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MELISSA BLOCK, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

Now baseball and the Federal Reserve. From Professor Dwight Jaffee of the Haas School of Business at UC-Berkeley comes this news. Ben Bernanke, the economist just nominated to chair the Fed, believes that a key measure of pitching success is skewed. It overstates relief pitchers' successes and understates the success of starters. Well, what with the World Series under way and Professor Bernanke's confirmation hearings not too far off, we thought we'd pursue this with Professor Jaffee. He says he knows what Ben Bernanke thinks about this because when they talked together at Princeton, they played squash together and they talked baseball.

Professor DWIGHT JAFFEE (Haas School of Business, UC-Berkeley): We were both very interested in statistics. A lot of financial economists are, and we were. And we discovered we both had a great love of baseball and baseball statistics, and as we would walk back and forth from the squash courts and were chatting, we discovered there was an error in the way they were computing some of the baseball statistics.

SIEGEL: You discovered that there was an error in the way that they're calculating it.

Prof. JAFFEE: I would say so.

SIEGEL: What was the Jaffee-Bernanke error that was discovered there?

Prof. JAFFEE: You have to know a little bit about baseball and the statistic is called an earned run average, and it's a statistic that's used to evaluate the quality of a pitcher. And basically the idea is that over a nine-inning game, how many runs would you expect a pitcher to give up? And the ERA, or earned run average, is the average number that a specific pitcher allows. Lower is better.

SIEGEL: Mm-hmm. And a pitcher is charged with those runs that score by batters who reached base on his watch.

Prof. JAFFEE: Exactly right.

SIEGEL: And if he's lifted for a relief pitcher and that guy who hit a double is singled home, the run is charged to the pitcher who put him on base.

Prof. JAFFEE: Exactly.

SIEGEL: And I gather that Professor Bernanke and you have found the problem here. That's the difficulty.

Prof. JAFFEE: Well, there's actually two difficulties. The fundamental difficulty is that it's much easier to end an inning and not have any runs charged against you if you actually have the luxury that somebody else has put a runner on base and you're not responsible for them.

SIEGEL: That would be the relief pitcher?

Prof. JAFFEE: The relief pitcher is not responsible. For example, if a relief pitcher comes in and there's already a runner on first base and the first batter hits a ground ball and it's a double play, he gets two outs to his credit.

SIEGEL: Mm-hmm.

Prof. JAFFEE: But if that player instead on first base had scored a run, it would be charged to the previous pitcher. So it's sort of a `Heads you win, tails they lose' sort of situation.

SIEGEL: Well, did Professor Bernanke--now I know you also were involved in this, but he's the one who's becoming chairman of the Fed so we want an insight here--did he have a solution, a correction for that problem?

Prof. JAFFEE: Yeah. I think the idea is that you would have to sort of have a greater degree of data. You'd have to actually anticipate who was on base and make a correction for that. So, for example, you would compute what was the expected advantage to a relief pitcher of already having this player on base, and you would give them a higher earned run average the more often that they had that advantage.

SIEGEL: Well, would you split it? Would you say that a run that scores from first base is more weighted toward the relief pitcher, but a run that scores from third base is more weighted to the pitcher who put him on or something like that. How would you do it?

Prof. JAFFEE: Yeah, I think that's exactly. Now we never went forward with this. I would have to say we had more important things to do in serious--in monetary or financial economics than this. So it's not that we executed this, but it always annoyed us and we would, you know, hear in the newspaper some relief pitcher was considered great because he had this very low earned run average and we would always say, `Did you see that? They still don't understand how to compute 'em.'

SIEGEL: Now do you think that your friend and fellow squash partner would, you know, bring a similar analytical critique to the way the unemployment rate is determined, say, or inflation is determined?

Prof. JAFFEE: I think that there is definitely a commonality in a mind that takes to these statistics and understands what doesn't make sense and tries to make sense of them. And it applies every bit as much to unemployments rates and inflation rates as it does to ERAs, and it's probably much more important with respect to employment and inflation.

SIEGEL: Well, thank you very much, Professor Jaffee, for talking with us about this today.

Prof. JAFFEE: Very good. Good-bye.

SIEGEL: Professor Dwight Jaffee of UC-Berkeley. Like economist Ben Bernanke, he says he is deeply skeptical of the formula used to compile the earned run average.

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