Friday, October 23, 2009

Asleep at the Wheel -- Again

We've written before about the problem of pilots falling asleep midflight.

Now, it seems that this has happened again.

Northwest Airlines Flight 188, en route to Minneapolis, overshot the airport -- way overshot the airport. The pilots didn't turn around until they were over Eau Claire, Wis., 150 miles away.

The pilots, who have not been identified, reportedly told the Federal Bureau of Investigation and the airport police that “they were in a heated discussion over airline policy and they lost situational awareness.”


The plane, an Airbus A320, which carried two pilots and three flight attendants as well as 144 passengers, was cruising at 37,000 feet when the crew stopped responding to air traffic controllers and airline dispatchers. According to the Wall Street Journal, the radio silence continued for 78 minutes.

According to the same article, "pilot fatigue has long been regarded as one of the most serious safety issues confronting commercial aviation."

The question is: When is the FAA going to wake up?

Wednesday, October 21, 2009

Information Overload

More than 35 years ago, in a now-classic piece of research, Paul Slovic reported on the ability of handicappers to predict the outcome of horse races. At first, Slovic let the handicappers use any five pieces of information they wanted -- the jockey’s weight, for instance, or the horse’s previous race performance. Then he let them use 10 pieces of information. Then 20, and, finally, 40.

Slovic was studying the stress caused by information overload. What he found was fascinating: with more information, the accuracy of the predictions did not improve -- it was no better with 40 pieces of information than it was with 5.

But the confidence in those predictions did improve. This increased substantially, from less than 20% with 5 pieces of information to more than 30% with 40 pieces of information.

I thought about Slovic's findings as I read about the Galleon Group, the hedge fund whose rotund leader, Raj Rajaratnam, was arrested earlier this week on insider trading charges.

The pressure at Galleon was intense. According to published reports, analysts there were browbeaten to come up with new information on companies whose stock the fund was interested in.

But that information, at least in some cases, didn't seem to help -- and may even have hurt. As Alex Berenson reported in today's New York Times, Mr. Rajaratnam "lost millions of dollars from what prosecutors characterize as insider trading."

In one case alone, involving the chip maker Advanced Micro Devices, Galleon reportedly lost $30 million.

What is interesting here is not that some of Galleon's trades went bad; one would expect that. What is interesting is that Galleon apparently didn't learn what Slovic did: More information doesn't necessarily lead to better decisions. But it can lead to costly ones.

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Tuesday, October 6, 2009

Results Not Typical

In Why We Make Mistakes, I write about what some people call "bikini power." This is the power of weight-loss ads featuring women in bikinis to convince us that we, too, can look socko in a swimsuit -- even if the odds are against it.

I cite the case of NutriSystem, the diet company based in Horsham, Penn., whose ads frequently feature the bikini-clad. Its securities filings, though, give a different image of their customers: most are "serial dieters" who have repeatedly tried and failed to keep weight off. On average, they are female, 44 years old, and weigh 210 pounds. Most start out wanting to lose 60 pounds but end up losing only about 20. Typically, after 10 or 11 weeks, they give up and drop out of the company's program.

For decades, the Federal Trade Commission has allowed diet companies to use ads like NutriSystem's so long as the ads feature a tiny, three-word disclaimer: "Results not typical."

Well, that is about to change. New FTC guidelines, last revised in 1980, require weight-loss companies and others to state just how "not typical" their results are.

Under the revised guidelines, advertisements that feature a consumer and convey the consumer's experience with a product or service as typical when that is not the case will be required to clearly disclose the results that consumers can generally expect.

In contrast to the 1980 version of the guidelines – which allowed advertisers to describe unusual results in a testimonial as long as they included a disclaimer such as “results not typical” – the revised guides no longer contain this safe harbor.

But the guidelines, so far as I can tell, say nothing about banning the use of bikinis....