BusinessInsider: How airfares are decided

Just in case like everyone in the world you're trying to game airfare pricing - a few bits of useful information particularly this passage (BusinessInsider):

[Q:] Why is it that sometimes I can wait until the last minute and find a cheap fare, but other times the fare goes up?

Well, most of the time the fare will go up because the flight will be filling up or the advance purchase restrictions will be kicking in. But on routes with significant competition -- New York to Los Angeles for example -- airlines may have sales or "dump seats" at the last minute to fill the plane if it's not particularly full. It also depends on the day of the week. Tuesday, Wednesday and Saturday are often the cheapest days to fly because we carry fewer business passengers those days.

Update: So apparently a recent study shows how prices fluctuate prior to flights with a few consistent patterns (HuffingtonPost)

Fifty-four days before takeoff is, on average, when domestic airline tickets are at their absolute lowest price. And if you don’t hit 54 days on the head, you should usually book between 104 to 29 days before your trip -- within the “prime booking window” -- for the lowest possible prices. In this window, ticket prices typically hover within $10 of the lowest price they’ll ever reach. [...]

If you’re going somewhere incredibly popular at an incredibly popular time -- like spring break in Florida, for example -- you should book well before the “prime booking window” begins. When there’s constant, strong demand for a flight, the researchers explain, airlines have no incentive to lower ticket prices as time goes on. The same principle holds true for flights to hard-to-reach airports in small cities: there’s little airline competition here, so ticket prices don’t drop nearly as much over their lifespan.

Foreign countries are incredibly popular destinations with hard-to-reach airports, so the researchers suggest booking much earlier than the 54 days recommended for domestic flights.

Here are the “magic numbers” for some common international destinations:

Europe: 151 days before your flight
Asia: 129 days before your flight
The Caribbean: 101 days before your flight
Mexico: 89 days before your flight
Latin America: 80 days before your flight

Redfin: Not all industries can be revolutionized with just an app

Doing research for something else, I came across this profile of Redfin blending technology with people working through the challenges of scaling both while realigning incentives in a broken industry (WSJ):

If you're touring a neighborhood and see a house for sale, you can order up a Redfin agent to drive over to show you the property quickly. In the company's most-established markets, Seattle, for instance, the agent can be at your service within an hour. (It takes longer in Redfin's newer markets, like Dallas). This works thanks to a blend of technology and management. Just as the Uber online ride service maps its drivers, Redfin keeps track of its agents' calendars and real-time locations. Unlike a traditional real-estate brokerage—in which agents essentially are contractors of a brand, not employees—Redfin's agents are salaried workers. The company can tell them where to go and what to do.

Redfin helps soothe other home-buying frustrations as well. Redfin compiles detailed histories on competing brokerages' pricing strategies, strengthening Redfin agents' negotiating prowess. Redfin also conducts most of the home-buying process online, reducing paperwork. And if you're selling your house, Redfin can test offer prices on the Web, helping you to home in on the optimal price.

The biggest opportunity is price. Mr. Kelman says the incentives of traditional real-estate agents are misaligned with those of customers. If you're selling your house, your agent, who gets paid on commission, will prefer that you take a lowball offer over no offer. If you're buying, your agent will want you to bid higher than you might otherwise want—or need—to pay. Economists call this the Principal-Agent Problem, and it has proved stubbornly intractable in real estate.

Mr. Kelman says Redfin has a solution. About half a typical Redfin agent's pay comes through salary. The rest comes through commissions. But crucially, commissions are linked to detailed reviews that Redfin customers complete after sales. The reviews are posted online and affect each agent's future business. Your agent always has an incentive to please you. If pushing a client to close a deal will produce a bad review, the agent would rather not close.

Winner takes all: how technology is driving returns to talent

An article that could provide some of the clues of why inequality is growing as it "enable[s] the best producers to extend their reach" (NYT via GregMankiw):

Analogous forces help explain the surge in income inequality that began in the late 1960s. In domain after domain, we reasoned, technology has enabled innovative business models to serve broader markets. Local accountants have been displaced by tax software, brick-and-mortar shops by Amazon.com and other online retailers. And now, there is even worry that live, in-theater HD broadcasts of Metropolitan Opera performances could displace local opera companies across the land.

But similar advances in production and distribution methods also exert countervailing effects. As the former Wired magazine editor Chris Anderson explained in his 2006 book, “The Long Tail” (the title refers to a property of statistical distributions), digital technology has made music, books, movies and many other goods economically viable on a much smaller scale than before.

For example, films once generated revenue only by mustering large-enough audiences to justify screenings in theaters. Many niche offerings, like Hindi-language movies in medium-size American cities, were simply not viable. Services like Netflix, however, changed all that. Because digital movies cost next to nothing to ship, people can now watch them without having to assemble a posse of ticket buyers.

"The automation doesn’t replace us. It makes us better."

From Wired: What UPS Drivers Can Tell Us About the Automated Future of Work:

Many of us are a lot like UPS drivers in our daily lives: The only difference is we spend our days shepherding virtual bits between destinations rather than driving physical boxes around. But we still face many of the same prioritization and optimization challenges.

Yet one of the biggest misconceptions about software-enabled decision making is the idea that it’s far removed from us. Many people think of data as something technical that only accountants, warehouses, data scientists, or the latest slew of tech technology-as-a-coach startups need to worry about. We don’t recognize the strategic connection between information collection and decision making, or see how data can help increase our own performance.

This skepticism was in evidence during UPS’s first roll out of ORION. In hindsight, Levis admits that he bears some of the blame for that. “We’d go in the morning and say, here’s your planned number of miles,” he recalled. Telling a driver with years of experience that an algorithm knew how to plan a route better than he did struck them as more than a little dismissive.

Levis’s team decided to change approaches and tackle the drivers’ resistance head-on by issuing a challenge: “beat the computer” by combining ORION’s suggestions with their own. One driver who used ORION’s suggestions ended up subtracting 30 miles from his daily route.

Profile of Elizabeth Holmes, founder of Theranos

Inspired (Wired):

Even the word sounds archaic—and that’s nothing compared to the slow, expensive, and inefficient reality of drawing blood and having it tested. As a college sophomore, Elizabeth Holmes envisioned a way to reinvent old-fashioned phlebotomy and, in the process, usher in an era of comprehensive superfast diagnosis and preventive medicine. That was a decade ago. Holmes, now 30, dropped out of Stanford and founded a company called Theranos with her tuition money. Last fall it finally introduced its radical blood-testing service in a Walgreens pharmacy near the company headquarters in Palo Alto, California. (The plan is to roll out testing centers nationwide.) Instead of vials of blood—one for every test needed—Theranos requires only a pinprick and a drop of blood. With that they can perform hundreds of tests, from standard cholesterol checks to sophisticated genetic analyses. The results are faster, more accurate, and far cheaper than conventional methods. The implications are mind-blowing. With inexpensive and easy access to the information running through their veins, people will have an unprecedented window on their own health. And a new generation of diagnostic tests could allow them to head off serious afflictions from cancer to diabetes to heart disease. None of this would work if Theranos hadn’t figured out how to make testing transparent and inexpensive. The company plans to charge less than 50 percent of the standard Medicare and Medicaid reimbursement rates. And unlike the rest of the testing industry, Theranos lists its prices on its website: blood typing, $2.05; cholesterol, $2.99; iron, $4.45. If all tests in the US were performed at those kinds of prices, the company says, it could save Medicare $98 billion and Medicaid $104 billion over the next decade.

Kenya's "first mockumentary" takes aim at the NGO world

A script that can ring far too close to home for those who have worked in the NGO space (Africascountry.com via FB):

Labs in free(er) markets

Walter Russell Mead posts on the new Pacific Alliance - an economic pact between Mexico, Peru, Chile, and Colombia (and coming soon: Costa Rica) that Mead "has the potential to recolor Latin America’s economic map and introduce some new regional powerhouses to the world stage" (via Instapundit):

The newly formed bloc is made up of Latin America’s fastest growing economies. These states boast the region’s most competitive, business-friendly economies and the lowest inflation rates. Current transactions between these countries represent a mere 4 percent of their total trade; the potential for increased financial cooperation is immense. They have already eliminated 92 percent of trade tariffs.

Meanwhile, Reason.com discusses a meta-study on American state taxation and regulation:

Of the 112 academic studies we found on overall state or local tax burdens, for example, 72 of them-64 percent-showed a negative association with economic performance. Only two studies linked higher overall tax burdens with stronger growth, while the rest yielded mixed or statistically insignificant findings.

On smaller categories of taxation, the trend was similar: There was a negative association between economic growth and higher personal income taxes in 67 percent of the studies. The proportion rose to 74 percent for higher marginal tax rates or tax code progressivity, and 69 percent for higher business or corporate taxes.

Some of the strongest negative results appeared when scholars were able to isolate policy variables from background effects. For example, a 1996 study in the American Economic Review exploited the fact that some foreign countries gave domestic tax credits to companies that pay taxes in the United States, so those companies would be expected not to care much about state tax rates. In other countries, companies didn't receive such credits and would thus be subject to greater variation in state tax burdens. By looking at the behavior of firms based on their home country, author James Hines of the University of Michigan found that "state taxes significantly influence the pattern of foreign direct investment in the U.S." A 1 percent change in the tax rate was associated with an 8 percent change in the share of manufacturing investment from taxed investors.

People respond to incentives: ABBA edition

From the National Post: ABBA singer says group wore outlandish costumes to avoid tax: ‘Nobody was as badly dressed as we were’.

When it comes to forecasting the economy, entrepreneurs don't have an "optimism bias"

Unfortunately this ability to forecast accurately, doesn't hold true to our own businesses (HBR):

The researchers drew on survey data from 1996 to 2009 asking Swedish citizens whether the Swedish economy had improved from 12 months prior, as well as whether they believed it would improve in the 12 months ahead. Not surprisingly, entrepreneurs — defined as those self-employed — were more optimistic in both cases, and this relationship held even once gender, age, education, and income were accounted for.

To examine whether this amounted to an actual bias, the researchers then compared these answers to changes in GDP to assess the accuracy of respondents’ beliefs. “Entrepreneurs make smaller forecast errors than non-entrepreneurs,” the authors write, a finding that once again held when gender, age, education, and income were taken into account.

Perhaps the biggest contribution of this research is the simple reminder that just because someone is optimistic, that doesn’t mean they’re wrong. Though pessimists tend to claim the mantle of “realism” to justify their beliefs, in some cases it’s actually the optimists who deserve the title. There remains evidence that entrepreneurs are unrealistically optimistic when it comes to the fate of their own businesses, but in terms of the economy, their optimism has historically been justified.

Changing how pharmaceutical drugs are delivered

Introducing PillPack (Wired via Instapundit):

A startup pharmacy called PillPack hopes to change this archaic process. For $20 a month, PillPack will deliver prescription drugs to patients with the efficiency of Amazon Prime. Pillpack came to life thanks to a new incubator program at the famed design consultancy IDEO and the core of their service is a small blue box that organizes all of your med into “dose packets,” little plastic baggies marked with the date and time they’re to be taken. A jumble of amber bottles are replaced by an efficient to-do list made of drugs. [...]

The technical backbone of PillPack is a suite of drug-dealing robots. A large, beige machine in PillPack’s New Hampshire office is filled with a cornucopia of curatives which are dispensed into the plastic packets. The strip of dose packs is then fed through another robot that reviews each plastic packet for quality control purposes before a team of pharmacists double check the prescriptions and send them off to patients.[...]

Despite his desire to get his hands dirty designing, Parker knew that his skills weren’t commensurate with the task at hand. In return for equity in the company, IDEO’s Boston office incubated the startup, providing key feedback on everything from the sign up experience on the website to the packaging details while the company was at its formative stage.

Does "doing what you love" devalue work and hurt workers?

Apparently... though I'm not sure I agree with the definitions here. The basic argument is that the value in work is reflected not in self actualization but how well it serves others. But why can't you love solving the problems others have? And wouldn't it be far more efficient and sustainable to love doing so? (Slate via Instapundit)

There’s little doubt that “do what you love” (DWYL) is now the unofficial work mantra for our time. The problem with DWYL, however, is that it leads not to salvation but to the devaluation of actual work—and more importantly, the dehumanization of the vast majority of laborers.

Superficially, DWYL is an uplifting piece of advice, urging us to ponder what it is we most enjoy doing and then turn that activity into a wage-generating enterprise. But why should our pleasure be for profit? And who is the audience for this dictum?

DWYL is a secret handshake of the privileged and a worldview that disguises its elitism as noble self-betterment. According to this way of thinking, labor is not something one does for compensation but is an act of love. If profit doesn’t happen to follow, presumably it is because the worker’s passion and determination were insufficient. Its real achievement is making workers believe their labor serves the self and not the marketplace. . . . If we believe that working as a Silicon Valley entrepreneur or a museum publicist or a think-tank acolyte is essential to being true to ourselves, what do we believe about the inner lives and hopes of those who clean hotel rooms and stock shelves at big-box stores? The answer is: nothing.

But as Glenn Reynolds points out - "Well, there’s work, and then there’s work. Work need not be self-actualizing to be valuable, to the worker and to others. But even when you love your work as much as I love mine, there are days when you’d really rather just stay in bed."

Are American tech startups endangered?

Apparently, and alarmingly (WashingtonPost).

Why they're complaining about Amazon

The real reason why they're complaining about Amazon (AuthorEarnings via Instapundit):

What this chart shows is that indie and small-publisher titles dominate the bestselling genres on Amazon. We can clearly see that the demand from readers for more of these works is not being fully met by traditional publishing. . . . Some obvious things immediately jump out. The first is that Amazon has an incredible ability to market their own works, which shouldn’t be too surprising, considering it’s their storefront. We see from this and the previous chart that their 4% of titles command an amazing 15% of the sales. That’s impressive. It’s nearly 4 times the average unit sales volume per book. Now look at the Big Five, who with all their marketing efforts and brand recognition actually end up with pretty average per-book sales: a mere 1.2 times the overall average. The other eye-popper here is that indie authors are outselling the Big Five. That’s the entire Big Five. Combined. Indie and small-press books account for half of the e-book sales in the most popular and bestselling genres on Amazon. . . . Indie authors are earning nearly half the total author revenue from genre fiction sales on Amazon.

Burning out

Nope, it's not about me. I think there are a few solutions to this - a deep and strong sense of purpose, someone to balance you off, and other activities like CrossFit for release... but this is a "cautionary tale" (FourHourWorkWeek):

It’d be very easy for me to manufacture a villain in this story. I could tell you that I was pushed too hard, or that no one cared about how I felt. But that’s not the truth. I was the one who chose to stay up until 4:00AM. I was the one pouring caffeine down my throat four times a day. I was the one who secretly ordered brain pills. I was the one who isolated myself from friends and kept my feelings hidden. Everything I did that fueled my anxiety was my choice.

The truth is that all of my emotional issues would have unfolded for me at some point in my life, regardless of whom I was working with. I was the creator of my own anxiety, and I was the one who broke myself with my workaholic habits. I just didn’t recognize how destructive my behavior was because I thought it was normal.

Update - more on dealing with overwhelming amounts of work (FourHourWorkWeek).

The 1,000 hour rule for would be entrepreneurs

Pretty good advice... being an entrepreneur is a marathon, not a sprint (Lifehacker):

I was chatting with my friend David from Greenback Tax Services the other day about these misconceptions. I said: "people don't understand they need to be poor for 1000 days." Our basic hypothesis: you'll be doing worse than you were at your job for 1000 days after you start your muse business.

I've seen it happen a bunch of times. For many of us it's been almost exactly those 1000 days it took for us to get back to the level of income we enjoyed in our corporate days.

The whining of an elitist gatekeeper

The New Yorker publishes what amounts to a long whine over Amazon's effect on empowering consumers:

At the moment, those people are obsessed with how they read books—whether it’s on a Kindle or an iPad or on printed pages. This conversation, though important, takes place in the shallows and misses the deeper currents that, in the digital age, are pushing American culture under the control of ever fewer and more powerful corporations. Bezos is right: gatekeepers are inherently élitist, and some of them have been weakened, in no small part, because of their complacency and short-term thinking. But gatekeepers are also barriers against the complete commercialization of ideas, allowing new talent the time to develop and learn to tell difficult truths. When the last gatekeeper but one is gone, will Amazon care whether a book is any good?

I'll volunteer an answer: No. Why should they? Why does the author think that commercialism and letting consumers decide for themselves whether a book is worth their time such a bad thing?

Further, Amazon has power only because consumers have given it to them because they trust Amazon - a trust that is earned but also easily taken away. The technology that has given consumers that empowerment is so easily replicated - so how powerful is Amazon when it comes to the "control of American culture", really?

Counterpoint: is the yuan overvalued?

While I think that often the people who hope for a substantial yuan appreciation have little understanding of what that will mean for them, I'm not sure this thesis is quite on the mark either... but it's tough to say what will happen as capital controls lessen in China (WSJ):

“The free movement of capital is much more likely to result in Chinese capital outflows exceeding inflows, pushing the yuan down and domestic interest rates up,” Ms. Choyleva wrote in the report.

That chimes with estimates by Tamim Bayoumi and Franziska Ohnsorge of the International Monetary Fund. In a paper published last year, they argued that although capital-account opening would lead to massive flows in both directions, outbound capital would dominate. Net outflows could be as much 11% to 18% of China’s GDP, they estimated. That would put downward pressure on the currency.

A weaker yuan would reinvigorate China’s flagging export sector but push up the cost of imports, holding back the transition from a growth model turbocharged by high rates of investment to one that serves consumers.

An intervention in development that works?

Educating local residents on how to resolve property rights disputes and providing alternatives in countries with weak rule of law has reduced violence - Chris Blattman quoting a paper he did with Alex Hartman and Rob Blair:

Dispute resolution institutions help reach agreements and preserve the peace whenever property rights are imperfect. In weak states, strengthening formal institutions can take decades, and so state and aid interventions also try to shape informal practices and norms governing disputes. Their goal is to improve bargaining and commitment, thus limiting disputes and violence.

Mass education campaigns that promote alternative dispute resolution (ADR) are common examples. We study short-term impacts of one such campaign in Liberia, where property disputes are endemic. From 246 towns, 86 randomly received training in ADR practices and norms, training 15% of adults.

One year later, treated towns have higher resolution of land disputes and lower violence. Impacts spill over to untrained residents. We also see unintended consequences: more extrajudicial punishment and (weakly) more non-violent disagreements. Results imply mass education can change high-stakes behaviors, and improving informal bargaining and enforcement behavior can promote order in weak states.

The real public servants

James Huffman at Hoover via Instapundit:

Tocqueville recognized what nineteenth-century Americans understood and practiced—the public good is served by the individual pursuit of ‘self-interest well understood.’ Among our most public-spirited citizens are those who work with others, without the intervention or aid of government, in creating and sustaining the businesses upon which our economic and social prosperity rest. We should celebrate their public service.

The robots that saved Pittsburgh

A fascinating article on the re-emergence of Pittsburgh (Politico via Justin on fb).

People respond to incentives: American healthcare edition

From the Congressional Budget Office (via Greg Mankiw):

CBO estimates that the ACA [Affordable Care Act] will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.

To which Greg Mankiw adds:

Implicit in this estimate are elasticities that measure how much people respond to incentives. My sense is that CBO is typically conservative when it come to gauging these incentives effects. So I would take their estimate of the impact on hours worked as a lower bound. The actual figure may be higher.

Overwork and productivity

I've been realizing that I have to do better at defining boundaries between work and play - or at least different levels of work/play to avoid burnout (New Yorker via GTD):

The perplexing thing about the cult of overwork is that, as we’ve known for a while, long hours diminish both productivity and quality. Among industrial workers, overtime raises the rate of mistakes and safety mishaps; likewise, for knowledge workers fatigue and sleep-deprivation make it hard to perform at a high cognitive level. As Solomon put it, past a certain point overworked people become “less efficient and less effective.” And the effects are cumulative. The bankers Michel studied started to break down in their fourth year on the job. They suffered from depression, anxiety, and immune-system problems, and performance reviews showed that their creativity and judgment declined.

On the effects of for profit micro-lending (at Compartamos, Mexico)

Ever since its public offering, there's been a debate on the supposed morality of the profitability of Banco Compartamos (CGAP) to which I offer three points:

1. Compartamos' clients chose (ie but weren't forced to use) Compartamos, not their competitors
2. Compartamos grew dramatically faster than their competitors because they were tremendously profitable and reinvested those profits.
3. Given Compartamos' interest rates were competitive with others, it isn't Compartamos that should be held accountable, but their supposed not-for-profit competitors who have chosen to divert profits towards expanding bureaucracies, lavish management compensation packages or highly unprofitable business models.

From a recent study on the effects of microfinance loans from Compartamos on their clients (PDF from Poverty-Action.org via Freakonomics):

Our results suggest modest but generally positive average effects on our sample of borrowers and prospective borrowers. We make five broad inferences. First, increasing access to microcredit increases borrowing and does not crowd-out other loans. Second, loans seem to be used for both investment—in particular for expanding previously existing businesses—and risk management (through a reduction in asset fire sales). Third, there is evidence of positive average impacts on business size, reliance on/need for aid, lack of depression, trust, and female decision making. Fourth, there is little evidence of negative average impacts: the only “negative” impacts are reductions in asset purchases and temptation goods, and these results have normatively positive or neutral interpretations as well. Fifth, the positive effects are not sweeping or transformative. Although some of the AIT effects are economically large, and all of the statistically significant effects are likely large in treatment-on-the-treated terms, we find statistically significant effects on only 12 of the 35 more-ultimate outcomes we evaluate, and no positive effects on household/business income, consumption, or wealth.

These results, taken together with a paper showing strong price elasticities of demand for Compartamos credit (Karlan and Zinman 2013), contribute to a strong business and policy case for lowering interest rates: profits do not decrease, and social impact presumably increases (slightly). One missing piece for this case is evidence on heterogeneous treatment effects. If average impacts mask dispersion where some (potential) borrowers are much better off and others worse off, this would have important implications for modeling and policy concerned with the effects of expanded access to credit on inequality. We are undertaking further research to identify the presence or absence of heterogeneous treatment effects from Compartamos credit and hope that others will pursue similar inquiries in other settings.

I'd add a few additional thoughts. There has been tremendous pressure on Compartamos to reduce its interest rates but as this study suggests, the social impact of decreasing those rates would be "slight":

• Wouldn't this mean that forgoing that additional profitability would mean fewer people would be served?
• Does the "slight" improvement offset the benefits the additional borrowers that would otherwise be served?