Sabernomics = Economics + Baseball

In honor of wasting an entire day watching the Braves lose an 18-inning playoff game to end the NLDS last weekend, here is a post about baseball for this weekend:

You know those times when a group is sitting around talking about a baseball player or a baseball game you are watching and there is always that one guy who always knows waaay too many stats off the top of his head (like stats you didn't know existed, while you are just trying to watch the game without knowing Andruw Jones' ratio of 7th inning walks to 3rd inning groundouts)? Well, the consummate "that guy" has a blog called Sabernomics where they apply economic research and reasoning to following baseball, and much of it is pretty interesting, though of course still dorky (what in economics isn't?).

One interesting post I have read there is a recent post on a report that home run hitting has not really increased in the past few decades and therefore is not the product of steriods. Instead, the author claims that it is just that we had 3 ridiculous home run hitters come at the same time (Bonds, McGwire, and Sosa).

Another even more interesting post (it's long, but worth reading if you are a Braves fan) is about research confirming the positive effect that Leo Mazzone has on the performance of Braves' pitchers.

Unique Enterpreneur

Here is a story for those of you who hate corporations and root for the small entrepreneur. This Wall Street Journal article tells about a Chicago lawyer who has found an interesting way to enrich himself:

Using a state whistle-blower law, Mr. Diamond since 2002 has filed about 95 suits in Cook County court here against retailers that failed to charge him taxes on Internet sales, alleging that they broke the law. In cases where the state of Illinois joins the suits and prevails, he is entitled to up to 25% of the financial damages, with the rest going to state coffers.

Mr. Diamond's first eight suits were filed against such retailers as Wal-Mart Stores Inc., Office Depot Inc. and KB Toys Inc. He has netted about a half-million dollars already, from some retailers.

The article goes on to talk about how states are trying to stop him from doing this. What do you think? Is Diamond an opportunist exploiting a loophole to make easy money or is he a hero for stopping the corporations from breaking the law?

Source: Division of Labour

Grocery Store Pricing

From Marginal Revolution, the following is an excerpt about grocery store pricing from a new book coming out called The Undercover Economist: Exposing Why the Rich are Rich, the Poor are Poor -- and Why You Can Never Buy a Decent Used Car by Tim Harford.

Companies find it more profitable to increase prices (above the sale price) by a larger amount on an unpredictable basis than by a small amount in a predictable way. Customers find it trouble some to avoid unpredictable price increases -- and may not even notice them for lower-value goods -- but easy to avoid predictable ones...

Have you noticed that supermarkets often charge ten times as much for fresh chili peppers in a package as for loose fresh chilies? That's because the typical customer buys such small quantities that he doesn't think to check whether they cost four cents or forty. Randomly tripling the price of a vegetable is a favorite trick: customers who notice the markup just buy a different vegetable that week; customers who don't have self-targeted a whopping price rise.

I find these pricing strategies pretty interesting, and I can verify that they happen from my work on pricing strategy with an unnamed company that is headquartered in Atlanta. Now as opposed to more comments on why you think corporations are evil for such tactics, I would like to see a good reasoned comment on why this is not an "evil" thing to do, pehaps even other ideas of how to price along these lines, or other pricing strategies you or your parents may have noticed at the grocery store.

Source: Marginal Revolution

Incentives & Abortion Protests

An interesting new strategy is being employed by a Planned Parenthood clinic in Philadelphia to discourage pro-life protests in front of their health center. It is called "Pledge-a-Picket":

Here's how it works: You decide on the amount you would like to pledge for each protester (minimum 10 cents). When protesters show up on our sidewalks, Planned Parenthood Southeastern Pennsylvania will count and record their number each day from October 1 through November 30, 2005. We will place a sign outside the health center that tracks pledges and makes protesters fully aware that their actions are benefiting PPSP. At the end of the two-month campaign, we will send you an update on protest activities and a pledge reminder.

This type of strategy is a prime example of the use of incentives to change the cost-benefit decision for the protesters. My question is: Do you think this strategy will work? What is your prediction for the result of this strategy? It would be useful to talk about the decision to protest in terms of costs & benefits (monetary or non-monetary).

(Note: this will not be a forum to express opinions about being pro-life or pro-choice or moral judgements, it is only a forum to discuss the incentives and economics of the situation)

Source: Freakonomics blog

Gift-giving Revisited

The gift-giving post also had a lot of comments. Here are the best explanations that were given for why people give gifts instead of just money:

1. Zabell pointed out that giving a gift shows that you know that person's interests, and people value that the giver knows them well enough to find a gift that suits their interest. Money is not appreciated because it shows that you do not know enough about the person to get them a good gift.

2. The act of opening a gift is fun. This explanation breaks down because if it was only the opening of the gift, then you could just wrap money in a box and that would be just as good. However, it could be that the suspense/surprise at not knowing what the gift will be is the fun of opening it (if everyone gave money, even if it was in a box, there would not be the same suspense). This is also supported by the fact that unwrapped gifts are not fun.

3. Greg added that it is the time and thought that people put into the gift that gives it more value. However, I would put the emphasis on the thought part because people could spend lots of their time earning the money to give you and it would not be the same as a good gift.

4. Jessica's post about costing the receiver time by giving them money is very astute, but I don't know that it plays a large part in the decision to get a gift versus money because for small amounts of cash getting money actually lowers opportunity cost because you don't have to go to the ATM to get cash.

Overall, the consensus seems to be that the main reason why gifts are given instead of money is that the person receiving the gift gets extra utility from knowing that the person cares about them and therefore knows their interests, and some extra utility from the suspense of opening the gift.

Now let's test our predictions:
1. There are still some situations where people give money as a gift. What are those situations normally? How does that fit into our analysis of gift-giving? Does that contradict our analysis or complement it?

2. What about the fact that people many times give a list of things they want, and then people just go and buy the things off of that list? This strategy does not show that the givers know the recipient's interests. Is that the same as giving money? How does that fit into our analysis?

This article by Robert Frank offers a very interesting perspective in my opinion on why we give gifts, involving receiving gifts that we wouldn't buy ourselves as a way of avoiding guilt.

Further text message questions

The text messaging charges post garnered quite a bit of discussion, so here is another post with two questions to clarify the discussion and keep it going:

1. If you asking whether you want to receive a message is such a good idea and then not charging if you reject, why don't the cell phone companies adopt this? Why would they still charge for the message?
2. Garrison pointed out that cell phone companies in Europe charge for more services than in the US. Why do you think that is?

Again, I urge you to think from the perspective of the cell phone company constrained by the consumers and competition.

Schelling and Aumann - Nobel laureates

The Nobel laureates for 2005 in Economics are Thomas Schelling and Robert Aumann for their work in game theory, which is basically the theory of strategic interactions between individuals or groups. Marginal Revolution has a good summary of the work of both Schelling and Aumann on their blog. I am not familiar with Aumann's work, but just last week, we discussed some of Schelling's racial segregation work in my graduate Urban Economics course.

The most interesting aspects of Schelling's work in my opinion:
1. His analysis of how people racially segregate into neighborhoods. He starts from a fairly realistic assumption that most people do not want to be a significant minority in their neighborhood. From that innocent assumption, he shows that people will start to move to neighborhoods where they are a majority, and you end up with neighborhoods that are totally segregated even when most people do not prefer a totally segregated neighborhood.

2.He also did very interesting work on using game theory to explain the nuclear conflict of the Cold War in his book The Strategy of Conflict. Schelling showed that countries can make their bargaining position better by giving themselves less options (giving yourself less options make your likelihood of retaliation greater). He also showed that uncertain retaliation is more credible in nuclear war than guaranteed retaliation (why would you retaliate after you have already been destroyed?). As pointed out by Marginal Revolution, you can see pretty good illustrations of his ideas in the movie Dr. Strangelove.

No questions here, just illustrating more interesting, non-mainstream applications of the field of economics...

Another Cell Phone Post

Cell phones are on my mind, particularly since mine broke and I can see about 1/5 of the screen at any given time -- just enough to see who I am calling and allow me to procastinate on buying a new one, so here is another question or two about the mobile phone business.

This article from the Economist (which you have to have a subscription to access yourself) discusses the effect of taxation of mobile-phone services on the adoption of mobile phones in countries around the world. The article is particularly interested in the effect of taxation on the adoption of mobile phones in developing nations because:

"Mobile phones are increasingly recognised as powerful tools in the fight against poverty, since they reduce transaction costs, facilitate entrepreneurship, and substitute for slow, unreliable transport and postal systems."

The conclusion is unsurprising: countries with high tax rates have less mobile phones per capita. In fact, the article says that every 1% decrease in mobile phone taxes would increase mobile phone penetration in a typical developing country.

The question I would be interested in is first of all, why do you think governments single out mobile phone services to tax in the first place? Also, do you think this is an effective tax (in terms of raising a lot of revenue and limiting the loss of efficiency)?

Also, what about the claim that mobile phone services are a powerful tool for fighting poverty? What are some specific ways that mobile phones could help alleviate poverty (perhaps specific examples of the claims in the above quote)? Do you agree that alleviating mobile phone taxes will help the poorest countries of the world?

Charging for Incoming Text Messages

This impetus for this interesting question comes from Chris Hellmann:

Why do mobile phone companies charge for incoming text messages? For instance, according to the Cingular website, you are charged $0.10 per text message whether you sent or received the message and whether the message was solicited or unsolicited.

Looking at this from the perspective of the mobile phone companies like Cingular or T-Mobile, why would they price text messaging like this? Would there be a difference if they charged $0.20 to the sender of the message and charged nothing for receiving? Why do they choose the first option?

Again, it is more useful to look at it from the perspective of the profit-maximizing cell phone company, not the consumer upset because you have to pay for unsolicited text messages.