The safeguards that are employed in airport security policy are found using the “best response dynamic”: Each player chooses  the optimal response to their opponent’s strategy from the last period.  So, the T.S.A. best-responds to the shoe bomber Richard Reid and a terrorist plot to blow up planes with liquid explosives.  We end up taking our shoes off and having tiny tubes of toothpaste in Ziplock bags.  So, a terrorist best-responds by having a small device divided into constituent parts and hidden in his underwear.  One part has to be injected into another via a syringe and the complications that ensue prevent the successful detonation of the bomb.  In this sense, each player is best-responding to the other and the airport security policy, by making it a bit harder to carry on a complete bomb, succeeded with a huge dose of good luck thrown in.

What should we learn from the newest attempt to blow up an airplane?

First and most obviously, the best way to minimize the impact of terrorism is to stop terrorists before they can even get close to us.  This appears to be the main failure of security policy in the recent incident – more focus on intelligence and filtering of watch lists is vital.  Second, the best response dynamic should not be the only way to inform policy.  There are already rumors that no-one will be allowed to walk around for the last hour of the flight or have personal items on their lap.  Terrorists will respond to these policies by blowing up planes earlier in flight.  Does that make anyone feel any safer or the terrorists less successful?  The main problem is that terrorists are thinking up new schemes to get to nuclear power stations, kidnap Americans abroad and other horrible things that should being brainstormed and pre-empted.  The best response dynamic is backward looking and cannot forecast these problems or their solutions.  This second point is also obvious.  The fact that a boy whose father turned him in got on a plane with a bomb suggests that even obvious points are worth making.

Telephone is a kids’ game where the children sit in a circle and pass around a message by whispering in the neighbor’s ear.  The game is to see how garbled the message gets by the time it makes it all the way around the circle.  My 21st century version of telephone is played solitaire, using Google Translate.

1. No, the only option at this point is to tackle her, landing you both deep in the snow
2. (English -> French) Non, la seule option possible à ce point est à sa face, vous êtes tous deux d’atterrissage dans la neige
3. (French -> Italian) No, l’unica opzione a questo punto è sul suo volto, si sono entrambi di atterraggio in mezzo alla neve
4. (Italian -> Spanish) No, la única opción en este momento está en su cara, han de aterrizaje en la nieve
5. (Spanish -> Chinese) 沒有，唯一的選擇在這個時候是你的臉，已經降落在雪地裡
6. (Chinese -> Estonian) Ei, ainus võimalus sel ajal on oma nägu, on lossitud lumi
7. (Estonian -> Afrikaans) Nee, die enigste opsie is op die oomblik is op jou gesig, dit geland in die sneeu
8. (Afrikaans -> Turkish) Hayır, şu anda tek seçenek in your face, bu kar indi
9. (Turkish -> English) No, currently the only option in your face, the snow fell

Hilarity ensues!  (As usual, one of the kids seems to be sabatoging the game.  Here we can see that it is the child translating from Afrikaans to Turkish.)

If this is all obvious, forgive me I came late to this (I grew up in Orange County, CA where it last snowed in December of Yeah Right.)

The first thing to do, obviously is to make a snowball.  Your enemy combatant will do the same.  You each now have one snowball in your stockpile.  What next?

If you throw your snowball you will be unarmed and certain to pay the consequences.  So you don’t.  Neither does she.  You are at a standoff, but very soon you figure out what to do while you wait for the standoff to resolve.  Make another snowball.  Of course she does the same.

Now you each have an arsenal of two snowballs.  Two is very different from one however because if you throw your snowball you still have one to defend yourself with.  But you will have one fewer than she.  This still puts her at an advantage because once you use your last snowball you are again unarmed.  So you will only throw your first snowball if you have a reasonable chance of landing it.

The alternative is to make another snowball.  Which of these is the better option depends on what she is expecting.  If she knows you will throw, she is prepared to dodge it and then press her advantage.  If she knows you will make another one she will wait for you to reach down into the snow when you are most vulnerable and she will draw first blood.

So you have to randomize.  So does she.  There are two possible outcomes of these independent randomizations.  First, one or two snowballs may fly resulting in a sequence of volleys which eventually deplete your stocks down to one or two snowballs left.  The second possibility is that both of you increase your stockpile by one snowball.

Thus, equilibrium of a well-played snowball fight gives rise to the following stochastic process.  At each stage, with a certain positive probability, the stockpiles both increase by one snowball.  This continues without bound until, with the complementary probability in each stage, a fight breaks out depleting both stockpiles and beginning the process again from zero.

Special mention should be made of a third strategy which is to be considered only in special circumstances.  Rather than standing and throwing, you can charge at her and take a shot from close range.  This has the obvious advantages but clearly leaves you defenseless ex post.  Running away should be ruled out because you will be giving up your entire store of snowballs and eventually you will have to come back.  No, the only option at this point is to tackle her, landing you both deep in the snow.  With the right adversary, this mutually assured destruction could be the best possible outcome.

It’s trendy to get your economist on around the holidays and complain about the inefficiency of gift exchange.  Giving money is a more efficient way to make the recipient better off.  But that’s a fallacy that only trips up poser-economists.  To a real economist, that’s like observing that eating an omelette is an inefficient way to get all of the nutrients we need in our breakfast.  Yeah, so?  That’s not why I ate it.

A real economist recognizes unregulated, voluntary exchange when he sees it.  He doesn’t bother inventing some hypothetical motivation for the exchange because he understands revealed preference. If they are doing it voluntarily then it is efficient, regardless of what they think they are getting out of it.  Indeed, the pure consumption value of buying a plaid sweater for somebody is a perfectly good motivation.  And since the recipient voluntarily accepts the gift, even better.  If there was a Pareto superior alternative they would have done that instead.

So this holiday, swat that poser economist in red off your left shoulder, hold hands with the real economist in white on your right shoulder and give to your hearts’ content.  (Oh and I am very easy to shop for.  Just don’t forget to include a gift receipt!)

Or dead salmon?

By the end of the experiment, neuroscientist Craig Bennett and his colleagues at Dartmouth College could clearly discern in the scan of the salmon’s brain a beautiful, red-hot area of activity that lit up during emotional scenes.

An Atlantic salmon that responded to human emotions would have been an astounding discovery, guaranteeing publication in a top-tier journal and a life of scientific glory for the researchers. Except for one thing. The fish was dead.

Read here for a lengthy survey of the pitfalls of fMRI analysis. Via Mindhacks.

Tyler Cowen, quoting Ezra Klein on “penalties” for failing to purchase private insurance:

If you don’t have employer-based coverage, Medicare, Medicaid, or anything else, and premiums won’t cost more than 8 percent of your monthly income, and you refuse to purchase insurance, at that point, you will be assessed a penalty of up to 2 percent of your annual income. In return for that, you get guaranteed treatment at hospitals and an insurance system that allows you to purchase full coverage the moment you decide you actually need it. In the current system, if you don’t buy insurance, and then find you need it, you’ll likely never be able to buy insurance again. There’s a very good case to be made, in fact, that paying the 2 percent penalty is the best deal in the bill.

The Huffington Post has an interesting article about Long Beach Mortgage.  In interviews:

[F]ormer employees say the company encouraged the sales force to churn out as many loans as possible with lavish commissions and bonuses. And it didn’t matter if the loans went bad because Long Beach Mortgage bundled them and sold most of them quickly to investors.

There are two preliminary moral hazard problems.  First, obviously the sales force does not have the incentive to screen out “bad loans” given the incentive contract offered.  Second, as mortgages can be bundled and traded, the managers do not have the incentive to give the sales force the incentive to screen our bad loans.  They want to maximize raw volume rather than quality-adjusted sales.

This leaves “the market” as the potential monitor.   A large group of owners of securities faces a free-rider problem in monitoring so no-one monitors.  The price of the bundled security reflects the mix of good and bad loans in the market.  An individual issuer of mortgages has the incentive to screen out bad loans if this is reflected in the price of the security they sell.  But if no-one is monitoring, no-one will notice the extra benefits from screening, the price will not improve and there is no incentive to invest in making just good loans.

Finally when everything does tank, if banks sell mortgages and the banks are too big to fail, they get bailed out by taxpayers.  One final bit of moral hazard to make sure there is no incentive to monitor the monitor to monitor the mortgage sale.

If the grand coalition of lenders, borrowers and taxpayers can form, they can design a better mechanism.  In fact, a system with less liquidity gives better incentives to monitor – if the owners of Long Beach Mortgage cannot sell mortgages they have better incentives to design good incentives for their salesmen.  It doesn’t seem impossible to make things a bit better.  But without the taxpayers in the coalition, there is no reason for the remaining sub-coalition to design the socially optimal mechanism.  If a bunch of people are playing poker but they can dump their losses on an innocent bystander, why will they ever stop playing?

So, what do Olympia Snowe and Ben Nelson think about financial reform?  The median Senator responds to the median voter in their state.  Wise people of Maine and Nebraska over to you, again.   And people of Connecticut, if you can get Joe Lieberman to be a bit more predictable, that would be great.

Loosely based on a meal we had at Rendezvous in Central Square, Cambridge.  Everyone loved it and I’ll definitely make it again.

Brocoletti are less bitter than Broccoli Rabe and I bought them on whim at Whole Foods because they were on sale.  Stir fry them with a little garlic.  Stir in cannellini beans when the broccoletti are crisp and green.  Make a garlic broth by boiling up bruised garlic in salted water.  I made too little – next time I’ll make four cups.

Cook the orecchiete till they are al dente – take a minute off the cooking time.  Meanwhile, toast panko breadcrumbs in a frying pan (no oil needed).   Put the breadcrumbs aside and lightly grease the same pan.  Stir fry the drained orecchiete in the pan.  They should get crispy at the edges.  I didn’t grease the pan enough and we ended up with a thin layer of toasted pasta that stuck to the bottom  – it was delicious!  Mix up everything, grate on the parmesan and you’re done.  Chewy pasta, coated with breadcrumbs in a garlicky broth with crisp broccoletti and beans.  Yummy.

Needs around four pans but it’s actually pretty easy and can be done in 30 minutes.  Guilt someone else into doing the washing up because you did all the cooking.

Luca Malbec 2007.  It’s Argentina in a bottle.  The wine is huge, almost black, and over the top in terms of fruit extraction, oak, and alcohol (14.5%).  The bottle itself weighs twice as much as wimpy French wine bottles.

Its perfectly agreeable wine but it has no complexity.  It smells like you just walked into a tool shed and found a blueberry pie cooling on the shelf.  And it is clearly built to stand up to those fat steaks Argies are so fond of.  So as a vegetarian I have almost no use for this wine except for one thing.  I am usually the only wine drinker in the house, so I drink a bottle over the course of a few days.  This wine is so huge that it tastes exactly the same three days later as it did when I opened the bottle.

Now I have discovered a second thing.  It makes a perfect pairing with dark Belgian chocolate.  The chocolate masks some of the oak and dark fruit flavors and allows the slight acidity and strawberry flavors to come out and those perfectly complement the chocolate. These aspects are typical Argentinian Malbec so I would bet this pairing would work with any you can get your hands on.

I found this out because my daughters came home from a birthday party bringing a box of Belgian dark chocolate.  The birthday girl’s father is a friend of ours who is Belgian, so that explains the chocolate.  Now, his wife is from Argentina, and her father is a winemaker and yes, his best wine is a Malbec.  So the pairing works on many levels.

1. Documents have been found suggesting that Iran is or was working on a neutron initiator for an atom bomb.

2. Iterated deletion of dominated strategies in Star Wars Game Theory from Dan Hamermesh via Freakonomics blog.

3. The British have the best teeth in the world, contrary to the conventional wisdom!