When being bad is good

As you know if you've followed me for a while, I'm a bit of a sports stat nerd, and I'm a sucker for anything that highlights the intersection between math/statistics and sports. In that vein, this item from Nate Silver's FiveThirtyEight blog was one of the most well-done statistical pieces about sports and strategy that I've ever read.

In short, Silver wonders if--and proves that--it's in fact significantly better to draw an 11 seed in the NCAA Men's Basketball Tournament (hello, Gonzaga) than to draw an 8 or a 9 seed. In fact, an 8 or a 9 is pretty much the worst seed you could possibly draw--only the lowly 16 seeds (you know, the directional schools that you've never heard of unless you happen to be an alum) are in a worse competitive position.

The reason, as Silver points out, is that the winner of the 8 vs. 9 game earns the dubious privilege of playing their region's #1 seed in their next game. This matters a good deal, because the #1 seeds tend to be dramatically better than the 2, 3, and 4 seeds in their bracket--in other words, you want to avoid playing the #1 at all costs. Silver explains:

The root of the problem is that the relationship between team strength and seeds is not linear. Instead, the No. 1 seeds (and to some extent the No. 2 seeds) are often quite a lot better than anyone else in the field. They are also especially dangerous in the first two rounds because, under the “pod” system the N.C.A.A. adopted in 2002, these teams will almost always play within a few hundred miles of their campuses in what may amount to a de facto home game. It is worth going to some length to avoid facing one of these teams as long as possible, hoping that you get lucky and that someone else knocks them off.

The graphic that follows shows the average computer power rating, by seed, for teams playing in the tournament since 2003. These ratings also include a geographic adjustment. In the first two rounds, as we’ve mentioned, the No. 1 and No. 2 seeds (and sometimes the No. 3 seed) are generally placed at tournament sites that are close to their campuses, which further increases their advantage...

That little "S" curve in the chart (but most notably, the steepness between the 1 and the 4 seed) turns out to cause a good deal of havoc in seeding strategy. Without boring you too much with the mathematical details (you can read the whole thing if you're really interested), here's what your actual probability is of making it to the Sweet 16, Elite 8, and Final 4, based only on your seed (the Final 4 chart has been truncated to eliminate the high-probability top 4 seeds and focus only on the differences in the mid-range):

As you can see, even the 15 seed (this year: Long Island University, Northern Colorado, Akron, and UC-Santa Barbara) has a better shot of making it to the promised land than does the 8 seed (George Mason, Michigan, UNLV, and last year's runner-up, Butler). That's counter-intuitive, but the math doesn't lie.

As Silver points out, this is quite the problem, because it creates a bit of an incentive to lose--as long as you know you're likely to make the tournament field (which is common for a big-conference team), you're better off juuuuust sneaking in than you are fighting for every last win down the stretch. It's a similar problem to the "tanking to get a better draft pick" dynamic that the NFL and NBA have battled with over the years, and that has led the NBA to institute--and then constantly tweak--a "Draft Lottery" system.

So while it may be fun to watch that 8 vs. 9 game (yup), and we do every once in a while see an 8 or a 9 topple a #1, it's definitely not a good spot to find yourself on Selection Sunday. And, yes, Villanova, we know that you were an 8 seed back in the first year of the 64-team field. But George Mason (2006) and LSU (1986) were 11 seeds. So shhhhhhhhhh.

[FiveThirtyEight]

Gyms experiment with incentivization

Given my obvious interest in obsession with the topic of incentives, I was interested by this Boston Globe article (a couple of weeks old, but new to me).

Every year, we resolve to hit the gym more often and get fit. And by the end of January, many of us have missed workouts or given up altogether.

According to Yifan Zhang, a 2010 graduate of Harvard College, part of the problem is that customers see gym membership fees as money spent, or “a sunk cost, especially if you pay at the beginning of the year.’’ That prompted the idea for Gym-Pact in Boston, which she created with Harvard classmate Geoff Oberhofer.

Gym-Pact offers what Zhang calls motivational fees — customers agree to pay more if they miss their scheduled workouts, literally buying into a financial penalty if they don’t stick to their fitness plans. The concept arose from Zhang’s behavioral economics class at Harvard, where professor Sendhil Mullainathan taught that people are more motivated by immediate consequences than by future possibilities.

Zhang and Oberhofer translated that principle to workout motivation. If missing a workout cost people money, they’d be more motivated to stick with it, they thought.

In general, I tend to think that people respond more powerfully to incentives (positive inducements) than they do to punishments (negative impacts)--hence the proliferation of white-collar crime. But the immediacy dynamic that is cited in this piece is interesting and important--people respond to incentives most powerfully when the payoff is immediate, less so when it is delayed. That psychological tendency in large part describes the puzzle of why people (in general) do not work out more often.

I think that testing a concept like Gym-Pact suffers from some design problems (specifically, self-selection bias), given that it would take a very unique type of gym-goer to opt in to such a program. That is to say, the people most likely to choose to sign up for such a program are those who are most likely to remain vigilant about their workouts--a self-fulfilling prophecy of sorts. I'd be surprised if anyone who knew (or suspected) themselves to be lazy or fickle about their workout schedule would choose such a program, knowing that there was a high likelihood of a financial punishment. But it's an interesting concept nonetheless.

[Boston Globe]

Incentives vs. Grants

I came across an interesting post this weekend from economist Robin Hanson (whose blog I've teased here once before) on the topic of charity. He writes (bolding mine, italics his),

I’ve overheard many folks lately discussing what sort of charity most deserves their money. They consider the plans of various charities, and try to analyze the chances that such plans will lead to good outcomes. Most folks I’ve heard have been favoring various intellectual charities, where the money goes mostly to pay intellectuals to develop and communicate ideas. And most of these folks also seem to spend lots of time consuming intellectual ideas. They read a lot, and have many opinions about what previous ideas were interesting and useful.

Such folks would do well to review the advantages of prizes over grants, and consider becoming charity angels. Let me explain.

Consider a donor who seeks to encourage or induce some sort of result in the world. With a grant, such a donor must decide ahead of time who seems to have a promising ability and approach. But with a prize, a donor need only decide after the fact who seems to have achieved a lot. Once potential awardees see a pattern of achievements being rewarded by prizes after the fact, they will gain an added incentive to achieve, an incentive roughly proportional to the prize amounts being offered. And the prize process avoids much of the added waste of grant proposals, review, search, etc. (Promising potential winners who are strapped for cash can obtain resources by selling their future prize rights in capital markets.)

Since it is much easier to evaluate what has worked than what will work, folks who read a lot of intellectual work and who are inclined to support future intellectual work via charity should consider making a habit of just giving money to those who have already accomplished something noteworthy.

Instead of "Incentives vs. Grants", I just as easily could have titled this post "Rewards vs. Gifts"--when deciding to give to charity, should we reward someone for achieving, or simply for trying? There are dozens if not hundreds of well-meaning charities that try very hard to achieve a result, but end up having little measurable impact. It's not that they don't do some good, nor am I trying to suggest that they should be dissolved. It's just that they could--and probably would--be better and more efficient if they were forced to strive to meet well-determined goals.

Sure, our social ills are "hard" to solve, but they are certainly achievable goals. If the prize is large enough, you'll be amazed what human beings (or groups of them) can achieve. For examples, I refer back to this post from November (or even this one from October), which enumerated some pertinent instances where properly-created incentives led to seriously beneficial outcomes.

To be sure, providing an incentive will not always lead to the desired outcome. If the incentives are not large enough, or they are simply designed improperly, we shouldn't expect to see any substantive improvement in the conditions we are targeting. But I would argue that our current system represents the epitome of a poor incentive structure--we give money to organizations somewhat indiscriminately on the promise that they will do good things, and they don't have to give a dime back to us if they fail.

Businesses wouldn't last long if they structured their deals in that manner, but for some reason we expect charities to thrive in that same type of scenario. In charity as in business, we need to create real accountability in order to see the results we desire. Without accountability, any success is purely coincidental.

[Overcoming Bias]

New NYC taxis=government at its best?

Fresh off a weekend in New York City--which served as a fantastic reminder of everything I don't miss (and a few things I do miss) about living there--I was somewhat amused to read this story in the New York Times about the fight to replace the Crown Victoria as the crown jewel of the NYC Taxi fleet.

An icon of the urban landscape, the humble yellow cab is set to undergo an unprecedented face-lift — perhaps the biggest change to the city’s street aesthetic since licensed cabs were required to be painted yellow in 1970.

The Bloomberg administration on Monday unveiled three finalists in its competition to replace the current taxis, a mishmash of sedans, minivans and hybrid sport utility vehicles, with a single City Hall-approved model.

By 2014, when the first new vehicles are expected to appear, the city’s taxis will bear more resemblance to the oblong, obsolete Checker cab than the fleet’s current stalwart, the Ford Crown Victoria, which is to be discontinued next year.

All three competing designs, submitted by Ford, Nissan and the Turkish manufacturer Karsan, have the bulky appearance of a minivan. Gone is the cramped legroom of a hybrid car: these interiors feature generously sized backseats and, in Karsan’s case, a rear-facing drop seat to encourage conversation among passengers (that, or motion sickness). 

While I'm not totally sold on the results of the search--why are they all basically minivans, what does this mean for gas mileage, why not go with two models instead of one, etc.--I'm nevertheless intrigued by the process.

In a sense, I think this type of search represents government at its best. In (too) many arenas, we solve problems by creating large government agencies crowded with newly-hired government workers, and inefficiently throw money at the problem (think TSA). The result is often an irreversible structural increase in government spending, with questionable long-term benefits.

This program turns that dynamic on its head. The government puts out a massive incentive (in terms of a government contract), lays out its specifications, and leaves it to the open market to find a suitable answer. This approach is not only more democratic, it also encourages the free flow of capitalism and represents a more efficient use of taxpayer dollars. The costs of research and innovation are privatized (as are the profits), but the general public still benefits. The taxpayer pays nearly nothing for the right to see a better product (or program) put to use by the government.

Incentive-based programs are hardly a new concept, but it's somewhat rare to see the government use it widely (or wisely). Private individuals and organizations have used this approach for decades, with often transformative results--witness the Orteig Prize, which effectively launched the private air industry, and the Progressive Insurance Automotive X Prize, which encouraged the development of a 100-mpg car by providing a substantial cash reward.

To its credit, the Obama administration recognized the potential of these programs (and the power of the collective) by launching Challenge.gov, which provides an interface for existing federal agencies to offer cash rewards for solutions to their problems. A buildout of this type of program to consider a much wider scope would be beneficial to the U.S. government and its taxpayers, while retaining the government oversight that we typically expect and desire.

I think that for our most complex problems, this type of government/private industry hybrid is an absolutely essential tool, especially as we face increasing budgetary constraints at the federal and local level. The government cannot possibly provide the answer to all of our problems (certainly not efficiently), but it can use the power of the collective to provide incredible incentives to the private industry members who are best equipped to solve those problems. Doing so through these types of programs is democracy in motion, and it must be encouraged.


[New York Times]

Airlines have fun with expectations and incentives

Like many people these days (especially since 9/11), I love to travel, but I hate to fly. I've had so many bad experiences with airlines (particularly when I was living in Chicago and New York) that I now drive whenever it is feasible to do so. Since I live in the Mid-Atlantic, anything on the east coast is now a drive--10 hours to Boston for a basketball game, 16 hours through a blizzard to get to Vero Beach, FL, I'll do anything to maintain control and avoid the headaches of flying.
That's why I just chuckled at this article in the Wall Street Journal, which detailed the creative ways in which airlines have managed to improve their percentage of "on-time arrivals"--not by improving operations and streamlining the process (which JetBlue and Southwest have attempted), but by "schedule padding".

Your airline seat may not have much padding, but the airline's schedule sure does.

Delta Air Lines Flight 715 from New York to Los Angeles now takes more than seven hours to fly across the country, according to the airline's March schedule. That's an hour longer than the same flight in the same type of aircraft took in 1996. A Phoenix-Las Vegas flight at Southwest Airlines that used to be scheduled at 60 minutes now gets 80 minutes. What was once a two-hour American Airlines trip from Chicago to Newark, N.J., now is two-and-a-half hours, according to the airline's schedule.

Across the airline industry, carriers have been adding minutes to "block times"—the scheduled durations—baking delays into trips so that late flights officially arrive "on-time" and operations run better because flights pull into gates more often on schedule. Even though the recession has led airlines to cut flights and reduce congestion at many airports and in the skies, the move to pump up schedules has continued: Last year, most airlines added padding to scores of flights.

The last line of the excerpt is the real key. Airlines will make excuses for their scheduling, claiming that greater congestion and "more variability" have led the trend toward schedule padding. But in reality, there is little to no correlation.

I've written before on expectations and incentives, and I think this is an interesting example of both. Airlines are incentivized by Wall Street to maximize on-time arrivals, so they do so by whatever means necessary. If they can't actually improve service, they game the system. Similarly, passengers are incensed by late-arriving flights, but will be pleasantly surprised by an on-time arrival--even if it comes only because of lowered initial expectations.

I don't think many passengers are ignorant enough to fall for the ruse, but the behavior goes on nonetheless. If we can't actually deliver good results, maybe we should just lower expectations. Great business model.

[Wall Street Journal]

Interesting sports-related posts

I'm a sucker for scientific studies that focus on sports and performance, and for some reason this weekend was a big weekend for these kinds of studies. The first one I came across was in this morning's New York Times.

Two economists at the Wharton School of the University of Pennsylvania, while investigating how round numbers influence goals, examined the behavior of major league hitters from 1975 to 2008 who entered what became their final plate appearance of the season with a batting average of .299 or .300 (in at least 200 at-bats).

They found that the 127 hitters at .299 or .300 batted a whopping .463 in that final at-bat, demonstrating a motivation to succeed well beyond normal (and in what was usually an otherwise meaningless game).

Most deliciously, not one of the 61 hitters who entered at .299 drew a walk — which would have fired those ugly 9s into permanence because batting average considers bases on balls neither hit nor at-bat.

I think this sort of finding has some interesting implications for how we design compensation and other structured incentives. The Times didn't mention how many of the 127 batters had incentives in their contracts for hitting .300 or above, but it's clear that the threshold altered the way the players approached their work. That none of the .299 batters drew a walk certainly shows that their behavior was different--whether for better or for worse. Simply, people respond strongly to incentives, and we need to recognize what this will mean when we design incentive-laden systems.

The second report was featured on Time's NewsFeed, and focused on tennis rather than baseball.

A study, which appeared in the Public Library of Science ONE journal, has shown that the loud grunts of some tennis players can give them a real advantage over opponents. The researchers from Canada and America showed that making “extraneous sound” could interfere with your opponent's performance, making their responses both slower and less accurate. 

The report suggested that the grunt could also hamper a receiver who was trying to judge the spin and speed of a ball from the sound made off the racket.

I sincerely hope this one isn't true, lest we witness more tennis matches like this one:

[New York Times]
[Time NewsFeed]