Wednesday, May 31, 2017

The decline of the Big Mac

The Big Mac, wrote a top McDonald’s franchisee in a memo to fellow operators in July, “has gotten less relevant.” This is the problem facing the world’s largest hamburger maker—its burgers aren’t good enough.

Just one in five millennials, the fast-food industry’s core customer, has tried the flagship product, the memo said.
--Julie Jargon, WSJ, on how times change

Monday, May 29, 2017

The dark side of self-driving cars

I can’t count the number of emails I get from cybersecurity researchers who are predicting a spike in acts of terrorism carried out via self-driving cars. Picture everything from suicide-bombing cars (minus the actual suicide bombers) to triggering a 10-car pileup on a freeway by remotely taking over the controls of a car.
--Sheera Frenkel, NYT, on the advantage of wetware

Saturday, May 27, 2017

Wealth is the adult version of magic

Wealth, I realized, is the adult version of magic: an incredibly powerful but ultimately arbitrary resource that transfers primarily through inheritance. It has some logic to it— but also enough randomness that those without can hope for a spontaneous windfall in the form of an improbably lucrative investment or a secret inheritance. (Harry Potter and Rachel Chu were both thrust into lands of glittering palaces and gem-studded talismans after discovering secret inheritances.) Particularly in the rapidly growing economies of post-WWII Asia and post-communist China, the acquisition [of] wealth has, at times, taken on a sort of magical quality — with all the confusion and trauma that can imply.
--Maureen O'Connor, New York, on the popularity of Crazy Rich Asians and other books/shows about rich people

Thursday, May 25, 2017

Why are MLB pitchers taking longer between pitches?

Compared with 2007, the average MLB pitcher now holds the ball a full two seconds longer between consecutive pitches. ...

...in terms of baseball’s most valuable currency — fastball velocity — pitchers do benefit from a slower pace of delivery. I found this using a model that compared every pitch to the pitcher’s own average velocity, while normalizing for the count and number of pitches he had thrown in the game. ...
For every additional second they spend (up to 20 seconds), pitchers throw about .02 miles per hour harder.

Such a small difference in fastball velocity might seem too insignificant to chase. But every mile per hour matters: According to a 2010 study by Mike Fast (now employed in the Houston Astros’ front office), a single tick of fastball velocity is worth 0.3 runs per nine innings for a starter, and even more (0.45 runs per mph) for relievers. ...

If a team’s entire pitching staff took an average of 10 extra seconds, the resulting 0.2-mile per hour increase would equate to about 10 extra runs saved per season. Using the classic sabermetric rule of 10 runs per win, that’s one whole extra victory — something general managers have been willing to pay upwards of $7 million to acquire. ...

Across baseball, the average four-seam fastball velocity has spiked a full mile per hour since 2010, and that jump has coincided with the drop in pace. ... All in all, declining pace could be responsible for about 20 percent of the leaguewide increase in fastball velocity since 2010.
--Rob Arthur, FiveThirtyEight, on why baseball games last more than three hours

Revenge of the nerds on Wall Street

When Michael Savini came to Wall Street in 2006, banks and brokers had stocked their annual recruiting classes with a preponderance of new hires who shared at least one thing in common: They’d played college sports. ...

Ex-jocks had the right stomach for risk-taking, the theory went, and the ideal temperament to win clients’ trust and business. ...

As an economics major at Columbia University, where he was a four-year starter and co-captain of the wrestling team, Mr. Savini followed two older brothers, also college athletes, into finance. There, he believed, his background gave him an edge. “Athletes are better equipped at knowing you’re not always going to win,” he said. “In sales, you’re going to get a lot of doors slammed in your face. It’s how you bounce back from those losses that define us.”

Yet these days, when he attends mixers for former wrestlers in finance, Mr. Savini, 42 years old, says he hears more gripes than enthusiasm. If college athletes asked him for advice in pursuing a career on the trading floor, he said, his message would be a simple one.

Don’t. ...

Two years ago, after nearly a decade working as an equity salesman, Mr. Savini left for 303 Capital Markets, a boutique investment-banking firm. “The business is changing,” he said. “It’s all going electronic.”

“These guys are on the wrong side of Moore’s Law,” said Rett Wallace, a former investment banker, referring to the axiom on the exponential growth of computing power. ...

The industry started to shift away from athletes in the 1990s as derivatives grew in number and complexity. That necessitated a hiring spree for Ph.D.s who could understand and price them. More recently, the advent of electronic trading and quantitative investing called for many more recruits with math or computer-programming skills.
--Justin Baer, WSJ, on brains over brawn

The astronomical improbability of life

Nor do we know how life began. At some point, the Earth made the transition from chemistry to biology, yes, but we cannot “agree on a definition that separates the nonliving chemistry from life,” as the geneticist Johnjoe McFadden puts it. (He then paraphrases the astronomer Fred Hoyle, who famously said that the odds of assembling something like a bacterium out of the primordial ooze were akin to the odds of a tornado’s assembling a jumbo jet out of a junkyard heap as it sweeps through.)

There are scientists who will go so far as to say that life is a spectacular fluke. Not everyone, mind you: Researchers now estimate that there are one billion Earthlike exoplanets in the Milky Way. “To my mathematical brain, the numbers alone make thinking about aliens perfectly rational,” Stephen Hawking has said.

But a powerful essay by the evolutionary biologist Matthew Cobb will make you wonder whether any form of multicellular life is far less likely than one in a billion. He points out that “there are more single-celled organisms alive on Earth than there are Earthlike planets in the observable universe”; that the number of single-celled organisms that have lived on this planet over the course of 3.8 billion years is beyond calculation; that these organisms have interacted “gazillions” of times (I love it when words of the appropriate magnitude desert even the experts). Yet we’ve never had a second instance of eukaryogenesis — that remarkable moment when one unicellular life form lodged inside another, forming something much more complex — in all this time.
--Jennifer Senior, NYT, on the uniqueness of life as we know it

Saturday, May 13, 2017

Maybe macroeconomic forecasts aren't so bad

Macroeconomists... are asked to routinely produce forecasts to guide fiscal and monetary policy, and are perhaps too eager to comply. ...

...the supposedly most embarrassing forecast errors come with regards to large crises. Yet, these crises are rare events that happen once every many decades. Since typical economic time series only extend over a little more than one hundred years, statistically forecasting the eruption of a crisis will always come with large imprecision.

Compare how economics does relative to the medical sciences. ...

Imagine going to your doctor and asking her to forecast whether you will be alive 2 years from now. That would sound like a preposterous request to the physician, but perhaps having some actuarial mortality tables in her head, she would tell you the probability of death for someone of your age. For all but the older readers of this article, this will be well below 50%. Yet, one year later, you have a heart attack and die. Should there be outrage at the state of medicine for missing the forecast, with such deadly consequences?

One defense by the medical profession would be to say that their job is not to predict time of death. They are driven to understand what causes diseases, how to prevent them, how to treat them, and altogether how to lower the chances of mortality while trading this off against life quality and satisfaction. ... This argument applies, word for word, to economics once the word disease is replaced by the words financial crisis. ...

A more sophisticated defense would note that medical sciences are about making conditional forecasts: if you make some lifestyle choices, then your odds of dying change by this or that much. These forecasts are at best probabilistic. ...

Economics is not so different, even in 2007-08. Within days or weeks of the failure of Bear Sterns or Lehman Brothers, economists provided diagnoses of the crisis, and central banks and finance ministries implemented aggressive measures to minimize the damage, all of which were heavily influenced by economic theory. ... The economy did not die, and a Great Depression was avoided, in no small part due to the advances on economics over many decades.

Too many people all over the world are today being unexpectedly diagnosed with cancer, undergo enormously painful treatment, and recover to live for many more years. This is rightly hailed as a triumph of modern oncology, even if so much more remains to be done. After suffering the worst shock in many decades, the global economy’s problems were diagnosed by economists, who designed policies to respond to them, and in the end we had a painful recession but no melt down. Some, somehow, conclude that economics is at fault. ...

Macroeconomists are... asked to predict what will happen to the changes in the CPI or GDP over the next 1-5 years. The comparison of forecast quality must be made for the same time horizon and for a similar level of aggregation. The fairer comparison would be to ask doctors to predict what will be the percentage change in the annual number of patients that eventually die after being admitted to an emergency room due to a stroke. For these similar units, my guess is that medical forecasts will look almost as bad as macroeconomic forecasts.
--Ricardo Reis on comparing apples to apples

Why do dads tell dad jokes?

But now I know why dads tell dad jokes. You have this captive audience that laughs at 100% of your jokes for eight straight years, so your jokes just get worse and worse. And then one day, the laughter stops.
--MEL on the fate of the monopolist

Why do your sports teams suck? Taxes

Between 1989, when the team entered the N.B.A., and this season, the [Minnesota] Timberwolves have the worst record in the league. ...

In a state synonymous with hockey, neither the Wild nor the Stars (while in Minnesota) has won the Stanley Cup. Same for the Vikings and the Super Bowl. The Twins did win the World Series, but that’s the exception to the losing rule. ...

Minnesota has one of the highest top marginal income tax rates for any state at 9.85 percent. ...

It’s unclear how much professional athletes value these public goods, but the Timberwolves still have to pay extra to offset those taxes. And given the competition under a salary cap, it means Minnesota teams spend almost 10 percent less than teams from Florida or Texas, which have no income tax. This could be enough money to upgrade from an average player to an All-Star.

To test my theory, I gathered data on the outcomes of every professional sports game over the past 40 years as well as data on state and local tax rates each team member faces. I then computed how much taxes predict winning for each league in every year while controlling for other factors such as population, income, franchise age and local amenities (i.e., weather).

Results of the analysis show that higher taxes consistently predict worse performance in every league — not just the N.B.A. but also Major League Baseball, the N.H.L., and the N.F.L. over the past 20 years. ...

Several other factors connect the income tax effect to my theory. Comparing player salary to player value measures provides evidence that higher-taxed teams in baseball and basketball pay more for players of similar quality, suggesting tax compensation is real. The income tax effect also relies on the assumption that players and teams are responding to income tax rates when negotiating contracts. This explains why the effect arises only in the wake of collective bargaining agreements in the late 1980s and early 1990s that allowed players to become unrestricted free agents and have teams compete to sign them.

The income tax effect could also be explained if people in low-tax states such as Texas and Florida just enjoy sports more and support their teams more and this translates to more winning. But I found that in college football and basketball, where athletes are not paid and should not care about income tax rates, teams from lower-tax states do not perform better than teams in higher-tax states.
--Erik Hembre, NYT, on the tax elasticity of labor supply