Buying shares of people

Fantex, Inc. announced today that it has entered into brand contracts with five Major Leaguers: Phillies third baseman Maikel Franco, Astros right-hander Collin McHugh, Orioles second baseman Jonathan Schoop, Twins right-hander Tyler Duffey and Padres third baseman Yangervis Solarte (as noted on BusinessWire.com).
 
Fantex offers professional athletes an up-front, one-time payment in exchange for a portion of that player’s future earnings both on and off the field. Fantex then sells “shares” of that player to public investors for a set price (thus covering the up-front payment to the player), allowing those investors to turn a profit if said player crosses a certain threshold in his career earnings. Obviously, that creates risk for the investors, who stand to take a financial loss if the player fails to earn enough money in his career to justify the shareholders’ investment. Angels left-hander Andrew Heaney became the first player to enter into an agreement with Fantex last September, taking a $3.34MM up-front payment in exchange for 10 percent of his future earnings. (Notably, the league and the MLBPA each approved that agreement, and Fantex’s announcement seemingly suggests that the same is true of these five agreements.)
 

Hmm. I wonder if this becomes more widespread. I'd heard this idea proposed before but never heard of Fantex. Purchasing shares of Jennifer Lawrence just after you'd seen her in Winter's Bone might feel like scoring a Mantle rookie card, back when baseball cards still had real scarcity (and thus value).

Mistress dispellers

Mistress-dispelling services, increasingly common in China’s larger cities, specialize in ending affairs between married men and their extramarital lovers.
 
Typically hired by a scorned wife, they coach women on how to save their marriages, while inducing the mistress to disappear. For a fee that can start in the tens of thousands of dollars, they will subtly infiltrate the mistress’s life, winning her friendship and trust in an attempt to break up the affair. The services have emerged as China’s economy has opened up in recent decades, and as extramarital affairs grew more common.
 

(h/t Ken)

Well this is something. Coming this fall to ABC, the explosive new series from Shonda Rhimes: The Dispeller, starring Halle Berry.

Mistress dispelling typically begins with research on the targeted woman, said Shu Xin, Weiqing’s director. An investigation team — often including a psychotherapist and, to keep on the safe side, a lawyer — analyzes her family, friends, education and job before sending in an employee whom Weiqing calls a counselor.
 
“Once we figure out what type of mistress she is — in it for money, love or sex — we draw up a plan,” Mr. Shu said.
 
The counselor might move into the mistress’s apartment building or start working out at her gym, getting to know her, becoming her confidante and eventually turning her feelings against her partner. Sometimes, the counselor finds her a new lover, a job opening in another city or otherwise persuades her to leave the married man. Weiqing and other agencies said their counselors were prohibited from becoming intimately involved with the mistresses or from using or threatening violence.
 

Even the term is spectacular—mistress-dispelling—like some overly literal translation of a Chinese phrase.

At first blush, this seems like a ridiculous solution, but understand the social context and there is a Coasean efficiency, an almost ingenious elegance, at work.

 

Interview with Matthew Gentzkow

Due to this work, we now know that newspaper media slant is driven mostly by the preferences of readers, not newspaper owners. And by examining browser data, he discovered that people don’t largely live in internet “echo chambers”—that is, they don’t exclusively visit sites that align with their political bent. Product brand preferences, he found, are established early in life and endure long after exposure to essentially identical, less expensive alternatives.
 

That's from the introduction to this interview of 2014 Clark Medal winner Matthew Gentzkow. This immediately caught my eye because it echoes some ideas I have (which is perhaps ironic considering one of those points is about the over-estimation of Internet echo chambers).

I think the Internet has expanded, on balance, the volume of ideas on all sides that most people are exposed to, offsetting the echo chamber effect. What should concern us is how people have reacted to that broadened exposure; instead of pushing people to the center, it has increased polarization. That may say more about how we receive ideas that threaten our worldviews and tribal affiliations than it does about the inherent nature of the internet. 

Like Gentzkow, I also believe the reason so much advertising targets young people, even though it's the adults that have money, is to lock in consumer preference for life. In that respect much of that advertising is more efficient than it appears.

Frankly, this interview contains so much high quality material I can excerpt all day and still barely make a dent, so do read the whole thing.

Good news for parents who, on occasion, let their kids watch a bit of TV just to get a respite from care-taking duties.

This reflects what I think is an important conceptual point—that took a while to really sink in for us—which is that you can’t talk about the effect of TV without thinking about what it’s crowding out. TV viewing is shifting time around. And, really, for any new technology, any change that is shifting the allocation of time, its effect is the effect of that technology relative to whatever you would have been doing otherwise. 
 
That has pretty important implications for this question because if you think about children of different backgrounds and what else they might be doing with their time, it’s easy to imagine that for some kids, watching television is a much richer source of input than a lot of what it might be crowding out. TV has lots of language; it exposes them to lots of different people and ideas. 
 
It’s also easy to imagine kids for whom it could be a lot worse than whatever else they would have been doing. Educated, wealthy parents or parents with a lot of time to invest in their kids might be taking them to museums and doing math problems with them and so forth. I think part of the reason so many people writing about this assume TV is bad is that they themselves are in the latter group.
 

We have a strong norm in America about the corrupting influence of TV on children. I'm not sure how it arose or where it came from, but I'd love to know the history of that meme.

Regardless, what it means is that TV is often underrated for its positive aspects. I saw a paper once, though I can't seem to track it down, that showed that the introduction of TV in different countries and societies correlated with a strong rise in equality for a variety of groups including women and minorities.

That's not so surprising when you consider just how efficient television is at transmitting cultural norms. Humans love stories, and in this age those stories travel most efficiently to more people when encoded in the form of television and film narratives.

On the other hand, TV has had a negative effect on political turnout.

On the other hand, TV isn’t just political information; it’s also a lot of entertainment. And in that research, I found that what seemed to be true is that the more important effect of TV is to substitute for—crowd out—a lot of other media like newspapers and radio that on net had more political content. Although there was some political content on TV, it was much smaller, and particularly much smaller for local or state level politics, which obviously the national TV networks are not going to cover. 
 
So, we see that when television is introduced, indeed, voter turnout starts to decline. We can use this variation across different places and see that that sharp drop in voter turnout coincides with the timing of when TV came in.
 

This reminds me of an idea I've written about before, that in this age of near infinite content, we now gravitate towards an information diet that is much more reflective of our daily preferences than in the past. Newspapers of old started with the front page and included editorially prescribed sections in equal volume: World, Business, Sports, Entertainment, Autos, and so on.

I was always skeptical those sections merited equal surface area, but it wasn't until readers could actually consume anything they wanted that we had a true view of their preferences. The internet is perhaps history's great lab on consumer choice, and what it shows is that most people generally only want small doses of the main entree of hard news, and a lot more appetizers and dessert: sports, entertainment, celebrity gossip, clickbait self-help, pornography. 

That's why the addition of The Ringer is valuable for Medium. There are only so many tech confessional pieces even the most ardent tech enthusiast can handle in the Silicon Valley bubble chamber; scatter a few copies of US Weekly on the coffee table, and hang a flatscreen TV tuned into ESPN, and more people will visit more often.

My co-authors, Bart and JP, along with Sanjay Dhar, another co-author of theirs, had written a really important paper in the Journal of Political Economy a couple of years earlier that documented huge differences across U.S. cities in which brands are popular. They showed that that actually is correlated with the timing of which brands were introduced first in those cities, even though all of those introductions happened, for the most part, 50 or 100 years ago and few people remember a time when you couldn’t buy both. Say, for example, that we have two brands that have both been in a particular city for 50 years. If one was introduced 70 years ago and the other 50 years ago, you can predict that the one that’s been there for 70 years is going to have a much bigger market share.
 

We often think of first-mover advantage in sectors with network effects, perhaps none more clearly so than in messaging, with the odd geographically clustered favorites around the world. What Gentzkow notes here is that first-mover advantage can apply in consumer packaged goods, too. 

It's not that surprising, though I point it out for those who are always questioning why brands target unemployed millennials or kids without any income with advertising. Think about the loyalty fans have to sports teams from their childhood hometowns, long after they've moved elsewhere.

Our research results push back on that and say that, at least in this particular context, ownership is not really the key driver of slant and, in fact, a lot of the driver is actually coming from consumer demand. Not only does that say that you might not need to be as worried about ownership, but it also says that the welfare implications of this are a little more complicated because now consumers are getting what they want. 
 
We might think from a political, democratic point of view that it would be better if the public got different, more diverse information. But there’s going to be a welfare trade-off because we would be giving them content they would prefer less. If we want to give people diverse content that we think is good for democracy, then we have to get them to actually read, watch or consume it. And, you know, giving a bunch of people in conservative places some liberal newspaper—well, our results would suggest they’re not going to read it. So, that seems to have important implications for policy. 
 
But it comes with a really important caveat. The finding that ownership doesn’t matter in terms of a newspaper’s political slant is not a universal result. It doesn’t apply everywhere. It’s a statement about newspaper markets in the United States—a highly commercialized, relatively competitive setting, and a place where the political returns to manipulating the average content of a newspaper might not be all that big.
 

The chicken and egg question: did Fox News come along and satisfy a market need that conservatives weren't aware of, or did the market need summon Fox News out of nothingness?

If the filter bubble is not the internet's creation, but inherent to human nature, that argues for a much different solution than just exposing people to more ideas. Perhaps it's how the ideas are framed? How people are educated? Do we need to instill different mental models?

I'm fairly certain that taking an angry Trump supporter, cuffing them in a chair, locking their eyes open like Alex undergoing the Ludovico technique in A Clockwork Orange, and forcing them to watch Rachel Maddow for days on end isn't going to have the salutary effect one might suppose (and neither would force feeding a liberal Fox News).

Optimal pricing for bread and circuses

A survey (pdf) by Anthony Krautmann and David Berri has found that most fans in many popular sports pay less for their tickets than conventional economic theory would predict.
 
Which poses the question: are team owners therefore irrational?
 
Not necessarily. There are (at least?) four justifications for such apparent under-pricing.
 

Lots of things in the real world are underpriced. Most popular concerts and sporting contests lose some volume of revenue to aftermarket transactions on sites like StubHub and SeatGeek. It's nearly impossible to get a reservation at some of the most popular restaurants in San Francisco like State Bird Provisions. There's a waiting list for NOMA Sydney that's 27,000 people long.

If you were pricing to maximize revenue, to match supply and demand exactly, you'd boost prices or perhaps auction off all the seats. What would NOMA Sydney have to charge until its waiting list dropped to zero? I can't even begin toguess, but would it surprise you if it was well north of $2,000 a head for dinner?

Given all of that, I was curious to see what this author thought might explain football ticket underpricing.

The first argument is that underpricing tickets leaves more revenue to be gathered through ancillary sales like souvenirs or overpriced concessions. Without data, I'm skeptical. My instinct is that concession and souvenir sales are less elastic with ticket prices than hypothesized.

The second point is that it's better to have a full stadium for team morale and to influence the officiating. But again, you could sell tickets via a mechanism like a Dutch Auction and maximize revenue while still filling the stadium.

The other two arguments are more convincing.

Thirdly, higher ticket prices can have adverse compositional effects: they might price out younger and poorer fans but replace them with tourists – the sort who buy those half-and-half scarves and should, therefore be shot on sight. This increases uncertainty about longer-term revenues: a potentially life-long loyal young supporter is lost and a more fickle one is gained. It also diminishes home advantage: refs are more likely to give dodgy decisions in front of thousands of screaming Scousers than in front quiet Japanese tourists.
 

I went to a couple games at the old Chicago Stadium, during Jordan's early years with the Bulls, and that place was loud. When they moved to the United Center and the ticket prices went way up, the crowd felt different. More wealthy, and definitely not as loud. It could just be the acoustics of the new space, but anecdotally, I saw fewer fans standing and screaming. Also, the rise of the smartphone means more of the dead moments in a game are filled with people scrolling on their phones, quietly.

Fourthly, high ticket prices can make life harder for owners. They raise fans’ expectations: if you’re spending £50 to see a game you’ll expect better football than if you spend just £10: I suspect that a big reason why Arsene Wenger has been criticised so much in recent years is not so much that Arsenal’s performances have been poor but because high prices have raised expectations. 
 

It's hard to lower prices. Some sports teams may have done it at some point, but I've never seen it. You can raise prices when the team is good and on the rise, but those prices tend to stick when the team declines, and that's when stadiums start to empty out.

Saison is the restaurant in San Francisco that feels closest to pricing to match supply and demand. When I first moved to San Francisco, I had a meal there for $79. The next time there, the meal price had jumped over $100. Then the next time, it was up to $149. Later I heard the tasting menu had risen yet again to $248. The last time I went, thankfully on some banker's expense account, the price was $398 for dinner.

The dining room is usually full, but it's usually possible to get a table the same week. It feels like they've finally reached a price that about as close as you can get to where the supply and demand curves meet. Since the number of seats and turns is limited each night, perhaps this is revenue maximizing pricing, but the margin of error is razor thin.

My guess is that optimal pricing is somewhere below the price that matches supply and demand perfectly. Always being sold out adds a feeling of exclusivity, and no one knows how sold out you are, so being just sold out may be as good from a perception standpoint as being having a massive waiting list.

At the same time, I have a sneaking suspicion continuing to raise the price of a dinner would actually raise demand at some high end restaurants. There may be some Veblen-like qualities to restaurant pricing.

If the glove kinda fits, do not acquit?

So I wrote down the simplest model I could think of — a model too simple to give useful numerical cutoffs, but still a starting point — and I learned something surprising. Namely (at least in this very simple model), the harsher the prospective punishment, the laxer you should be about reasonable doubt. Or to say this another way: When the penalty is a year in jail, you should vote to convict only when the evidence is very strong. When the penalty is 50 years, you should vote to convict even when it’s pretty weak.
 
(The standard here for what you “should” do is this: When you lower your standards, you increase the chance that Mr. or Ms. Average will be convicted of a crime, and lower the chance that the same Mr. or Ms. Average will become a crime victim. The right standard is the one that balances those risks in the way that Mr. or Ms. Average finds the least distasteful.)
 
Here (I think) is what’s going on: A weak penalty has very little deterrent effect — so little that it’s not worth convicting an innocent person over. But a strong penalty can have such a large deterrent effect that it’s worth tolerating a lot of false convictions to get a few true ones.
 

Steven Landsburg lands on a counter-intuitive conclusion: you should lower your standards for conviction the harsher the punishment.

It seems as if Landsburg's model argues for convicting any number of people who surpass some lowered threshold of evidence for a crime. Several people all seem like they could have committed a crime, so convict all of them, even if only one could have committed the crime. Perhaps I'm misunderstanding the implications, others can help verify Landsburg's model.

Also, how often are there N people who all seem equally guilty of a crime? I'm at a disadvantage here in not having seen Making a Murderer, but perhaps Landsburg's model here applies equally as well to that case as it does to Serial Season 1.

Let's broaden the conversation and bring in Alex Tabarrok, discussing one area in which fellow economist Gary Becker may have been wrong.

Becker isn’t here to defend himself on the particulars of that evening but you can see the idea in his great paper, Crime and Punishment: An Economic Approach. In a famous section he argues that an optimal punishment system would combine a low probability of being punished with a high level of punishment if caught:
 
If the supply of offenses depended only on pf—offenders were risk neutral — a reduction in p “compensated” by an equal percentage increase in f would leave unchanged pf…
 
..an increased probability of conviction obviously absorbs public and private resources in the form of more policemen, judges, juries, and so forth. Consequently, a “compensated” reduction in this probability obviously reduces expenditures on combating crime, and, since the expected punishment is unchanged, there is no “obvious” offsetting increase in either the amount of damages or the cost of punishments. The result can easily be continuous political pressure to keep police and other expenditures relatively low and to compensate by meting out strong punishments to those convicted.
 
We have now tried that experiment and it didn’t work. Beginning in the 1980s we dramatically increased the punishment for crime in the United States but we did so more by increasing sentence length than by increasing the probability of being punished. In theory, this should have reduced crime, reduced the costs of crime control and led to fewer people in prison. In practice, crime rose and then fell mostly for reasons other than imprisonment. Most spectacularly, the experiment with greater punishment led to more spending on crime control and many more people in prison.
 
Why did the experiment fail? Longer sentences didn’t reduce crime as much as expected because criminals aren’t good at thinking about the future; criminal types have problems forecasting and they have difficulty regulating their emotions and controlling their impulses. In the heat of the moment, the threat of future punishment vanishes from the calculus of decision. Thus, rather than deterring (much) crime, longer sentences simply filled the prisons. As if that weren’t bad enough, by exposing more people to criminal peers and by making it increasingly difficult for felons to reintegrate into civil society, longer sentences increased recidivism.
 

It's a great post by Tabarrok. He does give Becker, one of my economics idols, credit.

Let’s give Becker and the rational choice theory its due. When Becker first wrote many criminologists were flat out denying that punishment deterred. As late as 1994, for example, the noted criminologist David Bayley could write:
 
The police do not prevent crime. This is one of the best kept secrets of modern life. Experts know it, the police know it, but the public does not know it. Yet the police pretend that they are society’s best defense against crime. This is a myth
 
Inspired by Becker, a large, credible, empirical literature–including my own work on police (and prisons)–has demonstrated that this is no myth, the police deter. Score one for rational choice theory. It’s a far cry, however, from police deter to twenty years in prison deters twice as much as ten years in prison. The rational choice theory was pushed beyond its limits and in so doing not only was punishment pushed too far we also lost sight of alternative policies that could reduce crime without the social disruption and injustice caused by mass incarceration.
 

The problem with annual reviews in companies is not necessarily with an annual review process but with lack of immediate feedback in between those reviews. The most useful thing I learned from the 10,000 hour rule wasn't that you needed 10,000 hours to become an expert, it was that people improve with deliberate practice if feedback on their work is immediate.

For effective parenting and coaching, shorten the time between performance and feedback, and be consistent.