More on the Death Penalty

A reader asks if I support the death penalty. The short answer is: maybe. In my youth I objected on principal that it was cruel and unusual. With lethal injection, that is a harder argument to make. Briefly, I might support the death penalty if

1. There is absolutely no doubt of guilt in the case in question, and the crime is truly horrendous.
   
2. More generally, it can be established that the death penalty is an effective deterrent to crime--so much so that it outweighs the tragedy of taking another life.
   

People who argue that the death penalty does not deter crime at all are speaking nonsense; it may not be a perfect deterrent, but there is surely some effect on would-be criminals. The real question is if the benefit to society is worth it. Hanging random people in the town square would also act as a deterrent, but we would be loathe to make that choice.

Misuse of Death Penalty

The New York Times reports that the prosecutor in Glendale, CA has charged Juan Manuel Alvarez, the man responsible for yesterday's train crash that killed 11 people, with murder with "special circumstances". This makes Alvarez eligible for the death penalty. Recall that Alvarez tried to kill himself by parking his car on the train tracks, then changed his mind at the last minute and fled by foot, leaving his car parked. Ironic, isn't it?

In this case, the death penalty achieves nothing. In my opinion, the primary role of punishment is to act as a deterrent. Secondary roles are protecting society from criminals and reforming the wayward. The death penalty may achieve the first two goals in some cases. Retribution, however, is not a goal of the criminal justice system. What would be achieved by taking Mr. Alavarez's life?

New Title

I've renamed my blog. "Econoblog" was not not unique enough. "Efficient Frontiersman" has no hits on Google. And yes, the new title is a pun on efficient frontier. No, I'm not an economist.

Put Your Money Where Your Mouth Is

A lot of companies have employee referral programs. Typically the employee is paid some sort of bonus if the candidate is hired. From the employee's perspective, there's much to be gained by referring lots of people, even if some are long shots. This makes it hard for the employer to sort out the candidates that are really good.

I propose a system that forces the employee to put their money where the mouth is. To make a referral, you must wager an amount B. If the candidate is hired, you are paid $B. If they are rejected, you must pay the employer $B^2. That's right, you lose money on bad referrals. It turns out that the employee's income is maximized (and positive) when they wager exactly one half the odds that the candidate is hired.* So if you think a candidate has 2 to 1 odds of being hired, bet $1. If you think they have 10 to 1 odds, bet $5.

This has the nice property of forcing employees to reveal the true strength of a candidate. In practice, of course, this would probably reduce referrals. Real people (myself included!) are usually adverse to risk and don't always try to maximize expected returns. But you could imagine playing the game with play money and giving a quarterly award to the employee with the most winnings.

This technique has many other applications--anytime you want a good estimate of a probability from a single person. Anybody know if this is an original idea? Probably not, but I don't know where to start looking.

* Proof: let p be the probability that the candidate is hired. The referral's expected return is E=pB - (1-p)B^2. To maximize, we differentiate with respect to B, yielding E'=p - 2(1-p)B. Setting this to zero we find that E is maximized when B = 0.5 p / (1-p), or 0.5 the odds of the candidate being hired.

Econoblog

My longtime friend "Tacitus" points out that the name "Econoblog" is not exactly original. Oops, so much for due diligence. And I thought I was so clever and original.

Social Security Reform

The recent discussion on social security has largely focused on fiscal issues. Indeed, this is a serious matter. Today's social security benefits are paid by today's taxpayers. Your social security contributions are generally spent immediately, not invested and earning interest. Thus switching to private retirement accounts would be a strain on the social security system.

But there's another issue that has been largely ignored. Increased financial returns never come without risk. (Anybody in finance knows this; apparently politicians don't, or they're not willing to say it.) For some people--those with a long time until retirement or sufficient savings--this is a risk worth taking. For others, it is not. The status quo hurts those in the former category. The proposed private accounts hurt those in the latter who make risky investments. Note that private investment accounts don't necessarily mean risky investments--you can always pick bonds--but it gives you the choice.

So the real question is this: should the government protect people from their own ignorance or stupidity? In this case, I'm inclined to say "yes"; keep the safety net, even if it hurts some. But the issue is not clear-cut and compromises must be made either way.

This is why economics is known as the "dismal science".

New Year's Resolutions

The parking lot of my gym was packed last night. New Year's is to personal trainers what Christmas is to the retail industry.

Las Vegas

I visited Las Vegas for the first time this weekend. The neon of the Strip reminded me of Times Square. Other similarities to NY include the plethora of expensive stores and the amazing array of fine dining options. Las Vegas is no longer the home of the $0.99 buffet; it's the home of the $99 pre fixe tasting menu.

Unlike Times Square, Las Vegas makes no attempt to be kid friendly. Everyone smokes, which is really annoying to us Californians. People drink in the streets. Pamphlets for strip shows litter the street. They don't call it Sin City for nothing.

And the gambling? I have trouble getting into it, knowing that it's a losing game. As you might expect, the more skill required, the better the odds. Slot machines lose you about 8% of your money. Roulette loses 5.4%. Blackjack loses 0.5% if you follow the strategy printed on those laminated cards. (Amazingly I didn't see them very often. Do people just have them memorized, or are they too stupid or proud to pull them out?) Video poker is my favorite game. The odds are very good (close to blackjack), it takes some skill (but not too much), and you can play for hours on very little money.