Some time back I mentioned a great essay on the huge difference in ethical norms between normal people and business people using the mortgage industry as an example.  In effect home owners and thier friends see it as dishonorable to walk away from an underwater debt, while commercial actors see it as dishonorable not too.  The commercial actor would probably call it incompetent or weakminded to keep paying an underwater debt you can walk away from.  Last weekend Roger Lowenstein, in the  NY Times magazine, had  an article arguing that home owners should change their norms.

If your want to think about this question the first essay is much more interesting than the short article in the Times.  But, Lowenstein did one thing that got me thinking.  He enumerates a few examples of large banks walking away from large mortgages that they hold, mostly on commercial properties.  For example a mortgage on five buildings in San Francisco.  Which got me wondering about orders of magnitude.

It’s hard to be find good data but it looks like those mortgages were worth about 2 Billion dollars. Just cause it makes the arithmetic easy let’s assume that a house mortgage is  typically  two hundred thousand dollars.  So that walk away is the equivalent of ten thousand home owners walking away from theirs.

I don’t know what you can do with that number though.  The commercial mortgage market’s troubles are lagging the homeowner market.  There were about 2 Million foreclosures last year; and maybe 11 Million households that are underwater.  But I haven’t seen numbers for how many commercial mortgages are underwater.  Nor have I seen estimates for what the  probabilities  are that mortgage holders of various kinds will walk when they are underwater.

There is an  argument  that many household mortgage holders do not have the cash at hand to fund walking away.  To walk they need to switch to renting, and that typically requires first and last months rent and possibly a security deposit.  Walking away may save them a lot of money in a 2-3 year time frame, but they can’t pay the startup cost to stop the bleeding.  Sounds like a  opportunity  for some clever banker, probably somebody in the check cashing biz.

One thing this chart,

via Krugman, got me thinking is that though the commercial real estate market peaked later their norms mean that they will walk away faster, while the housing markets norms mean the walk aways are going to play out much more slowly.  Does that mean we will get a double whammy, both happening at the same time?

I’ve been thinking a lot about norms, because of this  fascinating  paper: Norm of Self-Interest (recommended many times by Andrew Gelman).  It points out that once it becomes conventional wisdom that people act in a self interested manner people become increasingly likely to conform to that expectation.  I’ve started noticing how often the when faced with a “why do you…?” attack people take shelter in the safe haven of  a self-interest  explanation.  I too recommend it.

Just sat thru the live feed from the Nexus One press conference.  Reading only slightly between the lines it sounds like they announced just what I wanted to hear, a new distribution channel.  More phones to come, and more carriers as well.  In particular during the Q&A it was pretty explicit that blowing up the current costs associated with the store & agent based selling model is part of the scheme.  It will be interesting to see were the value pricing, discounting, etc. goes next.  And there remains a real tipping point when the plans finally stop including a subsidy for the phone’s cost.  I was a bit surprised that T-Mobile (and Sprint, and Verizon) wasn’t at the event – that really signals something but I’m not entirely sure what.  Finally this event had the production quality of middle school play.  I find that weird.

Update:  Another version of this story.

Lordie! I’m Glad that’s over, what a  truly  awful year it has been; for me personally at least.  The decade was good though. I learned and puzzled out a lot.  Stuff I very much wanted to learn.  Started a lot of things, most failed but that’s to be expected.

For my country: the decade – oh my – what a train wreak!  Decades of increasing polarization have born ugly fruit.  The last year has been a huge improvement on that front.  One can hope we have turned a corner, but so so far to go.

One can always hope that  this is true: ‘adults learn best if presented with what he calls a “disorienting dilemma,” or something that “helps you critically reflect on the assumptions you’ve acquired.”‘

Better going forward, that’s the plan.

Here’s a thought provoking story about on-demand labor, Amazon has a fufillment warehouse in some low population rural area.  Of course once a year they need more labor, what to do?

Workers from Tulsa were adding a 4-hour round-trip commute to an already grueling 10-to-12 hour shift, Cherie is quick to add. “They’d get there exhausted.”

Enter the workcampers, people making a go at living in their RVs full time-many of whom might be otherwise overqualified. “I think Amazon was skeptical at first,” says Cherie. “But after the first trial year they were very, very impressed. Workcampers came in enthusiastic about working, since most are professionals. We’ve owned businesses or been managers.” White collar workers, trying their hand at the gypsy life. Even better, the workcampers were able to stay locally.

I gather that across the nation the unemployment rate tends to even out.  More because people leave areas with high unemployment rather than because the areas in question spin up jobs for the available labor.  How quickly can that happen?  Faster, I guess, if we all owned RV’s instead of houses.  When I was comunting to Mountain View as part of my job I would often arise before dawn.  At that hour you could see that lot of people live in RVs around Silicon Valley.

I love charts like this.

This chart implies that if you want to know what it costs to make something all you need to know is how much it weighs and how many are produced.  Note also that this is my favorite grid: log-log.  So, you get quite a large factor in the variance around that line.  And then, you don’t often see that curve on log-log graphs. The chart is taken from Dan Nocera’s Pop!Tech talk on “Personal Energy” which makes an interesting arguement about the shape of the industry we will need to solve the energy crisis; i.e. a few very big producers should produce the capital equipment which is then run locally by billions of households; i.e. down in the lower right of that chart. He’s the guy who’s lab at MIT found a new catalyst that they claim is a game changer when it comes to splitting water to get hydrogen.

A quick search didn’t turn up the original source, presumably by Schmidt and Slocum, of that chart.  Anybody happens to have a pointer, or better yet the paper?

Here’s something I hadn’t quite noticed before about the trade offs between reliability and efficiency.    This was triggered by the hearsay that yesterday’s troubles in the US air traffic control system are the fault of a single router.    I don’t actually believe that rumor.  That makes it sound like they design the system so it could not fail gracefully; more likely this was a breakdown in the hard part – implementing and maintaining the architecture for graceful failure.  So I was thinking about why that happens.    Which lead to noticing something I’d not noticed before.

If you want to make a system more efficient or cheaper a common trick of the trade is to roll up parts.  For example if you have five elementary schools in town it will be cheaper to roll them up into a single school.    That’s called economy of scale.    What your eliminating when you merge those schools are the redundant bits; i.e. maybe you don’t need two school Principals, two school nurses, two language labs, one great PTA president instead of one great and one who’s just ok, etc. etc.  If the redundant bits are a large portion of the overall cost then roll up is highly leveraged.

One of my utility companies charges me a base fee plus a fee for usage.  That base fee creates an incentive for me to merge my account with my neighbors.  The base fee is about $240 a year, so could each safe a $120 a year.  The benefit from rolling up accounts like that falls off fast.    That $120 a year is the economic motivation to roll up the account.  But notice that the motivation weakens as the coop grows.  If five of my neighbors get it together to roll up their accounts into a single account we’d save $960 a year – but individually we’d only save $192; or an addition $72 each.    The economic motivation for reducing the redundancy weakens quickly.

I’d noticed that before, and is other reason why the motivation weakens, i.e. the increasing coordination costs of the larger organization.  I’ve presumed that in different spheres of activity there are distinct sweet spots; but that’s not the topic today.  The topic for today is how this plays off against the problem of system reliability.

What I hadn’t noticed is how the motivations for economies of scale are at their most powerful just at the moment when they will do the maximum damage to your redundant system design.    For example if your running the FAA flight control network you balance costs against reliability; wearing those two hats is exhausting – not to mention confusing.    Those are very different kinds of expert skill.  So if Mr. Reliability is out sick and Mr. Efficiency is looking for his most highly leveraged move to reduce cost by merging duplicate system – well – that list will sort to the top duplications where 2 systems are reduced to one system.  And there goes your last bit-o-redundancy for that subsystem.    A complex real system has numerous subsystems and you need only loose it in one portion to put the entire system at risk.

Yup. I think I’ve got it. Wave? Wave is usenet, nntp, etc. Distributed bboards are back. Why didn’t I realize this sooner? Welcome back.

Michael Nielsen has a nicely written overview of “The Logic of Collective Action” Mancur Olson’s classic work.

Including this nice try at enumerating how to achieve solidarity around creation and maintenance of the public (or club) good.

• When it is made compulsory. This is the case in many trade unions, with Government taxes, and so on.
• When social pressure is brought to bear. This is usually more effective in small groups that are already bound by a common interest. With suitable skills, it can also have an impact in larger groups, but this is usually much harder to achieve.
• When it is people’s own best interests, and so occurs voluntarily. Olson argues that this mostly occurs in small groups, and that there is a tendency for “exploitation of the great by the small”. More generally, he argues that in a voluntary situation while some collective action may take place, the level is usually distinctly suboptimal.
• When people are offered some other individual incentive. Olson offers many examples: one of the more amusing was the report that some trade unions spend more than ten percent of their budget on Christmas parties, simply to convince their members that membership is worthwhile.

Doesn’t that kind of list that does more damage than good?  It is thought stopping.  It would be worse if it was shorter; since really there are only two means enumerated there:  bully or bribe.    The creating of common cause is much more nuanced than that.  For example the binding forces that hold together a professional society are so numerous and so individually weak that it’s hard to comprehend the effect if you start sorting them into buckets like that.  All the real vitality in each one of them is destroyed in the process.  You can see that in the suggestion that parties are an amusing way to spend money more the maintenance of solidarity  But yet it is a fun list.  And, it raises the question how much of the typical firms spend for improving staff solidarity is allocated to parties.  You might enjoy his whole essay.

Also rattling around in the I wish people would stop being so reductionist about social motivations part of my brain; is this article at the New York Times about the amount of money some firms are raking in by tapping into people’s impulsive behaviors.  The vendor thinks the 62 million people currently playing FarmVille on Facebook will generate $100 Million in revenue this year.  The few socially embedded examples in the articlereminds me of the term “hard to fake signals” (that’s in Clay Shriky’s book).    One means to a hard to fake signal is to include a third party, who certifies it’s not fake.

The ethical questions raised by the article are striking.

Game creators talk openly about their strategies … get them addicted  …”You put intentional friction in, … want to play at a faster pace can spend money,” Mr. Pincus said.

… competitive reasons to buy, too. Wendy… discovered very quickly … she would be trounced in every … she didn’t have enough fashionable items …

Particularly, when you run this up against people’s issues with impulse control.  Games with a purpose, indeed.

Science Friday interviewed a researcher who looked into how various bits of signage might increase the incidence of hand washing.  They were able to get a large sample by setting up shop in a rest stop.  A nice example of A/B testing.

Here is the key table from their paper.

The table has one section for men and another for women. What they put on the sign is shown in the first column and what lever they thought they were pulling is shown in the second column. In some cases I have my doubts that the statement was pulling the lever they think it was. The last column shows how effective the sign was compared to doing nothing.

I was bemused that the study authors thought it notable that what works on one group isn’t what works on another group (i.e. men v.s. women). I very much doubt the authors are unaware of the vast literature on the practices of discriminatory marketing. Presumably in a country like England which has deployed Orwellian social monitoring they should be able to customize the message based individual profiling. Web advertisers certainly try.

Experimental Pretesting of Hand-Washing Interventions
in a Natural Setting
Gaby Judah, BA, Robert Aunger, PhD, MSc, Wolf-Peter Schmidt MD, MSc, Susan Michie, DPhil, CPsychol, Stewart Granger, PhD, and
Val Curtis, PhD, MSc

Here’s an interesting way to look at where a large proportion of the population is poor. This chart shows low end credit scores.

That chart is lifted from this report from the Federal Reserve on the vicious alternative banking industry; i.e. payday loans, pawn shops, check cashing stores. These exist because on the one hand the regulators of the formal banking sector has been allowed them to abandon the low end customers and on the other hand these same regulators have allowed the parasites to fill the void thus created.

500% interest! With charges of 10$ to 20$ per $100 borrowed they are effectively charging 260% to 560% in interest. In the decade ending in 2007 the number of payday loan stores has grown by more than a factor of ten. In urban areas we now have one payday lender for every thousand people, and almost that many check cashing stores. Numbers that would clearly be higher if not for a handful of states that still have regulatory limits in place.

That chart’s alignment with the states with a strong Republican presence is another bit-o-evidence that Conservatives tend to prefer that Government look after the large economic entities rather than the small. Cause or effect? Does the ruling class tend to become increasingly disinterested in the small players when the little guys become so numerous, or do you tend to get a lot when so governed? I suspect, unfortunately, they go hand in hand.

hat tip: Infectious Greed