Uber vs the Taxi Companies

I used Uber for the first time recently when I was in Colorado. It was pretty great. My ride from the airport to the hotel arrived within 2 minutes of my summoning the car. My ride back to the airport took a little longer, but I was kind of far from the middle of the city, so that was understandable. The ride was about $18 both ways; a cab would have been closer to $30. Both drivers were former cab drivers. Both told me that working for Uber was better. One said it definitively paid more, and the other said she made about the same but had more flexible work hours with Uber. One of the drivers gave me some good dirt on her former employer. Apparently some cab companies put out cars that have bad brakes and tell the driver, “F*ck you, go drive this. Fill this dangerous piece of sh*t with passengers and make me some money.” My driver told me she once refused to drive until her boss fixed the brakes on her car. Some cab companies “self-insure” rather than buy a commercial insurance policy, but then they weasel their way out of paying claims when their cars injure someone. They tell the injured party, “Sorry, we don’t have insurance.” Yeah, Sleazy Cab Company, but by deciding to self-insure, you assumed responsibility for those liabilities. Uber has been criticized for supposedly inadequately insuring their drivers on the physical damage coverages (the coverages that cover the Uber car itself), but I don’t think anyone questioned the adequacy of their liability coverage (which covers people injured or property damaged by the Uber car). The driver also told me how common it was for cab companies to hire ex-convicts. She told me about several instances of drivers at her company ripping off or robbing their passengers. Uber is sometimes accused of being potentially dangerous, of inadequately screening its drivers, or of having inadequate insurance. Only someone who is clueless about the actual operation of taxi companies can make these kinds of accusations. These aren’t new problems that didn’t exist until Uber came along. If anything, Uber has a better handle on these issues than the industry it is displacing.

Some people think that Uber is a problem because it’s not regulated like the cab companies. I think this reflects a naïve worldview. Supposedly in a regulated world, the government tells us what we’re supposed to do and we obediently follow instructions. In an unregulated world, without the government telling us what to do, we simply do as we please. The contrast between Uber and the cab companies dispels this naïve view of how regulation works. If anything, the taxi companies are actually sheltered from their wrongdoing. They have a government-enforced monopoly, so they aren’t subject to the kind of competition that governs other industries. Competition keeps you honest. I get the strong sense that ideology drives a lot of the Uber-bashing (just as it probably drives much of the Uber-boosting, to be fair). Uber has indeed flouted the regulations governing taxis, which is a good thing. Uber has shown us that passengers are better off without the regulations and licensure restrictions governing taxis. Passengers have the option of insisting on the “safety” of the regulated taxis, and they are opting for Uber instead.

I’ve seen some pretty bad opinion pieces bashing Uber. As far as I’m concerned, every single one of them should end with the line, “Of course, all things considered this is a huge improvement over what we had before.”

Political Power

Beware a dangerous drug known as political power. You should learn to spot the warning signs:

• Unlike most other drugs, use of political power is always abuse.
• Political power is a powerful aphrodisiac.
• People who experiment with political power often become lifelong users.
• Political power affects speech, sometimes causing individuals to ramble incoherently and with a total lack of self-awareness. Affected individuals may speak in sentences that, while grammatically correct, lack any content. Unwary audiences often get a “contact high” from such rambling individuals and become intoxicated themselves.
• Political power can cause arrogance, overconfidence, and delusions of grandeur.
• Political power can cause otherwise ethical individuals to commit crimes such as theft, assault, kidnapping, and even murder.
• Political power can cause otherwise intelligent people to completely lose their facilities for reason.
• People under the influence of political power often have “mind-blindness” and are often unable sympathize with other human beings.
• Individuals who abuse political power are often adept at evading the law.
• People who use political power may appear charming to observers, but they are actually very manipulative and dangerous. Like serial killers. Also, many of them are serial killers.

Chart Inconsistency

Mathematical presentations of arguments, whether in science or economics, not only make  [arguments] more compact and their complexities easier to follow than a longer verbal presentation would be, but can also make their implications clearer and their flaws harder to hide. For example, when preparing a landmark 1931 scholarly article on economics, one later reprinted for decades thereafter, Professor Jacob Viner of the University of Chicago instructed a draftsman on how he wanted certain complex cost curves constructed. The draftsman replied that one of the set of curves with which Professor Viner wanted to illustrate the analysis in his article was impossible to draw with all the characteristics that Viner had specified. As Professor Viner later recognized, he had asked for something that was “technically impossible and economically inappropriate,” because some of the assumptions in his analysis were incompatible with some of his other assumptions. That flaw became apparent in a mathematical presentation of the argument, whereas mutually incompatible assumptions can co-exist indefinitely in an imprecise verbal presentation.

From Thomas Sowell’s Basic Economics. I love this story. I’ve always loved a good bull-session. I remember in college trying to tell a friend (probably on more than one occasion) to write down their argument on paper, rather than allowing it to be a jumble of ideas existing entirely in one’s head. An incoherent thought can survive a long time in your own head; writing it down makes you confront any obvious inconsistencies. Everyone can benefit from this simple exercise: write down what you believe such that you might convince an honest skeptic; do NOT write as if you are preaching to the choir. Admittedly, some people are immune to this test and embrace any nonsense that spews forth from their pen or keyboard. “Diarrhea of the pen” can be fine, so long as you clean up after yourself.

Thomas Sowell is describing the next step in this process – converting your argument as far as is possible into a purely mathematical or logical statement. I applaud anyone who takes it that far. Sometimes nonsense passes the “state it in plain English” test, but then fails the “convert it to math” step. I am sometimes irritated with people who have expressed a strong opinion without going through any of these steps. I consider it rude to waste people’s time with half-baked nonsense. If you don’t have an informed opinion about something, you probably should spend more time learning and thinking about it and less time talking about it.

The War on Drugs is Logically Incoherent

I have read many criticisms of the War on Drugs, but I never see it pointed out that it is internally inconsistent. It truly requires inconsistent assumptions to work.

Are drug users rational or irrational? If they are rational, then they are already accounting for the built in deterrents of drug use and the current rates of use are appropriate. If they are irrational, then legal punishments will fail to deter them.

One can think of this as asking two yes/no questions and filling out a grid with the four possible combinations of answers. The first question is: Is drug use harmful? The second question is: Are the users rational? The combination of answers can be used to set the optimal drug policy. If the answer to the first question is “No,” then your job is done. Legalize the drug for use. It doesn’t matter if people are rational or irrational if they’re doing something that isn’t harmful.

So what happens if the answer to the first question is “Yes”? Consider the “drug use is harmful/users are rational” combination. There isn’t a problem here, because the users are already accounting for the risks of drug use, taking appropriate precautions, and using appropriate amounts. “But what about costs to third parties?” you say? Those are also already accounted for. If taking “Drug X” might turn me into a murderer (or burglar or rapist), then as a rational user I would already be accounting for that probability. Not liking the prospect of a long prison term, I’ll have moderated my drug use or decided against use entirely. And in any conceivable regime DUI would remain a crime, regardless of the legal status of the drug. In the “rational user” scenario, drug use has some costs *to me*, but all the “external” costs are internalized, because all the ways I might harm somebody under the influence are already criminalized (and rightly so!). In this scenario, drug users will respond to criminal sanctions against drug use by reducing use, but that’s overkill because they are already accounting for the costs and have already moderated their behavior appropriately. You’ll achieve some additional deterrence, but it can hardly be worth the cost of needlessly punishing the users who are caught. Keep in mind that “drug prohibition” means “occasionally ruining the lives of a few random drug users.” This is a cost that shouldn’t be taken lightly.

Now consider the “drug use is harmful/users are irrational” scenario. In this case, users are not deterred by the pharmacological risks of drug use. However, they are also not deterred by the legal risks of drug use. So you can “ban” drugs and punish a few random drug users, but the deterrent effect is too small to matter.

In none of these scenarios can any serious person recommend drug prohibition as a policy. You either fail to achieve any significant deterrence, or you succeed in deterring something that’s not a problem. You don’t get to assert that drug users are too irrational to respond appropriately to one set of risks (the pharmacological risks of drug use) and yet rational enough to respond appropriately to another set of risks (the legal risks of drug use). Such an assertion, implicit in all advocacy for drug prohibition, is logically incoherent.

Of course this is all a little too glib. These things aren’t binary. Drugs vary in the degree of harm they might cause. People vary in their degree of rationality. The severity of the legal sanctions can vary. And not all the external costs of drug use are truly internalized (think of the spread of AIDS from IV drug users to their non-using sexual partners, which isn’t effectively criminalized). Still, it’s hard to tell a story where the punishment achieves any significant deterrence.

Assume for a moment that people are rational enough to be deterred by legal sanctions. To figure out how much deterrence you are achieving, you have to now compare the costs intrinsic to drug use to the legal penalty for drug use. The intrinsic costs include things like the possibility of death, serious health problems, alienation of friends, loss of social status, loss of a job, and the time and money spent acquiring and using the drugs. (You would have to discount the “severe but unlikely” items, like death, by considering the small probability of realizing those costs. Also, note how some of these “intrinsic” costs can be exacerbated by the black market status of the drug.) Seen this way, drug prohibition doesn’t raise the cost of drug use from “zero” to “something positive”. It raises the cost from “something substantial” to “something somewhat more substantial.” You can achieve a great deal of deterrence by threatening drug users with life in prison or the death penalty, but with severe penalties you risk doing more damage than the drugs themselves are doing. In this case the cure is worse than the disease, so what’s the point? You can expect significant deterrence ONLY in a regime where the expected harm from legal sanctions is comparable to the expected harm from drug use. If a government DOES achieve any kind of significant deterrence, its lawmakers and technocrats should suspect that the penalty has been set too high.

Let’s consider another set of two binary questions: Are the intrinsic costs of drug use high or low? Are the legal costs of drug use high or low? If it helps, think of these costs as something concrete. A “low” cost might mean a 0.1% chance of ruining your life, or perhaps the loss of a week’s income. A “high” cost might mean a 5% chance of ruining your life, or losing a full year’s income. Use whatever measure you like, and use whatever differential between “low” and “high” you like (I’m using a factor of ~50). In the low/low and high/high scenarios, you can probably assume there’s some degree of deterrence. The intrinsic costs of drug use (those costs that would be present in the absence of legal sanctions) are comparable to the legal costs. If you’re roughly doubling the price of something, you should expect to see a decline in the quantity demanded. But in both cases the added (legal) harm is comparable to the (intrinsic) harm deterred, so it’s hard to declare “victory.” In the “low intrinsic cost/high legal cost” regime, you can say with some certainty that there is a great deal of deterrence, but the harm done to the few random users who are sanctioned is difficult to justify. Naturally if you take an activity that is mildly dangerous and make it 50 times as dangerous, you’ll surely achieve some deterrence. But surely it’s not worth it. In the “high intrinsic cost/low legal cost” scenario, you don’t do much additional harm, but you don’t really achieve much deterrence either. (If you use the cost differentials I give at the opening of this paragraph, the increase in cost is about 2%.) So you achieve a completely insignificant amount of deterrence, and to do so you still have to harass a few drug users. In none of these cases can you confidently claim that the deterrence is worth the costs imposed by legal sanctions. Ideally you could achieve a great deal of deterrence in return for doing a small amount of harm to existing users, but it’s hard to imagine a scenario were this actually happens. If you’re an economist drawing someone’s demand curves for drugs, you’d have to specify that there’s an inexplicable discontinuity that the legal penalty exploits perfectly.

To properly do this analysis someone would have to specify everyone’s demand curves for drugs and show what happens when you add the costs imposed by legal sanctions on top of the intrinsic costs. That said, it’s worth exploring this exercise in plain English. I’d be very surprised if anyone came to a substantially different conclusion by drawing explicit demand curves and doing a formal cost/benefit analysis of imposing legal sanctions.

In this entire discussion, it may seem that I’m ignoring the legal sanctions on the supply side. For the most part, drug users get a slap on the wrist and drug dealers, smugglers, and producers get heavy penalties. These supply-side penalties simply serve to drive up the market price of illegal drugs. In my above discussion of the legal costs of drug prohibition, the cost includes both the legal penalty applied to the user and the increased market price. As a side note, this entire regime of extreme legal penalties on the supply side is terribly inefficient. If a government wishes to increase the market price of drugs, it should do so with a tax that it can collect. You have far less collateral damage in terms of drug dealers killing each other, tainted product, inconvenienced motorists being subjected to unnecessary searches, and terrified residents being subjected to no-knock raids. And in the case of a tax, the costs imposed on producers actually *go to* someone. They become a “transfer” instead of a “dead-weight loss.” The “tax” regime is infinitely preferable to the “criminalize producers” regime. But that could be another post all on its own.

Note that all of the above discussion is broadly consistent with the empirical record of drug prohibition. We have over a century’s worth of evidence covering very different anti-drug regimes (mild to severe punishment) and we see very little change in overall drug use. The War on Drugs is busted. It's time to move past it.

It IS worth it to vote: the math

A lot of people don’t vote, and a lot of different rationales are offered for this behavior. I want to address two rationales that I believe are incorrect; people using these reasons should reconsider. Reason 1: you are very unlikely to alter the outcome. Reason 2: it is not worth your time. I’ll give Reason 1 a rigorous treatment below. Reason 2 is tricky. What does it mean for something to be “not worth your time?” If you take 30 minutes to do something, and it provides only a dollar’s worth of benefit to you, is it worth doing? Suppose it provides a dollar’s worth of benefit to every human being alive? If you live in the US, your answer to the first question is probably “no.” You are spending your free time to earn at the rate of $2 an hour; your time would be better spent working, or doing whatever leisure activities you enjoy. Hopefully, if you have any sort of social conscience in you, your answer to the second question is “yes.” If I could work for half an hour and generate $7 billion worth of benefits, I should be happy to do so. It shouldn’t matter that the benefits are widely dispersed. If there are many opportunities like this, and people routinely take them, we will all be much better off. I’ll submit that most people choose not to vote on the rationale that IT’S NOT WORTH IT FOR ME. We should be worried about the total social benefit (or cost, if the sign comes out to be negative) of our actions.

Before I calculate any probabilities, I should also note that “the chance that you affect the outcome is small” is a bad argument. We should be willing to do things that have a small chance of a large positive outcome. If people generally take these chances, we’ll tend to be better off. Each action has an “expected benefit,” which can be thought of simply as “the probability of success multiplied by the benefit GIVEN success.” Lottery tickets are a bad bet; the expected return is negative. If the return were positive, you should be willing to buy one once in a while. If you can buy a million such “positive return” lottery tickets, you will have a good business model going. And if the benefits of the occasional winning ticket get dispersed broadly so that YOU cannot collect, your social conscience should still encourage you to drop a few bucks on these tickets once in a while. To know whether or not “voting” is a positive or negative return lottery ticket, you need to estimate a couple of things. One, the probability that you sway an election, and two, the benefit to society given that you sway the election in your favor.

I’ll use a very simple model to estimate P, the probability of swaying a vote. The conventional wisdom is that your vote only counts if there is a tie, and you are the tiebreaker. So my model only applies to a “dead heat” election, in which the prior chance of either outcome is 50/50. I’ll assume that everyone has a 50% chance of voting for either candidate, essentially determined randomly. (This assumption makes my estimate of P quite conservative; in reality a large majority of people are locked into voting for one particular candidate and a few swing-voters decide the outcome. But I’ll assert that the “each vote is a coin-flip” model is pretty good for an election that is too close to call.) With 10 voters, the chance of a tie is 0.246. With 100 voters, the chance of a tie is about 0.08. With 10,000 (a small city), it is about 0.008. With 1,000,000 voters, the chance of a tie is about 0.0008. The probability of a tie drops off like 1/Sqrt(N), where N is the number of voters. Even with 1 billion voters, the chance of breaking a tie only goes to 0.000025 (25 in 100,000).

Your chance of being the tiebreaker is a lot larger than you probably thought. (An objection to this model is that no one REALLY breaks a tie; in the event of a close election, there is always a recount. The prospect of a recount DOES NOT AFFECT the estimate of the probability estimates. I’ll explain why at the end of this post.)

Next, you must estimate the social value of the electoral outcome you favor. This is a lot trickier, but you can at least estimate some rough measure of value. I would unhesitatingly assign a value of $1 Trillion to “Ending the War on Drugs.” Perhaps another $1 Trillion to reforming our massive entitlement programs. The social benefit per person may even be small, but add up to billions or trillions when summed over all individuals affected. We’ll call the total social benefit of your favored outcome B, and observe that it is linearly proportional to N.

The total benefit of your vote is then simply P*B. There is something surprising about this quantity, having to do with how it scales. B is proportional to N, and P is proportional to 1/Sqrt(N) (N again being the number of voters). The social benefit of your vote is thus proportional to Sqrt(N). In other words, the greater the count of the electorate, the greater the social benefit. I’m making a number of assumptions here, but I’ll leave it to the reader to determine how these assumptions affect my simple model. It’s possible that some assumptions make this estimate of P*B more conservative, and some make the estimate less credible. An incorrect assumption doesn’t always discount the conclusion; some incorrect assumptions bolster the conclusion, which in this case is “you should march down to the polls and vote.” I don’t believe any of my assumptions affect the scaling result: P*B IS proportional to Sqrt(N), however you slice it.

We are all slight sociopaths, so we don’t really care so much about the social benefit of our actions if we don’t personally benefit from those actions. This is especially true if we don’t even get credit for being charitable. The benefit to YOU scales as 1/Sqrt(N), so the more voters in the voting pool, the less you care about your contribution to the outcome. I’ll submit that you shouldn’t care whether the benefit is captured by you or dispersed across the population, and that you certainly shouldn’t care whether your charity is recognized or unrecognized. I realize that we aren’t built to comprehend things like “a tiny chance of a very large but dispersed benefit.” But most of us are willing to do a little charity, and most of us are willing to put a small amount of money/effort into some risky venture with a positive rate of return. There is no reason that this willingness should disappear when the action you’re contemplating is charitable AND venturesome. Somehow combining these two traits makes voting seem so useless to so many people. I realize I am suggesting that people do something they have no incentive to do (be charitable), which is much like preaching to the dead. But many of the people who offer the “voting isn’t worth your time argument” are of the blogging intellectuals type. They apparently are already willing to create some public goods in the form of reasoned arguments (their best efforts, anyway). If you’re willing to be charitable in ONE way, you should be willing to be charitable in others ways of similar magnitude. I’m not suggesting that anyone should be MORE charitable than they already are; I’m suggesting that a potential form of charity has more social value than most people believe. (An important difference between the “public good” generated by free blogging and that generated by voting: you capture some of the externalized benefits of blogging when people remark about how smart and clever you are; you are met with indifference and sometimes derision when you tell someone you voted.)

Assuming you have an estimate of P*B in mind, there is an additional reason to discount my analysis. “Discount” means “multiply by some fraction D, to reflect some diminishment in value for some particular reason.” It doesn’t mean “totally disregard.” Sometimes it doesn’t matter who you vote for because the candidates will do the same thing whoever is in office. I would suggest that there is usually at least a difference in probabilities that different candidates will do different things. Suppose McCain had, by your estimate, a 60% chance of opening up offshore drilling and Obama had a 40% chance. (These are prior probabilities, mind you. Otherwise I’d have to update Obama’s 40 to 100.) You still are shifting the odds 20% in favor of the policy you like by voting for your candidate. Apply a discount factor of 0.2 to your estimate of P*B. The social benefit of voting may still be large. There are probably a few cases where you have no idea what any of the candidates will do. In this case D = 0, and it doesn’t matter who you vote for. That would be like voting for whether or not a coin will come up heads on the next flip. (I hope that is an intuitive result which you could have guessed at a priori, and that it is a good limits test of my extremely simple model.) Don’t excuse yourself from the polls just because you aren’t sure what the candidates will do; if there is a reasonable chance that the two candidates will behave differently in office, you have more to think about.

Another perfectly good excuse to disregard my entire argument is this: I would do better to use my 30 minutes on some other charitable venture. I can work an extra half hour and loan the money on Kiva. That is fine. Your time is a finite resource. If the social benefit of “30 minute’s wages going towards microloans” exceeds “30 minutes in the poll,” feel free to pursue your best option. This would be a better objection than any I’ve heard. But if my hunch is correct, most people are dramatically underestimating the social value of their vote. If that is indeed the case, your allocations to different charities should change.

A final legitimate reason to disregard my argument is this: “I don’t know what the candidates will do, and I don’t know which policies are good for us. I have no estimate whatsoever of this silly model’s B or D.” (No excuse not knowing P; I’ve given it to you above.) That is fine; I would encourage such a person NOT to vote. I actually think a lot of people are in this position but don’t realize it.  They have never thought for a moment about the social benefits of the policies they like, and haven’t made a single effort to put a numerical value on it. Luckily such people are disproportionately likely to remove themselves from the voting pool. Many other such people create a nasty form of social pollution by voting uninformed. (And everyone makes this sort of remark about their “benighted” political opposites, so don’t anyone peg me an elitist for making this observation.) As Bryan Caplan points out in his book, “The Myth of the Rational Voter,” these voters tend to not make random errors of the sort that cancel out in aggregate. They make systematic errors in the direction of socially destructive policies. I commend people who recognize their ignorance and don’t vote. (I would commend them more if they did some reading each day and then voted, but I’m happy to take the runner-up.)

To bolster my point, consider that most people (say 90%) will vote one way or another along party lines. This means that the marginal voters are extremely powerful, and my estimates of P above are larger than I suggested. Assuming a dead-heat election, an electorate with a million people but only 100,000 swing voters is actually like an electorate of 100,000 (for which the chance of a tie is a healthy 25/10,000). If your estimate of P is higher, you should be more willing to vote.

I have heard that economics students who learn about game theory tend to play econ games more selfishly than people who don’t. That is, they tend to “defect” more often in the prisoner’s dilemma game, and take more money in the dictator game. I think these people are missing the lesson: they have a chance to create a social benefit and forego that chance. They have correctly learned that THEY benefit more if THEY cheat, no matter what their opponent does. But cooperating creates more SOCIAL benefit, no matter what the opponent does. If you can create positive social value at a small cost to yourself (say, by foregoing the rewards of a silly economics game) you should do it. Smart-asses who are literate in economic theory are far less likely to vote for the reason described in this paragraph. That is a shame, because the same people tend to have libertarian/liberal leanings. They have the potential to be a very powerful swing-vote block if they can get over their self-satisfaction and vote now and then.

*Extra credit: the recount margin. Some of you will observe that a close election is NOT won by a tie breaker. A recount is held, with the winner of the recount declared the winner. Okay, let’s model this. The recount is just as (in)accurate as the original count (which makes the whole thing foolish anyway), so here is the model: the recount has a random 50/50 chance of assigning the office to either candidate. So, where is the recount margin? Is a recount done when the count is off by 10%? By 5%? Even if the recount is not well defined (“too close to call” is randomly determined at each election) it must exist SOMEWHERE for each particular election. And it must be very near the tie, such as “within 10 votes of a tie.” Here is the “recount model”: your contribution is either to push the election into the recount margin when your choice candidate would have lost, OR to push the election OUT OF the recount margin when your choice candidate would have faced a recount. In the first case, you raise the chance of your candidate winning from 0 to 0.5; in the second case you raise the chance of him winning from 0.5 to 1.0. Your contribution to your candidate’s chance of winning is 0.5*P_Into_Margin + 0.5 *P_Out_of_Margin, where P_Into_Margin is the probability that a dead-heat election will result in a count at the low end of the recount margin, P_Out_of_Margin the high end. The probability distribution is symmetric, so these probabilities are equal to each other. The distribution is also very flat at the top, so each probability is essentially equal to P, the chance of a tie (discussed above). (If you flip a million coins, you are nearly as likely to get 500,005 heads as you are to get exactly 500,000.) So your chance of swaying an election is ~0.5*P + 0.5*P = P, the same as in the simple model above. The prospect of a recount does not significantly alter your chance of swaying the vote. I'll leave it as an exercise for the reader to determine what happens if the recount margin is not deterministic but stochastic; it still doesn't alter the result that your chance of swaying an election is large.