This reminded me of Gordon Tullock

Security at diamond mines the world over makes antiterrorism security efforts at airports look like they’re conducted by the Boy Scouts. In Namibia, for instance, at the De Beers-owned Oranjemund claim, the only cars in the town in the 1970s were company cars that could never leave its borders. Private vehicles were banned when an enterprising engineer removed several bolts from the chassis of his car, bored out the middle for holding diamonds, and then screwed them back in tight. The fact that he was actually caught is testament in itself to how high the security was; from then on, De Beers outlawed new cars. All vehicles in the town had to stay there until they rusted away. One worker at the same site stole diamonds by tying a small bag to a homing pigeon, which would fly the diamonds back to his house. One day, he got too ambitious and overloaded his winged courier; the pigeon was so laden with stolen diamonds, it couldn’t fly over the fence and was discovered by security guards a short time later. They reclaimed the diamonds and let the bird go, following it to the man’s home, where he was arrested after work.

From Greg Campbell’s recent Blood Diamonds: Tracing the Deadly Path of the World’s Most Precious Stones.

Doctors are very ignorant of statistics

Here is a bit from Gerd Gigerenzer:

The science fiction writer H G Wells predicted that in modern technological societies statistical thinking will one day be as necessary for efficient citizenship as the ability to read and write. How far have we got, a hundred or so years later? A glance at the literature shows a shocking lack of statistical understanding of the outcomes of modern technologies, from standard screening tests for HIV infection to DNA evidence. For instance, doctors with an average of 14 years of professional experience were asked to imagine using the Haemoccult test to screen for colorectal cancer. The prevalence of cancer was 0.3%, the sensitivity of the test was 50%, and the false positive rate was 3%. The doctors were asked: what is the probability that someone who tests positive actually has colorectal cancer? The correct answer is about 5%. However, the doctors’ answers ranged from 1% to 99%, with about half of them estimating the probability as 50% (the sensitivity) or 47% (sensitivity minus false positive rate). If patients knew about this degree of variability and statistical innumeracy they would be justly alarmed.

The lead is from Crooked Timber, through BlackTriangle.org.

The jobless recovery?

Allan Meltzer argues that employment is growing, albeit not in a strong or robust fashion. His explanation: many former employees are being rehired as contractors, and our employment statistics do not measure this trend accurately.

Here is the relevant statistical issue, according to Meltzer:

There are two sources of labor market statistics, the Establishment Survey and the Household Survey–both conducted by the Labor Department. The first asks manufacturing and service sector companies how many employees they have. The second asks a sample of people whether they have jobs. The two give different answers and, important right now, the difference changes systematically over time. The reason is that the number of companies does not remain fixed. In our dynamic economy, old firms die and new ones are born. The Labor Department learns about the deaths quickly, but it takes longer to learn about the births.

Nor is the longer-term record of the Bush administration on employment as dismal as is commonly believed:

For the year ending in August, the Establishment Survey shows a loss of 463,000 jobs. The Household Survey shows that the economy added 313,000 new jobs in the same period. The Establishment Survey also shows the much discussed job loss since the Bush administration took office–2.7 million jobs. The Household Survey reduces the loss to 220,000, not good but far more typical of a period with recession and slow recovery. As the speed of recovery picks up, the latter loss will disappear by early next year.

Revisit this post in a few days for an addendum, I will let you know if there is any reaction to this argument (Brad DeLong once wrote a critique of Meltzer) in the blogosphere.

Thanks to John Charles for the pointer to the original article.

Addendum: Brad DeLong offers critical commentary on Meltzer’s argument.

Spam-onomics

The New York Times has an informative interview with a man who used to earn his living sending “bulk email.” There are a couple of take home points:

1. Spammers don’t make that much money because there is a lot of competition. The price for sending a million e-mails is about $900, and will drop soon. It’s only about $300 for 10,000 e-mails.

2. Spammers cater to other dodgy businesses. Not the kinds of people to be deterred by toothless legislation.

3. The author claims mass faxes were reduced because individuals were allowed to prosecute individual junk faxers for small amounts ($500). Enough to harass junk faxers, but not so large that the plaintiff would have to engage in a lengthy court battle. These smaller fines hurt because most spammers are small time operators with slim profit margins.

The most insightful observation is that legislators have considered both models of controlling spam – prosecute a few large operators for millions in fines, or let citizens go after the small fry in civil suits. The deck is stacked against the second solution – one FTC officer said but that there needs to be “a couple of good hangings.” Conclusion: we probably have the legal and economic tools to curtail unwanted mass emails, but the political process won’t let it happen.

Why did it take so long to integrate baseball?

The Chicago/UCLA approach has long suggested that if black or minority workers are underpaid, for reasons of discrimination, an employer would find it profitable to hire them and bid up their wages. I have long since wondered why it took major league baseball so long to play African-Americans. The “Negro Leagues” had been around a long time, with many talented players, but Jackie Robinson did not debut for the Brooklyn Dodgers until 1947.

Here is one suggested answer, from a recent book Jackie Robinson and the Integration of Baseball:

…a showboat minor league operator named Bill Veeck…wanted to buy the Philadelphia Phillies and stock it with aging Negro League stars while younger white major and minor league players were at war. A team with, say Satchel Paige, Josh Gibson, and Ray Dandridge might well have won a World Series…But baseball commissioner Kenesaw Landis disapproved of the idea. He didn’t care for Bill Veeck, he didn’t trust his money, and he certainly didn’t endorse his scheme. What if Philadelphia’s fans decided that they liked winning and didn’t want to return to segregated, second-divison baseball?

In other words, the league structure of major league baseball allowed for collusion and thus enforceable discrimination, through the medium of the commissioner.

The book also relates that club owners had a financial incentive to keep the Negro Leagues going. Commonly the club owners rented out their stadiums to the Negro League clubs, often reaping more than $100,000 a year from this source of income.

It is worth noting that jockeys, bicyclists, runners, and boxers — all more individualistic sports — saw integration much earlier. But in basketball, another league sport, the first black entered the NBA in 1950. Football is a more complicated story, showing integration followed by a segregation in the 1930s, followed by reintegration in the 1940s, read here for one account, I hope to cover football in more detail in a future post.

Chess and mixed strategies

Many laboratory experiments fail to find evidence for the game-theoretic concept of “mixed strategies.” But Doru Cojoc, a graduate student at Clemson University, looks at data taken from the world of chess, where high prizes are on the line and we find repeated games between the same players (there is no copy of the paper on the web).

A player might prefer one opening move over another (e.g., “1. e4” vs. “1. d4”), but if a player always uses his favorite, the opponent will find it easier to prepare a defense. So players tend to vary their opening moves in an effectively random manner, as confirmed by Cojoc’s data from championship matches. The returns to differing opening moves end up being the same, in expected value terms, even though players have their favorites. Note: For purposes of contrast, I would like to see if chess champions do any better with their favorite moves in non-repeated settings, Cojoc says he is working on this.

Doru tells me he is also preparing work on whether chess players ever reason using backwards induction strategies. And click here for a lead on the Chiappori, Steve Leavitt, and Tim Groseclose paper on mixed strategies in soccer.

By the way, did you know that for world championship games since 1951, the player with white is more than twice as likely to win as the player with black (26% white wins, 12% black wins, 61% draw)?

Thanks to Bob Tollison for the pointer on this work.

Capitalism comes to Iraq

Most of the talk about the reconstruction of Iraq has been about US aid, a so-called “Marshall plan for Iraq.” But as Tyler pointed out the Marshall plan never did that much for Europe – what made the difference was economic liberalization (and recall that the key reform in Germany, Ludwig Erhard’s lifting of price controls, was done without the permission and against the wishes of the US administrators). It is heartening therefore that liberalization appears to be coming to Iraq. Here is the key information from The Economist (subscription required).

A shock programme of economic reforms signals a radical departure for Iraq. The changes, announced by the country’s provisional rulers at the annual World Bank/IMF jamboree in Dubai, could see its battered economy transformed abruptly into a virtual free-trade zone.

If carried through, the measures will represent the kind of wish-list that foreign investors and donor agencies dream of for developing markets. Investors in any field, except for all-important oil production and refining, would be allowed 100% ownership of Iraqi assets, full repatriation of profits, and equal legal standing with local firms. Foreign banks would be welcome to set up shop immediately, or buy into Iraqi ventures. Income and corporate taxes would be capped at 15%. Tariffs would be slashed to a universal 5% rate, with none imposed on food, drugs, books and other “humanitarian” imports.

How good is the Dutch social welfare miracle?

Despite recent economic troubles, the Dutch social welfare state is commonly considered one of the most successful in Western Europe. The country also is reputed to have low unemployment, a 2002 estimate (see the above link) cited an unemployment rate of 4.1 percent, other measures give a figure closer to seven percent. In any case note that measured unemployment rates are higher in most other parts of the EU, Ireland being one exception.

I now learn that the Dutch miracle may not be so special after all:

…disability leave…can be taken at full salary for a year and, after a single day’s work, is renewable for another year, and so on indefinitely. If one includes the disproportionate number of Dutch goldbrickers as unemployed, then the job-creation part of the miracle looks more like a magician’s sleight of hand. Even though the Netherlands is at the very top of longevity charts, estimates of persons on disability run from 8 to 13 percent of the workforce – between two and three times the EU average. They raise the true rate of Dutch unemployment into double digits.

This may be one reason why the Dutch economy grew only 0.3 percent in 2002.

The quotation (p.378) is from John Gillingham’s excellent European Integration, 1950-2003: Superstate or New Market Economy?.

Penny facts and optimal denominations

$10.5 billion in small change sits around people’s homes.

The average U.S. transaction produces 4.7 coins in change.

Eliminating the penny would lower this figure to 2.7 coins.

The average Canadian transaction produces 5.9 coins in change (Canada has a dollar coin), this would be 3.9 coins in a pennyless world.

A mathematical technique known as Diophantine equations can be used to calculate the coin denominations that would produce the least amount of expected change per transaction. If we replaced the dime with an 18-cent coin, the average number of coins per transaction would fall from 4.7 to 3.89. If we must keep the dime, adding a 32-cent coin would give us a figure of 3.46. The best solution of all would be to combine an 18-cent piece, and actually use the half-dollar coin, for a figure of 3.18 coins per transaction. N.B.: These calculations do not consider the limited ability of Americans to do math in their heads.

These facts are taken from the October issue of Discover magazine, although only a small fragment of the article is available on-line.

Thomas Sargent’s excellent The Big Problem of Small Change (co-author Francois Velde) provides a fascinating historical look at how our denominations evolved, and why we use fixed denominations rather than monies with floating exchange rates against each other, as in medieval times. Imagine having a daily rate for how much a dime is worth, vis-a-vis a quarter. Sargent and Velde claim that fixed rates, combined with a willingness of the central bank to trade at those rates, offers the best possible mix of denominations. They stress that this solution requires good safeguards against counterfeiting.

According to one poll, seven percent of Americans use coins to stabilize table legs, seventy-three percent to scratch off lottery tickets.

One individual wisecracked: “Actually the United States does have an 18-cent coin…It’s called the Canadian quarter.”

Addendum: About $600 worth of coins pass through the hands of a typical American each year. Using pennies may make an average cash transaction three seconds longer.

Second addendum: Professor Bainbridge tells us that the penny will never be abolished, and that sales tax is the reason why. He also cites this link on why abolishing the penny would raise government expenditures by more than a billion dollars, due to CPI effects.

The higher the bill, the lower your tip percentage

Two psychologists studied nearly 1000 tips for restaurants, hair salons and with cab drivers. The larger the bill, the smaller the percentage tip. This is consistent with a reciprocal “payment for service” model. You pay the waiter enough to get the job done, but you don’t feel he has to work much harder to bring you a more expensive entree. Or you might simply be feeling poorer, the larger the bill.

Note that the effect levels off for sums larger than $100. After that point larger bills don’t lead to smaller tips in percentage terms. Servers also get bigger tips when they split the bills for large groups. Read here for more detail. Other research shows that servers get bigger tips if they resemble or can mimic the customer.

More confusion at the Iowa Electronic Market?

Share prices this morning at the Iowa electronic market are confusing. The average price for “recall vote share yes” is $.475 and “recall vote share no” is $.490. Sounds simple enough – very close, but Davis survives the recall. But look: “Gray Davis in” is $.40 while “Gray Davis out” is $.632?? Very confident now that Davis will get the boot. Why the radical disconnect between the two markets? Once again, if you have insights, please feel free to mail them in.

Joseph Stiglitz interview

Here is one excerpt:

WIRED: Who deserves the most blame for the crash?
STIGLITZ: I identify three or four culprits. The deregulation movement went too far, too fast. Then I have to give some blame to the Fed. Greenspan gave the “irrational exuberance” speech but didn’t do anything about it. And there was the bad accounting framework, which emphasized stock options and created a series of perverse incentives. Wall Street and Silicon Valley conspired to maintain those bad standards.

Now this bit will enrage some people I know:

STIGLITZ: I don’t like the word deregulation. I like to say “finding the right regulatory structure.”

From Wired.com.