March 2006 Archives

The Variability of Organ Weights

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Not about economics, but interesting nonetheless to those who think economic data are too variable to be of much use: Weights of Human Organs at Autopsy in Chandigarh Zone of North-West India. A selection from the table:


The abstract:

Mean organ weights in 2025 subjects who died and autopsied at Postgraduate Institute of Medical Education and Research, Chandigarh revealed that they in general were heavier than reported from otherparts of India. Various organs continued to attain their maximum weight up to 40-50 years of age.
For men over 20 years, the coefficient of variation seems to much lower for the brain than for the heart, lungs, etc. However, the size of the prostate is measured at more than 60 grams for adults, when Merck tells me it should be about 20 and other information tells me it should max out at a little over 30. There's a confounding element at work here, somewhere -- especially since the accuracy of these data points are supposed to be pretty solid:
After removing the extraneous tissues and draining of the blood, each organ was weighed on electronic weighing machine having the accuracy of ± 0.1gram.
What am I missing here?

Public Awareness of Simple Maths


Well, I know statistics combinatorics is a hard subject for many people -- odds and probabilities and all that -- but a reporter at The New York Times should not need to contact a mathematician to perform simple division.

In's 2006 Men's College Basketball Tournament Challenge, Pleasant had one of the four entries among three million with U.C.L.A., Louisiana State, Florida and George Mason in the Final Four.
Could you rephrase that, please?
Mike Breen, a mathematician ["public awareness officer"] at the American Mathematical Society in Providence, R.I., said the chances of correctly picking the Final Four in's contest this year were about 1 in 750,000.
Is there a rule at the Times that a reporter must have simple calculations performed by an outside authority? In defense of Mr. Breen, I gather that his full comments were far more substantive than what was quoted.

Latin American Economies- Destiny or Choice

“How many numerical indicators would have to be created in order to let us realize that we are getting closer to solve the poverty problem?”- question put to a World Bank economist discussing a report on Latin American poverty (Poverty Reduction and Growth: Virtuous and Vicious Circles).

The report points out that ‘Latin America needs to cut poverty to boost growth’;

Two of their main conclusions are a breakthrough for the bank: that private-sector growth is not a panacea for the poor and that inequality must be targeted directly. A third conclusion is almost heretical for the bank: that the state needs to take on more responsibility rather than less. "Converting the state into an agent that promotes equality of opportunities and practices efficient redistribution is, perhaps, the most critical challenge Latin America faces in implementing better policies that simultaneously stimulate growth and reduce inequality and poverty," the report says.

Some statistics from the report;



Mickey Kaus has an excellent discussion of how the immigration issue may play out this year. Though it is only speculation, it seems to lay out the best course politically for Republicans to play. A big problem, of course, is that it still leaves unresolved the issue of 12 million people here in this country illegally. My guess would be that some sort of amnesty is included in any final bill.

The immigration issue seems to have come to a boiling point this year for whatever reason. I guess credit should be given to Tom Tancredo for raising the issue. I have my disagreements with the anti-immigration movement, mainly that I'm for immigration and I think large numbers of immigrants can be assimilated. However, I don't disagree that we should control the borders more forcefully. There is, of course, the issue of rewarding those who did come here illegally to stay. Many on the right would throw them out just for that reason, but I would say that just because somebody does break the law doesn't mean that the most extreme punishment should be used. It has been 20 years since the last amnesty and I don't see where this country has gone to hell. Quite the contrary, the last 25 years have been fairly extraordinary.

The issue is quite complex with many books written about the issue. To try and step into the economics of it is just as difficult. I'm not even going to try and debate the famous line "there are some jobs Americans won't do." If you disagree, you're more than welcome to try and debate my family members at the next reunion. But as I've said, immigration is consistent with free markets and free people.

New Industrial Relations Laws

What is to some people the apocalypse, Australia is implementing new industrial relations laws today. In contrast to the very minor change in France, these changes seem to roll back a fair amount of regulation. Of course, the unions are doing their best to scare the bejeezus out of everybody:

But Qantas engineer Surace worries the union's industrial arsenal will be limited come Monday. Surace, an Australian Workers Union delegate from West Preston, is engaged to be married but now he does not know if he can afford a home. "Now I'm in another situation where I don't know if six months down the track I'm going to have a job or not. I can't plan my future. I have to wait six months before I can take a loan. How can I go out and buy a house today?"
My favorite excerpt is this one from the SMH:

Mr Blake says nurses are generally reluctant to strike, in any event.

"What they will do is leave. They'll go down the road and find someone who'll offer them more money," he says.

The Government has not only put a powerful new weapon in the hands of employers, but provided a commercial incentive for them to use it. If any employer wins a commercial advantage over its competition by cutting labour costs using the new laws, the competition will have to follow suit.

Interesting concept. Even more surprising is that Mr. Blake is the federal industrial officer with the Australian Nursing Federation.

Darwin’s Nightmare

Evolutionary biology works in mysterious ways in affecting economic outcomes. Look at the following paper on the effect of orphanhood in a poor region of Tanzania ;

“This paper provides unique evidence on the long-term impact of orphanhood in a region of Tanzania, near Lake Victoria in an area ravaged by HIVAIDS….

We find significant permanent effects. Children who become maternal orphans before the age of 15 are 2 cm shorter in adulthood than similar children whose mother did not die during this age interval, representing 22 percent of one standard deviation of height in the sample. We also find that maternal and paternal orphanhood results in substantially lower educational attainment, each lowering years of education by adulthood by about a quarter of one standard deviation of educational attainment in the sample…”

In another study Estho Duflo finds peculiar evidence related to health outcomes of children living with grandmothers;

As if you couldn't tell, I'm spending a good portion of my morning on literature searches on a couple of topics, so I keep running across papers that I wish I had more time to read.

For instance, here's a paper from Russel Beale at the University of Birmingham on "Improving Internet Interaction" (PDF). In essence, the paper describes a project to help improve the act of browsing the internet by enriching what I would call the "information content" of links to other pages. Based on an analysis of the pages you've browsed in the past (recent history files), an agent searches ahead through the links on the currently viewed page and determines which are of potentially greater or lesser interest (to oversimplify, it does so through matching keywords culled from your history with those on the linked pages). The level of potential interest is then communicated to the user through link coloring and DHTML interfaces (alt-tag like boxes that appear when hovering on a link).

Beale breaks up internet use into three broad categories -- search, browse, monitor (like refreshing, say, Fark) -- and then focuses on browsing. The results are interesting, and make me want to get my hands on the program to try it out. Though, despite Beale's comments that better and more sophisticated search tools are being addressed "elsewhere" (I think that's "academic speak" for "someone else has a really good paper right now"), the usefulness of the tool for search seems obvious. Incorporating a ranking function as well as context-sensitive procedures --ranking as more important words found in a downloaded PDF vs. those that I skipped; increasing the importance of words on pages I spend more time on, or from domains I viewed a lot of pages in; and so on -- would almost guarantee that I'd fire the program up frequently. Of course, there's a good chance Beale's way ahead of me on that. I tend to be far behind the curve on these things.

In the meantime, it's back to guessing keywords and plowing through the rather haphazard Google Scholar.

Just a quick pointer to an article that's going to be near the top of my to-read pile once I get my hands on it.

Evolution in group-structured populations can resolve the tragedy of the commons


Public goods are the key features of all human societies and are also important in many animal societies. Collaborative hunting and collective defence are but two examples of public goods that have played a crucial role in the development of human societies and still play an important role in many animal societies. Public goods allow societies composed largely of cooperators to outperform societies composed mainly of non-cooperators. However, public goods also provide an incentive for individuals to be selfish by benefiting from the public good without contributing to it. This is the essential paradox of cooperation—known variously as the Tragedy of the Commons, Multi-person Prisoner's Dilemma or Social Dilemma. Here, we show that a new model for evolution in group-structured populations provides a simple and effective mechanism for the emergence and maintenance of cooperation in such a social dilemma. This model does not depend on kin selection, direct or indirect reciprocity, punishment, optional participation or trait-group selection. Since this mechanism depends only on population dynamics and requires no cognitive abilities on the part of the agents concerned, it potentially applies to organisms at all levels of complexity.

And for those of you with some programming interests, they also include a link to the source code for their evolutionary model (PDF).

Lockboxes as Anecdotal Indicators


What's a leading indicator? It's a data series that can be used to reliably predict the future movement of another. But informal data and anecdotes can be just as sensible and accurate as formal leading indicators.

For example, to measure the strength of current housing markets, people are noting the year-to-year increase in inventory, the relative decrease in price growth or a decrese in prices, etc.

But the most powerful indicator might very well be the return of highly visible clusters of lockboxes outside of condominium buildings. (w/ pic goodness).

I know I know... it's very difficult to come up with a good answer when someone asks you why you've been absent a whole YEAR! Oh well, I'll just skip that one, and say hello all over again!

I just got back from a week long teaching session in Syria for the Central Bank of Syria and LSE. I got to teach 30 up and coming stars at the bank introductory monetary policy and tried to bring them up to speed with things that are going on in central banks around the world. While that itself was a mundane chore, visiting Syria was incredibly amazing, paradise almost. I will save that for my next post, but hopefully you won't have to wait a year for that... perhaps just under a week!

Wisdom of Crowds, Rodent Edition


Hey, three's a crowd, right?

Female mice apparantly prefer male mice that have the scent of another female mouse when undertaking mate selection. The scientists conjecture that the scent of another female mouse on a male mouse works as a form of information delivery on the fitness of the mate. That is, if another female found the male suitable, the new female increases her belief that the male will be a fit mate for her. Peer approval is important in assessing fitness.

That one female's choice of mate could influence the choices of other females is well documented in birds and fish, but had not been documented for any mammalian species. Pfaff says that the female mice's mate preference was so strong that they even preferred the combined male/female scent when it was tainted with the scent of infectious parasites, opting for that over the scent of a healthy lone male.

"Male odors can provide female mice with information on their quality, condition, health and suitability as a potential mate," says Pfaff. "This type of 'public information' uses cues inadvertently provided by an individual, such as odor, which others observe use to make decisions such as mate choice, food location, or presence of danger. Specifically in birds and fish, 'public information' has been shown play a role in when and what to eat and with whom to mate with, but its use in mate choice has not been seen in mammals."

Ever notice that some people have significant others fairly routinely, while others go for long spells without? Could it be that the social habits of those with dry spells provide for less chances to have third parties see them in the presence of a potential next-signifcant other? Does the smell wear off over time?

Via ScienceBlog

Excessive Anti-Corruption Drive Hurting the Economy?

Sebastian Mallaby in his book, The World’s Banker, narrates an anecdote about a discussion with Wolfensohn, Indonesia’s former dictator Suharto and Zhu Rongji, Chinese vice premier (emphasis mine);

Suharto was talking to Zhu, and he summoned Wolfensohn over; and then he broached the subject of corruption. The latest corruption rankings produced by a watchdog group called Transparency International were most upsetting, Suharto declared, for they rated Indonesia as less corrupt than China; he had been happier with the previous year’s results, which had recognized his own country as the more energetic embezzler. Zhu looked visibly annoyed, but Suharto carried on. “Don’t you think we should tell the president of the World Bank about corruption in this part of the world?” he asked Zhu, who maintained a stony reticence. The Suharto looked at Wolfensohn. “You know, what you regard as corruption in your part of the world, we regard as family values.”

Suharto’s family values resulted in the embezzling of 15-35 billion dollars from state coffers. The country has come a long way and the government appears a little bit over-zealous nowadays in dealing with corruption. When tsunami struck in Aceh the governor of that province was in jail and was sentenced later to 10 years for the corrupt purchase of a helicopter in 2001.

With the possible exception of prostitution, teaching is the only profession that has had absolutely no advance in productivity, in the 2400 years since Socrates taught the youth of Athens.”
- Richard Vedder, in a lecture discussing the performance of the US economy.

I was astonished after watching the ABC documentary, ‘Stupid in America: How Lack of Choice Cheats Our Kids Out of Good Education’- especially the flow chart showing the processes needed to fire a union teacher (hat tip: Thinking on the Margin). That being said we come to the third paradox of our series;

Entertainers and sports stars earn million dollar annual incomes while the very best teachers earn considerably less. Were a survey to be taken almost all people will agree that ‘education is more important than entertainment’. Are then teachers underpaid?

IMF worried about the US Fiscal Policy


The Japanese Deputy Managing Director of IMF is worried about global imbalances;

"Regarding risks and vulnerabilities, the IMF sees the widening global imbalances as a substantial risk to global growth. The current equilibrium is unstable, as it rests on the capacity of the United States to continue to attract foreign savings. Foreign investors may become unwilling to hold increasing amounts of U.S. financial assets and demand higher interest rates, especially if Asian countries recover from the investment drought that they have experienced since the Asian crisis. A depreciation of the U.S. dollar may be necessary to induce U.S. domestic demand to contract. However, if this or other adjustments occur abruptly, it could cause a slowdown in demand and output, as well as financial market disruptions, at the global level.

Therefore, the IMF has underscored the urgent need to use the current favorable environment to address vulnerabilities arising from growing imbalances. It has repeatedly called for coordinated multilateral policy actions to help bring about a gradual and orderly unwinding of those imbalances—unfortunately, there has been at best a limited progress to date. Action is needed in all the main blocs, including (i) tighter fiscal policy in the U.S.; (ii) greater exchange rate flexibility in Asia; and (iii) structural reforms to improve productivity and medium-term fiscal sustainability in Europe and Japan. High and volatile oil prices are likely to complicate the adjustment, so IMF advice has focused on the appropriate policy response."

Mankiw, author of most popular economics principles textbook, in his resignation letter from the Chairman of the Council of Economic Advisors praises the fiscal policy of the administration he served;

Working at Playing

Nick Yee is a PhD student at Stanford's Communication Department. One of his articles has just appeared in the new issue of Games and Culture magazine, titled "The Labor Of Fun" (PDF - from Yee's own site). In it he addresses the apparent "blurring" of the lines between what we traditionally consider labor and entertainment.

Does this sound like your idea of fun?

Pharmaceutical manufacturing is one of many possible career choices in the game Star Wars Galaxies. Some other career choices include: bio-engineering, architecture, fashion design and cooking. Third-party career planning tools are available for the undecided1. Pharmaceutical manufacturers create their products by combining raw resources. These raw resources, such as chemicals or minerals, must be located using geological surveying tools and harvested using installations bought from other players skilled in industrial architecture. Resource gathering is a time-consuming process that involves traveling and constant maintenance. Typically, pharmaceutical manufacturers rely on dedicated resource brokers instead. The attributes of the final product (i.e., duration vs. potency) depend on the attributes of the resources used, however, resources vary in quality, accessibility and availability. Thus, manufacturers must decide which products take the most advantage of the resources available to them and must also take into account the demands of the market.

Raw resources are converted into subcomponents and final products using factories2 (also provided by player architects). Mass production introduces a constant supply-chain management problem and manufacturers must ensure a steady supply of needed resources in the correct proportions. With final products in hand, manufacturers now face the most difficult problem - each other. In Star Wars Galaxies, everything that is bought or sold has to be bought or sold by another player. The game economy is entirely player-driven. Manufacturers must decide how broad or narrow their product line should be, how to price and brand their products, where and how much to spend on advertising, whether to start a price war with competitors or form a cartel with them. Thus, manufacturing pharmaceuticals is not an easy task. It takes about 3-6 weeks of normal game-play to acquire the abilities and schematics to be competitive in the market, and the business operation thereafter requires daily time commitment.

Ok, so it does to me. But then, I have problems.

The ability to capitalize on these efforts by selling virtual items for real money seems like a new expression of an old desire to find new and more enjoyable ways of simply making more money. That the effort is now an online game instead of, say, bartending a couple nights a week for spending cash, is really only a detail in that case.

Yee also addresses the central problem facing game providers: how to keep people hooked without having them burn out. The reward schedule probably has a diminishing marginal return (it takes forever to advance at higher levels and thus requires a large amount of repetitive activity), so how do you get people to not just walk away? There are, of course, the social aspects of game playing. Eventually, however, I think companies will have to deal with the intellectual property rights issues that arise with virtual work product. I'd expect to see some sort of licensed sales arrangement, or even a sponsored marketplace; a PayPal ATM at the back of the virtual Creature Cantina?

IFTF's Future Now blog directs us to an interesting article at Technology Review: "A Supergrid For Europe".


Last month a Dublin-based wind-farm developer, Airtricity, and Swiss engineering giant ABB began promoting a bold solution to the continent's power grid bottlenecks: a European subsea supergrid running from Spain to the Baltic Sea, in which high-voltage DC power lines link national grids and deliver power from offshore wind farms. When the wind is blowing over a wind farm on the supergrid, the neighboring cables would carry its power where most needed. When the farms are still, the cables will serve a second role: opening up Europe's power markets to efficient energy trading.

As Homer Simpson might say, "Your ideas are intriguing to me, and I wish to subscribe to your newsletter."

The result would be a more integrated and thus more competitive European market, delivering power at lower prices. And it would enable Europe's grid to safely accommodate even more clean, but highly variable wind power. That accommodation will be needed because the European Union has set a target of 21 percent of electricity from renewable sources by 2010, and much of this will come from wind farms. "The primary benefit of the supergrid is that it aggregates wind power across geographically dispersed areas, and, by doing so, it smoothes the output of those wind farms," says Chris Veal, the Airtricity director promoting the supergrid. "If the wind isn't blowing in the Irish seas, it's likely to be blowing in the North Sea or the Baltic. The wind is always blowing somewhere."

I'm always suspect of sentences like the first in this paragraph. Integration in a loose sense, like the building of a firm, might help defray various costs, but in the case of countries means more "integration" often results in larger opportunity for rent-seeking and political mismanagement. This is especially true in the case of the EU where the penchant is to make political leaders (elected and not) in charge of anything that happens to cross boundaries, resulting in bad policies that major players can ignore with impunity. To wit, the Stability Pact.

The project does sound fascinating. One of the issues I'd always heard raised against wind power is the variability which would get coupled with the stresses placed on the infrastructure from periods of peak demand (highly variable supply with spikes in demand doesn't seem like the best mix for an overall base of energy). And the general tone of the piece implies that it is heavily driven by commercial interest. Right up to the end, that is:

The challenge is to get the supergrid onto the policy agenda. Because it's a big-energy concept, Czisch says, it runs counter to the thinking of many renewable energy advocates, who he believes prefer to see renewable energy as local energy sources, such as solar panels on rooftops. "You would have to build huge high-voltage DC lines, huge wind-power plants in Morocco, and so on. This is something that could easily be done by the big utilities -- but the utilities are the enemy of the renewables people," he says.

Airtricity's Veal is hoping to get some help from the European Commission, which just released a proposal for an integrated European energy policy. "We're not going to solve all of the EC's problems," Veal says, "but we can be a major contributor."

Allow me to rephrase: "Sure, it's a great idea that companies may like, but since the profit motive is the world's greatest sin, what we really need are government mandates and the public's money."


This is the second series of the carnival of podcasts. In this edition we focus on economics and globalisation.

- Martin Feldstein on the performance of the US dollar and tax policy.

- IMF’s chief economist Raghuram Rajan on the outlook for global economic growth.

- Ben Benarke at Princeton –talking about the benefits of price stability.

- Bernanke in 2003 talking about the challenges of monetary policy (webcast).

- Robert Schiller- economics roundtable (webcast)

- Professor B.B. Bhattacharya, Vice-Chancellor of Jawaharlal Nehru University, New Delhi talking about India’s economic potential and constraints

- Selling China: The Wal-Mart Effect

- The World Is Flat: A Brief History of the Twenty-first Century, Thomas Friedman (webcast)

- More Thomas Friedman

- Globalisation and the World’s Poor - Jagdish Bhagwati ("In Defense of Globalization"), Allan Meltzer (Carnegie Mellon U.), William Easterly (formerly of the World Bank) and John Ambler (Oxfam America).

- The Cost of Corruption

- A series of short podcasts from The Economist; include Amartya Sen, Wolfowtiz, Daniel Yergin and more.

- Why Inequality Matters in a Globalizing World, Nancy Birdsall (webcast)

- Rethinking Growth Strategies, Dani Rodrik (webcast)

- A Fairer Globalisation- A discussion of the ILO report on the issue (webcast)

- Globalisation and the Rise of Religion

- Ernesto Zedillo and Stiglitz on Globalisation

- Innovative Ways for Financing Global Public Goods, Stiglitz

- Recent speech of Al Gore at TED conference

- Interview with the Economic Hit Man

- A three part series on globalization from BBC; Working together, the illicit side and the new rules

- Hernando de Soto interview (webcast)

- The Market Approach to Understanding Religion

- Daren Acemoglu and Jared Diamond

- Debate between Stiglitz and Rogoff

- The Roots of Poverty in Latin America

Quote of the Day

“Which is the higher value: to have an instant choice of fifty bad movies on your super cable system or to have a choice of only three good movies? Technology enables and that is a value but it is an incomplete value. A state-of-the-art stove in the kitchen and the latest ceramic cooking vessels do not provide a good meal. Could technology deliver a good meal? Possibly; when you put a frozen gourment dinner in your microwave you might do better than with your own cooking. Improving your own cooking, however, would be even better, with more flexibility and room for invention. The ability to send hundreds of e-mails does not ensure the ability to write something intelligent or amusing. None of this is the fault of technology, which does a wonderful job. It is the fault of those who believe that the momentum of technology will be sufficient. Having a fast car is not the same as having somewhere to go.”
-p.109, New Thinking for New Millennium, by Edward De Bono

I think it applies to blogs as well; the ability to post something does not ensure the ability to write something intelligent or useful. Just look at some blogs like Marginal Revolution (just kidding).

Global warming has nothing to do with human use of fossil fuels. Turns out, we can blame rocks from outer space. At least, according to Vladimir Shaidurov we can.

The Tunguska Event, sometimes known as the Tungus Meteorite is thought to have resulted from an asteroid or comet entering the earth's atmosphere and exploding. The event released as much energy as fifteen one-megaton atomic bombs. As well as blasting an enormous amount of dust into the atmosphere, felling 60 million trees over an area of more than 2000 square kilometres. Shaidurov suggests that this explosion would have caused "considerable stirring of the high layers of atmosphere and change its structure." Such meteoric disruption was the trigger for the subsequent rise in global temperatures.

Note that this comes during a time when the canonical "hockey stick" graph is coming under some serious scrutiny from The National Academies. (For completeness: Mann et. al.'s original article, the McIntyre/McKitrick page rebutting the analysis, and another paper that sort of straddles the line saying that Mann and company underestimated variation in historical temperatures, but current warming is beyond past records.)

(Note: X-Files fans should remember this.)

Good Economic News for Bin Laden

The latest Finance & Development, a quarterly magazine from the IMF is out. The latest issue focuses on Growth. My favorite regulars are People in Economics, Back to Basics, Picture This and Country Focus sections. It struck me that Arab countries have the highest unemployment rates in the world;

Although unemployment fell markedly in developed economies in 2005 to an average of 6.7 percent from 7.1 percent a year earlier, it continued to rise in the former Soviet bloc countries. The Middle East and North Africa have the highest regional rate (13.2 percent), while East Asia has the lowest (3.8 percent).

Let us hear from a well known Arab economist;

There's a bit of a back-and-forth going on between Malcom Gladwell and Steves Levitt/Dubner on the causes behind the drop in crime rates during the 1990s.

Gladwell serves. Dubner on the return. Gladwell's rally.

Read it all; it's time well spent. In sum, though, it can be said that both sides seem to be sticking to their guns. Gladwell puts a lot of emphasis on the "broken windows" notion (not the broken windows fallacy), while Dubner reaffirms belief that legalized abortion and the fall-off in violent crack trade played large roles.

To add to the debate (though unnoticed by the debaters, but hey, whatcanyado?), I'd offer up another perspective, this time from Paul Ormerod and Michael Cambell (PDF). The authors focus on the decline in crime rates by using methods from mathematical biology, and considering crime as something akin to an epidemic. (Note: the paper is from 1996, though this is newer than the original Broken Windows article.) The point of the article isn't to point to one or two causal elements, but rather propose a new model for examining the phenomenon:

We have proposed in this paper an approach towards understanding the dynamics of crime which is similar to that used in mathematical biology to model the spread or containment of epidemics. A population, however defined, can be split conceptually at any point in time into three groups, those who are not interested at all in committing crime, those who are susceptible to become criminals, and those who are criminals. A system of differential equations is set up to model the flows between these groups over time.

The strengths of the flows can be interpreted as corresponding to the main factors identified in the empirical literature as the causes of crime, such as demographic movements, general social and economic conditions, and the positive and negative deterrence effects of the criminal justice system. Despite a voluminous literature, no firm quantitative conclusions have emerged, and the model can be used to explore the consequences for crime of variations in the respective strengths of such factors. In principle, the model could be calibrated on a data set of particular crime rates.

Of course, this leaves the agent-based method open to problems stemming from the data set chosen, but the same can be said of the Dubner/Levitt and Gladwell arguments. Given that neither of those explanations is wholly compelling to me, I'd be interested to see a rigorous implementation of this third method. Here's one paper (PDF) from the Society for Computational Economics that gets close, though it models the effects of shocks in mortality rates (the drop in violent crack trade?) on crime rates. I'm sure there are plenty of others that I simply haven't seen.

What Does Gold Farming Look Like?

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It's a subject I've mentioned a few times before: gold farming and real money trading. Chinese people play online video games to win items, build characters, or simply amass gold in order to sell it via eBay to customers hoping to buy modifcations or advancement on games like World of Warcraft, Lineage II, Second Life, and others. Now, a student at UCSD is putting together a documentary on the phenomenon.

See a preview here. The interviews are captivating, and it gives a great overall sense as to the real-life mechanics behind the market for online goods. (Via TerraNova.)

This week’s Economist magazine has a summary of a session on entrepreneurship that took place at the annual AEA conference;

Most innovations are merely incremental improvements on something that already exists: a slightly better mousetrap, as Mr Baumol puts it. A rare few represent discontinuous breakthroughs, such as the incandescent lamp, alternating electric current or the jet engine. All of the above, according to Frederic Scherer, professor emeritus at Harvard, were introduced not by the regimented R&D of established corporations, but by scrappy new firms, twin-born with the invention itself. Mr Baumol ventures that most breakthroughs arise this way—the offspring of independent minds not incumbent companies. He has two explanations for this. First, radical innovation is the only kind lone entrepreneurs can do; and, second, they are the only ones who want to do it.

British economist John Kay reminds us that half and hour before Bureau of Economic Analysis issued its official estimate of US GDP growth in the third quarter of last year, the Bloomberg financial information service carried 67 different predictions of US gross domestic product.

Though such forecasts are frequently wrong, they are regularly made in the media by economists. They tend to overstate the extent of knowledge we have about the economy which leads to undermining the credibility of economists. Why does it persist?

Iraqi Date Merchant and Mobile Phones


“I buy and sell dates and my whole business is now dependent on the mobile phone. Trading in dates (like any other commodity) is a risky business characterized by significant price fluctuations, especially during the harvest season. Prior to having access to a mobile phone, I faced great difficulty in obtaining timely information about price variations. This delay in obtaining up-to-date prices sometimes resulted in significant losses, whereby I would sell a lot of dates at a low price. Since I bought my mobile phone, I am in continuous contact with the date trade exchange center which helps me strike deals at the right price”.

That’s an Iraqi date merchant taking about the importance of mobile phone in his business. Other highlights from a report on the socio-economic role of mobile phones in the Arab middle-east;

Means-Tested Wireless?


Tom Palmer notes that DC is looking to establish municipal wi-fi -- with the kicker that the company that best serves the poor will win the contract.

Some Thoughts on Probability


Mark Miller is trying to make probability sensible:

What does it mean to say there is a 10% chance of rain tomorrow? Or that there is a 7% chance Iraq will be a peaceful democracy in two years? These numbers appear silly: these are things that either will happen or won't....

To me, the traditional definition simply does not make sense. Instead, I think of probability just as a way of being systematic about our ignorance of the world....

In the end, I think probability is not something that can be concretely defined. It is a useful concept simply because it allows us to make sense of and systematize a complex world.

Well, I wouldn't go that far. Probability is an operational concept: a guess, constrained by several simple rules, about what will happen in a very specific context.

Why Do Magicians Hate Children?

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“ some of my work I went around and talked to magicians and asked them about things – they actually hate doing magic shows with children under the age of three. And one of the reasons for that is that the children haven’t had as many experiences in the world and they are not quite so amazed by some of the things the magicians do…it’s the idea that children have to learn something about the world before they can see that there’s a violation. Though in a sense magic can exist because children see a violation of the natural world and adults and the culture label these events as either fantastic or magical. According to Piaget there was all this blurring of magic into the real world and actually a lot of my own research suggests that children – their default is kind of a natural physical mechanical causality. And it’s only in a certain kind of context, like talking about Santa Claus or being around the holiday season, that they begin to bring in this kind of magical thinking in a particular kind of situation. And that’s one of the things I find very fascinating; it’s that the default is not magic, the default is kind of a rational, natural causality.”

Sudoku solved. Entirely.

I never really got into those puzzle things, but I'm the only one I know.

Fortunately, I don't have to worry about it. In the process of finding new methods for biological imaging, a Cornell physicist managed to develop an algorithm that solves Sudoku puzzles. All Sudoku puzzles.

The so-called difference-map algorithm, which Elser says could have applications from productivity optimization to nanofabrication, tackles problems for which the solution must meet two independent constraints. In the case of Sudoku, the constraints are simple: Each of nine numbers, considered alone, appears nine times in the grid so that there is only one per row and column. And all nine numbers appear within each of the nine blocks.

In X-ray diffraction microscopy, the constraints are more complex. But the beauty of the algorithm, as Elser demonstrates, is that complexity doesn't matter. By applying the algorithm to the jumble of raw data from such an experiment, researchers can now reconstruct from it a clear, detailed image.

I guess now millions of mass-transit riders will have to go back to pretending not to stare at each other.

March Madness Closes In

For the statistically minded among you who also enjoy this month of roundball, here's a comparison of nearly all the ranking systems.

Fighting the Good Fight

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Just wanted to point out a very new blog I stumbled across. Good Math, Bad Math aims to confront the misuse of math and statistics in the sciences. One nice early post takes on the manipulation of data in this dubious medical journal article purporting to find a link between mercury and autism.

Going to Harvard Can Lead to Rising Inequality


There is a great webcast of a discussion on the Challenges to the American Prosperity at Harvard; Lawrence Summers moderated the discussion between Gregory Mankiw and Gene Sperling. I have tried to give an ‘index’ for the issues discussed below.

Just a couple of observations;
- Sperling was very emotional on the issues discussed where as Mankiw appeared a little bit of ‘don’t worry be happy’ type.
- Mankiw’s point of assistance to be focused on the person rather than place is a very important issue often politicians fail to accept, most of the time willingly
- Sperling urged for the need for political compromise in the light of the value choices we need to face and accept the fact that money is fungible.
- As usual Summers was at his best, posing difficult questions for the both of them
- On global poverty issues, Sterling's point about resources do matter (for eg. in education) was important and we tend to forget too often while getting carried away with Easterly type discussion on incentives, institutions and corruption.

I would have liked them to have discussed the thesis put forward by Benjamin Friedman in his recent book, Moral Consequences of Economic Growth;

Here's a surprise: Wal-Mart is all over the blogosphere.

Instapundit has links to the NYT story of Wal-Mart and the Merry PR Hacks. Meanwhile, Fast Company's blog is being guest-edited by Charles Fishman, author of The Wal-Mart Effect. Here's a story at the Economist about the book.

And, finally, the real reason I bring this up: a new working paper at NBER titled "Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart." (Here's an older - PDF! - version of the paper from the MIT faculty site.)

An interesting excerpt:

In this paper we estimate consumer benefits from supercenter entry and expansion into markets for food. We estimate a discrete choice model for household shopping choice of supercenters and traditional outlets for food. We have panel data for households so we can follow their shopping patterns over time and allow for a fixed effect in their shopping behavior. Most households shop at both supercenters and traditional outlets during the period. Given a model of shopping behavior we estimate the compensating variation of household from the presence of supercenters. We find the benefits to be substantial. Thus, while we do not estimate the costs to workers who may receive lower wages and benefits, we find the effects of supercenter entry and expansion to be sufficiently large so that overall we find it to be extremely unlikely that the expansion of supercenters does not confer a significant overall benefit to consumers.

UPDATE: Here are a couple more links of interest. Hausman's work is discussed by the MIT news service. (This article also links to the wonderfully titled "CPI Bias From Supercenters: Does the BLS Know that Wal-Mart Exists?") There are PDF versions of slides available that detail the work done in the working paper linked to above.

Paul's weekend puzzle below requested answers to the question "What would happen if a community that only produces bananas decides to save more?" It's no longer the weekend, so I figured I'd answer separately:


Forgive my ignorance, but exactly how does one "save" a banana?

For Hedonists it is without Parallel

reethi rah.bmpForbes last year had a list of the world’s most expensive resorts, one of which is in the Maldives;

And certainly, if any unlucky seaman found marooned in the Maldives in the 18th century was told that in the 21st century people would be willing to pay $10,000 to spend the night there, not to mention thousands more to travel there, he would have thought you had been spending too much time at the grog barrel.

But that's the nightly high-season rate at Rania, a new luxury resort that launched this September in the Maldives. The five-figure rate entitles guests to several hours of travel daily in the resort's yacht, unlimited treatments at the on-site spa, and all the meals and drinks they care to consume at the two gourmet restaurants. Oh yeah--and for another $750 (each), they can bring their friends along. Planning a visit in April? Great--it's not high season, but you'll still pay $8,000 a night.

Or take the newest property from One&Only Resorts, the One&Only Maldives at Reethi Rah, which was developed in conjunction with Kerzner International, a five-star hotel and resort operator. Here, guests enjoy the 109-acre island resort and its 12 private, white-sand beaches, and take their pick of the 130 guest villas. Some are on the beach, some over the water and some have their own pools--but each one comes with a "villa host" available around the clock to make sure the Champagne is properly cooled, or to test the pool water before anyone takes the plunge. Nightly room rates here start at a comparatively reasonable $930 during the holidays. But to avoid the riff-raff entirely, plunk down $1 million, which buys five days of room, board, Champagne, wine, tennis, diving and one spa treatment each for you and your 200 nearest and dearest.

It is said that Sol Kirzner invested some 150 million dollars at Reethi Rah which probably set a new standard in the Maldives. Sol Kirzner was named Hotelier of the World last year. The title is from an advertisement for a resort.

This is a new series we’ll be featuring at T&B; short series of puzzles and questions on economics for readers to comment and think about on the weekends. Feel free to comment on it. Most of it will be based on Mark Skousen’s book Puzzles and Paradoxes in Economics.

What would happen if a community that only produces bananas decides to save more? The same number of bananas is produced, but people spend less money on bananas. Prices fall, profits turn to losses, workers are laid off, income drops, and even fewer bananas are sold. Eventually, the community starves to death. How can you resolve Keynes’s dilemma?

Related Links:
- A recent discussion at Brad de Long’s blog, ‘We Leave Savings to the Private Investor’
- Keynes, The General Theory of Employment, Interest and Money
- Keynes, A Treatise on Money
- Vulgar Keynesians

In a previous post I commented about Wolfowitz finding his top priority at the World Bank; battling graft. Finally the Economist magazine has catch up with the story and talks about it in the latest edition.

“CORRUPTION” was once a word that the World Bank did not use. Its staff spoke instead of “implicit taxes” or “rent-seeking behaviour” lest they be accused of meddling in politics. A decade ago James Wolfensohn, then the Bank's president, broke the taboo with a speech about the “cancer of corruption” and began a campaign to improve poor countries' governance…

To lead the anti-corruption drive, Mr Wolfowitz has beefed up the Bank's Department of Institutional Integrity, an internal watchdog set up by his predecessor. The unit now has 22 investigators and will get 12 more. Staff have been told to get involved in the preparation of projects rather than simply react to concerns about graft….

Mr Wolfowitz's management style has added to the concern. He relies heavily on a small group of advisers he brought with him, none of whom are development experts. Bank insiders complain that the newcomers have no idea how to run the organisation and that their corruption drive is aimed more at impressing America's Congress than at helping the world's poor. Several top veterans have left….

I don't keep up with the literature and developments, but it sounds like someone might have to edit the opening bits of the Wikipedia definition of Microfinance.

Peer-to-peer loans are now possible through Prosper. You can borrow, lend, and even set the interest rate. Lenders bid on listings with an amount and a rate. The listing can be re-submitted if the person didn't get enough money or accept the offers the first time around. I'd be interested to see if and possibly where offered interest rates and credit ratings start to converge.

Notably, the repayment period is fixed at 3 years, and direct withdrawal of funds from a bank account seems to be required (though I've not read the entire site). If that's the case, this won't be entirely useful to the poor, who tend not to have bank accounts for withdrawal, or who close them more regularly in order to withdraw the very last funds (many banks require minimum levels of money; even levels as low as five dollars are frequently broken and accounts closed). Though, perhaps the fact that this is an online tool means already eliminates that demographic.

Deciding the prudence of lending to or borrowing from people named "loanchimp", "janeybooboo", "Caravaggiosnose", or "MC Arbitrage" is an exercise left up to the reader.

In a highly cluttered visual field, people have a harder time picking out a target of interest, and often choose wrongly. Not a surprise, that. More interestingly, however, is that people tend to have high confidence that they are correct.

One might intuitively expect that as background noise created by distracters and errors increase, confidence in one’s decision plummets. But in a new study published in PLoS Biology, Stefano Baldassi, Nicola Megna, and David Burr show that just the opposite happens. When they asked observers to search for a tilted target embedded in vertical distracters and estimate the target’s tilt, the observers often overestimated the magnitude of the tilt--and did so with a high degree of confidence in their decision.

The authors used signal detection theory to make quantitative predictions about the probability that an observer will detect a target under cluttered conditions. SDT assumes the brain represents each element in a visual search display as an independent variable with its own noise. It also assumes that when the observer isn’t sure which stimulus is the target, she monitors all stimuli, and performance suffers. Thus, increasing the number of distracters (trying to find your friend on a busy street or a document on a messy desk) increases the background noise of the visual system’s representation while reducing the accuracy and reaction time of performing the task.

As a general condition, I wonder what role this might play in individual decision-making over a vast range of choices. Specifically, I got to thinking about the contentions some make about having "too much choice." (See the Barry Schwartz quote in Postrel's post.) The claim that too much choice makes people worse off, ably dealt with in Postrel's full article, leads to the conclusion that choice ought to be limited. But what if the claims of dissatisfaction with abundance are simply picking up on a different problem?

From the Innovations Report article:

The authors explain that while their study focused on "simple perceptual decisions about a single stimulus attribute," the same type of processes may also apply to complex cognitive tasks involving problem solving and memory. If people find themselves confronted with multiple events in a chaotic, confusing environment, they may decide about some aspect of the situation and be totally wrong even though they have full confidence in their decision. The consequences of such a phenomenon could be relatively trivial, explaining why professional athletes often end up wasting their time arguing questionable calls with an official.

Sounds to me like being presented with complex visual fields is a bit disrupting to a lot of people. So much so that it results in frustration. While it might not be described as "chaotic" in terms of movement, the whole aisle of toothpaste options noted by Karrie Jacobs observes in Postrel's article, as well as the vast array of items in shopping malls, car dealerships, convenience stores, the newspaper ad pages...all certainly presents a cluttered visual pattern, what with all of the conflicting colors, shapes, lettering, and advertising thrown in by the store itself. Perhaps those negatives that Shwartz says pile up are a result of the displeasing sensation from the visual information overload, and not necessarily a dislike for the amount of choice.

Maybe the problem is just that we have really bad graphic design.


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