Are athletes Bayesians?

Mark A. Walker and John C. Wooders, economists at the University of Arizona, recently studied old videotapes of tennis matches involving stars like Bjorn Borg, Ivan Lendl and Pete Sampras. The economists looked at the serves in each match to see how well players randomly altered playing the ball to an opponent’s forehand or backhand.

Many people do poorly on similar tests when they are conducted in a laboratory. Ask somebody to write down a list of hypothetical coin-flip outcomes, for example, and the result will probably contain too few streaks of heads or tails. Because people know that the overall odds are 50-50, they underestimate how often three straight tails or four straight heads turn up.

But professional tennis players realize, on some level, that their opponent will have an advantage if he knows that a serve to the forehand is likely to be followed by one to the backhand. They do a relatively good job of mixing serves, though still not as randomly as a computer program would, Professors Walker and Wooders reported in a 2001 paper.

Controlled experiments yield similar results, read this account from The New York Times.

Here is the bottom line:

The more uncertainty that people face – be it caused by wind on a tennis court, snow on a football field or darkness on a country highway – the more they make decisions based on their subconscious memory and the less they depend on what they see.

Related research by Doru Cojoc of Clemson shows that chess players play mixed strategies to keep their opponents off balance. Furthermore they are more likely to play such sophisticated strategies, the higher the rewards on the line.

By the way, even plants seem to perform implicit calculations when they breathe, read this recent account. Armen Alchian, of course, once postulated a similar conjecture, namely that plants maximize sunlight without any conscious awareness of such a process.

Could a little poison be a good thing?

Evidence is building for hormesis, the theory that suggests that moderate doses of bad things like radiation and toxins can improve health. Interestingly, much of the evidence has been around for a long time but it has been ignored because the focus was on proving the harm that toxins can cause and because low-dose effects are, by their nature, harder to identify so positive effects at low doses were typically discounted. Edward J. Calabrese of the University of Massachusetts at Amherst, however, has collected thousands of already published examples and is conducting original research of his own into hormesis. Other researchers are beginning to take notice. Hormesis is controversial, however, as you might imagine from this bombshell:

Calabrese suspects that in many cases, the benefits of hormesis may occur at levels higher than the recommended safe doses for humans.

Hormesis is a similar idea to the hygiene hypothesis (more here) which asserts that “reduced microbial exposure because of increased sanitation and cleaner lifestyles has facilitated the rise in asthma and allergic disease in the Western world.” (The mechanisms of the two effects appear quite different, however.)

Free Chong

Conservatives argue that gun manufacturers and sellers should not be held liable for selling a gun which is later used in a crime. I agree but where are the conservative defenders of Tommy Chong? Chong, one half of the gonzo film duo, Cheech & Chong, is currently serving a 9 month prison term for selling “drug paraphernalia” over the internet. That’s right, Chong is in jail not for selling drugs but for selling items that are perfectly legal like pipes and rolling paper – similar items are sold everyday alongside tobacco but because of Chong’s reputation as a drug-user his items were ruled illegal.

Chong is the only defendant in a series of such raids to receive jail time and it is clear that one of the reasons Federal prosecutors went after him is because his movies make fun of law-enforcement.

Smoking less doesn’t always help

Many smokers manage to smoke fewer cigarettes. The problem is that they often puff all that much harder. In the long run they may not end up much healthier, read this account. By the way, Sam Peltzman has studied this phenomenon more generally. We can do things to make people safer, but they respond by taking more risks. Thanks to Jon Klick for this latter link.

The case for lifetime savings accounts

Glenn Hubbard, former chair of the CEA, argues that we should not tax savings:

While the Lifetime Saving Account (LSA) offers substantial simplification benefits, it also offers a vehicle to save more easily for a downpayment on a home, children’s education, or for medical expenses. With no withdrawal penalties, the account’s greater liquidity will encourage individuals to save, particularly moderate-income households worried about tying up funds for a long period of time. Like the president’s proposal to eliminate investor-level taxes on dividends, the LSA lays claim to the idea that income should be taxed only once. Indeed, given the generous contribution limits, most households could avail themselves of a consumption tax akin to the Flat Tax. They would pay taxes once when they earned wages or business income, but not again on returns to saving. This is an important step toward fundamental tax reform, particularly if the administration continues its recognition of the costs of double taxation of corporate income.

How much would capital accumulation go up?

To assess the impact on capital formation, one should compare the present value of additional private capital formation to the present value of lost tax revenue. Jonathan Skinner of Dartmouth College and I estimated that with even 25 cents of each dollar contribution as new saving, IRA contributions generate $2.21 of new capital per dollar of net revenue cost. If, as suggested by Harvard economist Martin Feldstein, one includes corporate income tax revenue from the higher capital stock made possible by the saving incentives, the ratio rises to $4.84 of net capital per dollar of new revenue cost. If each dollar of contributions contains 40 cents of new saving and one incorporates higher corporate income tax receipts, the savings incentives are actually self-financing.

My take: I’m totally on board kind of sort of. Until we address runaway government spending, tax changes will only bust the budget in the shorter run. Even with elasticity optimism, we won’t ever arrive at the self-financing equilibrium. Furthermore I will never have that much faith in any particular numerical projection. My main worry is stopping the current drain of resources from the private sector. And no, a trip to Mars is not just what the doctor ordered. Right now U.S. fiscal policy needs credibility and needs it badly. Won’t markets just think that any revenue boost will fly out the window as quickly as it comes in? Isn’t politics, and thus economics, first and foremost about subjective perceptions? Hubbard’s proposal, for all its merits, doesn’t address the core problems.

Addendum: Here is Brad DeLong’s recent post on the fiscal costs of social security privatization plans.

In Canada, the quality of mercy is strained

Loni Wells has required 8 ½ hours of dialysis every day since her kidney failed completely in February of 2000. After a publicity effort by her father, 36 complete strangers offered to fly to Edmonton to donate to her one of their kidneys. But, writes Adam Young,

[when] these potential matches contacted the local branch office of the Stalinist medical system in Canada, their benevolence was brushed away….The transplant monopoly, however, insists living donors be either family or close friends.

“There has to be an emotional bond, a close relationship to proceed to any further steps,” explained Ed Greenberg of Capital Health in Edmonton.

What an arrogant bastard. How dare this bureaucratic peon sit in judgment on the quality of mercy?

Fact of the day

The States and Puerto Rico, combined, spent $24,875,170 on lobbying the federal government, in the 1998-2002 period. About four-fifths of this money – $19,804,609, was spent by Puerto Rico. Much of the lobbying is directed at either statehood or greater federal benefits. One (partisan) source estimates that Puerto Rican statehood would involve a $3 billion welfare tab, in addition to food stamps for half of the island’s population. Here is the full story.

Hayek and the Reconstruction of Germany

At first, the U.S. POW camps for captured Germans were dominated by Nazi’s who threatened and even killed anti-Nazi “traitors.” But as American thoughts turned to the post World-War II era the camps were cleaned up and a reeducation plan was begun. In other countries, this might have been a euphemism for torture and forced labor but in the U.S. camps it meant libraries filled with books that the Nazi’s had banned and open discussion sessions led by professors from Harvard, Brown, Cornell and elsewhere. The story is told in The Washington Post Magazine article, Learning Freedom in Captivity.

Here is one interesting quote:

By mid-1944, new leadership had been installed at Concordia and many of the worst Nazis had been removed. Concordia’s canteens and library were filled with books that had been banned by the Nazis. Treichl read and reread the American bestseller The Road to Serfdom by Friedrich Hayek, which detailed the flaws in socialism and contrasted it with democracy.

Treichl went on to become head of Austria’s largest bank and honorary president of the Austrian Red Cross. To this day he has kept his beloved copy of The Road To Serfdom.

I find this story heart-warming and a fascinating tidbit of history but it also troubles me. What are we to make of a reeducation camp with The Road to Serfdom as text? Clearly, we cannot dismiss such a thing as a contradiction in terms because apparently it did some good. More broadly, Hayek warns against the hubris of social engineering – yet what was the post WWII reconstruction of Germany and Japan but social engineering on a grand scale? How do these lessons apply to Iraq? Could we fail in Iraq precisely because we do not have the power to reeducate?

Why do parents adopt so many girls?

The evidence suggests that fathers prefer boys over girls. For instance a couple is more likely to stay married when they have a boy rather than a girl. Here is my earlier summary of the research.

At the same time couples are far more likely to adopt girls rather than boys? How can this be?

A recent Slate article offers some figures:

Numbers vary, but it’s pretty safe to say that somewhere between 70 percent and 90 percent of parents looking to adopt register some preference for a girl with an agency. It doesn’t matter if they’re adopting from China, where girls far outnumber boys; from Russia, where the numbers are about even; or from Cambodia, where there is typically a glut of orphan boys and a paucity of girls. Everywhere, demand tends to favor the feminine.

Steven Landsburg had suggested an adverse selection argument. Yes boys are favored but if a boy is put up for adoption, you can figure there is something wrong with the boy, for precisely that reason.

Or perhaps it is easier to nurture girls, and the nurturing motive may be central to the adoption decision. It also may be the case that mothers prefer girls and mothers also drive adoptions:

“The extent to which women are the driving force in most adoptions is probably a factor,” he says. “It’s usually true that the women are filling out the paperwork, going to the conferences, the support groups.” He adds, “If I speak at a conference–whether it’s on adoption or family issues–at least 80 to 90 percent of any of these audiences are women.”

My take: Having a boy is a riskier investment than having a girl. The risk rises dramatically with adoptions, given the associated genetic uncertainty. Males are more likely to have genetic roots for criminality and mental illness. So if you don’t know much about the parents, better to play it safe and opt for a girl.

Why can’t you find your favorite song?

… fans who venture onto any of the pay music sites will not find the most popular band ever, the Beatles. They will not find other top-selling acts, such as the Dave Mathews Band, Garth Brooks, the Grateful Dead, AC/DC and the Cars.

They will find that top-selling acts Madonna and Red Hot Chili Peppers sell their songs by the album, but not as singles.

They will find some musicians on one service, but not on others. They will find puzzling choices: Led Zeppelin fans can buy a 47-minute spoken-word biography of the band online, but no Zeppelin songs because the band has not licensed them for sale on the Internet.

Why are these potential gains from trade not being exploited?

1. Some artists are holding out for a higher price or better terms. This can mean either a better cut for the artist, or the artist does not like the “all songs for 99 cents” model of iTunes.

2. Many artists feel that selling songs on an individual basis takes them out of proper context or cannibalizes sales for the album.

3. Pre-1998 contracts do not specify Internet rights to the songs. Assignment of Internet rights can require the underlying contract to be renegotiated.

4. Renegotiations must involve both the performer and the songwriter.

5. Often the relevant parties cannot be found or are otherwise difficult to deal with. One executive said: “You can be sure the heirs are a son and daughter who aren’t talking to each other and one of those two is getting divorced.”

Here is the full account. You will find stories of high transaction costs, poorly defined property rights, and stubborn holdouts, all the classic predictions of institutional failure theories.

The bottom line: Selection, not just price, remains a big advantage for non-legal downloading. If iTunes and related services are to make it in the long run, they will need to offer near-universal choice of music.

Live – from Dubuque, Iowa!!

Readers with XM radio are encouraged to tune to channel 132 – C-Span radio! There is a live democratic caucus in Dubuque, Iowa. If you have ever wondered what it’s like in a famed Iowa caucus, this is your chance. It’s noisy and chaotic – people argue over the rules and the candidates and it’s hard to decipher what’s happening. People wander from group to group looking for enough people to give their guy a delegate. People are trying to pull each other from group to group.

People just clapped when a Kucinich person migrated to a Dean group… followed by a football fan style “EDWARDS!! EDWARDS!! EDWARDS!!” chant… heady stuff… tune in before you miss it!

What is the most corrupt state?

In a recent study Louisiana only comes in third, Mississippi takes top honors, followed by North Dakota. The District of Columbia has a disproportionate share of convictions, but it does not count as a state. Nebraska is measured as the least corrupt state, Oregon, New Hampshire, and Iowa are also near the bottom. Here is the story, here is the source account and study.

A Baton Rouge headline reads “La. not No.1 in Corruption.” Former governor Edwin Edwards received ten years in prison for corruption-related charges, one case of many in Louisiana history. The last three insurance commissioners have gone to jail for corruption.