Supposedly irrelevant factors

There is a version of this magic market argument that I call the invisible hand wave. It goes something like this. “Yes, it is true that my spouse and my students and members of Congress don’t understand anything about economics, but when they have to interact with markets. ...” It is at this point that the hand waving comes in. Words and phrases such as high stakes, learning and arbitrage are thrown around to suggest some of the ways that markets can do their magic, but it is my claim that no one has ever finished making the argument with both hands remaining still. 
 
Hand waving is required because there is nothing in the workings of markets that turns otherwise normal human beings into Econs. For example, if you choose the wrong career, select the wrong mortgage or fail to save for retirement, markets do not correct those failings. In fact, quite the opposite often happens. It is much easier to make money by catering to consumers’ biases than by trying to correct them. 
 
Perhaps because of undue acceptance of invisible-hand-wave arguments, economists have been ignoring supposedly irrelevant factors, comforted by the knowledge that in markets these factors just wouldn’t matter. Alas, both the field of economics and society are much worse for it. Supposedly irrelevant factors, or SIFs, matter a lot, and if we economists recognize their importance, we can do our jobs better. Behavioral economics is, to a large extent, standard economics that has been modified to incorporate SIFs.
 

Richard Thaler on behavioral economics. Again and again, studies have put cracks in the edifice of rational homo economicus.

SIFs exist in product design, too. The myth of the rational utility-maximizing user can be just as pernicious and misleading an assumption. If it wasn't, we wouldn't need concepts like smart defaults in apps, the design equivalent of nudges like retirement savings programs that are opt out instead of opt in.

Frictionless product design

Great post by Steve Sinofsky on the difference between minimalist and frictionless product design.

Frictionless and minimalism are related but not necessarily the same. Often they are conflated which can lead to design debates that are difficult to resolve.
 
A design can be minimal but still have a great deal of friction. The Linux command line interface is a great example of minimal design with high friction. You can do everything through a single prompt, as long as you know what to type and when. The minimalism is wonderful, but the ability to get going comes with high friction. The Unix philosophy of small cooperating tools is wonderfully minimal (every tool does a small number of things and does them well), but the learning and skills required are high friction.
 
  • Minimalist design is about reducing the surface area of an experience.
  • Frictionless design is about reducing the energy required by an experience.
     

This is a critical distinction that not many understand, but it's critical to absorb in this age where minimum viable product (MVP) and minimalist design are so in vogue. What you want isn't minimalism, it's something else. I had never come up with a concise way of encapsulating this “something else,” but Sinofsky's “frictionless design” is perfect, and his playbook of low-friction design patterns is worth internalizing for any product person.

To the untrained eye, a more minimalist design always seems like superior design, but often it leads to higher friction. A door that only swings one direction might be cleaner with no handle of any sort, but the handle is an affordance that clues a user into whether they should push or pull the door.

A lot of first generation mobile apps for well-established web products and services were so far from feature parity with their web brethren that they were arguably too minimalist. While the smaller screen size and touch interaction method forced some healthy simplification, some mobile apps lacked basic functions that users associated with the product or service, and thus the apps just seemed crippled. It's often a fine line between MVP and broken.

I download lots of mobile apps nowadays that are so in love with minimalist design I can barely figure out how to use them, and even after I learn, I've forgotten by the next session (unless it's an app that warrants daily or near daily use, a lot can be forgotten in between sessions). Lots employ gestures, which are very difficult to discover. Many employ icons without text labels and might as well be showing me hieroglyphics from ancient Egypt.

On the other hand, if you always listen to your earliest users, your power users, you often end up with a product that just gets more and more bloated and complex over time. I remember hearing someone say once that users only use 20 percent of the features in Excel, but every users uses a different 20 percent.

Low end disruption theory (one of the two dominant variants of the theory) says that products and services can grow to the point where they over-serve a market. At that point, a simpler, lesser featured, lower-cost competitor comes in to steal share from underneath you.

Since so many of the world's largest apps and services today are free, the cost advantage doesn't come into play as much when it comes to low end disruption in software, but products and services can absolutely over-serve on features. Instead of a price umbrella that competitors sneak in under, it's a complexity umbrella that leaves market openings for more intuitive customer experiences.

Lower friction design matters, and today the returns are higher than they've ever been. If you can build a lower friction mousetrap, it's often enough to create a new market even if the incumbent can do everything you do and more; in fact, it's often because they do more that you create a new market. Software is so powerful it can solve almost any problem, but don't forget the cost side of the ledger. Until we shift into a new design medium that isn't based around functionality mapped to icons and menus in screen real estate 2 , added functionality all comes with a tax on user comprehension.

  1. The most promising of these alternate design paradigms in the near term is text. In the medium term: voice. In the longer term, the most promising I've seen is virtual reality. All of those can map to behaviors humans learn from a very early age and thus the learning curve is dramatically flattened. Furthermore, screen real estate is less of a limiting factor.

How to solve chronic homelessness

Sam Tsemberis came up with a novel solution to solving chronic homelessness: give people homes, no strings attached.

Homeless services once worked like a reward system. Kick an addiction, get a home. Take some medication, get counseling. But Tsemberis’s model, called “housing first,” said the order was backward. Someone has the best chance of improving if they’re stabilized in a home.
 
It works like this: First, prioritize the chronically homeless, defined as those with mental or physical disabilities who are homeless for longer than a year or have experienced four episodes within three years. They’re the most difficult homeless to reabsorb into society and rack up the most significant public costs in hospital stays, jail sentences and shelter visits.
 
Then give them a home, no questions asked. Immediately afterward, provide counseling, a step research shows is the most vital. Give them final say in everything — where they live, what they own, how often they’re counseled.
 

You can read more about the Housing First model at Pathways to Housing, the organization Tsemberis founded and runs. What's beautiful about Tsemberis' approach is how it comes from a place of empathy for the homeless, rather than distrust or disdain, which is how the current system of helping the homeless approaches them. First he realized that these were people with an inherent resourcefulness and strength, contrary to most people's opinions of them as lazy drunks and drug addicts.

And so, it perhaps came as a surprise when, in the early nineties, he took a job in New York City doing outreach for the mentally ill, which brought him into close contact with the homeless. He soon sank into their hidden world, noting the complexity of its social rules and survival tactics. How some experts perceived homelessness, he said he realized, was fundamentally flawed. This world’s denizens, in fact, were profoundly resourceful.
 
“We were equating the severity of diagnosis with ability to function,” he said. “But surviving in homelessness is labor intensive, exhausting and complicated. It calls for a skill set of functionality.”
 

By living among the homeless and understanding their plight, Tsemberis saw that the stress of being homeless is so great it is almost impossible to recover while living on the street.

Housing First was developed to serve the chronically homelessness who suffer from serious psychiatric disabilities and addictions. Traditionally, the chronically homeless live in a cycle of surviving on the street, being admitted to hospitals, shelters, or jails and then going back to the street. The stress of surviving each day in this cycle puts a tremendous amount of pressure on the individual’s psychiatric and physical health. “Living in the street,” one Pathways to Housing client said, “It makes you crazy.”
 
The traditional structures in place to “help” the homeless population often make things worse, particularly for those who suffer from mental illness. Shelters and transitional living programs often require people to pass sobriety tests and other hurdles before they can be considered for housing programs. Housing is considered a reward for good behavior instead of a tool to help stabilize a homeless-person’s mental health. This attitude cuts out the people who need the support the most, effectively punishing them for their conditions. 
 

By following up housing with mental health treatment, Housing First has been able to keep the chronic homeless off the streets with a higher effectiveness than other models, at a lower long-term cost. Perhaps not surprisingly, the program cuts exactly along the fault lines of the debate between the Right and the Left on welfare.

Not everyone agrees. Although Housing First was adopted by the George W Bush administration, it remains unpopular on the right of the political spectrum, and not just among people who believe that citizens should “earn” state support. The initial cost of Housing First is expensive, and many people are resistant to the idea of providing housing for homeless drug addicts without first enrolling them on to a rehabilitative programme. 
 
This strikes at the heart of the debate about the root causes of homelessness, which is fundamentally about two arguments, according to Nicholas Pleace, a housing policy expert at the University of York and researcher with the European Observatory on Homelessness, an arm of the European Federation of National Organisations Working with the Homeless (Feantsa).
 
“There is the idea of essentially structural causation: economic downturn, cuts to welfare, service and benefits, limitation with services with, for example, regards to mental health and the care system,” Pleace says. “But then you’ve also got what we call individual pathology, which tends to be argued by those on the right, more about individual actions, choice and characteristics.”
 

The article notes that former New York mayor Michael Bloomberg was one of those opposed to Housing First, instead using taxpayer money to give the homeless one-way tickets out of town. In the years he tried a series of moves to lower homelessness, the Coalition for the Homeless note that homelessness in NYC rose to all-time highs.

This is yet another reason having more affordable housing in our cities is imperative. The world is moving into cities, and the rate of housing construction is not keeping up. One flaw of Housing First is that it doesn't work unless such housing is available, and the Guardian article notes that it hasn't worked to reduce homelessness in Los Angeles. The scale of the problem in LA is so large that Housing First can barely make a dent, so little affordable housing is available to use as a base to work from.

I won't pretend to have studied all the research on this issue with any sufficient depth, but the initial story caught my eye for more than just its counterintuitive solution but for how it came about. Tsemberis assembled a team of outsiders to think through solutions from a point of empathy for the people they were trying to help.

There was need of a change. So he assembled a very small, very unusual team. None of them had any training in homelessness. They, too, were outsiders. One was a recovering heroin addict. Another was a formerly homeless person. Another was a psychologist. And the last, Hilary Melton, was a poet and a survivor of incest.
 
“We were people who weren’t that far removed from the people we were serving,” recalled Melton, who runs Pathways Vermont. And so, over long conversations, they fashioned the rough contours of what would become housing first.
 

Isn't that often how the most difficult of problems are solved, with fresh thinking from fresh thinkers and a radically different perspective or approach?

Is it real 3D?

One of the sites I use at least a half dozen times a year or so is Is It Real of Fake 3D? It lets you know if a movie that is coming out in 3D was actually shot in 3D or converted into 3D in post. I don't love 3D movies unless they were shot natively in 3D. When technicians convert a 2D movie into 3D in post, they choose different parts of each shot to place at different depths, and the final product resembles dioramas seen straight on, with objects placed on several fixed planes of depth.

What's worse is that since a 2D movie is shot with only one camera, it can't replicate the full arc of vision of a movie shot in 3D, with two cameras. Typically, the two cameras used to shoot a 3D movie are shot with two cameras separated by the average distance between two human eyes. As you know from closing one eye, then the other, the distance between your eyes allows each eye to see a slightly different perspective on all objects in space, and our brains learn to combine those two images to produce a 3D perspective.

2D conversions can't just conjure what the 2nd camera would have seen from thin air. But since 3D tickets command a price premium, and since enough viewers seem to go for the fake 3D conversions, studios continue to crank them out in ever greater volume.

I bring all this up just to remind you that when you go see Mad Max: Fury Road, the movie I'm most excited to see this year, go see it in 2D. It opens Friday.

Ritual as urban design problem

Kavanagh identifies several influences weakening the urban Church as civitas. The many churches developed many different liturgies, resulting in what he calls “liturgical hypertrophy.” These were flattened and standardized, shrunk to centrally-manageable size and legible doctrinal authority, by the English Act of Uniformity of 1549 and the Council of Trent by 1614. At the same time, printed books ushered in the new literary consciousness, eroding the power of community ritual consciousness for European Christians.
 
But ancient religious practices (and their modern elaborations) are still performed in Europe; processions may still be seen winding through the streets of cities and small towns. Except for the occasional Palm Sunday procession, they are all but absent in the United States. The American urban design pattern — increasingly spreading even to small towns — is forbidding to the kind of religious practice that transforms space and time.
 
The American urban design pattern is characterized by, first, an orientation toward the automobile above all else; second, toward consumption as the main activity besides work; and third, toward efficient human storage. Human activities other than consumption and “being stored” – as in day cares, schools, prisons, offices, nursing homes, and “housing units” themselves – are made difficult and uncomfortable by the physical built environment itself. Religious activity and social activity, two main components of human flourishing that transform local environments, are increasingly rare and emptied of transformative power.
 

From a great piece at Front Porch Republic by Sarah Perry, whose work I've appreciated wherever it shows up online.

Many people are excited about all the free time self-driving cars might return to people, but I'm more excited to reclaim all the physical space currently dedicated to parking garages, parking spots on the side of the road, and roads themselves. If you had more self-driving cars in operation at all hours, you'd have fewer idle cars requiring space to park. A road that is four lanes wide, one on each side for parking spaces, one in each direction for traffic, could be reduced to two lanes, or maybe even one if self-driving cars could coordinate with each other when to head which way down a road. Now you'd have two or three extra car widths of road space that could be used to widen sidewalks, add dedicated bike lanes, grow trees or plants, and so on.

It is only when one travels to a city that was designed before automobiles became prevalent that one senses just how much of their surface area American cities have sacrificed to cars. Pedestrians have been trained to stay out of the road, it holds nothing but danger for them, and even when there are few cars around, that road space lays idle for the most part. It's a usage of land that is actively hostile to most people who are walking around the city, instead giving preference to cars, many of which are too large, most of whom only hold one person, and a large percentage of which are just driving around in search of a parking spot because street parking is priced too low and public transportation is under built.

The next time you're out in the city, look at the width of the sidewalk you're walking on and compare it to the width of the road off the side. Then travel to Europe and stroll around a town like Seville or Florence and do the same arithmetic. Or you can just use Google Street View or an online image search for a cheaper, if less charming way to complete the exercise.

A street in Seville. If you add up the sidewalk space, it's almost as wide, if not as wide, as the space dedicated to cars and motorcycles. But this understates the pedestrian-friendliness of Seville because people feel very comfortable walking on the roads in Seville, not just the sidewalks.

Market Street in San Francisco. It is the widest street in San Francisco, but the ratio of street space dedicated to automobiles to sidewalk set aside for pedestrians is similar to that of other streets throughout the city. As a pedestrian, the difference in feel between walking in a European city like Seville to an American city like San Francisco is palpable.

Negative interest rates

It’s not unusual for interest rates to be negative in the sense of being lower than the rate of inflation. If the Federal Reserve pushes interest rates below inflation to stimulate growth, it becomes cheaper to borrow and buy something now than to wait to make the purchase. If you wait, inflation could make prices go up by more than what you owe on the loan. You can also think of it as inflation reducing the effective amount you owe.
 
What is rarer is for interest rates to go negative on a nominal basis—i.e., even before accounting for inflation. The theory was always that if you tried to impose a negative nominal rate, people would just take their money from the bank and store cash in a private vault or under a mattress to escape the penalty of paying interest on their own money. When the Federal Reserve slashed the federal funds rate in 2008 to combat the worst financial crisis since the Great Depression, it stopped cutting at zero to 0.25 percent, which it assumed to be the absolute floor, the zero lower bound. It turned to buying bonds (“quantitative easing”) to lower long-term rates and give the economy more juice.
 
...
 
Now comes the interesting part. There are signs of an innovation war over negative interest rates. There’s a surge of creativity around ways to drive interest rates deeper into negative territory, possibly by abolishing cash or making it depreciable. And there’s a countersurge around how to prevent rates from going more deeply negative, by making cash even more central and useful than it is now. As this new world takes shape, cash becomes pivotal.
 

Fascinating. It's understandable why banks would want to move to a cashless society, but it might not be a bad idea. The mindset shift required might take a generation or two to overcome, cultural inertia being such a powerful force. What usually wipes the slate clean, as morbid as it may be, is simply the dying off of the previous generation.

Heist movies would be a lot less fun minus Brinks armored trucks and giant vaults filled with cash. I'm fine with a cashless society, but I may be more trusting of government than the average citizen. Those less trusting in government might be more inclined to have a virtual currency like Bitcoin replace cash, but virtual currencies come with technological opacity for the average person that carries its own trust issues.

Like chemotherapy, negative interest rates are a harsh medicine. It’s disorienting when people are paid to borrow and charged to save. “Over time, market disequilibria are dangerous,” G+ Economics Chief Economist Lena Komileva wrote to clients on April 21. Which side of the debate you fall on probably comes down to how much you trust government. On one side, there’s an argument to be made that cash has become what John Maynard Keynes once called gold: a barbarous relic. It thwarts monetary policy and makes life easy for criminals and tax evaders: Seventy-eight percent of the value of American currency is in $100 bills. On the other side, if you’re afraid that central banks are in a war against savers, or that the government will try to control your financial affairs, cash is your best defense. Taking it away “is a prescription for revolution,” Cecchetti says. The longer rates break on through to the other side, the more pressing these questions become.

Neighborhood destiny

A new study by the Harvard economists Raj Chetty and Nathaniel Hendren, when read in combination with an important study they wrote with Lawrence Katz, makes the most compelling case to date that good neighborhoods nurture success. (The Upshot has just published a package of articles and interactives on the study.)
 
Let me be upfront about my own reading: These two new studies are the most powerful demonstration yet that neighborhoods — their schools, community, neighbors, local amenities, economic opportunities and social norms — are a critical factor shaping your children’s outcomes. It’s an intuitive idea, although the earlier evidence for it had been surprisingly thin. As Sean Reardon, a professor of education and sociology at Stanford, said of the study, “I think it will change some of the discussion around how where children grows up matters.”
 

That's Justin Wolfers on this paper (PDF) by Chetty and Hendren.

Those earlier analyses grouped children who moved to a neighborhood as toddlers with those who moved in their late teens. So comparing all of the children whose parents won the lottery with all of those whose parents lost showed small effects. Yet if what matters are years of exposure to a good neighborhood — a hypothesis strongly suggested by the second of these two studies — then the effects might be very different, as those who moved as toddlers enjoyed most of their childhood in better neighborhoods, while those who moved as teens received few such benefits yet still had to deal with the disruption of moving.
 
Armed with this hypothesis and also newer data on the longer-run outcomes of these children, Mr. Chetty, Mr. Hendren and Mr. Katz reanalyzed the outcomes of the same families. (Full disclosure: Lawrence Katz was my Ph.D. adviser.)
 
And the findings are remarkable. In particular, the previous results actually hide two quite distinct findings, one positive and one negative. The children who moved when they were young enjoyed much greater economic success than similarly aged children who had not won the lottery. And the children who moved when they were older experienced no gains or perhaps worse outcomes, probably the result of a disruptive move, paired with few benefits from spending only a short time in a better neighborhood.
 

As Tyler Cowen notes, the biggest problem with poverty tends to be “you usually end up living near other poor people.” Or, as Judith Rich Harris wrote in her groundbreaking book The Nurture Assumption, a children's peer group may have a great influence on that child's outcomes than their parents. I first learned all this from Boyz in the Hood.

How does this square with the popular theory that general intelligence is most important to one's future outcome? I hypothesize some interaction effects between the two, with the right neighborhood being an environment most conducive to wringing all the potential from genetically inherited general intelligence. Peer emulation or peer pressure exerting an activation effect.

Whatever the reason, it's clear how complex it is to break the cycle of poverty. So many nested problems, from education to urban planning to crime, all nearly impossible to isolate.

Light

The smartphone is the dominant camera in the world now, combining best in class portability with good enough quality. I still own an SLR, though, because for some special situations, the superior lens selection and larger sensor is worth its larger form factor (among other qualities).

Light is a company with a novel approach to bringing smartphone cameras up to SLR quality.

Rather than hewing to this one-to-one ratio, Light aims to put a bunch of small lenses, each paired with its own image sensor, into smartphones and other gadgets. They’ll fire simultaneously when you take a photo, and software will automatically combine the images. This way, Light believes, it can fit the quality and zoom of a bulky, expensive DSLR camera into much smaller, cheaper packages—even phones.
 
Light is still in the early stages, as it doesn’t yet have a prototype of a full product completed. For now it just has camera modules whose pictures can be combined with its software. But the startup says it expects the first Light cameras, with 52-megapixel resolution, to appear in smartphones in 2016.
 

Artist's rendering of what a Light camera array on a smartphone might look like.

I've been curious to see how smartphones continue to improve camera quality. This seems like one credible vector.