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.

Ranked Preferences in Spades

(Those of you who don't know much about the spades card game won't get much out of this post, though a brief recap of the rules is here.)

In spades, you have to choose between two opposing goals--bagging or setting--and often have to switch strategies in the middle of the hand.

Your strategy can change dramatically if one team is close to the winning score, if one team has a high number of bags, or if a player has gone nill. For this example, assume that none of these factors is in play and that your team has bid 7 and your opponents have bid 3.

Your best outcome is taking 11 tricks, which makes your bid and sets your opponents, while taking the minimum amount of extra bags. Twelve or 13 tricks (nearly impossible in real life) are next best, as they also set your opponents but give you a few extra bags.

Next best is 7 tricks. You make your bid while taking no bags. Then you'd prefer 8, 9, or 10 tricks, which give you a few bags but don't set your opponents.

If you get fewer than 7 tricks, you don't make your bid. In this unfortunate scenario, you want to take as few tricks as possible, to maximize your opponents' bags. Zero is the best and 6 is the worst.

In sum, here are the number of tricks you could take, in order of your preference:

11, 12, 13, 7, 8, 9, 10, 0, 1, 2, 3, 4, 5, 6

What makes the game fun is that when you aim for 7 (the fourth best option), you risk ending up with 6 (the worst option). When you aim for 11 (the best), you risk ending up with 10 (the seventh best).

Of course, you must also play in sync with your partner, who may be trying to bag while you're trying to set (or vice versa). And you should be watching which cards have been played, which gives you information on which cards the other players are likely to be holding and thus your chances of reaching your goal. And you may need to take into consideration some of the other things that I've assumed away (if one team is close to the winning score, if one team has a lot of bags, etc.). It can get complicated.

Using a Pitcher to Pinch Hit

Starting pitcher Jason Marquis pinch hit for the Washington Nationals in the fourth inning of last night's game and the fifth inning Monday, grounding out both times.

Marquis has a .201 lifetime batting average, but that comes with a paltry .516 OPS. In other words, he's just as weak a hitter as any other pitcher. Yet manager Jim Riggleman often uses starting pitchers to pinch hit if that day's starter is knocked out early in the game, in hopes of saving his bench players to pinch hit later.

If the Nationals' pitcher is being removed so early in the game, it's likely that he's been struggling and that the team is facing a large deficit. Therefore, Riggleman is sending up a pitcher to hit because it is a low-leverage situation (i.e., the at-bat has a small chance of affecting the outcome of the game).

Or so the thinking goes. Yet I have to wonder if the strategy is flawed.

Suppose the Nationals have five bench players, not including the backup catcher (who is rarely sent into the game, because if the other catcher gets injured and the backup is no longer available, the team is in deep trouble). More often than not, Riggleman's strategy would give plate appearances to Marquis and four or fewer of these bench players, when he could no doubt expect better results from plate appearances from five or fewer bench players instead.

The latter combination would give the Nationals a better shot at being in a close game in the late innings, which would justify the risk of using up all the bench players. A run scored in the fourth inning counts just as much as a run scored in the ninth. A surplus of bench players in the ninth inning does the team no good if it's trailing by four runs. Even if Riggleman does blow through his whole bench, it's unclear that having Marquis possibly pinch hit in the ninth is worse than having him for sure pinch hit in the early innings.

Perverse Incentives for Pittsburgh Pirates

I've already blasted this Slate article all over Facebook and Twitter, but it's worth posting here as well.

Baseball's revenue sharing system was designed to try to help baseball's poorest teams by forcing the richer teams to pay them millions of dollars a year. However, this weakens a team's incentives to win games and become more profitable, as all additional money earned by winning is partially offset by a drop in income from revenue sharing.

The phenomenon is similar to welfare or unemployment insurance. Someone who collects $400 a month in welfare would only become $600 a month better off by taking a $1,000-a-month job, not to mention the time and effort required to work the job.

The Benefits of Drafting Too High

It was as if a big new market-moving Wall Street money manager had sprung into being, and bought shares only in vegetarian restaurants, or electric car manufacturers. With a difference. A revaluation in the stock market has consequences for companies and for money managers. The pieces of paper don't particularly care what you think of their intrinsic value. A revaluation in the market for baseball players resonates in the lives of young men. It was as if a signal had radiated out from the Oakland A's draft room and sought, laserlike, those guys who for their whole careers had seen their accomplishments understood with an asterisk. The footnote at the bottom of the page said, "He'll never go anywhere because he doesn't look like a big league ballplayer."

- Michael Lewis' Moneyball


I am re-reading Lewis' 2004 classic, which explains how the Oakland A's had so much success in the early 2000s despite a paltry payroll because they evaluated players differently. The A's won with misshapen players who couldn't run or field very well but who had a knack for getting on base.

Many of the players the A's were interested in before the 2002 amateur draft didn't see themselves getting drafted until the fifteenth round or later. One could argue that the A's should indeed have waited till these later rounds to draft these kids, because no other team was going to take them anyway.

Instead, the A's called these kids and told them how well they would fit into the Oakland system, so much so that the A's would be selecting them in the first or second rounds. They would be offered a signing bonus that was absurdly higher than what they were expected yet up to a million dollars less than other high draft picks would typically receive.

Either method would help the A's acquire valuable players that no one else really wanted, but it's clear that the latter gave these youngsters a credible reason to believe in themselves and thus devote the effort to becoming big league ballplayers.

Competing on Easy to Understand Margins

I heard an ad on the radio for United Airlines saying that the company's airline miles are extremely easy to redeem, as there are no blackout dates, etc.

Of course, there's no such thing as a free lunch, so if United miles are easier to redeem than those of other airlines, then they probably are more difficult to earn. However, it requires a lot more research to compare miles at this margin. I would expect consumers to prefer products that are better on understandable margins, even if they are inferior overall once one factors in all the technical details.

For instance, many people would prefer a checking account with no monthly fee to one with a monthly fee, even if the latter has lower overdraft fees or is superior in other ways. Maybe it's a good thing that the government is cracking down on the more obscure bank fees, which could homogenize some elements of banking products that many people don't understand.

Transactions Costs: Electronic Checking

For years, I've been seeing advertisements asking me to sign up for ING Direct's Electric Orange checking.

It's supposedly better than other checking accounts and is linked to 35,000 free ATMs. Heck, ING has even offered me $50 to sign up.

What's stopping me? Well, I don't know where any of those 35,000 free ATMs are. I'm sure there are dozens near me--but to find them, I need to consult the online ATM locator.

My current situation, in contrast, is much easier: whenever I see one of those big Bank of America signs somewhere, I know that there's a free ATM there for me.

In other words, the cost of acquiring information on Electric Orange ATM locations is too high. Not to mention that I am mildly locked in with Bank of America anyway, as it also houses my main credit card.

(Or is this just an economist's way of justifying laziness?)