Markets Are Honest

I’ve been reading a ton of articles with commentators’ takes on whether a merger between Sprint and T-Mobile will be good or bad for consumers. Almost everything I’ve read has taken a strong position one way or the other. I don’t think I’ve seen a single article that expressed substantial uncertainty about whether a merger would be good or bad.

It could be that everyone is hugely biased on both sides of the argument. Or maybe the deal is so bad that only incredibly biased people would consider making an argument that the merger will be good for consumers. I’m not sure.

I like to look at how markets handle situations I’m uncertain about. In the last few years, I’ve regularly seen liberal politicians and liberal news agencies arguing that we’re about to see the end of Trump’s presidency because of some supposedly impeachable action that just came to light. I’m not Trump’s biggest fan, but I’ve found a lot of arguments about how he’s about to be impeached too far-fetched. I have a habit of going to the political betting market PredictIt when I see new arguments of this sort. PredictIt has markets on lots of topics, including whether or not Trump will be impeached.

Politicians and newspapers have an incentive to say things that will generate attention. A lot of the time, doing what gets attention is at odds with saying what’s true. People putting money in markets have incentives that are better aligned with truth.

Most of the time I’ve seen articles about Trump’s impending impeachment, political betting markets haven’t moved much. In rare occasions where markets moved significantly, I’ve had a good indication that something major actually happened.

Wall Street investors have a strong incentive to understand how the merger will actually affect network operators’ success. Unsurprisingly, T-Mobile’s stock increased substantially when key information indicating likely approval of a merger came out. Sprint’s stock also increased in value.

What’s much weirder is that neither Verizon’s stock nor AT&T’s stock seemed to take a negative hit on the days when important information about the merger’s likelihood came out. In fact, it actually looks like the stocks may have increased slightly in value.[1]

You could tell complicated stories to explain why a merger could be good for competing companies’ stock prices and also good for consumers. I think the simpler story is much more plausible: Wall Street is betting the merger will be bad for consumers.

Maybe none of this should be surprising. There were other honest signals earlier on in the approval process. As far as I can tell, neither Verizon nor AT&T seriously resisted the merger:[2]

Disclosure: At the time of writing, I have financial relationships with a bunch of telecommunications companies, including all of the major U.S. network operators except T-Mobile.

Misleading Gimmicks from Consumer Reports

You better cut the pizza in four pieces because I’m not hungry enough to eat six.Yogi Berra (allegedly)

The other day I received an envelope from Consumer. It was soliciting contributions for a raffle fundraiser. The mailing had nine raffle tickets in it. Consumer Reports was requesting that I send back the tickets with a suggested donation of $9 (one dollar for each ticket). The mailing had a lot of paper:

The raffle had a grand prize that would be the choice of an undisclosed, top-rated car or $35,000. There were a number of smaller prizes bringing the total amount up for grabs to about $50,000.

The materials included a lot of gimmicky text. Things like:

  • “If you’ve been issued the top winning raffle number, then 1 of those tickets is definitely the winner or a top-rated car — or $35,000 in cash.”
  • “Why risk throwing away what could be a huge pay day?”
  • “There’s a very real chance you could be the winner of our grand prize car!”

Consumer Reports also indicates that they’ll send a free, surprise gift to anyone who donates $10 or more.

It feels funny to make a donate money based on the premise that I might win more than I donate, but I get it. Fundraising gimmicks work.

I don’t think it would be productive or even reasonable to pretend that humans are (or even ought to be) creatures that donate to non-profits for exclusively coldly-calculated, altruistic reasons.

That said, I get frustrated though when the gimmicks border on dishonest. Doubly so if deception is coming from an organization like Consumer Reports that brands itself as an organization committed to integrity.

One of the pieces of paper in the mailing came folded with print on each side. Here’s the first part that was visible:

Unfolding that paper and looking on the other side, I found a letter from someone involved in Consumer Reports marketing. The letter goes to some length to explain that it would be silly to not at least see if I had winning tickets. Here’s a bit of it:

It amazes me that among the many people who receive our Consumer Reports Raffle Tickers — containing multiple tickets, mind you, not just one — some choose not to mail them in. And they do this, despite the fact there is no donation required for someone to find out if he or she has won…So when people don’t respond it doesn’t make any sense to me at all.

This is ridiculous on several levels.

First, the multiple tickets bit is silly. It’s like the Yogi Berra line at the opening of the post. It doesn’t matter how many tickets I have unless I get more tickets than the typical person.

Second, it seems pretty obvious that Consumer Reports doesn’t care if a non-donor decides not to turn in tickets. The most plausible explanation for why Consumer Reports includes the orange letter is that people who would ignore the mailing may end up feeling guilty enough to make a donation. Checking the “I choose not to donate at this time, but please enter me in the Raffle” box on the envelope doesn’t feel great.

Finally, it makes perfect sense why I might not respond. Writing my name on each ticket, reading the materials, and mailing the tickets takes time. My odds of winning are low. I’d also have to pay for a stamp. Nothing about the rationale for not sending in the tickets is complicated. Consumer Reports knows that.

I’ll pretend that the only reason not to participate is that the stamp used to mail in the tickets isn’t free. That stamp is 55 cents at the moment.[1] Is my expected reward greater than 55 cents?

Consumer Reports has about 6 million subscribers.[2]

Let’s give Consumer Reports the benefit of the doubt and assume it can print everything, send initial mailings, handle the logistics of the raffle, and send gifts back to donors for only $0.50 per subscriber. That puts the promotion’s costs at about 3 million dollars. The $50,000 of prizes is trivial in comparison. Let’s assume that Consumer Reports runs the promotion based on the expectation that additional donations brought in will cover the promotion’s cost.

The suggested donation is $9. Let’s say the average, additional funding brought in by this campaign comes out to $10 per respondent.[3]

To break even, Consumer Reports needs to have 300,000 respondents.

With 300,000 respondents, nine tickets each, and $50,000 in prizes, the expected return is about 1.7 cents per ticket.[4] Sixteen cents total.[5] Not even close to the cost of a stamp.

4/12/2019 Update: I received a second, almost-identical mailing in early April.

I’m not unbiased. I’m not impartial.

Warning: This post is a rant and involves some foul language. Enjoy!

There’s a ridiculous amount of research supporting the idea that humans engage in an incredible amount of deception and even self-deception. People are biased. People respond to the incentives they face. Of course, anyone who has ever interacted with another human knows these things.

Despite this, pretty much every website offering third-party evaluation makes claims of objectivity or independence. Not claims that they try to minimize bias. Claims that they actually are unbiased.

Let’s take TopTenReviews, a site I criticized in a previous post. TopTenReviews says things like:

To be clear, these methods of monetization in no way affect the rankings of the products, services or companies we review. Period.
Bullshit. Total bullshit.

deceptive fish

I’ve complained enough in the past about run-of-the-mill websites offering bogus evaluations. What about the websites that have reasonably good reputations?


NerdWallet publishes reviews and recommendations related to financial services.

Looking through NerdWallet’s website, I find this (emphasis mine):[1]

The guidance we offer, info we provide, and tools we create are objective, independent, and straightforward. So how do we make money? In some cases, we receive compensation when someone clicks to apply, or gets approved for a financial product through our site. However, this in no way affects our recommendations or advice. We’re on your side, even if it means we don’t make a cent.
Again, bullshit.

NerdWallet meets Vanguard

Stock brokerages are one services types that NerdWallet evaluates.

One of the most orthodox pieces of financial advice—with widespread support from financial advisors, economists, and the like—is that typical individuals who invest in stocks shouldn’t actively pick and trade individual stocks.[2] This position is often expressed with advice like: “Buy and hold low-cost index funds from Vanguard.”

Vanguard is a firm that has optimized for keeping fees low and giving its clients a rate of return very close to the market’s rate of return.[3] In fact, the firm’s founder, John Bogle, is famous for creating the first low-cost index funds.

Since Vanguard keeps costs low, it cannot pay NerdWallet the kind of referral commissions that high-fee investment platforms offer. So what happens when NerdWallet evaluates brokers? NerdWallet uses a silly evaluation methodology that results in a shitty rating for Vanguard.

Vanguard gets 3 out of 5 stars.[4] It’s the worst rating for a broker I’ve seen on the site.[5]

How does Vanguard’s mediocre rating get rationalized? NerdWallet slams Vanguard for not offering the sort of stuff Vanguard’s target audience doesn’t want. Vanguard gets the worst possible ratings for the “Promotions” and “Trading platform” categories. Why? Vanguard doesn’t offer those things.[6]

Imagine a friend went to a nice restaurant and came back complaining that her steak didn’t come with cake frosting. NerdWallet is doing something kind of like that.

The following excerpt is found on NerdWallet’s Vanguard review under the heading, “Is Vanguard right for you?” (emphasis mine):

Ask yourself this question: Are you part of Vanguard’s target audience of retirement investors with a relatively high account balance? If so, you’ll likely find no better home. You really can’t beat the company’s robust array of low-cost funds.

Investors who fall outside of that audience — those who can’t meet the fund minimums or want to regularly trade stocks — should look for a broker that better caters to those needs.

This is silly. Vanguard’s minimum is $1,000.[7] You shouldn’t buy stocks as an investment strategy if you have less than $1,000 to put into stocks![8] If you invest in stocks, you shouldn’t regularly trade individual stocks![9]

From my perspective, NerdWallet is saying that if you are (a) the typical kind of person that should be buying stocks and (b) you don’t use a stupid strategy, then “you really can’t beat the company’s [Vanguard’s] robust array of low-cost funds.”

So there we have it. Despite the lousy review, NerdWallet correctly recognizes that Vanguard is awesome.

NerdWallet didn’t really lie, but it’s biased.

thumbs down

To be clear, I’m being hard on NerdWallet. NerdWallet does a good job aggregating information about financial services and offers decent financial advice in some areas. The evaluation methodology I’m criticizing may not have been maliciously engineered to optimize for profits. NerdWallet may have stumbled into the current methodology. Still, there’s a big problem. NerdWallet’s current methodology is good for its bottom line, so it has a strong incentive not to correct obvious issues. On the other hand, if NerdWallet stumbles into a silly methodology that’s bad for its bottom line, it has a huge incentive to change the methodology.


Sometimes evaluators aim to create divisions between editorial content (e.g., review writing) and revenue generation. I think divisions of this sort are a good idea, but they should not be thought of as magic bullets that eliminate bias. WireCutter is one of my favorite review sites, but I think it makes the mistake of overemphasizing how much divisions can do to reduce bias:[10]

We pride ourselves on following rigorous journalistic standards and ethics, and we maintain editorial independence from our business operations. Our recommendations are always made entirely by our editorial team without input from our revenue team, and our writers and editors are never made aware of any business relationships.
I believe WireCutter takes actions to encourage editorial independence. However, I’m skeptical of how the commitment to editorial integrity is described. Absent extreme precautions, people talk. Information flows between coworkers. Even if editors aren’t intentionally informed about financial arrangments, it’s easy to make educated guesses. Commission rates offered by Amazon’s affiliate program are publicly available.[11]

Bias is sneaky

Running Confusopoly, I face all sorts of decisions unrelated to accuracy or honesty where bias still has the potential to creep in. For example, which industries should I cover? Industries where companies almost always offer commissions or industries where it’s hard to get a cut from any sales I generate? In what order should providers I recommend by displayed? Alphabetically? Randomly? One of those options will probably be better for my bottom line than the other.

I don’t have perfect introspective access to what happens in my head. A minute ago I scratched my nose. I can’t precisely explain exactly how or why I chose to do that. It just happened. Similarly, I don’t always know when and how biases affect my decisions.

I’m biased

I have conflicts of interest. Companies I recommend offer commissions. You can take a look at the arrangements here.

I try to align my incentives with consumers by building my brand around commitments to transparency and rigor. I don’t make these commitments for purely-altruistic reasons. If the branding strategy succeeds, I stand to benefit a lot.

Even with my branding strategy, my alignment with consumers will never be perfect. I’ll still be biased. If you ever think I could be doing better, please let me know.