Tim Harford The Undercover Economist

Articles published in August, 2011

Beware online confessions

Why do we reveal so much about ourselves on the web, especially since we also claim to be worried about privacy?

In the fledgling days of Facebook, when it had just a few thousand users and its founder, Mark Zuckerberg, was a student, he boasted to a friend over an instant message service about all the personal information he’d acquired.

“what!? how’d you manage that one?” was the response.

In reply, Zuckerberg typed: “people just submitted it / i don’t know why / they “trust me” / dumb f[****]”. (It is ironic that a private conversation about privacy was leaked, to the Silicon Alley Insider website.)

In fairness to Facebook, these are different times and it is a different organisation. And yet the question Mr Zuckerberg’s friend asked remains fascinating. Why do we reveal so much about ourselves online, especially since we also claim to be worried about privacy?

Three behavioural researchers, Leslie John of Harvard Business School and Alessandro Acquisti and George Loewenstein of Carnegie Mellon University, have been trying to figure out the answer.

John and her colleagues wanted to explore the kind of contextual cues that persuade us to bare our souls. In a series of experiments, they used online surveys to ask intrusive questions, exploring what sort of cues might provoke revealing answers.

In a survey posted on a New York Times blog, billed as “Test Your Ethics”, almost a thousand respondents answered questions about whether they had cheated on their taxes, omitted to tell a partner about a sexually transmitted disease, or filed a false insurance claim. For some participants, the questions were asked directly – “have you ever done this?” with a yes/no answer. A follow-up question then asked them to rate the morality of the practice. But for other participants, the questions were indirect: asking people “if you have EVER done this behaviour, how unethical do you think it was” and similarly, “if you have NEVER done this behaviour….” The questions demand the same information, but more people admitted to the dubious behaviour when the questions were asked indirectly. Intriguingly, 88 per cent of respondents also supplied their email address.

Later experiments tested the kind of web design that would provoke candour. Students were invited to answer questions on a laptop, with different students being exposed to identical questions underneath three different headers. One looked very official, with the Carnegie Mellon crest on the top, entitled “Carnegie Mellon University Executive Council Survey on Ethical Behaviors”. Another was neutral. The third asked, “How BAD are U?”, with a perky red font and a logo showing a little devil.

Objectively, it would not seem very smart to divulge information to the little devil site. “There is a wealth of research showing it is more dangerous to divulge on these websites,” says Ms John. Yet that is what happened. “I find the result quite alarming,” she told me.”

There are two obvious alternative interpretations of the results. One is that students, who were from CMU, didn’t care to confess their sins to an official-looking site. (HM Revenue and Customs may be trustworthy, but they are the last people I’d tell if I was cheating on my tax return.) Yet the neutral website drew similar results to the official-looking one, which suggests that the results were not down to a fear of punishment. Nor is there any indication that the little devil website encouraged students to think it was cool to have unprotected sex or take drugs (the researchers checked this). Instead, it somehow persuaded them to banish privacy concerns from their minds.

Online, there are many more influences guiding our disclosure than the simple appearance of a site. But this research is an important reminder that we are easily nudged into revealing more than, on careful reflection, we might wish to.

Also published at ft.com.

Taming the patent troll

Could a market for intellectual property ever work smoothly?

Trolls, as any three-year-old can tell you, lurk underneath structures they didn’t build and pop up at unexpected moments to get in the way and make unreasonable demands. And “patent trolls”? They do much the same thing, nosing around patent systems and buying up intellectual property, often of questionable quality, and using it to extort money from genuinely innovative companies by threatening protracted and expensive legal action.

I am sympathetic to the general point that many patents, and their potential for abuse, actively discourage innovation. But if we’re to solve the problem, it’s worth pinpointing where it lies – and the rise of the trolls is a symptom, not the cause.

The three pillars that enable patent trolling are: the existence of absurd patents; the forbidding cost of the legal process; and the business model of buying up patents as assets in their own right, rather than building blocks for innovation. National Public Radio’s This American Life recently discussed all three elements but focused on the last: the story is more compelling with a bad guy, after all. One contributor even compared patent trolls to a mafia collecting protection money.

But I’d look first at the patents themselves, many of which are for ideas that seem vague, broad and unoriginal. There are jokes, such as the “swinging on a swing” (US patent 6368227). But more serious are patents on, for instance, running an auction over the internet (US patent 7702540) that could surely have been dreamed up without the incentive of an intellectual property deed. The laxity of the US patent system is compounded by its sympathy for applicants: they seem to get the benefit of the doubt until a costly legal process says otherwise.

If patents were sensibly scrutinised and legal proceedings cheaper (big “ifs”, it’s true) there would be nothing wrong with buying up patents from the original inventors and then trying to collect licence fees for their use.

Could a market for intellectual property ever work smoothly? This is the dream of, among other people, Nathan Myhrvold, former chief technology officer of Microsoft. Myhrvold runs Intellectual Ventures, a company which is either the world’s worst patent troll or a leader in creating a market for inventions, depending on who you listen to. Myhrvold, with law professor Mark Lemley, has argued that when patents are licensed, the details of the deal should be a matter of public record. This would help provide the kind of transparent information to get a market operating, one which would grease the wheels of innovation rather than rusting up the gears.

But would this be enough? The economists Joshua Gans and Scott Stern argue that there are formidable obstacles in the way of setting up a well-functioning “market for ideas”. The basic problem is that patentable ideas are supposed to be unique, and ideas are typically only useful as part of an accumulation of other ideas. As a result, negotiations over patents are vulnerable to “hold-up” as various intellectual assets are acquired. As an analogy, imagine trying to buy land to build a railway line: each property owner has the incentive to hold the entire deal hostage.

So what is the solution? It might look a lot like a patent troll: a company with a large portfolio of patents it doesn’t itself use. It would put together package deals. With a reputation to uphold, the patent troll would have an incentive to make things run smoothly, rather than behaving like a cranky old man with a house on the planned railway track.

Is this just a children’s fairy tale? It is for now. But with a more sensible patent system, even the trolls may become useful members of society.

Also published at ft.com.

In praise of the nowcast

Technology is making it possible to collect and disseminate – in real time – information flowing through computers

Switch on any business TV channel and you’ll be bombarded with scrolling quotes and jagged graphs. It’s all very well if you like to watch that kind of thing, but the flow of financial data can lull us into an illusion: that we understand what is happening in the economy at the moment that it happens. We don’t.

Take those share prices: each one is a miniature forecast of future profits for the company in question. They may or may not be good forecasts, but what they are not is a measure of real economic activity today: the price of shares in BP reflects today’s supply and demand for shares in BP, not today’s supply and demand for petrol.

Away from the financial markets things are even more obscure. We have indices of house prices, measuring how they have changed over the past month, quarter or year. But the houses bought and sold last month are not the same as the houses bought and sold the month before: are they more expensive because housing itself is more expensive, or because fewer studio flats and more penthouses were sold?

As for measures of retail sales or unemployment – or, above all, gross domestic product, the summary measure of economic activity – this all arrives with a delay, sometimes of years. We must judge conditions today by looking in the rear-view mirror. Regardless of what Bloomberg TV may tell us, much of today’s economic conditions will only be understood in 2012 or 2013.

All this may now be changing, because it is now possible to gather, in real time, information flowing through computers. For instance, a curious piece of research was published last year by three computer scientists, Johan Bollen, Huina Mao and Xiao-Jun Zeng. The paper, “Twitter mood predicts the stock market”, has a self-explanatory title. The researchers searched Twitter for expressions of mood such as “I’m feeling happy”, and discovered that expressions of calm predicted movements in the Dow a few days in advance.

If this effect is real, it will almost certainly be exploited by automated trading strategies. But other computer-based indicators may prove more useful and more lasting, because they are tied not to mood but to actual activity.

The most obvious, perhaps, is the information that we give Google every time we make a search. Much of what Google knows about us as individuals – based on our use of Gmail, or the physical locations from which we access the search engine – is information that it will keep to itself. But the search engine giant does release data on search volumes: how many people in the UK are searching for “estate agents”, for instance, or for “jobs”, “JSA” (Jobseeker’s Allowance) or “unemployed”? Two analysts at the Bank of England, Nick McLaren and Rachana Shanbhogue, have been examining whether the volume of these search terms tells us anything useful about economic activity. It seems that it does. For example, searches for “JSA” are correlated with the official unemployment data gathered by the Labour Force Survey – but are available a month earlier. For the Bank’s Monetary Policy Committee this is a useful peek at the state of the economy at the moment that it makes its decisions.

The most striking research of all, for my money, was published by Nikolaos Askitas and Klaus Zimmermann as an IZA working paper in February. Askitas and Zimmermann used data from a new system designed to collect road tolls: most heavy vehicles in Germany have GPS-based technology that tracks their movements and levies the right toll. Unsurprisingly, their “toll index” provides a very effective “nowcast” of German industrial production. Perhaps we can look forward to the day when real economic data are collected and disseminated almost as easily as the charts on business television.

Also published at ft.com.

Dubious data cut down to size

A doctoral student found that national income is correlated with the average length of the erect penis in a country

There’s no doubting the smash-hit economics research paper of the summer. It is “Male Organ and Economic Growth: Does Size Matter?”, a working paper written by Tatu Westling, a doctoral student at the University of Helsinki.

Let’s get the conclusions of the article over with first, because there is a serious lesson, somewhere. Westling discovers that national income is correlated with the average length of the erect penis in a country. Specifically, medium-sized erections are correlated with the highest national income (in 1985, as it happens) and small erections are associated with economic growth between 1960 and 1985.

To reach his conclusions, Westling performed a statistical technique that is known in the trade as a “cross-country growth regression”. Beloved of (some) development economists over the past couple of decades, it has been made possible partly by computers. But its deployment depends mostly on the careful cultivation of data sets describing GDP, political system, educational attainment and other variables, for large numbers of countries over many years. You throw the numbers into the computer and see which features of a country’s economy are correlated with economic growth. Westling simply added some rather unconventional data.

This strategy has produced many answers – rather too many, in fact. In 2002, the development economist Romain Wacziarg wrote, with a touch of acid: “the list of proposed panaceas for growth in per-capita income has included high rates of physical-capital investment … low fertility, being located far from the equator, a low incidence of tropical diseases, access to the sea … and suitably conditioned foreign aid.” I have omitted 17 of Wacziarg’s “panaceas”, and he pointed out that the list is “growing and non-exhaustive”. To it, we can now add erect penis length of 13.5cm – what Westling has demonstrated is “the GDP maximising size”.

Westling claims that he uses standard statistical methods and that his results are robust; that the correlation is both highly statistically and economically significant – in other words, the result is big enough to matter (please – no giggling) and is unlikely to be a coincidence.

Well, well. What are we to make of this? I asked Westling how he would characterise his research paper, and he suggested the term “sardonic economics” – and, he added, “Scientifically, this paper is probably as worthless as much of contemporary economics.”

Westling is a little too harsh, but only a little. Cross-country growth regressions have been used to demonstrate a vast number of statistical relationships, some mutually contradictory. (Particularly notorious is the vast and unfulfilling literature showing that foreign aid increases growth, or does not increase growth, or leads to growth under certain conditions.) Such regressions are not compelling, because the number of different statistical relationships that might be tested is truly vast, and the data themselves are sometimes sketchy. (Although few data sets are as of dubious a provenance as Westling’s data on penile length, a fact he cheerfully acknowledges.)

Cross-country growth regressions have their uses, given a sense of perspective about how fragile their results can be, and how difficult it can be to turn a statistical correlation into a workable policy. But if you are wondering how much weight to place on a statistical technique that can produce a robust connection between the size of a penis and the size of an economy, you are right to do so.

Unless, of course, the apparently ludicrous relationship is real? I asked Westling about this. “One biologist suggested to me that testosterone might explain something,” he responded. I doubt it.

Also published at ft.com.


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