A Farewell to AdSense

I'm sure there's an economic point in here somewhere, but as of today, I'm removing AdSense from this blog.

This is mainly in response to AdSense's payout scheme: if your account is active, you need to reach $100 before getting a payout, while you can cancel your account and get paid if your balance is $10 or higher. I've been stuck in the middle of that range for months; I made a little money after my post about the Nationals ticketing office attracted a few thousand hits, but now I get about 15 hits a day. I'm sure my almost complete absence of new posts has something to do with that, but at this rate it would take decades to reach the $100 threshold.

So, there you have it: Econ Tricks, with a little less clutter. There are more than a few cautionary tales online about people getting screwed out of AdSense payouts, so wish me luck.

Kindle and iPad: 3G or not 3G?

Given how much risk aversion and the cost of acquiring information affect people's decisions, I wonder whether the makers of the iPad and the Kindle are turning away potential customers by offering both a Wi-Fi only and a Wi-Fi + 3G version of their products.

Both the Kindle and the iPad are gadgets unlike anything else most of us have ever owned, so it's hard for us to know exactly how we'd use them. Whatever the customer decides, he is set up for second guessing.

If he gets the Wi-Fi only Kindle, he might find himself in many situations where Wi-Fi isn't available and 3G would have come in handy.

If he splurges for the Wi-Fi + 3G model, maybe he'll discover that he just uses the Kindle around the house after all and will lament wasting $50 for the 3G option.

It's even worse for the iPad: Not only does the 3G-capable version cost $120 more, it also requires a 3G data plan that runs about $15 a month. Luckily, diehard flip floppers can cancel the data plan at any time, thus cutting their losses somewhat.

Classic economic theory tells us that more choice can only make consumers better off (how can a new choice makes us worse off if the original choice is still available?). But, as I've argued before, perhaps retailers (or regulators) should make decisions for us when the choice is too technical for most people. The book "The Paradox of Choice" suggests that consumers might even be paralyzed by some decisions, to the point of not making the purchase.

For what it's worth, a while ago I happily bought the second-generation Kindle, which only had 3G (you don't really need Wi-Fi if you have 3G) and thus spared me the research and soul-searching required to decide whether 3G was worth the extra money.

After AT&T's Cap, My Data Use Soared

My AT&T data use, by month. AT&T began to offer discounts for limited data plans, effective in the latest billing cycle.

The Freakonomics blog recently wondered if AT&T's switch to offering limited data plans for a discount to iPhone users might actually increase some people's usage, as they no longer feel as guilty about "hogging the network" as they did when everyone had unlimited plans (more on the details here).

I'm living proof. When the offer was announced, I noticed that my usage had always been well under the 2GB-a-month limit, which I could switch to and save a few bucks a month. I happily made the switch, and my usage the last month was almost twice as high as my average usage in recent months.

This is the same effect that occurred with the famous Israeli day care that began charging parents a fine if they picked up their children late. Suddenly, late pickups soared, as parents felt that they had morally balanced their books by paying the fine and thus were entitled to show up late.

(Side note: Isn't technology amazing? I used 500 MB of data over 3G signals last month, not to mention many more over Wi-Fi at home and at the office. I remember that my grandpa's first computer had an 80 MB hard drive.)

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?

The iPhone and Avoiding Feature Creep

There's an interesting aside in "Made to Stick: Why Some Ideas Survive and Others Die" about feature creep. The authors parody the design of a typical TV remote: one designer wants to add a button that allows users to toggle between the Gregorian and Julian calendars, a feature that few users would actually want. But because no other designers are willing to put up much of a fight, the button gets incorporated into the final design. Before long, however, the remote is so overdesigned that it becomes difficult to do the basic things it was intended for: namely, changing the channels and adjusting the volume.

The iPhone, and phones like it, could easily have fallen victim to this desire to add features. Yet Apple locked itself in to simple by shipping devices with only two buttons and volume controls. Additionally, the number of apps that come with the phone are minimal, but users can download whatever additional apps they'd like. That way, users can have a versatile device without being bogged down by the niche features they don't want.

For instance, I love my MLB At-Bat, Kindle for iPhone, and RSS reader apps, but many people would see them as a waste of space. It's like we all have our own customized remotes now. One man's calendar toggler is another man's essential feature.

Mystery of the eBay Overbids Solved?

I bought another gift certificate off eBay for barely under face value, which spurred me to ask the seller what I was wondering about in a post a few months ago: why do gift certificates often sell for above face value?

The seller gave me this insightful response:

Ebay issues discount vouchers to buyers like 5 % or 10 % off. So buyers bid upto $105. Depends upon the terms and conditions of the voucher and their necessity.

That seems to make sense.

Blogging as Accountability

Sent in from reader Hal Emmer:

I think another example, at least for some people, is blogging.  Even if you don't have much of an audience, the idea that people are out there who are waiting for you to do something is enough to get some people to do it.  I think "show and tell" blogs are the best examples of this - I am willing to bet that people who write about their cooking cook more (and more interesting stuff) than they otherwise would.

He's no doubt correct. This reminded me of a friend who blogs about the U Street neighborhood in DC. I can't speak for her, but she's probably seen more of the neighborhood than she otherwise would have, in order to generate blog material. In that same spirit, my fiancee and I hope our wedding blog will inspire us to keep hammering out all the details required to plan a wedding.

Hal's example also made me of think the ABC "Primetime" segment in 2005 that promised to show unflattering bikini photos of participants on the air if they didn't drop lose 15 pounds in 2 months. You can read more about the segment here, which I first learned about from the excellent game theory book "The Art of Strategy." As the book recounts, one participant narrowly missed the cutoff and basically threatened to sue ABC, which subsequently backed off. So ABC's threat wasn't so credible after all.

The examples in this post involve exposing yourself to peer pressure or the threat of public humiliation to inspire yourself to accomplish something. My previous posts, on enrolling in school and buying a Wii Fit, focused on committing money to something in order to guilt yourself into following through with it.

Feel free to send me more ideas if you have them.

Wii Fit as Accountability

In the same vein as what I wrote about yesterday:

My fiancee recently got herself a Wii Fit. I awoke (rather tardy) this morning to find her doing step aerobics.

Sharon: "I usually just switch it over to regular TV while I'm doing this."
Me: "Couldn't you have just done that without the Wii?"
Sharon: "Yeah, but I'd usually just be sitting there like you (sprawled lazily on the couch)."

The Wii remote has a built-in speaker, so the game can coach you along even if you've switched the TV to a different channel. The combination of hearing the remote's encouragement, knowing that the game is tracking your progress, and knowing that you would feel guilty if you spent money on the Wii Fit and never used it is enough to compel people to exercise instead of just sitting around.

Perhaps I'll write a longer series about this concept. If you have any ideas, feel free to e-mail me or leave a comment.

Help Amazon Sell Kindle Books and Earn $0!

Many Web sites, including this one, earn commissions when they refer customers to Amazon.com who end up purchasing items. Last week, I noticed that I earned a 0% referral fee for helping Amazon sell a Kindle book, netting the company about $9. I wrote to Amazon, and here's the response I got back:

Hello,

At this time, Kindle Books are excluded as Qualifying Products. While we don't pay advertising fees on Kindle Books, we continue to pay a 10% advertising fee on all qualifying Kindle reader sales and Kindle magazine and blog subscriptions referred to us.

We appreciate your understanding.

Kindle books are a loss leader (here's a good discussion from Newsweek). In other words, Amazon loses money on each Kindle book it sells in hopes of getting people to buy Kindles at a hefty markup. Maybe the economics of ebooks will change someday, but for now, it's understandable that Amazon doesn't want its partners to push sales of Kindle books to people who already own Kindles, hence the 0% referral fee.

However, Amazon partners can't control whether the customer will buy the Kindle or the print version. If 50% of the people you refer end up buying the Kindle version, then the nominal 4% referral fee you earn on book sales effectively becomes 2%. (This is ignoring some pricing differences and the fact that the existence of the Kindle increases overall demand for books, securing some sales that otherwise wouldn't have been made.) This decreases the expected returns to hawking Amazon's wares, which should in turn reduce the number of referrals for Amazon books, both print and Kindle versions.

UPDATE 5/4: Apparently Amazon has changed course.

In Which I Plead to Watch Commercials

I have mostly positive feelings toward MLB's iPhone app, but I do have one gripe.

It's great to be able to watch live games on your phone. But once commercials hit, you get the screen above. No commercials, no music, nothing for two minutes.

This is because MLB is giving you the local TV feed of the game (for example, the Dodgers broadcast as seen on Prime Ticket in Los Angeles). The local advertisers are paying to reach the local audience, not a national one.

Of course, one could close the app or switch to a different game, but the network lags involved in doing so make it not worthwhile.

There are many content models that involve a free, ad-supported version and a premium, ad-free version. For instance, you can buy the DVD boxset of your favorite TV show if you don't want to sit through the commercials. Sports differ from scripted shows because they are best enjoyed live, and the frequent commercial breaks come with the territory. The MLB app is one of those rare exceptions in which paying customers would probably prefer commercials, or something else of visual interest, instead of a blank screen.

Perhaps MLB isn't getting the kind of revenue offers it would like for such ads. But any additional revenue, however small, is always good for the bottom line, assuming that the ads would generate more money than they would cost to solicit and stream.

Sorting Search Results by Speed

Reports TechCrunch:

A week ago, Google announced a change to how its search rankings are calculated. This change will affect every business with a web presence. At the highest level, the change means that a website’s Google ranking will now be influenced by its speed. Faster websites now feature higher in search results, and slower websites drop down in the search results.

Google knows more about the search business than I do, of course, but I have to agree with the TechCrunch writer that this move is a little puzzling. While it would be nice for all Web pages to load faster, the Web is a heterogeneous place.

The writer cites the Web sites of local mom-and-pop stores, which are still likely to be your desired destination despite slow load times. I can think of a few other search queries that I wouldn't want influenced by page load times: when I was looking for grad schools, I wanted the school with the best program, not the one with the fastest Web servers.

On the other hand, if I'm searching for a current event such as the death of a celebrity, I might prefer the faster-loading pages, as I would expect the story to be much the same no matter where I read it.

Mobile Reading Format Makes Novels Less Daunting

A Guardian reader recently wrote a letter to the paper to describe how reading an e-book on his iPhone is much easier than reading a printed book.

So why I had found it easier to read from my iPhone? First, an ordinary page of text is split into about four pages. The spacing seems generous and because of this I don't get lost on the page. Second, the handset's brightness makes it easier to take in words. "Many dyslexics have problems with 'crowding', where they're distracted by the words surrounding the word they're trying to read," says John Stein, Professor of Neuroscience at Oxford University and chair of the Dyslexia Research Trust. "When reading text on a small phone, you're reducing the crowding effect."

I have felt exactly the same way (perhaps I'm a bit dyslexic myself but never realized it). Additionally, I can make the words as large or as small as I want, and I can bust out a few screens between Metro stops without losing my spot.

In the world of printed books, bigger fonts equals more pages, which increases printing costs and makes the book more cumbersome to hold, carry, and fit onto a bookshelf. So the trend was to use the smallest font possible that could still be legible to most people, while jamming the pages full of text.

No such printing cost restraints exist for the delivery of an e-book, so I suspect readers will start to prefer larger fonts. Of course, frequently flipping through screens can be annoying too, but e-bookers are now free to optimize the experience however they see fit.

One Class of Software that Piracy Can't Kill

Most software is meeting the same unfortunate fate as music (at least from the perspective of those who are paid to produce it).

Software can be easily copied, and piracy runs rampant in many major developing markets, such as China. Even for legal uses, as discussed in Chris Anderson's "Free," the cost of transmitting bits instead of atoms is near zero. Sooner or later, the price of digital information has to plummet accordingly.

However, some software companies can make substantial profits from their programs aside from charging for each copy. The most obvious is advertising, which supports many Web games. Additionally, consider a program like SAS, which is used to perform complicated data manipulation and statistical analysis.

Even today, SAS has a large base of paying customers for its software. But even if the program were widely pirated, SAS differs from other software in an important way: it's complicated and difficult to learn, but once mastered, it has incredible potential. So SAS can profit by holding training sessions throughout the country and online.

Of course, a software company cannot be a monopolist on support for its product. While it's illegal to copy and independently distribute SAS's training material, it's not illegal to sell original guidance about how to use SAS. Rival SAS reference books exist, and even SAS instructors will tell you that one of the best sources for help comes free: Google. So while people may be willing to pay a slight premium for guides published by the SAS company itself, SAS cannot charge exorbitant prices for its training sessions or materials.

Even if the licensing and training profit centers eventually dry up, SAS still has one more avenue for profit. When a company is trying to hire a statistical programmer to run SAS, it's going to have a hard time ranking the skills of hundreds of applicants. Analysts can pay SAS to take a certification test, and a passing score serves as a credible signal of programming ability. It's possible to imagine a rival certification program forming to undercut SAS's test proctoring fees, but it's doubtful that companies that hire SAS programmers would put much faith in a startup certifier when SAS's certification is already familiar and predictable. Job applicants would be willing to pay a premium to earn SAS's certification if it means putting them in the running for a higher-paying job.

Maybe Apple Should Share Its iPhone Plans?

There's been renewed speculation that a new version of the iPhone is coming out this summer and possibly a Verizon version as early as September (Verizon's network uses a different protocol than AT&T's does, so making a Verizon-compatible version is no small feat).

Successive generations of cellphones are strong substitutes for one another. It's understandable why manufacturers don't announce new models very far in advance, as they immediately cannibalize sales of the current model in the interim.

But Apple seems to be in a unique situation. Its iPhone is tied to AT&T's network, which iPhone users have been complaining about for years and which has been cited as the No. 1 reason not to get an iPhone. For customers already with Verizon, it takes an awful lot to switch networks (especially if you're under Mom and Dad's plan or if you're locking into a contract), so many of them are buying other smartphones instead. I would think that an official announcement of an imminent Verizon iPhone would be enough to persuade many prospective Verizon smartphone buyers to wait a few months, and that Apple would make more money in the end from such a move.

Then again, maybe Apple isn't making promises far ahead of time for fear of not delivering. Or for fear of giving Verizon too much negotiating leverage.

If You're Really Human, Type "Antlers"

I recently wrote an e-mail to a marginally famous person, and I got back the following response:

Your mail to me (reproduced below) was not delivered because you are not on my "whitelist" of approved senders.

To add yourself to my whitelist, please resend your mail with the word "antlers" anywhere in the subject line.

If you do this once, you will be added permanently to the whitelist and you'll never have to do it again.

I'm sorry for the minor inconvenience, but this is the only effective way to stop spam.

This seems like a reasonable request, but it got me to wondering why we don't see this more often.

All forms of spam I can think of can be described this way: A group of transmitters is trying to send information to a recipient. Many of the transmissions come from legitimate sources, but others are sent automatically by spammers.

The onus to deal with spam doesn't always fall to the same side of the transaction. Transmitters bear the burden for things such as buying concert tickets. Ticket buyers are asked to solve a CAPTCHA, or a garbled word image that is difficult for computers to understand, to ensure that spammers don't buy up all of the tickets. To somewhat offset the pain, many sites use reCAPTCHA, which helps digitize books when users solve CAPTCHAs.

Conversely, the task of dealing with e-mail spam usually falls to the recipient. Many mail clients have spam filters built in, but they aren't perfect. Spam dupes some users into downloading viruses or giving away sensitive personal information, and pretty much everyone is annoyed by spam to some degree.

So why isn't the "send me a message with antlers in the title" approach more common?

E-mail spam filtering has to make a tradeoff between two types of errors: marking spam as legitimate e-mail, and marking legitimate e-mail as spam. For most people, the latter is worse than the former. For instance, I'd happily delete 10 mislabeled spam messages instead of losing one legitimate message.

The "antlers" approach will often fail. Some people won't follow the instructions correctly, so their messages will never get through. Additionally, sometimes users get important e-mail from automated sources, which won't be able to understand and comply with the "antlers" request. For instance, Amazon sends me messages when there's problems with my order. I've also received automated messages from potential employers telling me I need to fill out a form online or I will no longer be considered for the position.

In short, dealing with spam as a recipient is annoying, but it's worth the effort to avoid missing important messages. And the annoyance wouldn't stop if the system were reversed; we'd just to have solve "antlers" problems whenever we sent an e-mail to someone new.

Please Rate iPhone App Before Deleting

Whenever you decide to delete an iPhone app, you're prompt to rate it. The only other way to rate apps, as far as I know, is to go back into the App Store and find the app again, which requires a bit of effort and isn't very intuitive.

The app rating process has a self-selection bias, as only those users with extreme feelings about the app are bothering to rate it: either people who are deleting the app off their phones or people who like the app so much that they are going out of their way to rate it. The majority of users are going unheard.

While the rating system seems flawed at first glance, perhaps it's just right for Apple's needs. Apple has recently been on a crusade against pornographic content and apps that offer minimum user functionality. Its App Store has exploded in size so much that it is experiencing diseconomies of scale: there are so many apps out there that users are having trouble telling the good from the bad.

By encouraging a lot of ratings for apps that are consistently being deleted, the ratings quickly reflect these apps' true, poor quality. So while the distinction between 4-star and 5-star apps probably isn't that meaningful, Apple's system accomplishes a much more important goal: helping people avoid the duds.

So What If URL Shorteners Are Slow?

From TechCrunch:

Turns out most really don’t perform all that well, and that URL shorteners actually increase the load time of pages significantly. As you can tell from the graph embedded above, a lot of URL shortening services add half to nearly a full second to page load times.

To measure this, WatchMouse checked each URL shortener every five minutes from one of its monitoring stations, which are located across the globe. For each short URL, only the redirection was measured, not the actual loading of the target page.

Pingdom did similar research on the speed and reliability of URL shortening services in August 2009, although they only looked at independent URL shorteners and not the ones from Microsoft, Facebook and Google.

Google does a pretty good job in terms of performance with Goo.gl and YouTu.be, but it still takes those about 1/3 of a second to resolve pages, which makes a world of difference if you think about how many website addresses get shortened on a daily basis.

I don't see how such delays make "a world of difference." Economists sometimes do zany things like multiplying each 1-second delay by the billions of times short URLs are clicked a day and then by the average wage rate to calculate some omnious figure representing the loss to society caused by slow URL shortening services.

On an individual level, a short delay isn't much of a hassle. If you click a short URL, you aren't that much better off if it loads 1 second faster. To argue that I'm doing something like 7 seconds less of work a day and calling this a real impact in the aggregate is foolish. Even if you open dozens of short URLs in separate tabs, you can't read all of them at once anyway; the rest will load while you're reading the first few. Perhaps this delay will impact your local servers, but only marginally so. We certainly wouldn't be millions of dollars better off if such delays didn't exist.

In Defense of Driveby Culture

Marketing blogger Seth Godin bemoans our fickle online media consumption in a recent post, which of course I will excerpt for those of you too lazy to click through and read the whole thing for yourself. (You would think linking to someone else's work would be an explicit enough endorsement, but I am amazed at how often bloggers write stuff like "it's worth reading the whole thing." I sure hope you're not linking to articles you didn't even bother finishing yourself!)

Imagine if people went to the theatre or the movies and stood up and walked out after the first six seconds. Imagine if people went to the senior prom and bailed on their date three seconds after the car pulled away from the curb.

The majority of people who sign up for a new online service rarely or never use it. The majority of YouTube videos are watched for just a few seconds. Chatroulette institutionalizes the glance and click mentality. I'm guessing that more than half the people who started reading this post never finished it.

If people give up on a blog post you've written, is it their fault, or yours? In all likelihood, whatever you were saying just wasn't interesting enough. On the Internet, switching between content is extremely cheap and easy, so the standard of "interesting enough to keep reading or watching" is dauntingly high. Not to mention that much of your audience is looking at your site during work.

This is one of the starkest examples of opportunity cost I know of: time spent reading subpar blog posts takes time away from reading superior blog posts, or doing other activities. Therefore, I really can't fault online readers for being so demanding.

Perhaps the most famous proponent of this mentality is George Mason University economics professor Tyler Cowen. In his book "Discover Your Inner Economist," he writes:

When should we finish a book we have started? In this regard I am extreme. If I start ten books maybe I will finish one of them. I feel no compunction to keep reading. Why not be brutal about this? Is this book the best possible book I can be reading right now, of all the books in the world? For me at least, the answer is usually (but not always) no. Whatever is the best possible book to be reading, I am willing to buy it or otherwise track it down. Most other books don’t make the cut.

Unless you know me personally (and perhaps even if you do), reading Econ Tricks is probably an inefficient use of your time. Why read a 2-month-old blog written by a grad student when there's so much out there on any of my topics written by people who are more intelligent, more experienced, more articulate, and more highly credentialed than I am?

App Developers Are Ditching the iPhone

Via TechCrunch:

As Apple goes on the offensive against Android, it risks alienating more and more developers. Today, another prominent developer is chose the opposing side. Tim Bray, the well-known software architect and blogger, is joining Google to help rally even more developers around the Android mobile operating system.

Bray is the co-inventor of the XML Web standard, and most recently worked at Sun Microsystems. In a blog post, he explains that he is drawn to Google in part because he hates the iPhone, or at least its closed and controlling environment from a developer’s perspective.

Refusing to make apps for the iPhone is a puzzling move. The only relevant consideration for creating an iPhone app is whether the expected revenue will compensate for the costs of production. App developers are free to forsake the iPhone, but most of them would be losing money to do so.

Android apps and iPhone apps make poor substitutes. Once someone has made the hefty investment of buying a particular smartphone, they are very unlikely to switch for the sake of a few apps. If your app is unavailable, users will either buy close substitutes or go without.

Of course, the story changes completely if app developers leave the iPhone en masse, enabling Android to offer a superior app collection. But this would create quite the coordination problem, as it would require each developer to leave substantial money on the table in hopes that everyone else plays along too.

Inflight WiFi and Terrorism

An article today from Boing Boing tells how a blogger was chastised for pulling up a video chat over the plane's WiFi to say goodnight to his children. Apparently video chats are prohibited because of terrorism concerns:

The flight attendant just showed me the United policy manual which prohibits "two way devices" from communicating with the ground. However, the PLANE HAS WIFI. To combat this, not unlike China, United and other airlines have blocked Skype and other known video chat offenders. Apparently, they missed Apple iChat. Oops.

Some have pointed out how terrorism strikes on two main fronts: the initial loss of life and property caused by the attack, and the ongoing fear and lifestyle changes it provokes. September 11 happened more than 8 years ago, yet it still significantly delays air transit at substantial taxpayer expense because of the security measures that have been put in place.

Allowing access to the Internet on planes but blocking certain activities is doomed to failure. There are innumerable ways that a could terrorist could send a message via WiFi to people on the ground besides video chat, and the authorities can't possibly account for all of them.

The Boing Boing article also details another reason to ban video chats: like cellphone conversations, they annoy nearby passengers.