Columbus Day and the Risks of Exploration

Although Columbus is criticized for the exploitation, enslavement, and suffering associated with European colonization, his voyages offer an instructive example of the risks of investing in exploration. In 1492, Spain's monarchs financed an expedition to find a commercially valuable route to Asia, uncertain whether Columbus would succeed—or even return. But there was another risk: would he be able to claim the rewards of a successful voyage? The Capitulations of Santa Fe promised Columbus hereditary privileges, including the offices of Viceroy and Governor of the territories he discovered. Yet the Crown subsequently removed him from office, and after decades of litigation, his heirs lost their claims to those hereditary governorships. The Treaty of Tordesillas of 1494 sought to reduce another source of uncertainty by dividing overseas claims between Spain and Portugal, although other nations and Indigenous peoples were not parties to the agreement. 

Five centuries later, companies exploring the ocean floor face similar uncertainties. ABC News reports that some companies hope to recover valuable nickel, cobalt, and other minerals from the deep ocean. But collecting minerals thousands of meters underwater is technically difficult and commercial profitability remains unproven. In August, NOAA announced that it had advanced its review of an application by The Metals Company to explore and commercially recover minerals from the Pacific seabed. Even if the technology works, property rights remain uncertain. The United States has its own permitting process, but the International Seabed Authority maintains that mining in international waters requires authorization under its international framework.

Both ventures illustrate two distinct risks of exploration: the technology may fail, and even if it succeeds, (perhaps because it succeeds) the claim to the rewards may fail. The expected return on investment depends on both probabilities. Property rights are valuable only to the extent that they can be enforced.

Immigration Policy and the Two Types of Errors

When screening applicants, there are two ways to make a mistake. A Type I error occurs when someone who should be rejected is admitted. A Type II error occurs when someone who should be admitted is rejected. Immigration policy faces this tradeoff. Tightening screening and admission requirements may reduce the first type of error, but it can also increase the second. The challenge is to balance the costs of admitting someone who should not enter against the costs of excluding someone who could benefit the country.

The stated Trump administration immigration policy has been to reduce Type I errors, reduce illegal immigration. Collateral damage is an increase in Type II errors, fewer legal immigrants. The Cato Institute reports that legal immigration fell substantially more than illegal immigration. Comparing monthly entry figures through February 2026 with those before Trump took office, Cato estimates that legal entries fell by approximately 145,000, while illegal entries fell by about 53,000. The restrictions affect people seeking admission through established legal channels, including employment, family reunification, and education. A full error cost analysis would require an estimate of the cost to society of typical illegal entrants and the lost benefit of typical legal entrants. It is open to debate, but evidence suggests that immigration is a net positive and that illegal immigrants to the US are not a cost.

One frequently hears that potential immigrants should simply follow the legal process. This offers little guidance if that too is unavailable.

The Razor-and-Blades Strategy Comes Full Circle

The Oura Ring looks like an ordinary piece of jewelry, but it contains sensors that continuously monitor heart rate, body temperature, sleep, activity, and other health indicators. Unlike a smartwatch, it has no screen, doesn't display messages, and doesn't make calls. Instead, it sends information to a smartphone app that analyzes sleep quality, recovery, stress, and overall health. The newest Oura Ring starts at around $399, comparable to many smartwatches with similar capabilities. But while most smartwatches include their core health-monitoring features in the purchase price, Oura charges an additional $5.99 per month or $69.99 annually for access to detailed health information and personalized insights.

This resembles the familiar razor-and-blades pricing strategy: sell customers a durable product, then earn recurring revenue from the complementary products or services needed to get its full value. Oura's recent IPO filing suggests the strategy is working. Approximately 94% of ring activations convert to paid memberships, and about 85% of paying members remain subscribed after 12 months. Subscriptions account for roughly 20% of revenue but earn gross margins approaching 90%. By separating the price of the device from the price of the information it produces, Oura turns a one-time hardware purchase into a continuing stream of high-margin revenue.

War Provides Arbitrage Opportunities

Arbitrageurs profit by buying where prices are low and selling where prices are high. But what happens when transporting the product is dangerous? According to The Wall Street Journal, oil producers in the Persian Gulf are paying $30–$40 million for tankers to make dangerous trips through the Strait of Hormuz. The tankers carry oil out of the Gulf and transfer it to other vessels for delivery to customers. Some sailors are being offered bonuses of up to $25,000 per trip. While buyers are reluctant to send their own tankers into the Gulf, producers are willing to pay extraordinary sums to get their oil to market.

The disruption has also affected oil shipments far from the Persian Gulf. Reuters reports that shipping two million barrels of U.S. crude from the Gulf of Mexico to China now costs approximately $80 million, or $40 per barrel, compared with just $8.60 per barrel before the war. The elaborate shuttle operations in the Persian Gulf have tied up tankers, reducing their availability elsewhere. Freight rates have risen so much that traders say the arbitrage opportunity for shipping U.S. oil to Asia has disappeared. Asian refiners are consequently considering alternative suppliers in the Middle East and Latin America.

The arbitrage cost is comparable in magnitude to the increase in Brent crude prices since the war began. The ability to exploit this form of arbitrage essentially put a cap on how much the price rose between between the well and the refinery.

Diminishing Marginal Utility of Yodeling

One reason demand curves slope downward is that people tend to tire of repetition. This is what Mark Twain discovered hiking in Swiss Alps

The jodling (pronounced yodling,—emphasis on the o,) continued, and was very pleasant and inspiring to hear. Now the jodler appeared,—a shepherd boy of sixteen,—and in our gladness and gratitude we gave him a franc to jodel some more. So he jodled, and we listened. We moved on, presently, and he generously jodled us out of sight. After about fifteen minutes we came across another shepherd boy who was jodling, and gave him half a franc to keep it up. After that, we found another jodler every ten minutes; we gave the first eight cents, the second one six cents, the third one four, the fifth one a penny, contribution nothing to Nos. 5, 6, and 7, and during the remainder of the day hired the rest of the jodlers, at a franc apiece, not to jodel any more. There is somewhat too much of this jodling in the Alps.

[Mark Twain, A Tramp Abroad: Following the Equator, Other Travels, edited by Roy Blount Jr. (New York: Library of America, 2010), p. 187]

Why Buyers Hate Auctions

When Salad and Go filed for bankruptcy in August, it already had a buyer. Dutch Bros had agreed to pay $105 million for as many as 65 of the failed chain’s drive-through locations. But rival 7 Brew was also interested in the properties and objected to the private deal. Should the bankruptcy court switch to negotiations with 7 Brew? Instead it approved an auction between Dutch Bros and 7 Brew. On August 31, 2026, Dutch Bros announced that it would not raise its offer, and 7 Brew emerged as the winner. After adjustments to the number of leases included in the transaction, the court approved a sale of 63 locations to 7 Brew for about $123.5 million—roughly $18.5 million more than the original Dutch Bros deal.

Sellers should prefer auctions to simply negotiating with a willing buyer. In bilateral bargaining, Dutch Bros has every reason to convince Salad and Go that $105 million is about as high as it will go. But the arrival of another bidder changes the negotiation. Instead of the seller having to determine how much each buyer is willing to pay, the buyers reveal information about their valuations by competing against one another. Indeed, Dutch Bros ultimately chose not to increase its offer, effectively revealing where further bidding stopped making sense for it. Buyers naturally prefer to negotiate without a competitor standing beside them. Sellers prefer exactly the opposite.

Does Surgery Work?

 The Economist: Many surgical interventions are little better than placebo

The results are upending the field. Removing an inflamed appendix, an operation that around 5-10% of people have had at some point in their life, has turned out to be no better for most patients than a course of antibiotics. Trials comparing different surgical techniques have also revealed that cheaper and less complex operations can be more effective. Most striking, the data show that some widely used surgical procedures, such as spinal fusions and rotator-cuff repairs, have effects indistinguishable from placebo or non-surgical care such as physiotherapy.

Worse, some types of surgery may do more harm than good. A trial in Britain found that prostate-cancer surgery had no effect on patient mortality 15 years on, but worsened sexual and urological problems. A Finnish trial of a common knee procedure, meanwhile, concluded that patients who had real surgery had more problems in the affected knee ten years on than those who had had sham surgery (anaesthesia followed by a superficial incision). David Ring, an orthopaedic surgeon at the University of Texas at Austin, reckons that most operations in his field may be unnecessary. Surgery itself, it would seem, could use a major intervention.

WWA (World Weather Attribution) cashing in using flawed methodology

From The Free Press: 

On August 26, a wall of rock and ice broke away from Langtang Lirung in the Himalayas, resulting in a massive flood and mudflow that killed thousands of people along the border of Nepal and Tibet. Less than a month later, on September 17, an influential organization called World Weather Attribution (WWA), housed at Imperial College London, published a report on the catastrophe along with a press release touting its alarming findings.

What the WWA does: 

 

Motivated Reasoning:

WWA has not been shy about the fact that it produces its studies to influence the public and to promote climate advocacy. Authors of one of the WWA’s foundational papers openly acknowledged that a primary reason for creating their methods is political: by “increasing the ‘immediacy’ of climate change, thereby increasing support for mitigation.” 

Detection by Correlation and Attribution by Assumption

...WWA treats “climate change,” measured as a smoothed record of global temperature, as the only possible cause of any localized trend in rainfall, heat, flooding, or other types of extreme weather.

People are fooled

The WWA’s advocacy campaign has worked brilliantly, of course; 50 percent of Americans now believe policies addressing climate change would reduce the number or severity of the extreme weather events that they individually, or their communities, will experience. 

Who funds these idiots?

WWA’s funders are philanthropists: the Grantham Foundation, the European Climate Foundation, and the Bezos Earth Fund, three of the largest backers of climate advocacy in the world.

What the methodology should do (IPCC, Intergovernmental Panel on Climate Change):

The first step is detection: whether the long-term statistics associated with a particular type of extreme weather change—a century of hurricane landfalls, say, or peak river flows—can’t be explained by the normal fluctuations in weather over years and decades, called internal climate variability.  [COMMENT:  this is extraordinarily difficult given the long run cycles in climate data]

The second step is attribution: The IPCC starts with a detected change and assesses the possible causes underlying that change—greenhouse gases, aerosols, volcanoes, land use, modes of climate variability, etc.—using sophisticated computer models of the earth’s climate system.  [COMMENT:  ruling out alternative explanations from non-experimental data is also extraordinarily difficult].

IPCC Findings: 

The scientific reality—long understood in mainstream climate science—is that any emissions policy a government adopts today will not noticeably reduce the frequency and intensity of extreme weather, through the lifetimes of children or their children’s children.

If lack of knowledge were the problem, I would send WWA a copy of Chapter 17:  Making Decisions with Uncertainty

How to Sell Meta Glasses (and Car Stereos)

Best Buy is moving in two seemingly opposite directions with in-store product demonstrations. In June, it announced that Meta Labs will open in more than 50 Best Buy stores. The 900-square-foot spaces let customers try Meta’s AI glasses and VR headsets, use interactive displays and smart mirrors, receive personalized fittings, and talk with dedicated Meta specialists. Yet just weeks later, Best Buy reportedly began removing many of its traditional car-audio demonstration displays, some of which had missing products or simply did not work. Demonstrations aren’t disappearing altogether: car-audio manufacturers including Sony, Pioneer, Kenwood, JVC, and Kicker have been paying for their own branded displays, now found in about 300 Best Buy stores.

The contrast highlights retailer actions boosting manufacturer demand. Helping a customer experience a pair of smart glasses may increase demand for Meta’s product, but Best Buy bears much of the cost of providing the service. Worse, customers can learn about a product at Best Buy and then buy it elsewhere—the classic retail-services free-rider problem. Meta’s solution is to become more deeply involved in the retail experience, helping provide dedicated specialists and an elaborate branded demonstration space. Car-audio manufacturers are responding more modestly by financing their own displays as Best Buy retreats from providing them. In both cases, manufacturers that benefit from demonstrations are taking on more of their cost, better aligning the incentives of manufacturers and retailers to provide services that help sell the product.

When Winning Is a Budget Risk: Hedging Coaching Bonuses

Prediction-market trades have turned up whose payouts nearly match college football coaches' playoff bonuses. Five line up almost exactly with Lane Kiffin's bonuses at LSU. The schools didn't place them, but third parties acting for them plausibly did.

Why would a school bet on its own success? Coaching contracts promise big bonuses for making the playoffs, advancing and winning a title. A deep playoff run can leave the athletic department owing millions it didn't budget for. A contract that pays off when the team wins covers that bill when it comes due. Like a farmer locking in a crop price, the school gives up some upside in exchange for a predictable budget.

Why go through a third party? NCAA rules forbid athletic staff from betting on games, and prediction markets count. So a school can instead pay an insurer a premium, and the insurer buys the contracts itself.

Takeaways:

• A performance bonus is a bill that only comes due when things go well.
• If people are betting on whether that success happens, you can buy a bet that pays for the bill.
• As budgets tighten and these betting markets grow, expect more of this.

Source: Josh Hendrickson, Insuring Against Success?, Economic Forces