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Quotes and food for thought

In Predictably Irrational, Dan Ariely points out a basic flaw in the rational consumer model - for every good and every price, we'd either want to buy or sell that good (we'd value the money more than the good, or the good more than the money). However, there's something called the endowment effect - we place an irrationally high value on things we own, which skews this principle. Let's say we have a very nice bottle of wine and someone offers us $75 for the bottle - most people would refuse the offer. But presented with the opportunity to buy a bottle of the same wine for $75 we refuse to buy it. But we must either prefer $75 in pocket or the wine. So, know that you are likely to put too high a value on items you own relative to things in the world.

From Tim Harford's Logic of Life, an input-output theory of legislation: "Here's a surefire vote-winner: Take $1.9 billion from a large number of voters, distribute $1 billion to a small number of voters and throw away the rest." When you put it that way it really sounds silly. But this particular bill, a subsidy for the sugar industry, passes year after year. This is an example of a big problem with representative government - a small focused interest beats a widespread, unfocused one every time, to the detriment of the widespread. The arguments used are rarely logical, and largely irrelevant.

I went to Carmel last weekend, and saw a woman feeding squirrels literally one foot away from a sign begging visitors not to feed the squirrels and to let them find their own food. My brother asked her why she was feeding the squirrels. Her response: "Oh - well this food is from Whole Foods, so it's okay."

Finally, from the latest Battlestar Galactica episode title, from Ken Kesey's book Sometimes a Great Notion, from the song "Goodnight, Irene:"

Sometimes I live in the country,
Sometimes I live in town,
Sometimes I have a great notion;
To jump in into the river and drown

The singer goes on to say, "Go home to your wife and your family" - focus on your relations with those that matter, and avoid vice where you can.

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Barack Obama And Me

In 2005 I walked right by Barack Obama.

I was on a plane to Washington D.C. to look at Georgetown and other East Coast schools. I was heading to my seat at the back of the plane when I saw Obama, sitting on the aisle, wearing a white shirt and looking really tired. From the looks of things I was the only one on the plane who recognized him.

I didn't say anything, shake his hand or write him a letter, although I contemplated doing all of those. It sounds stupid now, but I was worried it was a totally random guy. I thought Senators had escorts and people around them 24/7, especially since Obama was a potential presidential candidate.

As soon as we deplane he and a few other Congressmen were whisked away by a team of guys in suits. By that point of course it was too late.

Anyway, that's my Obama story.

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Best PP I read today

Remind ourselves the first principle of conservatism is not tax cuts or free trade or even smaller government. It is prudence, and prudence should be our guide.

Prudence dictates we take seriously the concerns of those who elect us and tailor our policy proposals to counter the government-mandate-heavy ideas bound to emerge from the other side.

Americans want something done about the 43 million of us who lack health care. The question is not: Should government care? It must. The question is: Do we get a top-down, Washington-knows-best, one-size-fits-all “solution” or a Massachusetts-style program that preserves choice for patients and discretion for doctors?

That's Tom Davis talking about how to get the Republican Party back on track. I hope the Republicans do get back on track - states and the federal government are spending more and more - while the private sector economy lost 500,000 jobs in December, state and local governments added 6,000. This spending is beyond our current means, which signals a generational transfer of wealth - the current generation is spending the youth generation's money, the equivalent of accumulating credit card debt and then passing the bill to your kids. Currently 9% or so of the federal budget goes toward interest on the national debt. The Republicans need to quickly find their place again, but the prospects don't look good.

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More Stupid, Ultra-Conservative Play Calling in the NFL

I was unimpressed by Jeff Fisher's play calling at the end of the Titans-Ravens game. With time winding down, he decided to kick a field goal to tie the game rather than go for the endzone.

In basketball, the traditional maxim in late-game situations is to go for the win on the road, and go for the tie at home, because home teams generally have an advantage in overtime situations (Soccer games have no overtime and the reverse applies - in tied games road teams buckle down and home teams press for the win). The NFL's sudden-death overtime rule is perverse - the team that has the ball first scores 50% of the time on the first drive, putting a huge emphasis on the coin toss (and luck). So, in the NFL, the strategy must be to try to win the game when you can.

Intuition and past experience tells me that teams usually convert 4th-and-inches situations. But for backup I turn to a 2005 paper on 4th-down situations by David Romer, an economist at UC Berkeley. Figure 5 on page 43 is the key graph - with yards to go on the Y axis and the yard line on the X axis, any situation below the solid line indicates that it's better to try and convert the 4th down than to kick a field goal or punt, and any situation above. Generally, it's better to go for it on any situation when you have less than 3 yards to go, and as you approach the opponents end zone kicking becomes a worse idea and going for it becomes better.

Romer recognized that punts and kickoffs (which follow field goals) have a significant negative value; they give the other team decent field position and a chance to drive down the field. Going for it on 4th down puts the defense under tremendous pressure; they have to stop the offense for another down.

The Game Situation

This was the game situation:

Home playoff game.
Down 3 points.
4th and Inches from the Ravens' 10 yard line.
4:26 to go.

Fisher could choose to kick a field goal (3 points) to tie the game, or try to convert the 4th down and go for the touchdown and 4-point lead, which would have forced the Ravens to go for the endzone. He kicked the field goal, and the Ravens moved the ball 51 yards and kicked a field goal to win.

If Fisher went for it on 4th down and converted (I would put this at probability 50-75%), the Titans probably would have gone on to score a touchdown, putting the Titans up 4 and forcing the Ravens to score a touchdown (advance to the goal line) in 4 minutes. The Titans have an excellent chance to win the game.

If Fisher went for iton 4th down and failed, the Ravens would have the ball on the 10 yard line with a 3 point lead and 4:20 to play. This is a bad situation for the Steelers, but not horrible: they still had 2 timeouts and the 2 minute warning to stop the clock. If they can stop the Ravens they'll get the ball back with a chance to win or tie. Note that after the Titans kick a field goal, the defense still has to stop the Ravens from scoring (gaining 3-4 first downs). If they go for it and fail, they have to stop the Ravens from getting 2 first downs; from the defense's perspective this is more or less the same situation.

By kicking the field goal, the Titans kicked off, giving the Ravens the ball on the 24 yard line, an improvement of 14 yards over surrendering the ball. The defense has to stop the Ravens from advancing the ball, which they failed to do, and the Ravens kicked a field goal to win.

Going for it puts the Titans in the best position to win the game - if they convert they're in an excellent position and if they don't convert, they still have to stop the Ravens as they would after a field goal, and might have another chance to tie or win. Bykicking a field goal, the traditional choice, Fisher won't draw criticism from the mainstream press, but it's not the decision that gives the Titans the best chance to win. If Fisher had gone for it and failed, he would have been slammed in the media. This is unfortunate, but presents an opportunity for a bold, unflappable coach to optimize play-calling strategy and gain a significant edge over his counterparts.

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The difference between 1 million and 1 billion is 999,000,000

Millions and billions are easily confusable, as in this Politico article about the second half of Paulson's bank bailout. "Frank’s legislation conditions the release of the second half on Obama spending at least $50 billion of it on foreclosure mitigation, according to a summary of his bill. Frank told reporters he’d like to see up to $100 million for foreclosures," the article reads (with my emphasis).

We stink at dealing with large numbers, and large in this sense is any number bigger than twenty. Consider sports betting, where people estimate the underdog has a greater chance of winning than they actually do. As Justin Wolfers and Erik Snowberg write in this paper exploring the problem, we can't tell the difference between a small chance and a tiny one. I believe this is why white-collar criminals, like Bernard Madoff, get generally lenient sentences, and way more lenient sentences than bank robbers - we stink at comprehending the amount of damage they did to the company's shareholders, usually thousands of times more money than a simple robbery. So we need to be especially careful when other people are discussing how to spend our money and bandying numbers back and forth.

A billion is this number:

1,000,000,000 A million is this number: 1,000,000 A billion is a thousand times as big as a million. Yet our understanding of the difference isn't very good, leading to absurd situations in Washington where attention paid to legislation seems to have no correlation to the amount of money at stake. A lawmaker may run to the press, criticizing some $10 million of federal spending as wasteful, but that's a drop in the bucket compared to the $700 billion bailout amount. Furthermore it promotes a bias toward using numbers on the small end of the scale - $1 billion sounds smaller than $900 million even though it's a larger number by $100,000,000. For comparison the first number is $10,000,000 and the second is $700,000,000,000 - the second number is seventy thousand times as big. The short hand way of writing these numbers hurts our comprehension and our ability to make rational decisions about the amounts proposed. Instead of saying billion, let's say "thousand million" - as in our bailout costs seven hundred thousand million dollars. Sure it sounds awkward, but the numbers being discussed are huge and we have to use what tools we can to help our brains process the suggested amounts.

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Why the Middle East will never find peace

A girl who looked about 18 screamed as a surgeon removed shrapnel from her leg. An elderly man was soaked in blood. A baby a few weeks old and slightly wounded looked around helplessly. A man lay with parts of his brain coming out. His family wailed at his side.

Don’t you see that these people are hurting?” the militant was asked.

“But I am from the people, too,” he said, his smile incandescent. “They lost their loved ones as martyrs. They should be happy. I want to be a martyr, too.”

Story from the New York Times. James Surowiecki wonders why the New York Times doesn't advertise. I believe he's right that they don't advertise much.Perhaps the channels we associate most with advertising (TV commercials, billboards, magazine ads, stadium sponsorships) wouldn't reach NYT's target market (I have heard ads for the NYT on NPR). Furthermore, maybe idealists in the NYT think that too much advertising would compromise its editorial integrity.

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One in ten couples…

Still experiences the same emotion for each other twenty years on as they did when they were first in love.

Nearly 99% of couples predict at the time of marriage that they'll stay married forever, but 50% of marriages end in divorce. This makes me worry; how can I know that my partner and I will stay happily married? Even a small amount of prediction in this area can reap tremendous dividends, similar to the Netflix Prize. Even better would be a predictor of which couples will still feel the same way for each other twenty years on; the market for true love is large.

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Random Thought on Intersections

If there are no cars at an intersection the light should be red in every direction. Then when a car approaches it can quickly change to green in that direction. If it's green in one direction and someone approaches from the perpendicular, the light has to go through yellow (or until the WALK sign is finished) and the car has to slow down before the light changes. This signal arrangement saves drivers gasoline.

On a related note, signal coordination in urban areas (timing the green lights to ensure the best traffic flow) can lead to significant reductions in greenhouse gas emissions. This solution is not very sexy or expensive, and the results aren't obvious, which is why more cities don't do it.

Technorati: you don't have to put on the red light

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Are corporations rent-seekers in irrationality?

I've been reading Dan Ariely's Predictably Irrational, which says among other things that our preferences, spending habits, and performance on simple tasks are arbitrary and thus easily manipulated. For example, we prefer something when we're presented with a slightly inferior version of the same product, even if we wouldn't be interested in the product otherwise. Or, pricier medicine is more effective than cheap medicine. Corporations take advantage of our irrationality to sell us overpriced things, create demand where none existed and convince us we are having a good time. They are, in a sense, seeking rent and profiting from our irrationality. When humans lived in hunter-gatherer tribes, corporations didn't exist - we didn't have to deal with high-pressure sales pitches, budgets, or people we didn't know. Biologically, our brains aren't well prepared to deal with their tactics. So I don't doubt that companies peddle in our irrationality. That's not to say that corporations are evil; often times companies provide us with valuable time-saving services, or at the least convince us that we're having a good time, or value the product they pitch more than the money in our pocket. Has irrationality served us well? As we become more aware of our flaws, will we strive to be more rational? If we become more rational, corporations won't be as able to lure us in with a promise of free stuff, or brand loyalty, or price premiums. I think women will always be irrational; it's more important for them to consume conspicuously, live luxuriously, and show off when they can. As long as this is true, corporations will exist to define luxury, create demand for scarce, expensive products products (such as black pearls) and find ways for us to spend our money.

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New Year’s Resolutions

I have a few New Year's Resolutions but I would rather not commit to something that I'm not going to stick with, like the 80% of resolutions that are abandoned by February. If I have a resolution I'll make it binding with a bet or stickk.com

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