New Cars

My Point: Men making six figures buy new cars.

Try asking a few people if it's a good idea to buy a new car, instead of a used one. It's likely that one of them will say, almost with religious zeal, "Never! As soon you as you drive the car off the lot, it has already depreciated." Or something recognizably similar.

So why do people buy new cars? It seems like most people think it's a terrible idea. I was in the theater the other day watching Toy Story 3 and a pre-movie commercial for a Kia SUV (featuring a group of humanoid hamsters rapping about the car) came on-screen¹. Daniel Bell, who is my cousin, turned and said, "I've noticed a lot of advertising for cars lately."

If it's worth a lot of advertising, it must be profitable. Maybe the wealthy are the people who buy new cars? Do wealthy people like to watch human-sized rapping rodents? Just a guess, but I'd say no. I'll bet the target demographic of the commercial is young, and probably male. So are young males the most likely people to buy new cars, or is the commercial poorly aimed?

A study from 2003 done in Salt Lake City by The Newspaper Agency Corporation provides some illuminating info about new car sales.¹

Judging from the results, I'd say the most likely people to buy new cars are working professional males with a college degree who are married, and between the ages of 25-44. They probably make 100K a year or more.

So, I think the KIA commercial is either attempting to advertise to a non-saturated market, or they have made a mistake. Actually, both may be true; the commercial is a mistake under any circumstances in my opinion.

The study I referred to is found at the url by footnote 1. There are some interesting results in that study, for an example, check out which brand of car was the most purchased by the participants of the survey in 2002. Mercury!

1. http://www.nacorp.com/NAC2/pdf/Vehicles.pdf

2. Here is the commercial.

Falling Down the Stairs

Is it more embarrassing to fall down the stairs or walk into a stationary object? A pole, to be specific.

I think the latter.

A Reading Hack From Dexter

My point: You can sometimes get 80% of the book from 1% of the reading.

Disclaimer: this approach might already be obvious to many people. (So I wrote it in a blog post instead of a book.)

Dexter Bell is my dad, and he is known for reading. I know him more particularly for checking out stacks of books from the library, and perusing the prologues.

My dad and I both like to read about social psychology, economics, self-help, and in general books that have a few central ideas. Outliers, by Malcolm Gladwell, Made to Stick by Chip and Dan Heath, and The Black Swan by Nassim Taleb are three recent examples. They all have big points to make, and spend 300-600 pages making them.

I have to admit that growing up I believed the only way to read a book was to start from the beginning and read every page. It was news to me that authors often give away their big points in the introduction. The rest of the book is usually to convince and entertain. The reading hack that I learned from my dad is to never commit to the book. In short, apply marginal cost/benefit analysis continually to reading. Even shorter: skim. You'd be surprised how much information you can get by spending 30 minutes in a bookstore aisle with this approach.

The process is a little like this:

1. Look at the prologue/introduction + jacket
2. Read the first page or two
3. Skim the table of contents
4. Flip to a random page and read a bit
5. Put it down or read it more

The goal isn't to skim every single book; in fact, an article about Internet browsing from Wired Magazine provides a vision of the detrimental effects of allowing this to be your only type of reading.¹ The real goal is to learn a lot, quickly, and find out which books are worth more attention.

Amazon.com reader reviews are another useful tool. Smart people take the time to read the books, and then give you their synopses. In my mind, the most informative reviews are the ones that give the book 1 star. This method of reading is an even quicker hack than the prologue approach, with even more of the downside that you don't get the benefits of thinking it through yourself.

The final qualifier is that novels, history narratives, and reference books are immune to this hack, but those are also the types of books that nobody would want to hack anyway.

Update 7/27/2010: There is a website called "getabstract.com" which condenses books into 5 page summaries. The quality of the reviews is supposed to be high, but comes at the price of a subscription. It is the premium book hacking service for books about business and related subjects.

1. http://www.wired.com/magazine/2010/05/ff_nicholas_carr/all/1

Pretty/Ugly

Daniel Hamermesh is an economist at U.T. Austin who has written multiple papers on the effects of beauty on earnings. The short conclusion to his work: better looking people make more money (or marry people who make more).¹

The abstract for "Beauty in the Labor Market"² reports: "Plain people earn less than average-looking people, who earn less than the good looking...effects for men are at least as great as for women. Unattractive women have lower labor-force participation rates and marry men with less human capital. Better-looking people sort into occupations where beauty may be more productive; but the impact of individuals' looks is mostly independent of occupation, suggesting the existence of pure employer discrimination."

That seems like bad news for ugly people, but then Hamermesh, Meng, and Zhang wrote a paper with some optimistic results about spending on cosmetics and clothing. The data used for the paper was drawn from a study done in China. Interestingly enough, spending more on cosmetics has been convincingly shown to be tied to perceived attractiveness. That means, according to the paper, that part of the money spent on enhancing beauty is actually an investment in earning power. The bad news is that the effects on increased earnings aren't very large. If you spend one more dollar on cosmetics and clothing, how much is an investment? The paper gives a range, from 14 cents to 1.3 cents per dollar. Why the range? As you spend more and more on cosmetics and clothing, it starts to have less effect. Much like a learning curve (and a bunch of other stuff), most of the change happens up front. The people predicted to be getting the most increased earning power from spending on cosmetics and clothing are those spending between two and three times the average. ³



Even though there is an effect from this type of spending, you could increase earning power much more through investment in other things. However, it may be nice for a woman to view this as a little-known discount for clothing and make-up. Since the goal of make-up and clothing isn't to increase earnings anyway, this is a bonus.

Interesting stuff.

1. Summary Table of Beauty Papers' Results

2. Beauty in the Labor Market

3. Dress for Success - Does Primping Pay?

Caveat: Social Hedging

Hedging in finance is a way of avoiding downside risk. You pay stable insurance payments to avoid large, unexpected payments for healthcare if an accident occurs. Farmers sell corn at a fixed price long before they harvest it in order to hedge against the risk of falling corn prices. They have a guarantee that someone will at least pay the current price.

Notice, hedging mitigates downside risk, at the cost of the upside. You end up with an outcome more in the middle. The upside of the insurance scenario is that you opt not to pay for insurance and you also don't ever get into an accident. For the farmers, the eliminated upside is that corn prices go up instead of down.

Sometimes, people hedge socially. One example of this is the choice to not approach someone attractive for fear of rejection. The eliminated upside is obvious, you never have a chance with him or her. Some hedge by predicting their own poor performance in the near future, hoping to avoid disappointment. For this particular hedge, what is the eliminated upside? There doesn't seem to be one, at first blush.

At second blush, people change their expectations. This is a possible reason governments resort to hyperinflation; they need to surprise a very observant public. Any normal inflation won't do, because people update their beliefs about reality.¹ For a more personal example, because I've tried to hedge so much in the past, people don't trust my predictions about how I'll do on tests, or anything for that matter. Often, people start to see social hedgers as overly image conscious, and engineers of artificial personae.

In brief, hedging costs. If one day I hear of a perfect hedge, meaning, one that eliminates downside risk with no cost, I'd be happily surprised.

1. Wikipedia: Hyperinflation

Observations About Smash Brothers

A Wii console arrived in our apartment three days ago, and along with it, a game called "Super Smash Brother's Brawl." This amazing game features a collection of characters from a variety of video games. The game has good old Mario and Luigi, Link and Zelda from the Legend of Zelda series, and even some not-so-Nintendo characters like Sonic the hedgehog and Solid Snake.

This game is fun. I've spent hours and hours playing against my friends, and I find it to be extremely enjoyable. However, I've recently noticed something that slightly disturbs me, namely, the SSBB tournaments. The idea of competitive video gaming is not new to me, and probably not to many people, and I've never much considered it before. Why did I notice this time? I saw a YouTube video of two tournament "smash pros" battling with precision only afforded to those who've spent countless hours practicing. As I began to internalize what I saw, the word "gross" best described how I felt.

Two particular definitions of the word gross:
a) Offensive; disgusting
b) Unmitigated in any way; utter

Both apply in their separate ways. My roommate, who heard me use the word, suggested that the video had so far exceeded my threshold of tolerance for video game investment that it became disgusting (rather than merely meaningless.) I think so too. Video games are fun, but they are also not very productive. Many a comparison to sports has been made with the idea of justifying gaming, but an important difference: video game tournaments are too esoteric to bring in lots of viewers, which means they provide little benefit to society at large. Yeah, there are some people who survive off of tournament money, but I suspect that in general gaming costs more than it contributes.

Subjectively, I think the line should be drawn at solo practice. I admit to having practiced on my own several times. In retrospect, I think it strays from any useful form of playing video games into mastery of the irrelevant.

First Post

Today is sunny, and I created a blog.