FT Comment – 25 February 2010

We are sometimes admonished: “Don’t shoot the messenger.” Since there is rarely a logical reason to shoot messengers, such advice should not be needed. But it is, because bad news hurts, and organisations find it difficult to deliver such news to the person in charge.

Andrew Rawnsley’s account of Gordon Brown’s premiership has received attention for its claims that Mr Brown was abusive and physically threatening to his staff, grabbing lapels, stabbing upholstery with his pen and causing his advisers to cower for fear of violence. If true, that is disturbing – but few people will have found it surprising. High-status men sometimes do abuse that status.

I am worried not so much that Mr Brown may be beastly, but that he is cutting himself off from good advice. Mr Rawnsley describes Mr Brown’s fateful decision to pull back from a widely trailed snap election in late 2007. His inner circle waited until he was out of the room before agreeing that such a course would be disastrous. When the prime minister reconvened the meeting, however, this was not conveyed: “No one expressed a clear view. No one wanted responsibility for the decision.”

This is a more significant anecdote than any tale of flying spittle. Any leader needs frank advice, and the biggest obstacle to receiving it is often the leader himself. Even a polite and level-headed boss will be tempted to cut naysayers out of the loop. Knowing this, sensible juniors will avoid expressing criticism or grim tidings if at all possible.

“If you deliver bad news, you’re disempowering yourself,” says Professor David Sims of Cass Business School. “You’re less likely to be listened to in the future.” For some ambitious subordinates, this is a far worse fate than the threat of being thumped.

A new reality television show, Undercover Boss – which has migrated to the US after airing on Britain’s Channel 4 last summer – tries to tap into the dissonance between bosses and front-line staff by filming as a senior executive works incognito in the trenches. It is a delicious premise.

When bosses must don a disguise to learn about how their organisations really work, trouble is in store.

Continue reading “Listen to the bearers of bad news”

Marketplace worked with me to produce this video about the economics of signalling in the workplace. They did a fantastic job, and you even get to hear my David Attenborough impression. The video is loosely based on one of the Dear Economist letters. Enjoy!

First published in the Sunday Times, 9 August 2009

Spend less time with your children. Don’t underestimate the benefits of a divorce. Never serve dog food at a dinner party. These are some of the unexpected revelations to have emerged from an unlikely combination: happiness, and economists.
You might think that the “dismal science” has done enough damage for now. Economists have hardly emerged from the banking crisis with their reputations enhanced. But forecasting financial meltdown was never going to be easy, so perhaps it is best of economists stick to simpler questions, such as “how can we be happy?”
A growing number of economists have been attempting to answer this question. Not only are the statistical tools of economics surprisingly well-suited to unlock the secrets of happiness, but the research topic is good box office, too… and these are economists we’re talking about.
Some of the results sound as though they come from hippies rather than economists. For instance, economic growth does not seem to make the citizens of a rich country such as the UK any happier. A good job too, considering the current prospects of any economic growth seem slim.
Other discoveries are less intuitive. For instance the economists Andrew Oswald and Nattavudh Powdthavee has discovered that teenagers and the elderly are actually rather happy. “Your late 30s are the most unhappy period of your life,” Oswald cheerfully tells me. Thanks, Professor, from a grateful 35-year-old.

Continue reading “The Economist’s Guide to Happiness”

Economists might not be an obvious source of advice on parenting, the intricacies of etiquette or the dark arts of seduction. Even seen in the most flattering light, the economist can appear a remote figure: resolutely rational, untroubled by indecision or weakness of the will, a Spock-like creature too wedded to theory to be able to relate to mere human concerns. At worst he can look like a social naïf, if not an outright sociopath; a man (or occasionally a woman) who knows the price of everything and the value of nothing.

At least such is the traditional image of the economist; and who is Dear Economist to demur?

He is not, it would be fair to say, as sympathetic as more traditional agony aunts. He is blunt. He is rude. He loves jargon. When confronted with a woman who enjoys the dating game but worries that she might leave it too late to settle down, Dear Economist offers not a shoulder to cry on but a frank explanation of optimal experimentation theory. When a dinner party guest wonders how much to spend on a bottle of wine, Dear Economist ignores the Good Wine Guide and reaches for the Journal of Wine Economics.

But – and this is the crucial question – is the advice any good? In the six years since the Financial Times entrusted me with the awesome responsibility of answering letters to Dear Economist, I have happily donned the persona and issued my instructions. But I have not asked too closely how they were received – until now.

Over the past few weeks, I’ve been writing to some of my correspondents to ask them what they made of my advice, whether they took it and how things worked out. Here, for the first time, are their responses.

Continue reading “Dear Economist: The readers respond”

First published: Parade Magazine, 10 May 2009

Not very long ago, Americans were terrible savers. In 2007, the average person put aside 60 cents of every $100, or .6% per paycheck. However, the current economic downturn has shocked us into depositing more at the bank. As of February, the personal savings rate was more than 4%. That’s a big improvement, but it’s still half of 1980s levels, when Americans routinely socked away 10% of their paychecks. Why is saving so hard? And how can we be smarter savers?

Behavioral economists—researchers who mix psychology and economics—have uncovered three reasons why people find it so difficult to save. The first is temptation: Although we often later regret it, we just can’t resist spending. The second is lack of understanding: Our brains can’t quite grasp the profitability of saving. The third is optimism: We believe that everything will work out, even if we don’t save.

Continue reading “How to be a smarter saver”

Economic Gangsters: Corruption, Violence, and the Poverty of Nations, by Raymond Fisman and Edward Miguel, Princeton: Princeton University Press, 240 pages, $24.95

Many economists think corruption is a rational response to irrational incentives. The World Bank’s “Doing Business” database lists 40 countries, from Iraq to Ethiopia, in which legally acquiring the necessary permissions to export a single standard cargo container takes more than one month. The more difficult it is to do something legally, the larger the temptation to do it illegally. Small wonder that in developing countries, few people make more money than customs officials.

If perverse incentives create corruption, that suggests a simple solution to an age-old problem. Hence for the last decade or so the mantra of aid agencies has been “institutions matter”—even if it is not clear what humanitarians are supposed to do with this insight.

There is a popular alternative view that says corrupt countries are corrupt not because the incentives are perverse but because they’re stuffed full of crooks, born and bred. In this view, corruption is cultural, and poor countries are poor because their citizens are dishonest (or lazy, or fools).

Into this controversy strode two economists, Raymond Fisman of Columbia and Edward Miguel of Berkeley, with a 2006 research paper that was brilliant and trivial in roughly equal measure. Fisman and Miguel realized that to test the two theories about corruption, you would ideally need to pluck people from all over the world, place them into a community whose laws they could ignore with impunity, then see who cheated and who was honest.

Impossible? Not at all. The United Nations in Manhattan kindly provided guinea pigs for just such an experiment. Diplomatic immunity meant that parking tickets issued to diplomats could not be enforced. The decision to park legally or not, therefore, was a matter of each person’s conscience…

Continue reading “The development dilemma: Can parking tickets explain why poor countries are poor?”

FT Magazine, 6 December 2008

Bob Annibale’s corner office, high up in one of London’s few real skyscrapers, overlooks the Thames and the Millennium Dome from one window, Greenwich Park and the Royal Observatory from another. It is the kind of enviable perch you’d expect Citigroup’s senior treasury risk manager to enjoy. But that is the job Annibale left three years ago; now he is Citi’s “global director of microfinance”…

Continue reading “Are loans at 100 per cent APR good for the poor?”

Comparisons between today’s financial crisis and the 1930s are looking less strained by the day. So what better to lighten the tension than to revive everybody’s favourite Depression-era board game, Monopoly?

Continue reading “Econopoly”

Not that much of a debate: Pete Lunn says it is a big deal, and I agree. (Prospect originally asked me to debate the proposition “Is behavioural economics a revolution?” and then changed the motion after the debate was finished…)

Still, we have plenty about which to disagree. An extract:

Continue reading “Is behavioural economics a big deal? Prospect debate”

There is no idea so good that it cannot be spoilt by politicians, and such a fate is now befalling libertarian paternalism – recently rebranded as “nudging”. Libertarian paternalism is a conscious effort to help people make better choices without forbidding anything. It embraces anything from assuming that you would like to contribute to a company pension unless you say otherwise, to placing the doughnuts in a quieter corner of the supermarket.

The concept, courtesy of two US professors, Richard Thaler and Cass Sunstein, deserves attention because it is a thoughtful response to a deep policy problem. It has been seized instead by David Cameron’s opposition Conservative party in the UK as a free lunch, sound bite and flag of convenience all rolled into one.

Continue reading “Nudges are for markets not nations”

First published: Parade Magazine, 13 July 2008

Not everything that seems like a bargain will really end up saving you money. Luckily, behavioral economists are finding the gimmicks and tricks that regularly lure us to spend more. Read this—and don’t get caught!

ANYTHING YOU BUY ON CREDIT
Putting a purchase on a credit card with a zero interest rate may seem like a good deal, but you’re less likely to shop frugally when you’re using it—or any kind of credit card. MIT researchers Drazen Prelec and Duncan Simester ran an experiment in which two groups of subjects were allowed to bid on tickets to sporting events. One group had to pay in cash within 24 hours, the other with a credit card. The credit-card group offered much more for the tickets—and more than twice as much for a sold-out game. Other studies suggest that people who pay with plastic spend more and tend to forget how much they spent.

Continue reading “Bargains that aren’t”

For us, the financial journalists, the credit squeeze is a lot of fun to write about. For you, the honest newspaper subscriber, it may not be so much fun to read about. This stagflation business – inflation and low growth all at once – is so depressing. You cannot look to the authorities for comfort. Your government blew all the cash in the good times, unless you happen to live in the Gulf or in China. Your central bank, desperately trying to sound both sympathetic and hawkish, is changing position more frequently than a presidential election candidate.

Continue reading “An anti-stagflation strategy: move back home”

“”But that’s rational!” spluttered one venerable journalist, when I told him about this. Well, yes–it seems so, doesn’t it?”

An extract from my debate with Dan “Predictably Irrational” Ariely.  It’s the first debate to be hosted by Amazon’s “Omnivoracious” Blog – check it out.

I have a new video section on the site; notable links include a serious talk at Google and a not-so-serious appearance on The Colbert Report. More reviews are coming in, too.

I have a piece up at Forbes in part inspired by chapter 8 of “The Logic of Life”. It asks why governments are so determined to back losers rather than winners in industrial policy:

There’s a more sinister logic behind the pattern of government favoritism. Namely, firms in emerging, competitive industries have virtually no incentive to lobby for government hand-outs, while firms in aging, shrinking industries have the most to gain.

Continue reading “Rewarding losers”

First published in Waterstones Book Quarterly

Life often seems to defy logic. When a prostitute agrees to unprotected sex, or a teenage criminal embarks on a burglary, or a heavy drinker downs another whiskey, we seem to be a million miles from rational behaviour. None of it makes any sense – or does it?
Using some remarkably clever techniques and imaginative perspectives, a bold new breed of economists is busily demonstrating that life makes more sense than anyone would have thought. Using every clue that comes to hand, from a laboratory brain scan to the hidden patterns in old maps, they are discovering that there is a surprisingly rational basis to the seemingly irrational world around us.

Continue reading “Waterstones Book Quarterly: The Logic of Life”

Feature story, FT Magazine, 26 January 2008

In 1737, John Harrison, a self-taught clockmaker from Yorkshire, stunned London’s scientific establishment by presenting an idiosyncratic solution to the most important and notorious technological problem of the 18th century. He was hoping to win a then-fabulous prize of £20,000 (about £5m today) for anyone who could devise a way for a ship’s navigator to determine its longitude and therefore its position at sea. Harrison’s approach was to build a clock that would keep Greenwich time faithfully; by comparing local time (measured using the position of the sun) with the time in London, the navigator would know how far east or west the ship had sailed. The theory was sound, but given the rolling of ships and changing temperature and humidity, the leading scientists of the day – including Sir Isaac Newton – reckoned that a sufficiently accurate clock would be impossible to build. Harrison proved otherwise.

The longitude prize, sponsored by the British government, was not unique. Prizes were also offered in France for a functional water turbine, and for a method of preserving food for Napoleon’s armies. The latter prize quickly inspired the tin can, more of a blessing than food snobs might acknowledge.

But such prizes then fell out of fashion. For commercial innovations, we now rely on patents to encourage and protect innovators. Basic research is funded not by prizes but by grants.

And yet two centuries after tinned fish hit the market, the way we look for solutions has come full circle. Governments, private foundations and even corporations are rediscovering the value of offering prizes for good ideas. Rather than paying for scientific and engineering effort as they have done for the past 200 years, idea-hungry patrons are returning to the 18th century, and paying for results.

Continue reading “Cash for answers”

The Times (London) has published two nice extracts from the Logic of Life, plus me reading from the book.

Continue reading “The Logic of Life in the Times”

As a columnist (which is fancy for “journalist in jammies”), I ought to personify the conventional wisdom that distance is dead: All I need to get my work done is a place to perch and a Wi-Fi signal. But if that’s true, why do I still live in London, the second-most expensive city in the world?

Continue reading “Wired: How Email Brings You Closer to the Guy in the Next Cubicle”

Slate is publishing two excerpts from “The Logic of Life“. Here’s the second one:

Perhaps a more positive way to express the trend is that women’s entry into high-powered careers has given them the option to get divorced if the marriage isn’t working out; and the recognition that that option is important is one of the factors encouraging women’s entry into high-powered careers.
That may sound a little abstract, but economists Betsey Stevenson and Justin Wolfers discovered a chilling example of the way that the increased availability of divorce empowered women.

Continue reading “Divorce is good for women”

Slate is publishing two excerpts from “The Logic of Life“. Here’s the first one:

Ever since John von Neumann’s game theory promised to help us understand love and marriage, economists have been interested in how people choose their partners and how relationships work.

Continue reading “How the pill drove men to drop out of college”

As I enter the porter’s lodge at St Hugh’s College, Oxford, I fleetingly reflect that I may be about to receive an intimidating tutorial from the college principal, Andrew Dilnot. It is not that the economist has a stern reputation, but today’s circumstances are unusual. He recently stepped down from presenting More or Less, a BBC Radio 4 series about numbers in the news. I have been recruited as the new presenter, and am ready to be patronised – or worse.

I needn’t have worried: as he strides into the lodge in a pale brown linen suit and blue tie, Dilnot’s smile is genuine enough, and as we walk together through north Oxford’s leafy residential streets, he is more eager to identify shared acquaintances in the world of economics than to lecture me on the art of radio presenting.

Continue reading “Lunch with the FT: Andrew Dilnot”

I have a new piece up at Forbes:

…the most reasonable judgment is that flying fresh food around the planet carries an environmental cost of no more than a few cents per meal. That sounds astonishing, but perhaps it shouldn’t be. Those Chilean grapes aren’t flying first class: They’re packed tight to save money, which incidentally saves on pollution. The most wasteful part of the journey is when you and I hop in our cars and drive to the shops and back with a bag of potato chips in the trunk of the car.

You can read the whole thing here; the Forbes piece also contains links to the research.

I’m a real cappuccino lover myself, but many of my female colleagues don’t seem to go for the stuff. I’d never thought too much about that until recently. I suppose I carelessly assumed that men and women have different tastes, probably as a result of different social influences. Now I know better: my female colleagues don’t go to coffee shops because they’re shabbily treated when they get there.

Continue reading “Smell the discrimination”

FT Comment, 27 October
An economist once dubbed “champion of choice” by The Guardian newspaper would like your employer to organise an exercise hour for you and your colleagues. Professor Julian Le Grand was once a social policy adviser who had the ear of Tony Blair.

Now he has everybody in Britain sitting up (sorry) and taking notice. Even though Prof Le Grand intends to offer an opt-out to anyone who doesn’t much care for the idea of doing a bench-press with the boss as spotter, that doesn’t make the idea appealing.

Continue reading “Supernanny insists you have the right to opt out”

The Chicago shopping mall’s parking lot is packed. The white-haired grandfather pulls into a space with a 30-minute limit, not nearly long enough for the leisurely lunch we have planned. “We should be fine here. I don’t think they check that carefully,” he explains in gentle but distinctively Brooklyn tones. I look across at him and ask, “Was that a rational crime?” He doesn’t hesitate for a second. “Yes it was.”

The theory of rational crime is one of half a dozen explosive ideas that won Gary Becker the Nobel prize in economics.

Continue reading “It’s the humanity, stupid: Gary Becker has lunch with the FT”

The World Series of Poker in Las Vegas in 2000 attracted a record 500 players. Over four days, contestants were gradually eliminated until just two men were left to face off in poker’s flagship game, Texas Hold ‘Em. The more experienced player was a living legend named T.J. Cloutier, a 62-year-old Texan road gambler who was regarded by many as the best in the world. His opponent was a 37-year-old computer scientist from California named Chris Ferguson who had only been playing World Series games since 1996, never finishing higher than fourth place.

Continue reading “The poker machine”

Originally published in Slate.

Here’s a little secret that Starbucks doesn’t want you to know: They will serve you a better, stronger cappuccino if you want one, and they will charge you less for it. Ask for it in any Starbucks and the barista will comply without batting an eye. The puzzle is to work out why.

Continue reading “Starbucks economics”

At first it looked as if I would never get to have lunch with Thomas Schelling, this year’s winner of the Nobel prize for economics. When I first tried to see him, he told me to wait a week or two, so he could “get over the celebrity activity” surrounding the prize. We picked another date but then he had to cancel: “I have to be at the Swedish Embassy and the White House,” he e-mailed. “I knew I should have asked my wife… sorry to confuse you with my confusion.”

Continue reading “Lunch with the FT: Thomas Schelling and the Game of Life”

Originally published on the New York Times op-ed page, 16 December 2005.

At this week’s ministerial meeting of the World Trade Organization in Hong Kong, negotiators have once again hit an impasse over how and when to open the rich world’s agricultural markets to farmers in the poorest countries. What few people have realized, however, is that poor countries don’t have to wait for the World Trade Organization. There is plenty that they can and should do to help their own farmers to trade.
Imagine a dream scenario in which the trade ministers emerge from their negotiations this weekend holding hands and proclaiming an end to all agricultural protectionism. What then?

For, say, a banana picker in the Central African Republic, not a lot.

Continue reading “Yes, we have bananas. We just can’t ship them.”

On a sunny day in London you can purchase a cappuccino and sip away as the capsules on the Eye, the capital’s landmark Ferris wheel, rotate high above you, occasionally passing between you and the sun… one of life’s simple pleasures. Everywhere you look around the Eye you can see vendors with scarce resources, trying to exploit that scarcity. There is only one coffee bar in the immediate area, for instance. There is also a lone souvenir shop doing brisk business. But the most obvious example is the London Eye itself. It towers over the majority of London’s most famous buildings and is the world’s largest observation wheel. The scarcity power is clearly considerable, but it is not unlimited: the Eye may be unique, but it is also optional. People can always choose not to go on it.
Further along the river, the Millennium Dome is similarly unique, ‘the largest fabric structure in the world’, boasts the local authority. Yet the Dome has proved a commercial disaster because uniqueness alone wasn’t enough to persuade people to pay enough to cover the vast costs of its construction. Business with scarcity power cannot force us to pay unlimited prices for their products, but they can choose from a variety of strategies to make us pay more. It’s time for the Undercover Economist to get to work and find out more.

Continue reading “Go Figure – An extract from The Undercover Economist”

At first, Steven Levitt is not sure where we should go for lunch. We’re meeting in his home city of Chicago, a place I’ve never visited, so I haven’t a clue what to suggest. He says he will get some advice and eventually comes up with the South Water Kitchen, a downtown bar and restaurant a few miles from his office at the University of Chicago.And so here, over a can of coke and an $11 hamburger, I meet the surprisingly uncontroversial looking Steven D. Levitt. Surprising because, despite his average hair, his average height and his very average shirt and chinos, the 37-year-old Levitt is one of the most notorious economists of our age.

Some critics compare him to Joseph Goebbels. Others say that he is a rabid liberal. His peers say that he has the most brilliant mind of his generation. The publishers of his first book describe him as a “rogue economist”.

Continue reading “Odd Numbers: Steven Levitt has lunch with the FT”

It has been a year since Apple Computer launched its Keynote software in an attempt to win a share of the vast market for presentation tools, dominated by Microsoft’s PowerPoint.

Continue reading “A question of presentation (FT features)”

For many people, the first time they heard of the Pentagon’s plan to accept bets on terrorist activities was when the bizarre-sounding idea was abandoned.

The Policy Analysis Market, championed by the Pentagon’s research laboratory, the Defence Advanced Research Projects Agency (Darpa), would have traded futures contracts that paid out if particular events, including terrorist attacks, took place. It was widely attacked as both ghoulish and nonsensical.

Tom Daschle, the Senate Democratic leader, complained that it “could provide an incentive actually to commit acts of terrorism”.

But although the Pentagon may have abandoned its proposal, the controversy will not kill the essential idea of using betting to make predictions. Not only do many economists believe this method beats other forecasting techniques but they have also been demonstrating it for years. Precursors of the Policy Analysis Market have been used successfully to predict election results and even to make corporate sales forecasts.

Net Exchange, the company that developed the technology Darpa proposed to employ, hopes that it will be widely used both in the public and the private sector to replace more bureaucratic methods of forecasting. “We were talking to pharmaceuticals companies before all this and have been talking to them since,” says Charles Polk, Net Exchange’s president.

Darpa was hoping to exploit a simple idea: markets collect information by offering money for it. For instance, opinion polls predicting election results are notoriously unreliable because people often lie to pollsters. But offer the wrong odds on George W. Bush’s re-election and punters have every incentive to take the bet. In doing so, the theory goes, they reveal information more truthfully than they would to an opinion pollster. Economists and entrepreneurs are now developing information aggregation markets solely designed to gather information.

These markets create an asset to answer a specific question – for instance, a security that pays out $100 if, and only if, Mr Bush is re-elected. If his chances are 50-50, the asset should be worth about $50 (leaving aside complications).

The theoretical impetus behind this is the “efficient markets hypothesis”, which states that the market price of an asset accurately reflects all available information. If the “Bush to win” asset were priced at $30, well informed investors could take advantage by buying it and, in doing so, would quickly correct the price.

Following the collapse of the technology bubble, the efficient markets hypothesis looks a bit shaky. But proponents of information markets argue that they do not need to be perfectly efficient to be useful; they merely need to do better than other forecasting methods.

Robin Hanson, associate professor at George Mason University in the US and an adviser to Net Exchange, explains: “You have to compare these markets to the alternative. People point to market overvaluation during the bubble but the press and the analysts did not do a better job than the market of calling stock prices. You might point to individuals who did better than the market; but without hindsight, which advice would you follow?”

Information aggregation markets are particularly attractive when different people know different things but a bureaucracy or hierarchy is obstructing the free flow of information. The US intelligence services have been criticised for failing to co-ordinate information between their various agencies. Corporations often face similar difficulties.

Hewlett-Packard, the US computer company, has already appreciated this point. Kay-Yut Chen, a company researcher, teamed up with one of the field’s pioneers, Charles Plott of the California Institute of Technology, to use information markets to make better internal sales forecasts. These markets were minuscule compared with typical financial markets; they each operated at evenings and lunch times for a week, with fewer than two dozen active participants trading assets that paid out just $1 if future sales or revenues fell within a specified range.

Although the markets were thin and operated for low stakes, they performed better than Hewlett-Packard’s official sales forecasts, perhaps because the market traders came from different divisions in the company and had different information to bring to the market.

The trouble with such illiquid markets is that few trades are made and it is easy for one participant to blunder in and move the price a long way. Thin markets are also unlikely to attract the attention of informed speculators, because there is little money to be made.

While the experience of Hewlett-Packard showed that even thin information markets can beat other forecasting methods, it is better for an information aggregation market to have lots of trading activity. Prof Plott comments: “Thin markets can work; but I’d rather have a thick one.”

To get round the liquidity problem, Hewlett-Packard has looked for alternative economic mechanisms. Mr Chen explains: “When you run the market inside a corporation, you need knowledgeable people. But these people are busy and it’s hard to get them to play often enough.”

He and his colleagues developed a new approach, which is now being field-tested: instead of running a market, they run a one-off survey asking people to assign probabilities to different outcomes. They are later rewarded for their accuracy. The survey results are aggregated using a mathematical formula rather than a trading floor.

Prof Hanson’s design for Net Exchange and Darpa took a related approach to get round the problem of thin markets, creating a hybrid of an information aggregation market, which elicits a little information from each participant, with a method akin to Mr Chen’s, which is designed to obtain more. Prof Hanson claims that by pooling related markets in this way, his hybrid design increases liquidity, a necessary precursor to analysing the kind of political events that would have interested the Pentagon.

Prof Plott prefers to improve market liquidity more directly, by attracting more participants with information markets that are faster, easier and more fun to use. He is guarded about the hybrid methods, which have yet to establish a record.

Even if Prof Hanson’s design had worked perfectly, most people view the idea of betting on terrorist attacks with distaste. However, according to Mr Polk of Net Exchange, the so-called “terrorism futures” project was never designed to predict such attacks but to serve as proxy for general events such as a breakdown of the Middle East peace process.

“You could never try to predict or prevent a particular attack using the Policy Analysis Market,” he say. “It would be absurd.”

Prof Hanson also recognises the objections to such a market. “There are two concerns. To put it simply, one is that bad people might give up their information and make money. The other is that bad people might be willing to lose money to spoil the information in the market.”

Since the sums involved are small, neither Prof Hanson nor Mr Polk was worried about terrorists making money out of Darpa. Both suggest that it would also have been hard to rig the market. “It is very hard for manipulators to remove all of the information from the market,”, claims Prof Hanson. Mr Polk argues: “If you wanted to move the price in the wrong direction, you would have to make a lot of trades. That increase in volume would be noticed and is important information in itself.”

Although the Darpa project was cancelled, Mr Polk and Prof Hanson are hopeful that other firms will use their technology. “The biggest benefit is when you have a really important question to ask, which is why pharmaceuticals companies might be interested in using the technology to choose between different research projects,” suggests Prof Hanson.

But Prof Plott, who has tested information aggregation markets with several companies, sees serious political obstacles.

“These markets will eventually prove their worth but you have to be very careful taking the idea outside the laboratory.

“The press coverage is blatantly ignorant. Most companies treat their experiments with information aggregation markets as proprietary, because managers are afraid of being publicly portrayed as idiots.”

Prof Plott suggests that, in trying to overcome this conservatism, some proponents of information markets have claimed too much: “Net Exchange probably proposed more than it should have proposed to Darpa. But the problem is, in order to get a client to bite, people are tempted to promise more than they can deliver.”

Make it twice as good with half the effort
Are you feeling lazy? Me too. There are so many good reasons to slack off at the moment. Like Wally in the ‘Dilbert’ cartoon strip, I’m trying to cut down my coffee intake to double figures – which means I’m none too quick on the draw these days. The depressing state of the world doesn’t exactly inspire me to Herculean feats either. But the lassitude is most all embracing when I’m gazing out of the office window at the sunshine. In such times, who can summon the energy to lift a mouse-clicking finger?

Continue reading “Presentations the Lazy Way”