Month: May 2008

Retail loyalty card programs

by  Tyler Cowen in

From some time ago, Kevin Drum reports:

I really loathe retail loyalty card programs. 

These programs serve two functions.  First, they are a form of price discrimination.  Buyers who are willing to collect and show the cards pay lower prices while the "I can’t be bothered with this ****" types pay higher prices. 

Second, retail loyalty cards enforce partial collusion ex post in an oligopolistic setting.  In other words, cards and frequent flyer programs "lock in" buyers to their favored firms.  Once that lock-in is accomplished, all firms have weaker incentives to cut price to lure away buyers from their favorites.  (The smarty-pants point is to note that firms have to give buyers a better deal upfront in anticipation of this lock-in but still if the company moves first with a non-negotiable offer it still can come out ahead and raise the P/MC ratio.)

The first function is usually welfare-improving, the second function usually is not.  Overall you personally benefit from loyalty card programs if you don’t mind holding the cards (you have a thick wallet) and you have a strongly favorite company/product anyway.  In the latter case you are likely locked in anyway, so the strengthening of the lock-in effect doesn’t so much restrict your freedom.  This is tricky of course because you might miss out on preemptive price cuts from your favorite firm to keep you, since maybe they don’t otherwise know how much you love their stuff.  Still, I will stick with this mechanism as a plausible guess of the net effect.

You suffer from loyalty card programs if…you hate them.  Not only do the programs and the smiling clerks bug you but you are the kind of person who ends up paying more.  Which means you hate the programs even more.  Which means…

But wait: the equilibrium seems to converge and so Kevin Drum’s anger at retail loyalty card programs remains, in reality, quite low. 

Brazil facts of the day

by  Tyler Cowen in

1. Brazil has become a net creditor nation for the first time in its history.

2. About 15% of the Congress is under formal investigation for crimes, ranging from attempted homicide to money laundering.

3. Since 2005 more than 20 million people have entered "the middle class," defined as a monthly income of $635.  The percentage of middle-class Brazilians has grown from 34% to 46%.

Those facts are all from "Brazil Joins Front Rank of New Economic Powers," in Tuesday’s Wall Street Journal.

CSI on Trial

by  Alex Tabarrok in

…to judge by the most
comprehensive study on the reliability of forensic evidence to date,
the error rate is more than 10% in five categories of analysis,
including fiber, paint and body fluids. …DNA
and fingerprints are more reliable but still not foolproof….a 2005 study in the  Journal of Criminal Law & Criminology
suggests a fingerprint false-positive rate a bit below 1%, a widely
read 2006 experiment shows an alarming 4% false-positive rate.

How can we preserve the
usefulness of forensic evidence while protecting the public when it
breaks down? The core problem with the forensic system is monopoly.
Once evidence goes to one lab, it is rarely examined by any other. That
needs to change. Each jurisdiction should
include several competing labs. …

This procedure may seem like a waste. But such checks would save
taxpayer money. Extra tests are inexpensive compared to the cost of
error, including the cost of incarcerating the wrongfully convicted….

Other reforms should include
making labs independent of law enforcement and a requirement for blind
testing. When crime labs are part of the police department, some
forensic experts make mistakes out of an unconscious desire to help
their "clients," the police and prosecution. Independence and blind
testing prevent that.

That’s forensics expert Roger Koppl writing in Forbes.  If anything I think Koppl is being kind to CSI.  Take bullet lead analysis a procedure used by the FBI for decades that turns out to have no scientific validity whatsoever.

Full Disclosure: Koppl’s op-ed is based on a paper in a book called Law Without Romance edited by Ed Lopez to be published by Independent Institute where I am director of research.

The Pixar Touch

by  Tyler Cowen in

Steve Jobs had put some $50 million into the company.  It was still reliably losing money year after year.  Now he also faced the possibility of millions more in liability; although Disney had agreed to increase its lowball $17.5 million budget for Toy Story to $21.1 million, it still wasn’t enough.  By 1994, costs were expected to run some $6 million higher.  Hence, Disney forced Pixarto obtain a $3 million credit line to cover its share of the overages — backed, if necessary, by Job’s personal guarantee.  Weary of watching Pixar’s deficits pile up, Jobs had tried to sell all or part of the company many times…

That is from David A. Price’s The Pixar Touch, an excellent book.  It is good most of all on all the false fits and starts behind a successful entrepreneurial venture.

David Brooks, in a nutshell?

by  Tyler Cowen in

Wunderkind Ben Casnocha summarizes a talk:

David Brooks, columnist, New York Times:

  • "I’ll be brief because many of you are academics, and you’re not here to hear me talk, you’re here to hear yourselves talk."
  • He likes Edmund Burke.
  • People learn when there’s an emotional connection.
  • All factions of conservative movement united around distrust of government – this ain’t enough.
  • Obama’s perceptiveness / self-awareness / stability is striking.
  • McCain’s morality is based on honor, not morality. #1 trait is aloofness – somewhat detached personality.
  • Conservatism shouldn’t have permanent policies (like tax cuts): don’t get moral about a situational policy issue.
  • Conservatism is about not knowing much; modest about what we can know/do.
  • Conservatism is philosophy first, policy second. Liberalism is policy first, philosophy later.
  • Conservatism values social mobility more than equality.
  • Top issues in the election: bipartisanship, immigration, healthcare.
  • People aren’t solely self-interested economic rational creatures.
    If this were the case, why would 30% of students drop out of high
    school even though it’s econ ruinous to do so?
  • What’s the point of being a democrat if you can’t play the class card?
  • Bush seems 40 IQ points smarter in private than in public.

Here’s a QuickTime version of Brooks’ speech.

I agree with many of these, although I am not sure that conservatism puts philosophy first.  Does it not put experience first?  Also, I think the main issue in the election is George W. Bush.

Does the simulation have an evil or indifferent designer?

by  Tyler Cowen in

On the plane I was reading Stanislaw Lem’s famous essay on personoretics.  It occurred to me that if we are living in a simulation we can make Bayesian inferences about the intentions of the designer.  Let’s say many designers are creating many simulations.  Will the good or the evil designers be more productive in terms of numbers of simulations created?  If we define "good" as subject to some ethical constraints, I believe the good designers work under a competitive disadvantage.  It’s harder to produce cheap apples, for instance, if you pledge to do so only in a "green" way.  And so on.  Oddly the evil designers may be under a competitive disadvantage as well.  Intention has a cost and so in competitive settings it tends to fall out.  In our current world most things are made by indifferent machines.  I believe the rational inference about the simulation is that at least the demi-urge — and possibly the Master Creator as well — is indifferent to our plight.

Is it patronizing theft to buy natural resources?

by  Tyler Cowen in

Leif Wenar says yes:

You very likely own stolen goods. The gas in your car, the circuits in your cell phone, the diamond in your ring, the chemicals in your lipstick or shaving cream – even the plastic in your computer may be the product of theft. Americans buy huge quantities of goods every day that are literally stolen from some of the world’s poorest people.

…The very worst countries – the “sevens” – are places like Burma, Equatorial Guinea, Libya, North Korea, Somalia, Sudan and Zimbabwe. Taking these very worst countries as the places where the people could not possibly be authorizing the dictators and civil warriors to sell off their country’s resources, we can measure the amounts of stolen resources that enter America each year. By these official U.S. criteria over 600 million barrels of oil–more than one barrel in eight – have been taken illegitimately from their countries of origin. Stolen oil may be in your car’s gas tank right now. Stolen oil might have been used to make the computer mouse in your hand.

That’s Leif Wenar, here is more.  He proposes suing Exxon to create a chain reaction, thereby lowering the value of dictatorial seizures of natural resources and perhaps preventing them.  I’m sure the Chinese are on board.  But no — read further: we must sue them too.  After all, their cheap toys are made with stolen oil.

Claims about food prices

by  Tyler Cowen in

My story is about a world where…GDP growth yields fewer poor people who respond to higher wheat prices by purchasing less meat or wheat, i.e. we have less of a shock absorber. That generates a reduced elasticity of demand of wheat. So prices have to rise by more in order to clear a supply-demand imbalance than was required in the past when there were more poor people who would adjust.

Here is much more, interesting throughout.

The 100 best jazz albums?

by  Tyler Cowen in

Here is a list by David Remnick, via Jason Kottke.  It is good, albeit a bit mainstream for my tastes.  I’m glad to see he likes Ascension.  I would add more late Miles Davis (Live at Fillmore and In a Silent Way, among others), Ornette Coleman’s Free Jazz, more Cecil Taylor, the Blakey/Monk album, Solo Monk (my favorite jazz album?), and some Stan Kenton as well.  I’m due to cover a reader request for contemporary jazz soon, so I’ll leave the moderns out of it for the time being.

Home court advantage in basketball

by  Tyler Cowen in

We all feel the Celtic ouch and perhaps some of us delight in it.  Matt writes:

Kevin Drum notes two smart responses to the question of why home court advantage is so big, with one hypothesis pointing to the refs and another pointing to the idea that there are actually lots of differences from arena-to-arena.

Of course if the arena is the difference you would expect shooting guards, who need a good feel for the lights and angles of the basket, to have a bigger relative advantage at home than do the dunking big men.  That should be easy enough to test.  And maybe a look at Lakers-Clippers or Nets-Knicks history can clear up the importance of arena by holding geographic area constant. 

I wonder if a third component of home court advantage has to do with sleep.  People sleep better at home, if only because they don’t have to go to such great lengths to get sex.  I recall reading that Larry Bird became a truly great player only once he…um…calmed down a bit.

I loved this question, and answer

by  Tyler Cowen in

Question for the day: what do libertarianism and the Many-Worlds Interpretation of quantum mechanics have in common? Interest in the two worldviews seems to be positively correlated: think of quantum computing pioneer David Deutsch, or several prominent posters over at Overcoming Bias, or … oh, alright, my sample size is admittedly pretty small.

…My own hypothesis has to do with bullet-dodgers versus bullet-swallowers.

And it ends with this:

So who’s right: the bullet-swallowing libertarian Many-Worlders, or the bullet-dodging intellectual kibitzers?  Well, that depends on whether the function is sin(x) or log(x).

Read more here and can you guess who the pointer is from?

The Storm

by  Alex Tabarrok in

The storm ravaged the city’s architecture and infrastructure, took
hundreds of lives, exiled hundreds of thousands of residents. But it
also destroyed, or enabled the destruction of, the city’s public-school
system–an outcome many New Orleanians saw as deliverance….The floodwaters, so the talk went, had washed this befouled slate
clean–had offered, in a state official’s words, a “once-in-a-lifetime
opportunity to reinvent public education.” In due course, that
opportunity was taken:…Stripped of
most of its domain and financing, the Orleans Parish School Board fired
all 7,500 of its teachers and support staff, effectively breaking the
teachers’ union. And the Bush administration stepped in with millions
of dollars for the expansion of charter schools–publicly financed but
independently run schools that answer to their own boards. The result
was the fastest makeover of an urban school system in American history.

That’s from The Atlantic just over a year ago.  Guess what?  It’s working. The storm is coming.