Hi friends,
Look what the cat dragged in:
Life-Cycle
Investing and Leverage: Buying Stock on Margin Can Reduce Retirement Risk
(working paper 2008) (with Barry Nalebuff). This is an article that has
taken several years of crunching to produce (started with Forbes article, Mortgage
Your Retirement 150 (Nov. 14, 2005)). Barry
and I have found a way to reduce the standard deviation on retirement return by
more than 20% without sacrificing expected return (or you can safely substitute
toward taking on more a bit more exposure to stock). Here the abstract:
By employing leverage to gain
more exposure to stocks when young, individuals can achieve better
diversification across time. Using stock data going back to 1871, we show that
buying stock on margin when young combined with more conservative investments
when older stochastically dominates standard investment strategies—both
traditional life-cycle investments and 100%-stock investments. The expected
retirement wealth is 90% higher compared to life-cycle funds and 19% higher
compared to 100% stock investments. The expected gain would allow workers to
retire almost six years earlier or extend their standard of living during
retirement by 27 years.
Studies in Contract Law (7th edition, Foundation Press, 2008) (with Richard E. Speidel) (former editions Edward J. Murphy, Richard E. Speidel and Ayres). Through the heroic efforts of Richard Speidel, the 7th edition of the popular casebook now exists (as well as fully updated teacher’s manual with Socratic questions and answers for every case). Makes a great stocking stuffer!
Options
and Epidemics, Daedalus
118 (Spring 2008). This tries to suggest that the second
moment of distribution is sometimes more important than the first.
Variance matters. It's an idea that Jacob
Hacker .
Tradable Patent Rights, 60 Stanford Law Review 863 (2007) (with Gideon Parchomovsky) has been published:
Patent thickets may inefficiently retard cumulative innovation. This Article
explores two alternative mechanisms that may be used to weed out patent
thickets. Both mechanisms are intended to reduce the number of patents in our
society. The first mechanism we discuss is price-based regulation of
patents through a system of increasing
renewal fees. The second and more innovative mechanism is quantity-based regulation
through the
establishment of a system of Tradable Patent Rights. The formalization of
tradable patent rights would essentially create a secondary market for patent
permits in which patent
protection will be bought and sold. The Article then discusses how price and
quantity regulation can be combined to effect
superior weeding.
Privatizing
Employment Protection, 49 Arizona Law Review 587 (2007) (with Jennifer
Gerarda Brown). Our latest take on the Fair Employment Mark (including
our admission that we have failed to meet our goal of signing up a substantial
number of employers).
Mining
Unconscious Wisdom, Harvard Business Review (March 1, 2008). This is
a piece suggesting that there are somethings that regressions can predict
better than prediction markets (unaided by benefit of regression). Trying
to parse out the conditions where unconcious crowd windows dominates is a
largely unexplored frontier.
An Equity Kicker, Forbes 113 (May 19, 2008) (with Barry Nalebuff). Barry an I suggest two "pay more tomorrow" ideas for ameliorating the mortgage crisis.
And I have continued to post regularly the NYTimes's Freakonomics blog:
June 9,
2008, 2:06 pm
Should You
“Ferberize” Your Baby?
Joshua Gans, (author of the forthcoming Parentonomics),
has an interesting post on “data-driven
Parenting.”
Turns out that there is a cool web service: Trixie Tracker, that allows parents to
record and revisit information on sleep, nappy changes, feeding (both
breast-milk and solids), medicines, and pumping.
Keeping track of your child’s evolving sleeping patterns (via
the internet or even your iPhone) can help you visualize helpful or distressing
trends.
The owners of this and similar
services have suggested a willingness to share their data with researchers.
But the biggest opportunity is to use one of these sites as a platform for
running randomized tests.
For example, there is still a bit of a controversy about whether
it is useful to “Ferberize” babies. The Ferber
Sleep Method is a warm, loving bedtime
routine after which you lie your baby in bed awake and leave him (even if
he cries) for gradually longer periods of time. Read
more …
May 27,
2008, 1:18 pm
Meet a Nym
I recently returned from a cool conference in Athens and I
was surprised to see the following poster for Silk Cut cigarettes plastered all
around the city.
Photo: Hetal
Thaker, Product Manager-Dimensions, SPSS
Inc.
We see a bone propping open an alligator’s jaw and a bulldog
looking on intently with the slogan “Must-have Silk” written below.
The “bone” in the picture is pretty clearly a metaphor for Silk
Cut cigarettes (same bluish color pattern as the Silk Cut logo). And the
bulldog is a metaphor for a smoker who “must have” his bone, no matter what.
The $64,000 question is: What does the alligator represent? Read
more …
May 23,
2008, 11:08 am
What’s
the Best Way to Predict American Idol?
I had a sobering moment a couple of years ago when I noticed
that MSNBC’s recommendation engine predicted that I would enjoy stories about American Idol. It’s a guilty pleasure,
but AI is one of the more
normal things that I do with my 11-year-old daughter, Anna.
So my household is quite happy that (fellow Kansas City area
native) David Cook won
the other night. But Anna has been impatient each week to learn the results and
has been logging into dialidol.com to
get prior information on who is likely to be voted off the show.
For fans, DialIdol offers “free and safe software you can use to
speed dial votes for your favorite contestants.” But what’s particularly cool
is that while it is making these calls, it is also keeping track of the number
of busy signals: Less popular contestants are less likely to have as many busy
signals.
DialIdol
predicts who will be voted off each week. They also let you know what the
margin of error is in their prediction and give you nice graphics — with green,
yellow, and red lights that indicate when a contest is too close to call —
although it would be slightly cooler (as I’ve
written with regard to political polls) if they gave actual probabilities
of winning/losing. Read
more …
May 19,
2008, 12:48 pm
I’ll Be Brief
Dubner’s post
on perfectionism reminds me of a parallel phenomenon: People who say that
they’re going to be brief often aren’t. Read
more …
May 13,
2008, 10:42 am
Surfing the Class
Several years ago I watched a particularly memorable “Law Revue”
skit night at Yale. One of the skits had a group of students sitting at desks,
facing the audience, listening to a professor drone on.
All of the students were looking at laptops except for one, who
had a deck of cards and was playing solitaire. The professor was outraged and
demanded that the student explain why she was playing cards. When she answered
“My laptop is broken,” I remember there was simultaneously a roar of laughter
from the student body and a gasp from the professors around me. In this one
moment, we learned that something new was happening in class.
Shortly after seeing that skit, I wrote
an Op-Ed for The New York Times
describing the surprisingly strong student reaction when I asked students to
use their laptops during class only for taking notes.
I predicted that we would soon hear of surfing at the opera (and
maybe even in church).
But I also called on schools to flip the default code of
conduct. Currently most students believe that it is fine to play games, surf
the net, check their email etc. unless their professor expressly tells them
that they can’t. (Some may think it’s okay, even if the professor tells them
they can’t.)
I wanted schools to announce that laptops, by default, should be
used during class only for class-related activities unless the professor says
otherwise. I’m not the only one calling for
action in this area. Read
more …
May 5,
2008, 3:37 pm
Kids and Congress
Ebonya Washington, an economist at Yale, has a great
paper that was just published in the American
Economic Review called “Female Socialization: How Daughters
Affect Their Legislator Fathers’ Voting on Women’s Issues.”
She looks at members in the House of Representatives and looks
to see whether their voting patterns change. She provides interesting evidence
that, “conditional on total number of children, each daughter increases a
congress person’s propensity to vote liberally on reproductive rights issues.”
For example, looking at representatives with two children, she
finds that N.O.W. (National Organization for Women) scores increase as the
number of daughters increases:
Her regressions suggest that the effect runs primarily through
the impact of daughters on fathers. Representatives who are mothers apparently
don’t need any more “female socialization.” Read
more …
April 29,
2008, 1:51 pm
Anonymity Because
In 2004, a bunch of newspapers (including the New York Times) instituted a new policy requiring
that articles, when possible, should explain the reasons why the paper granted
a source anonymity.
The new policy has created a great empirical opportunity —
because in practice the required reason is given after the phrase:
“[source] was granted anonymity because … ”.
The impact of the policy was immediate. In 2003 there were only
730 A.P. articles with the phrase, but by 2005 there were 9,451 articles using
the phrase. Read
more …
April 9,
2008, 1:29 pm
How Late Will You Really
Be?
For fans of FareCast,
there is a cool new site called DelayCast
that’s just gone into beta.
Type in the airport codes for your departure and arrival cities
and the date and site come back with predictions about the probability of
cancellation and delay for different airlines serving the route. For example,
here are the results for a trip from Chicago (ord) to Hartford (bdl):
And in true Super Crunching fashion, DelayCast not only predicts
but gives the 90 percent confidence interval for the prediction. Read
more …
March 31,
2008, 1:49 pm
Purim and Penelope
My son and I recently returned from Israel where we had the
chance to spend Purim in Jerusalem. Purim is a bit like Halloween — kids and
parents dress up in costumes. And while there aren’t door-to-door
“trick-or-treats,” there is a tradition of giving kids candies. Our cab driver
even offered us Purim chocolate.
So it was on a beautiful warm Sunday that we got to see happy
Orthodox families stroll around the Old City in full Purim regalia.
But Henry and I were floored when we passed a 6-year-old who was
walking along smoking in front of his mom and dad. Not every child was smoking.
But we saw three different groups that had kids — with ages ranging from about
six to 13 — who were smoking. And to be clear, I’m not talking about the candy
cigarettes of my youth. These kids were lighting up tobacco. Read
more …
March 20,
2008, 12:24 pm
The Racial Tipping Point
A few years back, I got interested in taxicab tipping – and what
influences how much people tip. So together with Fred Vars and Nasser Zakariya, I
collected data on more than 1,000 cab rides in New Haven, CT and crunched the
numbers. The study
(published in The Yale Law Journal) found — after
controlling for a host of other variables — two independent racial effects:
1. African-American cab drivers, on average, were tipped
approximately one-third less than white cab drivers.
2. African-American and Hispanic passengers tipped approximately
one-half the amount white passengers tipped. Read
more …
March 11,
2008, 1:33 pm
Is Tooth Cleaning a Scam?
One of my earliest and happiest memories was being released from
a hospital oxygen tent when I was a small child. I had developed pneumonia and
was in pretty bad shape. They not only kept me under an oxygen tent for several
days at St. Luke’s Hospital in Kansas City, but they also gave me massive
amounts of tetracycline.
The good news is that I recovered. The bad news is that from
then on, my teeth have had pretty severe tetracycline staining. This is not
just surface discoloration — my enamel through and through is grayer than I’d
like. I tell you this because I’ve always had an uncomfortable relationship
with my teeth, and this feeling might bias my view of dentists. I don’t like
going to my dentist’s office every six months and having my teeth cleaned. Recently,
as I was sitting in the chair, a thought occurred to me.
I began to wonder if there was such a thing as “evidence-based
dentistry.” In my book Super Crunchers (naked self-promotion),
I wrote an entire chapter about evidence-based medicine — which is, in part, an
effort to test whether medical treatments are statistically proven to be
effective. I figured there had to be a parallel movement in dentistry, and
maybe someone had analyzed whether hygienist teeth cleaning helps or not.
Thank God for Google. It turns out there is an entire journal
called “Evidence
Based Dentistry.” And in just a few minutes, I was looking at a formal
Cochrane review titled “Insufficient
evidence to understand effect of routine scaling and polishing.”
The review looked for evidence to answer two related questions:
The first is, do scale and polish procedures [having your teeth
cleaned] lead to any difference in periodontal health compared with no scale
and polish? Second, does the interval between these scale and polishing
procedures make any difference?
March 3,
2008, 9:39 am
A Poll Tax on Selfishness
On a wintry night a few weeks ago, I was walking with Aaron
Edlin across the Harvard campus when he casually claimed
that the “voter’s
paradox” wasn’t generally true — that it could be rational for people to
vote for purely instrumental reasons.
I did a double take, because the chance that my vote will change
the result of any election in my lifetime is vanishingly small. People might
vote because it gives them pleasure, or because of its expressive value, but
most economists think that it
would never be worth your while to vote in order to impact an election,
because of the small probability that any one vote is “pivotal.” But Aaron,
together with co-authors Andrew
Gelman and Noah
Kaplan, has written
a very important article showing that it can be rational to vote if you
care about other people. If you care even a little bit about the welfare of
your fellow citizens, then as the electorate increases, even though the
probability of being pivotal becomes small, the impact of being pivotal becomes
large. Thus, it can be instrumentally rational to vote even in winner-take-all
elections with very large number of voters.
This claim, at first, struck me as being true, but too cute.
However, the article does have the following interesting implications: Read
more …
February
26, 2008, 10:30 am
Could
You Lose a Pound a Week to Save $500? A Guest Post
It is devilishly hard to lose weight.
A randomized
control year-long study looked at the impact of four different diets
(Atkins, Ornish, Weight Watchers, and Zone Diets) on a group of overweight and
obese subjects who were looking to lose weight. The diets produced only “modest”
average weight loss of about 6.4 lbs (2.3 percent of original body weight) and
found no statistically significant difference in weight loss for the four
different diets.
People do a pretty good job of losing weight for about half a
year, and then their weight tends to drift back toward their pre-diet number.
The difficulty of sustaining weight loss can be seen in this figure taken from
a 2-year
randomized study of the Weight Watchers program:
Source: Stanley Heshka, et al., Weight Loss With Self-help
Compared With a Structured Commercial Program: A Randomized Trial, 289 JAMA1792
(2003)
February
18, 2008, 12:36 pm
Barack’s Prosody
Problem: A Guest Post
Justin Wolfers’s recent post on “sounding
presidential” reminded me that there is another sense in which a candidate
might sound presidential. It turns out that almost all presidents have had
first names with stressed first syllables – think WILL-iam, or RICH-ard.
One-syllable names are also stressed when you say the candidate’s entire name –
think BILL CLIN-ton or GEORGE BUSH. (The tendency to choose words with initial
stress also tends to be true with regard to names for professional sports teams
– think YANK-ees, PA-triots, ROY-als.)
Here’s a trivia question: Who is the only president in American
history with an unstressed first syllable in his first name? You’ll find the
answer after the jump. Read
more …
February
7, 2008, 2:03 pm
Who’s
Against Transparency in Government? A Guest Post
Peter Hain has resigned as the U.K.’s
Secretary of State for Work and Pensions because he failed to declare “donations
to his campaign for the Labour deputy leadership worth more than £100,000.”
But Bruce Ackerman
and I think that the campaign disclosure law is misguided, and suggest an
alternative in an op-ed
that we wrote in The Guardian.
Transparency in government has a glorious tradition. Justice Louis Brandeis long ago
said, “publicity is justly commended as a remedy for social and industrial
diseases. Sunlight is said to be the best of disinfectants; electric light the
most efficient policeman.” But there exists in our government a central
mechanism of democracy that stands against this cult of disclosure — the voting
booth. Ballot secrecy was adopted toward the end of the nineteenth century to
deter political corruption. Before the secret ballot, people could buy your
vote and hold you to your bargain by watching you place that vote. Voting booth
privacy disrupted the economics of vote buying, making it much more difficult
for candidates to buy votes because, at the end of the day, they could never be
sure who had voted for them.
A similar anti-transparency argument can be applied to campaign
finance. We might replicate the benefits of the voting booth by creating a
“donation booth,” or a screen that forces donors to funnel campaign
contributions through blind trusts. Like the voting booth, the donation booth
would keep candidates from learning the identity of their supporters. Just as
the secret ballot makes it more difficult for candidates to buy votes,
mandating anonymous donations through a system of blind trusts might make it
harder for candidates to sell access or influence because they would never know
which donors had paid the price. Knowledge about whether the other side
actually performs his or her promise is an important prerequisite for trade.
People — including political candidates — are less likely to deal if they are
uncertain whether the other side performs. The secret ballot disrupts vote
buying because candidates are uncertain how a citizen actually voted; anonymous
donations disrupt influence-peddling because candidates are uncertain whether
contributors actually contributed.
So instead of mandating transparency, we might do better to
mandate a kind of non-transparency. Read
more …
February
5, 2008, 12:30 pm
What’s
the Probability That Romney Is Leading in California? A Guest Post
A new Reuters/C-SPAN/Zogby
Poll has Mitt Romney
ahead of John McCain
by 37 percent to 34 percent in a poll of 1185 likely Republican voters in
California (2.9 percent margin of error). But what is the probability that more
likely voters in the state actually support Romney? Given the 2.9 percent
margin of error, it’s possible that Romney just got lucky and the pollsters
happened to ask an unrepresentative group that disproportionately favored Mitt.
It turns out that it is really easy to use the raw information
of the poll (the leader percent, the follower percent, and the size of the
poll) to calculate the probability of leading in the population. In
winner-take-all elections (which are not the case for many of the primaries),
this “probability of leading” is crucially what we should care about –- because
if people don’t change their minds (and, if undecided, break evenly), this is
the probability that the poll leader will win the election. But most people
have a very hard time making the calculation in their head.
So take a shot: what do you think is the probability that Romney
is leading McCain in the population of likely Republican California voters?
Turns out that Romney’s probability of leading is a whopping
92.7 percent. Read
more …
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Ian
Ayres
William K. Townsend Professor
Yale Law School
PO Box 208215
New Haven, CT 06520
203.432.7101 (o), 203.432.4769 (f), 203.624.5654 (h), 203.415.5587 (c)
ian.ayres@yale.edu
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