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Outlays of Distortion

Posted: Feb 24 2014 by Nathan Grawe

When you do your taxes, take a look toward the end of the 1040 instructions. Apparently the US government is collecting a little extra from Microsoft in exchange for promoting Excel's "fancy," tilted, 3-D pie chart. The tilt in this case appears to be laying the pie on an incline no greater than 15 degrees. Take a look:


I've never seen such a beautiful shot of the side of a pie chart before. While the pair of charts purportedly provide information about the distribution of income and outlays, the tilt is so distortionary that it is impossible to distinguish the 24% of the budget spent on National Defense from the 38% spent on Social Security, Medicare, and other retirement programs. That's a 50% difference obliterated by what Tufte terms "chart junk." Alternatively, there is no way you'd guess from looking that we spend almost the same on Social Programs as on National Defense.

While one could argue that little harm is done because no one really reads this page of the 1040 instructions, I'd still rather that my procrastination be rewarded with cleaner graphics.

Tax Pain

Posted: Feb 19 2014 by Nathan Grawe

Politifact has taken up an interesting question: What is the pain of the US federal tax code? They took up the topic by way of evaluating a claim by Sen. Wyden that Americans spend 6.1 billion hours and $160 billion complying with federal tax law.

Ultimately, Politifact conclude Wyden got those numbers right. In fact, they add some more measures of the pain:

  • The tax code is 3.8 million words, up more than 170% since 2001.
  • If you want a copy of the code all for yourself to consult as you do your taxes (and who wouldn't!), you'll need to buy 25 volumes and provide 9 feet of shelf space.
  • No doubt a result of the complexity, 99% of filers resort to help from software or tax preparers.
In a nice bit of best-practice journalism, Politifact goes a little further by asking "Compared to what?" 6.1 billion hours is "695,870 years..., averaging 44 hours for every completed tax return." Of course, there are sub-groups in the data and so the mean may or may not be representative of any group at all. I suspect there are some spending far longer on their returns to account for all of those lucky enough to file a 1040EZ.

If you put all of those hours into dollars (using the average compensation of US workers reported in the Statistical Abstract of the US), we devote more than $200 billion per year on taxes.

I hope this post gives you comfort as you work on your own taxes; you've got company!

Monte Hall and the Job Market

Posted: Feb 5 2014 by Nathan Grawe

At last fall's NNN meetings, Esther Wilder and Elin Waring included a discussion of teaching the Monte Hall problem. For those of you not familiar with the problem, the reference is to the Monte Hall program in which a contestant is told a big prize sits behind one of three doors. The other two doors each contain something worthless like a goat. The contestant chooses one of the three doors. Then, before revealing what is behind the contestant's chosen door, Monte Hall would reveal a goat behind one of the other two doors and give the contestant the option of switching to the other remaining closed door.

The statistics of this problem suggest you are better off switching. The contestant owns a door with a 1/3 probability of containing the prize. The other two doors collectively hold the remaining 2/3 probability. Monte Hall's offer boils down to this: Would you like to hold the option on one, randomly chosen door or the other two? (Because he will reveal one of the remaining two to be a loser, the contestant gets the prize if is was behind either of the two non-chosen doors to begin with.)

Esther and Elin gave a nice demonstration about how the counter-intuitive nature of this result can be overcome by having students play the game repeatedly with playing cards. But what I am writing about today is a question they asked at the end: Can anyone give an example of the Monte Hall problem in real life. One of the session attendees threw out the academic job search. We typically bring in 3 candidates. We get a sense of who we like. Then one of the other two bows out due to exogenous reasons. Do we switch preferred candidates?

I'm in the middle of hiring and so have been thinking about this. My first thought has been that my process isn't really like the Monte Hall problem. I don't have a choice between one car and two goats. I have three goods of varying quality. And I am not randomly picking. I am assessing them and then sorting out an expected value. So, when one job candidate bows out, it is nothing like the choice: Two random doors or one?

However, suppose my objective function was simply that I had to get the best candidate. Perhaps I have a strong sense of regret and just can't stand to learn that I didn't pick the best colleague when I had the chance. My guess is that even though I do my best to assess candidates, many times I really can't rule out the possibility that any of the three would be the best of the bunch. So long as none of the candidates is so clearly dominant that s/he has a probability of more than 50% of being the best, I'm back in Monte's world. So, if we assume someone with this kind of objective, the Monte Hall problem does apply.

Curious what others think. Is your hiring practice similar to the Monte Hall problem? Either way, do you know of other "real" examples of the problem in everyday life?

Advertise Your QR

Posted: Jan 15 2014 by Nathan Grawe

Over the weekend I saw an effective example of QR in advertising: H&R Block's Get Your Billion Back, America campaign. The premise of the campaign is hardly new: American's fail to claim all of the tax refunds available to them by about $1B each year. What was new (to me, at least) was H&R Block's attempt to make that number meaningful:

"That's $500 on every single seat--not just in this stadium, but in every professional football stadium in America [with visual of an NFL stadium]."

We can certainly discuss whether this is the 'right' way to think about this problem:

  • How big is $1B? $1B is 1/1000th of the approximately $1T paid in income taxes. Is 99.9% a bad success rate?
  • We already spend 31.5 billion dollars to pay tax professionals and buy tax software. How much more will we have to pay to squeeze out that last $1B?
  • Do we know that the $1B is really "lost?" I know that when I do my own taxes I am conservative at times, intentionally leaving some deductions off my taxes to reduce the odds of an audit. Of course, my hypothetical tax preparer doesn't have to worry about feeling the full brunt of that audit since she isn't on the hook if I say I did something that I actually didn't. So, her incentives are to push me to claim the biggest refund possible.

But, all of that stated, I think it is great to see advertisers who are QR-literate and use "compared to what" to make their pitches as clear as possible.

How Cold Is It?

Posted: Jan 6 2014 by Nathan Grawe

Those who regularly exercise their QR state of mind routinely find themselves asking, "Compared to what?" So, as I look out my window at daytime temps of -20o F (we're headed to a high of -15o F from a low below -20o F) I thought I would take on this important question.

All in all, I feel better about my lot when it is put in perspective. Another advantage of QR literacy!


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