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Freakonomics And Moneyball
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Freakonomics And Moneyball


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  • 1. Modern Economics:Freakonomics & Moneyball 1 Wali Memon
  • 2. Freakonomics: What affects test scores?Black children entering kindergarten perform significantly worse than white children on tests.Score = β0 + β1*black + u β1 < 0But:Score = β0 + β1*black + β2*income + β3*parenteduc + β4*momage + u β1 = 0Omitted Variable bias2 Wali Memon
  • 3. Freakonomics: What affects test scores?Gap reappears in 2 years, even controlling for background variables.Another omitted variable?School quality, not well measured.How to test?Look within schools:Score = β0 + β1*black + β2*income + β3*parenteduc + β4*momage + u β1 = 0So, is it a black/white gap, or a bad school/good school gap? 3 Wali Memon
  • 4. Freakonomics: What affects test scores? What about parents? Can parents do things to improve outcomes for their children? 16 factors that might affect children’s school performance: Matter Don’t Matter *Highly educated parents *Family intact *High socioeconomic status *Parents recently moved to better neighborhood *Mother 30+ at time of first birth *Mother doesn’t work between birth and kindergarten *Low birthweight *Attends Head Start *Parents speak English in home *Parents take child to museums *Child is adopted *Child regularly spanked *Parents involved in PTA *Child frequently watches TV *Child has many books in home *Parents read to child nearly 4 Wali Memon every day
  • 5. Freakonomics: What affects test scores?The results on the previous slide again point out the importance of omitted variable bias.“But this is not to say that parents don’t matter. Plainly they matter a great deal. Here is the conundrum: by the time most people pick up a parenting book, it is far too late. Most of the things that matter were decided long ago—who you are, whom you married, what kind of life you lead…it isn’t so much a matter of what you do as a parent; it’s who you are.” (p. 175)5 Wali Memon
  • 6. Freakonomics: What affects test scores?Problems with Levitt’s analysis:• Data from surveys. Perhaps people were more likely/able to lie about the “do” things.• Doesn’t make it clear what he’s measuring or controlling for, if anything. I wasn’t able to replicate results, and good results should always be replicable (though Levitt is off the hook here, since it isn’t an academic paper).• We care about a lot more than test scores!6 Wali Memon
  • 7. Freakonomics: What’s in a name?“Are Emily and Greg More Employable Than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination”, by Bertrand & Mullainathan.--Send identical resumes to employers, changing only name to sound more white or more black. A true social sciences experiment!--White names receive 50% more callbacks for interviews.--Callbacks more responsive to resume quality for whites than for blacks.--Gap uniform across occupation, industry, employer size.--Authors infer discrimination7 Wali Memon
  • 8. Freakonomics: What’s in a name?Levitt agrees that individuals with distinctively black names do tend to have worse life outcomes. But why?Omitted variable bias—names signal different levels of parents’ education, income, socioeconomic background.Ten white girl names that best signify low-education parents: Angel, Heaven, Misty, Destiny, Brenda, Tabatha, Bobbie, Brandy, Destinee, CindyTen white girl names that best signify high-education parents (1990s): Lucienne, Marie-Claire, Glynnis, Adair, Meira, Beatrix, Clementine, Philippa, Aviva, FlanneryTen white boy names that best signify low-education parents: Ricky, Joey, Jessie, Jimmy, Billy, Bobby, Johnny, Larry, Edgar, SteveTen white boy names that best signify high-education parents: 8 Dov, Akiva, Sander, Yannick, Sacha, Guillaume, Elon, Ansel, Yonah, Tor Wali Memon
  • 9. Freakonomics: What’s in a name?Levitt tracks names across years and income distributions, and shows that names that start out as popular “high-end” names become middle- and then low-end names.Example: Madison was the #4 name among “high-end” white girl names in 1990, but nowhere on the list for popular names.By 2000, it was #3 on the popular list! popular girl’s names of 2015? Annika, Aviva, Clementine, Fiona, Flannery, Linden, Maeve, Marie- Claire, Philippa, Quinn, WaverlyMost popular boy’s names of 2015? Aldo, Ansel, Beckett, Cooper, Finnegan, Keyon, Liam, Maximilian, Reagan, Sander, Sumner 9 Wali Memon
  • 10. Moneyball: How do the Oakland A’s win with no money?2002 Final Standings in the American League West: Games Back PayrollOakland -- $41,942,665Anaheim 4 $62,757,041Seattle 10 $86,084,710Texas 31 $106,915,180How can teams win with less than half the money of their 10competitors? How did the Oakland A’s do it? Wali Memon
  • 11. Moneyball: How do the Oakland A’s win with no money?General Manager Billy Beane:“The evaluation of young baseball players had been taken out of the hands of old baseball men and placed in the hands of people who had what Billy valued most . . . a degree in something other than baseball.” p. 41Billy Beane’s strategy:“What you don’t do is what the Yankees do. If we do . . . We lose every time, because they’re doing it with 3 times more money than we are . . . The poor team was forced to find bargains: young players and whatever older guys the market had undervalued.” p. 11911 Wali Memon
  • 12. Moneyball: How do the Oakland A’s win with no money?Beane’s predecessors:A’s GM Sandy Alderson—”concluded that everything from on- field strategies to player evaluation was better conducted by scientific investigation—hypotheses tested by analysis of historical statistical baseball data.” p. 57 “I couldn’t do a regression analysis, but I knew what one was. And the results of them made sense to me.”Bill James, father of sabermetrics—”set out to build a model to predict how many runs a team would score, given its number of walks, hits, stolen bases, etc. . . That is, assign weights to outs, walks, steals, singles, doubles, etc.” p. 77 12 Wali Memon
  • 13. Moneyball: How do the Oakland A’sJames’ formula: win with no money?Runs created = (Hits + Walks) x Total Bases/(At Bats + Walks)“…it implied, specifically, that (professional baseball people) didn’t place enough value on walks and extra base hits . . . And placed too much value on batting average and stolen bases.”“…The details of James’s equation didn’t matter all that much. He was creating opportunities for scientists as much as doing science himself. Other, more technically adroit people would soon generate closer approximations of reality. What mattered was (a) it was a rational, testable hypothesis; and (b) James made it so clear and interesting that it provoked a lot of intelligent people to join the conversation.” p. 78 13 Wali Memon
  • 14. Moneyball: How do the Oakland A’s win with no money?Billy Beane’s Oakland A’s“A player’s ability to get on base . . . tended to be dramatically underpriced in relation to other abilities . . . The one attribute most critical to the success of a baseball team was an attribute they could afford to buy.” p. 129Beane’s model: put runs scored on LHS. Figure out that on-base- percentage and slugging percentage matter much more than people think.Residual analysis, as described in Chapter 6. Which players are underpriced, given their statistics?Players—Scott Hatteberg, Chad Bradford, Nick Swisher. 14 Wali Memon
  • 15. Bill Simmons, Sports Guy Q: You poked fun at "Moneyball" saying that all the players profiled (other than Nick Swisher) have been complete failures. Scott Hatteberg is hitting .325/.418/.498 for the Reds this year, making less than $1 million. Cant argue with those numbers at that salary, exactly the point of "Moneyball." Not everyone can have a $200 million payroll, or $120 (million) like the "tortured" Red Sox. --Nick, Cincinnati SG: Very good point . . . I didnt realize Hatteberg was having such a good season. Actually, so is Chad Bradford for the Mets. Just a little more research and I would have been right back in that thing. Look, dont forget that Im an idiot. Dont forget this for a second.15 Wali Memon
  • 16. Moneyball: How do the Oakland A’s win with no money?Baseball lends itself to statistical analysis 1) Wide range of things to measure and count 2) Huge sample sizes (# games, teams, >100 years)“An attempted steal had to succeed about 70% of the time before it contributed positively to run totals.” p. 129Expected Run Value: the expected # of runs any one act generates. A line drive hit in a certain way to a certain place results in a double 92% of the time, a single 4% of the time, and an out 4% of the time. p. 134“The variance between the best and worst fielders . . . Is a lot smaller than the variance between the best hitters and the worst hitters.” p. 137 16 Wali Memon
  • 17. Moneyball: How do the Oakland A’s win with no money?The difference between a .275 hitter and a .300 hitter:“…if you see both 15 games a year, there is a 40% chance that the .275 hitter will have more hits than the .300 hitter in the games that you see.” p. 68See “An Economic Evaluation of the Moneyball Hypothesis,” by Jahn Hakes and Raymond Sauer, The Journal of Economic Perspectives, Summer 2006. 17 Wali Memon