Systems Design and Remote Probability

More than a decade ago, most technology users were faced with what was called the 2K problem which referred to the early programming of computers and related equipment which did not anticipate the change into the the new millennium. A lot of media frenzy and doomsday scenarios were developed about the mass crashing of computer systems together with the possibility that a level of problems may occur. To my mind, this state of affairs reflects a degree on inertia because in designing systems, we discount the future and are not always capable of covering all scenarios.

Reading this article reminded me of the 2K problem for the reason that the national health insurance service in Kenya has computer and software systems that were programmed with assumptions that are now causing an inconvenience. As stated in this story from the Daily Nation in Kenya, a man whose identification documents suggests that he is 128 years old could not be registered by the National Hospital Insurance Fund for the reason that its system software can only go as far back as 1890. Thus several attempts have been made to ensure his registration, without success.  

To my mind, this incident is interesting for a couple of reasons. The first is that given that the life expectancy of most Kenyan males is about 60 years, the system was designed with the view that the probability of an individual being 128 years old in Kenya was far too low to consider. Secondly, the failure to resolve this issue shows the degree to which people and institutions are captive to systems and are unable to adjust easily. In this case, it would still be okay for an authorized person to simply use the earliest data possible in ensuring the registration of this individual. Instead, I see the fixation with getting the right date and trying a variety of tricks to ensure that registration.     

Nobel Prizes: Being Right and Wrong

"Nobel prizes are sometimes awarded to scholars who are wrong for the right reasons, but almost never to those who are right for the wrong reasons". Robert H. Frank in The Return of the Economic Naturalist. p. 90

Vietnamese Demand for Cycles

Among the most salient phenomena that a person visiting parts of Asia notices, is the variety of options for transportation. In my view, Asia remains the continent of bicycles and rickshaws by a huge margin. From India to China and Vietnam, one gets the distinct impression that bicycles or rickshaws are an important way for people to move around and to transport goods as well. Rarely does one see transportation by cycles adopted to that degree in the African and Latin American world. 

In this interesting article, Esmer Golluoglu of the Guardian covers a story of the place of cycles of different kinds in Vietnam. Indeed, it is not just a story of mobility and furious economic growth but also an unimaginable anthropological study about ownership, status and utility of cycles of various kinds. Significant is the view that ownership is hierarchical starting with the conventional cycle, to the e-bike, motorbike and the automobile as marking the apex of status. To my mind therefore, it is possible to accurately deduce a person's status by the kind of cycle that she owns in Vietnam. It is certain that some marketers have noted it but this is quite an important issue for study about markets and the segments within them.  

Doctors Calls for Testing in Medicine

It takes several years of training and practice for any individual to begin to dispense medicine and care for patients. With this in mind, many patients who receive advise from a physician or a surgeon are bound to believe that that professional makes decisions and chooses the most effective methods for treatment that are available to the doctor. H. Gilbert Welch is far more modest by stating that the practice of medicine today is so complex that sometimes medical professionals choose options but are not certain that they are the most cost effective or even the most useful for patients.

Writing this article in the NYT, H. Gilbert Welch goes through a number of treatment options that doctors have dispensed in good faith but whose overall efficacy was not tested as rigorously as required. he now recommends that the ability to step back and conduct evaluation of one treatment option against another in order to determine relative effectiveness is necessary. One method of going through this is to integrate randomized evaluations as a critical part of decision-making by the profession. This call for more research is interesting because it is not intended to find out new methods and drugs but rather to focus on what works in the repertoire of treatments offered today.

This doctor highlights an important but hardly emphasized factor in innovation and knowledge today. Human welfare could be improved substantially by exploring the utility of existing treatments and knowledge but this is often surrendered to the quest for the new. And if that is applicable in a cutting-edge profession like medicine, one wonders how much so in other areas.               

Economics Signals End of Dandy Comic Book

I have been reviewing the extent to which the rise of digital media has affected the economics of the printing business generally and the print media in particular. I have been surprised by Mark Sweeney's finding in this article stating that one of the UK's most established comic book, The Dandy is facing closure for the reason that its circulation figures have been reduced to 8000 weekly copies. As stated, it is not that the decision to bring that 75-year old publication to a close has been made lightly. It seems that the publishers are alive to the fact that the population to which was originally intended have alternatives forms of entertainment in addition to different means for spending their money.

As a person with libertarian leanings, I find myself conflicted about the decision that seems to be prudent because it is based on the hard facts. On the other hand, I am wondering whether it is possible to reconfigure these comic books and deliver them through other digital means such as applications. And yet I am aware that the producers of these brand comic books that I once read must have considered a number of ways of maintaining the demand for their products and are probably at their wits end. Noting also that as Mark Sweeney mentions, about 3 decades ago, the same publication sold about 2 million copies weekly makes me wonder whether today's youngsters are totally different from their parents. This is because the comics books were really funny and suitable across a range of ages. It surprises me that with incomes having grown, the comic books should not have retained a level of demand to ensure its survival.

This suggests to me that there may be problems that can be analyzed through the instruments of economic theory but to which solutions may not exist. I would be content if the archive of all these comics were maintained in digital form for one never knows whether a new business model may emerge to make them profitable alone.

I apologize that I just could not find a free image of one of the characters to spice up the page. 

What Has 3D Printing Wrought?

An article in the Huffington Post by Dominique Mosbergen reports about an very clever man who managed to manufacture gun arts from 3D printing and assembled them into a usable weapon. for a country alert to recent disasters by people who handled guns maliciously and harmed fellow citizens, this development introduces a new challenge for public policy on firearms ownership and use. At the same time, there is the realization that 3D printing technology may lead to production of goods whose ownership and use remain in contention.

It may not be illegal to get blue prints and manufacture a weapon as the subject of the story did but a regulatory issue arises whether the product of that process requires registration. My hunch is that a bureaucrat will probably find good reason why it should be registered if not altogether outlawed. The fears of a criminal using a similar process to manufacture and sell large volumes of similar weapons, is perhaps overstated because the production of that weapon presupposes a high degree of knowledge and technical capability that many people save for dedicated students would have. Additionally, most of these goods are already manufactured by corporations whose processes use cutting-edge technology and who would probably wipe out a lone working competitor on cost and quality. What this state of affairs brings to the fore is that many technologies are marginally neutral in their effects and can also be applied for other purposes that portions of a society may not approve.  

Mitt Mixes His Facts and Numbers

There have been predictable reactions to Mitt Romney's claim that the difference between Israel and its neighbors is because the former has a better culture. Jared Diamond, who wrote the book Guns, Germs and Steel, dissects the claim in this NYT piece. That piece aside, many people asked about whether it was appropriate to make that claim given the different circumstances in which the two nations live. Still, this matter is worthy of consideration because there are differences between Israel and Egypt, Syria or other closer countries that do not live under the same political constraints of Palestine.

My view is that Mitt Romney may really believe in the argument that culture is a determinant of economic success. More surprising to me is that he and his team make quotes and attribute certain findings to Jared Diamond and other authors when these are not correct. Its clear that as the article by Jared Diamond states, this candidate for the presidency has most probably not read the book that he quotes liberally from and seems to be less concerned with differences between these countries. In spite of his support for "superior cultures", one would expect him to note that an income per capita of US$ 10,000 that he attributes to Palestine would still make it a mid-income country. An undeniably good business head should not show such ignorance about the economy. Its a plain fail for the campaign research team.   

Ye Shiwen Blasts the Field

Late last evening, I read the ever-informative article written by Nate Silver in which he explains why a couple of disciplines in the Olympics 2012 are more likely to produce record-breaking performances than others. In that piece here, he mentions that swimming has advantages in the sense that the records have improved at every edition of the games. In his view, swimming is one of the sports disciplines in which the intense application of technology and discoveries of science could still generate performances   that lead to regular records. he states that other disciplines such as the sprints and field events are very close to the barriers of human physiology and capability and this explains the longevity of the records there.

What surprised me about the analysis is that Nate Silver completely did not mention the fact that while his model states that there is still scope for record performances in swimming, it is also one discipline that raises eyebrows about use of performance enhancing substances.

Consistent with Nate's expectation, China' Ye Shiwen shattered in the record in the 400 metres individual medley in world record time. As Andy Bull reports here, the impressive performance was so off the charts that it raised eyebrows about the swimmers integrity. A number of coaches have dissected the performance and note that it looks suspicious because of the unduly strong finish which beats the male swimmers winner in the same event in addition to the huge performance gains that the winner attained in the last few months.

One must be circumspect in assessment of this single performance but I still think that the performance is an outlier. This young athlete is truly gifted and has worked hard and deserves her reward. that notwithstanding, I would like to see a more objective analysis of her finish which could have blown away the competitors in the equivalent male race. I echo the emerging consensus that this performance was unbelievable and that its not the last time it will be analyzed.   

Making Mathematics Necessary

In this very insightful and erudite opinion piece in the NYT, Andrew Hacker asks questions about the oft-repeated view that learning mathematics is indispensable for high school and college students. he cites very interesting facts that for the US, the  difficulty in mastering the mathematics curriculum is a leading cause of failure to matriculate. He therefore makes the sensible view that for all its unquestioned utility for students, the mathematics curriculum is too dense and acts as a barrier to educational attainment for students. 

The author's sensibly questions the design of the curriculum and the abstract concepts conveyed in trigonometry, calculus and algebra. While it may be impolitic to mention, he demonstrates that for most students, most of the abstract concepts are unlikely to be used after graduating from school. For most colleges, mathematical ability is called upon even for courses in which it has no direct relevance such as history and art merely to screen out a large number of applicants. He wonders instead why the curriculum has not been designed to demonstrate clearly the applications of these subjects in a way make them more understandable and readily usable for students. In particular, he suggests that subjects such as "machine tool mathematics" are not only likely to hold the interest of students but are more effective in sharpening the cognitive capability of students to apply them. 

The most potent part of his argument is that by insisting in mass education of students in a dense and dry curriculum, the schools, colleges and nations are misapplying scarce skills. This piece leaves it to designers of education curriculum in mathematics to design them in ways that catch the interest of students without generating massive failures. To my mind, mathematics is too important for education managers to give up on most of society. the graphic that accompanies the story shows that young scholars do not want to drown in numbers. 

Steven Pinker on Prediction

Image from amazon.com

"Social scientists should never predict the future: its hard enough to predict the past". Steven Pinker, in The Better Angels of Our Nature. P. 278.  

Whither the Spectators at the Olympics 2012?

As a student of economics, I have keenly observed the progress of the London Olympics 2012 and was greatly impressed by the originality of the opening ceremony. Like every edition of the games, it has been spectacular and a showcase of the economic power of the host nation. But the reason that the games are held is to ensure that the competition begins and this has had less than spectacular results over the last three days. viewers on television were inevitably struck by the low attendance to the events  yesterday. Understandably, the press called public attention to this fact since a number of people were unable to get tickets to attend events that were now being played in empty arenas. If nothing else, the empty stadiums led to the declaration that a number of tickets were issued to "accredited Olympics family members", in reference to individuals affiliated to Olympics movement who failed to attend sessions for which they had taken up tickets. A host of solutions are being floated out as covered by the Daily telegraph here.

This state of affairs reveals to me that the Olympics movement is particularly impervious to economics reason for two reasons. First, it chose a very poor mechanism for distributing tickets and thereby denied genuine spectators the opportunity to watch events that they valued. The lottery system used in assigning seats was purported to ensure that coverage would go out as widely as is possible but it instead ensured that individuals with connections "the family" got tickets that they obviously did not value at all. Secondly, the Olympics movement persists in using sub-optimal mechanisms because it is a monopoly and prices its events without competition.

To my mind, because the commercial rights to the games are aggressively marketed and defended, it is pretentious to cite the need to ensure proper spread of tickets by resorting to the ballot system. Its far better to auction tickets and use the funds to support broadcast and other ways for public to view the games and make it clear that this is the most efficient mechanism. There would be less angst if people failed to get tickets due to their unwillingness to pay auction prices because the people who win those tickets would not stay out of the events after having bought the tickets. So I award a grade "A" for the opening but a plain "D" for the game around tickets that leaves the stadiums empty.   

Mistaken Diagnosis of Music Piracy

A considerable number of blog posts here have been muses about the futility of trying to completely extinguish all illegal sharing of music in the form of digital files. In my view, the main labels in the music production industry are so obsessed with cutting out and impeding networks that allow for exchange of files that they are completely ignoring the people who purchase music or other digital entertainment content. Bill Oremus states in this blog post on Slate Magazine that a leaked document suggest that an organization representing the music industry has found out that most music piracy happens offline. The implication is therefore that even if all illegal downloads were taken out, it would hardly make as much difference.

To my mind, this suggestion is difficult to confirm but irrespective of its veracity, it still supports my strong hunch that the industry is concentrating on the wrong thing. Music sales are not going down because of piracy as much as is claimed. The enormous effort being applied to stopping sites and suing site owners is legitimate but is not connected to ensuring that sales will recover. As a supporter of entrepreneurs, I am at a loss that the industry is more interested in symbolic shows of strong law enforcement without asking whether this is the correct answer to the business problem that they face. Clearly, the music industry is barking up the wrong tree.

Let Plumbers Take Pay in Cash

Faucet 2 clipart
from Clker.com

I consider it sensible economic policy for every government to levy taxes on goods, services or income only where it can collect a majority of those taxes. Therefore, while I am not of the view that payment of taxes is equivalent to slavery, I think that a government ought not to announce a tax rate and then further burden the citizen with the duty to ensure that that tax is collected as conveniently and promptly as is possible. With those views in mind, I am not as sympathetic to the near demand by the Secretary of the Exchequer of the UK government in his preposterous claim here that citizens who pay plumbers in cash are engaged in immoral acts because it makes it easier for the latter to evade or avoid tax payments. 

More recently, governments have been correctly concerned with the operations of tax havens which may support practices that are illegal in terms of tax evasion. That aside, most tax evasion occurs simply because of unduly complex characterization of what is taxable and what is exempt in addition to trying to capture transactions for which the existing tax collection model is a poor fit. despite my real sympathy with the need to collect taxes to cover deficits and close up the debt position, I am reluctant to accept this ranting by public sector officials that all citizens should bear the burden of ensuring that the revenue service catch every penny.

To my mind, citizens should not be forced to write cheques and avoid the convenience of legitimate cash transactions in order to ensure traceability for the revenue services. Perhaps its just time to ask that governments should discuss plainly whether levying a tax that is this difficult to collect is good use of the legislative authority. The remedy comes back to creating moderate tax rates and simplifying the tax system and ensuring that government is run from the resulting revenues. Its not too clever to levy taxes and ask citizens to help with the thinking about ensuring absolute compliance. Just simplify the tax code.

  

Belated Tribute to Elinor Ostrom

Source: http://www.nobelprize.org/nobel_prizes/economics/laureates/2009/ostrom-photo.html

I was speaking to an undergraduate student of economics who was surprised at my mentioning that Elinor Ostrom was the first female Nobel laureate on in Economic sciences. The purpose of this blog post is not to express my surprise that this student was unaware of this important first in economics, but that this fact has not been sufficiently covered in popular press.

As a professional with a a distinguished career and who is classified as a political scientist, Elinor Ostrom was deservedly awarded the prize in 2009 in conjunction with Oliver Williamson.

To my embarrassment, I realized that I had not announced the award on this blog in 2009 as I have often done for other Nobel prize winners in that category. This left me with the delicate issue of blowing Elinor's trumpet rather late especially since she sadly passed away about a month ago. In short, she received the prize, " ..for her analysis of economic governance, especially the commons". Here is the link to her Nobel Prize Lecture delivered on December 8, 2009. In short, her work responds to the economic aphorism, "tTragedy of the Commons", and shows presents real examples in parts of the world where societies adopted sophisticated systems to ensure coordinated utilization of such resources. Here's social scientist who tests theories through empirical means and provided a serious counterfactual to one of the most common responses to handling common resources. 


Addition: Here's the article from the NYT announcing her passing on. 

France Introduces Overtime Tax

France recently had an election that brought in a new and seemingly less haughty leader by the Name of Francois Hollande. It would lead one to consider that this taciturn gentleman would be more aware of the complexity of economic policy but that is evidently not so. Seeking to implement a campaign promise, the new leader has sought to fortify the already bad policy of the 35-hour week by reversing the tax advantage for working beyond this limit. Kim Wilsher's article in the Guardian reports on the unbelievable policy change that raises taxes for working longer.

This tax constraint on individuals that seek to work beyond the prescribed 35-hour week makes no sense since this policy has not led to the creation of more employment. In my understanding, the 35-hour week was instituted to ensure that employment is available for many more people than would be the case in the event that a portion of the work force chose to work for longer periods. That argument is based on the fallacious assumption that every economy has a fixed amount of work available which should be distributed to reduce employment levels. Students of economics recognize this as the "Lump of Labour Fallacy". One would wonder why even after this restriction, a political party would choose to restrict those who may want to work beyond that limit from making extra income. Discouraging work has never created more employment so perhaps the government should justify this as an attempt to collect more money. Good luck with that.   

Are Hollywood Studios Aware of Epagogix?

In this recent edition of the NYT's Magazine, Adam Davidson wonders how the movie industry makes it it's money. The interesting article goes through the organization of Hollywood and uses movies that largely show that the industry spends a lot of money in production and marketing but seems not to have a definite idea about what distinguishes commercially successful movie projects from the rest. For all the glamour, the article confirms my suspicion that commercial success for most movies is really rare, judging by the overall return on investment that is barely at 1%. Only Disney and Pixar, which both make animated movies seem to have strong brand recognition, to the extent that it matters.

What comes to my mind is whether the directors and owners is whether any of them have read my blog post here but more importantly whether they have heard from Epagogix. This firm has been known to have a quantitative prediction tool for assessing the likelihood of commercial success for movies based on the script. Among the findings of this tool is that it does not recommend the hiring of high-profile movie stars who are also expensive because they do not guarantee success for those movies. While I am unaware of published tests on this tool by Epagogix,  I am surprised that few people in Hollywood are using it keenly. So is it ignorance or have they tried it and found it unsuitable for their purposes?

Is the Goal Line Technology Cost Effective?

FIFA finally made the decision to allow for technology to be deployed during soccer matches to be able to tell whether the ball has crossed the line even if it does not get to touch the net. There has been wide demand for the deployment of some mechanism to assist umpires to make the correct decision but this organization has been reluctant to accept any change. At a meeting of FIFA's International Football Association Board last week, the organization made three decisions with the most profound being that on Goal Line Technology (GLT).  The effect of this unanimous decision is that the rulebook will be amended to include two approaches to support referees in making decisions about goals. Interestingly, the statement issued clarifies that the Hawk-Eye and GoalRef technologies will only be used on the goal line and nowhere else on the pitches.

One must applaud the fact that this decision was made after appropriate testing of the technology in order to determine their fitness for the game and thereby reflect evidence based decision making. As a person who watches a moderate number of soccer matches at club and international level, I am wondering whether these technologies are cost effective. I am not privy to any data but understand that soccer is a low-scoring game hence the number of instances in which the technology will be required is less than 10% of all competitive soccer matches. Does this justify the deployment of these machines during on all professional soccer matches? My hunch is that it is not cost effective since only a small number of matches present a scenario that requires a decision that will be improved by GLT .      

What Happened to Intrade on Obamacare?

The idea behind the design of information markets such as Intrade and a few others is that they aggregate information from a diverse crowd of people and thereby, attain accuracy by errors on either side of a question canceling out. David Leonhardt therefore writes about the most important policy decision of the last few weeks where Intrade in particular was wrong by a large margin. As the article states, the US Supreme Court made a majority decision that affirmed the constitutional fitness of the health care mandate.

Being one of the largest decisions this year and one on which the incumbent president had lots of skin in the game, it is essential to consider the fact that Intrade in particular was so far off. David Leonhardt mentions that information markets are not perfect and may have been affected in this instance by the thinness of the market and may have reflected a very narrow set of views to the exclusion of the alternative views. It appears that on the part of the Obamacare, the participants reflected too much of those who information suggested that the mandate would be declared unconstitutional.

And yet in spite of the confirmed error in this instance, I think that the chatter about this miss is still uninformed. To my mind, confidence in information markets is based on the fact that the collection of view that generates its information is bound to be more accurate that individuals who hold court as "the experts". Thus information markets are bound to have a better predictive record than these experts but that is not to state that they are infallible. So the total failure in calling out the outcome of the case is still embarrassing to me, but I think that few experts had it as clearly too.  Intrade only appears to have made it look like it was not even close because with a 65%-70% threshold, Intrade in particular performs very well.

The lesson of this event is that the experts claiming that information markets are imperfect are not saying anything new. On the other hand, the cheerleaders of information markets must always state clearly that they tend to be far more accurate than experts and that usually is good enough but does not mean they are infallible. 

Is Another Oil Boom Coming ?

The price of petroleum has in the last five years been higher than it has been higher than the average in the earlier years. As usual, this gave the ammunition to people who maintain the idea that the world is consuming too much of the world's resources another opportunity to argue that the world had reached the Peak Oil. This is the imagined state where the demand for oil overtakes supply capability, with the result that oil prices rise to unprecedented levels. On its face, this theory appears as a sensible position simply because every natural resource that is not renewable is liable to depletion at some time.  Thus the dependence of the world on petroleum energy would be in peril if demand was to permanently outstrip supply.

And yet those who make this argument most forcefully fail to account for a couple of factors specific to the petroleum market and to other markets generally. Writing in the Guardian here, George Monbiot has come to the conclusion that most of the predictions on peak oil status have been proved wrong thus far. The more profound point that he makes is that the rise in the prices of crude petroleum led to the increased exploration and drilling and opened up new fields for exploitation. At the same time, rising prices provided ample incentives for the major crude oil producers to expand production and thereby ensure that supplies come to market.

Unlike the author, I am less saddened by the fact that supplies are available principally because the ability to utilize these resources for growth ensure that countries will be able to achieve income levels that demand cleaner energy and more efficient use of petroleum. Monbiot should perhaps recall that prices do not only work to regulate the supply of crude petroleum but that the same mechanism may be used for environmental protection. My hunch though is that the promoters of the peak oil theory will suspend it for another decade and dust it up again when prices go up momentarily. 

Learning Through Digital Technology

In the last decade, many industries have been changed fundamentally by innovative applications of digital technology tools. This state of affairs has led to the erroneous assumption that these pace of change will maintain and also that no specific industry will remain the same. Many people view the growth of Google, Apple, Amazon and mobile telephony and assume that digital technology must therefore transform every industry from energy, education, publishing and so forth. As already stated, the Internet and these new applications of digital technologies have had profound effects on industries by creating new value and made entrepreneurs very wealthy.

However, it is clear that there are industries in which the amazing effect of digital technologies seems to be overstated. Konstantin Kokaes makes a strong argument in this article in Slate Magazine that in education generally and mathematics in particular, the fact that technology is superior is more an article of faith than a demonstrated result. Among the more profound points that he makes are that the rush to introduce digital tools into education is an expensive experiment without evidence that it is either useful or cost effective. This argument is real because it is not based on a preference for what is familiar and known but is based on the fact these new tools are being pushed by interested marketers. 

I am not surprised that these new tools are not proven to be better but are incorporated into education policy by the fact that the education departments are buying them as symbols of modern ways of teaching science and mathematics. The point that I made in a blog post here remains valid.