Tuesday, August 23, 2016


Mylan Pharmaceuticals has altered its price schedule for epinephrine auto-injector EpiPenⓇ. The wholesale price is now $365.16, up from around $50 this time last year. Naturally, this price change, unconnected as it is to the unit costs of production, has prompted a bit of moral outrage.

Quite true. Anaphylactic shock is as terrifying as it is swift. In cases of severe allergy, the windpipe clamps shut and if you're alone, you have to hope that your vision doesn't fade before you can reach your dose. I have been assured by competent, trustworthy health care professionals that lethal suffocation can be somewhat uncomfortable. One shot of epinephrine can relieve the worst of the symptoms almost immediately, and another administered 30 minutes later can relieve lingering issues. Consult a physician before use, and seek medical attention if an attack occurs.

Point is, for some folks, a single bee sting or a couple of peanuts is all that's required for permanent residence with John Cleese's infamous Norwegian Blue, but for the EpiPenⓇ. And it would indeed be a travesty if families had to pay up to a grand for the mistake of a kid accidentally getting a mouthful of Uncle Mike's pad thai. So is this the case? Is Mylan CEO Heather Bresch actually asking bog-standard customers to pony up a car payment per dose?

The short answer: yes, if.

The long answer: no, but.

The MY EPIPEN SAVINGS CARD™ is available to customers under the following restrictions (from the link; emphasis mine):
This SAVINGS card can be redeemed only by patients or patient guardians who are 18 years of age or older who are a resident of the United States and its territories. Not valid for cash paying patients (except for commercially insured patients without coverage for EpiPen® Auto-Injector) and patients who are covered by any state or federally funded healthcare program, including but not limited to any state pharmaceutical assistance program, Medicare (Part D or otherwise), Medicaid, Medigap, VA or DOD, or TriCare. This SAVINGS card is not health insurance. The SAVINGS card is not transferable and the amount of the benefit cannot exceed the patient’s out-of-pocket expenses. Cannot be combined with any other rebate/coupon, free trial, or similar offer for the specified prescription. Program expires 12/31/2016. Program managed by McKesson Corporation on behalf of Mylan Specialty L.P. Product dispensed pursuant to program rules and federal and state laws. Void where prohibited. The parties reserve the right to amend or end this program at any time without notice.
So if your insurance company covers EpiPen, your insurance company picks up the tab. If you pay by cash, you pick up the tab—unless your shiftless commercial insurer doesn't cover it, in which case Mylan has your back. It's a bit confusing, isn't it? Perhaps the wording is too difficult for journalists and politicians to parse, leading to all the pitchforks and the torches. I understand.

At any rate, it seems to me that what we have here is classic price discrimination. The savings cards means that insured patients who are still unable to pay can get their life-saving emergency epinephrine injections at (roughly) zero price, with institutional payers (insurance companies, states, the federal government, &c) absorbing the residual production costs. Put another way, it's precisely the same approach taken by the PPACA: end customers pay next to nothing, and the costs of care are socialized. Only now it's a hated pharmaceutical firm doing it, so we make all suitable preparations to punish the wicked heretic.

Then again, auto-injectors are not strictly bound by patent law, and epinephrine is a generic drug, so you can always just go shopping for alternatives. There's no law that says you have to buy the name-brand product.


Thursday, July 14, 2016

Round the Decay of that Colossal Wreck

Scott Greenfield rightly bemoans law enforcement's use of robotics in situations that typically call for classic negotiation and conflict resolution. Cops de-escalate because a big part of the cost of a confrontation with armed bad dudes is the possibility of taking a ride home in a hearse. No one wants to eat lead, therefore wait the guy out, talk him down, or lay siege. Unfortunately, playing a waiting game with a desperado is expensive. Not only do showdowns incur direct payroll costs, but every officer stationed in a crouch behind a cruiser waiting for the madman to stand down is an officer not patrolling the community to maintain good law and order. Petty criminals get themselves a Roman holiday when some loony-pants starts shooting up a demonstration. In econ 101 terms, the use of a disposable weapon-bearing robot is relatively cheaper than the next best alternative.

Or at least in a one-shot interaction (pun unintentional). This one time, it's expedient to send in R2-D2 to blow up a bad guy so that we can all get back to our regular beat, or make it home in time to catch the last couple of innings, or whatever. The problem is that weapons systems have a bit of a tendency to metastasize. Military advantage is fleeting. Macedonian King Philip II believed that his armies' use of the ballista would mean the permanent end of warfare, since all other peoples would be so cowed by the mighty weapon that they would lay down their arms in the face of his superiority.

Cheap weapons-bearing robots mean that the relative price of doing harm from afar is dropping. This is as true for sovereign armies as for municipal police as for backyard hobbyists. Remember the killdozer? The 2016 version would have a Rasperry Pi and a mobile phone in lieu of a pilot. Or how about a quadrocopter swarm fitted with homebrew chemical weapons? Just imagine how many dishonorable, despicable ways wicked men might conjure to slay their foes once a) the price of remote murder drops sufficiently and b) the Overton window for assassination-by-remote opens. DPD officers might be obliged to confront some serious regrets once the renegade element decides that robotic combat is fair play.

Some genies can be corralled with strict control over production bottlenecks. The great expense of enriching uranium means that backyard nukes are probably forever unlikely. The same goes for hobbyist howitzers and tinkerer tanks. But little 3-D printed, remote-controlled drones? I urge you to remember which side shot first.

Thursday, June 9, 2016

The Em Who Was Thursday

Kevin Erdmann takes a brief respite from housing market analysis to conduct a bit of housing political analysis.

Here too.

As it happens, I'm also in the middle of Robin Hanson's first (among many to come, I hope) book The Age of Em. I was fortunate enough to review Robin's very first pass at an outline, and I'm pleased to see my high expectations exceeded. I mention the two together because the housing kerfuffle and its aftermath suffer from the classic political problem of vocal, well-organized competing constituencies with narrowly-defined policy preferences. I cannot help but wonder how badly these sorts of problems might plague a society with trillions of... well, I can't quite call them "individuals" since one of the key features of ems is that they're able to be copied quickly and cheaply. Let's just go with Robin's convention and call them "Ems".

For illustration, let us return again to the fair nation of Mungerica. Time passes differently in Mungerica thanks to the estuary effects of the tides or something. Each Mungerican day that passes corresponds perfectly to either a single political problem or a single political resolution. Therefore, on Monday, citizens might notice that mice are raiding the palace cheese and petition the king to do something about it. On Tuesday, the king resolves to import a thousand cats. On Wednesday, other citizens, ones unmolested by mice, but deadly allergic to cats, notice the surfeit feline population, and beg His Majesty to rid the grounds of the kitty menace. On Thursday, the head of state, ever vigilant to the needs of his people, imports a bunch of dogs to chase the cats away. On Friday, another third, previously silent, chunk of the population succumbs to their natural fear of dogs and pleads the throne evict the mongrels. On Saturday, the king imports a shipment of lions. On Sunday, the kingdom of Mungerica rests (shomer shabbos).

Erdmann's political cycle mess isn't all that different than the sorry, abused Mungericans (though he swaps in "we" to stand in for what may be different minority coalitions with different political goals). A group of citizens sees a problem, begs Congress for help, and shrugs when the inevitable unintended consequences happen, since those consequences are of little interest. What's a little debt crisis, after all, when the important thing is that marginal consumers get access to homes, higher education, medicine, fill-in-the-blank? What am I, a banker? Similarly, if I'm an index fund manager for a pension portfolio, while it might be nice for folks to get a starter home a few years ahead of schedule, my primary obligation is to my clients: if my fund goes t.u., a lot of good, honest people will be that much closer to eating cat food while they wait for their stipend to arrive. Put another way, system stability is often a secondary consideration when narrow, highly-regarded interests are at stake. Ideally, political representatives would be chosen who most highly value long-term stability, but that seems to be a historical rarity.

In Em-world, many thousands of subjective years can pass in the course of a single orbit of the planet around the sun. To slow-speed outside observers, this incredibly fast civilization might spawn empires that rise and fall in the span of a single breath. I wonder what the present-day policy implications might be for the prospect of uploading minds not-especially well suited to the task of rigorous backward induction and political stability.

The important questions I have is these: are the forces that select for electoral success the same as the forces that select for the stability of civilizations? Are the moral intuitions that interfere with folks' ability to freely exchange enough of an obstacle to worry about?

Put another way:

via SMBC

Tuesday, April 12, 2016

Price Discrimination vs. DLC

YouTube user ShoddyCast is one of my favorite channels o'er yonder. For one, he is obsessively, charmingly pedantic about minor video game physics inconsistencies. For two, he cusses like a middle school boy. These are qualities I can't help but admire. But consider this recent foray into economics (featuring Richard Thaler, no less):

He gets several points absolutely correct. Game (and console) pre-orders work well for physical media, so long as the quantity demanded on or around release date is unpredictable. I recall some trouble landing a copy of Silent Hill near its release date, for example. And since I'm the sort of gamer who likes to play a few favorite franchise titles right away, this was irksome. Or maybe it was vexing. Irritating? Whatever the sensation, pre-orders purported to ease the problem. I was promised to no longer be confounded on release day. I was guaranteed a physical copy in my hot little hands. Because I'm the type of player for whom that is important.

Another point he gets right is the time value of money. Unfortunately, he gets it right for the wrong reasons. $60 today is indeed worth more to me than $60 a year from now, but that's true even without inflation. And it's even true without the explicit opportunity cost of foregone investment.

Perhaps I should pause for a moment to cover the concept of opportunity cost. Here's the superlative David Henderson on the topic. Opportunity cost is the [subjective] value of the next-most attractive alternative. In the case of the Fallout 4 season pass (at the original price), the $30 I dropped would have bought me 3 pizzas from my favorite local pizzeria (Tuesdays are buy one, get one free at Brick Pizza). For putting money into a lockbox, the alternative uses could include a couple extra shares in an ETF or an interest-bearing savings account (good luck finding one), but it doesn't have to. All that's needed to show the opportunity cost of holding cash is that you're restrained from spending it. Something might come along that you value more than that thirty bucks, but too bad, Sally. It's out of reach. Better luck next time. You might recognize this as a component to our good friend the regret condition.

He also mostly gets Thaler right. At most department stores, prices on the sale racks are still above the cost of goods sold. Therefore, the full markup price is absurdly, unreasonably high. This sales tactic relies on a cognitive illusion: you think you get a screaming deal on a pair of trousers for $20 because on another day, they might have sold for five times that price. You shake your head and pity the poor sucker too unlucky to shop on that particular day and walk off proud of your shopping acumen. But here's the curious thing: every so often, trousers are indeed sold at full retail price.

What gives? Are these spendthrifts actually behaving irrationally?

What we have here is a yes, if/no, but situation. It is indeed classically irrational to pay full price for something if the lower price is predictably available and if the opportunity cost of waiting for it is lower than the price differential.

Let me give you a quick example. One day, I was scheduled to teach an early morning Public Choice class. My favorite parking spot on campus is a seldom-used dirt and gravel lot near the football pitch on the west side of Patriot Circle. If you know the GMU campus, it's across the street from the hotel (which I think is now closed). Being a brisk early spring morning, the nearby hill that I often used as a shortcut was slick with dew. When I attempted to carefully plot my way down the hill, I lost my footing, went ass over teakettle, and completely ruined my slacks. I had a big ol' mud streak all the way up my left leg. With class starting in 20 minutes, I needed a new pair of pants, pronto. I hopped back into my car, hightailed it to a TJ Maxx, bought what I needed, and tore ass to Robinson B just in time to start my lecture on the Condorcet Paradox. In other words, I had very high opportunity costs thanks to the urgency of my shopping excursion. I was willing to pay more for convenience and speed.

So is it classically irrational to pay full price under normal situations? No, not as long as you can't adequately predict the pattern of future prices. What you're doing by pre-paying is essentially buying a call option. You put your money down now in the expectation that future prices will either rise (which is exactly what happened with Fallout 4) or that something else will change with your own subjective valuation of the good in question. Farmers do this all the time. If you've ever seen the 80s comedy classic Trading Places, you'll be at least passingly familiar with the Frozen Concentrate Orange Juice futures market. This is just a fancy, centralized method for Florida orange farmers to sell their July crop in February. This is quite a boon to farmers who are more interested in fertilizer and weeds than in the vagaries of global demand. The same idea applies with individual pre-purchases. Buying all the DLC ahead of time is a player's way of betting on expected content expansions.

But, and it's a big but, there exist incentives to gain additional information about the future state of the world. For retail department store sales, Thaler is right on the money: it's common knowledge that department stores have been taking great advantage of silly little cognitive blind spots for ages now. You are indeed a sucker to walk out of a Macy's thinking you put one over on the hapless merchant by buying off the discount rack. With low information costs like this, there's precious little excuse to pay prestige prices. But does a season pass for premium content fit this model?

Maybe. It depends on the publisher. Bethesda is notable for releasing DLC that often exceeds the quality of the base game. After the infamous horse armor incident with Oblivion, they overcompensated by giving us the massive Shivering Isles expansion, Mothership Zeta, Dawnguard, Dragonborn, Broken Steel, on and on. And the four New Vegas expansions (even though it was Obsidian rather than Bethesda) were all as good or better than the base game. Tell me you wouldn't be happy just playing Old World Blues as a stand-alone title. Point is, a long-time Bethesda customer has certain expectations about their add-on content. Incidentally, the same holds true for Borderlands publisher 2K. I felt confident enough that the net present value of all the season pass content for Borderlands 2 exceeded the opportunity cost of biding my time. As it turns out, I was right in that instance. The $30 I spent on that pass was a great deal less than the $60+ I would have had to pay on release day to get Gaige, Captain Scarlett, Mr. Torgue's Campaign of Carnage, and the splendid D&D-themed Assault on Dragon Keep. Recall that for these titles, I am the type of player to pay full price for the pleasure of playing them on or very near their release date.

And that last bit there is really the key to price discrimination. Not all shoppers are created equal. Not everyone is so enamored of fictional universes that they'll rush to get new releases on the day they drop. I'm still somewhat baffled that there can be a new Madden every year that sells extremely well, despite being pretty much identical to the previous year, but for a few roster changes. The same goes for the endless parade of FPS titles. But Fallout? You bet your ass I'm first in line to get the Bloody Mess perk and start exploding super mutants all over that wasteland.

The last component here, is of course, Steam sales. Most big titles will bundle up a Game of the Year edition complete with all the DLC a year or so after its initial release. And another year or so after that, you can usually rely on that GoY edition to go on deep discount in the Steam store during one of their periodic (and predictable!) annual sales. For players willing to wait a while, you can get some screaming deals on titles that have been out for a few years. Well over half my Steam library was acquired this way. This pattern is just as well known, just as predictable as Presidents' Day sales at department stores. However, Steam sales are also just as irrelevant to an impatient fan as Presidents' Day sales are to someone who just skidded down a muddy hill and has to teach a class. I want Far Harbor the day it drops, not a moment later. The opportunity cost of waiting exceeds my desire to play as soon as is reasonably possible.

Long story short, if you're an impatient fan, and you have a pretty good expectation that the forthcoming content will be pretty good, Season Passes can be a pretty good deal. Casual fans or folks less confident about the quality of forthcoming DLC are probably better off holding out for the Game of the Year edition round about Christmas time.

Another decent way of thinking about it is that some folks will pay full price to see a movie on opening night. Are they being irrational when they could simply wait until it gets to Netflix? Why or why not?

Monday, March 21, 2016

Martin Tenbones vs Army of Dorkness

Neil Gaiman, on Twitter:
The panels at the link come from A Game of You, one of the little sidebar miniseries in The Sandman. In contrast to many of the other characters in the run, the cheerleader-type blonde protagonist was what the kids these days are calling a "normie": a plain-vanilla citizen. No spider collection, no multicolored hair, no ancient immortal who sits down to drink tea with emperors. Just a regular girl with a regular life. Well, she is incubating an otherdimensional entity in a fragment of her dreams, a chunk of which escapes into the waking world in the form of a giant talking dog that gets shot by the NYPD, but that's neither here nor there. The point is, Barbie is a Regular Girl, and by using a Regular Girl, Gaiman gets to deliver what I thought at the time to be a particularly nasty barb to comic shop owners. Namely, that their places were inimical to girls.

I thought it was a nasty barb, and my first reaction was that it was a strange thing for Gaiman, who was writing under the fledgling Vertigo property of DC at the time to paint this gruesome caricature of a comics proprietor. It seemed like shitting where one eats, so to speak. But then I've never been a girl in a comic shop. And in 1997, I have to admit, I did know more than one comic shop that, were I a girl, I would have thought twice before entering.

I sort of understand how it could happen, too. My economics training tells me that there's a pretty big premium to be paid if you want to alienate a market segment as large as "all women" so therefore, we shouldn't expect to see nasty, unkempt, leering clerks very often. But on the other hand, there are men who have been on the receiving end of contempt from women their whole lives, and developing a carapace of misogyny is one way of coping with that. Comics and roleplaying games occasionally provide a refuge for these sorts of guys, since they're traditionally boys' pursuits. If girls loathe you, go where the girls aren't. Right?

But then something happened. Some of what happened was Gaiman himself. Girls started liking comics in a big way. Sandman had something like 60% female readership. The relative price of running a sour-smelling, female-hostile comic shop increased dramatically. Shop owners who were unwilling to cater to the new customers lost a lot of business. So you'd expect shops like these to be dinosaurs, relics of a bygone era.

Apparently not. His followers began tweeting sordid tales of how some places have gotten worse, as if the no-girls-allowed sensibility has overtaken the remorseless economics. That should be worrying. There's something in the culture that has some men so badly alienated that they're leaving sales on the table in an industry that hasn't been a guaranteed moneymaker since Michael Keaton was Batman.

I occasionally think there's a larger malaise out there and a lot of this stuff: gamergate, Trump, Sad Puppies, this comic shop thing... I think these all might be symptoms of the same underlying problem. I'm not sure what the ultimate cause is, but even if the source can be accurately identified, I'm not convinced that there is an easy or cheap solution.

Wednesday, March 2, 2016

Risk, Reward, and Romance: I Do Like Them. Sam I Am.

Happy birthday, Dr. Seuss.

Today, my 4 year old dressed up as Sally from The Cat In The Hat despite her reluctance to wear a bow in her hair in celebration of your contributions to Western Literature. How many young minds have your iambs set off on a lifetime relationship with the joy of reading, I wonder?

More interestingly, how have you mirrored and shaped your native culture? Your major canon is infused with the very same specific cultural values that Tocqueville identified as being idiosyncratically American. Horton is loyal and diligent to a fault: he sits on an egg until it hatches (deus ex machina ending notwithstanding) despite any promise of reward other than the preservation of his own trustworthiness. He exhorts the Whos of Whoville to overcome the tragedy of the commons (a finer allegory for Western expansion I can hardly imagine) for the common defense.

But it's in Green Eggs And Ham that we really see the curious tension in the American experience. A hidebound conservative, hectored incessantly by a pestering Bohemian, dismantles a Chestertonian fence to find he enjoys verdigris-tinted breakfast cuisine. A Romantic confronts the objections of a prude. This, I believe, is the central conflict brought over from the Continent. It is a conflict found few other places. And it is a book that could be written nowhere else.

Happy birthday, Dr. Seuss. May your eternal rest be ever euvoluntary.

Also, my daughter nearly broke down in tears when she heard you died 20 years before she was born.

Saturday, February 20, 2016

Regrets, Small and Large

There must be a word for the sensation evoked by reading the link below. It isn't schadenfreude, neither is it pity. It's the feeling you get when you witness someone expressing regret over perfectly predictable consequences.

As they say, read the whole thing, my friends.

Take note of the postscript. The author was relieved of employment (thanks to the contents of the post?). Does this come as a relief or as additional regret?

How euvoluntary is it to tell your CEO off in public?

For more on bosses and bunny slippers, here is Mungo in his own words.