Markets in everything, adverse selection edition
The story opens with this:
Terminal Illness? $2,000 in CASH, Immediately Available."
That was the promise of an advertisement that appeared regularly in 2007 and 2008 in the Rhode Island Catholic, the official newspaper of the local diocese. The money, the ad said, was coming from a "compassionate organization" that wanted to provide "financial assistance" for those near death.
The reality was different:
In reality, the ad was a recruiting pitch for a plan hatched by a prominent Rhode Island estate-planning lawyer, who believed he had discovered a way to use an investment product sold by insurance companies to make no-risk bets on the stock market. He recruited dozens of terminally ill people to, in effect, serve as paid fronts for purchases of the product, variable annuities. The lawyer and other investors put tens of millions of dollars into the policies, hoping to reap a profit when the recruits died.
There is more detail at the link.
Why is there so much falling in top-level figure skating?
Chris Hartman poses this question. He favors higher penalties for errors and thus safer routines. I would think that the optimum (in a lot of other sports, too) has shifted in the other direction. In the old days, everyone watched on TV and suffered through a lot of error-ridden performances. The average quality of performance mattered more. These days the very best performances are reproduced on YouTube and other venues. That indicates we should seek a higher variance of performance quality, since we can keep and reproduce the very best for most of the relevant viewers.
What sports rule changes does this imply?
Assorted links
Was Alaska a Good Buy?
The U.S. bought Alaska from the Russian Empire in 1867 for $7.2 million. At the time the purchase was derided as “Seward’s Folly,” but today it’s common to compare the purchase price with Alaska’s gross state product of $45 billion and claim it a resounding success. But is that the right comparison?
Most obviously one should correct for discounting, risk etc. Less obviously, but more importantly, one should start by thinking about total world product: Was total world product increased by the U.S. purchase? To the extent that the Russians would have held on to Alaska and would not have been able to fully exploit Alaska’s resources in the 20th century then perhaps the answer is yes. But if the U.S. had not purchased Alaska it’s plausible that Great Britain would have. So if the counter-factual was British purchase, then US purchase simply resulted in a redistribution of resources from British/Canadians to Americans with no increase in net wealth.
Moreover, given the ease of immigration at the time, economist David Barker argues that it’s closer to the truth to think that the redistribution was nominal only, i.e. from Alaskans calling themselves Canadians to more or less the same Alaskans of the same wealth calling themselves Americans. But why should other Americans be willing to pay for this nominal redistribution? Taking into account these considerations, Barker concludes:
Using a variety of assumptions and techniques for
valuing the net cash flows from Alaska, it is clear that the financial returns have not
been positive. The economic benefits that have been received from Alaska over the
years could have been obtained without purchasing the territory. In financial terms,
Alaska has clearly been a negative net present value project for the United States….[A] close analysis of non-economic factors also
casts doubt on the wisdom of the purchase….
True, the wisdom of purchasing Alaska is now moot, but the analysis raises questions of more than historical interest:
The results of this paper suggest new lines
of inquiry in the history of the West, such as: Has westward expansion been worth the
price? What have been the costs and benefits? Should expansion have been less or
greater than it was? Should United States expansion continue? Should the United States shrink by cutting ties with its remaining possessions? All of these questions
seem worthy of future research.
Hat tip: Ben Muse.
How to avoid stale or sour milk: large vs. small containers
I have an arbitrary aesthetic preference for the heavier, larger milk containers and now I am wondering if there is an efficiency argument for them as well. A few times lately I've bought the smaller containers and — it seems to me — they turn out to be stale and sour pretty often. That's hardly rigorous data, but I have been pondering theory. Why might the larger containers be fresher? I can think of a few reasons:
1. If you buy three small containers instead of one large container, you might end up consuming the oldest container last, leading to a stale result. We are all sloppy in checking expiration dates.
2. The large containers are expected to sit around your fridge longer. So when they are put out on the shelf by the grocery store, there is a greater margin of error built in, vis-a-vis their freshness.
3. When shoppers choose the larger cartons, they find it harder to paw through the selection and take home the freshest, thus leaving the stalest for other buyers and increasing the variance of freshness/staleness in the overall supply. You are less likely to end up with "the leftovers."
4. Whether you buy large or small containers, there is "container overlap" in your refrigerator. With the large containers, you can (and should!) sample the quality of your next container before finishing your previous container. In doing so, you learn about the viability of your milk supply for days to come and you can react accordingly if the container-to-come is stale. You won't and shouldn't open three smaller containers to get a comparable preview of the milk-to-come across such a long time period.
Have I missed any arguments?
How many of these arguments, if any, imply that married people are happier than single people with serial relationships?
*The Rational Optimist*, the new Matt Ridley book
The subtitle is How Prosperity Evolves and you can buy it here. The book is due out in May. Excerpt:
In this book I have tried to build on both Adam Smith and Charles Darwin: to interpret human society as the product of a long history of what the philosopher Dan Dennett calls "bubble-up" evolution through natural selection among cultural rather than genetic variations, and as an emergent order generated by an invisible hand of individual transactions, not the product of a top-down determinism. I have tried to show that, just as sex made biological evolution cumulative, so exchange made cultural evolution cumulative and intelligence collective, and that there is therefore an inexorable tide in the affairs of men discernible beneath the chaos of their actions. A flood tide, not an ebb tide.
This book will be adored by fans of Julian Simon. Ridley is an optimist about the year 2100 and one of the final sections considers whether Africa and climate change will be exceptions to the generally optimistic trends.
Charlie Brooker on eBooks
Anyway: eBooks. They're the future. The only thing I'd do to improve them is to include an emergency button that automatically sums the entire book up in a sentence if you couldn't be arsed to finish it, or if your plane starts crashing and you want to know whodunit before exploding over the sea. Ideally it'd shriek the summary aloud, bellowing something like "THE BUTLER DID IT" for potboilers, or maybe "THE SCULPTRESS COMES TO TERMS WITH THE DEATH OF HER FATHER" for highbrow fiction. Which means you could effectively skip the reading process entirely and audibly digest the entire contents of the British Library in less than a month. That's ink-and-paper dead, right there.
The article is here and hat tip goes to The Browser.
Ferran Adrià confuses us
He now states that El Bulli will not close permanently but rather after a hiatus it will become a foundation. Kottke parses. My theory is that he doesn't know what he is going to do, but in the meantime he wishes to avoid negative publicity or seeming irrelevant.
Don't take this personally my foundation-employed readers but…um…I don't feel you have the appropriate organizational form for running the world's best restaurant. When it comes to the $300 meal, I'll stick with the for-profits. Maybe someone needs to give Adrià a copy of those Fama papers from 1980 or so.
Assorted links
1. David Henderson reviews the new Thomas Sowell book.
2. Markets in everything: the lamp you are supposed to break, for $800.
Joel Mokyr on living standards during the Industrial Revolution
One of the notable arithmetical truths about the period of the Industrial Revolution is that it is quite possible (if not certain) that biological living standards in both urban and rural areas rose and yet average living standards declined. This can happen if urban living conditions are significantly worse than rural ones, and the proportion of people living in cities is rising because of migration from the countryside to the towns. It seems likely that the biological measures of living standards were especially sensitive to urbanization. While urban areas may have offered some positive amenities (such as entertainment and more choice in shopping), healthy living conditions were surely not among them.
That is from Mokyr's new and notable The Enlightened Economy: An Economic History of Britain 1700-1850. The obvious question of course is why so many people moved into cities. Did "new goods" make the urban living standard higher than some measures might suggest? Was it to avoid boredom? To avoid "rural idiocy" and invest in future IQ externalities for children?
Here is my previous post on the book.
From the comments (at EconLog)
Mustafa Maluka, South African painter
You will find more images here. I have been reading the very good book South African Art Now.
Less is more?
I found this, from Ric Bucher, on ESPN:
…the harsh reality, says one GM, is that winning a championship this year is not a priority over keeping free-agent-to-be LeBron James. In fact, there's a concern that if James wins a title this year for the Cavs, it might be easier for him to go elsewhere. The best scenario, then, if the Cavs want to make it hardest for LeBron to leave, is give him everything he wants and have their title chase falls short. And if you question valuing LeBron over a title, forget it. James roughly doubles the value of the Cavs' franchise, according to league sources. It might offend winning-is-everything sensibilities, but the truth is $200 million (the value James adds to the Cavs) means more."
What is the implicit model? Is it a behavioral claim about James, namely that he dislikes frustration and wants to finish the job in Cleveland? Or is it about the bidding behavior of other teams, namely they want him most (and there are more dimensions to a deal than just salary-capped $$) if he wins a title and less if they think he will quit on them too?
What are the most borrowed books from UK libraries?
Circa 2009, three out of the top four are by James Patterson. Eventually Ian Rankin and Ruth Rendell make the list. Dan Brown I believe too many people have bought or already read. None of the Booker Final Six from the previous year make the list.
Catherine Cookson used to dominate these metrics but she has been swamped by American popular authors and is down to number ten for the decade. Number one for the noughties is in fact Jacqueline Wilson. That's an odd status to hold: "worth reading, just not worth buying."
A broader point is that non-fiction does very poorly on the "most borrowed" list. I'll offer up the hypothesis that low-brow fiction is what most people actually want to read, whereas many people will buy but not read non-fiction, for purposes of affiliation with the author or the concepts associated with the book.
Overall borrowers are more conservative than buyers, in the literal sense of wanting to borrow the same authors over and over again, yet in different titles.
Hat tip goes to the always-excellent Literary Saloon.
The wise man expunges "positive v. normative" from his vocabulary. Ises and oughts are easily and naturally translated into one another, based on the purposes of the interlocutors and the discourse situation.
The words "positive" and "normative" do not mean nothing, but what they mean can always be expressed in better terms. "Normative" often means outspoken, unconventional, strident, etc. It can also mean loose, vague, and indeterminate.
Tell me "positive" or "normative" for each of the following:
(1) The minimum wage ought to be repealed.
(2) I think the minimum wage ought to be repealed.
(3) The minimum wage reduces social welfare.
(4) Wise people oppose the minimum wage.
The primary verb of (1) is an ought, while the primary verbs of (2), (3), and (4) are ises. But all four statements are really the same.
Coase used the term "affectation" for posing as "positive" and not "normative."