Monday, March 26, 2012

Seventeen thousand and change

My first job after getting my master's in statistics in the Nineties was as a lecturer at large state university. It was a full time, 9-month position and I stayed there for four years. During all that time I never broke eighteen thousand dollars a year.

I really didn't mind the low salary. The work was enjoyable and I've always been good at living within my means. Besides, there were adjuncts who had it worse than me. Still, seventeen thousand and change is a good number to keep in mind when you read something like this (by David Levy via Krugman):
With the 1970s advent of collective bargaining in higher education, this began to change. The result has been more equitable circumstances for college faculty, who deserve salaries comparable to those of other educated professionals. Happily, senior faculty at most state universities and colleges now earn $80,000 to $150,000, roughly in line with the average incomes of others with advanced degrees.

Not changed, however, are the accommodations designed to compensate for low pay in earlier times. Though faculty salaries now mirror those of most upper-middle-class Americans working 40 hours for 50 weeks, they continue to pay for teaching time of nine to 15 hours per week for 30 weeks, making possible a month-long winter break, a week off in the spring and a summer vacation from mid-May until September.
Seventeen thousand and change.

It is a deeply dishonest piece filled with statistical sleight-of-hand and numbers that don't add up. Robert Farley does a good (though hardly exhaustive) job of laying out the fallacies. I'm not sure I have much to add to it other than to recommend that as you're reading Levy's piece you stop from time to time and repeat to yourself,

"Seventeen thousand and change."

Sunday, March 25, 2012

Weekend gaming -- mutant sprouts

A while back I posted a recommendation for a popular pencil-and-paper game:

On the subject of topology, my game of choice is Sprouts, invented by mathematicians John Horton Conway and Michael S. Paterson at Cambridge University in 1967 (as a general rule, you can't go wrong with a game if Conway had anything to do with it).

The rules are simple:

1. Start with some dots on the paper. The more dots you have the longer the game takes so you will probably just want to start with two or three.

2. Players take turns either connecting two of the dots with lines or drawing a line that loops back and connects a dot with itself.

3. The lines can be straight or curved but they can’t cross themselves or any other lines.

4. Each dot can have at most three lines connecting it

5. When you draw a line put a new dot in the middle.

6. The first player who can’t draw a line loses.
I was thinking about sprouts the other day and a few variations occurred to me. I don't know if they're particularly playable or if they add any interesting aspects to the game, but if you can't put a half-baked idea in a blog, what's a blog for?

Variant 1 -- Free sprouts

Played as above but with the following addition: for the first k moves of a game with n dots, the player, after drawing a line, adds a new dot.

Topologically the result is a game with n+2k dots (keep k small) but with the complication that lines are being drawn without knowing exactly how those lines partition the surface. This is still a game of perfect information but the variation should make it more difficult to think a few moves ahead.

Variant 2 and 3 -- Scored sprouts

Each player starts with a separate sheet of paper and proceeds to connect the dot according to the standard rules. After no more lines are possible, the players score their graphs based on the number of dots.

Score = 6


Score = 7

In variant 1 the player with the highest score wins. In variant 2, the win goes to the lowest.

Also posted at Education and Statistics.

Saturday, March 24, 2012

Mark and I both remarked on this post

Noah Smith: 
A homeless girl turns out to be a science genius. I see stuff like this all the time. My brother-in-law grew up in a trailer with a teenage single mom, and he's now completing his PhD. My friend grew up poor in rural Northern California with a drug-abusing single mom, and now she's a neurosurgeon. There is so much human capital hidden in the poverty-stricken backwaters of America, it's absurd. And yet I still read pronouncement after smug pronouncement from guys like Bryan Caplan, declaring that success is all about I.Q., and that it's no use trying to increase economic opportunity because everyone is already just where their I.Q. dictates they should be. What a load of poppcock, rubbish, stuff & nonsense.
 The idea that social position is already perfectly distributed based on merit is reassuring for those in high socio-economic positions but seems dangerous.  At some point I will give my Ayn Rand critique again (the places where Ms. Rand's philosophy is unable to cope with actual people).

But the world is filled with people who have been successful despite being poor or disadvantaged.  That should be celebrated and not suppressed.

Friday, March 23, 2012

Consequences

Matthew Yglesias has a really good point on economic policy:
But of course "the policy of economic austerity" is not a living breathing human being with feelings and interests and values. And the specific human beings who pushed austerity policies on Europe—central bank chief Jean-Claude Trichet and his successor, their colleagues on the ECB board, Angela Merkel and her coalition partners, etc.—have not been dealt personal blows here either. They're all fine. The blow has been dealt to unemployed Irish people who are hoping to get jobs soon. The blow has been dealt to Irish small business operators who have a decent underlying product and were hoping to expand production when customers would have a bit more cash in their pockets. The blow is dealt to Irish kids who are going to school with parental joblessness and economic distress hanging over their heads.
I have been seeing the same line of thinking from Karl Smith over at Modeled Behavior and I think it is overdue in the public discourse.  Policies often hurt individual people, and not usually those who are making these decisions.  I actually don't see this as a failure of government so much as social cohesion and the idea that we all benefit from a strong and well functioning economy.

Policy is interesting in the abstract, but it is worth remembering that bad policy has consequences for specific people in the real world.

Thursday, March 22, 2012

More on the growth fetish -- Facebook vs. Groupon

There is a worthwhile exchange going on between Felix Salmon and Pascal-Emmanuel Gobry. I've already quoted Salmon, but Gobry makes some good points as well. Still, the part I found the most interesting is the part I think he got wrong.
Breakthrough technology startups are different from other kinds of businesses in that they either create a new market or violently disrupt an existing one. This means that they almost invariably require to spend lots of capital in order to stake out a defensible market position against their numerous competitors. In particular, many technology markets have winner-take-most or winner-take-all dynamics, either because of network effects or economies of scale…

Felix writes that Groupon had a profitable Q1 2010 and “it’s easy to see how it could have grown steadily from that point onward.” Except that given the characteristics of the daily deal business, particularly the need for scale, what would have happened if Groupon had tried to “grow steadily” and profitably, is that the company wouldn’t be around anymore.

It’s LivingSocial that would have raised over a billion dollars and be worth $10 billion today, Groupon would have been sold for scrap like BuyWithMe and plenty of other daily deals also-rans, and Andrew Mason would be back to doing yoga on YouTube. Groupon would be a footnote.
This illustrates (at least for me), a common error among growth fetishists -- overgeneralizing valid arguments for growth-at-all-costs. The first paragraph above is absolutely on target. There are situations where establishing dominance and critical mass as quickly as possible is incredibly valuable. Cases like Facebook. To make a bad pop culture reference, when it comes to mainstream social networking sites, there can be only one. Once Facebook was in place, all that was left was niches.

Put another way, it would cost more to unseat Facebook than it did to build it. Under those circumstances, Zuckerberg's bury-the-problem-in-money approach to running a business made sense (even if it was aesthetically lacking).

The first mover advantages for Groupon are far less obvious. There's no reason why we couldn't have two online gift card businesses. Consumers would get a wider selection and the merchants would almost certainly see lower fees (there's no way Groupon could charge those rates in a competitive market). Nor are the economies of scale that significant, at least not for the part of the business based on arranging deals with local merchants.

A potential competitor would have to spend a lot of money building a mailing list but probably not that much more than Groupon spent on its list. In short, if a potential competitor were to spend as much money as Groupon has, it might just catch up (particularly given the fact that Groupon is not a very well run company).

In terms of lifetime value, I suspect that the money Groupon spent on explosive growth was badly invested. However, in terms of buzz and stock price, it may have been money well spent as far as the backers were concerned.


Venture capital and the growth fetish

Felix Salmon has another smart post on venture capital and the way he feels it distorts American business:
Another way to look at this question is to compare US fight-to-be-number-one capitalism with the kind of capitalism practiced in undeniably successful countries like Germany, Korea, Brazil, and Japan. Those countries don’t have nearly as many world-beating behemoths as the US does, but overall their economies and current accounts are doing very well on a bedrock of medium-sized firms and family-owned corporations.

So in a way, Gobry is making my point for me. The IPO market and the VCs who feed off it are playing a game which might make a small number of people extremely rich, and which will create a very small number of hugely successful world-beating companies. They’re not playing a game which is good for founders; they’re not playing a game which is good for healthy, long-lived companies; and they’re not playing a game which is good for the economy as a whole. That’s kind of the point I’m making in the piece when I say that “Silicon Valley is full of venture capitalists who have become dynastically wealthy off the backs of companies that no longer exist”.
I think this fits nicely with one of our ongoing themes here at OE, the growth fetish:
Think of it this way, if we ignore all those questions about stakeholders and the larger impact of a company, you can boil the value of a business down to a single scalar: just take the profits over the lifetime of a company and apply an appropriate discount function (not trivial but certainly doable). The goal of a company's management is to maximize this number and the goal of the market is to assign a price to the company that accurately reflects that number.

The first part of the hypothesis is that there are different possible growth curves associated with a business and, ignoring the unlikely possibility of a tie, there is a particular curve that optimizes profits for a particular business. In other words, some companies are better off growing rapidly; some are better off with slow or deferred growth; some are better off simply staying at the same level; and some are better off being allowed to slowly contract.

It's not difficult to come up with examples of ill-conceived expansions. Growth almost always entails numerous risks for an established company. Costs increase and generally debt does as well. Scalability is usually a concern. And perhaps most importantly, growth usually entails moving into an area where you probably don't know what the hell you're doing. I recall Peter Lynch (certainly a fan of growth stocks) warning investors to put off buying into chains until the businesses had demonstrated the ability to set up successful operations in other cities.

But the idea of getting in on a fast-growing company is still tremendously attractive, appealing enough to unduly influence people's judgement (and no, I don't see any reason to mangle a sentence just to keep an infinitive in one piece). For reasons that merit a post of their own (GE will be mentioned), that natural bias toward growth companies has metastasised into a pervasive fetish.

This bias does more than inflate the prices of certain stocks; it pressures people running companies to make all sorts of bad decisions from moving into markets where you don't belong (Borders) to pumping up market share with unprofitable customers (Groupon) to overpaying for acquisitions (too many examples to mention).
I didn't consider the role of venture capital at the time. Perhaps I missed the biggest factor.

Wednesday, March 21, 2012

Misleading chart of the day

First, consider this chart (as reproduced by Matthew Yglesias):


Now examine Aaron Carroll's great rebuttal!

In general, I think Yglesias is correct that it is difficult to have any real reliability for 75 year cost projections (I wonder what the confidence limits are?).  So much is likely to change over this period of time and the prioirites of the nation may be so different that it is completely unclear how helpful such an exercise will be.  Not only do we have issues with technological and political change, but it would be odd if no future government altered policy priorities or if we could accurately guess economic growth over such a period. 

Freakonomics

Andrew Gelman's blog has a nice discussion of Freakonomics that is very topical given the discussion of Mike Daisy.  I think that he was a pretty balanced response to Stephen Dubner,who seemed to be rather distressed by the Andrew Gelman and Kaiser Fung response. Instead, I think that pointing out issues in a provocative and thought-provoking blog is essential. I admit that I often get very frustrated with the constant criticism of peer review. But it is essential to have errors pointed out and I have not seen a better way to have that happen then to have the mistakes repeatedly pointed out -- it sure makes me more careful as an epidemiologist.

One piece that I do think is worth reflecting on is this one:
Their first example of a “mistake” concerns a May, 2005, Slate column we wrote about the economist Emily Oster’s research on the “missing women” phenomenon in Asia. Her paper, “Hepatitis B and the Case of the Missing Women,” was about to be published in the Aug. 2005 issue of the Journal of Political Economy. At the time, Levitt was the editor of JPE, and Oster’s paper had been favorably peer-reviewed.  
Oster argued that women with Hepatitis B tend to give birth to many more boys than girls; therefore, a significant number of the approximately 100 million missing females might have been lost due to this virus rather than the previously argued explanations that included female infanticide and sex-selective mistreatment.  
Other scholars, however, countered that Oster’s conclusion was faulty. Indeed, it turned out they were right, and she was wrong. Oster did what an academic (or anyone) should do when presented with a possible error: she investigated, considered the new evidence, and corrected her earlier argument. Her follow-up paper was called “Hepatitis B Does Not Explain Male-Biased Sex Ratios in China.”
 I think that this missed the point of what was causing concern with this article.  An economist wanders into public health and overturns the conventional wisdom completely by considering a possible predictor but not really understanding why epidemiologists had not considered a disease-based explanation before.  It should not be considered a small point that the article showed up in an economics journal and not in a journal where it would be reviewed by experts in the clinical area. 

Is this necessary wrong to have reported potentially exciting new results?  No.  It is also true that people did put the effort into reporting when the understanding changed.  But this was in a well developed area of public health with very high policy stakes and people willing to put in a lot of effort to understand if there could be an alternate explanation.  So it induces some skepticism about "counter-intuitive" claims in areas where there are not the resources to scrutinize these claims deeply. 

Now it is natural that research has an error rate.  I wish it did not (especially not my research).  But it does point out the hazards of popularizing prelimary results.  I think I am especially sensitive to this issue as no field is more guilty of alarming and counter-intuitive findings than pharmacoepidemiology.  So I look for clues that make me cautious about publicizing preliminary results before they are really ready for prime time. 

Tuesday, March 20, 2012

The Mike Daisey incident illustrates the best in modern journalism

You might think that after some recent posts, I'd be reluctant to jump in with a counterintuitive headline like this and I'll admit I did hesitate a bit but I think the central point here is getting obscured and it's an incredibly important one.

We have always had and will always have people like Mike Daisey, serial fabulists with a gift for self-promotion. We will also always have journalistic sluggards who don't bother to check their facts and derivative hacks who pass on the conventional wisdom without scrutiny or independent thought.

The question is what do we do about these people, and the answer recently has generally been little or nothing. By comparison, the response to the Daisey incident was strong and apt and it gives us a simple template that, if followed, could go a long way toward fixing American journalism.

This is the rule: when you screw up, you take responsibility, try to set the story straight and (here is the essential part) you make your retraction at least as long and at least as prominent as the story you're apologising for.

These days, journalistic malpractice (when not ignored altogether) is generally punished by inclusion in a box that almost no one ever reads on the second page of a newspaper (and even that mild of a penalty is enough to generate whining and self-pity from journalists like David Carr*).

Just imagine what things would be like if errors in front page stories were always followed by front page corrections.






* From Fresh Air

"After I started [at the Times], I quickly ended up on page two ... the Corrections. They're not buried to us; that is a hall of shame ... it's a page you want to totally stay off of ... It doesn't matter where the error occurs — it always follows you around.

"Part of the deal of working at The New York Times is that your readers, a portion of whom are church ladies and copy ninnies and fact freaks, they wait like crows on a wire for you to make the slightest error and then descend, caw, caw, caw-ing, every time you screw up. It still is something that wakes me up at night."

Monday, March 19, 2012

21st century Journalism

I am not the biggest fan of Apple, but I have to admit that the Mike Daisy incident was dreadfully unfair to them.  Outsourcing to Adam Ozimek:
This is not consistent with anyone being able to walk up to Foxconn and within two hours be talking to underage workers. The story Daisey tells is one where Apple is negligent to an obvious and easily solved problem, whereas the facts TAL reports are of a company trying to stop underage workers and failing on relatively rare occasions. This kind of lie is not telling the story of the truth through a fictional narrative, but creating a fictional narrative that contradicts the bigger truth.
Felix Salmon also has some tough commentary on this issue. The key point here seems to be that it makes a great deal of difference what the facts are.  Outright falsehoods are an issue and it is terrifying that such obvious lies passed the fact checkers or that people feel like a defense can be mounted for this behavior as being in "in the greater good" (that the fictional narrative might be exposing hidden truths that are hard to show facts on). 

We should do better.   

Census documenting Great Depression to be released

This looks interesting:
NEW YORK (AP) — It was a decade when tens of millions of people in the U.S. experienced mass unemployment and social upheaval as the nation clawed its way out of the Great Depression and rumblings of global war were heard from abroad.

Now, intimate details of 132 million people who lived through the 1930s will be disclosed as the U.S. government releases the 1940 census on April 2 to the public for the first time after 72 years of privacy protection lapses.

Friday, March 16, 2012

You might think a personal finance story with the title “Boost your odds of winning the lottery”. couldn't be as bad as it sounds.

You'd be wrong.


How our inability to distinguish between independence and contrarianism encourages Steve Landsburg to be, let's just say, a less effective pundit

[I decided that the tone was getting a bit sharp in this debate so I'm dialing things down a bit. This entailed some very slight rewriting but none of these changes the substance of the post]

Before getting to the main thesis, let's confirm just how bad this incident was. A radio personality with millions of listeners grossly misrepresented the comments of a private citizen speaking out on an issue then used those distortions to make offensive and badly-reasoned attacks on the the woman. The situation at that point was bad enough but we don't really achieve horrible until Landsburg jumped in. Not only did Landsburg throw his reputation behind Limbaugh's illogical and factually challenged comments, he actually added additional [poor] arguments to the abuse this woman has had to put up with.

Noah Smith, Scott Lemieux, my co-blogger and others have done an excellent job addressing the lies and idiocy of this affair (check out how this blogger dismembers the I'm-mocking-the-postion-not-the-person defense) . The question for now is how this happened. How did a mid-level economist manage to reach such national prominence by writing a series painfully sophomoric books and articles?

Part of the answer, I'd argue, lies in the way journalists and editors now treat the counterintuitive. Publications like Slate give us a steady diet of pieces that take some claim that seems obviously true and argue the opposite. These publications would have us believe that this practice is a sign of intellectual independence and healthy diversity of opinion. It's not.

Contrarianism is closer to the opposite of independence, a point that's easiest to explain if we think in the idealized terms of a simplified fitness landscape. and draw an analogy between the defensibility of an argument associated with a certain position and the fitness of a phenotype associated with a certain genotype. (more on landscapes here)

Of course, it would take a lot of variables to realistically describe this landscape but the basic concepts still hold even if we simplify it to a bare-bones x, y and v(x,y). For every position (x,y) you can take, there's a resulting viability (v). Some positions are easy to defend (v is high). Some are difficult (v is low). Pundits and news analysts who try to find the best positions to argue are therefore performing an optimization algorithm (though most probably never thought about it in those terms).

For the most part, we can place this commentary and analyses in three general categories:

Neighborhood

Independent/semi-independent

Contrarian


The neighbor searcher tries to find the most defensible position within the neighborhood of a starting point. The best example I can think of here is the work David Frum specialized in until fairly recently. Frum was not being independent with his pieces in the Wall Street Journal or public radio (the terminal point of his searches was almost always within the neighborhood of the established conservative consensus) but he was arguably doing something as or more important, thoroughly exploring the landscape of the region and encouraging evolutionary shifts to sounder, more defensible positions.

The independent searcher, by contrast, goes where the search leads regardless of the starting position. The semi-independent searcher adds the condition that the terminal point has to be original (in other words, you can't end up on a point that someone else has already argued). Technically, originality and independence are in opposition here but in practice, they tend to complement each other.

And the two categories tend to complement each other as well. To grossly oversimplify, one group searches x+1 to x-1 and y+1 to y-1; the other group searches everywhere else. Given the fact the consensuses originally form around what seem at the time to be good ideas, it makes sense to explore their neighborhoods (if it helps, you could think of this in terms of Bayesian priors), but it also makes sense to keep exploring new territory. David Brooks and Frank Rich refine and improve their relative corners of the political landscape while writers like Jonathan Chait or William Safire range further and are more likely to reach unexpected conclusions.

The contrarian approach is to start with a position (x.y) that seems obviously true (often because it is true) then jump to either (-x,y) or (x,-y) and argue from there. It can, at first glance, look like the result of an independent search,but it is actually far more constrained than the neighborhood searches of Frum and Rich. Both of those writers would shift positions based on their reasoning and would insist on finding a defensible point before sitting down to the keyboard.

The typical contrarian piece hews so closely to its initial (-x,y) that there's no indication of a search at all. By all appearances, the writer simply jumps to the contrarian position and starts typing.

Contrarian writing crowds out good journalism and pumps misinformation and faulty arguments into the discourse. This would be bad at any time, but in the current state of journalism, it's disastrous. Here's a list of dangerous trends in journalism from an earlier post (with a link added from a different paragraph):

1. Reliable information sources like the CBO are undermined;

2. An increasing amount of our information comes from unreliable subsidized sources like Heritage;

3. Journalists suffer no penalty for publishing inaccurate information;

4. Journalists also fashion for themselves an incredibly self-serving ethical rule that lets them, in the name of balance, avoid the consequences that would have to be faced if they honestly assigned responsibility for screw-ups;

5. A growing tendency to converge on a narrative makes the media easier to manipulate.
All of these factors make it more difficult for our society to deal with bad data and contrarians are a rich source of some of the worst.

In a healthy journalistic system, counter-intuitive claims would be held to a higher standard (at least if we think like Bayesians) and if a logically or factually flawed argument made it through, both the authors and the editors would feel pressure to see that it didn't happen again.

In our current system, counter-intuitive claims are held to a lower standard (because they generate traffic) and serial offenders can actually build careers by badly arguing points that probably aren't true. Editors have lost all interest in fact-checking and outside efforts at debunking are usually treated as he said/she said.

It's easy to object to the positions Landsburg takes, but perhaps the truly offensive aspect here is the way Landsburg and the other contrarians reach those positions.


Thursday, March 15, 2012

Andrew Gelman weighs in

Mark Palko asked me to post a link to Andrew Gelman's really interesting discussion about "economics exceptionalism". 

My own take-away is that I had not thought about the intellectual dominance of Freudian thinking for a long time and I had never made the link to economics.  But there were occasional forays of economics into areas like education and public health that I have spent some time talking about.  By now we all know the idea behind Freakonomics (even if it might be largely a marketing ploy, it has some intelelctual cachet).   The issue with Ray Fisman and teacher retention policy (should we fire 80% of new teachers) has seen a lot of discussion on this blog and I consider it a classic example of this type of economics reasoning exported to a more general subject matter.  (which is not a dig at Ray Fisman who appears to be a brilliant thinker on his own turf). 

So go, read, and enjoy the comments

Futurism

Something that Mark and I have been talking about is how much less audacious we have been (as a country) since the 1950's.  Back then there was a real sense of inevitable progress and an idea that there were great accomplishments lurking around the corner.  Noah Smith weighs in with an example of this:
If we had found better ways to unlock the vast stores of energy that we know are lurking inside the nuclei of atoms, we'd have those flying cars and Mars colonies and everything people thought we'd have back in the 50s (OK, the Economist doesn't say that, but it's true).
When did we lose this ambition and can we get it back?