Nasri and money

Today brings us to a post by Forbes and Samir Nasri. The argument made is that anyone would move to another job at double the pay. Yes, entirely correct. Especially when you don't make footballer money.

The author says that Nasri is just like everyone else. He goes to work for three things: money, money, and money. This is just the same tired right wing thinking that the only utility function involves money and that people (all of them) maximize utility (money making!).

This is just an absurd argument. Yes, there are people that do this, but there are many more that use other variables to maximize their utility.

If you make the average wage and someone offers you double the money for the same job, of course you'd go! If you make more money in a week that most make in 2 years, isn't there a diminishing marginal return to money? How much is too much? How much is enough? Should Nasri be content making only $150K a WEEK? Or would he be twice as happy making $300K a week?

The thinking that people are out to maximize one variable just doesn't work in the real world. That idea is a simplification to make predictions. When I studied the behavior of people on eBay that used posted prices (fixed) versus an auction, many sellers used a fixed price offering to their own detriment. They responded that they think they know what the market is for an item and set it accordingly. Others said they just wanted to clear inventory and were willing to accept something less than market value.

The author sums up his argument as such:

"So, before falling into the cliche, knee-jerk reaction of calling Nasri (and others) a greedy so-and-so, we should perhaps consider the realities of life."

Yes, that poor life a star footballer has. How could he have fed his family on $150K a week? They (footballers), the author argues, have a short career and basically become unemployed after football. Sure, that's probably true of the marginal, every day type of player. They make some money. But they don't make star player money. And unless the star players are incredibly stupid (probably not a bad assumption), they're set for life after 4 years!

Rep. Ryan, magic, and pixie dust

I just finished watching Rep. Ryan's saving medicare video.

I'm completely lost on how this is supposed to work economically. His argument is that because the person getting care is disconnected from the bill (and thus the cost), he doesn't care what it costs and has no incentive to seek the lowest cost and highest quality care. I guess this is supposed to be moral hazard.

Ryan theorizes that the best way to control cost is to have those seeking care pay for it. He doesn't mention that this is done through a voucher system and if those vouchers don't cover the cost of the care...well, the government has succeeded in transferring the cost of Medicare to seniors. Thus, if you are in that group and you can't afford the difference...you're shit out of luck.

Ryan argues that a single payer system (that's Medicare) has no incentive to lower cost and improve quality. But why not? A single buyer has tremendous leverage (monopsony power) in negotiating cost and potentially quality.

But let's get back to Ryan's plan. He wants to have people buy their own insurance. With the idea that this will somehow be competitive and that health care "customers" have the incentive to seek the best care at the lowest price and will "punish" those care givers that don't meet their needs. But this assumes that the market for medical care is competitive. Is it?

Many years ago, Kenneth Arrow tackled this. Basically, a market solution for medical care is not possible. Consumers cannot discipline sellers because the demand for the services is not regular. In fact, it is uncertain. Is there a menu for treatment at your doctor's office? Nope.

Even if consumers were "empowered" to get the best insurance, there is no incentive on the part of the consumer to shop around. Why? They, according to Ryan, don't pay for it. The insurance company does. So what Ryan proposes is replacing one form of bureaucracy with another. Except, the insurance company has an incentive to deny coverage to those that need it and cover the people it believes won't need a lot of care. The money is in the insurance premiums, not in finding the lowest cost of care.

Which leads to another question, if the key to Ryan's plan is to give individuals power to find the best care, how can an individual enforce quality when the individual (likely) does not know as much as the doctor in regard to the best course of action in care? This is what we like to call an information asymmetry. What's needed is a third-party to reduce this asymmetry or some mechanism that weeds out good from bad.

A market solution won't solve the problem simply because the market is in it for profit, not for your well-being.

BMW ultimate driving experience: who is it for and more brand loyalty

I was invited by BMW to go to something they billed as the ultimate driving experience. I was expecting more of the driving school, but more on that later. This took place in Baltimore in one of the parking lots of the M&T stadium.

I pulled up and immediately noticed the sheer number of BMWs in the parking area. They weren't for driving, but rather the cars of the people invited to the event. You're probably wondering why invite people to drive a BMW when they already have one. As in my previous post, it's more about the experience and generating loyalty in the brand. This, theoretically, generates word of mouth for BMW. Other companies also put on these types of challenges, but it's more direct. You see Ford or Hyundai commercials showing "real" people trying out their cars and the cars of their competitors and no surprise...everyone loves Ford or Hyundai in the commercial and is willing to trade their old car for that particular brand.

However, BMW's approach is quite different. They create an experience. They are one of the few manufacturers to put on driving schools that teach people how to properly control their cars. You don't have to own a BMW to take these courses or even be invited to these events. You drive a BMW and push it to its limits. OK, maybe not all the way there, but more so than you'd get in a test drive at a dealer or on the open road. And they deliver on the experience and look, it's making me write about it!

I arrived, filled out the waiver and waited for my 11:00 "class." There was a simple introduction slide show about the 3 series. I also noticed a glaring typo on the description of the 328xi: it comes with a stepronic automatic transmission. Pretty bad to get the name of your transmission (stepTronic) wrong in a "professional" slide show. Pretty sloppy. We found out that we'd be testing out the 328xi against some of its competitors: the Lexus IS250 AWD, Mercedes C300 4matic, and the Audi A4 2.0T Quattro. We got a little intro on some basics of car control: keep your eyes up and head pointed where you want to go, some quick stuff on under/over steer and correction and then to the cars.

2 at a time with an instructor in the passenger seat. They set up a little course in the parking lot where you could probably hit 50MPH in a straight away, couple of turns and a hairpin turn. You got 2 laps in the car. They also set it up as essentially a controlled experiment where you get to drive each car under the same conditions, the only difference being the car. You also got the 328xi twice in the comparison.

I started out with the 328xi, then the Lexus, the Mercedes, a 328xi again, and then the Audi. The 328xi is solid and gives good feedback in the wheel. It's not the fastest car (stupid GM transmission), but handles quite well. The Lexus looks very nice but has a few drawbacks. It is extremely cramped. It's almost like taking a shoe horn to fit into the cockpit. It also lacks power and it is sloppy on the suspension. You can feel the roll in the turns. Not very good. The Mercedes is competent. I'd rate it #3 in this line up. The Audi has nice power and torque, but it's a 4 banger turbo. It's got great pep, but the steering is very light. It doesn't give you the same feel on the road as the 328xi. Thus, the Audi is #2.

It should come as no surprise that the BMW comes out on top or that they give you one last drive in it. After all, the last experience sticks with you in the comparison.

So what does putting on these events do for BMW, especially when they invite people who tend to already have a BMW? Again, it's about connecting the consumer to the brand and showing the consumer what they can do with the car. It creates a loyalty to the brand and builds brand awareness. It really comes down to buzz about BMW. I don't know many other manufacturers that put on these events to showcase their brands and the driving experience.

Creating Brand Loyalty: BMW performance driving school

I think BMW has pretty much nailed brand loyalty and I've seen it first hand with their one day car control school. BMW offers a few more schools at their South Carolina manufacturing facility. These include a 2 day car control school, one and 2 day M schools, and a teen clinic.

How do you create brand loyalty? By creating and delivering on a great experience. I signed up for the one day car control school. I paid and got a discount through the BMW Car Club of America (15% off). I found out that others in the class got the school for free. Why give it away for free? I think the answer lies in the experience. If you make your customers want more by teaching them how to properly control their vehicle, they will so love the experience that they'll become repeat customers. They may also encourage their friends to try the courses and become hooked.

My one day school consisted of some class time before the exercises where we learned concepts of car control. Particularly, learning to look through the turn--keep your head pointed where you want the car to go. It takes some practice learning to not look at where you are going or what you want to avoid. You learn that the hands follow the eyes and by keeping your head pointed at where you want to go, your hands will follow and move the steering wheel.

After a little talk about that, it was time for the track experience. I got in a 335i with another student and we were lead out (3 cars) with the instructor in a M5. The first lesson was slalom. Move the car around 4 cones. We got a few drive throughs at slow speed to learn the technique. After a few rounds, the instructor parked and let us at the course one at a time at higher and higher speeds. The lesson again: keep your head pointed where you want the car to go. You'd be amazed at how quickly you learn to get the speed up as you slam the car left and right around the cones. It's fun!



Next, we learned about full ABS stops as well as turning while doing a full ABS stop. Now when most people use the brakes, you apply gentle pressure and avoid the whip lash. That's not what this is about. It's about getting up to speed and slamming on the brake. The car will literally shudder as it comes to a full stop. That's the ABS working to keep the wheels from locking--or what you may have learned before ABS: pump the brakes--that's what the ABS does. I had one spin out on this, but kept the car where I wanted it to go--but didn't slam hard enough on the brakes. You learn quickly though.



Then we switched with the other half of the class and switched cars. Next up, the 135i for the autocross lap. This is a 4 cone slalom, banked right turn, tight right turn, up a hill, left and accelerate to finish. Again, we got a drive through at low speed to show the course with the instructor. After a few laps, it was one car at a time. And as the speeds increase, if you stay in the car with your partner--you may get motion sickness. This is due to the change of directions from the slalom at high speed plus the other turns. But man was this fun.



Then it was lunch time. The BMW center puts on a nice catered lunch, of course part of the fee for the school goes for this. Everything is covered. I was a little concerned with eating lunch and then going on the skid pad. Before that, we had some more class time. We learned about under steer and over steer and how to correct them. With under steer, the car is not turning as much as you are steering it. To correct, simply take your foot off the throttle and the car will correct. This shifts weight forward slightly to give your front wheels more grip.

Over steer is a little more complicated. Over steer happens when the rear of the car is swinging out, causing the car to turn more than you want it to. When this happens, the rear wheels lose grip. To correct, you must turn the steering wheel hard in the direction the rear end is moving. So if you are turning left at high speed and your rear end begins to shoot out, you must correct by turning the wheel hard right. As with under steer, foot off the throttle! Then pause as you can feel the wheels getting grip back. Then correct (recover) the turn by turning the steering wheel back the opposite direction.

We practiced this technique in the 335i with one-on-one instruction. The skid pad is watered down and is a simple circle. First step in learning control is to turn off traction control and stability assist. If those are on, it's much harder to get the car to over steer or under steer as the car cuts throttle when this occurs to keep the car under control. Under steer is really simple to correct as mentioned in the class time: off the throttle.

Over steer is much harder to correct and I spun out a few times before applying the technique correctly. The skid pad has a yellow line on the inner circle and the idea is to keep your head and eyes focused on that as you correct for over steer, otherwise, you'll end up where you're looking. The correction must be done quickly and hard. Then pause and recover the turn. After that, the instructor turned on DTC and DSA to show how the car helps prevent these problems.



After the skid pad exercise, we went to an oval track for a 2 car race! The track was slightly wet and it was 5 laps. I won once and lost another. This exercise put everything together: speed, braking, looking through the turn, and possibly correction for over steer. I had to correct for over steer a few times and recovered each time. I was impressed with myself because it seemed like second nature and the training took over. I'd say it worked!

After the races, it was off to the autocross and a switch to the 135i for hot laps. 4 laps and try and improve your time. It was the same course as the morning session, but the pressure was on with the clock. The autocross was slightly different this time because we got a rolling start and had to stop within a box at the end of the lap. I think I got it up to 50 MPH before the the stop and you have to do a full ABS stop within that box, otherwise you get a time penalty. My best was 27 seconds. Someone in the other group was able to get a time in the mid 24s.

The last exercise was an accident avoidance one. In this one, we went up in trials from 30 to over 40 MPH and learned how to turn the car quickly left, center, and right to avoid an obstacle. After the correction, it was a full ABS stop. The instructor showed us how to do it at over 45MPH in an M5. The area where you get the car out of the way isn't very large. Maybe about 1 1/2 car lengths. And it's amazing that you can get the car to move like that in such a tight space.



And that ended the car control course. Back into the class room and a pep talk and a goodie bag.

I really think BMW hit it out of the park with this course. It makes me want to come back again for the next level: M school. Now you don't have to own a BMW to go to the courses, but I think after taking one, you might be inclined to get a BMW. I know I would if I didn't already.

I think the courses deliver an excellent experience and helps you get to know the product in a way you won't with a normal test drive at a dealership. The course shows how well the product is engineered and what you can do with it.

The outrage over AT&T continues...

Today, Josh Levy waxed poetic about the tiered pricing announced by AT&T. As I mentioned in my previous entry, the danger in the low data limits is the future. Something Josh also pointed out.

But the point I hate is that AT&T is somehow evil because they aren't charging at the cost of providing the bandwidth. In other words, Josh believes that AT&T is in a perfectly competitive world where the price is equal to marginal cost (and equal to marginal revenue). Unfortunately, that's not the case. AT&T certainly faces a downward sloping demand curve and will price where marginal revenue is equal to marginal cost.

The second assumption (and wrong) in Josh's post is that users are 3G-dependent. The pricing structure is encouraging use over WIFI. And may actually induce competition to provide access to the web over WIFI. Sure, there are hot spots where it's free. But what about competition occurring between 3G and WIFI? A world where you could pay for access to WIFI that undercuts the perceived outrage over the tiered pricing of AT&T?

As Jeff Ely pointed out, most costumers are probably overestimating their usage and this outrage over killing innovation is probably misplaced. Rather, it just creates a constraint that people will innovate around.

AT&T pricing

Ah the internetz is buzzing with the rip off of AT&T yanking the unlimited data plan. My former graduate student instructor has a nice analysis up on this.

Basically, Jeff Ely notes that the new plan punishes people who are bad at forecasting their usage, especially those that underestimate. But the kicker is that most people are probably overestimating their usage and thus paying too much.

Jeff points out that the economics of an unlimited plan just don't make sense unless there is zero marginal cost of providing the bandwidth. And there clearly is not. But Jeff misses the social marginal cost. As any AT&T customer knows, the network can get clogged and some have trouble getting a connection, or a consistent connection. Many on the internetz have posited that AT&T network problems for the iPhone are due to too many people using up a limited resource.

What AT&T is trying to do is to get people to internalize that social marginal cost. The people who use gigs and gigs of data will actually have to pay for it or cut their usage (or even leave the network). Could this mean that the AT&T network will actually improve as customers will now use the data plans where their marginal benefit equals the social marginal cost?

On a side note, I wonder what the future holds as data usage for new devices like iPad may go well beyond the current tiered plans.

Washington Post Fail

Brad DeLong has been railing against the Washington Post for some time. Mostly on politics, commentary, and editorials. Today, I extend that to television critics. Lisa de Moraes' column today took a look at the finale of Lost. And a lot of it is pure fail.

First, Lisa claims that everyone on the island was actually dead the whole time. Clearly, she didn't watch the last 5 minutes of the finale where Christian Shephard says that they weren't. Everything on the island happened when they were alive. Otherwise, the flash-sideways don't make sense. How would Jin and Sun remember their death if they were already dead?

Ok, if that wasn't the case, Lisa's next claim is that they were in some sort of limbo/purgatory and have now died happily ever after. Again, it appears that Lisa didn't even watch the show. Christian clearly explains that the flash-sideways of season 6 was a place that the survivors of 815 created so that they could meet again and then move on. The island itself was not some sort of limbo. Many people died there. Jack died to save his friends. He wasn't able to save everyone and his last memory of life is seeing Lapidus escape with a few of his friends on an airplane. The obvious solution to the Lost story was to take this copout and say it was limbo/purgatory. But it clearly was not.

Next, Lisa attacks the ratings. Sure they're down. But so is television in general, a fact not mentioned by Lisa. The way people watch TV has changed, again not mentioned. She matter-of-factly claims that the number (20.5 million) is hooey because that is the number of people who watched as little as 6 minutes of the show. In the same column, she says that 9+ million watched the Apprentice instead of Lost. Well, following that logic, many people watched as little as 6 minutes of that show.

But the key fail on Lisa is this quote, "...that 2.5 hour 'Lost'-apalooza contained a mind-numbing 45 minutes of commercials." That's mind-numbing? That's exactly what is expected in today's commercial television shows! The hour long dramas have about 42 minutes of actual show. Thus, there are 18 minutes of commercials in an hour of broadcast TV. Now let's take that logic to 2.5 hours of TV. Well 2 hours of TV would contain 36 minutes of commercials. Add in the half hour extra and you're looking at...drumroll...45 minutes of commercials! Exactly what you'd expect. Now maybe Lisa is remembering TV from 20 years ago when there would be 15 minutes of commercials in an hour-long show. If that were the case, you'd expect 37 or 38 minutes of commercials in a 2.5 hour show. Now 45 minutes of commercials in that setting would be mind-numbing.

Congrats to the Washington Post for failing once again.