Monthly Archives: March 2018

Off-topic: fantasy inefficiency

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A commenter asks,

Have you thought about efficient markets and fantasy baseball?

I.e., if you knew the market prices (via aggregating other auctions from this year) for a standard Yahoo! league, can you think of a better strategy than trying to maximize the difference between those values and what you pay

I do not think that the market is efficient. For one thing, On Yahoo, prices seem anchored much too closely to the pre-draft values posted by Yahoo. I jokingly refer to it as the YSRP–Yahoo Suggested Retail Price.

But here is a major inefficiency. Suppose I told you that there is a pitcher who last year won 13 games, struck out 203 batters, had an ERA under 2.5 and a WHIP under 0.9 In a 12-team mixed league, in what round would you be willing to take that pitcher?

It sounds like a starter you would take early in the 2nd round. But it actually is the combined statistics of Chad Green and Chris Devenski, who in 12-team mixed league are drafted in garbage time if they are drafted at all. So we can not spend resources on a top starter and pick those two guys instead.

You cannot use that trick with hitters, because they don’t take days off the way pitchers do. If you have two first basemen who each hit 20 homers, you can only play one of them at a time (assuming all your other positions are filled), so it does not give you 40 home runs. Although dang if owners on Yahoo don’t act like they can play their bench hitters. Some owners draft a bench that consists entirely of hitters, which I think has to be wrong. If I have 5 players on the bench, then I want at most 3 hitters. The strategy I am favoring here calls for 3 pitchers and 2 hitters on the bench.

With four of the top middle relievers, the top of our pitching staff is taken care of. Fill out the rest with 2 top-tier relievers and 5 late-round starters. That means in the Yahoo format that 10 out of your first 12 picks can be hitters. (In an auction format, it means spending over $200 of a $260 budget on hitting).

Another way that the Yahoo Rotisserie format favors this approach is that there is no innings minimum but there is an innings maximum of 1400. If we find another closer early in the season and everything else is going ok, we might blow off wins and strikeouts to lock up the other pitching categories.

With this approach, I think we can come out of the draft close to the top in all five hitting categories plus the pitching ratio categories. We are near the bottom in wins, but not hopeless. We are decently positioned in saves, but that is a category that really gets shuffled once the season gets going. We’d better hope that the closers we chose are not among those who lose their jobs during the season, and it would be nice if we pick up one of the relievers who gets promoted to closer and does the job.

We will have a good ratio of strikeouts to innings, but we will be short of innings (late-round starters usually give you only 160 innings or so). If we can add a 6th starter without messing up our ratios, then we can be competitive in strikeouts.

In an efficient market, we should have a one out of three chance of finishing in the top 4. But with this strategy, I think our chances are closer to two out of three.

This year, I tried this strategy in a Yahoo money league. Money leagues are the only ones you can rely on to be reasonable. In other leagues, owners will bail out before the draft is even over, and then you are stuck playing the whole season with only a handful of serious owners.

Anyway, I executed the strategy, spending mostly on hitters. Fortunately, others in my league were not into this strategy. If anything, starting pitchers went above YSRP more than hitters did.

By May, when a hitter comes off the disabled list, nine of my ten hitters will be projected to hit at least 25 home runs (and my tenth is projected to hit just under that), with eight of the ten projected to have batting averages over .280. My team is not projected to be near the top in stolen bases, but that is not a big worry.

I only bought two middle relievers, but I will raise that to four right away, because I also took two players that I knew were on the disabled list, and I will immediately bring in middle relievers for them. When the two players return from the disabled list in late April, the plan is to keep the middle relievers and to drop my least-useful bench hitter and starting pitcher as of that time.

On paper, by May I will have a 1st-place team. But meanwhile, there is the actual baseball season, and nothing happens like it’s supposed to on paper.

The game-playing society

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My latest essay.

During the industrial era, the key word was systematic. Factories and assembly lines turned production into a system. We invented the discipline of political economy, which analyzed the capitalist system. From Leon Walras in the 19th century to the Congressional Budget Office today, economists have used systems of equations as a way of interpreting the economy.

. . .I claim that we are entering the era of games, in which the key words are scorekeeping and strategy.

The main idea in the essay is, if valid, really profound. Whole books have been written about less. Read the essay twice, and then see what happens if you look contemporary phenomena and try to view them through the “era of games” lens.

Will Jews divorce the left?

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The BBC prints a scathing letter from “Jewish leaders.”

When Jews complain about an obviously anti-Semitic mural in Tower Hamlets, [Labor leader Jeremy] Corbyn of course supports the artist. Hizbollah commits terrorist atrocities against Jews, but Corbyn calls them his friends and attends pro-Hizbollah rallies in London. Exactly the same goes for Hamas. Raed Salah says Jews kill Christian children to drink their blood. Corbyn opposes his extradition and invites him for tea at the House of Commons. These are not the only cases. He is repeatedly found alongside people with blatantly anti-Semitic views, but claims never to hear or read them.

More discussion by Dalibar Rohac.

Could something like this happen in the U.S.? Today, the vast majority of Jews in this country are more closely affiliated with the left than they are with Judaism.

Well, first of all, it may not be happening in the UK. It could be that these “Jewish leaders” are unusually conservative politically. I am not familiar with the scene there.

Many of my Jewish friends proudly took part in the march for gun control last weekend, expressing their solidarity with the left. But some of them also noted the DC Council Member who said that the Rothchilds control the weather. As of now, they see Democratic anti-semitism as a fringe phenomenon and right-wing anti-Semitism as a serious threat. We’ll see what happens as that view continues to collide with reality.

Ben Thompson and James Allred on Facebook

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It’s a podcast, and if you haven’t come across it yet, I strongly recommend it. One central point is that Facebook is an advertising company, which means that freely sharing their data with app developers was a strategic mistake (never mind the privacy issues). They claim that Mark Zuckerberg was too enamored of the platform model and too reluctant to accept an identity as an advertising company. They make the point that regulating Facebook so that it cannot give away data would be good for Facebook and bad for start-ups that otherwise could make use of Facebook’s data.

What they say makes sense, but:

1. Zuckerberg has built a powerful, successful company, and they are just kibbitzers.

2. One can argue that refusing to accept an identity as a ____ company has enabled Amazon and Google to be successful. Amazon has failed at some thinga, but they succeeded as a cloud computing company, and nobody really saw that coming. Google has failed at some things, too, but other things, such as buying YouTube, were successful.

3. In general, it seems as though these companies try to create new opportunities and then see which ones work, rather than decide what to do based on some grand strategy. They create “luck.”

4. Thompson and Allred point out that Facebook “stumbled” into being a dominant advertising platform on mobile. But maybe they stumbled into it in part by making opening up their data to app developers. Maybe if they had kept their platform closed, app developers would have been forced to operate independently, competing with Facebook or working against it rather than with it. As it is, they helped steer Facebook into the mobile market.

Listen to the podcast before making your own comments.

A question on the President’s tariffs

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From a reader:

What’s the best case you can make for Trump’s tariffs?

This is one of the harder questions that I have been asked.

First of all, the phrase “Trump’s tariffs” hits me the wrong way. It should be the job of Congress to set tariffs. They should never have passed whatever legislation it is that gives the President the authority to set tariffs.

But trying to be charitable:

1. Maybe he is really using them as economic sanctions. Think of them as a way to reward friends (by giving exemptions) and punish enemies (by not doing so). The problem with trying to justify the tariffs this way is that the victims of the sanctions are people in both the U.S. and other countries, not the leaders of other countries. If you are going to give the President any points for this, you have to believe that economic sanctions have great symbolic meaning and that this symbolism will affect other governments’ behavior. Not easy to buy that.

2. Maybe tariffs are an example of the “least-harm principle,” which is that if somebody is committed to doing something bad, you hope that they pick the tactic that does the least harm.

I first formulated the principle my senior year at Swarthmore Colleg, which was when the Lettuce Boycott became the cause du jour on campus. Some of my fellow econ majors wanted to raise objections to the left’s insistence that the dining hall only serve union-picked lettuce. I suggested that we should not bother, since there were so many bigger issues around. “It’s the least significant issue they could have chosen. We should be happy that this is what they are focused on. Call it the least-harm principle of knee-jerk liberalism.”

So, maybe the tariffs are the least-harm way for Mr. Trump to satisfy the trade-nationalists in his coalition.

Russ Roberts and Ed Glaeser on the secular decline in employment

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Strongly recommended. Glaeser says,

the changing nature of innovation has meant that there’s more of a complementarity between skilled workers and other skilled workers rather than between skilled workers and unskilled workers. And in some sense, I often say that sort of every non-employed American is a failure of entrepreneurial imagination. . .That’s one aspect. A second aspect is . . . between 1950 and 1992, the inter-county migration rate–meaning the share of Americans who moved across county borders in every year–was never less than 6%. . . since 2007, it has never been above 4%. . . .prior to 1960 people moved to higher income areas. So, the farmers moved to Detroit. They moved to Chicago. The Okies in the Great Depression moved to California. So, there’s this migration to high-income areas. We’ve seen much less of that over the last 30 years. Particularly for less-skilled Americans. There’s very little that’s directed toward high-income areas. And, one possible explanation for this is that this has to do with the restrictions that we’ve put on housing markets in these areas. That, yes, you could find work in Silicon Valley if you are a less-skilled person working in, you know, a variety of service industries; but you are going to have to pay for housing in that area. And, the overall deal doesn’t look particularly good when you are kind of happy sitting there at home in Kentucky. So, this migration has really shut down dramatically; and that’s a second change.

These comments elaborate on an essay that Glaeser wrote last year, which I linked to when it first came out.

Inter-generational mean reversion

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Tyler Cowen, among many others, is intrigued by a study by Raj Chetty and others showing downward mobility of black males.

My view, which I came to in the process of reading Gregory Clark’s study of long-term heritability of income, is that inter-generational income has a large heritable component and a large random component. Over several generations, the random component washes out. But for the difference across a single generation, the random component matters.

This model suggests that when someone’s income is far above (below) the heritable component, it will revert to the mean. Children will do worse than parents who have enjoyed a positive shock and they will do better than parents who have suffered a negative shock.

If the shocks to income were normally distributed, then mean reversion would not produce any systematic pattern of children falling below parents or rising above them. So you would not expect the Chetty result in that case.

But what if the random component is not normally distributed? Suppose that what you observe in one generation are a few really large shocks on the up side, with a lot of smaller negative shocks on the down side. The next generation will then have some apparent big losers and a lot of apparent small winners. Depending on how you sort the data (Chetty appears to be looking at measures of income based on rank rather than absolute level), Chetty’s result could be an artifact of the random component. It might be that if he were to measure incomes three or four generations apart, the apparent downward mobility would disappear.

William Galston on immigration, sovereignty, and populism

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He writes,

make peace with national sovereignty. Nations can put their interests first without threatening liberal democratic institutions and norms. Defenders of liberal democracy should acknowledge that controlling borders is a legitimate exercise of sovereignty, and that the appropriate number and type of immigrants is a legitimate subject for debate. Denouncing citizens concerned about immigration as bigots ameliorates neither the substance nor the politics of the problem. There’s nothing illiberal about the view that too many immigrants stress a country’s capacity to absorb them, so that a reduction or even a pause may be in order. No issue has done more than immigration to feed populism, and finding a sustainable compromise would drain much of the bile from today’s politics.

Galston is likely to be regarded by the left as a traitor, much as David Brooks is viewed as a traitor by the right. If so, then this reinforces my view that if we had a proportional-representation parliamentary system, the center-left and center-right parties would be collapsing.

Clarification: the null hypothesis

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A reader asked for this.

The term “null hypothesis” comes from statistics. The word “null” means “no effect” and the null hypothesis is that an intervention has no effect on the outcome. If you were testing the effectiveness of a drug, the null hypothesis would be that the drug works no better than a placebo. If you do a study and you do find that the drug works better than the placebo, and this is not likely just an accident, then you reject the null hypothesis.

I apply the term “null hypothesis” in the context of education. My observation is that most of the time when an intervention in education is evaluated rigorously, it has no effect compared to a control group, or the effect wears out over time, or the effect cannot be duplicate in repeated experiments or at large scale.

Russ Roberts on worker exploitation

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He writes,

When free-market types like myself hear about a worker who is made uncomfortable by inappropriate language or inappropriate physical contact on the job, our usual response is: quit. You don’t have to work for a crude, or worse — abusive boss. And of course, you are free to quit, and many do. But what is clear from the MeToo moment we’re in is that many people couldn’t quit. Or at least they felt they couldn’t. They stayed in abusive work relationships. Women privately shared information about who to stay away from and who not to be left alone with. But they often stayed on the job and endured humiliation, gross discomfort and sometimes, much worse.

It’s a long, sensitive, thought-provoking essay. The issue is whether workers are only treated well if employers are “nice,” either by choice or by government dictate, or whether the forces of competition are sufficient to protect workers. My thoughts:

1. Russ brings up sexual harassment in Hollywood, which indeed does look like exploitation. I do not see how this phenomenon would have developed if there weren’t a very high ratio of wannabe actresses to prominent film producers.

2. I think that as the economy becomes increasingly specialized, it becomes harder for competitive forces to work in employer-employee relationships. The specialized worker has fewer firms to choose from, and the firm needing specialized skills has fewer workers to choose from. This creates more scope for social norms and idiosyncratic negotiating skills to affect compensation levels.

3. The phenomenon that I talked about, consolidation, also is a factor. If my hypothesis is correct that differences in executive skill at overseeing and deploying software are driving consolidation, then I would expect the high-caliber management teams to attract the best workers, in part because they can afford to offer higher compensation. But the strong firms also have leverage, because workers want to affiliate with them for better long-term career development. Meanwhile, I would expect workers at firms with mediocre management to have no bargaining power, assuming that they do not meet the standards of the stellar firms. Poorly-managed firms are threatened with extinction, which gives their workers no scope for demanding more compensation.

4. Getting back to social norms, I hope that going forward women feel empowered to say no to harassers and to get help from HR departments or Boards of Directors in getting harassers removed. But I do not think that public shaming ought to be the weapon of first resort.

5. I am worried about what can be defined as harassment. Back in the 1950s, there was a presumption that “nice girls don’t.” A man had to be patient and seductive in order to get consent. With the sexual revolution, there no longer was a presumption that men had to be patient. But “seduction” minus patience is hard to distinguish from harassment. Some people, especially on college campuses, think that the solution is to make the process of obtaining consent formal to the point of being legalistic. I think we would be better off, in a lot of ways, if instead we could somehow get back to requiring patience.