Académique Documents
Professionnel Documents
Culture Documents
After going dry for 86 seasons, the Boston Red Sox have won two
World Series in the past four years. This hot stretch began soon
after the team hired Bill James, the sports most accomplished
statistician, as a senior baseball operations adviser. Whether
coincidence or not, this overlap was widely noted, and it is now
standard practice for baseball teams to hire a flock of statheads and
use their analyses to help make decisions on and off the field.
This probably makes good sense for a sport like baseball, which is
full of discrete events that are easily measured. It is also
understandable, however, that there is less of an edge to be gained
from statistical analysis now that everyone is doing it.
Basketball, meanwhile, might seem too hectic and woolly for such
rigorous dissection. It is far more collaborative than baseball and
happens much faster, with players shifting from offense one
moment to defense the next. (Hockey and football present their
own challenges.) A lot of things happen on a basketball court
picks, passes, defensive shifts that arent routinely quantified.
This is not to suggest that basketball teams dont think statistically.
But only recently have a few teams begun to hire a new breed of
stathead to scrutinize every conceivable variable.
Photo
Danny Ainge was a key player on the last Celtics team to win an
N.B.A. title, more than 20 years ago. He also played Major League
Baseball for three summers, with the Toronto Blue Jays. You might
think that is why he embraces the statistical approach to sport now
commonly called moneyball, after the title of Michael Lewiss
book, but in fact Ainge is not a true believer. I just think theres a
lot of to-do about nothing in some of that, he says. I mean, I heard
about on-base percentage in 1976 when I was a junior in high
school.
There are two channels through which Zarren can help the Celtics.
The first is by assessing potential deals and draft picks, which
means bouncing information off of Ainge. The second channel is
strategic advice, which means going to Coach Doc Rivers, whom
Ainge says is skeptically receptive to Zarrens insights. You sense
that Zarren has gained credibility within the Celtics not because the
basketball people adore his regression analyses but because he
adores the sport. Most geeks are not basketball guys, Zarren says,
and most basketball guys are not geeks. You have to be both to be
successful in this developing field.
Whats the most efficient shot to take besides a layup? Easy, says
Zarren: a three-pointer from the corner. Whats one of the most
misused, misinterpreted statistics? Turnovers are way more
expensive than people think, Zarren says. Thats because most
teams focus on the points a defense scores from the turnover but
dont correctly value the offenses opportunity cost that is, the
points it might have scored had the turnover not occurred.
As for what the Celtics know about their own and opposing players
well, that information is guarded like the crown jewels. Off the
record and under duress, Zarren did reveal some valuable
information, but we judged credible his threat to hunt us down and
kill us if it were published. He waswilling to admit that Ray Allens
worth goes far beyond his perimeter shooting, that Rajon Rondos
rebounding was an undervalued asset, that Leon Powes
surprisingly strong play was not so surprising to the Celtics and
that, as transformative a player as Garnett was known to be, he has
generated a variety of offensive and defensive pluses that even the
Celtics didnt anticipate.
The last few decades have been sad ones for the Celtics, marked by
loss of life (including Len Bias, their 1986 first-round draft pick)
and losses on the court. All that gloom will dissipate if they can
manage to win their 17th championship this season. Other teams
will of course rush to mimic the Celtics formula beginning,
presumably, by trying to acquire a player like Kevin Garnett. But
there are a lot more Mike Zarrens in the world than there are Kevin
Garnetts, and they also happen to come with a much lower price
tag.
Not-So-Free Ride
The trouble with negative externalities
Because there are all sorts of costs associated with driving that the
actual driver doesnt pay. Such a condition is known to economists
as a negative externality: the behavior of Person A (well call him
Arthur) damages the welfare of Person Z (Zelda), but Zelda has no
control over Arthurs actions. If Arthur feels like driving an extra 50
miles today, he doesnt need to ask Zelda; he just hops in the car
and goes. And because Arthur doesnt pay the true costs of his
driving, he drives too much.
A higher gas tax might also work. If a typical car gets 20 miles to the
gallon, then the proper tax would be about $2 per gallon. But with
the current high market price for gas and the political hysterics
attached to it well, good luck with that one.
Photo
CreditPaul Sahre
While some insurance companies do offer a small discount for
driving less usually based on self-reporting, which has an obvious
shortcoming U.S. auto insurance is generally an all-you-can-eat
affair. Which means that the 27,000 more miles than Zelda that
Arthur drives dont cost him a penny, even as each mile produces
externalities for everyone. It also means that low-mileage drivers
like Zelda subsidize high-mileage drivers like Arthur.
Aaron Edlin first noticed this imbalance more than 15 years ago. I
was a graduate student at Stanford, he says, and I drove maybe
2,000 miles a year. But I paid roughly the same $1,000 as if Id
driven 10 times as much, which was a huge portion of my budget.
A few years later, Edlin was serving on the Presidents Council of
Economic Advisers when he floated an idea that economists had
long found attractive: pay-as-you-drive (PAYD) insurance. It
seemed like an obvious solution. Since no one expects to pay the
same price for, say, a 60-minute massage as they pay for a 15-
minute massage, why should people pay the same for insurance no
matter how many miles they drove?
The objection within the White House, Edlin recalls, was there
wasnt good academic research on the subject.
Edlin and a few others, including Jason Bordoff and Pascal Noel at
the Brookings Institution, have since done such research. It makes a
compelling case that PAYD insurance would work well, reducing the
carbon emissions, congestion and accident risk created by too much
driving while leading drivers to pay the true cost of their mileage.
Bordoff and Noel put the total social benefit at $52 billion a year.
If PAYD is such a great idea, why has it taken so long? There are at
least three reasons: the tracking technology has only recently
become affordable; insurers were anxious about drivers privacy
concerns; and there was a substantial risk for whichever company
was first to offer PAYD on a large scale.
Rafe Fursts epiphany came just last year while attending a closed-
door conference in Grand Rapids, Mich., that featured some of the
most prominent cancer researchers in the United States. Furst
might not seem the likeliest person to be in such a room. He is best
known as a professional gambler, a proud member of a high-profile,
high-I.Q. poker gang known as the Tiltboys. He has an
undergraduate degree in symbolic systems and a graduate degree in
computer science, both from Stanford, and in 1999 he banked a
small fortune by selling an online promotions company he helped
found. (Disclosure: Furst is a friend of ours, and we are both
investors in a more recent start-up of his, its mission unrelated to
this article.)
Photo
CreditPaul Sahre
Cancer researchers would certainly be incentivized by the $10
billion prize. But how to incentivize the donors? Furst would offer
an annuity, similar to the annuities paid out by charitable-
remainder trusts. A donor to such a trust gives money or property
to a charity and receives an annuity based on its value until his or
her death. Thats a cool idea, Furst says. But I thought, How can
we make it so you dont have to die?
One year from today, a new president moves into the White House.
This president will be eager to carry out any number of plans
including, surely, plans to help the segments of society that most
need help. Extending a helping hand, after all, is one of the great
privileges and responsibilities of the presidency.
But before charging ahead with such plans, the new president might
do well to first ask him- or herself the following question: What do a
deaf woman in Los Angeles, a first-century Jewish sandal maker
and a red-cockaded woodpecker have in common?
The woman later called again to say she would rather have a sign-
language interpreter. Fine, Brooks said, and asked his assistant to
make the arrangements. As it turned out, an interpreter would cost
$120 an hour, with a two-hour minimum, and the expense wasnt
covered by insurance. Brooks didnt think it made sense for him to
pay. That would mean laying out $240 to conduct an exam for
which the womans insurance company would pay him $58 a loss
of more than $180 even before accounting for taxes and overhead.
Brooks told several colleagues and doctor friends about his deaf
patient. They all said, If I ever get a call from someone like that,
Ill never see her, he says. This led him to wonder if the A.D.A.
had a dark side. Its got to be widely pervasive and probably not
talked about, because doctors are just getting squeezed further and
further. This kind of patient will end up getting passed on and
passed on, getting the runaround, not understanding why shes not
getting good care.
Photo
How long have such do-good laws been backfiring? Consider the
ancient Jewish laws concerning the sabbatical, or seventh year. As
commanded in the Bible, all Jewish-owned lands in Israel were to
lie fallow every seventh year, with the needy allowed to gather
whatever food continued to grow. Even more significant, all loans
were to be forgiven in the sabbatical. The appeal of such unilateral
debt relief cannot be overestimated, since the penalties for
defaulting on a loan at the time were severe: a creditor could go so
far as to take a debtor or his children into bondage.
So for a poor Jewish sandal maker having trouble with his loan
payments, the sabbatical law was truly a godsend. If you were a
creditor, however, you saw things differently. Why should you lend
the sandal maker money if he could just tear up the loan in Year
Seven? Creditors duly gamed the system, making loans in the years
right after a sabbatical, when they were confident they would be
repaid, but then pulling tight the purse strings in Years Five and
Six. The resulting credit drought was so damaging to poor people
that it fell to the great sage Hillel to fix things.
The trouble is that many of the most observant Israeli Jews reject
this maneuver as a sleight of hand that violates the spirit of the law.
Many of these traditionalists are also extremely poor. And so this
year, which happens to be a sabbatical year, the poorest Jews in
Israel who wish to eat only food grown on non-Jewish land are left
to buy imported goods at double or triple the regular price all in
order to uphold a law meant to help feed the poorest Jews in Israel.
This happened less than two years ago in Boiling Spring Lakes, N.C.
Along the roadsides, an A.P. article reported, scattered brown
bark is all thats left of once majestic pine stands. As sad as this
may be, it isnt surprising to anyone who has examined the perverse
incentives created by the E.S.A. In their paper, Lueck and Michael
cite a 1996 developers guide from the National Association of
Home Builders: The highest level of assurance that a property
owner will not face an E.S.A. issue is to maintain the property in a
condition such that protected species cannot occupy the property.
Upon entering one battle, Han assembled his soldiers with their
backs to a river so that retreat was not an option. With no choice
but to attack the enemy head-on, Hans men did just that.
So how are all these commitment devices working? Not very well.
According to the Centers for Disease Control, one out of every three
American adults is obese. Which is why so many people have begun
to embrace a far more drastic commitment device, one that Han
Xin himself would probably applaud: surgery. This year, more than
200,000 weight-loss, or bariatric, operations will be performed in
the United States, a nearly ten-fold increase in just a decade. The
most prominent types are gastric bypass and laparoscopic
adjustable gastric banding (or Lap-Band), although there are a
few others. Each one works a bit differently, but the general aim is
to reduce the stomachs capacity and thereby thwart the appetite. If
all goes well, bariatric surgery leads to substantial weight loss,
especially among the morbidly obese.
Photo
But even if bariatric surgery doesnt kill you, there are things to
worry about. The operation often produces complications
physiological ones, to be sure, but also perhaps psychological ones.
A significant fraction of postbariatric patients acquire new
addictions like gambling, smoking, compulsive shopping
or alcoholism once they are no longer addicted to eating. In certain
cases, some people also learn to outfox the procedure by taking
in calories in liquid form (drinking chocolate syrup straight from
the can, for instance) or simply drinking and eating at the same
time. Surgery is also a lot more expensive than even the most lavish
diet, with a Lap-Band procedure costing about $20,000 and a
gastric bypass about $30,000.
But Bessler and other bariatric advocates argue that the upsides
outweigh the downsides, especially for a morbidly obese patient
whose quality of life is already suffering. While asking a bariatric
surgeon if bariatric surgery is a good idea might seem akin to asking
a barber if you need a haircut in fact, Bessler does consult for
companies in the industry the data seem to back up his claims:
not only do most patients keep off a significant amount of weight
but the other medical problems that accompany obesity are also
often assuaged. One recent analysis found that 77 percent of
bariatric-surgery patients with Type 2 diabetes experienced
complete resolution of their diabetes after the procedure; the
surgery also helps eliminate hypertension and sleep apnea. From an
economic standpoint, research suggests that the operation can pay
for itself within a few years because a postbariatric patient now
requires less medical care and fewer prescriptions. Thats why some
insurance companies cover bariatric surgery as more do, it will
likely lead to a further spike in the volume of operations. This is
especially good news for the hospitals that have already grown
dependent on the significant cash flow that bariatric surgery
generates.
There are at least two ways to think about the rise in bariatric
surgery. On the one hand, isnt it terrific that technology has once
again solved a perplexing human problem? Now people can eat all
they want for years and years and then, at the hands of a talented
surgeon, suddenly bid farewell to all their fat. There are risks and
expenses of course, but still, isnt this what progress is
all about?
On the other hand, why is such a drastic measure called for? Its one
thing to spend billions of dollars on a disease for which the cause
and cure are a mystery. But thats not the case here. Even those who
argue that obesity has a strong genetic component must
acknowledge, as Bessler does, that the amount of obesity has
skyrocketed in the past 30 years, but our genetic makeup certainly
hasnt changed in that time.
So the cause is, essentially, that people eat too much; and the cure
is, essentially, to eat less. But bariatric surgery seems to fit in nicely
with the tenor of our times. Consider, for instance, the game shows
we watch. The old model was Jeopardy!, which required a player
to beat her opponents to the buzzer and then pluck just the right
sliver of trivial knowledge from her vast cerebral storage network.
The current model is Deal or No Deal, which requires no talent
whatsoever beyond the ability to randomly pick a number on a
briefcase.
Maybe the problem is that despite all the diets and exercise regimes
and gimmicks that have been put into play during our national bout
of obesity, the right nonsurgical solution simply hasnt yet been
found. So heres a suggestion: Hang around your neck a small
Ziploc bag containing a towelette infused with an aroma of, well, of
something deeply disgusting. (In the interest of not offending
anyone who happens to be reading this over breakfast, we wont
offer specific suggestions, but you can surely conjure a horrid odor
on your own.) Every time youre about to open the refrigerator or
look over a menu, unzip the bag and take a whiff. Now thats a
commitment device.
The Jane Fonda Effect
Nuclear Energy
If you were asked to name the biggest global-warming villains of the past 30
years, heres one name that probably wouldnt spring to mind: Jane Fonda.
But should it?
The China Syndrome opened on March 16, 1979. With the no-nukes
protest movement in full swing, the movie was attacked by the nuclear
industry as an irresponsible act of leftist fear-mongering. Twelve days later,
an accident occurred at the Three Mile Island nuclear plant in south-central
Pennsylvania.
But the big news is that nuclear power may be making a comeback in the
United States. There are plans for more than two dozen new reactors on the
drawing board and billions of dollars in potential federal loan guarantees.
Has fear of a meltdown subsided, or has it merely been replaced by the fear
of global warming?
Photo
Most people pick the first urn, which suggests that they prefer a measurable
risk to an immeasurable uncertainty. (This condition is known to
economists as ambiguity aversion.) Could it be that nuclear energy, risks
and all, is now seen as preferable to the uncertainties of global warming?
France, which generates nearly 80 percent of its electricity by nuclear
power, seems to think so. So do Belgium (56 percent), Sweden (47 percent)
and more than a dozen other countries that generate at least one-fourth of
their electricity by nuclear power. And who is the worlds single largest
producer of nuclear energy?
Improbably enough, that would be . . . the United States. Even though the
development of new nuclear plants stalled by the early 1980s, the countrys
104 reactors today produce nearly 20 percent of the electricity the nation
consumes. This share has actually grown over the years along with our
consumption, since nuclear technology has become more efficient. While the
fixed costs of a new nuclear plant are higher than those of a coal or natural-
gas plant, the energy is cheaper to create: Exelon, the largest nuclear
company in the United States, claims to produce electricity at 1.3 cents per
kilowatt-hour, compared with 2.2 cents for coal.
But coal, too, has its costs, even beyond the threat of global warming. In the
United States, an average of 33 coal miners are killed each year. In China,
more than 4,700 coal miners were killed last year alone a statistic that the
Chinese government has trumpeted as a vast improvement.
The accident at Three Mile Island ruined one of the two reactors on the site.
The other one, operated by Exelon, continues to quietly churn out electricity
for 800,000 customers. Outside the plants training center is a small
vegetable garden enclosed in chain-link fencing: corn, tomatoes, beets. Its
output is monitored to detect radiation. Although the garden was badly in
need of watering during a recent visit, the vegetables were otherwise fine.
Imagine for a moment that you are looking to buy a first home for
yourself, your spouse and your 1-year-old darling. Now imagine that
you are doing this in Italy.
The housing market in Italy is quite different from ours. Its harder
to get mortgage credit, and you can typically borrow only 50
percent of the purchase price. Moreover, the loan might have to be
repaid in just 10 years. So before buying your first house, youll
probably have to spend a lot of years saving up your salary for a
down payment. As a result, you may well end up living with your
parents (or gulp your in-laws) until you are deep into your 30s.
But what if you cant scare up the cash for even a small down
payment? Without it, you fall firmly into the category of what are
now infamously known as subprime borrowers. There are plenty of
options for subprime customers, but most of those options, as noted
in the small type on the contracts the borrowers sign, arent very
good.
Pretend that you want to buy a house that costs $200,000 but dont
have $20,000 to make the 10 percent down payment that would get
you a decent mortgage. The sellers real estate agent offers a
solution: lets make the official purchase price $220,000 instead of
$200,000, he says but in return, the seller will give you $20,000
in cash. This rebate will be a separate transaction, the agent
explains, which doesnt need to be written into the mortgage
paperwork. (A seller can legally offer a cash-back incentive, but it
would have to be reported to the bank which would negate the
advantage of having the bank think that the buyer already has the
cash.)
But Ben-David argues that there are at least two potential losers.
The first is the honest buyer who wont take a cash-back offer and
therefore cant buy a house all while the illegal cash-back
transactions are artificially driving up home prices in his
neighborhood.
Theres a third potential loser as well: the subprime buyer who does
accept the cash-back payment but still ends up defaulting on the
loan. Although his criminal act will probably never be prosecuted,
he stands to face an even harsher sentence: moving back in with the
in-laws.
Laid-Back Labor
The $140 Homemade Scarf
During the late 19th century, piano manufacturing was one of New
York Citys largest industries. Every right-minded American family,
it seemed, wanted to fill its home with music. The advent of the
player piano a music-making machine that required zero talent
drove the boom even further. By the 1920s, some 300,000 pianos
were being sold in the United States each year, roughly two-thirds
of them player pianos.
Compare this with the 17.5 percent of adults who currently engage
in what the Census Bureau calls cooking for fun. Or consider that
41 percent of households have flower gardens, 25 percent raise
vegetables and 13 percent grow fruit trees even though just 1
percent of Americans live on a farm today, down from 30 percent in
1920. On a more personal note: one of the authors of this column
has a sister who runs a thriving yarn store, while the other is
married to a knitting devotee who might buy $40 worth of yarn for
a single scarf and then spend 10 hours knitting it. Even if her labor
is valued at only $10 an hour, the scarf costs at least $140 or
roughly $100 more than a similar machine-made scarf might cost.
Photo
With no disrespect toward Ramey and Francis, how about this for
an alternative definition: Whether or not youre getting paid, its
work if someone else tells you to do it and leisure if you choose to
do it yourself. If you are the sort of person who likes to mow his
own lawn even though you can afford to pay someone to do it,
consider how youd react if your neighbor offered to pay you the
going rate to mow his lawn. The odds are that you wouldnt accept
his job offer.
And so a great many people who can afford not to perform menial
labor choose to do so, because well, why? An evolutionary
biologist might say that embedded in our genes is a drive to feed
and clothe ourselves and tame our surroundings. An economist,
meanwhile, might argue that we respond to incentives that go well
beyond the financial; and that, mercifully, we are left free to choose
which tasks we want to do ourselves.
Granted, these choices may say a good bit about who we are and
where we come from. One of us, for instance (the economist, who
lives in Chicago), grew up comfortably in a Midwestern city and has
fond memories of visiting his grandparents small farm. This author
recently bought an indoor hydroponic plant grower. It cost about
$150 and to date has produced approximately 14 cherry tomatoes
which, once you factor in the cost of seeds, electricity and even a
nominal wage for the labor, puts the average price of a single
tomato at roughly $20.
The other one of us (the journalist, who lives in New York) grew up
on a small farm and was regularly engaged in all sorts of sowing,
mucking and reaping. He, therefore, has little vestigial desire to
grow his own food but he is happy to spend hours shopping for
and preparing a special dinner for family and friends. Such dinners,
even if the labor were valued at only $10 an hour, are more
expensive than a commensurate takeout meal.
Maybe someday the New York guy will get to cook a meal with some
of the Chicago guys cherry tomatoes. Add in another $32 for next-
day shipping, and it might become one of the most expensive meals
in recent memory and, surely, worth every penny.
Identity Crisis
Counting the Cost of a Chargeback
How does this market work? If someone has just hacked a hospital
database and come away with 10,000 fulls (a full set of personal
information, down to your mothers maiden name), hell post his
asking price (typically $10 to $30 per full, depending on the
freshness), along with a sampling of the data to prove its legitimacy.
Fraudsters also post specific queries. Heres one, Peisner said,
reading from his screen: Need female WU confirmer. Your share:
40 percent. That means they need someone to go to the Western
Union office in some coffee shop in Romania to pick up the cash
because Vlad can do a lot of things, but he cant be Amy Weiss from
Manhattan Beach, Calif.
The answer would also seem obvious: You, the potential victim. But
according to the Javelin data, people probably worry way too much
about identity theft. Seventy-three percent of victims incur no out-of-
pocket expenses whatsoever; the unlucky minority loses, on average,
$2,000 hardly chump change but far less than the scare stories
would have us believe. And in more than half the cases of identity
theft, the thief is not a stranger at all but rather a relative, friend or
co-worker.
Photo
And, therefore, all the incentive to stop the crime. That is why Peisner
recently started a company, Sell It Safe, which aims to help merchants
and banks screen their customers in online and telephone
transactions. His main weapon is a massive live database of stolen
personal information, which a merchant can instantaneously check to
learn whether Amy Weiss is really Amy Weiss or if perhaps she is
really Vlad. In an era when information flows like water, Peisner is
hoping to add a filter onto a few million faucets.
As for gift cards well, lets just say there is good reason that they are
known within the retail industry as a stored-value product: they store
their value very well, and often permanently. The financial-services
research firm TowerGroup estimates that of the $80 billion spent on
gift cards in 2006, roughly $8 billion will never be redeemed a
bigger impact on consumers, Tower notes, than the combined total
of both debit- and credit-card fraud. A survey by Marketing
Workshop Inc. found that only 30 percent of recipients use a gift card
within a month of receiving it, while Consumer Reports estimates that
19 percent of the people who received a gift card in 2005 never used
it.
Photo
CreditIllustration by Knickerbocker
Of course there are many different types of recipients and
relationships. Its quite easy to give gifts to people who dont have the
money or the wherewithal to get things for themselves children, for
instance. Since a child cant drive himself to Toys R Us and probably
doesnt have much money of his own, by giving him a toy you are
substantially expanding the set of things he has access to. Which
makes nearly any gift meaningful.
But realistically, most of our gifts fall well short of that high standard.
This creates a lot of inefficiency. In 1993, the economist Joel
Waldfogel addressed this subject in a paper whose continuing fame in
economics circles is due in part to its wonderfully Scrooge-ish title:
The Deadweight Loss of Christmas. Since gifts may be mismatched
with the recipients preferences, Waldfogel argued, it is likely that
the gift will leave the recipient worse off than if she had made her
own consumption choice with an equal amount of cash. He
concluded that holiday gift-giving destroys between 10 percent and a
third of the value of gifts.
If gift-giving destroys so much value, why not take the most efficient
route and simply give cash? Obviously, some people do. In the small
survey of Yale undergraduates on which Waldfogel based his paper,
grandparents gave cash 42 percent of the time, and parents gave cash
10 percent of the time. But not once did a student receive cash from
his or her significant other. Plainly, there are a few relationships for
which a cash gift is appropriate, but in most cases, the social taboo
crushes the economists dream of such a beautifully efficient
exchange.
You could certainly make that case. And for the merchant, at least, the
gift card is a godsend. Just think of it: In the weeks leading up to
Christmas, millions of people visit your store or Web site and hand
you billions of dollars in exchange for nothing more than a plastic
I.O.U. that may never even be redeemed. Best Buy, for instance,
earned $16 million last year in gift-card breakage, which is the
industrys term for card value that was bought but never redeemed.
Then theres what retailers call upspending: most customers who do
use their gift cards spend some of their own money to buy
merchandise that is more expensive than the value of the card.
For the giver, meanwhile, a gift card could hardly be easier. But most
economists would argue that if a gift card is so transparently good for
the giver, it is necessarily bad for the recipient: the fact that it can be
bought so easily signals to the recipient that the giver didnt put much
effort into the gift.
For other economists, meanwhile, the weather itself has proved useful
in measuring wholly unrelated human behaviors. From an
economists perspective, the great thing about the weather is that
there is nothing humans can do to affect it (at least until recently).
Contrast this with social changes that people enact: a new set of laws,
for instance. Very often, new laws come about when there is a
perception that a big social problem think violent crime or
corporate fraud is growing worse. After a while, and after the laws
have been enacted, the problem diminishes. So did the new laws fix
the problem, or would it have improved on its own? Politicians will
surely claim that it was their laws that fixed the problem, but its hard
to know for sure.
CreditPaul Sahre
Consider 19th-century Bavaria. The problem there was rain too
much of it. As Halvor Mehlum, Edward Miguel and Ragnar Torvik
explained in a recent paper, excessive rain damaged the rye crop by
interfering with the planting and the harvest. Using a historical
rainfall database from the United Nations, they found that the price of
rye was significantly higher in rainy years, and since rye was a major
staple of the Bavarian diet, food prices across the board were
considerably higher in those years, too. This was a big problem, since
a poor family at the time would have been likely to spend as much as
80 percent of its money on food. The economists went looking for
other effects of this weather shock. It turns out that Bavaria kept
remarkably comprehensive crime statistics the most meticulous in
all of Germany and when laid out one atop the other, there was a
startlingly robust correlation between the amount of rain, the price of
rye and the rate of property crime: they rose and fell together in
lockstep. Rain raised food prices, and those prices, in turn, led hungry
families to steal in order to feed themselves.
But violent crime fell during the rainy years, at the same time
property crimes were on the rise. Why should that be? Because, the
economists contend, rye was also used to make beer. Ten percent of
Bavarian household income went to beer purchases alone, they write.
So as a price spike in rye led to a price spike in beer, there was less
beer consumed which in turn led to fewer assaults and murders.
Since the weather yields such interesting findings about the past, it
makes sense that economists are also tempted to use it to anticipate
the future. In their second paper on the potential effects of global
warming, Deschnes and Greenstone try to predict mortality rates in
the U.S. in the last quarter of the current century.
Unlike in their paper on agriculture, the news in this one isnt good.
They estimate, using one of the latest (and most dire) climatological
models, that the predicted rise in temperature will increase the death
rate for American men by 1.7 percent (about 21,000 extra fatalities
per year) and for American women by 0.4 percent (about 8,000
deaths a year). Most of these excess deaths, they write, will be caused
by hot weather that worsens cardiovascular and respiratory
conditions. These deaths will translate into an economic loss of
roughly $31 billion per year. Deschnes and Greenstone caution that
their paper is in a preliminary stage and hasnt yet been peer-
reviewed and that the increased mortality rate may well be offset by
such simple (if costly) measures as migration to the Northern states
a repopulation that, even a decade ago, might have seemed
unimaginable.
Their paper on agriculture also has some wrinkles. While arguing that
global warming would produce a net agricultural gain in the United
States, they specify which states would be the big winners and which
ones would be the big losers. Whats most intriguing is that winners
and losers lists are a true blend of red states and blue states: New
York, along with Georgia and South Dakota, are among the winners;
Nebraska and North Carolina would lose out, but the biggest loser of
all would be California. Which suggests that in this most toxic of
election seasons, when there seems not a single issue that can unite
blue and red staters (or at least the politicians thereof), global
warming could turn out to be just the thing to bring us all together.
Selling Soap
The Petri-Dish Screen Saver
While it is now well established that germs cause illness, this wasnt
always known to be true. In 1847, the Hungarian physician Ignaz
Semmelweis was working in a Viennese maternity hospital with two
separate clinics. In one clinic, babies were delivered by physicians; in
the other, by midwives. The mortality rate in the doctors clinic was
nearly triple the rate in the midwives clinic. Why the huge
discrepancy? The doctors, it turned out, often came to deliveries
straight from the autopsy ward, promptly infecting mother and child
with whatever germs their most recent cadaver happened to carry.
Once Semmelweis had these doctors wash their hands with an
antiseptic solution, the mortality rate plummeted.
All of this was on Benders mind when he got home from his cruise.
As a former chief of staff at Cedars-Sinai, he felt inspired to help
improve his colleagues behavior. Just as important, the Joint
Commission on Accreditation of Healthcare Organizations would
soon be inspecting Cedars-Sinai, and it simply wouldnt do for a
world-class hospital to get failing marks because its doctors didnt
always wash their hands.
Photo
For the next six weeks, Silka and roughly a dozen other senior
personnel manned the parking-lot entrance, handing out bottles of
Purell to the arriving doctors. They started a Hand Hygiene Safety
Posse that roamed the wards and let it be known that this posse
preferred using carrots to sticks: rather than searching for doctors
who werent compliant, theyd try to catch a doctor who was
washing up, giving him a $10 Starbucks card as reward. You might
think that the highest earners in a hospital wouldnt much care about
a $10 incentive but none of them turned down the card, Silka
says.
When the nurse spies reported back the latest data, it was clear that
the hospitals efforts were working but not nearly enough.
Compliance had risen to about 80 percent from 65 percent, but the
Joint Commission required 90 percent compliance.
They pressed their palms into the plates, and Murthy sent them to the
lab to be cultured and photographed. The resulting images, Silka says,
were disgusting and striking, with gobs of colonies of bacteria.
How's this for a repugnant situation? Take someone you love, perhaps
your spouse or your sibling, and find a stranger who will accept a
really big bet that your loved one will die prematurely and if indeed
that happens, you pocket a few million dollars.
One case of repugnance is far from settled: the dispute over how
human organs for transplantation should be allocated and,
perhaps, even sold. If you happen to have a failing heart or liver or
kidneys, you will almost certainly die without a transplant, but if you
aren't lucky enough to get an organ through an official registry, you
can't legally purchase one at any price. So instead of a free market in
organs, we have a volunteer market. Some people agree to give up
their usable organs once they die. In the case of a living donor,
someone sacrifices a kidney or a portion of a liver to a recipient, most
likely a family member.
A big problem is that would-be suppliers are not given very strong
incentives to step forward. In much of Europe, the choice is made for
them: instead of "opting in" to donate, the default assumption is that
your usable organs will be harvested upon your death unless your
family "opts out." But Europe, too, still has a sizable organ shortage,
in part because traffic fatalities which tend to produce desirable
organs for harvest are on a downward trend in Western countries.
Photo
But why, Becker and Elias ask, should poor people "be deprived of
revenue that could be highly useful to them"? Even more compelling
is the fact that a poor person is just as likely as a wealthy person (if
not more so) to need a new kidney and, with no legal market for
organs, is just as likely to die while waiting on a list.
If all goes well, the transplant may happen soon. Consider the parties
who stand to profit from this transaction: Recipient, certainly, as well
as the transplant surgeons, the nurses, the hospital, the drug
companies. Everyone will be paid in some form except for Donor,
who not only isn't being paid but, in return for carrying out a deeply
altruistic act, also has to pay the additional price of lying about it.
Surely there are some people, and not just economists, who would
find this situation well, repugnant.
A Star Is Made
The Birth-Month Soccer Anomaly
What might account for this anomaly? Here are a few guesses: a)
certain astrological signs confer superior soccer skills; b) winter-born
babies tend to have higher oxygen capacity, which increases soccer
stamina; c) soccer-mad parents are more likely to conceive children in
springtime, at the annual peak of soccer mania; d) none of the above.
Photo
"I think the most general claim here," Ericsson says of his work, "is
that a lot of people believe there are some inherent limits they were
born with. But there is surprisingly little hard evidence that anyone
could attain any kind of exceptional performance without spending a
lot of time perfecting it." This is not to say that all people have equal
potential. Michael Jordan, even if he hadn't spent countless hours in
the gym, would still have been a better basketball player than most of
us. But without those hours in the gym, he would never have become
the player he was.
The same is not true for, say, a mammographer. When a doctor reads
a mammogram, she doesn't know for certain if there is breast cancer
or not. She will be able to know only weeks later, from a biopsy, or
years later, when no cancer develops. Without meaningful feedback, a
doctor's ability actually deteriorates over time. Ericsson suggests a
new mode of training. "Imagine a situation where a doctor could
diagnose mammograms from old cases and immediately get feedback
of the correct diagnosis for each case," he says. "Working in such a
learning environment, a doctor might see more different cancers in
one day than in a couple of years of normal practice."
If nothing else, the insights of Ericsson and his Expert Performance
compatriots can explain the riddle of why so many elite soccer players
are born early in the year.
This may be bad news if you are a rabid soccer mom or dad whose
child was born in the wrong month. But keep practicing: a child
conceived on this Sunday in early May would probably be born by
next February, giving you a considerably better chance of watching
the 2030 World Cup from the family section.
Filling in the Tax Gap
Mr. Szilagyi's Billion-Dollar Idea
This is the time of year when American citizens inevitably think about
the Internal Revenue Service and, also inevitably, about how deeply
they hate it. But most people who hate the I.R.S. probably do so for
the wrong reasons. They think it is a tough and cruel agency, but in
fact it is not nearly as tough and cruel as it should be.
The first thing to remember is that the I.R.S. doesn't write the tax
code. The agency is quick to point its finger at the true villain: "In the
United States, the Congress passes tax laws and requires taxpayers to
comply," its mission statement says. "The I.R.S. role is to help the
large majority of compliant taxpayers with the tax law, while ensuring
that the minority who are unwilling to comply pay their fair share."
So the I.R.S. is like a street cop or, more precisely, the biggest fleet of
street cops in the world, who are asked to enforce laws written by a
few hundred people on behalf of a few hundred million people, a great
many of whom find these laws too complex, too expensive and unfair.
And yet most Americans say they are proud to pay their taxes. In an
independent poll conducted last year for the I.R.S. Oversight Board,
96 percent of the respondents agreed with the statement "It is every
American's civic duty to pay their fair share of taxes," while 93
percent agreed that everyone "who cheats on their taxes should be
held accountable." On the other hand, when asked what influences
their decision to report and pay taxes honestly, 62 percent answered
"fear of an audit," while 68 percent said it was the fact that their
income was already being reported to the I.R.S. by third parties. For
all the civic duty floating around, it would seem that most compliance
is determined by good old-fashioned incentives.
But most people aren't cheating. And when you take a look at who
does cheat and who doesn't, it becomes pretty clear just why people
pay their taxes at all. The key statistic in the I.R.S.'s study is called the
Net Misreporting Percentage. It measures the amount that was
misreported on every major line item on those 46,000 returns. In the
"wages, salaries, tips" category, for instance, Americans are
underreporting only 1 percent of their actual income. Meanwhile, in
the "nonfarm proprietor income" category -- think of self-employed
workers like a restaurateur or the boss of a small construction crew --
57 percent of the income goes unreported. That's $68 billion in
unpaid taxes right there.
Does this mean that the average self-employed worker is less honest
than the average wage earner? Not necessarily. It's just that he has
much more incentive to cheat. He knows that the only chance the
I.R.S. has of learning his true income and expenditures is to audit
him. And all he has to do is look at the I.R.S.'s infinitesimal audit rate
-- last year, the agency conducted face-to-face audits on just 0.19
percent of all individual taxpayers -- to feel pretty confident to go
ahead and cheat.
So why do people really pay their taxes: because it is the right thing to
do, or because they fear getting caught if they don't? It sure seems to
be the latter. A combination of good technology (employer reporting
and withholding) and poor logic (most people who don't cheat
radically overestimate their chances of being audited) makes the
system work. And while it sounds bad to hear that Americans
underpay their taxes by nearly one-fifth, the tax economist Joel
Slemrod estimates that the U.S. is easily within the upper tier of
worldwide compliance rates.
Still, unless you are personally cheating by one-fifth or more, you
should be mad at the I.R.S. -- not because it's too vigilant, but because
it's not nearly vigilant enough. Why should you pay your fair share
when the agency lets a few hundred billion dollars of other people's
money go uncollected every year?
The I.R.S. itself would love to change this dynamic. In the past few
years, it has increased significantly its enforcement revenue and its
audit rate, despite a budget that is only fractionally larger. A main
task of any I.R.S. commissioner (the current one is Mark Everson) is
to beg Congress and the White House for resources. For all the
obvious appeal of having the I.R.S. collect every dollar owed to the
government, it is just as obviously unappealing for most politicians to
advocate a more vigorous I.R.S. Michael Dukakis tried this during his
1988 presidential campaign, and -- well, it didn't work.
Left to enforce a tax code no one likes upon a public that knows it can
practically cheat at will, the I.R.S. does its best to fiddle around the
edges. Once in a while, it hits pay dirt.
Szilagyi decided that the most efficient way to clean up this mess was
to simply require taxpayers to list their children's Social Security
numbers. "Initially, there was a lot of resistance to the idea," says
Szilagyi, now 66 and retired to Florida. "The answer I got was that it
was too much like '1984."' The idea never made its way out of the
agency.
A few years later, however, with Congress clamoring for more tax
revenue, Szilagyi's idea was dug up, rushed forward and put into law
for tax year 1986. When the returns started coming in the following
April, Szilagyi recalls, he and his bosses were shocked: seven million
dependents had suddenly vanished from the tax rolls, some
incalculable combination of real pets and phantom children. Szilagyi's
clever twist generated nearly $3 billion in revenues in a single year.
Szilagyi's immediate bosses felt he should get some kind of reward for
his idea, but their superiors weren't convinced. So Szilagyi called his
congressman, whogot the reward process back on track. Finally, five
years after his brainstorm became the law, Szilagyi, who earned about
$80,000 annually at the time, was given a check for $25,000. By this
point, his idea had generated roughly $14 billion.
Even if you believe all these terrible things about real-estate agents,
however, you should try to find in your heart a bit of sympathy for
them. There are two reasons for this.
To examine the first reason, ask this question: Who has prospered
during the recent real-estate boom? Home sellers, to be sure, along
with developers, mortgage brokers -- and also, you would assume,
your average real-estate agent. These agents have rung up millions of
sales while home prices have been doubling and even tripling. Since
an agent's commission is usually based on a fixed percentage of the
sale price -- typically 5 or 6 percent, of which about half goes to the
listing agent and half to the buyer's agent -- agents' fees have climbed
along with home prices, even though they probably don't have to work
any harder to sell an $800,000 house than they do a $200,000
house.
A listing agent really only performs four main functions: setting the
price of your home, finding potential buyers, prepping and showing
them the house and handling the negotiations and contracts. Just for
fun, let's put a value on each of these functions. Setting a home's
asking price requires a few hours of work at most, studying the house
and the data on comparable sales. Showing the typical home might
take 20 or 30 hours, with negotiations and contracts taking maybe
four hours. Attracting potential buyers is of course the trickiest task --
which is why, as the Justice Department alleges, Realtors have tried to
block access to the for-sale databases. But it's now easy to find
independent or discount agents who will list your house on the
Multiple Listing Service for a fee of about $750.
Continue reading the main story
So in sum, we are talking about perhaps 40 hours of work. Let's be
generous and say that's worth $100 an hour. Add another $750 to list
the home. That's a total of $4,750, which makes the 6 percent
commission that you would pay on the sale of a $500,000 house --
$15,000 each to your agent and the buyer's agent -- look pretty steep.
It would seem obvious that being an agent during a real-estate boom
is a great way to earn a good living.
As it turns out, however, most agents don't make very much money
during a boom, because of one simple fact: the boom attracts way too
many of them. Over the past 10 years, membership in the N.A.R. has
risen by more than 75 percent. And why not? Compared with most
professions, becoming a real-estate agent is quick, cheap and
relatively painless. In economics, this phenomenon is known as free
entry.
The result? The typical Minneapolis agent sold twice as many homes
(6.6 per year) as the typical Boston agent (3.3 per year) -- which left
the Boston agent, despite the higher prices in her market, no better off
than her Minneapolis counterpart. What should be a competitive
marketplace -- which would inevitably lead to lower prices -- is not,
since the price of the agents' service is essentially fixed in place.
The N.A.R.'s own figures show the same dynamic at work today,
nationwide. From 2002 to 2004, during one of the hottest real-estate
markets in American history, the median income for Realtors actually
fell -- to $49,300 from $52,200. This is not to say that some agents
haven't become rich. As in most sales professions, whether the
product is diamond rings or crack cocaine, the people at the top of the
pyramid make an awful lot more money than those down below. It's
just that the base of the real-estate agent pyramid grows significantly
during a boom.
The second reason to feel bad for real-estate agents is even more dire:
their very profession is about to join the endangered-species list.
Think back for a moment to 1999. Travel agents still roamed the earth
in vast numbers. So did stockbrokers. But their business models were
being blown apart, largely by the Internet. The new market for do-it-
yourself online securities trading lowered fees so drastically that a
full-price stockbroker could simply no longer earn a living. Travel
agents were shoved aside once the Internet gave customers the ability
to book their own trips -- and when, perhaps more damagingly, the
airlines decided to stop paying the travel agents' commissions.
The Internet is a natural repository for the sort of data that drive the
real-estate market. New sites like zillow.com let anyone try to figure
out (if imperfectly) what his home is worth; sites like craigslist.org
allow buyers and sellers to easily find each other. As those services
and ones like them become more popular, it is hard to imagine that
the market will allow Realtors to maintain their hefty commissions.
There will always be some home sellers who prefer full-service, full-
fee agents, and a handful of these high-end agents will undoubtedly
thrive (just as some full-service travel agents and stockbrokers still
thrive, except they are now called "travel counselors" and "financial
planning specialists," respectively). But more and more home sellers,
armed with data from real-estate Web sites and facing a variety of
pricing options, will surely choose another route.
In addition to discount and flat-fee brokers, one likely successor is the
fee-for-service broker. Cary and Barbara Chubin, a married couple
who just relocated from Chicago to Oakland, started up this kind of
business in Chicago. They charged $750 to list a home on the Multiple
Listing Service, $50 an hour for showing the home and $250 for
negotiations and closing. Younger home sellers flocked to the
Chubins' pricing model; but older customers, Cary Chubin recalls,
were leery. Chubin understands. "People can't believe it could be so
much cheaper than they're used to paying," he says. "Plus, a home is
the most valuable asset most people have, and you're afraid to death
of making a mistake."
Fear may be a great motivator for maintaining the status quo, but the
Chubins say they believe they have found an even better one: money.
That's how Barbara Chubin plays the game in her advertising: "Do
you want to go to the Caribbean? Or would you rather give the money
to your real-estate agent?"
How Many Lives Did Dale Earnhardt Save?
Calculating a Driver's Risk
Five years ago this weekend, Dale Earnhardt crashed into a wall
during the final lap of the Daytona 500 and was instantly killed. One
of the most successful, beloved and intimidating drivers in Nascar
history, Earnhardt is still actively mourned. (If you watch today's
Daytona 500, the first and most prominent race of the Nascar season,
you will surely see his No. 3 everywhere.) Earnhardt's death was to
Nascar as 9/11 was to the federal government: a wake-up call leading
to a radical overhaul of safety measures. "There were three or four bad
accidents in a row there over two or three years," says Matt Kenseth,
an elite Nascar driver. "Nascar was always working hard on safety, but
that" -- Earnhardt's death -- "really sped things up."
And how many drivers have been killed since his death in 2001?
Zero. In more than six million miles of racing -- and many, many
miles in practice and qualifying laps, which are plenty dangerous --
not a single driver in Nascar's three top divisions has died.
It's a long list. Well before Earnhardt was killed, each driver was
already wearing a helmet, fireproof suit and shoes and a five-point
safety harness. Months after Earnhardt's death, Nascar began
requiring the use of a head-and-neck restraint that is tethered to a
driver's helmet and prevents his head from flying forward or sideways
in a crash. (Like many race-car drivers who are killed, Earnhardt
suffered a fracture to the base of the skull.) It erected safer walls on its
race tracks. And it began to zealously collect crash data. This Incident
Database (which Nascar politely declined to let us examine) is gleaned
from two main sources: a black box now mounted on every vehicle
and the work of a new Field Investigation unit. These field
investigators meticulously take key measurements on every car before
every race, and then if a car is involved in a crash, they retake those
measurements.
"In the past, a car would be in an accident, the driver would have no
injuries and the team would load up the car and go home," says Gary
Nelson, who runs Nascar's research and development center. "But
now they measure every car in certain areas, and we make a log of
that. Like the width of the seat -- it seems simple, the width of the
headrest from left to right. But in an accident, those things can bend,
and the amount they bend can help us understand the energy
involved. When we began, we thought our seats were adequately
strong, but we found these things to be bending more than we
thought. So we've come back since and rewritten the regulations."
A quick look at the data seems to suggest so. In last year's Nextel Cup
races, there were 345 cars involved in crashes, an all-time high. But,
as Matt Kenseth points out, the two cup races held during 2005 at
Lowe's Motor Speedway near Charlotte, N.C., were unusually brutal --
the track had a new surface that caused numerous flat tires -- and
may have aberrationally affected the crash count. "In Charlotte, pretty
much everybody wrecked in both races," he says. "It was the fault of
the track and the tires -- but if you take those races out of it, crashes
are probably about even." And there were actually fewer crashes in
2004 than there were in 2003. While the number of overall crashes
are up a bit since Earnhardt's death (Nascar will not release annual
crash counts, but one official did confirm this trend), they haven't
increased nearly as much as an economist might have predicted based
on how Nascar's safety measures would seem to have shifted a driver's
incentives.
And here lies the most startling statistic concerning Nascar and driver
safety. In the past five years, more than 3,000 vehicles have crashed
in Nascar's three top divisions, with zero fatalities. How does this
compare with crashes on American highways? For interstate travel,
there are 5.2 driver deaths per 1,000 crashes. At this rate, it would
seem likely that those 3,000 Nascar crashes would have produced at
least 15 deaths -- and yet there have been none. To be sure, there are
significant differences between Interstate driving and Nascar driving.
A driver on the Interstate has to contend with poor weather, drunken
drivers and cars coming at him in the opposite direction. On the other
hand, a driver in the Daytona 500 is often traveling at 180 miles per
hour in bumper-to-bumper traffic.
Which means that if a bookie loses big today, it could ruin his year.
And, yes, bookies can lose. In a Las Vegas casino, games like roulette
and blackjack match a player against the house in a contest whose
odds are engineered in the house's favor. But in the casino's sports
book, things are different. The house's bookmaker sets a price in the
form of a point spread -- the Denver Broncos to win by at least 7
points, for instance. A bettor is then free to take either side. He can
bet the Broncos minus 7 points (he'll win this bet if the Broncos win
the game by more than 7 points), or he can bet the Broncos' opponent
plus 7 points (he'll win if the Broncos lose outright or win by fewer
than 7 points; if the Broncos win by 7 exactly, it's a "push," or tie). For
a bookie, offering these options creates risk. In financial markets, the
primary role of the market maker is simply to match buyers with
sellers; but in gambling, the market maker sets the price and sells the
shares. To win, the bookie must consistently outsmart his customers.
But the fact is most bookies are doing just fine. So could it be that
bookies have a good reason to allow that loophole to dangle? Could it
be that a seemingly dumb bookie is actually dumb like a fox?
The most certain way for a bookmaker to turn a profit is to balance his
book -- that is, to set a point spread that produces an equal number of
dollars wagered on both sides of the line. Since only losers pay the
house a 10 percent fee (known as the vigorish, or vig) on top of
wagers, a balanced book guarantees the house a 5 percent gain. The
conventional wisdom holds that bookmakers set point spreads to
achieve this balance. "It's a myth when they say that every game is
balanced," Esposito says. "If we could do that on every game, we
would win every game, but it's impossible to do. The point spread is
the equalizer, but you still can't talk the public into betting one side or
the other."
The reason the public can't be talked into betting a particular side, at
least not too often, is that the public has biases. For every bettor
smart enough to stick to home underdogs, there are 5 or 10 bettors
who systematically prefer favorites or who underestimate the impact
of home-field advantage. (It isn't clear why bettors prefer favorites,
but such a tendency characterizes most betting against a spread.)
Then there are the bettors who disproportionately take the "over" in
an over-under bet (in which a bettor wagers on the total number of
points scored in a game), presumably because, when it's time to watch
the game you've bet on, it's a lot more fun to root for points to be
scored than for points to not be scored.
In determining where to set the opening line, and when to adjust it,
Esposito works hard to read public sentiment. One good clue is when
a team's jersey starts to spike in popularity among Caesars customers.
(This season it was the Cincinnati Bengals and the Chicago Bears.) He
notes which teams, despite their success, fail to become "public"
teams. (The Seattle Seahawks and the Carolina Panthers.) But the
most valuable tool is what Esposito calls "booking to faces" -- that is,
monitoring the betting counter to note which bettors are placing
which bets. "If someone comes in, his rich uncle died and left a
gazillion dollars, and he wants to bet $100,000 on the line, we
probably won't change the line," he says. "But if we get a $5,000 bet
from a handicapper we know to be really smart, we may well move it."
Chuck Esposito, though he is too smart to come out and say so, seems
to be doing precisely the same thing at Caesars. What he will admit is
that he doesn't mind if the wagering on a given game comes in at 80-
20 instead of 50-50, as long as he thinks that Caesars is on the right
side of the imbalance.
What does this yawning gap mean? It suggests that faced with the risk
of wiping out a season's profits, bookmakers play it safe on Super
Bowl Sunday. Unlike a typical N.F.L. game, the Super Bowl gives a
bookie incentive to balance his books and simply pocket the vig. To do
so, he needs to inflate the spread against the favorite even more than
usual, bringing in more underdog money and making the odds of the
favorite's covering the bet even lower than usual.
But the Klan was not the hero of our story. The hero was a man
named Stetson Kennedy, a white Floridian from an old-line family
who from an early age sought to assail racial and social injustices. Out
of all of his crusades -- for unionism, voting rights and numberless
other causes -- Kennedy is best known for taking on the Klan in the
1940's. In his book "The Klan Unmasked" (originally published in
1954 as "I Rode With the Ku Klux Klan"), Kennedy describes how he
adopted a false identity to infiltrate the Klan's main chapter in
Atlanta, was chosen to serve as a "klavalier" (a Klan strong-arm man)
and repeatedly found himself at the center of astonishing events, all
the while courting great personal risk.
Kennedy has been duly celebrated for his activism: his friend Woody
Guthrie once wrote a song about him, and a Stetson Kennedy Day was
recently declared in St. John's County, Fla., where Kennedy, 89, still
lives. That is where we interviewed him nearly two years ago; our
account of his amazing true story was based on those interviews, "The
Klan Unmasked" and a small mountain of history books and
newspaper articles.
That was the disturbing question that began to haunt another Florida
author, Ben Green, who in 1992 began writing a book about Harry T.
Moore, a black civil rights advocate who was murdered in 1951. For a
time, Stetson Kennedy was a collaborator on the book. Although
Green was only tangentially interested in Kennedy's Klan infiltration
-- it wasn't central to the Moore story -- he eventually checked out
Kennedy's voluminous archives, held in libraries in New York and
Atlanta.
In his archives are a series of memos that were submitted to the Anti-
Defamation League, one of several civil rights groups to which
Kennedy reported. Some of the memos were written by him; others
were written by a man identified as John Brown, a union worker and
former Klan official who had changed his ways and offered to
infiltrate the Klan. "This worker is joining the Klan for me," Kennedy
wrote in one memo in early 1946. "I am certain that he can be relied
on."
Green is not the only person to have concluded that Kennedy has bent
the truth. Jim Clark, who teaches history at the University of Central
Florida, says that Kennedy "built a national reputation on many
things that didn't happen." Meredith Babb, director of the University
Press of Florida, which has published four of Kennedy's books, now
calls Kennedy "an entrepreneurial folklorist." But except for Green's
footnote, they all kept quiet until the retelling of Kennedy's exploits in
"Freakonomics" produced a new round of attention. Why? "It would
be like killing Santa Claus," Green says. "To me, the saddest part of
this story is that what he actually did wasn't enough for him, and he
has felt compelled to make up, embellish or take credit for things he
didn't do."
When presented with documents from his own archives and asked
outright, several weeks ago over lunch near his Florida home, if "The
Klan Unmasked" was "somewhat conflated or fictionalized," Kennedy
said no. "There may have been a bit of dialogue that was not as I
remembered it," he answered. "But beyond that, no." When pressed,
Kennedy did concede that "in some cases I tookthe reports and
actions of this other guy and incorporated them into one narrative."
As it turns out, Kennedy has made such an admission at least once
before. Peggy Bulger, director of the American Folklife Center in the
Library of Congress, wrote a 1992 dissertation called "Stetson
Kennedy: Applied Folklore and Cultural Advocacy," based in part on
extensive interviews with her subject. In an endnote, Bulger writes
that "Kennedy combined his personal experiences undercover with
the narratives provided by John Brown in writing 'I Rode With the Ku
Klux Klan' in 1954."
There is also the fact that in our work we make a point of depending
less on anecdote in favor of data, the idea being that numbers tend to
lie less baldly than people do. But the story of Stetson Kennedy was
one long series of anecdotes -- which, no matter how many times they
were cited over the decades, were nearly all generated by the same
self-interested source.
Perhaps Kennedy's long life of fighting the good fight are all that
matter. Perhaps, to borrow Peggy Bulger's phraseology, a goal of
"cultural advocacy" calls for the use of "applied folklore" rather than
the sort of forthrightness that should be more typical of history or
journalism. One thing that does remain true is that Kennedy was
certainly a master of information asymmetry. Until, that is, the data
caught up with him.
The Economy of Desire
Analyzing a Sex Survey
What is a price?
But what about sex? Sex, that most irrational of human pursuits,
couldn't possibly respond to rational price theory, could it?
Here is a stark example: A man who is sent to prison finds that the
price of sex with a woman has spiked -- talk about a supply shortage --
and he becomes much more likely to start having sex with men. The
reported prevalence of oral sex among affluent American teenagers
would also seem to illustrate price theory: because of the possibility of
disease or pregnancy, intercourse is expensive -- and it has come to be
seen by some teenagers as an unwanted and costly pledge of
commitment. In this light, oral sex may be viewed as a cheaper
alternative.
The survey was conducted in 1992, when the disease was much less
treatable than it is today. Francis first looked to see if there was a
positive correlation between having a friend with AIDS and
expressing a preference for homosexual sex. As he expected, there
was. "After all, people pick their friends," he says, "and homosexuals
are more likely to have other homosexuals as friends."
But you don't get to pick your family. So Francis next looked for a
correlation between having a relative with AIDS and expressing a
homosexual preference. This time, for men, the correlation was
negative. This didn't seem to make sense. Many scientists believe that
a person's sexual orientation is determined before birth, a function of
genetic fate. If anything, people in the same family should be more
likely to share the same orientation. "Then I realized, Oh, my God,
they were scared of AIDS," Francis says.
Here's what he found: Not a single man in the survey who had a
relative with AIDS said he had had sex with a man in the previous five
years; not a single man in that group declared himself to be attracted
to men or to consider himself homosexual. Women in that group also
shunned sex with men. For them, rates of recent sex with women and
of declaring homosexual identity and attraction were more than twice
as high as those who did not have a relative with AIDS.
Because the sample size was so small -- simple chance suggests that
no more than a handful of men in a group that size would be attracted
to men -- it is hard to reach definitive conclusions from the survey
data. (Obviously, not every single man changes his sexual behavior or
identity when a relative contracts AIDS.) But taken as a whole, the
numbers in Francis's study suggest that there may be a causal effect
here -- that having a relative with AIDS may change not just sexual
behavior but also self-reported identity and desire.
What is a price?
But what about sex? Sex, that most irrational of human pursuits,
couldn't possibly respond to rational price theory, could it?
Here is a stark example: A man who is sent to prison finds that the
price of sex with a woman has spiked -- talk about a supply shortage --
and he becomes much more likely to start having sex with men. The
reported prevalence of oral sex among affluent American teenagers
would also seem to illustrate price theory: because of the possibility of
disease or pregnancy, intercourse is expensive -- and it has come to be
seen by some teenagers as an unwanted and costly pledge of
commitment. In this light, oral sex may be viewed as a cheaper
alternative.
The survey was conducted in 1992, when the disease was much less
treatable than it is today. Francis first looked to see if there was a
positive correlation between having a friend with AIDS and
expressing a preference for homosexual sex. As he expected, there
was. "After all, people pick their friends," he says, "and homosexuals
are more likely to have other homosexuals as friends."
But you don't get to pick your family. So Francis next looked for a
correlation between having a relative with AIDS and expressing a
homosexual preference. This time, for men, the correlation was
negative. This didn't seem to make sense. Many scientists believe that
a person's sexual orientation is determined before birth, a function of
genetic fate. If anything, people in the same family should be more
likely to share the same orientation. "Then I realized, Oh, my God,
they were scared of AIDS," Francis says.
Here's what he found: Not a single man in the survey who had a
relative with AIDS said he had had sex with a man in the previous five
years; not a single man in that group declared himself to be attracted
to men or to consider himself homosexual. Women in that group also
shunned sex with men. For them, rates of recent sex with women and
of declaring homosexual identity and attraction were more than twice
as high as those who did not have a relative with AIDS.
Because the sample size was so small -- simple chance suggests that
no more than a handful of men in a group that size would be attracted
to men -- it is hard to reach definitive conclusions from the survey
data. (Obviously, not every single man changes his sexual behavior or
identity when a relative contracts AIDS.) But taken as a whole, the
numbers in Francis's study suggest that there may be a causal effect
here -- that having a relative with AIDS may change not just sexual
behavior but also self-reported identity and desire.
But there is a more important point: the closer an election is, the
more likely that its outcome will be taken out of the voters' hands --
most vividly exemplified, of course, by the 2000 presidential race. It
is true that the outcome of that election came down to a handful of
voters; but their names were Kennedy, O'Connor, Rehnquist, Scalia
and Thomas. And it was only the votes they cast while wearing their
robes that mattered, not the ones they may have cast in their home
precincts.
Still, people do continue to vote, in the millions. Why? Here are three
possibilities:
1. Perhaps we are just not very bright and therefore wrongly believe
that our votes will affect the outcome.
But wait a minute, you say. If everyone thought about voting the way
economists do, we might have no elections at all. No voter goes to the
polls actually believing that her single vote will affect the outcome,
does she? And isn't it cruel to even suggest that her vote is not worth
casting?
Now as then, many people worry about low voter turnout -- only
slightly more than half of eligible voters participated in the last
presidential election -- but it might be more worthwhile to stand this
problem on its head and instead ask a different question: considering
that an individual's vote almost never matters, why do so many people
bother to vote at all?
Never again would any Swiss voter have to tromp to the polls during a
rainstorm; the cost of casting a ballot had been lowered significantly.
An economic model would therefore predict voter turnout to increase
substantially. Is that what happened?
But why is this the case? Why on earth would fewer people vote when
the cost of doing so is lowered?
Most of the animal dung produced in today's New York comes from
our dogs. (Estimates of the dog population vary widely, but one
million is a good guess.) All their poop doesn't just lie there, of course.
In 1978, New York enacted its famous (and widely imitated) "pooper
scooper" law, and the city is plainly cleaner, poop-wise, than it was.
But with a fine of just $50 for the first offense, the law doesn't provide
much financial incentive to pick up after your dog. Nor does it seem to
be vigorously enforced. Let's pretend that 99 percent of all dog owners
do obey the law. That still leaves 10,000 dogs whose poop is left in
public spaces each day. Over the last year, the city ticketed only 471
dog-waste violations, which suggests that the typical offender stands a
roughly 1-in-8,000 chance of getting a ticket. So here's a puzzle: why
do so many people pick up after their dogs? This would seem to be a
case in which social incentives -- the hard glare of a passer-by and the
offender's feelings of guilt -- are at least as powerful as financial and
legal incentives.
With horses, the solution was simply to eliminate them. Might there
be a way to get rid of dog poop without getting rid of the dogs? It
might help for a moment to think of a dog as if it were a gun. Using
laws to eliminate guns has proved extremely difficult. A given gun
lasts a very long time, and as with dogs, guns are widely loved. But
getting rid of guns should never have been the point of gun control;
the point, rather, ought to be getting rid of the misuse of guns -- that
is, the use of guns in crimes. Consequently, the most successful
policies are those that directly punish misuse, like mandatory prison
sentences for any crime involving a gun. In California and elsewhere,
such measures have substantially reduced gun crime.
Similarly, the problem in New York is not so much with dogs per se.
So perhaps attending to the real problem -- their poop -- will prompt
a solution.
How, then, to get all of New York's dogs licensed? Instead of charging
even a nominal fee, the city may want to pay people to license their
dogs. And then, instead of treating the licensing law as optional,
enforce it for real. Setting up random street checks for dog licenses
may offend some New Yorkers, but it certainly dovetails nicely with
the Giuliani-era "broken windows" approach to low-level crime.
The council, Mecka says today, didn't seem to take her proposal
seriously. Why? "They dismissed it, basically, because I was a 12-year-
old kid."
Does the Truth Lie Within?
The Accidental Diet
It began when Roberts was a graduate student. First he had the clever
idea of turning his personal problems into research subjects. Then he
decided that he would use his own body as a laboratory. Thus did
Roberts embark on one of the longest bouts of scientific self-
experimentation known to man -- not only poking, prodding and
measuring himself more than might be wise but also rigorously
recording every data point along the way.
Stranger yet was the fix he discovered for lifting his mood: at least one
hour each morning of TV viewing, specifically life-size talking heads --
but never such TV at night. Once he stumbled upon this solution,
Roberts, like many scientists, looked back to the Stone Age for
explication. Anthropological research suggests that early humans had
lots of face-to-face contact every morning but precious little after
dark, a pattern that Roberts's TV viewing now mimicked.
It was also the Stone Age that informed his system of weight control.
Over the years, he had tried a sushi diet, a tubular-pasta diet, a five-
liters-of-water-a-day diet and various others. They all proved
ineffective or too hard or too boring to sustain. He had by now come
to embrace the theory that our bodies are regulated by a "set point," a
sort of Stone Age thermostat that sets an optimal weight for each
person. This thermostat, however, works the opposite of the one in
your home. When your home gets cold, the thermostat turns on the
furnace. But according to Roberts's interpretation of the set-point
theory, when food is scarcer, you become less hungry; and you get
hungrier when there's a lot of food around.
This may sound backward, like telling your home's furnace to run
only in the summer. But there is a key difference between home heat
and calories: while there is no good way to store the warm air in your
home for the next winter, there is a way to store today's calories for
future use. It's called fat. In this regard, fat is like money: you can
earn it today, put it in the bank and withdraw it later when needed.
During an era of scarcity -- an era when the next meal depended on a
successful hunt, not a successful phone call to Hunan Garden -- this
set-point system was vital. It allowed you to spend down your fat
savings when food was scarce and make deposits when food was
plentiful. Roberts was convinced that this system was accompanied by
a powerful signaling mechanism: whenever you ate a food that was
flavorful (which correlated with a time of abundance) and familiar
(which indicated that you had eaten this food before and benefited
from it), your body demanded that you bank as many of those calories
as possible.
So Roberts tried to game this Stone Age system. What if he could keep
his thermostat low by sending fewer flavor signals? One obvious
solution was a bland diet, but that didn't interest Roberts. (He is, in
fact, a serious foodie.) After a great deal of experimenting, he
discovered two agents capable of tricking the set-point system. A few
tablespoons of unflavored oil (he used canola or extra light olive oil),
swallowed a few times a day between mealtimes, gave his body some
calories but didn't trip the signal to stock up on more. Several ounces
of sugar water (he used granulated fructose, which has a lower
glycemic index than table sugar) produced the same effect.
(Sweetness does not seem to act as a "flavor" in the body's caloric-
signaling system.)
Developing a Crack Index If you rely on the news media for your information,
you probably think that crack cocaine is a thing of the past. If you rely on data,
however, you reach a different conclusion.
Measuring the use and impact of a drug like crack isn't easy. There is no
government Web site to provide crack data, and surveying dealers is bound to
be pretty unreliable. So how can you get to the truth of crack use? One way is
to look at a variety of imperfect but plausible proxies, including cocaine
arrests, emergency-room visits and deaths. Unlike the volume of news
coverage, the rates for all of these remain shockingly high. Cocaine arrests, for
instance, have fallen only about 15 percent since the crack boom of the late
1980's. Cocaine-related deaths are actually higher now; so are the number of
emergency-room visits due to cocaine. When combined in a sensible way,
these proxies can be used to construct a useful index of crack.
And what does this index reveal? That crack use was nonexistent until the
early 1980's and spiked like mad in 1985, peaking in 1989. That it arrived early
on the West Coast, but became most prevalent in the cities of the Northeast
and Middle Atlantic States. And that it produced a remarkable level of gun
violence, particularly among young black men, who made up the bulk of street-
level crack dealers. During the crack boom, the homicide rate among 13- to 17-
year-old blacks nearly quintupled. But perhaps the biggest surprise in the
crack index is the fact that, as of 2000 -- the most recent year for which the
index data are available -- Americans were still smoking about 70 percent as
much crack as they smoked when consumption was at its peak.
If so much crack is still being sold and bought, why aren't we hearing about it?
Because crack-associated violence has largely disappeared. And it was the
violence that made crack most relevant to the middle class. What made the
violence go away? Simple economics. Urban street gangs were the main
distributors of crack cocaine. In the beginning, demand for their product was
phenomenal, and so were the potential profits. Most crack killings, it turns out,
were not a result of some crackhead sticking up a grandmother for drug money
but rather one crack dealer shooting another -- and perhaps a few bystanders
-- in order to gain turf.
But the market changed fast. The destructive effects of the drug became
apparent; young people saw the damage that crack inflicted on older users and
began to stay away from it. (One recent survey showed that crack use is now
three times as common among people in their late 30's as it is among those in
their late teens and early 20's.) As demand fell, price wars broke out, driving
down profits. And as the amount of money at stake grew smaller and smaller,
the violence also dissipated. Young gang members are still selling crack on
street corners, but when a corner becomes less valuable, there is less incentive
to kill, or be killed, for it.
So how can it be that crack consumption is still so high? Part of the answer
may have to do with geography. The index shows that consumption is actually
up in states far from the coasts, like Arizona, Minnesota, Colorado and
Michigan. But the main answer lies in the same price shift that made the crack
trade less violent. The price has fallen about 75 percent from its peak, which
has led to an interesting consumption pattern: there are far fewer users, but
they are each smoking more crack. This, too, makes perfect economic sense. If
you are a devoted crackhead and the price is one-fourth what it used to be, you
can afford to smoke four times as much.
But as crack has matured into a drug that causes less social harm, the laws
punishing its sale have stayed the same. In 1986, in the national frenzy that
followed the death of Len Bias, a first-round N.B.A. draft pick and a cocaine
user, Congress passed legislation requiring a five-year mandatory sentence for
selling just five grams of crack; you would have to sell 500 grams of powder
cocaine to get an equivalent sentence. This disparity has often been called
racist, since it disproportionately imprisons blacks.
In fact, the law probably made sense at the time, when a gram of crack did
have far more devastating social costs than a gram of powder cocaine. But it
doesn't anymore. Len Bias would now be 40 years old, and he would have long
outlived his usefulness to the Boston Celtics. It may be time to acknowledge
that the law inspired by his death has done the same.
The Seat-Belt Solution
A Car-Seat Crash Test On a recent Monday morning, nearly 20 police
officers gathered in Clarkstown, N.Y., for a four-day seminar. They
had assembled to fight one of modernity's great scourges: child deaths
in motor-vehicle crashes. Each officer was given a 345-page training
manual issued by the National Highway Traffic Safety Administration
(NHTSA). At seminar's end, each would be certified as a "child
passenger safety technician," which primarily means that they would
be experts in the installation and use of child car seats.
Why does it take four days to learn about car seats? Because any given
seat is a tangle of straps, tethers and harnesses built by one of dozens
of manufacturers whose products must be secured by the diverse seat-
belt configurations of any passenger vehicle sold in the United States.
According to the NHTSA manual, more than 80 percent of car seats
are improperly installed.
So over the course of those four days, there were many questions to be
answered. But one question about car seats is rarely even asked: How
well do they actually work?
For children younger than roughly 24 months, seat belts plainly won't
do. For them, a car seat represents the best practical way to ride
securely, and it is certainly an improvement over the days of riding
shotgun on mom's lap. But what about older children? Is it possible
that seat belts might afford them the same protection as car seats?
Even a quick look at the FARS data reveals a striking result: among
children 2 and older, the death rate is no lower for those traveling in
any kind of car seat than for those wearing seat belts. There are many
reasons, of course, that this raw data might be misleading. Perhaps
kids in car seats are, on average, in worse wrecks. Or maybe their
parents drive smaller cars, which might provide less protection.
But no matter what you control for in the FARS data, the results don't
change. In recent crashes and old ones, in big vehicles and small, in
one-car crashes and multiple-vehicle crashes, there is no evidence
that car seats do a better job than seat belts in saving the lives of
children older than 2. (In certain kinds of crashes -- rear-enders, for
instance -- car seats actually perform worse.) The real answer to why
child auto fatalities have been falling seems to be that more and more
children are restrained in some way. Many of them happen to be
restrained in car seats, since that is what the government mandates,
but if the government instead mandated proper seat-belt use for
children, they would likely do just as well / without the layers of
expense, regulation and anxiety associated with car seats.
If car seats and booster seats are shown in the FARS data to be no
more effective than seat belts, might it be because so many of them
are improperly installed? To find out, we contacted an independent
lab that conducts crash tests. The idea was simple: compare properly
installed car seats with properly used standard seat belts. We
commissioned two crash tests: a 3-year-old-sized dummy in a car seat
versus a 3-year-old dummy in lap-and-shoulder belt; and a 6-year-
old-sized dummy in a booster seat versus a 6-year-old dummy in lap-
and-shoulder belt.
The conditions of the test ensured that the seats would perform
optimally: they were strapped to old-fashioned bench-style seats
(which give a flush fit) by an experienced engineer (who is
presumably more competent than the average parent). The dummies
in the seat belts were also positioned optimally, sitting upright and
flush.
The chore was gruesome, from start to finish. Each dummy, dressed
in shorts, T-shirt and sneakers, had a skein of wires snaking out of his
body to measure head and chest damage. The pneumatic sled was
fired backward with a frightening bang, simulating a 30 m.p.h. frontal
crash; on impact, the dummy's head, legs and arms jerked forward,
fingers flailing in the air, and then the head recoiled.
These tests don't actually prove much. The sample was too small, the
circumstances were too controlled and the sensors didn't measure
neck or abdominal injuries, which child-safety advocates say are
worse with seat belts. What matter are the crash data from the real
world, where one 4-year-old in a lap-and-shoulder belt may find the
shoulder belt so irritating that he puts it behind his back and another
4-year-old may be in a poorly installed car seat. And when it comes to
real-world situations, the FARS data are extremely compelling.
So if car seats and booster seats aren't the safety miracle that parents
have been taught to believe, what should they do? The most
important thing, certainly, is to make sure that children always ride
with some kind of restraint -- and, depending on your state, a car seat
or booster seat may be the only legal option. On a broader level,
though, it might be worth asking this question: Considering that
Americans spend a few hundred million dollars annually on
complicated contraptions that may not add much lifesaving value,
how much better off might we be if that money was spent to make
existing seat belts fit children? Some automakers do in fact make
integrated child seats (in which, for example, the car's seat back flips
down for the child to sit on); other solutions might include lap-and-
shoulder belts that vertically adjust to fit children, or even a built-in
five-point harness.
It may be that the ultimate benefit of car seats and booster seats is
that they force children to sit still in the back seat. If so, perhaps there
is a different contraption that could help accomplish the same goal for
roughly the same price: a back-seat DVD player.
Monkey Business
Keith Chen's Monkey Research Adam Smith, the founder of classical
economics, was certain that humankind's knack for monetary
exchange belonged to humankind alone. "Nobody ever saw a dog
make a fair and deliberate exchange of one bone for another with
another dog," he wrote. "Nobody ever saw one animal by its gestures
and natural cries signify to another, this is mine, that yours; I am
willing to give this for that." But in a clean and spacious laboratory at
Yale-New Haven Hospital, seven capuchin monkeys have been taught
to use money, and a comparison of capuchin behavior and human
behavior will either surprise you very much or not at all, depending
on your view of humans.
The capuchin is a New World monkey, brown and cute, the size of a
scrawny year-old human baby plus a long tail. "The capuchin has a
small brain, and it's pretty much focused on food and sex," says Keith
Chen, a Yale economist who, along with Laurie Santos, a psychologist,
is exploiting these natural desires -- well, the desire for food at least --
to teach the capuchins to buy grapes, apples and Jell-O. "You should
really think of a capuchin as a bottomless stomach of want," Chen
says. "You can feed them marshmallows all day, they'll throw up and
then come back for more."
Then Chen introduced price shocks and wealth shocks. If, for
instance, the price of Jell-O fell (two cubes instead of one per token),
would the capuchin buy more Jell-O and fewer grapes? The capuchins
responded rationally to tests like this -- that is, they responded the
way most readers of The Times would respond. In economist-speak,
the capuchins adhered to the rules of utility maximization and price
theory: when the price of something falls, people tend to buy more of
it.
How did the capuchins react? They far preferred to take a gamble on
the potential gain than the potential loss. This is not what an
economics textbook would predict. The laws of economics state that
these two gambles, because they represent such small stakes, should
be treated equally.
Then there is the stealing. Santos has observed that the monkeys
never deliberately save any money, but they do sometimes purloin a
token or two during an experiment. All seven monkeys live in a
communal main chamber of about 750 cubic feet. For experiments,
one capuchin at a time is let into a smaller testing chamber next door.
Once, a capuchin in the testing chamber picked up an entire tray of
tokens, flung them into the main chamber and then scurried in after
them -- a combination jailbreak and bank heist -- which led to a
chaotic scene in which the human researchers had to rush into the
main chamber and offer food bribes for the tokens, a reinforcement
that in effect encouraged more stealing.
This is a sensitive subject. The capuchin lab at Yale has been built and
maintained to make the monkeys as comfortable as possible, and
especially to allow them to carry on in a natural state. The
introduction of money was tricky enough; it wouldn't reflect well on
anyone involved if the money turned the lab into a brothel. To this
end, Chen has taken steps to ensure that future monkey sex at Yale
occurs as nature intended it.
His economist friends thought he had lost his mind. They made
oblique remarks (and some not so oblique) about ''a terrible waste of
talent.'' But his wife supported his decision. They had retired their
mortgage; the last of their three children was finishing college.
Driving around the office parks that encircle Washington, he solicited
customers with a simple pitch: early in the morning, he would deliver
some bagels and a cash basket to a company's snack room; he would
return before lunch to pick up the money and the leftovers. It was an
honor-system commerce scheme, and it worked. Within a few years,
he was delivering 700 dozen bagels a week to 140 companies and
earning as much as he had ever made as a research analyst. He had
thrown off the shackles of cubicle life and made himself happy.
A key fact of white-collar crime is that we hear about only the very
slim fraction of people who are caught. Most embezzlers lead quiet
and theoretically happy lives; employees who steal company property
are rarely detected. With street crime, meanwhile, that is not the case.
A mugging or a burglary or a murder is usually counted whether or
not the criminal is caught. A street crime has a victim, who typically
reports the crime to the police, which generates data, which in turn
generate thousands of academic papers by criminologists, sociologists
and economists. But white-collar crime presents no obvious victim.
Whom, exactly, did the masters of Enron steal from? And how can
you measure something if you don't know to whom it happened, or
with what frequency, or in what magnitude?
Paul F.'s bagel business was different. It did present a victim. The
victim was Paul F.
He knows a good deal about the payment rate, too. When he first
went into business, he expected 95 percent payment, based on the
experience at his own office. But just as crime tends to be low on a
street where a police car is parked, the 95 percent rate was artificially
high: Paul F.'s presence had deterred theft. Not only that, but those
bagel eaters knew the provider and had feelings (presumably good
ones) about him. A broad swath of psychological and economic
research has argued that people will pay different amounts for the
same item depending on who is providing it. The economist Richard
Thaler, in his 1985 ''Beer on the Beach'' study, showed that a thirsty
sunbather would pay $2.65 for a beer delivered from a resort hotel
but only $1.50 for the same beer if it came from a shabby grocery
store.
In the real world, Paul F. learned to settle for less than 95 percent.
Now he considers companies ''honest'' if the payment is 90 percent or
more. ''Averages between 80 percent and 90 percent are annoying but
tolerable,'' he says. ''Below 80 percent, we really have to grit our teeth
to continue.''
After the doughnuts, Paul F. loaded two dozen money boxes, which he
made himself out of plywood. A money slot is cut into the top. When
he started out, he left behind an open basket for the cash, but too
often the money vanished. Then he tried a coffee can with a slot in its
plastic lid, which also proved too tempting. The wooden box has
worked well. Each year he drops off about 7,000 boxes and loses, on
average, just one to theft. This is an intriguing statistic: the same
people who routinely steal more than 10 percent of his bagels almost
never stoop to stealing his money box -- a tribute to the nuanced
social calculus of theft. From Paul F.'s perspective, an office worker
who eats a bagel without paying is committing a crime; the office
worker apparently doesn't think so. This distinction probably has less
to do with the admittedly small amount of money involved than with
the context of the ''crime.'' (The same office worker who fails to pay
for his bagel might also help himself to a long slurp of soda while he's
filling a glass in a self-serve restaurant, but it is extremely unlikely
that he will leave the restaurant without paying.)
After retrieving his hearing aids, he heads for the bagel shop that
provides him with roughly 50 dozen bagels, in six flavors, every day.
He drives nearly 80 m.p.h. along empty highways and discusses what
he has learned about honesty. He is leery of disparaging individual
companies or even most industries, for fear it will hurt his business.
But he will say that telecom companies have robbed him blind, and
another bagel-delivery man found that law firms aren't worth the
trouble. He also says he believes that employees further up the
corporate ladder cheat more than those down below. He reached this
conclusion in part after delivering for years to one company spread
out over three floors -- an executive floor on top and two lower floors
with sales, service and administrative employees. Maybe, he says, the
executives stole bagels out of a sense of entitlement. (Or maybe
cheating is how they got to be executives.) His biggest surprise? ''I had
idly assumed that in places where security clearance was required for
an individual to have a job, the employees would be more honest than
elsewhere. That hasn't turned out to be true.''
The bagel data also show a correlation between payment rate and the
local rate of unemployment. Intuition might have argued that these
two factors would be negatively correlated -- that is, when
unemployment is low (and the economy is good), people would tend
to be freer with their cash. ''But I found that as the unemployment
rate goes down, dishonesty goes up,'' Paul F. says. ''My guess is that a
low rate of unemployment means that companies are having to hire a
lower class of employee.'' The data also show that the payment rate
does not change when he raises bagel prices, though volume may
temporarily fall.
By 9 a.m., he has made all his deliveries. At 11, he will start picking up
leftovers and the money boxes. Until then, it is time for his weekly
Friday morning breakfast with a dozen of his old economist friends.
They meet in the ground-floor cafeteria of the office building where
one of them now works. They swap gossip, tax tips, Ziploc bags of
pipe tobacco.
These are some of the same friends who 20 years ago told Paul F. that
his bagel business would never work. People cannot be trusted, they
said. Their conversation this morning continues along those lines.
One man cites a story he heard about a toll-collector strike in
England. During the strike, drivers were asked simply to put their
money into a box. As it turned out, the government collected more toll
money during the strike -- which suggests that the drivers were at
least fairly honest, but also that the toll collectors had been skimming
like mad. Another economist at the table is now a tax preparer. He
ticks off a long list of common tax evasions his clients try to use --
lying about the cost basis of stocks is perhaps the favorite -- and
reminds the others that the United States tax code is, like Paul F.'s
bagel business, largely built on an honor system.
Amid all the talk of cheating, lying and scamming, Paul F. takes the
floor to declare his faith in humankind. ''You guys know the story
about the Ring of Gyges, right?'' he says.
A man named Gyges, he explains, came upon a cave and, inside it, a
skeleton wearing a ring. When Gyges put on the ring, he found that it
made him invisible. Now he was faced with a choice: would he use his
invisibility for good or evil? The story comes from Plato's ''Republic.''
It was told by a student named Glaucon, in challenge to a Socratic
teaching about honesty and justice. ''Socrates was arguing against the
idea that people will be dishonest if given the chance,'' Paul F. says.
''His point was that people are good, even without enforcement.''
But Paul F. doesn't tell his friends how Glaucon's story ends. Gyges
actually did woeful things once he got the ring -- seduced the queen,
murdered the king and so on. The story posed a moral question: could
any man resist the temptation of evil if he knew his acts could not be
witnessed? Glaucon seemed to think the answer was no. But Paul F.
sides with Socrates -- for he knows that the answer, at least 89
percent of the time, is yes.