I’m very deadline driven. So much so that I go to truly ridiculous lengths to impose deadlines on myself. The truly ridiculous lengths are needed, of course, because self-imposed deadlines are notoriously prone to getting weaseled out of. There’s another kind of deadline that is also notoriously prone to getting weaseled out of: instructor-imposed deadlines. It’s a sad fact of academia: Students with too much self-respect to ask for special treatment are penalized relative to those who do. In other words, you can get away with murder by whining to the instructor. As an instructor it’s very hard to neutralize the whining strategy without feeling like a heartless jerk.

Why Deadlines? [1]

You may well ask why instructors should penalize late submissions at all. First, it’s just a practical issue for the instructor: you don’t want to grade everything at the end of the semester. But more importantly, it induces the students to spread their effort out over the whole term. The best instructors I know maximize the number of intermediate deadlines. Here’s how David Reiley put it:

When my students have a term paper, I give them a deadline to turn in a proposal, a deadline to turn in a first draft and share with their classmates, and a deadline for their final version. They learn a lot more that way. Same thing with giving them nearly weekly problem sets instead of just a midterm and final.

And the best students understand this, too. Dan Ariely describes in his book, Predictably Irrational, an experiment with his students relating to deadlines and commitment devices that drives home the point. The setup is that he let his students pick their project deadlines for the whole semester. Once they were picked the students would fail if they didn’t meet them. So rationally they should choose all the deadlines to be on the last day, to maximize flexibility. But you won’t be surprised by the punchline: Students who precommitted to spaced-out deadlines did better.

The key is to reduce the burstiness of effort. Especially enterprising students can overcome their procrastinating natures on their own, given the right tools.

Late Day Budgets

Now that we’ve established that deadlines are good, let’s get back to the problem of being sensitive to the need to occasionally miss them without having to stray from a universal policy. A common solution is to deduct points for each late day. Such a policy, however, requires rather harsh penalties (e.g., 1/2 grade off per day late) in order to ensure assignments are not turned in weeks late. An alternative is to give every student a budget of free late days to be used throughout the course. With this built in flexibility, students can use their allocation of late days without offering up any excuses. But that solution only goes so far. You’ll occasionally have students who run out of late days but still feel they have a good excuse, or who miss the deadline by just a little and argue that it shouldn’t count as one of their late days. Just being day-based means you’ll end up having to make judgment calls (or be draconian) about when exactly the transition from n to n+1 days late happens.

“It’s socially inefficient!”

And there’s an even bigger problem with the late-day budget. It’s socially inefficient! Students are incentivized to be conservative with their late days early in the semester and then have late days to burn at the end. What you really want is efficient late submitting: students should take only as much extra time as they need (to a point).

A Graduated Penalty Function [2]

Here was my solution to this problem, from the syllabus of the last class I taught:

If an assignment is late by t seconds then the score will be adjusted by multiplying by $$1-\left(\frac{t}{7\cdot 24\cdot 60\cdot 60}\right)^4$$ which is just \(1-t^4\) if \(t\) is measured in weeks. This policy is applied totally automatically based on the submission timestamp. Note that within two days of the deadline less than 1% — \((2/7)^4\) — of the points are lost so the late policy can be treated as having essentially a 2-day grace period for every assignment. Because of that built-in leeway, the only exceptions will be for serious emergencies. Most excuses will not warrant a manual override of the late policy. Once the nominal deadline has passed, no resubmissions will be allowed. So when submitting during the variable penalty period, check over your submission carefully.

Note that the multiplier is zero after exactly one week. The reason for not allowing resubmissions after the nominal deadline is that otherwise you couldn’t start grading until a week later, when all the points are gone.

The beauty of this late policy is that you never have to make judgment calls — where you end up rewarding whining — yet you don’t have to feel like you’re being anal and inflexible. There’s more automated flexibility built in than with a late-day budget. And by eliminating the discontinuities in the penalty at the day boundaries, there’s no such thing as quibbling about what fluke technical difficulty delayed submission at some critical moment. Most importantly, with a late penalty that starts out negligible and gradually, smoothly transitions to severe, students are incentivized to target the nominal deadline and take as much additional time as they truly need, subject to the constraint that you don’t have to worry about stragglers beyond a week. And despite what is essentially a 2-day grace period on every assignment, I found that most students met the nominal deadline.

Footnotes

[1] Some pedagogy nerds may object that late penalties, by reducing grades due to lateness, make grades less reflective of what was truly learned. That’s true, but the failure to spread work out harms actual learning so harming the meaningfulness of the grades is a small price to pay.

[2] The sort of Messy Matters readers who read our footnotes may be wondering why Beeminder doesn’t use a graduated penalty function. In some sense it does, in that you go from the green zone to the blue zone (right lane of the yellow brick road) to the orange zone (wrong lane of the yellow brick road) to the red zone (emergency day) before finally getting charged for going off track. But it’s true that the penalty incurred for derailing happens all at once at a certain time. That may be draconian but it’s exactly what Beeminder users are signing up for. Still, it’s not a bad idea! I hadn’t actually considered it till writing this blog post, which I intended to be entirely unrelated to Beeminder!

Ironically fitting illustration by Kelly Savage.
Thanks to David Reiley, Sharad Goel, Bethany Soule, Nicci Nunes, and Kevin Lochner for comments.

This article is cross-posted on the Beeminder Blog.

The problem of self-control may be a ridiculous first world problem but it’s the granddaddy of first world problems and I want to solve it. We live amidst a deluge of opportunities for instant gratification, especially in the form of food and entertainment, and most of us don’t handle it well. The general problem, known as akrasia, is this: you understand your own best interests when you consider them dispassionately, but in the moment your decision-making is distorted. The best time for, say, a workout is always “tomorrow”. And the best time to start working is after “just one more” clip of [redacted; save yourself!] on YouTube. Knowing that the problem boils down to time scales (hyperbolic discounting) implies the fundamental solution: commitment devices. For example, many people buy cost-inefficient individual-sized packs of cigarettes or candy, paying a premium to throttle their future consumption. Deleting games from your computer or going somewhere without internet access to get work done is another common example. You need to lock yourself in to your chosen course of action, like maintaining a healthy weight, eating right, or getting blog posts written every month.

The last time I wrote about this topic on Messy Matters, 1.4 years ago, we included a straw poll with a slew of commonly used commitment devices. As I pointed out then, the tricks and lifehacks on that list are surprisingly toothless — they’re mostly band-aid solutions. Economists have been wondering for at least half a century why we don’t see more serious use of commitment devices in the real world. But they’ve had an answer for equally long. As Robert Strotz speculated in 1955 [1], the reason is risk and uncertainty, “both as to future tastes and future opportunities.” [2] This should be obvious to Messy Matters readers. We sometimes call it the Principle of Delayed Commitment: the simple decision-theoretic fact that you shouldn’t commit to a course of action until you have to. Flexibility is valuable; laziness is a virtue. For example, you shouldn’t toggle the state of the toilet seat after you use it because you don’t know what state the next person will want it in. What if you expend the effort toggling only to have the next person to use the bathroom, perhaps you, toggle it right back? Such waste! I’m sure I’m preaching to the choir here. [3] Or take going to the gym. You shouldn’t pay for a membership if you can, for a similar price, pay as you go. After all, in the future you may decide not to go to the gym, making pay-as-you-go cheaper, in expectation.

“Two forms of irrationality can cancel each other out”

But you know where this is going. Yes, you might well decide not to go to the gym, but it probably won’t be a rational decision. The solution, ironically, is more irrationality. Commitment devices blatantly violate the principle of delayed commitment, removing future flexibility for no reason other than to thwart your future self. But if that impetuous version of yourself will undermine your own goals (such as getting in shape) then that’s quite rational from your current perspective. Two forms of irrationality can cancel each other out. Which is to say that if you irrationally over-weight immediate consequences — if you’re akratic — then you should “irrationally” pre-commit.

A gym membership is a literal commitment contract, albeit a weak one. It turns the gym fees into a sunk cost, committing you to pay whether you visit the gym or not. Commitment devices may be an old idea but they’re enjoying a technology-fueled renaissance in the form of a crop of new web services. GymPact had the clever idea to give the standard gym membership commitment contract more teeth, by charging an additional fee for missing workouts. StickK.com — a pioneer in bringing commitment devices to the web — generalized the idea and offers commitment contracts on anything you can (pre)specify. Fighting irrationality with irrationality is easier than ever.

But we’d like to make those two irrationalities cancel each other out while minimizing the collateral damage. In other words, bind yourself with a commitment device that thwarts your akrasia while retaining maximum flexibility as to future tastes and future opportunities. [4]

The Akrasia Horizon

Here’s a now well-tested way to do that, by focusing on data tracking:

Akrasia Horizon: The time horizon beyond which you can make rational decisions, undistorted by akrasia

1. Retain the flexibility to change your contract in light of new information [5] (like, 40 hours of actual focused work per week is damn hard!). That sounds like it defeats the point of a commitment contract, but recall the fundamental problem of akrasia: over-weighting immediate consequences. To beat akrasia you only need to bind yourself for whatever the horizon on “immediate” is. Based on a study on grocery-buying habits — when buying groceries online for delivery tomorrow people buy a lot more ice cream and a lot fewer vegetables than when they’re ordering for delivery next week — and our own accumulating evidence, we’re taking that akrasia horizon to be one week.

2. Just commit to progress. You don’t have to know what you’re committing to when you commit, which also sounds (oxy)moronic but what I mean is this: Commit to keeping your data points on a path to your goal (the “yellow brick road”) that you have control over as you go, subject to the akrasia horizon. That is, commit to something like “work out more” or “lose weight” and then decide as you go what that means based on your data.

So a maximally flexible self-control tool is one that commits you to keeping all your data points on a path to your goal that you specify and can change the steepness of at any time. The only part of the path that’s fixed is the upcoming week. [6]

Easy Street

You may be wondering how anyone could ever fail to stick to a commitment that’s this flexible. Here’s how: if you’re highly akratic. Such a person may well find it a daily struggle to stay on track. Yeah, you can always choose to wuss out and flatten the yellow brick road, but only starting in a week, which you don’t want to do. You want to wuss out Right Now, dammit! I mean, just for now, while you eat this pie, and then you’ll behave again. No such luck though.

The daily struggle to stay on the road does not induce you to touch that road dial. You always want to make it easier “just for today” — which the akrasia horizon doesn’t allow — and you always think you’ll get your act together by next week.

Eight Hundred Dollar Postscript

For three years now we’ve scrambled to make sure a Messy Matters post got out the door at least once in every calendar month. Such is the powerful psychology of “don’t break the chain”, also known as the Seinfeld hack. But the Seinfeld hack’s greatest strength is also its fatal flaw: Once you do break the chain, all the motivation it provided bursts like a bubble. You’ve got to somehow motivate yourself to build up another long chain to not break. Until then you’re on a “one more day won’t matter” slippery slope of sloth. (Notice how we missed our end-of-February deadline and how many days into March it now is!)

Well, Beeminder, as we say, is safety rope for slippery slopes. So it’s time to do this right! We shall henceforth publish on Messy Matters as often as the following yellow brick road dictates, or give one of you $800. We’ll get the added flexibility, of course, to change the rate of posts as needed, subject to the akrasia horizon. I think it can also add a different kind of flexibility and help prevent end-of-month all-nighters: If we publicize a draft of a post (to our hard-core readers who follow our twitter feed) that will count as half a post (publishing a draft will count as the other half).

I’m quite serious about this $800 offer, subject to some fine print [7]. As the dozen or so people who have collected on our $20 typo bounties will attest, we’re good for it. [8]

 
Illustration by Kelly Savage. Thanks to Bethany Soule, Sharad Goel, and David Yang for comments.
 

Footnotes

[1] This is the earliest treatment of akrasia and time inconsistency that I know of in the economics literature: Myopia and Inconsistency in Dynamic Utility Maximization, by Robert H. Strotz in Review of Economic Studies, 1955-1956.

Washington has never been more partisan, right? Or is that common lament simply a trick of nostalgia? A look at the numbers reveals that the problem is not, it turns out, all in our heads: over the last four decades, Congressional polarization has steadily increased.

“Not only have the Democratic and Republican parties drifted apart, but they have become much more internally homogeneous.”

Since 1947, Americans for Democratic Action (ADA) has tracked the political positions of each Senate and House member, scoring how they voted each year on 20 key bills covering a variety of social and economic issues. A score of 90%, for example, indicates a Congressman took the liberal position (as judged by the ADA) on 18 of the 20 votes, while a score of 10% means they did so on just 2 of the 20 bills. The graph below shows a disconcerting rise in polarization over the last 40 years, with the colored bands indicating where the middle 50% of each party ranks. Not only have the Democratic and Republican parties drifted apart in the last 40 years, but they have also become much more internally homogeneous.

Curious how you stack up against Congress? Here are five of the twenty legislative issues that the ADA used to rank Senators in 2010. How many of these bills would you support?

1. Increase regulation of Wall Street (The Dodd-Frank Wall Street Reform and Consumer Protection Act)
2. Require that the President present a timetable for withdrawal from Afghanistan.
3. Allow the Environmental Protection Agency (EPA) to continue regulating greenhouse gas emissions from factories, power plants and other large polluters.
4. Let the Food and Drug Administration (FDA) directly recall tainted products, rather than rely on manufacturers’ voluntary cooperation
5. Allow openly gay individuals to serve in the military

5 out of 5: You may want to consider moving to Vermont, home of two of the most liberal Senators, Bernie Sanders and Patrick Leahy.
4 out of 5: You’re a party-line Democrat. John Kerry is your man.
3 out of 5: Swing voter? You’re of like mind with Joe Lieberman, the former Democratic vice-presidential hopeful who in 2008 turned his support to Republican presidential nominee John McCain
2 out of 5: You’re a “maverick”, a la John McCain circa 2001
1 out of 5: You’re in Congressional no-man’s land, with Indiana Republican Dick Lugar one of your only compatriots
0 out of 5: You’re a party-line Republican, like Nebraska Senator-turned-Governor Sam Brownback, or the new John McCain as of 2010. You probably don’t like either tofu or Volvos.

In this era of sectarian politics, it’s easy to forget that Democrats and Republicans have not always been so rigidly ideological. While that quaint idea of post-partisan governing likely won’t come to fruition anytime soon, history at least offers some hope for less political fanaticism.

ADA data collected by Timothy Groseclose. See “Comparing Interest Group Scores Across Time and Chambers: Adjusted ADA Scores for the U.S. Congress,” by Tim Groseclose, Steven D. Levitt, and James M. Snyder, Jr.

Illustration by Kelly Savage. Thanks to David Pennock, David Rothschild, and Dan Reeves for comments.

End-of-year retrospectives are so over done! Let’s talk about how life has changed since 2000. And then to really make it exciting, I’ll give my predictions for what life will be like in 2021.

How our lives have changed since 2000

We’ll start with an obvious one.

1. Flying became a bigger pain in the ass

I.e., the terrorists won. To quote Bruce Schneier:

A terrorist attack cannot possibly destroy our country’s way of life; it’s only our reaction to that attack that can do that kind of damage.

The next 6 are about computers, unsurprisingly.

2. Computers became less computer-y and more appliance-y

This is exemplified by my grandmother’s iPad. She and I have had at least two simultaneous games of online Scrabble going 24/7 for months now.

Or the Chromebook I got for my parents, which is impressively simple. Ironically it’s Linux (meganerd OS/kernel) underneath but the beauty is that you’re 100% shielded from what’s underneath. (You literally have to flip some secret switch under some panel on the back to be able to get to the real operating system. Tip: never do that.) What you see is the web, and that’s it. Really anything any normal person ever needs is available on the web. So there are no files for you to back up, or anti-virus software, or in fact any software at all. And the laptop can vanish in a puff of smoke at any moment and you’ll never lose a keystroke of work.

3. A computer in every pocket!

Since 2000 it has become normal to carry around a computer in your pocket that beats the pants off what people had on their desks not long ago. Even the screen resolution on some so-called smartphones beats what was common for desktop computers in the 90s.

I was particularly struck by how an iPod Touch fits unambiguously in my wallet. It’s thinner than a stack of 6 credit cards, roughly as wide, and only a bit taller. To drive home what a magical technological future we’re living in, here’s a list of old-fashioned devices that this single wallet-sized thing can (or could easily) subsume:

fax machine, address book / rolodex, calculator, calendar, cash / credit cards, stamps, keys, checkbook, flashlight, pager, tv, radio, caller id device, typewriter, gameboy, paper/pen, boardgames, barcode scanner, clock / alarm clock / timer, stereo/walkman/discman, remote control, globe/atlas, gps device, encyclopedia, books, electronic translator, etch-a-sketch?, photo album, tape recorder / memo recorder, vcr, camera / video camera, telephone, computer, walkie-talkie, credit card reader, …

It’s funny that we think of these universal Turing machines in our pockets foremost as telephones. Paul Graham predicts that we’ll end up calling them tablets, some of which happen to be small enough to hold up to your ear.

4. Internet dating goes mainstream

Let’s get Bethany Soule’s thoughts on this one:

I remember that in 1999/2000-ish a friend of mine met a girl on the internet and ended up dating her for a couple years and that was totally crazy — “You don’t know anything about her! She could be an axe murderer!”. In 2004 when Danny and I met on the internet it was a little weird, and we sort of glossed over the internet part of it when we related the tale to ‘normal’ people at the time. Now in 2011, Match.com advertises on TV and I don’t hesitate in the least to say that I met D via the internet, because it’s utterly commonplace, regardless of the audience.

More generally, everything you do that involves information moving between people (in addition to dating there’s banking, job searching, commerce, and advertising, to name a few) is intermediated by the internet. Texting isn’t technically part of the internet but it’s a related big change in how we communicate since 2000.

5. Just-in-time social coordination

Speaking of texting, here’s Nate Binkert on a related change:

It may seem trivial, but something that changed significantly for me in the last 10 years is how I meet people when going out or when generally out and about. Way back when, you had to be more specific about when and much more specific about where you were going to meet someone. Also, if someone was late or there was miscommunication, it was much harder to resolve what to do. (Go to the next party, go home, let your friend know that you were late.) Now it’s all just-in-time. You call someone and say “where are you?” and start describing objects around you so you can locate each other. Also, it is far easier for people to split up and rejoin easily when mobile. I think this has probably resulted in a lot more people being habitually late, but at least you can play Angry Birds on your smartphone now.

6. Newspapers and magazines were killed by the internet

Or maybe Kindles and iPads struck the death-blow. And, yes, printed news media technically still exist in 2011 but you have to admit they’re starting to seem archaic.

7. Instant information about anything from anywhere

Wikipedia was launched in 2001 (I googled “wikipedia wikipedia” to find Wikipedia’s article on Wikipedia) and has an arguably daily impact on our lives. Also Google was just a baby in 2000. It was clear then that this was the direction things were heading, but now the dream is really for real: Pretty much anything you want to know about anything is available instantly from anywhere. Also, WolframAlpha deserves special mention for contributing to this (cf. the last item in this list).

8. No more smoking in bars and restaurants

California started this worldwide trend in 1998. This used to be my hotbutton issue but I did an ironic 180 around 2006, when I moved to New York City. For one thing, I realized that the smoke-free workplace laws were not exactly the cause of less smoking in restaurants but mostly the effect. The social norms shifted and the laws followed. But the irony was my reaction to the smoke-free workplace law in NYC, something I looked forward to longingly when moving from not-yet-smoke-free Michigan. Quoting myself from January 2007:

Living in supposedly smoke-free New York City you can’t walk a block without getting three facefuls of smoke. I keep thinking how nice it would be to get the smokers into some kind of special smoking establishments — “bars” if you will — and off the damn sidewalks!

9. Less death and suffering!

The treatments for various diseases (AIDS, most notably) took some quantum leaps forward. One such advance, a crazy mouse-human hybrid drug first approved in 1998, saved my colon from having to get ripped out. So that’s quite a change in everyday life for some of us.

10. Less crime and violence

Check out what’s been happening with crime in the US since 2000: http://www.wolframalpha.com/input/?i=crime+2000. I certainly felt this change living in New York City, where the drop in crime in the 2000s was especially steep. And although it’s not limited to the past decade, it’s worth echoing Stephen Pinker’s conclusion that we’re in the midst of a long-term, global decrease in overall violence.

Predictions about life in 2021

1. Self-driving cars!

Note that the focus here is on noticeable changes in our everyday lives. So this one hasn’t already come true in 2011 just because a handful of us have had a little tour of Mountain View for a demo drive (freakin’ awesome as that was). It will have to be at least slightly mainstream, at least among Messy Matters readers.

(Like how smartphones are mainstream now but in 2000, handheld devices that could wirelessly connect to the internet were so bleeding edge that they didn’t count as affecting our daily lives. Palm Pilots were all the rage but they were mostly just electronic rolodexes/calendars.)

To pin this down: I predict that I, personally, in 2021 will have a car that can drive entirely by itself at least on freeways.

2. Vanishing computers!

I’m thinking wearable and embedded in things instead of carrying around little gadgets.

3. Death of physical media!

CDs and DVDs and USB thumb drives will all be long gone. Paper books won’t be but they’ll seem kind of quaint.

4. Artificial eidetic memory!

No such thing as ever forgetting someone’s name or anything you’ve ever seen or heard.

5. Scary political nastiness!

I’m thinking something akin to McCarthyism, but for a new category of bogeyman. (And, again, to the point of affecting our everyday lives.)

6. Less death and suffering, continued

At least one reader will be able to testify to a life-changing advance in medicine.

And, finally:

Negative prediction: Siri is a fad!

That’s overstating it, of course. It will get better and become more common and more useful, but that’s it. I predict no progress on having a reasonable natural language conversation with a computer. Today’s Siri commercials will oversell even the voice interfaces of 2021. (I was similarly a bit down on IBM’s Watson earlier in 2011.)

Illustration: Kelly Savage

Thanks to Gabe Hayos, Bethany Soule, Eileen Connor, David Reiley, Nate Binkert, Rob Felty, Brian Renaud, and Sharad Goel for contributions, ideas, and corrections.

With even a casually critical reading of the news, it becomes painfully clear that politicians are by and large a bunch of lying liars. They all lie, across the political spectrum, regularly traversing the lie taxonomy, from exaggerations, misleading statements, and lies by omission, to outright fabrications and even occasionally going for the Big Lie. G. W. Bush, for example, claimed that the vast majority of his tax cuts would go to the bottom end of the income spectrum. To the contrary, the non-partisan Tax Policy Center found that the wealthiest quintile reaps the biggest breaks, both in absolute and in relative terms. Obama, also distorting the consequences of his economic legislation, recently claimed his jobs bill would add far more workers than estimated by an independent group of economists.

Despite my heightened level of cynicism, I was a bit shocked by the brazenness of the lie Mitt Romney — the front-runner for the republican presidential nomination — tells in his latest campaign commercial. In the ad, Obama is heard saying, “If we keep talking about the economy, we’re going to lose,” suggesting admission of a failed economic policy. While Obama did in fact utter those words during the 2008 presidential campaign, his full statement was: “Senator McCain’s campaign actually said, and I quote, ‘If we keep talking about the economy, we’re going to lose.’” Romney’s advisors are unrepentant, lambasting complaints as being “hysterical”. (Ironically, Obama’s original statement was itself deceptive. The quote was from an unnamed McCain strategist, and was not, as Obama suggests, a publicly stated position of the “campaign”. It’s hard to keep up with the layers of lies!)

Once we’re happy to disregard context, it opens up a whole brave new world of possibilities. Why stop at cherry picking phrases? Let’s just take a person’s words and rearrange them into whatever order we want. In fact, is there really anything sacred about words — let’s break it down to phonemes! Well, before we venture down that rabbit hole, maybe we should go to the source himself and hear what Romney has to say. So Mitt, what do you make of this whole situation — do you have any regrets?

Romney on Romney Audio Clip

Play Me

(The Romney remix above was pieced together from another of his inspirational campaign commercials.)

Without absolving the liars themselves, this dismal state is at least in part attributable to journalists that are loath to call a spade a spade. Sifting through the last 30 years of New York Times articles,^[1] I typically found only a handful of political stories each year that explicitly characterized a statement to be a “lie”. The Romney fib was not among them. (To his credit, Ryan Lizza at The New Yorker did use the L word in calling out Romney.) The Times kicked it into high gear for Monicagate, and managed to muster a bit of interest in the trifecta of back-to-back lies by Abramoff, Libby, and Gonzales. The vast majority of these “liar” articles, however, are either opinion or “he said, she said” pieces, which do not definitively establish a proclamation to be a lie. The remaining articles primarily report on self-admissions of lying (e.g., Weiner), or lies as determined by a court (e.g., Libby). In short, over the last three decades, there are hardly any instances of reporters at the New York Times — one of the most reputable papers in the world — independently calling out lying liars on their lies.

“A core function of the media is to separate fact from fiction”

One could argue that objective reporting prohibits journalists from verbally attacking their subjects by calling them liars. I think that’s a difficult position to defend. A core function of the media is to separate fact from fiction, to evaluate and challenge statements made by political players so as to present an accurate and complete story to readers. If not, then soon we’ll be reduced to nothing more than our phonemes.

Bonus Puzzle

Consider a hypothetical voting system for deciding between candidates A and B. The population is divided into states, and each state holds its own election between the two candidates. Then the “real” election is held with each state getting a number of votes proportional to its population. Assume that every state casts all of its votes for the candidate that got the majority in the state election. It turns out to be possible, under such a system, for the loser in the real election (the electoral college) to have received a majority of the total votes (the popular vote).

What is the greatest possible percentage of the popular vote that the loser could get, and still lose in the electoral college?

(No real world data is needed to answer this.)

Footnotes

[1] With the New York Times API, all U.S. political stories were pulled in which the word “lie” (in any grammatical form) was used along with at least one other word indicating deceit (e.g., “untruth”, “misleading”, etc.). By inspecting a random sample of these articles, I determined that approximately half detailed a specific lie (as opposed to lying in abstract terms, or used in an entirely different manner, as in “lie down”), from which yearly callouts were then estimated and plotted.

Illustration and Romney remix music by Kelly Savage. Thanks to Dan Reeves for comments, and for keeping me honest.

Nominology is my neologism for the study of naming things. I’m that good at it!

Or at least I think I know good names when I see them. [1] To some extent this is obvious. Ideally you want a name that’s unique, evocative, and not unwieldy. But I’d like to break those desiderata down and suggest ways to make trade-offs when you can’t have them all.

If you’re the kind of nerd who’s still reading at this point, you may, rightly, be questioning my coinage of “nominology”. The word “nomenclature” is almost there, but not quite. “Nomenclature” has several meanings, including simply a name or designation, a system of naming, or a set of names. It can also refer to the act of naming. But none of the meanings refer directly to the consideration of the criteria for what makes good names. Also, with “nomenclature” it’s harder to form derivatives like “nominologist” or even “nominologize”. I take this stuff way too seriously.

Here, then, are what I consider the key nominological criteria for projects, groups, startups, and other entities. I’m even crazy enough to think this all applies to important variable and function names in source code. [2]

We could also throw in Mellifluidity (to use another over-the-top coinage). It’s true that some names just sound nicer than others and that this can trump other considerations, but it’s rather subjective. Let’s consider, then, the seven somewhat objective desiderata in more detail.

Evocativity

Ideally the name conveys exactly what it’s naming. That ideal is probably incompatible with the rest of the criteria, so, failing that, is the name at least somehow evocative of what it’s naming?

Though desirable, evocativity is surprisingly unimportant. A name that satisfies enough of the other desiderata (and names something cool) will become evocative over time. Examples are Google and Yahoo, or for that matter, Porsche and Ferrari.

You get a tinge of evocativity by being an acronym. Just make sure it’s pronounceable. Usually better than a straight up acronym is a portmanteau, like Microsoft (“microcomputer software”, which was probably more obvious in the 70s) or Groupon (“group coupon”).

Brevity

The shorter the better! Messy Matters fares poorly here.

Mechanical Turk is an example of sacrificing brevity but making up for it in the other criteria.

Greppability

Shorter is better, but not so short that it’s a substring of common words. You want to be able to grep for it in a document, or set up a google news alert for it.

If you’ve sacrificed greppability you’ve probably got something impressively short, but it’s probably not worth it. Consider the Arc programming language:

There seem to be a lot of programming languages that fail this test, like Go, and, worst of all, C.

Ning [3], on the other hand, probably made the right call in sacrificing greppability.

Googlability

A name should be reasonably unique. Depending on what you might do with it, you may also want to check that the domain name is available and check for existing trademarks.

Greppability and Googlability have a lot of overlap but you can have one without the other. Like ‘Ning’ [3], the name ‘Tion’ would be googlable but not greppable, due to all the English words that end in ‘tion’. Conversely, names like ‘Amazon’ are greppable in most contexts but (before Amazon the company took over the world) not so googlable, due to the river and rainforest.

Of course, it’s not so hard to disambiguate a google query (say, by adding “books”) but a lack of uniqueness will make life difficult in various ways, such as getting monikers like facebook or twitter handles.

Pronounceability

If there’s no way to pronounce a name other than to rattle off the letters in an acronym, I’d call that a dealbreaker. Taking that minimum bar — no alphabet soup acronyms! — as a given, doing well on the pronounceability criterion means that you can tell how to pronounce it when you see it.

Of course, even that so-called minimum bar can be ignored if you’re sufficiently awesome.

Spellability

This is less important than pronounceability but ideally anyone who hears the name immediately knows how to spell it. Violating this is less of a problem than you’d think. People seem sufficiently used to alternate spellings. And mostly the name won’t be conveyed by literal word-of-mouth. You see the weird spelling and it kind of sticks. Examples abound: google vs googol, youtube vs utube, digg vs dig, reddit vs readit/redit, stickk vs stick, wii vs wee (or we or oui).

Besides, it’s often worth the hit to spellability to fare better on greppability and googlability. Or even the incremental bump on brevity (looking at you, vowel-droppers).

Here’s StickK nailing every other criterion (the extra K even lends slightly more evocativity — K is the legal abbreviation for contract) by sacrificing spellability:

Verbability

Not only should you be able to pronounce it but you should be able to easily verb it. [4] Like google and xerox. (The actual name need not be the verb; e.g., twitter/tweeting, beeminder/beeminding.) You can often achieve verbability just by being sufficiently short and pronounceable.

This is arguably the least important criterion for naming something, unless that thing is a startup.

Here’s Wikipedia — an otherwise excellent name — sacrificing verbability but doing very well on the other desiderata, assuming we take ‘wiki’ to be a household term, which it may not have quite been when Wikipedia debuted.

In conclusion, I should probably point out that none of this really matters. You may have gleaned that from all the examples of smashingly successful names that ignore any number of these desiderata!

UPDATE: As soon as this went to print, Rob Felty (a linguist) informed me that the established term for what I’ve called nominology is onomastics. Scooped by 295 years!

Related links

• “Startup Names” by Paul Graham
• The agonies of picking a product name (the story of naming trello.com)
• Five reasons domains are getting less important
• What I call nominology, Dave Pennock calls thingnaming
• Naming your startup: settle down, it’s cool!
• Another article by A Smart Bear with the take-home message that being memorable is more important than what people remember
• Yet another reasonable list of guidelines from Mashable which also suggests that you can achieve memorability even without evocativity by rhyming or alliterating (Hotspot, Hulu, Firefox, BlackBerry)
• 17 mutable suggestions for naming a startup has great advice and may be a superset of mine
• Some funny trends in tech names, though it’s from 2008 and is dated already
• Six naming myths to ignore
• How 16 great companies picked their unique names (but see the bottom of this page for the real story of Yahoo’s naming, which probably means the rest should be taken with a grain of salt as well)
• A Hacker News Comment Thread with some nice tips and anecdotes from famous hackers like the founder of Reddit (and here are some especially good tips and examples from another Hacker News thread)

Handy tools for finding domain names

• Domai.nr is ridiculously slick
• InstantDomainSearch is great too but I hate its name!
• Impossibility.org tries to find available domain names that are evocative by adding prefixes or suffixes to words you specify
• Bust a Name is similar but combines multiple words you specify
• Domaingroovy has a very nice collection of resources for finding a domain name
• Yould is a clever tool that uses Markov chains to generate pronouncable random names

Bonus Puzzle: Three-for-One New Yorker Special!

1. What is the number of shortest paths between two arbitrary intersections in (idealized) Manhattan?

2. Prove that there are two New Yorkers with the exact same number of hairs on their heads. (Do not assume that there are at least two bald people.)

3. Pat has a boyfriend in Brooklyn and a boyfriend in the Bronx. She likes them equally well so when she wants to see one of them, she takes whichever train (uptown or downtown) arrives first. There are the same number of uptown and downtown trains, and both arrive like clockwork, each following 10 minutes on the heels of the previous one. Pat shows up at the subway stop at entirely random times. Yet she finds that she ends up going to Brooklyn fully 90% of the time. How could that happen?

Illustration by Kelly Savage.
Thanks to David Yang, David Reiley, and Bethany Soule for contributions.

Footnotes

[1] I recently discussed the naming of my own startup, Beeminder. I didn’t think of that name, but did name its previous incarnation, Kibotzer. You can see the improvement:

[2] Often when we notice we’re talking out loud about some aspect of our code like “a graph where it’s good to be above the yellow brick road as opposed to below it” or “graphs for which we auto-sum the datapoints and plot the cumulative total” I’ll announce: Stand back! I’m a nominologist! And then I’ll come up with some term like “a graph with positive yaw” or “a kyoom graph” which sound ridiculous but — not to get too whorfian about it — the accumulation of such terminological refactoring can have a surprising impact on direction of development. At the risk of betraying various borderline-OCD tendencies: If it’s something fundamental and widespread in your codebase, give it a highly terse yet pronounceable neologism that you can use in conversation with other developers. Do not use underscore_separated or camelCasedPhrases!

[3] I had always thought that being a substring of common words was part of the point of Ning. It’s a platform for making community-specific social networks so you might create “run.ning.com”. They seem to not have had that in mind at all though, according to their blog.

[4] “Verbing weirds language.” — Calvin, from Calvin and Hobbes.

Prescript: This article is by popular demand, having won our meta poll at the beginning of the year. I predict three categories of reactions to it: (1) This is obvious. (2) This is obviously wrong. (3) This is just the rationalization I needed to keep doing what I’m doing! If there’s a fourth category — people who change their behavior based on this — I will be flabbergasted and want to hear about it.

Here’s a ridiculous first world problem. In fact, it’s like a recursive first world problem: even in the first world it only applies to the minority of people who have more money than they’re entirely sure what to do with. The problem is saving too much for retirement. I’d like to propose a heuristic for deciding between saving and spending. It goes like this: spend your damn money. Except it’s not quite that simple.

Fundamental to the heuristic is this question: How much money do you want to have saved? Include all assets, such as equity in your house. In other words, what do you want your net worth to be? Factors for deciding that target might include future expenses like a house downpayment, or retirement. Also factor in whatever you consider a reasonable safety buffer, such as a year’s living expenses. If you agreed with our previous admonition not to buy things like collision insurance for your car then add an emergency fund. Whatever your criteria, you should be able to come up with a target amount. [1]

Now what to do with that target is not as simple as being super frugal until you hit it and then never saving another penny. But my first point is that if you keep obsessively saving past a reasonable target then you are, in a very literal sense, wasting money, by letting it sit as excess savings instead of doing something with it that makes your life better. If you can’t get your head around the idea of “excess savings” — equivalently, excess net worth — then I think you have a pathology that’s the opposite extreme of, say, me, or someone who is totally reckless, or someone with a gambling addiction. A hoarding mentality, you might call it.

What to Spend Money On

Before I elaborate on my proposal for how to decide between spending and saving I should be clear on what kind of spending I mean. I’m not advocating economic materialism or consumerism here. My favorite way to use money to improve my life is to find things I spend time on that I don’t like to do and outsource them. For example, don’t do your own taxes or change your own oil or clean your own house if you don’t enjoy those things. [2] Especially if you enjoy your job more than those tasks and your effective hourly rate is not much lower than (or is higher than) the hourly cost of the outsourcing. The opposite can also be true: if you can arrange to earn less doing work you enjoy more, that’s probably worth the lost income.

More generally, you should primarily spend money on anything that shifts your focus from the mundane to things that give your life meaning. Donating to charities that are meaningful to you is a great way to do that. Traveling to visit friends and family should rank highly for the same reason. Just ask yourself what makes life meaningful for you. Improving the world, having fun adventures, relationships with friends and family, satisfying intellectual curiosity, …

Retirement, Schmirement; Or, Why to Waste All Your Money and Die Broke

Having talked about what kinds of things you should spend money on, let’s talk about something you shouldn’t. Namely, ceasing all work at age 65 and traveling around the world for the rest of your life. Think about how extravagant that is. Not that I disapprove of such extravagance in principle. What I find ridiculous is sacrificing and scrimping and saving all the way up to age 65 in order to enable such extravagance.

“Carpe diem.”

My argument here boils down to this: carpe diem. Certain kinds of adventures you may not be physically capable of at retirement age, or you might be less able to enjoy them when you’re a bit more fragile. And don’t forget the possibility that you’ll die young. Or there could be a financial collapse that decimates the stock market and sparks hyperinflation, destroying your hard-earned savings. Or you could win the lottery, metaphorically or literally. Oh, yes, and there’s always the technological singularity (or more mundane technological explosions that change everyone’s level of wealth). In other words, there’s a real risk that if you scrimp and save till age 65, it could be for naught. It makes sense to have a bias for enjoying things now. So much so that it’s worth some amount of risk of being poorer than you’d like to be in retirement. The goal, as most economists will tell you, is to smooth your spending over your whole life. [3] In my opinion the risk of dying with too much money should be taken just as seriously as the risk of dying poor. After all, that excess money in old age represents forgone opportunities earlier in life.

Here’s another way to look at it. Why slave away till 65 and then switch to an extravagant lifestyle where you never have to work again? That should be strictly dominated by the strategy of, throughout your life, taking, say, a month of unpaid leave every time you accumulate several thousand dollars in savings. Of course that’s an oversimplification. For one, if interest rates are high enough then it’s worth the wait because of how much your money will grow if you save it. But right now (2011) interest rates are very low. It’s quite true that invested money grows exponentially. It’s equally true that the amount you should care about spending money in the future decays exponentially. [4]

“If I have to just subsist on social security at that point, so be it.”

One more counter-argument to my reckless advice: You need some worst-case planning for the possibility of being physically incapable of working. Well, you can certainly factor that in to your target net worth. On the other hand, if I’m so disabled that I can’t work, I probably can’t enjoy much either. If I have to just subsist on social security at that point, so be it. Not that subsisting on social security while too disabled to work is any fun, but it’s both unlikely and extremely costly to guarantee against.

As far as I can tell, the reasons people obsess over large retirement nest eggs are the following:

1. Their sense of self-worth is tied up with their bank balance.
2. They’re altruists with high value for leaving money for their heirs.
3. They’ve grokked the mathematics of compound interest but not the corresponding (roughly identical) mathematics of future discounting. So they really believe it’s inherently crazy to spend $5 now that will eventually become hundreds of dollars if they invest it.
4. Plain old OCD, like hyperfocus on their goal of retiring.
5. Puritan work ethic gone wild.

Number 2 is the only legitimate one in the list and you should go ahead and factor it in to your target net worth.

To Buy or Not To Buy

I said that key to the decision of spending vs saving is choosing a target net worth, but that it’s not simply a matter of being miserly until you hit your target. Rather, I propose this principle: Pick your ideal net worth and follow an extremely gradual path that takes you there. Call it your Golden Brick Road. [5] It starts at your current net worth, gradually increases till it hits your ideal, then stays flat forever, or perhaps goes down as you get older and need less savings. (Ideally you use something like Quicken or Mint that can continuously output your current net worth.) Then just keep an eye on it. If you’re below your Golden Brick Road (approaching your target too slowly) then be more frugal. If you’re above it (approaching your target too quickly), party time. If you’re young and your Golden Brick Road will take decades to get you to your target (as I claim it should) then it means saving only a tiny fraction of your income.

Or maybe you have multiple targets and your Golden Brick Road takes you to $2k in savings in time for a big vacation next summer, then to six months’ living expenses in five years, and then to three years’ living expenses by age 70. I don’t think you should think too hard about these numbers (or, worse, pay for a financial planner to tell you what they should be). The future is quite uncertain so they’re going to be essentially pulled out of your butt no matter how much research you try to put into it.

“You should not be bouncing between tight-fistedness and cocaine/hookers too often.”

Another thing about the Golden Brick Road: it should be wide enough that you’re not actually bouncing between tight-fistedness and cocaine & hookers too often. In other words, you shouldn’t have to react drastically to unexpected expenses (or windfalls) — being within a reasonable margin of error of the dotted line to your target suffices. With practice, very small adjustments should keep you on track. If a big enough emergency expenditure or windfall does throw you off your Golden Brick Road you can always reset and start on a new gradual path to your target net worth.

I suggested that I myself am not terribly wise about money. In fact I often struggle with the question of how much I’m willing to pay for things and it tends to feel very arbitrary. I’ve heard advice along the lines of, if you’re spending $100/week on restaurant meals then ask yourself if you value that as much as, say, a Broadway show every weekend. If not, stop eating at restaurants. But that seems to really miss the point. What if I can afford both the meals and the Broadway shows? Simply comparing expenses to each other only helps you to decide what to cut out if you know you need to be more frugal. But how do you know if you need to be?

I view the Golden Brick Road idea as a simpler, more general form of a personal or family budget. It’s a simple way to tell you when your utility for everything (that money can buy) should be taken down, or up, a notch.

But a Financial Planner Could Help Implement This, Right?

Sure, just like you could hire an interior decorator to help you arrange your furniture. According to the Wikipedia page, the objectives of financial planning are:

• Finding direction and meaning in one’s financial decisions;
• Understanding how each financial decision affects other areas of finance; and
• Adapting to life changes in order to feel more financially secure.

I’m saying that’s all bullshit and you should just come up with a very rough number for your target savings and then follow a very gradual path to get you there. That’s it. Elsewhere on the Wikipedia page it talks about “maintaining and enhancing personal cash flows through debt and lifestyle management”. Please. Just stay on your Golden Brick Road. If you’re so clueless that that’s not enough lifestyle management [6] for you then I can’t imagine (warning: argument from personal incredulity) that you can afford a financial planner in the first place.

Of course financial planning has more practical aspects, like helping you choose where to invest the money you’re saving. I’ll glibly trivialize that by saying, just put it in an index fund [7] using a 401k or whatever IRA, for the tax benefits. It’s a little high risk but you’re already putting a lot into social security which has you covered for the very worst case (we may get screwed out of social security but probably not if you’re literally depending on it).

Finally, there are tax issues to worry about but that’s what a tax accountant is for.

On the other hand, you may just not want to think about the mundanities of IRAs or continuous monitoring of your net worth. Well, first you should know that services like Mint or Quicken make that stuff easier than you’d think. But if you still want to outsource it, I think a financial planner is overkill. I actually pay a friend (who I call my Minister of Finance) to deal with such stuff for me. She doesn’t have the expertise of a certified financial planner but she makes up for it by completely shielding me from ever having to think about any of this (except when I write elaborate blog posts about it). The overhead is far lower that way; I just give her all my passwords and say “do what I would do”.

Epilogue

“No Golden Brick Road is necessary to tell them the glaringly obvious: they should be spending less.”

Let me get back to the people for whom this has all been entirely moot. For most people, no Golden Brick Road is necessary to tell them the glaringly obvious: they should be spending less. In that case it’s classic akrasia — you know you should be spending less but when faced with actual purchasing decisions, instant gratification trumps your long-term best interests. [8] If that’s you, please refer to our previous article on akrasia and how to do what you want. It’s certainly naive as a general solution to poor financial decision making — it’s about being hyperrational about one’s own irrationality — but we’re now talking about people who read all the way to the end of Messy Matters articles.

Speaking of which, the prescript got me curious. So let me have it:

Further Reading

1. Article from Pop Economics: Can You Save Too Much for Retirement?
2. A retirement calculator based on the principle of consumption smoothing.
3. Also by the author of the above tool, the book Spend ‘til The End.
4. Classic example of traditional advice to seriously bulk up savings. (Summary: You want to stop working when you’re 60ish, right? And you don’t want to be dirt poor at that point, right? So here’s what you do: live as if you’re dirt poor from now till you’re 60. Problem solved.)

Bonus Puzzle

Suppose you have $n and every day you either spend a dollar (with probability p) or you earn and save a dollar (with probability 1-p). Also, you’re immortal, so this goes on forever. What’s the probability you’ll go broke (i.e., ever hit zero)?

Illustration by Kelly Savage.
Thanks to Sharad Goel, Bethany Soule, Uluc Saranli, and Alex Strehl for helpful discussions and critiques. Also to Melanie Reeves Wicklow, Nate Clark, David Yang, John Langford, Kevin Lochner, and Abe Othman. And to Patrick Jordan and Alex Strehl for the puzzle.

Footnotes

[1] The pedants among you may quibble that in theory there may be no such target since you’d update continuously upon gaining new information and new opportunities. Or, more to the point, sufficiently golden opportunities (or emergency expenditures, or even windfalls) could make you willing to deviate arbitrarily far from any pre-decided target net worth. That’s all true. Nonetheless, you can decide a very rough target assuming nothing crazy happens and use it as part of a practical heuristic for guiding spending decisions, as the rest of this article will explain.

[8] There’s another category of people for whom none of this applies: those eking by because they have no other choice.

Sometime during the late 19th or early 20th century, a simian immunodeficiency virus that infects wild chimpanzees made the jump to humans who hunted the animals. The mutated human strains spread from one individual to the next through intimate contact — usually unprotected sex or needle sharing — often leaving carriers absent of symptoms for extended periods while they continued to transmit the virus. By the early 1980s, large numbers of injection-drug users and gay men exhibited signs of compromised immune systems. These first clinically recognized cases of AIDS, later traced back to HIV, were the start of a global pandemic that has claimed the lives of more than 25 million people to date.

For every book or album purchased because of a personal recommendation, how many were bought after simply browsing the stacks, reading a review, or seeing an advertisement?

HIV/AIDS, like many other contagious diseases, exemplifies the common view of so-called viral propagation, growing from a few initial cases to millions through close person-to-person interactions. (Ironically, not all viruses in fact exhibit “viral” transmission patterns. For example, Hepatitis A often spreads through contaminated drinking water.^[1]) By analogy to such biological epidemics, the diffusion of products and ideas is conventionally assumed to occur “virally” as well, as evidenced by prevailing theoretical frameworks (e.g., the cascade and threshold models) and an obsession in the marketing world for all things social. The view of adoption as a contagious process is quite appealing. We have all, for example, solicited our friends for book and music recommendations, affirming the role of social ties in product purchases. For every book or album purchased because of a personal recommendation, however, how many were bought after simply browsing the stacks, reading a review, or seeing an advertisement? Despite hundreds of papers written about diffusion, there is surprisingly little work addressing this fundamental empirical question.

In a recent study, Duncan Watts, Dan Goldstein, and I examined the adoption patterns of several different types of products diffusing over various online platforms — including Twitter, Facebook, and the Yahoo! IM network — comprising millions of individual adopters.^[2] The figure below shows the structure and frequency of the five most commonly seen diffusion trees in each case. In all six domains the dominant diffusion event, accounting for between 70% to 95% of cascades, is the trivial one: an individual adopts the product in question and doesn’t convert any of their contacts. The next most common event, again in all six domains, is an independent adopter who attracts a single additional adopter. In fact, across domains only 1%-4% of diffusion trees extend beyond one degree.

The vast majority of adoptions occur either without peer-to-peer influence or within one step of an independent adopter.

At this point you might wonder about the relatively rare trees not depicted above. What if, for example, one out of every thousand independent adopters spawned ginormous viral cascades? In that case, while it would still be true that most trees are duds, most adoptions would be part of a viral component. In such a world, the usual theoretical models of diffusion would be reasonably accurate. Alas, the world is not so. We find that across the six domains only 1%-6% of adoptions take place more than one degree from a seed node, meaning that the vast majority of adoptions occur either without peer-to-peer influence or within one step of such an independent adopter. Put another way, the cascade structures above account not only for most trees, but also for most adoptions.

In all the examples we study, diffusion seems remarkably un-viral, rarely spreading far from an independent adopter. Our results thus call into question the dominant, epidemic-like models of diffusion, and also the value of viral marketing campaigns. On a positive note, this observation makes life a lot easier. Instead of needing to describe, predict, or trigger a complicated viral process, one can focus on the much easier case of adoptions that spread at most one hop before terminating. It turns out that diffusion is not nearly as messy as you might think.

Bonus Puzzle

You have 27 vats of your new prototype, X-treme Water, exactly one of which is contaminated with the rare Hepatitis Q virus that kills you within a day. Fortunately, you also have 3 expendable marketing executives who managed your last viral advertising campaign. Find the contaminated vat in 2 days. (With m marketing executives and d days, how many vats can you handle?)

(We’ve also posted the official answers to “pawns on a chessboard” and “crashing Italian cars”.)

Footnotes

[1] Even HIV has a non-“viral” transmission route via contaminated blood transfusions, though it’s relatively uncommon.

[2] We study six examples. In the first three, we directly observe interpersonal diffusion, whereas in the remainder we infer diffusion from the underlying network of interpersonal connections and the temporal sequence of adoptions.

1. Yahoo! Kindness was a website created by Yahoo!’s philanthropic arm that asked users to create status updates describing acts of kindness they had performed, after which these updates were propagated via Yahoo!, Facebook, Twitter, and other means in order to attract new users to visit the site and post updates of their own. We tracked diffusion of the website by associating each user with a unique site URL.

2. Zync is a plug-in for Yahoo! Messenger built by Ayman Shamma that allows pairs of users to watch videos synchronously while sending instant messages to one another. We define adoption in this case as having initiated a video sharing session, not simply having participated in one, a choice that eliminates spurious dyads.

3. The Secretary Game, built by Dan Goldstein, is a variant of the classic “secretary problem”. As with Yahoo! Kindness, user-specific URLs tracked player-to-player diffusion.

4. Twitter. We collected all 36 million tweets containing bit.ly links that were first introduced during the month of September, 2009, and then traced the diffusion of each of these links over the Twitter follower graph.

5. Friend Sense was a third-party Facebook app that queried respondents about their political views as well as their beliefs about their friends’ political views.

6. Yahoo! Voice is a paid service that allows users to make voice-over-IP calls to phones through Yahoo! Messenger. Diffusion in this case is considered to occur over the Yahoo! IM network.

Illustration by Kelly Savage

Yesterday Decision Science News asked “Should you buy car insurance?” By which they mean collision insurance, liability insurance being required by law in these parts.

I’m shocked and appalled that decision scientists could even ask such a thing. Actually, it’s a good question with some legitimate subtleties. I just happen to have an unreasonably strong opinion about this, which is that you should sooner invest your life savings in lottery tickets than buy collision insurance for your car, no matter how new or fancy it is.

There are just two reasons you should ever buy insurance:

1. You know more than the insurance company. Like you’re about to burn down your house for the insurance money. Wait, that’s illegal. Maybe you’re about to let your teenager start driving your car. Actually, the insurance company probably knows that too. [1] Hint: you probably don’t know more than the insurance company. You could maybe make an argument on these grounds that you should get the extended laptop warranty because you like to be crazy reckless with your electronics. But those warranties are so overpriced that, really, you’re probably not that reckless.

2. You’re insuring against the loss of something so expensive that paying for it yourself would change the very value of a dollar for you. Like it would literally change your lifestyle. If you’re pretty poor (by first world standards) then maybe a couple thousand dollars could change your lifestyle a bit, temporarily. For the supernerds reading either Decision Science News or Messy Matters it probably realistically has to be in the tens of thousands — often much more. Collision insurance on your car is not in this category.

You probably don’t even need any fancy econ concepts like risk aversion and expected values. You know what slimeballs insurance companies are. They raise your rates when you make a claim and manipulate the deductibles. Not to mention weaseling out of paying altogether whenever they can get away with it. They pretty much guarantee that for any claim you make for smashing up your car you’ll pay for it many times over in premiums (if you haven’t already).

If you could write a check and go on with your life as if nothing had happened, do not insure against it.

But I claim that even when it feels tempting, have faith in the math (which the insurance company’s actuaries have carefully worked out) and JUST SAY NO. They wouldn’t offer you the insurance if you could, in expectation, come out ahead from it. Think about the worst case: if you could write a check [2], beat your forehead against the wall a few times, and then go on with your life as if nothing had happened, do not insure against it.

An Ear Full of Cider

Marlon Brando’s character, Sky Masterson, has a great monologue in “Guys and Dolls”, relating advice from his father:

One of these days in your travels a guy is going to show you a brand-new deck of cards, on which the seal is not yet broken. Then this guy is going to offer to bet you that he can make the jack of spades jump out of this brand-new deck of cards and squirt cider in your ear. But, son, you do not accept this bet. Because as sure as you stand there you’re going to wind up with an ear full of cider.

Nice life lesson. We can call it the Ear Full of Cider Principle. [3] What does it have to do with insurance? Buying insurance is, quite literally, accepting a wager with the insurance company. You’re betting that you will crash your car and the insurance company is betting that you won’t. The ratio of your premiums to the payout for the possible claim establishes the odds that the insurance company is giving you. They wouldn’t offer you those odds unless the bet was a savvy one for them.

Which makes you the sucker.

Efficient Markets

Of course, “sucker” might be hyperbolic. After all, insurance is ostensibly a competitive industry so market efficiency suggests that their profits not be too obscene overall, which means the effective odds you’re offered shouldn’t be too skewed. Fundamentally, it’s an empirical question though, hinging on claims paid vs. premiums collected. I could well be proved wrong: buying insurance may only be slightly stupid, not ear-full-of-cider stupid.

Epilogue

Since this is apparently heresy to everyone I know, I’ll address some counter-arguments. (Scroll ahead to the bonus puzzle if you’re already convinced.) Some of these are pretty reasonable and do leave some wiggle room to rationalize your crazy risk aversion if we also suppose that the efficient markets argument is true and the odds are only slightly skewed against you.

Simplicio: First of all, that was quite a concession you made in admitting that insurance is a competitive industry. If they’re only making an expected few bucks profit off me (and assuming the company’s overhead is not a big factor) then your whole tirade reduces to ranting about a trivial “waste” of money. (And why it’s not really a waste I’ll get to shortly!)

Salviati: My glib response (I really hate insurance companies, if that wasn’t clear yet) is that they stay competitive by coming up with creative ways to deny claims. But, actually, it’s true this is an excellent argument and I admit my characterization of buying insurance as a sucker bet may be a bit unfair. Maybe it’s more like a slot machine that just very gradually sucks money out of you.

But to make my glib response more serious, one way the argument from competition can break down is if they lose money on the people who watch them like hawks, raise a stink when they try to weasel, etc, while making obscene profits on the people who don’t have time for that shit. And of course they lose money on crazy reckless people which they have to make up for on average people (like you, you presume — if not, see my reason #1 that insurance can be rational).

Another potential flaw in the argument from competition: When the cost to enter the market is so high, efficiency can’t be taken for granted.

Finally, peace of mind is so rampantly overvalued (or just blatant failure to understand the underlying math) that I’m not entirely sure they don’t all make obscene profits on collision insurance, despite the competition. They do have a million ways to avoid competing on raw price, after all. (Kind of like how laptop extended warranties are drastically overpriced because they tack it on to the laptop price and you shrug it off because, hey, what’s another couple hundred bucks?)

Simplicio: You argue that insurance companies wouldn’t offer you the bet unless the odds were skewed in their favor, but insurance companies fail all the time by underpricing risk. Look at AIG in 2008!

Salviati: Red herring. You can identify that in hindsight but in foresight you have to presume that they’ve priced the risk more carefully than you.

Simplicio: Just because in expectation you’ll lose some money doesn’t mean there isn’t a significant chance of you coming out ahead.

Salviati: Also beside the point. We certainly agree that you might come out ahead buying insurance.

Simplicio: Isn’t peace of mind worth something?

Salviati: Sure, I get it by having faith in the math and the calculated risk I’m taking.

Simplicio: It’s not just about the money when you buy insurance. There’s all the hassle of replacing your car and negotiating for repairs that they handle for you.

Salviati: This is a lame rationalization. It’s mostly about the money. In theory, sure, you might value that service highly enough, but in practice you’re probably drastically overpaying for it. (Not to mention that dealing with the insurance company can be a bigger nightmare than just buying a new car.)

Of course I’m going by hearsay here, never having bought collision insurance, but I also hear that they’ll blatantly screw you over time by raising your rates. So you have to keep shopping around and switching companies every few years. Maybe that doesn’t compare to the hassle of replacing or fixing your car but remember, that’s a certain hassle compared to a possible hassle.

Simplicio: The insurance companies may have a bargaining advantage and can negotiate better deals on repairs or replacement cars than you can. If they can repair cars much cheaper than individuals then the effective odds could actually be skewed in your favor, making collision insurance fully rational.

Salviati: Maybe. But mostly you’re just rationalizing again.

You could even imagine this being the other way around. If you’re paying the mechanic yourself they might offer to do a 90% repair — perfectly adequate unless you’re super fussy about your car — for much less money. But if insurance is paying then that option is off the table. They’re either doing the 100% repair or they’re not paying at all. If that’s typical then it’s actually more expensive for insurance companies to pay for repairs than it is for individuals. Which means more cider in your ear if you buy insurance.

Simplicio: The downside protection against significant losses just makes me sleep better. In other words, I just have inherent value for it. You can’t argue with that.

Salviati: Sure I can! Your utility function is all wrong! I’m actually kind of serious here. I think the reason this makes you happy is that you have disutility for experiencing regret.

But regret is not rational!

In hindsight I should’ve gotten the insurance, but there’s no such thing as making decisions in hindsight.

You should retrain yourself to not experience it (I’m still being serious). When you forgo the insurance and smash your brand new car the next day you need to think to yourself, “Sure, in hindsight I should’ve gotten the insurance but that’s actually a meaningless statement! There’s no such thing as making decisions in hindsight. In foresight, I made the optimal decision. Or, if not (maybe — though this is likely hindsight bias — I should’ve actually known how accident prone I was), then, well, I was dumb and there’s not much I can do about that either, except be less dumb from now on.”

Simplicio: Hey, you’re arguing that you’re necessarily getting screwed (in expectation) because the insurance company is making a profit. You could apply that reasoning to everything you buy!

Salviati: So you might think! But the difference is quite fundamental. It’s that insurance is fundamentally zero-sum — the only transaction is money going back and forth. When you buy a refrigerator, say, your value for it is huge. (If refrigerators cost $50k you’d probably suck it up and buy one — how the hell are you going to live without a refrigerator?) So you come out way ahead when you get it for [I haven’t actually the faintest clue what a refrigerator costs]. And Maytag or whoever does too. Win-win! Insurance is fundamentally either win-lose or lose-win.

Simplicio: I admit that I’ve spent more in premiums than I’ve gotten back in claims [necessarily true for most people!] but I wouldn’t have actually had the cash to cover the damages that one time I crashed my car.

Salviati: You could set aside the money you otherwise spend on premiums into an emergency fund.

Simplicio: Ha, as if I have that kind of self-discipline.

Salviati: Ah, so you need a commitment device! Get a friend to accumulate the money for you and not let you access it unless you crash your car. Think about the myriad advantages that has over giving the money to an insurance company. Like your friend doesn’t just keep your money if you don’t crash your car. Not to mention greater flexibility in what counts as valid grounds to tap the fund. The one disadvantage is the risk that you’ll crash your car before there’s enough money in the fund. Again: calculated risk.

Bonus Puzzle

Two people are driving along and they collide, totaling their cars. By bizarre coincidence they were driving identical fancy Italian custom-built cars — the only two such cars ever made! By further coincidence they have the same insurance company (and are both dumb enough to have collision insurance). The insurance company has a cap of $100,000 on their coverage, but of course wants to pay as little as possible.

So here’s what they do: They separate the two parties and ask them to write down the value of the car — any number from $2k to $100k, rounded to the nearest thousand. If they write down the same number then the insurance company will treat that as the true value and reimburse them both that amount. But if one writes down a smaller number then of course that amount will be taken as the true value. And to punish the one who inflated the value and reward the presumably honest one, the insurance company will pay $2k less to the former and $2k extra to the latter.

The question: What’s the optimal number to write down? (Assume all the usual ridiculous things: common knowledge of rationality, risk neutrality, pure selfishness, etc.)

Addendum

This article was discussed on Hacker News. I also discussed it with a real-live economist and we distilled the contention down to my claim that people are or should be essentially risk neutral for amounts of money that wouldn’t change their lifestyle. They pointed out that this claim is sloppy and thus not very convincing. I’m working on that!

Puzzle Answer

Congratulations to Arthur Breitman for solving the puzzle. It was a disguised instance of the Travelers’ Dilemma. Preposterously, both drivers should write down $2k as the value of their fancy custom cars. Here’s how it theoretically plays out (key word theoretically):

It’s impossible to rationally write down 100 because if your opponent writes down 100 then your optimum is 99. If your opponent writes down something less then 100 then you’re still better off writing down 99 than 100 (99 is either better or equally good). So 99 dominates 100. Writing down 100 is right out. You know that your opponent has figured that out as well.

But given that 100 is off the table, the same reasoning as above rules out 99 too! And you can see where this is going. Every single value is logically off the table until you get to 2. And given that you’ve logically deduced that your opponent will be writing down 2, it really is easy to see that it’s optimal for you to also write down 2. Write down anything bigger and you’re hit with the penalty and get nothing. So you’re best off taking the $2k.

What’s funny is that that’s so hyperrational that it’s insanely and literally idiotic. An actual person could never possibly do that. They could at most carry that backward induction a few steps. Like “I’ll write down 99 so if he writes 100 I’ll get 101. He’ll probably think that too so I’ll put 98 and get 98+2=100. But he’ll probably think that so I’ll put 97! At this point I really don’t know where he’ll stop so I guess I’ll just go with 97 or 98 and hope I luck out and end up just below him.”

Illustration by Kelly Savage.
Thanks to Dan Goldstein, not only for posing the question but for a fascinating debate on this topic. Thanks also to Sharad Goel, Bethany Soule, and Martin Reeves for contributions.

Footnotes

[1] If they don’t they’ll claim they should have and weasel out of paying.

[2] Or sell some stock, or even borrow some money.

[3] Economists call this the no-trade theorem. Economists are very boring.