tag:blogger.com,1999:blog-47374797976060514542024-02-20T23:38:43.382-05:00David Karp's BlogAnonymoushttp://www.blogger.com/profile/01298927624705668945noreply@blogger.comBlogger107125tag:blogger.com,1999:blog-4737479797606051454.post-28851815957384858282012-05-18T19:32:00.000-04:002012-05-18T19:32:46.691-04:00Canadian content requirements a bad idea<a href="http://www.whitecapsfc.com/">Vancouver Whitecaps</a> captain <a href="http://en.wikipedia.org/wiki/Jay_DeMerit">Jay DeMerit</a> fired off <a href="https://twitter.com/#%21/D6MERIT/status/203219282656641026">a tweet yesterday</a> that piqued my interest: is the criticism leveled at his team for their lack of Canadians justified?<br />
<br />
The Vancouver Whitecaps have just four Canadians on their 30-man roster. But three (Bryce Alderson, Caleb Clarke and Russel Teibert) have yet to see any playing time in regular season matches this year. The fourth, defensive stalwart Alain Rochat, is only nominally a Canadian, having moved to Switzerland when he was two — he plays his international soccer for Switzerland.<br />
<br />
The Whitecaps' lack of Canadians has been the focus of some attention recently. They are currently in the finals of the <a href="http://www.canadasoccer.com/amway-canadian-championship-s15045">Canadian championship</a> against <a href="http://www.torontofc.ca/">Toronto FC</a>, who in contrast to the Whitecaps have nine Canadians on their roster. Five of them played in the first leg of the finals against Vancouver. Plus, the Canadian Soccer Association has a new president, Victor Montagliani, who <a href="http://sports.nationalpost.com/2012/05/09/new-canadian-soccer-association-president-makes-culture-change-a-priority/">has called for more stringent quotas</a> on the number of Canadian players teams this side of the 49th parallel must carry.<br />
<br />
<a name='more'></a>Currently, <a href="http://www.mlssoccer.com/2012-mls-roster-rules">Major League Soccer rules</a> only require the league's three Canadian teams to have three Canadian players on their roster (although, as Vancouver has shown, there is no requirement to actually play them). This begs the question: should the Canadian teams be required to employ more Canadian players?<br />
<br />
From a fan's perspective, I think the answer is "no." Most fans want a team that can win, with players who are exciting to watch. Whitecaps fan favourite Eric Hassli is beloved irrespective of his French citizenship, because of his rough-and-tumble style and his ability to score <a href="http://www.youtube.com/watch?v=w8Vfdx7LEh4">highlight-reel goals</a>. Vancouver has experimented with local players in the past — notably midfielder <a href="http://en.wikipedia.org/wiki/Terry_Dunfield">Terry Dunfield</a>, who was traded to Toronto last season, and <a href="https://twitter.com/#%21/marcushaber">Marcus Haber</a>, who left the team before it joined Major League Soccer to ply his trade in Europe. The local element was a nice touch, but there was no huge outcry when either player left the club — fans tend to embrace players for their work on the field, not for their origins.<br />
<br />
For the sake of argument, let's assume I'm wrong and that soccer fans prefer to watch domestic players. Would quotas help? Probably not. That's because soccer teams have an incentive to please their fans. Soccer teams make money when their fans buy tickets and merchandise, so when fans are happy, the team's bottom line is healthy. If Vancouver fans really wanted local players, the team could be more profitable if they hired more Canadians. So unless the team's management is out of touch with fans, they should already be doing what's optimal for their fans without any quotas.<br />
<br />
Player development is another perspective to approach the quota issue from. Would quotas make Canadians better soccer players? Again, probably not.<br />
<br />
Stiffer quotas should, at the margin, increase salaries for Canadian players. In the short run, there's a fixed quantity of Canadian professional soccer players, so by increasing the number of job opportunities through quotas, Canadian players would be able to demand higher wages by playing potential employers off each other. Put another way, a Canadian team choosing between three equally talented Brazilian, Italian or Canadian soccer players would be willing to pay more for the Canadian, since the Canadian will help them meet their quota, while the Brazilian and Italian won't.<br />
<br />
Naturally, if wages for Canadian soccer players increase, young Canadian athletes have more incentive to pursue soccer as a career. But this wage effect would likely be small in the grand scheme of things. Soccer is a global game, with leagues all around the world serving as potential employers for Canadian soccer players. So any expansion of quotas for the three Canadian Major League Soccer teams is likely to have a negligible impact on wages globally for Canadian soccer players.<br />
<br />
One could also argue that there would be more opportunities for Canadian soccer players to learn from skilled coaches and other elite players if quotas were stricter. This argument might hold true for the <a href="http://www.cfl.ca/page/game_rule_ratio">quotas in the Canadian Football League</a>, since there are limited opportunities for Canadian players to ply their trade elsewhere. If a Canadian football player is not good enough to make the NFL, they might be able to find a job in the <a href="http://www.arenafootball.com/">Arena Football League</a>, but that's about it.<br />
<br />
Soccer is different. It's a global game, so Canadian players have countless teams that could potentially employ them, where they would benefit from skilled coaching and playing with other elite players (case in point: <a href="http://www.canadasoccer.com/canada-announce-preliminary-roster-p150589">the 22 players selected yesterday for Canada's national team training camp</a> play soccer in 10 different non-Major League Soccer countries). With so many job opportunities, quotas should again have a negligible impact on player development in this regard.<br />
<br />
Would more Canadians be inspired to get involved in soccer if their local pro team had more Canadian role models? Maybe. But probably not if the Canadian players end up sitting on the bench all the time, which is what's happening right now in Vancouver. And if fans are truly inspired by the product on the field, allowing teams to field the best lineups possible by eliminating quotas is the best way to get young Canadians hooked on soccer.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4737479797606051454.post-70035439848233875482012-01-12T20:33:00.000-05:002012-01-12T20:33:32.513-05:00Does salience make sense for Air Miles?<a href="https://www.airmiles.ca/arrow/Home">Air Miles</a> has decided to do a curious thing: <a href="https://www.airmiles.ca/collector/EarnRatioAllCash">tell you how much they're actually worth</a>.<br />
<br />
Air Miles, for those who don't know, is a <a href="http://en.wikipedia.org/wiki/Loyalty_program">customer loyalty program</a>. If you shop at particular businesses, you earn "miles," which you can then redeem for rewards. Businesses use these programs in an attempt to retain customers. They're particularly useful when businesses offer a fairly generic product that customers could easily buy from a competitor.<br />
<br />
<a name='more'></a>Some reward programs rely on transparency. Credit cards that offer cash back, for example, tell you up front the percentage of purchases that you'll get back in cash rewards.<br />
<br />
But it seems like most reward programs rely on obfuscation. Air Miles probably falls into this category. It's difficult to calculate how much an Air Mile is worth. Customers typically collect one Air Mile for every $20 spent, but one Air Mile does not equal $1 (or something similarly transparent).<br />
<br />
Until now, Air Miles has only allowed customers to redeem miles for rewards, such as flights, magazine subscriptions, or <a href="https://www.airmiles.ca/arrow/RewardsProductDetails?productId=prod1594200">ice cream makers</a> (which I am currently considering blowing my miles on). So in order to figure out what an Air Mile is worth, you need to figure out what the reward is worth, and then do some math.<br />
<br />
It's probably easiest to look at gift cards. <a href="https://www.airmiles.ca/arrow/RewardsProductList?selectedCategoryId=cat680256&sort=0&_requestid=2397233">A $20 gift card typically goes for for 175 Air Miles</a>. If we assume that a $20 gift card is worth $20 (in reality, it's worth a little bit less), then I would need to spend at least $3,500 (175 Air Miles x $20 per Air Mile) to earn the gift card. In reality, I'd need to spend much more, since Air Miles are only doled out for every $20 spent. If I make a $19 purchase, for example, I'll earn zero Air Miles, not 0.95 Air Miles.<br />
<br />
The $20 reward for a minimum $3,500 of purchases works out to less than 0.6% cash back in this best-case scenario, which doesn't seem like that much. Hence, it's not surprising why Air Miles tries not to be transparent about the value of their miles.<br />
<br />
Starting in March, Air Miles will offer cash back. For 95 Air Miles, you can get $10 off a purchase at participating retailers. This makes the calculation a little more transparent. Earning 95 Air Miles requires a minimum $1,900 of purchases (95 Air Miles x $20 per Air Mile). That works out to a little over 0.5% cash back in the best-case scenario.<br />
<br />
I'm surprised that Air Miles is making the change to cash rewards, since it makes it a little more obvious that their rewards are virtually worthless. One would think they'd be better off hiding how chintzy they are, rather than trying to showcase this.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-4737479797606051454.post-9205705371751662152012-01-09T22:53:00.000-05:002012-01-09T22:53:01.642-05:00Moneyball and the "Occupy" movementI recently finished reading <a href="http://www.amazon.ca/Moneyball-Michael-Lewis/dp/0393338398/"><i>Moneyball</i></a> (I haven't gotten around to watching the movie yet). I'm not a baseball fan by any stretch of the imagination, but I really enjoyed this book. It is a David-and-Goliath story about how the nerdy-but-cheap Oakland A's used their knowledge of stats to outsmart the baseball establishment.<br />
<br />
Reading <i>Moneyball</i>, I couldn't help but think about the "<a href="http://en.wikipedia.org/wiki/Occupy_movement">Occupy</a>" movement. I empathize with the protestors to some extent — it's difficult to comprehend how the "one per cent" can make so much more money tha everyone else, especially when times are tough for many people right now.<br />
<br />
<a name='more'></a>But my economics background tempers this empathy. The economist in me says that the so-called one per cent earn as much as they do because they are very valuable to their companies. Companies want to maximize their profits, and CEOs help them do this. If a company could save money by paying their CEO less, they would. The reason they don't is because they'd get stuck with a less talented CEO, which would mean fewer profits for the company.<br />
<br />
And these companies earn their profits not because they rob or cheat the 99 per cent, but because they provide something of value to society. <a href="http://www.forbes.com/profile/bill-gates/">Bill Gates is the second richest man in the world</a> because society is better off for having Microsoft's products. Nobody is forced to pay <a href="http://www.microsoftstore.ca/shop/en-CA/Microsoft/Word-2010-%28English%29?WT.term=microsoft+word&WT.mc_id=pointitsem_Microsoft+CA_google_Word+-+EN&WT.medium=cpc&WT.campaign=Word+-+EN&WT.srch=1&WT.content=VcccOk8j&WT.source=google&cshift_ck=7a7f2ded-e99e-4e61-a7c9-cee7bc412569csVcccOk8j">$179 for Microsoft Word</a>, for example. People trade their $179 for Microsoft Word because they are happier having Microsoft Word than having $179.<br />
<br />
<i>Moneyball </i>challenges this thinking. My logic is predicated on the assumption that the free market acts efficiently. <i>Moneyball </i>argues that the Oakland A's were successful, even though they spent far less money than other teams, because other teams were acting inefficiently. Other baseball teams overpaid their players. Oakland was able to find players who were equally or more talented, but commanded a far lower salary.<br />
<br />
Reading the book, I wondered if there is any chance that similar inefficiencies exist in the corporate world. <i>Moneyball </i>portrayed Major League Baseball as an old boys' network that rewards tradition and punishes innovation. It's not crystal clear to me what the Occuy movement's main message is, but perhaps it's an analagous one to <i>Moneyball</i>.<br />
<br />
Perhaps CEOs are paid astronomically high salaries not because the CEOs bring their companies mounds of profit, but because corporate boards function like an old boys' network, rewarding executives who fit in with the traditions and thinking of the old boys' network. Perhaps, like the Oakland A's, many head offices on Wall Street could hire new executive teams that are far cheaper, and more effective, than existing head honchos.<br />
<br />
Perhaps. But I'm not convinced. That is because of one key difference between professional baseball and the corporate world: There are 30 teams in Major League Baseball, but there are countless more in the corporate world — <a href="http://en.wikipedia.org/wiki/New_York_Stock_Exchange">2,317 on the New York Stock Exchange</a> alone.<br />
<i><br />
</i><br />
<i>Moneyball </i>is convincing; it's believeable that 29 baseball teams (minus the Oakland A's) could be operating inefficiently. But can the vast majority of thousands of companies be operating inefficiently? That's a little harder to swallow.Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-4737479797606051454.post-43094919145184624032012-01-05T21:54:00.000-05:002012-01-05T21:54:51.991-05:00Kickstarter a boon to entrepreneursMany entrepreneurs take a big risk when they start a business.<br />
<br />
There are usually significant <a href="http://www.investopedia.com/terms/f/fixedcost.asp#axzz1gGiH97xc">fixed costs</a>. A retail store, for example, has to lease its space, buy a sign, cash registers, advertising, etc. — before they sell their first product. It's intimidating. There's the potential for major rejection — customers might not like what you're selling, and the business goes bankrupt.<br />
<br />
What if you could remove that potential for rejection? What if you knew with certainty that the moment you opened your doors, your business would have enough customers?<br />
<br />
<a name='more'></a>A new innovation may alleviate some of that uncertainty. <a href="http://www.kickstarter.com/">Kickstarter</a> bills itself as the "world's largest funding platform for creative products." In a nutshell, people with a business idea can share it online and let people know how much funding they need to get it off the ground. Anybody can then contribute money to the project, but their credit card isn't charged unless enough people donate to reach the amount needed for the idea to be implemented. If not enough people fund the business, no one pays a dime.<br />
<br />
In essence, Kickstarter removes all the risks for entrepreneurs, because before they go and blow their money on fixed costs, they can find out if there's a big enough market for their product. Take this example: somebody has the ingenious idea of making <a href="http://www.kickstarter.com/projects/ucffool/gaming-dice-in-chocolate-and-sugar?ref=spotlight">20-sided chocolate dice</a>. But there are significant fixed costs to making chocolate dice. You apparently need a mold, thermometer, fancy pots, vacuum chamber and shrink-wrap equipment. An entrepreneur could just take the risk and buy all the materials, hoping there's a large enough market for his product. But with Kickstarter, he can find out whether or not that market exists. People can commit to buying chocolate dice ($15 for a box of six, with various quantity discounts), but they only pay if the entrepreneur's requirement for getting the business off the ground ($950 in the case of chocolate dice) is reached.<br />
<br />
Malcolm Gladwell wrote <a href="http://www.gladwell.com/2010/2010_01_18_a_surething.html">an engaging <i>New Yorker</i> article</a> a couple years ago, where he suggests that successful entrepreneurs try to minimize risk, rather than take unneccessary chances. Good entrepreneurs do their research ahead of time and know there is a market for what they intend to sell. If Gladwell is right, then Kickstarter may help increase the number of successful entrepreneurs.<br />
<br />
Five years ago, a talented potential entrepreneur wanting to make chocolate dice may have never gotten into business, since it was too risky. Thanks to Kickstarter, they can cut out the risk. The world will be a more innovative (and yummier) place for it.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-4737479797606051454.post-80482245983734354762012-01-02T20:38:00.002-05:002012-01-03T18:28:02.047-05:00Marketing value of 1¢A few months ago, an ad in the newspaper caught my attention:<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDw33lEa210GByK5OpfGwoUkhVVrrFipiOg30HHug6XVtIyeQodcqgIyVjvCC8JNWl5amN8C1ODB-myoVTUfoSvFY1gwPJ6SOisOXXRFbCLXt3HYowxK7jyWSwu-LN5lyHfAidph1ch64u/s1600/rogers+ad.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDw33lEa210GByK5OpfGwoUkhVVrrFipiOg30HHug6XVtIyeQodcqgIyVjvCC8JNWl5amN8C1ODB-myoVTUfoSvFY1gwPJ6SOisOXXRFbCLXt3HYowxK7jyWSwu-LN5lyHfAidph1ch64u/s400/rogers+ad.JPG" width="335" /></a></div><div class="separator" style="clear: both; text-align: center;"><br />
</div><div class="separator" style="clear: both; text-align: left;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"></span></div><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">The 1<span class="Apple-style-span" style="border-collapse: collapse;">¢ figure perplexed me. I understand why phone companies might want to give you a free phone if you sign a three-year contract for phone services. But why charge </span></span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">1</span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="border-collapse: collapse;">¢? From a revenue standpoint, the </span></span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">1</span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="border-collapse: collapse;">¢ must be inconsequential to Rogers. Isn't free more attractive?</span></span><br />
<div class="separator" style="clear: both; text-align: left;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="border-collapse: collapse;"><br />
</span></span></div><div class="separator" style="clear: both; text-align: left;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="border-collapse: collapse;"></span></span></div><a name='more'></a><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="border-collapse: collapse;">The ad brought to mind a chapter from <a href="http://www.amazon.ca/Predictably-Irrational-Revised-Expanded-Decisions/dp/0061353248/ref=sr_1_1?ie=UTF8&qid=1323016456&sr=8-1"><i>Predictably Irrational</i></a> by <a href="http://danariely.com/">Dan Ariely</a>, one of my favourite behavioural economics books. The third chapter, <i>The Cost of Zero Cost: Why We Often Pay Too Much When We Pay Nothing</i>, examines this issue directly. The chapter describes</span></span><span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;"> <a href="http://web.duke.edu/~dandan/Papers/zerofree.pdf">a series of experiments</a> Ariely did with <a href="http://www.analysisgroup.com/kristina_shampanier.aspx">Kristina Shampanier</a> and <a href="http://www.rotman.utoronto.ca/facbios/viewFac.asp?facultyID=nina.mazar">Nina Mazar</a>, which show people tend to place way more value on free products — much more than when a product is 1</span><span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;">¢.</span><br />
<div class="separator" style="clear: both; text-align: left;"><span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;"><br />
</span></div><div class="separator" style="clear: both; text-align: left;"><span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;">To illustrate this, the researchers </span><span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;">set up a chocolate stand at MIT, selling <a href="http://www.lindtusa.com/category-exec/category_id/18/nm/Lindor_Truffles">Lindt truffles</a> and <a href="http://www.hersheys.com/kisses.aspx">Hershey's Kisses</a>. Roughly every 45 minutes, they changed the prices for the chocolates. Sometimes, the truffles cost 15 cents and the Kisses cost one cent, sometimes it was 14 cents for a truffle and free for a Kiss, and sometimes it was 10 for a truffle and free for a Kiss. Students could only choose one type of chocolate. When the Kisses were free, people chose them far more often than when they were 1</span><span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;">¢.</span></div><div class="separator" style="clear: both; text-align: left;"><span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;"><br />
</span></div><div class="separator" style="clear: both; text-align: left;"><span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;">Ariely tries to explain the result in <i>Predictably Irrational</i>:</span></div><blockquote class="tr_bq"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span class="Apple-style-span" style="border-collapse: collapse;">"I think it's because humans are intrinsically afraid of loss. The real allure of FREE! is tied to this fear. There's no visible possibility of loss when we choose a FREE! item (it's free). But suppose we choose the item that's <i>not </i>free. Uh-oh, now there's a risk of having made a poor decision — the possibility of a loss. And so, given the choice, we go for what is free."</span></span></blockquote>Given the results of Ariely's research, I am curious why Rogers' marketing team decided to price their phones at 1<span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;">¢ rather than make them free (I sent them an email asking this, but they did not respond). Did Rogers make a bad business decision? Or is Ariely's research missing something, which Rogers has been able to pick up on?</span><br />
<span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;"><b>Addendum: </b>I emailed Ariely to see if he had any insights as to why Rogers might choose to go with </span>1<span class="Apple-style-span" style="border-collapse: collapse; font-family: Times, 'Times New Roman', serif;">¢, and he was kind enough to respond with a voice message: "Our research suggests they are making making a mistake, that it's not right. Maybe they are trying to make it sound different than what other companies are doing — I'm not sure what their logic is. But the basic finding from our research shows that they might not be choosing the right thing."</span>Unknownnoreply@blogger.com8tag:blogger.com,1999:blog-4737479797606051454.post-69377972300572723962011-12-29T21:29:00.002-05:002013-08-24T13:20:40.609-04:00Should charities threaten potential donors?<span class="Apple-style-span" style="font-family: inherit;">Earlier this year, I blogged about <a href="http://dmkarp.blogspot.com/2011/03/charities-guilt-gifts-overstep-bounds.html">my dislike for charities who try to guilt donors by mailing out unsolicited gifts</a>. While I find this to be an offensive practice, my friend Tom recently received a mailing from a charity called <a href="http://www.canadahelps.org/CharityProfilePage.aspx?CharityID=s98822">Smile Train</a> that may have topped this. (In case you're wondering about the picture below, Smile Train "is <span class="Apple-style-span" style="line-height: 17px;">dedicated to helping the millions of children in the world who suffer from <a href="http://en.wikipedia.org/wiki/Cleft_lip_and_palate">cleft lip and palate</a>").</span></span><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGXsBN2NdvA4HtMD0TknlUMTnMkjU-TILQrU50IJDv7ej1NEmuNpVo_OYwO0HFqgaDKVXwthAk_7hYffZ2VtTWe70_zwjNUBoJuKL383M1iwy1yTiqjfUHy99ousO-y8_SBhoI4SjD1inC/s1600/smile+train" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGXsBN2NdvA4HtMD0TknlUMTnMkjU-TILQrU50IJDv7ej1NEmuNpVo_OYwO0HFqgaDKVXwthAk_7hYffZ2VtTWe70_zwjNUBoJuKL383M1iwy1yTiqjfUHy99ousO-y8_SBhoI4SjD1inC/s400/smile+train" width="400" /></a></div>
<br />
<br />
<a name='more'></a>When taken literally, I don't think the mailing is particularly offensive. I don't particularly like receiving mail asking me for money (especially when it comes with jarring pictures), but there isn't much I can do about that. So I expect charities to mail me, regardless of whether or not I donate to them. If Smile Train is offering to stop contacting me if I make a donation, it's an unexpected bonus.<br />
<br />
The offensiveness comes when you think about what Smile Train is really saying. If they are promising not to contact me anymore if I send them money, this begs the question of what they'll do if I don't send them money. The implication is that they'll keep contacting me. The implicit statement is, "Donate money or we'll keep harrassing you with annoying letters." It's bordering on an (albeit quite mild) form of <a href="http://laws-lois.justice.gc.ca/eng/acts/C-46/page-159.html?term=extortion#s-346.">extortion</a>.<br />
<br />
As an economist who has done some research on <a href="http://www.nber.org/papers/w17618.pdf">charitable donations</a>, I'm curious whether this tactic will have much success. I'm skeptical. Let's think about what happens for two different types of people: those who like Smile Train, and those who don't.<br />
<br />
If I like Smile Train, there's a good chance I'll donate, regardless of whether or not they promise not to contact me again. But evidence shows (not surprisingly) that <a href="http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.3.958">past donors are more dependable than new donors</a>. By not being able to contact past donors who like Smile Train again, Smile Train is losing out on potential revenue in the future. Sure, these sympathetic donors can still contact Smile Train on their own to donate, but <a href="http://www.nber.org/papers/w16373.pdf">people are generally more charitable when they are asked for money</a>.<br />
<br />
If I don't like Smile Train, I probably won't donate under normal circumstances. But with their offer not to contact me again, I might make a very small donation just to get them off my back.<br />
<br />
Is the benefit of receiving a little bit of money from reluctant one-time donors worth the trade-off of not being able to ever solicit sympathetic donors again? Probably not. It seems like a very steep price to pay in the long run in order to get a short-term gain.<br />
<br />
But in this case, it might actually make sense. <a href="http://www.cra-arc.gc.ca/ebci/haip/srch/t3010form21sched6-eng.action?b=849066428RR0001&e=2010-06-30&n=The+Smile+Train+Canada&r=http%3A%2F%2Fwww.cra-arc.gc.ca%3A80%2Febci%2Fhaip%2Fsrch%2Ft3010form21-eng.action%3Fb%3D849066428RR0001%26amp%3Be%3D2010-06-30%26amp%3Bn%3DThe%2BSmile%2BTrain%2BCanada%26amp%3Br%3Dhttp%253A%252F%252Fwww.cra-arc.gc.ca%253A80%252Febci%252Fhaip%252Fsrch%252Fbasicsearchresult-eng.action%253Fs%253Dregistered%2526amp%253Bk%253Dsmile%252Btrain%2526amp%253Bp%253D1%2526amp%253Bb%253Dtrue">Smile Train Canada's liabilities are three times greater than its assets</a>, which suggests it desperately needs money to pay its bills. The charity may be so concerned about drumming up change today from otherwise reluctant donors that it's willing to sacrifice more stable donations down the road.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-4737479797606051454.post-62229184814252969012011-12-22T22:41:00.000-05:002011-12-22T22:41:26.440-05:00Last-minute Christmas gift ideaIf you need a last-minute Christmas gift for an economist — or indeed anyone who is interested in the financial crisis — you might want to pick up <i><a href="http://press.princeton.edu/titles/8973.html">This Time is Different: Eight Centuries of Financial Folly</a> </i>from your local bookstore<i>.</i><div><i><br />
</i></div><div>The book, written by economists <a href="http://www.carmenreinhart.com/">Carmen Reinhart</a> and <a href="http://www.economics.harvard.edu/faculty/rogoff/Biography_Rogoff">Ken Rogoff</a>, goes back hundreds of years and looks around the globe to show that financial crises really aren't anomalies — when you look at the grand scale of history, there are clear patterns that emerge.</div><div><br />
</div><div><a name='more'></a>"Our basic message is simple," Reinhart and Rogoff write in the preface. "We have been here before. No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities with past experience from other countries and from history."</div><div><br />
</div><div>I first heard of the book when reading <a href="http://www.theglobeandmail.com/news/opinions/opinion/the-second-great-contraction/article2117504/">a Globe and Mail article by Rogoff</a> in the summer. Rogoff's article made a lot of sense to me, so I decided to buy a copy of <i>This Time is Different</i>. These are authors that know their stuff. Reinhart was a deputy director at the <a href="http://www.imf.org/external/index.htm">IMF</a> and the chief economist for <a href="http://topics.nytimes.com/top/news/business/companies/bear_stearns_companies/index.html">Bear Stearns</a> (well before the subprime mortgage crisis). Rogoff is an economics professor at Harvard and a chess international grandmaster.</div><div><br />
</div><div>The nice thing about the book is that the economic theory is relatively straightforward. Their explanations, while sometimes a tad dry, are not bogged down with equations or abstract theories that so often plague macroeconomics. In other words, you don't have to be an economist to enjoy the book.</div><div><br />
</div><div>This isn't <a href="http://www.freakonomics.com/books/">Freakonomics</a>, however. Its tone is more scholarly rather than chatty, and there are graphs throughout to illustrate how historical data supports Reinhart and Rogoff's thesis. Indeed, a good portion of the book is devoted to backing up the authors' theories about financial crises by showing historical findings from a humongous <a href="http://www.reinhartandrogoff.com/data">data set</a> they compiled. There are also sprinklings of historical anecdotes about financial crises — who knew, for example, that Britain pushed Newfoundland and Labrador to join Canada to avoid defaulting on its debt?</div><div><br />
</div><div>The book does get somewhat repetitive once it starts delving into the data but, I think, this is part of its point. The authors want to drive home that financial crises are not extraordinary — the similarities between them are striking.</div><div><br />
</div><div><i>This Time is Different i</i>s an effort to show how mankind, over the last several hundred years, repeatedly makes the same mistakes when it comes to our financial system. It's not the most exciting read, but it might be the most enlightening for anyone wanting a better understanding of what's happening to global financial markets right now.</div><div><br />
</div><div>***</div><div><br />
</div><div>I'd like to take this opportunity to wish my friends and readers a Merry Christmas and Happy Hannukah. I enjoy writing this blog, and I hope you have been finding it interesting to read. I especially appreciate everyone who has taken the time to comment. </div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4737479797606051454.post-30641898352120449822011-12-19T22:47:00.002-05:002011-12-19T22:49:24.141-05:00Betting on the bad guysShould sports fans bet <i>against</i> their favourite team?<br />
<br />
It's an intriguing question that piqued my interest when I happened upon a <a href="http://www.ekon.sun.ac.za/wpapers/2011/wp202011/wp-20-2011.pdf">working paper</a> by South African economics student <a href="https://twitter.com/#!/bartstemmet">Bart Stemmet</a>, titled <i>Hedging one's happiness — Should a sports fan bet on the opponent?</i><br />
<br />
Hardcore sports fans know that it can be painful when your favourite team loses a big game. But what if you could buy insurance against the pain? As Stemmet points out, you can: just bet on the opposition. If the good guys win, you'll lose your bet, but it's a small price to pay for the sweet taste of victory. And if the bad guys win, the money you'll pocket from winning the bet will at least make you feel better.<br />
<br />
<a name='more'></a>Stemmet discusses the economics of happiness and develops a theoretical model to demonstrate that, on paper, betting for the opposition is a good idea. But my sense is that although this could work in theory, it doesn't make sense in practice.<br />
<br />
Sports is a little bit like religion for die-hard sports fan. You support your team through thick and thin — unquestioning loyalty is key. To bet against the opposition would be a little bit like a Christian reading the Bible but then going to a Buddhist temple to worship, just in case they picked the "wrong" religion. In economics terms, the disutility of disloyalty when it comes to certian situations (such as sports or religion) can be so high as to offset any potential benefits from hedging. I'm not sure I'd be consoled much if I won money by betting on the opposition — it'd feel like dirty money.<br />
<br />
Hedging can also take away the fun of surprises. With hedging or insurance, the goal is to smooth out your well-being, regardless of whether something wonderful or something terrible happens. In other words, by betting against the opposition, we smooth out our emotions at the extremes — we will be less ecstatic after a big win, and less depressed after a big loss. But it only makes sense to do this if individuals are <a href="http://en.wikipedia.org/wiki/Risk_aversion">risk averse</a> — they don't like uncertainty. And when it comes to sports, I think most fans are risk-loving.<br />
<br />
Uncertainty is precisely what makes a sporting event so exciting. It's much less fun to watch a taped match after you know the final score than when you're completely oblivious to the outcome. Betting for the opposition would be counterprodutive, since by taking away some of the uncertainty about how you'll feel about the outcome of a game, you make watching the game less fun.<br />
<br />
Stemmet's proposition is intriguing, but this <a href="http://canucks.nhl.com/">Vancouver Canucks</a> fan won't be betting on the <a href="http://www.youtube.com/watch?v=m3cV688Fi-g">Blackhawks</a> or <a href="http://www.thestar.com/sports/hockey/nhl/article/1004799--the-hate-is-on-for-both-canucks-and-bruins">Bruins</a> any time soon.Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-4737479797606051454.post-36915606570124690352011-12-15T21:57:00.006-05:002011-12-15T22:08:46.902-05:00Game Theory of The Price is Right: Part 2In my <a href="http://dmkarp.blogspot.com/2011/12/game-theory-of-price-is-right-part-1.html">last post</a>, I discussed some game theory behind the Cliffhangers game on <i>The Price is Right</i>. And while watching the stupidity of Cliffhangers players got me angry, what really got me thinking was the bidding itself.<br />
<br />
To get up on stage (which comes with a chance to win bigger prizes), four contestants take turns guessing the value of an item (usually several hundred dollars). The one with the closest guess to the item's actual value, without going over, wins the item and gets to go up on stage.<br />
<br />
Frequently, people make really dumb guesses. Someone will bid, say, $420 for an item, and another contestant will subsequently bid $415, giving themselves a $5 window in which to win the item. But more interesting is whether or not contestants decide to bid $1 above someone else. Frequently, someone will bid, say, $475 after another contestant has bid $420. They could have bid $421 (and indeed this does happen, as in the video below), but in the unwritten etiquette of <i>The Price is Right</i>, it's viewed as a low blow.<br />
<br />
<div style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="315" src="http://www.youtube.com/v/ZHdjqsSSa_A&start=148" width="420"></iframe></div><br />
<a name='more'></a>Despite the evilness of the $1-top-up, the game theorist in me wondered why contestants — specifically, the fourth contestant — don't do it more often. I thought, perhaps, that it was because they are playing a repeated game (the three contestants who do not win get to bid again on a new item against a new fourth contestant, except after the sixth and final round of the show). If I'm playing against the same people again, then perhaps I don't want to be mean to them, since then they might be mean to me later.<br />
<br />
But after further pondering, I realized this does not make sense. In the last round, repetition is not an issue, so the fourth contestant would want to bid $1 above someone else (or bid $1, if they think everyone else has overbid). Given that there is no incentive for contestants to cooperate in the last round, contestants shouldn't coopoerate in the fifth round (since there's no point to endearing themselves to their opponents for the sixth round). And if contestants shouldn't cooperate in the fifth round, there's no incentive to cooperate in the fourth round either, and so on. For game theorists, this is an example of a <a href="http://www.gametheory.net/dictionary/SubgamePerfect.html">subgame perfect Nash equilibrium</a> (solved using <a href="http://www.gametheory.net/dictionary/BackwardInduction.html">backwards induction</a>).<br />
<br />
So if fourth player's optimal bid is to do the evil $1-top-up, I found myself asking why this doesn't happen more often. Here are the possible reasons I though of:<br />
<ol><li><b>Some contestants are stupid.</b> Economists don't like this answer, since it's easier to assume everyone is rational, but if you watch <i>The Price is Right </i>regularly, it's hard to dismiss this explanation.</li>
<li>The show is televised; as much as contestants would love to win a karaoke set, <b>contestants don't want to look like a huge jerk on national TV</b>. This strikes me as a somewhat plausible explanation.</li>
<li><b>Contestants don't like the item being presented</b> (remember that if you lose, in most cases you'll be able to try again. So if I have no interest in winning the karaoke set, I may have an incentive to intentionally bid poorly and hope that the next item up for grabs is more appealing). This, however, is not a very convincing explanation, since contstants are not guaranteed another shot at winning, and the main attraction of winning is not getting the karaoke set, but getting the chance to win something bigger once the contestant gets up on stage.</li>
<li><b>Contestants want to guess the exact price of the item. </b>Contestants receive a bonus ($500, I think) for guessing the price of the item exactly. It may be that this incentive strongly influences bids. In the extreme case, if all I care about is the $500, it does not matter what my opponents bid, since whether I bid $419, $420 or $421, I would have the same odds, in theory, of guessing the <i>exact</i> price. But I'm not convinced by this explanation either, since the real prospect of winning bigger prizes should outweight the miniscule chance of obtaining the $500 incentive.</li>
</ol><div>I wondered whether any game theorists had studied this before. And, low and behold, some have. Researchers <a href="http://gsbapps.stanford.edu/facultyprofiles/biomain.asp?id=16611309">Jonathan Berk</a>, <a href="http://www.cmc.edu/academic/faculty/profile.php?Fac=520">Eric Hughson</a> and <a href="http://www.linkedin.com/in/kirkvandezande">Kirk Vandezande</a> did an eloquent study on <i>Price is Right</i> bidding (entitled <i><a href="http://faculty-gsb.stanford.edu/berk/documents/PriceisRight.pdf">The Price is Right, but are the Bids? An Investigation of Rational Decision Theory</a></i>).</div><div><br />
</div><div><div><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">Reading the article, one can't help but gain an appreciation for <a href="http://articles.latimes.com/2007/jun/06/opinion/oe-kurson6">the real beauty of the game theory</a> behind <i>The Price is Right</i>. The math is somewhat complex, but it finishes in a clean result: in a world with identical contestants who act rationally, the fourth contestant wins one third (i.e. 3/9ths) of the time, and everyone else wins 2/9ths of the time.<br />
<br />
In this perfect world, the first contestant bids highest, the second the next highest, the third the next highest, and the fourth bids $1. Players 1 through 3 evenly space their bids out across the probability distribution for the prize (think of this as the range of values that they think the price could be, taking into account how likely each value is to arise — for example, it's very likely that it's $500, somewhat possible it's $250 or $750, and very unlikely that it's $0 or $1,000). The study includes this graph, which may help visually-inclined readers:</div></div></div><div><br />
</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigdmWuxmwoSNmeH53pvbjpcryw22RouHn3X_gVyLYv1Vx-SpuBpLaUDjKlRb5xJRwGB3MX7gCeuqwvkVje6wVCs0NvkTtcXwxXUU8dSA6ukn_p6zJJpnMzdiXTwBL_iTDI_0aPWxeE42lC/s1600/Price+is+Right+bids.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="330" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigdmWuxmwoSNmeH53pvbjpcryw22RouHn3X_gVyLYv1Vx-SpuBpLaUDjKlRb5xJRwGB3MX7gCeuqwvkVje6wVCs0NvkTtcXwxXUU8dSA6ukn_p6zJJpnMzdiXTwBL_iTDI_0aPWxeE42lC/s400/Price+is+Right+bids.jpg" width="400" /></a></div><div>My intuition was that, in an equilibrium, all players would evenly space out their bids, so I was confused by the theory at first. But the reason contestants don't evenly space out their bid is that the last player gets the trump card: he or she could bid $1 more than someone else, without having to worry about someone else doing the same to them (this round, at least). So if the first three contestants bid at 0.75, 0.5, and 0.25 in the graph above, then the fourth contestant could bid 0, 0.2500001, 0.5000001 or 0.7500001, and have for all intents and purposes an equal chance of winning that sequence of bidding.<br />
<br />
But bidding 0 isn't the best strategy, since if the fourth contestant bids $1 more than one of the previous contestants, he or she has the same chance of winning the round, but there is also the chance that everyone overbids, in which case the players have to bid again and get a shot at winning. In other words, the fourth bidder is not indifferent between bidding a dollar and bidding a dollar more than someone else when bids are evenly spaced, since if they bid a dollar more than someone else, they get two chances at winning (once the first time, and again if everyone overbids). They only get one shot at winning when they bid $1.<br />
<br />
Thus, the other players have to concede a little bit to the fourth contestant in order to coax him or her into bidding $1, thereby preventing the fourth contestant from doing an evil top-up bid.<br />
<br />
</div><div>But does the theory play out in real life? Not at all. The study examined dozens of <i>Price is Right</i> episodes and basically concluded that the average contestant is stupid:</div><blockquote class="tr_bq">"<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Our results indicate that rational decision </span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">theory cannot explain contestant behavior on </span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><i>The Price Is Right</i>. Even when faced with relatively </span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">simple problems, we demonstrate that </span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">some (indeed most) contestants do not deduce </span><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">the optimal strategy."</span></blockquote><div>A <a href="http://arno.uvt.nl/show.cgi?fid=73060">follow-up study</a> by <a href="http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6475">Paul Healy</a> and <a href="http://www.tilburguniversity.edu/webwijs/show/?uid=c.n.noussair">Charles Noussair</a> found similar results, namely that the <i>Price is Right </i>is to complicated for people to figure out (although if you cut it down to three contestants, remove the possibility of rebidding if everyone overbids, and let people play a whole bunch of times, they start to get the hang of it).<br />
<br />
So the venerable <a href="http://www.imdb.com/title/tt0116483/">Happy Gilmore</a> might have summed it up best: when it comes to contestants' use of game theory on the <i>Price is Right</i>, more often than not, "<a href="http://youtu.be/msEhj2NuuPM?t=53s">The price is wrong, b@#$%</a>."<br />
<blockquote class="tr_bq"></blockquote></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4737479797606051454.post-16684228004391050172011-12-12T21:45:00.002-05:002011-12-15T22:09:35.137-05:00Game theory of The Price is Right: Part 1In an attempt to improve my French, I have discovered a newfound appreciation for <i>The Price is Right</i>. Having watched the show as a kid but forgotten about it in recent years, I was excited when<a href="http://vtele.ca/emissions/price-is-right-a-vous-de-jouer/description.php"> a Québecois version</a> of Bob Barker's classic game show was launched this fall. I have found that it is an enjoyable way to keep up my French vocabulary.<br />
<br />
It's also the first time that I've watched the show on a regular basis since studying economics, which can make for a surprisingly frustrating experience. For instance, on Cliffhangers (the "yodelling game"), I find myself cringing when contestants make their final bid.<br />
<br />
<div style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="315" src="http://www.youtube.com/v/LyriKXWFhOI&start=70s" width="560"></iframe></div><div style="text-align: center;"><br />
</div><div style="text-align: left;"></div><a name='more'></a>The game works as follows: the contestant must guess, one at a time, the prices for three items. After a guess is made, the true price is revealed, and for each dollar that the contestant's guess is off, the yodeller moves one notch up the mountain. If the guesses are off by a combined $26 or more, the contestant loses. Otherwise, they win a bigger prize (in the case of the video above, a trip to New Orleans).<br />
<div style="text-align: left;"><br />
</div><div style="text-align: left;">There is one other rule that is made explicit in the French game: the items are ordered from lowest to highest price. This should make the last bid straightforward in most circumstances. In the case above, for example, the second item was worth $30. This means that it would be stupid to guess less than $31 for the third item. But in the case above, the yodeller can still move 22 notches up the mountain without falling off. Therefore, it would be stupid to bid less than $53. With a $53 guess, the contestant will win if the third prize is $31 (the minimum amount it could possibly be). They will also win if the third item is $75 or less.</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">It could be smart to bid more than $53 — if they believe the price of the item is particularly high — but it is never smart to bid less than $53. The proof: Let's say I bid $50. I'll still win the item if it's $31 — the least it could be — but if it's $75, I'd lose this time. I'd only win if the item is less than $72.<br />
<br />
Yet every time I watch the French version, the contestants, like the woman in the video, bid less than the number of remaining notches + value of the second item + 1. Which is suboptimal. Which makes the economist in me very angry.</div>Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-4737479797606051454.post-66191108153008730762011-12-08T20:57:00.000-05:002011-12-08T20:57:07.493-05:00One issue per visit: A health-care inefficiencyWhen you have a public health care system (as we have in Canada), it can lead to inefficiencies.Carleton University's <a href="http://www1.carleton.ca/health/">Health and Counselling Services</a> provides a great example of this (hat tip to my fiancée, Laura). They have <a href="http://www1.carleton.ca/health/hours-appointments/">a rather strange policy</a>: "Only one issue per visit will be addressed."<br />
<br />
Let's say I have two issues I want to discuss with a doctor. Perhaps I'm concerned I have strep throat. Since I'm going to the doctor anyway, it would probably make sense to discuss a refill on a prescription that is expiring soon. Is it more efficient to tackle both these issues in one visit or in two separate visits?<br />
<br />
<a name='more'></a>One visit is clearly more efficient. That's because there are significant <a href="http://www.investopedia.com/terms/f/fixedcost.asp#axzz1fVGiKgRx">fixed costs</a> associated with each visit. Regardless of whether I want to discuss one issue or 20 with the doctor, I have to travel to and from the clinic and wait in line once I get there. From the clinic's perspective, the receptionist has to greet me and deal with my paperwork each time I visit, clean the doctor's room, put a new one of those tissue paper coverings on the examination bed, and the doctor has to introduce themselves and review my file. These are fixed costs because they occur for each visit, regardless of how many issues are addressed.<br />
<br />
In addition, the quality of medical care will likely decrease when doctors can only tackle one issue per visit. What if my strep throat-like symptoms are actually caused by a side effect of my prescription? That might not come up if I'm not allowed to discuss multiple issues with the doctor.<br />
<br />
Of course, the doctor will need to spend more time with me if I wish to discuss more issues. But they'll have to eventually spend this time with me, whether I address the issue this visit or with a future visit.<br />
<br />
So why would the health clinic of a university, which is supposed to be a bastion of knowledge, limit students to one issue per visit when it is clearly an inefficient system? Absent any explanation on Carleton's website, my bet is it's about the bottom line. Under a <a href="http://en.wikipedia.org/wiki/Fee-for-service">fee-for-service</a> model, the government reimburses doctors based on the services they provide. With this system, <a href="http://www.health.gov.on.ca/english/providers/program/ohip/sob/physserv/a_consul.pdf">the clinic gets $77.20</a> for each consultation a doctor does, whether it's about one issue or many (although doctors are paid more if the consultation goes over 50 minutes). If the clinic makes you come back twice for two problems, they earn twice as much.<br />
<br />
If health care were privately provided, this probably wouldn't happen. When individuals have their own money at stake, they're going to make more efficient decisions than when everything is free. And in a competitive system, health care providers must operate effectively, or people will take their health care business elsewhere.<br />
<br />
If patients had to pay twice as much out of their own pockets to deal with two problems (even though the total cost of treating two issues at once is less than treating them in two visits), those doctors would probably start losing their patients to ones who are willing to deal with multiple issues in one go. And society would be better off for it.Unknownnoreply@blogger.com17tag:blogger.com,1999:blog-4737479797606051454.post-80688493965614182992011-12-05T21:22:00.000-05:002011-12-05T21:22:11.181-05:00Doggone unintended consequencesMy friend Alixe sent me <a href="http://news.nationalpost.com/2011/07/26/vancouver-condo-ites-teeny-dogs-better-than-kids/">a cute newspaper article</a> a while ago about the proliferation of purse dogs in the <a href="http://yaletown.ca/about/">Yaletown</a> neighbourhood of Vancouver. It seems that strata rules limiting dogs to 20 pounds or less in Yaletown condos means the small dogs are favoured. But the economist in me started thinking: could these strata rules have an ugly downside? At the margin, could they incentivize condo-dwelling dog owners to underfeed their pets?<br />
<br />
The strata policies can <a href="http://www.lvrj.com/real_estate/19422924.html">put dog owners in an awkward dilemma</a>. Let's say I'm a Yaletown condo owner with a very cute <a href="http://en.wikipedia.org/wiki/Boston_Terrier">Boston terrier</a> puppy, which according to Wikipedia has a weight range of 10 to 25 pounds. After several months, it grows to its healthy weight of 25 pounds. If my fellow strata members don't like my dog, I've got three options: get my dog's weight under 20 pounds, give away my dog, or move. Which option is least drastic? Probably weight control.<br />
<br />
<a name='more'></a>It's not just stratas that put these pressures on dog owners. Airlines also put weight restrictions on pets: Fido and his kennel must be under 22 pounds to travel in the cabin with you on <a href="http://www.aircanada.com/en/travelinfo/airport/baggage/pets.html">Air Canada</a>, <a href="http://www.westjet.com/guest/en/travel/special-arrangements/pets.shtml">Westjet</a> or <a href="https://www.flyporter.com/travel/Special-Service-Requests?culture=en-CA&utm_source=Marketing+Email&utm_medium=Body+-+Website+details&utm_content=English+Registered&utm_campaign=2011-11-08+Pets">Porter</a>. Obviously, nobody is going to starve a huge dog to try to get it under a weight restriction, but at the margin, I suspect these policies could lead to people underfeeding their dogs to get them under a weight restriction (if you need any convincing about the incentives weight restrictions provide, just look at <a href="http://www.vanderbilt.edu/ans/psychology/health_psychology/wrestle.htm">wrestlers</a>).<br />
<br />
So when the <a href="http://www.cma.ca/">Canadian Medical Association</a> says <a href="http://www.theglobeandmail.com/life/travel/news-and-trends/travel-news/ban-pets-from-airplane-cabins-cma-urges/article2139179/">it wants to ban pets on planes</a> because of the difficulties they can cause for passengers with allergies, there could be an unintended benefit: a healthier weight for our four-legged friend.Unknownnoreply@blogger.com4tag:blogger.com,1999:blog-4737479797606051454.post-83312964270761707242011-11-30T23:37:00.001-05:002011-11-30T23:39:29.189-05:00A dark side to diversityWe are lucky to live in a very multicultural society in Canada, where our differences are tolerated and celebrated. But can diversity have a dark side?<br />
<br />
I am a co-author of a recent working paper, with <a href="http://econ.ucsd.edu/~jandreon/">James Andreoni</a>, <a href="http://www.economics.mcmaster.ca/faculty/paynea">Abigail Payne</a> and <a href="http://sites.google.com/site/justinsmithecon/">Justin Smith</a>. Our study,<span class="Apple-style-span" style="font-family: inherit;"> titled <span class="Apple-style-span" style="color: #200020; font-size: 32px; line-height: 24px;"><i><span class="Apple-style-span" style="font-size: small;"><a href="http://www.nber.org/papers/w17618.pdf">Diversity and Donations: The Effect of Religious and Ethnic Diversity on Charitable Giving</a>, </span></i></span></span>looks at the role a neighbourhood's diversity plays in determining how much people donate to charity (the paper is gated, but most people with a university email address should be able to get a free copy from the link above). I encourage anyone who is interested to give it a read and send us any feedback you have (there is also <a href="http://www.freakonomics.com/2011/11/30/diversity-and-charity-inverse-relationship/">an interesting discussion</a> in the comments feed of the Freakonomics blog).<br />
<br />
In neighbourhoods that are more diverse — in terms of ethnicity or in terms of religion — Canadians tend to donate less to charity. This is disappointing, and could have potential implications for public policy. Governments and charities often provide similar types of social services, and if charitable giving decreases down as neighbourhoods continue to diversify, there may be more pressure on government to provide benefits that have historically been provided by charities.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4737479797606051454.post-66289535857458419952011-11-28T18:10:00.001-05:002011-11-28T18:11:11.952-05:00Winnipeg's ticket gouging ban makes matters worseIn Manitoba, it's against the law (specifically, section 60 of the <i><a href="http://web2.gov.mb.ca/laws/statutes/ccsm/a070e.php">Amusements Act</a></i>) to sell tickets for more than what you paid for them, punishable with a fine up to $5,000. There are good intentions behind the law — it's a nice ideal to have a society where no one gouges you on ticket re-sales. But in reality, this law exacerbates the precise problem it is supposed to solve.<br />
<br />
A great case study is the <a href="http://jets.nhl.com/">Atlanta-Thrashers-turned-Winnipeg-Jets</a>' first-ever regular season NHL game. While the face value of Winnipeg Jets tickets <a href="http://jets.nhl.com/club/page.htm?id=73392">range from $49 to $200</a>, tickets were <a href="http://www.winnipegsun.com/2011/06/28/6500-for-two-tickets-to-jets-home-opener">selling for more than $3,000</a> on the resale market.<br />
<br />
Ticket resellers are clearly flouting the <i>Amusements Act</i>. And despite the act's name, police appear to be anything but amused, with <a href="http://www.winnipegfreepress.com/breakingnews/Two-charged-for-scalping-Jets-tickets-131336739.html">busts being made against scalpers</a>. So it's not one of these strange, antiquated laws — it's a law that's being enforced.<br />
<br />
<a name='more'></a>Clearly, the potential $5,000 penalty is not strong enough to deter scalping. But does the penalty make matters better or worse?<br />
<br />
Sure, the law probably deters some people from scalping. But the threat of getting busted by the police makes reselling tickets more risky. To compensate for the potential of paying a $5,000 fine, ticket sellers will have to charge more.<br />
<br />
This is basic concept in the "economics of crime" discipline — whether it's scalped tickets, prostitution or drugs, enforcement raises prices and creates bigger profits for the sellers who don't get caught. On top of that, society has to pay for the police to go out and catch the bad guys. These concepts are summed up well in <a href="http://faculty.chicagobooth.edu/kevin.murphy/teaching/market%20for%20illegal%20goods-jpe.pdf">a paper</a> by one of my favourite economists, Nobel Prize-winner <a href="http://home.uchicago.edu/gbecker/">Gary Becker</a>,.<br />
<br />
A better suggestion, according to Becker, is to tax crime. Make ticket resellers pay a big tax on sales. Then you don't have to spend money on police to enforce crime, and you'll eat into some of the scalpers' profits.<br />
<br />
But before Manitoba rushes in with a ticket tax, they should really question whether they should deter scalping in the first place. Unlike with drugs or prostitution, where it's not hard to pinpoint negative consequences to society (break and enters to generate funds for drug habits, dirty needles and condoms discared in the streets, unwanted babies, etc.), it's pretty hard to identify any harm created by scalped tickets.<br />
<br />
The scalper gets rich, and someone else gets to see a hockey game. The assertion by Winnipeg police Const. Jason Michalyshen that buyers are getting "victimized"simply isn't true — the buyers are choosing to buy the tickets out of their own free will (if anything, <a href="http://dmkarp.blogspot.com/2010/03/irrationality-and-hockey-tickets.html?showComment=1322521661237#c2988395579456155864">it's the ticket holders who aren't scalping their tickets for $3,000 who need help</a>).Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4737479797606051454.post-38709422046732135052011-08-19T17:00:00.000-04:002011-08-19T17:00:24.188-04:00Are early Christmas sales an indicator of tough economic times?If we're headed for more tough economic times, Thursday's <i>Le Droit</i> may have found an unconventional <a href="http://www.investopedia.com/terms/l/leadingindicator.asp#axzz1VVg0vTIs">leading indicator</a> to support this: <a href="http://www.cyberpresse.ca/le-droit/actualites-regionales/201108/17/01-4426796-du-magasinage-de-noel-en-gougounes.php">Christmas sales are coming early this year.</a> Ottawa-area <a href="http://www.costco.ca/Home.aspx">Costcos</a> are already selling artificial Christmas trees and snow globes, apparently. And <a href="http://www.thebay.com/store.cfm?ckey=CA&lang=eng">the Bay</a> is planning on kicking off its Christmas sales a month early, starting in mid-October instead of mid-November.<br />
<br />
The retailers aren't citing pending economic doom as their motivation. Costco is running with an-early-bird-catches the worm strategy; its spokesman told <i>Le Droit,</i> "We strongly believe in the concept of 'first on the shelves, first sold.'" The Bay, meanwhile, says it has found people like to put out their Christmas decorations before the weather turns really cold.<br />
<br />
But pretend for a moment that you're a retailer, and you expect that the economy is going to implode smack dab in the middle of the busiest sales period of the year. What would you do? I'd try to get people to do their Christmas shopping as early as possible, before stock markets have a chance to collapse, companies lay off employees and consumers shut their wallets.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4737479797606051454.post-20402988212417073952011-08-01T22:12:00.000-04:002011-08-01T22:12:14.343-04:00Oh, the irony!Every so often, when the privatization of liquor sales comes up, someone makes the argument that <a href="http://www.camh.net/Public_policy/Public_policy_papers/retail_alcohol_privadereg.html">public liquor stores are less likely to encourage overconsumption than private liquor stores</a>. Pardon my cynicism, but the skeptic in me believes governments run liquor stores to make money, not to stop people from getting drunk.<br />
<br />
This gem in my weekend newspaper supports my suspicion:<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRgXEEgj1ZoUvqF4qSOclE4a7TUrZXnDlJHA0RszV6cDpdA5Bq2Pl65N9B9GBgp_kiP7m2pkVGMWe-v3FIh4Hpg7PuvE2Kr3h8uLPEGBiA-Ns-FtRE5ybGQfPZ8jDEeVoacKCxM5o41EW4/s1600/booze+ad.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRgXEEgj1ZoUvqF4qSOclE4a7TUrZXnDlJHA0RszV6cDpdA5Bq2Pl65N9B9GBgp_kiP7m2pkVGMWe-v3FIh4Hpg7PuvE2Kr3h8uLPEGBiA-Ns-FtRE5ybGQfPZ8jDEeVoacKCxM5o41EW4/s400/booze+ad.JPG" width="362" /></a></div><div class="separator" style="clear: both; text-align: center;"><br />
</div><div class="separator" style="clear: both; text-align: center;"></div><a name='more'></a><div style="text-align: left;">In big, block font, the Quebec government's Société des alcools, which runs the SAQ liquor stores that are ubiquitous throughout the province, encourages an overindulgence of alcohol by offering a discount for consumers who purchase more than $100 of booze. And, ironically, in the bottom-left corner, in print you have to squint to read, some sage advice that "La modération a bien meilleur gout": "Moderation is always in good taste."</div><div style="text-align: left;"><br />
</div><div style="text-align: left;">Conflicting messages. At least the Quebec government is clear about which one it wants to send.</div>Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-4737479797606051454.post-25961462318326202492011-04-29T19:22:00.000-04:002011-04-29T19:22:44.761-04:00Is pay-what-you-want a viable hotel pricing strategy?My fiancée and I are taking a trip to Halifax this summer. I booked a mystery hotel online using <a href="http://www.priceline.com/Customerservice/FAQ/howitworks/hotel.asp?session_key=5C0011AC5D0011AC20110425164326248d11269294&plf=pcln">Priceline's name-your-own-price</a> function, and ended up with the <a href="http://www.thewestinnovascotian.com/">Westin Nova Scotian</a>.<br />
<br />
In researching the hotel, I discovered that they ran <a href="http://www.thewestinnovascotian.com/paywhatyouwant">a very interesting promotion</a> over spring break, where they set aside 60 rooms for guests to pay what they wanted. Pay-what-you-want is a unique (if not gimmicky) pricing strategy that seems to have been popping up quite a bit in recent years, perhaps thanks to <a href="http://www.guardian.co.uk/media/2007/oct/02/digitalmedia.musicnews">Radiohead's use of the strategy</a> to sell their album<i> In Rainbows</i>. <br />
<br />
<a name='more'></a>The Westin's promotion was probably not designed to maximize their profits for those 60 rooms. In fact, t<a href="http://peninsula-news.kingsjournalism.com/?p=1251">he hotel's director of revenue told a local paper</a>, "I was just hoping we’d get some press out of it." But I wonder if pay-what-you-want has potential as a profit-maximizing strategy. According to the article, guests paid anything from nothing to $129 per night, which is still less than the hotel's posted room rates, but significantly more than the $85 price I paid through Priceline.<br />
<br />
A profit-maximizing hotel should try to fill all its rooms. Hotels are like airlines and movie theatres, where an additional customer costs the business very little. Yes, you have to clean an extra room. But regardless of the number of guests, a hotel has to employ front desk staff and cleaners, pay its property taxes and utility bills, and perform maintenance and upkeep on its property. An extra customer doesn't have much effect on any of these costs. Pay-what-you-want should help fill a hotel, because no customer will be turned away because the hotel's price tag is too high.<br />
<br />
Hotels also want to get customers to pay the highest prices possible. This is especially important during peak times for a hotel. For example, say a 500-room hotel has 1,000 potential guests. Perhaps 600 of these guests would be willing to pay up to $100 per night, while 400 would be willing to pay $150. If the hotel sets its price at $100, it will be full, but will lose out on the $50 from the 400 high-value guests. If the hotel sets its price at $150, it will have 100 rooms sitting empty, which isn't ideal either. The trick is for the hotel to try and get the high-value guests to pay $150 and then fill the remaining 100 rooms with people willing to pay $100.<br />
<br />
This is where products such as Priceline's Name-Your-Own-Price, Travelocity's <a href="http://leisure.travelocity.com/Promotions/0,,travelocity%7C5301%7Chotels_main,00.html">Top Secret Hotels</a> and <a href="http://www.hotwire.com/">Hotwire</a> come in. They presumably attempt to target low-value guests in order to fill rooms which would otherwise sit empty, while the hotel can keep its standard room rate at $150 to scoop up the high-value guests as well. However, I'm not sure how well these products work at getting people to pay as close to their <a href="http://en.wikipedia.org/wiki/Willingness_to_pay">maximum willingness to pay</a> as possible. I use Hotwire and Priceline for most of my hotel stays, and there are times I've gotten a price at least two times lower than what I was willing to pay.<br />
<br />
This is where there is a potential for a pay-what-you-want strategy. On Priceline, customers can name their own price, but you're trying to get yourself the lowest price possible. Although the Westin's pay-what-you-want promotion may look similar, it differs significantly from Priceline because there is an understanding that you should pay what you feel is fair. If a Westin-style promotion appeals to people's sense of honesty and fairness, people may fork over an amount much closer to their maximum willingness to pay than with Priceline.Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-4737479797606051454.post-37191821779410988392011-04-25T12:23:00.000-04:002011-04-25T12:23:29.562-04:00Why aren't car sales going down?When I was writing <a href="http://dmkarp.blogspot.com/2011/04/bc-cruise-tax-would-hurt-washington-and.html">my previous blog post</a>, I used shoes and shoelaces as an example of complements (in economic theory, when the price of one good goes up, demand for its complement will go down).<br />
<br />
As I continued writing, I realized that shoes and shoelaces was a lame example and that perhaps cars and gasoline would be a better example. Unless you've got an electric car or you just want somewhere to sit, a car isn't much use without gasoline. Likewise, unless you're an arsonist, you can't do much with a jug of gasoline if you don't have a car.<br />
<br />
<a name='more'></a>What a topical example, I thought. Gas prices have skyrocketed in the last couple months — I'll bet car sales have gone down. People must be taking transit, walking or riding bikes more — or just travelling to fewer places than before. But when I did a search for news articles about this, I found just the opposite. According to the headlines, car sales have been holding steady despite rising gas prices:<br />
<ul><li><a href="http://www.winnipegfreepress.com/business/auto-sales-hit-the-gas-in-canada-last-month-119111119.html">"Auto sales hit the gas in Canada" (Winnipeg Free Press)</a></li>
<li><a href="http://www.bloomberg.com/news/2011-04-20/honda-banks-on-civic-line-variety-to-regain-u-s-small-car-lead.html">"Rising gasoline prices and new models … helped lift U.S. compact and subcompact auto sales 24 percent" (Reuters)</a></li>
<li><a href="http://www.freep.com/article/20110402/BUSINESS01/104020397/Surging-car-sales-signal-an-economy-mend">"Surging car sales signal of an economy on the mend" (Detroit Free Press)</a></li>
<li><a href="http://finance.yahoo.com/blogs/daily-ticker/car-sales-rise-higher-gas-prices-haven-t-20110404-061158-251.html">"Car sales rise: Higher gas prices haven't scared consumers … yet" (Yahoo Finance)</a></li>
<li><a href="http://www.dispatch.com/live/content/business/stories/2011/04/14/small-cars-in-demand-as-gas-prices-soar.html?sid=101">"Small cars in demand as gas prices soar" (Columbus Dispatch)</a> </li>
</ul>Some of the articles seem to suggest that people are trading in gas guzzlers for more fuel-efficient cars, but I am skeptical. First, it sounds like sales are doing well across the board, even if small car sales are doing better. Second, small cars still require gas; even if they require less gas than SUVs, it's still surprising their sales would go up so strongly during such a marked increase in gas prices.<br />
<br />
I can think of three alternative explanations for why car sales are up, in order of most plausible to least plausible:<br />
<ol><li>Holding everything else constant, rising gas prices cause car sales to drop. But rising gas prices have coincided with an economic recovery, which, holding everything else constant, causes car sales to rise. The positive effect of the economic recovery is stronger than the negative effect of gas prices. </li>
<li>Long-run gas prices, as opposed to short-run gas prices, influence people's car-buying behaviour. Car sales are strong because people expect gas prices to drop significantly during the lifetime of their car.</li>
<li>Cars are a status symbol — people enjoy them because it signals their wealth to others. If gas prices go up, causing the price of car ownership to rise, it sends an even stronger signal about a driver's wealth, which makes a car more desirable.</li>
</ol>Does anyone have other ideas?Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-4737479797606051454.post-83496375843199746472011-04-20T22:14:00.001-04:002011-04-20T22:31:03.813-04:00B.C. cruise tax would hurt Washington and AlaskaWhen one jurisdiction raises its consumption taxes, it's usually good for the neighbouring jurisdiction. This is common sense — if <a href="http://dmkarp.blogspot.com/2010/06/cross-border-taxation.html">the cigarette tax is almost four times higher in Montana than neighbouring North Dakota</a>, for example, Montanans will drive to North Dakota to save money on cigarettes. Montana businesses lose cigarette revenue and the government loses tax revenue, while North Dakota gains.<br />
<br />
But <a href="http://www.theglobeandmail.com/news/national/british-columbia/tax-cruise-ship-passengers-bc-economist-urges/article1988736/">a potential tax on cruise ship passengers visiting Victoria</a> (hat tip to Andrea Craig), as advocated by consultant and UVic lecturer <a href="http://web.uvic.ca/econ/people/faculty_directory/others.php#scarfe">Brian Scarfe</a>, could actually be a bad thing for neighbouring jurisdictions.<br />
<br />
<a name='more'></a>In <a href="http://www.jbna.org/2011_cruise_ships_march.pdf">a report for a Victoria community group</a>, Scarfe estimates there are about $28 million in socio-economic costs for Victoria each year from cruise ships; these include factors such as marine pollution, increased traffic and noise. He finds these outweigh the approximately $24 million in benefits that cruise ships bring to Victoria. To help make up the difference, Scarfe suggests B.C. levy a tax of about $25 on cruise ship passengers that stop in a B.C. port. But this is actually bad for neighbouring jurisdictions — namely Seattle and Alaska.<br />
<br />
The majority of Victoria's cruise ship traffic comes from Seattle-to-Alaska cruises. In part, this is because of <a href="http://edocket.access.gpo.gov/cfr_2004/aprqtr/19cfr4.80a.htm">the U.S. Code of Regulations, Title 19, Chapter I, Part 4, Section 4.80a, (b) (1), (2) and (3)</a>, which makes it illegal for a ship not owned or built in the U.S. to travel between two U.S. ports — unless it stops in another country's port along the way. Thus, if you want to go from Seattle or San Francisco to Alaska on a foreign-built ship, you have to stop off in B.C..<br />
<br />
The legislation is kind of ironic, because <a href="http://www.google.ca/url?sa=t&source=web&cd=3&ved=0CC4QFjAC&url=http%3A%2F%2Fwww.cbp.gov%2Flinkhandler%2Fcgov%2Ftrade%2Flegal%2Finformed_compliance_pubs%2Fpvsa_icp.ctt%2Fpvsa_icp.pdf&rct=j&q=passenger%20vessel%20services%20act&ei=RhWtTaI9z8-AB8fU3Y8M&usg=AFQjCNGvboYzQxH5WUlwkQF0i-ypFJ3b1A&sig2=y9kJhbFzDfTlYyh1JmKOEQ&cad=rja">its purpose</a> was to protect the U.S. shipping industry "from foreign competition, in order to encourage the development of an American merchant marine, for both national defense and commercial purposes." But rather than strengthen the American cruise industry, the regulations make the industry somewhat beholden to B.C. policies.<br />
<br />
If B.C. levies a tax on cruises, it will increase the price of all Alaskan cruises on foreign ships, since these ships will have no choice other than to stop in B.C. This is bad for Alaska and Seattle since, according to Scarfe, the majority of economic benefits from cruises go to the home and destination ports.<br />
<br />
The cruise tax differs from my cigarette tax example because Montana cigarettes and North Dakota cigarettes are substitutes, whereas B.C. and Washington/Alaska cruise stops are complements. Montana and North Dakota cigarettes are identical and can easily be substituted for each other, so when you raise taxes on Montana smokes, people buy fewer Montana cigarettes and more North Dakota ones. But cruise stops are more like shoes and shoelaces — there isn't much use in having one without the other. If the prices of shoes skyrockets, people would buy fewer shoes AND fewer shoelaces — they'd substitute to sandals instead. Likewise, when the price of B.C. cruise stops goes up, people will buy fewer cruises stopping in B.C., which in turn means they'll buy fewer cruises originating or ending up in Seattle and Alaska.<br />
<br />
Rather than face decreased demand for cruises, it could be in Alaska and Seattle's interests to offset some of a B.C. cruise tax. They could subsidize cruise lines or cruise passengers by reducing their own docking fees, for example. Or they could write the B.C. government a cheque in exchange for an agreement to limit its cruise ship tax at a certain level — although something tells me that wouldn't be a savvy political move.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4737479797606051454.post-43538160073705715232011-04-01T21:42:00.000-04:002011-04-01T21:42:30.513-04:00An ingenious nudgeI discovered a very bright "<a href="http://nudges.org/">nudge</a>" while meeting up with some friends at the local <a href="http://www.royaloakpubs.com/">Royal Oak</a> last night (for non-Ottawan readers, it's probably the biggest pub chain in the nation's capital). <br />
<br />
The Royal Oak does a good job of providing a decent atmosphere, decent food and a decent pint. They are also do a surprisingly good job of using <a href="http://en.wikipedia.org/wiki/Anchoring">anchors</a> to their advantage. Anchors are quite simple and <a href="http://danariely.com/the-books/excerpted-from-chapter-1-%E2%80%93-the-truth-about-relativity/">can be very effective</a> — by triggering a customer's mind to a specific price or rate, you can affect how much they value a product.<br />
<br />
<a name='more'></a>The Royal Oak location I visited is one of those technologically up-to-date pubs where they bring the <a href="http://www.moneris.com/en/ProductsAndServices/Products/MobilePOS/Mobile8200.aspx">point-of-sale terminal</a> to your table when you pay your bill, as opposed to bringing you a receipt to sign. When you pay with a credit or debit card, the terminal first prompts you to approve the amount of your bill. Then, on the tip screen, it gives you two choices: 20% and "other."<br />
<br />
When I saw this, I did a double-take. A 15% tip is the norm in Canadian restaurants. A 20% tip seemed excessive, but I also thought I'd look cheap by disagreeing with the default. I momentarily thought about meeting the machine partway and giving a 17% tip, but it was too late: I already had the 20% anchored in my mind. Was the service bad enough to warrant me docking some of the tip? Nah. I selected the 20% option and passed the terminal back to the waitress.<br />
<br />
Curious, I asked the waitress if most people tip 20% when paying with a card. "Yeah," she said. "Most people are too lazy to bother changing it. It's great — I usually take home at least 15% in tips, even after I share them with the kitchen."<br />
<br />
Cheers to a pub that understands behavioural economics.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-4737479797606051454.post-47703665130767610072011-03-30T18:58:00.000-04:002011-03-30T18:58:20.792-04:00Charities' guilt gifts overstep the boundsMy fiancée received an interesting gift in the mail recently from a charity called <a href="http://plancanada.ca/">Plan Canada</a>. They were asking for money to lift poor girls from around the world out of poverty.<br />
<br />
<div style="text-align: center;"> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhi55u6Fco_0Y9SOuaHKFJS5jkmQcGeRPEgWA619btIuWcCbx1cbTfVS5paahuMHdmecE6_4hr4ZbQoXXBDCu2nSedxJU5VmjPnzHgTv8mF1Ndci-505lie2l13KkIuKo2sQ7RwUJ9z01qx/s1600/plan+gift.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="292" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhi55u6Fco_0Y9SOuaHKFJS5jkmQcGeRPEgWA619btIuWcCbx1cbTfVS5paahuMHdmecE6_4hr4ZbQoXXBDCu2nSedxJU5VmjPnzHgTv8mF1Ndci-505lie2l13KkIuKo2sQ7RwUJ9z01qx/s320/plan+gift.jpg" width="320" /></a></div><br />
The gift was "a small friendship bracelet of hope," accompanied by a picture of a cute young girl. The back of the photo reads, "This is Lina from Peru. She has already found a sponsor. Please sponsor a child like her. Many thanks."<br />
<br />
<a name='more'></a>I try to donate to charity when I can, but I like to do so on my own terms. I have no problem with the occasional letter asking for money. But when I get a calendar, notepad or bracelet from a charity I've never donated to before, it's a bully tactic. They hope I'll feel so guilty about taking something from a poor charity that I'll have to send them something back in return. I find the tactic offensive, and I'm apparently not alone in my feelings; <a href="http://www.guardian.co.uk/society/2008/may/22/voluntarysector">the U.K.'s Fundraising Standards Board outlawed this practice</a> among its membership three years ago.<br />
<br />
Skimming through the charity's materials, my fiancée and I both thought little Lina made the bracelet. I had images in my mind of a poor, small girl spending countless hours weaving together hundreds of bracelets, her fingers tender and sore. In a pamphlet that came with the gift, Plan Canada notes they want to give girls an education because "[u]neducated girls are more likely to be forced into child labour, early marriage or worse." How ironic and perverse, I thought, that a charity that attempts to combat child labour would put little Lina to work making bracelets. What's next — PETA recruiting donors with unsolicited gifts of beef jerky?<br />
<br />
Thankfully, when I looked at Plan Canada's materials more closely to write this blog post, I realized they did not explicitly say that Lina made the bracelet. I'm hoping this means it was made by a well-to-do volunteer under humane conditions in a suburb of Toronto. Either way, the charity does everything it can to make one think that Lina made the bracelet, without actually saying so. The bracelet and Lina's photo come together, so there's an immediate association. And the materials include phrases such as "Accept this small friendship bracelet of hope on behalf of girls like Lina."<br />
<br />
Plan Canada may be a great charity. <a href="http://www.cra-arc.gc.ca/ebci/haip/srch/t3010form21sched6-eng.action?b=118928993RR0001&e=2010-06-30&n=PLAN+INTERNATIONAL+CANADA+INC.&r=http%3A%2F%2Fwww.cra-arc.gc.ca%3A80%2Febci%2Fhaip%2Fsrch%2Ft3010form21-eng.action%3Fb%3D118928993RR0001%26amp%3Be%3D2010-06-30%26amp%3Bn%3DPLAN%2BINTERNATIONAL%2BCANADA%2BINC.%26amp%3Br%3Dhttp%253A%252F%252Fwww.cra-arc.gc.ca%253A80%252Febci%252Fhaip%252Fsrch%252Fbasicsearchresult-eng.action%253Fs%253Dregistered%2526amp%253Bk%253Dplan%252Bcanada%2526amp%253Bp%253D1%2526amp%253Bb%253Dtrue">They spent $89 million on charitable programs</a> last year (although they also spent $26 million on management, administration and fundraising — 23% of their expenses). Regardless, they won't be getting any money from me or my financée because they included a gift with their letter.<br />
<br />
Interestingly, Plan Canada's materials noted it abides by <a href="http://www.imaginecanada.ca/?q=en/node/21">the Imagine Canada Ethical Code</a>. Apparently, the code "sets standards for charities in the areas of fundraising and financial reporting practices." Unfortunately, unlike their U.K. counterparts, Imagine Canada's code is silent on the practice of guilting potential donors using unsolicited gifts. Maybe they should change that.Unknownnoreply@blogger.com4tag:blogger.com,1999:blog-4737479797606051454.post-74537964054842385012011-03-28T23:38:00.001-04:002011-03-28T23:39:54.785-04:00Don't blame womenI have lacked inspiration for blog posts over the last couple months, but a <a href="http://www.timescolonist.com/news/Saanich+police+hunt+four+suspects+violent+sexual+assault/4518143/story.html">Times Colonist article</a> today has got me worked up enough to end my two-month hiatus. In a nutshell, there was a horrific crime in Victoria over the weekend; police allege four men forced a female university student into a car, driving around while repeatedly sexually assaulting her.<br />
<br />
The crime is disturbing and does not require further commentary. What does is the warning issued by police after the crime:<br />
<blockquote>"Police issued several warnings to women following the attack. Women are advised to travel in groups and stick to well-lit areas, carry a cellphone, refuse drinks from strangers and not leave drinks unattended. If drinking alcohol, women are urged to plan a safe ride home by cab or with people they know." </blockquote><a name='more'></a>This warning leaves a very bad taste in my mouth for three reasons. First, it's troubling when police suggest people change their habits because of criminal behaviour. It's one thing to advise people to lock their doors and to tell children not to accept candy from strangers. But to tell people they shouldn't go for a walk alone at night, or without a cellphone, is a limit on personal freedom that seems excessive to me. There are still some hold-outs who don't own cellphones because they can't afford them or have no need for them. And it's not always practical for people to travel in groups in the evening. If the police are suggesting that we shouldn't feel safe going for walks at night, our society is in really rough shape.<br />
<br />
The warning is also very troubling because it implicitly blames the victim. What the four men allegedly did was horrible. It was in no way the victim's fault. To suggest, even very indirectly, that perhaps this happened because the victim didn't watch her drink, or was walking alone, or wasn't carrying a cellphone, is not something I would have expected to come out of the public relations department of a major Canadian police force.<br />
<br />
Finally, the warning is troubling because it specifically targets women. Sure, women are statistically more likely to be sexual assault victims. Some quick online research <a href="http://www.ncvc.org/ncvc/main.aspx?dbName=DocumentViewer&DocumentID=32361">suggests women make up 90% of sexual assault victims</a>, but that means men make up 10% of the victims. And not surprisingly, those same stats suggest men aren't as likely to report sexual assaults as women — one could guess that's because there's a stereotype that it's not acceptable for men to be victims of sexual assault. By singling out women with their warning, the police are only perpetuating the stereotypes by implying that sexual assault can't or shouldn't happen to men.<br />
<br />
The police should take a lead from politicians dealing with terrorism. Level with the public about what happened and advise them in broad terms to be "vigilant." But don't encourage people to bow down to criminals by curtailing basic freedoms. And don't single out women — sexual assault is an issue that transcends gender.Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-4737479797606051454.post-3755820878031506062011-01-26T08:25:00.000-05:002011-01-26T08:25:01.328-05:00One of life's biggest mysteries<div class="separator" style="clear: both; text-align: center;"></div><div class="separator" style="clear: both; text-align: center;"></div><div class="separator" style="clear: both; text-align: center;"></div><div class="separator" style="clear: both; text-align: center;"></div>I love pineapple juice. It is full of deliciousness — and economic mysteries.<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZEQpwLuxHlxHvdr__qqWwGm3LYk2ShP3Rt7TN9Xc6m1UU1ZAwmpuyMMyexn-ig-sCjhHbCqvzXAgnqgsqpCS89wZljOfIoLwD-CzNhawiHugbknBKsDA-HjpX9SRx8DEp10iblR14IeW7/s1600/pineapplejuice.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span id="goog_571843151"></span><span id="goog_571843152"></span></a></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiupLRLEolcj_RymZq_hZMAasVcigTcbsNV_vrIBYHQsGpo7m6PGMSo6mV0kpfcDaqQkItWhvm9hT6Ul3eSPW1Qw_DUzL_ljiDV06emjm4oJjGOUba_sbNbwlDdbqL7QRpR5brVq2djzkOi/s1600/pineapplejuice.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="257" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiupLRLEolcj_RymZq_hZMAasVcigTcbsNV_vrIBYHQsGpo7m6PGMSo6mV0kpfcDaqQkItWhvm9hT6Ul3eSPW1Qw_DUzL_ljiDV06emjm4oJjGOUba_sbNbwlDdbqL7QRpR5brVq2djzkOi/s320/pineapplejuice.jpg" width="320" /></a></div><br />
<br />
<a name='more'></a>I noticed recently while consuming <a href="http://www.presidentschoice.ca/LCLOnline/products.jsp?type=details&catIds=cat40002&catIds=108&sortOrder=byRate&productId=18638">President's Choice 100% Pure Pressed Pineapple Juice</a> that it claims to contain the juice of "three Costa Rican pineapples." When I thought about this, it boggled my mind. Three Costa Rican pineapples at my local supermarket cost $11.97 (that's $3.99 per pineapple). Yet the juice from three Costa Rican pineapples costs only $4.29.<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheuWmEw88sPstYTUaRX3fWZtaeUvayi0BVAWstBRhzq0tx47BFEENLzci7jFnBfRtmJbG4KwmZdX_Br9wjT7XUSaKW829HftOP3wiLI-lYdw0F13cZEEQ2SIIUWC33Tq0Cxdzpf-jtcRzs/s1600/pinepples.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEheuWmEw88sPstYTUaRX3fWZtaeUvayi0BVAWstBRhzq0tx47BFEENLzci7jFnBfRtmJbG4KwmZdX_Br9wjT7XUSaKW829HftOP3wiLI-lYdw0F13cZEEQ2SIIUWC33Tq0Cxdzpf-jtcRzs/s320/pinepples.jpg" width="320" /></a></div><br />
<br />
What I can't figure out is why pineapple juice is almost three times cheaper than buying an equivalent quantity of pineapples. Sure, whole pineapples are heavier and take up more room than pineapple juice, which would add to shipping costs. But there is labour and packaging required to make pineapple juice. And unlike whole pineapples, the juice has to stay refrigerated, which would offset some or all of the difference in shipping costs.<br />
<br />
So why is my juice so much cheaper than pineapples? Do shipping costs really comprise such a large component of a pineapple's total cost so as to create such a drastic price difference? Is spoilage on pineapples so high that by buying one pineapple, I'm really paying for the one pineapple I'm consuming plus a couple more that went rotten before they left the grocery store? Is the juice box lying about containing three pineapples or is the supermarket gouging on the price of individual pineapples?<br />
<br />
It is times like these that I wish I had the knowledge of one of my namesakes: <a href="http://en.wikipedia.org/wiki/David_Karp_%28pomologist%29">David Karp, fruit detective</a>. I am very perplexed.Unknownnoreply@blogger.com4tag:blogger.com,1999:blog-4737479797606051454.post-55876128857331671692011-01-24T21:42:00.000-05:002011-01-24T21:42:02.664-05:00A lose-lose propositionIt is normal for a collective agreement to have win-lose propositions. Some clauses clearly favour management at the expense of employees, and some perks for workers clearly hurt a company's bottom line.<br />
<br />
But collective agreements should not have lose-lose propositions. If management and workers can both do better by eliminating a provision in a collective bargaining agreement, there's no logical reason for the clause to be there in the first place.<br />
<br />
<a name='more'></a>This brings me to <a href="http://dmkarp.blogspot.com/2010/10/can-pay-cut-be-pareto-improving.html">the funny world of</a> <a href="http://dmkarp.blogspot.com/2010/04/nhl-draft-rules-create-perverse.html">professional</a> <a href="http://dmkarp.blogspot.com/2010/03/irrationality-and-hockey-tickets.html">hockey</a>, where there is a bizarre provision in the National Hockey League's collective bargaining agreement. Formally, it's clause 13.23 of <a href="http://www.nhl.com/cba/2005-CBA.pdf">the agreement</a>:<br />
<blockquote>In the event a professional or former professional Player plays in a league outside North America after the start of the NHL Regular Season, other than on Loan from his Club, he may thereafter play in the NHL during that Playing Season (including Playoffs) only if he has first either cleared or been obtained via Waivers. For the balance of the Playing Season, any such Player who has been obtained via Waivers may be Traded or Loaned only after again clearing Waivers or through Waiver claim. </blockquote>Informally, it's called <a href="http://hockeyrama.blogspot.com/2007/09/niedermayer-suspended.html">the Reijo Ruotsalainen rule</a>, named after <a href="http://en.wikipedia.org/wiki/Reijo_Ruotsalainen">a Finnish defenceman</a> who won a couple Stanley Cups with the Edmonton Oilers during their dynasty years in the late '80s and early '90s. Apparently, Edmonton's general manager would send Ruotsalainen over to Europe to play most of the season against inferior competition, and he'd return to Edmonton in time for the playoffs, fresh from an easier schedule. To prevent this, the NHL implemented a rule where any team who signs a player from overseas has to give other teams the chance to steal them away for free first.<br />
<br />
This is a stupid rule for three reasons. First, it doesn't accomplish what it was trying to prevent. The rule exempts players sent on loan to Europe. So NHL teams could still send players to fringe hockey leagues overseas (such as the <a href="http://www.alhockey.com/">Asia Ice Hockey League</a>, Great Britain's <a href="http://www.eliteleague.co.uk/">Elite League</a> or the <a href="http://www.theaihl.com/">Australian Ice Hockey League</a>) to spare players a grueling North American season and bring them back well-rested for the playoffs.<br />
<br />
Second, it's bad for the employer (the NHL and its teams). The NHL benefits when it can woo away top players from competing leagues, such as Russia's <a href="http://en.khl.ru/">Kontinental Hockey League</a>. But teams have no incentive to go out and recruit players from overseas when they know there are 29 other teams that can just snatch them away. Instead, the rule creates a disincentive for NHL teams to bring over top talent. Ultimately, that will hurt demand for its product.<br />
<br />
Third, the Ruotsalainen rule is bad for players. If a player is thinking about leaving Europe for the NHL, they'd probably like to know who my new employer would be. Signing a contract with the team of their choice is meaningless, since any other team can then snatch them up. The player still gets the salary they signed on for, but they could end up with a team they would hate playing for. So from a players' perspective, this rule can't be good.<br />
<br />
This ridiculous rule has come into play a few times this season. <a href="http://www.usatoday.com/sports/hockey/nhl/2011-01-18-blues-waiver-losses_N.htm">The St. Louis Blues lost Marek Svatos and Kyle Wellwood</a> to competing teams only hours after luring them away from Russia. And star goaltender Evgeni Nabokov ditched his Russian team for a chance at winning the Stanley Cup with the Detroit Red Wings, only to find out he had been snatched by a perennial NHL bottom feeder, the New York Islanders. Now, there's a messy situation because <a href="http://islanders.nhl.com/club/news.htm?id=550310&navid=DL%7CNYI%7Chome">the Islanders are waiting for Nabokov to arrive</a>, but <a href="http://www.nydailynews.com/sports/hockey/2011/01/23/2011-01-23_islanders_owner_charles_wang_reveals_gm_garth_snow_confirms_evgeni_nabokov_hung_.html?r=sports">he is not answering the team's phone calls</a>.<br />
<br />
The rule will just deter players from leaving Europe, and NHL teams from trying to sign them. It's a lose-lose proposition that the NHL and its union should re-examine in their next round of collective bargaining.Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-4737479797606051454.post-56682045858139757012011-01-19T23:03:00.000-05:002011-01-19T23:03:11.986-05:00Pogs, surgeries and consentI've been trading since I was a kid. Whether it was hockey cards, recess snacks, <a href="http://www.wizards.com/Magic/Multiverse/">Magic cards</a>, Pokémon cards or <a href="http://www.badfads.com/pages/collectibles/pogs.html">pogs</a>, we were always trading something.<br />
<br />
There was a tacit understanding that the buyer-beware policy applied when making a trade. But it was also understood that it was bad practice to take advantage of an ignorant trader. No one liked situations where a kid went home to boast to their older brother about a trade, only to hear he'd been duped. It inevitably led to a big argument the next day: "I didn't realize the card I gave you was so good. No fair — I want it back." <br />
<br />
Should a kid who unknowingly trades away a valuable pog be able to undo the trade? This was one of the tougher ethical questions we dealt with on the playground. You shouldn't make a trade if you're not sure about it. But on the other hand, if you didn't understand the trade you were making, how can you consent to it?<br />
<br />
<a name='more'></a>This issue of informed consent is what's at the heart of an article I came across in <i>This</i> magazine (disclaimer: it's a very dark article; those who are squeamish about surgery, blood, below-the-belt stuff and suicide will want to skip over <a href="http://this.org/magazine/2010/11/25/the-cutter/">the article</a>).<br />
<br />
In a PG-rated nutshell, two individuals agreed to a trade: a person without a medical licence would perform a surgery in exchange for money. I do not condone what the patient did; clearly, hiring someone off the street to perform surgery is not smart. But should it be against the law? No one was defrauded — the patient knew their surgeon wasn't a real doctor and both parties consented to the trade.<br />
<br />
If we ran a poll, 99% of people would probably say that hiring someone off the street to perform a surgery is a very dumb move. But should it be against the law? Should adults step in when kids make a lopsided trade on the playground to ensure no one is taken advantage of?<br />
<br />
In this case from <i>This </i>magazine, the surgeon was prosecuted for assault, against the wishes of the patient. It is not unusual for consensual acts to be prosecuted; selling heroin, for example, is illegal. According to the article, however, the assault charge was not levied because the so-called surgeon was selling something illicit. Rather, it was levied because the patient did not have the legal authority to consent to the surgery. It was a case where the law said she didn't know the value of the hockey card she was trading away, in a sense.<br />
<br />
Frequent readers of this blog probably notice that I tend to offer black and white opinions. But this one has me puzzled. The libertarian in me says we should let people make their own trades, even when they seem extremely stupid. But there is another part of me that is revolted at this notion, as it can lead to some brutal trades, such as the one in <i>This</i>.<br />
<br />
When should we let traders make their own mistakes, and when should parents or the government jump in when a trade is inappropriate?Unknownnoreply@blogger.com4