by Tyler Cowen
on August 1, 2011 at 11:51 am
1. A politically incorrect Indian economics professor who teaches summer school at Harvard; here is Wikipedia.
2. Arbitrage! A lottery that can be beaten.
3. A 1914 neurology exam.
4. An excellent Interfluidity post on how we thought we were wealthier than we were, and why it matters.
5. Scott Sumner’s culture report.
6. What does the debt deal mean for health care? And winners and losers in the deal.
a tiny group of savvy bettors, among them highly trained computer scientists from MIT and Northeastern University, virtually takes over the game.
Highly trained in what? Reading the lottery game’s rules? It’s not as though you need a degree from MIT to calculate the odds on a lottery. For that matter, you don’t even need a computer. It’s a fairly straightforward calculation, and the lottery probably publishes the probability of winning each prize level in any case. In fact, it seems like the principal skill involved in this caper is getting your hands on the money you have to invest in tickets up-front. Perhaps that’s the skill they’re teaching at MIT these days, which would explain a lot about what’s wrong with our country these days.
All that said, the lottery really shot itself in the foot in this case. The excess cash builds up because interest in the lottery is anemic. Most lotteries allow that excess to accumulate in the jackpot, and they then proceed to plaster that huge number over billboards across the state. The big headline jackpot stimulates interest, and the jackpot turns over more frequently. Dumping the excess into the lower tier prizes doesn’t generate the same kind of interest; therefore, only a few people who have read the fine print know that the expected payout has gone up. I expect that will change with the publication of this article, thought.
What they had was a knack of spotting an opportunity where others didn’t. And I give them credit for that, MIT-educated or not. You may call it a hack, arbitrage, loophole whatever. Whatever it was, it was not “obvious”.
And if the principal skill was getting your hand on $100k just look around how many Americans have access to that amount. It isn’t a mere dozen. And the ones that didn’t exploit it were not deterred by moral qualms. So no reason to grumble about MIT and the country because some smart kids (and grandmas) made money out of a niche loophole.
In that case, why refer to them as “highly trained computer scientists” at all? Would you dispute that the article is trying to build a narrative along the lines of “computer whiz-kids beat the lottery at its own game”? Do you think that narrative is accurate in this case?
Sure, these guys actually sat down and read the fine print of the lottery rules and discovered an exploitable loophole. Good for them, I guess, but let’s not pretend like it takes advanced math, fantastic computing skills, or even a “knack”, to do it. It is pretty obvious once you know the rules of the lottery. The only thing that isn’t obvious is that it’s worth reading the lottery rules in detail. For most lotteries, all you’d get back for the time you invested reading all that fine print would be a case of eyestrain.
As to my grumbling, I stand by it. It’s troubling that graduates of one of the best science and engineering schools in the country find it more profitable to study the details of lottery procedures than to practice the craft they spent so much time and money learning. When you consider the time required to read up on how the lottery payouts are calculated, solicit “investors” to provide the up-front funds, and buy the tickets (which is time consuming because the ticket machines aren’t made to sell them in bulk), you’d have thought they could have been doing something a lot more productive.
This loophole was found through luck rather than any impressive whizardy.
Educated people do not play the lottery very often. The ones who do, probably buy a few tickets and play the bigger jackpot ones like Powerball. In general, the educated are not playing scratchoffs or small-pickens lotteries like these ones (because there’s no rush from $150M payoff to offset the obvious irrationality) so I bet you nobody thought twice about it. These guys came across it and noticed something in the fine print. Great work, but not impressed.
Look rpl has two valid points. One is that figuring out that the tickets are a good value does not require advanced computing knowledge. The second is that many MIT students waste their lives providing medicine of questionable value or searching for arbitrage opportunities (or just outright stealing from people) in finance. The majority still goes on to do valuable research or (believe it or not) engineering that benefits society.
And no they don’t teach you how to waste you life at MIT. The institute just attracts mentally ill and greedy people.
You also need to realize that you need to have enough faith in mathematics to actually put down a whole lot of money on the tickets. By this I mean that there are quite a large number of regular people who can do the math (either to show that regular tickets are a bad deal or that these tickets are a golden opportunity). But they aren’t sufficiently convinced that the math is reality, so they still don’t take action.
1. I bet he was a Keynesian, though. A Hayekian minarchist, now that would be politically incorrect. Hindu-supremacist views are weak tea by comparison.
6. Am I the only one who grits his teeth every time gov’t spending is given the Orwellian description of “investment?” Investment is done to make a profit, and is something government spending tends to prevent via present or future seizure of funds in the private markets that could have been truly invested.
No, it seems a fairly common trait among libertarians to redefine words rather than accept that sometimes government spending improves things.
Where is the redefining in TallDave’s comment? I would say you are the one guilty of that. The ‘investment’ does reek of newspeak.
Klein called it “spending and investment.” You could try to make the case that he’s trying to tie them together in the public’s mind by using them in a compound noun phrase, but a plain reading says that they are separate.
But that objection doesn’t really hold water — there is no “investment” in there, it’s all gov’t spending, all of which is supposed to make things better in one way or another. This is similar to how the MSM falsely conflated “reaching the debt limit” and “defaulting on interest payments” because that conflation was convenient to the left’s POV.
Klein’s actually just quoting the NYT, in what is apparently supposed to be a straight news piece, which also commits the usual sin of confusing AD growth with economic growth.
Regarding # 6b, add your beloved EK to the long list of sore losers. Actually, most of your sources of information and ideas are listed as sore losers (Have you read SS’s nonsense post demanding Obama to stand up and take power like Hugo Chavez?).
Susan Sarandon? Scott Sumner? Steve Sailer? Shirley Sherrod?
I seem to remember Sumner writing something, somewhere a week or two ago advocating that Obama use the 14th Amemendment clause to ignore Congress’s lack of a debt ceiling increase.
since when did the right to deprive people of freedom become part of the freedom of expression?
This is a seriously mistaken step – to not do something about Swamy. Terrible decision.
>>since when did the right to deprive people of freedom become part of the freedom of expression?
Since the idea was formulated, then expressed?
The whole point of the First Amendment is to protect unpopular speech. If it only protected speech you agreed with, there wouldn’t need to be any protection, now would there?
What is even more shocking is how much support such bigoted views receive amongst Indians.
re- 1) It seems like a disservice, and misleading, to call a vile bigot “politically incorrect”. (His ideas also seem pretty unlikely to work, and that’s worth noting too, but even if they were more likely to work, he’d still be a vile bigot. If using “politically incorrect” isn’t a sort of subtle humor here at the sort of people who use this term seriously, then it’s a mistake, I think, not to call this guy what he is.)
Yup. Agree, the guy seems pretty wacky. His op-ed also recommends a war on Bangladesh.
The ironic tidbit was that his family is a religious goulash:
His brother-in-law is Jewish, his son-in-law Muslim, his sister-in-law Christian and his wife Parsi.
Divine revenge indeed!
I don’t get why Harvard’s protecting him. Surely there are plenty of other, probably more qualified, economists to teach summer school. This business of protecting freedom of expression is flat out ridiculous.
The other problem is what exactly is the magazine doing publishing nonsense like this.
Freedom of expression is ridiculous? I disagree.
That’s not exactly true. I was involved with the MIT group from the article (and made $1000 on one of their first runs in exchange for some capital! WOOOOOO!!!!) They did discover that the odds of each number being pulled are not the same! Of course this was found out by going to the mass. lottery office and asking them very nicely for this info. Once you have this information, calculating the proper distribution of numbers to purchase isn’t too tough a problem, but it does take a bit of math and programming to get right.
My understanding from the principal founder (not named in this article btw), was that it took so much time to fill out the cards that getting a job at a Hedge Fund was probably more profitable.
Interesting. If you don’t mind my asking, what possessed you to pursue that line of inquiry? Did you have some reason to suspect that the probability distribution was non-uniform, or did you just look into it on the off chance that it was? I’d have thought that the apparatus would be audited from time to time to ensure uniformity. In fact, I’d have thought that the law authorizing the lottery would require as much, as anything less leaves the system open to outright corruption.
:shrug: it wasn’t me that set this up. As I said before, I just happened to be around when they needed capital. I think being thorough might be the answer though
By the way, I wrote my responses upthread before I read your response. The article didn’t make it clear that the strategy turned on exploiting nonuniformity in the distribution of numbers chosen. Obviously, that would require a lot more skill than merely observing that the expectation value of the net return on a ticket can turn positive when the payout goes up.
The article didn’t mention it, the Mass lottery describes their ball checking and drawing process in detail and it doesn’t seem like there are enough trials to meaningfully exploit a non-uniform number distribution so I’m inclined to think that that aspect is either mis-remembered or disinformation to confuse potential copy cats.
Winners: Anyone who will be dead when we have to start paying back our debt and got to take advantage of the extra consumption. Losers: Everyone else.
Ah, Herodotus. Count no man a winner until he is dead.
It is certainly possible, at a certain moment, to overestimate one’s own wealth at that moment: for example, the victim of embezzlement who is unaware that the embezzlement has occurred, and where the embezzler is not going to make restitution. It is also possible, at an earlier time, to overestimate one’s own wealth at some later time. For example, a saver may know what the balance in his savings account is currently, and estimate that it will be 1% greater a year from now. If his bank unexpectedly fails (and there is no deposit insurance), his *current* estimate of *next year’s* wealth will prove to have been much too high.
Tyler sometimes seems to be drawing an analogy between our present situation and the first kind of case: that is, he seems to be saying that three years ago our estimate of our wealth at that time was much too high. But perhaps our situation is more analogous to the second kind of case: our mid-2008 estimate of our mid-2008 wealth was accurate, but our mid-2008 estimate of our mid-2011 wealth was much too high. If Tyler wants to insist on the first analogy, as opposed to the second, he needs more argument than he presents.
Boehner is the big winner. He was the only one at the table the entire time. He negotiated sometimes with Obama, and other times with Senate Democrats, so they have been both diminished. The Tea Partiers have come across as extremists. The House Democrats are invisible.
Take a look at this NWA video as evidence:
Uhh.. NMA video, not NWA.
Straight Outta Congress!
Crazy motherfucker named Tea-Cube
From a gang called Gippaz With Attitudes
When I’m called off, Atlas Shrugged off
Automatic trigger and debt ceilings are sawed-off
You too Reid if you fuck wit me
All the poors are gonna hafta come and get me
Grabbin Koch money that they handin out
For the Lib motherfuckers that’s showin out
#1: Lots of people across the world support disenfranchising certain groups of people. Typically people want to restrict suffrage based on grounds of education (There is a large meritocracy crowd that feels victimized) , wealth, land ownership, tax class, caste, ethnicity, gender(Saudi Arabia doesn’t allow women to vote), race, residency/nationality (everywhere), criminality(many states in the US), religion(Pakistan state has been running a campaign of persecution of Ahmadiyas and has effectively disenfranchised them), naturalization (In Kuwait you have to wait 30 years), employment (Kuwait armed forces cannot vote), mental disability (tunisia) and others. As odious as some of these views might appear to some people, it’s a whole lot worse to pressure people into never expressing them. The best thing to do is to establish though a dialogue what the different perspectives are on the issue and let people make their own minds. A university is a student’s home! she doesnt have a right to feel comfortable. A necessary consequence of creating an environment that encourages freedom of expression is that it will make many people confront unpleasant ideas and people.
Edit: A university is *not* a student’s home.
“His brother-in-law is Jewish, his son-in-law Muslim, his sister-in-law Christian and his wife Parsi”: catholic.
Sounds to me like that lottery would be a nice way of paying people off who had a lot of money they might like to launder. Public, yet unpopular would be a great way to do it
That’s a phenomenal article by interfluidity. Highly recommend it.
#1 I took his math econ class in 2008 and am now in econ grad school. Decent professor, never brought up politics, though he did miss one class to fly back to India for some political emergency.
I find it hard to take interfluidity seriously ever since he claimed banks keep loans on balance sheet at historical cost (here: http://www.interfluidity.com/v2/2039.html#comment-17552)
Regarding #1, appreciate TC just saying “politically incorrect” and that too only for this specific professor, and not making a snide anti-Hindu remark here.
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Very good sentences: “There is something in the tone of Cowen’s tagline that suggests an “oops!”, a shrug of the shoulders. Whether he intends that or not, it’s precisely the wrong response to the events of the last decade. “Our” misjudgments were not some random perturbation spiraled out of control. They were the result of a set of arrangements that systematically bribed gatekeepers to make and accept incautious estimates, and to circumvent control systems intended to keep valuations in check. As of this writing, those arrangements remain largely in place.”
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