Joey Loses His Insurance

Joey plans to be more careful when he bears the cost of his decisions.

Moving assets to higher valued uses: airline flight attendants

United Flight Attendants are "renting out their seniority" by bidding for lucrative and fun international trips, and then selling the trip assignments for $200 to more junior flight attendants:

Flight attendants who bid for a trip and are assigned that trip have a property right in the trip. But they’re not supposed to use their seniority to gain desirable trips and then sell those trips, they’re supposed to fly the trips themselves and trade only when scheduling presents a problem. In other words they only get a partial property right and there’s not supposed to be a secondary market.

However, a secondary market may be efficient from the airline's point of view:

From a customer service standpoint I prefer more junior – less jaundiced – crew working the ‘best’ flights and indeed working long haul business class. Assigning customer service duties to an airline’s most profitable customers based primarily on being around the longest makes little sense for a business.

HT:  MarginalRevolution.com

Mobile assets will move to more they are more highly valued

Looks like this is happening in the SF Bay Area:

Despite a booming economy, pleasant climate and natural treasures, nearly two-thirds of Bay Area residents say the quality of life here has gotten worse in the last five years, according to a new poll. 

They cite a litany of reasons: high housing prices, traffic jams, the cost of living and homelessness. It’s so bad that about 44 percent say they are likely to move out of the Bay Area in the next few years, with 6 percent saying they have definite plans to leave this year.

BOTTOM LINE:  In equilibrium, a mobile asset has to be indifferent about where it is used; otherwise, it will move

California's restrictive zoning is a big problem, but not the only one

driving up the price of housing to $570K (1 million in the Bay Area), twice the national average.

Insurers Scouring Social Media

I sure am glad my insurance company never knew about some of the stupid and dangerous stuff I did when I was younger. But for the lack of online social media at the time, they would have. Because that is exactly the kind of stuff people post to Facebook, Instagram, etc. And insurers are taking notice.

"We're going through a period now where most life insurers are exploring using all types of data, not just data they get directly from the customer proactively, but other external sources of data—social media being a big one," said Ari Libarikian, a senior partner at McKinsey & Co. in New York.

This sets up another case of efficiency versus privacy. States are now setting the rules on what information is permissible to use. New York state appears to be requiring that insurers prove that any social-media data used in underwriting is actuarially justified, logical for use and doesn't unfairly discriminate against certain customers. I have long claimed that the main reason people value privacy is so that they can engage in moral hazard and adverse selection.

How does Walmart compete with Amazon?

Walmart's sales are three times those of Amazon, but lacks many of Amazon's technological capabilities.  To catch up, it is investing (losing money) to acquire the data necessary to train an AI shopping system:

Walmart is using Jetblack’s army of human agents to train an artificial intelligence system that could someday power an automated personal-shopping service, preparing Walmart for a time when the search bar disappears and more shopping is done through voice-activated devices, said Jetblack CEO Jenny Fleiss.

In addition,

Walmart bought India’s biggest e-commerce site. It has been buying up small online retailers including men’s apparel company Bonobos and is testing autonomous cargo vans for home grocery delivery in places such as Surprise, Ariz.

Engagement rings as compensation

Study of women and men about the size of engagement rings they would accept or buy for a potential mate:

• The results indicate that men would get bigger, costlier rocks if they were to be paired with an attractive woman. 

•  In their turn, women would want larger rings if their partners weren’t so good-looking. 

• Interestingly, women who thought themselves physically attractive were more likely to expect and get more expensive rings, no matter what their partners’ looks.

The size of the engagement ring looks like compensation paid by the husband to a wife for the relatively unpleasant task of marriage.  See related post, Why Men Pay to Stay Married.  

HT:  marginalrevolution.com

How Video Games are Saving Venezuelans

The economy of Venezuela is in shambles. It is hard to find work and if you do, the hyperinflation makes your earnings worth next to nothing. Looking for work that will earn hard currency, some Venezuelans are turning to 'gold farming.' In many video games, 'gold farmers' undertake the repetitive tasks that earn them the in-game currency, usually gold, that they can then sell to other gamers for hard cash.

For Venezuelans, this has two huge advantages. First, you do not need to be hired. You simply need an internet connection. Second, you sell gold for more stable dollars or bitcoins and not Venezuelan Bolivars. The game of choice seems to be Runescape, because it is free-to-play and because it requires minimal bandwidth. There is so much Venezuelan gold farming that their recent power outages caused the price of one Runescape in-game item to plummet.

In October last year Amazon gave away a discounted Runescape signup and more than two-thirds of the registrants stemmed from Venezuela. 29-year-old Efrain Peña explained to Bloomberg in December 2017 that he played the game to support his wife and child. “We’ve never made this much before,” Peña described.

What happens when you reduce policing?

NY Times on the incentives facing police in Baltimore.  The article noted that targeted policing, a type of statistical discrimination, was found to be illegal by a Justice Department report:

The report concluded that the police ... frequently patted down or frisked people “without identifying necessary grounds to believe that the person is armed and dangerous.” 

A former police chief said that the resulting consent decree prohibiting such statistical discrimination has made it more difficult for police to deter crime:

The decree’s demands had made it too difficult for officers to clear drug corners, he said. He was hearing from his former colleagues that loiterers were already reciting the limits it imposed on the officers to them on patrol, mockingly. ...

“What do you think happens when these guys see the cops not getting out of their car?” Barksdale said. ... “Look at the number of bodies,” he said. “We’re losing horribly in Baltimore City.”

HT:  MarginalRevolution.com

What two questions should you ask on your first date?

I am reading the book Dataclysm, written by an economist who founded OK Cupid, a dating site.

The book offers lots of dating advice, like if you and your date answer these two questions the same way, you have a much better chance of ending up together:

• Do you like scary movies? 
• Have you ever traveled to another country alone?

The book also claims to have a very good predictor of whether you and your partner will last based on the importance each other to your networks of facebook friends (link here, but the web app does not appear to be working. If anyone finds a working link, please post it in the comments!):

...based on counting the number of times a person and her spouse functioned as the bridge between disjointed parts of their network as a couple

I prefer “assimilation” because I think that better captures the upshot: High assimilated people have a unique role as a couple within their mutual network. Highly assimilated couples function – the two people together – as the bond between otherwise unconnected cliques. They are the special glue in a given spread of dots, and furthermore, they’re a glue like epoxy: it takes both ingredients to make the thing hold together.

Another interesting tidbit came from the "Crazy Blind Dating App" (since defunct)

A couple of years ago, ...OKCupid removed all profiles photos from the website for a few hours. ...While the app itself lasted only a few months, it still managed to serve blind dates to about 10,000 people. How did they feel about those blind dates? They loved them! Users, both male and female, reported having a great time, regardless of the other person’s attractiveness. 

Similarly, the success of the blind dates did not depend on political persuasion, or any of the other features selected by users to screen potential dates.  It is almost as if the users don't know what they want, which is disturbing to economists who typically assume otherwise.

BOTTOM LINE:  OK, but not as good as Everybody Lies mostly because Dataclysm spends too much time telling readers how to think, rather than showing them what they found.  Like Everybody Lies, the book was disappointing in that it doesn't explore the hypothesis of statistical discrimination, e.g., like that uncovered by Airbnb and Uber.

Free Online Course: Econometrics

Do criminals respond to incentives?

In Oakland they do.

Operation Ceasefire is an expansive strategy that requires cooperation between law enforcement, prosecutors, human services, community groups, faith-based organizations and, crucially, people who are involved in violent crime. Law-enforcement investigators gather intelligence about groups of people who may be involved in violent crime or are at risk of committing a violent crime. Those people are called to a meeting, where they’re offered social services and support. 

If they don’t take the help and do commit a violent crime, they’re told that police are watching, and they’ll be swiftly arrested and prosecuted.

The result has been a 32% drop in shootings.

HT:  MarginalRevolution.com

What makes CEO's different?

They know how to play cooperatively in games like the Prisoners' dilemma, where there is a tension between cooperation (I get a smaller slice of a bigger pie) and competition (I get a bigger slice of a smaller pie).

BOTTOM LINE:  CEO's "cooperate more, play less hawkish and thereby earn much more than the control group."

HT:  marginal revolution

Illustration of how infection spreads with and without social distanceing and travel restrictions

In this post, we use a cellular automata model of infection to illustrate the effects of social distancing and travel restrictions.

DISCLAIMER:  THIS IS AN UNREALISTIC MODEL, FOR TEACHING PURPOSES ONLY.  IN PARTICULAR THE INFECTION RATIOS ARE PROBABLY TOO SMALL.

The images below are from a cellular automata model of the spread of a disease on a 100x100 grid.  White dots represent uninfected; red dots, infected; green dots, survivors; black dots, deaths.  The key parameters are:

• death rate=1%, given that a person has been infected.  
• r0 = 2 is the basic reproduction number, the number of people infected by each infected person, e.g., here are estimates for corona virus.   We model social distancing as reducing this number.  
• mean distance of infection = 5.0 cells away from an infected cell, modeled as a standard normal distribution over unit distance.  We model travel restrictions as reducing this number

In the video above, the infected cells (red) spread slowly out from the center, where the outbreak began.  Most infections are on the "border" of the infected area because that is where infected cells are more likely to come in contact with uninfected ones.

Infections eventually die out because many of the people who come in contact with the infection have already developed an immunity (green) or are dead (black).  This is referred to as "Herd Immunity."

We graph the spread of the infection below.  The vertical axis represents people on the grid (10,000=100x100) and the horizontal axis represents time, denoted in periods (the life span of an infection virus).   The blue line represents the uninfected population, the green line the infected population, and the orange line, the infection rate.

In the simulation and graph below, we increase r0 (the infection ratio) from 2 to 3, and mean travel distance from 5 to 25.   We see that more people get infected (higher green line), and much more quickly (peak infections occur at period 11, instead of period 15).

What policy makers mean by "flattening the curve" is flattening the orange infection curve (compare the smaller, flatter orange peak in first graph to the  graph to the sharper, higher peak in the second) with social distancing and travel restrictions so that our hospital system does not get overwhelmed by infected patients.

From estimates I have seen, the basic infection ratios for old covid is thought to be around 2.5, but the infection ratio for the new Delta variant is about 3 times as big.  

HT:  Colleague Steven Tschantz designed and wrote the code.