Arafat Peace Prize

Arafat's Nobel Peace Prize was stolen.

Oh well, it's the thought that counts.

Religious fundamentalism and kindred spirits

A brief observation about Mike Huckabee's comments at the GOP debates. He says:

We are a culture of life. We celebrate, we elevate life. And let me just say, when hikers on Mt. Hood get lost, we move heaven and Earth to go find them. When coal miners in West Virginia are trapped in a mine, we go after them because we celebrate life. This life issue is not insignificant. It's not small. It separates us from the Islamic fascists who would strap a bomb to the belly of their child and blow them up. We don't do that in this country.

It is ironic that he says that, because it is in fact this religious fundamentalism that is his deepest connection to the Islamic fascists who hate our rational, secular society, and want to kill us.

His religious fundamentalism manifests itself in comparing a fetus to a living human being — a collection of cells to a stranded hiker — which can be justified on no scientific or rational grounds. It is this blind commitment to religious dogma that drives our enemies.

Intrade committing fraud?

UPDATE 12/22/2006:

Now that the matter was brought to the higher-ups at Intrade, they are handling it very responsibly and I am confident that the matter is going to get resolved. I'm convinced that Intrade is not committing fraud. Their customer service was extremely unresponsive with me so they left me wondering what was going on, but now that I brought the issue to their attention in this way, they are handling it as it should be handled. I'll keep you all posted on what happens, but they seem intent on making it right one way or another, now.

Original post follows:

I made a $100 withdrawal from my TradeSports/Intrade account on August 29 which I never received. Below is the correspondence I have had with Intrade. At this point, I can only call it negligence or fraud.

Normally my time would be worth much more than this. But I feel the need to warn other customers about how callously Intrade treats their money. Not only are they taking no responsibility for determining what happened to my money, but they have consistently broken direct promises to me about how they will handle the matter and follow up with me.

Please note that my initial communication with them was in error. I did not make two withdrawals -- only one. All future communications inquire about the status of that one withdrawal. Also note that I have not received any reply to my last email to them, on November 24. They refuse to tell me the status of their bank traces.

---

LivePerson chat on October 6, 2006:

Thank you for contacting the Trade Exchange Network. Please wait for a site operator to respond. You are number 1 in the queue.
Hello, you are now chatting with 'Ivan'
Ivan: Hello. How may I help you?
David Joseph: Hello. I made two withdrawals which I have not yet received. Most recently a $100 withdrawal on August 29.
Ivan: Is this by cedit card right? let me check.
David Joseph: yes, credit card
Ivan: Aug 29?
David Joseph: That was one of the two, yes.
David Joseph: There was another one prior to that as well.
David Joseph: I do not have the exact date on that.
Ivan: Ok that should be creditted by now... its surpass the 10 business days
Ivan: Please email help@tradesports.com with the specific information, I will give it to the banking department ASAP
David Joseph: Right, I have not received credit for either withdawal.
David Joseph: OK. I do not know the exact amount of my previous withdrawal.
Ivan: Ok gotcha, please be specific in your email
David Joseph: OK. Will you have a record of the previous withdrawal?
Ivan: The banking team will look into it, just please email help@tradesports.com
David Joseph: ok
Ivan: I dont have access to it, but the banking team will.
David Joseph: ok, thank you
Ivan: Goodbye and thank you.
Chat session has been terminated by the site operator.

---

From: <my email address>
Subject: Withdrawal never received
Date: October 6, 2006 6:22:41 PM EDT
To: help@tradesports.com

Hello,

My name is David Joseph, account <my account number>. I made two credit card withdrawals, most recently a $100 withdrawal on August 29th. I have not yet received credit for either withdrawal. Please let me know what's going on.

Thank you,
David

---

From: help@intrade.com
Subject: RE: Withdrawal never received
Date: October 6, 2006 6:23:32 PM EDT
To: <my email address>

Hello David,

Thanks for your enquiry. We refunded $100 back to your <my credit card type> on 29th Sept. This refund should take no longer than 5 banking days to complete so I will have our Banking Dept invesitagate immediately for you. They may not have any information for until Monday however.

Please note that we cannot deposit funds directly into your credit card account. We can only reverse any deposits you have made in the previous six months. You have only made one deposit of $100 over this period and so we cannot refund any more than this $100 to your credit card.

Kind regards,

Carl Wolfenden
Acting Exchange Manager

---

From: <my email address>
Subject: Re: Withdrawal never received
Date: October 6, 2006 6:32:09 PM EDT
To: help@intrade.com

Thank you for looking into the $100 refund from September 29th (why did it take a month for you to initiate that transaction?).

As far as the other withdrawal, my concern isn't so much that it be a credit card withdrawal. It's fine to withdraw by check. But my concern is that the money disappeared from my account and I never received it. Do you have a record of my previous withdrawal, before August 29th?

Thanks,
David

---

From: help@intrade.com
Subject: Re: Withdrawal never received
Date: October 9, 2006 3:45:29 AM EDT
To: <my email address>

Dear David,

Thank you for contacting the Exchange Operations Team,

Your withdrawal on the 29th of August was the only withdrawal made this year the withdrawal before that occured 3rd of December 2005.

If you require any further assistance please do not hesitate to contact us.


Kind Regards,

Orlagh Deegan

---

LivePerson chat on November 5, 2006:

Thank you for contacting the Trade Exchange Network. Please wait for a site operator to respond. You are number 1 in the queue.
Hello, you are now chatting with 'Stephen'
Stephen: Hello. How may I help you?
David Joseph: Hello. I made a $100 withdrawal on August 29 which I never received. I inquired on October 6th about it and I was told I should receive it soon. But have not.
You are not currently in a chat session.

Thank you for contacting the Trade Exchange Network. Please wait for a site operator to respond. You are number 1 in the queue.
Hello, you are now chatting with 'Stephen'
Stephen: Hello. How may I help you?
David Joseph: Hi. I seem to have gotten disconnected.
Stephen: You had a $100 cc withdrawal
David Joseph: I made a $100 withdrawal on August 29 which I never received. I inquired on October 6th about it and I was told I should receive it soon. But have not.
David Joseph: Right.
Stephen: Some credit card companies have begun rejecting credit card withdrawals so we need to wait until the money is returned from your card company.
Stephen: We will then credit it to your account and you can withdraw by an alternative method
David Joseph: Why was I not told about this on October 6th? I was told I should receive it in a few days.
Stephen: It is simply a case of waiting until it gets returned, naturally we hope that it gets returned as soon as possible
David Joseph: Right, but can you answer my question please?
Stephen: Were you told this by Live chat?
David Joseph: Ivan: Ok that should be creditted by now... its surpass the 10 business days
David Joseph: Ivan: Please email help@tradesports.com with the specific information, I will give it to the banking department ASAP
David Joseph: I then emailed that address.
David Joseph: Carl Wolfenden replied:
David Joseph: "Thanks for your enquiry. We refunded $100 back to your <my credit card type> on 29th Sept. This refund should take no longer than 5 banking days to complete so I will have our Banking Dept invesitagate immediately for you. They may not have any information for until Monday however."
Stephen: Yes he said it "should be" in your account. However we have no control over the speed of this. As stated as soon as we receive the funds back we will deposit them direcetly back into your account.
David Joseph: OK, so it's now been over two months since I made that initial withdrawal, and as far as I'm concerned the money seems to have disappeared.
David Joseph: I need to know when I can expect the money to be back in my account, so I can make a check withdrawal.
David Joseph: I was never informed about this situation with credit card companies when I complained a month ago, either.
Stephen: I cannot give a definate date as we have no control over the speed your credit card company returns the funds to us. I will send an internal email to the banking dept to try and trace the withdrawal for you and hopefully have this resolved as soon as possible
David Joseph: Can you have someone email me in the next week to let me know the status of that trace?
Stephen: Yes
David Joseph: OK, great. I look forward to seeing the email.
David Joseph: Thank you.
Stephen: Goodbye and thank you.

---

LivePerson chat on November 12, 2006:

Thank you for contacting the Trade Exchange Network. Please wait for a site operator to respond. You are number 1 in the queue.
Hello, you are now chatting with 'thomas'
thomas: Hello. How may I help you?
David Joseph: I made a $100 withdrawal on August 29th. On October 6th, I had still not received the money, and was told I would receive the money in a coule of days. On November 5th, I *still* hadn't received the money, and Stephen promised that he would have someone email me concerning its status within a week. I have not received any such email. I am furious.
thomas: by what method ?
David Joseph: Credit card.
thomas: Ok it is most likely that your bank blocked and bounced it back to us
David Joseph: What does that have to do with it? I was promised an email.
thomas: I am sorry about taht and you shoud have got one
David Joseph: At this stage I am bordering on thinking Intrade must be a scam.
David Joseph: It has been nearly three months since my withdrawal.
thomas: And i totally understand your frustration
thomas: Ok David that is correct
thomas: What i need you to do is email us at help@tradesports.com because we need a communication from your email address that is on your account
thomas: I will have banking look into it myself
David Joseph: I already did that at the beginning of October.
David Joseph: and I was told I would have the money in a few days
David Joseph: Furthermore, at the time of my withdrawal, I was not informed of the situation regarding credit card withdrawals being blocked.
thomas: It was not till the very early september that we begain to realise that they were being blocked
David Joseph: That's fine, but you are still responsible with what happens with the money that I have trusted with you.
thomas: Ok This is now a serious matter
David Joseph: I'm sure I'm not the only customer this has happened to.
thomas: Yes but the funds are bounced back to us in a few weeks and funds are deposited back into their account where they qwould select another method
David Joseph: It has been well over a few weeks.
thomas: I will need to send an email to banking in relation to this
David Joseph: OK. Do you know what the deal is with Stephen a week ago?
David Joseph: He told me he would have banking trace the withdrawal, and email me within the week.
David Joseph: Do you know if he even followed up at all?
thomas: I dont i am sorry
David Joseph: Can you find out please?
thomas: I am affraid to say Stephen is off at the moment
David Joseph: When will he be available?
thomas: and the banking department is closed
thomas: Tomorrow
David Joseph: OK. Can you find out tomorrow?
thomas: Sure
David Joseph: thank you.
thomas: Goodbye and thank you.
David Joseph: As far as the $100 goes -- I need a promise that I will have the money in the near future. At this stage it is no good to just say that the status is unknown. As I said, it has been nearly three months.
David Joseph: One way or another I need Intrade to take responsibility for this.
thomas: As i said i will have have banking look into the matter tomorrow and they will contact you on it
David Joseph: When can I expect to be contacted?
thomas: Tomorrow
David Joseph: OK. By what method of communication?
thomas: Email
thomas: Hello. How may I help you?
David Joseph: OK. I look forward to receiving an email tomorrow.
David Joseph: I will be very upset if I do not.
thomas: Goodbye and thank you.
David Joseph: Goodbye.

---

LivePerson chat on November 13, 2006
(most lost due to a Firefox 2 crash -- what is here is from a screenshot)

<all content above this point lost>
Ivan: I cannot speak for what others did, I can only speak <cut off from screenshot>
do for you.
David Joseph: You're representing Intrade. I need a prom <cut off from screenshot>
situation will be resolved.
Ivan: Please follow the appropriate instructions I have give <cut off from screenshot>
reply to your email once I receive it so you know I have it <cut off from screenshot>
forward it to the appropriate party.
David Joseph: I will follow your instructions, but I demand <cut off from screenshot>
responsive handling of this matter.
David Joseph: If I, for a fourth time, do not receive it
David Joseph: I will be forced to publicize this matter as <cut off from screenshot>
customers.
David Joseph: I possess logs of all correspondences.

(another chat on this date seems to have also been lost due to a Firefox 2 crash)

---

From: <my email address>
Subject: Withdrawal fiasco
Date: November 13, 2006 9:46:47 PM EST
To: help@tradesports.com

Hello Ivan,

As we discussed, I am emailing help@tradeports.com concerning a $100 withdrawal made on August 29th to my credit card.

As of October 6th, I had not yet received the $100, so I inquired online as to the status of the transaction. I spoke to you on that date, Ivan. I was told by you for the first time about issues with credit card companies blocking withdrawals, and that my withdrawal was likely blocked. However, I was assured via email that I would have the $100 within a couple of days.

On November 5th, I had still not received the $100, so I again inquired online as to the status. I was told by Stephen that the banking department would initiate a trace of the transfer, and get back to me via email within 7 days.

On November 12th, I had not received an email. I yet again inquired online as to the status, and Stephen promised me an email within 24 hours.

I did not receive that email. It is now November 13th, and I spoke to you, Ivan, tonight.

I demand an immediate and prompt inquiry into the status of my withdrawal. I demand a responsible handling of the situation such that I am in possession of that $100 within 5 business days.

After repeated broken promises as to your handling of the situation, I am left to conclude deliberate malfeasance on the part of Intrade. I hope that my conclusion is incorrect. If it is proven correct, I will be extremely upset and publicize Intrade's behavior.

I look forward to your prompt reply.

David Joseph

---

From: Help@tradesports.com
Subject: RE: Withdrawal fiasco
Date: November 13, 2006 9:52:47 PM EST
To: <my email address>

Hello David

Thank you for your enquiry. We have forwarded your email to the banking department and they will respond shortly, probably early tomorrow morning.
Thank you for your patience in the meantime. Please let us know if we can help you further.

Kind Regards,
Ivan Y
Exchange Operations
Trade Exchange Network Limited
(Incorporating www.tradesports.com, www.intrade.com & www.tradebetx.com)

---

From: Help@intrade.com
Subject: Re: Withdrawal fiasco
Date: November 14, 2006 2:34:00 AM EST
To: <my email address>

Dear David,
Please accept our sincere apologies for the delay you have experienced on this withdrawal. However, this is not in our control, as per previous warnings on the site, American banks have been rejecting credit card transactions for some time now, and if any member wished to try to have funds put back on their card, they also ran the risk of their own bank rejecting the funds. When this occurs, it will then take the funds some amount of time to bounce back to us here. We can not speed up this process. And unfortunately, we can not return the funds to you, until they have been returned to us.
We can assure you that this delay is not due to any mis appropriate handling of your funds by the exchange, but due only to the fact that your bank has rejected this transaction. However, I will pass this along directly to our banking manager, who will look into the matter further, and get back to you regarding this later today.
Again, we apologize for this inconvenience.

If you require any further assistance, please do not hesitate to contact us.

Kind Regards,

Anna Farley
Exchange Operations

---

From: <my email address>
Subject: Re: Withdrawal fiasco
Date: November 18, 2006 9:17:22 AM EST
To: Help@intrade.com

Anna,

Your reply is not acceptable. It has been three months since my withdrawal, and you had no warning on your site at the time of my withdrawal. It should not take three months for the withdrawal to be rejected by my bank.

Furthermore, I need to know what the *status* is on my withdrawal. I need you to determine that for me, as Intrade has repeatedly promised but failed to do.

David

---

From: help@tradesports.com
Subject: Re: Withdrawal fiasco
Date: November 18, 2006 9:21:33 AM EST
To: <my email address>


Hello David,

Thank you for your inquiry. We have forwarded your email to the
relevant department and they will respond on Monday morning.
Thank you for your patience in the meantime. Please let us know if we
can help you further.

Kind Regards,

Mark Finnegan
Exchange Operations
Trade Exchange Network Limited

---

From: help@tradesports.com
Subject: Re: Withdrawal fiasco
Date: November 23, 2006 6:22:14 AM EST
To: <my email address>

Hi David,

We have requested a trace from our bank on two previous occasions and again today. i have asked the trace be escalated due to the significant time delay.

As soon as the funds are returned we will re-credit your account in order for you to withdraw through an alternative method.

Sincere apologies for the delay.

Regards.

Barry

---

From: <my email address>
Subject: Re: Withdrawal fiasco
Date: November 24, 2006 9:56:26 PM EST
To: help@tradesports.com

What are the statuses of those traces?

---

From: Help@tradesports.com
Subject: RE: Withdrawal fiasco
Date: November 24, 2006 10:07:49 PM EST
To: <my email address>

Hello David,

Thank you for your enquiry. We have forwarded your email to the relevant department and they will respond on Monday morning as it is a banking issue and will need to be resolved by them.

Thank you for your patience in the meantime. Please let us know if we can help you further.

Kind Regards,

Sanjeev
Exchange Operations
Trade Exchange Network Limited
(Incorporating www.tradesports.com, www.intrade.com & www.tradebetx.com)

The Beauty of Lisp

• Programming languages are about turning your ideas into a form a computer can understand.
  
  • The ideas must be mathematically defined, but beyond that they can be arbitrary (Turing equivalence).
• Most good ideas need to be reused.
• Programming involves defining ideas and reducing them to "words", and then referencing those words whenever the idea needs to be reused.
  
  • In this way, programs can be built in layers, one on top of the other, where each layer is abstracted away to make room for the next one.
    
    • A good language has semantics that let you easily label common patterns of ideas (such as functions, data types, and object classes).
    • A compiler turns source code from that language into machine code.
• Some ideas can't be reduced down to a single word in certain languages, because they don't follow the patterns the language designers anticipated, even though the ideas themselves are mathematically defined.
• As a result, the programmer has to "preprocess" his ideas into source code — a mechanical task but one necessitated by the lack of expressiveness of the language. In essence, the programmer is doing the work of the compiler.
• Therefore, what's needed is the ability to define arbitrary patterns of ideas, not just arbitrary ideas.
  
  • The only way to do this, is to be able to define the patterns in the programming language itself — to write programs which can manipulate programs.
    
    • That is what Lisp is.

Nominatibility and Electability

Jason Briggeman over at Productivity Shock observed that the frontrunners for the Democratic and Republican 2008 presidential nominations, Hillary and McCain, seem to have lower electability (as implied by TradeSports/Intrade) than some of the other contenders, such as Gore and Rudy. He measures this electability by dividing their odds of becoming elected by their odds of becoming nominated (R / D). But this is a naïve calculation of electability (even disregarding the important market distortions that result from a contract with a two year duration).

At the time of this writing, the prices are as follows:

	Nomination	Election
McCain	54.0	29.6
Clinton	52.1	25.5
Giuliani	12.6	9.1
Gore	11.4	8.0

This suggests, according to the naïve calculation method, electability measures (in percent likelihood) of:

	Electability
McCain	54.8
Clinton	48.9
Giuliani	72.2
Gore	70.2

In other words, it looks as if the parties are likely to nominate precisely the candidates who would be less likely to get elected! (In the Democratic case, this couldn't even be explained by appealing to their base, as Gore is clearly more dear to the Democratic base than Hillary Clinton.)

But here's the thing. It's possible that, at this stage two years before the election, the market thinks that (for example) McCain and Giuliani are, on balance, just as electable, but that circumstances could make either one less electable, and that Giuliani would be less likely to be nominated given those circumstances than McCain would be.

This is a subtle point, so I'll explain it again. Electability is not a simple number. Rather, it is an average of numbers, given various possibilities. Perhaps Giuliani is more electable against some opponents than others. For example, perhaps Giuliani would handily beat Barack Obama, but have a tough time facing Al Gore. Or, perhaps, Giuliani would be very electable if certain issues were at the forefront of national attention at the time of the election (like, say, terrorism), but not other issues (like gay marriage?). How do we measure real electibility? To do so, we have to imagine a hypothetical scenario in which Giuliani were the only candidate for the Republican nomination. In other words, the price of 2008.GOP.NOM.GIULIANI would be equal to 100.0. In that hypothetical scenario, what then would be the price of 2008.PRES.GIULIANI (his election)? Maybe it would be close to 72.2, or maybe it would be closer to 50. Hard to say.

The fact that, in the real world, 2008.PRES.GIULIANI divided by 2008.GOP.NOM.GIULIANI happens to equal 72.2 simply means that, in those scenarios where Giuliani actually ends up being nominated, his electability averages 72.2. But his abstract electability, given the hypothetical scenario in which the Republican Party nominated him without considering other candidates, is not necessarily the same.

So perhaps the market thinks the party elders are wise after all. Perhaps McCain is more electable in most scenarios than Giuliani (thus giving him higher odds of the nomination), but the GOP will only nominate him in those scenarios, and will nominate Giuliani in the other, less likely scenarios.

It's also possible that the party elders are not so wise, but that the reasons for the discrepancy still have nothing to do with currently known electability. It could be that, as things stand, they both have an average likely electability of 50.0, but that McCain is much more likely to be nominated, given his socially conservative positions, higher profile, and increased party ties, than Giuliani. In other words, their average possible electability (as measured right now) could be the same, but McCain has an edge in the nomination process that can overcome lower electability at the time of nomination. That doesn't mean he's predicted to have lower electability at that time -- just that he can overcome it in the nomination process, should it be the case.

If you're still having trouble understanding, here's an analogy: Every so often, while walking down the sidewalk, people discover $20 bills. They then motion to pick them up. If you see someone leaning down and gesturing as if they're picking up money, they probably are! But that doesn't mean that if you go walking down the sidewalk, gesturing as such, that $20 bills would magically appear in your hand.

By comparison, maybe the Republicans will nominate Giuliani if it makes sense for them to. And if it does make sense, maybe he has a very good shot at actually winning the presidency. But it won't necessarily make sense in the first place, and circumstances at the time of nomination will determine whether it does.

The reality is probably somewhere in between. McCain might be more electable, but more nominatible than his increased electability deserves, due to his greater party ties.

The same analysis applies to Clinton vs. Gore, or any other possible candidates. (Again, this ignores the very important market distortions that must be present.)

Put this way, it's not a surprise that candidates with greater party ties have a greater chance of being nominated than their electability deserves. But that's not the same thing as saying that their electability is actually lower than that of their competition.

Buffett's Charity No Surprise

Why is everyone shocked at the news that Buffett is giving most of his wealth to charity? He wrote in his 2005 letter to shareholders:

Every share of Berkshire that I own is destined to go to philanthropies

Favorite Feeds Updated

I'm renaming my "Favorite Blogs" to "Favorite Feeds", since it has some non-blog sources of content as well.

I'm removing:

• As the Apple Turns — Haven't read it in ages. Doesn't really offer much that you can't get by osmosis from the various other decent sources of tech and Mac news. Was mostly a novelty.
  
• Geek Patrol — Sometimes has decent content, but not often enough to be worth it.
  
• Pejmanesque — This blog was discontinued, and its successor, while high-quality and possessing an image of a Goban in its logo, just hasn't kept my interest.
  
• VodkaPundit — Sometimes I think bloggers feel the need to blog even when they don't have something unique to say. Unfortunately, Stephen Green often seems to feel this way.

New:

• Charles Krauthammer's Washington Post columns — He absolutely never fails to write a lucid and insightful essay, week after week. Two superb highlights from the past month: on gasoline "price gouging", and Iran's existential threat to Jews.
  
• Mere Rhetoric — I discovered this one after Sharon's cerebral hemorrhage. It had excellent coverage of that, as well as invaluable analysis of the Israeli political terrain right through the March 28th election. It can get a little too LGF-ish when discussing other topics — i.e., angry, uncreative repetition. But there are enough gems to be worth keeping up with.
  
• Reddit — A collaborative content filter. Does an excellent job of filtering out the crap and showing you high-quality content, both new and old, personalized to your own interests based on what previous stuff you've liked. Beats the hell out of Digg for the quality of its content, the intelligence of its community, and the individually-tailored recommendations. Has a nice, libertarian-leaning, pro-capitalist community that consists in large part of Lisp programmers. A positive side-effect of reading Reddit is that you won't miss anything Paul Graham writes. Good discussion threads are possible, too.

Staying put:

• Belmont Club — Still the best contemplative geostrategic analysis online, with a military focus. I must confess to not reading it much these days, but that's mainly because I've been interested in other things.
  
• InstaPundit — I don't read it on a daily basis anymore, but when major news events happen and I want to see what's abuzz, I know I'll find a diverse summary of the quality posts and articles that are online.
  
• Setting the World to Rights — The hub of critical rationalist libertarian hawks, by the people who brought us Taking Children Seriously.
  
• Woty Freeman — Hasn't been updated in a year and a half, but hey, it's Woty.

Tim Russert Doesn't Understand Basic Economics

Here's a clip from this Sunday's "special edition" of Meet the Press on high gas prices. Simply astonishing:



I love the expression on Bodman's face. First, one of confusion: "Did he really just ask me that question?" Then shock: "Holy shit, he really asked me that question." Then, after his brief answer, he just stared at Russert like he was an idiot, and there was silence. Full video of the show here, and full transcript here.

I guess Tim Russert doesn't read Charles Krauthammer.

Big things

It's interesting how the Pyramids are considered a monument to Egyptian civilization but the Ryugyong Hotel is considered an embarrassment to North Korea.

The true price of software?

Robert Lefkowitz has written an interesting analysis of the true value of computer products, by breaking down those products into their components, much as an economist breaks down financial instruments into their components, or a theoretical physicist breaks down particles into their elementary primitives. He identifies several services: repairs, maintenance, and the option to upgrade to future versions, that in his view constitute a large percentage of the value of the product, and concludes that, in the case of software, the underlying software itself has essentially very little value compared to the rights to support and upgrades.

I believe his analysis is seriously flawed, and not simply because I dispute his assumptions as to the volatility of future support/upgrade pricing. Let's go through some of his examples:

A 17-inch iMac was $1,499 at the Apple store the last time I checked. You can purchase an extended warranty, AppleCare, for $169. That warranty is for years two and three; year one is included. AppleCare also includes extended telephone support, but I'm going to ignore that for now to simplify things.

After a quick trip to Wikipedia's page on failure rates (leavened with anecdotal rumors), it is not unreasonable to suppose that computers experience more failures in their first year than in the subsequent two years. The overall failure rate for computers runs about 15 percent--Macs do better than average. Still, it is not unreasonable to suggest that the curve looks roughly something like 8 percent failure in the first year, 4 percent in the second, and 2 percent in the third. That means the first-year warranty is worth about $225. So really, that 17-inch iMac costs $1,274 for the computer and $225 for the first-year warranty.

He apparently derives this $225 figure for the value of year one of the warranty by multiplying 15% times the cost of the iMac, but there are two problems with that. First, and trivially, he assumes the iMac's failure rate in the first year is only 8%, so the value of AppleCare during that time should be 8% of the value of the underlying hardware, not 15%. But second, even if the first-year failure rate is 15%, it should be 15% of the value of the hardware, not 15% of the value of the hardware plus the value of the AppleCare. In other words:

AppleCare + Hardware = $1,499
AppleCare = 0.15 x Hardware
Hardware = $1,499 / 1.15 = 0.87 x $1,499
AppleCare = 0.13 x $1,499 = $196

Not too far off from his value of $225 (assuming 15%, not 8%, failure), but this has exposed a basic flaw in his reasoning which will become much more relevant when we get into the discussion of software. Namely, he bases his reasoning on the very assumptions which his reasoning disproves. In this case, he fails to price the value of the AppleCare relative to his logic's implied value of the hardware — rather, he values the AppleCare relative to the same naïve valuation of hardware that he has just shown is faulty.

Now, let's move onto software. Here's his thought experiment:

Let's normalize the values to a $100 software license and say that a one-year option has a $20 underlying price; a year of maintenance is 20 percent of the license, so we'll assume it's worth $20 today. The strike price (what you can buy it for in a year) is also $20--a 5 percent risk-free rate. With all of those inputs, the value of that option is about $2.85. That is to say, for $2.85 you can lock in the price of the maintenance contract so that one year from now, you'll have the right to buy it for $20.

The right to buy the same maintenance for $20 two years from now is about $4.25; three years is $5.35; four years is $6.35. That takes us five years out. Assuming that you've locked in the maintenance over the five years to 20 percent of the purchase price, that set of options is worth $2.85 + $4.25 + $5.35 + $6.35 = $18.80. Five years is not an unreasonable horizon for enterprise software.

But wait, there's more.

Another option included in the license price is the option to upgrade to future versions at some price that will be less than the regular price. Right? That's clearly an option. The same informal poll of enterprise software users asked what they would pay for software when they didn't have the option to upgrade to the next release. The strike price is less standard than regular maintenance. (If you think about it, new versions perform "maintenance" by adding features as opposed to fixing bugs.) Now we're buying an option to upgrade in five years as part of this license.

The underlying price--the price you'd have to pay if you didn't have an option--we'll leave at $100. The next version will be priced the same as this one. Because you're upgrading, you have an option with a strike price of, let's say, $50. That is, you'll be able to upgrade to the new version for only $50. A five-year option for a $100 underlying price with a strike price of $50 and a volatility of 30 percent (with a 5 percent risk-free rate) is about $62.50.

Of course, most software offers new releases more frequently than once every five years--but enterprises don't like to upgrade very often and usually plan on skipping every other release in order to avoid upgrading too often. Then it would be two options. Much like adding additional planetary bodies to a problem in gravitational dynamics, the complexity mounts rapidly. I'm trying to keep it simple. (I suggest follow-up research problems for interested students.)

At this point, the astute reader will have noticed that the sum of the value of the option for the upgrades plus the options for the maintenance is $18.80 + $62.50 = $81.30. That is to say, our $100 software license consists of $18.70 for the value of the actual software and $81.30 for options on future maintenance and enhancements.

But wait a minute! If the right to upgrade is already included in the first purchase, then what is the upgrade itself getting you? Only the software plus a new maintenance contract, which is worth just $37.50! Sure, you now have the right to upgrade to future versions, but you already had that right. So if his conclusion is correct, and the underlying software+support is only worth $37.50, then in fact the right to upgrade at $50 is worth almost nothing — it's a call option that is way out of the money!

Lefkowitz's approach has been exposed as an accidental pyramid scheme, and the foundation has just come crashing down!

Now, I am not saying the right to upgrade is worth almost nothing. That would be making the same fallacy that Lefkowitz makes. I am saying that his logic is self-contradictory, and that a proper analysis will find an equilibrium price for both the right to upgrade and the immediate product, rather than consisting of one "iteration" of analysis on assumptions that the very analysis has shown to be wrong.

There's another, more abstract problem with his reasoning: he's attempting to seperate inherently complementary products, and arguing that the value of one is virtually nil without the other. But that process works in reverse, too. What's the right to maintenance worth without the actual software? What's a car with no steering wheel good for?

The answer is, a car with no steering wheel is good for making a car, once you've got the steering wheel. But this doesn't mean the steering wheel is the majority of the value of the car. It means the car is worth X, and the individual components are worth whatever the supply and demand situation says they're worth. That calculation is substantially more complex than just subtracting the utility of a car with no steering wheel from X. You must consider factors such as the consumer's desperation, the cost to the supplier, and the level of competition and commoditization in the marketplace.

It may be that a good business model can be built on cheap or free software, but Lefkowitz's argument is surely not why.

Iraqi Casualties

Casualty rates seem to be at a low since February, 2004, and steadily declining since last winter. Another month of casualty rates below 1.5 a day and I'd say that's statistically significant.

Source: Iraq Coalition Casualties

Why RSS feeds don't work for Reddit

(For those who don't know what Reddit is, it's a content aggregator, similar to Slashdot and Digg, but much better, and with personalized recommendations.)

The bulk of RSS-syndicated content — blogs, news sites, and most content aggregators like Slashdot — are essentially a chronological stream of data. New stories/links appear one by one, and there's really no other organization to it than that. There's no attempt to rank the entries by how relevant they are. They either are or aren't on the "front page" (or whatever page you're looking at), and then they're just sorted chronologically. Thus, RSS feeds, which basically assume such a sequential content stream, are perfectly suited for these sites.

Digg is an exception to this. With Digg, article A can be placed higher up than article B, even though it was submitted several hours earlier, simply because it's received more diggs. However, there is still a strong bias towards chronological arrangement. It's extremely rare for an article to last a full day on the front page, before other articles are considered more "relevant".

Yet, with Reddit, entries frequently remain on the front page for one day or more, as a nagging reminder that "hey, this is really popular, and you should read this if you haven't yet." For example, I haven't read This Essay Breaks the Law yet, even though it's been in the top three on my recommended page for over a day. Normally I wouldn't have read it, since there are plenty of contributions to the intellectual property debate and I usually don't feel they offer something new. But now it's on my to-do list, because so many people have read it and liked it.

Sometimes I'll go two or three days without having time to read stuff. When I check out Reddit after that period, I can immediately see the absolute most relevant stuff during that period, rather than artificially forcing myself to sludge through the same number of articles I would have read had I actually had the time those couple of days, as you might do if you're trying to keep track of the content on an RSS feed.

Also, sometimes I'll have a lot of free time or just be generally interested in checking new stuff out, and then I can browse through all the links in the first page or two of reddit recommendations. And, as always, they're organized as I'd want them to be: weighted by both relevance and timeliness.

What it comes down to is that Reddit's content isn't a "stream" so much as a constantly-shuffled pile of stuff, arranged by that weighting of relevance and timeliness I just mentioned. My Reddit RSS feed simply can't have the real-time organization that the Reddit site has, without being a mirror of it. And, in that case, what's the point of RSS?