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Date: Thursday, 18 Sep 2014 15:00

(Photo: Nishanth Jois)

(Photo: Nishanth Jois)

What does it mean to pursue something that everyone else think is nuts? And what does it take to succeed? That’s what this week’s episode is about. It’s called “Outsiders By Design.”  (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.)

You’ll hear about three radical thinkers whose lives didn’t proceed in a perfectly straight line. In each case, their work was ridiculed or ignored — but ultimately, they triumphed. This podcast was inspired by the recent death of the economist Gary Becker, whose firm belief in the rational choice model led him to publish works like “Crime and Punishment: An Economic Approach” and “A Theory on the Allocation of Time.” As described by the Harvard economist Ed Glaeser – a former student of Becker’s, who has appeared on this podcast before — Becker’s early work on the economics of racial discrimination caught the academy off-guard:

GLAESER: I think it’s impossible to overstate how radical it was. There are famous stories that Becker told about people leaving the room when he was giving a seminar, in a huff, saying, “I thought this would be about price discrimination.” It was something that was not at all treated with some degree of reverence. Because it doesn’t look or feel like economics.

You’ll also hear from Richard Posner, the federal judge and legal scholar with whom Becker wrote the spirited Becker-Posner Blog for many years.

Around the time Gary Becker was getting beaten up for his work, a young Australian doctor named Barry Marshall was just getting his career underway. Marshall came to have a radical notion about the cause — and cure — for ulcers. And, in a risky bout of self-experimentation, he proved he was right. But it would be many years before his findings were accepted, as explained by the medical journalist Norman Swan:

SWAN: The response, I think at least in Australia, was dominated by the response to Barry. He wasn’t from the establishment, not one of them. Barry was not seen as credible researcher. … And then the pharmaceutical industry found every angle they could do oppose it.

(Photo: Public Domain, Scan by the Library Foundation, Buffalo and Erie County Public Library)

(Photo: Public Domain, Scan by the Library Foundation, Buffalo and Erie County Public Library)

William Smith, a proto-geologist in 19th-century England, was also very much not a part of the establishment. And so when he created, after many years of solitary work, a map that laid out the invisible mineral underlayers of the British Isles, he was both condemned and plagiarized. The author and journalist Simon Winchester (whose books include The Professor and the Madman and The Men Who United the States tells us how Smith’s work was received by the Church of England:

WINCHESTER: These early maps evoked enormous hostility. Because the received wisdom of the day was that the Earth was created at a very specific point in time. [But] the early geologists drove a horse and cart through the biblical teaching that the earth was only 6,000 years old. So there was great hostility and these maps were seen to be instruments of heresy.

Despite the odds faced by all three men, they ultimately got their just rewards. Sometimes it can pay to be an outsider by design, as you’ll hear in the podcast.

Special thanks to the Australian Academy of Science for the use of their Barry Marshall interview footage.

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Date: Thursday, 18 Sep 2014 14:00

This is a transcript of the Freakonomics Radio podcast “Outsiders by Design

[MUSIC: The Civil Tones, “One Day, Again and Again” (from City Stoopin’)]

Stephen J. DUBNER: Hey podcast listeners. Our mission at Freakonomics has always been to tell you things you always thought you knew but didn’t … and things you never thought you wanted to know, but do. Now it is your turn to tell us something that we don’t know.

On Monday, October 6, in New York City, we’re launching a live radio game show called “Tell Me Something I Don’t Know” — and the audience, that’s you, is the star. So if you want to get up on stage and tell us something fascinating, please go to freakonomics.com/TellMe to sign up.

It might be  an idea, a technological breakthrough, a new line of important research, a set of strange facts, a historical wrinkle, or perhaps just a great, unasked question.

All we ask is that the thing you tell us is interesting (at least to you), worthwhile (at least a little bit), and — well, true (there will be a fact-checker on hand). There will also be prizes — and celebrity judges, including Malcolm Gladwell. Again, that’s Monday, Oct. 6, in New York City; sign up at freakonomics.com/TellMe. I cannot wait to hear what you’ve got to say.

[MUSIC: Clay Ross, “Army For You” (from Entre Nous)]

Simon WINCHESTER: No one took his ideas particularly seriously.

Norman SWAN: And he was ostracized and isolated they thought he was mad. In the Australian parlance, a complete nutter.

Ed GLAESER: You know, there were people who called him a great American humorist within the profession.

WINCHESTER: He was intellectually alone. He had got this idea and no one was particularly interested in it and by God he was  going to do it on his own if it killed him.

DUBNER: Does that sound like anyone you know? Maybe even sounds like you? If so, you might be interested in today’s show. We tell the story of three people whose lives – well, let’s just say their lives did not proceed in a perfectly straight line. This episode is called “Outsiders By Design.”

[THEME]

[MUSIC: Peter Mulvey, “Brady Street Stroll” (from The Knuckleball Suite)]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO, the podcast that explores the hidden side of everything. Here’s your host, Stephen Dubner.

DUBNER: This episode was inspired by the recent death of Gary Becker. Now since you listen to Freakonomics Radio, you may have heard of Becker; but most people probably haven’t. He was born in 1930, grew up in Brooklyn. He was a good student. At 16, he faced an important decision: join the handball team, or the math team. He was better at handball. But he chose math. He got into Princeton, where he studied economics, even though the fit wasn’t quite right.

Gary BECKER: When I first started taking economics I almost left it in my senior year because it seemed to me it didn’t deal with important social problems. Sociology, for example, did, and I tried thinking about sociology but I finally decided that it was a little too hard.

Richard POSNER: Well, he said that when he went to college his interest was in the traditional subjects that sociologists study.

DUBNER: That’s Richard Posner. He’s a judge on the U.S. Court of Appeals in Chicago; he also teaches law at the University of Chicago. He and Becker were longtime friends.

POSNER: But he thought that sociology was a weak field analytically; whereas, economics had a great deal more rigor. And he thought that the methods of economics could be used to deal with sociological issues.

[MUSIC: Pearl Django, “Spiral Waltz” (from System D)]

DUBNER: Becker went on to get his Ph.D. in economics at the University of Chicago. He took a course with Milton Friedman, who was in the midst of redefining the field.

GLAESER: So twenty years earlier, economics meant money and banking. It meant international trade. It meant finance. It meant a very clearly defined set of topics.

DUBNER: That’s the Harvard economist Ed Glaeser.

GLAESER: But there was no clear methodology. Economics was as much moral philosophy as modern social science during those early years. But there you have Friedman who comes along and says, ‘No, economics is about science, it’s about science to do with human beings.’ And Becker, before anyone else sees the implication of that, which is, well, if it’s about science applied to human beings why do I have to work on money and banking? Why can’t I work on something that seems like a more pressing social problem like discrimination?

BECKER: I would tell myself, it’s so obvious that discrimination is such an important topic. That economists don’t see it? Eventually they’re going to have to see it.

POSNER: So Becker’s approach is what’s called “rational choice.” Since it is assumed that people are rational, trying to maximize their utility, welfare, happiness, so forth, in all domains of life.

GLAESER: It’s impossible to overstate how radical it was. There are famous stories that Becker told about people leaving the room when he was giving a seminar, in a huff, saying, “I thought this would be about price discrimination.” So it is clear that this was something that was not at all treated with some degree of reverence, because it doesn’t look or feel like economics.

POSNER: It wasn’t regarded as an economic field and Gary was actually laughed at. He was rather bitter about the reception that his work had received.

DUBNER: Becker believed that any domain of human activity was worthy of an economist’s scrutiny. So it wasn’t just discrimination. He studied the economics of marriage, and child-bearing. He wrote a paper called “A Theory on the Allocation of Time.” At Harvard today, Ed Glaeser still teaches a 1968 Gary Becker paper called “Crime and Punishment: An Economic Approach.” Here’s how Glaeser introduces the idea to his students:

GLAESER: We are all criminals. Right? I certainly did not drive at 55 mph all the way to work today and I cannot promise that I have stopped at the red light on every street getting to this lecture. And I’m sure all of us have things that we all have violated to a greater or lesser degree. And I think that respect shown for people who have chosen to violate the law is crucial. If you think about just how immediately obvious the power of that observation to solve the puzzle, the supposed puzzle of recidivism. The fact that you sent people to prison and they decided to go back to doing crime again. If you have some view that they are sadly misinformed subhuman people who with a little bit of right thinking you can convince to go straight. Well, that is a puzzle. But if you view criminals as being people who made a decision to undertake a particular profession, why should sending them off to be a guest of the state for a couple of years cause them to change that choice of profession? That’s what made sense before and it’s what makes sense afterwards. That’s the immediate implication of viewing criminals as being rational.

[MUSIC: Clay Ross, “Forget The Math” (from Entre Nous)]

DUBNER: Becker had his supporters but more common were the detractors who thought his work lay somewhere between silly and worthless:

GLAESER: You know, there were people who called him a great American humorist within the profession. There’s that famous article on the economics of brushing your teeth, which is clearly sort of mocking the Beckerian approach. So clearly there were people who, you know, for whatever reason thought that this was embarrassing to the profession or beneath what economists should be about.

POSNER: He argued a lot, or was criticized a lot by another very distinguished economist at the University of Chicago, Ronald Coase, because Coase said economics is the study of the economic system, period, not of the entire social system. And of course Gary had a very more expansive view of the scope of economics. So that was a big disagreement.

GLAESER: I think it probably stung him more than he would usually admit. He was a pretty… Gary was not a let-it-all-hang-out kind of guy.

DUBNER: Becker preferred to keep his head down and do his work; he wasn’t big on self-advocacy:

BECKER: I was always a shy person particularly when I was younger so I wasn’t one of these aggressive persons who went out there, talking about everything they knew, it wasn’t my nature.

[MUSIC: Clay Ross, “Army For You” (from Entre Nous)]

DUBNER: What does the universe do with someone like this, someone who is out there on his own, following his own off-kilter curiosities and sensibilities? You know what the universe does: it ridicules them, or beats them up, maybe just ignores them. As we all know, if you want to get ahead in life, you have to color inside the lines. No excuses, no exceptions. No papers on the economics of crime. No more crazy ideas of any sort, thank you very much.

SWAN: They thought he was mad, in the Australian parlance a complete nutter.

[MUSIC: Clay Ross, “Street Sweep” (from Entre Nous)]

DUBNER: Around the time Gary Becker was getting beaten up for papers like “On the Interaction Between the Quantity and Quality of Children,” a young Australian doctor named Barry Marshall was just getting his career underway.

SWAN: I think it’s important to actually set the scene a little bit in terms of Barry and his personality.

DUBNER: That’s Norman Swan, he’s a renowned medical journalist in Australia who trained as an M.D., himself.

SWAN: There is a word in Australian English which is “larrikin.” And it just means somebody who is a bit of a lad, who doesn’t respect authority, but is honest and straight, but doesn’t mind irritating people and annoying people. And that was Barry. He came from essentially a working class family. And he got into medicine. But he wasn’t a star in medical school. He didn’t win any medals. And then he started training as a specialist physician. To get his specialist exams, he needed to do a research project. And he was looking around for one and he came across this shy, retiring, geeky pathologist called Robin Warren, who had noticed when he was doing biopsies of ulcers that there were these bacteria there. What were they doing there? But he needed some help. And just by happenstance, Barry was looking around for his research project, and this was a meeting made in heaven.

[MUSIC: Spencer Garn, “Corn Nuggets”]

DUBNER: The notion that bacteria might be causing an intestinal illness seemed far-fetched. It had long been held that the gastric environment was too acidic for bacteria to thrive; they were thought to be incidental to the action. It is tempting, in the modern age, to think about medicine as a massive body of known, provable science. But the more one knows about medicine, the more one will acknowledge how much is not known – even about something as seemingly straightforward as the ulcer.

SWAN: So there were all these ideas floating around. But as you know, Stephen, medicine is not very good on mechanism. Doctors post-hoc invent mechanisms in many ways to explain phenomena that they see. And the mechanisms did not easily explain ulcer disease. So nobody had an idea really of what caused them. There are all sorts of theories: stress, and indeed acute stress can cause ulcers, but people thought maybe chronic stress did. People thought that smoking increased the risk. And smoking does in fact increase the risk.

DUBNER: At the time, ulcers weren’t cured; they were merely treated, or managed, and not all that well.

SWAN: So when I trained in medicine there really was only one effective treatment if you had gastric or duodenal ulcer. And it was surgery. Where they cut nerves to the acid-producing areas of the stomach to reduce acid. And then they developed drugs which actually turned off the acid. And these were massive industries, not just for treating ulcers. Well, they didn’t treat ulcers, they actually treated the symptoms and settled them down. But it was very hard to get ulcer healing. So this was a multi-billion dollar international industry.

DUBNER: But Barry Marshall suspected that all this conventional wisdom might be wrong. He wondered if the ulcer – the foundation of a multi-billion-dollar industry which didn’t even cure it – if the ulcer were perhaps related to this squiggly bacteria that he and Robin Warren were studying. This bacteria came to be known as Helicobacter pylori. Marshall was working hard in the lab, trying to learn the bacteria’s properties.

MARSHALL: Well we did some animal experiments but we could not make the human bacteria infect animals such as rats or pigs…

DUBNER: To Marshall, the next step was obvious:

MARSHALL: …so I said, I have to test it out on a human.

DUBNER: Hmm. Feeding a potentially dangerous bacteria to human test subjects. Not so easy. And therefore:

MARSHALL: Well I decided that I was going to have to drink the bacteria myself and I thought what would happen is I’d have no symptoms for few years and then I’d have an ulcer and, Hallelujah, It would be proven.

DUBNER: Marshall first had to make sure his own gut didn’t already contain any of this bacteria. He asked a colleague for an endoscopy.

MARSHALL: And I think he knew what was going on. But he said, as he put the scope down me, he said Barry, I’m not going to ask why I’m doing this. So he took biopsies from me and they were all clear. No bacteria.

DUBNER: Marshall didn’t tell anyone what he was about to do. Not his wife, not his research partner, Robin Warren …

MARSHALL: If it was successful and I developed an ulcer, or stomach problems from the bacteria, that proved they are harmful and possibly I was right and they caused ulcers. But if nothing happened that means that my two years of research by then were wasted.

DUBNER: Barry Marshall drank the bacteria. The two years, it turned out, were not wasted.

MARSHALL: After five days I started having vomiting attacks. Had another endoscopy and the bacteria were everywhere, there were absolute millions of them in the lining of my stomach. So at that point I proved that the bacteria could infect a healthy person and cause gastritis.

DUBNER: Having studied the bacteria in the lab, Marshall knew what kind of antibiotic he could treat it with – so he took the antibiotic, and quickly made himself well. Norman Swan again.

SWAN: They’d done now what they call now “the killer experiment.” I suppose in Barry’s case it almost was the killer experiment.

DUBNER: Barry Marshall had proved, at least to himself, that bacteria was the true cause of ulcers. So what happened now? Did the worldwide medical community immediately hoist Marshall on their shoulders and praise his breakthrough? No, they didn’t. His research was ridiculed, dismissed, badmouthed.

SWAN: The response, I think, at least in Australia, was dominated by the response to Barry. He wasn’t from the establishment, he wasn’t one of them. He made this discovery before was even, before he had even got his specialist qualifications. He wasn’t a card carrying researcher. And Barry’s a bit odd. Barry’s, um, he’s odd, he’s very amusing. He’s remarkably candid, outgoing, he can be quite manic. And he would present and people would think “who is this nutter?” Because it was with almost a religious fervor from this good Catholic boy that he was promoting this, because he believed it so strongly. And there was this question in their mind that if he was selling it this hard, in this kind of odd way, was there something fishy about the research. So that was, if you like, the subtext that people did not quite articulate, but it was certainly there. That Barry was not seen as credible researcher. And regardless of his finding, because he wasn’t credible, because he just was not one of them, he was rough and ready. And I think that was a major part of it. And then the pharmaceutical industry found every angle they could do oppose it.

DUBNER: And how did he respond?

SWAN: Well, I think Barry just got angrier and angrier. So, in other words, he didn’t tailor his message to the boys. You know, he wasn’t a good old boy sat around the table. You know, he wasn’t going to tailor the message. The message was the message and he just kept banging away at it. And didn’t compromise.

DUBNER: Which must have made him seem even more of a nutter to his opponents, yes?

SWAN: I think so.

[MUSIC: Tallboy 7, “Electro Acoustic”]

DUBNER: Coming up on Freakonomics Radio: one more heretic who tries to buck the establishment:

WINCHESTER: These early maps evoked enormous hostility. Because the received wisdom of the day was that the earth was created at a very specific point in time.

DUBNER: And: are all these outsiders doomed for lifelong despair?

MARSHALL: People would always say Dr. Marshall do you feel vindicated? Well, we won. We knew we were going to win. We knew we were going to win because we had the truth.

DUBNER: One more thing: did you know you can subscribe to this Freakonomics Radio podcast, for free, on iTunes? You can. It has not been shown to prevent ulcers – yet … but you never know. New research in this field every day…

[UNDERWRITING]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen Dubner.

[MUSIC: Johannes Brahms, “Academic Festival Overture”]

DUBNER: Today we’ve heard the stories of Barry Marshall and Gary Becker, one a doctor, the other an economist. They both followed their own light – and paid for it. In each case, the Establishment treated them like rank outsiders. Well, if you want to see how an even more established Establishment can marginalize someone who dares to try something new, let’s go back to 19th-century England. Among a certain portion of upper-crust gentlemen, the rage of the day was collecting fossils. They were considered objects of beauty and fascination:

WINCHESTER: And they’d have rather genteel dining clubs where they would pass around. You know, “we found a new trilobite, have a glass of sherry, but don’t you think this is absolutely beautiful, Your Honor.”

DUBNER: That’s Simon Winchester, an author and journalist. His best-known book is The Professor and the Madman, about the creation of the Oxford English Dictionary. Winchester has also written a book about a man named William Smith, who was born in 1769 into a farm family in Oxfordshire. Smith was nothing like the gentlemen who drank sherry in clubs. He did, however, love to collect fossils.

WINCHESTER: So he became interested very much in the earth and the kind of things that were to be found in the earth, not only relics of former living things, like fossils were, but the actual sandstones and limestones of which his neighboring countryside was constituted.

DUBNER: Smith took a job as a land surveyor, which got him acquainted with the topography – and got him curious as to what lay beneath it. Working for a coal-mining company, he got a chance to take a look. Smith observed a sequence that few before him had noticed.

WINCHESTER: Siltstone, mudstone, sandstone, limestone, coal, siltstone, mudstone, limestone, coal.

DUBNER: Not only that, but he noted that each layer contained different kinds of fossils.

WINCHESTER: And he began to have thoughts about geology and particularly sedimentary geology, the laying down of sedimentary rocks, which were quite revolutionary. No one else had really begun to think like this. And then there was this extraordinary epiphany.

DUBNER: Smith traveled all over the English countryside. He noticed that the sequence of layers, and their corresponding fossils, were the same from place to place.

WINCHESTER: Sandstone with an ammonite, limestone with a brachiopod. Then you have another limestone or another sandstone with a trilobite. Those three unique rocks, if he found them 100 miles away, those same three rocks, same order, same color, same fossils, then he said: these are clearly the same strata of rock and all they are doing is they are disappearing beneath the surface of the earth and then coming up and reappearing 100 miles away. I can therefore draw a map showing where these things outcrop, showing how they slope down and at what angle down below into the subsurface of the earth. And I can draw a map which will enable people to predict where, when they dip down in that 100 miles, how deep below the surface they will be. In other words, I can draw a map of the invisible underneath of the British Isles.

[MUSIC: Wolfram Grus, “Petit Gennevilliers”]

DUBNER: A map of the invisible underneath of the British Isles, or of any isles, would be, as you can imagine, revolutionary. For science. For industry. For history. The Church, for instance, disapproved mightily.

WINCHESTER: These early maps evoked enormous hostility. Because the received wisdom of the day was that the earth was created at a very specific point in time. That was the Church’s belief, that the Earth was, let’s say in the 1880’s, 4004 + 1800, so that’s 5,804 years old and that was that. To challenge that in any way, as these maps did, because these maps were based on the evidence of fossils — which when you look at them carefully change so imperceptibly slowly — that you had to be oblivious to reality to assume that all of these could be changed and evolve and create you and me in 5,804 years, it simply was not possible. So these early geologists drove a horse and cart through the biblical teaching that the earth was only 6,000 years old. So there was great hostility and these maps were seen to be instruments of heresy.

DUBNER: But William Smith pressed on, almost entirely by himself. He created a massive, hand-drawn, hand-colored map; at his own great expense, he had it printed to be sold to the public. Its name alone was quite descriptive:

WINCHESTER: “A delineation of the strata of England and Wales, with a part of Scotland, exhibiting the collieries and mines, the marshes and fen lands originally overflowed by the sea, and the varieties of soil according to the variations in the substrata, illustrated by the most descriptive names.” And out it came, it was uttered for publication, as they say, on the 1st of August, 1815. And what then what happened is the sort of central tragedy of this story.

DUBNER: The tragedy, as Simon Winchester tells us, emanated from London:

WINCHESTER: I mentioned earlier that geology was a calling of the upper classes. And the Geological Society of London was peopled entirely by men, aquiline-nosed, refined dandies who would pass around fossils and mineral samples for the sheer delight of looking at them and collecting them.

DUBNER: And who came from the kind of families that William Smith did not come from.

WINCHESTER: Precisely. They saw this map, that was produced by a man who wore rough old boots and workman’s clothes and had dirt under his fingernails and didn’t know how to hold teacup properly, as a gross impertinence. And one of their number, a man called Greenough, said, ‘I’m going to copy this map, and I’m going to sell it under the authority of the Geological Society of London, and I am going to sell it more cheaply than this upstart’s map, which is on sale in the bookstores in London and Oxford and Cambridge. If he is charging 7 pounds we are going to charge 5 pounds for ours.’ So you had this extraordinary situation in the winter of 1815, 1816, where two maps, almost identical, one by William Smith and the other unresearched and plagiarized but with the imprint of the Geological Society of London on it being sold for less money. Well, the outcome was obvious. The Greenough map sold to those who were interested, and a growing number of people were, because this was not only beautiful, but everyone knew that it would allow you to dig for minerals and therefore possibly make yourself wealthy. And Smith’s map didn’t sell. He had to pay his money back, his loans back. He went into a financial tailspin, and he went bankrupt and he went, how humiliating for this decent human being, he was sent to debtors prison. I mean it’s a terrible story.

DUBNER: So William Smith works creatively, and tirelessly, and usually singly for all these years. Creates and publishes this astonishing map that turned out to be prescient on many dimensions, that turned out to be revolutionary on at least a few dimensions. And yet the publication is essentially sabotaged by people with greater means and access to, well, the public and access to good reputation and so on. He gets thrown in debtors prison. He comes out and he has lost home, his possessions have been bought up, yes? He had to sell off his collection of fossils, is that right?

WINCHESTER: Indeed.

DUBNER: So it’s incredibly heartbreaking that a man who worked hard and so brilliantly and nearly always alone creating this map of lasting usefulness was so deeply unrewarded for life’s work. But… the story doesn’t end there, does it?

WINCHESTER: Yes, it doesn’t end there.

[MUSIC: Niklas Aman, “Above the Clouds” (from Above the Clouds)]

DUBNER: The years pass. William Smith – poor, aging, dispirited — takes a job in Scarborough, in North Yorkshire. He’s working as a surveyor for a man named Johnstone. Smith creates one of his elaborate hand-drawn maps of Johnstone’s property.

WINCHESTER: So Johnstone looks at this map that this old man, because he is now a pretty… at least he has suffered mightily, he is stooped and weary and somewhat asthmatic, and he gives him this beautifully produced map of his estates. And a light bulb goes on in Johnstone’s mind. He says, “Wait a minute, this map. I recognize your style. You’re Smith aren’t you? Didn’t you create a map of the whole of the British Isles? I’ve seen it in London.” And Smith said, “Yes, I have the honor to say it was me that done that, sir.”

DUBNER: Mr. Johnstone, as it turned, out, was not only an influential gentleman — a member of Parliament – but a geology enthusiast:

WINCHESTER: He said, “So, what are you doing here working as a jobbing surveyor on my estate? You should be being honored and living in London in great comfort and be showered with medals and decorations and things.” And Smith says, “Well, life didn’t turn out like that.” And Johnstone says “This is monstrous and I’ll see what I can do.” And blow me down, he did.

DUBNER: In short order, William Smith was brought to London, where he was welcomed into the Geological Society of London and was more generally hailed for his earlier achievement:

WINCHESTER:  And he got his due. In the end he was recognized and honored as “The Father of English Geology.”

DUBNER: Simon Winchester’s book about William Smith – it’s a wonderful book; I encourage you to read it – is called The Map That Changed the World.

WINCHESTER: And it did change everything, so far as humankind’s search for minerals. Because it altered the economic landscape of the planet.

[MUSIC: Reid Willis, “The Self-Loathing Optimist” (from Rockslide Lullabies)]

DUBNER: What’s most remarkable about the story is not how hard Smith worked to create his map, nor how wise and clever he was. What’s remarkable is that this outsider, whose reputation was taken from him, lived to see that reputation rehabilitated, his ideas celebrated. It would have been so much more likely for him to die broken and bitter, in the wilderness, utterly unrecognized. That is a risk taken by people who work outside the system, who challenge the conventional wisdom. Like Barry Marshall, the Australian gastroenterologist, who had the audacity to suggest that he had found a cure for ulcers even though the medical establishment didn’t believe him. Here’s the Australian doctor-journalist Norman Swan:

SWAN: Medicine chose to ignore it. They chose to ignore it because it didn’t suit their prejudices, because they didn’t quite like the way the messenger was selling it, and because of a huge marketing push by a very influential industry which told them it was bull.

DUBNER: But after years and years of promoting his theory – and of being ridiculed for it – Marshall finally, in 1994, saw his findings accepted by the National Institute of Health.

MARSHALL: People would always say, “Dr. Marshall do you feel vindicated?”…well, we won. But we knew we were going to win. We knew we were going to win because we had the truth.

SWAN: If you look at history of medicine, it’s interesting how long it takes for evidence to get into the thick skulls of doctors. So when Pasteur proved the germ theory of disease it took about thirty years for the medical profession around the world to accept the germ theory of disease. Amazingly. It took twenty-odd years for doctors to accept that aspirin reduced the risk of dying of coronary heart disease after you’ve had a heart attack. It was well proven, it took twenty-odd years for doctors to accept that. It takes a long…it’s a conservative profession. It takes a long time to convince them of new ideas, and this was no different, because it was so radically outside of what they were expecting.

DUBNER: Radical indeed. Barry Marshall and Robin Warren’s work proved not only that Helicobacter pylori was the true cause of ulcers, but of stomach cancer, as well. In 2005 – more than 20 years after Marshall swallowed that batch of bacteria – they were awarded the Nobel Prize.

SWAN: It is very rare in medicine to find a cure for anything. You can never really be sure you’ve cured cancer, even though the treatment, for say, breast cancer is effective these days. You certainly can’t cure heart disease. Once you’ve got it you have got it for life. You can’t cure diabetes. I mean, yes, you can reverse it in some people, but it tends to come back. But you can cure infections. So antibiotics do get rid of infections and you can cure them. And this is a rare example, a really rare example, in modern medicine of a cure rather than an effective treatment. So what they had before was an effective treatment. It was expensive. It was for life. And here was something which got rid of the disease. And it got rid of the disease pretty cheaply.

[MUSIC: Clay Ross, “Army For You” (from Entre Nous)]

DUBNER: And what about Gary Becker, the rogue economist who led off today’s program? He thought his field should look beyond finance and banking and consider all of human behavior, from racial discrimination to mate-picking. Well, Becker, too, after years of being marginalized, was ultimately celebrated. Time caught up to his way of thinking. Becker, too, won a Nobel Prize, in 1992; and, in 2007, the Presidential Medal of Freedom. How did he feel about the Nobel? Here’s his friend, Judge Richard Posner.

POSNER: Well, he was pleased. I think he felt it was overdue. He should have gotten it earlier, that’s the standard reaction to these things.

DUBNER: And Harvard economist Ed Glaeser, who studied with Gary Becker, and still teaches his work:

GLAESER: This is person who in some sense felt if he was being universally loved he was screwing up, right? That he, in fact, wants to push you out of your comfort zone on this.

DUBNER: Let me just ask you maybe in summary: I’m curious whether you think that there are any lessons to be learned from Gary Becker’s experience generally, and maybe how anybody who’s listening to this, whatever occupation or vocation they might be thinking about, could perhaps apply some of that determination of Gary Becker’s to their own lives?

GLAESER: It’s the right question to ask. And I think Becker is different from many of the wilderness-years-type scientists that we think of in the sense that he was not somebody who came out of nowhere who had a brilliant idea and was mocked for it initially. He was someone who was part of a very well-established economics department, who had, early respect, early rewards in lots of different ways. But what’s different from many of us is that he didn’t in any sense rest on those, and he didn’t rest them not just in the sense that he kept working, although he worked like heck. He didn’t rest on them in the sense in which he decided to risk everything on every throw of the dice, right? He wanted to always be out there. He wanted to push as far as he could. He wanted be as risky; he wanted to risk going back into the wilderness even though he had, you know, gotten himself a seat in the throne room, right? And that’s what’s really special about him, it’s being in the wilderness by design, by choice. Here’s a guy who over and over again decided to take those risks, to court disaster, to be on the very edge, to go into rooms, to enter fields in which he knew that people were going to think that he was outrageous. He knew that people were going to denigrate his work. And yet he still did it. And that’s what made him so productive. And I think the challenge for all of us, particularly all of us who are in the idea business is it’s a reminder to try to push ourselves as much as possible to try to be different, to be unpopular often, to do things that are troubling to the status quo, that risk us being thought of as being, you know, less than we are. And I think that’s the Becker lesson is it’s trying to be an outsider almost by design.

DUBNER: I asked Norman Swan what the story of Barry Marshall and Robin Warren could teach the rest of us.

SWAN: I think the generalizable takeaway from Barry and Robin’s discovery and the resistance to it is that people should judge things on their scientific merit and not shoot the messenger. And to make a discovery like this probably does take somebody who is out of the ordinary. And somebody who is out of the ordinary may not communicate in the way that we expect or have become used to amongst our colleagues. And therefore we really do need to go back to the science.

DUBNER: And, finally, Simon Winchester on map maker extraordinaire William Smith.

WINCHESTER: Well, I don’t want to get too sappy about this, but tolerance for the true eccentric is important. I think it is important for people like you and like me, writers who are interested in the unsung heroes, to listen to these stories. Listening is important. Being kind and tolerant is important, too. And you’ll discover, I think, an unsung hero in places where you would have no thought that such a person would exist.

[MUSIC: Greg Ruby Quartet, “Deja Vu” (from Look Both Ways)]

CREDITS

This is a transcript of the Freakonomics Radio podcast “Outsiders by Design

Author: "Freakonomics" Tags: "Transcripts"
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Date: Friday, 12 Sep 2014 17:59

Our latest podcast episode — “How to Save $1 Billion Without Even Trying” — discusses research which finds that health-care experts generally buy generic medicines for their own use rather than the more expensive name brands. The episode discusses the various reasons that brand names might be more appealing despite the higher cost. A listener named Mike Dimore has written in with an interesting, and serious, reason that didn’t come up:

This won’t apply to many people but for the few that it does apply to (myself included), it can end up costing them hundreds of thousands of dollars. I was diagnosed with ulcerative coilitis after taking an acne medication called Accutane. I had a lawsuit against the company that manufactured the drug, but since it was a generic version the company had no liability. They offered me a $8,000 settlement but I refused. My case was dismissed after the Supreme Court decision for Mutual Pharmaceutical Co. v. Bartlett, which essentially made it impossible for a consumer to sue a generic drug company. The people who took the non-generic version of this drug however received significantly higher settlement offers ($100k+).
This is a very specific and unfortunate example of why brand name can be better, but if and when it does happen it becomes a very significant one.

Author: "Stephen J. Dubner" Tags: "Freakonomics Blog"
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Date: Thursday, 11 Sep 2014 14:00

This is a transcript of the Freakonomics Radio podcast “How to Save $1 Billion Without Even Trying

[MUSIC: Glenn Crytzer and his Syncopators, “Fumblin’ Around” (from Harlem Mad)]

Stephen J. DUBNER: We recently held a peanut-butter-and-jelly sandwich taste test here at WNYC, where we record our show.

DUBNER: So guys, this is for an episode about premium brands versus store brands, okay? And so what you see here are two rows of sandwiches, one on a plain white plate there, and one or a bordered plate there. Okay? And the sandwiches were made with either the premium Skippy Creamy and the Smucker’s strawberry preserves. So any nut allergies or verbal waivers, if you die not our problem.

Suzie LECHTENBERG: There’s a lawyer in the room.

DUBNER: Who is the lawyer, you?

Janna FREED: It will be fine.

DUBNER: Good lawyering.

DUBNER: And the store-brand sandwiches are ShopRite peanut butter creamy, they put their adjective last, peanut butter creamy, and strawberry preserves – ShopRite. And the bread is identical. It’s Bimbo.

DUBNER: So really all we want is for you to eat one of each and tell us which one you prefer and why.

Laura MAYER: Patterned plate is the one.

Steven VALENTINO: Tastes nuttier.

John DELORE: More honest stuff in this one.

Malissa O’DONNELL: Yeah, less sugar.

Matt KIELTY: Ohhh. A little more texture.

DUBNER: More texture and therefore better or therefore worse?

KIELTY: I like a little texture so I’m going to say better.

VALENTINO: I liked the border, and I thought it was the premium brand.

Andy MILLS: I liked the border one, for whatever reason, it just tasted slightly more delicious and it makes me think that that was the Skippy.

DUBNER: So how would you feel collectively if I told you that they were just all the same? And they were all the generic, and that there was no difference at all in the plate?

KIELTY: I would call you a liar.

DUBNER: And you’d be right. [LAUGHTER…]

[THEME]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO, the podcast that explores the hidden side of everything. Here’s your host, Stephen Dubner.

[MUSIC: The Diplomats of Solid Sound, “El Corazon Negro” (from Instrumental, Action, Soul)]

DUBNER: We try not to lie too much around here but yes, in the interest of science, we did tell a lie about the peanut butter-and-jelly sandwiches. They were all made with the same store-brand ingredients; none were made with the Skippy peanut butter or Smucker’s preserves. And yet, as you could hear, most of our tasters were pretty sure the two sandwiches were quite different, and they knew which one they preferred. Which one was “better.” Even though neither of them was “better.” Now, why’d we do this? The idea was to get all of us thinking about the consumption choices we make – how meaningful they are for us as individuals and for the overall economy. We have a couple of economists to walk us through this:

Jesse SHAPIRO: I am Jesse Shapiro. I’m an applied microeconomist.

DUBNER: And that’s that. And that’s that, damn it, yeah. And where do you teach?

SHAPIRO: I’m a professor of economics at the University of Chicago Booth School of Business, and a visiting professor of economics at Brown University.

DUBNER: Ah, very good. Ok. Matt?

Matt GENTZKOW: Yeah, I’m Matt Gentzkow. I’m also a microeconomist. I’m a professor of economics at the University of Chicago Booth School of Business.

DUBNER: I want to talk to you today about a working paper called ‘Do Pharmacists Buy Bayer:’—Bayer as in the aspirin—‘Informed Shoppers and the Brand Premium.’ So in order to get that very dramatic question out of the way: Do pharmacists buy Bayer or are they more likely to buy the generic aspirin?

GENTZKOW: Pharmacists don’t buy Bayer.

DUBNER: That was easy. Okay.

DUBNER: And what about going outside of the domain of pharmacists and headache medicine. What about other experts in their domains, do they tend to buy store brand versus premium brand?

SHAPIRO: Well, first of all, if you look at health experts outside of headache remedies, you see this pattern in a lot of products, especially medications, over-the-counter medications, you see that people who are informed about the products and who are occupational experts, they’re way more likely to buy store-brand across a lot of categories. Outside of the health domain, we took a look at pantry staples—things like table salt and sugar—and it turns out that chefs are considerably more likely than non-chefs to buy store brand salt, sugar, baking soda, things like that.

DUBNER: Ok. So this is the kind of research that I think is of great interest to most people, and yet would lead many of those most people to say, ‘Wow, really? This is what economists at the University of Chicago spend their time doing, is figuring out if pharmacists buy Bayer aspirin’? So, let’s assume that beyond that very narrow question there’s a great broad answer or a great, broad line of thought you’re trying to pursue. What are the questions you’re trying to answer really when you do a study like this?

GENTZKOW: Yeah, I think that’s a good way to introduce it, because this is a paper we think of as some really simple facts that speak to a big, old, and to us, kind of important set of questions. The set of questions in the background is, what is advertising and branding and all this stuff that companies spend so much effort on really about? Is it fundamentally about trying to inform consumers, help them make good decisions, help them identify what are the best products so they can buy them? Or, at the other extreme as a lot of people have speculated, is it really about trying to confuse people, cause them to make mistakes, convince them that stuff that really is not any better is, and get them to pay a lot of money for it? So that’s something people have argued about for a very long time. We have some quotes in the paper from, you know, 50-60-70 years ago, people speculating. You know, there’s this branded soap flakes that people seem to pay a lot for, instead of the simple, basic soap flakes, and both of them are just soap flakes and so you wonder, ‘Why are people paying for this?’ Is it because there’s something special about the expensive ones, or is it just that people are confused? And so having now these really large datasets where you can actually go look at lots and lots of peoples’ actual purchases, as well as their occupations and various other indicators of how sophisticated they are, it kind of gives you new traction on an old question.

[MUSIC: Matthew Aguiluz, “Organism”]

DUBNER: Okay, so let’s say you buy this argument for why this kind of question is meaningful. Assuming it is, how do you go about answering it?

SHAPIRO: So, I think, stepping back—I’ll tell you in a minute how we did it—but stepping back, I think what we want to do is, we want to follow somebody around the grocery store or the drugstore. And every time they make a decision, between say, a store brand (you know, CVS brand aspirin) or a national brand (say, Bayer aspirin), we want to ask: would that decision have been different if they knew more? That’s really the question we want to ask. And we want to know that for every aisle in every store and for every shopper. And that’s a very tough question to answer. We don’t have that, you know, hypothetical other more informed shopper standing next to them saying what they would do. So we need to go and find those counterparts in the data. So, we started with a dataset called the Nielsen Homescan Panel. And this is a dataset where people basically have a barcode scanner at home, and they record all of the purchases they make at supermarkets, at drugstores, at club stores, at mass merchandise stores, all the main kind of retailers. And that was great for getting a measure of the everyday person’s purchases. Then we needed to find a way to identify these kind of informed counterparts for everybody. And so the way we did that is we ran two custom surveys, in collaboration with Nielsen, of the Homescan panelists. So we basically went out to them and asked them some questions. We asked people what is their occupation, so what did they do for a living? And then we also gave people a quiz. We said, ‘What’s the active ingredient in Tylenol?’ ‘What’s the active ingredient in Advil?’ and we gave them a multiple choice test to see how they did. And so, what we try to do then is, we try to find people who have a similar age, homeownership, live in the same geographic area, shop at similar kinds of stores, but differ in how much they know about the products that they’re buying. And from that we can construct a kind of data-driven answer to the question, ‘How different would these choices be if people were better informed?’

GENTZKOW: A thing that’s really important is that that dataset is really, really big. So relative to a lot of surveys and things, the Nielsen Homescan Panel has tens of thousands of people in it. And that means that once you zero in on a particular occupation like pharmacists or chefs, you still have lots of those people in the data. So almost any other traditional sources one might’ve had, surveys that ask consumers what they buy, would’ve been hard to use for this because at the end of the day, you might end up with three pharmacists and six chefs and then you couldn’t really figure it out.

DUBNER: I see. Let’s talk about the headache medicine, the aspirin, for a little while. You said there’d be some questions asked multiple choice. How many questions were there? And can you recite them and let me and the listener play along and see if we have any idea what we’re talking about?

SHAPIRO: I think there were five questions. I can ask you the questions but I don’t think I’ll be able to remember all the multiple choices. Let me give it a try. So: What is the active ingredient in Tylenol? Is it A. acetylsalicylic acid? B. acetaminophen? C. naproxen sodium? Or D. ibuprofen?

DUBNER: Acetaminophen.

SHAPIRO: Congratulations! You nailed it.

DUBNER: Thank you very much.

SHAPIRO: You are a very informed shopper.

DUBNER: That would put me in the ‘informed’ realm already? Just one?

GENTZKOW: That’s one out of five.

DUBNER: Give us one more.

SHAPIRO: Ok, this time I’m not gonna give you multiple choices though. I’m just gonna ask you what’s the active ingredient in Advil?

DUBNER: Advil is ibuprofen.

SHAPIRO: Okay, there you go.

DUBNER: I could even do Aleve. I could do Aleve if I had to.

SHAPIRO: Go for it.

GENTZKOW: You’d be five out of five.

DUBNER: That’s the naproxen something or other.

SHAPIRO: That’s right.

DUBNER: I know my pain medication, fellas.

GENTZKOW: The multiple choices had a couple of—sodium chloride, or something, was tossed in, there were a couple of not-so-headache-remedy kind of things tossed into the multiple choices to mix things up.

DUBNER: So those are the kind of questions you’re giving to separate out how ‘expert’ someone is in their domain, correct? Not how they know something about the product, correct?

GENTZKOW: Yeah, we ask these questions of everybody. And so we think of them as, separately from occupation, this is a separate measure of how much do people know about these products? How sophisticated are they? It’s gonna be, we think it’s gonna be correlated with lots of general knowledge and sophistication. Not only do you know these active ingredients per se, but somebody who knows these active ingredients, like you, is also a pretty smart, talented, sophisticated person who knows lots about lots of different kinds of things.

DUBNER: And the idea being that if you know the active ingredient in the name brand thing and then you look at the store brand thing and you say, ‘Oh, active ingredient is identical,’ then you think, ‘Well, I should buy the one that’s a third the price.’ Right? That’s the connection we’re trying to make here, right?

GENTZKOW: Basically, yeah. So I think, there’s sort of a simple version of this and then a slightly more subtle version. The simple version is: you know, Tylenol and CVS brand are both acetaminophen. If you realize that, you would know they’re the same thing, so you should buy the cheaper one. That’s the simple story. The more subtle story is even if you know that they’re the same active ingredient, you might still be kinda worried about a variety of things. You might wonder, do they have different coatings? You might think, I heard that these store brands are manufactured in India, and maybe these plants in India are not so good? I heard that there was like a recall of these products, once upon a time when something went wrong with the manufacturing and they weren’t safe. So you could come up with a whole bunch of reasons why even if they’re the same active ingredient, you might still want to pay a little bit extra for the fancier thing—cause maybe it’s safer, cause maybe it has a coating that makes it work better. And so above and beyond knowing they’re the same active ingredient, you need some knowledge and sophistication to be able to assess are all of those other differences things I should be worried about? Are they really different, first of all, and if they are different, should I care? And should I care to the tune of, you know, three dollars every time I buy a bottle of this stuff? So we think of these in knowledge measures as picking up both ‘do you know the fact’ and also probably they’re correlated with ‘are you sophisticated enough to be able to make good judgments about those other characteristics’?

DUBNER: And  what can you tell us about the reality of that? For all those factors that you just described. I know some people say that with generic pain relief medicine, they worry that the absorption rate, or maybe the breakdown rate, I don’t know what it’s called, in the body is different than the premium brands. So do you know much about, or what can you tell us about the actual physical difference between a premium and a generic pain relief pill?

SHAPIRO: It’s hard to say completely for sure, but if you go to the FDA website, they’ll tell you that store brand and national brand over-the-counter medications have exactly the same strength and composition and safety and efficacy as one another.

GENTZKOW: But still, this is one of those topics that people get very worked up about. In going around and talking about this paper, we’ve met many smart academics, people whose judgment we respect, who have a different view of it. Who think ‘I buy Advil and there really is a good reason for that.’ And so I think it’s fair to say there’s at least enough controversy that people can read the evidence different ways. There are certainly studies of prescription medications, for example, where it was shown that these absorption rates would differ, or different coatings actually affected efficacy. There certainly have been recalls and examples of safety problems. It’s not at all clear whether those are different for the…Tylenol has had recalls, the brand, so it’s not clear how different they are. But I think from my sense at least talking to people, there’s enough murkiness—just enough murkiness in the facts—that people could come to different conclusions. In a way that’s where the study kind of comes from. We could’ve just had this debate based on direct evidence and first principles and what about the absorption rates? We think of this as a way to sidestep all of that and say, ‘Well, whatever all that stuff is, let’s see what the smart people do when they make purchases for themselves.’

SHAPIRO: We’re sort of assuming whatever differences do or do not exist, doctors and pharmacists know more about them than people who are not doctors and pharmacists. So we can learn from their choices when they’re shopping on their own dime, what they think.

DUBNER: Ok. So what do the smart people do? In the case of aspirin or headache medicine or something like that, do the pharmacists buy the name brand or do they buy and take the generic?

SHAPIRO: They by and large take the store brand. So in the context of headache remedies, about 92 percent of the headache remedies pharmacists buy are store brand. And we see that very consistently across other healthcare occupations—nurses, doctors, and so on—they’re all buying way more store brand than the rest of us.

[MUSIC: The Mackrosoft, “Three Views Of A Secret” (from S.E.M.E.)]

DUBNER: As for the rest of us? About 74 percent of non-pharmacists buy store-brand headache remedies compared to 92 percent for the pharmacists, so a big difference. Coming up on Freakonomics Radio: an economist like Steve Levitt prides himself on thinking with his brain rather than his emotions. So does this apply to personal consumption?

Steve LEVITT: Oh yeah, I’ll always buy the most expensive golf ball, because if there’s even the tiniest chance that there’s a little magic in there, then I want that magic.

DUBNER: And what about Jesse Shapiro and Matt Gentzkow: did studying generics make them buy more generics?

SHAPIRO: I think I probably buy a little more now than before we wrote the study. Not so much because of anything I learned from the study, but more because I think I would just feel hypocritical buying the branded good after writing this paper.

DUBNER: And one more thing. If you don’t already subscribe to Freakonomics Radio, why don’t you give it a try? You can sign up for free, at iTunes. Based on what we’ve learned on today’s programs, Freakonomics Radio is probably just as good as This American Life or Radiolab…

[UNDERWRITING]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen Dubner.

[MUSIC: Spencer Garn, “TNT”]

DUBNER: Today we are talking with two economists about how experts tend to buy cheaper, store-brand items like aspirin or kitchen staples. Why is that? Presumably because they know enough to know that the store-brand items are just as good as the more expensive name brands. So you might think that economists behave the same way. Economists like Steve Levitt, my Freakonomics friend and co-author:

DUBNER: So Levitt, what about you? Are you a slave to name brands? What are some products that you only buy a name brand of?

LEVITT: It is funny. I’m a little bit into the magic. So when I am at the store and I’m looking at branded or unbranded I honestly, each time I look at it and I ask myself for a particular application: do I think there could be magic in the brand? And sometimes I do and sometimes I don’t, but it doesn’t follow any logic. But you know, I’m not very price sensitive anyway, so if I think there’s even a little chance that there’s some special magic built into it, I’ll pay double for even just the whiff of magic, I’ll pay double.

DUBNER: So I’m guessing the realm in which you suspect this magic may apply would be golf balls for instance? We always buy the premium brand golf ball?

LEVITT: Oh yeah, I’ll always buy the most expensive golf ball, because if there’s even the tiniest chance that there’s a little magic in there, then I want that magic.

DUBNER: Matt Gentzkow and Jesse Shapiro, meanwhile, argue that a lot of that brand-name magic is – well, an illusion. Which means that a lot of people are spend a lot of money that they probably don’t need to. So what does that add up to? Here again is Jesse Shapiro.

SHAPIRO: We look at six different headache medicines: aspirin, ibuprofen, acetaminophen and so on. And I think we estimate that people are spending $8 billion on those alone, every year. And there are other headache remedies out there. And I think we find that in those categories, if everyone were to act like a pharmacist, people would spend between $1 and $2 billion less every year.

DUBNER: And how should we, the populace, think of that 1 or 2 billion. That’s 1 or 2 billion dollars that would not be going from individuals’ pockets into corporate pockets, and then distributed to their friends, families and shareholders, et cetera. Is that OK for the economy, that people are overspending on premium brands, because it’s something that they want and they’re just revealing their preferences—even if it’s a placebo effect, hey! Placebo effect is not nothing. Or, is that, in your view as economists, a waste of time and money?

SHAPIRO: I mean it really depends on whether you accept that people would like to act like doctors and pharmacists act and they just don’t know enough to do it. If you take that premise then, yeah, people are making a 1 to 2 billion dollar mistake. If you want to say that believing that branded medicines are better allows them to work better, reduces headaches more and so on, then I think it’s much harder to make that case.

DUBNER: And this proves, your paper proves or argues more broadly what? That we are susceptible to marketing and advertising to a degree that we shouldn’t be? That we are ‘informed’ by things that aren’t really very informative? That we are just gullible generally? What does it argue?

GENTZKOW: I think to answer that question, it’s good to take account of this full set of products that we look at. So we start with this case study of headache remedies, where we find these very big effects. We look at other over-the-counter medications, where we see similarly big effects. And we look at these pantry staples like sugar and salt, where looking at chefs’ purchases, we see similarly big effects. So all those categories of products, the takeaway conclusion is, Yeah, this seems to be a mistake and people are misled either by advertising or by just absence of knowledge that it would take to make good decisions. But we also go look across a much broader set of products in the supermarket—everything from soft drinks to frozen entrees to all kinds of different products you’d buy in the supermarket—and what we see in that really big set is there are actually lots of product categories where the experts don’t differ systematically in their purchases, and even a couple of categories where experts like chefs seem even more willing to pay for brands. And so across all those categories, it looks like maybe there are many where the brands really are better. And so the big picture, I would say, is we know that if we look at the products where we would’ve been the most worried that there aren’t any differences…like headache remedies are really chosen to be…if there’s any product category where you would’ve thought that these things can’t possibly be that different, it would’ve been that. So when we look at those places we see, ‘Yeah, there are some big mistakes.’ But we’re also very far from the situation where all brands are a mistake, or all brands are about misinformation. And so one way to think about it is, on average, in the decisions consumers face, brands typically are better, or there are differences across products and differences across brands. The heuristic that, yeah, I should probably pay a little extra to go with a brand that I trust, isn’t so bad. That’s like a pretty good way to make decisions, on average. The problem is, it’s a good heuristic in some places, it’s not a good heuristic in other places. And like a lot of things, people apply the same rule too broadly and end up making mistakes as a result.

DUBNER: I’m curious what you’ve heard from advertisers or marketers about your research? On the one hand, your research is this massive compliment to them. You’re saying to them that you could take two identical objects and make one three times more valuable by designing a nice package and writing great jingles. On the other hand, you’re saying ooh, everybody who responds to your fantastic work is kind of an idiot.

GENTZKOW: Well, we’re fortunate enough to have two marketers as co-authors on this paper. One of our colleagues at Chicago, J.P. Dubé and Bart Bronnenberg, who’s a marketing professor in the Netherlands. So we get their input on this. They don’t seem to be walking around incredibly depressed, at least as far as we can tell.

DUBNER: Yeah but they’re professors of marketing. They’re not making their money by selling products, right?

GENTZKOW: Fair enough.

SHAPIRO: No but they’re teaching their students how to market products. And I think they think, and I think the data are supportive of this, that there are a lot of categories where marketing effort really is helping people and I don’t think there’s anything in the paper that really disputes that. It’s just that there’s a subset of categories where it looks like people are overpaying for brands. The other thing you have to remember is pharmacists, take pharmacists and doctors buying headache medicine. You know, in the case of aspirin, the national brand costs maybe five times per pill what the store brand costs. So at a 5x price, the experts are generally buying store brand. Maybe at a 2x price or a 1.5x price, you’d get some of those doctors and pharmacists buying the national brand. You know, we don’t know for sure.

GENTZKOW: I like to think about the thought experiment. Imagine that you walked into a supermarket or Walmart or you walked into CVS, and instead of all these fancy, brightly colored, branded packages, everything was just in white boxes with black labels stating what it was. And you had no brands in the store and you tried to walk around and figure out what to buy. I think that would be a pretty hard situation for most of us, and you would spend a lot of time trying to get your groceries. I think the brands are serving first as a marker of quality. Second, as a way to just make all these decisions we have to make every day easier, and deploy a little psychology to help us be able to quickly identify and get what we want. I think there’s clearly a lot of value being produced there. The question is just, where is it more? Where is it less? Is it — are firms exploiting the same mechanism that’s sort of useful in many places to drive up their profits in a small number of categories?

DUBNER: I’m curious how this has changed your guys’ consumption habits? Especially if you have kids? Especially when it comes to cold and flu or baby, allergy medicine, or anything you might give your kids or yourselves?

SHAPIRO: I don’t know. I buy a lot of store-brand stuff. I think I probably buy a little more now than before we wrote the study. Not so much because of anything I learned from the study, but more because I think I would just feel hypocritical buying the branded good after writing this paper. [All laugh] I’m more afraid of that than any risks of store-brand medication.

GENTZKOW: I also pretty much buy just store-brand, over-the-counter things and generic prescription things, even for my kids. I think that was true before this paper. I don’t think it’s really changed much. I think, my experience, I guess, was kind of growing up in a milieu where this message that you’re kind of a sucker if you pay extra to buy brands was pretty pervasive. And so, something you see a little bit in our data, I think there’s a kind of generational thing where 20, 30 years ago, generics actually weren’t very good for a lot of things, and so maybe you carry that forward. But this seems like, for my own personal habits, it’s something that hasn’t made a huge difference.

DUBNER: That’s a great point and I guess it’d be nice to know from you guys—and not that this is your realm—but how is a shopper to tell the difference between a store brand generic and just a piece of junk? I mean, sometimes the line is pretty thin, right?

GENTZKOW: All they need to do is get access to a Nielsen Homescan Panel and do a survey of a bunch of experts and just run some regressions and then it’s like, it’s pretty easy to figure out.

SHAPIRO: Easiest thing in the world.

DUBNER: Easiest… Bunch of lazy civilians out there. Why aren’t they doing that?

SHAPIRO: As you say, this isn’t our area of expertise, but my sense is that store brands have gotten a lot better and that major retailers now invest a lot in the supply chain for their store brands and trying to make sure that they’re as comparable as possible to the national brands that are side by side with them on the shelf. You look at data on trends, you know store brand as a share of purchases has just been going up tremendously. It started in the 1990s really taking off and has continued to do that. So I think for most categories, at least these kind of supermarket and drugstore kinds of products, I think it’s pretty safe to buy a store brand. And then there are gonna be cases where maybe it’s just a matter of personal taste. Like maybe you don’t like the taste of the store brand cola or something, then I don’t think you need an economist to tell you you probably shouldn’t buy that kind.

DUBNER: Alright, so trying a store-brand cola and seeing how your taste buds like it compared to Coke is pretty simple, and cheap, and there’s not much commitment to it. What about something way bigger — choosing a college, maybe? How is someone supposed to assess the premium brand versus — let’s not call it the generic college, but the less-premium brand of college?

SHAPIRO: I think that’s a great question. We should do a survey and see where professors at fancy name-brand colleges are sending their kids.

GENTZKOW: I was going to say, I think the same methodology would deliver a very convincing answer in the opposite direction. If you took the somewhat controversial view that college professors are sophisticated and know what they’re doing—which could be debated at some length—definitely college professors at fancy universities also pay extra to send their kids to fancy universities, for sure.

DUBNER: Right. Although that’s a little bit of a self-reinforcing pat on the back, right? Because, you know, if I’m a professor at a fancy university, especially, plainly it is, you know, that type of university only is deserving of my offspring. So…

SHAPIRO: There’s an element of that in all these products, though. Because, it could be that a chef doesn’t want to have store-brand baking soda on their shelf. They want to have some fancy baking soda from Italy or something like that, so they can tell a story about how sophisticated their tastes are for baking soda. So you might’ve seen the same thing there. And maybe there is a little bit of that going on.

GENTZKOW: It would be interesting to look at college professors more generally. I bet it’s the case that faculty at state universities are more likely to pay extra to send their kids to Ivy League universities than the average person.

DUBNER: So is that your next study that we should be looking for, then? Cause man, people would read that.

GENTZKOW: This was your idea; maybe we should work on this together.

[MUSIC: Glenn Crytzer and his Syncopators, “Payin’ No Mind” (from Harlem Mad)]

DUBNER: Thanks to Jesse Shapiro and Matt Gentzkow for their fine knowledge today. And to everyone who took part in our peanut-butter-and-jelly taste test – which, you’ll recall, was really a taste trick: all the PB & J was store-brand, and it seemed like everybody liked it just fine. Caroline English made the sandwiches; they were eaten by: Matt Abramovitz, Gretta Cohn, John Delore, Janna Freed, Caryn Havlik, David Herman, Matt Kielty, Bourree Lam, Laura Mayer, Andy Mills, Malissa O’Donnell, Greg Rosalsky, and Steven Valentino. We should say that not everybody was fooled:

FREED: Dude, they taste exactly the same.

Greg ROSALSKY: They taste exactly the same to me.

FREED: Thank you.

DUBNER: Really?

DUBNER: After the sandwiches, we chatted a bit:

DUBNER: For those of you who buy anything, which is everybody, what makes you buy a premium brand when there’s a store brand equivalent, and when you buy a store brand and when you wouldn’t.

VALENTINO: If it’s a party and I’m feeling cheap, sure, you know. But if it’s going to be on display, then I would probably bring something that was premium.

Matt ABRAMOVITZ: I would in a heartbeat buy generic medicine, because I can’t taste it.

DUBNER: And as a new father when you get sent out to buy cold medicine for your screaming six-month-old, you’re going to say I want to save the five bucks and buy the cheap one?

ABRAMOVITZ: There’s a lawyer in the room, but I am going to say yes on that one. And that’s because I feel like most of these products, and probably the peanut butter, too, is mostly made in the same place. My perception of these things is like one big extruder that puts it in this jar, in that jar and they just label them differently. And so I’ll save the five bucks, even on my toddler.

DUBNER: Name one thing, if any, that you would never buy a store brand, generic brand, non-premium brand for.

VALENTINO: Orange juice.

MAYER: I never get the store brand of this very basic facial moisturizer that I pay like three times as much for.

LECHTENBERG: Condoms.

DELORE: Anything that touches genitals is totally top shelf.

DUBNER: I wanted to ask John… what else that touches your genitals would you not buy?

DELORE: I refuse to give you the end of your episode.

DUBNER: Oh yeah, John? That’s what you think.

CREDITS

This is a transcript of the Freakonomics Radio podcast “How to Save $1 Billion Without Even Trying

Author: "Freakonomics" Tags: "Transcripts"
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Date: Thursday, 11 Sep 2014 13:56

(Photo: Chris Potter)

(Photo: Chris Potter)

When a pharmacist gets a headache, what do you think she’ll buy: Bayer aspirin or the much cheaper store brand? You’ll find out on this week’s episode. Hint: the episode is called “How to Save $1 Billion Without Even Trying.” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

It features Stephen Dubner interviewing Matthew Gentzkow and Jesse Shapiro, a pair of economics professors at the University of Chicago’s Booth School of Business and co-authors (along with Bart J. Bronnenberg and Jean-Pierre Dubé) of a working paper called “Do Pharmacists Buy Bayer? Sophisticated Shoppers and the Brand Premium.” Along the way, we find out if conducting this kind of research leads a researcher to buy more store-brand items himself:

SHAPIRO: I think I probably buy a little more [store brand stuff] now than before we wrote the study. Not so much because of anything I learned from the study, but more because I think I would just feel hypocritical buying the branded good after writing this paper.

You’ll also hear from Steve Levitt about his shopping habits. He says there is one particular item that he’s always willing to splurge on. Can you guess what that is?

Author: "Suzie Lechtenberg" Tags: "Featured Radio Post, Freakonomics Blog, ..."
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Date: Thursday, 04 Sep 2014 13:00

Airbnb ad

Airbnb graffiti in the New York subway.

A battle is being waged between the Internet and the State, and this episode of Freakonomics Radio gives you front-row seats. It’s called “Regulate This!” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

At issue is the so-called sharing economy, a range of services that facilitate peer-to-peer transactions through the Internet. Companies like Airbnb, Uber, and Lyft have seen rapid growth and eye-popping valuations, but as they expand around the world, they are increasingly butting heads with government regulators.

In this episode, you’ll hear from Nathan Blecharczyk, the co-founder and CTO of Airbnb (now valued at roughly $10 billion), and one of the youngest billionaires in the world. Blecharczyk tells Stephen Dubner the story of Airbnb’s founding, how it initially struggled to find investors, and what kind of obstacles it still faces daily. In New York City, for instance, it’s estimated that about two-thirds of its business activity is illegal. That’s a big concern for New York State Senator Liz Krueger, known as “Airbnb’s doubter-in-chief.”

In 2010, Krueger was the chief sponsor of legislation that came to be known as the Illegal Hotel Law, which has made it harder for New Yorkers to legally rent out their rooms through Airbnb. Blecharczyk argues that it’s time for lawmakers like Krueger to recognize the reality of Airbnb, which he estimates will bring in $768 million worth of annual economic activity in New York:

BLECHARCZYK: We’re not advocating that there shouldn’t be rules. We’re just saying that things have evolved and it’s worth taking a fresh look from the ground up.

Krueger, meanwhile, argues that current laws aren’t strict enough:

KRUEGER: I want to look at more enforcement, perhaps increase fines, and penalties. I do have a very serious frustration that the kind of law that we really need needs to be federal because the state is superseded by federal law when it comes to regulating online business. Some people seem to think that if you’re a business model that’s on the internet it’s like magic and hocus pocus. It’s just business. And there’s a reason for government to regulate business, whether it has a physical site somewhere or whether it’s in the cloud.

Inspired by Airbnb, the entrepreneur Guy Michlin co-founded EatWith, which enables cooks to convert their homes into restaurants. EatWith has yet to clash with regulators, but he’s bracing for the inevitable:

MICHLIN: I think that sometimes, or actually many times, the regulator is a little bit behind to catch up with technology… And if you think about Airbnb, it’s obvious that this is a phenomenon that’s not going to go away…. Obviously the regulator will need to come in and hopefully in a dialog with all the different constituencies, adapt and create a new regulation that fits the reality.

The ride-sharing company Lyft, meanwhile, has engaged in high-profile showdowns with state regulators around the country. John Zimmer, its co-founder and president, explains:

ZIMMER: They interpret laws one way and are trying to do their job. And we interpret laws another way and are trying to innovate. And those two things are at odds, and the timelines are at odds. And if we took the approach of, “Hey, let’s wait and see what the government does to create a path that is very, very clear … then we wouldn’t be operating anywhere.

Lyft recently got into a head-on collision with New York State regulators, including the office of Attorney General Eric Schneiderman (which has also clashed with Airbnb). Schneiderman’s chief of staff Micah Lasher tweeted that Lyft and Zimmer were “not just ‘disruptive’ but also personally dishonest.”

It might be easy to conclude that state regulators are clamping down on these companies in large part to protect the entrenched hotel and taxi industries. Lasher says this isn’t the case, that the A.G.’s office isn’t against innovation or competition, but is instead just looking out for the public:

LASHER: One of the big issues is the question of externalities and external impacts. In other words, if my next-door neighbor is using their apartment as a hotel room, they’re not just running a risk of their apartment getting trashed, they’re having an impact on me. Similarly, in the case of Lyft, if one of those drivers gets into a car accident, doesn’t have appropriate insurance, that can have an impact on a whole bunch of folks who did not sign up for that.

Throughout the episode you’ll hear from award-winning Stanford economist Jonathan Levin, who specializes in Internet marketplaces. Levin tells us a story about a brilliant business idea he had as a kid — and how mobile Internet beat him to the punch.

Author: "Greg Rosalsky" Tags: "Featured Radio Post, Freakonomics Blog, ..."
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Date: Thursday, 04 Sep 2014 12:22

This is a transcript of the Freakonomics Radio podcast “Regulate This!

[MUSIC: Steve Rice, “The Stride Game”]

Stephen J. DUBNER: Hey, podcast listeners. Our mission at Freakonomics has always been to talk about things you thought you knew but didn’t … and things you never thought you wanted to know, but do. Well, now it is your turn to tell us something that we don’t know. On Monday, October 6, in New York City, we’re launching a live game show called “Tell Me Something I Don’t Know” — and the audience, that’s you, is the star. So if you have a great idea, or an interesting set of facts, even a great story, and you live in New York, or know somebody who does, please go to freakonomics.com/TellMe to sign up. You could tell us about anything — food, medicine, dating and mating, brain science. All we ask is that it is interesting (at least to you), worthwhile (at least a little bit), and — well, true. There will be prizes — and celebrity judges, including Malcolm Gladwell. Again, that is Monday, Oct. 6, in New York City; sign up at freakonomics.com/TellMe. I cannot wait to hear what you have got to say.

[MUSIC: The Diplomats of Solid Sound, “Bullfrog Bugaloo” (from Instrumental, Action, Soul)]

Jonathan D. LEVIN: I just think about…years ago, when I was…after I graduated from college I lived in Europe for two years, and I had this dream of having a service–a business that I was going to set up–where you would basically call them and then they would sort of like solve your problem.

Stephen J. DUBNER:  That’s Jonathan Levin.

LEVIN: I’m a professor of economics at Stanford University, and I do research on microeconomics and, in particular, on Internet marketplaces and market design issues.

DUBNER: A few years ago, Levin was awarded the John Bates Clark Medal, which is what young economists often win before they eventually get a Nobel prize. So what was this brilliant business idea he had while backpacking through Europe?

LEVIN: You’d be sort of just about to get on the train to go to Paris or to go to some other city and wherever you were going, and when you arrived, you would call them back and they would have sort of made all the arrangements for you. Because it was so cumbersome to do anything like that…

DUBNER: Levin never followed through on his business idea. But other people did. Lots of other people.

MEDIA CLIP: Want a private driver? You won’t be surprised that there’s an app for that. Uber lets you book a car with your smart phone.

MEDIA CLIP: Opentable, that is a restaurant booking service…

MEDIA CLIP: AirBNB connects people who want to rent out a living space to travellers who need a place to stay…

LEVIN: You know, this wasn’t that long ago.

DUBNER: Levin is now in his early forties. He’s got kids.

LEVIN: And the idea that, like, that problem would like never cross the mind of my kids. They’ll just get on the train and they’ll pull out their phone—or maybe they’ll do it on their glasses … You know, that level of convenience for regular people, as opposed to just for the billionaires of the world, is really remarkable. It’s an amazing democratization of personal service and convenience.

DUBNER: Now, if you were sitting back at the beginning of Internet time, and you were wondering what kind of people were in the best position to exploit this amazing new technology,  you might have thought it would be big institutions – multi-billion-dollar firms, the multi-trillion-dollar industries, governments. After all, they had the big budgets and – you might have thought – the big incentives to keep pace with change. But it didn’t work out that way.

LEVIN: One of the things that the Internet has done is just to dramatically lower barriers of entry in many industries… It’s just much, much easier to flip a switch and make your product available to people all over the country, or all over the world in a way that would’ve been extremely difficult before the Internet.

[MUSIC: Spencer Garn, “Pink Champagne Paradise Machine”]

DUBNER: But flipping the switch didn’t just let you build an online version of a brick-and-mortar business, like Amazon did to Barnes & Noble. The Internet let anyone do business with anyone else; it became a lot easier to sell something that was just sitting around forgotten or unused. Like your grandmother’s porcelain figurines, which you could now unload on eBay. Like the extra room in your apartment, which you could rent out on Airbnb. Like the back seat of your car, which is empty approximately 99 percent of the time – but which, as it happens, someone might pay to sit in. This kind of activity has blown up in the last few years in particular – the peer-to-peer economy, it is sometimes called; or, even more hopefully, the “sharing economy.” It means you can find a place to stay, in some faraway city, that isn’t a hotel; a place to eat that’s not a restaurant; you can catch a ride with someone who is not a licensed taxi driver. Uber, for instance, builds apps that let pretty much anyone with a smartphone hire just about anyone with a car. It is currently valued at about $18 billion – roughly one-third the market cap of General Motors; Uber just hired David Plouffe, the former Obama campaign manager and adviser, as its senior v.p. of policy and strategy. Now to some people, this new economy – whatever you call it — is heaven. It makes the world work better; it makes good use of dormant resources; it lets more people earn a living. But not everybody sees it this way – the taxi and hotel industries, for instance — and especially the people in charge of regulating the taxi and hotel industries. So what we’ve got for you today, ladies and gentlemen, is a good old-fashioned smack-down.

[MUSIC: Flytrap, “Knock Down Hard Town”]

DUBNER: In this corner, fighting primarily out of their home gym in Silicon Valley…

John ZIMMER: If we took the approach of, “Hey, let’s wait and see what the government does to create a path that is very, very clear,” …then we wouldn’t be operating anywhere.

Guy MICHLIN: Many times the regulator is a little bit behind to catch up with technology.

Nathan BLECHARCZYK: We’re not advocating that there shouldn’t be rules. We’re just saying that things have evolved and it’s worth taking a fresh look from the ground up.

DUBNER: And in this corner, representing the biggest, baddest government of all: New York:

Liz KRUEGER: Some people seem to think that if you’re a business model that’s on the Internet it’s like magic and hocus pocus. It’s just business. And there’s a reason for government to regulate business, whether it has a physical site somewhere or whether it’s in the cloud.

Micah LASHER: The problem is…companies come in, they say “we’re not interested in whether or not our conduct is in violation of the law, we may very well in fact as a strategic matter decide to break the law,” with the hope or expectation that through means of pressure, we won’t enforce the law.

DUBNER: All right, podcast listeners — are you ready to rumble? Welcome to the Internet vs. the State.

[THEME]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO, the podcast that explores the hidden side of everything. Here’s your host, Stephen Dubner.

[MUSIC: Andrew Oye, “Billy’s Ocean”]

DUBNER: If you had to pick one company that at this moment personifies the battle of the Internet vs. the State, it’s probably Airbnb:

Nathan BLECHARCZYK: I’m Nathan Blecharczyk, cofounder and CTO of Airbnb.

DUBNER: Blecharczyk started writing code when he was a kid; he studied computer science at Harvard. And he helped start Airbnb with his friends Brian Chesky and Joe Gebbia.

BLECHARCZYK: So Airbnb was started and inspired by an event that happened in October of 2007. Back then, the three of us, Joe, Brian and myself, were roommates. And the rent on out apartment was raised 25 percent. And I decided to move out. The other two guys did not have enough money to pay for the rent, but they’re both designers. And they saw that an international design conference was coming to San Francisco and that all the hotels were sold out. So they got this idea to rent out the extra bedroom to designers who needed a place to stay. And that weekend they hosted three designers and they made over $1,000, thus allowing them to pay rent. Well, fast-forward a couple months later, the three of us got together and decided we should do this for other people and other situations.

DUBNER: This turned into a lot of people, and a lot of situations.

BLECHARCZYK:  On any given night this summer, roughly 350,000 people are staying on Airbnb. We serviced 17 million guests to date over the last 6 years. What’s crazy is it took four years to service our first million guests and now each month we’re servicing a million more. So that gives you a sense of the exponential growth and how it’s progressed. In terms of properties, we now have 800,000 properties in 192 countries, 35,000 different cities. So tremendous inventory.

[MUSIC: The Jaguars, “Swagger” (from The Jaguars)]

DUBNER: When Blecharczyk says “we now have 800,000 properties in 192 countries,” you may be tempted to think of Airbnb as a big hotel chain, like Hilton. But Airbnb doesn’t own any hotels. Nor does it have to hire housekeepers or bellhops. Uber, similarly, doesn’t own fleets of cars; it doesn’t employ drivers. In other words, these companies are not the kind of companies that many people think of when they think of what a company does. All they are, really, are cloud-based platforms that establish a market between individuals. They pretty much just open the spigot and let the water flow downhill. They let supply find demand. That fold-out couch in your fourth-floor New York City walk-up? It is now on the market, just like a room at the Hilton. It’s apples and oranges, sure, but – well, they’re both fruit. Hilton has a market cap of roughly $25 billion. Airbnb, which is privately funded, has been valuated at $10 billion. Not bad for just opening a spigot. Now with hindsight, it’s easy to think that Airbnb’s success was inevitable. But imagine you’re an investor at the very beginning: you want me to give a few million dollars to a company whose sole business is to get strangers to room up with other strangers?

BLECHARCZYK: Yes, that was certainly an absolutely crazy idea back then…And over the first year, we approached many investors pitching them on this concept….And explaining the story of what we had experienced and what we were trying to do. And none of the investors could see it… They couldn’t see themselves using the product. And they thought even if there were people that would do this, it would certainly be a small market, a niche product and not something they were interested in investing in. So for our entire first year, we ran this company using our own savings account, or in fact credit cards.

DUBNER: Blecharczyk thinks some investors were also cautious because the Great Recession was just taking hold. On the other hand, the Recession may have helped the actual business get going:

BLECHARCZYK: Back then there were a huge number of people who were really trying to make ends meet and could not afford to stay in their homes. And we have anecdotally heard hundreds if not thousands of these stories. So I do know that we provided a lot of people relief during this period, so it must have been a help.

DUBNER: There’s another reason why platforms like Airbnb and Uber were able to take off when they did: the Internet had been around long enough by now that most people – enough people, at least – were willing to trust a stranger on the other end of the app.

BLECHARCZYK: What’s happened is that people are comfortable with online identities. There was a time before Facebook where people’s online profiles were often completely fictitious, right, and there was no trust assigned with an online identity. And then Facebook came along and began requiring people to upload their real names, pictures, et cetera, and everyone started participating. And that allowed these profiles to gain more legitimacy.

DUBNER: So who loves Airbnb the most? What category of people? Is it the people who travel? The people who rent out? I mean…

BLECHARCZYK: Well, I think both frankly. It takes two to make this transaction happen.

DUBNER: Okay, on the flip side then, who hates Airbnb the most then? Or maybe hates is not the right word, maybe fear is a better word, I don’t know.

BLECHARCZYK: How about misunderstands? There’s still a vast majority of people who have not used Airbnb themselves. They only hear about Airbnb through headlines. And I think there’s so much controversy right now that it’s easy for people to get the wrong impression. And remember, 6 years ago when we started this company everybody thought it was a crazy idea.

[MUSIC: The Jaguars, “Leave Me Alone” (from The Jaguars)]

MEDIA CLIP: Prostitutes are using Airbnb to set up cheap temporary brothels on the fly.

MEDIA CLIP: I rented my apartment out to a man who said he needed it for his brother and sister-in-law. And instead came home and found about twenty people hosting a filthy orgy.

MEDIA CLIP: A DC woman discovered the guys that were using Airbnb to rent her apartment were using it for their erotic massage service, charging up to $300 per hour. Left behind in her apartment? This red clown nose.

KRUEGER: They are so excited about getting you to participate in their making money that they don’t actually care that they’re breaking laws or that they’re encouraging you as potential hosts or guests to be breaking laws.

DUBNER: That’s Liz Krueger. She is a New York state senator who represents the East Side of Manhattan, which includes a lot of apartments and a lot of hotels. She has been called “Airbnb’s doubter-in-chief.”

KRUEGER: I don’t know where that title came from. It is a little amusing.

DUBNER: Okay, here’s where the title came from. In 2010, Krueger was the primary sponsor of  legislation that came to be known as the Illegal Hotel Law, which has made it harder for people to legally use Airbnb in New York. She says she got involved after receiving calls — lots of calls — from her constituents:

KRUEGER: All of this was coming from people who lived in the same buildings and were calling their elected officials complaining, saying there are total strangers with keys to the doors of my building, how is that possible? There are airport shuttles showing up from the airport on Thursday afternoons dropping off large numbers of people with luggage and coming back on Sunday afternoons to take them away. This isn’t a hotel, what are they doing here? There were complaints from neighbors that there were loud, wild parties going on in the middle of the night, and when you would go and knock on the door and say, “Hey, this is a private residence, turn the music down,” they’d be filled with you know, groups of tourists having a good time, which is want I want tourists to do, I’m not anti-tourism really, really, really. But no, tourists aren’t supposed to be living in residential units next to my grandmother partying all night.

[MUSIC: Dan Sistos, “Caravan Jam” (from The Road to Euphoria)]

DUBNER: New York City is Airbnb’s number-one destination, at least at the moment. Nathan Blecharczyk tells us that Paris will take that spot soon.

DUBNER: So Nathan, you are familiar I’m guessing with New York State Senator Liz Krueger, yes?

BLECHARCZYK: Of course, yes, not our biggest fan.

DUBNER: Yeah, not your biggest fan. So we spoke with her and she brought up various concerns. I’d like to bounce them off you and see how you respond. One is that she estimates that at least two-thirds of all Airbnb’s business in New York City is illegal.

KRUEGER: If it’s a multi-family dwellingyou are not legally allowed to do short-term rentals under 30 days…Unless you miracle of miracles live in a building where a landlord has decided to write a lease that says you can do…short-term rentals, it’s a violation of your lease… If you live in rent stabilized housing, it’s illegal… If you live in a building that is zoned residential it’s technically illegal… We have not seen any bylaws that allow it… So when I say two-thirds, that’s a conservative estimate.

BLECHARCZYK: Well, I think that’s exactly our point and why the existing regulation needs to be reevaluated. These rules go way back prior to Airbnb. They were written 30 to 100 years ago. So what we’re saying is that these should be reevaluated in the 21st century context.

DUBNER: Krueger says that Airbnb helps facilitate criminal activity including specifically, and I quote, “moving drug dens,” “moving houses of prostitution,” and “illegal gambling operations.” What do you know about that?

BLECHARCZYK: There’s no data that would support that. So there’s certainly one off anecdotal stories that have occurred, and this will happen when you’re dealing with a scale of 350,000 guests per night. And this is certainly is something that will happen in hotels. And this will certainly happen in apartment buildings irrespective of Airbnb.

DUBNER: Senator Krueger also argues that Airbnb makes it harder for New Yorkers to find affordable housing because it entices landlords to convert long-term rentals into de-facto hotels.

BLECHARCZYK: I don’t think the numbers add up there. So New York has over 1 million housing units. And in New York we have a total of about 20,000 properties. Now, almost half of those or one-third of those are people renting out an extra room in their home. So those are certainly not available housing units. The vast majority of people are renting out the home in which they live and therefore doing it on a part-time basis… So once you kind of peel off these kind of layers, there’s actually a very small number of units that could even possibly be resulting in housing being taken off the market.

DUBNER: But what about hotels? As Blecharczyk told us earlier, Airbnb currently lists some 800,000 properties worldwide:

DUBNER: Let’s pretend we were describing a hotel chain with that many rooms. How many employees do you think that hotel chain would have versus, and how many employees does Airbnb actually have?

BLECHARCZYK: A hotel with that many rooms would certainly have tens of thousands, if not 100,000 employees. Airbnb has about 1,000 employees.

DUBNER: You don’t have to think too hard to see where this is going, do you? In New York, like most big cities, the hotel industry is an important one. State senator Liz Krueger again:

KRUEGER: I love that Airbnb or whomever always keeps saying somehow that I and others are shilling for the hotel industry…Now, is it growing to the level where, yes, this does appear to be competition with some in the hotel industry? It really seems to vary with what type and level of hotel. Yes, I’m not anti-business competition, but I’m also a believer in a fair playing field where the same rules apply to everybody. So if there’s someone saying, “Well, we should be able to run a alternative hotel model to what is the existing structure,” then I’d say, “Well are we meeting the same fire standards, are we meeting the same safety standards, are we putting people out of business and decreasing the number of jobs in the economy with the new model” — because we’re very conscious of having union jobs that pay well here in the city of New York.

[MUSIC: Donvision, “Waiting For You” (from Album Title)]

DUBNER: You have to admit, for someone who says they are not a protectionist, that last bit –

KRUEGER: We’re very conscious of having union jobs that pay well here in the city of New York.

DUBNER: It sounds … a bit protectionist.

JONATHAN LEVIN: From their narrow perspective, I understand their concern.

DUBNER: That’s Jonathan Levin again, the Stanford economist.

LEVIN: It may be that it does injure some businesses in the hotel industry, probably now businesses that are operating relatively low-end hotels and not more up-market hotels …. If you ask from a kind of a broader perspective is it eliminating jobs overall, that’s much less clear to me. Because it may be that some people who are working in hotels might lose their jobs if a hotel is shut down. But on the other hand, you’re creating new jobs for people being entrepreneurs by renting out their home. So it’s not obvious that the net effect on jobs is negative.

DUBNER: It’s no surprise that an economist looks at this from a different angle than a politician – or a unionized hotel worker. One of the tenets of economics is the notion of “creative destruction.” New industries destroy old ones; new jobs replace old ones – but the person who held the old job may not necessarily get one of the new jobs. Nor will the new job necessarily pay as well. Yes, there will be winners, but there will also be losers. Airbnb, as you’ve heard, is a winner. Nathan Blecharczyk, 31 years old, is one of the youngest billionaires in the world. But he argues that Airbnb is helping a lot of people make money:

BLECHARCZYK: In 2014, we will generate $768 million worth of economic impact in New York. So roughly one-third of that will go to hosts. And hosts, these are people…trying to  pay their mortgage or their rent, so this is much-needed income for them, but two-thirds of that will be spent out and about shopping, dining, etc.  And what’s really interesting is that over 70 percent of the properties are outside of major tourist districts… And so perhaps an unintended consequence of Airbnb is that huge tourism dollars are flowing into neighborhoods that don’t normally see the benefit of tourism… So it’s actually a really good thing for the local economy.

DUBNER: According to Airbnb’s numbers, New York City “hosts,” as they are called, will take in roughly $250 million in 2014. When a hotel in New York takes in $250 million, it pays a big chunk of that money  in taxes. But the City doesn’t see much tax revenue from Airbnb:

BLECHARCZYK: Well, first off, I would like to clarify that Airbnb pays all the taxes that Airbnb is responsible for.

DUBNER: That may be true but, again: Airbnb isn’t a hotel company. It just makes the market. Airbnb earns its money by taking a cut of each transaction:

BLECHARCZYK: So our business model is to take between 6 and 12 percent from the guest, and three percent from the host. So on average a little above 10 percent.

DUBNER: So hosts take in roughly 90 percent of the dollars, which they are legally obligated to pay taxes on. But they rarely do. Why not? One reason is that it’s pretty tempting, and easy, to not pay taxes on peer-to-peer transactions. But Blecharczyk argues there is at least one more reason:

BLECHARCZYK: A lot of the hosts are afraid, because they aren’t sure if they are allowed to rent out their homes on a short-term basis. And so they fear that if they pay the tax that is due and in doing so give away their identity, that they’ll be called on the carpet for violating a short-term rental law. And so these two issues really go hand-in-hand. And it’s hard to solve a tax problem without also allowing people to stop hiding.

DUBNER: So if I ask you to build into your site a way to, let’s say, to automatically collect sales and hospitality and any other applicable taxes, within that transaction even though you, Airbnb, are not really responsible for that, would you do that, and why not if not?

BLECHARCZYK: Yes, we are willing to do that. That does represent a great deal of effort for us, but we’re happy to partner with cities and have a constructive relationship… And we’ve actually done this already, starting at the beginning of July with the City of Portland. So we’re now collecting tax on behalf of the City of Portland. We’re doing this automatically such that hosts don’t even have to fill out any paperwork… Now, I think for us to be able to do this in all the different cities that we operate–and remember we’re in 35,000 different cities, and certainly well over 100 cities where we operate at major scale–we need to make sure we implement these systems in a standardized way…Otherwise we’ll be left in a place that’s unsustainable in terms of operating this complex process.

DUBNER: Right. So you’re helping Portland collect taxes. Is Airbnb operating entirely legally in Portland?

BLECHARCZYK: Well there’s simultaneously a review of the regulation going on. And so that is happening in multiple stages.

DUBNER: Right, but short answer, and I realize that for legal reasons you may not want to say these words, but I can. Short answer is you’re not operating legally yet in Portland. You can cough if someone has a gun to you head, Nate.

BLECHARCZYK: So again, this is something that is evolving. Airbnb itself is definitely operating legally. The individual cases of our hosts varies very much based on what kind of building they’re in, what part of the city they’re in, et cetera.

[MUSIC: Pearl Django, “Samois Swing” (from Swing 48)]

DUBNER: Since we spoke with Blecharczyk, Portland city commissioners voted to legalize Airbnb rentals for guests staying less than 30 days as long as hosts get a permit and submit to some safety inspections. Which gives a bit more leverage to Airbnb’s general position, which is, essentially: hey, we’re not doing anything illegal, even though we facilitate transactions that may in some cases be illegal, but if only these old-fashioned government regulators would wake up and smell the creative destruction, we would happily help send millions of dollars in lost tax revenues their way. We just need to partner up on this! Portland’s doing it; why can’t New York City? After hearing from Airbnb’s Nathan Blecharczyk and New York senator Liz Krueger, you get the sense that Krueger may not be the partner that Airbnb is looking for in New York. Krueger, you will remember, was behind the recent Illegal Hotel legislation:

KRUEGER: I don’t think the laws we’ve passed are strict enough…So I want to look at more enforcement, perhaps increase fines, and penalties. I do have a very serious frustration that the kind of law that we really need needs to be federal because the state is superseded by federal law when it comes to regulating online business. Some people seem to think that if you’re a business model that’s on the Internet it’s like magic and hocus pocus. It’s just business. And there’s a reason for government to regulate business, whether it has a physical site somewhere or whether it’s in the cloud, because the real impacts on real people are actually not in the cloud. They are very real in communities all over, actually the world at this point.

[MUSIC: The Mackrosoft, “The Immortality Project” (from Antonio’s Giraffe)]

DUBNER: Coming up on Freakonomics Radio: the ride-sharing service Lyft has a head-on collision with New York regulators:

ZIMMER: They interpret laws one way and are trying to do their job. And we interpret laws another way and are trying to innovate.

DUBNER: And we send one of our producer to eat in a restaurant that’s really just a guy cooking in his apartment, to see if he gets poisoned – or worse:

FEMALE: I mean, given that Eatwith has kind of narrowed it down to people who that have actually passed the “not-psycho test”…

ROSALSKY: So you guys passed the not-psycho test?

RAFA: Yes! Yes. We like to think that we did.

DUBNER: One more thing: if you do not already subscribe to Freakonomics Radio — well, let me say this, peer-to-peer, I think you should. Just sign up, for free, at iTunes, and you will get the next episode in your sleep.

[UNDERWRITING]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen Dubner.

[MUSIC: Pearl Django, “Missoula Flood” (from Modern Times)]

DUBNER: On today’s program, we’re talking about The Internet vs. the State, the battle between companies like Airbnb, which lets anyone rent out a place to stay to anyone else, and government regulators, like New York state senator Liz Krueger:

KRUEGER: And I’m certainly not saying the model is mostly used by people intending to do illegal activity…but this model also is fabulous if you’re planning on doing something illegal, because most of the units in New York City end up being in apartment buildings without cameras or staff… So if you want to run a moving drug den, this is a fabulous model to find yourself locations…It’s a very easy way to operate moving houses of prostitution. Apparently it’s also very convenient for running illegal gambling.

DUBNER: Our producer Greg Rosalsky interviewed Krueger. Given her concerns about Airbnb, Greg asked her one last question:

Greg ROSALSKY: It’s not just Airbnb, there are all these other sharing apps. And one that’s gaining popularity in New York, and I think actually in your district is called EatWith. And EatWith is basically the Airbnb for restaurants. Private citizens invite people into their homes and their apartments and people come in, and they eat–and they pay–for a restaurant experience in somebody’s home. Could you just tell me what your thoughts are on that?

KRUEGER: I actually have not heard from anybody about that. I mean, right off the bat… So you’re letting strangers into your apartment, so you are potentially facing some kind of personal liability or risk. There’s New York City law about health inspections, and I’m really hoping that you aren’t putting in illegal restaurant-type ovens. If I get food poisoning, are they liable? I guess I would want to ask that question conceivably if I was the one eating. How do I know you’re not poisoning me and what’s the liability?

[FADE INTO SOUND OF COOKING]

ROSALSKY: What are you making here?

RAFA: This is hibiscus ginger sauce.

ROSALSKY: What is that pungent smell I’m smelling?

RAFA: The ginger. The ginger and the hibiscus are really strong flavors. I think that both of them are going to do a great mix together.

[BEEPING SOUND]

ROSALSKY: We have some more guests here.

RAFA: Hey, I’m Rafa.

CARLA: Hey, Carla.

RAFA: Nice to meet you.

MAX: My name is Max.

RAFA: And I’m Rafa.

MAX: And we’re actually right now at our place. Rafa’s a chef. He works in restaurants. And, you know, he always wanted to show people what he can create and offer. And when you work in a restaurant, you’re limited by a menu. So this is for him a platform where he can expand his creativity and knowledge and try what he likes, what he believes is good. At the end of the day, you know, they say chefs are like artists, so it’s a way for him to express through his dishes what he thinks.

[MUSIC: Chuchata, “Reina De Guaguanco” (from Chuchata)]

RAFA: So I grabbed the meat of the Ostrich, ground it, and made a mousse with Dijon, some Mescal, parsley, and the sauce is hibiscus-ginger sauce.

CARLA: Drunk Ostrich?

RAFA: Drunk Ostrich (table laughs).

MAX: For me, you know, it’s also like a business because I manage at the end of the day the whole website, all the guest relations, going back and forth with emails, calls, texts. I manage all the financial part of the little business here. And, you know, I’m the host as well. I have dinner with you guys, I sit down. And I enjoy the experience about sharing a moment in a place with random people that you’ve never seen before.

MAX: Feel comfortable again, this is your home. Enjoy. If you need something, water, wine, tequila, mescal, just feel free to ask and enjoy. Welcome all.

MAX: If you don’t see me eat that much today, it’s because I was sick. You know, during the week, I had some food poisoning. But you guys…

ROSALSKY: Wait, so where did you get food poisoning? (table laughs)

ROSALSKY: You’re not subject to health inspections by the government, also fire safety inspections. And, you know, you don’t get the letter grade in the window, so how do I know you’re not poisoning me?

MAX: I have a question for that question. How do you know you’re not going to get poisoned at a restaurant? And if your answer is going to be, “Oh, well, because it’s regulated by the health department,” then I ask you this question: how do you know who’s cooking for you in that restaurant and what he’s doing behind that kitchen? And in contrast, what we do here, you do know who is cooking and what he’s doing in the kitchen.

RAFA: This is just for the love of good food, and to make people happy with food. And how can you make people happy if you’re poisoning them?

[MUSIC: Greg Ruby, “What Tales We Tell” (from Look Both Ways)]

RAFA: I have a Tilapia filet and I did a crust of Chia. Chia is a Mexican seed that is very very rich in vitamins.

MAX: Actually, the first time that Rafa told me about this idea, I was like, what are you talking about?! Are you crazy? How does this work? Because you’re opening your house to a bunch of people that you’ve never seen in your life. But at the end of the day, you know, if you’re open-minded and you like crazy things and you live in New York, it’s one of those things where you say, “Okay, let’s give it a try.”

FEMALE: It’s kind of a cross between a dinner party at a good friend’s place and the best neighborhood restaurant ever. You know, you’re little neighborhood joint where you see people you know or maybe meet new people. It’s just you know…

OTHER FEMALE: There’s intimacy.

FEMALE: Yeah, there’s intimacy. Exactly.

ROSALSKY: You actually had to sign up and apply. And then there was a vetting process?

RAFA: Yeah, you get an interview. A Skype interview. Then they come into your house. Then they dine with you. And they go through your profile and your personality. And they go, “Well, now you’re an Eatwith host.” And that’s it.

FEMALE: I mean, given that Eatwith has kind of narrowed it down to people that have actually passed the “not psycho test”…

ROSALSKY: So you guys passed the “not-psycho test”?

RAFA: Yes! Yes. We like to think that we did (table laughs)…People review you, you know. Honestly, if you don’t have any good reviews or any stars, people are not going to eat with you.

JAVIAR: My name is Javiar and my sister, whom I came with today, is Daniella.

DANIELLA: And we were looking for some cool, fun stuff to do in New York while he’s in town. So he was looking up on TripAdvisor, and he found this really interesting thing, it is called Eatwith. And…

ROSALSKY: Do you mind me asking, are you also staying with Airbnb?

DANIELLA: Yeah, like, um, we’re staying in the Lower East Side.

ROSALSKY: So you guys are like mascots for the sharing economy. So you’re staying at Airbnb, you’re eating at Eatwith, did you come here in Uber?

JAVIAR AND DANIELLA: We actually did!! (Laughs)

ROSALSKY: No way!

ROSALSKY: Last question: does anybody feel poisoned at this table?

TABLE: (Laughs). No. No. Noooo. I feel happy and full.

[MUSIC: Vunt Foom, “Grease” (from Sub Valve Release)]

Guy MICHLIN: If you go tomorrow to eat dinner with friends, or friends of friends, obviously nobody is expecting the Health Department to come in and regulate this kitchen.

DUBNER: That’s Guy Michlin (MEESH-lin), the CEO and co-founder of EatWith.

MICHLIN: Nobody in the world is actually using the health department to regulate what’s going on in homes… I think that if you operate on a commercial level and you have employees that are interacting with the food and not just the owner himself, there are large volumes of people coming in, it’s commercial quantities, I guess it makes sense.

[MUSIC: Michalis Terzis, “Hellenikos Kinimatografos toy 70” (from  Michalis Terzis: The Road To Olympia)]

DUBNER: Michlin started the company in Tel Aviv.

MICHLIN: Today we’re in 32 countries, and we’re adding new countries basically every month now.

DUBNER: EatWith was inspired by Airbnb. Michlin got the idea while on vacation:

MICHLIN: The idea started almost three years ago. I was traveling with my wife to the island of Crete. And like many times when you travel we fell into every possible tourist trap. And so after a few days I remember that I once met in a conference a guy from Crete. And I actually emailed him and asked him, “where do the locals eat?” And instead of just giving me a typical restaurant he invited me home to a Friday dinner with his family, which turned out to be by far the best thing that happened to us on this trip….I think that by interacting with the locals, by staying with the locals, by eating with the locals… it just changes your whole experience… You don’t feel like a tourist anymore. You feel almost like a local for a few days…And so when I went back home, I met with my cofounder and we said there has to be a way replicate this magic and to share it with other people around the world. And that’s what we did.

DUBNER: EatWith is now based in San Francisco, of course. We asked Michlin if he’s run into any resistance from regulators:

MICHLIN: Thank god, no. But I should probably say, not yet. I’m sure it will happen….I think that sometimes, or actually many times, the regulator is a little bit behind to catch up with technology…It’s interesting. So I used to work for the government in Israel. I used to work for the state attorney’s office. And what I learned from this period is that usually when you look at regulation, you need to peel off and look at the original reason why this law was put in place and at all the different interest groups that are involved… And if you think about Airbnb, it’s obvious that this is a phenomenon that’s not gonna go away…. So obviously the regulator will need to come in and hopefully in a dialog with all the different constituencies, adapt and create a new regulation that fits the reality. And I think Lyft did it very, very nicely here in California…

DUBNER: That’s Lyft as in the ride-share service …

John ZIMMER: Sure, my name is John Zimmer and I’m the cofounder and president at Lyft.

DUBNER: And Lyft, L-Y-F-T, cars with pink mustaches. For those who don’t know what Lyft is at all, explain it from the ground up

ZIMMER: So Lyft is born out of the idea that transportation is really inefficient today and you can see that in the fact that 80 percent of seats are empty at all times… So Lyft is now in over 65 different cities across the country. We’ve done over 10 million rides. And it’s a peer-to-peer network for people in your community to give each other rides in a safe way. We use a mobile application to connect drivers and passengers who have extra time or extra seats in their car to give rides at the lowest possible price point.

[MUSIC: Collective Acoustics, “Don’t Text Me Bro” (from  bc≥ad)]

DUBNER: Lyft is not as well-known as Uber, nor as well-endowed – it is currently valued at roughly $1 billion, compared to Uber’s $18 billion. They are rivals; but Lyft seems to have a different view of itself:

ZIMMER: I think what often times people focus on in what we’re doing, they say, “oh is this another taxi app that just kind of dresses it up.” But the reality is no that’s not what we’re building, that’s not what our vision is. The taxi market in the U.S. is an $11 billion market. We’re going after a $1 trillion opportunity, which is the owning and operation of a car by every American household…And on an individual level, owning and operating a vehicle at $8,000 to $9,000 a year is the second-highest household expense in America, second only to owning a house. And then you have the environmental impact, 20 percent of CO2 emissions are coming from this system…And so we also believe that there is an ability to redesign our cities not just for buildings and cars and roads, but for people and people interacting.

DUBNER: The inspiration for Lyft – and a predecessor, called Zimride – came from a college lecture:

ZIMMER: So in 2006, I went to Cornell Hotel School, and in my senior year took a class in city planning in the architecture school. And the class was called “Green Cities,” and had this amazing professor.

DUBNER: The professor was Robert Young …

ZIMMER: His first lecture was the history of the world in 30 minutes.

DUBNER: The eighth lecture, as Zimmer recalls, was on the history of transportation.

ZIMMER: And he talked through the evolution from canals, to railroad, to highways. And I saw images of these networks, of these physical infrastructure systems, that he put up on the board. And I started thinking when he lays it out so simply as step one, step two, step three, there’s got to be a step four. And I started racking my brain thinking what will be the fourth infrastructure that is built? And at first, I thought it would have to be physical because everything else that I saw on the screen was physical infrastructure system. And then, you know, using the main metric that we think about in the hotel school being occupancy, I asked what is the occupancy of the seats within this system, within this network, and the professor said it is under 20 percent.

DUBNER: If you’re a hotel with 20 percent occupancy, you go out of business. If you’re driving a car with 20 percent occupancy – well, you’re just a typical American.

ZIMMER: And there was an interesting fact that the average car occupancy in Los Angeles is 1.1. And if it was 1.3, traffic in L.A. would be eliminated. And I got really excited. And I thought well if we could build the next infrastructure and it would require nothing physical, and it was only information based, people that have cars, or who have seats, or are giving rides to people that need a ride, that would be incredible. We would solve for the economic, the environmental, and the social problems associated with this transportation system we’ve built.

DUBNER: So John Zimmer and his co-founder, Logan Green, have a grand vision for changing how people get around. But as they’ve rolled out Lyft in city after city, they find that regulators often don’t share that vision:

ZIMMER: They interpret laws one way and are trying to do their job. And we interpret laws another way and are trying to innovate. And those two things are at odds, and the timelines are at odds. And if we took the approach of, “Hey, let’s wait and see what the government does to create a path that is very, very clear for this new industry” that we believe benefits drivers, passengers, and cities, then we wouldn’t be operating anywhere. And so, as someone who isn’t purposefully trying to be antagonistic, but someone who really believes in the change that we’re trying to create, we need to push forward, and we need to…you know, that friction will happen because both sides are trying to do their jobs and their jobs are different.

[MUSIC: Ruby Velle & The Soulphonics, “My Dear” (from It’s About Time)]

DUBNER: Yes, friction will happen. For Lyft, it happened – perhaps not surprisingly — in New York City.

MEDIA CLIP: Lyft was scheduled to begin service in New York City today in Brooklyn and Queens, but legal challenges could put those plans on ice. New York Attorney General Eric Schneiderman and Financial Services Superintendent Benjamin Lawsky are seeking a court order to stop Lyft.

DUBNER: In the spring of 2014, Lyft began operating in upstate New York – in Rochester and Buffalo – but it hadn’t cleared the path with the state’s attorney general:

LASHER: We were having conversations with them to try to understand what exactly they were doing in Buffalo and Rochester and whether an enforcement action would be merited. And in the midst of those conversations, they decided to launch in New York City, potentially in violation of those same laws.

DUBNER: That’s Micah Lasher.

LASHER: And I’m the chief of staff to the New York State attorney general, Eric Schneiderman.

DUBNER: Lyft argued that, because it is a ride-sharing app and that its fares are technically are suggested “donations,” that it shouldn’t be subject to the sort of rules that govern taxis. New York regulators disagreed. So, as Lyft prepared to launch in New York City, the government went to court to stop them, arguing that Lyft had “thumbed its nose at the law,” and that the company’s legal strategy was “based on audacity and pretense.” Micah Lasher personally tweeted that Lyft and John Zimmer were “not just ‘disruptive’ but also personally dishonest” in their dealings with regulators.

LASHER: And upon going to court, after the first court proceeding, they did delay their New York City launch.

DUBNER: And here again is John Zimmer from Lyft:

ZIMMER: It became very clear that there wasn’t going to be a fruitful path forward.

[MUSIC: Matthew Aguiluz, “Early Morning”]

DUBNER: So Lyft had to adapt its model. For instance, they agreed to only use drivers and vehicles licensed by the Taxi and Limousine Commission. Which means that even though Lyft is operating in New York City, it’s not really operating like Lyft. It’s not fulfilling John Zimmer’s grand vision for a new transportation model. It is also not posing much of a threat to the city’s huge taxi and car-service industries.

ZIMMER: I think it’s just very complicated because there are so many regulatory agencies. And you know, many of them want to do their job correctly, and protect public safety. But then there are also others that are protecting an existing industry. And one of the conversations that we often have with a regulator is okay, {“let’s talk about where we want to get to. Are we talking about protecting public safety or are we talking about protecting an existing industry and making sure that we do things exactly the same way into the future as we’ve done in the past?” And when people say, “You know, look, our priority is protecting public safety,” we can have a really productive conversation.

LASHER: The notion that the attorney general is carrying water for the taxi industry is laughable.

DUBNER: That’s Micah Lasher again, the A.G.’s chief of staff.

LASHER: It is certainly the case that there are entrenched interests who as a matter of their own self-interest want to stop new innovators from entering the marketplace. It’s laughable and frankly a rhetorical tactic by some of the companies we’ve had to deal with for them to group Attorney General Schneiderman into that.

DUBNER: The New York attorney general’s office has also fought a long legal battle with Airbnb. But, again, Lasher says, it isn’t the hotel industry the office is trying to protect; it’s the public:

LASHER: One of the big issues is the question of externalities and external impacts. In other words, if my next-door neighbor is using their apartment as a hotel room, they’re not just running a risk of their apartment getting trashed, they’re having an impact on me. Similarly, in the case of Lyft, if one of those drivers gets into a car accident and doesn’t have appropriate insurance, that can have an impact on a whole bunch of folks who did not sign up for that… The problem is, companies come in, they say “we’re not interested in whether our conduct is in violation of the law, we may very well in fact as a strategic matter decide to break the law”– with the hope or expectation that through means of pressure, we won’t enforce the law.

[MUSIC: Jamesking, “Can’t Take It ” (from Jamesking)]

DUBNER: It may be tempting to look at the regulators’ resistance to Lyft and Airbnb and say, “well, they’re just stuck in the past. Even if they’re not purely protectionist, they’re certainly anti-innovation.” Lasher insists that is not the case:

LASHER: I think we’ve demonstrated our ability to work with innovative companies to come up with new ways to look at things …

DUBNER: With Uber, for instance:

LASHER: We did have an investigation into Uber with regard to whether or not their surge pricing violated New York State price gouging laws.

DUBNER: “Surge pricing” – that’s charging more for a ride on a Saturday night, for instance, or during bad weather – it is standard practice for Uber, and for Lyft as well.

LASHER: And in that case, Uber cooperated with our office, and we were able to negotiate a resolution that maintained the integrity and the application of the state’s price gouging laws, but did it in a way that was thoughtful and that didn’t interfere with what Uber was doing. And, in fact, it was a model that they’ve now applied across the country.

DUBNER: The compromise in that case? Uber could adjust prices to fit demand but it had to set a price ceiling. It couldn’t spike its prices the way it did during a snowstorm in New York in 2013, charging $35 per mile with a minimum ride of $175. As for Lyft: John Zimmer was frustrated that Lyft could only bring to New York a neutered version of itself:

ZIMMER: We believe that regulations can make sense…but that current regulations were created at a time when they couldn’t have predicted the type of solutions that we have today… I like to think about what is a positive way of coming out of all of this, and what is a way that we could fix that friction, and I think that’s something that hasn’t been solved, and something that hasn’t been figured out… How could a company approach this in a way that wouldn’t ruffle the regulators’ feathers in the same way?

DUBNER: Lyft has had an easier time in other cities.

ZIMMER: I mean, we’ve had mayors call us and ask us to come to their city, Pittsburgh, the mayor has been extremely welcoming. The mayor in Albuquerque you know came and visited the office and said you know, we really need this.

[MUSIC: Ruby Velle & The Soulphonics, “Looking For A Better Thing” (from It’s About Time)]

DUBNER: This is what creative destruction looks like. This is the way the world moves forward, how economies move forward. A new technology is invented – by someone, for some purpose – and then it’s repurposed by a whole bunch of energetic people, moving in many different directions, faster than anyone could have imagined. Most of their attempts will fail. But some will work, and some work so so well, and happen so fast, that if you’re even a little bit old guard, it begins to look like the sky is falling. You imagine the worst about this new technology. You dwell on the dangers, and the destruction of the old way of life. Here’s the economist Jon Levin:

LEVIN: If you take a longer-term perspective on that, if you think about just over the last hundred years, the U.S.  economy has doubled in size every 30 years or so in terms of per-capita GDP. And what that means is that there’s been just a remarkable amount of change in pretty much everyone’s lifetime. In my parents’ lifetime and my grandparents’ lifetime and in my lifetime. A lot of that change has been just disruption of existing industries and the creation of new industries. A huge fraction of the U.S. labor force used to be in agriculture, and now it’s just a minuscule fraction.

DUBNER: Someone listening to this program in the future might find it quaint to hear people arguing about which human being is going to drive you from point A to point B.

LEVIN: I think the more fundamental threat to taxi drivers in the long run, as a way to be employed, is almost certainly autonomous cars… In 20 years, it may be that there actually aren’t people in the front seat of the car.

DUBNER: And if autonomous vehicles really work, what about all the other people who drive for a living? Nearly 3 percent of the United States workforce—about 3.6 million people—feed their families by driving taxis, buses, delivery trucks, tractor-trailers, and other vehicles. What are they supposed to do when this new technology starts to obliterate their livelihood? Well – at the very least, there should be a lot of job openings as government regulators.

This is a transcript of the Freakonomics Radio podcast “Regulate This!

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Date: Friday, 29 Aug 2014 16:00

Considering its own company name, you wouldn’t think so. But here’s what I ran into during a recent spell-check:

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Date: Thursday, 28 Aug 2014 13:58

(Photo: James Cridland)

(Photo: James Cridland)

This week’s podcast is a rebroadcast of our episode called “Who Runs the Internet?” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

Does virtual mayhem — from online ranting to videogame violence — help reduce mayhem in the real world? Though Steve Levitt says there is no solid data on this, in the episode he and Stephen Dubner hypothesize:

LEVITT: Maybe the biggest effect of all of having these violent video games is that they’re super fun for people to play, especially adolescent boys, maybe even adolescent boys who are prone to real violence. And so if you can make video games fun enough, then kids will stop doing everything else. They’ll stop watching TV, they’ll stop doing homework, and they’ll stop going out and creating mayhem on the street.

This episode then moves on to a bigger question about the Internet itself: who runs it? As Dubner asks: “Who’s in charge of the gazillions of conversations and transactions and character assassinations that happen online every day?”

Internet scholar Clay Shirky, author of HereComes Everybody: The Power of Organizing Without Organizations, tells us that 60 percent of adults around the world are now connected to the same communications grid. And this global connectivity is interesting, he says, because it’s not like there is an international body governing what’s online.

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Date: Thursday, 21 Aug 2014 13:41

(Photo: @gueamu)

This week’s podcast is a rebroadcast of our episode  “Parking Is Hell.” (You can subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

The episode begins with Stephen Dubner talking to parking guru Donald Shoup, a professor of urban planning at UCLA and author of the landmark book The High Cost of Free Parking. In a famous Times op-ed, Shoup argued that as much as one-third of urban congestion is caused by people cruising for curb parking. Michael Manville, a city planning professor at Cornell, and co-author Jonathan Williams found that in Los Angeles, “at any given time almost 40 percent of vehicles parked at meters are both not paying and not breaking any laws.”

You’ll also hear from MIT professor Eran Ben-Joseph, whose book ReThinking a Lot: The Design and Culture of Parking offers solutions to improve the parking lot. He gives us a sense of how many surface parking spaces there are in the U.S. (close to 800 million) and points out that in some cities, parking lots cover a full third of the land area downtown.

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Date: Wednesday, 20 Aug 2014 21:58

This is a transcript of the Freakonomics Radio podcast “Parking is Hell

[MUSIC: Artist Name; “Song Title” (from Album Title)]

[MUSIC: The Diplomats of Solid Sound; “Don’t Touch My Popcorn” (from Let’s Cool One)]

Donald SHOUP: I think, you know, 50 years from now, when people look back on New York, and of course other cities, that they’ll say, ‘What did these people think they were doing?’

Stephen J. DUBNER: That’s Donald Shoup. He is a college professor, at UCLA, who is obsessed—well it’s not really fair to call him obsessed—who is…Yeah, actually he is obsessed. He’s obsessed with this one thing that we all do, all over the world, and that we do so badly, in Shoup’s opinion, that someday, we’ll look back at it the way we now look back at…

SHOUP: Bloodletting.

DUBNER: Seriously, bloodletting?

SHOUP: It seemed scientific because there were elaborate tables and diagrams, and it had to be done by surgeons and stuff. No, it was very harmful. The other comparison, which I think is much more appropriate, is lead therapy. Lead was thought to be a wonderful healing device. And it is because it’s toxic to microorganisms. And therefore if you put it on a wound it would help kill the infection. But people didn’t know that it also damaged the brain.

DUBNER: Okay, so what do you think Professor Shoup is talking about? What is this thing we do so badly that future generations will compare it to bloodletting and lead therapy?

SHOUP: Maybe the most mismanaged of all our resources is parking.

DUBNER: Parking?!

MAN 1: It’s terrible, it’s really terrible.

MAN 2: It’s crazy, it’s horrible, it’s way out of hand.

MAN 3: I’ve driven around for an hour looking for a spot.

WOMAN 1: Most people don’t know what they’re doing, and I really want to like go out there and be like, I will park your car for you.

MAN 4: Yeah, it’s a total nightmare.

DUBNER: Yeah , parking.

[THEME]

ANNOUNCER: From WNYC and APM, American Public Media, this is Freakonomics Radio. The podcast that explores the hidden side of everything. Here’s your host, Stephen Dubner.

[MUSIC: Susie Ibarra; “Azul” (from Songbird Suite)]

DUBNER: If I asked you to name the worst things about modern society, maybe the 10 worst things, I’m guessing that parking would not make your list, might not even make a top 20 list. And yet, especially if you live or work in a city, you’ve probably been scarred, at some point, by parking.

MAN 5: I used to park on the sidewalk and get tickets, but there was sort of no other place to go.

SHOUP: Everybody has stories of parking horror that we don’t have about stories about horror in grocery stores, or with milk, or anything else.  And they had stories about, you know, even murders over parking spaces.

DUBNER: That’s Donald Shoup again, from UCLA. He is a transportation scholar who is one of the world’s leading authorities on parking. Now, you might think that any right-thinking transportation scholar would study, you know, transport. But as Shoup helpfully points out, the average car spends about 95 percent of its lifetime parked.

Shoup trained as an economist, and his economist roots often show when he talks about parking. Because in his view, the biggest problem with parking is the price. Not too expensive, too cheap! He is the author of a nearly 800-page book called The High Cost of Free Parking.

SHOUP: Everybody likes free parking, including me, probably you. But just because the driver doesn’t pay for it doesn’t mean that the cost goes away. If you don’t pay for parking your car, somebody else has to pay for it. And that somebody is everybody. We pay for free parking in the prices of the goods we buy at places where the parking is free. And we pay for parking as residents when we get free parking with our housing. We pay for it as taxpayers. Increasingly I think we’re paying for it in terms of the environmental harm that it causes. I did use data to estimate that parking subsidies in the United States are somewhere between 1 and 4 percent of the total GNP, which is about in the range of what we spend for Medicare or national defense. So that’s the cost of parking not paid for by drivers.

DUBNER: There are of course many different parking scenarios. If you live in a house with a driveway or a garage, parking is a snap, at least when you’re at home. In suburban or exurban areas, you’ve got big, usually free, parking lots set back from the street at office parks and malls and restaurants. And then you’ve got cities, some of which offer free parking right there on the street, curbside. But here’s Donald Shoup again to explain why that free parking isn’t as free as you think.

SHOUP: If you don’t have an off-street space and you have a car, and you live in New York, you have to drive around looking for a space hoping to see somebody going out. There was a study done in New York, a very ingenious method, though simple in retrospect is that the researchers interviewed drivers who were stopped at traffic lights in Manhattan and Brooklyn and asked them if they were cruising for parking. And on Prince Street in Manhattan, 28 percent of the drivers said that they were hunting for parking, even though most people were not destined for the area, they were just traveling through the area. So those are people who don’t want to be driving, they want to be parked. We did a study here in Los Angeles lasting a full year cruising for parking ourselves, going to a destination and then hunting for as long as it took to find a parking space. We made 240 observations. When you add it up, the average time it took to space was only three minutes, that’s two and a half times around the block, which doesn’t seem like very much. It’s about half a mile hunting for parking. But when you add up all the people who are parking in Westwood Village, if they had the same average that we had, that adds up to 3,600 vehicle miles of travel a day. That’s the distance across the U.S., and that’s just in the 15-block area of Westwood. If you add it up for a year, that’s equal to 36 trips around the Earth or four trips to the moon hunting for underpriced curb parking in a little 15-block area. And I think it’s happening all over the world. When other people do these studies, they find very similar results.

DUBNER: I’m just curious, when we talk about urban and suburban sprawl that many people hate, I think, you know, the common image is you’re cruising down that street that has a lot of stoplights because there are a lot of turns, there are a lot of turns because there are a lot of shops. There are a lot of shops and they all have big parking lots. And that whole chain reaction causes a lot of congestion, confusion, accidents, pollution, et cetera, et cetera, et cetera. When you think of that scenario, how much of that scenario do you think of as caused by the ancient practice of offering free parking everywhere you go?

SHOUP: Well it isn’t ancient.

DUBNER: Ancient I mean 1950s or 1960s. You know…

SHOUP: That’s right. City planners in every city, including large parts of New York, specify the minimum number of parking spaces required for every building depending on its use. A restaurant typically requires at least 10 spaces per thousand square feet, which means that the parking lot is three times bigger than the restaurant. And if nothing can be built unless it meets that parking requirement, and the parking requirement was established on the assumption that everybody’s going to park free, well it does seem to be kind of self-fulfilling that people drive to it.

[MUSIC: Cale Pellick; “Sunday Stroll”]

DUBNER: Every city has its own parking requirements, but here’s a typical scenario. To build a shopping center, you need four spaces for every 1,000 square feet of store. A public swimming pool requires one parking space for every 2,500 gallons of water. If you want to build a beauty shop, you need three spaces per beautician – but a nunnery needs only one space per 10 nuns.  

SHOUP: The required parking spreads buildings apart. It makes walking less pleasant. You know, the obvious way to travel is that, you know, we curse traffic, and stare at taillights, and breathe fumes, and then we expect to park free when we get there. But I think the upside of the mess that we’re in is a terrific opportunity that there’s all this vacant land that can be built on in cities. I mean I think we’re the Saudi Arabia of developable land in cities. If cities reduced, eliminated their minimum parking requirements, a lot of these parking lots could be built on for infill development.

DUBNER: So as Shoup points out, there are two distinct parking problems. In the suburbs, too much land goes to parking because of somewhat arbitrary requirements, and then those areas become harder to navigate, and walk in. And in cities, a lot of street parking is either free or underpriced, which leads to too many drivers cruising for spots. This creates even more congestion, pollution, and accident risk.

SHOUP: I think the world would be a lot better if we had never forced people to provide more parking than they’re willing to and if we had charged the right price for curb parking. What is the right price for curb parking? I would say that this is what’s been adopted in more and more cities is that the right price is the lowest price the city can charge and leave one or two vacant spaces on every block. So that nobody can say that it’s hard to find a space because wherever they go they see a space.

[MUSIC: The Diplomats of Solid Sound; “The Cuber Bake” (from Let’s Cool One)]

DUBNER: That makes sense, doesn’t it? At least to an economist: if you’re selling something and so many people are trying to buy it that it makes a mess for everyone, you are plainly charging too little. So how do you fix that? Later in the program, we will hear how Donald Shoup and others are trying. But before we go micro, let’s go macro. Let’s get a sense of just how much parking we’re talking about in a country as big as the United States.

Eran BEN-JOSEPH: There are some cities where the ratio of surface parking is very high. Houston for example, sometimes could be 30 to 35 percent of the overall area.

DUBNER: Thirty to 35 percent of Houston is surface parking lot?

BEN-JOSEPH: Of some areas, yes.

DUBNER: Eran Ben-Joseph teaches urban studies and planning at MIT. He too has written a book about parking, called ReThinking a Lot: The Design and Culture of Parking. While Donald Shoup is the godfather of parking studies, Ben-Joseph is one of a growing number of what some people call “Shoupistas.” Ben-Joseph is an Israeli. He’s lived and worked all over the world.

BEN-JOSEPH: In the United States the first thing that you experience I think as somebody who comes from a smaller country that is much denser is the amount of open space, the lower density, and in a way to some extent the ample supply of available land is something striking. In that sense, dependency on the car and the lack of to some extent public transportation in some parts of the U.S. versus other countries, and those that I experienced first hand such as Japan, Israel and Europe, are very different.

DUBNER: I think if you ask most people what they think about parking, most people think or would say there’s not enough parking. For starters do we know, or do you know, how many parking spaces there are in America, let’s say?

BEN-JOSEPH: So, yeah, we tried to calculate that. And my interest was mainly on surface parking lots, which are, I guess, the lowest on the kind of evolution chain if you will of parking. Surface lots are the most mundane, cheapest type of parking that you can construct. We don’t have very good estimates. They run all over the map. But I think the best guess that I could give you is that there are about three parking spaces for every car in the United States.

DUBNER: Wow!

BEN-JOSEPH: So that’s for the whole country of course. And that’s only for passenger cars, right?

DUBNER: Oh my gosh.

BEN-JOSEPH: So if we have 250 million cars in the United States, passenger cars, and you multiply that by about an average of three. Now, of course people in New York will tell you, or somewhere, well there’s no way there are three parking spaces, but of course you have to look at it, you know, with regard to the whole country. So that brings it to almost 800 million spaces.

DUBNER: Again, is that just surface lots as you said?

BEN-JOSEPH: Those are just surface lots.

DUBNER: And then, in addition to surface lots there are what else?

BEN-JOSEPH: You have garages of course, you have people’s own parking spaces in their homes.

DUBNER: Driveways, yeah.

BEN-JOSEPH: Driveways, garages. I’m talking about public spaces or private spaces that are surface lots and not structured.

DUBNER: I see, and it may be hard to estimate, but what share of total parking spaces would you say that these surface lots constitute?

BEN-JOSEPH: You know, that’s a good one. I think that there’s somewhere between let’s say around seventy percent, sixty to seventy percent.

DUBNER: Okay, so if you’re saying that these surface lots constitute maybe sixty or seventy percent of the overall parking supply in the U.S. And then if we were to add in, let’s say the other, the rest of that 30 or 40 percent, we might get to a figure where there are roughly four or four and a half parking spots in America for every car.

BEN-JOSEPH: Yeah, and some people even claim that there are eight.

DUBNER: So how can we possibly complain that there’s not…Okay.

BEN-JOSEPH: Well, it’s exactly as you said. There’s a wonderful quote from somebody who, I can’t remember where it was, who calculated that in that particular city there were almost eight spaces per car. And then he published it, and I think people complain that I still can never find parking. So where are all these you know eight spaces for my car?

[MUSIC: Pat Andrews; “1960’s Bachelor Pad”]

DUBNER: In case you couldn’t tell, Eran Ben-Joseph doesn’t like all those surface lots, and not just because of the sprawl. Environmentally, paving over huge swaths of land isn’t a very good idea. So how to do better? Ben-Joseph has some thoughts. At the very least, you could break up huge lots with trees and vegetation. Paint the parking lots light colors so they don’t absorb so much heat. Use permeable paving materials to cut down on runoff. Now, to be honest, a lot of academics have neat ideas that they think will fix the world. And most of the time, no one pays attention to them. But a few years ago, something strange and potentially wonderful happened in the realm of parking. Some transportation officials in San Francisco who had read Donald Shoup’s work about the high cost of free parking decided to put one of his theories to the test.

SHOUP: If it works it will make San Francisco an even better place to live and do business and visit. It will just be yet another feather in the cap of San Francisco. And if it doesn’t work, they can blame it all on a professor from Los Angeles.

[MUSIC: Josh Bernasconi; “Baby on the Beach”]

DUBNER: When we come back, we’ll hear about that San Francisco parking experiment, and we’ll hear about an incredibly common fraud that threatens to ruin just about any parking reform.

[UNDERWRITING]

[MUSIC: Drazy Hoops; “Happy Birthday To Me” (from Into the Red)]

MAN 6: It sort of feels like you’re trapped, there’s no way out. You know when you get to a spot where you have to be and the parking is not happening, it’s just a miserable experience. I drove around looking for a space that wasn’t metered. It took me 25 minutes…

ANNOUNCER: From WNYC and APM, American Public Media, this is Freakonomics Radio. Here’s your host, Stephen Dubner.

DUBNER: Michael Manville is an assistant professor of city and regional planning at Cornell University.

Michael MANVILLE: You know, cars are at their most useful to us when we’re driving them, and that’s when we think about them.

DUBNER: But we’re not talking about driving today. We’re talking about what happens to cars during the 95 percent of the time they’re not being driven. We’re talking about parking.

MANVILLE: I think that a lot of transportation scholarship deals with driving the same way that everyday people do, which is just you know out of sight out of mind. You know, once you’re not in your car, you know, as long as you’re pretty confident no one’s going to break into it, like, who cares?

DUBNER: So we can agree that you’re obsessed with the most boring part of car ownership, yes, parking?

MANVILLE: Yeah, that’s probably a fair characterization.

[MUSIC: Two Dark Birds; “Start All Over Again” (from Songs For the New)]

DUBNER: Manville got his Ph.D. at UCLA, under parking guru Donald Shoup. And it is Shoup’s research that recently inspired the city of San Francisco to try an experiment called SF Park. Here’s Shoup again.

SHOUP: Well it’s a pilot project sponsored by the U.S. Department of Transportation to look at the effects of trying to get the price of parking right. It’s easy to explain. They have sensors in the ground to measure the occupancy of each of 7,000 spaces, usually about eight spaces on each block. And on blocks where they find a high occupancy, if they’re all full, they nudge up the price. And on blocks where there are a lot of empty spaces, they nudge the prices down. They don’t do it every day, they change the prices every six weeks. They have different prices at different times of the day, before noon, from noon to three, and after 3 p.m., but those prices can be different on different blocks.

DUBNER: Changing prices like that, based on demand and time of day, is called dynamic pricing. In some industries, it’s been happening for years—airline tickets, for instance. But for something like municipal parking – well, this is a pretty big deal. If you’re a guy like Mike Manville, the city planning professor at Cornell who studied under Shoup, this is incredibly exciting.

MANVILLE: So SF Park is probably the best experiment we have so far with the idea of sort of performance-priced curb parking. There’s two components to the sort of dynamic part of the dynamic pricing. And one is that at different times of day the prices are higher and lower. So at 9 a.m. the price might be $3, but at noon when you expect a lot of people to be out and about for lunch it might be $3.50. And then it might fall again by 4 p.m. back down to $3. So there’s a price change that happens over the course of a day. The other part of it is that each month SF Park evaluates overall occupancy and decides if the price on a particular block has to go up or down. So that same block face where the price was $3, then $3.50, then $3 over the course of a day in July, might by September be $4, $4.50, and $3.25 or something like that.

DUBNER: So the idea is to capture the true price of parking for that area.

MANVILLE: Yeah, you essentially establish a market in parking.

DUBNER: Scholars like Manville and Shoup argue that if you get the price of parking right, a lot of other problems get solved. Now, some drivers may have to pay more but they can park where they want to park when they want, which is good for drivers and good for businesses. There’d be less cruising for parking spots, which means less congestion and pollution. But, for dynamic-priced parking to work, you do need people who are supposed to pay for the parking spots to actually pay for them. And as Mike Manville discovered, that doesn’t always happen. He and a co-author ran a study of street parking in Los Angeles, which has the highest auto density of any American city. Manville and his team surveyed thousands of parking meters and found that, and I quote, “at any given time, almost 40 percent of vehicles parked at meters are both not paying and not breaking any laws.” What?!

MANVILLE: There’s three reasons why a vehicle could be sitting at a parking meter not having paid and not be breaking the law. And so the first one is simply that the meter’s failed. The other one is government credentials. So if you’re…

DUBNER: My counterfeit FBI placard that I put in my car.

MANVILLE: Exactly. And so a lot of places have actual rules that say if you’re a cop, or you work for a city council member in a particular car you don’t have to pay at meters.

DUBNER: Or if you’ve ever been married to someone who knew a cop pretty much. I mean, I‘m exaggerating, but we know that there are a lot of people who find a way to have a credential.

MANVILLE: Find a way to get a credential, and even in places where it’s actually not on the books that these people are exempt from meters, informally, nobody tickets a police officer, right? So that’s a share of nonpayment as well, legal nonpayment. And then the last one, and the big one is disability credentials, particularly the disabled placards that are hung from the rearview mirror. At the time we did that study, and I think this has changed a little bit, there was about 25 states where if you had a disabled credential, you could just pull up to any metered space, park for free, and often for very long periods of time.

DUBNER: Okay. What share roughly are each of these? Is the handicapped the largest of them?

MANVILLE: Yeah, far and away. The disabled placard really was the lion’s share. And I think that it’s useful to compare that category of nonpayment with the sort of traditional scofflaw, I’m just going to park and not pay, and it was twice that. You know, I think normally when we hear about cities losing meter revenue we just think about bad enforcement, and people aren’t paying, and nobody is busting them, but twice as many spaces were occupied by vehicles hanging disabled placards as by people who had just sort of chosen not to feed the meter.  

DUBNER: Right, so you’re saying in the paper that one of the reforms that would help solve this problem of wildly misused parking spaces is ending the practice of granting free time unlimited parking to vehicles displaying disabled placards. When you present a city or when a city learns of your research do they say oh wow, Mike, thanks for solving this for me, now we know why our parking was such a mess, all we got to do is get rid of all the handicapped placards. Does that happen?

MANVILLE: Oh yeah, I mean, people just jump on board this right away. I mean, there’s no elected official on Earth who doesn’t want to remove an entitlement that’s at least nominally for a disadvantaged group so they can charge everyone else more to park. I mean it’s just a, it’s a killer idea. No, of course not. This is political kryptonite to a certain extent. And that is the issue.

DUBNER: Is it frustrating for you in that do you feel that you identified the problem to solve that would not fix parking by any stretch but would certainly ease a significant strain on it. And yet because you identified a problem that’s politically not very savory that it’s probably not going to have much effect?

MANVILLE: Well, I mean in part, you know, sure there’s a little bit of frustration, but also that’s life, right? If I really wanted to, you know, get into the trenches and everything I wouldn’t be an academic. Right?

DUBNER: It’s nice to hear someone admit that actually.

MANVILLE: Yeah, there’s people who change the world, and there’s people who play with spreadsheets. And you know, I tend to fall in the latter camp.

[MUSIC: Jason Marsalis; “Hand Jivin’” (from The Year of the Drummer)]

DUBNER: Donald Shoup, maybe because he is the éminence grise of parking scholarship, aspires to both camps. He would really like to solve this implacable placard problem.

SHOUP: Placard abuse is just about everywhere. Everybody has a story, or many stories about it. Twenty-two U.C.L.A. football players were found with disabled placards. So a couple of states have done, found a really clever way to get around this. Michigan had a lot of placard abuse, so they have a two-tier system of disabled placards. They revised the laws so that only people who have extreme trouble walking or can’t use a meter because they have hand disabilities, only those people are eligible for a special placard that allows free parking at meters. The other people, they can use their disabled placards at disabled spots at grocery stores and things like that. Well, when this law came into effect, only 2 percent of the people with placards applied for the special placard, which required a doctor’s visit and showing that you had a real disability that prevented walking. So it solved most of the disabled placard abuse problem. I think we should really support the 2 percent, the 2 percent who really need the free parking because they can’t get to the meter. Illinois has copied this law. And I’m recommending it for California because there are blocks in Los Angeles you can walk along where you see every single car at the meter has a disabled placard, so it doesn’t make any difference what the price is. You know, it really undermines any attempt to manage parking.

DUBNER: The attempt to manage parking in San Francisco, SF Park, has been in place for more than a year. Prices move up and down at different times of the day, and on different blocks, according to demand. So, does SF Park work? That is, does it get the price of parking right, and if so, does that fix other problems? The short answer is we don’t know yet. It’ll be a while before there’s enough the data to answer the questions we really want to know, like do cars spend less time cruising for spots? Do buses run faster? Are pedestrians and bicyclists safer? Are businesses hurt, or helped? One thing we do know for sure is how the parking prices changed. Some blocks got more expensive, others, less. But the surprising thing—surprising at least to Donald Shoup—is that, overall, the price of street parking fell.

SHOUP: Everybody expected prices to go through the roof. And they said this is another money grab by the city, it’s a tax on motorists as part of the war on cars. But it turned out not to be that way. A lot of the spaces were overpriced. And I think it’s a good thing that the prices are lowered so that you get more customers for stores on the streets that have now lower prices. I think that’s one of the big surprises. But it’s true of any market. In real estate they say you know it’s location, location, location. The most convenient spaces are the ones that you’d expect to have higher prices, and the less convenient ones are the one you expect to have lower prices. And I think that what SF Park does is get the price right in every location. I think we’ll learn so much from this carefully controlled experiment that it should convince people that this is a good idea or not a good idea.

[MUSIC: The Diplomats of Solid Sound; “Shadow Of Your Soul” (from Let’s Cool One)]

DUBNER: That’s right. It may be that, for all the care and logic put into an experiment like this, that something as seemingly simple as parking is hard to fix because of, well, because of how people respond to incentives. It may be, for instance, that all those people who get hold of handicapped placards and other parking credentials take up so many of the good spots for free, and for hours and hours and hours that smart parking will remain a dream. I asked Mike Manville what he’s learned from watching the best parking ideas from academia get put into play in the real world.  

MANVILLE: So I think it probably teaches all of us who are academics is that the real world is complicated and messy, that we come up with these ideas, and they seem entirely valid to us, and I think its very common for us as academics to sort of roll our eyes at policy makers and say oh why don’t they just listen to us. And I think it’s been kind of, it’s been very educational and occasionally humbling to watch ideas that I strongly believe in, you know, sort of get put into practice and see how difficult it is for the folks on the front lines to actually do them. So I think that it’s been a real learning process in both directions.

DUBNER: And Donald Shoup, as energetic and optimistic as he is, acknowledges that when you try to change how people park, you’re going up against a bigger enemy than a strip of asphalt. You’re going up against biology.

SHOUP: Of course Seinfeld always had episodes about hunting for parking. I think one of the quotes I like best from Seinfeld is when I think George and Elaine were driving to Jerry’s apartment, and George says , “I never pay for parking. Paying for parking is like going to a prostitute…

[SEINFELD] Why should I pay when if I apply myself maybe I can get it for free?”

SHOUP: …And I think, I think so many people are trying to get it for free. You know, we didn’t become a great nation by being a bunch of freeloaders and expecting something for nothing. But when it comes to parking, I think, you know, our brains shift down to a lower level of intellectual performance. I think we use the reptilian cortex of our brains, the earliest, most primitive part of the brain that makes fight or flight decisions, or how to avoid being eaten, or how to get food. And we would say things about parking that we would never say about something we really knew about.

[MUSIC: Two Dark Birds; “Pie Eyed” (from Songs For the New)]

DUBNER: Thanks to Donald Shoup, all of us at least know a little bit more about parking. But the future? That’s harder to know. Parking might get worse, or, for all kinds of reasons, might get better. The world keeps getting more urbanized, which means more people on foot, on bikes, mass transit. Maybe car-sharing will become more popular, which would lessen parking demand. And, most exciting, to me at least, is the future of the driverless car. Now, some smart people think in 10 or 20 years, most cars will be controlled by computers rather than accident-prone, Instagram-addicted, coffee-drinking, eyeliner-applying human beings. Now, if all cars were driverless, would you still need to own one, or would you be willing to just summon one, the way you now call a cab? It would come pick you up, then drop you off and instead of having to park at the curb and wait for you, it could come pick me up, or one of any other million people nearby, and then, when you’re done doing whatever you’re doing, you summon a different car to come get you. How great would that be? And how much less parking would we need? Maybe a lot less. And then comes the really hard part: what do we do with those millions and millions and millions of parking spaces we’ve built all over the world? Hmm. More nunneries maybe?

This is a transcript of the Freakonomics Radio podcast “Parking is Hell

Author: "Freakonomics" Tags: "Podcast Transcripts"
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Date: Thursday, 14 Aug 2014 13:31

This week’s podcast is a rebroadcast of our episode called “What Do Medieval Nuns and Bo Jackson Have in Common?” (You can download/subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

(Photo: Kevin Dooley)

(Photo: Kevin Dooley)

The episode is about spite. As in “cutting off your nose to spite your face” spite. Lisi Oliver, a linguist at Louisiana State University, tells us about the probable origin of this phrase. You’ll also hear Bo Jackson talk about a costly decision he once made that most people would certainly think of as spiteful — and from Dave O’Connor, executive producer of the documentary film You Don’t Know BoThe economist Benedikt Herrmann tries to measure spite in the lab (papers are herehere and here).

Why are people willing to hurt others even when it is costly to themselves?

Steve Levitt warns that the real world is more complicated than any lab — and wonders, therefore, if pure spite even exists.

Author: "Freakonomics" Tags: "Featured Radio Post, Freakonomics Blog, ..."
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Date: Thursday, 07 Aug 2014 13:01

(Photo: Aaron Stidwell)

This week’s podcast is a rebroadcast of our episode called “Should Tipping Be Banned?” (You can download/subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

As we all know, the practice of tipping can be awkward, random, and confusing. This episode tries to offer some clarity. At its center is Cornell professor Michael Lynn, who has written 51 academic papers on tipping.

The practice of tipping is one of the most irrational, un-economic behaviors we engage in. It’s not in our economic best-interest to tip; essentially we do it because it’s a social norm — a nicety. In this episode of Freakonomics Radio, Stephen Dubner looks at why we tip, what kinds of things can nudge tips upward, and what’s wrong with tipping overall. Research shows that African American waiters make less in tips than people of other races, so tipping is a discriminatory practice. In the end, we wonder whether or not the practice of tipping should be eliminated altogether.

Author: "Freakonomics" Tags: "Featured Radio Post, Freakonomics Blog, ..."
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Date: Thursday, 31 Jul 2014 15:35

This week’s podcast is a rebroadcast of our episode called “How Much Does Your Name Matter?” (You can download/subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

The gist: a kid’s name can tell us something about his parents — their race, social standing, even their politics. But is your name really your destiny?

The episode draws from a Freakonomics chapter called “A Roshanda By Any Other Name” and includes a good bit of new research on the power of names. We talk with NYU sociologist Dalton Conley and his two children, E Harper Nora Jeremijenko-Conley and Yo Xing Heyno Augustus Eisner Alexander Weiser Knuckles Jeremijenko-Conley. Harvard professor Latanya Sweeney talks about Google ads, and how a search for people with distinctively black names was more likely to produce an ad suggesting the person had an arrest record – regardless of whether that person had ever been arrested. We also talk to Eric Oliver, a political scientist at the University of Chicago, about his new research that looks at how children’s names are influenced by their parents’ political ideology. Lastly, Steve Levitt and Roland Fryer argue that a first name doesn’t seem to affect a person’s economic life at all.

We hope you enjoy this episode, whatever your name might be.

Author: "Freakonomics" Tags: "Featured Radio Post, Freakonomics Blog, ..."
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Date: Thursday, 24 Jul 2014 18:02

We routinely hear from people who’ve heard about our Freakonomics Radio podcast, but feel somewhat shut out from the podcasting world because they don’t use an iPhone or iTunes. So here are some alternative options:

1) For Android Users

We’ve heard great things about Pocket Casts, which, for $3.99, syncs your favorite podcasts and keeps them backed up. You can also stream it to your Chromecast. Pocket Casts also works for Apple devices.

2) Windows Users

You actually don’t need a third-party app to stream, download, or subscribe to podcasts. It’s super simple: here are instructions. If you use a Windows phone, you can download the Podcast Lounge app to subscribe and listen to Freakonomics Radio.

3) Stream from our website or RSS Feed:

If you’re listening from your computer, this is probably the easiest way. Go to the Freakonomics Radio page and click on the “Feed” button on the right-hand side just below the search bar (or access it here). This will take you to a list of all of our podcasts. Find the one you want, and click “Play Now”; an MP3 of the podcast will now begin downloading to your computer. When the download has finished, you can open it with your media player of choice.

Alternately, you can also download a podcast from its individual page on Freakonomics.com/radio. You can click the play button to start streaming or click the “WNYC” link, which will take you to a WNYC page where you’ll see a “download” button under the player.

4) WNYC App

You can download the free WNYC App for iPhone or Android. In the app, go to “shows” in the dropdown menu. Scroll down to find Freakonomics Radio, pick an episode and hit “play” to start streaming. If you want to download an episode, hit “save.” You can adjust the settings — whether you want to bookmark an episode or download it, e.g. — under the “saved audio” tab.

5) Stitcher App and Swell App

You can listen to Freakonomics Radio on Stitcher or use the Stitcher app. On the app, select Freakonomics Radio and add it to your favorites playlist. You can also add specific episodes to your playlist, and again you can use the settings to adjust whether you want to stream or download for offline listening. We’ve also started hearing good things about the Swell app.

 

Any other suggestions? Please leave any listening tips or workarounds in the comments below — and, as always, thanks for listening.

Author: "Freakonomics" Tags: "Freakonomics Blog, Freakonomics Radio"
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Date: Thursday, 24 Jul 2014 15:40

(Photo: www.CGPGrey.com)

(Photo: www.CGPGrey.com)

This week’s episode is called “Does Religion Make You Happy?” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.)

We undertook this episode in response to a listener question from Joel Rogers, a tax accountant in Birmingham, Ala. Here’s what he wrote:

Being devout Southern Baptists my parents have steadfastly been giving 10% of their income to the church their whole lives. I recently voiced my opinion that I thought that was too [much to] give, and my parents and I got into an argument.

After a little back-and-forth, my parents conceded tithing at 10% may not be the exact amount ‘God’ expects, but my mother said something that stuck with me. She said the 10% they give to the church makes them happier than anything else they spend money on.

I’ve read that people who go to religious institutions consistently are happier than their counterparts. The economist inside me says that money (not given to the church) would make a non-tither happier, all things equal. So, will exchanging 10% of your income for the right to participate in a religious congregation statistically increase or decrease your happiness?

Joel is in effect asking two questions, related but separate. One is whether giving away money – in this case, to a religious institution – makes you happier. The other is whether religion itself makes you happier. Neither question is easy to answer, but we’ll do our best.

In the episode you’ll hear from Laurence Iannaccone, an economist at Chapman University who specializes in the economics of religion. Iannaccone says there is a strong correlation between religious giving and happiness but, as you’ll find out, just because giving and happiness seem to go hand in hand doesn’t mean the giving causes the happiness.

You’ll also hear from MIT economist Jonathan Gruber, who has done quite a bit of research on these topics. In “Pay or Pray? The Impact of Charitable Subsidies on Religious Attendance” (abstract; PDF), Gruber tried to determine whether giving money to church is a complement to religious attendance or a substitute — and, whether it’s the giving or the going that actually makes people better off. Here’s his suggestion for the Rogers Family:

GRUBER: I would say if it’s really going … to church that matters for them, for their happiness and well-being, then they should maybe even give less and just go more.

And here’s what Gruber found in his paper “Religious Market Structure, Religious Participation, and Outcomes: Is Religion Good for You?” (abstract; PDF):

GRUBER: [The religious are] more likely to have higher incomes, higher education, have more stable marriages, be less likely to be on welfare, essentially be more successful on any economic measure you want to use.

In the podcast, Stephen Dubner also wonders: what if you’ve been giving to your church but find you’re no better off in the long run? As it turns out, some churches, like NewSpring in South Carolina, offer a money-back guarantee.

Finally: a big thanks to the Rogers Family (as well as to WBHM producer Andrew Yeager), who let us go to church with them at Grace Life Baptist Church in McCalla, Alabama.

Rogers Family

Author: "Gretta Cohn" Tags: "Featured Radio Post, Freakonomics Blog, ..."
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Date: Thursday, 24 Jul 2014 13:43

This is a transcript of the Freakonomics Radio podcast “Does Religion Make You Happy?.

[AMBI: Birds chirping]

JOEL: Jesus can’t keep the heat out in there!

WAYNE: Woo man, nice and warm!

JOEL: I’m dumping sweat…

WAYNE: I’ll tell you what!

Stephen J. DUBNER: That’s Joel Rogers and his father Wayne.

JOEL: Yeah! So we’re just about to walk into Grace Life Baptist Churchand worship with my parents, and my brother, also, my sister is about to be here, running a little late as usual.

[AMBI: Roosters crow, gravel crunch]

[MUSIC: Cantinero, “Happy When I’m Down” (from Championship Boxing)]

DUBNER: We’re in McCalla, Alabama, about 20 minutes outside of Birmingham, on a very warm Sunday morning.

WAYNE: It’s uh, I would say, fairly typical evangelical service.

LAURI: It used to be an old gym so the setting is a little different than a traditional church. There are no windows in here, but there is a praise band up on the stage. Sometimes there is a choir, the choir is off right now for summer.

DUBNER: That’s Lauri, Joel’s mom. She has a lot of friends here.

PEOPLE: Hi! Nice to see you! Hey! How’s it going? Good to see you!

LAURI: This is kind of like the fellowship area, it’s fun to see everybody in here and you get to see people who might not come to your service.

JOEL: Most people call it hanging out, at the church they call it fellowship.

LAURI: Exactly! That’s the church word.

Pastor Joel FREDERICK: Glad you’re here, let’s stand together this morning. We want to go to the Lord in prayer today. Father God, we bow our hearts before you, and we are so thankful God to see people coming to know Jesus…

DUBNER: We went to church with Joel Rogers’s family this morning because of an e-mail he sent us. Joel works as a tax accountant in Birmingham. Here’s what he wrote: “Being devout Southern Baptists” – Joel italicized “Southern” – “my parents have steadfastly been giving 10% of their income to the church their whole lives. I recently voiced my opinion that I thought that was too much to give, and my parents and I got into an argument. After a little back-and-forth, my parents conceded that tithing at 10% may not be the exact amount God expects, but my mother said something that stuck with me. She said the 10% they give to the church makes them happier than anything else they spend money on.” Joel goes on here: “I’ve read that people who go to religious institutions consistently are happier than their counterparts. The economist inside me says that money (not given to the church) would make a non-tither happier, all things equal.” So here’s what Joel wants to know:

JOEL: Will forfeiting 10% of your income, for the right to go to a church and experience a church congregation….will that make you happier or less happy, overall?

[MUSIC: The Dibs, “Brompton’s Cocktail”]

DUBNER: That’s the question we’ll try to answer on today’s show. But really Joel is asking two questions – related, but separate. One is whether giving away money – in this case, to a religious institution – makes you happier. The other is whether religion itself makes you happier. Here are Joel’s parents again:

LAURI: I think the world is a better place because of our little bit of tithing.

WAYNE: By tithing I am pleasing God. I am doing something that God would want me to do. That gives me happiness in that way, too.

DUBNER: And even Joel sees how giving money to the church can have a personal upside:

JOEL: I mean if I think back to another thing that I spent 20 dollars on, I don’t know, a t-shirt, like, which one would bring me more prolonged happiness? And I think the answer is probably giving the money away.

DUBNER: But, as we’ll see in this episode, these questions aren’t so simple.

WAYNE: Does it make me happy to tithe? Would I be happier if I had that 10% in my 401(k). Ugh, I don’t know. But you know my 401(k) would look a lot better if I had all the 10% that I had given over the years.

FREDERICK: ….we thank you God for all of this and we pray it in Jesus name and all of God’s people said:

CONGREGATION: Amen!

[THEME]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO, the podcast that explores the hidden side of everything. Here’s your host, Stephen Dubner.

[MUSIC: The Civil Tones, “Outrageous” (from City Stoopin’)]

DUBNER: Okay, we’re trying to answer Joel Rogers’s question about whether giving money to your church makes you happier in the long run:

Laurence IANNACCONE: When you just look at survey statistics, particularly in the United States, you find a strong and consistent positive association between rates of giving and happiness.

DUBNER: That’s Larry Iannaccone.

IANNACCONE: I’m a professor of economics here at Chapman University. I’m Christian I would classify myself as Evangelical Christian.

DUBNER: Iannaccone has studied the history of religious giving, including tithing:

IANNACCONE: Tithing literally comes from the word a tenth and  traditionally meant ten percent of something, usually your income, paid to a church or to religion in general. The term originates as far back as the Bible, and in ancient Israel, the people of Israel were expected to give a tenth of their income, a tenth of their farm produce, to the priesthood, and to also help the poor.

DUBNER: At some points, and places in history, tithing was essentially a government tax. But things have evolved a good bit:

IANNACCONE: In American churches, however, when you hear tithing used today, you’re almost always talking about contributions that are freely given to the church. Often some fixed percent of people’s income, but not necessarily 10 percent. So, in that sense, the term is something of a misnomer and its use has evolved and changed quite a bit over time.

[MUSIC: The Willie August Project, “Lost And Found” (from Surrender to the Wind)]

DUBNER: Iannaccone can tell us which American denominations are most likely to tithe:

IANNACCONE: It varies some, but you hear it more among Protestants and especially conservative Protestants, those who try to emulate or describe their behavior in terms of biblical traditions. So they’re drawing on that ancient term and tradition from the Old Testament. You hear it especially among Mormons, but you also hear it in the Assemblies of God and many theologically conservative Protestant traditions. It’s not unusual to hear Baptists talking about tithing.

DUBNER: Baptists like Wayne Rogers.

WAYNE: I was taught to do it by my grandparents. When I was very very young, my granddad would give me a dollar every Sunday to give to the church. From the time I was three years old I would take an envelope with a dollar in it. So then as I got to be in middle school and high school and started making a little bit of my own money, my grandmother said Wayne, are you tithing off of that money?

[MUSIC: The Mackrosoft, “The Bison” (from Upgrade)]

DUBNER: Larry Iannaccone has some data, from the General Social Surveys, on the rate of giving among different American Christian denominations. At the top are Assemblies of God, Seventh-Day Adventists and Mormons.

IANNACCONE: They average closer to 6 or 7% of their income—which is really quite an astonishingly large amount.

DUBNER: Baptists on average give 3 to 5% of their income. Catholics, Lutherans, and Episcopalians give about 1%. So the trend is that the more liberal denominations give less. And then there are the Unitarians.

IANNACCONE: Unitarians, who by many measures are the most liberal of all, give less than 1% of their income to religious causes.

DUBNER: According to one evangelical Christian polling firm, 5 percent of Americans give at least 10 percent of their income to a religious or other non-profit institution. Among born-again Christians, that 5 percent rate jumps to 12 percent. If you look at the share of religious giving in the whole charitable picture, you find that roughly two-thirds of Americans’ individual contributions go to religious institutions.We could talk at great length about what those institutions do with all that money, and maybe someday we will. But today, we’re trying to answer Joel Rogers’s question, which is: what does all that giving do for the giver? Larry Iannaccone again:

IANNACCONE: The data that we have suggest a pretty strong positive association between various measures of happiness and wellbeing on the one hand, and other measures of religious involvement, including giving, on the other.

[MUSIC: Ruby Velle & The Soulphonics, “Medicine Spoon” (from It’s About Time)]

DUBNER: Okay, that sounds fairly persuasive – that giving and happiness go hand in hand. But, as Iannaccone is careful to point out, there are a number of caveats here. Just because giving and happiness go together doesn’t mean that the giving causes the happiness. It could be that happier people are more likely to give money. It could be that having more money makes you happier, and therefore more able to give. Or that being happy makes you likely to make more money, which makes you more able to give. In other words: it’s not so easy to establish firm causal proof – as our listener Joel Rogers is looking for – as to whether giving money to your church makes you happier.

Jonathan GRUBER: The answer is complicated and the answer actually speaks to two different elements of research I’ve done on religion.

DUBNER: That’s Jon Gruber.

GRUBER: I’m a professor of economics at MIT. Um I grew up in  a Jewish household with a very religious mother and a fairly not-very religious father.  You know, mom sort of ran things. We were reform but pretty serious about it.

DUBNER: So are you a religious person yourself?

GRUBER: No I’m not.

DUBNER: Gruber is, however, very much interested in the questions we’re asking today. But, with causality in this realm being elusive, Gruber had to get a little creative.

GRUBER: This was my first paper on religion. It’s called, it’s my favorite title of a paper I’ve ever written, it’s called “Pay or Pray.” And it was actually a bit inspired by an episode from my childhood, which is my father, he’s a finance professor, and so he was sort of induced to become treasurer of our temple. And he said, “Oh, now I’m treasurer of our temple, oh good, that means I can go less.” Now that wasn’t about giving and going. That was about time and going, but nonetheless it sort of implied that trade-off.

DUBNER: The question Gruber was asking in this paper is a subtle one: does giving money to a religious institution complement going to religious services, or act as a substitute?

GRUBER: Giving to charity is very tax-price sensitive. This is well known in economics that when you give a bigger tax break to charitable giving, people give more. But then no one had ever looked, well what did it do to their attendance? And I found that if you give a bigger tax break to charitable giving, people give more and go less. That is: they are substitutes.

DUBNER: Gruber’s father, in other words, was more norm than exception. Gruber found that every 1 percent rise in charitable giving led to a 1.1% decline in religious attendance. But what about someone like Joel Rogers’s parents? They give their 10 percent to the church, and feel really good about it. Is it the giving that feels good, or is it the going to church that feels good?

GRUBER: I would say if it’s really going that matters, if it’s going to church that matters for them, for their happiness and wellbeing, then they should maybe even give less and just go more.

[MUSIC: Phil Symonds, “Rusty Tear”]

DUBNER: Coming up on Freakonomics Radio: does attending religious services make people better off?

GRUBER: What I find is an incredibly strong correlation, that basically these people are more likely to have higher incomes, have higher education, have more stable marriages, be less likely to be on welfare, essentially be more successful on any sort of economic measure you want to use.

DUBNER: One more thing: if you do not already subscribe to Freakonomics Radio — we believe you should. Just sign up, for free, at iTunes, and you’ll get the next episode in your sleep.

[UNDERWRITING]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen Dubner.

[MUSIC: The Civil Tones, “Slinky” City Stoopin’)]

DUBNER: Today we’re in church, in McCalla, Alabama…

FREDERICK: Let’s pray: Lord thank you. Thank you for your love for us that never gives up…

DUBNER: … with Joel Rogers and his family. Joel’s parents give 10 percent of their income to their church. Here’s what Joel wanted to know:

JOEL: Will forfeiting 10% of your income, for the right to go to a church and experience a church congregation, will that make you happier or less happy overall?

DUBNER: We’ve already established that the connection between donating to a church and happiness can be hard to prove. But what about the connection between happiness and religion itself?

GRUBER: So, I came up with what I thought was a fairly convincing idea for this.

DUBNER: That’s Jon Gruber again, he’s an MIT economist who has tried to measure whether religion makes people better off.

GRUBER: As your listeners know, developing a causal case means finding some factor that changes religiosity, but doesn’t change happiness. You know, the fact there’s this correlation that religious people are happier could be that religious people have higher incomes, religious people live in parts of the country that are happier, whatever.

DUBNER: Or it could be that happier people tend to be more likely to participate in religious services, yeah.

GRUBER: Or more worrisome, what we call reverse causality, that the happier people could be more likely to participate.

[MUSIC: Spencer Garn, “Solar Gazer”]

DUBNER: Gruber began by looking into the research conducted by sociologists, like Rodney Stark:

GRUBER: One of the findings in this field is that  people are more religious if they’re in an area that’s more densely composed of their religion. So basically if you are a Catholic in Boston, you are more religious than a Catholic in Minneapolis. And if you’re a Lutheran in Minneapolis, you’re more religious than a Lutheran in Boston.

DUBNER: Now, why was that religious clustering important for trying to measure the impact of religiosity?

GRUBER: That’s a fact that was given to me. That was well documented in the literature. And so what I said is, well, if you look at who lives where, that’s largely a function of sort of what waves of immigrants came over at what time. And certain ethnic backgrounds have certain religions associated with them.

DUBNER: Alright, so let me say this. I believe you because you sound believable and you have good credentials, you have great credentials. But as a layperson, and in this case I speak not only for myself, but I probably represent most of our listeners, that methodology as a means to extricate the causal relationship of attending religion changing your life, it’s a little, I don’t know how to say it.

GRUBER: Distant.

DUBNER: Yeah, distant is a great word. So, before we get into the findings, just persuade me a little bit more, and in as plain English as you can, why this variable and why this methodology is worthwhile and believable to you.

GRUBER: Okay, so first of all this is an unbelievably hard problem because there’s lots of things that correlate with both outcomes and religion, and because people who are say richer or happier may choose to be more or less religious. So it’s clearly a typical, difficult, Freakonomics-style problem. So, basically, why do I believe my solution? Well, essentially the starting point for my solution is saying, look, Polish people in Boston are much more religious than Polish people in Minneapolis. Likewise, Swedish people in Boston who are otherwise pretty similar are less religious than Swedish people in Minneapolis. Now, there’s no great reason for that other than the fact that they’re not around people of their ethnicity and thus their religion. Moreover you might say, well, maybe Polish people in Boston are just different in some way. But then let me go one step further. You might say okay well look Jon, that’s all well and good, but Poles and Swedes aren’t identical. Maybe Poles in Boston are different than Poles in Minneapolis. Maybe they’re different along some other dimension. The way I can test that is I can look at participation in other activities. So if you’re really worried that gee Poles in Boston are just different they should be more likely to be in other clubs, or other civic activities or other similar things, and they’re not. So except for being more religious, Poles and Swedes in Boston are no different. Now look, is this a bullet proof argument? No. I mean, let’s be honest about this paper this is how economics works. This paper was not accepted at a top economics journal. The top economics journals had enough concerns that this was not real, that you know, this paper was published in a second tier journal. So is this the cleanest paper that I’ve ever written, not by a long shot. But I’m pretty convinced.

DUBNER: Right, okay, so you find that the clustering of national identity has something to do with religious participation.

GRUBER: Exactly.

DUBNER: Therefore…

GRUBER: Therefore, I look and I ask does the clustering of ethnic identity also correlate with economic outcome. And what I find is an incredibly strong correlation, that basically these people who are clustered with others of their ethnicity are more likely to have higher incomes, have higher education, have more stable marriages, be less likely to be on welfare, essentially be more successful on any sort of economic measure you want to use.

DUBNER: And just persuade me that it’s the religious participation that you feel is the causal driver in that as opposed to let’s say the ethnic clustering itself. In other words, I could imagine that when there are a lot of Poles in Boston, there are network effects that might aid education, health, income/outcomes the way that potentially religious observation does.

GRUBER: Right and the way I want to convince you of that that is two things. One is I want to say what I do is I can look at what happens to Poles when there are a lot of Italians in Boston. So essentially because they share the same religion but not much else. So I can actually ask what happens not just to Poles where there are Poles in Boston, I can control for that, I can essentially say let me get rid of your own ethnic density and ask what happens to Poles when there are a lot of other groups that happen to be Catholic in Boston? And so that way it’s not just asking look if there’s other people of your ethnicity, it’s asking are there other people of other ethnicities that share your religion. And then I also have the fact that you’re not more likely to participate in anything else, so it looks like it’s operating to the religion margin.

DUBNER: Excellent, okay good. So I have to say, that was one of our…I love these…This show is meant to be primarily entertainment, but we love to teach when we can. And to me that was a great teaching sequence there. I think anybody will hear that and really understand the way that someone like you tries to approach a question like that. So that was awesome.

GRUBER: Yeah, and look, I think, you know, its important for your listeners to understand that you know, life’s not black and white, and sometimes there’s cleaner answers than others, and sometimes we have a randomized trial and sometimes we don’t. And in life you’ve got to decide is the question important enough that you want to answer it even if there’s not as clean an answer as you’d like.

[MUSIC: Nasimiyu, “Time is a Train” (from Rules Aren’t Real)]

DUBNER: So let’s say I accept that finding that religious participation doesn’t just correlate to better outcomes in life but actually helps produce them: higher levels of education and income like you said lower levels of welfare receipt, disability and divorce. What, if you have any idea, are the mechanisms by which you think religious participation leads to these outcomes?

GRUBER: So there’s essentially several possibilities. The sort of least exciting possibility is through educational routes, which is maybe when there’s a lot of Catholics there’s more Catholic schools. Now, I don’t think that’s it. But that is one possible route. I think another route and the route that I probably find most likely is the church is essentially a social network, that essentially provides kind of insurance against bad things happening to you, and that it provides a place where you can go and network if you lose a job, you can have people who can help you out if times get tough, loan you money or whatever.

DUBNER: Or even if times aren’t tough, if you’re a successful business person theoretically you expand even more if you’re successful within your community.

GRUBER: Exactly. Basically churches are the source of social capital in society, are the main source of social capital in society. And therefore if you’re around more people like you, that’s a bigger community, that’s what we call in economics a thicker market. There’s more people around who can help you out as you’re growing, help you out if you’re hurting, it’s really sort of a social insurance notion of a church. And then finally and most speculatively, faith itself may produce better outcomes. I know a number of people who are very religious. It gives them a calmness and a certainty that allows them to be successful in other areas of their life.

DUBNER: I’m curious if along the way of doing this research if your research persuaded you to either get involved, or want to get involved more in something resembling religious participation since it seems to be pretty good for you, or were you convinced that you’re already doing well enough and didn’t need it?

GRUBER: You know, what it changed in me is it gave me, I probably had the typical secular, rich, liberal skeptic’s view of religion.

DUBNER: Which is what?

GRUBER: Which is that religion is sort of an opiate to the masses. You know, kind of, the religious right is kind of ruining America. Religion is a source of wars in the Middle East. Religion is basically bad. And I think it really changed my view on that, that I really gained appreciation for the role religion can play in people’s lives, appreciation for my friends who are more religious, and a respect for the role religion plays in their lives. But it didn’t really affect my religiosity. I think it’s something that just has to come to you or not. I was kind of forced to go to temple as a kid, I kind of burned out on it, and it’s just not, I kind of tried, and I just didn’t feel it. So I decided I wasn’t going to kind of fake it to make it. So it didn’t really affect my life. But for example, my wife is, she’s Unitarian. We raised the kids Jewish, although she never converted, and now she’s going to become a Unitarian minister. And I think that’s something I probably wouldn’t have been supportive of before I did this research. And now I’m very supportive of her. I think it’s great for her. She’s getting faith and doing that.

[MUSIC: Blindfold Sound, “Guitar Ambient 1”]

DUBNER: Okay, so does religion itself make people better off? As best as Jon Gruber can tell the answer is… quite possibly. If that’s the case, you can see why some people are willing to donate a considerable chunk of their income to their religious institution. Which, if you follow this line of questioning through to its natural conclusion, might lead you to think – well, okay, if I’m tithing money to my church and I’m not better off in the long run, maybe I should get my money back? It turns out that some churches do offer that money-back guarantee.

Pastor Perry NOBLE: We are challenging you to take our 90-Day Tithe Challenge. And in 90 days if you don’t feel like God has blessed you, if you don’t feel like God has done what his Word has said, if you believe God is a liar, here’s what we’ll do, we’ll refund every dime that you gave during that 90 day period. No questions asked.

DUBNER: Perry Noble is the senior pastor of NewSpring Church in Anderson, South Carolina.

NOBLE: I think the thing about the 90-Day Tithe Challenge is it just tells people, hey, we’re smoking what we are selling here. I believe we’ve had over 4,000 people total sign up for the challenge since we’ve started and between 15 and 20 people total since we started it a couple of years ago have ever asked for their money back.

[MUSIC: Teddy Presberg, “Timebomb” (from Outcries From A Sea of Red)]

DUBNER: I asked Jon Gruber, the economist, what he thought of this offer:

GRUBER: Well, I think it’s, I guess quite frankly I think it’s terribly misleading. I think that you know, if we go with the theory that religious participation is good for you because it builds faith and security, the last thing you want to do is have people keeping track and saying God didn’t really score me anything in the last three months, I want my money back. That sort of, that seems to promote a transactional view of religion which is damaging. And I don’t find that helpful at all.

DUBNER: We also ran the tithing refund idea past the Rogers family. They didn’t like it any more than Jon Gruber:

WAYNE: I think that’s completely nuts! I mean it’s not Sears. It’s very different when you give to the church. Once I give the money away I expect them to do something good with it and I dont want the money back.

LAURI: God says, “Give a tithe. Test me and see if I will pour out blessings.” It doesn’t say what type of blessing and I don’t think the blessings have to necessarily be in any way that we can measure it. So I don’t see how a church could say they could have a money back guarantee. Seems like a very selfish reason to give if the only reason you give is to get back, so I think it takes away from the whole heart of it.

JOEL: You do get an itemized tax deduction, though, for giving to the church, a good 30 percent.

[MUSIC: Carson Henley, “Give It Up” (from 100 Hours)]

This is a transcript of the Freakonomics Radio podcast “Does Religion Make You Happy?.

Author: "Freakonomics" Tags: "Podcast Transcripts"
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Date: Thursday, 17 Jul 2014 11:52

(Photo: Nana B Agyei)

(Photo: Nana B Agyei)

This week’s episode is called “Why You Should Bribe Your Kids.” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.)

Let’s say you’re trying to get a bunch of kids to eat more nutritious food. What’s the best way to do this — education, moral urging, or plain old bribery? That’s one of the questions that a pair of economists set out to answer in a recent field experiment in Chicago. In this podcast, you’ll hear from both of them: John List, a University of Chicago professor (and co-author of The Why Axis who’s familiar to readers of this blog); and Anya Samek, who teaches at the University of Wisconsin-Madison.

They tried several methods to see what would make kids choose fruit over a cookie. One trick, Samek tells us, easily beat the rest:

SAMEK: It actually works every time. So we come in five times and every time we have these really high rates of selection of the fruit.

The conversation then broadens, addressing the fact that so many people — kids and adults — have a hard time making good short-term decisions that will have a long-term benefit. As List puts it:

LIST: The general point here about all of this is that you have many problems where what you do now affects what happens later, and usually we choose the easier decision or the easier action now. You think about savings for retirement, you think about getting doctor check-ups, you think about going to school, you think about engaging in risky behaviors, you think about adopting green technologies for our houses. In all of these cases we usually choose the bad action. And that action is to do what’s best for us now to the detriment of the future, to the detriment of our future self. And nutritional choices right now are just one of these elements that we face in society where we need kids to recognize the choice that you make now will critically affect your outcome in the future.

Author: "Suzie Lechtenberg" Tags: "Featured Radio Post, Freakonomics Blog, ..."
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Date: Thursday, 17 Jul 2014 11:23

This is a transcript of the Freakonomics Radio podcast “Why You Should Bribe Your Kids.

[MUSIC: Pearl Django, “La Rive Gauche” (from Under Paris Skies)]

Stephen J. DUBNER: Hello, John List?

John LIST: Stephen Dubner, how are you doing, man?

DUBNER: I’m great! How are you doing?

LIST: Great! Great!

DUBNER: John List is an economist at the University of Chicago. And he’s a family man – five kids.

DUBNER: Now… do you… do you ever have to bribe any of your kids? I’m just curious, John.

LIST: Every now and then I have to incentivize them. I don’t call it bribing. I call it incentivizing them. My kids refuse to eat seafood. So this comes directly from my wife who claims to have gotten a bad piece of fish when she was a third grader, but I’m a big seafood lover, and we were in the Bahamas about six months ago and I thought of an incentive scheme for my kids that included a large sum of money if they would eat fish for seven consecutive days.

DUBNER: And how’d that work out?

LIST: Three of the five kids it worked for. They collected the money. And I was hoping then that they would acquire a taste for seafood, that they would say, “You know, Dad, that whitefish is actually pretty good.” Or, “You know, one time we had crab legs”. But no, zero of five for the long run the minute we touched ground back here in the states….The kids have not touched fish since, even the three of five who were eating the fish down in the Bahamas.

DUBNER: How much did they get from you?

LIST: I better talk about that off air. Put it this way, a lot of money.

DUBNER: So three of them at least played you pretty well, though.

LIST: Well, I don’t know about played me. They responded to the incentives, they ate the fish.

DUBNER: But your incentive in giving them that big cash bounty was not just to get them to eat it for the week, presumably.

LIST: Absolutely. I wanted to modify their long-term behavior. And it’s hard to… it’s just a lesson that it’s really hard to change habits.

[THEME]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO, the podcast that explores the hidden side of everything. Here’s your host, Stephen Dubner.

[MUSIC: Teddy Presberg, “Thanks Maw” (from Outcries From A Sea Of Red)]

DUBNER: So is it possible to bribe kids to eat the food you want them to eat? And even if it’s possible, is it desirable? That’s what we’re talking about on today’s show — but not just about bribing and eating; we’ll talk about how bribing incentives may work with all kinds of behaviors. Now, you just heard John List describe his failure to bribe – excuse me – to incentivize his kids to eat something they didn’t want to eat. That was his experience as a parent. So you might think that, as an economist, John List also doesn’t believe that incentives can change the way kids eat. But you’d be wrong. List recently ran a field experiment in Chicago, along with another economist, Anya Samek.

Anya SAMEK: Okay, so what we’re trying to do is understand what kinds of small behavioral nudges or education we can use to actually improve children’s food choices.

DUBNER: That’s Samek. She’s at the University of Wisconsin-Madison,

SAMEK: And we’re using this after-school program called the Kids Café. And there are 24 of these in the city of Chicago and surrounding area. Kids come there, they receive some help on their homework, and then they’re given free food. And what we do is we randomize these different Kids Cafés. And when I say randomize I mean we randomly put different Kids Cafes into different treatments. We have one treatment where we tell the Kids Café just carry on as you are, but at the end of the food-choice we’re going to give kids a second choice, it’s going to be which dessert to have. And they can either have the healthy dessert or the less healthy one.

DUBNER: And what are the two desserts you’re offering, the healthy and the less healthy?

SAMEK: So the healthier dessert — this is actually a good question — we thought about this for a long time, and the healthy dessert is a cookie…I’m sorry.

DUBNER: Wishful thinking.

SAMEK: Yeah, yeah, yeah the unhealthy dessert is a cookie…

DUBNER: What kind of cookie?

SAMEK: We really were quite careful and we chose a low-sugar, whole-wheat cookie. And the reason we did that…

DUBNER: Oh, come on, and that’s the good one?

SAMEK: We didn’t feel comfortable going in and giving 1,500 kids who were at risk for obesity a really high-sugar, delicious cookie.

DUBNER: Okay. Alright.

SAMEK: The healthy dessert then, we again ran into a problem, so we really wanted to use fresh fruit. And unfortunately because of the logistics of how this food is delivered, which is actually another big problem with the way that we deliver food to kids in these school lunchroom settings is that we couldn’t get fresh fruit there so we had to use dried fruit.

DUBNER: Which has sugar concentration problems of its own that fresh fruit doesn’t have, yeah?

SAMEK: Yes, exactly. So one thing that we can’t do is say that for this particular 1,500 kids we really improved their nutrition because all we did was we observed their choices. And all we needed to do was believe that most kids were going to choose the cookie and that’s the less healthy option, and that’s exactly what happened.

DUBNER: Okay so all else equal, you’ve got 1,500 kids roughly. They have their meal and then they do homework and maybe hang out and play a little bit. And then at the end they’re having this snack, this dessert with a choice, yes?

SAMEK: Yeah.

DUBNER: Okay, and just describe to me how this is, how the experiment itself is set up. How is the choice set constructed?

SAMEK: So we announce to kids that they get a choice of this dessert. And we tell them they can only choose one item and they have to eat it there in the cafeteria. And then we come around and we have these trays in which we have a large number of cookies and a large number of fruit and then we just have kids choose one. All of these kids, we know all of their names, we record exactly what they’ve selected, and that’s our control group.

DUBNER: Okay, and you’re doing this for a few days, a few weeks to establish a baseline, how does that work?

SAMEK: We come in twice and then we have kids make this choice, and what we find is that less than 20 percent of kids are choosing healthy. And then we come in for a period of five more days in which we now have these treatment schools actually receive incentives or education. And what we find there, we come in, we read all this information about the food pyramid, so we tell kids that look you really should choose the fruit, fruit’s really good for you, we have this campaign, it’s called Eat Strong, so we tell them you should eat strong. You’re going to be strong on the playground, you’re going to learn more at school, it’s going to be very good for you, this is really good for your health, the USDA recommends that you eat more fruit. And we show on the food pyramid. We have all these posters, and we walk around and show these posters with the food pyramid. And kids don’t improve their food choice at all.

DUBNER: Okay, so teaching them doesn’t improve their choices, or it doesn’t change their choices. Now before we declare that a dead end, do we know that this mode of education was a good one, or maybe…Like when you’re telling me that, if you tell me that if I eat this little cup of raisins and dried apricots that I’m going to be a stud on the playground and a superstar in the classroom, I’m just going to say, ‘Anya, you seem nice, but I don’t believe you. That doesn’t sound compelling to me.’ Do we know if the education is actually considered legitimate by them?

SAMEK: Well, it’s the education that you would administer if you went on the USDA website and pulled off their informational materials.

DUBNER: Right, I know that, but what I’m saying maybe the USDA isn’t so good at this. I realize I’m throwing a stupid thing in the middle of your smart thing. But that’s the way I think.

SAMEK: No, so obviously we could be using the wrong education, that’s true. So we can’t say much about whether it’s the right education or not. But what we can say is that we give them this education, we tell them about how healthy fruit is and 8 out of 10 kids still choose the cookie.

DUBNER: Okay, alright, so that’s not working so well. What else do you have up your sleeve?

SAMEK: So we come in and we have these incentives that we thought, we didn’t even know what to do with these incentives because they were a little bit lame, so we just had these pens, we had these rubber bracelets and then we have these tiny plastic trophies that just said “I ate strong.” And we told kids if you choose the fruit and you eat it, you get to pick out one of these prizes. And now we have 8 out of 10 kids who are choosing the fruit.

DUBNER: Oh my god, for plastic trophies, and pens and rubber bracelets.

SAMEK: That’s right. So these things are very popular. They’re very cheap so they cost us less than a dime each. And kids are choosing healthy and they don’t have any education about why they should be choosing healthy, at least from us. But now we’ve really improved food choice.

DUBNER: Now, how do we know this is not just a novelty, that it’s the first time that they get offered the incentives, or does it not even matter? Is it just a matter of kind of switching the habit or the preference?

SAMEK: Well it actually works every time. So we come in five times and every time we have these really high rates of selection of the fruit.

DUBNER: And do they actually eat the fruit then? Or do they just –

SAMEK: They have to eat it to get the toy. They have to eat it.

DUBNER: And did you check their cheeks and so on like in prison to make sure they swallowed or they’re sticking it under the table, or it doesn’t go that far?

SAMEK: We were actually pretty careful. So this study took a lot of undergraduates from the University of Chicago who were walking around and monitoring these kids.

[MUSIC: Phil Symonds, “Caravan Cookoo”]

DUBNER: Okay, so what did the researchers take away from this experiment?

SAMEK: Overall all of these studies really show, first of all, that you can make a small change in a school setting, in a food setting, for kids and have it have a big impact on choices. It shows that education is not enough. We actually do find when we combine education with incentives, that that has the strongest long-term effect, which I didn’t address earlier, but that’s an important point, that in addition to education we need to really give kids a moment where they can make a choice. And that’s the moment where we can provide a nudge, where incentives can act as a great nudge for that.

DUBNER: If I’m a restaurant, I want to sell a lot of food, I want to make the money that I’m able to make. If I’m the government, I think especially as I’m paying more and more for people’s health care long-term as the government, I want to keep people healthier and therefore I have an interest in getting people to eat more nutritiously. So I can put some pressure on restaurants to either serve more nutritious food, serve less food, or help them somehow come up with a scheme to at least educate people or make them a little bit more likely to eat more nutritious food. So I can have calorie counts, or maybe even subsidize healthier food choices. That seems to be fairly viable. Yeah? Do you see evidence of that kind of thing going on and working well?

SAMEK: One project we have that is very effective, it’s a small nonprofit grocery store on the south side of Chicago called Louie’s Groceries. And we’ve gone in and we’ve been running studies in which we give adults incentives for choosing at least five fresh fruits and vegetables in their cart. And we’re actually giving them a dollar for every five servings of fresh fruits and vegetables they buy in a shopping trip. And we’re comparing that to another treatment in which adults are just receiving some educational information about why it’s important to eat fruits and vegetables. And there we see almost the same results that we’re seeing with these kids. So in a real environment where adults are making decisions about purchasing, incentives really work.

DUBNER: So the takeaways here seem to be that fruit must be subsidized whether dried or fresh, yes?

SAMEK: Right.

DUBNER: And that kids can be bribed successfully.

SAMEK: Yeah, well adults can be bribed successfully, too.

[MUSIC: The Jaguars, “The Swagger” (from The Jaguars)]

DUBNER: Coming up on Freakonomics Radio: so we can incentivize choices that benefit society, at least in some cases – but why should we have to?

LIST: You know, I think that this is one of the most important issues that humanity faces, is making this tradeoff between doing something costly now that will benefit me or humanity in the future. Things like staying in school, things like saving for retirement, things like adopting green technologies.

DUBNER: Also: if you are not a subscriber to this podcast – well, please become one. It’s free. It’s easy. You can sign up at iTunes – and then you’ll get the next episode in your sleep.

[UNDERWRITING]

ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen Dubner.

[MUSIC: Seks Bomba, “Cal Tjader” (from Thanks and Goodnight)]

DUBNER: We heard Anya Samek describe the field experiment she worked on with John List.

LIST: I’m John List, and I’m a professor at the University of Chicago’s economics department.

DUBNER: What, exactly, does John List do?

LIST: And what I do is I go out into the real world and try to change it for the better using field experiments.

DUBNER: That sounds pretty simple. Can you give me an example?

LIST: Very simple. So let’s talk about the simple example that we’re talking about today. What we’re after is we’re trying to explain or describe first of all the consumption choices of the underprivileged children in America. And once we see the types of foods that they’re consuming, which is not a great thing. You know, if they have a choice between a cookie and a bowl of fruit, they choose the cookie. So our idea is to go out…

DUBNER: Now, John, can I just interrupt you for once second there? Is it fair to say that this is the kind of poor choice, relatively poor choice that an underprivileged kid makes or is that the same choice do you know that a mediocre-ly-privileged adult would make as well. In other words is this a function of childhood or…

LIST: Absolutely.

DUBNER: I’m just curious to know what you know about food choice in children versus adults generally?

LIST: Yeah, so I think that this is a general problem, but you have the problem in an even stronger way amongst the underprivileged who have less resources to use to purchase and consume healthier foods. So when I say underprivileged, I think this is our experimental testing ground, but nevertheless you do have the same problem throughout society. You have kids, you know, running an obesity rate of about one in five across America. And in urban settings the obesity rate is a little bit higher than that. But the general point here about all of this is that you have many problems where what you do now affects what happens later, and usually we choose the easier decision or the easier action now. You think about savings for retirement, you think about getting doctor check-ups, you think about going to school, you think about engaging in risky behaviors, you think about adopting green technologies for our houses. In all of these cases, we usually choose the bad action. And that action is to do what’s best for us now to the detriment of the future, to the detriment of our future self. And nutritional choices right now are just one of these elements that we face in society where we need kids to recognize the choice that you make now will critically affect your outcome in the future.

[MUSIC: The Diplomats of Solid Sound, “Shadow Of Your Soul” (from Let’s Cool One)]

DUBNER: There’s an idea, quite prevalent in our society, that if we can only teach people that they are making poor decisions now that will adversely affect them later – well, they’ll make better decisions now. But the experiment that John List and Anya Samek did in Chicago, trying to get kids to eat healthier snacks, showed that an educational message didn’t work at all, at least not in that setting. So… maybe it’s reasonable to think that educational messaging isn’t as potent as we think.

LIST: Right, I think at just about every walk of life we have messages like get out the vote, it’s your duty to vote. We had messaging in the States on smoking for decades. And now with a combination of changing the prices of smoking, and what I mean by that is increasing the tax rates on purchases of cigarettes, along with messaging, those together formed a very important duo to curb smoking in the United States. But when you look at other countries, just go to Europe, you can see that smoking is alive and well in Europe. And they surely have the same information that we have on the detrimental effects of smoking. But I think in every walk of life you have people saying stay in school, don’t do drugs, you know, messaging has a really hard time working, and I think by and large because they recipients of those messages is not a demander of that information. And if you’re not a demander you will have very little use for that information. You know, people say we should be green, we’re ruining the planet because of carbon emissions, global warming. But again, that’s a problem where if we curb our consumption of carbon now, that hurts us, that hurts our economic growth, and we’re not going to see the advantages for 50, 100, 150 or 200 years. People don’t want to make that tradeoff between now and then.

DUBNER: Do you think that policymakers and other, you know, incentive creators are starting to get the message that educational messaging especially when its got a sort of moral tone to it is not very effective, or do you see people in the academic and research realms where you live who understand this quite fully just look out at those policymakers and say, ‘Oh boy, they really don’t get it yet’?

LIST: Right, I sort of see, I sort of see both. On the one side you have policymakers who don’t get it. On the other side, you have policymakers who really do get it, but that’s really the only tool at their disposal. You see, using messages is cheap. You have government agencies… right now I’m working with the U.K. government to try to convince people to pay their taxes. You have many people who have not paid their income taxes in the U.K. And the U.K. government sends out letters to them every year telling them please pay your taxes. So they ask us, ‘Can you run some field experiments with us to help convince people to pay their taxes’? And we propose all kinds of different incentive schemes — you know, fines, jail time, all these fun things that economists dream about, and the policymakers say we can’t do that. We can’t change law. But what we can do is we can add those two cool sentences that you used back in your 1998 study, and we can use those sentences, which are on moral suasion to try to get people to pay their taxes. So, you see, they’re smart enough to know this might not be a great tool…

DUBNER: It’s the best they have.

LIST: Yeah, and it’s not very costly, and that’s important to them.

DUBNER: So, John, is the takeaway message of your study that it’s better to bribe kids to eat healthy food than to just teach at them?

LIST: I think the message would be you want to do both. I think you do not want to use messaging alone. If you do use messaging you should combine it with an incentive, because that will allow you to convince kids to make better choices, but it will also yield better consumption choices. I think we need to understand that this is a two-part problem, not only the choice but the consumption. And what we find is that messaging along with incentives give you that outcome, or that set of outcomes that you want.

[MUSIC: Teddy Presberg, “Bella’s Boogaloo” (from Outcries From A Sea Of Red)]

DUBNER: Now take what you learned from this study, which is that incentives work in terms of food consumption, and generalize it for me as much as you can not only out of the experimental realm, but out of the childhood realm.

LIST: Right absolutely. You know, I think that this is one of the most important issues that humanity faces, is making this tradeoff between doing something costly now that will benefit me or humanity in the future. Things like staying in school, things like saving for retirement, things like adopting green technologies. We have to convince people right now to make the right choice for, in many case themselves, and also society, and I believe that strong dosage of incentives combined with tasteful messaging will allow us to get to that point, where we have people making the right choices now that will yield the right outcomes in the future. So when you think about all of our major problems, it’s a tradeoff through time. And you have kids who would rather skip school and go have fun when they’re 16 years old than stay in a boring algebra class. It’s a very simple point of calculus for them. They don’t see that the future labor market returns are 12 percent for every year that they stay in school. When you’re 16 years old you don’t even think about what’s going to happen when you’re 25 much less when you’re 18. And we need to combine the correct basket of incentives to align the kids’ choices with what society wants them to choose.

DUBNER: Okay, so that’s all well and good to say, and even if one believes it, and I personally tend to pretty much believe what you’re saying, what do you do? What is that basket of incentives for a 16-year-old who’s teetering on the edge of dropping out or not going to school?

LIST: Yeah, I think it is both. It depends on what realm we’re in. If we want to talk about education I think the solution is changing the prices to education. What I mean by that is taking some of the future rewards that we as a society reap from the kids staying in school and not committing crime and going to jail, taking some of those rewards and giving them to the kids now, or giving them to the parents now to incentivize the parent to make sure that the child stays in school, takes school seriously and goes on and gets the right education to help society and the future. That might be different than our food choices, for example, because we’re not talking about 16-year-olds now in our food experiment, we’re talking about six, seven, and eight-year-olds. Incenting a six, seven and eight-year-old with dollars doesn’t make any sense, you know, you have to choose, again, the right incentives. We chose toys, things like rubber ducks really turn a seven-year-old on. So I think in each case there is not a silver bullet, but nevertheless in each case in the long run we need education because, like I said, habits are what keep you going. And I think the education and information change beliefs but only over generations. I think now you have my kids who are coming home and telling me, ‘Papa, you better not smoke that cigar because it’s really bad to smoke.’ When I went home and saw my mom smoking I never thought it was a problem, smoking. But now our kids they’re actually programmed to think that smoking is a really bad thing. That has taken place over generations, and that’s were I think information and education works over the long run when we change habits. But you need initial incentives to change the motivations of our kids now. We just don’t want two generations of lost children because we couldn’t change their habits, we need to change the motivations now, and I think incentives will do that.

[MUSIC: Pearl Django, “Zingarelli” (from Under Paris Skies)]

This is a transcript of the Freakonomics Radio podcast “Why You Should Bribe Your Kids.

Author: "Freakonomics" Tags: "Podcast Transcripts"
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Date: Friday, 11 Jul 2014 13:56

From the (U.K.) Times:

Up to a million obese people will be offered weight-loss surgery on the NHS, under controversial new guidelines.

The National Institute for Health and Care Excellence (Nice) has ruled that all obese people who have been given a diagnosis of type 2 diabetes in the past decade should be considered for stomach bands and bypasses. …

Patient groups questioned how the health service would cope with the up-front cost, potentially running into billions of pounds, at a time when waiting lists for treatment have topped three million, the highest for six years. …

Weight-loss operations cost about £5,000 each, but Nice said that this had to be set against the 10 per cent of the £110 billion health budget being spent on treating diabetes and its complications, which can include blindness and amputations. …

However, Tam Fry, of the National Obesity Forum, said: “There is a mismatch between what Nice says based on the clinical evidence and the fact that all of this has to be paid for in an NHS which is already in the red . . . It’s the next patient who desperately needs an operation that really feels it when the doctor says, ‘We’ve just spent our last pound’. Somebody is going to suffer somewhere.”In draft guidance to be published today, Nice said it would be cost-effective to consider weight-loss surgery to all obese people who have been given a diagnosis of type 2 diabetes within the past decade. The fattest patients should be automatically offered an assessment for surgery, while doctors must at least consider it for the rest, Nice says.

Simon O’Neill of Diabetes UK agreed that surgery could lead to “dramatic weight loss” but warned that it should not be seen as a cure or an easy option, urging patients to persist with eating better and exercising more.

Author: "Stephen J. Dubner" Tags: "Freakonomics Blog, obesity"
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