Carpets for sale

Have you ever wondered why Persian carpets always seem to be for sale? Why the stores are always having “liquidations”? Why the stores are always “going out of business”?

I presented this conundrum to my Industrial Organization class, they came up with two possible explanations.

First, most consumers have little or no idea what the pieces are worth. So you can tell them you are having a sale when you really are not. A few people might be fooled, and you don’t lose anything with the more knowledgeable customers, or with the more skeptical customers. One student called a relative who was a carpet dealer, he appeared to confirm this hypothesis. Note, by the way, that some localities limit how often stores can claim to have sales.

Second, most customers demand only a small number of such carpets. Repeat business may not be so common. Plus the stores buy large quantities of carpets at a time, receiving discounts in the process. The stores end up holding almost all of their capital in the form of inventory, and very little in the form of reputation. The stores then seek to play the Ronald Coase “durable goods monopoly” game, whereby you start with high prices, hope to sell some, and then keep lowering the price repeatedly, until the stock is gone (then you can buy more and start the process over again). Almost all of the time prices will be falling, which is precisely what we observe.

The highest quality textile dealers, as you might find on Madison Avenue, do not pursue this strategy, and they do not have perpetual sales. They sell to better informed buyers, and they have a greater need to maintain their reputational capital. They are certifying higher valued pieces, and pieces which are bought as investments, not just mere decorations. They will keep price steadier, and build a reputation for reliability, rather than always preparing for the next liquidation.

As always, your thoughts on this matter are welcome.


The nocebo effect arises when you expect a poor health outcome, and then get one. For obvious reasons, nocebo effects are harder to test scientifically, because researchers do not wish to create them on purpose.

Robert Ehrlich, in his Eight Preposterous Propositions, reports a few experiments. A group of hospital patients were given sugar water, and were told it would induce vomiting. Eighty percent of the patients vomited as a result.

Many Chinese and Japanese people believe that the number four is unlucky. Scientists studied a sample of 200,000 such people, living in America. On the fourth day of the month, the death rate from heart attacks was thirteen percent higher.. In California, where Asian population concentrations might reinforce superstitious beliefs, the death rate on the fourth was twenty-seven percent higher. I wonder how many of the “heat deaths” in Europe were accelerated, simply because some people thought they were supposed to be dying.

Additional notation: The machine I am working on won’t do “Cut and paste” for links, among other things, nor will it do boldface. You can track down the Ehrlich book through or my previous posts on placebos.

Latino assimilation

The U.S.-born children of immigrants are replacing their parents as the fastest-growing generation in the Latino population, and the shift will have profound effects on the country’s largest minority group.

The children of immigrants are likely to move closer to the mainstream than their parents — marrying people from other backgrounds, for example. Their political views are likely to change as well, becoming more liberal on abortion, experts say, but less supportive of affirmative action. Their earnings and education will surpass those of their parents, experts predict, but will not close the gap with the Anglo majority.

“The biggest difference is that we’re shifting from a process where the largest component is Spanish-speaking immigrants — where language and immigration status were two enormous questions — to growth of a population that is English-speaking and native-born,” said Roberto Suro, the Pew center’s director. “You totally move away from the issues that have been dominant. They have a totally different set of issues than their parents do.”

My take: Good news all around. I don’t believe common cries that America is collapsing under the weight of Latino immigration, for one statement of this view, see Mexifornia, by Victor Davis Hanson. No, market prices are not always right, but until real estate prices collapse in California and Texas, it is hard to be so worried about the problem. The Great American Experiment continues to work.

Here is the Washington Post article. Here is the home page of the Pew Hispanic Center, I don’t yet see the study on-line. Here is a relevant interview, with Jeffrey Passel and Rebecca Blank, two researchers in the area.

Bounty Hunters

The “bounty hunter” conference was fascinating. To be precise, I was invited to speak before the California Bail Agents Association which includes bail bond agents who write the bonds, surety/insurance companies who back the bonds as well as bail enforcement agents (aka bounty hunters) who recapture fugitives.

The bounty hunters were generally big guys but not so that you would notice on the street – these were not your Gold’s Gym type. A bounty hunter can always buy muscle but what they really need is smarts. A successful bounty hunter avoids excessive confrontation because every pickup is a lawsuit waiting to happen. One bounty hunter told me a big part of his success has been unfailing politeness.

Another key element is getting family members to cosign the bond – even hardened criminals don’t want to see Momma’s house taken should they fail to appear at trial.

It’s no coincidence that bail agents typically have their annual convention in Reno or Las Vegas but these are poker players not mindless feeders of the slot machine. (The distinction between these forms of gambling strikes me as important but to my knowledge has not been taken up by economists.)

Many of the “bondsmen”, perhaps even a majority, are women. Bondsmen must develop intuition and judgment about who is a flight risk and women may be particularly good at this. Also, although the defendant’s are usually men, its often their wives, girlfriends and mothers who bail them out and dealing empathetically with these women is a big part of the art – alas, repeat business is not uncommon.

As with other insurance industries, you can make a lot of money quickly by writing bail but trouble comes when your charges skip and their bail becomes forfeit. At least that is what is supposed to happen but – and I am surprised to be saying this – lax regulators and high-price lawyers can open a window of opportunity that makes bad bail writing potentially profitable. The problems this creates for the honest players in the industry was a big topic at the conference. I was impressed, however, that there was also a frank discussion about how to distinguish rules meant to weed out the fraudulent from anti-competitive rules. This is a topic I need to think more about.

I was asked to speak at the CBAA because of my paper on bounty hunters with Eric Helland (forthcoming in the Journal of Law and Economics). Here are some key facts and findings:

A whopping one-quarter of all felony defendants fail to appear at trial. Of these some thirty percent can’t be found after a year.

The police are overrun with unserved arrest warrants for failure to appear and typically devote little time to the task.

As a result, FTA appear rates are some 28% lower for those released on commercial bail compared to those released on their own recognizance.

When a defendant does FTA he is about 50% more likely to be caught and is caught much sooner if a bounty hunter is on his trail compared to if only the police are involved. (Both of these effects are after controlling for other relevant factors, of course).

All Music

For information, reviews, links, and commentary, here is the best music site I know, It covers everything in music, not just the major stars.

Check out this page on the Byrds, for one illustrative example. Here is everything you ever wanted to know about Zakir Hussain.

Addendum: Thanks to Eric Dixon for helping to correct the links. He relates:

It’s a quirk of’s search engine that it will return pages with a generic “amg.dll” URL for any page that pops up directly from a search (as opposed to choosing the correct page from a list of possible matches after a search). If you want to get a replicable URL you need to click on a link for the artist, or album, or song, you want. And it’s probably a good idea to then remove the “&uid=”… database query from the URL, which is user-specific.

The value of a meteorite

OK, a big meteorite falls through your roof and wrecks part of your house. Are you worried? Maybe. Are you rich? Well, maybe yes. Exactly this happened to one family in New Orleans.

“They’re extremely lucky,” said Rhian Jones, curator of meteorites at the Institute of Meteoritics, with a note of envy creeping into her voice. “It’s so rare and such an amazing thing to happen. They were lucky they weren’t in the house at the time, but they were lucky that it happened. It makes them very special.”

One dealer estimated that the meteorite could sell for $8 to $20 a gram, or somewhere between $108,862 and $272,156. If it had been from the moon or Mars, it would have been worth millions. The damage to the house was estimated at $10,000. The family will now take that long-awaited European vacation.

Meteorite dealing has boomed in the last decade, in part because of the Internet, and in part because of new supply extracted from the Sahara and Antarctica. Here is one reputable place to buy a meteorite. Here is an ebay listing, 759 items when I checked, although most of them are cheapies. Note that a quality meteorite collection can be worth several million dollars.

For the full story of the “victimized” family, click here. It remains to be seen whether insurance will cover the damage to the house. After all, are meteorites not the proverbial “act of God”?

More on placebos

Alex, in his blog post from earlier today, makes a good point about placebos. Sometimes the patient is getting better anyway, and we should not attribute this effect to a placebo.

Note, however, that the best-known “anti-placebo” study is not as strong as is commonly believed. It relies heavily on a meta-analysis of other studies. Placebos appear to be effective in relieving the sufferer of pain, if nothing else. And placebos appear more effective when the ailment is continuous rather than discrete. Furthermore it is unclear how many people in the so-called no-treatment groups in fact received no treatment at all.

Here is a defense of the placebo effect. Placebos also have measurable effects in the brain, comparable to those of drugs, though weaker or less persistent.

Robert Ehrlich’s Eight Preposterous Propositions offers a very good survey of the placebo debates. His conclusion:

In summary, the [critical] study may have shown that the placebo is not as powerful as some observers would believe, but it certainly is far from powerless.

By the way, did you know that people can become addicted to placebos, or suffer from harmful “side effects”? I’ll try to write more on “nocebos,” or negative placebos, soon, at least provided that my mental attitude holds up.

Education and economic dynamism

Does a good educational system make for economic dynamism?

Check out the raw data on the American states for yourself. A more detailed look at the question would have to adjust for other relevant factors, but the sheer “eyeball effect” suggests a very weak link between education and economic dynamism, at least at the state level.

I am well aware of the macroeconomic growth literature that finds education to be a key driver of growth, see this article by Robert Barro.

How can we reconcile these two results? First, maybe education is critically important at lower levels of economic development, but not at higher levels. Second, the data on the states may not have enough ceteris paribus to be trustworthy. Third, the macro growth literature is weak on showing causal connections. I wonder: if we took out “education” and put “hours spent watching TV” into the cross-country regressions, what would the results look like?

Defining the Placebo Effect Carefully

I agree with Tyler that there is some serious evidence for placebo effects, especially although not exclusively for subjective components of disease. But the evidence is usually overstated because it is confused with the natural tendency of sick people to get better. A typical medical study, for example, will compare the results of a new drug against a placebo. The improvement in health of those on the placebo is then labeled “the placebo effect” – but this is wrong. To correctly identify the effect of the placebo one needs three randomly selected groups – a treated group, a placebo group and a non-treated group. The effect of the placebo per se is then measured by the health differences between the placebo and non-treated group. Although spontaneous healing effects are large, placebo effects when measured correctly tend to be small although not non-existent.

Mr. Grant and Mr. Stalin

This is Ed Asner speaking:

“I think Joe Stalin was a guy that was hugely misunderstood. And to this day, I don’t think I have ever seen an adequate job done of telling the story of Joe Stalin, so I guess my answer would have to be Joe Stalin.” – actor, Ed Asner, responding to the question, “If you had the chance to play the biographical story of a historical figure you respected most over your lifetime, who would it be?”


Addendum: The original source modifies his account, it looks much less bad for Asner than originally reported.

Happy Birthday

Did you know that AOL/Time Warner owns the rights to the Happy Birthday song? First published in 1893 the song still earns revenues of some $2 million a year. You don’t have to pay AOL for singing the song, however, unless you do it for profit – movies that feature a birthday scene can pay up to $50,000 for the rights. Interestingly, the Happy Birthday song is usually not dubbed which may account for the fact that it is sung in English in many countries around the world even by non-English speakers. Saddam Hussein was once caught on videotape singing it to his daughter.

A report on the bounty hunter conference tomorrow!

Understanding fashion

Why fashion? Why spend all that money on silk and sequins? Could it have to do with sexual selection?

With fashion in the game, a woman not only sends out face and figure cues–which are fairly easy to fake–but she also signals her knowledge of the rules of fashion and her strategies for coping with them–which requires a set of inputs that are much harder to fake. With fashion layered into the mix, men can now tell something about a woman’s alertness to social conventions and the world around her, about her problem-solving skills and about the financial resources she brings to the game. (If those financial resources are earned by the woman herself, that directly signals a certain degree of fitness; if the financial resources are provided by the woman’s family, well, that at least strongly implies that some fairly fit genes in her family tree, as well as potentially valuable social connections.)

…to fulfill its role in sexual selection as a sincerity-testing handicap, fashion cannot be about simply making women beautiful, despite the fact that designers always portray their craft in this light. Fashion (as opposed to the rag trade) is about creating a rapidly changing set of rules for dressing which are intentionally subtle, complex, and difficult-to-decode. To make fashion work even better as a sincere (i.e., hard to fake) signaling device, designers must create a hierarchy of rules from introductory to expert while also charging increasingly more for the garments necessary to play the game at advanced levels. Making women beautiful (providing positive face and figure cues) is actually a task that fashion deliberately makes more difficult and expensive.

The discussion can be found on, one of my favorite blogs.

The standard economic story suggests that we should tax costly signaling. Note that an evolutionary perspective can overturn or modify this conclusion. If we have evolved to enjoy such signalling (this is surely one plausible mechanism for how we are led to do the signaling, and surely many people love fashion), the signaling suddenly looks more productive. Signaling has sorting benefits as well; fashion makes sure that the right people marry each other. We likely still have too much signaling, relative to a “first best optimum,” but practicable improvements are suddenly harder to find.

Blogs and the private production of public goods

Blogs are a remarkable example of the private supply of public goods. The writers are highly motivated, and often highly intelligent. They produce opinion and commentary on just about everything, with remarkable speed and timeliness. Yet few of these authors are paid directly. They write either for love, or in the hope of converting their fame into profit. Well over four million blogs have been created.

Yet as we might expect, not all bloggers contribute much to the public good. To put it bluntly, many of you out there are slackers. Here are some results from a recent study:

Some highlights: about a quarter of all blogs created are abandoned after only one day. Men tend to abandon their blogs slightly faster than women do, while women are slightly more likely to create a blog in the first place. More than 90% of all blogs were created by people under 30 years old. The average active blog is updated only once every 14 days.

The summary remarks are from