Seth Roberts in NYTimes

Seth Roberts may soon be waking up to see his own face on television.  That ought to make him happy!  Roberts, as you may recall, is the Berkeley psychologist whose novel self-experiments have led to some strange but important new ideas.  Stephen Dubner, who read about Roberts on MR, and Steve Levitt have just profiled him in the NYTimes Magazine; they do an especially good job of explaining Seth’s theory of weight loss:

[Roberts] had by now come to embrace the theory that our bodies are
regulated by a "set point," a sort of Stone Age thermostat that sets an
optimal weight for each person. …But according to Roberts’s
interpretation of the set-point theory, when food is scarcer, you
become less hungry; and you get hungrier when there’s a lot of food
around.

This may sound backward, like
telling your home’s furnace to run only in the summer. But there is a
key difference between home heat and calories: while there is no good
way to store the warm air in your home for the next winter, there is a
way to store today’s calories for future use. It’s called fat….

During an era of scarcity –
an era when the next meal depended on a successful hunt, not a
successful phone call to Hunan Garden – this set-point system was
vital. It allowed you to spend down your fat savings when food was
scarce and make deposits when food was plentiful. Roberts was convinced
that this system was accompanied by a powerful signaling mechanism:
whenever you ate a food that was flavorful (which correlated with a
time of abundance) and familiar (which indicated that you had eaten
this food before and benefited from it), your body demanded that you
bank as many of those calories as possible….

So
Roberts tried to game this Stone Age system. What if he could keep his
thermostat low by sending fewer flavor signals? One obvious solution
was a bland diet, but that didn’t interest Roberts. (He is, in fact, a
serious foodie.) After a great deal of experimenting, he discovered two
agents capable of tricking the set-point system. A few tablespoons of
unflavored oil (he used canola or extra light olive oil), swallowed a
few times a day between mealtimes, gave his body some calories but
didn’t trip the signal to stock up on more. Several ounces of sugar
water (he used granulated fructose, which has a lower glycemic index
than table sugar) produced the same effect. (Sweetness does not seem to
act as a "flavor" in the body’s caloric-signaling system.)

The results were astounding. Roberts lost 40 pounds and never gained it back.

I can verify the appetite suppressing properties of the fructose water.  A glass of fructose water and I can easily go without lunch.  The only problem is that the sophists lure the unsuspecting to lunch anyway.

UHaul Pricing and Free Drinks for Women Nite

Here is my analysis of UHaul pricing and the larger implications for not only ‘women drink free nites’ but many other markets.

Why is it so more expensive to rent a UHaul van to travel from  LA to Las Vegas ($454) than from Vegas to LA ($119) (more here).  Since the direct cost is similar the first thing an economist might think of is price discrimination.  But the rental market is highly competitive, especially when we take into account substitutes such as train, private car etc., so that seems like a non-starter.  A good answer needs to recognize that UHaul operates a network with significant inter-customer externalities.

Let us suppose that as the day dawns UHaul has the optimal number of trucks at each of its locations.  At the end of the day, UHaul would like the same number of trucks at each of its locations.  But this is possible only if departures equal arrivals and to help achieve that balance UHaul lowers the price on the low demand Vegas to LA trip and raises it on the high demand Vegas to LA trip.  (It’s more complicated than this because there are many more than bi-directional considerations but you get the idea.)

Put differently, a customer who travels from Las Vegas to LA reduces the cost to UHaul of running its network because it lets UHaul sell an LA to Las Vegas trip.  The direct costs may be similar but the indirect costs related to running the network are very different. UHaul’s pricing strategy reflects both the direct and indirect costs.

Network economics has some similarities to platform economics.  A bar, for example, is a platform which mediates transactions (pecuniary and non-pecuniary!) between two sorts of customers, men and women.  If men have a higher demand for going to a bar with many women (LA to Las Vegas) than women have of going to a bar with many men (Las Vegas to LA) then in a competitive market the bar must set a higher price for men than for women.  In this context, far from being an example of monopoly power, differential pricing is a result of competition.

More generally, there are many examples of platform markets.  The developer of a mall has as customers shoppers and shops.  A video game console sells itself to players and programmers.  A credit card must have users and merchants.  In some places differential pricing for men and women at nightclubs is illegal.  But in a platform market such differential pricing can make both men and women better off.  Similar things can be said about practices in other platform markets which look anti-competitive at first glance but in fact are the result of competition in the context of a platform.

More on platform economics, also called two-sided markets, in Rochet and Tirole.

Bonus points to Larry White, Mark Weaver and Michael Stack for sending in answers and double bonus points to Larry for suggesting that some of theory could be tested by looking at drink pricing at gay bars.

Today, I am an American

On Friday, I took the oath and became an American citizen.  I can’t claim to be escaping an authoritarian regime or hopeless poverty.  Indeed, the security guard at the INS saw my passport and said "What you doing here?  Why you want to be American?  Free medical care, free welfare.  I want to be Canadian."   So why did I make the leap?  There are plenty of pragmatic reasons.  I have a home here, a job, a life.  The United States has been good to me.

But the deciding factor in my choice was emotional.  Four years ago when I awoke to the devastation, I felt that my country had been attacked.  And if that is how you feel then what more needs to be said?

Our poverty statistics

According to the latest poverty rate estimates – released by the Census Bureau on Aug. 30 – the total percentage of Americans living in poverty was higher in 2004 (12.7 percent) than in 1974 (11.2 percent). According to that same report, poverty rates for American families and children were likewise higher last year than three decades earlier.

But can this be true?

Per capita income adjusted for inflation is over 60 percent higher today than in 1974. The unemployment rate is lower, and the percentage of adults with paying jobs is distinctly higher. Thirty years ago, the proportion of adults without a high school diploma was more than twice as high as today (39 percent versus 16 percent). And antipoverty spending is vastly higher today than in 1974, even after inflation adjustments…

The soundings from the poverty rate are further belied by information on actual living standards for low-income Americans. In 1972-73, for example, just 42 percent of the bottom fifth of American households owned a car; in 2003, almost three-quarters of "poverty households" had one. By 2001, only 6 percent of "poverty households" lived in "crowded" homes (more than one person per room) – down from 26 percent in 1970. By 2003, the fraction of poverty households with central air-conditioning (45 percent) was much higher than the 1980 level for the non-poor (29 percent).

Besides these living trends, there are what we might call the "dying trends": that is to say, America’s health and mortality patterns. All strata of America – including the disadvantaged – are markedly healthier today than three decades ago. Though the officially calculated poverty rate for children was higher in 2004 than 1974 (17.8 percent versus 15.4 percent), the infant mortality rate – that most telling measure of wellbeing – fell by almost three-fifths over those same years, to 6.7 per 1,000 births from 16.7 per 1,000.

Here is the link.  There are two bottom lines.  First, we have made more progress against poverty than the numbers indicate.  Second, we should look first to consumption data, not income data.

UHaul 2

Inspired by my earlier post, Chris Robinson has written some clever code to query UHaul prices which he then analyzes.  Also, like a true statistical gentleman, he makes the data available to all.

Steve Levitt chimes in on whether this is freaky enough – no, it’s encouraging. but not quite there yet.

Me?  I am still hoping that someone will follow up on my suggestion that these prices explain why women drink free nights are a good idea.

The resettlement economics of Houston

"As tragic as it is for New Orleans, it is a boon for Houston."  True?  Are "broken windows" good for Houston?  I tally the following gains and losses:

Gains:

1. Sellers with price greater than marginal cost will receive more profits.  Here is one story on the Houston business boom.

2. Some disaster relief money will flow to the city.

3. Business relocation will sustain the urban real estate market.

4. Some new talent will seek to agglomerate in Houston rather than New Orleans.

5. Short-term nominal demand in Houston will rise, although this could be either a benefit or cost.

Losses:

1. Local taxes will rise to pay for shelters and the like.

2. Hotels, sports stadiums, and other public facilities will experience crowding.

3. Refugee issues will move to center stage; this will command political attention and perhaps creative divisiveness, hindering potential improvements.

Two historical examples: The fall of the Berlin Wall brought a temporary boom to West Germany but overall has not proved an economic blessing for the West.  The initial demand shock was positive, but the new assets and resources did not prove complementary to the old.  Second, the Mariel Boatlift dumped many Cuban refugees into Florida but wages and employment did not suffer.  That suggests that the Houston poor will not suffer much from new competition.

I usually see economies of agglomeration as outweighing costs of congestion; I am even a fan of 20 million-plus population mega-cities, such as Sao Paulo or Mexico City.  But as the German example shows, complementarity is key.  You gain by working or living next to other people, but the spatial concentration of talent and assets should be guided by market prices and the pieces must be fitted together gradually, with some trial and error reshuffling. 

The bottom line? Both the costs and benefits of resettlement will be overstated by partisans.  The Houston boom won’t last long, and the costs will net out to put the city in a roughly break-even position.

The “broken window fallacy” fallacy

A loyal MR reader wrote to me, complaining about Henry Hazlitt’s Economics in One Lesson.  In particular, he noted that attacking the broken window fallacy does not much damage Keynesian economics.  I agree:

1. The broken window fallacy consists of claiming that destructive acts (say storms, hurricanes, or terrorist attacks) will improve economic welfare by occasioning repair expenditures and putting people back to work.

2. Measured gdp may rise but true real income will not.  After all, something has been destroyed.  In theory the extra spending flow could offset wage and price stickiness to such a degree that employment rises and the economy comes out ahead.  But a) this is unlikely, and b) you could get the positive effects, if indeed they are there, without breaking anything.  Better monetary and fiscal policies (for me especially the former but perhaps not for Keynes; do also note that raising taxes stifles work and innovation, an indirect breaking of windows) would be called for.

3. Appreciation of #1 and #2 does not much damage Keynesian arguments.  Keynesian doctrine argues that, under the right circumstances, stronger aggregate demand will stimulate output.  It affirms 2b without needing to contradict 2a, as stated directly above.

I am not a Keynesian, but this is one reason why I’ve never been persuaded by Hazlitt’s critique of Keynes.  There is no a priori way to dispose of the possibility that a boost to nominal aggregate demand might increase employment; citing Say’s Law doesn’t do it either. 

Addendum: Alex points out that Keynes did, at least once, commit a version of the broken window fallacy.  Brad DeLong in turn criticizes Hazlitt. 

Housing the Poorest Hurricane Victims

Since many victims have had to travel quite a distance to obtain temporary shelter and many will have to move further from New Orleans to obtain permanent housing within a reasonable time, these vouchers should be available to any public housing agency in the country to serve families displaced by the hurricane.  To avoid delays in getting assistance to these families, the vouchers should be allocated to housing agencies on a first-come-first-served basis and any low-income family whose previous address was in the most affected areas should be deemed eligible.  We should not take the time to determine the condition of the family’s previous unit before granting a voucher.

Getting the poorest displaced families into permanent housing is an urgent challenge.  It requires bi-partisan support for Congress to act promptly, quick action by HUD to generate simple procedures for administering these special vouchers, and housing agencies in areas of heavy demand to add temporary staff to handle the influx of applications for assistance. 

Even with the best efforts of all parties, the proposed solution will not get all the low-income families displaced by Hurricane Katrina into permanent housing tomorrow.  However, it will be much faster than building new housing for them.  And it will show them that the federal government cares about their plight and is working to do what it can to help.

The economics of seduction?

Are there secrets of seduction, drawn from (gasp) social scienceIn his new book Neil Strauss says yes.  Here is an interview.  He recommends playing hard-to-get, perhaps he has read signaling theory:

I learned that the more unavailable you make yourself, the more people would want you. The more you say ‘stop touching me’ or ‘I’m taken’ or ‘you’re just not my type,’ the more people would actually chase you…A small example would be — this sounds awful to say, but it’s true — if, say I tried to kiss someone and got rejected. I found that if I just turned my head away and ignored them for about five seconds, then turn back and say the same thing, most of the time they’d then go ahead and kiss me. I could be a punishment-reward thing, or it could be that people’s first reaction is no, but once they’ve had a moment to think about it, they think, ‘Well maybe this guy’s alright.’

And yes there are workshops for pick-up artists.  Here is a website on how to act like an alpha male.

I can only wonder: What would Barbara Ehrenreich do with this material?

My second question, which perhaps an alpha male would never ask, is how the hard-to-get strategy is an equilibrium, equating returns on all margins for all players (no pun intended) in the repeated game.  Isn’t "hard-to-get" too easy to mimic

And don’t you have to be noticed in the first place?  I never came on to Salma Hayek (unlike Daniel Drezner, who courted her repeatedly on his blog), yet this reticence paid few dividends, not even a courtesy trackback or link.  So how do you know when to back off, isn’t this like forecasting when the real estate bubble will crash?

Of course this point about timing addresses whether the strategy is easy to mimic.  A proper application of hard-to-get is well…hard to get right.  Plus some women are shrewd, which means you actually have to be hard-to-get, which is no fun at all, just remember the movie about that forty-year-old guy with all the action figures.

Thanks to Michael at www.2blowhards.com for the pointer.

Bait and Switch: final installment

I talk about labor markets and public policy, here is one nibble from my final Slate.com piece:

…displaced white-collar workers do not lead my list of victims deserving compensation. It is unfair that a 56-year-old is now expected to compete in a world for which he was never prepared. But we ought to be realistic. These transitional costs are borne by a class that has been about the richest and freest human history has seen. Let us say that you, Alan, could design a public policy to ease their readjustment. I probably would zero out that budget line and spend those funds in Niger, or on boosting the Earned Income Tax Credit, or paying for future Medicare benefits, or, dare I say it, lowering the corporate income tax as a means of encouraging white-collar re-employment.