Lilly isn't much of a numbers person, or much of a finance person, or much of an accountant, but she managed to stumble onto this particular gem of the tax code: rules for claiming a kidnapped child as a dependent. Apparently if your child gets kidnapped over the course of a tax year, you can only claim the exemption under certain conditions.

O, wonder!
How many crazy websites are there here!
How beauteous bureaucracy is! O brave new world wide web,
That has such pages in it!

I've never seen a 140 second trailer for a TV special that's going to be 42 minutes plus 18 of commercials, but I am super psyched about the upcoming Jim Gaffigan special.

After you're done watching it (it's worth it), read the post below. I seem a lot smarter in that one.

My Bonus Policy

Companies are currently coming under fire for giving out bonuses while laying people off, and the ones who are giving out big bonuses while laying people off and accepting public money to stay afloat are downright reviled. In most cases, rightfully so, but I want to make a brief argument IN FAVOR of giving out bonuses to certain kinds of people, and those people are the ones who helped company performance by predicting the downturn, the bursting of the real estate bubble, and the credit crunch and the people who took steps to mitigate the risk. If companies don’t reward those people, or aren’t allowed to, then it creates a massive disincentive in the future for people to tell the truth, especially when it’s bad news. People already don’t like making bad predictions or giving bad news to superiors, but we’re on the verge of creating an incentive structure in which people ONLY make money by predicting good things and then having them happen.

•If an analyst predicts good things and he’s wrong, low compensation, less job security.

•If an analyst predicts bad things and he’s wrong, low compensation, seen as a pessimist/downer/disloyal.

•If an analyst predicts good things and he’s right, big bonus for being right and helping the company prepare.

•If an analyst predicts bad things and he’s right…low compensation and less job security? Really?

OK, now pretend you’re an analyst and the CEO says “Hey, we’ve got all these subprime mortgage loans on the books. Do you think we should buy more?” If you say yes, your fortunes are tied to those loans. But if you say no, even if you’re right you’re screwed because the company’s so heavily exposed to them anyway, the bad year causes you to get a crappy bonus anyway! So less risk for you means more risk for the financial system.

We should find a way to reward those most prescient, and send a message to future generations of economists, bankers, financiers and analysts that good work will be rewarded, because the difference between getting good analysis and having people game the system for their own benefit is exponentially greater than the hit companies and taxpayers take giving out bonuses even in the worst of times.

I’m not saying we should be paying for multi-million dollar office redecorations, but some people actually deserve bonuses, and for the sake of our future economy, they should get them.

My Scary Pope

OK, so I've been saying the current Pope is kind of a scary dude for a while now. Before it was just because he looked like someone out to get Harry Potter (pun intended...wait for it...). But now he's taken being scary to a whole new level, a real one.

According to MSNBC.com and CNN the channel, while in Africa the Pope had this to say about AIDS: "You can't resolve it with the distribution of condoms." OK, that's true. I can see how an anti-condom kind of guy would spin it that way, maybe in his own defense, saying that his views aren't killing Africans so lay off. A little bit of a cop-out since condoms would save countless lives over there, but hey, he's not paid to care about that.

What's really frightening is that the Pope went ON to say that the distribution of condoms "increases the problem" of AIDS.

Some of you may remember previous instances of Catholic official denouncing the usage of condoms and saying that they cause AIDS. In fact, I blogged about it once. But this takes it to a whole new level.

We're talking about the most powerful religious figure in the world, head of a church representing roughly one-sixth the entire planet's population, and he's out there telling people that the distribution and use of condoms makes the AIDS epidemic WORSE.

I don't even know what to say about such an unconscionable action, a statement that will, in all likelihood, kill more people than I even know. It was one thing for him not to discipline the archbishop who said that condoms cause AIDS, but it's quite another to publicly agree that condoms are part of the problem.

Not knowing what to say, I turned to Jon Stewart for some wisdom:
"The Pope went on to say that smoking cures cancer, and if you're looking for a quick morning pick-me-up, try heroin." Sadly, the mock advice would actually have been LESS harmful (for a variety of reasons) than what the Pope actually said.

[Editor's Addendum: Barkeep, loyal Catholic, has brought up the only conceivable defense to the Pope's statement: more condoms means more casual sex means more AIDS. It's actually the first thing I thought of too. But after thinking about it, I'm 99.9% convinced it doesn't hold up to scrutiny. Think of it this way:
A = Instances of Unprotected Sex Between Infected Individual and Non-Infected Individual
B = Probability of AIDS Infection From Unprotected Sex with Infected Individual
X = Instances of Protected Sex Between Infected Individual and Non-Infected Individual
Y = Probability of AIDS Infection From Protected Sex with Infected Individual

New Cases = A*B + X*Y

The argument is based on the fact that X will increase faster than A will decrease if condoms are distributed. I agree. But for the argument to work, however, the magnitude has to be such that it overcomes how much lower Y is than B. Plug any reasonable assumptions into the equation and do your own tests, it doesn't work at all. Especially in Africa, where poor education leads to VERY little hesitation to have casual sex with or without protection, and where women often have little ability to refuse to have sex with a husband who cheats on her regularly, meaning a smaller |dX/dA| than in America, where it's still surprisingly and depressingly low.]

Courtesy of Chuck, a 60 second tutorial on credit scores (in video form, otherwise, how would I know it's 60 seconds? That said the video is longer than 60 seconds because there's an intro).

Sorry about the paucity of posting of late, I'm working on a new blogging project with a few friends. I'll be sure to let my loyal readership know about it as soon as it's up and running.

Happy Pi Day: Part II

Happy Pi Day again, readers! I just had to add one more link to this year's Pi Day Link Library:

CNN.com: American Pi, by Elizabeth Landau (not to be confused with the essay of the same title)

Some of you familiar with boring epic saga that is my life may know the author better as "Pi Girl," who has earned her nickname once again with this pi-inspired version of Don McLean's classic hit.

Thanks, Pi Girl, for brightening our Pi Day and proving that while the news never takes a day off, sometimes the people who write about it can still have fun.

Happy Pi Day

Happy Pi Day, readers! This year I've assembled an assortment of Pi related links for your viewing pleasure.

An old favorite put on a t-shirt.

I have absolutely no idea what to make of this penguin.

Another t-shirt, this one with a pi joke in a pie chart...lots of bonus points for this one.

Courtesy of Chuck, an item that will help you liven up your next Pi Day Party.

Here's a link to the official Pi Day website (though I really don't know how "official" it can possibly be).

Also...awwww. (The little pi gets a 4-W "aw" for those of you keeping score at home.)

And just to prove I'm not the only one excited, see the woot blog describe the 9 ways in which they'll celebrate Pi Day.

(If it were warmer out, I'd totally wear this shirt that Lilly got for me.)

Yeah, I suck at posting this month. I work too much. Sorry, readers.

My lunches this week have been:
Monday - Two cheesesteaks (one regular, one chicken...why are food carts so cheap?)
Tuesday - Two-pound burrito (love that guac)
Wednesday - Half of a large double-pepperoni triple cheese pizza (w/extra cheese)
Thursday - Coated, battered and fried Chinese food. Delicious.

What will tomorrow have in store? Besides a defibrillator I mean.

Oh, yeah, and Monday for dinner I had 14 hamantaschen. Delicious!

Courtesy of Groucho: Scanwiches! Scans of sandwiches (cross-sectionally speaking)!

Pop Quiz: Did this website make me hungry? If you answered no, you're probably new here. Welcome, new reader!

My "Rush Limbaugh is a Big Fat Idiot"

So a big deal has been made about Rush Limbaugh lately. I never really paid the guy much attention--there hasn't been anything I could get from him that I don't already get from at least one of the three homeless people I pass on my way to work (the religious nut, the mean lady, and the crazy bird-man). Together those three beggars really are like listening to Rush on a drive to work...except I get to walk.

But lately he's been getting a lot of press, mostly about the Democrats painting him as the new face of the Republican party and his being stupid enough to accept that (or smart enough if he doesn't actually care about his party and just wants to cash in). So I thought I'd listen to a few of his comments from that famous speech he gave recently.

I didn't last very long.

At one point in his diatribe against President Obama, he decried our intrepid leader and attacked him for the TARP (Troubled Asset Relief Program), which he unequivocally described as unconstitutional.

OK, now I'm no historian, but wasn't the TARP plan created, enacted, and pushed through Congress by George W. Bush, Dick Cheney, and Henry Paulson? Wasn't half the TARP money spent or committed before Obama's inauguration?

Heckuva job with that speech, Rushie.

Gambling Addicts and Economic Theory

With a headline like this, everyone probably can guess where I'm going. Why play games with a negative expected return? Over the long run, you're almost guaranteed to lose money. A rational consumer wouldn't repeatedly do something like that. But I've found another defiance of economic theory, even when you look at gambling as a valuable good (consumed by gamblers).

Temporarily look at gambling as an entertainment expense. Sure, it costs money, but so does a movie, and people enjoy gambling a lot. Even if you do it too much, a little bit still makes sense in your life if you enjoy the activity enough (just like shopaholics need to stop impulse buying, but don't need to stop purchasing things from stores entirely).

OK, now let's switch gears for a minute. A fundamental tenant of financial and economic theory is that optionality has value. It's always better to have the option to do something than to not have the option, because if you DO have the option, you're never worse off, and in some potential future states of the world, you are demonstrably better off. Higher expected value, higher present value. It's why stock options are valuable (very valuable in this high-volatility market), and part of the explanation why an American call on a stock is worth the same as a European call on a stock (if you don't know what that means, don't worry about it).

Now combine those two points with this report from the Philadelphia Inquirer: New Jersey, home of Atlantic City, just added their one-thousandth (1,000th) name to a special list of persons banned from entering casinos. What makes this list so special is that it's voluntary. 1,000 individuals have gone out of their way to ask to have the option to enter a casino and gamble taken away from them.

At the core, I do very much understand and appreciate the impulse. It's the same logic that causes many people to avoid being in the presence of unhealthful foods. Remove the temptation, remove the possibility, and you can assist your better self in a mind-over-matter struggle for identity and self determination. Sure the option to have a donut has value, just as the option to gamble, since both goods are capable of producing great joy. But they're both bad for people in excess, and some people can't even trust themselves not to over-consume the good until their marginal return is negative.

What can we infer from this? Are there any lessons, or is it just an interesting oddity? I have a few thoughts:

When markets become inefficient, when the decisions of one person can impact the outcome of a system, or when human psychology--even financial psychology--is a major factor...don't count on rationality. This may be obvious, but what most people don't consider is that if you're counting on irrationality, it may be easy to predict what type of irrationality you're dealing with. The way I see it, there are two types of overriding irrationality: Overreaction and Inflated Discount Rates.

Overreaction is fairly easy to understand. People need to cut back on gambling, so they slam on the breaks and ban themselves from casinos (in some cases it may be the only way to avoid under-reacting, which carries with it worse consequences, but in some cases it may be to the forfeiture of consumer surplus, or value). We see it in less dire straights. My brother wants to be healthy, so he now eats nothing but egg-white omelets, steamed chicken, and vegetables. A little bit of bad economic news comes out, so the markets crash 4% only to bounce back 3% the next day.

Inflating a discount rate is a little harder to understand and see in every day life, but basically what it means is that people increase the impact time has on diminishing the value or detriment associated with a future gain or loss. A dollar today is worth more than a dollar a year from now (because even if you don't want to spend the dollar for a year, you could still put it in the bank and wind up with more than you started--also you have the option of spending it now or later, while the dollar a year from now only lets you spend it later, and optionality has value). But a dollar today is only worth maybe a dollar and a penny a year from now, or a dollar and four cents...certainly not more than a dollar and a quarter. But when people are being irrational, they place immediate value disproportionately above future value, and make bad decisions. A donut now tastes good, and diabetes is a long way off, even if the pain it causes is thousands of times greater than the enjoyment reaped from the donuts (people also inflate discount rates when the connection isn't abundantly clear). But when people are scared or are being irrational, they often focus on the present at the expense of the future. In my experience, recognizing this tendancy can help to understand irrational behavior (such as the gambling addiction itself).

Ideally a person aware of these tendancies can balance them out, and the business student inside me suggests playing poker with people who can't.

Well, it's March, which means March Madness, and I can't think of anything more maddening than encountering something I can't eat, but I'm pretty sure this would drive me, or make me, mad (maybe both).

Leela: I'm afraid Fry is suffering from ocean madness.
Fry: Every time something good happens to me you say it's some kind of madness, or I'm drunk, or I ate too much candy. Well I saw a real mermaid and I wish for once my friends would have decency and kindness to believe me.
Leela [whispering]: Ocean madness.