Search costs, collusion, and moral banter

Think of the Children! (But only on Sundays, say area liquor stores)

Connecticut is considering a law lifting the ban on Sunday liquor sales. The current prohibition is a throwback to the religious blue laws. Of course, like most legislation that comes under the banner of morality, someone is sneering and profiteering. Opposed to the legislation is the Connecticut association of liquor stores. Head cretin (err, President) Alan Wilensky justifies his opposition:

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We retailers are smart business people. If we thought that an additional day of operation would be profitable and in the public interest, we would have proposed the bill ourselves years ago.

Smart business people compete effectively. Very smart morally bankrupt business people collude effectively. Coordinated store hours raise search costs for consumers, allowing retailers to charge higher prices. Such coordinated closure is illegal; see, for example, the case of the FTC vs. Detroit Auto Dealers). But if we can get legislation to do it for us under some cynical moral banter, all the better:

We do not feel that this sensitive product should be more available ... at a time when there is great concern regarding sales to minors.

Of course, protecting the children is the liquor cabal's favorite non sequitur. I'm sure that Mr. Wilensky's own liquor store is diligently screening underage consumers the six days it is open. Presumably, adequate safeguards don't expire every Saturday evening, only to be reborn Monday mornings.

UPDATE: I promoted Mr. Alan Wilensky from "cynic" to "cretin" in proportion to his hyperbole. On his association's web site, he claims that Sunday sales are "blood money". Sales on Saturday, from which Mr. Wilensky handsomely profits, are presumably more holy.

All asterisks lead to contradictions

Free!^*

No money Down!^*

Satisfaction Guaranteed!^*

Those ubiquitous asterisks used to point to standard disclaimers about war, riots, or force majeure, but the small print at four point font now occupies tomes. There is a fine line between disclaimers, limitations, conditions, restrictions, and outright fraud. The following examples are nowhere near that line.

"Accident Forgiveness... Helps keep your rates from going up just because of an accident. Even if it’s your fault."

Fine print: "Safe Driving Bonus is based on eligible premium for prior policy period and won't apply after an accident."

[Allstate Auto Insurance]

Translation: "We forgive you! (but you still pay)"

More examples

"You won’t find a more comprehensive price guarantee available on any other travel site today."

Fine print: "Expedia reserves the right in its sole discretion to modify or discontinue the Best Price Guarantee or to restrict its availability to any person, at any time, for any or no reason."

[Expedia]

Translation: "We guarantee our prices! (unless we don't)"

"Unlimited nights and weekends. You never pay roaming or wireless long distance."

Fine print: "If your minutes of use ... exceeds your off-net usage allowance, AT&T may at its option terminate your service ... or change your plan to one imposing usage charges for off-net usage."

[AT&T Wireless]

Translation: "Unlimited! (unless it is too much)"

"Genuine Steakhouse Brand steaks are 100% guaranteed fresh."

Fine print: "Restrictions apply. Please see store for details."

[Wal-Mart]

Translation: This one is just scary. At best, it is 98% fresh?

"Think overnight, guaranteed with Express Mail"

Fine print: "Some restrictions apply, please check with your Post Office for details."

[US Postal Service]

Translation: "We guarantee overnight! (which may take a few days)"

"When you make a reservation, we guarantee to provide you with the equipment size, location, and pickup time as agreed."

Fine print: "The rental location will contact you the day prior to your requested pickup date to schedule the equipment and actual pick up time, date and location."

[U-Haul]

Translation: "Terms are guaranteed! (but changeable, by us)"

"Say goodbye to password hassles—now you can log on to your computer and your favorite Web sites with your fingerprint."

Fine print: "The Fingerprint Reader should not be used for protecting sensitive data ... use a strong password for these types of activities."

[Microsoft]

Translation: "Avoids password hassles! (by not protecting anything)"

"We have your size or its free. We guarantee to have your size in stock."

Fine print: "If we can't have it shipped into your local JCPenny store within 5 working days you will receive the pants FREE!"

[JCPenny] (via Mouse Print)

Translation: "In stock now! (now = soon...ish)"

Have more examples? Post them below. I guarantee to read them!*

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*Restrictions apply. Actual reading may not occur.

Gaming the rankings

Among the many issues with ranking schools, one of the most glaring is incorporating the input of those who are impacted by the result. Students reporting on MBA programs or University presidents ranking schools all put people influenced by the result in a position to influence the results. This creates quite the incentive problem.

Recent evidence comes from the rankings of schools (pdf) provided by University of Florida President Bernie Machen. The surveyed rankings are an integral part of the U.S. News ranking formula, and were obtained by the Gainesville Sun in a public records request. Other Florida university presidents were shrewd enough to "lose" theirs.

See Machen game the rankings

U.S. News treats the surveys as anonymous, meaning that a university president's ranking of his own school carries equal weight as others' rankings. On Machen's survey, the University of Florida was given the highest possible ranking, one that he granted several generally well-regarded schools only after some revision.

(excerpt of Machen's rankings)

More telling is the rankings Machen gave to other Florida public schools which are competitors for State funds. Machen rated more Florida schools as "marginal" (the lowest possible category) than schools from all other states combined.

Editors responsible for the ratings claim that "statistical methods" are used to adjust for such biases. The reality, of course, is that no statistical test can divine thoughts separate from incentives. If you asked me to rate myself as a "good person" on a scale of 1 to 10, a period of reflection would follow. If you added that my results would be anonymous, unverifiable, and come with a million dollar payment if I circled "10," you would learn nothing about me from the exercise except my responsiveness to incentives. So why would U.S. News editors contend that as-yet uninvented statistical methods protect the integrity of their results? Perhaps they, like President Machen, have a stake in the results.

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UPDATE: I am not suggesting that UF does not deserve to be ranked highly along several dimensions. For example, one reader reports that UF must be at the top of its peer group in criminology, with over 4% of its students arrested annually.

Circular reasoning and the debasement of science

Ranking journals is a popular pastime among academics. Each of us has a favorite ranking, largely chosen by the results fitting with our favorite publication outlets. There are more debates over the methodology of journal rankings than of ranking business schools. There may be no universal agreement on the right method but there certainly is a wrong one.

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Kristie Engemann and Howard Wall have published a new ranking of economics journals. Their method consists of "a simple rule that considers citations only from a short list of top general-interest journals in economics." In short, they arbitrarily select the "top" journals, count the number of citations from these to other journals, add an adjustment here and there for effect, and presto! We determine the top journals by counting citations from top journals. Seems a bit circular.

If you walk into a random high school and want to know who the popular kids are, the Engemann and Wall method would have you identify them by seeing with whom the popular kids choose to hang out. The procedure might produce slightly different results if you started with the debate team than if you started with the cheerleading squad.^† It might not be a surprise, then, the top five journals in their results are included in the list of top journals by assumption. I don't disagree with the list, intuitively, but science should perhaps take a more objective path.

A more objective path does indeed exist. A commonly-used recursive algorithm initially assigns all journals an equal value. Each iteration of the algorithm assigns value from one journal to another based on citations. The iterative procedure, by the way, is at the heart of Google search results (replace "citations" with "links"). From the Google founders' monumental paper:

PageRank or PR(A) can be calculated using a simple iterative algorithm, and corresponds to the principal eigenvector of the normalized link matrix of the web.

The authors of the new ranking poo-poo this mathy stuff:

[The iterative] procedure is largely a black box: It is not possible to see how sensitive the weights (and therefore the rankings) are to a variety of factors. The obvious objection to our rule is its blatant subjectivity. Our counter to this objection is to point out that the [iterative] procedure, despite its sheen of objectivity, contains technical features that make it implicitly subjective.

Ummm... Sensitivity analysis even has its own Wikipedia page.

If Engemann and Wall were to start their own search engine, the Google formula would presumably be replaced with "pages with links from pages we like."

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^† This is not to say that cheerleaders don't often overlap with the debate team. But, seriously, they don't.

Hat tip, Mankiw

I blame the public schools

Preparing for my upcoming Canada trip, I initiated an online chat with a Sprint rep to find out the roaming voice and data rates. Sending an average-length email would, according to the agent, cost somewhere between a few cents and a few hundred dollars. Transcript below the jump.

Read the transcript

Me: Hi, I will be going to Canada this week, and wanted to know what the voice and data rates are with and without the Canada package.

Lakisha: Hi, my name is Lakisha. Thank you for your chat request. Please wait while I review your information.

Lakisha: I will be more than happy to assist you today.

Lakisha: While roaming in Canada with your Sprint device all calls will be billed $0.59/minute, data service is $0.002/KB. Sprint does offer a Canada Roaming plan for $2.99 per month; this plan reduces the voice rate to only $0.20/minute.

Me: But not the data?

Lakisha: Correct.

Me: And data is 2/10 of one cent per KB, is that right?

Lakisha: Data is $2.00 per kb.

Me: $0.002/KB is very different from $2.00/kb - could you please confirm the rate

Lakisha: $0.002/KB is the same as $2 per kb

Me: $0.002 is 2/1000th, right? Which is very different from 2.

Lakisha: The data rate if you were to use it will be $2 per kb.

Me: Above, you wrote $0.002/KB.

Lakisha: Which is the same.

Me: You're kidding, right? So, a 5KB email is $100 or 10 cents?

Lakisha: It will not be 10 cents because you will pay $2 per kb.

Me: Can you please review the transcript above. The first thing you said is $0.002/KB.

Lakisha: I do understand

Lakisha: The data rate within Canada will be $0.002kb which is compatible to $2 per kb.

Lakisha: Would you be activating the Canada reduce rate plan today?

Me: 1 cent = $0.01 ! There's a difference between using 1000KB and being billed $2 and $2000

Lakisha: You can always call our toll number which is 8882267212

Lakisha: Thanks again for choosing Sprint Worldwide chat. Have a great day.

Lakisha: has disconnected.

So, $1=$0.001 (=1/10 of one cent), and 1 kb = 1 kilobit = 1 KB = 1 kilobyte (=8 kilobits). Using Lakisha's "is compatible to" operator (you'll learn about it in higher-level math classes), a 5 KB email costs 1 cent, which is compatible to $80.

Before you go mocking Sprint, note Verizon isn't much better.

If "English Only" passes

This Thursday, Nashville votes whether to prohibit public business from being conducted in any language other than English.

In an impassioned speech, Councilman Eric Crafton contends that newcomers to foreign lands must learn the local language. Strangely, this sentiment was not expressed in Cherokee, Iroquois, or Choctaw! Exhibiting his penchant for irony, Crafton delivered the speech in a recently adulterated dialect of the imperialist powers that, for effect, I adopt in this blog post.

Crafton, fresh off a three year crusade affirming Jesus Christ legislatively, is still not content wasting his time in Metro Council on such mundane issues as schools or zoning.

But there's a positive side to this bill if it passes. If English is to be mandated, every time Crafton begins a sentence with "If I was" he can be held in contempt, and required to attend a lecture on subjunctive mood.

Rules are for sissies, not MBAs

At an online forum for aspiring MBA students, participants are discussing an application essay (400 word limit) for a top ten program:

Applicant 1: Quick question guys! How stringent is the word limit? I am at 423 words.

Applicant 2: I wouldn't worry about it. I've been following the +10% max rule.

Applicant 3: mmm... it's not like they count the words right? I'm thinking if you don't push it too much, they won't even notice.

A suggested essay topic for the above applicants: "Discuss the importance of corporate ethics, respect for the law, and sound editing skills. Compare the above applicant statements to the principles displayed in recent accounting and financial scandals."

The actual essay topic in question: "What is your greatest example of leadership and what personal qualities helped you succeed in that role? (400 word limit)." How about a 500 word essay on thinking outside the box?