price discrimination

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The Armchair Economist: Economics and Everyday Life by Steven E. Landsburg

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Albert Einstein, Arthur Eddington, diversified portfolio, first-price auction, German hyperinflation, Golden Gate Park, information asymmetry, invisible hand, Kenneth Arrow, means of production, price discrimination, profit maximization, Ralph Nader, random walk, Ronald Coase, sealed-bid auction, second-price auction, second-price sealed-bid, statistical model, the scientific method, Unsafe at Any Speed

Let others have the senior citizen business; I'll take all the rest. Senior citizens don't get wheat discounts because there are too many opportunists like me around. Price discrimination can succeed only where it cannot be competed away. If price discrimination is viable only for a monopolist, and if price discrimination is as common as our many examples seem to indicate, we are forced to conclude that monopolies are everywhere. But many economists—including most of those whom I know well—are quite skeptical of that conclusion. From this skepticism, there arises a parlor game. The game is to take examples of apparent price discrimination and debunk them. The goal is to argue convincingly that the single product being sold at two different prices is not a single product at all but two quite different products.

I have known economists who made hobbies of collecting examples of price discrimination. (Price discrimination is economic jargon for selling the same product at more than one price.) Airlines charge different prices depending on whether you stay over a Saturday, hotels charge different prices depending on whether you make reservations in advance, car rental agencies charge different prices depending on whether you belong to a frequent flyer program, doctors charge different prices depending on your income and your insurance status, and universities charge different prices depending on your grades and your family's income. Any giveaway that is claimed by only some buyers (such as trading stamps or free delivery) can be a form of price discrimination, as is a policy of "ten cents apiece, Why Popcorn Costs More at the Movies 163 three for a quarter."

Leaded gasoline sells for less than unleaded gasoline despite comparable production costs, free coffee refills mean that some people pay more per cup than others, and two prices at the salad bar depend on whether you order a complete meal or just the salad. Price discrimination, in short, appears ubiquitous. Yet there is a good theoretical reason to believe that price discrimination should be relatively rare, and therein lies a puzzle. To see the problem, let's return to the movies. I have argued that $3 popcorn makes sense only as a form of price discrimination. Popcorn lovers have more fun at the movies and are therefore asked to pay more. But if this is the whole story, then why don't popcorn lovers simply patronize a different theater? Presumably my airline seatmate would have had no trouble with this one; he could have told me that shopping elsewhere is not an option because the situation is the same all over town.


pages: 607 words: 133,452

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

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accounting loophole / creative accounting, agricultural Revolution, barriers to entry, cognitive bias, creative destruction, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, endogenous growth, Ernest Rutherford, experimental economics, financial innovation, informal economy, interchangeable parts, invention of radio, invention of the printing press, invisible hand, James Watt: steam engine, Jean Tirole, John Harrison: Longitude, Joseph Schumpeter, Kenneth Arrow, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, peer-to-peer, pirate software, placebo effect, price discrimination, profit maximization, rent-seeking, Richard Stallman, Silicon Valley, Skype, slashdot, software patent, the market place, total factor productivity, trade liberalization, transaction costs, Y2K

The second caveat is a bit longer as it is concerned with price discrimination, and we examine it next. The example of AIDS drugs brings out another feature of monopolies – their desire to price discriminate. That is, competitors charge the same price to everyone, but monopolies try to extract a higher price from those who value the product more highly. Economists usually argue that this is a good thing because monopoly without price discrimination is even worse than monopoly with price discrimination. Price discrimination, they argue, enables lower-valued consumers to purchase a product that otherwise the monopoly would not sell to them. Relatively speaking – that is, relative to a world where the monopolist does not price discriminate – this is a correct statement. In the case of AIDS drugs, effective price discrimination would enable the large pharmaceutical companies to charge a low price to poor Africans without lowering the price they charge rich Westerners.

Because the cost of producing a larger quantity of AIDS drugs is very low, the pharmaceutical companies would make a profit also by selling cheaply to the African market. Their problem is the loss of monopoly profits in markets other than the African one. This example is, in fact, quite general: intellectual monopolists often fail to price discriminate because doing so would generate competition from their own consumers. Effective price discrimination is costly to implement and this cost represents pure waste. For example, music producers love digital rights management (DRM) because it enables them to price discriminate. The reason that DVDs have country codes, for example, is to prevent cheap DVDs sold in one country from being resold in another country where they have a higher price. Yet the effect of DRM is to reduce the usefulness of the product. One of the reasons that the black market in MP3s is not threatened by legal electronic sales is that the unprotected MP3 is a superior product to the DRM-protected legal product.

The pricing policy of Boulton and Watt’s enterprise was a classical example of monopoly pricing: over and above the cost of the materials needed to build the steam engine, they would charge royalties equal to one-third of the fuel cost-savings attained by their engine in comparison to the Newcomen engine. Notice two interesting properties of this scheme: it allows for price discrimination, and it is founded on the hypothesis that, thanks to patent protection, no further technological improvement will take place. It allows for price discrimination because, given the transport technology of the time, the price of coal – and horses, the alternative to the Newcomen engine being horses – varied substantially from one region to another. It assumes that technological improvement will be stifled, because it is based on the idea that only the Watt engine could use less coal than the Newcomen engine.


pages: 353 words: 98,267

The Price of Everything: And the Hidden Logic of Value by Eduardo Porter

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Alvin Roth, Asian financial crisis, Ayatollah Khomeini, banking crisis, barriers to entry, Berlin Wall, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, clean water, Credit Default Swap, Deng Xiaoping, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, Ford paid five dollars a day, full employment, George Akerlof, Gordon Gekko, guest worker program, happiness index / gross national happiness, housing crisis, illegal immigration, immigration reform, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: technological unemployment, Joshua Gans and Andrew Leigh, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, loss aversion, low skilled workers, Martin Wolf, means of production, Menlo Park, Mexican peso crisis / tequila crisis, new economy, New Urbanism, peer-to-peer, pension reform, Peter Singer: altruism, pets.com, placebo effect, price discrimination, price stability, rent-seeking, Richard Thaler, rising living standards, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Stewart Brand, superstar cities, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, transatlantic slave trade, transatlantic slave trade, ultimatum game, unpaid internship, urban planning, Veblen good, women in the workforce, World Values Survey, Yom Kippur War, young professional, zero-sum game

Regulatory Reform in the Airline Industry,” NBER Working Paper, September 2007; and Steven Puller, Anirban Sengupta, and Steven Wiggins, “Testing Theories of Scarcity Pricing in the Airline Industry,” NBER Working Paper, December 2009. Evidence of price discrimination in the concert industry is in Pascal Courty and Mario Pagliero, “The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry,” CEPR Discussion Paper, January 2009; and Pascal Courty and Mario Pagliero, “Price Discrimination in the Concert Industry,” CEPR Discussion Paper, January 2009. Price discrimination by Coke from Constance Hays, “Variable-Price Coke Machine Being Tested,” New York Times, October 28, 1999. Price discrimination by Amazon from Joseph Turow, Lauren Feldman, and Kimberly Meltzer, “Open to Exploitation: American Shoppers Online and Offline,” University of Pennsylvania Annenberg Public Policy Center, June 2005 (http://www.annenbergpublicpolicycenter.org/Downloads/Information_And_Society/Turow_APPC_Report_WEB_FINAL. pdf. , accessed 08/01/2010).

Examining the 2008 Zagat restaurant guide for New York City, two economists discovered that restaurants rated as romantic or with a good singles scene charged up to 6.9 percent more for appetizers and up to 14.5 percent more for desserts, relative to the cost of the main course, than did restaurants classified as good places to have business lunches. The reason, they surmised, could well be that couples—if they liked each other—would linger and order an appetizer, perhaps a dessert. It would be unromantic for either to make a fuss about the price. So a restaurant could charge them relatively more for these “romantic” items on the menu. The technique—called, appropriately, “price discrimination”— is ubiquitous. What else is the student discount at the bookstore, or the cheap matinee ticket on Broadway? Books are published in pricey hardcover months before their paperback edition to capitalize on those who can’t wait to read it and will pay more to get it faster. Apple launched an eight-gigabyte iPhone at $599 in June of 2007, to capture the early adopters who would pay anything to be among the first to have one.

An editorial about the idea in the San Francisco Chronicle was titled “Coke’s Automatic Price Gouging.” Pepsi saw the opening and announced it would never “exploit” its hot customers. Ivester defended the plan. He told Veja, “It is fair that it should be more expensive. The machine will simply make this process automatic.” Still, Coca-Cola dropped the idea. The Internet is likely to bring price discrimination into every corner of our lives. In September of 2000, Amazon.com was caught offering the same DVDs to different customers at discounts of 30 percent, 35 percent, or 40 percent off the manufacturer’s suggested retail price. Amazon said the differential pricing was due to a random price test. It denied that it was segregating customers according to their sensitivity to price, which could be gleaned from their shopping histories recorded on their Amazon profiles.


pages: 302 words: 83,116

SuperFreakonomics by Steven D. Levitt, Stephen J. Dubner

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agricultural Revolution, airport security, Andrei Shleifer, Atul Gawande, barriers to entry, Bernie Madoff, call centre, clean water, cognitive bias, collateralized debt obligation, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, deliberate practice, Did the Death of Australian Inheritance Taxes Affect Deaths, disintermediation, endowment effect, experimental economics, food miles, indoor plumbing, Intergovernmental Panel on Climate Change (IPCC), John Nash: game theory, Joseph Schumpeter, Joshua Gans and Andrew Leigh, loss aversion, Louis Pasteur, market design, microcredit, Milgram experiment, oil shale / tar sands, patent troll, presumed consent, price discrimination, principal–agent problem, profit motive, randomized controlled trial, Richard Feynman, Richard Feynman, Richard Thaler, selection bias, South China Sea, Stephen Hawking, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, ultimatum game, urban planning, William Langewiesche, women in the workforce, young professional

Black customers, for instance, pay on average about $9 less per trick than white customers, while Hispanic customers are in the middle. Economists have a name for the practice of charging different prices for the same product: price discrimination. In the business world, it isn’t always possible to price-discriminate. At least two conditions must be met: Some customers must have clearly identifiable traits that place them in the willing-to-pay-more category. (As identifiable traits go, black or white skin is a pretty good one.) The seller must be able to prevent resale of the product, thereby destroying any arbitrage opportunities. (In the case of prostitution, resale is pretty much impossible.) If these circumstances can be met, most firms will profit from price discriminating whenever they can. Business travelers know this all too well, because they routinely pay three times more for a last-minute airline ticket than the vacationer in the next seat.

Women who pay for a salon haircut know it too, since they pay twice as much as men for what is pretty much the same haircut. Or consider the online health-care catalog Dr. Leonard’s, which sells a Barber Magic hair trimmer for $12.99 and, elsewhere on its site, the Barber Magic Trim-a-Pet hair trimmer for $7.99. The two products appear to be identical—but Dr. Leonard seems to think that people will spend more to trim their own hair than their pet’s. How do the Chicago street prostitutes price-discriminate? As Venkatesh learned, they use different pricing strategies for white and black customers. When dealing with blacks, the prostitutes usually name the price outright to discourage any negotiation. (Venkatesh observed that black customers are more likely than whites to haggle—perhaps, he reasoned, because they’re more familiar with the neighborhood and therefore know the market better.) When doing business with white customers, meanwhile, the prostitute makes the man name a price, hoping for a generous offer.

As it was, a fifteen-hour workload generated more than $200,000 a year in cash. Eventually she raised her fee to $350 an hour. She expected demand to fall, but it didn’t. So a few months later, she raised it to $400. Again, there was no discernible drop-off in demand. Allie was a bit peeved with herself. Plainly she had been charging too little the whole time. But at least she was able to strategically exploit her fee change by engaging in a little price discrimination. She grandfathered in her favorite clients at the old rate but told her less-favorite clients that an hour now cost $400—and if they balked, she had a handy excuse to cut them loose. There were always more where they came from. It wasn’t long before she raised her fee again, to $450 an hour, and a few months later to $500. In the space of a couple of years, Allie had increased her price by 67 percent, and yet she saw practically no decrease in demand.


pages: 337 words: 86,320

Everybody Lies: Big Data, New Data, and What the Internet Can Tell Us About Who We Really Are by Seth Stephens-Davidowitz

affirmative action, AltaVista, Amazon Mechanical Turk, Asian financial crisis, Bernie Sanders, big data - Walmart - Pop Tarts, Cass Sunstein, computer vision, correlation does not imply causation, crowdsourcing, Daniel Kahneman / Amos Tversky, desegregation, Donald Trump, Edward Glaeser, Filter Bubble, game design, happiness index / gross national happiness, income inequality, Jeff Bezos, John Snow's cholera map, Mark Zuckerberg, Nate Silver, peer-to-peer lending, Peter Thiel, price discrimination, quantitative hedge fund, Ronald Reagan, Rosa Parks, sentiment analysis, Silicon Valley, statistical model, Steve Jobs, Steven Levy, Steven Pinker, TaskRabbit, The Signal and the Noise by Nate Silver, working poor

Better prediction can lead to subtler and more nefarious discrimination. Better data can also lead to another form of discrimination, what economists call price discrimination. Businesses are often trying to figure out what price they should charge for goods or services. Ideally they want to charge customers the maximum they are willing to pay. This way, they will extract the maximum possible profit. Most businesses usually end up picking one price that everyone pays. But sometimes they are aware that the members of a certain group will, on average, pay more. This is why movie theaters charge more to middle-aged customers—at the height of their earning power—than to students or senior citizens and why airlines often charge more to last-minute purchasers. They price discriminate. Big Data may allow businesses to get substantially better at learning what customers are willing to pay—and thus gouging certain groups of people.

See Jews anxiety data about, 18 and truth about sex, 123 AOL, and truth about sex, 117–18 AOL News, 143 art, real life as imitating, 190–97 Ashenfelter, Orley, 72–74 Asher, Sam, 202 Asians, and truth about hate and prejudice, 129 asking the right questions, 21–22 assassinations, 227–28 Atlantic magazine, 150–51, 152, 202 Australia, pregnancy in, 189 auto-complete, 110–11, 116 Avatar (movie), 221–22 Bakshy, Eytan, 144 Baltimore Ravens-New England Patriots games, 221, 222–24 baseball and influence of childhood experiences, 165–69, 165–66n, 171, 206 and overemphasis on measurability, 254–55 predicting a player’s future in, 197–200, 200n, 203 and science, 273 scouting for, 254–55 zooming in on, 165–69, 165–66n, 171, 197–200, 200n, 203 basketball pedigrees and, 67 predicting success in, 33–41, 67 and socioeconomic background, 34–41 Beane, Billy, 255 Beethoven, Ludwig von, zooming in on, 190–91 behavioral science, and digital revolution, 276, 279 Belushi, John, 185 Benson, Clark, 217 Berger, Jonah, 91–92 Bezos, Jeff, 203 bias implicit, 134 language as key to understanding, 74–76 omitted-variable, 208 subconscious, 132 See also hate; prejudice; race/racism Big Data and amount of information, 15, 21, 59, 171 and asking the right questions, 21–22 and causality experiments, 54, 240 definition of, 14, 15 and dimensionality, 246–52 and examples of searches, 15–16 and expansion of research methodology, 275–76 and finishing books, 283–84 future of, 279 Google searches as dominant source of, 60 honesty of, 53–54 importance/value of, 17–18, 29–33, 59, 240, 265, 283 limitations of, 20, 245, 254–55, 256 powers of, 15, 17, 22, 53–54, 59, 109, 171, 211, 257 and predicting what people will do in future, 198–200 as revolutionary, 17, 18–22, 30, 62, 76, 256, 274 as right data, 62 skeptics of, 17 and small data, 255–56 subsets in, 54 understanding of, 27–28 See also specific topic Bill & Melinda Gates Foundation, 255 Billings (Montana) Gazette, and words as data, 95 Bing (search engine), and Columbia University-Microsoft pancreatic cancer study, 28, 30 Black, Don, 137 Black Lives Matter, 12 Blink (Gladwell), 29–30 Bloodstock, Incardo, 64 bodies, as data, 62–74 Boehner, John, 160 Booking.com, 265 books conclusions to, 271–72, 279, 280–84 digitalizing, 77, 79 number of people who finish, 283–84 borrowing money, 257–61 Bosh, Chris, 37 Boston Globe, and A/B testing, 214–17 Boston Marathon (2013), 19 Boston Red Sox, 197–200 brain, Minsky study of, 273 Brazil, pregnancy in, 190 breasts, and truth about sex, 125, 126 Brin, Sergey, 60, 61, 62, 103 Britain, pregnancy in, 189 Bronx Science High School (New York City), 232, 237 Buffett, Warren, 239 Bullock, Sandra, 185 Bundy, Ted, 181 Bush, George W., 67 business and comparison shopping, 265 reviews of, 265 See also corporations butt, and truth about sex, 125–26 Calhoun, Jim, 39 Cambridge University, and Microsoft study about IQ of Facebook users, 261 cancer, predicting pancreatic, 28–29, 30 Capital in the 21st Century (Piketty), 283 casinos, and price discrimination, 263–65 causality A/B testing and, 209–21 and advertising, 221–25 and Big Data experiments, 54, 240 college and, 237–39 correlation distinguished from, 221–25 and ethics, 226 and monetary windfalls, 229 natural experiments and, 226–28 and power of Big Data, 54, 211 and randomized controlled experiments, 208–9 reverse, 208 and Stuyvesant High School study, 231–37, 240 Centers for Disease Control and Prevention, 57 Chabris, Christopher, 250 Chance, Zoë, 252–53 Chaplin, Charlie, 19 charitable giving, 106, 109 Chen, M.

See customers/consumers contagious behavior, 178 conversation, and dating, 80–82 corporations consumers blows against, 265 danger of empowered, 257–65 reviews of, 265 correlations causation distinguished from, 221–25 and predicting the stock market, 245–48, 251–52 counties, zooming in on, 172–90, 239–40 Country Music Radio, 202 Craigslist, 117 creativity, and understanding the world, 280, 281 crime alcohol as contributor to, 196 and danger of empowered government, 266–70 and prison conditions, 235 violent movies and, 193, 194–95, 273 Cundiff, Billy, 223 curiosity and benefits of digital truth serum, 162, 163 Levitt views about, 280 about number of people who finish books, 283–84 and understanding the world, 280, 281 cursing, and words as data, 83–85 customers/consumers blows against businesses by, 265 and price discrimination, 265 truth about, 153–57 Cutler, David, 178 Dahl, Gordon, 191–93, 194–96, 196–97n, 197 Dale, Stacy, 238 Dallas, Texas, “Large and Complex Datasets” conference (1977) in, 20–21 data amount/size of, 15, 20–21, 30–31, 53, 171 benefits of expansion of, 16 bodies as, 62–74 collecting the right, 62 government, 149–50, 266–70 importance of, 26 individual-level, 266–70 as intimidating, 26 Levitt views about, 280 as money-maker, 103 nontraditional sources of, 74 pictures as, 97–102, 103 reimagining of what qualifies as, 55–103 sources of, 14, 15 speed for transmitting, 55–59 and understanding the world, 280 what counts as, 74 words as, 74–97 See also Big Data; data science; small data; specific data data science as changing view of world, 34 and counterintuitive results, 37–38 economists role in development of, 228 future of, 281 goal of, 37–38 as intuitive, 26–33 and who is a data scientist, 27 dating and examples of Big Data searches, 22 physical appearance and, 82, 120n and rejection, 120n and Stormfront members, 138–39 and truth about hate and prejudice, 138–39 and truth about sex, 120n and words as data, 80–86, 103 Dawn of the Dead (movie), 192 death, and memorable stories, 33 DellaVigna, Stefano, 191–93, 194–96, 196–97n, 197 Democrats core principles of, 94 and origins of political preferences, 170–71 and words as data, 93–97 See also specific person or election depression Google searchs for, 31, 110 and handling the truth, 158 and lying, 109, 110 and parents prejudice against children, 136 developing countries economies of, 101–2, 103 investing in, 251 digital truth serum abortion and, 147–50 and child abuse, 145–47, 149–50 and customers, 153–57 and Facebook friends, 150–53 and handling the truth, 158–63 and hate and prejudice, 128–40 and ignoring what people tell you, 153–57 incentives and, 109 and internet, 140–45 sex and, 112–28 sites as, 54 See also lying; truth digital world, randomized experiments in, 210–19 dimensionality, curse of, 246–52 discrimination and origins of notable Americans, 182–83 price, 262–65 See also bias; prejudice; race/racism DNA, 248–50 Dna88 (Stormfront member), 138 doctors, financial incentives for, 230, 240 Donato, Adriana, 266, 269 doppelgangers benefits of, 263 and health, 203–5 and hunting on social media, 201–3 and predicting future of baseball players, 197–200, 200n, 203 and price discrimination, 262–63, 264 zooming in on, 197–205 dreams, phallic symbols in, 46–48 drugs, as addiction, 219 Duflo, Esther, 208–9, 210, 273 Earned Income Tax Credit, 178, 179 economists and number of people finishing books, 283 role in data science development of, 228 as soft scientists, 273 See also specific person economy/economics complexity of, 273 of developing countries, 101–2, 103 of Philippines cigarette economy, 102 and pictures as data, 99–102 and speed of data, 56–57 and truth about hate and prejudice, 139 See also economists; specific topic Edmonton, water consumption in, 206 EDU STAR, 276 education and A/B testing, 276 and digital revolution, 279 and overemphasis on measurability, 253–54, 255–56 in rural India, 209, 210 small data in, 255–56 state spending on, 185 and using online behavior as supplement to testing, 278 See also high school students; tests/testing Eisenhower, Dwight D., 170–71 elections and order of searches, 10–11 predictions about, 9–14 voter turn out in, 9–10 elections, 2008 and A/B testing, 211–12 racism in, 2, 6–7, 12, 133, 134 and Stormfront membership, 139 elections, 2012 and A/B testing, 211–12 predictions about, 10 racism in, 2–3, 8, 133, 134 Trump and, 7 elections, 2016 and lying, 107 mapping of, 12–13 polls about, 1 predicting outcome of, 10–14 and racism, 8, 11, 12, 14, 133 Republican primaries for, 1, 13–14, 133 and Stormfront membership, 139 voter turn out in, 11 electronics company, and advertising, 222, 225, 226 “Elite Illusion” (Abdulkadiroglu, Angrist, and Pathak), 236 Ellenberg, Jordan, 283 Ellerbee, William, 34 Eng, Jessica, 236–37 environment, and life expectancy, 177 EPCOR utility company, 193, 194 EQB, 63–64 equality of opportunity, zooming in on, 173–75 Error Bot, 48–49 ethics and Big Data, 257–65 and danger of empowered government, 267 doppelganger searches and, 262–63 empowered corporations and, 257–65 and experiments, 226 hiring practices and, 261–62 and IQDNA study results, 249 and paying back loans, 257–61 and price discrimination, 262–65 and study of IQ of Facebook users, 261 Ewing, Patrick, 33 experiments and ethics, 226 and real science, 272–73 See also type of experiment or specific experiment Facebook and A/B testing, 211 and addictions, 219, 220 and hiring practices, 261 and ignoring what people tell you, 153–55, 157 and influence of childhood experiences data, 166–68, 171 IQ of users of, 261 Microsoft-Cambridge University study of users of, 261 “News Feed” of, 153–55, 255 and overemphasis on measurability, 254, 255 and pictures as data, 99 and “secrets about people,” 155–56 and size of Big Data, 20 and small data, 255 as source of information, 14, 32 and truth about customers, 153–55 truth about friends on, 150–53 and truth about sex, 113–14, 116 and truth about the internet, 144, 145 and words as data, 83, 85, 87–88 The Facebook Effect: The Inside Story of the Company That Is Connecting the World (Kirkpatrick), 154 Facemash, 156 faces black, 133 and pictures as data, 98–99 and truth about hate and prejudice, 133 Farook, Rizwan, 129–30 Father’s Day advertising, 222, 225 50 Shades of Gray, 157 financial incentives, for doctors, 230, 240 First Law of Viticulture, 73–74 food and phallic symbols in dreams, 46–48 predictions about, 71–72 and pregnancy, 189–90 football and advertising, 221–25 zooming in on, 196–97n Freakonomics (Levitt), 265, 280, 281 Freud, Sigmund, 22, 45–52, 272, 281 Friedman, Jerry, 20, 21 Fryer, Roland, 36 Gabriel, Stuart, 9–10, 11 Gallup polls, 2, 88, 113 gambling/gaming industry, 220–21, 263–65 “Gangnam Style” video, Psy, 152 Garland, Judy, 114, 114n Gates, Bill, 209, 238–39 gays in closet, 114–15, 116, 117, 118–19, 161 and dimensions of sexuality, 279 and examples of Big Data searches, 22 and handling the truth, 159, 161 in Iran, 119 and marriage, 74–76, 93, 115–16, 117 mobility of, 113–14, 115 population of, 115, 116, 240 and pornography, 114–15, 114n, 116, 117, 119 in Russia, 119 stereotype of, 114n surveys about, 113 teenagers as, 114, 116 and truth about hate and prejudice, 129 and truth about sex, 112–19 and wives suspicions of husbands, 116–17 women as, 116 and words as data, 74–76, 93 Gelles, Richard, 145 Gelman, Andrew, 169–70 gender and life expectancy, 176 and parents prejudice against children, 134–36, 135n of Stormfront members, 137 See also gays General Social Survey, 5, 142 genetics, and IQ, 249–50 genitals and truth about sex, 126–27 See also penis; vagina Gentzkow, Matt, 74–76, 93–97, 141–44 geography zooming in by, 172–90 See also cities; counties Germany, pregnancy in, 190 Ghana, pregnancy in, 188 Ghitza, Yair, 169–70 Ginsberg, Jeremy, 57 girlfriends, killing, 266, 269 girls, parents prejudice against young, 134–36 Gladwell, Malcolm, 29–30 Gnau, Scott, 264 gold, price of, 252 The Goldfinch (Tartt), 283 Goldman Sachs, 55–56, 59 Google advertisements about, 217–19 and amount of data, 21 and digitalizing books, 77 Mountain View campus of, 59–60, 207 See also specific topic Google AdWords, 3n, 115, 125 Google Correlate, 57–58 Google Flu, 57, 57n, 71 Google Ngrams, 76–77, 78, 79 Google searches advantages of using, 60–62 auto-complete in, 110–11 differentiation from other search engines of, 60–62 as digital truth serum, 109, 110–11 as dominant source of Big Data, 60 and the forbidden, 51 founding of, 60–62 and hidden thoughts, 110–12 and honesty/plausibility of data, 9, 53–54 importance/value of, 14, 21 polls compared with, 9 popularity of, 62 power of, 4–5, 53–54 and speed of data, 57–58 and words as data, 76, 88 See also Big Data; specific search Google STD, 71 Google Trends, 3–4, 3n, 6, 246 Gottlieb, Joshua, 202, 230 government danger of empowered, 266–70 and predicting actions of individuals, 266–70 and privacy issues, 267–70 spending by, 93, 94 and trust of data, 149–50 and words as data, 93, 94 “Great Body, Great Sex, Great Blowjob” (video), 152, 153 Great Recession, and child abuse, 145–47 The Green Monkey (Horse No. 153), 68 gross domestic product (GDP), and pictures as data, 100–101 Gross National Happiness, 87, 88 Guttmacher Institute, 148, 149 Hannibal (movie), 192, 195 happiness and pictures as data, 99 See also sentiment analysis Harrah’s Casino, 264 Harris, Tristan, 219–20 Harry Potter and the Deathly Hallows (Rowling), 88–89, 91 Hartmann, Wesley R., 225 Harvard Crimson, editorial about Zuckerberg in, 155 Harvard University, income of graduates of, 237–39 hate and danger of empowered governments, 266–67, 268–69 truth about, 128–40, 162–63 See also prejudice; race/racism health and alcohol, 207–8 and comparison of search engines, 71 and digital revolution, 275–76, 279 and DNA, 248–49 and doppelgangers, 203–5 methodology for studies of, 275–76 and speed of data transmission, 57 zooming in on, 203–5, 275 See also life expectancy health insurance, 177 Henderson, J.


pages: 364 words: 102,528

An Economist Gets Lunch: New Rules for Everyday Foodies by Tyler Cowen

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agricultural Revolution, big-box store, business climate, carbon footprint, cognitive bias, creative destruction, cross-subsidies, East Village, en.wikipedia.org, food miles, guest worker program, haute cuisine, illegal immigration, informal economy, iterative process, mass immigration, oil shale / tar sands, out of africa, pattern recognition, Peter Singer: altruism, price discrimination, refrigerator car, The Wealth of Nations by Adam Smith, Tyler Cowen: Great Stagnation, Upton Sinclair, winner-take-all economy, women in the workforce

It has been estimated that Daniel restaurant in New York has $800,000 of wine stored. From a business point of view that’s another relevant cost. If you love drinking, by all means pony up; but if your drink is just an impulse purchase, maybe give it a second thought. Is it really worth it? High prices for drinks are often a form of price discrimination, an economic term which refers to the extraction of additional money from the people willing to pay more for the product. For instance it’s price discrimination when a movie theater offers discounts to senior citizens. The cinema realizes that a certain group in their customer base (senior citizens) will see more of their movie offerings if they give them a special price. The rest of the customer base isn’t so price sensitive, so the cinema “discriminates” against them.

On the history of the free lunch, see Madelon Powers, Faces Along the Bar: Lore and Order in the Workingman’s Saloon, 1870–1920 (Chicago: University of Chicago Press), 1998. On drink pricing and the use of table space, see John R. Lott Jr. and Russell D. Roberts, “A Guide to the Pitfalls of Identifying Price Discrimination,” Economic Inquiry, January 1991, vol. 29, no. 1, pp. 14–23. On the history of popcorn, see Andrew F. Smith, Popped Culture: A Social History of Popcorn in America (Columbia: University of South Carolina Press, 1999), pp. 102, 119–120, 159. For a study of the empirics of popcorn pricing, see Ricard Gil and Wesley Hartmann, “Empirical Analysis of Metering Price Discrimination: Evidence from Concession Sales at Movie Theaters,” working paper, 2008. For one look at the economics of movie distribution, see Peter Caranicas, “Studios at the Brink,” Variety Magazine, May 3–9, 2010, pp. 1, 70.

Those people, on average, just don’t drink that much Coke or Pepsi. So if you like Coca-Cola at all, the time to get it is with Chinese food, when it is much cheaper and it is not being used to extract extra revenue from spendthrifts. More broadly, if the customers in a restaurant are elderly non-Americans from countries where Coke is a relatively recent innovation, the Coke is probably going to be cheap. That is to say, it won’t be a vehicle for price discrimination. Of course not every Chinese restaurant has cheap Coke, because not every Chinese restaurant is marketing its product toward traditional Chinese. If you go to a yuppie-oriented, socially oriented P.F. Chang’s, you’re back to the higher price for the soft drink. In my local China Star restaurant, which attracts a largely Chinese clientele, a Coke costs $1.00, circa 2010, with free refills.


pages: 598 words: 134,339

Data and Goliath: The Hidden Battles to Collect Your Data and Control Your World by Bruce Schneier

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23andMe, Airbnb, airport security, AltaVista, Anne Wojcicki, augmented reality, Benjamin Mako Hill, Black Swan, Brewster Kahle, Brian Krebs, call centre, Cass Sunstein, Chelsea Manning, citizen journalism, cloud computing, congestion charging, disintermediation, drone strike, Edward Snowden, experimental subject, failed state, fault tolerance, Ferguson, Missouri, Filter Bubble, Firefox, friendly fire, Google Chrome, Google Glasses, hindsight bias, informal economy, Internet Archive, Internet of things, Jacob Appelbaum, Jaron Lanier, John Markoff, Julian Assange, Kevin Kelly, license plate recognition, lifelogging, linked data, Lyft, Mark Zuckerberg, moral panic, Nash equilibrium, Nate Silver, national security letter, Network effects, Occupy movement, payday loans, pre–internet, price discrimination, profit motive, race to the bottom, RAND corporation, recommendation engine, RFID, self-driving car, Shoshana Zuboff, Silicon Valley, Skype, smart cities, smart grid, Snapchat, social graph, software as a service, South China Sea, stealth mode startup, Steven Levy, Stuxnet, TaskRabbit, telemarketer, Tim Cook: Apple, transaction costs, Uber and Lyft, urban planning, WikiLeaks, zero day

I think the report understated the risk. Price discrimination is also a big deal these days. It’s not discrimination in the same classic racial or gender sense as weblining; it’s companies charging different people different prices to realize as much profit as possible. We’re most familiar with this concept with respect to airline tickets. Prices change all the time, and depend on factors like how far in advance we purchase, what days we’re traveling, and how full the flight is. The airline’s goal is to sell tickets to vacationers at the bargain prices they’re willing to pay, while at the same time extracting from business travelers the much higher amounts that they’re willing to pay. There is nothing nefarious about the practice; it’s just a way of maximizing revenues and profits. Even so, price discrimination can be very unpopular.

Even so, price discrimination can be very unpopular. Raising the price of snow shovels after a snowstorm, for example, is considered price-gouging. This is why it is often cloaked in things like special offers, coupons, or rebates. Some types of price discrimination are illegal. For example, a restaurant cannot charge different prices depending on the gender or race of the customer. But it can charge different prices based on time of day, which is why you see lunch and dinner menus with the same items and different prices. Offering senior discounts and special children’s menus is legal price discrimination. Uber’s surge pricing is also legal. In many industries, the options you’re offered, the price you pay, and the service you receive depend on information about you: bank loans, auto insurance, credit cards, and so on. Internet surveillance facilitates a fine-tuning of this practice.

Using personal data to determine insurance rates or credit card spending limits might cause some people to get a worse deal than they otherwise would have, but it also gives many people a better deal than they otherwise would have. In general, however, surveillance data is being used by powerful corporations to increase their profits at the expense of consumers. Customers don’t like this, but as long as (1) sellers are competing with each other for our money, (2) software systems make price discrimination easier, and (3) the discrimination can be hidden from customers, it is going to be hard for corporations to resist doing it. SURVEILLANCE-BASED MANIPULATION Someone who knows things about us has some measure of control over us, and someone who knows everything about us has a lot of control over us. Surveillance facilitates control. Manipulation doesn’t have to involve overt advertising.


pages: 519 words: 104,396

Priceless: The Myth of Fair Value (And How to Take Advantage of It) by William Poundstone

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availability heuristic, Cass Sunstein, collective bargaining, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, East Village, en.wikipedia.org, endowment effect, equal pay for equal work, experimental economics, experimental subject, feminist movement, game design, German hyperinflation, Henri Poincaré, high net worth, index card, invisible hand, John von Neumann, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, loss aversion, market bubble, mental accounting, meta analysis, meta-analysis, Nash equilibrium, new economy, Paul Samuelson, payday loans, Philip Mirowski, Potemkin village, price anchoring, price discrimination, psychological pricing, Ralph Waldo Emerson, RAND corporation, random walk, RFID, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, rolodex, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, ultimatum game, working poor

It was arranged that both members of a pair visited the same dealership within a few days of each other, to bargain for the same model of car. Ayres and Siegelman’s results occasioned much indignation in the media. Evidence of price discrimination is a complicated thing, though, difficult to reduce to a sound bite. As Ayres pointed out, his results did not necessarily imply what many were assuming—that dealers were prejudiced and wanted to exploit blacks and women. The dealers often steered the volunteers to salespeople of their own race and gender “who then proceeded to give them the worst deals.” Blacks actually got better deals from white dealers, and women got better deals from men. In 1996 Pinelopi Koujianou Goldberg published another price discrimination study that appeared to overturn any conclusions drawn from Ayres and Siegelman. Instead of doing an experiment, Goldberg used the Consumer Expenditure Survey to check what buyers nationwide had paid for new cars from 1983 to 1987.

But the experiment wasn’t designed to test whether black and female buyers bargain differently than white males. One plausible guess is that many dealers believed in the “sucker theory.” Therefore, they quoted many high initial prices to minorities (in Ayres-Siegelman). Buyers quoted a high initial price tended to bargain longer and harder than buyers quoted a good price. This erased most of the evidence of racial and gender bias (in Goldberg). If nothing else, this shows how complex price discrimination can be. It’s possible that some dealers weren’t even aware of a sucker theory. Their price quotes may have been statistically biased by race and gender without any conscious intention. Ayres found that one bit of information was worth $319 to buyers across genders and races. Volunteers who said they had already taken a test drive paid an average of $319 less than those who didn’t, and this was statistically significant.

Gigerenzer, Gerd (1996). “On Narrow Norms and Vague Heuristics: A Reply to Kahneman and Tversky (1996).” Psychological Review 103, 592–96. Ginzberg, Eli (1936). “Customary Prices.” The American Economic Review 26, 296. Glanz, James, and Eric Lipton (2003). City in the Sky: The Rise and Fall of the World Trade Center. New York: Times Books / Henry Holt. Goldberg, Pinelopi Koujianou (1996). “Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey.” Journal of Political Economy 104, 622–54. Goldstein, William M., and Hillel J. Einhorn (1987). “Expression Theory and the Preference Reversal Phenomena.” Psychological Review 94, 236–54. Goodman, Barbara, Mark Saltzman, Ward Edwards, and David H. Krantz (1979). “Prediction of Bids for Two-Outcome Gambles in a Casino Setting.”


pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

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affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, lump of labour, Malacca Straits, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game

Airlines are the most obvious example of price discrimination, but look around and you will start to see it everywhere. Al Gore complained during the 2000 presidential campaign that his mother and his dog were taking the same arthritis medication but that his mother paid much more for her prescription. Never mind that he made up the story after reading about the pricing disparity between humans and canines. The example is still perfect. There is nothing surprising about the fact that the same medicine will be sold to dogs and people at different prices. It’s airline seats all over again. People will pay more for their own medicine than they will for their pet’s. So the profit-maximizing strategy is to charge one price for patients with two legs and another price for patients with four. Price discrimination will become even more prevalent as technology enables firms to gather more information about their customers.

* I cannot fully explain why the pharmaceutical companies were so resistant to providing low-cost HIV/AIDS drugs to Africa. These countries will never be able to pay the high prices charged in the developed world, so the companies would not be forgoing profits by selling the drugs cheaply. In places like South Africa, it’s either cheap drugs or no drugs. This would appear to be a perfect opportunity for price discrimination: Make the drugs cheap in Cape Town and expensive in New York. True, price discrimination could create an opportunity for a black market; drugs sold cheaply in Africa could be resold illegally at high prices in New York. But that seems a manageable problem relative to the huge public relations cost of denying important drugs to large swathes of the world’s population. * There is a subtle but important analytical point here. Those who argue that tax cuts increase government revenues often point out, correctly, that government revenues are higher after a major tax cut than before.

The basic point is that the Gap will attempt to pick a price that leads to the quantity of sales that earn the company the most money. The marketing executives may err either way: They may underprice the items, in which case they will sell out; or they may overprice the items, in which case they will have a warehouse full of sweatshirts. Actually, there is another option. A firm can attempt to sell the same item to different people at different prices. (The fancy name is “price discrimination.”) The next time you are on an airplane, try this experiment: Ask the person next to you how much he or she paid for the ticket. It’s probably not what you paid; it may not even be close. You are sitting on the same plane, traveling to the same destination, eating the same peanuts—yet the prices you and your row mate paid for your tickets may not even have the same number of digits. The basic challenge for the airline industry is to separate business travelers, who are willing to pay a great deal for a ticket, from pleasure travelers, who are on tighter budgets.


pages: 389 words: 98,487

The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor, and Why You Can Never Buy a Decent Used Car by Tim Harford

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Albert Einstein, barriers to entry, Berlin Wall, collective bargaining, congestion charging, Corn Laws, David Ricardo: comparative advantage, decarbonisation, Deng Xiaoping, Fall of the Berlin Wall, George Akerlof, information asymmetry, invention of movable type, John Nash: game theory, John von Neumann, Kenneth Arrow, market design, Martin Wolf, moral hazard, new economy, Pearl River Delta, price discrimination, Productivity paradox, race to the bottom, random walk, rent-seeking, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, second-price sealed-bid, Shenzhen was a fishing village, special economic zone, spectrum auction, The Market for Lemons, Thomas Malthus, trade liberalization, Vickrey auction

Varian, “A Model of Sales,” American Economic Review 70, no. 4 (September 1980): 651–59. Varian’s textbook, Intermediate Microeconomics, 4th ed. (New York: W. W. Norton, 1997) covers the subject extensively, including the quotation about French railroads, which comes from Emile Dupuit, an eighteenth-century French economist, translated by R. B. Ekelund, “Price Discrimination and Product Differentiation in Economic Theory: An Early Analysis,” Quarterly Journal of Economics 84 (1970): 268–78. The amazing stories of price discrimination in hi-tech goods are from Hal Varian and Carl Shapiro, Information Rules (Cambridge, MA: Harvard Business School Press, 1999), 59. I learned why popcorn costs so much at the movies by reading Steven Landsburg’s Armchair Economist (New York: Free Press, 1993), and why wine costs so much at restaurants in discussion with my former colleague Bill Sjostrom.

Starbucks doesn’t have a way to identify lavish customers perfectly, so it invites them to hang themselves with a choice of luxurious ropes. • 35 • T H E U N D E R C O V E R E C O N O M I S T There’s one born every minute: Two ways to find him There are three common strategies for finding customers who are cavalier about price. Let’s cover two for now, and leave the best for last. The first is what economists call “first degree price discrimination,” but we could call it the “unique target” strategy: to evaluate each customer as an individual and charge according to how much he or she is willing to pay. This is the strategy of the used-car salesman or the real estate agent. It usually takes skill and a lot of effort; hardly surprising, then, that it is most often seen for items that have a high value relative to the retailer’s time—cars and houses, of course, but also souvenirs in African street stalls, where the impoverished merchant will find it worth bargaining for some time to gain an extra dollar.


pages: 306 words: 85,836

When to Rob a Bank: ...And 131 More Warped Suggestions and Well-Intended Rants by Steven D. Levitt, Stephen J. Dubner

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Affordable Care Act / Obamacare, Airbus A320, airport security, augmented reality, barriers to entry, Bernie Madoff, Black Swan, Broken windows theory, Captain Sullenberger Hudson, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, feminist movement, food miles, George Akerlof, information asymmetry, invisible hand, loss aversion, mental accounting, Netflix Prize, obamacare, oil shale / tar sands, Pareto efficiency, peak oil, pre–internet, price anchoring, price discrimination, principal–agent problem, profit maximization, Richard Thaler, security theater, Ted Kaczynski, the built environment, The Chicago School, the High Line, Thorstein Veblen, transaction costs, US Airways Flight 1549

Why on earth, I asked Wolf, would anyone pay $100 extra—probably every month—to fill a prescription at Walgreens instead of Costco? His answer: if a retiree is used to filling his prescriptions at Walgreens, that’s where he fills his prescriptions, and he assumes that the price of a generic drug (or, perhaps, any drug) is pretty much the same at any pharmacy. Talk about information asymmetry; talk about price discrimination! I had meant to write about this, and had collected a few relevant links: a TV news report in Houston about Wolf’s discovery; an extensive price comparison compiled by a TV news reporter in Detroit; a Consumer Reports survey; and a research report on the subject from Senator Dianne Feinstein. But I had forgotten all about this issue until I read a comprehensive Wall Street Journal article that does a good job of measuring the difference in prices between chains.

At hotels, for instance, by not automatically washing towels during a guest’s stay, the hotel saves both money and the environment. Green innovations can be featured in advertising campaigns to attract customers. Another potential benefit of “going green” is that it makes environmentally minded employees happy, increasing their loyalty to the firm. A Berlin brothel has hit on another way to use environmental arguments to its benefit: price discrimination. As Mary MacPherson Lane writes in an AP article: The bordellos in the capital of Germany, where prostitution is legal, have seen business suffer with the global financial crisis. Patrons have become more frugal and there are fewer potential customers coming to the city for business trips and conferences. But Maison d’Envie has seen its business begin to return since it began offering the euro 5 ($7.50) discount in July . . .

To qualify, customers must show the receptionist either a bicycle padlock key or proof they used public transit to get to the neighborhood. That knocks the price for 45 minutes in a room, for example, to euro 65 from euro 70. Although the brothel says the reason for the price discount is that it wants to be environmentally conscious, it sure looks to me like the brothel is dressing up some good old-fashioned price discrimination arguments in a green disguise. Customers who come by bus or bicycle are likely to have lower incomes and be more price-sensitive than those who arrive by car. If that is the case, the brothel would like to charge such customers lower prices than the richer ones. The difficulty is that, without a justifiable rationale, the rich customers would be angry if the brothel tried to charge them more (and indeed, how in general, would the brothel know who is rich?).


pages: 234 words: 53,078

The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer by Dean Baker

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accounting loophole / creative accounting, affirmative action, Asian financial crisis, Bretton Woods, corporate governance, declining real wages, full employment, index fund, Jeff Bezos, medical malpractice, medical residency, money market fund, offshore financial centre, price discrimination, risk tolerance, spread of share-ownership

The incentives created by copyright monopolies encourage textbook publishers to constantly adapt their books to persuade faculty to use new editions, even when the research in the area provides little reason to change a textbook. This quickly makes used editions obsolete. In addition, textbook publishers practice the same sort of price discrimination as pharmaceutical companies, charging lower prices in Europe and developing countries than they do in the United States. To preserve this type of price discrimination, the textbook publishers, like the drug companies, rely on the nanny state to police their marketing arrangements. They want the government to arrest people who sell their books at the wrong price in the wrong place, since large price differences cannot persist in a truly free market. It would be a simple matter to establish a small pool of public money to contract with publishers to produce textbooks.


pages: 257 words: 13,443

Statistical Arbitrage: Algorithmic Trading Insights and Techniques by Andrew Pole

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algorithmic trading, Benoit Mandelbrot, Chance favours the prepared mind, constrained optimization, Dava Sobel, George Santayana, Long Term Capital Management, Louis Pasteur, mandelbrot fractal, market clearing, market fundamentalism, merger arbitrage, pattern recognition, price discrimination, profit maximization, quantitative trading / quantitative finance, risk tolerance, Sharpe ratio, statistical arbitrage, statistical model, stochastic volatility, systematic trading, transaction costs

When operating an investment strategy, and notwithstanding risk filters and stop loss rules, surprises should be expected to occur with some frequency. The first demonstration examines a single pair that exhibits textbook reversionary behavior until a fundamental development, a takeover announcement, creates a breakpoint. Next we discuss the twofold impact of an international economic development, the credit crisis of 1998: introducing a new risk factor into the equity market—temporary price discrimination as a function of credit rating on corporate debt—and turning a profitable year (to May) into a negative year (to August). Next we consider how large redemptions from funds such as hedge, mutual, and pension, create temporary disruptions to stock price dynamics with deleterious effects on statistical arbitrage performance. Next we relate the story of Regulation FD. Finally, in all this discussion of performance trauma we revisit the theme of Chapter 5, clearing up misunderstandings, specifically on the matter of correlation of manager performance in negative return periods. 141 142 8.2 STATISTICAL ARBITRAGE EVENT RISK Figure 8.1 shows the price histories (daily close price, adjusted for stock splits and dividends) for stocks Federal Home Loan Mortgage Corporation (FRE) and Sunamerica, Inc.

Morningstar (Financial Times, Thursday, October 9) advised investors to reduce or eliminate holdings in mutual funds from Alliance Capital and Bank of America, as managers of those funds had also engaged in timing schemes. 9.6.1 Interest Rates and Volatility With very low interest rates, the value of a dollar a year from now (or five years or ten years) is essentially the same as the value of a dollar today. Notions of valuation of growth are dramatically different than when higher interest rates prevail, when time has a dollar value. With such equalization of valuations and with discriminatory factors rendered impotent, volatility between similar stocks will decrease. Higher interest rates are one factor that will increase stock price discrimination and increase the prevalence and richness of reversion opportunities. The process of increasing interest rates began at the end of 2004. The Federal Reserve raised rates in a long, unbroken sequence of small steps to 5 percent, and statistical arbitage generated decent returns again starting in 2006. Volatility has not increased since 2004. Indeed, it declined further to record low levels.


pages: 209 words: 13,138

Empirical Market Microstructure: The Institutions, Economics and Econometrics of Securities Trading by Joel Hasbrouck

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Alvin Roth, barriers to entry, conceptual framework, correlation coefficient, discrete time, disintermediation, distributed generation, experimental economics, financial intermediation, index arbitrage, information asymmetry, interest rate swap, inventory management, market clearing, market design, market friction, market microstructure, martingale, price discovery process, price discrimination, quantitative trading / quantitative finance, random walk, Richard Thaler, second-price auction, selection bias, short selling, statistical model, stochastic process, stochastic volatility, transaction costs, two-sided market, ultimatum game, zero-sum game

(In the competitive dealer model, in contrast, limq→0+ P(q) = limq→0− P(q) = µX .) The pricing schedule is sufficiently discriminatory that a ω considerably greater than µX is necessary before the customer will consider an even an infinitesimal purchase. DEPTH The relationship between the supply schedule and expectation revision functions is broadly similar to the empirical finding depicted in figure 13.1, with the latter lying below the former. Price discrimination in the book can therefore potentially account for the empirical evidence. We will subsequently return to this point. 13.3.3 The Monopolistic Dealer The monopolistic dealer sets a price schedule to maximize E[P(q) − E[X |q]], where the outer expectation is over all incoming customers (or equivalently, quantities). As the customer demands depend on P(q), P(q) implicitly enters into E[X |q].

See Exponential utility Cholesky factorization, 83 Cointegration, 96 Crossing networks, 20 Harris, Lawrence, 91, 92, 158 Hvidkjaer, Soeren, 56 Illiquidity ratio, 93 Implementation shortfall, 144 Impulse response function, 81 Dealer markets, 14; limit orders in, 15, 159 196 INDEX Information share, 101 Interdealer markets, 15, 116 Invertibility: multivariate, 79; and unit roots, 114; univariate, 36 Kiefer, Nicholas, 56 Kyle, A. S., 43, 61 Limit order, 10 Limit order markets, 10; price discrimination in, 134 Liquidity: attributes, 4; of competitive dealer market, 133; externality, 5; in a limit order market, 134; noise traders, 61; and order choice, 118; and pricing error, 70; ratio, 93; supplied by a monopolistic dealer, 134; time variation in, 90. See also Price impact Lo, Andrew, 153 Madhavan, Ananth, 92 Manning rules, 15, 159, 172 Market failure, 49 Market order, 11 Martingale, 25 Mendelson, Haim, 108 Moving average processes, cointegrated, 97; univariate, 33; vector, 79 NASDAQ, 171.


pages: 422 words: 104,457

Dragnet Nation: A Quest for Privacy, Security, and Freedom in a World of Relentless Surveillance by Julia Angwin

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AltaVista, Ayatollah Khomeini, barriers to entry, bitcoin, Chelsea Manning, Chuck Templeton: OpenTable, clean water, crowdsourcing, cuban missile crisis, data is the new oil, David Graeber, Debian, Edward Snowden, Filter Bubble, Firefox, GnuPG, Google Chrome, Google Glasses, informal economy, Jacob Appelbaum, John Markoff, Julian Assange, Marc Andreessen, market bubble, market design, medical residency, meta analysis, meta-analysis, mutually assured destruction, prediction markets, price discrimination, randomized controlled trial, RFID, Robert Shiller, Ronald Reagan, security theater, Silicon Valley, Silicon Valley startup, Skype, smart meter, Steven Levy, Upton Sinclair, WikiLeaks, Y2K, zero-sum game, Zimmermann PGP

Benjamin Reed Shiller, an economics professor at Brandeis University, analyzed data about a large panel of computer users and found that Netflix could raise profits by 1.4 percent if it adopted individually tailored prices based on customers’ Web-browsing histories. He found that Web-browsing data were more predictive than standard demographic data of users’ willingness to pay high prices for a Netflix subscription. “This suggests that 1st degree price discrimination might evolve from merely theoretical to practical and widely employed,” he concluded. * * * I wanted to block ad tracking. But first I had to sort through all the misinformation about how to block tracking. Many people believe that they can use Google Chrome’s “Incognito” mode or Microsoft Internet Explorer’s “InPrivate Browsing” mode to avoid being monitored online. But that is not true.

In one experiment, researchers at Carnegie Mellon: Laura Brandimarte, Alessandro Acquisti, and George Loewenstein, “Misplaced Confidences: Privacy and the Control Paradox,” Social Psychological and Personality Science, August 9, 2012. http://spp.sagepub.com/content/early/2012/08/08/1948550612455931.abstract. Calo says that market: Calo, “Digital Market Manipulation.” Benjamin Reed Shiller, an economics: Benjamin Reed Shiller, “First Degree Price Discrimination Using Big Data” (Working Paper Series, Brandeis University, August 20, 2013), http://www.brandeis.edu/departments/economics/RePEc/brd/doc/Brandeis_WP58R.pdf. Incognito mode is privacy protection: Google, Inc., “Incognito Mode (Browse in Private),” google.com, accessed August 22, 2013, https://support.google.com/chrome/answer/95464?hl=en. My next stop was the advertising industry’s: “Consumer Opt-Out,” Network Advertising Initiative, http://www.networkadvertising.org/choices/.


pages: 293 words: 91,412

World Economy Since the Wars: A Personal View by John Kenneth Galbraith

central bank independence, full employment, income inequality, James Hargreaves, James Watt: steam engine, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, means of production, price discrimination, price stability, road to serfdom, Ronald Reagan, spinning jenny, The Wealth of Nations by Adam Smith, Thorstein Veblen, union organizing, War on Poverty

The American Beauty rose can be produced in the splendor and fragrance which bring cheer to its beholder only by sacrificing the early buds which grow up around it." As with the rose, so with the Standard Oil Company. "This is not an evil tendency in business. It is merely the working-out of a law of nature and a law of God."17 This did align God and the American Beauty rose with railroad rebates, exclusive control of pipelines, systematic price discrimination, and some other remarkably aggressive business practices. V In 1956, the retiring president of the National Association of Manufacturers called solemnly in the name of Herbert Spencer on the working men of the country to reject the slavery of their unions and on businessmen to renounce the paternalism of Washington. Concerning the latter, he said in a dynamic sentence: "Before we can build solidly into the glorious future that is another unsound part of our structure which we'll have to get rid of, even though it causes severe pain to us businessmen to forgo the federal crutches we have been leaning on."

The position of the worker who is protected against arbitrary firing by a sound seniority system is far from ideal if he receives an entirely nondiscriminatory discharge as the result of an insufficiency of demand for the product he is making. This is especially so if a general shortage of demand keeps him from finding a job elsewhere. While unemployment compensation is better than nothing, a job is better than either. Even with an effective enforcement of the laws preventing price discrimination—roughly the use by a large firm of its size to exact and offer prices which small competitors cannot obtain or quote—the competitive position of the small retailer in a time of depression is not happy. Regardless of the conditions of competition, it is much better when the demand for everyone's product is good. Farm support prices are a useful protection against sudden adverse price movements.


pages: 678 words: 216,204

The Wealth of Networks: How Social Production Transforms Markets and Freedom by Yochai Benkler

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affirmative action, barriers to entry, bioinformatics, Brownian motion, call centre, Cass Sunstein, centre right, clean water, commoditize, dark matter, desegregation, East Village, fear of failure, Firefox, game design, George Gilder, hiring and firing, Howard Rheingold, informal economy, invention of radio, Isaac Newton, iterative process, Jean Tirole, jimmy wales, John Markoff, Kenneth Arrow, market bubble, market clearing, Marshall McLuhan, New Journalism, optical character recognition, pattern recognition, peer-to-peer, pre–internet, price discrimination, profit maximization, profit motive, random walk, recommendation engine, regulatory arbitrage, rent-seeking, RFID, Richard Stallman, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, shareholder value, Silicon Valley, Skype, slashdot, social software, software patent, spectrum auction, technoutopianism, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, transaction costs, Vilfredo Pareto

As a practical matter, this interpretation expands the formal rights of copyright holders to cover any and all computer-mediated uses of their works, because no use can be made with a computer without at least formally implicating the right to copy. More important than the formal legal right, however, this universal baseline claim to a right to control even simple reading of one's copyrighted work marked a change in attitude. Justified later through various claims--such as the efficiency of private ordering or of price discrimination--it came to stand for a fairly broad proposition: Owners should have the right to control all valuable uses of their works. Combined with the possibility and existence of technical controls on actual use and the DMCA's prohibition on circumventing those controls, this means that copyright law has shifted. It existed throughout most of its history as a regulatory provision that reserved certain uses of works for exclusive control by authors, but left other, not explicitly constrained uses free.

Lemley, "Intellectual Property and Shrinkwrap Licenses," Southern California Law Review 68 (1995): 1239, 1248-1253. 185. 86 F.3d 1447 (7th Cir. 1996). 186. For a more complete technical explanation, see Yochai Benkler, "An Unhurried View of Private Ordering in Information Transactions," Vanderbilt Law Review 53 (2000): 2063. 187. James Boyle, "Cruel, Mean or Lavish? Economic Analysis, Price Discrimination and Digital Intellectual Property," Vanderbilt Law Review 53 (2000); Julie E. Cohen, "Copyright and the Jurisprudence of Self-Help," Berkeley Technology Law Journal 13 (1998): 1089; Niva Elkin-Koren, "Copyright Policy and the Limits of Freedom of Contract," Berkeley Technology Law Journal 12 (1997): 93. 188. Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340, 349-350 (1991). 189.

Lemley, "Intellectual Property and Shrinkwrap Licenses," Southern California Law Review 68 (1995): 1239, 1248-1253. 185. 86 F.3d 1447 (7th Cir. 1996). 186. For a more complete technical explanation, see Yochai Benkler, "An Unhurried View of Private Ordering in Information Transactions," Vanderbilt Law Review 53 (2000): 2063. 187. James Boyle, "Cruel, Mean or Lavish? Economic Analysis, Price Discrimination and Digital Intellectual Property," Vanderbilt Law Review 53 (2000); Julie E. Cohen, "Copyright and the Jurisprudence of Self-Help," Berkeley Technology Law Journal 13 (1998): 1089; Niva Elkin-Koren, "Copyright Policy and the Limits of Freedom of Contract," Berkeley Technology Law Journal 12 (1997): 93. 188. Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340, 349-350 (1991). 189.


pages: 629 words: 142,393

The Future of the Internet: And How to Stop It by Jonathan Zittrain

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A Declaration of the Independence of Cyberspace, Amazon Mechanical Turk, Andy Kessler, barriers to entry, book scanning, Brewster Kahle, Burning Man, c2.com, call centre, Cass Sunstein, citizen journalism, Clayton Christensen, clean water, commoditize, corporate governance, Daniel Kahneman / Amos Tversky, distributed generation, en.wikipedia.org, Firefox, game design, Hacker Ethic, Howard Rheingold, Hush-A-Phone, illegal immigration, index card, informal economy, Internet Archive, jimmy wales, John Markoff, license plate recognition, loose coupling, mail merge, national security letter, old-boy network, packet switching, peer-to-peer, Post-materialism, post-materialism, pre–internet, price discrimination, profit maximization, Ralph Nader, RFC: Request For Comment, RFID, Richard Stallman, Richard Thaler, risk tolerance, Robert Bork, Robert X Cringely, SETI@home, Silicon Valley, Skype, slashdot, software patent, Steve Ballmer, Steve Jobs, Ted Nelson, Telecommunications Act of 1996, The Nature of the Firm, The Wisdom of Crowds, web application, wikimedia commons, zero-sum game

Offering individualized discounts, however, can amount to the same thing for the vendor while appearing much more palatable to the buyer. Who would complain about receiving a coupon for $10 off the listed price of an item, even if the coupon were not transferable to any other Amazon user? (The answer may be “someone who did not get the coupon,” but to most people the second scenario is less troubling than the one in which different prices were charged from the start.)21 If data mining could facilitate price discrimination for Amazon or other online retailers, it could operate in the tangible world as well. As a shopper uses a loyal-customer card, certain discounts are offered at the register personalized to that customer. Soon, the price of a loaf of bread at the store becomes indeterminate: there is a sticker price, but when the shopper takes the bread up front, the store can announce a special individualized discount based on her relationship with the store.

Hiawatha Bray, BC Warns Its Alumni of Possible ID Theft After Computer Is Hacked, BOSTON GLOBE, Mar. 17, 2005, at E3, available at http://www.boston.com/business/ technology/articles/2005/03/ 17/bc_warns_its_alumni_of_possible_id_theft_ after_computer_is_hacked/. 19. See Privacy Rights Clearinghouse, A Chronology of Data Breaches, http://www.privacyrights.org/ar/ChronDataBreaches.htm (last visited June 1, 2007). 20. Amazons Old Customers “Pay More,” BBC NEWS, Sept. 8, 2000, http://news.bbc.co.uk/ 2/hi/business/914691.stm. 21. For more on price discrimination for information goods, see William Fisher, When Should We Permit Differential Pricing of Information? (2007) (working draft, on file with author). 22. See Paul Saffo, Sensors: The Next Wave of Infotech Innovation, http://www.saffo.com/essays/sensors.php (last visited June 1, 2007). 23. See Gordon E. Moore, Cramming More Components onto Integrated Circuits, ELECTRONICS, Apr. 19, 1965, available at http://download.intel.com/research/silicon/moorespaper.pdf 24.


pages: 518 words: 147,036

The Fissured Workplace by David Weil

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accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, banking crisis, barriers to entry, business process, call centre, Carmen Reinhart, Cass Sunstein, Clayton Christensen, clean water, collective bargaining, commoditize, corporate governance, corporate raider, Corrections Corporation of America, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, declining real wages, employer provided health coverage, Frank Levy and Richard Murnane: The New Division of Labor, George Akerlof, global supply chain, global value chain, hiring and firing, income inequality, information asymmetry, intermodal, inventory management, Jane Jacobs, Kenneth Rogoff, law of one price, loss aversion, low skilled workers, minimum wage unemployment, moral hazard, Network effects, new economy, occupational segregation, Paul Samuelson, performance metric, pre–internet, price discrimination, principal–agent problem, Rana Plaza, Richard Florida, Richard Thaler, Ronald Coase, shareholder value, Silicon Valley, statistical model, Steve Jobs, supply-chain management, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, ultimatum game, union organizing, women in the workforce, Y2K, yield management

The basic monopsony model assumes that an employer will set a single wage rate for workers of a particular type (that is, skill or occupation) rather than follow what is called in a monopoly situation a price discrimination policy (that is, charging different prices to different consumers). The need to set a single wage for the workplace has the effect of pushing up the cost to the employer of hiring more workers of a given type, since the additional cost of one more worker requires paying him or her more, as well as more for all who are already employed at that type of work.29 In principle, an employer with monopsony power could compensate workers according to their individual contribution to production (or “marginal product,” the additional output per worker) if it pursued a varied wage policy. But this goes against the fairness grain and, as we have seen, has never been a common form of compensation. Wage discrimination (à la price discrimination) is rarely seen in large firms despite the benefits it could confer.

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

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Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, labour market flexibility, late capitalism, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Death and Life of Great American Cities, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

But the airline won't do this, because if seats were regularly available for next to nothing whenever one was empty, this would affect the behavior of full-fare-paying passengers. Airlines have the sophisticated yield management systems of chapter 12 to handle precisely this problem. Their aim is not to fill the plane, but to strike a balance between filling seats and obtaining good prices for seats. If they could read minds and gauge exactly how much each passenger would be willing to pay, they could engage in perfect price discrimination 7 and achieve Pareto efficiency. But of course they can't. So free trade leads to Pareto efficiency only in perfectly competitive markets because only perfectly competitive markets are free of these incentive compatibility problems. Market economies that are competitive but not perfectly competitive offer many opportunities for Pareto improvements. Chapters 18 through 24 will explore many instances.

This follows almost inescapably from the rationality postulates described in chapters 17 and 18. 2. Buchholz (1999), Posner (1998). 3. Dworkin (1977), chap. 4; Waldron (1984), 153-67. 4. Berlin (2000). 5. For a summary of the standard economic approach to the value-of-life issues, see Jones-Lee (1976). For a well-balanced background to why this approach is untenable, see Douglas and Wildavsky (1982). 6. Often called a Pareto optimum. 7. Perfect-"ftrst degree"-price discrimination tailors the price for each good sold precisely to its user so that all consumer surplus is extracted. 8. Arrow (1951b). Part IV: THE TRUTH ABOUT MARKETS Chapter 17: Neoclassical Economics and After ••••••••••••••••••••••••••••••••••••• 1. For example, for James Tobinn the invisible hand is "one of the great ideas of history and one of the most influential." Tobin (1992), 117. 2. Yergin and Stanislaw (1998), 398.


pages: 275 words: 77,955

Capitalism and Freedom by Milton Friedman

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affirmative action, Berlin Wall, central bank independence, Corn Laws, Deng Xiaoping, floating exchange rates, Fractional reserve banking, full employment, invisible hand, Joseph Schumpeter, liquidity trap, market friction, minimum wage unemployment, price discrimination, rent control, road to serfdom, Ronald Reagan, secular stagnation, Simon Kuznets, the market place, The Wealth of Nations by Adam Smith, union organizing

On the contrary, he thinks that while licensing has gone much too far it has some real functions to perform. He suggests procedural reforms and changes that in his view would limit the abuse of licensure arrangements. 5 Ibid., pp. 121–22. 6 Ibid., p. 146. 7 See, for example, Wesley Mitchell’s famous article on the “Backward Art of Spending Money,” reprinted in his book of essays carrying that title (New York: McGraw-Hill, 1937), pp. 3–19. 8 ‘See Reuben Kessel, “Price Discrimination in Medicine,” The Journal of Law and Economics, Vol. 1 (October, 1958), 20–53. Chapter X The Distribution of Income A CENTRAL ELEMENT IN the development of a collectivist sentiment in this century, at least in Western countries, has been a belief in equality of income as a social goal and a willingness to use the arm of the state to promote it. Two very different questions must be asked in evaluating this egalitarian sentiment and the egalitarian measures it has produced.


pages: 268 words: 75,850

The Formula: How Algorithms Solve All Our Problems-And Create More by Luke Dormehl

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3D printing, algorithmic trading, Any sufficiently advanced technology is indistinguishable from magic, augmented reality, big data - Walmart - Pop Tarts, call centre, Cass Sunstein, Clayton Christensen, commoditize, computer age, death of newspapers, deferred acceptance, Edward Lorenz: Chaos theory, Erik Brynjolfsson, Filter Bubble, Flash crash, Florence Nightingale: pie chart, Frank Levy and Richard Murnane: The New Division of Labor, Google Earth, Google Glasses, High speed trading, Internet Archive, Isaac Newton, Jaron Lanier, Jeff Bezos, job automation, John Markoff, Kevin Kelly, Kodak vs Instagram, lifelogging, Marshall McLuhan, means of production, Nate Silver, natural language processing, Netflix Prize, pattern recognition, price discrimination, recommendation engine, Richard Thaler, Rosa Parks, self-driving car, sentiment analysis, Silicon Valley, Silicon Valley startup, Slavoj Žižek, social graph, speech recognition, Steve Jobs, Steven Levy, Steven Pinker, Stewart Brand, the scientific method, The Signal and the Noise by Nate Silver, upwardly mobile, Wall-E, Watson beat the top human players on Jeopardy!, Y Combinator

In the same way that all we see are the end results when algorithms select the personalized banners that appear on websites we browse, or determine the suggested films recommended to us on Netflix, so with differential pricing are customers not informed that they are being asked to pay more money than their next-door neighbor. After all, who would continue shopping if this were the case? As Joseph Turow, a professor at the University of Pennsylvania’s Annenberg School for Communication and frequent writer about all things marketing, has pointed out in an article that appeared in the New York Times: “The flow of data about us is so surreptitious and so complex that we won’t even know when price discrimination starts. We’ll just get different prices, different news, different entertainment.”42 The Discrimination Formula? A number of Internet theorists have argued that in the digital world, previous classifications used for discrimination (including race, gender or sexuality) will fall away—if they haven’t already. Alvin Toffler’s Third Wave identifies a number of individuals and groups subtly or openly discriminated against during the last centuries and argues that this marginalization is the product of Second Wave societies.


pages: 252 words: 72,473

Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy by Cathy O'Neil

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Affordable Care Act / Obamacare, Bernie Madoff, big data - Walmart - Pop Tarts, call centre, carried interest, cloud computing, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, Emanuel Derman, housing crisis, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, illegal immigration, Internet of things, late fees, mass incarceration, medical bankruptcy, Moneyball by Michael Lewis explains big data, new economy, obamacare, Occupy movement, offshore financial centre, payday loans, peer-to-peer lending, Peter Thiel, Ponzi scheme, prediction markets, price discrimination, quantitative hedge fund, Ralph Nader, RAND corporation, recommendation engine, Rubik’s Cube, Sharpe ratio, statistical model, Tim Cook: Apple, too big to fail, Unsafe at Any Speed, Upton Sinclair, Watson beat the top human players on Jeopardy!, working poor

Baltimore officials charged Wells Fargo: Michael Powell, “Bank Accused of Pushing Mortgage Deals on Blacks,” New York Times, June 6, 2009, www.​nytimes.​com/​2009/​06/​07/​us/​07baltimore.​html. a former bank loan officer, Beth Jacobson: Ibid. 71 percent of them were in largely African American neighborhoods: Ibid. Wells Fargo settled the suit: Luke Broadwater, “Wells Fargo Agrees to Pay $175M Settlement in Pricing Discrimination Suit,” Baltimore Sun, July 12, 2012, http://​articles.​baltimoresun.​com/​2012-​07-​12/​news/​bs-​md-​ci-​wells-​fargo-​20120712_​1_​mike-​heid-​wells-​fargo-​home-​mortgage-​subprime-​mortgages. CHAPTER 3 the staff at U.S. News: Robert Morse, “The Birth of the College Rankings,” U.S. News, May 16, 2008, www.​usnews.​com/​news/​national/​articles/​2008/​05/​16/​birth-​the-​of-​college-​rankings.


pages: 828 words: 232,188

Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy by Francis Fukuyama

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Affordable Care Act / Obamacare, Andrei Shleifer, Asian financial crisis, Atahualpa, banking crisis, barriers to entry, Berlin Wall, blood diamonds, British Empire, centre right, clean water, collapse of Lehman Brothers, colonial rule, conceptual framework, crony capitalism, deindustrialization, Deng Xiaoping, double entry bookkeeping, Edward Snowden, Erik Brynjolfsson, European colonialism, facts on the ground, failed state, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, Francisco Pizarro, Frederick Winslow Taylor, full employment, Gini coefficient, Hernando de Soto, Home mortgage interest deduction, income inequality, information asymmetry, invention of the printing press, iterative process, knowledge worker, land reform, land tenure, life extension, low skilled workers, manufacturing employment, means of production, Menlo Park, Mohammed Bouazizi, Monroe Doctrine, moral hazard, new economy, open economy, out of africa, Peace of Westphalia, Port of Oakland, post-industrial society, Post-materialism, post-materialism, price discrimination, quantitative easing, RAND corporation, rent-seeking, road to serfdom, Ronald Reagan, Scientific racism, Scramble for Africa, Second Machine Age, Silicon Valley, special economic zone, stem cell, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, too big to fail, trade route, transaction costs, Tyler Cowen: Great Stagnation, Vilfredo Pareto, women in the workforce, World Values Survey, zero-sum game

In the 1880s, the railroads were the largest sector of the economy in terms of invested capital, just as the health-care sector in 2010 consumed almost 18 percent of American GDP. Both the railroads and the health-care system had evolved out of the private sector with increasingly heavy political inputs in response to perceived abuses. Politicians in the nineteenth century limited the ability of railroads to recover costs through differential pricing, just as politicians today try to limit price discrimination by insurance companies. Both railroads and health care pitted diverse interests against one another: shippers and farmers against the railroads, doctors and drug companies against insurers. Both sectors generated economic inefficiencies due to the inconsistencies with which policies were applied across the country. And finally, both were economic activities whose implications transcended the jurisdiction of individual states and called out for uniform federal regulation, something that was not forthcoming given America’s traditions of federalism and antistatist political culture.6 In response to the conflicting interests driving expansion of the railroads, there was considerable political pressure to make the system fairer and more reliable for both providers and users of rail services.

And finally, both were economic activities whose implications transcended the jurisdiction of individual states and called out for uniform federal regulation, something that was not forthcoming given America’s traditions of federalism and antistatist political culture.6 In response to the conflicting interests driving expansion of the railroads, there was considerable political pressure to make the system fairer and more reliable for both providers and users of rail services. However, at this point in American history, there was no precedent for economic regulation on a national level; the Constitution’s Commerce Clause reserved regulatory powers to the federal government only in cases of foreign and interstate commerce. In the period following the Civil War, a variety of states had passed Granger laws that sought to prohibit price discrimination, and some, including Massachusetts, established relatively effective commissions to stabilize the market. The right of individual states to set prices and regulate economic activity was upheld by the Supreme Court in 1877 in Munn v. Illinois.7 But railroads could not be adequately regulated at a state level. They were the prime examples of interstate commerce that crossed numerous jurisdictional boundaries, a fact recognized in 1886 in Wabash v.


pages: 387 words: 110,820

Cheap: The High Cost of Discount Culture by Ellen Ruppel Shell

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barriers to entry, Berlin Wall, big-box store, cognitive dissonance, computer age, creative destruction, Daniel Kahneman / Amos Tversky, delayed gratification, deskilling, Donald Trump, Edward Glaeser, fear of failure, Ford paid five dollars a day, Frederick Winslow Taylor, George Akerlof, global supply chain, global village, greed is good, Howard Zinn, income inequality, interchangeable parts, inventory management, invisible hand, James Watt: steam engine, Joseph Schumpeter, Just-in-time delivery, knowledge economy, loss aversion, market design, means of production, mental accounting, Pearl River Delta, Ponzi scheme, price anchoring, price discrimination, race to the bottom, Richard Thaler, Ronald Reagan, side project, Steve Jobs, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, traveling salesman, ultimatum game, Victor Gruen, washing machines reduced drudgery, working poor, yield management, zero-sum game

Customers complained that this was simply not fair and that it made them lose faith in the company. A close cousin to price rationing is the equally familiar “yield management,” whereby airlines and hotels moderate prices depending on demand. This practice is widespread and largely (if grumpily) tolerated. We have come to accept the idea that the guy sitting next to us in the back of the plane might have paid far less than we did for the seat. “Price discrimination is considered fair if it takes place for a socially acceptable reason,” Sarah Maxwell told me. Of course, “socially acceptable” is determined by context. If we all agree that airlines have a right to charge someone double for a ticket because he or she happens to purchase it outside a certain time frame, so be it. Ultimately, most of us consider “fair” almost any price that benefits ourselves.


pages: 254 words: 14,795

Poorly Made in China: An Insider's Account of the Tactics Behind China's Production Game by Paul Midler

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barriers to entry, corporate social responsibility, currency peg, Deng Xiaoping, disintermediation, full employment, illegal immigration, new economy, out of africa, price discrimination, unpaid internship, urban planning

This business about “what’s your market” incensed many importers who suspected that they might not be getting the absolute lowest price available. Factory owners were good at sizing up their customers, and they took their cues from the vendors who sold vegetables in China’s many wet markets. They tended to charge more for customers who could afford to pay extra. There was no such thing as a single “China price” for any given product. Pricing was all over the place, and manufacturers got whatever they could. Price discrimination was nothing new in business, but it was a practice associated with marketing companies, not manufacturers. Buyers expected that a factory would make its product available to all at the same price, but this was not how it worked in China. Importers resented that they were sized up in such a crude fashion, and that they might be disadvantaged in a pricing negotiation because of their background.


pages: 292 words: 81,699

More Joel on Software by Joel Spolsky

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a long time ago in a galaxy far, far away, barriers to entry, Black Swan, Build a better mousetrap, business process, call centre, Danny Hillis, David Heinemeier Hansson, failed state, Firefox, fixed income, George Gilder, Larry Wall, low cost carrier, Mars Rover, Network effects, Paul Graham, performance metric, place-making, price discrimination, prisoner's dilemma, Ray Oldenburg, Ruby on Rails, Sand Hill Road, Silicon Valley, slashdot, social software, Steve Ballmer, Steve Jobs, Superbowl ad, The Great Good Place, type inference, unpaid internship, wage slave, web application, Y Combinator

Many a small software vendor has seen their revenues go up and the amount of customer bickering about price go way down when they eliminated coupons, discounts, deals, multiple versions, and tiers. Somehow, it seems like customers would rather pay $100 when everyone else is paying $100 than pay $79 if they know there’s someone out there who got it for $78. Heck, GM made a whole car company, Saturn, based on the principle that the offered price is fair and you don’t have to bargain. Even assuming you’re willing to deal with a long-term erosion of customer goodwill caused by blatant price discrimination, segmentation is just not that easy to pull off. First of all, as soon as your customers find out you’re doing it, they’ll lie about who they are: • Frequent business travelers rearranged their tickets to include dual Saturday-night stays. For example, a consultant living in Pittsburgh and working in Seattle Monday through Thursday would buy a two-week trip from Pittsburgh to Seattle and then a weekend trip home in the middle.


pages: 411 words: 108,119

The Irrational Economist: Making Decisions in a Dangerous World by Erwann Michel-Kerjan, Paul Slovic

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Andrei Shleifer, availability heuristic, bank run, Black Swan, Cass Sunstein, clean water, cognitive dissonance, collateralized debt obligation, complexity theory, conceptual framework, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, Daniel Kahneman / Amos Tversky, endowment effect, experimental economics, financial innovation, Fractional reserve banking, George Akerlof, hindsight bias, incomplete markets, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, iterative process, Kenneth Arrow, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, money market fund, moral hazard, mortgage debt, Pareto efficiency, Paul Samuelson, placebo effect, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, source of truth, statistical model, stochastic process, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning, Vilfredo Pareto

An interesting question is whether the willingness of some buyers to buy warranties that would not be a good deal even if they were not overpriced results in a lower price for the product itself; could the product be a loss leader (as are razors), with the money to be made on warranties and/or repairs? Perhaps, but this seems like a stretch. There is reason to go slow on a behavioral explanation here. In addition to the fact that most people do not buy warranties, competitively sold warranties are available for large purchases like automobiles (after the “free” manufacturer’s warranty expires). It may also be that warranties are a form of price discrimination. A buyer who considers himself lucky for having gotten a good deal on a good product may be more willing to pay for a warranty than a buyer who thinks his particular purchase and purchase price are run of the mill and par for the course. The first buyer, having discovered “treasure,” may be more willing to invest in protecting it. Finally, the price responsiveness of demand for warranties implies that, even if the preferences are not so rational, consumer behavior in fulfilling those preferences does repeat the standard model.


pages: 332 words: 89,668

Two Nations, Indivisible: A History of Inequality in America: A History of Inequality in America by Jamie Bronstein

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Affordable Care Act / Obamacare, back-to-the-land, barriers to entry, basic income, Bernie Sanders, big-box store, blue-collar work, Branko Milanovic, British Empire, Capital in the Twenty-First Century by Thomas Piketty, clean water, cognitive dissonance, collateralized debt obligation, collective bargaining, Community Supported Agriculture, corporate personhood, crony capitalism, deindustrialization, desegregation, Donald Trump, ending welfare as we know it, Frederick Winslow Taylor, full employment, Gini coefficient, income inequality, interchangeable parts, invisible hand, job automation, John Maynard Keynes: technological unemployment, labor-force participation, land reform, land tenure, low skilled workers, low-wage service sector, mandatory minimum, mass incarceration, minimum wage unemployment, moral hazard, moral panic, mortgage debt, New Urbanism, non-tariff barriers, obamacare, occupational segregation, Occupy movement, oil shock, Plutocrats, plutocrats, price discrimination, race to the bottom, rent control, road to serfdom, Ronald Reagan, Scientific racism, Simon Kuznets, single-payer health, strikebreaker, too big to fail, trade route, transcontinental railway, Triangle Shirtwaist Factory, trickle-down economics, universal basic income, Upton Sinclair, upwardly mobile, urban renewal, wage slave, War on Poverty, women in the workforce, working poor, Works Progress Administration

Wheat and cattle, timber and sheep, all had to be shipped by rail both as raw and as finished products, and the fact that only the railroads themselves understood the logic of their price structure meant that their rates seemed like unreasonable and monopolistic taxation to the people having to pay them.38 New states gained disproportionate power due to the importance of railroads to the less-developed regions of the United States and because senators were allocated without reference to population.39 At the same time, railroad price discrimination against small shippers sparked protest.40 As urban workers reacted to industrialization, so rural workers reacted to railroad corporatism. In Texas, farmers formed the Farmers’ Alliance, combining ideas about agrarian self-sufficiency with the notion that credit—paper money or “greenbacks”—should be more widely available. By 1885, the Farmers’ Alliance had reached 30,000 members in 49 Texas counties.


pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

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Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, Plutocrats, plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise

If everything is left to private contract and court settlements, the rich have an inherent advantage, too: you have to be well off to sue someone and argue a case, potentially for years. Legislation and regulation have the advantage of creating a level playing field that is fair for everyone, and ultimately cheaper in that every citizen and company knows that the presumption is that everyone will comply. The Sherman Act of 1890 had begun the introduction of pro-competition laws, but the watershed came with Wilson’s Clayton Act of 1914, which outlawed monopoly and unfair price discrimination. This was also the foundation of Roosevelt’s New Deal two decades later. However, judges were still needed to make the law stick. The two landmark cases were the successful actions against the aluminium giant Alcoa in 1948 and against AT & T in 1959. The latter was forced to license the transistor, and it was finally broken up into seven so-called ‘Baby Bells’ in 1984. The transistor licensing set in train the innovation that led to the semi-conductor revolution and the United States’ leadership in ICT, while the break-up of the telecoms monopoly was the precondition for the mobile phone and internet revolutions.


pages: 565 words: 151,129

The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism by Jeremy Rifkin

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3D printing, active measures, additive manufacturing, Airbnb, autonomous vehicles, back-to-the-land, big-box store, bioinformatics, bitcoin, business process, Chris Urmson, clean water, cleantech, cloud computing, collaborative consumption, collaborative economy, Community Supported Agriculture, Computer Numeric Control, computer vision, crowdsourcing, demographic transition, distributed generation, en.wikipedia.org, Frederick Winslow Taylor, global supply chain, global village, Hacker Ethic, industrial robot, informal economy, Intergovernmental Panel on Climate Change (IPCC), intermodal, Internet of things, invisible hand, Isaac Newton, James Watt: steam engine, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Julian Assange, Kickstarter, knowledge worker, labour mobility, Mahatma Gandhi, manufacturing employment, Mark Zuckerberg, market design, mass immigration, means of production, meta analysis, meta-analysis, natural language processing, new economy, New Urbanism, nuclear winter, Occupy movement, off grid, oil shale / tar sands, pattern recognition, peer-to-peer, peer-to-peer lending, personalized medicine, phenotype, planetary scale, price discrimination, profit motive, QR code, RAND corporation, randomized controlled trial, Ray Kurzweil, RFID, Richard Stallman, risk/return, Ronald Coase, search inside the book, self-driving car, shareholder value, sharing economy, Silicon Valley, Skype, smart cities, smart grid, smart meter, social web, software as a service, spectrum auction, Steve Jobs, Stewart Brand, the built environment, The Nature of the Firm, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, transaction costs, urban planning, Watson beat the top human players on Jeopardy!, web application, Whole Earth Catalog, Whole Earth Review, WikiLeaks, working poor, zero-sum game, Zipcar

The proposal, which has no provisions for a multistakeholders approach, would have the effect of increasing government control of the Internet.9 The preamble to the proposal states unequivocally that the “policy authority for Internet-related public issues is the sovereign right of States.”10 The private sector is also beginning to stray from the three-party stakeholder alliance, seeking increased income and profits by way of price discrimination—a move that threatens to undermine one of the guiding principles of the Internet: network neutrality, a principle that assures a nondiscriminatory, open, universal Communications Commons in which every participant enjoys equal access and inclusion. The concept of network neutrality grew out of the end-to-end design structure of the Internet, which favors the users rather than the network providers.


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

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Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Bretton Woods, British Empire, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

Rockefeller’s Standard Oil Company, and the United States Steel Corporation, which the financier J. P. Morgan put together after buying out Andrew Carnegie’s business empire. Worries that the new combines were squeezing out smaller competitors and bilking customers led to the introduction of antitrust laws. The Sherman Antitrust Act of 1890 outlawed restraints of trade by existing monopolies and any attempt to create a new monopoly. The Clayton Antitrust Act of 1914 proscribed price discrimination, exclusive dealing contracts, and other predatory tactics that the trusts had used to boost their profits. During the same era, President Theodore Roosevelt (1901–1909) and his successor, William Howard Taft (1909–1913), issued lawsuits to break up more than a hundred of the trusts, including Standard Oil. On paper, the antitrust laws, which remain on the books, were strong pieces of legislation.

Crisis and Leviathan: Critical Episodes in the Growth of American Government by Robert Higgs, Arthur A. Ekirch, Jr.

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Alistair Cooke, clean water, collective bargaining, creative destruction, credit crunch, declining real wages, endowment effect, fiat currency, fixed income, full employment, hiring and firing, income per capita, Joseph Schumpeter, laissez-faire capitalism, manufacturing employment, means of production, minimum wage unemployment, Plutocrats, plutocrats, post-industrial society, price discrimination, profit motive, rent control, rent-seeking, Richard Thaler, road to serfdom, Ronald Reagan, Simon Kuznets, strikebreaker, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, transcontinental railway, union organizing, Upton Sinclair, War on Poverty, Works Progress Administration

Conspiracies in restraint of trade were unquestionably illegal under the common law. 8 But rarely was a giant corporation the sole supplier of a well-defined product or service. More commonly it was an aggressively innovative firm, supplying improved products and reducing its costs of production and its prices, and increasing its share of the market as a result. Unsuccessful competitors complained bitterly that the "monopolists" were driving them to the wall. 9 Customers frequently objected to real or imagined price discrimination. More than anything else, rate discrimination provoked the outrage of midwestern shippers against the railroads. Often the criticism of a big corporation's alleged monopoly power could be deflected by showing that the firm produced better products or services in growing volumes at ever lower prices. But this defense, even if appropriate, did nothing to allay the charge that the great corporations subverted the democratic political process.


pages: 527 words: 147,690

Terms of Service: Social Media and the Price of Constant Connection by Jacob Silverman

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23andMe, 4chan, A Declaration of the Independence of Cyberspace, Airbnb, airport security, Amazon Mechanical Turk, augmented reality, basic income, Brian Krebs, California gold rush, call centre, cloud computing, cognitive dissonance, commoditize, correlation does not imply causation, Credit Default Swap, crowdsourcing, don't be evil, drone strike, Edward Snowden, feminist movement, Filter Bubble, Firefox, Flash crash, game design, global village, Google Chrome, Google Glasses, hive mind, income inequality, informal economy, information retrieval, Internet of things, Jaron Lanier, jimmy wales, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, late capitalism, license plate recognition, life extension, lifelogging, Lyft, Mark Zuckerberg, Mars Rover, Marshall McLuhan, mass incarceration, meta analysis, meta-analysis, Minecraft, move fast and break things, move fast and break things, national security letter, Network effects, new economy, Nicholas Carr, Occupy movement, optical character recognition, payday loans, Peter Thiel, postindustrial economy, prediction markets, pre–internet, price discrimination, price stability, profit motive, quantitative hedge fund, race to the bottom, Ray Kurzweil, recommendation engine, rent control, RFID, ride hailing / ride sharing, self-driving car, sentiment analysis, shareholder value, sharing economy, Silicon Valley, Silicon Valley ideology, Snapchat, social graph, social web, sorting algorithm, Steve Ballmer, Steve Jobs, Steven Levy, TaskRabbit, technoutopianism, telemarketer, transportation-network company, Turing test, Uber and Lyft, Uber for X, universal basic income, unpaid internship, women in the workforce, Y Combinator, Zipcar

“The Insidiousness of Facebook Messenger’s Mobile App Terms of Service.” Huffington Post. Dec. 1, 2013. huffingtonpost.com/sam-fiorella/the-insidiousness-of-face_b_4365645.html. 181 Criticism of LinkedIn: David Veldt. “LinkedIn: The Creepiest Social Network.” Interactually. May 9, 2013. interactually.com/linkedin-creepiest-social-network. 182 “He responded by saying”: Author interview with Franklin Leonard. Oct. 27, 2013. 183 Racist price discrimination: Benjamin Edelman and Michael Luca. “Digital Discrimination: The Case of Airbnb.com.” Harvard Business School working paper. Jan. 10, 2014. www.hbs.edu/faculty/Publication%20Files/14-054_e3c04a43-c0cf-4ed8-91bf-cb0ea4ba59c6.pdf. 184 “We have to have our dark corners”: Chris Heath. “Mad German Auteur, Now in 3-D!” GQ. May 2011. gq.com/entertainment/movies-and-tv/201105/werner-herzog-profile-cave-of-forgotten-dreams. 184 “I welcome it”: ibid. 187 “They’re becoming increasingly wary”: Somini Sengupta.


pages: 444 words: 138,781

Evicted: Poverty and Profit in the American City by Matthew Desmond

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affirmative action, Cass Sunstein, crack epidemic, Credit Default Swap, deindustrialization, desegregation, dumpster diving, ending welfare as we know it, fixed income, ghettoisation, glass ceiling, Gunnar Myrdal, housing crisis, informal economy, Jane Jacobs, jobless men, late fees, mass incarceration, New Urbanism, payday loans, price discrimination, profit motive, rent control, statistical model, superstar cities, The Chicago School, The Death and Life of Great American Cities, thinkpad, upwardly mobile, working poor, young professional

Deborah Devine, Housing Choice Voucher Location Patterns: Implications for Participant and Neighborhood Welfare (Washington, DC: US Department of Housing and Urban Development, 2003); George Galster, “Consequences from the Redistribution of Urban Poverty During the 1990s: A Cautionary Tale,” Economic Development Quarterly 19 (2005): 119–25. 4. Milwaukee Area Renters Study, 2009–2011; US Department of Housing and Urban Development, Final FY 2008 Fair Market Rent Documentation System. 5. Robert Collinson and Peter Ganong, “Incidence and Price Discrimination: Evidence from Housing Vouchers,” working paper, Harvard University and the US Department of Housing and Urban Development, 2014; Eva Rosen, The Rise of the Horizontal Ghetto: Poverty in a Post–Public Housing Era, PhD diss. (Cambridge: Harvard University, 2014). 6. The Milwaukee Area Renters Study offered a unique opportunity to investigate if voucher holders were being overcharged because the sample included assisted and unassisted renters.


pages: 424 words: 121,425

How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy by Mehrsa Baradaran

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access to a mobile phone, affirmative action, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, British Empire, call centre, Capital in the Twenty-First Century by Thomas Piketty, cashless society, credit crunch, David Graeber, disintermediation, diversification, failed state, fiat currency, financial innovation, financial intermediation, Goldman Sachs: Vampire Squid, housing crisis, income inequality, Internet Archive, invisible hand, Kickstarter, M-Pesa, McMansion, microcredit, mobile money, moral hazard, mortgage debt, new economy, Own Your Own Home, payday loans, peer-to-peer lending, price discrimination, profit maximization, profit motive, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, Ronald Reagan: Tear down this wall, savings glut, the built environment, the payments system, too big to fail, trade route, transaction costs, unbanked and underbanked, underbanked, union organizing, white flight, working poor

The irony, they point out, is that these alleged “collusive focal points were provided by the state legislatures.”127 An earlier study had indeed revealed evidence of price collusion among credit card companies Visa and MasterCard in the 1980s to drive up interest rates.128 Not only did the comprehensive payday pricing study show possible price collusion, it also showed discrimination: “The larger data contain stronger evidence of third-degree price discrimination: loan prices were higher in neighborhoods near military bases and in disproportionately minority neighborhoods, consistent with exploitation of price inelasticity among these demographic groups.”129 The study concluded that these prices could be reduced only if banks or other providers of credit could compete in this space. In other words, credit alternatives, not regulation, would drive down prices.


pages: 436 words: 114,278

Crude Volatility: The History and the Future of Boom-Bust Oil Prices by Robert McNally

American energy revolution, Asian financial crisis, banking crisis, barriers to entry, Bretton Woods, collective bargaining, credit crunch, energy security, energy transition, housing crisis, hydraulic fracturing, index fund, Induced demand, interchangeable parts, invisible hand, joint-stock company, market clearing, market fundamentalism, moral hazard, North Sea oil, oil rush, oil shale / tar sands, oil shock, peak oil, price discrimination, price stability, sovereign wealth fund, transfer pricing

For example, nominal midcontinent crude oil prices rose by more than 300 percent between 1914 and 1918, whereas, Chicago gasoline prices rose by less than half that amount.42 While gasoline prices may have been rising less than crude oil and prices of other goods, they caused dislocations in industry and triggered many complaints from all over the country. In Kansas City, meat packers discarded trucks and went back to horse-drawn wagons: “Price of Gasoline Putting Horse Back in Harness Again,” one Indiana newspaper reported.43 Consumers charged gasoline prices were excessively high and that refiners and other were practicing price discrimination. The uproar began in 1915 and triggered Senate resolutions and an investigation by the Federal Trade Commission (FTC). The FTC concluded prices were “necessarily and naturally somewhat higher” in 1915 due to surging demand outpacing production, requiring inventory draws.44 Though the Commission cautioned that it was not clear how much higher gasoline prices should have been based on market conditions.45 Rising pump prices sparked rumors of pending bigger price jumps and shortages.46 In 1918 car dealers placed ads in newspapers to ensure their customers that gasoline production and inventories were adequate and “kill this gasoline shortage myth.”47 Motorists were outraged and officials launched investigations of industry practices, especially on the West Coast where actual shortages developed.48 “Gasoline prices follow crude,” Standard Oil of Indiana tried to explain to the public in 1920, promising it was “straining every fibre of its highly specialized [refining] organization to meet [gasoline] demand.”49 In June, 1920 the Federal Trade Commission again reported to Congress that rising gasoline prices were due “more to varying conditions of supply and demand in the light of emphasized and pessimistic statements as to the future supply than to a combination in restraint of trade.”50 This was the second such FTC investigation prompted by rising gasoline prices but certainly was not the last.


pages: 1,106 words: 335,322

Titan: The Life of John D. Rockefeller, Sr. by Ron Chernow

California gold rush, collective bargaining, death of newspapers, delayed gratification, double entry bookkeeping, endowment effect, family office, financial independence, Frederick Winslow Taylor, George Santayana, God and Mammon, income inequality, invisible hand, Joseph Schumpeter, Louis Pasteur, Mahatma Gandhi, Menlo Park, New Journalism, oil rush, oil shale / tar sands, passive investing, Plutocrats, plutocrats, price discrimination, profit motive, Ralph Waldo Emerson, refrigerator car, The Chicago School, Thorstein Veblen, transcontinental railway, traveling salesman, union organizing, Upton Sinclair, white picket fence, yellow journalism

Senior’s behavior guaranteed that anxiety over the fortune’s legitimacy would spread to his descendants, strengthening their guilty consciences. In his thesis, Nelson, coached by Inglis, flatly denied that Standard Oil ever drove competitors from business unfairly. “These companies were treated with extreme fairness and in many cases with generosity,” he wrote, dismissing as mythical that Standard Oil had amassed power “through local price discrimination, bogus independents and espionage.” 32 In 1929, Nelson turned twenty-one on the same day that Rockefeller reached ninety. “The 90 makes my 21 seem mighty small and insignificant,” he wrote his parents, “just like a little sapling standing by a mighty fir. But the sapling still has time to grow and develop and someday it might itself turn into a tree of some merit. Who knows?”33 Nelson leaped at any chance to golf with Rockefeller in Florida and was an attentive audience for his yarns and witticisms.