The Journal of Political Economy published this correction:

There is an error in “Self-Control at Work” (Kaur, Kremer, and Mullainathan 2015), published in the October 2015 edition of this journal (vol. 123, no. 6). In section VI, on page 1274, the paper includes the following incorrect quote from a paper by Steven N. S. Cheung:

The second view—that joint production necessitates the need for monitoring (Alchian and Demsetz 1972)—is summarized in a story by Steven Cheung (1983, 8): “On a boat trip up China’s Yangtze River in the 19th Century, a titled English woman complained to her host of the cruelty to the oarsmen. One burly coolie stood over the rowers with a whip, making sure there were no laggards. Her host explained that the boat was jointly owned by the oarsmen, and that they hired the man responsible for flogging.”

While the incorrect quote also appears in other earlier sources, it does not appear in Cheung’s original article. [For example, the incorrect version of the quote also appears in Jensen et al. (1998).]

The accurate quotation from Cheung (1983, 8) is as follows:

My own favorite example is riverboat pulling in China before the communist regime, when a large group of workers marched along the shore towing a good-sized wooden boat. The unique interest of this example is that the collaborators actually agreed to the hiring of a monitor to whip them. The point here is that even if every puller were perfectly “honest,” it would still be too costly to measure the effort each has contributed to the movement of the boat, but to choose a different measurement agreeable to all would be so difficult that the arbitration of an agent is essential.

The inaccurate quote was included simply as a way to illustrate the idea that joint production might necessitate the need for monitoring. . . . However, the quote is in no way central to the core point of the paper, or even for the discussion in section VI of the paper. . . . Consequently, this incorrect quote can be omitted from the paper without any impact on the substance of the paper.

See here and here for background.

I’m glad the journal fixed the error.

Some loose ends remain. I’m still not clear how the authors of this article ended up taking an over-the-top description from an obscure collection of practice exam questions (Jensen et al., 1998). I also remain disturbed by the whole “titled English woman” thing, as it just fits in so well with economists’ attitude they are superior to the sort of softies who think flogging is a bad thing. Also not clear how they attributed the story from a collection of practice exam questions to a specific page in the Cheung (1983) article. I’m not saying there was anything nefarious going on here, just that they were a bit too comfortable with a ridiculous story that confirmed their preconceptions.

To put it another way: If the original story was a good illustration of their general point, then it should make a difference that the original story was fabricated (or, to put it more charitably, was elaborated to a ridiculous degree), no? What does it mean to mistakenly use a false story as evidence? At the very least, it’s informative that the authors and others seemed to have believed the story was true. The whole thing’s still eating at me. It would be as if I wrote a political science paper and used a story from Game of Thrones to illustrate a point—but presenting it as if Westeros was a real place. Using a made-up story as explanation is fine; just clearly label it as such, and maybe reflect on what it is about the story that’s so appealing to you.

A colleague received the following email:

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Another colleague replied:

They forgot to mention the cost in the email:
£445 if they read the transcript and £990 if they interview you.

Oh, yeah, also the “some of my recent work” that they referred to is super-technical and could never possibly be the subject of a podcast. I guess this company is just scraping Arxiv.

I love that “Whilst” think near the end, though. There’s something about the British language that just seems so classy!

I was reading a recent New Yorker and what should I come to but a Malcolm Gladwell article. With the same spirit that leads us to gawk at car crashes, I read it.

I gotta give Gladwell some credit for misdirection on this one. It was an article about corporate executive and financial fraudster Jack Welch, and in the magazine’s the table of contents the article was listed as, “General Electric’s legendary C.E.O.” The article itself was titled, “Severance: Jack Welch was the most admired C.E.O. of his day. Have we learned the right lessons from him.” And, right near the beginning of the article is the Gladwellesque line, “The great C.E.O.’s have an instinct for where to turn in a crisis, and Welch knew whom to call.”

“The great C.E.O.’s” . . . nice one! But then, as the article goes on, Gladwell ultimately gives it an anti-Welch spin, arguing that the famously ruthless executive had no values. An interesting twist, actually. As I said, a nice bit of misdirection, which the New Yorker kinda ruined in its online edition by changing the title to, “Was Jack Welch the Greatest C.E.O. of His Day—or the Worst? As the head of General Electric, he fired people in vast numbers and turned the manufacturing behemoth into a financial house of cards. Why was he so revered?” Kind of gives the game away, no?

“But shouldn’t we prefer these outside delusions . . .”

What really jumped out at me when reading this article, though, was not the details about Welch—some guy who had a talent for corporate infighting and was willing to cheat to get what he wanted—but this bit from Gladwell:

It has become fashionable to deride today’s tech C.E.O.s for their grandiose ambitions: colonizing Mars, curing all human disease, digging a world-class tunnel. But shouldn’t we prefer these outsized delusions to the moral impoverishment of Welch’s era?

This is horrible in so many ways.

First, there’s the empty, tacky, “It has become fashionable” framing. I can just imagine this dude when Copernicus came out with his ideas. “It has become fashionable to say that the Earth goes around the Sun. But . . .” Or, during the mid-twentieth century, “It has become fashionable to claim that cigarette smoking causes cancer. But . . .” Or, more recently, “It has become fashionable to claim that university officials should take responsibility when children are being sexually abused on campus. But . . .” Or, “It has become fashionable to argue that planes take off into the wind. But . . .”

I absolutely detest when writers take an idea they disagree with and label it as “fashionable,” as if it makes them adorable rogues to take the other side. What next, a hot take that Knives Out was really a bad movie? After all, it sold a lot of tickets and the critics loved it. It’s “fashionable,” right? Let me, right here, stake out the contrarian position that a take can be unfashionable, contrarian, and dumb.

And then the three examples: “colonizing Mars, curing all human disease, digging a world-class tunnel.” Which one does not belong, huh?

– “Colonizing Mars” may never happen, and it might be a bad idea even if it could happen (to the extent that such a hugely expensive project would take resources away from more pressing concerns), but it’s undeniably cool, and it’s bold. OK, the concept of colonizing Mars isn’t so bold—it’s century-old science fiction—but to actually do it, yeah, that would be awesome.

– “Curing all human disease”: that would be absolutely wonderful. I can only assume it’s an impossible goal, but it would be amazing to get just part of the way there, and there’s no logical reason that some progress can’t me made. I can see how this would appeal to a tech C.E.O., or to just about anyone.

– “Digging a world-class tunnel” . . . Huh? That’s not much of an ambition at all! World-class tunnels already exist! It’s hardly an “outsized delusion” to want to do this. All you need is a pile of money and a right-of-way. But . . . when referring to a “world-class tunnel” Gladwell couldn’t possibly be referring to this public relations stunt, could he?

Anyway, kind of revealing that he puts digging a tunnel in the same category as colonizing Mars or curing all human disease. I guess those Hyperloop press releases really worked on him!

In any case, the idea that “outsized delusions” are a good thing: it’s just kinda funny to hear this, but maybe not such a surprise coming from Gladwell. I was curious on his take on other executives with outsized delusions so I googled *gladwell theranos* and came across this interview where he answers a question about “The book I couldn’t finish”:

I [Gladwell] don’t finish books all the time. But the last book I couldn’t finish? I really, really wanted to finish John Carreyrou’s book on the Theranos scam, Bad Blood. But halfway through, I started saying to myself: “I get it! I get it! She made it all up!”

“Halfway through,” huh? I think all the other readers of that book caught on in the first few pages what was going on.

Gladwell sounds like the kind of guy who turns off the Columbo episode after 45 minutes because he’s finally figured out who the killer is.

Jeffrey Lee Funk and Gary Smith have a list of startups with $3 bllion or more in cumulative losses:

Company                 Founded	 Funds Raised	 Cumulative Losses
Uber Technologies	2009	 $25.2 billion	 $31.7 billion
WeWork	                2010	 $21.9 billion	 $20.7 billion
Teladoc Health   	2002	  $0.17 billion	 $11.2 billion
Rivian Automotive	2009	 $10.7 billion	 $11.1 billion
Snap            	2011	  $4.9 billion	  $9.1 billion
Lyft             	2012	  $4.9 billion	  $8.9 billion
Airbnb          	2008      $6.0 billion	  $6.0 billion
Palantir Technologies	2003      $3.0 billion	  $5.8 billion 
Gingko Bioworks 	2009      $0.8 billion	  $4.8 billion
Door Dash       	2013      $2.5 billion	  $4.6 billion
Invitae         	2010      $2.0 billion	  $4.4 billion
Nutanix         	2009      $1.1 billion	  $4.3 billion
RobinHood       	2013      $6.2 billion	  $4.2 billion
Bloom Energy    	2001      $0.83 billion   $3.3 billion
Wayfair         	2002      $1.7 billion 	  $3.0 billion

Funk and Smith write:

Only one of these 15 companies has ever had a profitable quarter — Airbnb had a $378 million profit on $2.1 billion in revenue in the second quarter of 2022. All of the other startups in the table have recent losses that exceed 10% of revenue and most exceed 30%.

Any hopeful arguments that profitability is just around the corner ring hollow when every company is at least nine years old and two are more than 20 years old.

As we said in our post, Theranos built a unicorn, and we just built a better horse. You can get more money for a unicorn, even though—or especially because—unicorns don’t exist,

There’s something weird about the whole “unicorns” thing, just as it’s weird when people refer to some idea they’re promoting as being “magic.” I get that expressions such as “unicorns” and “magic” are supposed to be metaphors, but all so often they come uncomfortably close to the truth in that they’re describing stories that are not, in fact, real.

Kind of like when people use the term “incredible” for stories that are literally not credible.

A more positive way of looking at a so-called unicorn is that’s it’s a gamble. Someone has an unproven idea and maybe it just has a 1% chance of succeeding, but if it does succeed it might make it big. So it can be rational to invest in it.

But then here’s the thing—it there really is just a 1% chance of succeeding, then the vast majority of these should . . . fail! The first part of “high risk, high reward” is “high risk.” From that standpoint, what’s impressive is that the unicorns on the above list are still standing. I guess that Funk and Smith are saying is that we should think of these as companies that haven’t failed . . . yet.

I’ve always assumed that the business plan of some of these companies was to become so useful to the decision-making class (business executives, government officials, and rich people) that they’d ultimately get some sort of government support.

As you might remember from a few months ago, there was a story going around that some economists just looooved to tell. The story had all sorts of attributes that you might expect would make economists happy, including a paradox in which apparently bad behavior (whipping people to get them to work harder) was actually good, a subplot in which a do-gooder from the outside just doesn’t understand the real world, and an ethnic slur! What more could you possibly ask for?

Well, you could ask that, if the story is being reported as being true, that there was any evidence it actually happened.

Below are a few versions of the story.

From Stephen Cheung in 2018:

In 1970, Toronto’s John McManus was my guest in Seattle. I chatted to him about what happened when I was a refugee in wartime Guangxi. The journey from Liuzhou to Guiping was by river, and there were men on the banks whose job was to drag the boat with ropes. There was also an overseer armed with a whip. According to my mother, the whipper was hired to do just that by the boatmen! My tale went the rounds, and it was seized by a number of neo-institutional economists. . . . However, this could be a story invented by my mother – the smartest person I have ever known – to entertain a boy of seven!

From Michael Munger in 2018:

There’s a famous example in China, where a group of coolies … have to pull a barge up the Yangtze River … There’s a trade-off … how do you make the 30 guys work hard? The insight of the team production problem is we need … division of labor. … If I’m pulling, I can’t spend my time watching you and you can’t spend your time watching me. We’ll create a new job, called the monitor. … We’ll give the monitor a whip. Now this looks like slavery. The great thing about this, and this is from an article by an economist named Steven NS Cheung. He found that this guy with a whip—and this is the most incredible thing Russ!—this guy with a whip was hired and paid by the coolies!

Interesting how, when a story is described as “incredible,” it often is literally not credible.

Clement and McCormick (1989):

[the] famous Chinese boatpullers fable [where] the monitor uses his vision, intuition, and experience to determine shirking, counseling the loafers with his whip.

Super-clever and counterintuitive to describe whipping as “counseling”: that’s the kind of outside-the-box thinking that will take you far in academia.

Supreet Kaur, Michael Kremer, and Sendhil Mullainathan (2015):

. . . in a story by Steven Cheung (1983, 8): “On a boat trip up China’s Yangtze River in the 19th Century, a titled English woman complained to her host of the cruelty to the oarsmen. One burly coolie stood over the rowers with a whip, making sure there were no laggards. Her host explained that the boat was jointly owned by the oarsmen, and that they hired the man responsible for flogging.”

This one’s notable in that it puts an entire passage in quotes, but it turns out the passage was not in Cheung (1983) at all—not on page 8 or anywhere else in that article—it actually came from a collection from 1998 of old Harvard Business School exam questions.

It’s an awesome transposition in that it adds the “titled English woman,” who is a stand-in for all those soft-headed non-economists out there who aren’t willing to think the unthinkable etc., and also it changes various details, for example the people pulling the boat became oarsman, and of course the word “coolie” was introduced. I guess he had to be “burly,” what with all the flogging he had to do! In a particularly modern touch, the host was there to “explain” the principles of Econ 101 to the silly lady.

And what about the woman being “titled”—that particular elaboration seems gratuitous, no? But it fits in well with economists’ view of themselves as tribunes of the people, consumer sovereignty and all that. The story wouldn’t work so well if the person who “complained” was herself poor and maybe some had experience with physical pain herself.

On the plus side, Kaur et al. issued a correction:

While the incorrect quote also appears in other earlier sources, it does not appear in Cheung’s original article. . . . The inaccurate quote was included simply as a way to illustrate the idea that joint production might necessitate the need for monitoring. . . . However, the quote is in no way central to the core point of the paper, or even for the discussion in section VI of the paper. . . . this incorrect quote can be omitted from the paper without any impact on the substance of the paper.

I think they’re right—the paper would’ve been just fine without the quote—it’s just funny that 3 authors and some number of reviewers and journal editors all read the paper, and none of them noticed how ridiculous the story was.

And just one more thing. Let’s accept that the substance of the paper is unaffected by the whipped-boatmen story. But, the fact that many economists have presented the story as true, even though it’s actually the result of a series of wild embellishments from an initially speculative source . . . that’s interesting, right? I don’t have it in me to write an article on the topic that would pass muster at the Journal of Political Economy (or any journal at all!), but I think there’s something there!

To put it another way, if the whipped-boatmen story is so consistent with the substantive message of the paper that it was included as an example to demonstrate the theory,(as the authors put it in their rejoinder, “The inaccurate quote was included simply as a way to illustrate the idea that joint production might necessitate the need for monitoring.”), and then it turns out the story is false, then maybe this should cast some doubt on said theory? Maybe joint production might not necessitate the need for monitoring as often as they think? At least not in the sense of “counseling the loafers with his whip”?