Monday, January 30, 2012


...which I can report to you with a fair degree of confidence.

1. Indo Mie brand Mi Goreng are the best instant noodles in the whole world, and totally delicious at an absolute level (in case you thought the first clause corresponded to something like 'the fastest lawnmower' or 'the most fiscally responsible member of the Greens Party'). If you're eating any other type of Ramen (or Maggi Noodles, for the Aussies), you've got rocks in your head. Find an Asian Supermarket and buy them.

2. Mi Goreng noodles that claim to expire on August 28th, 2008 can be eaten well into 2010 without too much deterioration in taste, and no adverse health consequences.

3. An outstanding commitment to scientific inquiry led to to establish empirically that  Mi Goreng noodles that claim to expire on August 28th 2008 can still be eaten in a pinch around about, ooh, say, January 30th 2012. They do however lose a certain je ne sais quoi, in part driven by the fact that flavouring powder has turned into bricks that have to be discarded. You may not actually want to get through them.

4. George Orwell was really on to something when he observed:
It is a feeling of relief, almost of pleasure, at knowing yourself at last genuinely down and out. You have talked so often of going to the dogs — and well, here are the dogs, and you have reached them, and you can stand it. It takes off a lot of anxiety.
Rock bottom - it makes a comfortable place to rest one's body!

Orwell had the excuse that he was talking about extremes of poverty, as opposed to just, say, being an immense slob. Ah well, close enough.

Sunday, January 29, 2012

The Value of Society

Take an average day in a first world city.

You go for a walk down to a coffee shop, or to the mall, or wherever your travels take you. In that time, you'll pass by hundreds of people. If you're like me, chances are that the vast majority of them are complete strangers - you don't know them, and you'll never see them again.

Think back to the people you passed today. How many of them can you remember? How many of them did you notice at the time, even fleetingly? Probably very few. Even the ones you interacted with, at the checkout line or in the lift, you probably did so without really thinking much about it.

Now imagine you're out on the savanna, or in some post-apocalyptic wilderness. You come across another person in the distance. What are you going to be thinking?

Probably some combination of: are they friendly? Are they going to try to rob me? Would I be able to defend myself in a fight if they try something? Is this a trap where they have other people ready to jump me?

I'm going to go out on a limb and predict that running into other people that you don't know would probably be pretty damn stressful. It wouldn't be the kind of thing you'd do lightly.

Small early societies got around this through tribalism. You knew the people in your clan, and repeated interactions with them ensured that people treated each other reasonably. But interactions with other tribes were likely to be somewhat fraught, especially tribes you didn't know. Then you were back to the mutual suspicion and fear.

Now think back to modern society. It's remarkable how well norms of behaviour are not only common and widely accepted, but known be everyone to be common and widely accepted. In a modern city, I can interact with literally millions of strangers and have strong expectations about how they're going to behave. The norms of trust and respect have become strong enough that we don't need repeated interactions at the individual level to maintain them. People internalise the trust of strangers, and as long as most people reciprocate, it's a mutually beneficial trend. I can now engage in commerce and trade with millions of people, instead of just the small number in my own village. This allows institutions to develop that rely on crazy levels of trust for strangers, such as valet parking.

In America, you can travel thousands of miles and interact with complete strangers in such an innocuous fashion that most people don't pause to reflect on how remarkable that would seem to somebody born a few thousand years ago.

Saturday, January 28, 2012

Giving the Customers What They Want

I have been told by not one, but two regular readers that they don't really like my posts about music.

Well, stiff $#!7. Here's the great Tom Petty, playing a totally awesome live acoustic version of 'Learning to Fly'.

To paraphrase  Will Ferrell in the parody of 'Inside the Actors Studio' from the extra scene in 'Old School': If you haven't listened to this, get it, listen to it, put it in a lock box for one year, then listen to it again. It will change your life.

Okay, not really, but it's pretty damn good.

Friday, January 27, 2012

Miscellaneous Joy, Hidden Costs Edition

-Why NASA needs to place an explicit value on the life of astronauts.

-Why academic publishing is a scam. I agree, and I don't use the word 'scam' lightly.

-Why antitrust action against Bill Gates in the 90s probably killed thousands of people. (via Marginal Revolution)

Insight of the Day That I Was Most Pleased With

I was listening to a talk by this Greek girl today.

I was speaking to The Greek afterwards, and asked him the following: "Hey, does the Greek language have any works that end in either 't' or 'p' "?

Sure enough, it doesn't. Which I knew it wouldn't.

How did I know this?

Listening to the girl talk, there were certain words where she would add half an extra vowel at the end, particularly words that ended in 't' or 'p'. So the word 'treatment' became something almost like 'treatmenta' and 'group' became 'groupa'. Not with a strong emphasis on the 'a' at the end, but noticeable.

My hunch, which it seems was right, is that this came from the fact that she wasn't used to words ending in 't' and 'p' - she was used to a vowel at the end after these letters. And this was so subconscious that she was adding it in slightly in English, even though it wasn't there. This would only seem to work if words ending in these letters were completely absent.

Bam! It makes you look like Sherlock (not Shylock) Holmes when you can spot these kinds of obscure connections.

There's few things as satisfying as correctly identifying something random about the world based on correlations that most people aren't paying attention to.

Thursday, January 26, 2012

Girl Eats McNuggets! British Plebs Outraged!

The Greek sent me this story from the UK Daily Mail about a girl who had to be transported to hospital after collapsing at a McDonalds. It turns out the girl (apparently) hasn't eaten anything except Chicken McNuggets and chips since age 2. She's now 17.

First off, this story has a decent chance of being a hoax, but let's get past that. The British tabloids understand keenly that nothing sells quite as well as feeding people's sense of righteous indignation, and this story has that in spades. So unhealthy! Where are the parents? We need to do something about this! etc. etc. etc.

But let's take the story as true for the time being, because everyone prefers their morality tales to be true.

There's two things that are remarkable about this story, and neither of them is the fact that there are parents in first world countries who will let their children eat nothing but Chicken McNuggets every day for 15 years.

Make sure you click on the story first to see if you can guess what I'm going to choose.

The first remarkable thing is this - why on earth would you agree to be interviewed and photographed for this story? Isn't it obvious that they're going to make you out to be some sort of repulsive monster, and an indication of everything that's wrong with society? I mean, even if you aren't actually sure of what you did that's so bad, here's a red hot tip. When you're Johnny Nobody and the tabloids want to interview you about anything other than saving a small child or scaring off a burglar, you should refuse. Really. You can thank me later.

There's either two possibilities here, none of them flattering. The first is that the girl was so desperate for her 15 minutes of fame that she didn't care that the paper would make her look like a weirdo. The second is that she was gullible enough to believe their silver-tongued promises that they'd write a really nice article about her, and honestly McDonalds was really to blame, and she'd be the innocent victim, etc. Uh huh.  Oh look, they've written about how I'm a hoarder of the thousands of toys I've collected, which for some reason I'm reluctant to throw away. Here's a photo of me looking creepy in front of an enormous collection of McDonalds junk kids toys.

Either way, it's not a good sign. Add this to the fact that you thought eating nothing but Chicken McNuggets for 15 years was a good idea and that's two pretty big strikes against your character.

The second remarkable thing is that given her diet over the past 15 years, how thin the girl is.  It's possible that she's an exercise freak on the side, but I'm going to go ahead and bet against that possibility, based if nothing else on her hilarious disregard for her health.I think everyone expected her to be some whale, but she's not. And when you look at the nutrition breakdown that the Daily Mail provides, you start to see why - three meals of six chicken McNuggets and small fries only clocks in at 1530 calories per day, relative to the recommended intake of 2000. They try to make a big scare out of it - 'Twice the recommended fat! Twice the recommended salt! A third of the recommended vitamin C!' - but it doesn't seem to work. Hilariously, it seems like a base of mostly chicken McNuggets and fries isn't actually that bad - her problem was not getting enough other things like calcium, iron and vitamins other than C.

Interestingly enough, this fits in with the point made by Robert Lustig that I talked about a few days ago. He goes through the McDonalds menu to find the 7 items that don't contain any fructose. Guess what three of them are? Chicken McNuggets, Fries, and Diet Coke. If you eat nothing but that, you end up sick. But apparently you don't end up especially fat.

If that isn't an advertisement for a low-sugar diet, I don't know what is.

Wednesday, January 25, 2012

Mankiw on SOPA

First off, I am working on fixing what I describe as the Steve Jobs problem - that you generally agree with a lot of what someone says (or does), but you're only motivated to write about the small amount you disagree with.

So, with that in mind N. Gregory Mankiw is a cool dude. I first became a fan of his when he was George W. Bush's Chairman of the Council of Economic Advisers. He distinguished himself by sticking to economic theory even when it was politically unpopular, in particular defending outsourcing as likely to be of economic benefit to America. Which it is, for much the same reason that trade is beneficial - if it's cheaper to build a car in Korea, build it in Korea. If it's cheaper to answer a phone call in India, answer it in India. And with the savings we get, export more in the areas that the US does particularly well. I remember cheering for this even before I knew anything else about him.

Also, in recent days he's done a great job of attacking the 'Warren Buffet pays less tax than his secretary' idea, noting (correctly) that he implicitly pays tax through the tax on corporate income. His blog is always a good read for interesting mainstream economic analysis

So I like a lot of what he writes. And he's impeccably polite in dealing with intellectual opponents, which is exceedingly rare.

But I did find myself a little ... underwhelmed... at his discussion last week of repugnant Stop Online Piracy Act, currently (thankfully) off the legislative agenda, at least in the short term. SOPA, and it's house equivalent, PIPA, sought to make content providers more liable for their user-submitted content, and liable to have their entire site (not just the offending material) taken down if copyright holders alleged any violation. It could also compel search engine sites not to include allegedly infringing sites, with the definition of infringing being shockingly vague. In short, these were terrible Bills, designed to try to pad recording company and movie profits, the viability of the internet be damned. If you want a great summary  of the problems of the bill, Sal Khan of the Khan Academy has a very good rundown.

But Mankiw was more ambivalent.
The anti-SOPA crowd argues that this is a matter of basic liberty. But it's not. In a free society, you don't have the freedom to steal your neighbor's property. And that should include intellectual property. Moreover, it is the function of the state to enforce those rights. We don't leave it up to civil litigation to protect property rights (although that is part of the solution). We give the state substantial powers to stop theft. Just as owners of tangible personal property have good cause to call for a police force and a system of criminal courts, owners of intellectual property have good cause to ask the state to stop those who would infringe on their rights.
I find the statements in bold to be particularly sloppy. And to explain why, let's revert to some terms I cribbed from Mankiw's own 'Principles of Macroeconomics', currently sitting on my bookshelf.

Why is it wrong to steal your neighbour's property? Generally speaking it is because most goods are rival. If I take my neighbour's Ferrari, he is deprived of the use of said Ferrari. Taking the good is thus a pure transfer - I take it, and he doesn't get it.

Now that's manifestly not true of nearly everything that SOPA is targeting. If I copy an MP3 or a movie, I make a replica of the original file. I have not deprived the original owner (that is, the person who had the mp3 on his computer) of anything. To a first order of magnitude, welfare has increased. Before, we only had one copy of the mp3 to be listened to, and now we have two.

What has been lost is the potential funds that might have been transferred to the copyright owner. But this is a nebulous concept - suppose I set the price of my CD at $10 million, and 100 people pirate a leaked demo from the studio. Have I been deprived of $1 billion? Of course not. None of these sales would have taken place absent the piracy. In addition, the world has gained utility ex post, because now 100 more people get the enjoyment of listening to the music.

And Mankiw doesn't just obliquely run into this error in logic - he rams into it head on :
If offshore websites find a way to distribute this intellectual property without paying for it, it is as if organized crime were stealing merchandise from a manufacturing firm at the loading dock. It is neither efficient nor equitable.
No! No it isn't! If I take merchandise from a dock, then the merchandise (which is rival) can't be consumed by anyone else. An mp3 can be consumed over and over. Ex-post, nothing is lost.

There is of course one good argument for these kinds of efforts - that without legally enforced grants of monopoly rents to owners, there won't be enough of these goods produced. This is saying that we need these protections ex ante, because otherwise society won't have a movie industry or a music industry. This is similar in logic to why we need patents - their non-rival nature makes them a public good, and the monopoly rents help them be produced more because the market will not provide enough otherwise.

But is that really true? Yes and no. Piracy represents an existential threat to the movie industry, if  it happens often enough. Nobody is going to spend $300-odd million making Avatar if they're not making a return on it. It's unclear that piracy will get that common, since there really is a benefit to seeing a movie on a huge screen versus on your computer. So there is some tradeoff here.

This seems way less persuasive for the music industry though. People have been making music for millennia, and will continue to do so. Even if piracy becomes complete, the industry will (and already is) evolving into being based off ticket sales for live shows, with free online clips being like promos for the show. This worked as a model for minstrel singers for centuries, and would work now.

And the argument that 'you have a moral obligation to not take anyone's intellectual contribution without paying for it' is ridiculous. Suppose I write a catchy pop song. Should Greg Mankiw have to send me a royalty cheque before he is allowed to play a cover version on the guitar in his own home? Should I need to send Black and Scholes a cheque before I can compute the Black Scholes formula? Of course not. So clearly there is a limit to how much this rule applies.

And this is all such a completely obvious argument that I'm really surprised that Mankiw doesn't make it. Instead he resorts to really weak reasons for defending it. Mankiw personally (as he acknowledges) stands to lose a lot from piracy, as he writes a best-selling economics textbook.

Frankly, if I stood to lose as much as he did, I'd be trying to make much better arguments for SOPA-like laws than the ones he is offering up.

Tuesday, January 24, 2012

Currently on the Holmes Playlist

The excellent 'Your ex-lover is dead', by 'Stars'

Lyrics here.

It's a wonderful song about two ex-lovers meeting each other by chance, and the awkwardness and regret and mixed feelings it inspired.
God, that was strange to see you again
Introduced by a friend of a friend
Smiled and said, "Yes, I think we've met before"
In that instant it started to pour
The man seems to view the reunion with a kind of distance. His demeanour suggests a brief affair which he discarded, an impression that gets reinforced later.
Captured a taxi despite all the rain
We drove in silence across Pont Champlain
And all of that time you thought I was sad
I was trying to remember your name.
Forgetting her name seems to make sense mainly as a metaphor, if they've been introduced. Which is a shame, because the scene becomes more poignant if he literally can't remember her name. Their tryst made such a small impression on the man. The 'I think we've met before' and the silence suggest an awkwardness on his part at the situation, and a certain desire to extricate himself from the situation, but piqued interest in seeing her again, and a brief reigniting of the initial spark (tempered with the strangeness of the situation).

At this point, we switch to the woman's perspective:
This scar is a fleck on my porcelain skin
You tried to reach deep but you never got in
And now you're outside me, you see all the beauty
Repent all your sin.

Nothing but time and a face that you'll lose
I chose to feel it and you couldn't choose
I'll write you a postcard, I'll send you the news
From the house down the road from real love
Immediately, we can see that the man's insouciance is not at all shared by the woman. It's clear that the ending of their affair was painful for her in a lasting way. The implication of her tone (especially the 'repent all your sin' line) is that the man ended the affair, possibly in a somewhat indifferent or callous fashion. This captures the sadness of so many casual relationships - they are rarely actually casual for both parties, and if they last any length of time, it becomes increasingly likely that someone's feelings will be hurt. The woman strikes a somewhat defiant demeanour, insisting that she has moved on, and that the loss is his - the scar of her hurt is now only a fleck, after all.

But this speech is an internal monologue - they sit in silence, after all. This is the woman telling herself that she is better off.

In the next verse, we see past the initial posture - though she has moved on, the pain is not far beneath the surface, and she expresses it with a touching honesty:
There's one thing I have to say so I'll be brave
You were what I wanted
I gave what I gave
I'm not sorry I met you
I'm not sorry it's over
I'm not sorry there's nothing to save
I'm not sorry there's nothing to save
I love these lines so much. They capture incredibly well the conflict in her feelings - the hurt, the rejection, and a determination to move past it. To own up to this is indeed brave. The easy thing would be to maintain the facade of pure indifference and disdain, but that would ring hollow and false.

Originally, I thought that the last lines above were 'I'm not sorry there's nothing to say'. I think this would work even better - despite the woman's claimed importance of what she has to say, it is ultimately cathartic. There is indeed nothing to say, only mixed emotions that die in the ashes of long burned out love affairs.

Ice Hockey

Comedy gold!

Monday, January 23, 2012

Damn Good Advice

on how (and why!) to negotiate a higher salary, from Kalzumeus.

This may be the most monetarily valuable thing you read this year. Read the whole thing.

How Password Reset Screens Should Work

There is a long literature on how the password requirements for most websites are ridiculous - they make life hard for users without actually making it that hard for people to crack. There was a great xkcd comic about this which covers the flavour of the problem.

In order to stop random cracking attempts, websites tend to make the following requirements

1. Lock out the user for [some period, e.g. 1 hour] after [N, usually 3] incorrect password attempts

2. Make a requirement about password length and certain characters.

So far, so annoying, but fairly manageable.

Let's assume that the website in question has a lockout attempt at 3 attempts. The problem arises because websites pick different versions of #2. I've come across:
-At least 6 letters
-At least 6 letters and at least one number
-At least 6 letters and at least two numbers
-At least 6 letters and one special character
-At least 8 letters and a number
-At least 8 letters and a special character
-Exactly 8 characters, including [some combination of the above]
-At least 6 letters, no special characters allowed.

One salient feature of the list - it's got more than three options.

Now, it seems that lots of people generate variants of the same password for each case, depending on the requirement. Give them the requirement, and they know what the password is.

But if you've got a slightly odd password requirement, the vast majority of my incorrect password attempts are me trying to remember what your damn password restriction is!

So what happens is that I'll try the most common case. Wrong. I'll think 'Hmm, does it need a special character' and try that. No luck. And now I can try a third time and risk having to wait an hour, or I can go through another pointless password reset. Sigh.

And there's absolutely no need to do this. It doesn't make life much easier for the hacker to know the requirements.

I'm pretty sure that Progressive Insurance has some bizarre requirement that I keep forgetting, because I think I need to reset my password just about every time I need to log in. Great customer experience, chaps!

So I really wish that more websites would follow Expedia's sterling example:

I dare the system admins to try this, and see how many fewer times the password reset function is used. If you've got a requirement of special characters or two numbers, I'm ballparking that the number of password resets will probably drop at least 80%.

Sunday, January 22, 2012

Less Sugar, More Fibre

Via Mama Holmes, comes this very interesting lecture on how the over-consumption of fructose (and sucrose, which breaks down into fructose and glucose) appears to drive a large amount of the obesity-related health problems in the US. Robert Lustig makes the case that fructose ought to properly be considered a toxin. Big words, but he backs them up.

One of the motivating questions, which I think is a good one, is this:

What do the Atkins diet (all fat and protein, no carbohydrates) and the Japanese diet (all carbohydrates, no fat) have in common, other than that they're both reasonably effective?

They both eliminate fructose.

See for yourselves...

The measure of how much I liked this video is as follows - I couldn't conceive that I would watch a 90-minute youtube lecture when I first clicked on it, but I kept wanting to see more until I'd seen the whole thing. For a powerpoint presentation, that's pretty damn good.

Personally, I'm not in great need of dieting, but it's inspired me to try to nudge my sugar consumption away from the slow path towards type 2 diabetes, which is roughly where it is today.

"Do you want Thai, or Italian?"

One of my minor quests in life is to find ways around small inconveniences in life arising from  people asking (and answering) the wrong question. For instance, I've written before that when someone asks what you want to eat for dinner, the answer 'I'm easy' is often profoundly unhelpful.

But there's another case where people answer the wrong question - the 'Do you want Thai or Italian?'. The reason it gets tricky is that it's not clear whether the person is expected to balance the competing interests in their head before giving their estimate of the consensus best choice, or whether they're just meant to state their own preferences directly, with the consensus to be formed later.

In other words, suppose you weakly prefer Thai, but you suspect that your friend would prefer Italian. Do you just answer 'Thai'? Do you answer 'Italian', based on the assumption that you don't mind Italian and your friend wants it?

In my estimation, the most useful answer is to just state your own preferences - once we know how each other feels, it's easy to balance the competing interests. But the second one is fine too, as long as it's understood by both people what's going on. Things get frustrating when your friend doesn't know which answer you're actually giving - do you really want Italian, or do you just think he wants Italian? What if neither of you actually want Italian, but each thinks that the other one does?

Ironically, this problem gets worse when you have more regard for the other person's feelings. People are reluctant to just say the thing they want, because it might sound too demanding, or because it could be interpreted as a lack of concern for what the other person wants.

Thankfully, this is a situation that can also be solved be answering both questions with the appropriate phrasing. These days, I'll go for something like the following:
'If it were just me eating, I'd lean weakly towards Thai. But if you feel more like Italian we should do that, because I'm happy with that too.'

Bam! Problem solved. They now know your true personal preferences, which is the actually useful part. But you've also given your estimation of the estimated compromise decision, without having it confused for your true preferences. Plus you've demonstrated ample concern for their feelings, which means that you don't look like a tool for stating what you personally want.

Let's just say... you're welcome.

Chateau Holmes - helping you navigate potential minor faux pas situations by spotting the potential confusion in the question.  

Friday, January 20, 2012

You Keep Using That Word. I Do Not Think It Means What You Think It Means

The probability of a letter from a company containing important information is significantly less when the front is marked 'Important Information Enclosed'.

I recently got one from US Bank that, as far as I can tell, was a letter to remind me that I had a credit card with the,. Thanks for the heads up!

Why I Don't Read the Financial Press Much

Pity low-level financial journalists.

The big names get to write important opinion pieces on the financial crisis and the banking system.

The low-level guys, on the other hand, every day they have to write garbage about financial markets. Prices went down today? Hmm, what could explain that? How about 'fears of a weakening economy'? Sure, that sounds plausible. Prices went up today? Investors were bargain hunting after yesterday's price decline. Etc.

Realistically, they should just be reporting 'today, the coin landed on heads!', because at a daily level, stock returns are pretty damn random. Over long horizons there's more predictability, but on a daily basis, it's just noise.

Making up this kind of junk tends to erode the intellect (and the spirit). And sometimes this spills over into further sloppy thinking.

The Greek passed on this gem from CNN Money:
At $400 billion, Apple is worth more than Greece
Apple's market cap is higher than the gross domestic product of Greece, Austria, Argentina, or South Africa.

So it's clear this guy doesn't understand the difference between a stock and a flow. Market Cap is a stock measure - not in terms of the 'stock' market, but meaning that it captures the total amount of something. GDP is a flow measure - it represents an amount that occurs each period.

In other words, GDP is analogous to your income for this year and market cap is analogous to your total net wealth. (It's an imprecise analogy, because net wealth represents income you've already earned, whereas market cap represents the estimate of the money you'll earn in the future).

But the point is that comparing these two numbers and saying that 'Apple is worth more than Greece' is absurd. It's like saying that the guy who works in a factory and owns a $600,000 house is richer than the guy who worked at an investment bank, because the investment banker's income this year was only $500,000. The comparison is meaningless.

Not only that, but the whole thing is a non-story.What even happened to justify writing this junk? Apple's market cap increased slightly? Quick, better write a puff piece of meaningless comparisons, because the rubes just love reading stories about Apple!

Remember kids - these are the people telling you why the market moved yesterday.

Pass the salt, please.

Wednesday, January 18, 2012

Outstanding Science!

Suppose it is 1983, and you are a doctor who has developed a drug that can produce an erection when injected into the penis. You need to provide evidence of this to an audience of other doctors at a conference.

How might you go about doing this?

Perhaps you'd produce pictures of erections that had been obtained by the injection of the drug. But how could you convince people that these pitctures hadn't been obtained by additional stimulation, or by watching erotic movies or magazines, or even just thinking erotic thoughts?

Science demands proof. And there is one sure way to provide this:
But the mere public showing of his erection from the podium was not sufficient. He paused, and seemed to ponder his next move. The sense of drama in the room was palpable. He then said, with gravity, ‘I’d like to give some of the audience the opportunity to confirm the degree of tumescence’. With his pants at his knees, he waddled down the stairs, approaching (to their horror) the urologists and their partners in the front row. As he approached them, erection waggling before him, four or five of the women in the front rows threw their arms up in the air, seemingly in unison, and screamed loudly. The scientific merits of the presentation had been overwhelmed, for them, by the novel and unusual mode of demonstrating the results.
Yes, really. This is peer-reviewed science, documented in the British Journal of Urology International.

Giles Brindley, for outstanding services to medicine, science, and hilarity, you are hereby inducted into the Shylock Holmes Order of Guys Who Kick Some Series Ass (Third Class).

(via jwz)

Tuesday, January 17, 2012

How To End Judicial Activism

If there's one thing that raises conservative ire, it's activist judges striking down [conservative] democratically elected laws based on expansive readings of constitutions. You thought you'd passed a law allowing the death penalty for the rape of a child under 12? Wrong, the Supreme Court says that's cruel and unusual!  Thought you'd passed a law to prohibit the abortion of  fetuses? Wrong, you hadn't counted on Justice Blackmun reading into the penumbras and emanations of the constitution a right to privacy, which somehow transformed into a right to abortion! Thought that you'd passed a law regulating political advertising in the leadup to an election in Australia? Wrong, you hadn't counted on the Australian High Court finding an "implied freedom of political speech" in the constitution. Etc etc etc.

Judicial conservatives tend to interpret the constitution narrowly, based on what the words meant at the time they were written. They also tend to be reluctant to overturn precedent, based on respect for the court's earlier opinions. Judicial activists tend to believe in the importance of modern social values in interpreting the constitution - in practice, they're happy to take very expansive interpretations of the words if it produces a social result they're happy with. They also don't tend to care as much about precedent, being willing to overturn settled doctrines if they don't like the result.

At the moment, political conservatives are screwed by judicial activism, because it acts as a ratchet towards ever more left-wing laws. The reason is as follows. Nearly all judicial activists tend to have left-wing political leanings. By that, I mean that the activist rulings they pass tend to be supportive of leftist political issues. Once an activist decision gets passed, judicial conservatives are split - some of them will want to overturn the earlier ruling because they think it misreads the constitution. Others will reluctantly let the ruling stand, because they also don't like overturning precedent. This means that the judicial conservatives will always be somewhat split in overturning these precedents, while judicial activists will be united in upholding them. Hence the bad judgments stand, and you end up with a ratchet.

There is, however, one possible way around this problem. Historically, political conservatives have tended to be judicial conservatives. A respect for political tradition tends to correlate with a respect for the vision of the founding fathers, and distrust of concentrating power in the hands of unelected judges.

But there's no reason this has to be the case. And I confidently predict the following - if you wanted to rapidly end liberals love affair with judicial activism, all you would need to do is appoint a bunch of politically conservative, judicially activist judges.

A rough model for this kind of thing would be the Institute for Legal Justice, which files lawsuits on behalf of private property rights, economic liberty, the first amendment, and other such matters. It's basically like the libertarian version of the ACLU.

And something similar could work in the courts too. For instance, suppose that a politically conservative activist court decided that government licensing of commercial transactions was illegal. There's lots of crap bases for doing this! It could be some oddball combination of freedom to assemble (under the first amendment), and something to do with monetary transactions being a form of speech. Sound ridiculous? It is, but an implied freedom of commerce is not really more ridiculous than an implied right to privacy.

This kind of ruling would drive liberals batty. Suddenly you'd have grounds to overturn all sorts of commerce-killing health, safety, and environmental regulations, all protected with the force of the constitution. And in no time flat, liberals would suddenly rediscover the joys of sticking to the original interpretations. How dare those judges start overturning the popular will with their social engineering! And the new judges would solemnly utter that the constitution was a living, breathing document, and the current political climate was increasingly intolerant of interference in commercial transactions. And liberals would be forced to reply "but... but... but..."

As well as being hilarious and full of schadenfreude, this would force liberals to ask themselves whether they really liked activist courts after all. The danger of expanding government power is that eventually it gets wielded by the party you don't like. If courts played by the same rules, we might ironically (at least in the long run) end up with less appetite for judicial activism. The cost is the politically conservative judges would have to prostitute their views on constitutional theory, which, for better or worse, they don't seem to want to do.

A pity, really. It would kill off judicial activism, or it would at least level the political playing field that activism takes place on. Frankly, either one would be an improvement on the status quo.

Monday, January 16, 2012

Hobbes was right

Apparently a fungus infects carpenter ants, feeding on them and turning them into zombies that walk around erratically. The fungus makes the ant walk towards the understory of the forest, where the fungus grows better, then finally spores grow out of the dead ant's head. (Via Radley Balko.)

The universe is not your friend. All of us are mere grist to the mill of evolution - if there is a niche for some creature (virus/fungus/insect/tiger) to use you successfully as a food source, and they happen to be adapted enough for the purpose, they will do so. If you want to know why I celebrate the triumph of man's economic development and its ability to shape the natural environment, this is why. It's easy to think of nature as some gentle and cute-looking endangered species, like the Iberian Lynx. But you would do just as well to also think of the fungus in Thailand slowly devouring carpenter ants. This, my friends, is the world we live in.

The great Robert Frost observed all this a long time ago.
I found a dimpled spider, fat and white,
On a white heal-all, holding up a moth
Like a white piece of rigid satin cloth --
Assorted characters of death and blight
Mixed ready to begin the morning right,
Like the ingredients of a witches' broth --
A snow-drop spider, a flower like a froth,
And dead wings carried like a paper kite.  
What had that flower to do with being white,
The wayside blue and innocent heal-all?
What brought the kindred spider to that height,
Then steered the white moth thither in the night?
What but design of darkness to appall?--
If design govern in a thing so small. 
Or as Thomas Hobbes put it in Leviathan - the life of man in the natural state is "solitary, poor, nasty, brutish, and short."

Friday, January 13, 2012

Markets Will Clear...

...whether you like it or not.

Tickets to the Coachella music festival went on sale today at 10am. Last year, I figured I had a while to dither about the decision as to whether to go, and after a week, they were sold out. Bam! Your $300-odd ticket is now a $500-odd ticket.

Okay, so this year I'd learned my lesson - I was going to buy it straight away. They went on sale at 10, by 10:15 I was online trying to buy tickets to the first weekend.

Nope, couldn't get them. They were gone. Apparently friends who tried even earlier, even at a few minutes past ten, weren't able to get them. The website would still list them as being available, but you'd try to buy without success. There were some still available for the second weekend, but I couldn't make it then.

It makes you wonder why the promoters don't set the price higher. I have some sympathy - this year, they increased the length from one weekend to two weekends, thus doubling supply. Didn't help - at the face value of  $330 or whatever, there was still a shortage.

It's always surprising how promoters end up leaving money on the table for scalpers. If the market-clearing price is $400, you're just giving free money to scalpers by setting the price at less than this. Granted, firms only get a small number of guesses at the market-clearing price. But surely it wouldn't have been hard to look at the secondary market prices from last year, hire some whizz-bang economist specialising in estimating demand curves, and figure out the correct price.

Nope, that would be too hard.

I did however make one very stupid error, which I now regret.

Once I saw that weekend 1 was effectively sold out, my instinct was 'Oh well, guess I'm buying on the secondary market. Let's read some other websites'. What I should have been doing is trying like crazy to buy tickets to the second weekend. It's a pretty damn good bet that if the first weekend is sold out in 20 minutes, the second weekend will be sold out pretty quickly as well. What you've got is a very strong signal that the tickets are underpriced. As a result, you ought to be buying weekend 2 tickets with the plan of re-selling them, doing this as a hedge against the likely price you're going to have to pay in the secondary market for your weekend 1 tickets.

Sure enough, on Stub-Hub,  weekend 1 passes start at $550, and weekend 2 passes start at $500. It would have been a pretty good hedge indeed.

Which just goes to show - mispricing doesn't hang around long. It's not enough to recognise it, you have to recognise it quickly and act on it. The race goes not always to the swift, but the arbitrage usually does.

Thursday, January 12, 2012

Eugene Fama - So Full of Win

Check out but a mere handful of Eugene Fama's quality quotes in his mini autobiography of his life in finance:
My grandparents emigrated to the U.S. from Sicily in the early 1900s, so I am a third generation Italian-American. I was the first in the lineage to go to university.
Fans of linear extrapolation confidently predict that his children and grandchildren will soon be solving friendly AI and proving the Reimann Hypothesis.
I went on to Tufts University in 1956, intending to become a high school teacher and sports coach.
Huh! Given the guy is likely to win a Nobel Prize in Economics, I would not have guessed that.
Vindicating Mandelbrot, my thesis (Fama 1965a) shows (in nauseating detail) that distributions of stock returns are fat-tailed: there are far more outliers than would be expected from normal distributions – a fact reconfirmed in subsequent market episodes, including the most recent. Given the accusations of ignorance on this score recently thrown our way in the popular media, it is worth emphasizing that academics in finance have been aware of the fat tails phenomenon in asset returns for about 50 years.
Two points:

1. Spot on with the last part. When people start telling you that all of finance is disproved because returns aren't in fact normally distributed, this should be taken as fairly strong evidence that they are a) a moron, or b) a crank.

2. I love the self-deprecation in the 'nauseating detail'. The unstated implication is 'I have so much kick-@$$ work that I can disparage half of it and nobody will think any less of me.' This assumption has the virtue of being both hilarious and completely true.
The simple idea about forecasting regressions in Fama (1975) has served me well, many times. (When I have an idea, I beat it to death.)...In a blatant example of intellectual arbitrage, I apply the technique to study forward foreign exchange rates as predictors of future spot rates, in a paper (Fama 1984a) highly cited in that literature.
Again, Eugene Fama can say this about Eugene Fama without detracting in any meaningful way from Eugene Fama.
In 1976 Michael Jensen and William Meckling published their groundbreaking paper on agency problems in investment and financing decisions (Jensen and Meckling 1976). According to Kim, Morse, and Zingales (2006), this is the second most highly cited theory paper in economics published in the 1970-2005 period. It fathered an enormous literature. When Mike came to present the paper at Chicago, he began by claiming it would destroy the corporate finance material in what he called the “white bible” (Fama and Miller, The Theory of Finance 1972). Mert and I replied that his analysis is deeper and more insightful, but in fact there is a discussion of stockholder-bondholder agency problems in chapter 4 of our book. Another example that new ideas are almost never completely new!
Translation - Michael Jensen's ideas are almost never completely new [you thieving @#$%].
Though not about risk and expected return, any history of the excitement in finance in the 1960s and 1970s must mention the options pricing work of Black and Scholes (1973) and Merton (1973b). These are the most successful papers in economics – ever – in terms of academic and applied impact. Every Ph.D. student in economics is exposed to this work, and the papers are the foundation of a massive industry in financial derivatives.
I guess some papers are completely new after all! Unlucky, Jensen. (Actually he's generous to Jensen later, but it's still funny.)
What are the state variables that drive the size and value premiums, and why do they lead to variation in expected returns missed by market β? There is a literature that proposes answers to this question, but in my view the evidence so far is unconvincing.
To what extent is the value premium in expected stock returns due to ICAPM state variable risks, investor overreaction, or tastes for assets as consumption goods? We may never know. Moreover, given the blatant empirical motivation of the three-factor model (and the fourfactor offspring of Carhart 1997), perhaps we should just view the model as an attempt to find a set of portfolios that span the mean-variance-efficient set and so can be used to describe expected returns on all assets and portfolios (Huberman and Kandel 1987).
Make sure you point out this passage next time you're forced to sit next to some boring mediocrity droning on about how everyone at Chicago naively and dogmatically assumes that markets are always efficient.

Gold, gold, gold.

(Via Marginal Revolution).

Wednesday, January 11, 2012

Walking Past Cemetries

One of the things I always enjoy in small towns (in Costa Rica, as elsewhere) is the presence of small town cemeteries. Cities for some reason always max out the economies of scale, and you end up with entire suburbs of massive grandiose graves that nobody but the mourners ever walk into, and few people walk past. But in small old towns, people tended to be buried near where they died. The cemeteries you see tend to be more modest, but more everyday. They're as likely to be in the middle of town, and you pass them by on any given day.

I think that there is a definite value in having people being exposed in a common, everyday fashion to the resting place of their ancestors. Reflecting on mortality tends to make people less petty, and focus more on what's important. Steve Jobs said as much. Mozart said that he thought about death every day, and it helped him write music.

But the average person in modern society is enormously insulated from death. A lot of adults have never seen a corpse. Two centuries ago, this would have been unthinkable - death was just part of the landscape. And if you think that a close-up acquaintance with a corpse is too grisly, graves represent a civilised middle ground - one can contemplate mortality at a more abstract level, and reflect on how one ought to live a life.
Let pride be taught by this rebuke,
How very mean a thing's a Duke;
From all his ill-got honours flung,
Turn'd to that dirt from whence he sprung.
-Jonathan Swift

You've Gotta Be Kidding Me

This photo was taken in a random bathroom in a diner.

To paraphrase Mark Steyn - if the assumptions that this sign makes about the average person are true, then America has become too stupid to survive.

Against Internet Pile-ons

One of the things I missed while I was away was the chance to comment in a timely fashion on this interesting piece by Ken at Popehat on the ethics of making people 'internet famous', as he puts it. I generally agree with a lot of what Ken writes about, so it's interesting when I find myself disagreeing on something.

Let me start with the opening part of Ken's post, and then jump around a bit:
For some time, I've been thinking and writing about this question: is it "fair," and "right," that if I act like a sufficiently notable choad on the internet, I may become instantly famous for it, and the consequences of that fame may follow me and have profound social implications?
I keep coming back to two answers: (1) yes, and (2) to quote Clint,deserve's got nothing to do with it.
Obviously the answer is going to depend on exactly what you did in the first place. But usually, what sort of things make somebody become 'internet famous'? Usually it's something like the following:
-Making a racist remark or video
-Saying something particularly mean or off-colour
-Writing an obtuse and inadvertantly funny email

In general, does that deserve having a lot of nasty web posts come up whenever someone googles your name?

Punishments can be fair in one of two ways.

The first is that the punishment is fair to that individual. Given John Smith did XYZ, is it fair to John Smith personally that he suffers the consequences?

The second is that the punishment is fair given the overall scale of the bad behavior that society is trying to deter and the overall costs of punishment.

To see the difference, think about medieval punishments for theft and highway robbery. The punishment for these was incredibly severe, and harsher than for a lot of other more gruesome crimes. But why? Getting robbed isn't that bad in the scheme of things.

The reason is the lack of enforcement. It was very difficult to catch highway robbers. Hence, when the King did catch one, he had to do horrible things to make an example out of them. This was the only way he could hope to deter crime, without a police force to do it for him. The individual punishment for that robber was surely not fair, but the overall social aim may have been worth it (or not. But it's not an indefensible proposition).

In the case of the generic 'guy acting like an @$$hole' and getting a whole ton of nasty internet posts, I think it's very rare that the actions are fair to him personally.

Ken disagrees:
Some people worry that the result is unduly harsh or unfair — that anyone can become a pariah because of "one mistake." I'm all for the concept of mercy, but I think that concern is misguided for a number of reasons. First and most importantly, the internet is manic and has a short attention span. You have to do something truly epic to go viral. One angry email won't do it unless it is so extreme that it reflects a disturbed mind. If you "just have a bad day," you'll slip into obscurity quickly. It takes talent, or sustained effort, to become internet famous. Consider the case of XXX of Brandlink Communications. Like Christoforo, he acted like an ass, and won a day or two, tops, of internet fame — but now he's slipping inexorably into deserved oblivion. And he's still employed. And it's only been six months, but if you say YYY, people will say "who?"
It's true that the internet has a short attention span. In terms of the number of people who will remember your name offhand, your internet fame will be short-lived. But the internet has an incredibly long memory. When people actually search for you, for whatever reason, they'll still find all the same stuff.  If you want to see the example of the YYY name above, see what searching for her name produces. You may not remember her name off the top of your head, but someone who searches for her is going to find that stuff for a long time to come. And that is what makes it unfair. The woman in question acted rudely on a train, and was caught on video. I confidently predict that the nasty web coverage will still be found by people searching for her name for a longer period of time than a person would serve a prison sentence for manslaughter.

Next, Ken argues that this doesn't matter, because everyone can make up their mind:
Finally, some argue that internet infamy can be "out of proportion" to the offense. Perhaps. But isn't that the call of every person who reads about your actions? People don't win instant internet notoriety based on third-hard accounts of conduct. They win it because they do something on video, or in writing, that's notable. If what they did really isn't that bad — if it's truly been blown out of proportion — then can't future readers determine that for themselves? There's more than a whiff of paternalism to the "blown out of proportion" concern — it seems to suggest that we ought not write about someone's misdeeds because future readers can't be trusted to assess their significance themselves. I disagree. ZZZ's future employers, employees, associates, and friends are perfectly capable of reading up on the situation and making up their own minds.
Sure, but there's still a huge selectivity. Every day, hundreds of millions act like rude d***heads in some situation or other. How many of those are likely to have all their future employers focusing on one bad specific incident in their lives, even if they do 'make up their own mind'. The argument seems to be 'hey, maybe they won't all punish you for it!'. But that doesn't speak to the selectivity of it all. There's still a sizable negative cost, and it gets applied in a very arbitrary and capricious way.

Okay, so maybe it's not fair to the individuals, but is it worth it overall? Ken argues yes:
For the last hundred years, people who care about such things have been complaining about the anonymity of modern life. People who used to live in small towns live in big cities, and people are turned towards television and globalized, homogenized culture rather than towards their neighborhood. One consequence is the ability to treat people badly — even in serial fashion — with relative impunity. It used to be that you'd get the reputation as the town drunk or the town letch, or the village idiot, and that reputation would follow you until you move on to another town. But now many people don't even know their neighbors, let alone their whole "town."
With respect to certain bad behavior, the internet can change that — it can transform you into the resident of an insular town of 300 million people.
But here's the meat of my objection - very few of the major cases of internet fame involve people actually doing anything, as opposed to merely saying something.

And I take a strong stand that mean words on their own just aren't a big deal. Unless you're actively inciting criminal behaviour, words don't matter that much. Make a really mean comment about Trig Palin? Post a racist video on the internet? That makes you an @$$hole. Know what else makes you an @$$hole. Littering. Cutting people off in traffic. Peeing on the seat in a public toilet and not wiping it up. And a million other things that we don't get the vapours about, even though I don't want to associate with people who do them regularly. Rudeness is never going to be eliminated, and I suggest that you may well not actually enjoy living in a society where it had been. It would certainly be a lot more boring.

For the most part, the tendency towards internet pile-ons is associated with a more pernicious trend - sympathetic offense. That remark wasn't directed at me, but I'm going to be outraged on behalf of somebody else, even if that someone else isn't personally offended. This of course leads to what John Derbyshire memorably described as the 'evolution towards the ever thinner-skinned'. Here at Shylock Holmes HQ, we are proud to fight against this trend.

What I don't like about internet pile-ons is the sense of gleeful indignant rage they involve. The people piling on usually are really enjoying laying the boot into someone, assured of their own righteousness.

And that is always an ugly emotion to watch when spread across a mob, even if just an internet mob.

I respectfully dissent.

Monday, January 9, 2012

Costa Rica

At long last, back to the keyboard!

A few random thoughts from Costa Rica:

- I've never been in a place where the speed limits on highways change so frequently. The base will be 80 km/h, but at the first sign of any human activity, it will first change to 60 km/h, then to 40 km/h (!!!). Even when there's scarcely any sign of human activity, and the road is completely straight. Apparently this is all in accordance with the 'All Speed Limits Must Be In Multiples of Twenty Act of 2004'.

- Related to the above, I got pulled over by a traffic cop at one point, notwithstanding that I was going the same speed as everyone else. Sure enough, it was going to cost me a fine of US$600 to be paid at the bank if he wrote up the ticket formally, but if I paid the ticket in cash right now it would only cost me $100. After such a sum changed hands, he was quite friendly. Moral of the story - if you look like you're shake-down-able, carry cash.

- Apparently in Costa Rica, they abolished the military altogether in 1948! Bizarre. The whole country thus seems to be a strong violation of Ralph Waldo Emerson's observation that "nature has made up her mind that what cannot defend itself shall not be defended."

- A guidebook description like 'awesome volcano where you sometimes see lava flows, located right next to scenic cloud forest' has a tendency in reality to resemble 'base of a hill-like structure covered in impenetrable clouds which they won't let you approach'.

- I spent New Years Eve in a beach town called Montezuma. Apparently Costa Rica has a very relaxed approach to liquor licensing, viz in practice anyone can drink anything anywhere. The bar I was at had a lot of teenagers who looked about 15, and two girls walking around who were clearly no more than 12. It's kind of jarring to see them in a bar drinking, but sure enough the world didn't fall apart. The bouncers were only concerned if you were starting a fight or throwing up somewhere, and had zero interest in who was entering or leaving, whether you were taking your drink out to the beach. In other words, exactly the kinds of voluntary transactions that people engage in when free of government interference! The lady who ran my hotel was saying that on the Nicoya peninsula, there aren't any traffic cops, so most people don't have proper licenses, and she once saw an eight-year-old driving a pickup truck.

- The combination of warm water and good surf beaches is hard to beat. If Hawaii weren't so far away, I imagine it would be a massively populated area. I imagine in time it probably will be anyway.

Tuesday, January 3, 2012

"No Substitutions"

Are there any restaurant policies more obnoxious than the 'No Substitutions' written on a menu? It seems that every wannabe hipster place now decides that they care so much about their craft that they can't possibly let you ruin that burger by adding bacon or changing the cheese it comes with.

And that's usually what it is, too. It's not like these are Cordon Bleu trained chefs with such a passion for their food being served in the correct way that they'd rather lose you as a customer than alter the dish that took them 5 years to perfect. No, more likely it's a god damn panini, and they won't substitute cheddar cheese for Swiss. Would this breach the conventions of the Sacred International Brotherhood of Bread-Toasters?

There's only a couple of possible explanations for this, and they're all bad.

One is that everything is made in advance, and thus they can't change it. Unless it's pulled pork that's been cooked for hours or a sauce prepared in advance, I doubt it. And when that's the case, usually they'll just tell you for that one item, it won't be written on the menu.

Two is that they steadfastly refuse to spend more than 45 seconds preparing your particular panini, and it would be a huge hassle to fetch the other cheese. A variant of this is that the store is run by obsessively cheap @$$holes who are worried that customers are going to come in and request 'Would I be able to substitute the cheez whiz for some beluga caviar instead?', thereby blowing out the profit margin.

This is weak, because there's a much simpler solution - charge them for it. If it's a hassle? If the new ingredient costs more? Add a buck to the price, or whatever it takes for you to profitably do the thing they're asking. That will quickly determine which customers really want it. Hint, if I'm asking, that's me.

Three, and I imagine most likely, is just that they're giant hipster douchebags with a carrot up their @$$ about how good their food is. I once knew a trendy pub place where the only burger they served had blue cheese on it. And they would actually refuse people that asked for different cheese. Yeah, way to be a purist about a type of cheese that lots of people really don't like. What happened to 'the customer is always right', knob-jockeys?

Four, (and this is the most charitable explanation) is that the owners just got sick of dealing with annoying customers wanting twenty-thousand things done to their sandwich. Look, I hate being in line behind these folks too. But that's why it's called a customer service profession. Your job exists partly to kiss the butt of whichever clown comes in wanting to buy your stuff. At the point that you're unwilling to do that, you're in the wrong profession.

I broadly stopped going to these places. Frankly it's very rare that I want to change an item, but these notices just give me the scours. Clearly you turkeys are too good for my low-brow dollars! I'll just have to take them elsewhere.