Thursday, December 29, 2011

Why Do Toilets Explode?

I remember GS used to complain to me about Yank toilets, and how when you flushed them, often they would have such a violent flushing mechanism that you'd end up with water on the seat. I never understood why they didn't design them so that they didn't explode everywhere. Surely this is something that toilet designers think about? I can't imagine there's an active demand from customers along the lines of 'No, unless it just goes KABOOM I can't be certain that it will never block'.

Anyways, I had reason recently to reflect on the hubris of this in the context of Chesterton's Fence. As Megan McArdle described it:
In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, "I don't see the use of this; let us clear it away." To which the more intelligent type of reformer will do well to answer: "If you don't see the use of it, I certainly won't let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it."
This paradox rests on the most elementary common sense. The gate or fence did not grow there. It was not set up by somnambulists who built it in their sleep. It is highly improbable that it was put there by escaped lunatics who were for some reason loose in the street. Some person had some reason for thinking it would be a good thing for somebody. And until we know what the reason was, we really cannot judge whether the reason was reasonable. It is extremely probable that we have overlooked some whole aspect of the question, if something set up by human beings like ourselves seems to be entirely meaningless and mysterious. There are reformers who get over this difficulty by assuming that all their fathers were fools; but if that be so, we can only say that folly appears to be a hereditary disease. But the truth is that nobody has any business to destroy a social institution until he has really seen it as an historical institution. If he knows how it arose, and what purposes it was supposed to serve, he may really be able to say that they were bad purposes, that they have since become bad purposes, or that they are purposes which are no longer served. But if he simply stares at the thing as a senseless monstrosity that has somehow sprung up in his path, it is he and not the traditionalist who is suffering from an illusion.
(Her article is about the so-called tax loophole for hedge fund managers that Democrats wanted to close, and is well worth reading, but that's another story).

Anyway, I wish I could tell you that I had reflected unprompted on possible reasons that toilets might be so violent and figured it out, but this is not the case.

Instead, I had observed a semi-exploding toilet on the fifth floor of a building one day. For some reason I had cause later in the day to be on the eighth floor of the same building, and the toilet was considerably more quiet. Same building, same toilet, different effect.

And suddenly it was obvious - water pressure! I imagine that it probably is quite an engineering challenge to have exactly the same water pressure at every floor of an eight-storey building, particularly if the pipe system is somewhat old. In order to get acceptable pressure everywhere, the simplest setup is just to have pressure that's slightly too high on the lower floors and slightly too low on the higher floors. Hence the fifth floor toilet explodes a bit, and the eighth is less powerful.

I made a mental note to check this - when there's a toilet with a violent flushing mechanism, I'm going to take note of what floor I'm on, and how many floors the building has. We'll see how well this hypothesis holds up.

But in the mean time, until you understand why toilets explode, you may want to hold off on demanding that they be fixed.

Tuesday, December 27, 2011

Paging Dunning and Kruger...

There are few things more irritating than popular journalists who try to take on an academic orthodoxy by pretending to be soooo much smarter than those ivory tower pinheads, and try to mask their poor understanding of the subject with bluster and scorn. Many academic ideas are wrong, but it's odd that a whole profession is comprised of morons.

Over at Forbes, Steve Denning has an article entitled "The Dumbest Idea In The World: Maximizing Shareholder Value". Right off the bat, you can tell from the title that it's going to be a howler. (I know titles are sometimes chosen by sub editors, but it's not unrepresentative). Maximizing shareholder value is the dumbest idea in the world? Dumber than witch burning, or the modern flat-earth movement, or communism, or astrology, or... okay, so nobody with half a brain can actually believe that, they're just being provocative.

The author is positing an underlying argument that's actually quite reasonable, namely that CEOs should focus on improving earnings, rather than focussing on exceeding market expectations. Personally, I tend to agree. But it's not enough to just make this point, Denning has to pretend that anyone who ever said anything to the contrary is a disingenuous fool.

Take this hilarious quote from the article:

Martin says that the trouble began in 1976 when finance professor Michael Jensen and Dean William Meckling of the Simon School of Business at the University of Rochester published a seemingly innocuous paper in the Journal of Financial Economics entitled “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.”

The article performed the old academic trick of creating a problem and then proposing a solution to the supposed problem that the article itself had created. The article identified the principal-agent problem as being that the shareholders are the principals of the firm—i.e., they own it and benefit from its prosperity, while the executives are agents who are hired by the principals to work on their behalf.

Yes, read that again. This imbecile is actually claiming that Jensen and Meckling (1976) created the principle/agent problem! Because until they pointed it out, no manager in history had ever thought to further their own interests instead of those of the shareholders. This article was like the poison apple in the Garden of Eden, and once managers were finally told 'hey, you know you can jack up your pay at the expense of shareholders?', then the age of the philosopher-king managers was over.

Honestly, I'm just baffled by this claim. The principal agent problem in J&M relies on the following assumptions:
1. Shareholders are the owners of the company, and they appoint the board, who hire managers on the shareholders behalf.
2. Shareholders will seek to maximise the value of their shares.
3. Managers, once appointed, will seek to act in their own self-interest.
4. The interests of shareholders and managers will sometimes be in conflict.

Seriously, which of these four assumptions wasn't true before 1976? It's just bizzarre. Denning wants to claim that managers never tried to maximise shareholder value before 1976. Well call me crazy, but I'm pretty sure that managers who weren't at least trying to do that got fired pretty quickly, and this had nothing to do with Michael Jensen. The author may not like the J&M solution of paying managers in equity, but that's completely different from smugly saying that J&M "created" the principal agent problem.

Let's just say that not only is maximizing shareholder value not the dumbest idea in the world, it's not even the dumbest idea in the article. And if Jack Welch and Roger Martin (Dean of the Rotman School of Management at the University of Toronto) feel differently, then so much the worse for them.

Steve Denning, you are an arrogant, pontificating fool.

Sunday, December 25, 2011

Merry Christmas!

To all my loyal readers, wishing you a most merry Christmas and a happy new year. Thank you for joining me this past year, you all make the blogging experiment worthwhile. A year and a half, and still going strong!

As for me, I shall be holidaying around Costa Rica for a couple of weeks. Theodore Dalrymple recently described it thus:
In the late stage of British colonialism, for example, the British fondly imagined that they were bequeathing to various African countries institutions that would function in the same way without them as with them. In retrospect, this now seems an almost laughable belief. No better example of this could be had than Uganda, that land that Churchill called ‘the pearl of Africa.’ (Beware of pearls of continents, and above all Switzerlands of continents: for them, special horrors are usually reserved. The only exception to this rule known to me is Costa Rica, the Switzerland of Central America.)
I shall let you know how apt that description seems.

In the mean time, expect posting to be lighter than normal until about January 10 or so, when things will be back to full strength.

Oh, and one final request for you all over the future 12 months - if you think of something funny or interesting about a post, write a comment! I know I have lots of hilarious and awesome readers - the wit and wisdom that you would share with me if we were discussing these matters in a conversation would surely be appreciated by the other readers in blogland.  I imagine that few readers ever appreciate how valuable their comments are until they start a blog themselves. Until their blog hits the big time, at which point the sentiment reverses as the ratio of trolls and spam to real insight becomes unmanageable. But until such time, your comments are like Christmas presents to me, but every day of the year. :)

Yours faithfully,


Friday, December 23, 2011

[Government] Money for nothing, and your cupcakes for free

TSA Agent steals passenger's cupcake, claiming the icing was 'too gel-like'. In contravention of TSA policy, of course. A minor inconvenience in the scheme of life, but yet one more example of bureaucratic stupidity and arbitrary theft.

I will bet $100 at 4 to 1 against, that the agent also ate the cupcake. Notwithstanding the official rationale that the gel on the cupcake might in fact be C4. Which, if the agent had the slightest suspicion that this might be the case, they certainly wouldn't have done.

This of course gives lie to the official rationale, exposing it as complete nonsense.

But don't worry, the TSA has sprung into action to investigate!
"In general, cakes and pies are allowed in carry-on luggage," said TSA spokesperson James Fotenos, adding they were looking into why this cupcake was confiscated.
I don't know about you, but I am just dying to find out the results of this investigation, and to hear about the agent in question being fired for stealing and eating a passenger's food. Yep, any day now...

Thursday, December 22, 2011

Better Late Than Never

Fancy that, another 200-odd people drowned off the cost of Indonesia while trying to reach Australia. *Yawn*. What's on TV?

And finally, at long last, a couple of the more intellectually honest among Australia's left are starting to admit the obvious truth: having more lenient policies towards asylum-seekers encourages more asylum seekers to journey to Australia in leaky boats, which leads to more deaths.

Tim Blair points out that lefty Australian academic Robert Manne has finally woken up and smelt the coffee:
For its part, the left has been unwilling to concede that the Pacific Solution succeeded in deterring the boats. Between 1999 and late 2001, 12,176 asylum seekers arrived by boat. In the years of the Pacific Solution - 2002 to 2008 - 449 arrived. Since its abandonment, 14,008 asylum seekers have reached Australian shores.
The left's unwillingness to acknowledge the obvious has been of great political significance. Following Kevin Rudd's election in 2007 a wise asylum seeker policy would have involved leaving the Pacific Solution intact but humanising policy by increasing the annual quota of refugees and ending mandatory detention. The internment camps on Nauru were virtually empty. The undeniable cruelty of the policy had reached its natural end.
No one on the left with an interest in asylum seeker policy - and I include myself - was far-sighted or independent or courageous enough to offer the incoming Rudd government such advice.
Well, I'm certainly not of the political left, but I've pointed this out on multiple occasions. Good to have you on board, Robert (no pun intended).

There is only one way to solve this problem. Let's take as given the number of asylum-seekers we're willing to accept. The problem is that the current system incentivises people to attempt risky crossings because once they reach Australia, their application has a vastly higher chance of success.

And that's what you have to end. The only way the boats, and the senseless deaths, will stop is if you actually disincentivise attempting the crossing. Here's the Shylock policy - absolutely no applications for asylum will be accepted from anyone making a ocean crossing and arriving in Australia illegally. Every such person will be summarily deported. Applications for asylum will only be accepted at Australian embassies in foreign countries.

And that is literally all you'd have to do. Visibly enforce that a few times, and you don't need to worry about the cruel detention centres that Robert Manne dislikes as a matter of compassion (and not unjustifiably).

But even past this point, there are two large objections to the whole enterprise.

The first is this - Indonesia is a pretty tolerant place. If you've made it that far, it's highly unlikely you're still at risk of any kind of political repression. So why should Australia accept you as a refugee on the basis that you were persecuted in Afghanistan, notwithstanding that you've already escaped such persecution?

And the second even less politically discussed point is made quite convincingly by Tim Blair
Survivors of the latest doomed voyage claim that everyone aboard each paid between $2500 and $5000. Individually, those amounts would easily cover air fares to Australia. Collective amounts – Saturday’s vessel carried around 250 passengers – would be sufficient to purchase several vessels of greater seaworthiness than that which sank.
Refugee advocates don’t like to discuss why these safer options are not explored. The reasons are to do with identity and culpability. Those arriving in Australia by air require passports, which makes easier the task of disproving the legitimacy of asylum claims. Those arriving from Indonesia on boats commonly carry no identification at all, allowing certain freedoms with their stories.:
In other words, it is quite reasonable to have a presumption that a lot of the people arriving by boat probably have bogus stories.

This doesn't mean that we shouldn't care about their drowning deaths or them being locked up in detention. But for the people who really are economic migrants, there is a quite justified revulsion at rewarding their desire to bypass the normal (long) queues to get into Australia. And if the policy of detaining illegal economic migrants on Nauru has deterrent effects but is harsh on the illegal economic migrant themselves, I can't get too saddened by that.

Wednesday, December 21, 2011

Gravity and the Curse of Knowledge

The problem with knowing something is that it makes it very hard to accurately put yourself in the shoes of someone who doesn't know it. Try as you might, it's very difficult to properly imagine the thought processes of someone who lacks knowledge. Things you know always seem obvious, even though they're not obvious at all when you don't know them. Psychologists call this the curse of knowledge.

When you suffer from the curse of knowledge, previous generations tend to look remarkably stupid. How can anyone believe the earth was flat? What morons they must have been!

But think about it - do you believe that humans now are genetically much smarter than people 500 years ago? Or are you just taking for granted the obviousness of the things that someone else told you, but you didn't have to figure out for yourself. I'd say you're safer to bet on the latter.

One case that always struck me was gravity. The earliest theories of gravity were from Aristotle's Physics. If you fired a cannonball, that cannonball would proceed in rectilinear motion, then fall straight back down to the earth. This was because it was made of the earth element, which wanted to be close to the earth.

So this predicts that if you fire a cannonball, it should look like this:

So here's the problem - clearly cannonballs don't actually fly like this! Now, admittedly it's hard to trace out the path of a rock in the air. But there's one very easy way for (male) physicists to check - just look at the path of your urine when you take a pee! Does it look like a triangle shape? No, not even close. It looks like a parabola. And that should immediately suggest a relationship of y = x^2 . 

It took until Newton, almost two millenia after Aristotle, to formalise a better theory of gravity. This theory actually predicted that the cannonball should follow a parabolic shape:

So why did people take so long to figure this out? Couldn't they see that the relationship was a parabolic  y = x^2, and figure out the rest from there?

Oh, you fools, cursed by knowledge! The first step is the known knowns - the curses you know you have. You know that you know about gravity, and thus your ancestors not knowing seems particularly idiotic.

But what about the unknown knowns - the curses that you don't even know you have?

Let's step back a second - when exactly in human history did people even have a clear idea of what a parabola was, and what y = x^2 meant?

When you draw a graph of y versus x for some function, the area you draw it on is known as a Cartesian Plane. This is named after Rene Descartes, who lived from 1596 until 1650.

In other words, even the idea of graphing y versus x (for anything, let alone being able to spot a parabola) dates all the way back to ... the 17th Century. 

Are you starting to see how much you're taking for granted when you look at modern science and think of how dumb people in the past were.

Rene Descartes was a muthaf***ing genius. And that's how smart you had to be to even come up with the idea of drawing a parabola on a graph, let alone understanding what that might have implied about a theory of gravity.

Understanding the curse of knowledge leads to a much greater humility about previous generations. The vast majority of your knowledge is unearned by you, and if you hadn't had it gifted to you by the accumulated wisdom of generations of men much smarter than you, it's highly doubtful that you would have figured it out on your own.

Just like your ancestors didn't.

Tuesday, December 20, 2011

The False Consensus Effect, Geography, and Going to University

Apologies for the lack of updates - I've been hanging in Miami for a few days.

And this got me thinking about the false consensus effect. After the sunk cost fallacy, the false consensus effect is probably one of the biases that tends to lead you astray the most. As wikipedia describes it:
[T]he false consensus effect is a cognitive bias whereby a person tends to overestimate how much other people agree with him or her. There is a tendency for people to assume that their own opinions, beliefs, preferences, values and habits are 'normal' and that others also think the same way that they do. This cognitive bias tends to lead to the perception of a consensus that does not exist, a 'false consensus'.
The false consensus effect seems to show up the most when you're not explicitly thinking about 'what do other people want, as evidenced by the things they do and say?', and instead just think 'what is desirable?'. Because implicitly the second question is really asking 'what do I think is desirable', and then extrapolating this to everybody.

People seem to do this a lot with preference for places to live. I tend to be in the category of people who prefer large coastal cities, ideally with warm weather. And it's easy to think that everyone wants these things. But at least according to revealed preference, they don't. Lots of people want to live in Toronto and Chicago and other cold weather cities. Lots of people really dislike temperatures above 80F (~27C). Lots of people want to live in middle-of-nowhere small towns, and can't stand the thought of having to drive half an hour to get to work.

Now, none of these are strong preferences for me. But the mistake is thinking that people who live elsewhere have the same preferences as you, but just have different constraints. He lives in that tiny town because his family is there. She lives in Chicago because it's the only place she can get a job. But if you took those things away, then surely everyone wants to live in Miami.

No, no they don't. You want to live in Miami, but maybe they just want different things than you do.

Now, if people are pressed, they can imagine that such alternative preferences might conceivably exist. But the perniciousness of the fallacy is that it's easy to get slack and just extrapolate your own preferences without thinking explicitly about whether they are going to be shared in this particular case. It's easy to overestimate how much your preferences are common to everyone.

Preference for geography is a very mild example of this bias. But it's a bias that's easy to slip into on all matters. And it gets even worse when the preferences are crazily different from your own.

I remember Mark Steyn had a very sharp observation about this a few years ago, when discussing Condoleezza Rice's views on the preferences of the Palestinian people:
"The great majority of Palestinian people," Condi Rice, the secretary of state, said to commentator Cal Thomas a couple of years back in a report that first appeared on JWR, "they just want a better life. This is an educated population. I mean, they have a kind of culture of education and a culture of civil society. I just don't believe mothers want their children to grow up to be suicide bombers. I think the mothers want their children to grow up to go to university. And if you can create the right conditions, that's what people are going to do."
Thomas asked a sharp follow-up: "Do you think this or do you know this?"
"Well, I think I know it," said Secretary Rice.
"You think you know it?"
"I think I know it."
I think she knows she doesn't know it. But in the modern world there is no diplomatic vocabulary for the kind of cultural fault line represented by the Israeli/Palestinian dispute, so even a smart thinker like Dr. Rice can only frame it as an issue of economic and educational opportunity. Of course, there are plenty of Palestinians like the ones the secretary of state described: You meet them living as doctors and lawyers in Los Angeles and Montreal and Geneva but not, on the whole, in Gaza.

Let us put aside for the moment the contentious questions of Palestine and Islam specifically, and consider purely as a matter of demographic estimation exactly how many mothers in the world would prefer their children to die in some military action than to go to university. Assuredly such people exist. Their preferences may seem bizarre to you and me. But the point is that it will always be tempting to assume that people with preferences so different from your own must necessarily be in the tiny minority. In fact, these are the types of issues that the false consensus effect is likely to impact the most.

In other words, when you are forced to estimate the prevalence of opinions widely different from your own, you would do far better to begin by examining specific data that bear on the question - survey responses, election outcomes, whatever, - rather than just assume that deep down, everyone must want the same thing as you.

Forget the Palestinians, and consider this instead. Back in 1994, thousands of Rwandan Hutus woke up each morning, and rather than 'just wanting a better life' as Condi Rice understands the term, what they actually wanted was to hack lots of Tutsi civilians to death with machetes. And they did so. For 100 days in a row.

Sometimes a group of people can have entirely consistent, widely shared preferences that are radically different from your own. What you do with that knowledge is up to you, but you do yourself no favours by pretending to the contrary.

Thursday, December 15, 2011

Why American Flight Attendants are so Rotten

My guess? Age discrimination laws. Once upon a time, the de facto rule was 'we keep you employed as long as you're young, hot and friendly. When these change, hit the bricks'.

This meant that being a flight attendant was one of those jobs that women (and at the time, it was just women) planned to do for a while then quit, like modeling.

Now, if you start firing people over 40, you get a massive lawsuit under the Age Discrimination in Employment Act of 1967. I would have thought that airlines would have implemented a 'when you're 35 you're out the door' policy, but they haven't. My guess is that unions make the rest of it hard.

But the net result is that flight attendants are less attractive. In addition, it seems that dealing with the flying public tends to grate in you over time. So you end up with a lot of older flight attendants who (in my anecdotal experience) are nasty and grumpy all the time. But since it's hard to write people up for that, it just persists.

The only major exception to this trend seems to be Singapore Airlines. The Singapore government decided that since it is in charge of the airline, messy things like discrimination and labor laws weren't going to stand in the way of providing young, hot, and impeccably trained flight attendants. Until they're 30, then they're never seen again. It's ruthless, but competitive markets that maximise consumer surplus usually are.

A Proxy for The Quality of a Sushi Restaurant

If they bring you a spoon with your miso soup, it's probably not good.

If they offer you a spoon, it's probably okay.

If a spoon is neither brought nor offered, it's probably good.

I've seen exceptions to all three, but this tells you the type of clientele they're used to serving, and how much they know (roughly speaking) about Japanese food. Foodie wankers may be obnoxious in their own way, but I still want to free ride on their restaurant choices.

Wednesday, December 14, 2011

Gingrich lead develops some lebensraum over other candidates...

Hitler has a thing or two to say about the Republican nomination:

Seems pretty accurate to me.

Had this been real, it could have been added to 'Hitler was a vegetarian' and 'Hitler really lowered German unemployment!' in the category of 'trivial facts frequently claimed by people to partially offset the enormous evil of World War 2 and the Holocaust'.

(Via Ace of Spades)

Tuesday, December 13, 2011

PC Non-Sequiturs About Terrorism

Apparently a gunman in Belgium named Nordine Amrani shot and killed three people in Liege, Belgium, and wounded 75.

Here's the BBC with some helpful context:
Officials said the attacker acted alone, ruling out terrorism.
Uhhh, this rules out terrorism... how, exactly? Surely nobody acting alone could ever be involved in a politically-motivated act designed to inspire civilian terror!

Any bets as to whether you think they'd apply the same logic to Timothy McVeigh or that nutcase in Norway? Anyone at all? I'm offering highly competitive odds.

Woolly Mammoth Update

Via SMH, apparently there are now betting odds on when the Woolly Mammoth will be cloned, and they are the following:

2014 or earlier: 8 to1.
2015 or 2016: 2 to 1.
2017 or 2018: 5 to 2.
2019 or 2020: 11 to 4.

It's easy to miss the enormous picture that these odds are conveying. To bring it into focus, let's convert those odds to probabilities and work out the market's estimate of the cumulative probability that a Woolly Mammoth will be cloned by the end of year X:

2014:     11.11%
2016:     44.44%
2018:     73.02%
2020:     99.68%!!!!

Hoo-ah! According to the market, the dream is looking good!

Harry Reid - Imbecile

Listen to this choice quote from the Senate Majority Leader:
'Millionaire job creators are like unicorns - they're impossible to find, and don't exist.'
Hand that socialist fool control of the economy!

Okay, okay, surely a quote this stupid has some additional context that somehow makes it coherent, right?

See the whole clip and decide for yourself.

If you (quite sensibly) don't want to spend 3 minutes of your life watching Harry Reid, let me summarise the context, : apparently nearly everyone with over a million dollars 'is lawyer or a hedge fund manager', and we know that there aren't any millionaire job creators, because NPR went around looking to try to interview one and said they couldn't find any. So them someone (at this point in his ramble, it's unclear whether it's still NPR doing the searching) started looking through Facebook (no, really), and found some guy who claimed to be a millionaire who was hiring, and he supported the Reid tax on millionaires.

Yes, that is the larger context in which this is meant to make sense.

Apparently according to this buffoon, individuals and small business owners create jobs, but only when their net worth is less than $1 million.

Because $1m is that lucky number where people just decide to coast, and develop a hatred of hiring anybody. Aggressive hiring expansions only take place by those with less net worth to pay their new employees, don'tcha know? No wait, the boss is paying for hundreds of jobs only out of the massive company earnings instead, even though these earnings somehow aren't translating into him having a net worth above six figures.

Next comes the second great plank in this Jenga Tower of Stupid, the claim that you can only be a job creator if you're a small business owner. Because it's not like a corporation ever hired anybody! Small business may be important, but it employs around half of private employees. Were you hired by Microsoft? Bad luck, because we couldn't get Steve Ballmer on the phone to claim to be a 'millionaire job creator', your job just came out of the ether!

Maybe it's because senior executives in large corporations don't have the hubris to claim that 'I created jobs'. Doesn't mean that they're not contributing. And maybe, just maybe, when your net worth starts to get higher, you're running a sufficiently large and complicated company that you're no longer arrogant enough to claim that every job there is created by you, and you alone.

But what about all those evil lawyers and hedge fund managers? They're not hiring anybody?

Well how do you think corporations fund themselves? The lawyers don't just bathe in a vault of money like Scrooge McDuck. They tend to invest it in ... bonds and stocks! Which are issued by the corporations, and the capital from which is used to expand.

The clip itself was posted by the Democrats, who liked this speech so much that they advertise it.

As Ace of Spades said about this incident:
I am actually moving away from the question of "Can America survive?" to "Should America survive?" 

Update: I also forgot to mention the other distinct possibility for explaining why NPR can't find any millionaire job creators - people who have a million dollars may find it in poor taste to publicly boast about that fact, and the only exceptions are people who are doing so as a way of ostentatiously flouting their socialist bona fides. I can just imagine the phone call now - "Hi, this Jim Jones from NPR, and we were wondering whether you, John Smith, would like to be the public face of 'millionaires who oppose tax hikes'." Yeah, who could possibly refuse that interview?

Sunday, December 11, 2011

Charging By The Hour

I'm always amazed by the number of jobs and services that are paid or charged by the hour.

Charging by the hour makes the most sense for jobs where the main requirement is actually just to be there for a given amount of time - working at a front desk, or some sort of customer service position that doesn't have a big up-selling component. If you're serving ice cream, the store really needs you to be there for those eight hours, and it makes sense to pay accordingly.

But the most mysterious are those when the job is complicated and based around a particular outcome, not a length of work. Take something like legal work. At least in Australia, the vast majority of it is charged by the hour, with different lawyers having different hourly rates.

This creates exactly one good incentive effect - it means that your lawyer does not have incentives to scrimp and save on the level of work they're putting in. Incentivising your lawyer to spend a few more hours at the office to look up other possible defenses to your embezzlement charge is probably something you actually want to do. This becomes particularly important when the amount of work required is not clear up-front, which may well be true in legal cases. 

But balance this against all the other bad incentives this creates. First, the moral incentives - it punishes honesty. Their inputs are typically unobserved, and thus you create huge incentives to overbill. The honest ones won't, but they're going to be hurt for it. And  I never, never want to incentivise dishonesty. It's not as clear as outright fraud either - since lawyer time is billed out in six-minute increments, there's always a question of exactly how much to deduct. If you do 30 minutes of work, have a 2 minute toilet break, do another 30 minutes of work, grab a coffee and check your work email  for 4 minutes somewhere in the interim, is that 10 units or 11? What if you don't remember exactly when you started? Do you just round it up to some other number? I don't imagine the average lawyer worries about these questions much, but they've come to some accommodation on this, and are getting rewarded or punished accordingly.

The second is that charging by the hour actively punishes anybody who finds a more efficient way to solve a problem. If you find a way to solve a client's legal problems in a tenth as much time, you're going to earn less than the guy who just chugs through hours of sort-of-relevant research. A lawyer who can demonstrate an ability to solve problems quickly in several situations might eventually be able to charge a higher rate. But clients who don't know their reputation might shy away from someone who charges a lot. And what if the client has very little idea how long the task should take? Then they won't even appreciate the fact that you've been efficient.

The law isn't even the worst example of hourly contracting - having web designers being charged out by the hour is even more barmy. Surely you can have a rough fixed-price estimate of how much to charge for a basic web page?

Generally speaking, wherever I have a choice I'd rather pay people a flat fee for whatever the service is, and then build in explicit incentives where necessary ($50K upfront, another $50K if I'm found innocent, another $25K if my sentence is less than 3 years, etc.). Of course, it's hard to negotiate this with your lawyer, but when I'm writing the contract I'd rather do it this way.

More practically, I do have one choice available to me, and it is this - I don't want to work in any industry where people are charged out by the hour. And I especially don't want to be someone else's employee in that industry where I'm being paid a fixed salary but being charged out by the hour. It means that it's going to be very hard to have any sort of work-life balance and be successful, because the incentives of the firm are just to have you spend more time at the office.I also don't want to worry if I'm doing work too quickly from the perspective of the firm. Having to do a worse and slower job because the firm effectively demands it would be soul-destroying.

Saturday, December 10, 2011

The Conversations of Doomed Men

I read this last night, and have found myself strangely moved and preoccupied with it ever since.

Popular Mechanics has a transcription of the black-box record aboard Air France Flight 447, the plane which crashed into the Atlantic Ocean on June 1st, 2009, killing everyone on board.

What's very interesting is that they recount the conversation between the two co-pilots who were flying at the time, and intersperse it with descriptions of what was actually going on with the plane as the discussion took place.

Let me quote the part of the article that is most puzzling:
The Airbus's stall alarm is designed to be impossible to ignore. Yet for the duration of the flight, none of the pilots will mention it, or acknowledge the possibility that the plane has indeed stalled—even though the word "Stall!" will blare through the cockpit 75 times. Throughout, Bonin will keep pulling back on the stick, the exact opposite of what he must do to recover from the stall.
I quote that much merely to encourage you to read it all- if I quote more, I am going to do injustice to just how strange it is to read the whole transcription. So you should definitely read the whole thing. And when you're done (and only then), come back and read the rest of my thoughts below the jump:

Thursday, December 8, 2011

Comedy Gold

Ace of Spades knocks it out of the park discussing the hilarious angsty email doing the rounds, from a guy who got rejected after one date to his romantic interest.

Funniest thing I've read in ages. Go, read.

Going Gentle Into That Good Night

There's an article that has been getting a lot of press recently, written by a doctor called Ken Murray. The subject of the article is how doctors themselves often don't wish to undergo lots of invasive procedures when they approach the end of their own lives. It's a fascinating article, and well worth reading the whole thing.

The question is, why not? The author suggests that it comes from a greater understanding of how many treatments may cause a lot of suffering, but only prolong life but a short amount (if at all), and usually under miserable conditions. Coming in for particular scrutiny is the practice of administering CPR to the very elderly and terminally ill, characterised as "experienc[ing], during their last moments on earth, someone breaking their ribs in an attempt to resuscitate them with CPR (that’s what happens if CPR is done right)." And in terms of the result, it is described thus: "If a patient suffers from severe illness, old age, or a terminal disease, the odds of a good outcome from CPR are infinitesimal, while the odds of suffering are overwhelming."

But I wonder how much another factor may come into play - namely, a greater familiarity with, and acceptance of, death. Doctors, especially those who interact with emergency rooms, are forced to confront death in a way that few other people are. Beyond a certain level of exposure, it is just viewed a fact of life, and an inevitable one at that.

To state that, of course, is to state the bleeding obvious. And indeed, once upon a time, the average person did indeed come into contact with dying and dead people, and was thus forced, however fleetingly, to reflect on their own mortality.

Modern man, by contrast, is enormously shielded from death. It occurs out of sight in hospitals, and we spend the rest of our time avoiding contemplating it or, if we do, thinking about it in abstract terms reserved for other people. ("20 dead in Russian bridge collapse").

A doctor, of course, does not have the luxury of avoiding the concept of death. It haunts the halls of every hospital. But I suspect that a large number of people making end-of-life decisions for themselves or a loved one have not yet come to grips with the inevitability of death. Because once you accept the fact that, one way or another, you will die, you start asking much more seriously whether it's worth going in for that long shot last round of chemotherapy. The first step is to realise that it won't stop you dying. It will only delay it, and at best you'll die of something else. And the second step is to ask the hard questions about how you want to die, and how much life you are willing to trade in order to live out your last days the way you want to.

I would be interested to see what the decisions are for people outside the medical profession who deal in death - funeral directors, priests, that kind of thing. I suspect they may be more like doctors than like the average person.

But maybe not. Maybe everybody clings to life in the same way, mortal familiarity be damned. It may be as Ken Murray suggests- the only difference is that doctors understand from grim experience the futility of the odds and the consequences of their actions better than everybody else.

Gift Card Arbitrage

GiftRocket has this interesting post examining what the average secondary resale value of a $100 gift card is.

Apparently there's quite a spread. At whole foods, the value is $91. At 1-800-Flowers, it's as low as $50. The average resale value is $72.

So here's the question - what should they be trading at?

Well obviously the upper bound is $100, as cash weakly dominates a gift card for all consumers. (The logic is that if I gave you $100 and you would like to spend it all at Starbucks, you would be indifferent between the cash and a Starbucks Gift Card. If you were going to spend even some of it elsewhere, you'd prefer the cash).

The standard explanation for a discount is shipping/hassle costs. If it costs me $2 to get it sent to me, and $5 of time to hassle around on E*Bay, I'm only going to pay $93. But this doesn't explain why there's such a big spread across retailers. The shipping costs are the same for all cards. And even the estimated cost of people's time doesn't make sense - people who shop at Whole Foods (value = $91) will probably have a higher cost of their time than people who shop at Baja Fresh (value = $70), in which case the price patterns should be reversed.

Another potential reason for the existence of a discount is the estimated probability that the card is fraudulent. But unless some stores are easier to scam than others, it's not clear how you end up with a cross-section of prices.

GiftRocket notes that the discount is related to how popular the merchant is - popular stores trade at a lower discount.

So what's the profitable trade here? The real question is why people who aren't planning a big purchase at one of these stores anyway don't stock up on gift cards. Doing so is getting you a 50% discount on flowers! I guess most people don't think to do this trade.

My guess is that it's also related to the length of time it will take you to spend the money. The two highest are a supermarket (Whole Foods) and a giant retailer (Walmart), where people might conceivably spend the money in one or two weeks. Next is Starbucks, which is also likely to be bought fairly frequently. But it will probably take most people quite a while to buy $100 worth of burritos. And as for flowers, if you weren't buying $100 of them at once, it could be a long time before you spend the rest.

Either way, I may look into this next time I'm thinking of buying at one of these places.

Monday, December 5, 2011

Global Warming FTW

Apparently scientists have found well-preserved bone marrow from a woolly mammoth.

Why is this a big deal? Because it means that they now might be able to clone one, by implanting the mammoth DNA inside an elephant. The claimed time frame is five years. I'm guessing there's a margin of error there, but it sure is cool.

And how did they get access to this pristine specimen?
Warmer temperatures tied to global warming have thawed ground in eastern Russia that is almost always permanently frozen. As a result, researchers have found a fair number of well-preserved frozen mammoths there, including the one that yielded the bone marrow.
That's right, when you're riding around town on your pet woolly mammoth in 10 years time, be sure to thank the guy driving around in the Hummer. Glorious consumption AND prehistoric animals brought back from the dead!

The article also ends with one of the most hilariously lame warning notes I've read in ages:
Is it such a good idea, however, to clone animals that have long been extinct? For a while there's been some discussion of a real life Jurassic Park setup containing such animals. Introducing these beasts into existing ecosystems could be like bringing in a potentially invasive species that would try to fill some space presently held by other animal(s). Even if the cloned animals were contained in special parks, there could still be a risk of spreading.
Yes, because when I think 'invasive species', my mind immediately turns to ... woolly mammoths. You know, if one gets loose in Oklahoma, it'll just start reproducing like crazy, and we'll never be able to track them all down. Because Lord knows it's not easy to spot an elephant-sized prehistoric creature walking around - people may confuse it with, say, a minibus or a carnival ride. And it might end up filling the niche in the ecosystem currently occupied by the Bald Eagle, the Atlantic Salmon or the Prairie Dog.

Here's my red hot prediction - everybody's concerns about 'Jurassic Park'-style scenarios are going to evaporate within two seconds of the birth of the woolly mammoth, as they realise how awesome it is to have crazy prehistoric animals walking around again.

Sunday, December 4, 2011

Good News, Bad News

The good news:
Vladimir Putin's ruling party suffered a big drop in support in a parliamentary election on Sunday and was not certain even of holding on to a majority of seats, an exit poll showed.
The bad news:
The communist party emerged in second place in both polls with considerable gains over 2007.
Really?? It's kind of amazing that a Communist Party in Russia is a credible electoral force, after everything Communism did for Russia. Dislike Putin as much as you want, but only bad things can come from a more powerful Communist Party in Russia. I guess the virtue of democracy is that people eventually get the government they deserve.

But the bigger picture good news is this: Russia apparently still has some semblance of a democracy! I know, I was as shocked as you. I was starting to lump Putin in with the category of 'strongarm leaders that miraculously never lose elections'. Sure, he hadn't gotten to the point of Saddam Hussein winning 100% of the vote as the only candidate on the ballot, but one assumed this was merely a matter of time. Apparently the process is still uncertain enough that popular will can actually shift results by a meaningful amount, even if not (in this case) necessarily enough to change the government.

Saturday, December 3, 2011

Why Smart People Are Getting Worse At Spelling

This is not a post about why dumb people are getting worse at spelling. There's lots of obvious culprits - the spreading of teenage text message LOLspeak, declining educational quality, feelgood 'everybody wins a prize!' teaching methods that decline to correct too many mistakes, lunatic academics who argue that insisting on correct spelling and grammar is horribly racist and elitist, etc. etc.etc.

No, what's less remarked on is the hidden decline in spelling knowledge among educated people. But you'll only see this in a very particular context - if you ask them to hand-write something that requires big words. Their typewritten work is getting better and better.

Once upon a time, people used to need to know how words were spelled. To write something wrong in a letter was embarrassing, and every correction you made was obvious too. The benefits in knowing the correct spelling the first time were significant.

Now, we instead train people to know that they have to use spell-check. This requires them to know how to have a good stab at the word, and to diligently check that their document doesn't have any red squiggly lines under any words. But this doesn't actually drill spelling.

The reality is that bad spelling in a document these days is a sign only of laziness or complete illiteracy. Grammar is still more of a filter, as grammar checkers are less sophisticated. But the test of 'does this document contain typos?' is now only a very weak signal of actual spelling ability.

Five minutes ago, I had to type the word 'accelerate', and I couldn't remember if it had one or two "c"s, and whether it had one or two "l"s. No worries! Just have a stab, and keep going through the combinations until you hit it.

But here's the problem - within 5 seconds, I'd forgotten what the answer was. And next time, I'm going to do the same thing. It's like using a GPS instead of a map - in theory, the more efficient system could be used as a tool to improve the learning process. In practice, it gets used as a substitute for the learning process.

Don't believe me? Try writing a hand-written letter to someone, and see how many times you find yourself stumbling over the correct spelling of a word. And this is only the mistakes you know you're making, let along the ones you don't! It's a sure-fire way to cure yourself of any hints of snobbery about how eloquent and precise your writing is.

Overall, I'm okay with this process - it's not like men are about to be thrust into the wilds of nature where no spell-checkers are available. This is certainly less problematic than the decline in mental arithmetic skills with the ubiquitiousness of calculators. There are a lot more situations where it's valuable to be able to do fast mental mathematics than to always have correct spelling.

Since nobody writes handwritten letters any more, there is only one case where you really see how bad people's spelling has gotten - handwritten signs. Very few people who are going to write a protest sign tend to type it in Word first. But they should:

Stop Vandaling Education

(image credit)

(when it's on 'know your meme', the time for image credits is pretty much over)

Everyone looks at these signs and thinks these people are unspeakable idiots. But this is the wrong lesson. I'm sure if either one had to send an email, it would be spelled just fine.

Technology giveth, and technology taketh away.

Friday, December 2, 2011

Miscellaneous Joy

-San Francisco tries to ban Happy Meals at McDonalds. McDonalds lawyers easily circumvent ban. Meddling bureaucrats' tears ensue.

-Some interesting thoughts on self-defence:
If you find yourself in a situation where a predator is trying to control you, the time for listening to instructions and attempting to remain calm has passed. It will get no easier to resist and escape after these first moments. The presence of weapons, the size or number of your attackers—these details are irrelevant. However bad the situation looks, it will only get worse. To hesitate is to put yourself at the mercy of a sociopath. You have no alternative but to explode into action, whatever the risk. Recognizing when this line has been crossed, and committing to escape at any cost, is more important than mastering physical techniques.
More here, especially starting at 8 minutes 30 seconds.

-Anti-piracy group gets hit by copyright infringement claim and falling grand piano made entirely of irony.

-Business decisions that are clearly not made with cheapskate economists in mind: payment system Dwolla announces that all transactions under $10 will be free. I'm assuming they've thought of the possibility that I'll pay for my $500 TV with 100 free payments of $5 each in order to save two bucks or whatever. They're probably right that most people won't bother, but it would be humourous if they did.

-Via Reddit, The Good Old Days:

Thursday, December 1, 2011

Psychologists Getting Statistics Wrong

Ace of Spades links to a study that claims to show that people view atheists as being less trustworthy. This was also covered in the National Post. The headline claim is attention-grabbing:
Atheists cannot be trusted: Religious people rank non-believers alongside rapists, study
Controversial stuff. As in all this stuff, you should always read the original study before rubbishing it. The author, Will Gervais, kindly has a version on his webpage, which you can read here. And I'm sorry to say that nearly the whole study appears to be done wrong.

So how exactly does Mr Gervais establish that atheists are as untrustworthy as rapists? Let the study tell the story - this is Study 2 of 6, but 5 out of the 6 studies have the same problem:
One hundred five UBC undergraduates (age range 18 –25 years, M 19.95; 71% female) participated for extra credit. Participants read the following description of an untrustworthy man who is willing to behave selfishly (and criminally) when other people will not find out:

Richard is 31 years old. On his way to work one day, he accidentally backed his car into a parked van. Because pedestrians were watching, he got out of his car. He pretended to write down his insurance information. He then tucked the blank note into the van’s window before getting back into his car and driving away. Later the same day, Richard found a wallet on the sidewalk. Nobody was looking, so he took all of the money out of the wallet. He then threw the wallet in a trash can.
Next, participants chose whether they thought it more probable that Richard was either (a) a teacher or (b) a teacher and XXXX. We manipulated XXXX between subjects. XXXX was either “a Christian” (n 26), “a Muslim” (n 26), “a rapist” (n 26), or “an atheist (someone who does not believe in God)” (n 27).
So the authors are relying on the conjunction fallacy of Tversky and Kahnemann (1983) - logically, the probability of being a teacher and [Y] is less than or equal to the unconditional probability of being a teacher, for all values of [Y]. People sometimes get this the wrong way around if the behaviour is associated with the trait. That is what the authors are trying to test (I think). They report that the proportion of people who answered (wrongly) that the person was more likely to be a teacher and an atheist was higher than the proportion who answered (wrongly) that the person was more likely to be a teacher and a Christian.

The first thing that should make alarm bells start ringing in your head is the way the question is phrased. To say 'are atheists untrustworthy?' is to ask the probability of being untrustworthy given you're an atheist. But the question implicitly being asked in the survey is something different, namely the probability of being an atheist given you're untrustworthy. These are not the same thing!!!! And this is really going to screw up the inferences.

If statistics bore you, let me skip to the punchline - the authors screw it up because they're not taking into account that there's tons of atheists and very few rapists. This means that the probability of being an atheist given you're untrustworthy is always going to be much higher than the probability of being a rapist given you're untrustworthy. But this says nothing at all about trustworthiness, and everything about how rare it is that a person is a rapist! And this makes the whole study flawed.

For stats people, what is actually being asked is whether people erroneously believe that:
P(teacher | Untrustworthy actions)  <  P(teacher AND atheist | Untrustworthy actions).

This answer is then compared to answers to the question as to whether:
P(teacher | Untrustworthy actions)  <  P(teacher AND rapist | Untrustworthy actions).

Since the left hand side is the same in each inequality, let's think about what could drive differences in the right hand side (even if people are screwing it up via the conjunction fallacy, this is still the implicit comparison). Using Bayes Rule:

\frac{P(A_1|B)}{P(A_2|B)} = \frac{P(B|A_1)}{P(B|A_2)} \cdot \frac{P(A_1)}{P(A_2)}.

(where A1 = Teacher and Atheist, A2 = Teacher and Rapist, and B = Untrustworthy).

Let's ignore the teacher bit for simplicity (it doesn't change the logic). What the author really wants to know is the second ratio - are people viewed as more likely to be untrustworthy given they're an atheist, relative to being untrustworthy given they're a rapist.

What they're actually measuring is the first ratio: the probability of being an atheist given you're untrustworthy versus the probability of being a rapist given you're untrustworthy.

But the difference between the two ratios is also driven by the third ratio -  the overall probability of being a rapist versus an atheist, regardless of whether you're untrustworthy.

And this ratio is huge! The study was done at the University of British Columbia. According to Wikipedia, 42.2% of Vancouver is atheist. What's the probability of being a rapist?  The overall rate of rape crimes in Canada is 0.016 per 1000 people. As long as each rape is only committed by one rapist, this will overstate the probability of being a rapist (i.e. if a rapist has multiple victims, the probability of being a rapist will be lower. If a victim is raped by multiple people in a single rape, the number will be higher, however)

So the third term is equal to 42.2/0.0016 = 26,375! In other words, suppose that people thought that you were 1000 times more likely to be untrustworthy if you were a rapist than an atheist (i.e. the second ratio equals 1/1000). The left hand side will be equal to 26375/1000 = 26.375. In other words, P(atheist | untrustworthy) will always be much higher than P(rapist | untrustworthy), even if rapists are considered far less trustworthy than atheists.

The authors only report the proportion of respondents who made the conjunction error - in other words, they report the number who state that P(teacher | Untrustworthy actions)  <  P(teacher AND Y | Untrustworthy actions), which is clearly wrong, and compare this for different values of Y. Sadly, this doesn't allow us to say anything about the real ratio, which is P(Untrustworthy | Atheist) versus P(Untrustworthy | Rapist).

In other words, the study is unsalvageable if you're trying to answer the question you're hoping to ask. Which is a shame, because it's actually an interesting question.

Tuesday, November 29, 2011

Quite Right

Thought of the Day, from Thomas Sowell:
"The more doctrinaire libertarians see the benefits of free international trade in goods, and extend the same reasoning to free international movement of people. But goods do not bring a culture with them. Nor do they give birth to other goods to perpetuate that culture."

If I had to describe where I part company with (some) libertarians, it is on exactly this point - that I think they frequently tend to underestimate the importance of culture. This often makes them both unwilling to defend western culture in a meaningful way, and enthusiastic about widespread immigration,  even if it is comprised of individuals unlikely to share (or even deeply antithetical to) the values of western society.

Monday, November 28, 2011

A Snapshot of Modern Britain

Article 1 - British Police spring into action to arrest woman for saying nasty racist things on a train:
A woman has been arrested after an online video apparently showed a woman abusing ethnic minority passengers on a packed south London tram.
British Transport Police said a woman, 34, had been arrested on suspicion of a racially-aggravated offence.
In the online clip, the woman confronts several passengers, saying: "You are not British". She then starts swearing. 
A British Transport Police spokesman said: "The video posted on YouTube and Twitter has been brought to our attention and our officers have launched an investigation. ....We will not tolerate racism in any form on the rail network and will do everything in our power to locate the person responsible."

Article 2 - Theodore Dalrymple recounting how the British legal system doesn't give a rat's @** about burglary:
While on the subject, let me just recount one story to illustrate how seriously the British state takes the defense of the property of its citizens. I was looking through the criminal record of one of my patients in the prison and discovered that he had not long before been convicted for the fifty-seventh time for burglary. Since most criminals will happily admit, in confidence, that they have actually committed between five and fifteen times as many crimes as they have ever been caught for, it was quite possible that this man had committed more than five hundred burglaries. And what was his terrible punishment for his fifty-seventh conviction for burglary? A fine of $85, presumably paid for from the proceeds of his activities.

Now that's a society with its priorities set straight! Get your feelings hurt by racist white trash assholes? Leave no stone unturned to arrest them! The same racist white trash assholes are breaking into your home right this second while you're on the phone? Sorry, we're very busy. Stop by the office later and we'll give you a useless police report so you can file an insurance claim.

It's also refreshing to see that the British Police have also taken a leaf out of Ken at Popehat's "Chicago Manual of Style For Censorious Dipshits":
The obligatory “we believe in freedom of expression” paragraph in the standard defend-our-censorship communique is simply embarrassing. That’s why the Chicago Manual of Style For Censorious Dipshits (“CMSCD”) recommends eschewing it and launching straight into the meat of your uninformed and conclusory stomping on First Amendment law.
Yes indeed, the British Police are admirably straightforward - they don't believe in freedom of expression, and don't care if you know it.

Sunday, November 27, 2011

File this under 'unpersuasive'

To put it mildly.

Robert Frank wrote an op-ed claiming that there was an arms race in thanksgiving store opening hours which, of course, needed regulation. Tyler Cowen wrote about it, and Frank sent Cowen an email with some additional details. Included was the following anecdote about the recent allowing of Sunday trading hours in liquor stores in New York State :
I had a recent conversation about this issue with a friend in Ithaca who owns a wine store. Traditionally, New York State wine merchants were not allowed to do business on Sundays. But last year that restriction was repealed, and I asked my friend how the change had affected him.
His overall sales were about the same, he told me. The change had thus been a clear negative from his perspective, since it meant that he and his wife were no longer able to spend Sundays together with their children. The upside was that customers who lacked the foresight to shop in advance for their Sunday wine needs could now be accommodated. If we’re willing to discount the cost of an inconvenience suffered by those who could easily have avoided it, the costs in this case seem clearly to outweigh the benefits.

You don't say! If you're willing to discount the main cost of a given action, the benefits will frequently outweigh the costs. Feel free to try this with a range of meddling economic proposals:
-If you're willing to discount the millions in unrecoverable funds, the benefits of the government guarantee of Solyndra seem to clearly outweigh the costs.
-If you're willing to discount the cost of reduced competition and higher prices, the benefits of mandatory licensing of interior decorators clearly outweigh the costs.

But there's an easier way to tell that this proposal doesn't make sense. What's so special about Sundays? Why not restrict Mondays as well? Or only allow trading one day a week? After all, if we're willing to discount the inconvenience suffered by those who could easily have avoided it, these would clearly make sense too!

Eventually, the Robert Franks of the world would look at this and say, yes, but there's a limit, customers need some convenience.

But this implicitly acknowledges that his argument, as phrased, is a crock. It's not that you can actually 'discount the cost of an inconvenience suffered by those who could easily have avoided it', but instead that Robert Frank thinks that the inconvenience they suffer is less valuable than the benefit to the liquor store owners.

To which I ask, how exactly are you arriving at that conclusion? Because it sounds a lot like you're just pulling that conclusion out of your @**, and you'd have no idea what the actual inconvenience to customers is, nor how many of them there are, nor how to value it.

Personally, I cannot fathom a theory of government that says if I want to open my store at 9am, 4pm or 2am to sell you a computer, a suit, or a bottle of whisky, why it is any business whatsoever of the government's. A government that is willing to intrude in this is willing to intrude in absolutely anything.

Saturday, November 26, 2011

Why was the Greek default "voluntary"?

Marginal revolution links to this piece in the UK Daily Telegraph:
But perhaps the biggest sin of the lot was effectively to render all credit default swaps (a form of insurance against default) on sovereign debt essentially worthless, or void, by making the Greek default "voluntary".
This has made it impossible to hedge against eurozone sovereign debt purchases, and thereby destroyed the market. Worse, it's made investors believe that the euro cannot be trusted, that it'll repeatedly find ways of reneging on contract. That's the point of no return. This is no longer a serious currency.
Tyler Cowen refuses to take a stand on the question of whether the stated claim (making the default "voluntary" was a big blow to the credibility of the Euro) is true. And I think it's not clear, although the argument is not unpersuasive.

But it does raise a something that I now wish I'd written about earlier when I thought of it at the time, namely this: I don't understand why on earth they insisted on making the default "voluntary". The quotation marks are deliberate, as it was about as "voluntary" as when Vito Corelone makes you an offer you can't refuse, complete with a decapitated horse head left on your pillow. But technically, the private debt holders just happened to agree to forgive half the Greek debt they held. You know, like debt holders always do! Call up your student loan company, they'll tell you all about it!

When investors in Greek debt have to take a haircut, somebody is losing money. In a simple world without credit default swaps, the holders of the debt lose money - easy enough, that's the risk they took when they bought it. In this case, it doesn't really matter if the default is voluntary or not, they lose the same amount of money.

But when you add in credit default swaps, now it does start to matter. For the non-finance audience, think of this as like an insurance policy for the case that the debt defaults. You make periodic payments in advance, and then get a payoff if there's a 'credit event' (default, delay in payment, reduction in principal or interest, and a bunch of other contractually specified events). Some people buy the CDS contract and the bonds, some people buy the bond but not the CDS, some people sell (i.e. write) the CDS.

In a typical default, the ordering goes like this: the best off are those who had the bond and the CDS - this is like when your house burns down, but you have an insurance policy. The next worst off are the guys who have the bond but not the CDS. They're like the people whose house burnt down without insurance, but they still at least have the land (i.e., whatever the recoverable value of the bond is). The worst off are the CDS writers (i.e. the insurance comapny) - they pay out on the policy, and get nothing.

In well-functioning financial markets, we tend to think that this kind of risk-sharing is welfare improving. The insurance company is better placed to bear the risk of my house burning down than I am, and I pay them a premium for this service. Everyone benefits in the long run, even if there's winners and losers in any given event.

So here, it's as if the EU governments decided to not only burn down the house, but also void all the fire insurance policies, since "voluntary" defaults don't trigger the CDS contract payments. The best off are the CDS writers (the insurance companies), who pay nothing. The second worst off are the guys with bonds but no CDS (the homeowner without insurance), who takes the haircut but that's all. And now the single worst off guy is the one who bought the bond and the CDS - he loses  out on the value of the bond, AND he's been paying premiums for all these years on the CDS! Essentially you're totally screwing over the guy who bought the Greek Bonds but was a bit nervous about the risk and tried to insure himself. Congratulations pal, you get to eat a sh*t sandwich!

Now, bear in mind this is the exact opposite  of what governments normally do in catastrophes. If anything, they like to pressure insurance companies to pay out in situations they might not have. Both September 11th and the Paris Car Burnings could arguably be considered acts of war or civil emergencies (respectively), neither of which tend to be covered in insurance contracts. But the insurance companies paid out anyway, perhaps because of actual (or implied) pressure from the respective governments. Obviously there are clear political reasons in those cases - lots of voters on one side, a couple of nasty insurance companies on the other - but still, it's the general rule for how things go.

So why the hell would they deliberately do the opposite in this case? Truthfully, I don't really know. The "voluntary" defaults were taken by private investors and banks, and the people who wrote CDS contracts were largely other banks. So it's not clear why the EU government should prefer one group over the other. Maybe the government had private information that the financial stability was more threatened by CDS writers going under than bondholders, but it's not clear why this should be the case - a lot of French and German banks stood to lose money by this deal, as they held the bonds and CDS contracts that got screwed.

So what's left? A symbolic 'we never defaulted!' victory? Seems like a pretty damn Pyrrhic victory to me, as investors are not going to be fooled at all next time they're thinking about investing in PIIGS government debt. And the article author is right - they're also going to rightly question whether they can even get proper CDS insurance on this debt, or whether the EU will choose to screw them over again. This might not cause the collapse of the Euro, but it sure doesn't seem to be adding to the desirability of EU sovereign debt.

I'm hoping there's a good reason they did this that I don't know about. But from reading around, I haven't uncovered what it is. I can think of a bunch of bad reasons (CDS writers were more politically connected, the EU had a hard-on about the idea of not actually defaulting). But if there's some higher purpose to the whole thing, you can put me in the same camp as Jeremy Warner at the Telegraph in not understanding what it is.

Friday, November 25, 2011

Thursday, November 24, 2011

The Difference Between Game Theory and Decision Theory

Game Theory assumes (at least) two things: common knowledge of the structure of the game, and mutual best responses by all players.

Decision Theory assumes neither.

The classical decision theorist would look at this picture and reflect that the lesson is that sometimes people do things that are TOTALLY CRAZY.

The more nuanced decision theorist would look at this picture and reflect that the lesson is that sometimes the other party isn't actually playing the game that you think they're playing.

Personally, I side with the latter as the one that you've really got to be worried about.

Either way though, caveat emptor.

Filling in the relevant details of the game is, of course, left as an exercise for the reader.

Predicting Behaviour During a Divorce

Apparently Hulkamania is running 70% less wild these days.
Linda Bollea, 52, who divorced Hulk Hogan in 2009, received a little more than 70 percent of the couple's liquid assets in their divorce settlement, a recent court filing shows.
In addition, Hogan, 58, the semiretired professional wrestler whose real name is Terry Bollea, agreed to give his ex-wife 40 percent ownership in his various companies and pay her an additional $3 million "property settlement," according to the 
The Bolleas married in 1983 and divorced in July 2009 after nearly two years of acrimonious proceedings. 
This is what happens when you get divorced in California, a community property state. The 70% is an overstatement because it only applies to the liquid assets, and Linda gets $3 million from the sale of their property. But from reading through the rough description of the settlement numbers (it's hard to figure out the exact details from the article), it seems like she's probably getting maybe 50% of the total net worth.

I'm guessing that when Hogan got married in 1983, he wasn't imagining that in the event of a divorce, he'd be going through 2+ years of nasty court proceedings and still lose half his stuff. The latest dispute, apparently, is over whether he owes his ex-wife 40% of the company's gross revenues, or 40% of net revenues. Over such minor drafting ambiguities do years of litigation depend when people loathe each other.

The question is, why are people so bad at forecasting how their partners will act if they get divorced? I think part of the problem is that they keep being influenced by the way the partner is acting today. In other words, they think of how Bob or Sally is today, and imagine them breaking up.

But this is deeply faulty. By the time you get divorced, it's fair bet to assume that they will hate you more than any other person in the world. You have the burden of years of messy and hurtful deterioration of the reltationship, and/or surprising and nasty betrayals of trust. Plus you're then forced into a very high-stakes negotiation with someone that you now despise. Which may last years. And in which they'll have a lot of opportunities to engage in costly punishment - refusing to agree, dragging out court proceedings, etc.

So the better measure is the following - how do they act towards other people they hate or have hated in the past? Are they vindictive? Do they bear grudges for long periods? Do they find ways to get back at people? And how many such people are there - do they have a long list of people they don't like? If you have data on past relationships, this is even better. Are they on speaking terms with their past boyfriends/girlfriends/ex-wives/ex-husbands? Were they cheated on, and if so, how did they react?

A second, but somewhat less useful category, is how greedy are they with money generally? Someone may go after your money either as punishment for you, or because they really want the lifestyle it gives them. What is their attitude towards receiving charity? Are they reluctant to be financially supported by other people? I think this is a weaker test, because a) there's substantial punishment motivations for going after money as well, and b) by this point, they're likely to view it as being their money, not yours. And if there's any lingering aspect on this, having it intermediated through the courts will probably weaken it further.

But my strongest predictor would be the following - what's their attitude to the courts? Have they ever seriously threatened to sue someone? Have they gone through with it? Has this happened multiple times? If any of these start coming up, you'd better believe you're going to be in for a nasty divorce if it happens.

And once you've got your estimate of the chances of the divorce being messy, double it. Then either get yourself a good pre-nup with your spouse getting independent legal counsel that gets documented (knowing that courts will probably throw it out anyway), or don't get married. Unless you're in Australia, in which case even not getting married may not to save you. In which case, bend over and take it like the government demands, or presume to spend a ton on lawyers no matter what.

Tuesday, November 22, 2011

The Single Worst Law in America Today

The rule that both parties in legal disputes pay their own costs, regardless of the outcome.

This leads to gold-digging lawsuits. It leads to people suing home owners because they slipped on their pavement. It leads to disgruntled employees filing lawsuits every time they get fired. It leads to doctors being sued every time an operation is not successful, regardless of whether it was their fault. It leads to robbers suing homeowners for injuries they sustain in the course of burglaries.

Why, you may ask, does it lead to all these various things?

Because it creates the most screwed up incentives imaginable. A lot of plaintiffs get their fees charged on contingency – no win, no fee, in other words.

When someone files a lawsuit, no matter how ridiculous, the only cost is their time. Monetarily speaking, every lawsuit has a positive expected value from filing. Any risk that’s there is retained by the lawyer, who spends more time on the case.

When people defend a lawsuit, even when they win, they lose. Because there’s no payoffs to successfully defending a lawsuit, defence lawyers can’t charge on contingency. Hence, apart from a few special cases like SLAPP statutes (where you can argue that the lawsuit was designed to silence free speech), the defendant has to pay up front.

The best case scenario is that you just pay your legal fees. The worst case scenario is that you pay your legal fees and the judgment against you.

But then the plaintiffs will make you the devil’s bargain – if it will cost you at least 30 grand to defend this, why not just settle the case for five grand, even though it’s bogus?

The main people who defend lawsuits are those who have a personal conviction that they’d rather spend more money on lawyers just to make sure the plaintiff doesn’t get anything. But even then, the plaintiff doesn’t get punished, they just get zero. If defendant actually wins. Which they may not.

This system has a number of problems.

Firstly, it creates an incentive for all sorts of gold-digging lawsuits. Lawmakers end up trying to play whack-a-mole to fix the related problems, such as capping medical negligence damages (where everyone still has an expected benefit, but it’s now smaller.) Or maybe make it harder to win lawsuits if you slip over, or if you were in the process of robbing a home. But whatever you do, you’ll always be playing catch-up as long as the base incentives to file lawsuits remain in place.

Secondly, it creates a morally impoverished citizenry that views every trivial wrong as a potential lottery ticket. Those who justifiably view this system as legalized extortion may choose to voluntarily refrain from filing, but this merely means that the benefits accrue disproportionately to the shameless, the self-entitled, the greedy, and the narcissistic. What a horrible incentive to erode virtue.

Thirdly, it fails to recognize that lawsuits impose a real cost on the counterparty and society. Like any externality, when people aren’t forced to internalize the cost, they over-consume the item. Same with lawsuits. Making the losing party pay the winning party’s legal fees means that people are forced to consider if they actually suffered a serious and acute legal wrong for which they need compensation, or whether they’re just trying to punish someone they’re pissed off at. It is manifestly not the role of the legal system to help ameliorate your hurt feelings.

But for some reason, the popular support for this position is very slim. Websites like Overlawyered document very well the egregious abuses of this lawsuit-obsessed society. But they don’t really talk about why this happens, or what can be done to stop it.

I would love to see the Republicans propose ending this practice. The trial lawyers would scream bloody murder, but it would be amongst the easiest and most beneficial changes that could be made to the law.

Monday, November 21, 2011

Man, Dog, TSA version

Dog bites man:
A Transportation Security Administration employee is accused of sexually assaulting a woman in Manassas.

Police said the victim reported that she and a friend were in the 10500 block of Winfield Loop in Manassas when the suspect approached them. The suspect flashed a badge and sexually assaulted the victim before fleeing on foot, police said.
Wait... this happened outside of an airport? Outrage!

Bad Signals of Movie Quality

When the premise of the movie begins as follows:
"X is a (movie/book/etc.) writer who has enjoyed past critical success. But he  finds himself suffering from a bad case of writer's block, and ... [blah blah blah]"
The problem is that this just screams out projection by the scriptwriter. "Holy crap, I can't think of anything to write and the studio is busting my @**! Let's write a movie about a guy who's struggling to write a movie and the studio is busting his @**!"

Let's not.

This formula is just a very slightly disguised version of what happened in primary school when you were told you had to give a speech but couldn't think of what to talk about, so you gave a speech about how to give a speech. It wasn't interesting then, and it's not interesting now.

Looking back to the synopsis above, there's only two possibilities. Sometimes the [blah blah blah] is actually interesting, in which case why not just start there? Why have all this self-indulgent bit at the start that merely dilutes the average quality? The other possibility is that [blah blah blah] isn't actually that interesting. In which case, the good news is that quality is not being diluted, but the bad news is that it's uniformly bad.

I noted this while watching Barton Fink last night, which follows almost exactly the plotline above for values of [blah blah blah] = murder plot that comes out of nowhere. It definitely one of the Coen Brothers weaker efforts, and I'm normally a big fan of their work. The movie has a great performance by John Goodman, and some hilarious portrayals of 1940s Hollywood types, especially the studio head. But it takes 70 minutes before anything interesting happens. 70 minutes! Many good movies are mostly finished by that point!

I did look at the Netflix synopsis, which was pretty similar to the outline above, and it gave me some trepidation, but I figured the Coen Brothers could make it work. Yeah, not so much. Do yourself a favour and watch The Big Lebowski a third time, you'll have more fun.

Thursday, November 17, 2011

Miscellaneous Joy

-An interesting theory about McDonald's McRib - that it only gets reintroduced when pork belly prices drop. (via Kottke)

-A wicked sight-reading of the Super Mario Brothers theme, by someone who apparently has never played the game.

-Click and drag around to control the view from a helicopter ride. Rad!

-Coyote lays the smack down on the bogus use of statistics by global warming hysteric James Hansen. Deliberately misleading or just plain stupid? You decide!

Wednesday, November 16, 2011

The Off-Equilibrium Benefits of Widespread Gun Ownership

Economists sometimes talk about about the idea of certain things being 'off the equilibrium path'. What this means is that you never actually expect to see the situation where the alternative scenario would arise.

I think that military size is a classic example of this. If you have a military that is overwhelmingly stronger than everyone else's (and you only plan to fight defensive wars) you probably ever won't need to use it. Once you have the biggest army, why would anyone want to fight you? Other countries know they'll lose.

And here's where the off-equilibrium part comes in. You never expect to see the scenario where the huge army is actually useful. But if you took away the big army, suddenly you would need it, because other countries might be tempted to invade. In other words, you can't look at the fact that your army is not being used to fight wars and infer from that the large army wasn't necessary. The benefits, in other words, never get observed, because they are off the  equilibrium path.

I think that one of the big benefits of widespread gun ownership operates in the same way. Widespread gun ownership has lots of costs - more crimes of passion, more accidental shootings, etc. But like a large army, having lots of hunters (and even just armed gangbangers) has off-equilibrium national security benefits. Last year, Marginal Revolution linked to the following post at Federalist Paupers on this subject:
The state of Wisconsin has gone an entire deer hunting season without someone getting killed. That’s great. There were over 600,000 hunters.
Allow me to restate that number. Over the last two months, the eighth largest army in the world – more men under arms than Iran; more than France and Germany combined – deployed to the woods of a single American state to help keep the deer menace at bay.
But that pales in comparison to the 750,000 who are in the woods of Pennsylvania this week. Michigan’s 700,000 hunters have now returned home. Toss in a quarter million hunters in West Virginia, and it is literally the case that the hunters of those four states alone would comprise the largest army in the world.

This kind of level of armed citizenry would make it incredibly difficult to successfully invade the US. Even after you beat the main professional army, everywhere your soldiers go they risk getting killed by trained riflemen. That's going to make it very hard to subdue the populace.

The interesting thing, at least politically, is that when benefits get sufficiently far away from the equilibrium path, people tend to forget that they're there. It is almost unthinkable that someone would try to mount a land invasion of the US any time in the near future. And at least part of this is due to the deterrent effects of domestically owned guns. But the prospect of hunters shooting at - who? the Russians? the Chinese? - seems so far-fetched that people discount it. The relevant question is to assume that we're no longer in equilibrium. If the Chinese had invaded, would America's hunters shoot at them? Very likely. And as long as that's the case, it's a real benefit. Even though it's incredibly unlikely you'll ever see it come to that.

It may still not be worth it to have lots of guns. It may be the case that, hunters and gangbangers or not, the conventional US Army is enough to make invasion very unlikely. But that's not really the point - a benefit is a benefit, even if it might be very costly to obtain.

As Cypress Hill noted about guns: When the $#*t goes down, you'd better be ready.

The game theorists riposte would be as follows: If you're always ready, the $#*t may never actually go down. But that doesn't mean you don't need to be ready anyway.