Month: June 2005

Do we have too much choice?

Ralphs shoppers aren’t overwhelmed by 724 kinds of produce because they don’t experience every variety as a separate choice. The exotic fruits are grouped together, as are the potatoes and yams, the lettuce bags, and the apples. Godiva sells its chocolates in selections–nuts and caramels in one box, dark chocolates in another, truffles in another–not piece by piece. Businesses have strong incentives not just to offer options but to help customers navigate those choices.

Outside the artificial constraints of a psychology experiment, people adapt pretty effectively to proliferating choices. We go back to our favorite restaurant and order the same dish because we know we’ll like it. We find a toothpaste that suits us and stick to it. We don’t always choose anew.

That is from Virginia Postrel, read more here.  Michael at has more.

Will customers trust businesses to select for them?  If too much choice alienates you, won’t the store put the high-margin items on the front table right before your eyes?  Maybe so, but competition across firms should limit such mark-ups.  And if the mark-up gets too high, people will cope.  Schwarz himself notes: “A small-town resident who visits Manhattan is overwhelmed by all that is going on. A New Yorker, thoroughly adapted to the city’s hyperstimulation, is oblivious to it.”

The bottom line: I’m still upset that Rainier cherries — finer than caviar to my depraved, barbecue- and curry-obsessed palate — are available for only a few months a year.  Comments are open.

Bubble Schmubble

Is there a housing bubble?  Some say yes, some say no.  I say who cares?  The real question is not whether there is a bubble the question is, What are the chances that housing prices will fall dramatically?  Contrary to popular belief, knowledge of whether prices are following fundamentals or a bubble tells us very little about this question. 

An efficient market is not necessarily a stable market.  Indeed, an efficient market can be as or even more volatile than a market plagued by bubbles.

Consider the stock market – the price to earnings ratio can be written (using the Gordon Growth Model) as P/E=D/E*(1+g)/(r-g) where g is the growth rate of dividends and r is the discount rate.  Since r and g are small a small change in g can have a large effect on the P/E ratio – so much in fact that it is very difficult to reject a model of stock prices based solely on fundamentals (see my paper with Gary Santoni or the Barsky and DeLong classic Why Does the Stock Market Fluctuate (JSTOR).)

The principles are similar with respect to the housing market.  Do note that only a small fraction of the housing stock is available for sale at any one point in time.  When we hear about the high price of housing prices we think that the stock of housing must have gone up a lot in value.  But in fact all that has occured for certain is that the price for the marginal house has increased.  When the supply is inelastic (as it is on the coasts) and demand is fairly inelastic (as it is for most people who like to live where they work) small changes in either demand or supply can change the marginal price dramatically.  Thus, even if house prices are at fundamental values today and will be at fundamental values tomorrow a small change in say interest rates or the economy could make tomorrow’s price considerably lower than today’s. 

Why health care is good for you

Here are the bald asseverations I made to Bryan Caplan yesterday, over Bolivian food:

1. Health care is very, very good for you.  Here is one good summary of the earlier blogosphere debate.

2. Don’t be fooled by studies that say the opposite.

3. At most those studies show that health care is not good for you at some additional margin.  Make sure you get to that margin.

4. It is true that many regressions show a zero positive effect for health care once you introduce a variable for income.  This mainly shows that income is a better proxy for real health care than many of our highly imperfect measures for health care.

5. Almost every family in my Mexican village has lost a kid or two before the kid reaches age five.  Few of these deaths would have occurred if a) a doctor rather than a shaman were around, b) they had a ready antidote for scorpion bites, c) they knew to take the right pills for diarrhea and fever and to stay hydrated.  These variables will be more closely correlated with measured income than with whatever screwy figure the Mexican government provides for expenditures on medical care.  Health care still matters, even though it won’t show up as significant in the regression.

6. The above example can be generalized to wealthier countries.  Might education be the best proxy of all for the consumption of real health care?  Yes stupid doctors can kill you but a smart patient will not do better staying at home.

7. It is obvious that health care leads to greater longevity, and this is the greatest good of all.  Just ask yourself, how much money would you have to receive to give up health care for the rest of your life?  For me no sum of money would suffice.

8. Yes the famous Rand Corporation study showed that more doctor visits don’t help people.  I can buy that, but advances in medical science still bring huge pay-offs.

Caveats: These are lunchtime comments, I am not accountable for them in the same way as if I posted them on my blog.  And I am still too afraid to go see the doctor and get a check-up.

How much is politics in the genes?

In the study, three political scientists – Dr. John Hibbing of the University of Nebraska, Dr. John R. Alford of Rice University and Dr. Carolyn L. Funk of Virginia Commonwealth – combed survey data from two large continuing studies including more than 8,000 sets of twins.

From an extensive battery of surveys on personality traits, religious beliefs and other psychological factors, the researchers selected 28 questions most relevant to political behavior. The questions asked people "to please indicate whether or not you agree with each topic," or are uncertain on issues like property taxes, capitalism, unions and X-rated movies. Most of the twins had a mixture of conservative and progressive views. But over all, they leaned slightly one way or the other.

The researchers then compared dizygotic or fraternal twins, who, like any biological siblings, share 50 percent of their genes, with monozygotic, or identical, twins, who share 100 percent of their genes.

Calculating how often identical twins agree on an issue and subtracting the rate at which fraternal twins agree on the same item provides a rough measure of genes’ influence on that attitude. A shared family environment for twins reared together is assumed.

On school prayer, for example, the identical twins’ opinions correlated at a rate of 0.66, a measure of how often they agreed. The correlation rate for fraternal twins was 0.46. This translated into a 41 percent contribution from inheritance.

As found in previous studies, attitudes about issues like school prayer, property taxes and the draft were among the most influenced by inheritance, the researchers found. Others like modern art and divorce were less so. And in the twins’ overall score, derived from 28 questions, genes accounted for 53 percent of the differences.

But after correcting for the tendency of politically like-minded men and women to marry each other, the researchers also found that the twins’ self-identification as Republican or Democrat was far more dependent on environmental factors like upbringing and life experience than was their social orientation, which the researchers call ideology. Inheritance accounted for 14 percent of the difference in party, the researchers found.

Here is the nasty clincher:

The researchers are not optimistic about the future of bipartisan cooperation or national unity. Because men and women tend to seek mates with a similar ideology, they say, the two gene pools are becoming, if anything, more concentrated, not less.

Here is the full story.

Theism vs Evolution II

Rather than answer all the objections put forward to my theism and evolution post let me state the argument in another way which should make it clear that I am (obviously) correct.

Suppose that God came down from the heavens tomorrow in all his glory, throwing thunderbolts, raising the dead, turning water into wine, whatever it takes to convince everyone of his existence.  If this were to occur I have no doubt that even Richard Dawkins, precisely because he is a rational scientist, would say ‘hmmm, perhaps I wasn’t quite right about all this evolution stuff.’  My point in the post is that many religious people don’t need the demonstration – they already believe and in so doing they logically question evolution just as Dawkins would if he came to believe as they do.

I always hated homework

LeTendre and Baker led a team of researchers who analyzed educational data collected in the fourth, eighth and 12th grades in more than 40 countries in 1994, as well as data from an identical study in 50 countries, conducted five years later.

Virtualy wherever they looked, the researchers found no correlation between the average amount of homework assigned in a country and academic achievement.  For example, teachers in many countries with the highest scoring students — such as Japan, the Czech Republic and Denmark — gave little homework.  At the other end of the spectrum, countries with very low average achievement scores — Thailand, Greece and Iran — have teachers who assign a great deal of homework, Baker noted.

Note that U.S. teachers have been increasing homework amounts, while Japanese teachers have been decreasing it.  In neither country do general achievement levels appear to be responding.

That is from Richard Morin’s WP Unconventional Wisdom column, although this installment is not yet on-line (I added the link to the text).  Here is a good summary, with more information, it notes that homework may place a special burden on poor families. 

We need to be careful about drawing strong inferences from negative results on heterogeneous data, nonetheless this fits my priors.  I worry about this more than grade inflation, although I suspect the latter, by making grades less informative, induces overinvestment in extracurricular activities.

Who is hurt by scalping?

Quiggin admits that resale possibilities will increase the overall demand for tickets and thus increase the overall revenue for charity.  But he sees a caveat:

Geldof is relying on donated services from musicians who would otherwise be selling them. To the extent that lottery tickets go to people who could not otherwise afford to pay, the musicians are giving up time, but not money (and getting good publicity). But with resale, the charity concert becomes a substitute for attendance at a standard concert. Musicians might reasonably change their minds about participation.

In other words, a charity concert — with tickets allocated by non-price mechanisms — might cannibalize the demand for other concerts less than would a market-clearing price event.  So the musicians can be better off with no ticket resale. 

But keep the following in mind.  Let’s say it is feasible to prevent or at least limit resale (otherwise there is nothing practical to argue about).  Any musician could limit resale for a selected non-charity concert, and allow resale for a charity concert.  The resold charity tickets would then be reaching a new group of buyers, rather than cannibalizing demand.  If you are not selling your tickets at market-clearing prices, why not allocate some of that surplus to the charitable event, rather than to scalpers for the non-charitable concert?

At the very least, Geldof is being hypocritical.  First, his rhetoric does seem to be simply anti-capitalist.  Second, he claimed that the ticket resale was being funded off the back of the world’s poor.  That is not true.  Most likely resale boosts charitable receipts, increases consumer welfare, and maybe lowers the future income of the participating musicians.  Those musicians are the backs in question, and no those people are not the world’s poor.

Why Mexican barbeuce [barbacoa] is superb

Goat and lamb are the specialties.  They cook the food in a buried pit at low heat, for about ten hours.  It is then shipped out by truck, early in the morning.  The restaurants, or should I say tables, open between nine and ten o’clock, yes that is a.m..  When they run out of fresh meat, the restaurant simply closes, usually by 1 p.m. or so.  You can only keep the stuff heated and fresh for so long.  A few restaurants receive a second shipment of meat, in which case you sit there and wait until it arrives.

Theism versus Evolution

I say that evolution is an improbable theory in light of Holmes’s dictum that "when you have excluded the impossible, whatever remains, however improbable, must be the truth."  Excluding god as impossible leaves us with the improbable but true theory of evolution.  Fail to exclude god and evolution is nothing but an improbable theory.

Theism implies some form of creationism but not necessarily the ‘on the 7th day he rested’ version.   One could of course so weaken theism as to make it consistent with anything (e.g. deism) but in practice this is amounts to atheism or agnosticism.  Any theism worth its name, i.e. postulating a god that works his or her ways in the world today is bound to be inconsistent with evolution.  It makes no sense to assume a god that intervenes to answer prayer but who never has done any genetic engineering.

Markets in everything

The latest is pre-sale passwords for early access to concert tickets, here is the ebay listing.  Here is an excellent article on how concerts sell out much more quickly than before.  The old days of getting there early and waiting in line seem to be gone:

Combined with the selling efficiency of the Internet and swelling competition from scalpers, “your chances of getting a great seat after a concert goes on sale are almost non-existent,” says Arizona State University economist Steve Happel, a concert business expert. “Tickets are gone in a heartbeat.”

Is Grade Inflation All Bad?

Grade inflation has not been constant through time.  Mark Thoma at Economist’s View offers some hypotheses.


There are two episodes that account for most grade inflation. The first
is from the 1960s through the early 1970s. This is usually explained by
the draft rules for the Vietnam War. The second episode begins around
1990 and is harder to explain….

study finds an interesting correlation in the data. During the time
grades were increasing, budgets were also tightening inducing a
substitution towards younger and less permanent faculty. I broke down
grade inflation by instructor rank and found it is much higher among
assistant professors, adjuncts, TAs, instructors, etc. than for
associate or full professors. These are instructors who are usually
hired year-to-year or need to demonstrate teaching effectiveness for
the job market, so they have an incentive to inflate evaluations as
much as possible, and high grades are one means of manipulating student
course evaluations.

But what are the consequences of grade inflation?  A new study takes advantage of a tres bon experiment.  In May of 1968 French students rioted, were suppressed by the police, but then joined by 10 million striking workers leading to a near revolutionary situation.  To quiet things down many students that year were accepted to universities which in former and later years they would not have qualified for.  What happened to those students?

Eric Maurin and Sandra McNally write:

We show that the lowering of thresholds at an early (and highly selective stage) of the higher education system enabled a significant proportion of students born between 1947 and 1950 (particularly in 1948 and 1949) to pursue more years of higher education that would otherwise have been possible. This was followed by a significant increase in their subsequent wages and occupational attainment, which was particularly evident for persons coming from a middle-class family background.  Finally, returns were transmitted to the next generation on account of the relationship between parental education and that of their children.

The results are surprising but consistent with Bowen and Bok who argue that affirmative action did not harm minority students who were accepted at universities at which they would not have qualified based on grades alone.

I’m puzzled but not yet ready to retire my reputation as a tough grader – my best students deserve no less.

Comments are open.

What ever happened to Fleming and John?

Fleming and John made two of my favorite CDs the excellent Delusions of Grandeur and the even-better The Way We Are.  In the words of one reviewer:

Vocalist Fleming McWilliams’s voice soars from a waifish whisper to a Joplin-esque
wail to operatic diva, often in the same song. Multi-instrumentalist
John Painter assembles a dizzying palette of sounds, from buzzy,
riff-heavy guitars to horns, accordion, Middle Eastern percussion, and
theremin, which yields a general sense of weirdness–all set in a
perfectly pop context–while the Love Sponge String Quartet add sonic
depth and a Van Dyke Parks quality to several arrangements.

The lyrics are also great.  When these albums appeared in the mid 1990s I thought these guys were going to be superstars and yet I’m about the only person I know who knows about them.  Although they can be labeled pop/rock almost none of their songs follows a pop/rock formula and that may have reduced airplay.  Their official website hasn’t been updated in years.  If you run out and buy their albums or blog about them perhaps we can create enough economies of scale to induce a new album.

Simple advice for academic publishing

Last week I gave a talk on career and publishing advice to a cross-disciplinary audience of graduate students.  Here were my major points:

1. You can improve your time management.  Do you want to or not?

2. Get something done every day.  Few academics fail from not getting enough done each day.  Many fail from living many days with zero output.

3. Figure out what is your core required achievement at this point in time — writing, building a data set, whatever — and do it first thing in the day no matter what.  I am not the kind of cultural relativist who thinks that many people work best late at night.

4. Buy a book of stamps and use it.  You would be amazed how many people write pieces but never submit and thus never learn how to publish. 

5. The returns to quality are higher than you think, and they are rising rapidly.  Lower-tier journals and presses are becoming worth less and less.  Often it is the author certifying the lower-tier journal, rather than vice versa.

6. If you get careless, sloppy, or downright outrageous referee reports, it is probably your fault.  You didn’t give the editor or referees enough incentive to care about your piece.  So respond to such reports constructively with a plan for self-improvement, don’t blame the messenger, even when the messenger stinks.  Your piece probably stinks too.

7. Start now.  Recall the tombstone epitaph "It is later than you think."  Darth Sidious got this one right.

8. Care about what you are doing.  This is ultimately your best ally.

Here is a good article on academic book publishing and how it is changing.