Reader responses: BIP! cards

September 30, 2008 by
Some time ago, I posted an open question about why Chileans keep such low account balances on their subway “BIP!” cards.
Glen and Alisha came back with fantastic responses, each worthy of their own post.
Alisha offers the cultural explanation (so like her..):
I’m sure that Glen gave you some rational explanation, but given that I’m a mere aspiring political scientist, I will give you a more interpretive response:
1)  Chileans love waiting in lines.  It gives them another form of oppression to discuss at work–I waited in line for 10 hours today and finally got on the metro…then I walked 8 miles through the pouring rain and smog after working a 15 hour day (with a 4 hour lunch break).

2) Chileans are irrationally afraid of crime.  Despite the safety of Santiago, they go nuts about crime, especially on the metro.  Maybe they think flashing a 10.000 peso bill will set them up to be pick pocketed (or at least get their Bip card ripped off)??  So maybe it’s strategic (or cool) to look poor among the rich, and then the poor are just poor so everyone gets miniscule sums on their metro cards.

Glen’s response was worthy for publication in minor journals of economics. He shows that it is economically rational for a Chilean to keep account balances as low as 1414 pesos. The full analysis is below — warning: The words “first-order conditions suffice for optimization” do appear. And .. oh lordy … it is glorious.


Thanks Glen and Alisha!


Assorted thoughts on the financial crisis

September 26, 2008 by
  1. I don’t understand the crisis. You don’t understand the crisis. 90% of the people writing about the crisis don’t understand the crisis (most guilty: Matthew Yglesias). You need a PhD and lifetime of work in finance / economics to understand the crisis and if this isn’t you then you don’t have the answers.
  2. My work mates were discussing whether this signals the beginning of the end for US hegemony.  Startlingly, the consensus was “yes” and no one challenged it. Laura volunteered “can we turn it back or is it too late?” Opinions were mixed. To me the other important question is “as a global society, do we want to turn it back?”
  3. Disruption always creates some chaos. Often it is followed by innovation. Call me optimistic, but I see this spurring a wave of innovation in the financial sector.  Katie sent me a quote: “Every financial system tests every regulatory system to destruction.” The idea that the financial system grows to put pressure on the bounds of the regularity system, requiring a new regulatory system seems very healthy to me. One step back, two steps forward. I hope.
  4. The executive compensation discussion is a red herring
  5. Related to 1) — given that our elected officials (who really have no more of a financial /economic background than you or I) are voting on this, I hope they have some smart advisers. Who is actually crafting these plans? Sure as hell isn’t the Senators themselves.
  6. $700 billion is a cartoonish and meaningless amount of money. Per taxpayer it is a few thousand dollars. We are not going to be sent a bill from the US government though. It will be debt financed like the Iraq War and pretty much everything else. If there was feedback between government apppropriations and tax bills, there might be more appetite for fiscal restraint. As it stands, this has more in common with personal credit card debt or a home equity line.  It feels like free money. If our tax bill went up in accordance to government expenditure (or if the future tax incidence was indicated on our tax form), this would all be more real.
  7. If enterprises are not, occasionally, failing are we being too risk-averse as a society and curtailing our potential economic growth? Occasional failure is probably healthy. Widespread failure certainly isn’t.
  8. Better safe than sorry: I am going to start building an Ark. Anyone selling 15,000 cubits of gopher wood?

Fear not

September 22, 2008 by

The Invisible Hand in Your Pants will return with a vengeance in the next couple weeks

Apologies for the lack of posting lately. You deserve better and your readership is important to us, even you Jeremy.

– Management

(For now .. find us on Google Reader)

Two questions surrounding receipts

September 7, 2008 by

1) What do waiters do when a customer adds the tip incorrectly on the receipt? Take the higher value or the lower one?

2) Why is there both a “tip” line and a “total” line on a receipt to begin with?  Isn’t one of those redundant? The tip implies the total and vice versa. Maybe a little arithmetic practice is good for keeping us sharp.

Re: Bathroom entrepreneurship

September 2, 2008 by

One more to add to Sam’s list: This one for the poor and rural:

A cheap, water-efficient toilet that does not require an extensive sewage system.

Bathroom entrepreneurship

August 30, 2008 by

Low hanging fruit in the bathroom:

  1. Toilet paper holders (the metal kind with spring inside) should be designed not come apart in if mishandled (they should be all one piece)
  2. Flush petals would make more sense than handles, especially considering the activity immediately preceding flush
  3. Event venues should design larger bathroom space for women than men given typical lines
  4. And of course, all urinals should have a target, for diversion and cleanliness!

You should floss! (or should you… ?)

August 27, 2008 by

If you are like me, this conversation has played out exactly the same way every 6 months for as long as you can remember:

Dental Hygienist: Are you flossing?
Me: Uh … probably not as much as I should
Hygienist: Well .. how often?
Me: Uhhh ..  once or twice
Hygienist: Per week?
Hygienist: You really need to floss!
Me: Starting today, every day ma’am!

And then you/I go home, floss that night and never again until the next appointment. When I was younger there was some measure of guilt associated with this. But now that I am old enough to rationalize myself into or out of about anything (as Nic points out), I’m free of my guilt fetters.

Why floss: Because there’s a chance that not flossing can lead to expensive and painful surgery down the road. But it certainly won’t kill you (will it?).

Why not floss: Because it costs money, takes time and may not end up actually preventing aforementioned painful/costly surgery.


Why not floss:

$3 container of floss x replacement every 4 months x 50 years of flossing life until surgery = $450

3 minutes per day * 50 years of flossing * $20 per hour (approx average wage in US) = $18, 250

Total cost of flossing = $18,700

Why floss:

Cost of surgery / recovery – Who knows? Let’s call it $10,000.

Painfulness of surgery – Let’s call it 50% of the dollar cost = $5000 (you’d endure the pain of surgery for 5 grand, right?)

Chances of surgery coming to pass –

Chance you  live until age of surgery (let’s call it 60 years) = 85%
Chance that you need the surgery if you live to 60  = don’t know .. let’s call it 50%

($ Cost + Pain) * Probability =$6,375 cost of not flossing

The weigh-in

Expected cost of flossing = $18, 700
Expected cost of not flossing = $6,375

No need to even bring PVs into this… QED

Flossing. Consider yourself rationalized out of my life. Feel free to bring this printout to the dentist next time he/she gives you shit.

Marketing – myths of origin

August 25, 2008 by

If they brought it from elsewhere, it must be good. Consider:

  1. Häagen-Dazs is owned by General Mills and the name was made up to make Americans think it was Scandinavian
  2. London Consulting Group is a firm based in Monterrey, Mexico, with operations all over Latin America – but an English motto (“Get more from your business!”)
  3. Bavaria is a Costa Rican beer distributed in Costa Rica
  4. Cerveza Polar is a Venezuelan beer distributed in Venezuela – with a Polar Bear printed on the label
  5. Fiji water… well okay, that actually comes from Fiji islands, but they have H2O in delicious form in Vermont for God sakes; also in less glamorous locations like… Minnesota

I agree with Phil that the local food craze is a bit screwy, but it’s not more irrational than many other powerful marketing influences – such as the foreign food craze.

Can any of the locavores please explain to me…

August 19, 2008 by

… that given the environmental impact of consuming locally grown food is, at best, insignificant, how it is morally defensible to take business away from a poor developing-world farmer and give it to an middle class farmer in upstate New York?

“Local food is fresher / tastes better” is a fine answer, but then let’s call a spade a spade: A vanilla consumer desire for a higher quality product, not a “lifestyle” and certainly not anything to get self-righteous about.

Chicken please

August 10, 2008 by

My liberal Boston high school used to hold an annual Oxfam “hunger banquet” to raise money and awareness for world hunger. Everyone in the school would draw a ticket to determine which meal they got:

  1. 15% get a normal cafeteria meal
  2. 35% get rice with a bit of gravy or beans
  3. 50% get a small portion of rice

Perhaps it’s time for Oxfam to change the game to reflect a changing world. Today’s middle class constitutes 30% of the world population, and that figure will rise to 52% by 2020 (see FP article). The growth will come in large part from developing countries (China, India).

This is great news for poor people, but also means increases in commodity prices (fixed supply on earth, rising demand). In addition, I can think of several big-picture economic implications:

  1. American hegemony will slowly recede as populations in other countries have increased access to education and military resources
  2. The new economic winners will no longer be those who use technology developed in rich nations to exploit natural resources or labor in poor nations (as during colonization, oil exploration, banana plantations, etc)
  3. The new economic winners will invent or apply technologies allowing fixed natural resources to meet growing consumer demand or otherwise increasing efficiency in peoples’ lives

The last of these suggests we should pay more attention to the Hand’s tech expert (here here here).

Endeavor in The Economist

August 6, 2008 by

Read it here.

Quite complimentary.

Previous Hand posts on Endeavor and entrepreneurship in emerging markets:

On Endeavor: Here and Here

On Endeavor Entrepreneurs: Here and Here

On (the struggles of) entrepreneurship in emerging economies: Here and Here and Here

Hostage Valuation: Gmail’s worth $10 billion

August 3, 2008 by

Forget your DCF. I want to propose a new way to value internet properties: The Hostage Valuation.

Is Facebook worth $15 billion or $3 billion. Who knows? But here’s a decent way to test that. (Other thoughts from Sam here)

Suppose Facebook decides to holds its user’s content hostage and demand a ransom. “Pay me X dollars or you can never use the service again and we’ll delete your account.” How much would you pay? Most wouldn’t cough up a single cent. But some would. And a few would cough up quite a bit.

Google, of course, would never do this because it has a brand to protect with a range of products. But just for fun, let’s do a back-of-the-envelope Hostage Valuation for Gmail.

Number of users: ~100 million.
Number of active users: Let’s call it 50 million.

Let’s try to figure out if held hostage how much ransom each of those 50 million users would pay for continued access to their inboxes/outboxes.

Starting with me: Certainly above $1000, but probably less than $10,000. As a certified email addict, would guess that I’m in the top 5% in propensity to pay, but probably not the top 0.5%. Based off of that datapoint I propose the following assumptions (open for debate):

Percentiles 0 – 75% : Flick off Google and don’t pay anything
Percentiles 75 – 95%: Willing to cough up $100
Percentiles 95 – 99%: Willing to pay $2000
Top 1%: Willing to pay $10,000 on average (probably a few rich, email-holics willing to pay $1 million raising that average)

That yields an Hostage Valuation of Gmail of $10 billion. Sound reasonable?

Couple notes:
1) Assumes that Google is able to price discriminate well. My guess is they could. Base it off usage stats and demographic estimation from data mining.
2) Notice how the top 1% of users is worth as much as the other 99%. That’s the Long Tail.
3) Any ideas under what conditions the hostage valuation is greater than or less than a standard valuation?

“What I’ve learned”

July 28, 2008 by

You know that recurring feature in Esquire magazine that features a painfully hip bearded celebrity, wearing a linen shirt and sandals, looking out into an impossibly blue ocean as he imparts those nuggets of wisdom formed from a lifetime’s worth of being an awesome dude.

I would never do one of those, because I don’t own any linen. But were I to, number 7 would be:

7: Despite our society’s obsession with “experience,” there is very little that can not be accomplished with three ingredients: A decent head on your shoulders, a little sweat, and Google.

What’s your PhD program or job teaching you that Wikipedia doesn’t already know? Better yet, what’s preventing you from giving it a go without the credential? Maybe we just love the program.


July 27, 2008 by

While Phil thinks Google beats Facebook (and I agree), I think Facebook beats LinkedIn.

It’s worth giving voice to the LinkedIn believers. They argue that Facebook’s distractions (photos, relationship status, wall comments, etc) make it unsuitable for business networking. The stripped down LinkedIn, then, offers more value in a business setting.

However they are thinking about on-line networking as if it were classified advertising: I want a 1998 Toyota Corolla priced near $10,000; or I want a 12-month lease on a two bedroom in the East Village of Manhattan; or I want a contact in JPM Sales and Trading who knows one of my friends. No frills needed, just show me the info.

No! Internet social networking should not focus on allowing people to “map out” webs of unknown people, like classifieds allow people to map out buyers and sellers. This is not a valuable service.

Internet social networking should focus on content about friends’ or acquaintances’ lives, such as photos, geographical location, current personal and professional activities, associations with groups, etc. Facebook provides these tools to allow people to stay in touch. It is entertaining because you are learning more about your friends’ lives. It is valuable because it facilitates quality real world interactions (and real world introductions too!).

Phil thinks that you will eventually be able to use the web to identify new people to meet in the real world(here and here). However with the exception of on-line dating, I have my doubts. The internet a much stronger tool for staying in touch. Leave meeting new people to the real world.

Tocumen International Airport, terminal 2

July 23, 2008 by

Tocumen International in Panama City is a hub for travel between Central and South America. I had the pleasure of spending several hours there on a lay-over with hundreds of fellow passengers.

Some statistics:

  1. Number of gates: 28
  2. Percentage of passengers speaking Spanish: >90%
  3. Percentage of attractive women wearing tight clothing: just right
  4. Percentage of unattractive women wearing tight clothing: too much for comfort but enough to make it interesting
  5. Number of electronics stores: 5, all mobbed
  6. Number of stores selling alcohol and perfume: 4
  7. Number of extremely lucrative Lacoste stores: 1
  8. Number of news stands and book stores: 0 (can’t explain this one: may have to do with exclusivity deals signed by other airport retailers)

Tocumen International is one environment to see Latin America’s wealthy interact.