Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, February 12, 2005

Increased Groping on Tokyo Trains

An application of the economic analysis of crime and punishment can be found in this story from the BBC (thanks to JC for pointing out the link here). People are packed together pretty close during rush hour, leading to many groping opportunities.

Reported incidents of sexual assault on Tokyo's trains have reached a record high, with 2,201 cases last year. This is up from 2,058 cases in 2003 and is triple the number of such incidents recorded in 1996.

The authorities have tried to reduce groping incidents by adding women-only cars. At the same time, they believe that groping incidents may not have increased as much as the number of groping incidents reported. One reason there have been more reported incidents is that
Reporting culprits has been made easier by the introduction of mobile phones with a camera facility, which allow the victim to take a photo of the molester.
But just in case it isn't all due to increase reporting of molestations,
The police said they planned to step up patrols on trains and platforms and urge rail companies to increase the number of single-sex train cars.
All of these changes are designed to increase the probability of detection of molesters. Increasing the amount of punishment might also have this effect.

Walmart and the Union

Bob Arne at Alway Low Prices posts that a Wal-Mart store in Quebec is closing because they could not come to an agreement with the union representing the workers.

Wal-Mart said it was shuttering the store in Jonquiere, Quebec, in response to unreasonable demands from union negotiators, that would make it impossible for the store to sustain its business. The United Food & Commercial Workers Canada last week asked Quebec labor officials to appoint a mediator, saying that negotiations had reached an impasse....

Some employees at the store said they believed the store was closing because of their agreement to join the union and several cried as they left the store.

Major losers in this battle will the consumers in Jonquiere. They will now have to shop at places offering less variety, higher prices, and/or greater travel distances. Sadly, the full nature of this loss will not likely be reported (if it is even mentioned) by the CBC (indeed, see here and here to see that CBC reported a great deal about the labour union's position and nothing about consumers).

Friday, February 11, 2005

India vs. China
Property Rights vs. Central Planning

Even though India and China had per capita GDPs that were roughly similar in 1980, now, 25 years later, China's economic growth has been much greater than that of India. But how long will that lead persist? Not forever, according to this article:

While India notched up average annual GDP growth of 5.9 percent from 1993-2003, China raced ahead at a 9.0 percent clip.

But a more favorable demographic profile, a stronger capacity for technological innovation and Western-style democratic institutions provide the potential for India to raise its game and catch up with its neighbor.

"It will be much easier for China to go from $500 to $1,000 than from $1,000 to $5,000," said Dominique Dwor-Frecaut of Barclays Capital in Singapore.

Tyler Cowen, of Marginal Revolution, has posted quite a bit about India, but he has not made any predictions as strong as these.

I like the concept of having well-established and easily enforced legal entitlements. India has had these for quite some time; they are clearly necessary, but not sufficient, conditions for prolonged growth. The other thing India is acquiring is an appreciation of the benefits of free trade. I cannot imagine these differences will be enough, however, for India's GDP per capita to overtake that of China any time in the near future.

thanks to Jack for the pointer.

Arafat's Money Maze

My friend, Jack, recently sent me a pdf copy of excerpts from a subscription-only article in the Feb 8th National Post of Canada (p37). The gist of the article was that Arafat had squirreled away considerable sums of money; furthermore, he kept track of his financial and political affairs on little notebooks that he carried with him, and sorting out his finances will be a long, complex ordeal.

When I tried to find another reference to this problem, I found lots of articles. But one that struck me was this 2002 interview with Reuven Brennan, a brilliant economist who specializes in the study of Economic Analysis of Law and Economic Anthropology.

... [S]uddenly you see that the treasurer (of the Palestinian Authority) is saying that Arafat has transferred I don't know how many millions of dollars and everyone knows that his wife is living on the fanciest avenue in Paris. He doesn't make a secret of that. Well, this is exactly the problem, it goes back to the subject of accountability. Here a country transferred capital to Arafat's government but without asking for any checks and balances and any accountability. Well then, he established his power, he more or less eliminated his competitors and the money didn't go where it should have gone. One lesson from that is you don't transfer money to a potentially corrupt government because it will just encourage corruption.

Throughout the interview, he draws some interesting parallels to the effects of how Canadian Aboriginal people have been treated.

The Future of Money

I carry out a very small percentage of my transactions using currency or cheques. Like many people, I use credit cards and internet banking. This doesn't mean I don't like currency, and it certainly does not mean I think economies will stop using currency in the near future.

First of all, currency is easiest for small transactions; the transaction costs of making a purchase using Interac or a credit card are sufficiently high that many merchants set a minimum for electronic forms of payment.

Secondly, I value my privacy. I can imagine, especially under some political regimes, that there would be times I would rather not leave a well-blazed electronic trail about the nature of my purchases.

But just because our economies are moving toward increasing use of electronic funds, that does not mean central banks will have no control over the money supply. It might mean the monetary mechanisms will become fuzzier, and it might play havoc with measures of M1, M2, M3+, M7, M16, etc.

The OECD has a book out on this topic, The Future of Money, which is available through Here's the blurb:
Money's destiny is to become digital. Throughout the ages physical money in the form of objects, coins and notes has increasingly been replaced by more abstract means of payment such as bills of exchange, cheques and credit cards. In the years to come that trend to virtual money will continue apace. As technological advances in ICT and biometrics come on-stream, as intangibles progressively become the primary source of value-added in the burgeoning knowledge economy, and as the public at large come to grasp the advantages of digital transactions, virtual forms of payment will dominate. How quickly will this happen on a major scale, and will cash disappear altogether? How will it affect our daily lives? Will it deepen already existing rifts in society? Does virtual money threaten control of the money supply, raising the spectre of greater inflationary risks? Or will it put central banks out of business? This book tackles these and many other critical questions, offering timely suggestions on why and how to make the transition to the world of digital money.
I honestly do not expect banks, central or otherwise, to be put out of business by the growth of virtual money. I can, however, imagine that we will see even fewer small-town branches and more competition from international near-banks like ING Direct.

Thursday, February 10, 2005

Obesity and the Social Security Crisis

John Chilton, The Emirates Economist, has two intriguing suggestions/ questions linking these two topics:

  1. If obesity causes early death, and if obesity is increasing in the U.S., then probably, on average, people will start dying sooner and the U.S. social security system will not have to pay off for as many years -- a huge savings for the system. Maybe the obesity crisis offsets the social security crisis to some extent?
  2. If obese people die younger, does the U.S. social security system [or, for that matter, any defined benefits retirement plan] discriminate against obese people?

Does even asking these questions jeopardize his academic career?
Is John Chilton the next Larry Summers?

Hotels, Peak-Load Problems,
and Sporting Events

Jacksonville Florida arranged for five cruise ships to be in port during the Super Bowl to provide additional hotel space for all the extra visitors.
The Super Bowl committee worked with cruise ship meeting planners Landry & Kling, which wrangled the five ships from three lines -- Radisson Seven Seas, Carnival and Holland America -- that have become part of the week's Super Bowl scenery.
What a brilliant way to deal with short-term peak demand by using a flexible physical capital base. It is not the first time it has been done, however.

...[It] had been done at the 1992 Barcelona Olympics and was part of the deal that helped Athens land the Games.

I wonder whether and to what extent the municipality must be involved in this type of arrangment. What is to keep a cruise line from making advance arrangments to berth in Vancouvre for the 2010 winter Olympics there and advertising their cabins as alternative hotel space?

Ban the Penny --- Again/Still

After my appearance on CBC radio last week, during which I discussed my recommendation that Canada stop minting pennies and nickels, I received several more telephone calls. One, from Professor Dinu Chande, deserves special mention.

Professor Chande, along with his colleague Tim Fisher at Wifrid Laurier University, published an article in Canadian Public Policy last year with results that are strongly supportive of my position.
Using 2001 figures provided by the RCM [Royal Canadian Mint], we have estimated that each penny cost 4 cents to produce and distribute. Furthermore, if the existence of the penny adds just one second per cash transaction, its cost to the economy increases to almost ten times its face value. Inflation will only increase the economic cost over time.

They found that if only mintage costs are considered, then the Royal Canadian Mint earns a bit of seignorage in producing pennies and nickels; but once distribution and other costs are considered, in 2001 the RCM lost over $24m producing and distributing pennies, and they lost over $3m producing and distributing nickels!
What a waste. But that's not all.

They also estimate that the user cost, in terms of delayed transaction times, is at least $64.9m, but unfortunately they valued that time at $16/hour, the average wage rate. To make the case stronger, I would want to ask what is value of the next best thing someone could be doing with that time? I would attach a value of only $4/hr, just to understate the case, which implies a user time cost due to pennies of $16.2m [I had done a back of the envelope calculation that I mentioned on-air and come up with $10m]. This is per year!

So the total costs of using pennies and nickels in the Canadian economy are roughly $44m per year at a minimum! and very easily could be much more.

What an outrageous waste.

Terrorism at Columbia?

Noted defence attorney, Alan Dershowitz, told an audience at Columbia University,
This is the most unbalanced university that I have come across when it comes to all sides of the Middle East conflict being presented.

... "Anybody who advocates for divesting only from the Jewish state ... at a time when Iraq was posing a great threat to the world, when Iran was posing great threats ... when China is oppressing million of Tibetans, when the Kurds are still denied independence and statehood, to single out only Israel for divestiture at that point in time cannot be explained by neutral political, even ideological consideration," Mr. Dershowitz said.

... A critic of Columbia's investigation of the professors, Monique Dols, 24, who is a student in the School of General Studies and a writer for the Socialist Worker, said Mr. Dershowitz's visit exposed the "political motivation" behind the student allegations.

"This is a man who wants to marginalize the pro-Palestinian voices on campuses," she said.
Yes. Marginalize, if that is the result of reasonable debate and discussion. Not silence and not intimidate, which seem more likely to be or have been the strategy of the pro-Palestinians at Columbia.

I know it is wishful thinking, but wouldn't it be wonderful if Israel and Palestine made peace, but the leftist crazies at Columbia and elsewhere couldn't bear it? [h/t to BenS]

Wednesday, February 09, 2005


Someone didn't like what I wrote about Bob Rae's recommendations for funding post-secondary education in Ontario. Summoning amazing rhetorical skills and impeccable logic, s/he wrote on a different blog:

F#ckn goof of an economics teacher:

[then quoted my posting in full]


... f#ck that econoclast. dude needs to get his clock knocked.

It is only a little disconcerting to read I need to have my clock knocked and see that the link is to my photo. [I'm sure you realize that in the original posting, the # is replaced by "u"]

Other Barriers between Israel and Palestine

Another example of the losses created when there are barriers to trade between two countries comes from this source.

Israeli Mobsters Smuggling in Meat from Palestinian Areas
By Haaretz

Israeli underworld figures have begun smuggling large quantities of livestock, eggs, and meat packed in "black market slaughterhouses" from Palestinian areas for sale within Israel, the Agriculture Ministry said Monday.

Over the past year, ministry officials intercepted and foiled attempts to smuggle thousands of sheep, goats, and cattle into Israel, as well as large quantities of eggs, fish and meat slaughtered in unsupervised plants set up near the Green Line border with the West Bank.

Link via Tom Hanna

As Tom notes, freeing up trade in food between Palestine and Israel would make residents of both countries better off: Israeli consumers would be able to pay lower prices, and Palestinian producers would receive higher prices. And the economics of comparative advantage demonstrates very clearly that these gains outweigh whatever losses would be felt by Israeli food producers and Palestinian food consumers.

If meat is being used to smuggle bombs and weapons, that is a different story.

Whose Fault Is It If I Order a Super-Sized Meal?

I cannot believe the obesity/fast-food lawsuits persist; they all rest on the Flip Wilson premise, "The devil made me do it," where in these cases the devil is some fast-food fanchisor with deep pockets. But one such case has recently been revived on a technicality.

Ted Frank at Overlawyered writes:

...the strategy is to keep filing frivolous lawsuits until random chance assigns a sympathetic judge who writes an opinion that creates a precedent that opens the doors for future lawsuits...

[the above links are courtesy of Dave Friedman]

As The Emirates Economist points out, with universal health care, people who overeat and underexercise impose the costs of their decisions on all taxpayers. And let me add that because we all bear these costs, the gubmnt then feels justified in controlling yet other aspects of our lives, in this case diet.

Erectile Dysfunction and
The Philadelphia Sound

Slate has a review by Seth Stevenson of this year's Super Bowl ads. For the most part he found them tame, uncreative, unchallenging, and ineffective. With this exception:

Cialis runs a spot backed by old-time pop hit "Be My Baby." And I have to say, erectile dysfunction and the Philadelphia sound go great together.

Is it just me, or is that line really funny?

This ad features genuinely old, wrinkly, unsexy people, and scenes of tenderness and affection. It's a far cry from the smoking-hot 40-something chick who talks dirty in the Levitra ads. These boner-pill brands are starting to mark out discrete territory—Cialis seems most intent on appealing to elderly flaccid people (Levitra, the people who still think they're smoking hot—flaccidity be damned).
He also links to this article which strongly suggests that GM flagrantly violated Tom Brady's property rights.

Tuesday, February 08, 2005

Ag. Subsidies: The View from the Land of Oz

I do not really believe the U.S. gubmnt is going to do much to reduce its agriculture subsidies. They might do a bit to make sure really rich people don't get toooo much in the way of gubmnt hand-outs, but that will be about it. The policy changes will mostly be placebo in nature --- it will look as if they are doing something, but they will not have much, if any, effect on world markets.

BrianF sent me this link on how the U.S. ag. support system is viewed in Australia:

Australian producers call it farming the US Treasury, and it's good money if you can get it. Over the past nine years US farmers have received more than $US131 billion ($170 billion) in government funding, allowing many to make more out of the government than they do out of their crops. (emphasis added)

Australian farmers have long complained those large subsidies depress commodity prices and corrupt world markets. But it has taken revelations about just who is getting this huge financial support to change public debate and policy in the US.

... [National Farmers Federation CEO Ben] Fargher says there is a growing understanding in the US that farm support is not reaching struggling family farms; that it encourages production in marginal areas at the expense of the environment and hinders diversification, as well as the larger problem of damaging opportunities for farmers in developing countries. "There are just so many arguments against subsidies," he says. "The logic points to reform. The problem is, it is a political issue. There will be US farm lobby pressure, and it has to go through the US decision-making processes."

The article specifically mentions cotton, wheat, and sugar as crops where U.S. policies are causing serious distortions in world markets.

One caveat to what I have argued: if the U.S. keeps losing so many cases before the WTO, the changes may have to be more substantial than the mere window-dressing I have suggested they will be.

Post-Secondary Education in Ontario:
The Rae Report

How our former Premier thinks we should fix higher education in Ontario:

Former Ontario NDP premier Bob Rae ... Monday released a list of recommendations — among them, a $300-million overhaul of student
assistance programs, and special legislation that would ensure a spot for every student in college or university who is eligible to participate — regardless of means. He also called for new grants that would allow 95,000 low-income students to enroll.

Mr. Rae said in order for colleges and universities to flourish, the Ontario government must increase spending by at least $1.3-billion
dollars by 2007-2008, including spending $700-million on improvements to the education system, from enrolment to graduate education.

Why does Mr. Rae want all taxpayers to fund higher education so generously? The same tired old arguments:
"It's an investment. It pays off for students themselves by providing for more rapid career advancement, increased job satisfaction and things as simple as improved health and longevity," Mr. Rae said at the Ontario legislature, where he released his report.

"Graduates are also more likely to give to charity, they're more likley to volunteer, they're more likely to vote," he added.

Note the classic errors here:
  1. There is no distinction between private and non-private benefits in the use of the word "investment". If students expect all these private benefits, I can think of only one possible reason to subsidize their expected receipt of all these wonderful private benefits: imperfect capital markets and extreme risk aversion by students. In other words, gubmnt loan guarantees might (depending on many conditions) make some sense.
  2. Note the classic confusion between causation and correlation. Students who graduate from university are more likely to give to charity, etc. But whatever induces these students to graduate might also be what is likely to induce them to give to charity. There is no good reason to assume that graduating from university causes them to donate more to charity. In fact, ceteris paribus, it seems equally likely that students who attend university would give less than they would have if they hadn't attended university.
  3. What is the elasticity of charitable giving, etc. with respect to university graduation? I.e., how much more will graduates give to charity because they attended university?

The major problem with university funding in Ontario is that too much money goes to rich people who use the justification, "What about deserving poor kids who can't go to university" to keep tuition too low. And it really bugs me that Bob Rae supports these types of arguments. (although in this report he does recommend allowing tuition to increase if it is justified. Ugh). Here is what I wrote about Rae's education policies when he was Premier over a decade ago. Neither of us has convinced the other.

My plan for university funding would be that we double tuition. And if we really care about poor people who would otherwise be unable to attend university, we then increase financial aid on the basis of need at the same time. It's called price discrimination, and it taxes the rich to subsidize the poor.

And for a really innovative way for universities to raise funds, consider this.

Bullying? on my campus?

That seems to be what Barb MacQuarrie, of UWO's Centre for Research on Violence Against Women and Children says.

And here is the reaction from Lisa of London Fog:
I spent four years at Western and I can honestly say that the worst bullying I ever experienced was from socialist professors as they forced their postmodern, 'equality' agenda on me. Apparently some of us are more equal and deserving than others.

I can easily imagine this is the case for many students at The University of Western Ontario.

Gubmnt vs. Private Sector Economists
The Impact of the Hockey Lockout

Or is it just bad reporting?

On Saturday, The Trono Globe and Mail carried a story, using Statistics Canada data and reports saying that cancelation of the NHL season would reduce Canada's GDP by $170m. [That's pretty funny when you realize how little value added there is from hockey in Canada.]

Just before Christmas, Statscan estimated that the hockey freeze was costing the economy about $17-million a month, from ticket and souvenir sales and broadcast revenue. If the entire season is lost, the gross domestic product could be reduced by about $170-million.

But of course that is not all lost output. People will likely spend their money on something else:

There definitely is an 'NHL effect' " said economist Avery Shenfield of CIBC World Markets, but "what you never know is to what extent it's offset by additional spending on other items," he said.

I am guessing that the Statistics Canada report probably also notes this diversion effect and the two reporters chose to ignore it (the story leads with a tale about a bar that has lost business due to the hockey lockout).

But a different, plausible explanation is that economists who work for Statistics Canada are either not as bright as (or ask different questions than) private sector economists.
In reporting the unexpected net loss of 5,700 jobs across the country during January, Statscan suggested yesterday that the silence in NHL rinks may be behind a drop in employment in tavern and bars.

I'll let you choose.

This article was sent to me by BrianF.

Monday, February 07, 2005

Declining Fertility in Iran

I posted earlier about the declining birth rates in Japan and other developed countries, but look at the dramatic change that has taken place in Iran (from the BBC [Thanks to Jack for the pointers here]):

In the 10 years from 1976 to 1986, the population rose by 50%, from 33
million to 50 million. At that rate, the census for the year 2006 would have registered 108 million Iranians.

During Iran's war with Iraq, there were strong incentives to increase the population. But in the late 1980s, the situation changed, according to this source:

Iran's population growth rate dropped from an all-time high of 3.2 percent in 1986 to just 1.2 percent in 2001, one of the fastest drops ever

... From 1986 to 2001, Iran's total fertility--the average number of children born to a woman in her lifetime--plummeted from seven to less than three. The United Nations projects that by 2010 total fertility will drop to two, which is replacement-level fertility.

The primary tools for bringing about this change have included greatly increased support for family planning, subsidized condoms and other contraceptives or vasectomies, and reduced bonus payments for larger families.

After all, people respond to incentives. But you knew I was going to say that.

American Woman

On Saturday nights, CBC Radio Two is running a retrospective about the greatest Canadian hits of the 1970s. One of the panelists nominated "The Hockey Song" by Stompin' Tom Connors, whose music is a true slice of Canadian culture; but his better songs are "Bud the Spud" [which is not about Bud Selig], "Sudbury Saturday Night" or "Tilsonburg".

I made sure I heard Stompin' Tom live a few years ago. I bought the shirt. I bought his autobiography (from the remainder table at Chapters/Indigo). I have a couple of his albums. He is a Canadian classic. But "The Hockey Song" did not make the top four, and deservedly so.

As of now (by their criteria), the top four Canadian hits of the 1970s are:
  1. American Woman by The Guess Who
  2. Takin' Care of Business by Bachman-Turner Overdrive
  3. Heart of Gold by Neil Young
  4. Raise A Little Hell by Trooper

"Heart of Gold"?? somebody put him out of his misery! That such a dopey song could make this list has to exemplify everything that is wrong with Canadian content regulations by the CRTC.

The Value of Time

A cremation technician in Regina, Saskatchewan, was fined and fired because he kept the coffin lids from some of the caskets he was supposed to cremate.

Russell Surkan was found guilty of professional misconduct by the Funeral and Cremation Services Council of Saskatchewan, an independent provincial body. Surkan, 60, insists he did nothing wrong, since the lids were going to be burned anyway.

Why did he do it?

It made the burning process quicker, expediting the workload.
I.e., it saved him time.
Unfortunately the full story seems to be available only by $ subscription here or here, but there are many more interesting details. [h/t to Jack]

Sunday, February 06, 2005

Farm Subsidies To Be Reduced in the U.S.?

I will believe it when I see it, but there is increasing pressure on the U.S. gubmnt to reduce and/or eliminate farm subsidies (registration req'd). Some of the pressure comes from taxpayers concerned about large fiscal deficits; some of it comes from foreign gubmnts who see the U.S. subsidies (and dumping of U.S. farm products abroad at prices substantially below costs) as unfair trading practices. [h/t to BrianF for the pointer; also take a look at what Ben Muse has posted recently on this same topic; his posting and links specifically address the foreign trade aspect of farm subsidies.] The quotations below are from the NYTimes:
Agriculture Department officials said Mr. Bush's proposals would cut federal payments to farmers by $587 million, or about 5 percent, next year and would save $5.7 billion in the coming decade.

... Farm subsidies have been a major issue in global trade talks, as poor farmers in the developing world demand that the United States and other wealthy countries cut back subsidies for their domestic producers.

Predictably, farm lobby groups are opposing the reduced subsidies. At the risk of sounding a bit like Henry George, it is likely that reduced subsidies will have the biggest impact on the incomes of owners of fixed or immobile factors of production, such as land, production licences, and specialized human capital (mostly specialized in the mechanisms of feeding at the trough of the public fisc).

Here's more on reducing agriculture subsidies.

As an aside, I wonder what type of production function this spokesperson has in mind:
Mr. Collins, the Agriculture Department economist, said, "When the government subsidizes every bushel and every acre, it encourages large farm operations to grow larger."
Ordinarily, a per-unit subsidy to price-takers would not affect the minimum point on the LRATC and would not induce LR changes in the scale of operations (assuming free entry, which might be a mistaken assumption). Also, unless there are economies of scale in the paperwork involved with collecting subsidies, per acre subsidies would not necessarily induce movements to larger farms since the subsidies would generally be capitalized back into the rental cost of the land. What is it about U.S. farm subsidies that have increased the minimum efficient scale of farming?

Scatology and Economics

Someone just did a Google search on "scatology", and this blog came up because of this brief piece. Be sure to check out Dr. Stool before the ad expires.

Aftershocks in the Indian Ocean

The earthquake that caused the devastating tsunami has been having many aftershocks, as one might well imagine from an earthquake of that magnitude. Here is an interesting map, courtesy of Kent Budge at Trolling in Shallow Water, with plenty of information about earthquake and volcanic eruptions, along with LOTS of links to other information about the aftershocks.

He concludes ominously:

Meanwhile, we have our own worries closer to home. At Mt. St. Helens:

VANCOUVER, Wash. -- Scientists believe there is a significant chance of a small eruption of Mount St. Helens in the days or weeks ahead.

Other places that bear watching include
Long Valley Caldera, Yellowstone, and, of course, the San Andreas fault zone.

Who is the least-cost bearer of the risks of property loss caused by these events?

Why should anyone expect gubmnts to bail out people who choose to live near areas with reasonably well-known risks like these?

Quiz: Define "random" - -
The iPod Shuffle

When I was an undergraduate, 78 years ago, it took a long time for me to grasp the concepts of probability and randomness. All the examples seemed to involve drawing red, black, and white balls from an urn. My thought was, "okay, I'll try to play, but what is this all about?"

Then, to make matters really confusing, the examples began to distinguish between drawing the balls out of the urn and hanging onto them, versus drawing the balls out of the urn and putting them back into the urn. I never understood why people would want to draw balls out of an urn in the first place, much less put each one back into the urn before drawing the next one --- "but I might draw it again!" was my concern. I was not a very bright undergraduate.

In those courses, the distinction being made by these examples was "sampling with replacement" versus "sampling without replacement".

I think I might have a better handle on it now, 78 years later:

  • When they draw balls on television for lotteries, it is done without replacement. They don't draw a 41 and then put it back in the hopper so that it can possibly be drawn again for the same contest.
  • When your iPod shuffles its tunes, it does so without replacement if you listen to all the tunes. But if you restart it, the random process starts all over again; restarting the iPod puts all the tunes back in the mix. It samples with replacement.

This distinction is at the heart of the questions circulating on the internet about whether the "shuffle" feature of iPods is truly random. Many people become concerned/ puzzled/ disconcerted when some tunes on their iPods seem to come up more often and others are played rarely, if ever.

More specifically, when an iPod does a shuffle, it reorders the songs much the way a Vegas dealer shuffles a deck of cards, then plays them back in the new order. So if you keep listening for the week or so it takes to complete the list, you will hear everything, just once. But people generally listen only to the first few dozen songs. In theory, that sample should be evenly distributed among all the artists and albums in their collections. So why do you typically get three Wilco songs in an hour while Aretha Franklin waits in the wings forever?

The answer lies in the difference between sampling with replacement versus sampling without replacement. This guy (quoted in the same article) is off the mark:

Paul Kocher, president of Cryptography Research, puts it another way:
"Our brains aren't wired to understand randomness."

It may well be true that we don't understand randomness; but with the iPod shuffle, the problem is distinguishing between "with replacement" and "without replacement".

Next revision for the iPod? Make the shuffle feature random without replacement, even if you stop listening.

[Thanks to Craig Newmark, of Newmark's Door for the pointer]

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