"Do what you are good at" commits the hidden-benefit fallacy

MarginalRevolution.com has another great post using marginal analysis to explain why boys are more likely than girls to major in STEM subjects--because children are told "do what you are good at!"

•Girls get As in History and English and B’s in Science and Math which implies that (MCMath > MCEnglish) so they study English and History

•Boys get B’s in Science and Math and C’s in history and English (MCMath < MCEnglish) so they study Math.  

This advice is incomplete as it commits the hidden cost fallacy by ignoring the benefits of studying Math.  The correct advice is "do what profits you the most!"  If the marginal profitability of studying Math is bigger than the marginal profitability of studying English, study Math!

•If (MRMath-MCMath) > (MREnglish-MCEnglish), then a child should study Math, not English.  

...stop telling people to do what they are good at and instead tell them to do what pays! STEM fields pay more than the humanities so if people were to follow this advice, more women would enter STEM fields. 

Quinn Connelly on how to write efficiently, like an economist.

Quinn is a former student and professional blogger who writes efficiently, like an economist.  Here
 are my favorite tips:

4. Clarity: “Figure out the one central and novel contribution of your paper. Write this down in one paragraph...The first sentence is the hardest,” so “start with your central contribution.”
6. Skimming: “Your readers are busy and impatient. No reader will ever read the whole thing from start to finish. Readers skim. You have to make it easy for them to skim.”

What do physicians have in common with pilots?

They both respond to performance metrics (hand-washing or physicians; fuel consumption for pilots)--even without a reward (or penalty)!

PHYSICIANS:

METHOD:
The ICU unit coordinator was trained to observe and measure hand hygiene compliance. Data were collected on hand hygiene compliance at room entry and exit for 9 months. Percentage compliance for each medical and surgical subspecialty was reported to chiefs of service at the end of each month. Comparative rankings by service were widely distributed throughout the physician organization and the medical center.

RESULTS:

The hand hygiene compliance rate among physicians increased from 65.1 % to 91.6 % during the study period (p <0.0001). More importantly in the succeeding 24 months after study completion, physician hand hygiene compliance remained >90 % in every month.

PILOTS:  Another randomized controlled trial from Randomistas:

...Working with the pilots' union the researchers reassured pilots that they would not be ranked against each other:  "This is not, in any way, shoape or form, an attempt to set up a 'fuel league table'" the letter told them.  Despite knowing this, pilots who received monthly reports on their fueld efficiency ended up guzzling les gas than pilots who did not receive such reports.  The feedback was purely private, yet it lead pilots to tweak their behavior.  With an experiment that cost less than $1000 in postage, Virgin Airways cut its fuel consumption by about 1 million litres.  

Do tattoos signal your discount rate?

The NPV theorem (Net Present Value) says that an investment earns more than the opportunity cost of capital required to fund it if, and only if, the discounted stream of profit is positive.  It follows that individuals with higher discount rates will make fewer investments (in education, health, or reputation) than those with lower discount rates.

For many jobs, employers may prefer individuals with lower discount rates as they would invest more in becoming better employees in the hope of earning future promotion.  As a consequence, a signal, even a noisy one, about an individual's discount rate might be valuable to certain employers.

In fact, tattoos may signal high discount rates:

We show that, according to numerous measures, those with tattoos, especially visible ones, are more short-sighted and impulsive than the non-tattooed.

And this has a predictable consequence:

Survey and experimental evidence documents discrimination against tattooed individuals in the labor market and in commercial transactions

HT:  MarginalRevolution.com

Beer Industry Structure

Mark Perry at AEI keeps generating insightful graphs. This one commemorates that the number of breweries in the US has increased to its highest level ever. There is more information about one of my favorite industries here.

To me, the interesting thing is trying to understand why we observe such a stark decline in the number of breweries for 100 years and then a rapid increase over the last three or more decades. Some insights from others' research include:

• Before 1900, the minimum efficient scale had been quite small with average cost rising sharply. Most cities supported multiple breweries and, because the product spoiled quickly, most breweries only served a single city.
• In the late 19th century, the geographic scope of the market increased when spoilage was reduced due to increased adoption of pasteurization, refrigerated rail cars, and national marketing. This led less efficient competitors to lose out to more efficient producers in neighboring cities.
• Throughout the early 20th century, innovations in the canning process led to even greater scale economies. This also broadened the market because patrons could purchase for home consumption rather than at a bar.
• Until the late 1970s, home brewing was illegal at the federal level. With legalization came rapid experimentation and the development of the requisite skills among enthusiasts. This led to the founding of a few new breweries and a rapid expansion in variety - both in types of beer and in perceived quality. It was learned that yuppie beer consumers would pay a large premium for this variety.
• Craft breweries were initially tiny compared to the national brands with 2,000 generating a collective 5% share of the market until the 21st century. Again, before the turn of the 21st century, these were predominately local operations with few shipments beyond the city that was home to the craft brewer. It appears that the quality premium more than compensated for the absence of scale economies. 
• Currently, over 4,000 craft brewers have over 11% share and a few brands, like Sam Adams and Sierra Nevada, have become national brands.
• The trick for these brewers is balancing any dis-economies of scope (Sam Adams brews about 50 varieties) with scale economies from national branding so as to achieve scale economies and not degrade the perceived quality.

Alfred Kahn on clear writing

Economist Alfred Kahn died this week at age 93. Although he is most remembered for deregulating the airlines industry, Vanderbilt students know him through his essay,My War Against Bureaucratese," the gobbledygook written by government bureaucrats designed to hide what they are really doing.  Here are a few of his most salient points:

• “Every time you’re tempted to use ‘herein’ or ‘hereinabout’ or ‘hereinunder’ or, similarly, ‘therein,’ thereinabove’ or ‘thereinunder,” and the corresponding variants, try ‘here’ or ‘there’ or ‘above’ or ‘below,’ and see if it doesn’t make just as much sense.”
• “The passive voice is wildly overused in government writing. Typically its purpose is to conceal information. One is less likely to be jailed if one says, ‘He was hit by a stone,’ than if he says, ‘I hit him with a stone.’ The active voice is far more forthright, direct, humane.”
• The use of ‘presently’ to mean ‘now’ is another pomposity. If you mean ‘now,’ why don’t you say ‘now’?
• “Why use ‘regarding’ or ‘concerning’ or ‘with regard to’ when the simple word ‘about’ would do just as well? Unless you’re trying to impress somebody. But are you sure you want to impress anybody who would be impressed by such circumlocutions?
• “Outreach makes me upchuck.” Sometimes the demands of pomposity and dynamism converge—as in using “input” as a verb, “specifics” for “details” and constantly “implementing” things and “addressing issues.”

Professor Kahn began this war as part of his succesful effort to deregulate the airline industry. He is the hero of Thomas McCraw's Pulitzer Prize Winning book Prophets of Regulation. Interestingly, the villain of the book is Louis Brandeis for his role in creating the FTC.

Colleague Mike Shor's MBA Writer puts phrases from student memos together to generate sentences that sound all too familiar.

To proactively manage profit, our key initiative objective pushes the envelope toward systematized reciprocal capability.

Enabling continuity, enterprise optimization accelerates the movement towards third-generation contingencies.

Is Sweden Socialist?

Its not even close:

...while people like Bernie Sanders use Sweden as a talking point of socialism, “most of the world would look up at Sweden and say that they are way more capitalist than we are.”

They seemed to have been headed that way when reality set in:

“In 1960 the United States and Sweden were about the same level of income and had about the same size of government. And what happens is 1960 is both governments got bigger, but Sweden’s got really big and Sweden’s growth rate really started to suffer,” he said.

As things now stand, Lawson said Sweden has much less income than the United States, and the high cost of its social services has shown its negative impact. “Maybe it’s a price they’re willing to pay, but the vitality of the Swedish economy has slowed and not kept pace with the rest of Europe—and certainly not with the United States.”

DOJ blocks printing merger

My former employer successfully challenged a merger in the printing industry :

The U.S. Justice Department’s lawsuit opposing Quad’s acquisition of LSC focused on the “intense rivalry” between the two printers that has contributed to the multi-year trend of gradually declining prices for publication printing.

This kind of enforcement is designed to preserve competition. However, the delay and uncertainty surrounding the merger seems to have damaged one of the companies so it is not clear how much competition remains:

The aborted deal left LSC a damaged company. During the nine months when it appeared to be headed to the altar with Quad, it lost salespeople and customers, ...

HT:  Margaret

DDT is making a comeback! (book recommendation, Factfulness)

Paul Hermann Müller won the Nobel Prize in 1948 for “his discovery of the high efficiency of DDT as a contact poison against several arthropods.” For two and a half years in the early 1980's, my late wife Lisa (pictured above) rode a motorcycle around the Golden Triangle in Thailand, spraying swamps with DDT and giving out Malaria pills to villagers.  However, DDT has since been banned by what Factfulness author calls "Chemophobia."  Even the WHO seems to recognize the mistake:

... Today, the World Health Organization promotes the use of DDT to save lives in poor settings by killing malaria mosquitoes, within strict safety guidelines...

The Factfulness book (I listened to it on Audible) also dispels various myths about "us vs. them," "developing vs. developed world," or the myth that things are getting worse.  Highly recommended for anyone interested in poverty.

When prices go up, eventually demand becomes elastic

Story of a women and her US surgeon who flew to Cancún to get and perform a knee replacement:

The hospital costs of the American medical system are so high that it made financial sense for both a highly trained orthopedist from Milwaukee and a patient from Mississippi to leave the country and meet at an upscale private Mexican hospital for the surgery.

When the price gets high enough, eventually, people find substitutes. 

Ms. Ferguson gets her health coverage through her husband’s employer, Ashley Furniture Industries. The cost to Ashley was less than half of what a knee replacement in the United States would have been. That’s why its employees and dependents who use this option have no out-of-pocket co-pays or deductibles for the procedure; in fact, they receive a $5,000 payment from the company, and all their travel costs are covered.

Dr. Parisi, who spent less than 24 hours in Cancún, was paid $2,700, or three times what he would have received from Medicare, the largest single payer of hospital costs in the United States. Private insurers often base their reimbursement rates on what Medicare pays.