6K	650	3.34	98
11	Georgetown (McDonough)	$6K	677	3.26	108
12	Ohio State (Fisher)	$6K	661	3.41	97
13	NYU (Stern)	$6K	700	3.4	123
14	Duke (Fuqua)	$6K	690	3.38	114
15	UNC–Chapel Hill (Kenan-Flagler)	$6K	681	3.27	110
16	Brigham Young (Marriott)	$5K	661	3.53	93
17	Rochester (Simon)	$5K	673	3.52	98
18	Texas A&M (Mays)	$5K	665	3.4	97
19	Northwestern (Kellogg)	$3K	704	3.5	122
20	Boston College (Carroll)	$3K	651	3.35	94
21	Univ. of Pennsylvania (Wharton)	$2K	712	3.53	130
22	Columbia	$2K	707	3.4	128
23	Southern Methodist (Cox)	$2K	640	3.3	95
24	Arizona State (Carey)	$2K	675	3.44	98
25	Wisconsin–Madison	$1K	656	3.37	92
26	Michigan State (Broad)	$1K	633	3.22	97
27	Chicago	$1K	709	3.5	126
28	Yale	$1K	700	3.47	116
29	Purdue (Krannert)	$0K	662	3.32	94
30	Penn. State (Smeal)	$-1K	650	3.3	92
31	Emory (Goizueta)	$-1K	685	3.3	106
32	Washington Univ, St. Louis (Olin)	$-2K	674	3.38	95
33	Michigan–Ann Arbor (Ross)	$-2K	700	3.3	118
34	Illinois–Urbana-Champaign	$-2K	627	3.4	92
35	UCLA (Anderson)	$-2K	704	3.6	114
36	Boston University	$-3K	668	3.38	92
37	Dartmouth (Tuck)	$-4K	713	3.46	127
38	Carnegie Mellon (Tepper)	$-5K	696	3.32	111
39	Georgia Institute of Technology	$-5K	665	3.4	88
40	Babson College (Olin)	$-5K	631	3.21	93
41	Stanford	$-5K	721	3.61	133
42	Notre Dame (Mendoza)	$-7K	673	3.2	95
43	Univ. of Southern Cal. (Marshall)	$-8K	689	3.3	102
44	Univ. of Washington (Foster)	$-8K	679	3.38	92
45	U. California–Berkeley (Haas)	$-9K	710	3.57	115
46	Univ. of California–Davis	$-11K	674	3.37	87
47	Univ. of Iowa (Tippie)	$-15K	652	3.34	76
48	U. California–Irvine (Merage)	$-16K	667	3.34	79
49	Univ. of Georgia (Terry)	$-16K	653	3.4	74
50	Univ. of Florida (Hough)	$-30K	680	3.4	70

These rankings consider only the 50 schools in the most recent U.S. News rankings. Specific methodological details are available at the bottom.

Adjusted salary (in thousands of dollars) reflects both the starting salary of those employed within three months of graduation, and a downward adjustment for those who are not.

Market value denotes the difference between a school's adjusted salary and what that school's students would expect to earn (given their qualifications at admission) at an average business school (for a loose definition of an "average" school in this context, see no. 29). A student with a high GMAT score and an exceptional undergraduate GPA is likely to receive higher offers than one with lower scores regardless of the MBA program he attends (not because of the undergrad GPA, but because of what it reveals about the person). Market value indicates how much a school improves on this given its actual student population.

The notion of market value is akin to the distinction between two corporate tasks: recruiting the best talent, and guiding that talent to its potential. Most of the popular business school rankings are biased towards achievements in recruiting, while the above rankings measure efficacy with the given talent. Of the U.S. News top ten, only Harvard and MIT are also in the top ten in efficacy. Conversely, Stanford and Berkeley, also top ten U.S. News schools, are in the bottom ten here, suggesting that members of their admissions staff deserve sizable bonuses.

By way of example, UT-Austin, Wash U, St. Louis, and UC-Davis admit nearly identical student bodies, quantitatively, yet differ greatly in the market's value of these students two years later. On the other hand, Yale and Cornell have nearly identical starting salaries, and therefore end up only one spot apart in U.S. News. Yet, given the superior class, in terms of GMAT, GPA, and selectivity, Yale should do better, thus ranking in efficacy 27 spots below Cornell, which takes the number one spot.

So, what's the goal of this? Perhaps there's a deep philosophical point about the purpose of education. I adopt market salaries as a measure of value purely because it is available, and is the most common quality measure in business rankings (or perhaps because of my unfaltering adherence to the social philosophy underlying classical economics). There's also a mundane point: rankings are not difficult to generate, easy to game, and even easier to tailor toward mass hysteria and overreaction. To that end, extra credit ("adjustment factors") will be applied to next year's rankings for posting a comment below ("brand management and awareness index"), sending me money ("investment index"), or publishing my papers ("scholarship discovery index").

METHODOLOGY

Disclaimer: This was done in great haste, and, in keeping with tradition of business school rankings, without too much regard for the appropriateness of statistical procedures.

Overview: The rankings are based on the residuals in a regression of average GPA and GMAT score on adjusted starting salary. That is, a school's score is the difference between its adjusted starting salary and the predicted salary from an ordinary least squares regression.

Data: Obtained from the 2009 U.S. News rankings of the top 50 business schools, which compiled data on the 2007 graduating class.

Adjusted salary: All students not employed within three months of graduation are (pessimistically) assumed to have a salary equal to 80% of the average salary of employed students at their institution. This biases results against schools with low placement rates. If S=average salary and e=percentage employed, then
adjusted salary = Se+.8S(1-e)

Model selection: The only predictive variables of average earning potential available are average GPA and GMAT, though these are not bad as far as instrumental variables go. A model linear in GPA and/or GMAT badly fails specification tests. Various transformations of average GPA and average GMAT were tested. The final model is given by:
adjusted salary = GPA + GMAT + GMAT^2
The model has an adjusted R²=0.70. Both GMAT parameters are highly significant (p<.001) and GPA is marginally significant (p=.084).

Residuals: From the estimated model, we obtain the studentized residuals by which schools are ranked. The "value" reported is simply the difference between actual and predicted adjusted salary.

Diagnostics: I ran all of the diagnostic tests that I could think of in three minutes. Heteroskedasticity is not a problem. Specification tests are mixed. Test for normality: not even close. GMAT and GPA are not significantly correlated with the final rankings. Overall, on the tests, some looked good, some didn't. After all, if the methodology was completely sound, how could I tweak it next year to produce an entirely different ranking despite very little change in the schools?

Bias: All of the above methodology was performed prior to matching the rankings to the identities of the schools. If I have a bias, it is this: those who rank schools based on whether its faculty's books make your journal's best seller list or on the number of downloads from your proprietary system antithetical to the open access concept of working papers, or who threaten to drop schools from the rankings for adhering to ethical privacy standards, are cynical freeboating knaves.

Country music and occupational hazard

2008-04-08T15:37:00.005-05:00

In a week, my street will again be closed to roll out the red carpet for the fan-voted CMT Music Awards, a night where the Average Joe decides who best expresses in musical form the malaise of a life of run-down trucks and sickly stray dogs.

While some will inevitably feel compassion for the stars who force artifical, botox-meliorated smiles along with polite claps when their rivals' names are announced, my real concern is for the fans. As professors Steven Stack and Jim Gundlach reported in a study several years ago, listening to country music causes you to kill yourself:

The results of a multiple regression analysis of 49 metropolitan areas show that the greater the airtime devoted to country music, the greater the white suicide rate. The effect is independent of divorce, southernness, poverty, and gun availability. The existence of a country music subculture is though to reinforce the link between country music and suicide.

The authors conclude that someone already at risk of suicide can be pushed over the (figurative) edge by listening to musical reinforcements of themes such as alcoholism and alienation. Unfortunately, the study suffers from two common fallacies in interpreting causality.

First, that prolonged exposure to country music can lead some to rip off their own ears, even at risk of death, can be explained by many much simpler theories. For example, this could simply be because a majority of the population is not deaf. Alternately, those with elementary school-age children may have tired of the simplistic rhyme patterns ("weather," "better," and "sweater"? "freedom and "need'em"? Really, Mr Urban).

Second, always check if reversing the hypothesized causality is equally sensible. Why conclude that listening to country music causes one to give up on all pleasurable pursuits on earth, rather than the other way around?

Addendum: I apologize to elementary school-age children for equating your creativity to that of country music's greatest. I expect most kids (unlike Patty Loveless) would know the difference between horribly executed puns and clever song titles. Case in point: "Timber! I'm Falling in Love."

Kentucky lawmaker misses forest, trees, dirt, leaves, ...

2008-03-10T11:08:00.008-05:00

I get to take a break from mocking my own elected officials to recognize the truly dumbarse lawmakers in a neighboring state. After apparently resolving the less important problems facing Kentucky, Representative Tim Couch (mug on right) turned his attention to more substantial issues:

Kentucky Representative Tim Couch filed a bill this week to make anonymous posting online illegal. ... If the bill becomes law, the website operator would have to pay if someone was allowed to post anonymously on their site.

What major constitutional doctrine does our sanguine legislator forward as more important than freedom of speech?

Representative Couch says he filed the bill in hopes of cutting down on online bullying.

Ah yes, the 593rd Amendment: Freedom from (anonymous) bullying. Beyond the constitutional, jurisdiction, enforcement, and due process issues this raises, did the good lawmaker even think about the benefits of anonymity which just might offset a little bit of the verbal abuse that plagues our thin-skinned technocrat? Perhaps the twelve step programs, including Alcoholics Anonymous and Narcotics Anonymous could change their names. I presume the many online forums for childhood abuse, rape, and spousal abuse survivors would benefit from banishing bullying in their midst. What of online medical forums, corporate whistle-blower and crime reporting sites?

Really, I don't blame Tim. He obviously had that rare combination of political ambition to help his fellow Kentuckians and ability to spell his name sufficiently close to what appears on legal documents to satisfy the (seemingly low) standards to get on the ballot. My blame is reserved for everyone who voted for him without checking if he was at least sentient.

Can't legislators get back to the important issues, like proposing legislation that declares Cornhole the official game of Kentucky? Really! Go check! Maybe my high school's bully was right when he declared that the ones who get bullied are just asking for it.

Where I suggest a new slogan for Harvard

2008-03-04T18:02:00.020-06:00

Harvard University has decided to require faculty members to deposit all published articles in an open-access online repository. The announcement comes with the standard (and well deserved) attacks on journal publishers, but an even greater dose of hypocrisy wrapped in lip service about dissemination of knowledge.

The proposal begins with the preamble:

The Faculty of Arts and Sciences of Harvard University is committed to disseminating the fruits of its research and scholarship as widely as possible.

An exception in the policy is made, however, for articles sold for profit. Whose profit? Obviously, not the profit of journal publishers.

One faculty proponent of the open-access policy explained the policy's implications:

In place of a closed, privileged, and costly system, it will help open up the world of learning to everyone who wants to learn.

Certainly, this noble institution would lead only by example, demanding of others no more than it demands of itself! I rushed to the websites of the Harvard University Press and Harvard Business Case Studies where they would now be offering free downloads of books and teaching cases, disseminating this knowledge as broadly as possible.

Surprisingly (okay, not really), I found instead:

A popular one page classroom example on the strategic implication of rebates costs $7 per student! That's a much higher per-page cost than most academic journals.
In sardonic irony, a Harvard teaching note titled Should Nonprofits Seek Profits? can lead to spirited classroom discussion only after depositing several hundred dollars into Harvard's coffers.

I propose a new tagline for Harvard:

Harvard.
Standing on principle

(when its not our principal)

The Lord's work now less mysterious

2008-02-12T13:13:00.000-06:00

Apparently fed up with misinterpretations of more subtle interactions with humans (such as the nun bun, pictured, at a coffee shop behind my house), your deity-of-choice has decided to be a bit more literal.

The behemoth statue of Jesus in Rio de Janeiro was struck by lightning last weekend.

On an unrelated note, from the Psalms of David:

Bow your heavens, O Lord, and come down; touch the mountains, and they shall smoke. Cast forth lightning, and scatter them; shoot out your arrows, and destroy them.

Brazilians (with help from Pascal's Wager) maybe should look for alternate nations to inhabit.

You're a geek if...

2008-02-12T13:08:00.000-06:00

The setup: The Associated Press reported today that Minnesota is experiencing temperatures of forty degrees below zero!

The punchline: Is that Fahrenheit or Celsius?

If you laughed, you are (like me) a geek.

Whatever the scale, Minnesotans may be asking for a bit of that Global Warming to come their way.

Everyone is a winner!

2008-02-06T14:59:00.001-06:00

A two-person political race should be as close to a zero-sum game as we can imagine in practice. Apparently, this is not the case for the Democratic side of Super Tuesday.

Depending on whether you count the national popular vote, number of states won, yesterday's pledged delegates, cumulative pledged delegates, or include current inclinations of "super-delegates" (the stodgy, voter-demeaning, party apparatchiks), everyone can win:

Obama Claims 9-Delegate Win
[The Nation]

Clinton Edges Obama
[Arizona Daily Star]

Obama claims lead in delegate count
[Boston Herald]

Clinton leads delegate count
[Associated Press]

Obama, Clinton neck and neck
[Chicago Sun Times]

Clinton Takes Lead
[Pensacola News Journal]

Superdelegates To Clinton's Rescue?
[CBS News]

Where can one turn for answers? Who can explain how Obama both won and lost Nevada? Certainly the Democratic National Committee will provide the requisite analysis and definitive results!

No such luck. They are too busy watching another race:

Not even a mention of the democratic race? Really?

"Don't believe that winning is really everything. It's more important to stand for something. If you don't stand for something, what do you win?”
-- Lane Kirkland

Lane Kirkland, sixteen-year head of the AFL-CIO, was sometimes critical of the Democratic party. I wonder what he would think now.

The poor children

2007-12-24T13:55:00.001-06:00

Jake starts school next year. Public school. In Nashville. And I'm scared.

The Chief Administrator of the Nashville public school system (i) can't write, and (ii) has not come to terms with his disability, or he would have hired an editor. From Benjamin Wright's page:

Mission Statement: To provide guidance and assistance to local schools in effectively fulfilling their administrative duties and responsibilities in doing whatever it takes for all students to acquire the knowledge, skills, and experiences to become productive, responsible citizens.

Lesson 1: Schools no longer teach how to diagram a sentence.

And my tax dollars fund the electrons that make this mission statement possible.^[1]

Belief Statements: accept that leaders are responsible for insuring that others are successful.

Lesson 2: Homonyms are a bitch. Or, if your child fails, call Mr. Wright to file a claim.

UPDATE: As Ben Wright might say, I'm even scareder for my son's future now, after discovering his self-promotion site.

Mr. Wright is a visionary Transformationalist with over thirty-three years experience implementing paradigm and pedagogy changes

Mr. Wright is available for speeches: "He is beyond being a motivational speaker, but rather spiritual, knowledgeable and an action oriented presenter." Perhaps your ESL group can hire him?

Want a fuller fisking?

UPDATE June 2008: Fortunately, the web page referenced in my post is no longer Ben Wright's. Despite apocolyptic predictions that he would eventually be the Director of Schools, Mr. Wright resigned in February, presumably to concentrate full time on his transformationalist pursuits. Back in December, Mr. Wright informed me by email that he "will have the page edited and corrected as soon as possible." No need to tidy things up if moving out, but the page's new resident, Assistant Superintendent Sandra C. Tinnon, has redecorated with an editor's brush, properly distinguishing between "ensure" and "insure."

^[1] The same tax dollars send over these intertubes a 1.4 MB picture of Mr. Wright to every visitor. Note for the twelve year old empowered with the html programming job for Metro schools: setting an image size within the html code does not actually change the size of the image.

Business ethics, part 2

2007-12-16T18:04:00.000-06:00

In order to live, man must act; in order to act, he must make choices; in order to make choices, he must define a code of values ... He cannot escape from this need; his only alternative is whether the philosophy guiding him is to be chosen by his mind or by chance.

The quote, from Philosophy and Sense of Life by Ayn Rand, is a less pithy (and less fatalistic) version of Socrates: "An unexamined life is not worth living." From A Man For All Seasons by Robert Bolt:

Margaret: In any State that was half good, you would be raised up high, not here, for what you’ve done already. It’s not your fault the State’s three-quarters bad. Then if you elect to suffer for it, you elect yourself a hero.

Thomas More: That’s very neat. But look now ... If we lived in a State where virtue was profitable, common sense would make us good, and greed would make us saintly. And we’d live like animals or angels in the happy land that needs no heroes. But since in fact we see that avarice, anger, envy, pride, sloth, lust and stupidity commonly profit far beyond humility, chastity, fortitude, justice and thought, and have to choose, to be human at all ... why then perhaps we must stand fast a little -- even at the risk of being heroes.

Now, back to grading essays on business ethics ...

Ethics, economics, denial

2007-12-06T18:00:00.000-06:00

Despite Nick Carr's insistence that Greg Mankiw stop blogging to concentrate on his comparative advantage as an economic thinker, I'm glad Mankiw continues with his inefficient pursuit. From a recent entry:

If, however, beauty is correlated with income, which it is, then like height, it should be taxed, even according to the logic of utilitarianism.

Professor Mankiw, citing evidence that better looks lead to higher incomes, notes that a social planner (with commonly assumed preferences), would wish to allocate income from the rich and beautiful to the poor, less well-endowed among us. I fully expected a dismissal of the ethical consequences, in the traditional economic mold, but instead was treated to this:

Most people would reject a beauty tax as absurd, which only goes to show that that most people do not share the moral sentiments often assumed in the economic literature on optimal tax policy.

I sometimes make the mistake of raising a question with colleagues in economics and finance about the ethical implications of traditional economic assumptions. I usually receive some form of "these are just assumptions, not ethical issues" in reply, taking neither side in the debate on scientists' social responsibility, but simply sidestepping the rhubarb.

After all, how can normative statements in the study of the allocation of scarce resources (the traditional definition of economic science) possibly have ethical implications? Who would even ponder such a thing?

As Vizzini remarked: "Have you ever heard of Plato, Aristotle, Socrates? Morons!"

'Tis the (different) season

2007-12-04T12:57:00.000-06:00

Happy Chanukah

From Balducci's in New York!!

This may even top the cafeteria worker at UVA who told me on Passover: "We even gave you people bagels. What else do you want?"

Hat tip NancyKay Shapiro

On grading in a world less ordinal

2007-10-30T12:34:00.000-05:00

We all have days where a small thing makes us unaccountably happy. One of those days, for me, was when we acquired a commercial-grade blender. It had but one speed: "on." After all, when I put something in the blender I just want it to come out, after a few whirling seconds, blended. This marked the end of unnecessary confusion with an old fourteen-speed blender, which always forced me to ponder whether the button labeled "whip" resulted in faster, slower, or roughly equivalent blending action to the one labeled "frappe." Why could it not simply be labeled "Speed 8"? After all, eighth gear on a ten speed bike is not called "expeditious" but simply 8th, comfortably nestled between 7th and 9th and respecting the natural order of integers.

How did Starbucks determine that "grande" is smaller than "venti" but bigger than "tall"? Even my four year old comprehends that "large" is bigger than "small," but understandably can't differentiate between subtle cross-cultural size differentials in translation. Why is Super High a higher frequency than Ultra High but lower than Extra High?

Yet, I have persevered and mastered the stand-ins for what should be facile ordinal comparisons. Until now.

I am confronted with another simplicity-defying reclassification.

The lexicographically meaningful grades that used to reflect degrees of student performance (A comes before B before C) are being replaced with HP, LP, PA, and SP. Even an X is now offered as an option for the instructor, perhaps as a placeholder for those of us who relish single-letter simplicity. After introspection and even a bit of extraspection, I fail to comprehend how a less transparent recoding of presumably ordered evaluations aids learning, efficiency, or what's left of my hair.

My son's preschool teacher grades daily behavior on a scale of zero to four stars. Thinking that was perhaps too antiquated a numerical system, I relayed the teacher's notes to my son in a more contemporary fashion. "Grande effort following directions; cleaned up toys at frappe speed. Art project, regrettably, received only an HP." A quizzical look. "How many stars is that, daddy?"

He just doesn't get it. Neither do I.

Feel free to tell me what you think of my rant. Please rate this post on a scale of Elm to Pine.

UPDATE:I am not the only geek who values the ordinal aspect of grades. The visual brilliance that is xkcd today had this:

An unintended consequence of the new grading structure: this poor little stick figure no longer will find this bit of beauty in his life.

State senator enjoys wines, as I do

2007-10-16T14:09:00.000-05:00

Some time ago, I emailed my state representatives asking for their positions on interstate wine sales. I received a letter from State Senator Douglas Henry in response. I wasn't expecting much, since the Senator receives substantial contributions from the liquor wholesalers cabal. As anticipated, with his donations, the Senator also apparently received the industry's standard talking points, which are easily dismissed.

That, however, was not the disturbing part of the letter.

The last line of the letter reads:

The presumption, of course, is that no one would advocate legislation unless he or she has a direct, personal stake in it. My letter to the senator identified me only as an economist and a voter. I also have opinions about the death penalty, our inaction in Sudan, and policy governing media mergers, but expect none of them to impact me directly.

I am curious how the last sentence of Senator Henry's position letter on gay marriage would read.