Thursday, February 27, 2014

Everybody Talks

Listening to a recent Freakonomics Radio episode about gossip got me thinking about journalism and the perhaps unintended role it plays or has played in regulating society some. In the episode we first hear about research by Thomas Corley summarized in his book "Rich Habits" that showed the behavior differences between rich people and poor people. One of the differences he found was that the rich gossip significantly less than the poor. However, the rest of the episode tends to dispute that finding.

What stood out to me was how necessary the role of gossip seems to be for many aspects of society (e.g., norm setting and regulation) and how differently we approach and are affected by gossip. It doesn't seem at all unlikely to me that the wealthy would have different gossip habits and methods than the poor. The rich have different tools--namely, they have journalism. Or at least they had it until those crazy kids started TweetBooking everything.

Here is a theory that probably isn't original to me. I am not completely sold on it myself; it's just a hunch that I think at least partially explains what we've seen.

The rich and powerful have traditionally exerted a lot of control and influence over news media. This part is not in dispute. The creation and growth of news media served two primary purposes: 1) it had an informative value (stock reports, political actions, etc.) and 2) it had an entertainment value (local celebrity news, sports, etc.). But the problem is aside from the cut and dried factual reporting like the price of wheat or the winner of the mayor's race, most news reports have some damaging aspect to them that someone would like to keep quiet. These could range political corruption to a juicy, high-profile divorce to, well, the price of wheat for the guy who is trying to buy at a market discount. When we get down to it, the fact that we have journalism and that the rich and powerful put up with it seems a bit of a puzzle.

So what explains journalism as we know it--journalism that reports the good, the bad, and the ugly for the most part about both the rich and the poor? I think game theory offers a solution. The idea is that journalism is a necessary evil. Basically the job description was artificially created because the role was needed more than it was wanted. This puts it at odds with the idea that journalists are noble superheroes with special investigative and truth-finding powers striving to do good--journalists aren't that special, just don't tell them that. Rather it is as if the rich sat down and played a quick game of MAD where they realized they needed a controlled outlet to realize the informative value and entertainment value of journalism but not have chaotic reporting where the message cannot be controlled. What's more journalism offers what I would call auditor-caused moral hazard--if the auditor doesn't catch it or correct it, then it must be okay. That is a useful if unintentional purpose.

Of course there was not some secret meeting on Jekyll Island where journalism was launched, and the early twentieth century's muckraking shows how different the market for journalism can play out than what the rich and powerful might otherwise like. However, it was some of the rich and powerful on the production side of muckraking. So, no; journalism was not centrally planned or created in the last 200 years. It is a very long-run emergent order. Yet being emergent does not preclude it from my game theory theory or isolate it from powerful guiding influences. I think that my theory well explains how it was nurtured and shaped. Or perhaps captured is the better term. When journalism emerges as powerful enough to threaten the elite, the elite appropriate it for themselves.

With some ebb and flow between a more pure journalism and a more controlled journalism, this all is going along nicely until the Internet comes along. Then chaos. The Internet causes major disruptions to this order by commoditizing the tools of journalism with blogging, smartphones, et al. flattening the business model. The elite did not have this in mind. If the journalists are "us", and all of us at that, then we, elites and all, have to be more honest. We can't control the message or information--at least that control is very greatly weakened. Journalism before served a purpose to tell a story, a version of the truth, to the masses as a few saw fit. Now journalism is telling many stories, many versions of the truth including many with higher truth value than before, to varying numbers of consumers as many see fit. And it is deeper than that. The story isn't so one directional. It is more and more a conversation.

The quickest way to wreck a game theory optimal solution is to change a premise. The Internet is just such a change to the game theoretic outcome that journalism had been for so long.

Tuesday, February 25, 2014

Highly linkable - on high-minded steriods

I want to go to there. And while we're at it, here too.

So let's talk about misled people doing selfish things. But perhaps it is not as bad as it seems.

Here is a different example of the same kind of high-minded nonsense as above. I particularly like the quote: "It’s time for the altruists to get over themselves. We cannot afford the price of their convictions."

The high-minded Fed controls interest rates, right? Wrong.

Just how bad are the effects of rent control--one of many forms of high-minded real estate planning? Maybe to the tune of about $1 billion dollars on a $3 billion neighborhood. Dr. Evil would be proud.

Lenin was a prohibitionist!?! Shocking . . . well, no; that makes sense. He was high-minded enough to want to help every aspect of Russian life.

Speaking of turn of the 20th century garbage, apparently my Spidey Sense was correct when it picked up on something rotten in Downton. The George Will piece quoted in the previous link deserves its own link. Still a good show; let's just not romanticize how hard life was for most everyone in prior generations.

Enough negative stuff, for the moment. Let's think about a cool new business idea. While we're at it, let's think about how fabulously wealthy cool new business ideas continue to make us.

Okay, moment's over. You know, college football isn't a business; hey, stop laughing! Like all NCAA sports, it is about pure amateurism.

Sticking with sports, I think I am being consistent when I believe both (1) that Oklahoma State's Marcus Smart was potentially justified in pushing a Texas Tech fan (if the fan had been injured and I was on a jury, I would be giving heavy consideration to a self-defense argument in favor of Smart) and (2) people in public (state-owned) spaces or attending official-state-functions have wide latitude to say nearly whatever they want in the act of cheering. The First Amendment doesn't have a carve-out exemption for your or my high-minded respectfulness or proper etiquette. You don't like cussing, hatefulness, and otherwise ugly slurs coming from the crowd? Quit funding sports arenas and sports teams with taxpayer money.

When it comes to sports and high-mindedness, you don't get any higher than the Olympics. And you'd have to be high not to see through the veil of virtue and right into the corruption, state run-amok wastefulness, and panglossian denial of oppression that is the Olympic gathering. I very much like the stories of so many of the athletes. I like the history of competition. I detest the desire to pretend there hasn't been and doesn't continue to be intense nationalism (an illogical and evil conception) at the heart of The Games. Don't get me wrong. I root for Team USA, but I also root for others. These sports aren't my sports, and some aren't even sports. These are interesting curiosities that viewing for just a few moments will satisfy my interest for four years at least. But if you're really into it, great! Just don't tell me we are obligated to root for our country. And don't tell me it is "us" versus "them". And PUH-LEASE don't tell me how great The Olympics are for world peace, the economy, or NBC ratings.

Saving the best for last, Megan McArdle busts the high-minded bubble of paint-by-numbers educational excellence cum success. "Let your kids fail!" is perhaps the best advice one can give a parent.

Tuesday, February 18, 2014

I'm Gonna Hire You As My Latex Salesman?

I recently returned to my MBA school as a volunteer helping conduct mock interviews. The interview process at the MBA level is fairly grueling. As such, programs hope to give their graduates every advantage which primarily comes from experience. Unlike most college graduates striking out with a bachelor's degree, MBA students generally have some professional experience and in some cases quite a bit. They are hard driven people who take the process seriously.

I was happy to accommodate. But unlike the position they found themselves, highly stressed, I was totally relaxed. They had just finished a final exam that day and were now facing a potential future employer who will both grade their performance and report back to the career services staff as to how capable I feel they are as a candidate which may affect the opportunities put in front of them. I gave an honest effort to put them through the paces and provide constructive feedback. They did very well--much better than I ever did when I went through the program.

Knowing what the process was going to be, this was my fourth time to conduct mock interviews, I thought wouldn't it be fun to give the candidates absurd questions to see how they handled them. They desperately want to succeed in the interview, which means giving a convincing and meaningful answer in a confident manner. I challenged myself and some drinking buddies to come up with the most ridiculous questions we could short of the truly offensive (that would be too easy). Here is the output of our creative effort. (Note: I did not actually use any of these questions in the mock interviews, but I kind of wish I had.)

Mock Interview Questions for MBA Candidates:

Pretend you are a salesperson and convince me to purchase your soul.

Tell me what you regard as your greatest strength, so I will know how best to undermine you; tell me of your greatest fear, so I will know which I must force you to face; tell me what you cherish most, so I will know what to take from you; and tell me what you crave, so that I might deny you.*

What is the most offensive question I could ask you?

As we go through the rest of this interview I would like for you to answer each of the questions alternating between a Queen's Standard English accent and a Cockney British accent.

Solve this puzzle: There are three strands of string of varying lengths each of a different color (red, blue, and yellow) in a sealed box. You can pull only two of the strands out to compare those two for length. There is a wise man who knows the lengths of all three, but you can only ask him two questions. The questions can only be answered yes or no and he lies every fourth time he is asked a question. You are in a long line of people asking him questions about many topics and you cannot hear the other questions but you can hear the answers. You have the option to make one cut of the strand you do not pull from the box to measure making it two pieces. Describe how you can definitely determine that the red strand is longest. You have 30 seconds. Go!

Would you rather be stranded on an island where after a couple months you eventually die or wrongfully imprisoned in a maximum security facility in a foreign country where you don't speak the language and you eventually die after 20 years?

Thinking about employee morale, which is definitively more appropriate: enjoyment or pleasure?

What are three reasons Mickey Mouse would be your ideal supervisor?

Could you fire your own mother if I promised you a small bonus to do it.

Fart for me just once.

If you were to put $1 into a vending machine to purchase a $.50 item and both the item and the change dropped down to separate bins at the same time, which would you pick up first and why? I expect a thorough answer.

How big a bubble can you blow?

Describe your first haircut.

Pantomime your favorite textbook.

Give me you most fake, fake laugh.

If you were an NFL player, what are three reasons you would resent and two reasons you would not resent Major League Baseball mascots.

What is your favorite shape and why isn't your favorite shape a triangle?

Describe your ideal workday that ends with you being fired.

Give me directions to a place you've never been and don't otherwise know where it is located.

Imagine you had a twin. Now convince me I should not hire your twin.

Name seven competitive advantages of toothpicks as compared to toothfaires.

If you were to add an eighth deadly sin, what would it be?

Give my shoes a backhanded compliment.

Why didn't you bring me a gift today?

*From Darth Plagueis 

Wednesday, February 12, 2014

Partial List time . . .

As you may remember, I am fond of partial lists. Here below is another.

Partial list of tasks that life is too short for/my time is too valuable to use it doing these things.

  • Checkbook and credit card reconciling
  • Seeking out cheap gasoline
  • Regularly flossing
  • Watching the local TV news
  • Voting
  • Ironing (This includes owning dress shirts that require ironing; wrinkle-free makes ironing or paying for laundry ironing ridiculous.)
  • Finishing books that have lost my interest
  • Sending out Christmas cards
  • Painting my house interior or exterior
  • Some cooking--the complexity, skill required, or mess created imply outsourcing is the right call
  • Clipping grocery coupons (any level of search costs negate the potential savings)
  • Household recycling
PS. This may be the year that mowing the yard goes on this list. I am close. I enjoy it or at least I like that I do a good job on it. Summoning my inner economist . . . we'll see. 

Highly linkable

Let us begin with some stunning photographs that should help to put all of our little problems into some better perspective.

Speaking of perspective, Scott Sumner shows in this post how subtle the relationship is between interest rates and the Fed with implications for monetary policy, et al.

And Arnold Kling has a different perspective on how Austrian macroeconomics should be framed. I agree, and I think there is more agreement between Kling's macro views and Sumner's macro views than I think either of them believe.

New thinking needs to kill the TV news star according to Jeff Jarvis as his perspective has him as mad as hell about TV news. I agree, and I'm not gonna take it any more . . . see the next post.

Sunday, February 9, 2014

Crime and Punishment, Law and Order, Optimal Rulebreaking

From Advanced NFL Stats:
Last week a WSJ article about the Seahawks' defensive backs claimed that they "obstruct and foul opposing receivers on practically every play."  I took a deeper look in to the numbers and found that as long as referees are reluctant to throw flags on the defense in pass coverage (as claimed in the article), holding the receiver is a very efficient defensive strategy despite the risk of being penalized.
That is from a guest post by Gary Montry, a professional applied mathematician. The article is very interesting, but gets a little deep into the statistics beyond the points I want to discuss here. Nevertheless, it is a rewarding read that I encourage including being as Brian Burke puts it, "a great refresher on conditional probabilities and Bayes' theorem".

The article made me think a little about how economic efficiency many times runs counter to our intuition and ideals when it comes to wrongdoing. Novices often get confused by the fact that the economically optimal level of pollution, crime, et al. is not at all zero. It is not that a certain level of pollution is a pure good or that some amount of crime is desirable in an absolute sense--these are still and always "bads" rather than "goods". It is just that at some point the benefit of eliminating the next (aka, marginal unit of) crime or amount of pollution is not worth the cost. At that point we tolerate the "bad". Fortunately, economic progress implies that the cost curve for fighting problems is ever declining.

Tying this back to the article, the question is how could the rules or enforcement be restructured so that this manipulation, which is arguably against the spirit as well as the letter of the law of the game, is corrected or reduced. Howard Wasserman's new paper on Football and the Infield Fly Rule, which is on my to-read list, may offer some help here. The paper is an exploration of how some football situations may imply and incite behavior that is counter to the spirit of the game and sportsmanship. I don't expect him to address this specific issue, but I do expect the analysis to offer some help in situations such as this.

The article also got me thinking about how my neighborhood's HOA is considering instituting fines for uncorrected violations of the neighborhood's covenants. At issue mainly is roof-mounted satellite dishes that are visible from the street--because we all know that things like this "obviously" lower property values by "a lot" (economic research forthcoming I'm sure). Here are some of my concerns assuming we even have the authority as an HOA to do this and assuming (a BIG assumption) the covenants are optimal as written:

  • Will the punishment (fine) fit the crime? How would we know? If the fine is set so that the behavior is undoubtedly discontinued, we've probably set it too high. If the fine is always paid with no change in behavior, it is not necessarily but could be too low. In fact the optimal fine probably has some of the violations corrected and some continued. But the same people who roll their eyes when economists say we want some level of pollution to continue probably roll their eyes in uproar to think that the neighbor gets to just pay a pittance to continue their property-value-destroying activity. Mrs. Kravitz would be shocked!
  • Do we set the fine equal for all violations (that is the proposal on the table)? Is parking a trailer or a boat for "long periods" in a driveway equal to satellite dishes being visible and equal to trash cans out of compliance and equal to dead trees not removed or not replaced by the right kind/size of tree etc.? It seems the answer to the second question is most likely "no", which implies the problems of getting the fines right is growing in magnitude.
  • Do we really want the reputation as the neighborhood who runs around assessing fines on one another? Is that property value maximizing? The list and litany of compliance violations came out a bit during the recent HOA meeting. The implication seemed to fall on deaf ears.
  • Have we given up on neighborly persuasion? Can't we all just get along? 
Rule making and rule enforcing are endeavors fraught with unintended consequences. Just desires and outcomes are almost always highly debatable and are always evolving. Simplier is usually better. Persuasion is generally preferred to force. Tread lightly. 

PS. I knew I was in trouble when the HOA asked if the trees I had planted were "free-range" or "farmed". 

Sunday, February 2, 2014

Highly linkable

We live in a world that changes faster than it used to by orders of magnitude. One near-term example of this is pointed out by Mark Perry where he references a recent article about how much more turnover (demonstrated in terms of shorter average longevity) there is in the S&P 500.

I've been catching up on Bryan Caplan--now you can too:

  • He does a better job than I did a while back explaining the economic concept of the value of a statistical life. 
  • War, huh, good God, y'all . . . absolutely nothing.
  • And now I want him to address the counter to this, which would be: I'm too busy feeding my family to fight tyranny. I suspect that is something many hide behind including those of us in the first world myself included. Think of it in terms of this: I'm too busy enjoying my status as wealthiest humans in history to allow an open borders policy that would enable many, many others to enjoy this as well.

Scott Sumner lays out a great survey on how income inequality is a normal phenomenon that confuses the issue and should be largely ignored.

One mark of an organization about to meet its demise is it opposes changes that are good compromises between what it unrealistically wants (to continue the good times it had in the past) and what it ultimately might get (utter destruction). Perhaps that is at play right now with the NCAA.

One thing Don Boudreaux will not find in the Sears Wish List of 1982 is a time machine that would lock anyone into staying in that state of the world--thank God. That would have been a very bad mistake.

Perhaps Oklahoma will ironically lead the nation out of the government sanctioning of marriage problem.

17 equations that changed humanity. One thing that stood out to me was how misapplications of these or of other equations that then led to some of these took humanity down side roads. Newton's physical equations needed refinement for relativity and quantum mechanics. The normal distribution probably doesn't apply to many areas of asset price behavior and economic change that it is today used for including from later in the list the Black Scholes pricing model. Wish I knew more math . . .

I will be rooting for the local chaps in the upcoming sportsball contest. (HT: Tyler Cowen)

School's out forever! I was just thinking about this (original story link here). I'd like to see it charted over time. I think it would show an increasing propensity to cancel school due to inclimate weather. But this is not a "we're getting soft" effect. Rather I believe it is a wealth effect. As we grow wealthier, we have both the means and the desire to avoid getting out in risky weather. Notice that this would be a cancelling effect against the opposing wealth effect that more wealth means more ability to cope with bad weather. The dominating effect in my hypothesis is akin to putting kids in bike helmets. Biking isn't inherently riskier for kids today; in fact, it is most likely less risky. But it is relatively more costly--that is, the benefit from a helmet to reduce expected cost from an accident on a bike is significantly higher than in the past and sufficiently high enough to justify the helmet expense (cost of buying and cost of wearing).