Monthly Archives: April 2007

The Black Swan

Naill Ferguson writes:

Journalists’ efforts to explain the Virginia Tech massacre perfectly illustrate one of the central points of an idiosyncratically brilliant new book by Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable (Penguin/Allen Lane). Having been completely caught out by some random event, we human beings are wonderfully good at retrospectively predicting it. In reality, however, Cho was what Taleb calls a “Black Swan”.

Why a black swan? Taleb’s starting point is what philosophers call the problem of induction. Suppose you have spent all your life in the northern hemisphere and have only ever seen white swans. You might very well conclude (inductively) that all swans are white. But take a trip to Australia, where swans are black, and your theory will collapse. A “Black Swan” is therefore anything that seems to us, on the basis of our limited experience, to be impossible.

Read the whole thing.

Also, listen to Taleb’s conversation with Russ Roberts here.

Huge Trade Debate

The economics blogosphere is buzzing with a debate about whether free trade really lowers prices — and the debate spreads from there.

Mark Thoma has the links here and here.

UPDATE: Alex Tabarrok weighs in as well.

Size Matters

A lesson for baseball fans on sample size (among other things) from the folks at Fire Joe Morgan.

The Economics of Reality TV

Austan Goolsbee explains:

Yet I can seldom get past the question of how we got here — how America lost interest in scripted shows and came to embrace all manner of reality television and its who-sang-what-song, who-ate-what-bug ethos.

Some say it’s just that people now lack the attention span for old-style television or that our tastes have changed.

Most insiders point out that reality shows cost much less to make than scripted shows, and, they argue, this is just a profit play by the broadcast networks.

But that does not explain why reality shows did not take over television long ago — why, back in the day, “Star Search” never became “American Idol.” Surely the broadcast networks wanted to save money back then, too.

In his book “Switching Channels” (Harvard University Press, 2005), Richard E. Caves, the don of entertainment economics and professor emeritus at Harvard, blames (or credits, depending how old you are) cable and satellite providers and the way they have changed the broadcast networks’ incentives to invest in programming.

Read the whole thing.

Federal Insurance

More from Steven Landsburg:

If the government forced us all to buy lottery tickets against our will, and if the news media carried big feature stories on the lottery winners, a naive viewer might think the government had done us all a favor. Currently, the government forces us all to buy (implicit) disaster insurance against our will, and the news media carry big feature stories on the people who collect that insurance. A naive viewer might think the government had done us all a favor. But surely no reader of the Volokh Conspiracy could be so naive.

Read the whole post.

Middle-class myths

David Leonhardt writes:

There are two different stories people tend to tell when they’re trying to explain why the middle class is feeling squeezed.

The first one is about inequality. The top 0.1 percent of earners — that’s one taxpayer out of every 1,000 — now brings in 11 percent of the nation’s total income, triple the share that they did just a generation ago. This has happened because the rich have grown ever richer, while the pay of rank-and-file workers hasn’t risen much faster than inflation.

What this fails to address is that the middle-class is not a constant. In other words, these are not the same individuals and households as a generation ago.

Leonhardt does dispel the other common myth:

The second, related story is about instability. Layoffs seem to happen more frequently than they once did, and these job losses — combined with the spread of bonus pay — have caused workers’ incomes to bounce around a lot more than in the past. So not only have middle-class families been getting meager raises, their finances have also become more volatile.

[...]

If you read the C.B.O. report, you can tell that its authors knew they were dealing with a delicate subject. The summary starts by noting that a “significant number of workers experience substantial variability in their total wage earnings,” which is certainly true. Only later do you come to the surprising part: there is the same amount of variability now that there was in the 1980s and 1990s. In journalism, this is known as burying the lead.

Dow 13,000