Book Review

Book Review: Super Freakonomics

Book Review: Super Freakonomics

Just as in Freakonomics, the underlying premise of Super Freakonomics is that people respond to incentives. In order to control behavior, we must understand and manipulate the related incentives, no matter how distant and unrelated they may seem. Also like the first in the series, this book is more of a series of disjointed stories than a cohesive progression of thought.

Introducing television did a huge service to Indian women. India has traditionally had a significant preference for male children over females. There are 35 million fewer females than males in the population, and most of the missing women were killed or malnourished to death. The problem was exacerbated by the introduction of ultrasounds. Before this phenomenon took place, 54% of women believed wife beating was justified under certain circumstances. But from 2001-06, millions of Indians got TV for the first time, and women who recently got TV are significantly less likely to tolerate wife beating, male child preference, and dependence on husbands. Enrollment for women in schools increased as well, because television effectively empowered women.

We blame automobiles for many of our problems in the world today—pollution, accidental deaths, and traffic problems. But the advent of cars actually solved other major problems of the time. Horses in New York City caused gridlock, and they constantly died in the streets before being abandoned by their owners. The municipality would wait for them to putrefy in the street before they were chopped into pieces and removed.  A New Yorker was twice as likely to die from a horse in 1990 than one is to die from a car today. 60 foot piles of manure would pollute more than exhaust does today, and streams of the stuff would seep into basements. It’s interesting that America found a savior in the auto at the time, and now searches for a savior to the auto before pollution causes irreparable damage to the environment.

Women have had it rougher than men throughout history. Women have had a shorter life expectancy. A million women have been killed for witchcraft. Women who went to Harvard earned less than half of the male counterparts. Women are more likely to leave the workforce to raise a family. Overweight women and those with bad teeth suffer wage discrimination more than men with the same problems. The solution is apparently to play high school sports. Women who play high school sports are more likely to go onto college and specialize in jobs that earn more money. Research has shown that women tend to work fewer hours and take more vacations than men, especially those with children. Men have a weakness for money, just as women have a weakness for children. Men perform better on exams incentivized with financial rewards, while women perform the same.

The gender income discrepancy led to an unintended consequence in the 1910s: the market for prostitution exploded. At one point, 1 out of 50 American women in their 20s were prostitutes. Top earning prostitutes brought in as much as $430,000 a year, and often the higher earners didn’t need to see as many clients as their lesser-paid counterparts. However, wages have fallen dramatically over the past 100 years, mainly because men can now find women interested in casual sex much more easily, a phenomenon fondly nicknamed “friends with benefits.” Today, only 5% of men lose their virginity to a prostitute, and 70% of men have sex before marriage, compared to 33% just 20 years ago. Most prostitutes experienced rough conditions. They typically earn $27 per hour, working 10 tricks in 13 hours per week. 83% of them are addicted to drugs. A typical prostitute experiences a dozen instances of violence, typically when the man can’t get erect. Women also have a much greater risk of arrest than men; only 1/1200 tricks result in a man’s arrest. Condoms are used less than 25% of the time, but less than 3% of men who hire female prostitutes have HIV. 35% of men who hire male prostitutes have HIV. When a prostitute gets locked up, a scarcity emerges, which enticed more to join the market. Police understood this and eventually left pimps and prostitutes alone in exchange for keeping it in private and away from kids. A Chicago street prostitute is more likely to have sex with a cop than to be arrested by one, and only 1/4500 tricks leads to prison time.

The economics of black market supply and demand are also true of drug trafficking. The US war on drugs is ineffective because it focuses on sellers rather than buyers. 90% of prison time is occupied by drug dealers. The government should go after those who demand the drugs instead; without demand, the supply will dry up on its own. This aligns with my belief that the proper use of taxes is usually a better remedy than outright bans on products and services.

There are a number of shorter stories sprinkled throughout the book, culminating in very simple conclusions. For example, a drunk person who decides to walk home is 5-8 times more likely to die in an accident than one who drives home, on a per-mile basis. 2001 was the “summer of the shark” because it invoked a massive amount of media coverage around shark attacks. However, only 68 people were attacked that year worldwide, and only 4 died.

Overall, I felt that the book was very disjointed, and the stories weaved in and out of one another. The authors dedicated a lot of time to prostitution, which they also did in Freakonomics. There are some interesting stories intertwined throughout, but it would have been more interesting if there were a greater number of lessons sprinkled throughout, rather than constantly referring back to basic laws of Keynesian economics which I learned back in Introductory Macroeconomics at UC Santa Cruz.

Book Review: Outliers: The Story of Success

Book Review: Outliers: The Story of Success

Outliers attempts to dispel the myth of American individualism as an explanation for what creates successful people. Instead, the author dives deep into the story behind exceptional performance in cultures, aptitude testing trends and individual achievements around the world and back in time. The author argues that the upbringing of individuals greatly impacts their likelihood to succeed, including community culture, parenting techniques, access to specialized resources, ancestry, and even birth dates.

The first example explains that the vast majority of hockey stars are born between January and June. This can be explained by the cutoff date of birthday enrollment requirements in a league, being December 31st. The oldest kids in the league are born in the earlier part of the year, and the youngest kids are born at the end of the year. This makes a big difference in maturity and skill levels at young ages, which compounds on other opportunities through the years, resulting in NHL stars being born in early months of each year.

Similarly, “older” students get treated like they have more ability in other fields as well. They’re 11.6% more likely to reach college than younger students, which is not surprising when you discover that younger students score as much as 20% lower on aptitude tests early on in their education. Higher achieving students get treated as if they’re gifted or special, which inspires them to strive for greater goals, presents them with greater educational opportunities, and becomes a self-fulfilling prophecy. Success becomes a cumulative advantage like compounding interest does for investments.

Opportunities alone don’t account for greatness. It’s argued that 10,000 hours of practice is required in order to become an expert in any field, which takes an average of 10 years of practice. The author looks at upbringings of great musicians, artists, and thinkers throughout the ages and finds that the majority had been fanatical about their field since early childhood, often forced on them by their parents. When you consider it a lucky break that some kids are required to practice something tirelessly from early on, you can see that these lucky breaks are the rule when it comes to success. All outliers are beneficiaries of exceptional opportunities.

The book includes many examples of exceptional opportunities. 14 of the 75 wealthiest people in history were born in American in the mid-19th century, within 9 years of one another. They were the right age at the time when the economy changed radically. Bill Gates and his cohort were born within a short time of one another as well, and all had practiced 10,000 hours in computer labs very early on in their lives thanks to special access granted to very few people.

“The Termites” are 1,400 genius students drawn from 250,000 elementary students given an intelligence test by Alfred Binet, the originator of the Stanford-Binet. They were followed throughout their lives to see whether they led more successful lives than their less-intelligent cohort. However, it was later found that a random sample with similar upbringings faired almost as well, demonstrating that intellect and success rates are not well correlated. However, the parents’ occupations, socioeconomic standing, and time and place of upbringing mattered greatly. It’s argued that IQs above 115 or so are good enough to compete with those at the top. Above a certain point, incremental advantages don’t matter. This explains why less-qualified Affirmative Action students end up fairing just as well after graduation as the higher-performing White counterparts.

There are many ways to measure and demonstrate intelligence. “Practical” and “social” intelligence are the most influential factors for people with a sufficient analytical intelligence, and the different types vary orthogonally. Social intelligence is often taught at a young age, through activities and observance of parents.

Poor parents often raise kids with methods which inhibit social adaptation. Poor parents practice accomplishment of natural growth—“let them develop on their own.” The kids have to invent their own games. They lack a community that prepares them to properly interact with the world. Their social lives and organized hobbies are restrained by distance, transportation, and will. And their parents tend to see their situation as a victim of circumstance, rather than a manipulator of their environments, and their kids learn to embody the same frame of mind. During the school year, students from different backgrounds tend to learn at the same pace. However, poor students lose knowledge over the summer, while rich students learn a lot. Reducing summer vacation time would help disadvantaged students fall less behind.

Middle class and wealthy parents practice “concerted cultivation” by fostering and assessing talents and skills. The parents take interest in the kids’ free time, and give them busy schedules. The kids learn how to engage in teamwork, how to speak up when needed, a sense of entitlement, how to ask for information and attention, how to act on their own to gain advantages, how to interact with authority, how to dress and groom, how to present their best face to the world, and they’re infused with the notion that they were being groomed to transform the world. No one ever makes it alone. People need a combination of the following to obtain a job: familial connections, ability, and personality.

The author goes on to make the following points, which I will summarize. Cultural legacies are powerful forces; temperament and personality traits can run in the family for generations, even after economic, social, and demographic conditions change. Different cultures handle uncertainty, ambiguity, and individualism differently; countries with a lower Power Distance Index tend to breed more entrepreneurs and risk-takers. Differences in number systems make Asians better at math than Europeans. Differences in agricultural systems and types of crops give Asians a greater work ethic than Europeans. People are better at math when they try longer and harder to solve problems.

The book doesn’t spend much time arguing what is right or wrong. Instead it makes the case that the world would produce many more success stories if more people were given opportunities like a January birth for hockey or unlimited access to programming at a young age like Bill Gates. Success is a formula, the outcome of which can be predicted by observing a person’s communal surroundings, instilled work ethic, the expectations and opportunities given by his parents, and the time he commits to developing a skill that will be valuable upon mastery.

Book review: What Would Google Do?

Book review: What Would Google Do?

In What Would Google Do?, Jeff Jarvis conveys his lessons learned from the greatest technology success stories of the past decade. He draws on best practices from Etsy, Craigslist, Amazon, and of course Google. I took notes of interesting, new concepts as I read but sadly didn’t end up with much. It may be great for corporate old-schoolers, who Jarvis seems to be talking to, but if you’ve been following blogs and news in this space this book will feel a little slow and obvious.

I managed to solidify a few key points that I’ll take with me as I engender my next big tech company in the next year. First, the best position is to create a platform on which others can build. I can expect to earn little or no profit for a while under this model, but hooking developers on my platform is a very powerful strategy. I need to extract the minimum value from the network of developers and related web services to take the network to its maximum potential size and value. This enables my developers and partners to charge more, which increases their dependency on my platform or network. Another positive side-effect is that competitors don’t want to jump into a space where the efficient leader’s margins are low.

Today’s web 2.0 method for growth is to forgo paying for marketing and instead create something so great that users distribute it. Later revenue can be found and extracted, but we’ve seen the revenue-maximizing strategy fail on AOL and Yahoo while Google stole their users to frame the world’s most powerful advertising machine.

These are the most powerful pieces of advice I discovered in WWGD:

How can you act as a platform?

What can others build on top of it?

How can you add value?

How little value can you extract?

How big can the network atop your platform grow?

How can the platform get better learning from users?

How can you create open standards so even competitors will use and contribute to the network, and you get a share of the value?

I’ll certainly be applying some of these principals to my next ambitious venture. As far as the rest of the book, I recommend reading a summary instead, unless you’re brand new to the Web 2.0 business world.

Book review: Freakonomics – A Rogue Economist Explores the Hidden Side of Everything

Book review: Freakonomics – A Rogue Economist Explores the Hidden Side of Everything

In my time studying Business Management Economics at UC Santa Cruz, I came to appreciate Economics as the underlying force driving many other Social Sciences, including Politics, Sociology, Community Studies, Anthropology, and History. In Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, authors Steven D. Levitt and Stephen J. Dubner assume this same premise to explore the hidden economic forces that connect seemingly unrelated phenomena in American society and history.

They do not argue that economics causes societal issues; rather they use economic models and experiments to explore complex issues, including racism, crime trends, abortion effects, medical malpractice, student and teacher cheating, and effects of parenting. They explore correlation and causality between distant patterns in society to convey an underlying human nature at work. In doing so they manage to prove that conventional wisdom is often wrong.

To me, the most interesting section of the book is what a bagel salesman’s data reveals about employee honesty in varying-sized companies and at different position ranks. Its findings “lie at the intersection of morality and economics,” and demonstrate consistent trends in theft, allowing the interpreter to actually predict theft within a company, given a few basic descriptions.

A bagel man named Feldman leaves bagels and cream cheese in office lounges and kitchens along with a wooden box and a sign requesting $1 per bagel on the honor system. By keeping perfect records (he’s formerly a financial analyst), he inadvertently invents a system to monitor rates of white collar crime.

At his own estranged office he receives a 95% payment rate because his colleagues knew him. But eventually he built his clientele up to 140 companies consuming 8400 bagels a week and the payment rate varied with distinct patters.

With enough data he learned to consider an “honest company” one that paid for 90% or more of its bagels consumed. 80-90% payment rate is annoying but tolerable, and if paid less than 80% Feldman posted a hectoring note. Even though as many as 20% of his clients steal bagels from him, his money box only got stolen 1/7,000 times.

The interesting part of his data is learning the factors shaping trends in honesty. Smaller offices tend to be more honest; a 50-employee company pays 3-5% more than a company with more than 300 employees, which can also be described as a reduction in theft as high as 60%. Unseasonably good weather reduces theft while cold weather has the opposite effect. The bad holidays include Christmas, Thanksgiving, Valentines Day and tax week, which each invoke up to a 15% increase in theft. Holidays that reduce the theft rate include Independence Day, Columbus Day and Labor Day.

Other interesting trends include the positive correlation between honesty and employees who like their boss and work. I was surprised to find an increase in theft as you move up the corporate ladder. Feldman speculates that executives cheated because of a sense of entitlement, or that perhaps cheating is what earned their place as an exec in the first place.

The conclusion of this excerpt, however, is quite positive and inspirational: The vast majority of Feldman’s customers do not steal even though no one is watching.

Freakonomics was a very fun and easy read, and not just because of my background in Econ. It’s entertaining all the way through and there are some very interesting insights into history and the nature of certain professions that you’d never know other than by reading this book. I recommend it.

Lessons from Founders at Work: Stories of Startups’ Early Days

Lessons from Founders at Work: Stories of Startups’ Early Days

Jessica Livingston’s Founders at Work: Stories of Startups’ Early Days is a first-hand account of the creation of 32 of the world’s most influential tech companies. Each chapter is an interview with a different company’s founder, averaging 14 pages a piece. This gives the reader a lot of freedom to read one story at a time whenever he or she needs a little inspiration – and boy is it inspirational! Much of the time I thought, “That could totally be me!” so I took frequent pauses to blast out ideas into my Website Concepts log. The stories are often laugh-out-loud funny, and will make you wonder how the world could have possibly doubted today’s most useful technologies.

It’s interesting how much the founders have in common. For example they almost all started on a project completely different from what they ended up succeeding with. Many of them were forced to make major life sacrifices to dedicate themselves to a concept with no funding or revenue. Almost every story includes a paragraph about the time the founder had stayed awake for 4 days straight, working tirelessly on the product before launch. And rarely were their ideas embraced with open arms; instead investors, coworkers, friends, and competitors balked at them. As computing pioneer Howard Aiken once said, “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”

All of the founders convey great lessons learned in entrepreneurship. I will focus on a few of my favorite stories and some of the most valuable advice I picked up from their great achievements. However, I highly recommend reading it for yourself, as I consider this book highly inspirational. I will definitely flip back to one of these stories when I need a little encouragement in my own startup in the future.

Like many of the founders, PayPal’s Max Levchin is clearly a brilliant programmer and engineer, which makes it a little hard for me to relate at times. But he’s also a great entrepreneur, with valuable insight into startup success recipes. PayPal had changed its business plan six times before getting it right, which is fine because a good entrepreneur is not tied to any one specific plan. He also welcomes the challenge of being a novice in a field of experts because rather than conforming to the norm, you’re inspired to invent something. For example, Citibank competed with PayPal but, adhering to the banking norm, held tight restrictions over which users and transactions it would service in order to prevent fraud. PayPal let everyone use the system because “new users learning about a new system really don’t want to be restricted.” Instead PayPal became “a security company pretending to be a financial services company.” It judges the risk of a transaction to help it decide whether to block it or take it on. He attributes its tremendous growth rate to the world’s most powerful viral driver: money waiting for you when you sign up. Some sellers refused to accept PayPal but a buyer could still send them money through it. The seller receives an email informing him that money awaits him and naturally he registers an account. Finally, Levchin attributes his success to having a great cofounder, warning that it’s very hard to start a company completely alone.

Evan Williams founded Pyra Labs, which created Blogger.com. Initially it was a web-based project management tool for intranets, which he likens to today’s Basecamp. One of the products called Stuff enabled quick, disorganized sharing within the company. While the Pyra team considered it very useful to them, they thought it was too simple and trivial to be the product in and of itself. While there were other blogs on the internet, they weren’t taken seriously for a long time. At one point after releasing Blogger.com to the public, Pyra ran out of money and everyone except Williams quit or got laid off. This prompted the Server Fund Drive, in which Blogger’s website requested donations to keep the website live. Surprisingly $17,000 came in and saved the company. During 2001 Williams considered quitting many times but remained “hallucinogenically optimistic,” his most valuable advice. Don’t let people talk you out of your gut feelings or force you to compromise on your ideas. “If everyone agrees, it’s probably because you’re not doing anything original.” He also warns an entrepreneur to roll with the punches, because if things don’t go according to plan, you never know whether it’s good or bad until later, if ever. Deals that didn’t work out were a bummer at the time but turned out to be very lucky. Williams concludes that it’s amazing how far you can go with a simple idea.

Tim Brady was the 3rd employee at Yahoo, after the two cofounders. He left Harvard Business School in his last semester to join Yahoo, not knowing whether they would graduate him. Originally Jerry and Dave used Yahoo to keep track of the technical papers they used in doing their PhD theses. All major EE graduate programs found out about it and send them emails asking them to add papers to the list. Suddenly they went from doing their graduate work to adding websites to their list for 8 hours a day for 8 months, and traffic grew exponentially, so they called Brady asking for help. They were offered money by the LA Times, AOL & Microsoft early on but decided to do it themselves because they had so much confidence in what they were doing. Concerning competition, Brady reflects, “Although we thought it was crazy, AOL’s walled garden was bigger than the Internet for a handful of months there, which made our strategy impossible. That was definitely a threat” Employees experienced 16- to 18-hour work days but the group of people was great so the hours were never dreaded. An embarrassing reflection was when the Yahoo team met the Hotmail founders for lunch and rejected the idea, unable to see how it could get big. Brady argues that doing business with friends was a good idea in his case, in spite of the common contradictory words of caution.

Paul Buchheit was the 23rd employee at Google. He started companies within Google and enjoyed the benefits and minimal risk as opposed to starting them by himself. For example, he was able to learn from successful techniques in other divisions, brainstorm with very smart people around him, access expensive infrastructure for free, and receive a warm welcoming to his “crazy ideas.” He brags that he built the first version of Gmail in a single day and, by the way, also built AdSense in less than a day. One reflection involves Buchheit pulling a malfunctioning hard drive from a PC and transplanting the electronics from another drive to salvage the data. Like many other founders interviewed, he stayed up for 3 days straight prior to launch, furiously assembling and testing; and he considered normal working hours noon until 3:00 am. It’s interesting that he doesn’t know whether he would have earned any less money if he had not created Gmail and AdSense, but I get the impression he’s earned enough not to be concerned. Buchheit recalls that he left Intel for a little startup not knowing whether it would succeed because he considered it a learning experience, admitting, “Honestly, I was pretty sure AltaVista was going to destroy Google.”