The Ash Twins Blog

Computer Scientist Panos Ipeirotis writes that

An interesting example of a company deriving policy based on their predictive model is American Express. They realized that the feature “customer buys in a 99c store” is correlated with higher delinquency rates. So, AmEx decided to decrease the credit limit for such customers. Of course, the result will be that potentially affected customers will stop visiting such stores, decreasing the value of this policy for AmEx. Furthermore, this action may cause even more economic stress to these customers that are now “forced” to buy from more expensive stores, and this may result in a much higher default rate for AmEx. This “unexpected” outcome is the effect of devising policy based on non-causal variables.

The New York Times reports today that

the Walt Disney Company is now offering refunds for all those “Baby Einstein” videos that did not make children into geniuses. . .

Baby Einstein, founded in 1997, was one of the earliest players in what became a huge electronic media market for babies and toddlers. Acquired by Disney in 2001, the company expanded to a full line of books, toys, flashcards and apparel, along with DVDs including “Baby Mozart,” “Baby Shakespeare” and “Baby Galileo.”

The videos — simple productions featuring music, puppets, bright colors, and not many words — became a staple of baby life: According to a 2003 study, a third of all American babies from 6 months to 2 years old had at least one “Baby Einstein” video.

Despite their ubiquity, and the fact that many babies are transfixed by the videos, the American Academy of Pediatrics recommends no screen time at all for children under 2.

In 2006, Ms. Linn’s group went to the Federal Trade Commission to complain about the educational claims made by Disney and another company, Brainy Baby. As a result, the companies dropped the word “educational” from their marketing. . .

Last year, lawyers threatened a class-action lawsuit for unfair and deceptive practices unless Disney agreed to refund the full purchase price to all who bought the videos since 2004. “The Walt Disney Company’s entire Baby Einstein marketing regime is based on express and implied claims that their videos are educational and beneficial for early childhood development,” a letter from the lawyers said, calling those claims “false because research shows that television viewing is potentially harmful for very young children.”

The letter cited estimates from The Washington Post and Business Week that Baby Einstein controlled 90 percent of the baby media market, and sold $200 million worth of products annually.

The letter also described studies showing that television exposure at ages 1 through 3 is associated with attention problems at age 7.

The following is a link to the findings of the “Poverty Action Lab,” a U.N. program intended to discover the most efficient methods of reducing poverty. It is an example of how the tools of economics can succeed where the best of intentions can fail.

http://povertyactionlab.org/MDG/

More specifically, the program demonstrates the usefulness of experimental methods in social science. On a related note, the most recent issue of Science has an article titled “Lab Experiments Are a Major Source of Knowledge in the Social Sciences” bu Falk and Heckman:

http://www.sciencemag.org/cgi/content/full/326/5952/535

McKay and Dennett (2009) explore the potential evolutionary benefits of believing falsehoods:

From an evolutionary standpoint, a default presumption is that true beliefs are adaptive and misbeliefs maladaptive. But if humans are biologically engineered to appraise the world accurately and to form true beliefs, how are we to explain the routine exceptions to this rule? How can we account for mistaken beliefs, bizarre delusions and instances of self-deception? We explore this question in some detail. We begin by articulating a distinction between two general types of misbelief: those resulting from a breakdown in the normal functioning of the belief formation system (e.g. delusions) and those arising in the normal course of that system’s operations (e.g. beliefs based on incomplete or inaccurate information). The former are instances of biological dysfunction or pathology, reflecting “culpable” limitations of evolutionary design. Although the latter category includes undesirable (but tolerable) by-products of “forgivably” limited design, our quarry is a contentious subclass of this category: misbeliefs best conceived as design features. Such misbeliefs, unlike occasional lucky falsehoods, would have been systematically adaptive in the evolutionary past. Such misbeliefs, furthermore, would not be reducible to judicious – but doxastically noncommittal – action policies. Finally, such misbeliefs would have been adaptive in themselves, constituting more than mere by-products of adaptively biased misbelief-producing systems. We explore a range of potential candidates for evolved misbelief, and conclude that, of those surveyed, only positive illusions meet our criteria.

According to Grinols and Mustard (2006),

We examine the relationship between casinos and crime using county-level data for the United States between 1977 and 1996. Casinos were nonexistent outside Nevada before 1978, and expanded to many other states during our sample period. Most factors that reduce crime occur before or shortly after a casino opens, whereas those that increase crime, including problem and pathological gambling, occur over time. The results suggest that the effect on crime is low shortly after a casino opens, and grows over time. Roughly 8% of crime in casino counties in 1996 was attributable to casinos, costing the average adult $75 per year.

In an otherwise uninspired article, Artz and Stone (2006) cite some interesting studies on the effects on a community of opening a Wal-Mart SuperCenter:

Supercenters are Wal-Mart’s fastest growing store format. With more than fifty departments including a full-line grocery section and average size of 187,000 square feet, these stores compete with a wide range of existing retailers in the markets they enter. . .

This article examines the impact of Wal-Mart Supercenters on grocery stores sales in local markets in Mississippi. The findings suggest that Wal-Mart Supercenters located in nonmetropolitan counties capture, on average, 17% of the existing grocery market within the first two years of operation. In metropolitan counties, Supercenters capture about 4% of existing grocery stores’ sales one year after entry. . .

Several recent studies analyzing the impacts on employment and wages in the retail sector after Wal-Mart’s entry find that retail employment and earnings decline as a result of Wal-Mart. . . Studies focusing on consumer impacts have found that a Supercenter’s entry reduces grocery prices. Not only do Supercenters offer lower prices, but their entry may have the indirect effect of lowering prices at competing stores. Estimates of this indirect effect range from 3% overall to as high as 13% for specific items

Helland and Tabarrok (1999) find evidence that elected judges are biased in favor of in-state parties

Politicians are not neutral maximizers of the public good; they respond to incentives just like other individuals. We apply the same reasoning to those politicians in robes called judges. We argue that elected judges, particularly partisan elected judges, have an incentive to redistribute wealth from out-of-state defendants (non-voters) to instate plaintiffs (voters). The partisan electoral hypothesis is tested first using data on 75,000 tort awards from across the states. We control for differences in injuries, state incomes, poverty levels, selection effects and other factors that may cause awards to differ across the states. One difference which appears difficult to control for is that each state has its own body of tort law. We take advantage of a peculiar aspect of American Federalism to make this distinction. In cases involving citizens of different states, aptly called diversity of citizenship cases, Federal judges apply state law to decide disputes. Diversity of citizenship cases allow us to test whether differences in awards are caused by differences in electoral systems or differences in state law. The evidence from the cross-state regressions and from the diversity of citizenship cases, strongly supports the partisan election hypothesis. In cases involving out-of-state defendants and in-state plaintiffs the average award (conditional on winning) is 42% higher in partisan than in non-partisan states; approximately 2/3 rds of the larger award is due to a bias against out-of-state defendants and the remainder due to generally higher awards against businesses in partisan states.

According to Economist Joel Waldfogel, Christmas costs Americans a total of $25 billion annually:

Mr. Waldfogel estimates that Americans drop close to $70 billion a year on Christmas shopping for gifts people often don’t want … baggy underwear, ugly sweaters, etc. Society, he says in the book, would be better off if people didn’t spend it.

“Throughout the year, we shop meticulously for ourselves, looking at scores of items before choosing those that warrant spending our own money. The process at Christmas, by contrast, has givers shooting in the dark about what you like… to make matters worse, we do much of this spending with credit, going into hock using money we don’t yet have to buy things that recipients don’t really want.”

He says the deadweight loss to society from all of this frivolous spending — an “orgy of wealth destruction” as he calls it — is about $25 billion.

The International Council on Security and Development reported in September that

The Taliban now has a permanent presence in 80% of Afghanistan, up from 72% in November 2008, according to a new map released today by the International Council on Security and Development (ICOS). According to ICOS, another 17% of Afghanistan is seeing ‘substantial’ Taliban activity. Taken together, these figures show that the Taliban has a significant presence in virtually all of Afghanistan.