Dear EPA

Last week I got a letter which asked me to loan my car to the EPA for their research on emissions from privately owned vehicles. The car would be used between 1 and 4 weeks, assuming it met their criteria. They provided a couple of incentive options and also stipulated that my car would be returned with a full tank of gas after driving it up to 300 miles per day, along with being covered by their insurance.

• If I wanted a loaner car from them (which appears to be insured by them), I would receive $20 per day.
• If I did not receive a loaner car from them, I would receive $50 per day. 

Based on my post on the true cost of driving, I wondered how the offers compare to the cost to me. The costs I will experience if I participate in this (in approximate order of cost to me) include:

• Wear and tear on the car and tires at a rate of up to 300 miles per day (possibly excluding weekends, possibly not).
• The loss of use of my vehicle for the testing period if I take the $50 per day option
• Miles towards my next oil change.
• Time out of my day to do drop-off and pickup.
• The risk that something bad will happen to the car that may cost me additional time and money (which I would hopefully be appropriately compensated for).

The benefits I will experience (in approximate value for me) include:

• $50 or $20 per day for participating.
• A loaner car if I choose that option.
• A full tank of gas when I get my car back.
• If the loaner car is insured by them, I may avoid some risk due to accidents during the time of the study.

If I normally drove close to 300 miles a day, this problem would be easy to solve by choosing to get a loaner car (assuming there is no limit on the number of miles on it). Most days though, the car they would be using of mine drives 30 miles, so no easy out there. For me personally since we have two cars, I can quickly say that the loss of use of the vehicle is less than $30 a day, so I would go without if I participated at all.

We can quickly see that they are offering a minimum of 17 cents per mile driven if they drive it the full 300 miles every day they pay me for. From the information available from AAA, we can try to figure out if that leaves any extra money as an incentive for me to participate. Tires and maintenance (including oil changes) add up to 6 cents per mile. But what about the loss in value due to additional miles?

AAA estimates depreciation at 24 cents per mile based on numbers that are close to true for me, so there's definitely a risk of wiping out all the potential profit. But, how much of that has to do with the age vs. the actual miles driven? I decided to use Edmunds and Kelley Blue Book to estimate what the change in value to my car would be purely based on the miles driven. I tested both for the present, and since I didn't entirely trust the numbers, I also tried projecting out 2 years to when I might end up selling the car (I did this by checking the present value of a car 2 years older than mine with estimated mileage numbers). When I initially tried entering a change of 4000 miles to the odometer reading (a guess of the total miles that would be added), Edmunds gave me no change in value of the car at all. So instead I am basing the numbers in the table on a jump of 10,000 to the odometer just to avoid any weird artificial cutoffs.

	Edmunds	Kelley Blue Book
Effect on current value (cents / mile)	4.09	4.43
Effect on future value (cents / mile)	1.79	4.02

In short, that gives an upper bound of 5 cents per mile for depreciation due only to mileage. Therefore, we are left 6 cents a mile (or almost $20 a day) for participating. That once again seems like more than the value of having the second car to me, so I guess I should get the form in the mail!

Why do kids under 2 fly free?

If you look online for tips on flying with kids, you will inevitably find the nearly-universal advice to buy a ticket for children of any age. Even the FAA tells you in no uncertain terms that holding your child in your lap is not safe in the case of an accident. So why is it still an option?

In the FAA statement 10 years ago, they explained that this is a public policy issue. Their analysis concluded that if parents had to buy an extra plane ticket, more families would choose to drive rather than fly which would result in additional fatalities. While many people decry the FAA's decision for putting additional children at risk, I applaud that they work with the reality of how people make decisions (and used data to make that choice).

Beyond the lap-child issue, I have wondered if the drive to the airport actually carries a higher risk than the flight itself. According to the data here, in 2010 the risk was 1.1 deaths per 100 million miles driven. Flight data is somewhat harder to extract. The number cited in the link covers private airplanes separately (reasonable) but also terrorism and suicide (which we would probably want to include). That link suggests a fatality rate of 0.07 per billion passenger miles, which works out to 158 miles flown has the same risk as 1 mile driven. If we instead look at the National Travel Safety Board data we see an even more encouraging picture since many years do not have any accidents with fatalities among airliners (the scheduled commercial flights most of us are taking).

All in all, I think most people do not worry about safety when deciding if they will fly or drive to their destination. It is well known that our brains are not well suited for assessing modern risks. And so it is important for public policy to carefully include how people respond to policies in their decision making.

Conflict Minerals

One of the blogs I frequent just had a piece on companies trying to trace their supply chain all the way to the source. This initiative is because of changes in the law which require them to determine if they are using conflict minerals. The authors mentioned that the total costs of trying to be compliant with the new law has been about 709 million dollars and 6 million staff hours (and that only 24% of the companies are actually fully compliant so far).

709 million dollars is a lot of money, and I wondered if a) it might have been more effective to put it directly into aid, and b) how that number compared to the actual value of conflict minerals. From this link though, it looks like the reforms have been a lot more effective than I initially expected. The "enough project" estimated that in 2008 (prior to the new law) 185 million dollars went to armed groups via conflict minerals. They also attribute a lot of the progress since then to the law. This source estimates that revenues have decreased by 65%. They do think that some of the violent groups have shifted focus to gold since conflict gold hasn't suffered in value nearly as much as the other conflict minerals.

In short, while tracing an entire supply chain is incredibly costly, the law has been pretty effective at improving the situation.

OR and Analytics

In May of this year INFORMS (the primary professional society for Operations Research) had a vibrant conversation on their discussion board questioning what the field of Analytics is and how it does or does not overlap with OR. My favorite piece from this exchange came from Patrick Noonan who suggested that decision makers should answer two central questions:

1. "What should I do, given what I believe?" 
2. "What should I believe, given what I observe?

While you will frequently need to iterate between the two questions (and this combination is in fact what Professor Noonan describes as Analytics), I do think it is useful to think of decision making as being made up of these two pieces. The first question is a really succinct description of OR, and the second question sums up what statistics is good for.

Despite the overwhelming popularity of Analytics currently, I do think there is significant value in looking at these two questions in isolation as well as together. A big emphasis in Lean is data collection to understand your current state before you implement changes. Articulating what you wish you knew can be a useful exercise before even stating your problem. At the same time, examining your data carefully is critical to doing anything useful with it at all. Otherwise you might conclude that flashlight apps have the most valuable ads.

Hopefully this explanation helps any of my friends whose eyes glazed over when I said I do Operations Research!

Implementing model solutions

I just came across this blog post which talks about another layer of doing math modeling. The basis of my blog is that you should try to make sure you solve the right problem, otherwise you can't hope to get a good solution. What the blogger points out is that even if you solve the right problem, that does not guarantee that the solution will be implemented correctly. His example comes from doing retail stock forecasting. He describes several of the ways his customers may use the information gleaned from the software to make inappropriate decisions.

There are similar issues in my research area. I work on "the newsvendor problem" where you sell newspapers during the day. You start by choosing a quantity of newspapers y to buy at the beginning of the day for c dollars each, and sell them for r apiece. If you run out early, you have a lost sales cost of e, and if you have leftovers you can recycle them for v each. Empirical studies find that even when participants are trained about the optimal order quantity, they tend to over-order.

So how to resolve these issues? Effective communication skills are a key starting point. By asking the right questions of practitioners, modelers can ensure both that they solve the right problem and do their best to make sure that the solutions are taken seriously.

A case for paying friends $0.50 per mile

Giving friends money for gas is the default offer in college. The logic goes something like this: "Most of the costs to drive other than gas are either negligible or fixed, so paying for gas is close to fair." Yet, the cost of gas works out to around 15 cents per mile while the government estimate of the cost of driving is 57.5 cents per mile. The quote from the IRS website is that these costs include "the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil." The IRS also says that moving or medical miles have a rate of 23 cents per mile to cover strictly the "variable costs such as gas and oil."

Based on the law, that suggests paying friends 23 cents per mile if they are making a special trip for you. However, an issue arises when you actually look at the list of "fixed costs." Clearly repairs due to normal wear and tear, depreciation, tires, and maintenance all are highly dependent on the actual number of miles driven. The only thing on the explicit list that is strictly a fixed cost is insurance. But, what is insurance actually for? Insurance covers (hopefully most) costs in the event of an accident. While registration costs are truly fixed since you either keep your car legally registered or not, insurance costs are an attempt to reduce risk.

It may be possible to separate the truly variable costs from the truly fixed and get a more accurate rate to pay friends. But I would argue that the government rate is a much better approximation of the variable cost of driving than simply paying for gas.