Wednesday, June 30, 2010

E-readers and Voting Theory

The celebrated Arrow's impossibility theorem demonstrates how no voting system can consistently aggregate individual preferences.

One tenet of the theorem is that irrelevant alternatives should not change the result of an election. For instance, suppose that candidate A would beat candidate B in a two-way race. But in a three-way race also involving candidate C, voters now prefer candidate B. Some people might call this the Ralph Nader effect.

I have known about the Amazon Kindle for years, and I've used the iPhone version for quite a while. Once the iPad came out, I filtered with buying one. As I mulled over the iPad's high price, the Kindle started to look better by comparison. A few weeks ago, I bought one (unfortunately, this was before the $70 price drop).

I just had lunch with someone yesterday who had the same experience. Why has the introduction of the iPad spurred us to buy Kindles?

Wednesday, June 23, 2010

Parity by Division

Major League Baseball has six divisions. All six divisions have won the World Series since 2001:

NL West: D'Backs ('01)
NL Central: Cardinals ('06)
NL East: Marlins ('03), Phillies ('08)
AL West: Angels ('02)
AL Central: White Sox ('05)
AL East: Red Sox ('04 and '07), Yankees ('09)

In fact, from '01 to '06, there were six Series. All six divisions won once.

The NBA also has six divisions. No team currently in the Northwest Division has won a championship since the Thunder (who were then the Seattle Sonics) won in 1979.

Monday, June 21, 2010

Why Are Cash Advances so Expensive?

My primary credit card charges 24.99% APR for cash advances and 9.99% APR for purchases. Unlike purchases, cash advances have no "grace period," meaning customers are still charged interest even if they pay off their bill in full every month.

Both transactions involve borrowing money from the credit card companies: one for purchases and the other for cash. Yet the companies encourage the former while strongly discouraging the latter. Why?

When consumers swipe their cards at stores, the credit card companies charge the merchants an interchange fee, typically 2% of the value of the transaction. When someone gets a cash advance, there is no merchant to pay the fee. The credit card company needs to make up this money somehow to remain profitable; thus, they charge a higher interest rate.

If there were a grace period for cash advances, they would amount to interest-free loans. Customers could deposit their cash advances into interest-earning saving accounts and then return the money before the end of the month. Many customers would max out their credit to take advantage of this risk-free profit opportunity (also known as arbitrage), as credit card companies watched their losses mount. Eliminating the grace period for cash advances is one way to prevent such behavior.

Monday, June 14, 2010

Is the "Choking" Effect in Sports Real?

There's an interesting discussion over at the Sabermetric Research blog about whether a "choking" effect exists in soccer:

Gier Jordet, a professor at the Norwegian School of Sport Sciences in Oslo, reports that, when the score is tied, penalty kick shooters succeed at a 90% rate. But when the shooter's team is behind by a goal, and presumably there's more pressure, he succeeds only 60% of the time.
I made a similar point in the comments on the SR blog post, but I'm not too surprised that teams perform worse when they're losing.

On average, bad teams spend a larger portion of the game trailing. It's reasonable to assume that they would therefore get more penalty kicks in such situations than good teams would, thus making them overrepresented in the "behind by one goal" sample. If bad teams also have inferior penalty kickers, it's no surprise that they do worse.

Similarly, if your team is playing against an outstanding goalie, you're more likely to be trailing at any given moment than you would be otherwise. In such situations, the outstanding goalie is also more likely to block your penalty kicks.

If we could control for these factors (say, if we had 100 observations of penalty kicks by one team against a certain goalie) and still observed the choking effect, I'd be more convinced.

Thursday, June 10, 2010

Am I a Baseball Keynesian?

The blog Bayes Ball cites my post among several theories attempting to explain the recent trend of perfect games. He then conducts a careful analysis using the Poisson distribution, which is perfect for studying events that are extremely rare (in this case, perfect games) but have many, many chances of occurring (there are thousands of regular season games each year). His analysis shows that a season with two perfect games is well within reason.

After reading the post, I had a few protests. For instance, if Jim Joyce gets the call right, we'd have three perfect games this year, and the Poisson analysis goes out the window.

Even if we let Joyce's call stand, I speculated that a season with three games in which the pitcher gets the first 26 batters out would still be exceedingly rare by historical standards, and we'd have to start questioning the assumption that the dominance of pitching relative to hitting hasn't changed much in the past few decades.

In my previous post, I argued that the string of perfect games in fact did demonstrate a change in favor of pitching. I even suggested that baseball should change its rules (like adjusting the height of the mound or the dimensions of the strike zone) to restore the historical rates of success and failure between batters and pitchers.

But after a while, I was forced to wonder: What if I had spotted a trend where there wasn't one? What if I had advocated that we fix a problem that doesn't exist?

There is a connection to macroeconomic policy. To keep the economy on track between the undesirable extremes of too much unemployment or too much inflation, the federal government often modifies monetary policy (such as changes to the interest rates) or fiscal policy (such as changes to taxation and government spending).

The chief advocate of such tools was John Maynard Keynes, who is regarded as a hero among most economists but whose theories are generally dismissed among the George Mason economics faculty and students.

One has to wonder how often we are tempted to implement macroeconomic policy changes in response to economic news that might just be the result of statistical fluctuation. Perhaps action is occasionally warranted to rebalance both baseball and the economy, but we should think twice before moving in the fences and allowing each batter five strikes, or introducing stimulus programs and holding down interest rates.

Moral Hazard, in Layman's Terms

I sent along to my grandparents the interesting discussion on Marginal Revolution about kidnapping insurance. My grandpa replied:

Greg, don't get your grandma started on how auto insurance has escalated the price of repairing, say, a fender. Auto body work used to be fairly inexpensive because a good many people paid for it out of their own pocket. They cared. Does anyone care how much the insurance company has to pay to fix my fender? I guess kidnap insurance works the same way.

Economists call this phenomenon "moral hazard." A line from the Wikipedia entry describes it this way: "In insurance markets, moral hazard occurs when the behavior of the insured party changes in a way that raises costs for the insurer, since the insured party no longer bears the full costs of that behavior."

Wednesday, June 9, 2010

How Has the Price of Madden Games Held Stable?

In the middle of last July, I preordered Madden NFL 10 for Wii, paying $46.99.

The Wii version was vastly inferior to the PS3 and X-Box versions, but that's another matter. As far as Wii football went, it was top of the line: new features and updated rosters. It was released right before the NFL season.

It is now the middle of June, 11 months later. The Super Bowl was played four months ago. A new version of Madden comes out in two months. There is probably less interest in football video gaming now, when football isn't in season.

Yet Madden NFL 10 still sells for ... $46.99.

Is anyone else surprised that the price hasn't dropped? Is Electronic Arts maximizing its profits with this price? People can evade the high price by buying used copies of the game or Madden games from prior years (Madden 09, for instance, is only $18.73).

Perhaps EA's stable-pricing policy encourages people to buy the game when it comes out, because they have seen year after year that the price isn't going to drop a few months later. These additional sales could more than offset the sales that EA is losing by not lowering its price in the interim months between seasons.

Can you think of any other goods that behave this way, with new versions coming out every year? What happens to the price of cars the month before the new models come out?

Tuesday, June 8, 2010

In the Interest of Fairness

So, I used Apple as a whipping boy the other day, because the company sometimes charges you to speak to customer service.

It turns out that iPhone support costs money, but iTunes support doesn't. Why that is, I don't know. Because my problem involved downloading a song to my phone, it could fall under either umbrella.

I was able to figure out the solution on my own, but today I got a very friendly, very thoughtful, and very thorough e-mail back from iTunes support. And they're even giving me two free song credits for my troubles.

This makes me happy as a customer, but it makes my prior blog post a bit less compelling now.

Sunday, June 6, 2010

Paying Extra for Customer Support

I recently downloaded "Everlong" by Foo Fighters on my iPhone. Except, try as I might, I kept getting the following error message:

I was trying to file for support on the Apple Web site, when I learned that it costs $29 to talk to Apple if it's been more than 90 days since you bought the product. This led me to issuing the following tweet:

Eventually, I read around online and figured out that the problem could be rectified by downloading the song to my computer and going through the arduous process of syncing my phone through iTunes. So, now, it works, but I'm out an hour of effort and frustration.

A few observations:

(1) Some economists would point out that the "rational" course of action would have been to just buy the song again, as 99 cents is much cheaper than the frustration of fixing the problem. Incidentally, these same economists are morons.

(2) We really don't have much leverage with companies, do we? I can say whatever I want, but my threat to boycott Apple is an empty one. There's nothing close to the iPhone on the market, as far as I'm concerned.

(3) In theory, we're all better off if companies can charge different customers different rates, based on the cost of providing services to them. (I made this point earlier when talking about airlines.) It's probably good that the people who contact customer service all the time should pay more than the people who don't, but it's just so enraging when the product doesn't work and — oh, guess what? – you have to pay the company to tell them about it.

Friday, June 4, 2010

Bums and Inflation

Five bucks in quarters (actually, in any domination) in 1980 has the same purchasing power as $12.85 does in 2009 (you can make your own inflation calculations here).

All else equal, shouldn't there be fewer bums begging for change now (or at least fewer bums per capita), because a cup of coins can't buy as much as it used to? Are some would-be bums now instead getting jobs?

Or are some people giving bums dollar bills now? Are more passers-by likely to part with change now because coins have such trivial value?

Are bums working harder than they did a few decades ago? Are they taking more advantage of free items, such as food from soup kitchens, instead of begging for change and buying these items themselves?

Optimal Time to Rest Position Players

Major League Baseball teams play 162 games in about 180 days. With a few exceptions (such as players named Ripken or Gehrig), position players need a day off every so often to stay sharp.

For Wednesday's afternoon game, Dodgers manager Joe Torre rested four of his eight starting position players against the Diamondbacks: Rafael Furcal, Manny Ramirez, Casey Blake, and Russell Martin (all of whom, ironically, later played, as the game went 14 innings and the Dodgers needed pinch hitters). Managers often rest older players en masse in day games after the team played the night before.

Would splitting up the days off, by instead resting one starter each game, lead to more wins? Is it better to significantly reduce your chances of winning one game or slightly reduce your chances of winning four games?

I don't have a clue how someone would go about answering this question empirically.

Thursday, June 3, 2010

Is Pitching Too Easy Now?

There have been 20 perfect games thrown in major league history (in nearly 400,000 games). Save for one botched call (don't even get me started ...), baseball would have witnessed three perfect games in the past 24 days.

The perfect game is supposed to be sacred. Vin Scully's call of the ninth inning Sandy Koufax's perfect game in 1965 is regarded as the best of his career (listen here). The three pages in Stephen Jay Gould's "Triumph and Tragedy in Mudville" on Don Larson's perfect game in the 1956 World Series still make me tear up (read the whole thing here).

Why is pitching so dominant these days? At what point is this string of perfect games no longer a statistical fluke? I'm having trouble finding a comparison of batting averages and runs scored leaguewide by season, but these statistics would give us a clue as to whether pitchers are beginning to get the advantage. I can note, however, the dramatic drop in home runs the past few years, which has been attributed to the crackdown on steroids and other PEDs.

Gould's book has a wonderful discussion about how the rules of baseball have changed over the years to preserve the optimal leaguewide batting average of around .260. As training and strength regimens evolve, sometimes pitchers start to get an edge over hitters (or vice versa). Various rule changes have helped restore the historical success ratios, such as cork-centered balls, the "lively ball" era, and changes to the height of the mound and dimensions of the strike zone.

Gould argues, and I agree, that baseball should never let .400 batting averages or sub-1.00 ERAs become commonplace; instead, it should tweak the rules whenever the statistics get too far out of whack.

Wednesday, June 2, 2010

Musings on Dry Cleaning

Why does it cost $2 to dry-clean a shirt, but $3.50 to dry-clean a tie?

Also, I've discovered first hand why few people wear white ties.