Case Crossover paper and time trends

There was a new paper e-published recently in Pharmacoepidmeiology and Drug safety that used the case-crossover study design:

"Purpose
Elevated levels of phosphorus (P) and calcium (Ca) have been shown in observational studies to be associated with an increased risk of adverse clinical outcomes including mortality. Vitamin D sterols have been shown to increase the risk of hypercalcemia and hyperphosphatemia in clinical trials. We sought to explore these risks in real-world clinical practice.
Methods
We employed a case–crossover design, which eliminates confounding by non-time-varying patient characteristics by comparing, within each patient, vitamin D doses before the event with those at an earlier period. Using this method, we estimated the risk of hypercalcemic (Ca ≥ 11 g/dL) and hyperphosphatemic (P ≥ 8 g/dL) events for patients at different dose quartiles of vitamin D relative to patients not on a vitamin D sterol.
Results
There was a dose-dependent association between vitamin D dose quartile and risk of hypercalcemia or hyperphosphatemia. In adjusted analyses, each increase in vitamin D quartile was associated with a multiple of hypercalcemia risk between 1.7 and 19 times compared with those not on vitamin D and a multiple of hyperphosphatemia risk between 1.8 and 4.
Conclusion
Use of vitamin D sterols is associated with an increased risk of hypercalcemic and hyperphosphatemic events in real-world clinical practice. Other potential predictors of these events, such as phosphate binder use and dialysate Ca levels, were not examined in this analysis."

It seems to be an interesting paper but I have one concern. If you look at the discussion section of the paper, the authors note that:

In our sensitivity analysis, we used 1-month periods to assess vitamin D exposure. In this analysis, estimates of the association between vitamin D dose and risk of events were smaller than those in the primary analysis, particularly for hypercalcemia. One possible explanation for this finding is that the average 2-month exposure measure is a superior indicator, compared with the 1-month assessment, of both the dose and duration of vitamin D exposure. As well, it could be that some dose changes in the month prior to the event had already occurred in response to increasing Ca levels and that, for this reason, the dose 2 months prior to the event is a more accurate reflection of the dose that gave rise to the hypercalcemic or hyperphosphatemic event.

Another explanation that I did not see addressed is the possibility that there is a time trend occuring. If the frequency of vitamin D administration (or the dose) increased with time then you would expect to see smaller estimates in the sensitivity analysis as well. But it would be an artefact of changing exposure over time.

That being said, it was a real pleasure to read a well justified use of the case-crossover design in a medication paper. Hopefully this is a sign that there will be more use of with-in person study designs in the future in epidemiology. The ability to handle time invariant confounders is a serious advantage of this approach.

Transformations

Frances Woolley has a post on the use of the inverse hyperbolic sine transformation for handling wealth as a variable (skewed and with lots of zeros).

The post is worth reading and the comments are really interesting. In particular, Chris Auld makes a very good case for simplicity and interpretability as a desirable property of statistical models in several of the comments.

There is also a thought provoking discussion of how to parameterize wealth that involves the sort of deep thinking about variables that we should do more of in epidemiology. In particular, in what sense is it reasonable to consider a person (especially in a country like Canada with strong entitlement programs) to truly have zero wealth.

Definitely worth the read.

The Chameleon XLE

James Surowiecki has posted a thoughtful piece on Greece's culture of tax evasion, but it was this fairly trivial though amusing detail that caught my eye.

Even while dealing with protests and open riots, the new Greek government is trying to change things. It is rationalizing its tax-collection system. It has simplified taxes and done away with some of the loopholes. And it has stepped up its enforcement efforts in ways large and small—tax officials have, for instance, been sending helicopters over affluent neighborhoods looking for swimming pools, as evidence of underreported wealth. These efforts have made some difference: the self-employed seem to be reporting more of their income, and the evaders have had to step up their game. (There’s now a burgeoning market in camouflage swimming-pool covers.)

Perhaps there's a marketing opportunity here...


Chamelion XLE - Watch more Funny Videos

Simulation and foolish cost-cutting

Wired's Jonah Lehrer has a good post on the use of simulators to train pilots.

According to a recent report in The Wall Street Journal, United/Continental Airlines wants to use less realistic (and less expensive) simulators for many of their pilot training tasks. Instead of simulating the motion and vibrations of the plane, these static training devices are fixed to the ground:

The disagreement within United Continental revolves around using fixed-base simulators—which don’t mimic the movements of planes in flight—rather than full-motion devices to conduct certain types of mandatory, recurrent pilot training.

A decade ago, Continental received Federal Aviation Administration regulatory approval to use such devices, costing roughly one-third less than full-motion simulators, during the last phase of periodic proficiency checks for pilots flying its Boeing Co. 777 fleet. Continental was moving to expand the practice to its Boeing 737 pilots before last year’s merger agreement with United shifted the combined airlines’ focus to integrating all FAA paperwork.

Continental believes its novel approach is superior to traditional practice by stressing human factors and cockpit interaction and thereby enhancing safety. But the position, according to some safety experts, appears to run counter to at least some of the latest guidance coming from parts of the FAA and international standard-setting groups such as the International Civil Aviation Organization, an arm of the United Nations.

“We should be aiming for the greatest possible realism to teach crews how to use both mental skills and motor skills to most effectively deal with emergencies,” according to Mark Rosenker, a former member of the U.S. National Transportation Safety Board. The NTSB continues to champion full-motion simulators for recurrent training. Except for cost considerations, Mr. Rosenker said, “why would anyone opt for anything less?”

I can only hope United/Continental has some solid research to support this proposed change, because it strikes me as a bad idea. For starters, there’s no reason to mess with success, even if it saves a few dollars. And modern pilot training is an astonishing success story. Let’s begin with the dismal history: Despite a long list of aviation reforms, from mandatory pilot layovers to increased classroom training, the percentage of crashes due to pilot error refused to budge from 1940 to 1990, holding steady at around 65 percent. It didn’t matter what type of plane was being flown, or where the plane was going. The brute fact remained: Most aviation deaths were due to bad decisions in the cockpit.

According to the latest statistics, however, mistakes by the flight crew are responsible for less than 30 percent of all plane accidents, with a 71 percent reduction in the number of accidents caused by “poor decision-making.” The end result is that flying has become safer than ever. According to the National Transportation Safety Board, flying on a commercial plane has a fatality rate of 0.04 per 100 million passenger miles, making it, by far, the least dangerous form of travel. (Driving, by contrast, has a fatality rate of 0.86.)

What caused the dramatic reduction in pilot error? One widely cited factor is the introduction of highly realistic flight simulators, starting in the mid 1980’s. (The first simulators were put into place during WWII, as the Air Force didn’t have enough real planes to train thousands of new pilots.) For the first time, pilots could practice making decisions in extremely stressful conditions. They could refine their reactions to a sudden downdraft in a thunderstorm, or practice landing with only one engine. They could learn what it’s like to fly without wing flaps, or land on a tarmac glazed with ice. And they could do all this without leaving the ground.

The benefit of a flight simulator is that it allows pilots to internalize their new knowledge. Instead of memorizing lessons on the blackboard, they were forced to exercise emotional regulation, learning how to stay calm and think clearly when bad stuff happens. (I’ve been in these realistic flight simulators and let me assure you – they can be terrifying. After I crashed my jetliner, I left the simulator drenched in sweat, all jangly with adrenaline.) The essential point here is that pilots were the first profession to realize that many of our most important decisions were inherently emotional and instinctive, which is why it was necessary to practice them in an emotional state. If we want those hours of practice to transfer to the real world – and isn’t that the point of practice? – then we have to simulate not just the exterior conditions of the cockpit but the internal mental state of the pilot as well. For far too long, we’ve assumed that expertise is about learning lots of facts, which is why we settled for the “chalk and talk” teaching method. But it’s not. True expertise occurs when we no longer need to reference facts, because we already know what to do.

Needless to say, the potential of simulators goes far beyond pilot training. In recent years, the medical profession has discovered the virtues of virtual reality. Recent studies have found big benefits when medical students use simulators to practice colonoscopies, laparoscopic surgery and even the varied techniques of general surgery. What’s not surprising is that this simulated training was even more effective when it was physically realistic, providing surgeons with “haptic feedback.”

The moral is that we need to make our simulators more realistic, not less. Pilots have pioneered a key concept in professional training. It would be a shame if airlines began to backtrack to save money.

What's notable here is that the cost of the technology behind these simulators has dropped over the past twenty-plus years and will almost certainly drop further over the next twenty, while the potential costs of this change remain high (imagine the legal and reputational consequences when one of these pilots is involved in a crash, even if the official cause is not pilot error).

Unless there's more to this story, shifting to less realistic simulators would seem to be a classic case of cost-cutting that defies cost-analysis. This kind of thing is not hard to find in both the private and public sector. It can usually be attributed to a lack of alignment (the people devising and championing these proposals get their bonuses and promotions almost immediately. By the time true costs become apparent, attrition and short institutional memories will rule out any significant repercussions.*) and to an understandable but dangerous tendency to believe in easy answers.

*Thank God the financial sector is immune to this sort of thing.

Dean Dad on Higher education

While I was away, I missed this gem by Dean Dad about the argument that college isn't worth it:

The whole enterprise just smells to me like the latest variation on “let’s privatize Social Security” or “let’s replace Medicare with vouchers.” It’s the wealthy and their worshippers sloughing off any social obligation, basically dropping the ladder behind them. If that weren’t the case, if they actually believed what they said, I’d expect to see the best and brightest from Choate and Philips Exeter eschewing college and doing startups or joining the military instead. Um, no.

I had not made this connection but it does seem to be a coherent interpretation of an otherwise puzzling argument. I must admit that I remain mystified with the current interest in the United States with disassembling the social infrastructure. Not only is it in the opposite direction of most countries, but the ones that have tried it seem to end up being bad places to be. Think of Russia, for example.

The real issue, to me, is that the real remedy to these types of escalating prices is the high quality public university system that countries like Canada and states like California have. The University of California is a high quality set of institutions and much less expensive than the alternatives.

Why is this approach not the one that rising prices brings us back to? Okay, we'd have to go back to the brutal taxes of the Reagan or Clinton eras, but I am not convinced that this move would lead to an immediate dystopia.

Freelance Writing

I am not sure that this author isn't being overly pessimistic, but his concerns are sobering. In particular:

Don’t believe me? Amazon has killed Borders. Barnes & Nobles looks like it’s next. We’re not far from a time when the only vendor for books are virtual stores. And we’re not that far off from a time when print books are so expensive thanks to shorter print runs, folks will be forced to buy electronic media or not read at all.

It does make one wonder about shorter print runs and whether publishing on demand can keep with the cost of mass print runs or not. I am not informed, either way, but if it cannot them it's going to be tough to beat eReaders.

Too much silliness, too little time

I'm in the middle of a busy weekend, so I can't do justice to Brooks recent education column and Jonathan Chait's affectionate follow-up. Besides, regular readers can probably shoot down the fallacies as well as I can.

I can't, however, let this pass with getting off a quick shot just to get things started.

From Chait's column:

I thought David Brooks' column yesterday on education reform was generally quite good. But he conceded a point to critics of education reform that should not be conceded:

If you orient the system exclusively around a series of multiple choice accountability assessments, you distort it.

If you make tests all-important, you give schools an incentive to drop the subjects that don’t show up on the exams but that help students become fully rounded individuals — like history, poetry, art and sports.

The assumption that schools have had to make tests "all important" has deeply penetrated the debate, but it's not accurate. Different states have different ways of measuring teacher performance. But none of them use student test scores as more than 50% of the measure. Classroom evaluations and other methods account for half or more of the measures everywhere. I've also noticed, anecdotally, that many people assume test measures use a single, blunt scale so that poor children are measured against the same standard as wealthy ones. That's not true, either. Test measures account for socioeconomic status, and measure student improvement over the school year.

Now, this isn't to deny that some schools and teachers over-emphasize a narrow curriculum. But the non-test components of a teacher evaluation method can easily incorporate broader measures of student performance.

Just to sum up, we don't have to worry about schools dropping subjects that don't show on certain tests because these tests are only a part of the teacher evaluation.

This is one of those, for lack of a better word, arguments that leaves you wondering if you missed something. When a superintendent and a principal try to decide whether or not to hire an art teacher, does the non-test component of teacher evaluations guarantee the hiring in some less than obvious way?

Online Retailers and Sales Tax

I am actually pretty sympathetic to the argument that not requiring online retailers to collect Sales Tax in all states is bad policy. But I had not thought of it as a social justice issue:

Whatever scheme we can come up with to collect lost sales tax is one more step towards a level playing field for brick and mortar retailers, and a re-funding of our cities, counties and states. It's not an enormous amount of money, but it's a step in the right direction. Online retailers got a free pass in the early days, a kind of nod for fledgling e-commerce. Unfortunately, monsters were created and none is bigger than Amazon, destroyer of worlds and loser of a billion dollars of their own capital. But hey, it's an Internet company, we're willing to look the other way for a decade or so while the new world order manifests. It's time to level the playing field and make everyone play by the same rules.

The article as a whole is worth reading.

I know a lot of people argue that the loss of physical book stores is not a tragedy. But it is not clear to me thast we should be subsidizing their competition, either. Nor is it a great idea to reduce government revenue at a time where margins are tight.

So maybe I am on California's side in this discussion.

Jonathan Chait -- now to the right of David Brooks on Education

For those keeping track, Jonathan Chait has now chastised both David Brooks and the National Review's Jim Manzi for being too moderate on this subject.

It's like Groupon, only they don't even check with the merchants first

This certainly looks like a classic case of issuing the press release then trying to come up with a business model:

When it comes to MoviePass, a theater subscription service that would allow moviegoers to watch an unlimited number of films in theaters of their choice for $50 a month, most theater chains have taken a pass. So many, in fact, that MoviePass has canceled its test roll-out of the service that was supposed to take place in the San Francisco area this weekend. It’s not throwing in the towel just yet, however. In an interview with Wired magazine, MoviePass co-founder Stacy Spikes said that he’s confident that once exhibitors learn more about the service “they’ll be excited. We just haven’t had that opportunity yet.” But spokespersons for several chains maintained that MoviePass executives should have made a discussion of their service with them the first order of business. Ted Mundorff, the CEO of Landmark Theatres, told TheWrap.com that he wasn’t aware of the service prior to the announcement of this weekend’s test. “We are stunned that an announcement like this was made, and they ‘forgot’ to discuss it with their clients,” Mundorff said. “We are not interested in outside entities setting ticket prices for us.”

The Orphan Works Project

From Cory Doctrow via DeLong:

University of Michigan to stop worrying about lawsuits, start releasing orphan works: Bobbyg sez, "The University of Michigan Library will be sharing digital copies of their orphan works, that is, copyrighted works which have no identifiable owner, with the University community. Paul Courant, the University Librarian, says that the project is integral to the mission of the library, and that the sharing of the orphan works is a 'fair use' of the material, stating that 'sharing these orphan works does no economic harm to any person or organization, while not doing so harms scholarship and learning...'"

The Orphan Works Project is being led by the Copyright Office of the University of Michigan Library to identify orphan works. Orphan works are books that are subject to copyright but whose copyright holders cannot be identified or contacted. Our immediate focus is on digital books held by HathiTrust, a partnership of major research institutions and libraries working to ensure that the cultural record is preserved and accessible long into the future.

This effort is funded by the HathiTrust and is part of U-M Library's ongoing efforts to understand the true copyright status of works in its collection. As part of this effort, the Library will develop policies, processes, and procedures that can be used by other HathiTrust partners to replicate a task that will ultimately require the hand-checking of millions of volumes.

Bravo/a. I have no idea what will come of this, but pulling the default position of libraries, archives, and other institutions from one of debilitating fear or lawsuits to one of bravely sharing is something long past needed.

By the end of the Twentieth Century, we had reached the point where a company with enough lobbyists and lawyers could do anything they wanted with copyrights, whether it was getting a de facto permanent extension for Mickey Mouse or even removing a work from the public domain. As mentioned before, this reveals some tremendous hypocrisies from major players.

If you're serious about education reform...

You should question policies that devastate the families and communities of our most vulnerable children, reinforce the hold gangs have on those communities and divert tremendous amounts of money from schools and social programs.

From Mike Konczal:

Adoption studies as Rorschach test

As mentioned before, some (including perhaps Sacerdote himself) look at Bruce Sacerdote's research and conclude that parents don't have that much influence on children. David Leonhardt looks at the same research and sees something entirely different:

On Mr. Mankiw’s specific point, though, not all economists have the same view of the research on parents that he does. Bruce Sacerdote at Dartmouth has done one of the most-cited studies, and it finds that parents can make an enormous difference. From the abstract:

I analyze a new set of data on Korean American adoptees who were quasi-randomly assigned to adoptive families. I find large effects on adoptees’ education, income and health from assignment to parents with more education and from assignment to smaller families. Parental education and family size are significantly more correlated with adoptee outcomes than are parental income or neighborhood characteristics. Outcomes such as drinking, smoking and the selectivity of college attended are more determined by nurture than is educational attainment.

I look at this and see a cautionary tale about the perils of drawing inferences from non-representative samples, but I'm a statistician and that's how we see most things.

Another data dump

I should probably add Jared Bernstein to my regular reading list.

Felix Salmon points out another one of those things that make me nervous about the NYT.

Salmon also directs us to another great piece from the New Yorker.

Jonathan Chait has some smart things to say about the asymmetry of the political debate.

(Blogger's spell check just stopped working. The rest of the post may be a challenging read.)

Motorola's example doesn't really generalize. GE's run was better explained by other factors. Are there any Six Sigma success stories that don't fall in these two categories?

Dana Goldstein continues to bring objectivity and balance to the education debate.

more thoughts on geoengineering

I've previously discussed my mystification about how palatable many libertarians find geoengineering. I didn't get around to my confusion over the appeal of massive, unpredictable plans which, even if they work as well as promised (and that, my friends, is one freakin' big 'if'), will only partially address one of the problems associated with our dependence on fossil fuels.

When you have a plan that covers ocean acidification, maybe you can talk me out of supporting a carbon tax.

Ocean life on the brink of mass extinctions: study

OSLO (Reuters) – Life in the oceans is at imminent risk of the worst spate of extinctions in millions of years due to threats such as climate change and over-fishing, a study showed on Tuesday.

Time was running short to counter hazards such as a collapse of coral reefs or a spread of low-oxygen "dead zones," according to the study led by the International Programme on the State of the Ocean (IPSO).

"We now face losing marine species and entire marine ecosystems, such as coral reefs, within a single generation," according to the study by 27 experts to be presented to the United Nations.

"Unless action is taken now, the consequences of our activities are at a high risk of causing, through the combined effects of climate change, over-exploitation, pollution and habitat loss, the next globally significant extinction event in the ocean," it said.

Scientists list five mass extinctions over 600 million years -- most recently when the dinosaurs vanished 65 million years ago, apparently after an asteroid struck. Among others, the Permian period abruptly ended 250 million years ago.

"The findings are shocking," Alex Rogers, scientific director of IPSO, wrote of the conclusions from a 2011 workshop of ocean experts staged by IPSO and the International Union for Conservation of Nature (IUCN) at Oxford University.

Fish are the main source of protein for a fifth of the world's population and the seas cycle oxygen and help absorb carbon dioxide, the main greenhouse gas from human activities.

Jelle Bijma, of the Alfred Wegener Institute, said the seas faced a "deadly trio" of threats of higher temperatures, acidification and lack of oxygen, known as anoxia, that had featured in several past mass extinctions.

A build-up of carbon dioxide, blamed by the U.N. panel of climate scientists on human use of fossil fuels, is heating the planet. Absorbed into the oceans, it causes acidification, while run-off of fertilizers and pollution stokes anoxia.

Extraordinary interview with Eric Sterling

[Coming off a big and busy week here at OE so you can expect to see a lot of catch-up posts over the next few days.]

Though we generally don't think about it in these terms, the war on drugs should be part of the education debate. The communities on the wrong side of the achievement gap are also the ones that have paid the price for congress's pathetic need to sound tough a quarter century ago. Here's a representative sample:

STERLING: The amounts ended up being very, very small, instead of a high-level quantity...

CONAN: Because the idea of the law, originally, was to go after kingpins.

STERLING: Exactly. We - the Justice Department had very broad discretion, and we recognized that the federal should be focused on the highest-level traffickers. The first proposal that we had used data that the DEA had suggested in terms of how they evaluate, internally, their highest-level traffickers. Those numbers were objectionable to a congressman from Louisville, Kentucky, who said: We'll never use this law in Louisville. And unfortunately, no one, given the speed of this, said: But congressman, Louisville is not Holly - Miami. It's not the center of the drug trade. Nobody goes to Louisville to do a major cocaine deal. Of course, we don't need it.

Bond villains can be so hard to shop for

This is not an opportunity you want to pass up.

Now their feelings are hurt

From Felix Salmon:

If you want a great example of the kind of mean things that people are saying about Groupon in the run-up to its IPO, you could do a lot worse than Rocky Agrawal’s TechCrunch essay entitled “Why Groupon Is Poised For Collapse”. It’s a great example of overstretch and dubious logic, with a couple of moments of brilliance and genuine insight thrown in at the same time. Groupon, of course, being in its quiet period, can’t react. Except, it just can’t help itself, and has put up a whiny post, supposedly authored by the company cat, about how unfair the whole situation is.

The fact is that when Groupon made the decision to go public, it invited exactly this kind of attention — both before the IPO and forever more. When Groupon was private, no one really knew anything about its financials, and CEO Andrew Mason could happily declare that he’d much rather talk about building miniature dollhouses. Once it’s public, however, he’ll have a fiduciary responsibility to his shareholders, and will have to answer such questions at length. Will that make him happier than answering such questions with a death-ray stare? I doubt it, to be honest. Revenues and business models and profits and forecasts are serious things, and you can’t kid around with shareholders in the same way you can with journalists.

In other words, Mason will have to go from saying nothing, which can be fun, to saying something, which almost certainly won’t be. Rather than moan about his inability to say anything in the quiet period, he should enjoy it while it lasts. From now on in, the boring financial questions are going to be unavoidable — from analysts, from journalists, from shareholders, even probably from merchants and customers who wonder whether Groupon’s profitability is a sign that they’re being ripped off.

After reading the post in question, 'whiny' is probably the first adjective that will come to your mind as well. It's easy to understand how Mason, Lefkofsky and company might feel wounded. A few months ago, between the investor buzz and love letters from the Wall Street Journal, the people at Groupon could easily assume that they had a world full of friends. Now everyone's pointing out problems in your business model and asking why your marketing techniques seem twenty years out of date.

Those darned Canadians

The Daily Show - Canadian Oilverlords
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

If your BS detector isn't going off, you need to check your battery

When it comes to politics and journalism, the people at Talking Points Memo are about the best bullshit detectors you'll find. When it comes to the world of business, however, thye seem to fare no better than the typical New York Times reporter.

Take, for example, their positive review of this Economist piece on IBM's hundredth birthday. Here's the key observation from the Economist:

IBM’s secret is that it is built around an idea that transcends any particular product or technology. Its strategy is to package technology for use by businesses. At first this meant making punch-card tabulators, but IBM moved on to magnetic-tape systems, mainframes, PCs, and most recently services and consulting. Building a company around an idea, rather than a specific technology, makes it easier to adapt when industry “platform shifts” occur.

True, IBM’s longevity is also due, in part, to dumb luck. It almost came unstuck early on because its bosses were hesitant to abandon punch cards. And it had a near-death experience in 1993 before Lou Gerstner realised that the best way to package technology for use by businesses was to focus on services. An elegant organising idea is no use if a company cannot come up with good products or services, or if it has clueless bosses. But on the basis of this simple formula—that a company should focus on an idea, rather than a technology—which of today’s young tech giants look best placed to live to 100?

The article, which goes on to argue that Apple, Amazon and Facebook live up to this while Dell, Cisco and Microsoft do not, is a nearly perfect example of perhaps the most popular genre of business writing, the secret of success story.

Here's the template:

1. Come up with a positive-sounding platitude like "successful businesses are obsessed with quality" or "a company should focus on an idea, rather than a technology";

2. Make a short list of companies that are currently hot. You may also choose to make a list of not-hot companies for the purpose of contrast. It is not necessary for the hot companies actually to be more successful;

3. Claim that your platitude explains the success or failure of these companies. This will usually entail stepping over some rather deep holes. For example, the Economist explains IBM's 100 year run with an insight* the company's management supposedly had in 1993. (If you have the nagging feeling that you've heard this basic argument before, you're probably right).

In real life, it's next to impossible to find a secret-to-success that is both widely applicable and pretty. This isn't to say that you can't learn something useful by studying successful companies, but those lessons tend to be complicated and difficult to apply in other settings. When you do find one that is simple and general, it's usual something like 'you can overcharge customers if you keep your pricing opaque.'

Somehow, though, "you can fool some of the people enough of the time" doesn't have the inspirational quality for a good business slogan.


* If at all possible, work a visionary CEO's brilliant insight into the story somewhere.

Some confusion with the concept of future tense

McKinsey continues to deal with the fall out from its recent health care report:

Even as it issued the disclaimer that its report was not intended to be predictive, McKinsey linked to the report with the following teaser in its new statement: "The shift away from employer-provided health insurance will be vastly greater than expected and will make sense for many companies and lower-income workers alike."

Weekend Blogging -- Free TV edition

As you might have noticed, broadcast TV is a recurring topic at OE (for reasons too involved to pursue at the moment). Weigel Broadcasting is shaping up to be the Turner of this new media world. Here are some thoughts on Weigel's ThisTV:

ThisTV has caught on to the fact that the most interesting films are often on the far ends of the spectrum and has responded with a wonderful mixture of art house and grind house. Among the former, you can see films like Persona, the Music Lovers and Paths of Glory. Among the latter you'll find American International quickies and action pictures with titles like Pray for Death. You can even find films that fit into both categories like Corman's Poe films or Milius' Dillinger.

"Just when I thought I was out... they pull me back in." -- another Groupon post (merchant relations edition)

I keep meaning to move on from this subject, but Groupon keeps giving us new reasons to suspect that they aren't that interested in the interests of their merchant partners.


For the latest nail in this coffin, Felix Salmon sends us to this extraordinary post by Benjamin Edelman and Paul Kominers:

Voucher services typically seek to cast themselves as mere marketing vendors that are not responsible for the conduct of the corresponding merchants. For example, Groupon’s Terms of Sale claim that “The Merchant, not Groupon, is the seller of the Voucher and the goods and services and is solely responsible for redeeming any Voucher you purchase.” On this view, a voucher service avoids liability for merchants’ shortfalls.

But a voucher service is the merchant of record for the charge to the customer’s credit card. As the entity officially responsible for charging the consumer, the voucher service thus faces increased responsibility to see that the consumer receives what was promised. Furthermore, the voucher service, not the merchant, writes the promotional text touting the merchant’s offering. As Rakesh Agrawal points out, Groupon’s financial disclosures even count the entirety of the consumer’s purchase price as revenue to Groupon. In this context, a consumer naturally looks to a voucher service for assistance if a merchant fails to perform. We think it is probably an unfair and deceptive practice, under the FTC Act and state equivalents, for voucher vendors to attempt to disclaim liability in such circumstances.

More generally, we are struck by Groupon’s attempts to push all responsibility to merchants. On every relevant question — discounting alcohol, honoring expiration dates, providing cashback — Groupon’s historic contract and current Merchant Terms of Service claim merchants are responsible. In our view, this approach invites confusion and non-compliance. Voucher services are far better positioned than merchants to determine what the legal system requires: Voucher services can research regulations centrally, once for each state in which they operate, then notify affiliated merchants of applicable requirements. In contrast, Groupon’s current approach asks each individual merchant to conduct its own research. If merchants actually conducted such research, it would be duplicative and potentially wasteful — thousands of small businesses re-researching the same questions. But in fact merchants typically ignore the questions, rationally concluding that these questions are too difficult for them to address on their own. Thus, by pushing merchants do to the work individually, voucher services virtually assure that the work is not done at all.

Importantly, the legal and regulatory questions flagged in this article are questions that arise distinctively in the context of discount vouchers: a merchant would never confront such questions were it not for discount vouchers. Having created the transactions giving rise to this regulatory complexity, we think discount voucher services should be expected to achieve compliance.

So much for maintaining a light tone over the weekend

From the AP:

Americans are living longer, but not in every corner of the country. A new study shows that in hundreds of U.S. counties — mostly in the South — life expectancy has fallen.

The researchers believe problems like smoking and obesity are partly to blame.

"There are enormous variations within the country" said Dr. Christopher Murray, a University of Washington researcher. He's a study author and an editor of the online journal, Population Health Metrics, which released the study Wednesday.

Overall, life expectancy in the U.S. is at an all-time high. The Centers for Disease Control and Prevention recently estimated that a baby born in 2009 could expect to live 78 years and 2 months.

The CDC doesn't calculate estimates by county; Murray's research covers 2000 through 2007 when U.S. life expectancy grew a year to nearly 78.

A federal expert in these kinds of statistics said Murray's methods were sound, but the findings aren't terribly surprising.

The U.S. estimate actually dropped from 2004 to 2005, noted Bob Anderson of the CDC's National Center for Health Statistics. Given that downward blip — and the fact that statistics fluctuate more when you're dealing with smaller populations __ it's not unexpected to see some declines at the local level, he said.

The study found that life expectancy for women fell significantly in 702 of the nation's more than 3,100 counties. The largest declines — by nearly 2 years — were in Mississippi's Madison County, near Jackson, and the adjacent Hughes and Okfuskee counties in eastern Oklahoma.

"How To Party Your Way Into a Multi-Million Dollar Facebook Job" -- the sad state of business journalism

Andrew Gelman (before his virtual sabbatical) linked to this fascinating Gawker article by Ryan Tate:

If you want Facebook to spend millions of dollars hiring you, it helps to be a talented engineer, as the New York Times today [18 May 2011] suggests. But it also helps to carouse with Facebook honchos, invite them to your dad's Mediterranean party palace, and get them introduced to your father's venture capital pals, like Sam Lessin did.

Lessin is the poster boy for today's Times story on Facebook "talent acquisitions." Facebook spent several million dollars to buy Lessin's drop.io, only to shut it down and put Lessin to work on internal projects. To the Times, Lessin is an example of how "the best talent" fetches tons of money these days. "Engineers are worth half a million to one million," a Facebook executive told the paper.

We'll let you in on a few things the Times left out: Lessin is not an engineer, but a Harvard social studies major and a former Bain consultant. His file-sharing startup drop.io was an also-ran competitor to the much more popular Dropbox, and was funded by a chum from Lessin's very rich childhood. Lessin's wealthy investment banker dad provided Facebook founder Mark Zuckerberg crucial access to venture capitalists in Facebook's early days. And Lessin had made a habit of wining and dining with Facebook executives for years before he finally scored a deal, including at a famous party he threw at his father's vacation home in Cyprus with girlfriend and Wall Street Journal tech reporter Jessica Vascellaro. (Lessin is well connected in media, too.) . . .

To get the full impact, you have to read the original New York Times piece by Miguel Helft. It's an almost perfect example modern business reporting, gushing and wide-eyed, eager to repeat conventional narratives about the next big thing, and showing no interest in digging for the truth.

It is not just that Helft failed to do even the most rudimentary of fact-checking (twenty minutes on Google would have uncovered a number of major holes); it is that he failed to check an unconvincing story that blatantly served the interests of the people telling it.

Let's start with the credibility of the story. While computer science may well be the top deck of the Titanic in this economy, has the industry really been driven to cannibalization by the dearth of talented people? There are certainly plenty of people in related fields with overlapping skill sets who are looking for work and there's no sign that the companies like Facebook are making a big push to mine these rich pools of labor. Nor have I seen any extraordinary efforts to go beyond the standard recruiting practices in comp sci departments.

How about self-interest? From a PR standpoint, this is the kind of story these companies want told. It depicts the people behind these companies as strong and decisive, the kind of leaders you'd want when you expect to encounter a large number of Gordian Knots. When the NYT quotes Zuckerberg saying “Someone who is exceptional in their role is not just a little better than someone who is pretty good. They are 100 times better,” they are helping him build a do-what-it-takes-to-be-the-best image.

The dude-throws-awesome-parties criteria for hiring tends to undermine that image, as does the quid pro quo aspect of Facebook's deals with Lessin's father.

Of course, there's more at stake here than corporate vanity. Tech companies have spent a great deal of time and money trying to persuade Congress that the country must increase the number of H-1Bs we issue in order to have a viable Tech industry. Without getting into the merits of the case (for that you can check out my reply to Noah Smith on the subject), this article proves once again that one easily impressed NYT reporter is worth any number of highly paid K Street lobbyists.

The New York Times is still, for many people, the paper. I've argued before that I didn't feel the paper deserved its reputation, that you can find better journalism and better newspapers out there, but there's no denying that the paper does have a tremendous brand. People believe things they read in the New York Times. It would be nice if the paper looked at this as an obligation to live up to rather than laurels to rest on.

More bad statistics from Freakonomics

[Caveat: It is difficult to distinguish between bad and badly presented statistics. The reader should always allow for the possibility of a sound process terribly explained. It is possible that Dr. Sacerdote made some attempt to control for the factors mentioned below, but, just to put things in context, researchers in numerous fields (including epidemiology) are currently struggling with this problem with limited success. If Sacerdote has actually cracked this nut, Freakonomics is certainly burying the lede.]

Freakonomics Radio is not helping Marketplace's average.

Dubner: Let me let you hear from a different economist, his name is Bruce Sacerdote, he's at Dartmouth. He wanted to know how much this kind of activist-parenting -- if you want to call it that -- actually pays off. And one way to measure this, especially if you're talking about educational achievement -- which is what parents probably care about the most -- is to look at adoption studies, where you can actually measure the impact that a family, that the parents, will have on a kid.

Ryssdal: So what's his thesis, that kids adopted into, I guess, high-education homes will be more likely to go to college, is that the deal?

Dubner: Exactly right. If parents are so important, then parents can take an adopted kid who might otherwise not have gone to college, and that kid will become college material. So Sacerdote sliced and diced a lot of good data and he did find parental influence.

Bruce Sacerdote: But it's not quite as big as I expected to find.

Ryssdal: All right, so quantify for me: how big is not so big?

Dubner: If you're a child who's adopted into a high-education family -- that is where the parents both went to college -- you are about 16 percentage points more likely to go to college than a kid who gets adopted into a low-education family. So that sounds pretty good, OK?

Until you compare that to the rate for biological kids from high-education families, who are about 75 percentage points more likely to go to college than biological kids from low-education families. So on the one hand, this is a little dispiriting for parents. We don't seem to have as much influence as we might think. On the other hand, in a weird way, it kind of takes some of the pressure off, right? At least it did for Bruce Sacerdote.

Sacerdote: This notion that genes are really important and that kids are hard-wired to do certain things, I think understanding that did help me relax and not worry so much that I was going "screw them up" in some terrible way.

One of the concerns I have about sending an economist to do a statistician's job is that economists, by training, have a tendency to make things simpler.* This works reasonably well in economics where the problems are generally too complex to tackle without making some simplifying assumptions about linearity and additive effects and independence and where (perhaps more importantly) the economists have a pretty good idea of which corners can be safely cut. Unfortunately, when they move outside of familiar ground, you often get something like this.

Unless something important has been left out (always a possibility when something is presented to a general audience), Sacerdote has made the common but serious mistake of treating a select group as a random sample. People who choose to adopt are not a random sample of parents, particularly given the difficulties in the process, and those who do self-select have to go a difficult approval process.

Think for a moment about how unrepresentative the resulting sample is. Now consider traits that are likely to be correlated to both parents' and children's education levels and which the process is likely to select for or select out. Here are a few that come immediately to mind:

Teen parenthood;

Unplanned parenthood;

Poverty;

Drug abuse;

Career level (high income may not be a requirement but financial stability is and these days that represents a significant career accomplishment);

Encouragement and support**;

Educational expectations for their children (I can't imagine that all that many prospective parents who don't give a damn about their kid's education make it to the end of the process).

The genetic component of this question is confounded with all these things and more. As a result, (at least as presented here) Sacerdote actually succeeds in proving the opposite of his conclusion. His example doesn't show what, if any, role genetics plays in how likely a kid is to go to college. That 75 could be mainly the result of poverty (which is highly correlated to parent's education levels). I'm not saying that it is but there is no way of ruling out that and other explanations.

What Sacerdote has shown is that even when you control not only for genetics but also for most obvious environmental factors, you still got a 16 point bump just from having adoptive parents who both went to college. Under any circumstances this would be a substantial improvement but in the context of this natural experiment it's huge.

At the risk of over-sharpening the blade, we have here a natural experiment that shows nothing about the role of genetics in academic achievement. What it does show is that even when you greatly reduce most of the obvious parenting-related environmental sources of variability, you still get a substantial effect from the remaining factors. A highly respected researcher then uses this example to argue publicly that genetic factors far outweigh the impact of parenting.

We really need to do something about Freakonomics.

(I'm also not comfortable with the way Sacerdote gives a percentage difference rather than the ranges but that's a subject for another post)


* There are, of course exceptions. Most notably Nate Silver.

** I'm pretty sure in most low education adoptive homes you won't see this relationship:

Hart and Risley also found that, in the first four years after birth, the average child from a professional family receives 560,000 more instances of encouraging feedback than discouraging feedback; a working- class child receives merely 100,000 more encouragements than discouragements; a welfare child receives 125,000 more discouragements than encouragements.

Is Megan McArdle abandoning the Chicago School?

In the previous post, Joseph directed us to this piece by Megan McArdle. As with almost everything McArdle writes, there was much that was worthy of comment, but this passage struck me as especially interesting:

People really underweight the role that norms play in sustaining a modern economy. I suspect that if the "default option" folks got their way and people started regarding default as a commercial decision with no more moral weight than changing cable vendors, the advocates of this position would be unpleasantly surprised to find that the only thing less fun than being young and burdened with student loans is being young and completely unable to access any form of credit at all.

My first corporate job was building models to decide who got unsecured loans and, based on that experience, I'm pretty sure she's wrong in the particulars. A change in attitudes would affect default rates somewhat but there are a number of powerful external incentives here that would limit the impact of a new set of norms.

I agree, however, with McArdle's larger point, which is strange, since I don't believe that McArdle agrees with it herself.

As noted before, freshwater economics is essentially a reductionist approach that relies heavily on a number of simplifying assumptions. If you claim that social norming plays a significant role in the economy, then you have to allow for local optima and plateaus and collective action problems and all sorts of behavior that is not rational in the economic sense and which will not average out when you look at things in the aggregate. That way lies madness and perhaps even Keynesianism.

It's possible that McArdle is starting to question what she learned at the feet of her Booth School professors, but I think it's more likely that she's willing to engage in a bit of intellectual inconsistency to reach her desired conclusion.

Some reflections on student loan debt

I have a mixed set of feelings about Megan McArdle's Atlantic column. Sometimes I could not disagree with her viewpoints more (mostly when she rails against government spending without a good discussion of what a "public good" really is). Other times I think she does a very good job of thinking through the issues. A recent case in point is her posts on student debt. In these posts she does a really commendable job of pointing out two things that are important:

1) It is very hard to settle student loan debt and the lenders have ruthless policies to singificnatly increase what you owe

2) There is a problem with a social norm that makes default a trivial event

That being said, I must admit that the elephant in the room is probably the increasingly draconian state of US debt law. The stories of police raids over student loans (actually not owed by the person being put in handcuffs) may be missing important facts but the general picture is not pleasant.

But, at a more prosaic level, the inability to fail has a lot of serious issues. I have little sympathy for Elie Mystal , per se, but I do see a broad culture of making things worse when one experiences adverse life events. If one should end up unemployed they may well have no health insurance, limited access to bankruptcy for large debts (student loans), and have issues with basic necessities.

I am all for civic virtue and personal responsibility. These are both things that I wish we had more of. But I worry that we are creating a culture of cascading failures where one thing going wrong can set off a series of disasters. In a world with long term unemployment, is this really a good direction to be going?

What fun is it firing people if you don't get to humiliate them too?

I am at a loss to find any other explanation for this.

Rhode Island does, however, offer a bright side for educators and job security. If you can make it past principal, you seem to be safe. Take Frances Gallo and Victor Capellán, two administrators overseeing a school district so small it only includes one high school, one middle school and a few elementary schools. Despite this high administrator to school ratio, even the most basic aspects of administration (such as scheduling substitutes) are routinely screwed up.

Gallo and Capellán admit the schools that they are responsible for are terrible, but they don't hold themselves responsible. If you can't guess who they do blame, you haven't following the education reform movement.

Some products simply demand a targeted approach

From Yahoo:

Even the most die-hard users admit to having bought some turkeys. Kris Kendall, a marketing manager in Freemont, Calif., has been labeled a "Groupon pimp" by her buddies, since she buys several offers every week and is constantly emailing her friends about terrific deals. But the occasional missteps have cost her serious money.

... "I've also let a few expire because I just never had the mojo to go -- namely, a pole-dancing workout class which I bought for a bunch of my friends, and then we never actually went."

Weekend Gaming -- in memoriam/elegant games

[It does not bode well when you need to make time Monday to catch up on things you were supposed to do over the weekend.]

Toy Designer Ned Strongin Dies at 91

Strongin was known for designing and licensing several award-winning toys, including Connect Four, Weebles, Giggle Wiggle and the Wiggly Giggly ball. Connect Four, his most commercially successful invention, remains one of Hasbro's best-selling games.

"Ned was regarded in the toy and game industry as one of the three post-World War II 'fathers' of external toy and game inventions, along with Marvin Glass and Eddy Goldfarb," said Phil Orbanes, president of Winning Moves Games. Orbanes worked with Strongin to license Giggle Wiggle to Hasbro Games.

If you're not familiar with the Connect Four, here's the introduction from Wikipedia:

Connect Four (also known as Four Up, Plot Four, Find Four, Four in a Row, and Four in a Line) is a two-player game in which the players first choose a color and then take turns dropping their colored discs from the top into a seven-column, six-row vertically-suspended grid. The pieces fall straight down, occupying the next available space within the column. The object of the game is to connect four of one's own discs of the same color next to each other vertically, horizontally, or diagonally before one's opponent can do so.

It's an entertaining and genuinely challenging game and it illustrates the most fascinating attributes of what I've called elegant games: a simple rule or condition (in this case, that each column must be filled from the bottom up) can greatly increase the complexity and subtlety of a game.

A Groupon postscript

Felix Salmon directs us to Kevin Kelleher's memorable profile of Groupon's co-founder and chairman.

FORTUNE -- "Lets start having fun... lets get funky... let's announce everything... let's be WILDLY positive in our forecasts... lets take this thing to the extreme... if we get wacked [sic] on the ride down-who gives a shit... THE TIME TO GET RADICAL IS NOW... WE HAVE NOTHING TO LOSE..."

This is a quote from the dot-com era. It's pretty much what you'd expect a novice executive to say back then, when it was all about money and not at all about creating something good. It was written in an email by the co-founder of a company called Starbelly.com, which labeled itself a B2B provider -- back when people greeted that phrase with a straight face.

In early 2000, Starbelly sold itself to another company called Ha-Lo Industries for $240 million, much of which went to the author of those words, a man named Eric Lefkofsky. Not long after that transaction, Ha-Lo declared bankruptcy. Shareholders and others blamed the Starbelly deal, and a series of lawsuits ensued.

After that, it gets even more interesting.

More on McKinsey

As Joseph already mentioned, the recent report from McKinsey from the economic impact of health care reform has generated a lot of controversy. Now, courtesy of TPM, we learn that some of that controversy extended to the organization itself.

The predictable fallout led Democrats, and several reporters, to press McKinsey for the survey itself -- a request McKinsey has declined on the grounds that the material is proprietary.

But multiple sources both within and outside the firm tell TPM the survey was not conducted using McKinsey's typical, meticulous methodology. Indeed, the article the firm published was not intended to give the subject matter the same authoritative treatment as more thorough studies on the same topic -- particularly those conducted by numerous think tanks, and the Congressional Budget Office, which came to the opposite conclusion. And that's created a clamor within the firm at high levels to set the record straight.

"This particular survey wasn't designed in away that would allow it to be peer review published or cited academically," said one source familiar with the controversy.

All sources were granted anonymity, in order to be able to speak candidly about the controversy.

Reached for comment today, a McKinsey spokesperson once again declined to release the survey materials, or to comment beyond saying that, for the moment, McKinsey will let the study speak for itself. However, McKinsey notes that the survey is only one indicator of employers' potential future actions -- that the conclusions remain uncertain and employers' future decisions will ultimately depend on numerous variables. The three authors of the report were not immediately available for comment.

Another keyed-in source says McKinsey is unlikely to release the survey materials because "it would be damaging to them."

Both sources disagree with the results of the survey, which was devised by consultants without particular expertise in this area, not by the firm's health experts.

A third source speculates that the firm may have reached its outlying conclusion by basing its questions on the firm's own advice to clients on how best to arbitrage the new reforms. Specifically, under the law, employers could devise their benefits packages in ways that makes them unappealing to lower-income employees, who would then have to enter the exchanges. Though TPM could not confirm this, the conclusion is supported by a disclosure within the McKinsey study itself.

Reporting on methods

Austin Frakt has the definitive take on the new McKinsey report:

As someone who does research, this really bothers me. It should bother you too. Look, anybody can say what they like on a topic. They can put out a glossy report. They can claim they did a “survey” to make it sound scientifically rigorous. They can talk to the media all about it. They can stand behind their good name and reputation, if they have one. But when what they’re saying runs counter to previous experience and other credible estimates, they’d better have a good explanation.

But, McKinsey has no explanation. None. They’re stonewalling. You know what would happen to me if I tried that? Suppose I sent my new results to a journal, results that were very different from that of others, and said, “Trust me. They’re good.” Well, my paper would be laughed out of the editorial office.

And that’s as it should be. That would not be research. That would be the opposite of research. That would be indistinguishable from making things up. Well, anybody can make things up. The difference between making things up and actually doing some sound, rigorous work is the difference between fiction and reality.

It is no surprise that I, also, see the methods as being critical. Some extremely misleading associations can occur depending on how the sample was developed and how the survery was conducted. Of special concern:

"Our survey shows significantly more interest in alternatives to ESI [employer sponsored insurance] than other sources do, for several reasons," the report says. "Interest in these alternatives rises with increasing awareness of reform, and our survey educated respondents about its implications for their companies and employers before they were asked about post-2014 strategies. The propensity of employers to make big changes to ESI increases with awareness largely because shifting away will be economically rational not only for many of them but also for their lower-income employees, given the law's incentives.

So the survey educated employers on how it would be economically rational to not give health insurance and then 70% of them still decided to do so!! This is the precise opposite of the headline -- that employers will tr to keep covering employees even if it is not an optimal strategy. Probably because they want to do right by their employees.

Why is this key issue not getting a lot more attention in the interpretation of the report? And why is McKinesy's reputation not being brought into question given that they released such a report?

update: The fallout continues.

"We've made huge advances in what they're called"*

I have a feeling we're going to get awfully tired of the word 'social.'

US. American Express launched an integrated marketing campaign today showcasing the possibilities that exist within its Membership Rewards programme, with a focus on demonstrating how points are a ‘social currency’, that when redeemed help cardmembers connect to the people, experiences and things they love.

* For the source of the quote, click here.

The real problem with Groupon

If you've been reading this blog over the past few days you've probably picked up on the fact that neither if us is a big fan of Groupon as an investment. We've talked about issues with priming and adverse selection, the company's oddly primitive approach to targeting and its curious indifference to customer data. We didn't even get around to the difficulties with running a business based on so many merchant partners.

But as serious as these things might be, they are fixable. A management shake-up, a few smart people in the right places. I've seen business lines with bigger problems turned around and by companies with fewer resources than Groupon.

Problems with business plans are different and when you look at the bare bones core of Groupon's business plan, stripped of all the hype and obfuscation and needless complexity, Groupon is based on bringing together customers and merchants and convincing both to do something they normally hate doing: respectively, paying up front and taking a loss.

A Groupon offer is not a coupon; it's what we would normally think of as a gift card, a really crappy gift card at an exceptionally good price. How crappy? It can be used at only at a specific business (sometimes only at one location). You have to buy it on their schedule. Many if not most have expiration dates. Some even have blackouts on holidays. Finally, it can only be used one-per-visit with any unused balance being sacrificed.

People purchase these terrible cards partly because of the considerable (and non-sustainable) level of advertising and buzz; mainly, though, they buy them because the discount, both nominal and effective, is huge. (Felix Salmon has argued that the effective discount can be much smaller, but based on the offers I've received and reports from other users, it's generally easy to keep a purchase close to the offer amount.)

In other words, Groupon has huge revenue because, even when you take into account breakage, its merchant partners are offering huge discounts and certainly, in some cases, taking a loss.

What do merchants get in exchange for these discounts? The stated reason is to bring in new customers, but if that's your goal, Groupon is a terrible choice. Its customer list is enormous but of poor quality and the company hasn't even bothered to gather the data needed to do the most basic of targeting. There are any number of options using the internet and/or traditional media that will bring in a much higher percentage of the right kind of customers.

But merchants keep coming to Groupon despite its mediocre list and the fat slice it takes out of every deal (from Wikipedia):

As of 2010^[update], it is difficult for local merchants to get Groupon interested in agreeing to a particular deal. According to the Wall Street Journal, seven of every eight possible deals suggested by merchants were dismissed by Groupon.

Just to be clear, merchants spend time and effort putting together offers that will probably be rejected and, if they're not, will probably bring in a lot of customers they don't want. They do this because Groupon has successfully branded itself as the next big thing.

This is not something the company stumbled into. Groupon has aggressively pursued fast growth, generated ubiquitous buzz and has done its damnedest to portray itself as part of the social media movement. The 'social' aspect of Groupon's business has always been trivial to the point of cosmetic but it plays a large, even dominant role in the public image of the company.

In one sense, Groupon's strategy has worked very well. After all, the people who started the company will almost certainly walk away with a great deal of money. Eventually, though, the company will have to make the transition to former next big thing and since being the current next big thing is an essential part of the company's model, that transition is not going to be pretty.

(Probably) OE's penultimate Groupon

From the the easily impressed Wall Street Journal:

Yet for Mr. Lefkofsky, Groupon wasn't a one-off in the lottery of high-tech wealth. It was an extension of a lifetime of starting and selling companies-- sometimes with mixed results. The process has led him to a set of guiding business principles: Enter big, fast-growing markets, change course when things aren't working and use data as your guide.

"In our current environment, business and customers are changing so much faster than in the old days," he said in an interview. "You need access to information to figure out what to do next."

Just for future reference, a lot of fast moving, information-based companies start collecting data on customers as soon as they launch.




(I'm still having trouble believing this is a new feature.)

How exactly do you cold call a CT scan?

Via Chait, M.S. at the Economist has some sharp thoughts on the way markets handle health care.

Here's one example among a million. The other day I went to the IPO announcement of a company that does some fairly state-of-the-art medical stuff. The company was spun off from a public institute a few years back to exploit this technology, but it's been unable to establish significant revenue or market share, or to get within shouting distance of breaking even. Meanwhile, competitors with similar technologies have gobbled up most of the market share, and one is already quite profitable. The company said it planned to raise some tens of millions of dollars with the share issue, many times its current annual expenditures and about a third of its overall market cap. And what would it do with this money? It was going to use half of it to finance a marketing drive, targeting key decisionmakers at American health-care providers and health insurers, and doctors.

Why hadn't this company been able to generate significant revenues? Were its technologies inferior? No, said an independent molecular biologist I talked to. Its product was certainly as good as the competition's. Moreover, it had actually gone to the trouble of getting its technology approved by the FDA, which the competition hadn't. (In this sub-sector FDA approval isn't yet mandatory.) But it hadn't marketed itself well. It hadn't established the relationships with providers and insurers that would ensure that its product was the one they selected. Doing so would require a marketing budget of tens of millions of dollars, in a sub-sector where the entire annual market is a few hundred million dollars.

Just think about this for a minute. A medical technology company is going public to generate the money it needs to advertise its products to hospital directors and insurance-company reimbursement officers. This entails significant extra expenditures for marketing, the new stocks issued to fund the marketing will ultimately have to pay dividends, banks will have to be paid to supervise the IPO that was needed to generate the funds to finance the marketing campaign (presumably charging the industry-cartel standard 7%)...and all this will have to be paid for by driving up the price the company charges to deliver its technologies. But beyond the added expense, why would anyone think that a system in which marketing plays such a large role is likely to be more effective, to lead to better treatment, than the kind of process of expert review that governs grant awards at NIH or publishing decisions at peer-reviewed journals? Why do we think that a system in which ads for Claritin are all over the subways will generate better overall health results than one where a national review board determines whether Claritin delivers treatment outcomes for some populations sufficiently superior to justify its added expense over similar generics? What do we expect from a system in which, as ProPublica reports today, body imaging companies hire telemarketers to sell random people CT scans over the phone?

Canadian Health Care

Aaron Carroll provides support for the Canadian Health Care system after comments by Paul Krugman. It is a pretty devastating critique (quality seems slightly higher) made even more so when you consider cost and universal access.

The universal access point is important. When people talk about fear and uncertainty (for business) as being a concern, I think it could also be an issue at the individual level. After all, the fear of an unexpected dread disease appears to be a major concern for most people. How much better would it be if we could eliminate these concerns by breaking the link between health coverage and employment while controlling costs in an effective manner?

The most startling thing in Dr. Carroll's graphs was that physicians are beginning to emigrate to Canada (on net). So even the medical care specialists (with requisite wage controls) seems to like the system.

Cap'n Crunch -- the Movie (you know they'll get around to it eventually)

In the progression of movies-based-on-old-TV-shows to movies-based-on-theme-park-rides to movies-based-on-board-games (via About.com), this would seem to be the next logical step.

Constantine von Hoffman summarizes the latest crop of films based on consumer goods:

Universal is set to make Ouija with the single-named director McG (Terminator Salvation) in line to join TRON: Legacy writers Edward Kitsis and Adam Horowitz — not the guy from the Beastie Boys, who’s Adam Horovitz, with a “v”. And this is all under the watchful eye of Michael Bay’s

• production company.
  
• Ridley Scott is developing Monopoly. Yes, the Ridley Scott who made Aliens and Gladiator. Lord, I wish I could make up stuff this good.
• Jonathan Aibel and Glenn Berger, who co-wrote that timeless classic, Kung-Fu Panda 2, have said they are working on the Candy Land script. No, a gun was not being held to their heads when they said this. What a strange question.

The back story here (which is much more interesting than any of these movies are likely to be) involves innovation, demographic shifts, winnowing processes, business psychology and a truly nasty collective action problem, but the upshot is a situation where name recognition of any kind is given far more weight by studio executives than can be justified by modelling or common sense.

On the bright side, a Cap'n Cruch movie should produce a nice check for the estate of Jay Ward.

If you recognize this picture, you don't have to give your age

Uncertainty and default -- another "if you don't post it someone else will"

I'd been meaning to post something about the uncertainty caused by Dodd-Frank and Clinton Era taxes compared with the uncertainty cause by the debt limit showdown, but David Frum beat me to it with a very good post:

Personally, I’m not very convinced of the “business confidence” theory of the weak recovery.

I would myself lay much more emphasis on economic factors like: (i) the continuing destruction of American consumer wealth as housing prices deflate; (ii) the burden of rising oil prices; (iii) the collective decision of American consumers to increase their saving by 6 points of personal income – a laudable decision, but one that subtracts a lot of demand from the economy.

But if I were a believer in the business confidence theory, here’s the counter-question I’d put to Michael Barone:

Which is more likely to subtract from business confidence: a lame speech by the president – or a highly credible and sustained threat by the majority party in the House of Representatives to force a default on the debts, contracts, and other obligations of the United States?

Stan Collender and James Kwak are also on the case.

Adverse selection, misaligned interests and Groupon

[Sorry about the all-Groupn-all-the-time blogging. We've got some more varied posts in the queue.]

As you might have guessed, we here at OE are starting to get a bad feeling about Groupon's business plan, particularly given that the company's success relies on targeting customers but the company has badly mismanaged the collection of the most rudimentary of customer data.

Another challenge the company faces is adverse selection. In order to be sustainable, Groupon has got to connect merchants with the right kind of customers. If the people who reply to offers are mainly bargain hunters, merchants will realize that these huge discounts aren't worth the money and the whole system will collapse.

You would expect Groupon to try to target 'future regulars' with pitches like "Looking for an excuse to try something new?"

Instead we get this:



This is, admittedly, a small thing, but it shows, at the very least, an inattention to detail and, at worst, a willingness to prioritize getting another email address over protecting the interests of Groupon's merchant partners.

The people behind Groupon have proven extraordinarily adept at running up big numbers and generating hype, but they have shown remarkably little interest in setting up a sustainable, profitable company. Their targeting strategies would have been considered somewhat primitive a decade ago. Their attitude toward customer data is nonchalant (see here for examples of both). They've used a carpet bombing approach to advertising (including the inevitable Super Bowl ad) which generates large email lists but seldom produces high quality ones.

All of this makes me wonder if these people are more focused on the stock price in 2012 than in the solvency of the company in 2020.

Sawdust in the transmission

I was thinking about companies designed to look good long enough for the investors to get safely past the IPO and the sawdust analogy hit me.

Which gave me an excuse to dredge up another favorite bit of Southern pop culture...

[if you have trouble viewing this on your browser -- and thanks to Blogger you probably will -- you might want to view or download it at Internet Archive]



Trivia bonus points: Griffith has said this was his favorite episode.

p.s. This is a public domain copy that doesn't include rights to the theme. You might want to mute the first thirty seconds or so.