How to improve your cognitive function -via Psychothalamus- The link between exercising and cognitive health is an area of intense research but some questions remains unanswered. What component of cognitive functioning does exercise improves and how much does the quantity of exercise affect any subsequent increase in cognitive functions? Masley, Roetzheim & Gualtieri (2009) provides some answers. So what are you waiting for? Go get yourself some aerobic exercise (preferably in a natural environment) because interaction with a natural environment as opposed to an urban environment has also been shown to improve cognitive functions. (Berman, Jonides & Kaplan, 2008)
Interview with an Insider: Enron & Political Entrepreneurship- via Stephen Hicks – Robert Bradley worked at Enron for 16 years. As director of public policy analysis, he wrote speeches for the late Ken Lay, Enron’s CEO, who was convicted in 2005 of fraud and conspiracy. Dr. Bradley is also founder and CEO of the Institute for Energy Research of Houston, Texas, and Washington, D.C. He frequently writes and lectures on energy, political economy, and corporate governance. He is currently completing his seventh book, Edison to Enron: Energy Markets and Political Strategies, the second volume of a trilogy on political capitalism inspired by the rise and fall of Enron. We met with Dr. Bradley in Houston to explore his thoughts on Enron, political capitalism, and the future of energy.
Losing Control: Dealing with Trading Addiction - via Charts Gone Wild- What can we learn from these two stories? Trading addiction is as great of a problem as being addicted to gambling, drugs, and sex. Trading is a powerful substance that is regularly abused. Trading addiction has no feelings. It can happen to anyone at the turn of a dime or it can take years to develop. In fact, most of us has suffered from trading addiction many times during our development as a professional trader. I know I have. If you currently find yourself unable to control yourself, then I am here to specifically write to you. Let’s take a look at whether you are an addict, some of the causes, symptoms, and finally, solutions.
Robert Shiller: The Case for Reviving Revenue Sharing – Protracted unemployment is eating away at millions of people. And the economy’s failure to create enough jobs for them is part of a vicious circle that could keep turning for years to come. In my last column, I called for big, temporary government programs aimed directly at putting people back to work. But how might we best accomplish this? The clock is ticking, and we don’t have time to create new national organizations to employ people. Instead, the most efficient approach is to use existing organizations for specific ideas and projects.
Why Are We So Fascinated by Famous People? – via PsychFiles- If you’ve ever met a famous person you know how exciting that feels. But why? What is it about fame that draws so many people to it? In this episode I examine fame from two very perspectives: the Basking in Reflected Glory theory and Terror Management Theory. Along the way we’ll see what this all has to do with the rock band Queen, baseball and Chelsea Clinton’s wedding.
Why making our own choices is more satisfying when pleasure is the goal - via PhysOrg – When it comes to our own pleasure, we like having a choice, but when it comes to utilitarian goals, we’re just as happy being told what to do, according to a new study in the journal of consumer research.
Upstairs-Downstairs pathways regulating our cravings – via Deric Bownds – The ability to control craving for substances that offer immediate rewards but whose long-term consumption may pose serious risks lies at the root of substance use disorders and is critical for mental and physical health. Despite its importance, the neural systems supporting this ability remain unclear. Here, we investigated this issue using functional imaging to examine neural activity in cigarette smokers, the most prevalent substance-dependent population in the United States, as they used cognitive strategies to regulate craving for cigarettes and food. We found that the cognitive down-regulation of craving was associated with (i) activity in regions previously associated with regulating emotion in particular and cognitive control in general, including dorsomedial, dorsolateral, and ventrolateral prefrontal cortices, and (ii) decreased activity in regions previously associated with craving, including the ventral striatum, subgenual cingulate, amygdala, and ventral tegmental area. Decreases in craving correlated with decreases in ventral striatum activity and increases in dorsolateral prefrontal cortex activity, with ventral striatal activity fully mediating the relationship between lateral prefrontal cortex and reported craving. These results provide insight into the mechanisms that enable cognitive strategies to effectively regulate craving, suggesting that it involves neural dynamics parallel to those involved in regulating other emotions. In so doing, this study provides a methodological tool and conceptual foundation for studying this ability across substance using populations and developing more effective treatments for substance use disorders.
Video: Sheena Iyengar on the Power of Choice – and Why It Doesn’t Always Bring Us What We Want- via Knowledge @ Wharton – In March 2010, Sheena Iyengar, a professor at Columbia Business School, published a book titled, The Art of Choosing. Iyengar, who is blind, says the book reflects her interest in how people make choices, including how they are able to navigate both the opportunities and responsibilities that an abundance of choice can bring. In a video presentation, Iyengar offers Knowledge@Wharton viewers her perspectives on the need to separate choices that are “meaningful and uplifting” from those that tend to distract us or that lead to unwise decisions. Choice, she says, is “the most powerful tool that we have in our lives. It enables us to go from who we are today to whom we want to be tomorrow. But it does not fulfill all our needs.”
The power of anecdotes- via Bad Science – For simpletons and amateurs, there are good research methods, and bad research methods. In reality, different tools are valuable in different situations, and sometimes, even very tiny numbers of people can give you a meaningful piece of information: even an anecdote can be informative. For example, if you produced a research paper about just two people who had gone into space, in a rocket or in a space shuttle, and then an extra eye had physically opened in the centre of their forehead, I would be concerned. Thats’s because going into space is a very rare lifestyle risk exposure: maybe a thousand people in total. And I’ve never seen a third eye physically open in the centre of someone’s forehead.
1. Pursue what you love. Passion is an incredible motivator. It fuels focus, resilience, and perseverance.
2. Do the hardest work first. We all move instinctively toward pleasure and away from pain. Most great performers, Ericsson and others have found, delay gratification and take on the difficult work of practice in the mornings, before they do anything else. That’s when most of us have the most energy and the fewest distractions.
3. Practice intensely, without interruption for short periods of no longer than 90 minutes and then take a break. Ninety minutes appears to be the maximum amount of time that we can bring the highest level of focus to any given activity. The evidence is equally strong that great performers practice no more than 4 ½ hours a day.
4. Seek expert feedback, in intermittent doses. The simpler and more precise the feedback, the more equipped you are to make adjustments. Too much feedback, too continuously, however, can create cognitive overload, increase anxiety, and interfere with learning.
5. Take regular renewal breaks. Relaxing after intense effort not only provides an opportunity to rejuvenate, but also to metabolize and embed learning. It’s also during rest that the right hemisphere becomes more dominant, which can lead to creative breakthroughs.
6. Ritualize practice. Will and discipline are wildly overrated. As the researcher Roy Baumeister has found, none of us have very much of it. The best way to insure you’ll take on difficult tasks is to ritualize them — build specific, inviolable times at which you do them, so that over time you do them without having to squander energy thinking about them.
Does Your Language Shape How You Think? - via NYT Magazine – Seventy years ago, in 1940, a popular science magazine published a short article that set in motion one of the trendiest intellectual fads of the 20th century. At first glance, there seemed little about the article to augur its subsequent celebrity. Neither the title, “Science and Linguistics,” nor the magazine, M.I.T.’s Technology Review, was most people’s idea of glamour. And the author, a chemical engineer who worked for an insurance company and moonlighted as an anthropology lecturer at Yale University, was an unlikely candidate for international superstardom. And yet Benjamin Lee Whorf let loose an alluring idea about language’s power over the mind, and his stirring prose seduced a whole generation into believing that our mother tongue restricts what we are able to think.
Do we like a group more if it puts us through a difficult initiation? - via Bakadesuyo- An experiment was conducted to test the hypothesis that persons who undergo an unpleasant initiation to become members of a group increase their liking for the group; that is, they find the group more attractive than do persons who become members without going through a severe initiation.
You’re Easily Influenced, but I’m not – via What Makes Them Click – I’m not that influenced” — In another example, I share in my talks about the power of social validation: how ratings and reviews at websites have a huge influence over what people decide to do (it’s because when we are uncertain we look to others to decide what to do). And everyone in the room nods and talks about how this is true, that other people are very influenced by ratings and reviews, but most people I am speaking to think that they themselves are not very affected. I talk about study after study on persuasion and how much we are affected by pictures, images, words, and that we don’t realize we are being influenced. And the reaction is always similar: “Yes, other people are affected by these things, but I am not
How credit cards force the poor to subsidize the rich – via Felix Salmon – Just after I went on holiday in July, the Boston Fed released a 57-page paper quantifying the subsidy from poor to rich that is the result of credit-card interchange fees. It was picked up by the likes of the NYT and the WSJ, and now Tim Chen, the CEO of NerdWallet, has decided to push back on the findings.
Ovulation, Female Competition, and Product Choice: Hormonal Influences on Consumer Behavior- via UChicago – Recent research shows that women experience nonconscious shifts across different phases of the monthly ovulatory cycle. For example, women at peak fertility (near ovulation) are attracted to different kinds of men and show increased desire to attend social gatherings. Building on the evolutionary logic behind such effects, we examined how, why, and when hormonal fluctuations associated with ovulation influenced women’s product choices. In three experiments, we show that at peak fertility women nonconsciously choose products that enhance appearance (e.g., choosing sexy rather than more conservative clothing). This hormonally regulated effect appears to be driven by a desire to outdo attractive rival women. Consequently, minimizing the salience of attractive women who are potential rivals suppresses the ovulatory effect on product choice. This research provides some of the first evidence of how, why, and when consumer behavior is influenced by hormonal factors.
When left is right - via Boston.com – Right is right, left is wrong. Because most people are righthanded, this bias has become customary. Thus, according to a recent paper, “the Latin words for right and left, dexter and sinister, form the roots of English words meaning skillful and evil, respectively,” and “according to Islamic doctrine, the left hand should only be used for dirty jobs, whereas the right hand is used for eating,” and “the left foot is used for stepping into the bathroom, and the right foot for entering the mosque.” But what do lefthanders think? The authors of the paper compared the gestures made by the presidential candidates in the final debates of the 2004 and 2008 elections to the phrases that were spoken at the same time. John McCain and Barack Obama, who are both lefthanded, preferred their left hands for positive comments and their right hands for negative comments, while the pattern was reversed for George W. Bush and John Kerry, who are both righthanded.
Do you really know why you hate the incumbent? - via Farnam St- A recent study tested whether people felt like they understood political candidates’ positions on a variety of issues like immigration, health care, and taxes. Most people rated themselves as being fairly knowledgeable about the candidates. However, when asked to actually descrive a candidate’s position on an issue they felt they understood, people faired much worse than they thought. In fact, after writing this explanation, people rated their actual level of knowledge as much lower than they thought it was earlier.
Are TV ads more effective if we pay less attention to them? - via Bakadesuyo- “The sting in the tail is that by paying less attention, we are less able to counter-argue what the ad is communicating. In effect we let our guard down and leave ourselves more open to the advertiser’s message. “This has serious implications for certain categories of ads, particularly ads for products that can be harmful to our health, and products aimed at children.
Defending a New Domain: The Pentagon’s Cyberstrategy – via Farnam St – cyberwarfare is asymmetric. The low cost of computing devices means that U.S. adversaries do not have to build expensive weapons, such as stealth fighters or aircraft carriers, to pose a significant threat to U.S. military capabilities. A dozen determined computer programmers can, if they find a vulnerability to exploit, threaten the United States’ global logistics network, steal its operational plans, blind its intelligence capabilities, or hinder its ability to deliver weapons on target. Knowing this, many militaries are developing offensive capabilities in cyberspace, and more than 100 foreign intelligence organizations are trying to break into U.S. networks. Some governments already have the capacity to disrupt elements of the U.S. information infrastructure.
2010 Young Innovators Under 35 - via MIT – Since 1999, the editors of Technology Review have honored the young innovators whose inventions and research we find most exciting; today that collection is the TR35, a list of technologists and scientists, all under the age of 35. Their work–spanning medicine, computing, communications, electronics, nanotechnology, and more–is changing our world.
America: Land of Loners? – via Wilson Quarterly – Americans, plugged in and on the move, are confiding in their pets, their computers, and their spouses. What they need is to rediscover the value of friendship.
Lies, Damned Lies and Economists - via PsyFi Blog – It’s established by now that economics didn’t help stop some of the more spectacular misadventures of the financial community but it’s a bit less obvious that it was directly responsible for many of the mishaps. It’s all tied up with the dirty fact that economists are basically a bunch of untrustworthy, deceitful bums who shouldn’t be left alone with your child’s piggybank, let alone the world’s economy.
Do the rich spend less of new income than the poor? - Washington Post – The evidence is mixed, but seems to suggest that I was wrong. In “Do the Rich Save More?”, economists Karen Dynan, Jonathan Skinner and Stephen Zeldes found a strong relationship between personal savings and income. However, other research suggests the opposite conclusion. Julia Lynn Coronado, Joseph Lupton and Louise Sheiner of the Federal Reserve studied (PDF) the effects of the 2003 tax cuts’ child credit and found that the rich were actually more likely to spend most of the credit. Most of this is due to the fact that high earners were less likely to have to pay off debt:
India, the Rent-a-Womb Capital of the World – via Slate – You can outsource just about any work to India these days, including making babies. Reproductive tourism in India is now a half-a-billion-dollar-a-year industry, with surrogacy services offered in 350 clinics across the country since it was legalized in 2002. The primary appeal of India is that it is cheap, hardly regulated, and relatively safe. Surrogacy can cost up to $100,000 in the United States, while many Indian clinics charge $22,000 or less. Very few questions are asked. Same-sex couples, single parents and even busy women who just don’t have time to give birth are welcomed by doctors. As a bonus, many Indians speak English and Indian surrogate mothers are less likely to use illegal drugs. Plus medical standards in private hospitals are very high (not all good Indian doctors left in the brain drain).
Video: Justin Halpern: Sh*t My Dad Says -via Fora.tv – After being dumped by his longtime girlfriend, twenty-eight-year-old Justin Halpern found himself living at home with his seventy-three-year-old dad. Sam Halpern, who is “like Socrates, but angrier, and with worse hair,” has never minced words, and when Justin moved back home, he began to record all the ridiculous things his dad said to him.
The End of Human Specialness - via Chronicle – The defining idea of the coming era is actually the loss of an idea we never had to worry about losing before. It is the decay of belief in the specialness of being human.
As an example of what that would mean, consider the common practice of students blogging, networking, or tweeting while listening to a speaker. At a recent lecture, I said: “The most important reason to stop multitasking so much isn’t to make me feel respected, but to make you exist. If you listen first, and write later, then whatever you write will have had time to filter through your brain, and you’ll be in what you say. This is what makes you exist. If you are only a reflector of information, are you really there?
30 Awesome College Lab Programs- via Good – Popular Science compiled a list of 30 groundbreaking programs in science, engineering, and technology offered at schools around the country.
The Variety Effect: Variety Might Be The Spice of Life But It Can Lead To Weight Gain - via Psychology Today -The variety effect has been confirmed in a wide number of ways. For example, one will consume a greater amount of yogurt if offered three flavors as opposed to one. In my opinion though, the most interesting finding from the vast literature on the variety effect is the demonstration that perceptual cues that otherwise do not alter the taste, texture, or smell of a given food can nonetheless augment how much we eat if they trigger our innate penchant for variety. For example, if individuals are offered M&M candies in one color, they will eat fewer candies then if offered the same amount of candies albeit in multiple colors. Similarly, the shape of pasta (one shape versus multiple shapes) also affects the amount of pasta eaten. Neither the candy colorant nor the pasta shapes alters in an objective manner the food in question, yet they each serve as a triggering cue for variety seeking.
Mystery of Beer Goggles Solved - via Discovery – Everyone looks better after you’ve tipped back a pint or two, and now we may know why. It turns out that alcohol dulls our ability to recognize cockeyed, asymmetrical faces, according to researchers who tested the idea on both sober and inebriated college students in England.”We tend to prefer faces that are symmetrical,” explained Lewis Halsey of Roehampton University in London. That’s well established by previous research, he said.
The Business of Piracy in Somalia – via Ideas Repec – This paper argues that contrary to conventional wisdom, Somali piracy is likely to increase if Somalia’s domestic stability is improved, and that naval counter-piracy efforts had limited and unpredicted effects. To make this argument we analyze the underlying factors driving piracy off the coast of Somalia and examine the effectiveness of the international naval anti-piracy mission. We show that while the navies perform well with respect to their declared aims, they failed to resolve the piracy problem through 2009: pirates were not deterred from attacking ships in the Gulf of Aden and have expanded their operations in the Indian Ocean and the Arabian Sea. Evidence from domestic conditions in Somalia suggests that land-based approaches focusing on rebuilding state capabilities may also backfire as economic development and greater stability aid pirates. We examine the incentives of the various interest groups in the Gulf of Aden and conclude that the key players have an interest in the continuation of the piracy off Somalia, as long as violence does not escalate and ransoms remain at their current modest levels.
Financial Topics & Investing
Can interest rates explain the US housing boom and bust? – via Voxeu- The debate over the cause of the US housing boom and bust is far from concluded. This column questions the explanation that low interest rates were a critical factor, arguing that it sits uneasily alongside theories of household behaviour and historical evidence. With the causes remaining uncertain, the authors call for more research in this area.
Food production: Agriculture wars - via FT – “I’ve never heard of BHP – does this mean the price of potash is going to rise?” Mr Jiang asks repeatedly from his fertiliser store. Others in China’s agricultural areas say they have not heard of the bid for the Canadian fertiliser company by the world’s largest miner. But their interest in the price and availability of potash, a mineral used in fertilisers, is keen. The significance of the bid, the biggest in a wave of mergers and acquisitions in the sector, reaches beyond investment bankers and boardrooms. Mr Jiang’s anxiety encapsulates the increasing interaction between globalisation, demographics, agriculture and food security.
A Crib Sheet on Wall Street’s Self-Dealing Money Machine - via Propublica – Last night, we published a story about self-dealing [1] by the big Wall Street banks, cashing in on the world of structured finance. We know the subject matter is heady stuff, so together with our partners at NPR’s Planet Money [2], we’ve tried to make it as digestible as possible — with our first-ever cartoon [3], colorful charts [4] (or “lovely chart porn [5],” as described by Barry Ritholtz), and an Auto-Tune song [6] about the banks.
The Pirate Latitudes (a story of somali pirates) - via Vanity Fair – When the French luxury cruise ship Le Ponant was captured by a raggedy, hopped-up band of Somali pirates last spring, in the Gulf of Aden, it looked as if the bandits had bitten off more than they could chew. But after a week-long standoff, they got what they had come for—a $2.15 million ransom. Describing the terrifying attack, the ordeal of the ship’s epicurean crew, and the tense negotiations, the author examines the ruthless calculus behind a new age of piracy.
The Billionaire Prince - via FP- Saudi Arabia’s Al-Waleed bin Talal is back in the spotlight for allegedly being one of the financiers behind the planned Islamic center in downtown Manhattan. Here are 10 things that you should know about the colorful royal.
Academic Research Worth Reading
The Underdog Effect: The Marketing of Disadvantage and Determination through Brand Biography- via Chicago Journals – We introduce the concept of an underdog brand biography to describe an emerging trend in branding in which firms author a historical account of their humble origins, lack of resources, and determined struggle against the odds. We identify two essential dimensions of an underdog biography: external disadvantage, and passion and determination. We demonstrate that such a biography can increase purchase intentions, real choice, and brand loyalty. We argue that these biographies are effective because consumers react positively when they see the underdog aspects of their own lives being reflected in branded products. Four studies demonstrate that the underdog brand biography effect is driven by identity mechanisms: we show that the effect is (a) mediated by consumers’ identification with the brand, (b) greater for consumers who strongly self-identify as underdogs, (c) stronger when consumers are purchasing for themselves versus for others, and (d) stronger in cultures in which underdog narratives are part of the national identity.
Supertaskers: Profiles in extraordinary multitasking ability – via Developing Intelligence – Theory suggests that driving should be impaired for any motorist who is concurrently talking on a cell phone. But is everybody impaired by this dual-task combination? We tested 200 participants in a high-fidelity driving simulator in both single- and dual-task conditions. The dual task involved driving while performing a demanding auditory version of the operation span (OSPAN) task. Whereas the vast majority of participants showed significant performance decrements in dual-task conditions (compared with single-task conditions for either driving or OSPAN tasks), 2.5% of the sample showed absolutely no performance decrements with respect to performing single and dual tasks. In single-task conditions, these “supertaskers” scored in the top quartile on all dependent measures associated with driving and OSPAN tasks, and Monte Carlo simulations indicated that the frequency of supertaskers was significantly greater than chance. These individual differences help to sharpen our theoretical understanding of attention and cognitive control in naturalistic settings.
Infographics
Why Are Women So Willing To Make Sex Tapes? – via Good -
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Weekly Cartoon (via Eli Stein)
Weekly Joke
Why accountants don’t read novels? Because the only numbers in them are page numbers.
Must Read Articles For All Weekly Visitors!!!
The Next Financial Crisis - via Yochann Shachmurove – The examination of U.S. crises reveals that the current financial crisis follows past patterns. An investment bubble creates excess demand for new financing instruments. During the railroadbubbles of the nineteenth century loans were issued at a pace higher than many companies could pay back. The current housing bubble originated from issuing sub-prime mortgages that assume that housing prices would only rise. The increased demand for credit induces financial innovations and instruments that circumvent existing regulations. Inevitably, the bubble bursts. The history of financial crises teaches that policy reforms and new regulations cannot prevent future financial crises.
CEO Narcissim & The Take Over Process - via UCLA – We examine the influence of both acquirer and target CEO narcissism on the takeover process. We measure CEO narcissism using patterns of personal pronoun usage in more than 1,700 transcripts of CEO speech. Information on the private part of the takeover process is collected in Security and Exchange Commission (SEC) filings. Our main findings are that (1) Higher levels of acquirer CEO narcissism make it more likely that the buying firm initiates the deal; (2) More narcissistic acquiring CEOs are associated with a shorter the private takeover process from the initiation of the transaction to the public announcement of the agreement; (3) Higher levels of target CEO narcissism are linked to higher bid premiums; and (4) Acquiring firm shareholders react less favorably to a takeover announcement when the target CEO is more narcissistic. Our results make a strong case for the impact of CEO psychological characteristics on many dimensions of the takeover process.
Plane Money Interviews Nassim Taleb (The Black Swan Guy) - via NPR – Today, we hear from Nassim Taleb, the former Wall Street trader who published a book called the Black Swan back in 2007. The book was re-issued earlier this year, with a long new section called “On Robustness & Fragility.”
Hidden Skewness- via IZA – We provide laboratory evidence that people neglect skewness resulting from compound shocks.
In Striking Shift, Small Investors Flee Stock Market- via NYT – Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds. If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.
Chris Anderson: The Web Is Dead. Long Live the Internet – via Wired – Two decades after its birth, the World Wide Web is in decline, as simpler, sleeker services think apps are less about the searching and more about the getting. Chris Anderson explains how this new paradigm reflects the inevitable course of capitalism. And Michael Wolff explains why the new breed of media titan is forsaking the Web for more promising (and profitable) pastures.
Miguel’s Weekly Favorites
Psychology of Property: An intuitive sense of property - via PsychScience – Americans like to own their homes, and the rules and conventions for ownership are generally well understood. So it’s easy to forget that in many corners of the globe the rules are more ambiguous—and more open to challenge. Indeed, there are an estimated one billion squatters in the world today—people who, mostly out of necessity, are living on property they do not own and cannot afford.
Gambling & Why the House Always Wins – via Neuronarrative – I dislike the lottery, and frequently (and, I admit, obnoxiously) call it the “stupid tax” in a pointless effort to persuade lottery playing friends and family to call it quits. By now I should know better, because it never works. The usual response is that they win enough small amounts to offset their ongoing loses, so it’s worth it. The logic of the argument looks like this:
How can you easily increase your ambition? How can you easily increase your satisfaction? - via Bakadesuyo – The authors propose that a focus on remaining (vs. completed) actions increases the motivation to move up to a more advanced level, whereas the focus on completed (vs. remaining) actions increases the satisfaction derived from the present level. Article & Video: Leonard Bernstein and the Anatomy of Music - via Dan Colman @ Brain Pickings – Bernstein was a master of breaking down music for lay audiences, and if you really want to watch him at work, we highly recommend revisiting his appearances on a 1950’s TV show called Omnibus. During his several visits to the program, a young Bernstein engagingly deconstructed Beethoven’s Fifth Symphony (and also pieces by Bach) but then brought audiences into the world of jazz, opera, American musicals, and the conductor’s craft. Bernstein’s seven appearances, which anticipate his later Harvard lectures, have been collected in a newly released DVD collection available now on Amazon.
So, you want to make something timeless? – via Nick Gogerty – Art history is all about studying narrative and context, cultural leftovers. Here is an excerpt from Simon Shama’s Power of Art Series on Bernini. I would highly recommend watching the series on Netflix etc. Amazing stuff, makes me miss my Art History classes.
Data mining the heart: How do we choose a mate? What scientists are learning from online dating - via Boston- To be single these days is to face a sea of advice about how to attract a partner. Men are attracted to youth and beauty; women are attracted to wealth and prestige. Or are they? There’s no shortage of impassioned opinion about what men and women want, yet there is little real evidence to support it. Even though finding love is one of our primary preoccupations, it has always been shrouded in mystery and guesswork. Adages like “opposites attract” feel comforting, but it would be even better to know what qualities actually entice potential partners in the real world
It is not Product-Market Fit, it is Segment-Version Fit - via Iterative Path – The need must exist for a product. No amount of marketing can create a need for a product. While this statement may read like a gross generalization, if you consider the fact that ultimately we end up hiring a product to do something with it, it is easier to see the pre-existence of need. Not all our needs have to be rational – even someone buying a $5000 shower-head, however irrational it may sound, have a need to fill.
Managing uncertainty: a review of food system scenario analysis and modelling - via royal Society – Complex socio-ecological systems like the food system are unpredictable, especially to long-term horizons such as 2050. In order to manage this uncertainty, scenario analysis has been used in conjunction with food system models to explore plausible future outcomes. Food system scenarios use a diversity of scenario types and modelling approaches determined by the purpose of the exercise and by technical, methodological and epistemological constraints. Our case studies do not suggest Malthusian futures for a projected global population of 9 billion in 2050; but international trade will be a crucial determinant of outcomes; and the concept of sustainability across the dimensions of the food system has been inadequately explored so far. The impact of scenario analysis at a global scale could be strengthened with participatory processes involving key actors at other geographical scales. Food system models are valuable in managing existing knowledge on system behaviour and ensuring the credibility of qualitative stories but they are limited by current datasets for global crop production and trade, land use and hydrology. Climate change is likely to challenge the adaptive capacity of agricultural production and there are important knowledge gaps for modelling research to address.
Can you change people’s behavior by giving them accurate information on how rampant a problem is?- via Bakadesuyo – In addition, the messages conveyed information either about descriptive norms (the levels of others’ behaviour) or injunctive norms (the levels of others’ disapproval) regarding such thievery. Results showed that focusing message recipients on descriptive normative information was most likely to increase theft, whereas focusing them on injunctive normative information was most likely to suppress it. The psychology of spending - via Mind Your Decisions – Why do we buy things we don’t need? What factors cause us to buy irrationally? These are a couple of the main questions of behavioral economics. Lately I’ve been writing about this topic over at the money site Bundle.com, where I am a community editor.
The first ambassadors: How ancient kings invented a powerful idea: diplomacy – via boston.com – In 2300 B.C., on the other hand, diplomacy was a good bit trickier. Meeting someone face to face took weeks of travel, across strange lands, on foot. A king not pleased with what the visiting ambassador had to say might be inclined to detain him for awhile, forcing the other kingdom to send yet another messenger to find out what happened to the first. Closing the loop on a simple conversation might take three months — or longer. And there were other issues, too. The Mesopotamian kings doing the corresponding, for example, were almost always illiterate.
Video: Ted Talk – The game layer on top of the world - Via Ted – By now, we’re used to letting Facebook and Twitter capture our social lives on the web — building a “social layer” on top of the real world. At TEDxBoston, Seth Priebatsch looks at the next layer in progress: the “game layer,” a pervasive net of behavior-steering game dynamics that will reshape education and commerce.
Video: Packing for Mars: Psychology of Space - Via Fora.Tv -She took us into the world of cadavers and examined the anatomy, physiology and psychology behind sex. Now, Mary Roach discovers the surreality and weirdness of space. For example, what happens when you’ve been in space for a year? And is it possible for a human body to survive a bailout at 17,000 miles per hour? From the space shuttle training toilet to NASA’s crash simulation tests, Roach explores the strange universe.
Stereotypes can prevent perceptual learning- via Deric Bownds – Some interesting observations from Rydell et al, who find that simply reminding women about the negative stereotype about women’s math and visual processing performance inhibits their performance on a visual search task… Evaluating the credibility of endorsers and doubters of climate change- via Decision Science News – In science, you are not supposed to believe something simply because other people believe it, even if those other people are really smart. Like the Hollywood narrator, we can think of examples where “one man (1), in a world of doubters, stands up for what he knows to be true”. Galileo was sent before the Roman Inquisition for his views, and mainstream physicists rejected Einstein’s theory of relativity; one Nobel Laureate referred to it as “a Jewish fraud” (2). Thank goodness they didn’t let the prevailing views keep them from publishing what they found. However, despite what makes a good Hollywood story, the inconvenient truth is that if you think one thing and a lot of smarter and more knowledgeable people think you are wrong, you probably are wrong.
Trends in environmental concern as revealed by Google searches: The chilling effect of recession- via Voxeu – Is concern for the environment a luxury good? This column presents data from Google searches for the words “unemployment” and “global warming” by US users. It argues that recessions increase concerns about unemployment at the expense of people’s interest in climate change – in some cases leading them to deny its existence.
Financial Topics & Investing
Derivatives & Clearing Houses: The Sausage Making Begins. I’m Sure It Will Turn Out Swell - via Streetwise professor – I’ve been writing for some time that Frank-N-Dodd will open a battle over derivatives market structure. This battle will be waged in the markets, and in the political and regulatory arenas. In particular, clearing mandates will lead to a protracted conflict. The nature of the clearing business, with its strong scale and scope economies and the myriad competitive implications of alternative configurations of the clearing business will make this battle particularly intense. And the stakes will be particularly high given the importance of clearing in the new financial architecture.
Inside trading….no…it’s all about…Inside Debt- via HLS – Three decades of theoretical research on CEO pay have focused almost exclusively on justifying compensating CEOs with equity-like instruments alone, such as stock and options. This has likely been driven by the long-standing belief that, empirically, executives don’t hold debt. However, this belief arose not because CEOs actually don’t hold debt, but because disclosure of debt compensation was extremely limited and so researchers missed this component of compensation. New disclosures mandated by the SEC from March 2007 show that CEOs hold substantial debt in their own firms (known as “inside debt”) in the form of deferred compensation and defined benefit pensions. Indeed, in some cases, CEOs hold even more debt than they do equity. Since the use of debt sharply contrasts with existing theories which advocate only equity, some commentators have argued that it must be inefficient. By contrast, we show that inside debt can be optimal, and that it should be used in the types of firms in which they are indeed used in reality.
MERS’ Role in the Financial Crisis - via War of Debt – MERS is, according to its website, “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” Or as Karl Denninger puts it, “MERS’ own website claims that it exists for the purpose of circumventing assignments and documenting ownership!”
Strengthening the financial system: The benefits outweigh the costs - via Voxeu- The extent of the damage from the global crisis has forced policymakers to rethink how they regulate finance. This column first examines the long-term impact of stronger capital and liquidity requirements and then estimates the transitional economic impact as the new standards are phased in. It argues that, while such reforms may come at a short-term cost, the benefits of a stronger and healthier financial system will be around for years to come.
Inside the Knockoff-Tennis-Shoe Factory – via NYT – A shopkeeper in Italy placed an order with a Chinese sneaker factory in Putian for 3,000 pairs of white Nike Tiempo indoor soccer shoes. It was early February, and the shopkeeper wanted the Tiempos pronto. Neither he nor Lin, the factory manager, were authorized to make Nikes. They would have no blueprints or instructions to follow. But Lin didn’t mind. He was used to working from scratch. A week later, Lin, who asked that I only use his first name, received a pair of authentic Tiempos, took them apart, studied their stitching and molding, drew up his own design and oversaw the production of 3,000 Nike clones. A month later, he shipped the shoes to Italy. “He’ll order more when there’s none left,” Lin told me recently, with confidence.
Sexism and the City - via psyfi – It’s long been known that women make better investors than men, although frankly that’s not a particularly difficult thing to do as most of us males have the patience of a small child with a full bladder and a tendency to hair-trigger trading for all sorts of behaviourally induced reasons. However, what’s a bit more surprising is that this difference is seen in professional investment circles as well while at the same time biases against female fund managers ensure they have less money to manage more wisely.
Academic Research Worth Reading
Ignorance Is Not Always Bliss - via UVT.nl – In this paper we study the effects of providing additional feedback about individual contributions and earnings on the dynamics of contributions in a repeated public good game. We include treatments where subjects can freely choose whether to obtain additional information about individual contributions or individual earnings. We find that, in the aggregate, contributions decline less fast when additional information about contributions and earnings is provided on top of aggregate information. We also find that there exist substantial but intuitively appealing differences in the way individuals react to feedback. Particularly, individuals with a high propensity to contribute tend to imitate the highest contributor more often and are more inclined to obtain feedback about individual contributions than about individual earnings than individuals with a lower propensity to contribute.
Teams Make You Smarter: Learning and Knowledge Transfer in Auctions and Markets by Teams and Individuals- via IZA – We study the impact of team decision making on market behavior and its consequences for subsequent individual performance in the Wason selection task, the single-most studied reasoning task. We reformulated the task in terms of “assets” in a market context. Teams of traders learn the task’s solution faster than individuals and achieve this with weaker, less specific, performance feedback. Some teams even perform better than the best individuals. The experience of team decision-making in the market also creates positive knowledge spillovers for post-market individual performance in solving new Wason tasks, implying that team experiences enhance individual problem-solving skills.
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Weekly Cartoon
Must Read Articles For All Weekly Visitors!!!
The 12 Rules of Survival – By Laurence Gonzales – via Value Investing World – As a journalist, I’ve been writing about accidents for more than thirty years. In the last 15 or so years, I’ve concentrated on accidents in outdoor recreation, in an effort to understand who lives, who dies, and why. To my surprise, I found an eerie uniformity in the way people survive seemingly impossible circumstances. Decades and sometimes centuries apart, separated by culture, geography, race, language, and tradition, the most successful survivors — those who practice what I call “deep survival” — go through the same patterns of thought and behavior, the same transformation and spiritual discovery, in the course of keeping themselves alive. Not only that but it doesn’t seem to matter whether they are surviving being lost in the wilderness or battling cancer, whether they’re struggling through divorce or facing a business catastrophe — the strategies remain the same.
Immersed In Too Much Information, We Can Sometimes Miss The Big Picture- via NPR – Although we find ourselves as travelers in the age of over sharing, it turns out we remain quite adept at avoiding the really tough topics. Google’s Eric Schmidt recently stated that every two days we create as much information as we did from the beginning of civilization through 2003. Perhaps the sheer bulk of data makes it easier to suppress that information which we find overly unpleasant. Who’s got time for a victim in Afghanistan or end-of-life issues with all these Tweets coming in?
The Heartbrake of Social Rejection: Heart Rate Deceleration in Response to Unexpected Peer Rejection - via Sagepub – Social relationships are vitally important in human life. Social rejection in particular has been conceptualized as a potent social cue resulting in feelings of hurt. Our study investigated the psychophysiological manifestation of hurt feelings by examining the beat-by-beat heart rate response associated with the processing of social rejection. Study participants were presented with a series of unfamiliar faces and were asked to predict whether they would be liked by the other person. Following each judgment, participants were provided with feedback indicating that the person they had viewed had either accepted or rejected them. Feedback was associated with transient heart rate slowing and a return to baseline that was considerably delayed in response to unexpected social rejection. Our results reveal that the processing of unexpected social rejection is associated with a sizable response of the parasympathetic nervous system. These findings are interpreted in terms of a cardiovagal manifestation of a neural mechanism implicated in the central control of autonomic function during cognitive processes and affective regulation.
Systems thinking, Visual thinking & Feedback Loops- via Gogerty.com – A lot of systems get out of hand due to feedback loops, whereby the inputs of something end up getting amplified by a system and then increase the input again. Biology, finance and other complex system fail when a system goes haywire and self amplifies exponentially until system failure.
What Happened to Yahoo - via Paul Graham- When I went to work for Yahoo after they bought our startup in 1998, it felt like the center of the world. It was supposed to be the next big thing. It was supposed to be what Google turned out to be. What went wrong? The problems that hosed Yahoo go back a long time, practically to the beginning of the company. They were already very visible when I got there in 1998. Yahoo had two problems Google didn’t: easy money, and ambivalence about being a technology company.
How TED Connects the Idea-Hungry Elite - via FastCompany – These two things — great ideas and the human connections they create — make TED a unique phenomenon. Other conferences, such as the World Economic Forum in Davos and D: AllThingsDigital in Rancho Palos Verdes, California, have similar elite A-list rosters. But TED, which takes place annually in Long Beach, California, is the only one that fully exploits the power of what you might call, with apologies to Cisco, the human network. In the nine years since publishing entrepreneur Chris Anderson bought TED, it has grown way beyond a mere conference. By combining the principles of “radical openness” and of “leveraging the power of ideas to change the world,” TED is in the process of creating something brand new. I would go so far as to argue that it’s creating a new Harvard — the first new top-prestige education brand in more than 100 years.
Is the Sky Falling on the Content Industries?- via SSRN – Content owners claim they are doomed, because in the digital environment, they can’t compete with free. But they’ve made such claims before. This short essay traces the history of content owner claims that new technologies will destroy their business over the last two centuries. None have come to pass. It is likely the sky isn’t falling this time either. I suggest some ways content may continue to thrive in the digital environment.
Miguel’s Weekly Favorites
Jonah Lehrer – The Power Trip – via WSJ – Contrary to the Machiavellian cliché, nice people are more likely to rise to power. Then something strange happens: Authority atrophies the very talents that got them there.
Can Money Buy Happiness? - via Sciam – Money can’t buy you love. Worshipping Mammon foments evil ways. Materialists are shallow and unhappy. The greenback finds itself in tough times these days. Whether it’s Wall Street bankers earning lavish multi-million-dollar bonuses or two-bit city managers in Los Angeles County bringing in higher salaries than President Obama the recessionary economic climate has helped spur outrage and revulsion at those of us collecting undeserved lucre.
Psychology of Living in Space- via Seed – A space station is a rangy monstrosity, a giant Erector Set assembled by a madman. But the living area inside the Mir core module, where cosmonauts Alexandr Laveikin and Yuri Romanenko spent six months together, would fit in a Greyhound bus. The sleep chambers are less like bedrooms than phone booths. They have no doors. Before I came to Moscow, I read an article in Quest: The Journal of Space History that said that Laveikin returned early from the mission due to “interpersonal issues and cardiac irregularity.”
Can thinking aloud make you smarter?- via Bakadesuyo- Performance gains on this task were substantial (d = 0.73 and 0.92 in Experiments 1 and 2, respectively), corresponding to a fluid intelligence increase of nearly one standard deviation.
How much does income affect job satisfaction? And how much does job satisfaction affect income? - via Bakadesuyo- Objective success influenced both the initial level and the growth of other-referent subjective success, but it had no influence on job satisfaction. Most importantly, both measures of subjective success and both their initial levels and their changes had strong influences on the growth of objective success. We conclude that the `objective success influences subjective success’ relationship is smaller than might be expected, whereas the `subjective success influences objective success’ relationship is larger than might be expected.
Grocery cart choice architecture - via Nudge Blog – Researchers at New Mexico State University say a simple change in the design of shopping carts may help people make better decisions about the food they buy.
Google Earth as Big Brother?- via Freakonomics – Google Earth isn’t just for kicks anymore: FP reports that governments around the world are using the service to catch everyone from tax evaders to marijuana growers. Amateurs are getting in on the act as well. Aided by Google Earth, a Ph.D. student at George Mason University has led a massive effort to create “the world’s most authoritative annotated map” of North Korea. Google’s Street View service also continues to be controversial, prompting recent challenges and concessions in places like South Korea and Germany.
Top 10 Ways Your Brain Is Sabotaging You (and How to Beat It) - via LifeHacker – An unexamined brain is a tricky thing to carry around. You’ve got unintentional biases, marketing weaknesses, “overclocking” issues, and all kinds of other mental bugs you may not know about. Here’s a helpful list of the mind’s weird ways.
Video: Reputation, Motivation & Online goal seeking- via Gogerty -If you build or work with brands or have an online site that involves community or sharing this Google 1 hour video is a must watch. Reputation is brand, it is how other perceive things, people and everything else. These value judgements created and managed by others are powerful.
When Consumption Isn’t Conspicuous – via NeuroMarketing – Marketers know that a key element in many purchases is to signal something about the buyer. A Toyota Prius, for example, says that its owner is concerned about the environment. Expensive luxury brands let the world know the buyer has discriminating taste, and, more importantly, has plenty of money. Whether you believe in the evolutionary psychology explanation (“Look at me, I have excess resources, I would be a great mating choice!”) or simply feel some people need to show off, you likely agree that the signaling aspects of luxury products are a key factor in the success of those products. Indeed, in The Luxury Strategy, Kapferer and Bastien suggest that many luxury brands advertise not to attract customers but to be sure that the rest of the population can identify these brands when their wealthy users display them.
Does time fly when you’re reading about sex? - via The results support the hypothesis that sexual taboo stimuli receive more attention and reduce the perceived time that has passed (“time flies”)—the duration of high sexual taboo words was underestimated for taboo-word stimuli relative to all other word types.
Financial Topics & Investing
Video: Tim Jackson: Prosperity Without Growth - via Fora.tv – So much of the analysis of how we respond to climate change assumes that economic growth and emissions reduction are compatible goals. But is this wishful thinking? To question maximizing economic growth as an organizing principle of society seems close to economic heresy. Enter Tim Jackson, a professor of Sustainable Development and author of the book, Prosperity Without Growth. He argues it’s time to re-think the very notion of growth and what it means to be genuinely prosperous.
The Price of China’s Property Boom – via WSJ – A Chinese Academy of Social Sciences study making the rounds lately has revived bubble fears by suggesting that a startling 64.5 million urban housing units—one for every four households—is sitting empty, based on dormant electricity meter readings. Local utilities have since stepped forward to try to discredit the CASS numbers. But even if they are accurate, fears of a property crash may be misplaced.
Do stock options improve employee performance? - via PhysOrg- It has become an article of faith in Silicon Valley that stock options create incentives for employees to work harder and smarter. But does that assumption stand up? It depends on who is receiving the options, according to a new study co-authored by Nicole Bastian Johnson, assistant professor of accounting.
Extreme Moneyball - via Bloomberg- Frank and Jamie McCourt borrowed and blustered their way into a California dream life of mansions, Gulfstream jets, and ownership of the Los Angeles Dodgers. The dream has ended
Advanced Distressed Debt Lesson – Double Dip - via Distressed Debt Investors Blog – One of the key determinants of recovery in a Chapter 11 bankruptcy or distressed debt situation are the specific guarantees embedded in an indentures of a corporate bond. Like a guarantee on a home purchase or rental agreement, XYZ party guarantees the liability of ABC person. In corporate finance, these guarantees are carried by the various operating subsidiaries and holding companies of certain issuers. A less than diligent analyst may misread a guarantee into thinking it is more than it is and sometimes may not realize an entity has guaranteed a certain bond.
Whose Risk Is It? Corporate Catastrophe and Human Rights - via HLS- Assuring the existence of internal systems for effective risk management is a core component of corporate governance, embedded in best practice and the laws of many countries. Yet the global recession caused by the financial meltdown and the runaway Deepwater Horizon leak in the Gulf of Mexico show, yet again, that the consequences of a business failure to anticipate and plan for catastrophic risks can devastate companies, society, communities, and the environment.
Poor Little Rich Girls: The Ballad of Sara and Clare Bronfman - via NY Observer – The heiress wanted to meet the Dalai Lama. She wanted the Dalai Lama to be her friend. She had been obsessed with him for two and a half years. “I was literally in my bedroom one day listening to his tapes and thought to myself, ‘Wow, this guy is amazing!’” Sara Bronfman told an Albany AM radio host last year. When His Holiness arrived in town the next day, Ms. Bronfman could take credit for his presence.
Cyclicality of Credit Supply - via Harvard – In the paper, Cyclicality of Credit Supply: Firm Level Evidence, which was recently made publicly available on SSRN, we study bank loan supply through the business cycle using firm level data from 1990 to 2009. It is well known that lending is cyclical. The contribution of our paper is to address two of the main empirical challenges in identifying whether this reflects the effects of bank credit supply. First, we focus on firms’ choice between two close forms of external debt financing: bank debt and public bonds. By conditioning the sample on firms raising new debt, we can rule out a demand explanation for the drop in bank borrowing which coincides with downturns. Second, by doing the analysis at the firm level, we can directly address how the composition of firms raising finance varies through time. This allows us to rule out compositional changes in the pool of firms seeking debt finance as an explanation of our findings.
Customers Dont See It As Their Job To Ensure You Make A Profit - via Iterative Path – There is an interesting 40 year old Harvard Business School Case on selling contact lens to chickens. The key question in that case is how would you price it? The lens cost pennies for pairs of 1000s. Anyone who did not consider the value to the chicken farmers was taken to task by the professor. While the cost is relevant, the right way to price is based on the value creation to the customers and how much of price rent they expect.
Gambling on grades online - via SkunkPost – Think you’re going to ace freshman year? Want to put money on that? A website called Ultrinsic is taking wagers on grades from students at 36 colleges nationwide starting this month. Just as Las Vegas sports books set odds on football games, Ultrinsic will pay you top dollar for A’s, a little less for the more likely outcome of a B average or better, and so on. You can also wager you’ll fail a class by buying what Ultrinsic calls “grade insurance.”
The economic fallacy of ‘zombie’ Japan- via Guardian – Paul Krugman and others have got Japan wrong: Americans should be so lucky as to get a Japanese-style lost decade
Don’t Be So Hard on Yourself: Self-Compassion Facilitates Creative Originality Among Self-Judgmental Individuals - via Informaworld – Self-compassion is a multifaceted state of potential utility in alleviating the self-critical tendencies that may undermine creative expressions among certain individuals. To investigate this idea, 86 undergraduates were randomly assigned to control or self-compassion conditions, following which creative originality was assessed by a version of the Torrance Test of Creative Thinking (TTCT). The manipulation was hypothesized to facilitate creative originality particularly among individuals who are prone to critical self-judgment, as assessed by a trait measure. This interactive hypothesis was supported: Self-judgmental individuals displayed lower levels of creative originality in the control condition, but equal levels of creative originality in the self-compassion condition. Results are discussed in the context of theories of creative potential, self-compassion, and chronic tendencies toward self-criticism.
Binary Economics – An Overview - via SSRN – Based on binary economic principles, this paper asserts that one widely overlooked way to empower economically poor and working people in market economy is to universalize the right to acquire capital with the earnings of capital. This right is presently largely concentrated, as a practical matter, in less than 5 % of the population. The concentration of the right to acquire capital with the earnings of capital helps to explain how people either remain poor or end up poor no matter how hard they work or are willing to work.
Infographics
Animated Infographic: Which Countries Spend the Most on Renewable Energy? – via Good – In a world of dwindling traditional energy resources, countries are starting to invest in more sustainable alternatives. Here are the countries that are spending the most on renewable energy, along with how much of it they currently produce, and what percent of their total energy output that represents.
Really Good: Introduction to Power Laws- via Intrepid Insights – Here’s a really good primer on the Power Law phenomenon. As you can see, this manifests itself in the real world much more often than the so-called “normal” distribution:
The Economics of Superstars- via Rosen – The phenomenon of Superstars, wherein relatively small numbers of people earn enormous amounts of money and dominate the activities in which they engage, seems to be increasingly important in the modern world. While some may argue that it is all an illusion of world inflation, its currency may be signaling a deeper issue.’ Realizing that world inflation may command the title, if not the content of this paper, quickly to the scrap heap, I have found no better term to describe the phenomenon. In certain hnds of economic activity there is concentration of output among a few individuals, marked skewness in the associated distributions of income and very large rewards at the top.
Missing the Trees for the Forest: - NYU, Princeton, & Rice – via These findings suggest a novel factor that might contribute to such diverse social-cognitive shortcomings as stereotyping, egocentrism, and the planning fallacy, where people adopt abstract representations of concepts that should be represented concretely. What have academics added to asset Management? - via SSRN – In this, the fourth article in the economists’ hubris paper series we look at the contributions of academic thought to the field of asset management. We find that while the theoretical aspects of the modern portfolio theory are valuable they offer little insight into how the asset management industry actually operates, how its executives are compensated, and how their performances are measured. We find that very few, if any, portfolio managers look for the efficiency frontier in their asset allocation processes, mainly because it is almost impossible to locate in reality, and base their decisions on a combination of gut feelings and analyst recommendations
Observation Inflation: When Your Actions Become Mine - via Psych Science – Imagining performing an action can induce false memories of having actually performed it—this is referred to as the imagination-inflation effect. Drawing on research suggesting that action observation—like imagination—involves action simulation, and thus creates matching motor representations in observers, we examined whether false memories of self-performance can also result from merely observing another person’s actions. In three experiments, participants observed actions, some of which they had not performed earlier, and took a source-memory test. Action observation robustly produced false memories of self-performance relative to control conditions. The demonstration of this effect, which we refer to as observation inflation, reveals a previously unknown source of false memories that is ubiquitous in everyday life. The effect persisted despite warnings or instructions to focus on self-performance cues given immediately before the test, and despite elimination of sensory overlap between performance and observation. The findings are not easily reconciled with a source-monitoring account but appear to fit an account invoking interpersonal motor simulation.
Taxes & The Billion-Dollar Shack - via NYT – In a ferocious tropical heat, I stood a few feet from the front door of the building — a shack, really — that some say brought Russia to its knees and destroyed it as a modern nation. There is no plaque commemorating this achievement, and I may have been the first to make this pilgrimage. After all, there are only two flights a week out of Brisbane, Australia, that will even take you here — here being the nation of Nauru, a tiny island 1,200 miles east of New Guinea in the Pacific Ocean, just south of the Equator. It may be about as far away from everywhere as you can get and still be somewhere.
Ovulating Women Unconsciously Buy Sexier Clothing to Outdo Attractive Women – Via ScienceDaily — Ovulating women unconsciously buy sexier clothes, says new research from the University of Minnesota’s Carlson School of Management. The study finds that ovulating women unconsciously dress to impress — doing so not to impress men, but to outdo rival women during the handful of days each month when they are ovulating. Is the UK a confused nation crippled by choice – via PhysOrg – The UK is a nation overwhelmed by too much choice and information according to a study based on the views of 6,000 people, revealing that modern life has created a generation of people incapable of making decisions.
Miguel’s Weekly Favorites
Arrogant Professionals- via Overcoming Bias – “We study a unique panel of over 11,600 probability distributions provided by top financial executives and spanning nearly a decade of stock market expectations. Our results show that financial executives are severely miscalibrated: realized market returns are within the executives’ 80% confidence intervals only 33% of the time. We show that miscalibration improves following poor market performance periods because forecasters extrapolate past returns when forming their lower forecast bound (”worst case scenario”), while they do not update the upper bound (”best case scenario”) as much. Finally, we link stock market miscalibration to miscalibration about own-firm project forecasts and increased corporate investment.” (more)
Understanding: Consistency + Commitment - via Brooks Bell – So first – hazing. How does this apply to the marketing concept of commitment and consistency? Cialdini does a great job linking hazing to tribal initiation rites with the initiates going through the same type of tribulations: beatings, exposure to cold, thirst, punishment, threats of death, and– my personal favorite– the eating of unsavory foods. The important part for marketers comes AFTER the hazing– the initiates actually value the membership to the group MORE because of how they had to struggle to get into it. In other words, once the initiate overcame the difficult hurdles to get into the group, their commitment to the group was heightened. Struggle + Commitment = Loyalty. Consistency comes in to play here as well– once the initiate has made a decision about how great the group is they just joined, they will have a tendency to act in a manner that supports their commitment.
Dopamine Determines Impulsive Behavior - via Sciam- Brain scans illuminate the internal connection among the neurotransmitter, impulsiveness and addiction-”Individuals vary widely in their capacity to deliberate on the potential consequences of their choices before they act,” note the authors of a new study on the impulsive tendency. “Highly impulsive people frequently make rash, destructive decisions.”
A Field Guide To Narcissism – via Psych Today – There’s the groom who wouldn’t let his fiancée’s overweight friend be a bridesmaid because he didn’t want her near him in the wedding pictures. The entrepreneur who launched a meeting for new employees by explaining that nobody ever gets anywhere working for someone else. The woman who had such confidence in her great taste, she routinely redecorated her daughter’s home without asking. The guy who found himself so handsome, he took a self-portrait with a Polaroid every night before bed to preserve the moment.
Low- and high-end fashion products & signaling conspiracies - via overcoming Bias – Low- and high-end fashion products tend to have less conspicuous brand markers than midprice goods, according to a paper soon to be published in The Journal of Consumer Research. Rather than rely on obvious logos, expensive products use more discreet markers, such as distinctive design or detailing. High-end consumers prefer markers of status that are not decipherable by the mainstream. These signal group identity only to others with the connoisseurship to recognize their insider standing.
A Judge’s Guide To Neuroscience - via Sage -It is part of the human condition to think about how we think and to attach consequences to our conclusions. In law, for example, whether a person goes to prison (and for how long), and whether a person is liable for damages (and for how much), are the product not only of what action the person took but also of what the person’s state of mind was when he or she so acted. Yet few of us are very good mind-readers, and the law has struggled both to define relevant states of mind and to devise ways of perceiving them.
Have less, give more - via Boston- According to a team of psychologists, the lower classes are a cut above. Given the opportunity to share money with an anonymous person, people who considered themselves lower in socioeconomic status shared more. When asked how much of one’s salary should be donated to charity, they designated a higher percentage. And, when confronted with a distressed person in need, they offered more help. These differences don’t seem to be innate. For example, after simply asking people to contemplate their socioeconomic status relative to those with higher socioeconomic status, people became more charitable. The authors theorize that people in the lower strata of society are particularly motivated by a greater dependence on — and, thus, concern for — social relationships, though affluent individuals may be more inclined to abstract charity (e.g., the environment). How To: Turning pages into data - via Stat Modeling – There is a lot of data on the web, meant to be looked at by people, but how do you turn it into a spreadsheet people could actually analyze statistically? The technique to turn web pages intended for people into structured data sets intended for computers is called “screen scraping.” It has just been made easier with a wiki/community http://scraperwiki.com/.
How much of who you choose to date is determined by your preferences vs “market conditions”? - via bakadesuyo – The role of individual preferences, however, is outplayed by that of opportunities. Along some attributes (such as occupation, height and smoking) opportunities explain almost all the estimated variation in demand. Along other attributes (such as age), the role of preferences is more substantial, but never dominant. Emotional or Sexual Infidelity? If you have to pick one…. – via Social Psych Eye – Which is worse, your partner being sexually or emotionally unfaithful? For most people either an emotional or sexual affair can inspire feelings of anger or jealousy. However, “Sugarbabe” author Holly Hill argues that, for men, cheating is normal and thus women should accept that their partner will probably cheat on them. She says, however, that women can regain control by allowing their partners to cheat but controlling the circumstances. According to her, by creating rules about your partner cheating you can structure their infidelity and dissuade them from keeping their affairs secret. In particular, Hill seems to suggest that it is emotional affairs which hurt, and by allowing sexual infidelity she keeps her partner from having an emotional relationship with someone else. For example she says that in her relationship, her boyfriend is allowed to have sex with other women but not sleep over or go on “romantic weekends”.
When Even The Illusion Of Progress Is Motivating - via What Makes Them Click – The goal-gradient effect says that you will accelerate your behavior as you progress closer to your goal. The scenarios I describe above were part of a research study by Ran Kivetz, Oleg Urminsky, and Yuhuang Zheng (full reference is below). They decided to see if humans would behave like the rats. And the answer is, yes they do.
Studying imperfect rationality- via Do It Yourself Scholar – Much of economic theory is based on the idea that humans are rational actors who carefully calculate the pros and cons of each decision. But what gets left out such a world view? UCLA Public Policy Professor Mark Kleiman attempts to fill in the blanks in his course Imperfect Rationality (feed).
Are self-reflective people more depressed? - via Deric Bownds – I’ve repeatedly heard in psychology seminars the truism that introspection (versus extroversion) correlates with depression. Grossmann and Kross, in their comparison of University of Michigan and Moscow State University students, show that this depends very much on culture. Gilbert Chin does a nice summary in the July 30 Science Magazine (picture credit: Vassilij Grivorovi Perov):
Paul Rozin on what psychologists should study- via Culture & Cognition – A related point is that psychologists may now be too bent on minute investigations of mechanisms, again as opposed to making sure that these mechanisms fit within the larger picture of the known phenomena. Sometimes a phenomenon that is only reported in a few (or even a single) studies will give rise to many publications trying to elucidate the precise mechanisms that give rise to it. This is often done without pausing for a second and wondering of the original phenomenon is robust—if it occurs across a reasonable variety of situations—or if it is not part of a larger phenomenon—in which case studying the details of a particular situation is unlikely to yield a deep understanding of the mechanisms. Women Are More Attracted to Men Wearing Red - via Discovery -The Lady in Red” is famous in movies, books and music, but men in red turn out to be just as alluring, according to a new study that found men who wear red are more attractive and sexually desirable to women.
Video: Science Shows Superstitions Actually Work! Sort of - via PsychFiles – Okay, admit it – you have some kind of lucky charm on you, in your car or in your house. And if you participate in any sport or performance activity you have some sort of ritual that you believe will help make you more successful. Well guess what – there is research to show that such charms and rituals really do help you perform better. Find out how in this episode of The Psych Files.
Don’t Go Grocery Shopping When Hungry!- via One of the relevant studies that I cite in my two books constitutes the topic of today’s post. It is an “oldie but goodie” study published in 1969 that explored the link between situational hunger and grocery purchases. Richard E. Nisbett and David E. Kanouse tracked the grocery bills of “normal weight” individuals (n = 134) as well as their overweight counterparts (n = 149), and linked these to shoppers’ levels of food deprivation (i.e., a proxy measure of situational hunger). I would have thought that both groups would display a positive relationship between situational hunger and grocery bill (an instantiation of the deficit hypothesis for food hoarding), with the relationship being stronger for the overweight consumers. This is not what was found, at least not for the overweight shoppers.
Hard Drinkers, Meet Soft Science - via Neuroanthroplogy – Of the 23 million people who struggle with alcohol or drug abuse on a yearly basis, roughly 1.2 million regularly attend Alcoholics Anonymous (AA) meetings as a way to stop drinking. AA was the first 12-step program to be created. Founded on December 14, 1934 by Bill Wilson and Robert or “Dr. Bob” Smith, AA combines self-assessment, reconciliation, group therapy, and surrendering control to a “higher power” in a progressive plan consisting of 12 distinct steps to combat impulsive cravings to use.
What You Say About Others Reveals A Lot About You – via Med News – How positively you see others is linked to how happy, kind-hearted and emotionally stable you are, according to new research by a Wake Forest University psychology professor.
The Psychology of Conspiracy Theories - via Frontal Cortex – In case you haven’t noticed, this site is currently being bombarded by a certain strand of conspiracy theorist. I’m still not entirely sure what these people believe in, apart from being absolutely certain that the government is developing brain-eating vaccines, spiking the water with lithium and trying to subdue the population with “reactive” medicine. While it’s always sad to see so much angry ignorance on parade, it’s also a fascinating case study in cognitive dissonance.
From Cockpit to Concert Hall: Distributed Cognition- via Everyday Sociology – Edwin Hutchins, a professor and researcher in the field of cognitive science, has conducted extensive research about distributed cognition. Distributed cognition means that an individual’s understanding of and actions in the world are not merely a product of that one person’s individual decisions or desires, but are influenced by non-human agents.
Tatonnement: Groping for Stock Equilibrium- via Psy-Fi Blog – One of the oldest saws in the book of economics is the idea of supply and demand; it even pre-dates Adam Smith, with a legacy stretching back to Muslim thinkers of the eleventh century. If people demand the Pet Rock as the next must-have toy but supply is limited then prices of Pet Rocks will go up. If some enterprising rock counterfeiter then floods the market with a supply of good-enough fakes then the demand is likely to fall, and price with it.
The spectacles through which I see the race and IQ debate- via Flynn- The ranking of Wechsler subtests in terms of their g loadings is equivalent to ranking them in terms of the cognitive complexity of the tasks measured. Lower performing groups do not always fall behind higher performing groups the more complex the task. But that is the general rule, no matter whether the cause of the lower performance is genetic or environmental. Complex tasks tend to be more affected by genetic differences in inherited traits, have higher heritability, and be more sensitive to inbreeding depression. Therefore, the method of correlated vectors sheds no light on the race and IQ debate. It is irrelevant that black/white score differences on Wechsler subtests rise as their g loading, heritability, and inbreeding sensitivity rise.
Humans Imitate Aspects of Speech We See- via ScienceDaily — Humans are incessant imitators. We unintentionally imitate subtle aspects of each other’s mannerisms, postures and facial expressions. We also imitate each other’s speech patterns, including inflections, talking speed and speaking style. Sometimes, we even take on the foreign accent of the person to whom we’re talking, leading to embarrassing consequences.
What Really Happened: Stealing Mona Lisa – via Vanity Fair – The shocking theft of the Mona Lisa, in August 1911, appeared to have been solved 28 months later, when the painting was recovered. In an excerpt from their new book, the authors suggest that the audacious heist concealed a perfect—and far more lucrative—crime.
Financial Topics & Investing
How to Survive in Vegas - via Business Week – Gary Loveman left a Harvard Business School professorship to join Harrah’s Entertainment. By putting his theories about customer service into practice, he built the world’s biggest gaming company. Then came the crash
Billion-Dollar Underdogs - via Miller McCune – Americans love the underdog whether it’s in sports, in history or political campaigns — and in the brands they buy.That’s right, Samuel Adams beer, Ben and Jerry’s and Google — at least the old Google — all belong right up there with the Alamo, David, and Lance Armstrong … well, the Lance we hoped wasn’t juiced.
The world’s least expensive cities in 2010 – via La Times – Get more out of your dollar with a vacation to one of these atypical travel destinations. These cities were ranked as the least expensive in the world by the 2010 Mercer Cost of Living Survey, released in June.
Foreclosure reduces a home’s sale price by 27 percent on average- via PhysOrg – Foreclosure reduces the eventual sale price of a home by an average 27 percent, compared to the prices paid for similar properties nearby. Those nearby homes, in turn, could see their own prices depressed by 1 percent, if they happen to be within 250 feet of the foreclosed property. ‘Wait-and-see’ effect not always caused by economic uncertainty, research shows - via PhysOrg – Business uncertainty leads to quick drops in economic activity, according to a long-held belief in economics. New research from the University of Notre Dame casts doubt on that assumption.
Video: Wilbur Ross on Charlie Rose- via CR Video: Ken Rogoff on Charlie Rose- via CR Dan Loeb: You’re Boring Me- via II -In July, he posted a 3.2 percent return in his $1.86 billion Third Point Offshore Fund, Ltd., boosting his 2010 return to 13.7 percent. Not many other hedge fund managers can make this claim. And, yes, he shrewdly racked up gains from two auto-related companies — Delphi and Chrysler — a natural gas company, and some short position whose name he would not divulge to investors. But, this is boring stuff.
Academic Research Worth Reading
Eliciting Risk and Time Preferences - via Geary Behavior Center – We conducted experiments in Vietnamese villages to determine the predictors of risk and time preferences. In villages with higher mean income, people are less loss-averse and more patient. Household income is correlated with patience but not with risk. We expand measurements of risk and time preferences beyond expected utility and exponential discounting, replacing those models with prospect theory and a three-parameter hyperbolic discounting model. Comparable risk parameter estimates have been found for Chinese farmers, using our method. (C83, D12, O12, P38)
Infographics
What To Buy When: Value Investing Through The Seasons - via Good – Lifehacker has created a handy chart detailing when you should buy various things. Generally, the time to buy something is when sales of that thing are slow. Remember to buy all your houses in April!
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Weekly Cartoon (Via CFO Humor)
Weekly Joke (via Jokes for All)
A company, feeling it was time for a shakeup, hires a new CEO. This new boss is determined to rid the company of all slackers.
On a tour of the facilities, the CEO notices a guy leaning on a wall. The room is full of workers and he wants to let them know he means business!
The CEO walks up to the guy and asks, “And how much money do you make a week?” Undaunted, the young fellow looks at him and replies, “I make $300.00 a week. Why?”
The CEO then hands the guy $300 in cash and screams, “Here’s a week’s pay, now GET OUT and don’t come back!”
Feeling pretty good about his first firing, the CEO looks around the room and asks “Does anyone want to tell me what that goof-off did here?”
With a sheepish grin, one of the other workers mutters, “Pizza delivery guy from Domino’s.”
Must Read Articles For All Weekly Visitors!!!
Kindergarten and Class - via NYT – A new paper by Raj Chetty and five other economists – the subject of my column this week – suggests kindergarten can have lasting effects on students. Students who learn more in kindergarten appear to earn more, to be less likely to become teenage parents and even to be less likely to die young. When we were talking about the research in his office last week, I told Mr. Chetty that I assumed the effects were bigger for poorer children than richer ones. The children of well-off, well-educated parents arrive at school knowing vastly more than poorer students, as research by Annette Lareau and others has shown. So school itself seems as if it should matter more for poorer students.
World Population to Hit 7 Billion Next Year – via PopScience – The Population Reference Bureau has projected that in 2011, the planet Earth will be home to more than seven billion living humans. At current growth rates, we’ll top 9 billion in 2050. By that year, the population of Africa is expected to double, and that of Asia to grow by 1.3 billion.
The Latest From Behavioral Economics: Being Hungry Makes Traders Take Bigger Risks In The Market - via Business Insider – “When I worked at a large (Connecticut)-based hedge fund a few years ago, I always wondered why the company kitchen was so well stocked with chips, sodas and other snacks. At my next trading gig, the company founder insisted on having lunch, as a group, every day at exactly noon,” Colas wrote Monday in an analysis. “Whether they knew it or not, both fund managers knew that staying well fed is actually a risk management tool, at least if the BPS study is any guide. Hungry traders are, well, riskier traders.”
Extreme Risks – A New Paper by Watson Wyatt- via MoneyScience – Watson Wyatt has identified and ranked fifteen extreme risks that would have a high impact on global economic growth and asset returns if they occurred. In a new paper, entitled Extreme Risks, the firm ranks depression, hyperinflation and excessive leverage as its top three based on their impact and the risk together with the degree of uncertainty in assessing the risk. The bottom three are the end of fiat money, a major global conflict and a killer pandemic.
Sites Feed Personal Details To New Tracking Industry – via WSJ – The largest U.S. websites are installing new and intrusive consumer-tracking technologies on the computers of people visiting their sites—in some cases, more than 100 tracking tools at a time—a Wall Street Journal investigation has found.
Dan Ariely: Public and Private Values – via FRBB – This paper experimentally examines whether looking at other people’s pricing decisions is a type of heuristic—a decisionmaking rule—that people use even when it is not applicable, as in the case of clearly private value goods. We find evidence that this is indeed the case—an individual’s valuation of a purely subjective experience under full information, elicited using an incentive compatible mechanism, is highly influence by valuations made by others. This result can shed light on price behavior, price rigidities, and rents.
Video: Neuroscience of Emotions – Emotion, psychology and neurophysiology; how the brain processes emotion and their function in our functioning. A good talk for a lay audience as part of the Google Tech Talks series.
Video: 4 Brilliant Mathematicians & Dangerous Knowledge – via Bayesian Heresy – In this one-off documentary, David Malone looks at four brilliant mathematicians – Georg Cantor, Ludwig Boltzmann, Kurt Gödel and Alan Turing – whose genius has profoundly affected us, but which tragically drove them insane and eventually led to them all committing suicide.
Signaling Status with Luxury Goods: The Role of Brand Prominence - via Journal Of Marketing – This research introduces brand prominence, a construct reflecting the conspicuousness of a brand’s mark or logo on a product. We propose a taxonomy that assigns consumers to one of four groups based on wealth and need for status, and demonstrate how each group’s preference for conspicuously or inconspicuously branded luxury goods corresponds predictably with their desire to associate or dissociate with members of their own and other groups. Wealthy consumers low in need for status wish to associate with their own kind and pay a premium for quiet goods only they can recognize. Wealthy consumers high in need for status use loud luxury goods to signal to the less affluent that they are not one of them. Those who are high in need for status but cannot afford true luxury use loud counterfeits to emulate those they recognize to be wealthy. Field experiments along with analysis of market data (including counterfeits) support our proposed model of status signaling using brand prominence.
City of Fear - via Vanity Fair – Operating by cell phone, a highly organized prison gang launched an attack that shut down Brazil’s largest city last May, with the authorities powerless to stop it. For many in São Paulo, this vast, amorphous criminal network is the only government they have.
Miguel’s Weekly Favorites
Just Buy It: Impulsiveness Tied To Brain Chemical :NPR: – via Finance Professor – “Joshua Buckholtz, a researcher at Vanderbilt University in Nashville, Tenn., thinks that the brains of impulsive people have too much dopamine. Dopamine is a chemical involved with many different brain functions, but in this case researchers are interested in drive. They believe high levels of dopamine are causing some individuals to behave rashly, perhaps by buying a food dehydrator they don’t need.
What You Daydream About Matters - via Aps – Do you ever catch yourself zoning out, letting your mind wander into the wonderful world of daydreaming? After a daydream it is hard to resume what we were doing just before the dream, but recent research from Psychological Science shows that some types of daydreams can actually make it harder for us to access recently-acquired memories.
Do men and women see luck very differently? - via Bakadesuyo – We present experimental evidence which sheds new light on why women may be less competitive than men. Specifically, we observe striking differences in how men and women respond to good and bad luck in a competitive environment. Following a loss, women tend to reduce effort, and the effect is independent of the monetary value of the prize that the women failed to win. Men, on the other hand, reduce effort only after failing to win large prizes. Responses to previous competitive outcomes explain about 11% of the variation that we observe in women’s efforts, but only about 4% of the variation in the effort of men, and differential responses to luck account for about half of the gender performance gap in our experiment. These findings help to explain both female underperformance in environments with repeated competition and the tendency for women to select into tournaments at a lower rate than men.
Tracking Costs of Time and Money: How Accounting Periods Affect Mental Accounting- via UChicago – After people incur costs to get future benefits, they usually track these costs in their mental accounts and are keen to receive the benefits when they become available. We introduce the notion that costs and benefits can occur either in the same accounting period (day, season, etc.) or in different periods. Our key argument is that monetary costs are tracked across accounting periods but that temporal costs are written off at the end of the period in which they are incurred. Thus, accounting periods lead to a time‐money asymmetry in the tracking of costs and, consequently, in the likelihood of seeking benefits. In a laboratory study, an online‐panel study, and a field study with movie‐theater patrons, we demonstrate how this relationship among accounting periods, cost tracking, and benefit seeking is different for time than for money. Our findings offer insights into the sunk‐cost effect, time‐money differences, and mental accounting.
The financial crisis and the structure of contracts - via MoneyScience -The structure of contracts in financial markets is deeply rooted in history. This column retraces the origins of financial contracting and explains why mutual fund banking proposals are wrong headed. It proposes to shift more of the functions of our current banking system away from limited liability back into partnerships. This would involve requiring hedge funds to be entirely separated from banks.
Robert Shiller: What Would Roosevelt Do? – via Economist View – ACROSS the United States, thousands of federally financed stimulus projects are under way, aimed at bolstering the economy and putting people to work. The results so far have not been spectacular. Why not? There’s nothing wrong with the idea of fiscal stimulus itself. We need more stimulus, not less — but we need to focus much more on actually putting people to work.
Master Planner: Fred Brooks Shows How to Design Anything - via Wired- You can’t accelerate a nine-month pregnancy by hiring nine pregnant women for a month. Likewise, says University of North Carolina computer scientist Fred Brooks, you can’t always speed up an overdue software project by adding more programmers; beyond a certain point, doing so increases delays. Brooks codified that precept 35 years ago in a small technical book, The Mythical Man-Month, which he named after the flawed assumption that more manpower meant predictably faster progress. Today, his insight is known as Brooks’ law. The book still sells 10,000 copies a year, and Brooks—who oversaw the creation of IBM’s System/360, the company’s most successful mainframe—is hailed as a legend. Now he’s written a new book, The Design of Design. It’s a collection of essays that extends his ideas into the fields of architecture, hardware systems, and leadership. Wired’s founding executive editor, Kevin Kelly, spoke with Brooks to discuss the upside of failure, lowercase letters, and what we can learn from Apple In Crimes of Passion, Women Get Benefit of the Doubt – via Miller McCune – New research finds women who kill their cheating lovers receive shorter sentences than men in the same situation.
Technology used to help spies. Now it hinders them - via Economist – DEPENDING on what kind of spy you are, you either love technology or hate it. For intelligence-gatherers whose work is based on bugging and eavesdropping, life has never been better. Finicky miniature cameras and tape recorders have given way to pinhead-sized gadgets, powered remotely (a big problem in the old days used to be changing the batteries on bugs).
Video: Ted Talk – Lewis Pugh’s mind-shifting Mt. Everest swim – via Ted- After he swam the North Pole, Lewis Pugh vowed never to take another cold-water dip. Then he heard of Mt. Everest’s Lake Imja — a body of water at an altitude of 5300 m, entirely created by recent glacial melting — and began a journey that would teach him a radical new way to approach swimming and think about climate change.
I Suppress, Therefore I Smoke – Effects of Thought Suppression on Smoking Behavior - via PsychScience -Thought suppression is a method frequently employed by individuals who are trying to control their thoughts and behaviors. Although this strategy is known to actually increase unwanted thoughts, it is unclear whether thought suppression also results in behavioral rebound. The study presented in this article investigated the effects of suppressing thoughts of smoking in everyday life on the number of cigarettes subsequently smoked. Study participants recorded their daily cigarette intake and stress levels over a 3-week period. In Week 1 and Week 3, participants monitored intake and stress. During Week 2, in addition to monitoring intake and stress, participants in the experimental groups either suppressed or expressed smoking thoughts, whereas the control group continued monitoring. Our results showed a clear behavioral rebound: The suppression group smoked significantly more in Week 3 than the expression or control group did. Moreover, the tendency to suppress thoughts (measured by the White Bear Suppression Inventory) was positively related to the number of attempts to quit smoking. The implications of our findings for smoking cessation are discussed.
How to Think, Say, or Do Precisely the Worst Thing for Any Occasion - In slapstick comedy, the worst thing that could happen usually does: The person with a sore toe manages to stub it, sometimes twice. Such errors also arise in daily life, and research traces the tendency to do precisely the worst thing to ironic processes of mental control. These monitoring processes keep us watchful for errors of thought, speech, and action and enable us to avoid the worst thing in most situations, but they also increase the likelihood of such errors when we attempt to exert control under mental load (stress, time pressure, or distraction). Ironic errors in attention and memory occur with identifiable brain activity and prompt recurrent unwanted thoughts; attraction to forbidden desires; expression of objectionable social prejudices; production of movement errors; and rebounds of negative experiences such as anxiety, pain, and depression. Such ironies can be overcome when effective control strategies are deployed and mental load is minimized.
What’s the reason most people want to leave their jobs? - via Bakadesuyo – A whopping 48 percent of those who want to change jobs are mainly motivated by a loss of trust in their employers, according to Deloitte’s fourth annual “Ethics & Workplace Survey.” The cult of martyrs - via Ferrero- This paper suggests a rational explanation for extreme voluntary sacrifice in situations in which the state of the world when the decision must be made is observable only by the agent. Such explanation is the cult of martyrs, heroes, and saints. This cult may get out of control and fuel fanaticism, or excessive sacrifice from the standpoint of the sponsoring organization. A survey of the historical evidence of Christian martyrdom strongly suggests that martyrs were driven by the expectation of a cult in this world, not by otherworldly rewards. In particular, it is argued that the evidence of excess martyrdom in both Muslim Spain and the Roman Empire strongly speaks for the cult theory.
Reciprocity engages our brain’s reward system. - via Deric Bownds – Brain reward circuitry, including ventral striatum and orbitofrontal cortex, has been independently implicated in preferences for fair and cooperative outcomes as well as learning of reputations. Using functional MRI (fMRI) and a “trust game” task involving iterative exchanges with fictive partners who acquire different reputations for reciprocity, we measured brain responses in 36 healthy adults when positive actions (entrust investment to partners) yield positive returns (reciprocity) and how these brain responses are modulated by partner reputation for repayment. Here we show that positive reciprocity robustly engages the ventral striatum and orbitofrontal cortex. Moreover, this signal of reciprocity in the ventral striatum appears selectively in response to partners who have consistently returned the investment (e.g., a reputation for reciprocity) and is absent for partners who lack a reputation for reciprocity. These findings elucidate a fundamental brain mechanism, via reward-related neural substrates, by which human cooperative relationships are initiated and sustained.
Financial Topics & Investing Why Stewardship is Proving Elusive for Institutional Investors – via Harvard Law – As the dominant owners of listed companies in many developed markets, institutional investors have been under increasing pressure to act as responsible shareholders. In the UK, where institutions own more than 70% of the stock market, a Stewardship Code has been developed to encourage pension funds, insurance companies, and their asset managers to monitor and engage investee companies actively with the view to protect and enhance shareholder value (see Figure 1). Similar efforts are underway in Canada, France, the Netherlands, and other markets.
Ending the land cycle – or the mortgage cycle - via Knowing & Making – Martin Wolf has an intriguing proposal to “end the land cycle” – by which he means: make sure that any future rise in the value of land goes to society rather than the individual landowner. This argument has three parts. First, he makes a moral case that increases in land value are largely a function of external effects – increasing population density and infrastructure investments – and therefore why should the current occupier of the land capture all the benefits? Second, a practical case that the current system has stymied productive new development – because it’s easier and cheaper for landowners to get a return by reducing the competitive supply of new housing (through the planning system) than by investing in new infrastructure which benefits everyone.
Anatomy of Lehman’s Failure, and the Importance of Liquidity Requirements – via Economics of Contempt – Remember the Lehman Examiner’s Report? The 4000+ page report by the court-appointed examiner was lauded for a couple of weeks after it was released, and then largely forgotten. The media and blogosphere quickly moved on to the next outrage-du-jour (among others, the SEC’s suit against Goldman), and never looked back. Well, I did not forget about it, and thanks to the uptick in flights — and thus reading time — in the last few months, I can now credibly claim to have read….well, not every single word in the Examiner’s Report (some appendices are just pages of CUSIPs), but all of the substantive sections, including all of the substantive appendices, and many of the underlying documents.
Interview with Zeke Ashton - via Street Capitalist – I had a chance to interview Zeke Ashton of Centaur Capital and manager of the Tilson Dividend Fund. I think you’ll enjoy the interview. Ashton is a generalist, he is willing to short stocks, and looks across all types of companies — from microcaps to large caps. Plus, he’s based out of Texas. I’ve been hoping to showcase more Texas-based fund managers to prove that we’re not all energy traders down here.
Academic Research Worth Reading
I like what I know: Is recognition a non-compensatory determiner of consumer choice? – via SJDM- What is the role of recognition in consumer choice? The recognition heuristic (RH) proposes that in situations where
recognition is correlated with a decision criterion, recognized objects will be chosen more often than unrecognized ones, regardless of any other relevant information available about the recognized object. Past research has investigated this non-compensatory decision heuristic in inference. Here we report two experiments on preference using a naturalistic consumer choice task. Results revealed that, although recognition was a powerful driver of preferences, it was used in a compensatory rather than a non-compensatory way. Specifically, additional information learned about recognized bran objects significantly affected choices. It appears that recognition is processed in a compensatory manner and combined with other attributes in preferential choice.
Think or blink—is the recognition heuristic an “intuitive” strategy? - via SJDM -Several approaches to judgment and decision making emphasize the effort-reducing properties of heuristics. One prominent example for effort-reduction is the recognition heuristic (RH) which proposes that judgments are made by relying on one single cue (recognition), ignoring other information. Our research aims to shed light on the conditions under which the RH is more useful and thus relied on more often. We propose that intuitive thinking is fast, automatic, and effortless whereas deliberative thinking is slower, stepwise, and more effortful. Because effort-reduction is thus much more important when processing information deliberately, we hypothesize that the RH should be more often relied on in such situations. In two city-size-experiments, we instructed participants to think either intuitively or deliberatively and assessed use of the RH through a formal measurement model. Results revealed that, in both experiments, use of the RH was more likely when judgments were to be made deliberatively, rather than intuitively. As such, we conclude that the potential application of heuristics is not necessarily a consequence of “intuitive” processing. Rather, their effortreducing features are probably most beneficial when thinking more deliberatively.
Why Don’t Issuers Choose IPO Auctions? The Complexity of Indirect Mechanisms – via NBER – At least 25 countries have used IPO auctions, but most have since abandoned them. We argue that this is because auctions, being indirect mechanisms, require a level of sophistication above that of many investors. Through suitably calibrated examples, we show that even sophisticated investors can make mistakes while bidding in auctions, especially when facing uncertainty about the number and type of bidders, and such mistakes impose costs on other participants. We provide empirical support for our arguments. IPO auctions have been plagued by unexpectedly large fluctuations in the number of participants, return chasing investors, and high-bidding free riders. Our analysis suggests that a direct mechanism that resembles a transparent version of book building would be preferable to auctions
How Situational Contingencies Shape Action Semantics and Social Behavior – via PsychScience – What is the role of ecology in automatic cognitive processes and social behavior? Our motivated-preparation account posits that priming a social category readies the individual for adaptive behavioral responses to that category—responses that take into account the physical environment. We present the first evidence showing that the cognitive responses (Study 1) and the behavioral responses (Studies 2a and 2b) automatically elicited by a social-category prime differ depending on a person’s physical surroundings. Specifically, after priming with pictures of Black men (a threatening out-group), participants responded with either aggressive behavior (fight) or distancing behavior (flight), depending on what action was allowed by the situation. For example, when participants were seated in an enclosed booth (no distancing behavior possible) during priming, they showed increased accessibility of fight-related action semantics; however, when seated in an open field (distancing behavior possible), they showed increased accessibility of flight-related action semantics. These findings suggest that an understanding of automaticity must consider its situated nature.
The distributional burden of cap and trade - via Voxeu- The carbon-pricing implications of cap-and-trade programmes have raised concern that they might be a regressive policy tool. This column documents how allowance allocation schemes similar to those in recently proposed US legislation address distributional concerns and challenges the view that carbon pricing is necessarily regressive.
Tricky treats: Paradoxical effects of temptation strength on self-regulation processes- via EJSP – This series of studies examined the effect of temptation strength on self-regulation processes in the context of eating behavior. Based on the critical level model, it was hypothesized that weak, rather than strong, temptations yield the most unfavorable conditions for effective self-regulation, because the negative consequences of the former are underestimated. In line with the assumptions of this model, Studies 1 and 2 showed that weak temptations inhibited the mental accessibility of the weight watching goal, in contrast to strong temptations. Study 3 showed that exposure to weak temptations lead to higher consumption in comparison to exposure to strong temptations. It is concluded that weak temptations, as compared to strong temptations, have an inhibiting effect on self-regulation processes and may therefore form a bigger threat for long-term goal attainment.Are Beliefs a Matter of Taste? A case for Objective Imprecise Information
Red and romantic behavior in men viewing women- via EJSP – In many non-human primate species, a display of red by a female increases attraction behavior in male conspecifics. In two experiments, we investigate an analogous effect in humans, specifically, whether red on a woman’s shirt increases attraction behavior in men. In Experiment 1, men who viewed an ostensible conversation partner in a red versus a green shirt chose to ask her more intimate questions. In Experiment 2, men who viewed an ostensible interaction partner in a red versus a blue shirt chose to sit closer to her. These effects were observed across participants’ perceptions of their own attractiveness (Experiment 1) and general activation and mood (Experiment 2). Our findings suggest that red acts as a basic, non-lexical prime, influencing reproduction-relevant behavior in like manner across species.
Are Beliefs a Matter of Taste? A case for Objective Imprecise Information- via Ouvertes – We argue, in the spirit of some of Jean-Yves Jaffray’s work, that explicitly incorporating the information, however imprecise, available to the decision maker is relevant, feasible and fruitful. In particular, we show that it can lead us to know whether the decision maker has wrong beliefs and whether it matters or not, that it makes it possible to better model and analyze how the decision maker takes into account new information, even when this information is not an event and finally that it is crucial when attempting to identify and measure the decision maker’s attitude toward imprecise information.
Our bias towards negative interpretation of ambiguous faces - via Deric Bownds -Neta and Whalen make some interesting observations (on the usual cadre of undergraduate psychology students usually involved in such studies), showing that we have a ‘better be safe than sorry’ strategy in responding to ambiguous expressions of surprise that could signal either a negative or positive situation. We pick the negative interpretation, and our background bias towards being positive or negative biases this effect.:
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What is the difference between a psychiatrist and a psychologist?
If you say to a psychiatrist “I hate my mother,” he will ask “Why do you say that?” while a psychologist will say “Thank you for sharing that with us.”
Must Read Articles For All Weekly Visitors!!!
Overconfidence, Under-Reaction, and Warren Buffett’s Investments – via SSRN – Warren Buffett is a long-term investor, but is required by law to disclose his trades on a quarterly basis. The market seems to under-react to the revelation of his trades. From 1980 to 2006, it has been possible to achieve investment results similar to Buffett’s own simply by following his trades disclosed by Berkshire Hathaway. We consider overconfidence by sophisticated market participants as a contributing factor to the apparent under reaction to information contained in public disclosures of changes in Berkshire Hathaway’s holdings of stocks. Net sales of corporate insiders of stocks held by Berkshire Hathaway tend to decrease when those holdings increase consistent with shared private information. However, financial analysts’ recommendations tend to downgrade and institutions tend to sell at those times. This behavior by analysts and fund managers is consistent with pejorative experts displaying overconfidence by over estimating their stock picking abilities or precision of their independent private information and, as a consequence, underweighting public information in making their decisions.
WHY ALMOST ALL INVESTORS FAIL: Idleness aversion and the need for justifiable busyness. – via PubMed- There are many apparent reasons why people engage in activity, such as to earn money, to become famous, or to advance science. In this report, however, we suggest a potentially deeper reason: People dread idleness, yet they need a reason to be busy. Accordingly, we show in two experiments that without a justification, people choose to be idle; that even a specious justification can motivate people to be busy; and that people who are busy are happier than people who are idle. Curiously, this last effect is true even if people are forced to be busy. Our research suggests that many purported goals that people pursue may be merely justifications to keep themselves busy.
Famous VC & Angel Investor Paul Graham on Focus & Multitasking : The Top Idea in Your Mind - via Paul Graham – I realized recently that what one thinks about in the shower in the morning is more important than I’d thought. I knew it was a good time to have ideas. Now I’d go further: now I’d say it’s hard to do a really good job on anything you don’t think about in the shower. Everyone who’s worked on difficult problems is probably familiar with the phenomenon of working hard to figure something out, failing, and then suddenly seeing the answer a bit later while doing something else. There’s a kind of thinking you do without trying to. I’m increasingly convinced this type of thinking is not merely helpful in solving hard problems, but necessary. The tricky part is, you can only control it indirectly.
U.S. goes from leading to lagging in young college graduates- via Uveal Blues – Canada is now the global leader in higher education among young adults, with 55.8 percent of that population holding an associate degree or better as of 2007, the year of the latest international ranking. The United States sits 11 places back, with 40.4 percent of young adults holding postsecondary credentials.
James Montier: On the price of insurance and the bull market in tail risk - via Behavioural Investing – From the people who bought you such wonderful ideas as CDOs, now comes the bull market in tail risk products. Deutsche are launching a long equity volatilty index, Citi has come up with a crisis index (mixing equity and bond vols, swap spreads and structured credit spreads). Bloomberg reports that PIMCO is planning a fund that will protect investors in the event of a decline greater than 15%. The CBOE is planning a new index based on the skew in the S&P500. Into the Abyss: What If Nothing is Risk Free? - via Damodaran – In corporate finance and investment analysis, we assume that there is an investment with a guaranteed return that offers both firms and investors a “risk free” choice. This assumption, innocuous though it may seem, is a critical component of both risk and return models and corporate financial theory. But what if there is no risk free investment? During the banking crisis of 2008, this question came to the fore, as investors began questioning the credit worthiness of US treasuries, UK gilts and Germans bonds. In effect, the fear that governments can default, hitherto restricted to risky, emerging markets, had seeped into developed markets as well. In this paper, we examine why governments may default, even on local currency bonds, and the consequences. We also look at how best to estimate a risk free rate, when no default free entity exists, and the effects on both investors and firms. In particular, we argue that the absence of a risk free investment will make investors collectively more risk averse, thus reducing the prices of all risky assets, and induce firms to borrow less money and pay out lower dividends.
Language Influences Culture- Via WSJ – Do the languages we speak shape the way we think? Do they merely express thoughts, or do the structures in languages (without our knowledge or consent) shape the very thoughts we wish to express?
A New Data Base For: Historical Financial Statistics- via Marginal Revolution – Welcome to Historical Financial Statistics, a free, noncommercial data set that went online in July 2010. We aim to be a source of comprehensive, authoritative, easy-to-use macroeconomic data stretching back several centuries. Our target range of coverage is from 1492 to the present, with special emphasis on the years before 1950, which few databases cover in detail.
Social Security Benefits Formula 101: A Practical Primer - via SSRN – Despite the broad and deep reliance on Social Security benefits, very few of the hundreds of millions of current and future beneficiaries understand how the program works. This article presents through a hypothetical couple some of the basic concepts of the Social Security benefits formula.
Miguel’s Weekly Favorites
Why Money Makes You Unhappy – via Jonah Lehrer – Money is surprisingly bad at making us happy. Once we escape the trap of poverty, levels of wealth have an extremely modest impact on levels of happiness, especially in developed countries. Even worse, it appears that the richest nation in history – 21st century America – is slowly getting less pleased with life. (Or as the economists behind this recent analysis concluded: “In the United States, the [psychological] well-being of successive birth-cohorts has gradually fallen through time.”)
How The illusion of progress lights a fire - via MindHacks -Psychologists have longed talked about ‘goal gradient’ which describes how we work harder to achieve a goal as we get closer to it. I just came across a fantastic study published in the Journal of Marketing Research which shows that we can be convinced to shift into a higher gear of work and spending, even when the perception of progress is a complete illusion. Richard Thaler: Level Playing Fields, in Soccer and Finance - via NYT – OVER the last month, one question seemed to be on everyone’s mind at the economic conferences I attended in Europe: How did referees miss a goal that England scored against Germany in their World Cup match? The goal in question struck the crossbar, bounced down and landed a full yard inside the goal, then flew out onto the field, all in the blink of an eye.
Dopamine, Time, and Impulsivity in Humans- via Neuroscience – Disordered dopamine neurotransmission is implicated in mediating impulsiveness across a range of behaviors and disorders including addiction, compulsive gambling, attention-deficit/hyperactivity disorder, and dopamine dysregulation syndrome. Whereas existing theories of dopamine function highlight mechanisms based on aberrant reward learning or behavioral disinhibition, they do not offer an adequate account of the pathological hypersensitivity to temporal delay that forms a crucial behavioral phenotype seen in these disorders. Here we provide evidence that a role for dopamine in controlling the relationship between the timing of future rewards and their subjective value can bridge this explanatory gap. Using an intertemporal choice task, we demonstrate that pharmacologically enhancing dopamine activity increases impulsivity by enhancing the diminutive influence of increasing delay on reward value (temporal discounting) and its corresponding neural representation in the striatum. This leads to a state of excessive discounting of temporally distant, relative to sooner, rewards. Thus our findings reveal a novel mechanism by which dopamine influences human decision-making that can account for behavioral aberrations associated with a hyperfunctioning dopamine system.
New Book: How Religion Shaped Commerce in Puritan America- via Princeton -eavenly Merchandize offers a critical reexamination of religion’s role in the creation of a market economy in early America. Focusing on the economic culture of New England, it views commerce through the eyes of four generations of Boston merchants, drawing upon their personal letters, diaries, business records, and sermon notes to reveal how merchants built a modern form of exchange out of profound transitions in the puritan understanding of discipline, providence, and the meaning of New England.
The Impact Of Rude Behavior On A Business- via Sciam – New research shows that rudeness between employees can have a far worse impact on a business than rudeness directed toward customers, or even employee incompetence. Christie Nicholson reports
What If Your GPS Could Tell You What Would Have Happend If You Took An Alternate? – via Decision Science News – Not long ago, your Decision Science News editor was planning a trip to a book group meeting along with another member. The monthly book group takes place in Cove Neck Long Island, about an hour East of Manhattan. Given the starting point (see map), the two had an email exchange about the best route. Your editor preferred to take the Southern route (above), as suggested by multiple Web sites, which gave time estimates under average conditions as well as under heavy traffic. These sites suggested that under the worst possible traffic, the trip would take as long as 1 hour 30 minutes.
The Demographics of Web Search – via Yahoo- How does the web search behavior of “rich” and “poor” people differ? Do men and women tend to click on different results for the same query? What are some queries almost exclusively issued by African Americans? These are some of the questions we address in this study.
Docs for Sale: The FDA Advisory Panel on Avandia – via Hooked: Ethics Medicine & Pharma – It appears this story has kept investigative reporter Mundy quite busy in the wake of last week’s FDA advisory committee hearings on Avandia. Most of you know from the popular press that the committee voted 20-12 to keep Avandia on the market, though 17 of the 20 favored stronger warning labels or other measures to restrict use of the drug.
Edge Course: A New Science Of Morality - via Edge – Something radically new is in the air: new ways of understanding physical systems, new ways of thinking about thinking that call into question many of our basic assumptions. A realistic biology of the mind, advances in evolutionary biology, physics, information technology, genetics, neurobiology, psychology, engineering, the chemistry of materials: all are questions of critical importance with respect to what it means to be human. For the first time, we have the tools and the will to undertake the scientific study of human nature.
Doctors’ Conspiracy of Silence? - via Situationist – Many professional medical organizations ethically require doctors to report other doctors who are incompetent or impaired by substance abuse or mental health problems, but as one recent survey found, more than a third of doctors don’t turn in their colleagues.
The Beauty Advantage: How Looks Affect Your Work, Your Career, Your Life- via Newsweek – In 2010, when Heidi Montag’s bloated lips plaster every magazine in town, when little girls lust after an airbrushed, unattainable body ideal, there’s a growing bundle of research to show that our bias against the unattractive is more pervasive than ever. And when it comes to the workplace, it’s looks, not merit, that all too often rule.
Behavioral economics version on why prices are sticky…- via Mostly Economics – In many real-life situations before we make our own decisions, we find that it is useful to look at what others have done when they were facing similar choices. For instance, when considering a job offer we might consult others who recently accepted or rejected a related job offer. When purchasing an apartment we might seek information about what prices were paid recently for similar apartments, especially for those transactions taking place in the same neighborhood or even in the same building.
Why Is The Universe Complex? Broken Symmetries, Information, Energy, Work – via NPR – The universe is vastly complex. In my previous blog I pointed out that the fine tuning of the 23 constants of nature in the Standard Model and General Relativity were, perhaps, a necessary, but not a sufficient condition for our universe to have become complex. We have no adequate theory for why our universe is complex. Indeed, I will say that we can have no such complete theory. But we can link fragments that may grow in time to a more integrated web of theory and observation.
Solar Airplane Braves The Night Sky, And Wins – via Big Think – Last week, in a history book moment, an airplane was flown straight through a day-night cycle running on nothing – nothing – but the sun’s rays. Imagine the quiet, up there, as Solar Impulse CEO and co-founder Andres Borschberg soared through the skies in his one-man cockpit, collecting and storing solar energy all day, then crossed over into darkness, and finally watched a new day break on the other side. Borschberg brought his plane, the HB-SIA, down to land in the mid-morning light of July 8th.
Rational expectations – is it real? – via Leigh Caldwell – One of the big divisions in macroeconomics is the idea of rational expectations theory. This is the proposition that people behave as if they have a perfect prediction of the economy’s future path, and therefore they collectively fulfil that prediction. This idea is used by some to claim that government borrowing cannot boost the economy because people will reduce spending to pay the future taxes they expect to incur; and by others to propose that price or NGDP level targeting must work, because people will act as if the target will be met and therefore – in a self-fulfilling equilibrium – the target will be met!
Satisficing Stockpicking - via PsyFi Blog – When we make decisions we nearly always do so in the context of something or other. In fact about the only time we’re asked to make contextless choices is in academic exams and laboratory based psychology experiments. As these are the two most familiar situations faced by the academics generating the theories that underpin most of modern finance we shouldn’t be awfully surprised if their great ideas are somewhat lacking in any understanding of … well, anything, really.
How prayer prevents drinking – via Boston.com – A recent study supports an interesting approach to curbing alcohol consumption: regular prayer. In surveys, people who reported praying more often also reported less alcohol consumption and fewer alcohol-related problems, and more prayer was associated with less consumption and fewer problems over the next several months. Of course, people who pray a lot may be less prone to drink anyway, so the researchers randomly assigned people to regular prayer or nonprayer tasks and then asked them to report their alcohol consumption after four weeks. Those who were assigned to pray drank significantly less than those who weren’t.
Why Public Schools Need a Bailout- via Good – Veteran teacher, counselor, advocate, and community activist Steve Zimmer (PDF) has called Los Angeles home since he arrived in 1992 as a neophyte Teach For America teacher. Eighteen years later, 40 year-old Zimmer is completing his first year as an elected school board member for the Los Angeles Unified School District, the second largest district in the United States. Serving LAUSD’s 680,000 racially, ethnically, and economically diverse students at a time when the Obama administration is raising performance expectations—while more than $1.5 billion’s been cut from the district budget and more than 6,000 positions eliminated—is no easy task. We talked with him about why he still believes in public education despite all the challenges.
Who Killed the Climate Bill? - via Foreign Policy – This is how a climate bill dies. On Thursday, Senate Majority Leader Harry Reid announced the bad news: “We don’t have the votes.” Without a single Republican backing the Clean Energy Jobs and American Power Act, the Senate’s version of a comprehensive energy bill, there was no point taking it to the floor, he explained. For now, there was no way to move forward.
Financial Topics & Investing
Malone Is Fired Up by Cable and Ready to Buy- via WSJ – Liberty Media Chairman John Malone is fired up about cable again, believing its high speeds will give it an edge over satellite as consumers devour more entertainment digitally. The compulsive deal maker says he is looking for new investments, especially overseas, in cable, which he helped build over more than two decades as chief executive of Tele-Communications Inc. before it was sold to AT&T in 1999.
Brookfield Asset Management: A perfect predator- via BWB – Bruce Flatt just dissed Warren Buffett. Realizing his blunder, he practically lunges at the tape recorder and extracts a promise that he won’t be quoted. Flatt greatly admires the investing oracle—he wants that clear—and doesn’t want to seem arrogant.
Housing Bubble Leaves $4 Trillion Hangover: Chart of the Day – via Bloomberg – The bursting of the U.S. housing bubble has left homeowners buried under about $4 trillion of excess mortgage debt, according to Dhaval Joshi, the chief strategist at RAB Capital.The CHART OF THE DAY compares the total amount of home loans outstanding with the value of residential real estate, as compiled by the Federal Reserve, for the past two decades. The latter is adjusted to reflect the average 40 percent debt-to- value ratio that prevailed from 1990 to 2005. Why Are CEOs Rarely Fired? – via Harvard Law – CEO entrenchment is bad for shareholders ex post, because it means that boards retain some CEOs whom shareholders would rather see fired. The model says nothing about whether this entrenchment is bad for shareholders ex ante. For instance, shareholders may rationally allow some degree of entrenchment, e.g. by appointing a CEO-friendly board, in order to attract a talented CEO. To understand what level of entrenchment is optimal ex ante, we need to extend the model to include the initial choice of governance structures.
Economics: A Good Choice of Major for Future CEOs – via It is often suggested that Economics is a good major for individuals interested in becoming business leaders. Despite this widespread assertion, little research has been conducted on this topic. Using the Standard and Poor (S&P) 500 companies, this paper examines the validity of such a claim. We find evidence that Economics is a good choice of major for those aspiring to become a CEO. Economics ranked third with 9% of the CEOs of the S&P 500 companies in 2004 being undergraduate Economics majors, behind Business Administration and Engineering majors, each of which accounted for 20% of the CEOs. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major. That is, the share of graduates who were Economics majors who were CEOs in 2004 was greater than that for any other major, including Business Administration and Engineering. The findings also show that a higher percentage of CEOs who were Economics majors subsequently completed a graduate degree – often an MBA – than did their counterparts with Business Administration and Engineering degrees. The paper demonstrates that while women now comprise over half of all bachelors and masters degrees awarded, they remain a minority in terms of undergraduate degrees awarded in Economics and in MBA degrees conferred. Economics programs may try to appeal to more women students as a stepping stone to becoming a CEO, especially as women continue to account for less than 2 percent of the S&P 500 CEOs.
Emanuel Derman on Fischer Black- via Quant Network – I have been working for the last few months on a book about the way people are compelled to theorize and to build models of the natural and the social world, and somehow this led me to think about Fischer Black again, even before I received an invitation to speak here tonight. Fischer is, of course, most famous for the Black-Scholes model. But Fischer understood very well the qualities of models and their limitations. Among my three favorite sentences of Fischer’s are
Who Ultimately Pays the Corporate Income Tax?- via Economix – I ended last week’s post by asking whether anyone knows which human beings ultimately pay the corporate income tax.An intuitively appealing answer is that the tax is levied on profits, which are a return on capital invested in a corporation. Therefore, those who made that investment — the shareholders — absorb the tax fully in the form of a lower after-tax return on their investments. Interview with Jon Heller of Cheap Stocks - via Investors Questions Podcast Is the British middle class an endangered species?- via Guardian .co.uk – In fact, being middle class has always been a slippery business. Having servants, renting a good property, owning a good property, owning a business, being employed in one of “the professions”, how you speak, how you use cutlery – at different times, all these have been regarded as essentials of middle-class life. In the 19th century, an identity was created which emphasised ambition, inventiveness, effort – “You work like stink,” as Ogden-Newton puts it – and the middle class presented as a confident, outward-looking Britain’s driving force. Yet mixed with this triumphalism has always been envy and insecurity: seeing yourself as the middle group in society can leave you feeling either smug or beleaguered.
The Culture of Speculation And The Failure of Financial Reform – via Havard – Even as President Obama signs the mammoth financial regulation legislation designed to prevent another economy-busting meltdown, banks are already gaming the proposed regulations to generate new profits. For any business or nonprofit seeking to make serious changes in organization, the financial reform legislation is an abject lesson in what not to do. It is doomed to failure.
Leaving the euro: What’s in the box? Learning From Argentina - via Voxeu – Rumours of Eurozone break-up are mounting. This column argues that exiting a strong currency for a weak one poses almost unthinkable challenges, from the redenomination of contracts and the imposition of bank restrictions to the restructuring of external debt and limiting of capital mobility. Lessons from Argentina illustrate just how radical the changes would need to be.
Saving money on a plumber – game theory in practice – via Mind Your Decisions – The other day I called a new plumber for a non-urgent job. He came to my house, and after inspecting said, “It’ll be $150 and I can do it today. What do you want to do?” I had no idea how much the job should cost, so I had to make an informed guess. Which of the following scenarios was most likely?
Academic Research Worth Reading
Money and Liquidity in Financial Markets - via CEPR – We argue that there is a connection between the interbank market for liquidity and the broader financial markets, which has its basis in demand for liquidity by banks. Tightness in the interbank market for liquidity leads banks to engage in what we term “liquidity pull-back,” which involves selling financial assets either by banks directly or by levered investors. Empirical tests support this hypothesis. While our data covers part of the recent crisis period, our results are not driven by the crisis. Our general point is that money matters in financial markets. Different financial assets have different degrees of moneyness (liquidity) and, as a result, there are systematic cross-sectional variations in trading activity as the price of liquidity, or the level of tightness, in the interbank market fluctuates.
Resolution of Banking Crises: The Good, the Bad, and the Ugly – via IMF – This paper presents a new database of systemic banking crises for the period 1970-2009. While there are many commonalities between recent and past crises, both in terms of underlying causes and policy responses, there are some important differences in terms of the scale and scope of interventions. Direct fiscal costs to support the financial sector were smaller this time as a consequence of swift policy action and significant indirect support from expansionary monetary and fiscal policy, the widespread use of guarantees on liabilities, and direct purchases of assets. While these policies have reduced the real impact of the current crisis, they have increased the burden of public debt and the size of government contingent liabilities, raising concerns about fiscal sustainability in some countries.
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Weekly Cartoon (Via CFO Humor)
Weekly Joke
From a trader: “This is worse than a divorce. I’ve lost half my net worth and I still have a wife.”
Satyajit Das: Botox Economics – via Naked Capitalism – Botox is commonly used to improve a person’s appearance by removing facial lines and other signs of aging. The effect is temporary and can have significant side effects. The world is currently taking the “botox” cure. A flood of money from central banks and governments — “financial botox” — has temporarily covered up unresolved and deep-seated problems.The surface is glossy and smooth, the interior decayed and rotten
The ‘Science of Resilience’ – via NYT – Today’s idea: Is the loss of language and culture connected to the extinction of plant and animal species in a globalized “epidemic of sameness”? Welcome to the “science of resilience” — an interdisciplinary study of the value of diversity in complex systems.
Why do young people do such risky things?- via Bakadesuyo – Young people mispredict happiness levels in old age, believing—wrongly—that happiness declines with age. We explore the possible implications of this under-estimation of happiness in old age for the risky health behaviours of young people. We find that young male binge drinkers are particularly prone to thinking that happiness declines with age.
Detecting Ponzi Finance:An Evolutionary Approach to the Measure of Financial Fragility - via Levy – Different frameworks of analysis lead to different conceptions of financial instability and financial fragility. On one side, the static approach conceptualizes financial instability as an unfortunate byproduct of capitalism that results from unpredictable random forces that no one can do anything about except prepare for through adequate loss reserves, capital, and liquidation buffers. On the other side, the evolutionary approach conceptualizes financial instability as something that the current economic system invariably brings upon itself through internal market and nonmarket forces, and that requires change in financial practices rather than merely good financial buffers. This paper compares the two approaches in order to lay the foundation for the empirical analysis developed within the evolutionary approach. The paper shows that, with the use of macroeconomic data, it is possible to detect financial fragility, especially Ponzi finance. The methodology is applied to residential housing in the U.S. household sector and is able to capture some of the trends that are known to be sources of economic difficulties. Notably, the paper finds that Ponzi finance was going on in the housing sector from at least 2004 to 2007, which concurs with other works based on more detailed data.
The Learjet repo man- via Salon.com – Business has never been better for the fearless pilot who takes back millionaires’ expensive toys. It was snowing hard when the bank called Nick Popovich. They needed to grab a Gulfstream in South Carolina now. Not tomorrow. Tonight. All commercial and private planes were grounded, but Nick Popovich wasn’t one to turn down a job. So he waited for the storm to clear long enough to charter a Hawker jet from Chicago into South Carolina. There was just one detail: No one had told Popovich about the heavily armed white supremacist militia that would be guarding the aircraft when he arrived.
Expect The Unexpected – But It Won’t Do Any Good - via Science 2.0 – Even if you know an unexpected event is likely to occur, you are no better, and may be even worse, than those who aren’t expecting anything unexpected at all. Did you expect that confusing opening sentence? Now you get the point. The study, from Daniel Simons, a professor of psychology and in the Beckman Institute at the University of Illinois, appears this month as the inaugural paper in the new open access journal i-Perception.
Acetaminophen Reduces Social Pain Behavioral and Neural Evidence - via Psychological Science – Pain, whether caused by physical injury or social rejection, is an inevitable part of life. These two types of pain—physical and social—may rely on some of the same behavioral and neural mechanisms that register pain-related affect. To the extent that these pain processes overlap, acetaminophen, a physical pain suppressant that acts through central (rather than peripheral) neural mechanisms, may also reduce behavioral and neural responses to social rejection. In two experiments, participants took acetaminophen or placebo daily for 3 weeks. Doses of acetaminophen reduced reports of social pain on a daily basis (Experiment 1). We used functional magnetic resonance imaging to measure participants’ brain activity (Experiment 2), and found that acetaminophen reduced neural responses to social rejection in brain regions previously associated with distress caused by social pain and the affective component of physical pain (dorsal anterior cingulate cortex, anterior insula). Thus, acetaminophen reduces behavioral and neural responses associated with the pain of social rejection, demonstrating substantial overlap between social and physical pain.
50 Ways of Visualizing BP’s Dark Mess – via Inspired Mag – It’s been almost three months since the Deepwater Horizon disaster occurred, in the Mexican Gulf. Arguably, the most horrifying man-made environmental catastrophe of all times, it has been illustrated all over the world in magazines, newspapers and websites.
How Pleasure Works: The New Science of Why We Like What We Like- via SciAm – What sets humans apart from other animals? Psychologist Paul Bloom thinks it’s the fact that we like Tabasco sauce. Actually, not just Tabasco but any food that is, at least at first, “aversive.” In How Pleasure Works, Bloom tries to get to the bottom of why humans enjoy such weird pleasures as uncomfortably spicy food and owning an unwashed sweater once worn by George Clooney. The book is a compilation of examples of normal, odd and pathological human behaviors that range from the mundane (consuming bottled water) to the utterly horrifying (murdering and eating other human beings).
Do “Daddies’ Girls” Choose Men Just Like Their Fathers?- via Bakadesuyo -Author Dr Lynda Boothroyd of Durham University explains: “While previous research has suggested this to be the case, these controlled results show for certain that the quality of a daughter’s relationship with her father has an impact on whom she finds attractive. It shows our human brains don’t simply build prototypes of the ideal face based on those we see around us, rather they build them based on those to whom we have a strongly positive relationship. We can now say that daughters who have very positive childhood relationships with their fathers choose men with similar central facial characteristics to their fathers.”
Decoding the psychology of trading – via FT – Before you even started reading this article, it had already been electronically scanned and its language examined by dozens of computers at hedge funds and investment banks. At MarketPsy Capital in Santa Monica, California, remote servers will have rated how positive or negative it is on the economy and checked for emotional content on thousands of companies. Finding nothing useful, the computers will then move on.
The Barry White Effect: Men With Deep Voices Have More Children - via Psychology Today – Generally speaking, women are attracted to men with deep voices in part because this is an auditory cue linked to testosterone, a hormone that is associated with male phenotypic quality. Hence, it would appear that voice pitch might be a sexually selected trait, in which case one should expect that it would yield some reproductive benefits to men who possess more desirable voices.
Forgetting Emotional Information Is Hard- via Neurocritic – Our memory for emotional events is generally better than our memory for neutral events. This is a key issue in developing treatments for post-traumatic stress disorder. How do we rid ourselves of unpleasant memories? In structured laboratory environments, the best way to forget is intentional inhibition during the encoding phase, when exposed to the material for the first time. In other words, engage in a deliberate strategy to forget while the event is actually occurring, as shown in a recent study by Nowicka and colleagues. This process is effortful, and it engages a larger proportion of the brain when the material is emotionally laden (i.e., negative pictures from the International Affective Picture System, or IAPS), relative to when it is neutral (Nowicka et al., 2010).
How long does it take us to make up our mind about someone?- via Bakadesuyo – Judgments made after a 100-ms exposure correlated highly with judgments made in the absence of time constraints, suggesting that this exposure time was sufficient for participants to form an impression. In fact, for all judgments—attractiveness, likeability, trustworthiness, competence, and aggressiveness—increased exposure time did not significantly increase the correlations.
Six world hypotheses or how we explain eyerything and anything- via Mouse Trap – As per Pepper, we have four valid and mature world hypothesis that are adequate in scope (explain everything) and precision (explain uniquely and not vaguely) and two immature world hypothesis that fail the test of scope/precision in their adequacy. I do not make that distinction and will be treating all six world hypothesis on equal footing. For the record, the inadequate world hypothesis are animism and spiritualism. A world hypothesis is a way to explain everything in the world and relies on root metaphors to explain thus. Each hypothesis has a pet root metaphor which is sued to illustrate and explain phenomenon or categories, and their relationships.
Can Language Influence Our Thoughts? – via APS Observer – How does the language we speak impact our lives? Can language selectively influence what we see as good or bad? A recent study, published in Psychological Science, tested the implicit attitudes of Israeli Arabs who speak both Arabic and Hebrew fluently. Many Arab Israelis speak Arabic at home, but start learning Hebrew in elementary school. Researchers Shai Danziger of Ben-Gurion University and Robert Ward of Bangor University took advantage of the tensions between Arabs and Israelis to design an experiment that looked at how the students think differently in Arabic and Hebrew.
A New View of Why Women Shun Science Careers – via Miller Mc Cune – New research suggests one reason women are underrepresented in science and math is they see such careers as impeding their desire to help others.
American Creativity in Decline - via NYT – Today’s idea: For the first time, research shows American creativity in decline, but an article says neuroscience could help reverse the drop, if only educators would get on board.
To a Man with a Hammer – via Rajiv Sethi – In an article published about a month ago, Richard Thaler argued that a behavioral propensity to accept “risks that are erroneously thought to be vanishingly small” was responsible for both the devastating oil spill in the Gulf of Mexico as well as the global financial crisis. This prompted James Kwak to respond as follows:
4 Things to Keep in Mind When Reading fMRI Studies- via Developing Intelligence – A nice 2010 Human Brain Mapping paper by Church, Petersen & Schlaggar covers a number of interpretational issues confronting modern neuroimaging. Their particular application is pediatric neuroimaging (I will also use developmental examples), but the general issues apply to nearly all fMRI studies. So here are some important things to keep in mind whenever you read an fMRI study
Faking It: The Psychological Cost - via PsyBlog – Participants told they were wearing fake designer sunglasses twice as likely to cheat on a test.
Forget Brainstorming: What you think you know about fostering creativity is wrong. A look at what really works.- via Newsweek – Brainstorming in a group became popular in 1953 with the publication of a business book, Applied Imagination. But it’s been proven not to work since 1958, when Yale researchers found that the technique actually reduced a team’s creative output: the same number of people generate more and better ideas separately than together. In fact, according to University of Oklahoma professor Michael Mumford, half of the commonly used techniques intended to spur creativity don’t work, or even have a negative impact. As for most commercially available creativity training, Mumford doesn’t mince words: it’s “garbage.” Whether for adults or kids, the worst of these programs focus solely on imagination exercises, expression of feelings, or imagery. They pander to an easy, unchallenging notion that all you have to do is let your natural creativity out of its shell. However, there are some techniques that do boost the creative process:
Metaphors of Mind and Money- via PsyFi Blog – The question of how psychologists come up with their theories of how the mind works is one that’s long troubled philosophers. Now this might not seem like a very serious concern, especially to those of us more worried about whether our stocks are going up or down, but this is misleading: how our minds work is part and parcel of how financial systems operate and our theories about this process are important in developing sensible approaches to safe and profitable investment.
How water helps us lose weight – via Futurity – Ordinary water—without any additives—does more than just quench thirst. It increases the activity of the sympathetic—fight or flight—nervous system, which raises alertness, blood pressure, and energy expenditure.
Behavioral Law and Disorder- via PsyFi Blog – It’s may come as a surprise to you that the mutual fund industry, at least in the United States, is a shining record of fiduciary duty. It’s a fact that not once in twenty-five years did a shareholder in one of these funds manage to convince a court that their money has, in any way whatsoever, been mismanaged. This is despite a raft of allegations, originally stemming from the investigations of the ever-vigilant, if nocturnally over-enthusiastic, ex-Attorney General of New York, Elliot Spitzer, that many of the advisors running these funds had deliberately siphoned profits from long-term individual shareholders to institutional clients.
A Year Without Unhappiness?- via Freakonomics – Cathal Morrow, who gained fame for his year without lying, has a new project: a year of complete happiness. “It’s my belief that happiness and happy / unhappy are entirely unrelated – happiness is a permanent state in us all, if we allow it to be,” writes Morrow.” Readers, which seems harder to you: a year without lying or a year of happiness? Or, conversely, what’s something you’d like to go without for a year? (And why haven’t you already done it?)
Snooze before tackling the to-do list – via Futurity – When it comes to following through on all those intentions, it’s best to think it over, then “sleep on it.”
Researchers find mice cages alter brains – via Eureka Alert – Researchers at the University of Colorado’s Anschutz Medical Campus have found the brains of mice used in laboratories worldwide can be profoundly affected by the type of cage they are kept in, a breakthrough that may require scientists to reevaluate the way they conduct future experiments.
Narcissists bring pluses, minuses to the workplace- via Phys Org – New research led by psychologist Jack Goncalo, assistant professor in the ILR School, shows how and why narcissists can influence creativity in groups and in the workplace. The findings will be published in Personality and Social Psychology Bulletin.
New Book: A History of Celebrity — From Byron to Beckham- via Princeton University Press – Love it or hate it, celebrity is one of the dominant features of modern life–and one of the least understood. Fred Inglis sets out to correct this problem in this entertaining and enlightening social history of modern celebrity, from eighteenth-century London to today’s Hollywood. Vividly written and brimming with fascinating stories of figures whose lives mark important moments in the history of celebrity, this book explains how fame has changed over the past two-and-a-half centuries.
Video Documentary: The Man Who Ate His Lover - via Psych Central – Good documentary about a case of voluntary erotic cannibalism between two men. A famous international news story, Armin Meiwes was eventually convicted. The documentary investigates his childhood, sexuality, psychological issues, and how the men met online. Via Documentary Heaven.
Seeing is believing: the effect of brain images on judgments of scientific reasoning- via PubMed – Brain images are believed to have a particularly persuasive influence on the public perception of research on cognition. Three experiments are reported showing that presenting brain images with articles summarizing cognitive neuroscience research resulted in higher ratings of scientific reasoning for arguments made in those articles, as compared to articles accompanied by bar graphs, a topographical map of brain activation, or no image. These data lend support to the notion that part of the fascination, and the credibility, of brain imaging research lies in the persuasive power of the actual brain images themselves. We argue that brain images are influential because they provide a physical basis for abstract cognitive processes, appealing to people’s affinity for reductionistic explanations of cognitive phenomena.
Penalty Kicks May Be Predictable – via Discovery News – In a World Cup-level soccer game, most penalty kicks become goals. Faced with a ball that rockets toward him from 36 feet away and that — at 60-plus miles per hour — spends less than half a second in the air, a goalkeeper needs to decide which way he’s going to dive before the kicker’s foot even makes contact with the ball. More than 80 percent of the time, studies show, even the best goalies guess wrong.
Why Soccer is Rife with Cheating- via Discovery News – FIFA World Cup soccer is well underway in South Africa, and soon we will know who the 2010 world champions are. But the road to the World Cup has been fraught with controversies over everything from the annoying vuvuzela horns to blown referee calls to cheating.
Bad Relationships Can Hurt… Literally - via Social Psych Eye – Some research has demonstrated that marital relationships are linked to a number of both long and short-term physical health issues as well as emotional problems. According to Slatcher (2010), in a review of some of the research on marital relationships and physical health, there are two independent factors in marriage effecting health: marital strain (leading to negative health effects) and marital strength (which can have a positive impact on health). Marriage has been linked to numerous physical responses including cardiovascular functioning, neuroendocrine output, and immunity; and marriage can even impact mortality rates. Although there is a great deal of research linking marriage to both positive and negative changes in physical health, the author argues that there is too little research explaining exactly what psychological processes occur in order to explain those changes.
When should you use self-deprecating humor? – via Bakadesuyo – Humor type and presenter status had no effects on short-term attractiveness, but self-deprecating humor by high-status presenters (but not low-status presenters) increased long-term attractiveness for both sexes.
Exclusive Picks + Financial Topics
No living American has experienced unemployment even nearly as bad as now- via Reality Base – Scott Winship has plotted here the number of unemployed persons in the labor force divided by the number of advertized job openings from 1951 to 2010. In good times, there were more advertized job openings than unemployed persons in the labor force. In bad times, the ratio of unemployed to job openings rose as high as 2.5. In the Great Recession, the ratio has been 4, 5, and 6.
Preventing Investor Harm Should be SEC Priority Number One - via Harvard Law – The entire securities industry and its participants … whether it is issuers, intermediaries, fund companies, or other market participants would not be able to function, much less profit, without the trust of investors and the public as a whole. Pay to play activity—where intermediaries direct contributions in order to obtain advisory pension plan business—undercuts this basic trust by harming investors and damaging the reputations of regulated institutions and the securities industry as a whole
How Does A Bad C.E.O. Score Another Great Gig? – via Cheap Talk – An executive rises through the ranks at a large organization and becomes C.E.O. He makes terrible decisions or is a passive leader, letting the firm slide into obscurity. The firm is publicly traded and poor performance is observable. But the C.E.O. manages to get another great job, leading a “turnaround” at another large organization. He uses the same strategy that performed so badly in the first firm. His second firm also goes down the tube. This story is loosely based on an example I use in one of my M.B.A. classes. And I have another new example. How can it happen?
Too Rich to Live? – via WSJ – The estate tax is set to come roaring back in January. That sets the stage for a perverse calculus: End it all—or leave a massive bill for your heirs to deal with.
Social Security Reform: The Power of Compounding- via Michael Robert- In today’s Wall Street Journal, Fred Barnes writes about a proposal by Robert Pozen, former vice chairman of Fidelity Investments. For several years now, Robert Pozen, a Democrat, has offered a bipartisan approach for restoring Social Security to long term solvency. His proposal calls for using the historical inflation rate, rather than wage growth data, to index earnings as part of the calculation of Social Security benefits. He would exempt lower income individuals from this shift, and instead, continue to use wage indexing for them. That’s why Pozen calls it “progressive indexing.” Consumer Psychologist Examines Effectiveness Of Reward Programs – via PhysOrg – Rewards programs. Everyone is doing them — airlines, casinos, airlines, hotels and grocery chains — all with the intent to build customer loyalty. Everybody has one, and nobody knows what it does for them, according to Ithaca College consumer psychologist Michael McCall.
Academic Research Worth Reading
Crisis? What Crisis?: Currency vs. Banking in the Financial Crisis of 1931 - via CEP – This paper examines the role of currency and banking in the German financial crisis of 1931 for both Germany and the U.S. We specify a structural dynamic factor model to identify financial and monetary factors separately for each of the two economies. We find that monetary transmission through the Gold Standard played only a minor role in causing and propagating the crisis, while financial distress was important. We also find evidence of crisis propagation from Germany to the U.S. via the banking channel. Banking distress in both economies was apparently not endogenous to monetary policy. Results confirm Bernanke’s (1983) conjecture that an independent, non-monetary financial channel of crisis propagation was operative in the Great Depression.
Lessons from Japan’s Banking Crisis, 1991–2005 - via ADBI Institute – The Japanese government’s response to the financial crisis in the 1990s was late, unprepared and insufficient; it failed to recognize the severity of the crisis, which developed slowly; faced no major domestic or external constraints; and lacked an adequate legal framework for bank resolution. Policy measures adopted after the 1997–1998 systemic crisis, supported by a newly established comprehensive framework for bank resolution, were more decisive. Banking sector problems were eventually resolved by a series of policies implemented from that period, together with an export-led economic recovery. Japan’s experience suggests that it is vital for a government not only to recapitalize the banking system but also to provide banks with adequate incentives to dispose of troubled assets from their balance sheets, even if that required the government to mobilize regulatory measures to do so, as was done in Japan in 2002. Economic stagnation can cause new nonperforming loans to emerge rapidly, and deplete bank capital. If the authorities do not address the banking sector problem promptly, then the crisis will prolong and economic recovery will be substantially delayed.
Don’t Tell Me What to Do, Tell Me Who to Follow! - via Francisco Alpízar and Peter Martinsson – We conducted a field experiment in a protected area to explore the effects of conformity to a social reference versus a comparable, but imposed, suggested donation. As observed before, we see visitors conforming to the changing social reference. On the other hand, the treatment in which we suggested a donation resulted in lower shares of visitors donating, compared to the social reference treatment, and lower conditional donations even compared to the control. We concluded that visitors look at their peers as a reference to conform to, but partially reject being confronted with an imposed suggestion on how to behave.
How down payments affect marriage- via Boston – Who says money can’t buy love? An economist at the University of Georgia has found evidence that helping people save also greases the wheels of the marriage and divorce market. In the late ’90s, hundreds of low-income individuals in Tulsa, Okla., were randomly assigned to receive funds they could use to help make a down payment on a house. Initially unmarried individuals were over 40 percent more likely to be married after four years in the program. Meanwhile, initially married individuals were even more likely to be divorced after only 18 months in the program. Not surprisingly, divorces were especially likely among those with already poor spousal relations; couples with good relations were actually less likely to divorce.
I spend 8 hours every Sunday putting this together. If you link this roundup or plan on linking to it (or from it) kindly include a reference to SimoleonSense.com Thanks!
Weekly Cartoon
Weekly Joke
What’s the difference between a dead possum and a dead statistician lying in the road?
Answer: There are skid marks in front of the possum.
Must Read Articles For All Weekly Visitors!!!
When groups are wrong and deviants are right- via Wiley Interscience – How do group members respond when their group wrongfully punishes a group member? In two experiments, participants were presented with an ingroup member who argued for group change on moral (Experiment 1, N = 73) or scientific grounds (Experiment 2, N = 94). Despite being right, the member was treated as deviant by the group. We manipulated whether the group retained its former opinion or adopted the deviant’s position, and whether the deviant’s punishment was ongoing or whether the deviant was reinstated. We tested opposing predictions about how these group actions would affect group members’ negativity towards the deviant. Both studies showed that negativity towards the deviant was highest when the group opinion was unchanged and the deviant was not reinstated. Further, opinion change or reintegration defused negativity towards the deviant. Implications of groups rejecting or embracing change, and their effects on the evaluation of wrongfully accused deviants are discussed.
Chronicles of Currency Collapses: 1960-2006 – via Paul Kedrosky – Our main finding is that currency collapses are associated with a permanent output loss relative to trend, which is estimated to range between 2% and 6% of GDP. However, we show that such losses tend to materialise before the drop in the value of the currency…
Interview with Seth Hamot of Roark, Rearden, & Hamot Capital Management- via Selected Financials – Seth Hamot, 48, is the founder and managing partner of Roark, Rearden, & Hamot Capital Management. His fund has over $150 Million under management, has performed well through 2-3 recessions, and returned an annualized 17% to investors net of fees.
Consuelo Mack Interviews Loews’s James Tisch - via Guru Focus – On this week’s : is Loews Corporation another Berkshire Hathaway? We’ll ask second generation “Great Investor” James Tisch where he is finding value now in Loew’s portfolio of investments in companies ranging from insurance to hotels to oil drillers.
The Mark of a Masterpiece - via New Yorker & Farnam st – Every few weeks, photographs of old paintings arrive at Martin Kemp’s eighteenth-century house, outside Oxford, England. Many of the art works are so decayed that their once luminous colors have become washed out, their shiny coats of varnish darkened by grime and riddled with spidery cracks. Kemp scrutinizes each image with a magnifying glass, attempting to determine whether the owners have discovered what they claim to have found: a lost masterpiece by Leonardo da Vinci.
Rationality and Fragility in Financial Markets – via Rajiv Sethi – In a recent paper on financial innovation and fragility, Gennaioli, Shleifer and Vishny argue that investors (and often also financial intermediaries) are hobbled by certain systematic cognitive biases that cause them to neglect unlikely events when assessing asset values. They argue that such “local thinking” results in the creation and excessive issuance of engineered securities that are widely believed to be close substitutes for more traditional safe assets, but turn out to be much riskier than initially anticipated. This psychological regularity, they believe, accounts for a number of historical episodes of financial instability
What the Dunning-Kruger effect is and isn’t- Via Citation Needed – If you regularly read cognitive science or psychology blogs (or even just the lowly New York Times!), you’ve probably heard of something called the Dunning-Kruger effect. The Dunning-Kruger effect refers to the seemingly pervasive tendency of poor performers to overestimate their abilities relative to other people–and, to a lesser extent, for high performers to underestimate their abilities. The explanation for this, according to Kruger and Dunning, who first reported the effect in an extremely influential 1999 article in the Journal of Personality and Social Psychology, is that incompetent people by lack the skills they’d need in order to be able to distinguish good performers from bad performers:
Why Is It So Hard to Apologize Well?- via NYT – All this apologizing should be good for our collective soul, allowing those who are wrong a chance to repent and those who have been wronged a change to forgive, right? Apologies, says Dr. Aaron Lazare, the former chancellor of the University of Massachusetts Medical School and author of the book “On Apology,” are “the most profound of human interactions.” When used well, the words can heal humiliation — by lifting anger and guilt and allowing splintered bonds to mend.
Life by a Thousand Cuts - via FP – The United States’ defense-spending habit has been out of control for years. Will it ever change?
Sequoia funds – Sticking to What Works – via WSJ – This month Sequoia Fund marks its 40th anniversary. It’s a milestone rarely achieved in an industry where three years is considered long term.Even more remarkable is that Sequoia is being run pretty much the same as it was when Warren Buffett’s friend and stockbroker, the late Bill Ruane, launched the fund in 1970. It’s still a concentrated portfolio with two or three dozen stocks, all heavily researched and bought with the idea that the market is valuing them at less than their true worth. Co-managing the fund is Robert Goldfarb, whose tenure at the New York firm dates back to 1971.
Miguel’s Weekly Favorites
Are Risk Aversion and Impatience Related to Cognitive Ability? – via Unimass – This paper investigates whether risk aversion and impatience are correlated with cognitive ability. We conduct incentive compatible choice experiments measuring risk aversion, and impatience over an annual time horizon, for a representative sample of roughly 1,000 German adults. A measure of cognitive ability is provided by two submodules of one of the most widely used IQ tests. Interviews are conducted in subjects’ own homes. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are statistically and economically significant, and robust to controlling for personal characteristics, educational attainment, income, and measures of liquidity constraints. We perform a series of additional robustness checks, which help rule out other possible confounds
Sex Battles in the Brain - via MIT World – The expression of certain genes depends on whether they were inherited from the mother or the father, a phenomenon known as imprinting. Catherine Dulac has discovered that a surprisingly large number of brain genes are imprinted, often in complex ways. Her findings have broad implications for understanding the inheritance of behavioral traits and disease susceptibility.
The effects of background music and sound in economic decision making: Evidence from a laboratory experiment – via MPRA – This paper experimentally studies the effects of background music and sound on the preference of the decision makers for rewards in pairwise intertemporal choice tasks and lottery choice tasks. The participants took part in the current experiment, involving four treatments: (1) the familiar music treatment; (2) the unfamiliar music treatment; (3) the noise treatment and (4) the no music treatment. The experimental results confirm that background noise affects human performance in decision making under risk and intertemporal decision making, though the results do not indicate the significant familiarity effect that is a change of the preference in the presence of familiar background music and sound.
Protection from hurt feelings - via Boston.com – Everyone has experienced pain and sickness at some point in their lives. For such physical ailments, one of the first things we do–or are instructed to do by medical providers–is take a pain reliever, like acetaminophen (a.k.a., Tylenol). But physical pain isn’t the only kind of pain. Our feelings can also be hurt. So researchers wondered whether acetaminophen, which acts on the central nervous system, could blunt social pain, too. In one experiment, healthy college students were randomly assigned to take acetaminophen or a placebo twice a day for three weeks. Those who took acetaminophen reported experiencing significantly fewer hurt feelings. In a second experiment, another set of healthy college students was randomly assigned to take acetaminophen or a placebo twice a day for three weeks. At the end of the three weeks, the students were scanned in an MRI machine while playing a virtual ball-tossing game with two other players. After a while, the other players stopped tossing the ball to the subject. Those who had taken the acetaminophen exhibited significantly less neural activity in areas of the brain previously associated with experiencing social and physical pain.
We agree it’s WEIRD, but is it WEIRD enough? – via Neuroanthropology – The most recent edition of Behavioral and Brain Sciences carries a remarkable review article by Joseph Henrich, Steven J. Heine and Ara Norenzayan, ‘The weirdest people in the world?’ The article outlines two central propositions; first, that most behavioural science theory is built upon research that examines intensely a narrow sample of human variation (disproportionately US university undergraduates who are, as the authors write, Western, Educated, Industrialized, Rich, and Democratic, or ‘WEIRD’).
I’m Happy as Long as I Make More Than You – via Miller McCune – New research acknowledges that money doesn’t buy happiness all on its own purchasing power, but rather happiness comes indirectly from the higher status money provides.
Video: Ted Talk – Obesity + Hunger = 1 global food issue - Co-creator of the philanthropic FEED bags, Ellen Gustafson says hunger and obesity are two sides of the same coin. At TEDxEast, she launches The 30 Project — a way to change how we farm and eat in the next 30 years, and solve the global food inequalities behind both epidemics.
The political economy of the subprime mortgage credit expansion - via Voxeu- Is the US government to blame for the subprime crisis and by extension the global crisis? This column presents a unique study of how vested interests, measured by campaign contributions from the mortgage industry and the share of subprime borrowers in a congressional district, influenced US government policy during in the build up to the subprime crisis and subsequent global crisis.
Beyond Bayes: causality vs correlation – via Steve Hsu – A draft paper by Harvard graduate student James Lee (student of Steve Pinker; I’d love to post the paper here but don’t know yet if that’s OK) got me interested in the work of statistical learning pioneer Judea Pearl. I found the essay Bayesianism and Causality, or, why I am only a half-Bayesian (excerpted below) a concise, and provocative, introduction to his ideas.
Rising inequality between countries in adult length of life- via Voxeu – In the least 30 years, the difference in life expectancy at birth across the globe has fallen dramatically. This column presents new data on life expectancy within and between countries for the period 1970 to 2000. Controlling for infant mortality, it finds that while within-country inequality in life expectancy fell, between-country inequality rose, leaving total inequality unchanged.
Does materialism lead to unhappiness? If so, why? – via Bakadesuyo – Previous research has established an inverse relationship between materialism and psychological well-being. To test the hypothesis that the link between materialism and well-being is due in part to an individual’s feelings of personal control,
Your Brain on Exercise- via Uveal Blues – What goes on inside your brain when you exercise? That question has preoccupied a growing number of scientists in recent years, as well as many of us who exercise.
Charlie Rose Interviews: Jerry Bruckheimer - via Charlie rose -Jerry Bruckheimer is a Hollywood Producer. During the 1980s and 1990s, he was a co-producer with the late Don Simpson of a string of highly successful Hollywood films for Paramount Pictures. His first big hit was with 1983’s “Flashdance,” and he had a number of others including the “Beverly Hills Cop” films, “Top Gun,” and “Days of Thunder,” “Remember the Titans,” “Black Hawk Down” and “Pirates of the Caribbean.”
Broken heart syndrome and the flagellated heart- via Science Blogs – This is another one of those unlikely situations that insist on existing. Could a very strong emotion cause a cardiac alteration so severe capable of causing someone’s death? I’m not talking about arrhythmia. Electric alterations in the heart could make it lose its regular rhythm and, possibly, create a situation where there is, in fact, a cardiac arrest. Arrhythmias may be caused by a number of factors, including electrolytic disorders, traumas, drugs, as well as emotions.
What I am talking about are anatomical alterations, detectable by examination, like echocardiogram or ventriculography done during catheterization. Is it possible for a strong emotion to cause a heart failure?
Dan Ariely: Three questions on Behavioral Economics - via Predictably Irrational- In general, both standard and behavioral economics are interested in the same questions and topics. The choices people make, the effects on incentives, the role of information etc. However, unlike standard economics, behavioral economics does not assume that people are rational. Instead, behavioral economists start by figuring out how people actually behave, often in a controlled lab environment in which we can understand behavior better, and use this as a starting point for building our understanding of human nature. As a consequence of this different starting point, behavioral economists usually come to different conclusions about the logic and efficacy of almost anything, ranging from mortgages to savings to healthcare in both the personal and business realms. Will we get brain scans of fund managers in the future – A Neuroscientist Uncovers A Dark Secret- via Finance Professor – but Fallon says the orbital cortex puts a brake on another part of the brain called the amygdala, which is involved with aggression and appetites. But in some people, there’s an imbalance — the orbital cortex isn’t doing its job — perhaps because the person had a brain injury or was born that way. The Situation of Psychopaths - via Situationist – NPR’s Morning Edition had a three-part series, called “Inside the Criminal Brain” (hosted by Renee Montagne and Barbara Hagerty) at the end of June. The first in the of the series, “Neuroscientist Uncovers A Dark Secret” (which you can listen to here) tells the story of neuroscientist James Fallon. Here are some excerpts from the transcript.
An Age of Miracles and Wonders- via Psyfi Blog – Stretch your arms out to either side and imagine you’re looking at the economic growth of the human race over its entire four thousand year documented history. From the fingertip on your right hand to the first wrinkle on its index ftinger more or less covers the first three thousand eight hundred years. From there to the end of the index finger on your left hand represents growth over the nineteenth and twentieth centuries.
Poor Suburbia: Rethinking the geography of American poverty - via U Chicago – For decades, suburban living has been synonymous with America’s upper middle class, a stereotype that emerged from the “Leave it to Beaver” era and morphed into today’s gated communities, mega-malls, and million-dollar mansions. But even before the recession, which continues to hit every pressure point of the nation’s economy, Elizabeth Kneebone, MPP’03, says that idyllic American Dream was only one side of the suburban coin.
The 21st Century Grid - via National Geographic – We are creatures of the grid. We are embedded in it and empowered by it. The sun used to govern our lives, but now, thanks to the grid, darkness falls at our convenience. During the Depression, when power lines first electrified rural America, a farmer in Tennessee rose in church one Sunday and said—power companies love this story—”The greatest thing on earth is to have the love of God in your heart, and the next greatest thing is to have electricity in your house.” He was talking about a few lightbulbs and maybe a radio. He had no idea.
What Would the Earth Look Like if it Stopped Spinning? – via Discovery – What would happen if the Earth stopped spinning? We don’t have any reason to think it will in the next few million millennia, but Witold Fraczek, an employee of geographic imaging software company ESRI, was curious. He used ArcGIS, the company’s flagship software, to build a virtual model of the planet in the absence of centrifugal force.
Exclusive Picks + Financial Topics
Life and death of Microsoft Kin: the inside story - via Engadget – Since our piece on Wednesday, we’ve had more trusted sources step forward to fill in some blanks and clarify the story behind the amazingly swift fall from grace that Microsoft’s Kin phones have experienced since their launch just a few weeks ago. It’s a fascinating tale, and we wanted to share everything we’ve learned.
The Higher Costs of Bribery in China – via Bloomberg – In late June, more than 150 executives from Siemens (SI), the German industrial giant, met in Beijing to discuss compliance with Chinese and U.S. anticorruption laws. That a multinational would spend millions to strategize about avoiding bribery charges in a country where bribery is rampant shows how much business is changing in China.
Financial Innovation and Financial Fragility - via NBER – We present a standard model of financial innovation, in which intermediaries engineer securities with cash flows that investors seek, but modify two assumptions. First, investors (and possibly intermediaries) neglect certain unlikely risks. Second, investors demand securities with safe cash flows. Financial intermediaries cater to these preferences and beliefs by engineering securities perceived to be safe but exposed to neglected risks. Because the risks are neglected, security issuance is excessive. As investors eventually recognize these risks, they fly back to safety of traditional securities and markets become fragile, even without leverage, precisely because the volume of new claims is excessive.
‘Hollywood Accounting’ Losing In The Courts – via Tech Dirt – If you follow the entertainment business at all, you’re probably well aware of “Hollywood accounting,” whereby very, very, very few entertainment products are technically “profitable,” even as they earn studios millions of dollars. A couple months ago, the Planet Money folks did a great episode explaining how this works in very simple terms. The really, really, really simplified version is that Hollywood sets up a separate corporation for each movie with the intent that this corporation will take on losses. The studio then charges the “film corporation” a huge fee (which creates a large part of the “expense” that leads to the loss). The end result is that the studio still rakes in the cash, but for accounting purposes the film is a money “loser” — which matters quite a bit for anyone who is supposed to get a cut of any profits.
Team Coordination Is Key in Businesses- via Fast Company – At the 2008 Beijing Olympics, the American men’s 4×100 relay team was a strong medal contender. During the four previous Games, the American men had medaled every time. The qualifying heats in 2008 — the first step on the road to gold — should have been a cakewalk.
Psychological test can help predict whether the love will last – via LA Times – Just think of how much emotional pain could be avoided if humans knew just when to exit a romantic relationship? Knowing whether to break up or stay together is a wrenching question that often lacks an easy answer.
Finance spread its own risks but left ours alone- via John Kay – The risks that the financial sector has devised techniques to manage are not the everyday risks of an uncertain world: they are risks almost entirely created within the financial sector itself.
Academic Research Worth Reading
Coarse Thinking, Implied Volatility, and the Price of Call and Put Options by Hammad Siddiqi- via Finance Professor & SSRN – We derive a new option pricing formula based on the notion that the market consists of coarse thinkers as well as rational investors. The new formula, called the behavioral option pricing formula is a generalization of the Black-Scholes formula. The new formula not only provides explanations for the implied volatility skew and term structure puzzles in equity index options but is also consistent with the observed negative relationship between contemporaneous equity price shocks and implied volatility.
A Salience Theory of Choice Errors - via MZRA – We study a psychologically based foundation for choice errors. The decision maker applies a preference ranking after forming a ‘consideration set’ prior to choosing an alternative. Membership of the consideration set is determined both by the alternative specific salience and by the rationality of the agent (his general propensity to consider all alternatives). The model turns out to include a logit formulation as a special case. In general, it has a rich set of implications both for exogenous parameters and for a situation in which alternatives can affect their own salience (salience games). Such implications are relevant to assess the link between ‘revealed’ preferences and ‘true’ preferences: for example, less rational agents may paradoxically express their preference through choice more truthfully than more rational agents.
Do Powerful Politicians Cause Corporate Downsizing? – via SSRN – This paper employs a new empirical approach for identifying the impact of government spending on the private sector. Our key innovation is to use changes in congressional committee chairmanship as a source of exogenous variation in state-level federal expenditures. In doing so, we show that fiscal spending shocks appear to significantly dampen corporate sector investment and employment activity. These corporate behaviors follow both Senate and House committee chair changes, are partially reversed when the congressman resigns, and are most pronounced among geographically-concentrated firms. The effects are economically meaningful and the mechanism – entirely distinct from the more traditional interest rate and tax channels – suggests new considerations in assessing the impact of government spending on private sector economic activity.
I spend 8 hours every Sunday putting this together. If you link this roundup or plan on linking to it (or from it) kindly include a reference to SimoleonSense.com Thanks!
Einstein dies and goes to heaven only to be informed that his room is not yet ready. “I hope you will not mind waiting in a dormitory. We are very sorry, but it’s the best we can do and you will have to share the room with others” he is told by the doorman.
Einstein says that this is no problem at all and that there is no need to make such a great fuss. So the doorman leads him to the dorm. They enter and Albert is introduced to all of the present inhabitants. “See, Here is your first room mate. He has an IQ of 180!”
“Why that’s wonderful!” Says Albert. “We can discuss mathematics!”
“And here is your second room mate. His IQ is 150!”
“Why that’s wonderful!” Says Albert. “We can discuss physics!”
“And here is your third room mate. His IQ is 100!”
“That Wonderful! We can discuss the latest plays at the theater!”
Just then another man moves out to capture Albert’s hand and shake it. “I’m your last room mate and I’m sorry, but my IQ is only 80.”
Albert smiles back at him and says, “So, where do you think interest rates are headed?”
Must Read Articles For All Weekly Visitors!!!
What can you do to someone to make their lies easier to detect? - via Bakadesuyo – We present two lie detection approaches based on cognitive theory. The first approach, ‘measuring cognitive load’, assumes that the mere act of lying generates observable signs of cognitive load. This is the traditional cognitive lie detection approach formulated by Zuckerman, DePaulo, & Rosenthal (1981). The second approach, ‘imposing cognitive load’, was developed by us (Vrij, Fisher, Mann, & Leal, 2006) and goes one step further.
The Economists That Did Their Homework (800 Years of It)- via NYT – THE advertisement warns of speculative financial bubbles. It mocks a group of gullible Frenchmen seduced into a silly, 18th-century investment scheme, noting that the modern shareholder, armed with superior information, can avoid the pitfalls of the past. “How different the position of the investor today!” the ad enthuses.
Why Can’t Investors Think For Themselves? – via Farnam St – The always awesome Jason Zweig unearths a new study that tells us why investor sentiment seems to change on a dime. Sometimes the most interesting answers to financial questions come from scientific labs. A study published last week in the journal Current Biology found that the value you place on something is likely to go up when other people tell you it is worth more than you thought, and down when others say it is worth less. More strikingly, if your evaluation agrees with what others tell you, then a part of your brain that specializes in processing rewards kicks into high gear.
Government for Sale: How Lobbyists Shaped the Financial Reform Bill - via Time – Two weeks ago, along a marble corridor in the Rayburn House Office Building in Washington, I watched about 40 well-dressed men (and two women) delivering huge value for their employers. Except that we, the taxpayers, weren’t employing them. The nation’s banks, mortgage lenders, stockbrokers, private-equity funds and derivatives traders were.
Video: Jerry Wolman: The World’s Richest Man – via Fora.tv – Jerry Wolman: The World’s Richest Man is the never-been-told true story of Jerry Wolman, who came from the coal mining region of Pennsylvania and made it big. He became known as “The Boy Wonder” of real estate as a storybook “rags to riches” builder in the Washington, D.C. area in the mid-1950s through the 1960s, amassing a personal financial empire.
Why Protestant’s Can’t Pick Stocks : Having Faith in Your Trade: Mutual Fund Risk-Taking and Local Religious Beliefs- via PK – We examine the relations between mutual fund risk-taking behaviors and local religious beliefs. We find that funds located in regions with lower Protestant population or higher Catholic population tend to have higher volatilities of fund returns, consistent with Protestants (Catholics) being more (less) risk-averse compared to general population. The variation in systematic risk exposures explains only a small portion of this difference as we observe a similar pattern in idiosyncratic portfolio risks. We also find that intra-year increases in fund volatility associated with tournament-like competition exist only in mutual funds located in areas with lower Protestant or higher Catholic population. After controlling for exposures to common risk factors, we find little evidence that higher return volatility is rewarded with higher returns. Funds located in lower Protestant population areas also appear to trade more frequently and have more positive return gaps. Overall, our findings suggest that the level of risk-taking by mutual fund managers varies reliably with local religious beliefs.
Afghanistan’s first media mogul- via New Yorker – Every day in Kabul, politicians and journalists in search of information come to a barricaded dead-end street in the Wazir Akbar Khan district to see Saad Mohseni, the chairman of Moby Group, Afghanistan’s preëminent media company. At the last house on the right, burly men carrying AK-47s lead them up creaky stairs to a small second-floor office. Mohseni, a gregarious man with a politician’s habits, often stands up to greet visitors with a hug, then returns to his desk, where a BlackBerry, two cell phones, and a MacBook Air laptop are constantly lit up; fifteen small flat-screen TVs, set to mute, are mounted on the office walls.
Universities ranked by ROI - via Information Processing – MIT, Caltech and Harvard lead the pack. Berkeley is the top public school and beats out Brown, Columbia and Cornell. (Actually, for in-state students, the percentage ROI for Berkeley is the highest because tuition is low.) Full list and methodology discussion here. These results are using a sample of graduates who only obtained a bachelor’s degree and no higher degree. The ROI dollar amount is the *difference* in income between graduates and non-graduates. (See methodology note at link above.)
What happened to studying?- via Boston.com – They come with polished resumes and perfect SAT scores. Their grades are often impeccable. Some elite universities will deny thousands of high school seniors with 4.0 grade point averages in search of an elusive quality that one provost called “intellectual vitality.” The perception is that today’s over-achieving, college-driven kids have it — whatever it is. They’re not just groomed; they’re ready. There’s just one problem. Once on campus, the students aren’t studying.
You Have Superpowers: How to tap the strange power of being wrong – via Scientific American -False beliefs carry a bad reputation for bringing turmoil and misunderstanding. No less an enlightened thinker than Thomas Jefferson noted, “It is always better to have no ideas than false ones; to believe nothing, than to believe what is wrong.” Mistaken beliefs can mean the difference between war and peace in the case of conflicts such as the Cuban Missile Crisis or the more recent pursuit of weapons of mass destruction in Iraq. Even common, small mistaken beliefs come with severe consequences like misbeliefs about appointment times that result in missed flights, missed jobs, and missed opportunities.
Biases In The Interpretation & Use of Research Results – via Berkeley – The latter half of this century has seen an erosion in the perceived legitimacy of science as an impartial means of finding truth. Many research topics are the subject of highly politicized dispute; indeed, the objectivity of the entire discipline of psychology has been called into question. This essay examines attempts to use science to study science; specifically, bias in the interpretation and use of empirical research findings. I examine theory and research on a range of cognitive and motivational mechanisms for bias. Interestingly, not all biases are normatively proscribed; biased interpretations are defensible under some conditions so long as those conditions are made explicit. I consider a variety of potentially corrective mechanisms, evaluate prospects for collective rationality, and compare inquisitorial and adversarial models of science.
Miguel’s Weekly Favorites
Predicting soccer matches: A reassessment of the benefit of unconscious thinking – Via SJDM – We evaluate the benefit of unconscious thinking in predicting the outcomes of soccer matches. We conclude that the evidence that unconscious thinking
helps experts to make better predictions is tenuous both from theoretical and statistical perspectives.
Applied Behavioral Economics- via Gallup – Could your company outperform its competitors by 85% in sales growth and 25% gross margin? A group of Gallup clients achieved this competitive advantage by applying our behavioral economic principles.
Soccer & Irrational Goalies- via TrueSlant – Indeed, it felt lousy. Azar interviewed the goalies about their decisions in the net, and he found that their emotions played a major role in goaltending strategy. Despite the clear statistical advantage of staying put in the center, only about 6 percent of goalies actually choose to do this. Why? Because they feel worse if they fail standing still—worse than they feel if they fail diving. In other words, taking any action—even an action doomed to failure—is better than inaction, because doing nothing and still failing is emotionally unacceptable. That’s the heuristic mind that makes movement an emotional choice, and it takes a lot of effort to alter the impulse.
Lost in the Sauce: The Effects of Alcohol on Mind Wandering- Sagepub – The results suggest that alcohol increases mind wandering while simultaneously reducing the likelihood of noticing one’s mind wandering. Findings are discussed with regard to theories of alcohol and theories of consciousness. Deliberate Practice Is Necessary but Not Sufficient to Explain Individual Differences in Piano Sight-Reading Skill- via Sagepub – Deliberate practice—that is, engagement in activities specifically designed to improve performance in a domain—is strongly predictive of performance in domains such as music and sports. It has even been suggested that deliberate practice is sufficient to account for expert performance. Less clear is whether basic abilities, such as working memory capacity (WMC), add to the prediction of expert performance, above and beyond deliberate practice. In evaluating participants having a wide range of piano-playing skill (novice to expert), we found that deliberate practice accounted for nearly half of the total variance in piano sight-reading performance. However, there was an incremental positive effect of WMC, and there was no evidence that deliberate practice reduced this effect. Evidence indicates that WMC is highly general, stable, and heritable, and thus our results call into question the view that expert performance is solely a reflection of deliberate practice.
The Illusion of Courage in Social Predictions: Underestimating the Impact of Fear of Embarrassment on Other People- via SSRN -The results of two experiments support the thesis that emotional perspective taking entails two judgments: a prediction of one’s own preferences and decisions in a different emotional situation, and an adjustment of this prediction to accommodate perceived differences between self and others. Participants overestimated others’ willingness to engage in embarrassing public performances – miming (Experiment 1) and dancing (Experiment 2) – in exchange for money. Consistent with a dual judgment model, this overestimation was greater among participants facing a hypothetical rather than a real decision to perform. Further, participants’ predictions of others’ willingness to perform were more closely correlated with self-predictions than with participants’ estimates of others’ thoughts about the costs and benefits of performing.
Emotional reactions to losing explain gender differences in entering a risky lottery - via SJDM – A gender difference in risk preferences, with women being more averse to risky choices, is a robust experimental
finding. Speculating on the sources of this difference, Croson and Gneezy recently pointed to the tendency for women to experience emotions more strongly and suggested that feeling more strongly about negative outcomes would lead to greater risk-aversion. Here we test this hypothesis in an international survey with 424 respondents from India and 416 from US where we ask questions about a hypothetical lottery. In both countries we find that emotions about outcomes are stronger among women, and that this effect partially mediates gender difference in willingness to enter the lottery.
Inside A Psychopath’s Brain: The Sentencing Debate- Via NPR -Kent Kiehl has studied hundreds of psychopaths. Kiehl is one of the world’s leading investigators of psychopathy and a professor at the University of New Mexico. He says he can often see it in their eyes: There’s an intensity in their stare, as if they’re trying to pick up signals on how to respond. But the eyes are not an element of psychopathy, just a clue.
A Quest to Learn What Drives Consumer Decisions- via NYT – AS Madison Avenue focuses more intently on trying to influence consumer behavior, one of the world’s largest agencies is starting a unit that will tap into research from academics in the field as well as the work of its own employees. Ken Rogoff – Can Good Emerge From the BP Oil Spill? – via Project syndicate – Perhaps it is a pipe dream, but it is just possible that the ongoing BP oil-spill catastrophe in the Gulf of Mexico will finally catalyze support for an American environmental policy with teeth. Yes, the culprits should be punished, both to maintain citizens’ belief that justice prevails, and to make other oil producers think twice about taking outsized risks. But if that is all that comes out of the BP calamity, it will be a tragic lost opportunity to restore some sanity to the United States’ national environmental and energy policy, which has increasingly gone off track in recent years.
A contagion of social symptoms: – via Mindhacks – There’s a fascinating study just published online by the journal Epidemiology that examines how many reports of chemical spills may in fact be ‘mass hysteria’ or ‘mass psychogenic illness’.
Behavioural Finance’s Smoking Gun- via PsyFi – Here’s a classic demonstration of behavioural finance in action, proving the irrationality of humankind. It’s the (in)famous Linda problem: Dan Ariely On Irrational Career Incentives - via Psych Central – Beliefs about the labour market and irrationalities in how it really works. Ariely, an entertaining and charismatic behavioural economist, describes a number of psychology experiments in conditioning and motivation, and explains why workplace financial incentives aren’t effective beyond a certain point. Related: Daniel Pink talks about one of the same studies (an Indian workplace motivation experiment) in the animated RSA lecture Drive.
Exclusive Picks + Financial Topics
Middle class families face a triple whammy - via Telegraph.co.uk – Falling pensions, cuts and the banking crisis will impoverish many families, says Edmund Conway.You don’t usually expect radical neo-Marxism from the International Monetary Fund – the last great bastion of capitalism, spreading the gospel about the free market to the furthest reaches of the world. And yet, hidden away in an obscure IMF report a few years back is a short sentence that explains precisely the problems that Britain, and the rest of the Western world, have been sleepwalking towards for years.
Washington’s Odd Jobs Attitude Why high unemployment is terrible for the economy. – via Slate – The economy is now presenting a strange dichotomy. The corporate sector has returned to rude health, with improved balance sheets and tons of cash. It has helped lead the recovery. But without the mighty American consumer, who generates 70 percent of economic activity, participating to the fullest degree, the recovery will seem anemic. Without a healthy jobs market, the recession-shocked consumer won’t spend.
The Global Financial Crisis and Equity Markets in Middle East Oil Exporting Countries - via MPRA – This paper employs extreme downside risk measures to estimate the impact of the global financial crisis in 2008/2009 on equity markets in major oil producing Middle East countries. The results in the paper indicate the spillover effect of the global crisis varied from a country to another, but most hardly affected market among the group of six markets was Dubai financial market in which portfolio loss reached about 42 per cent. This indicates that Dubai debt crisis, which emerged on surface in 2009, exacerbated the impact of the global financial crisis and prolonged the recovery process in these markets.
Academic Research Worth Reading
How the Opinion of Others Affects Our Valuation of Objects – via Wisdom – “The opinions of others can easily affect how much we value things. We investigated what happens in our brain when we agree with others about the value of an object and whether or not there is evidence, at the neural level, for social conformity through which we change object valuation. Using functional magnetic resonance imaging we independently modeled (1) learning reviewer opinions about a piece of music, (2) reward value while receiving a token for that music, and (3) their interaction in 28 healthy adults. We show that agreement with two “expert” reviewers on music choice produces activity in a region of ventral striatum that also responds when receiving a valued object. It is known that the magnitude of activity in the ventral striatum reflects the value of reward-predicting stimuli. We show that social influence on the value of an object is associated with the magnitude of the ventral striatum response to receiving it. This finding provides clear evidence that social influence mediates very basic value signals in known reinforcement learning circuitry. Influence at such a low level could contribute to rapid learning and the swift spread of values throughout a population.”
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A priest announced to his congregation: “I have good news and bad news. The good news is, we have enough money to pay for our new building program. The bad news is, it’s still out there in your pockets.”
Must Read Articles For All Weekly Visitors!!!
How do you get people to completely destroy their health? - via Bakadesuyo – In this paper, we take a structural approach to investigate the effects of wages and working hours on health behaviors of low-educated persons using variation in wages and hours caused by changes in economic activity. We find that increases in hours are associated with an increase in cigarette smoking, a reduction in physical activity, and fewer visits to physicians. More importantly, we find that most of the effects associated with changes in hours can be attributed to the changes in the extensive margin of employment. Increases in wages are associated with greater consumption of cigarettes.
Bill Gates Recomends This Video: 9 Billion People + 1 Planet = ? – via Value Investing World – This discussion explores the promise and perils of the next 50 years. Can humanity, heading toward a population of approximately 9 billion, advance economically without overheating the planet? Can food and water supplies be sustained without erasing what’s left of wild nature?
Friendships, family relationships get better with age thanks to forgiveness, stereotypes- via Eureka Alert -
Part of what makes those relationships so golden during the golden years is that people of all ages are more likely to forgive and respect one’s elders, according to research from Purdue University. “Older adults report better marriages, more supportive friendships and less conflict with children and siblings,” said Karen Fingerman, the Berner-Hanley Professor in Gerontology, Developmental and Family Studies. “While physical and cognitive abilities decline with age, relationships improve. So what is so special about old age? We found that the perception of limited time, willingness to forgive, aging stereotypes and attitudes of respect all play a part. But it’s more than just about how younger people treat an older person, it’s about how people interact.”
Spain’s Debt Maturity Wave Hits Next Month And It’s Already Obvious They Don’t Have Enough Cash - via Business Insider – Spain faces a confluence of events in July, whereby it will need to finance 21.7 billion euros within a single month. This combines shortfalls in its budget and a wave of scheduled government debt redemptions. Even if the Spanish government draws down its cash reserves, Goldman Sachs believes it will still be short 12.6 billion euros.
Fear of Flying? The Odds of a Plane Crash, and the People Who’ve Survived - via Book of Odds – In 1908, Thomas Selfridge, a 26-year-old first lieutenant in the Army, was a passenger on a biplane during a powered-flight demonstration when it crashed. He was killed. The biplane’s pilot, who was badly injured but survived, was Orville Wright. Selfridge has the dubious distinction of being the first airplane passenger to not survive the flight. Since his death, there has not been a single year without an airplane-related fatality somewhere in the world.
Personal Bankruptcy Odds Rising in 2010 – via Book of Odds – We reported not long ago on a steep increase in the odds an adult will file for personal bankruptcy—up from 1 in 207.2 in 2007 to 1 in 158.6 in 2008. Today, after a slight improvement in 2009, the numbers are again going in a worrisome direction, despite other signs of improvement in the economy. Just look at Teresa Giudice, star of Bravo’s The Real Housewives of New Jersey. She has just owned up to the fact that she and her husband filed for Chapter 7 bankruptcy last fall. According to the New York Post, the Giudices owe nearly 11 million dollars—their creditors include the lenders holding mortgages on three homes plus the note on their Caddy, an assortment of upscale department stores, a fertility doctor, even the phone company.
The Real Concern When Couples Fight- via SciAm – New research reveals that nearly all fights between romantic partners can be distilled into two fundamental complaints. Christie Nicholson reports. They found that every argument, covering everything from laundry to string theory, resolves itself into two fundamental complaints: one person feels that he or she is being blamed or controlled, unjustly, for something that has nothing to do with the argument, or one feels neglected, and this manifests in the feeling of “you don’t really care about me” or “you are not as invested as I am.”
Video: More emotional intelligence in the subway – via Dan Pink – Last year, the folks at Volkswagen and Fun Theory devised an engaging (and musical!) way for people to exit a subway station. Now they’ve come up with a equally engaging way for people to enter a subway station.
How the Brain Pays Attention- via PsychCentral – Neuropsychologist Marlene Behrmann gives an overview of visual perception, different types of attention, and visual processing in an interview for the excellent cognitive science educational site, Go Cognitive.
The overwhelming habit of biases and self-evaluation- via Social Psych Eye – Differences amongst groups of people tend to be most salient at the cultural level. A comparison often cited is that of Eastern and Western cultures. These group differences, however, tend to be caricatured stereotypes of people that may not hold true in all contexts. Take for instance, the cultural differences in East vs. West explained pictorially. Life for those in the Eastern culture is pictured as having multiple individuals holding hands signifying collectivism. In the Western culture there is a picture of one individual, depicting the concept of individualism. Another cultural difference is portrayed as Westerners addressing problems directly, and Easterners indirectly addressing problems.
Book Review: More Money Than God - via NYT – This is not an obvious time to be glorifying financial tycoons. Making enough money to buy your own private island might have earned you an airbrushed magazine cover a decade ago. Nowadays, though, the erstwhile Masters of the Universe are viewed with such opprobrium that one of their favorite lawyers told me recently he was advising his clients to soft-pedal their objections to financial reform legislation because the more Wall Street hates it, the better it plays on Main Street.
Book Review: Crises Economics By Roubini - via NYT – In late March, the former Federal Reserve chairman Alan Greenspan told Al Hunt of Bloomberg Television that the financial crisis had been a “once in a century” shocker. “We all misjudged the risks involved,” Greenspan said. “Everybody missed it — academia, the Federal Reserve, all regulators.”
Tipping Determined by More than Just Service - via Book Of Odds- The practice of tipping carries with it all kinds of ethical quandaries. A tip is supposed to be a reward for good service, yet in many situations tipping is simply expected—no matter what. The odds an adult usually tips a waiter or waitress are 1 in 1.02 (98%). It gets even murkier when it comes to tip jars. Do you tip the person who pours your joe at Dunkin’ Donuts or serves up your soft serve at Dairy Queen? How about a full-fledged barista? And if you do tip, how much? (See “ To Stiff or Not To Stiff: Tipping in America). It turns out the answers to those questions can depend on some factors which might surprise (or disturb) you, including: Data Aggregation: Their Boston, Our Boston- via Boston.com – In the Age of Aggregation, even an impulsive click on your cellphone can become a piece of data for a project you never knew existed. Where do tourists go in Boston? Where do locals stop to take pictures? On this map, the red dots mark photos taken by visitors to the city; the blue dots are photos taken by locals. You can see the red gathered together in huge clusters, forming a spine through central Boston, while the blue dots sprawl outward through the neighborhoods, a kind of anti-tourist guide to the city.
When Do Exaggerations and Misstatements Cross the Line? – via Knowledge & Wharton – When public figures are caught embellishing their accomplishments or qualifications, whether by exaggeration or misstatement, people everywhere express outrage. Indeed, as more and more politicians, CEOs and other big names these days try to make amends for fudging their resumes, incorrectly relating the details of a story or otherwise playing fast and loose with the facts, the general reaction from an increasingly jaded public is: “What were they thinking?”
Why flee when you can fight: the counter-evolutionary practice of bullfighting- via Social Psych Eye – A bullfight conjures many images, such as cheering crowds, brave matadors, and rushing bulls. A bullfighter earns respect and attention because, unlike most of the population, he dares to step into the bullring and face a bull. In the process the bullfighter asserts control over the body and controls the innate response to run and instead seeks to fight the bull. So when a bullfighter decides to run from a bull instead of fight it, albeit a natural evolutionary response, it becomes a newsworthy event.
Using Science to get Johnny to study- via Boston -How do we motivate kids — especially kids in rough situations — to want education? Researchers at the University of Michigan studied middle school students in Detroit and found that, while almost 90 percent expected to go to college, only half wanted a career that actually required education. And this difference was critical. Students whose career goals did not require education (e.g., sports star, movie star) spent less time on homework and got lower grades. The good news is that the researchers found it was easy to make education more salient, and thereby motivate kids. When students were shown a graph depicting the link between education and earnings, they were much more likely to hand in an extra-credit homework assignment the next day than if they were shown a graph depicting the earnings of superstars.
As Corals Die Off, Scientists Watch for Signs of Evolution - via NSF – Biologist Mikhail Matz uses next-generation sequencers and a massive, NSF-supported supercomputer to study corals at the genomic level and look for evolutionary changes
Bill Gates: Eliminating Killer Diseases with New Medicines - via Bill Gates Blog – For people suffering from serious but treatable diseases like pneumonia and tuberculosis, access to drugs can mean the difference between life and death. A new report and two recent announcements are signs of progress in efforts to expand access. Telecommuting can be hazardous to your career- via PhysOrg- Working from home has many advantages. By cutting out the commute, employees can save money, boost productivity and reduce their carbon footprint.
Scientific expertise lacking among ‘doubters’ of climate change, says Stanford-led analysis- via Eureka Alert – The small number of scientists who are unconvinced that human beings have contributed significantly to climate change have far less expertise and prominence in climate research compared with scientists who are convinced, according to a study led by Stanford researchers. In a quantitative assessment – the first of its kind to address this issue – the team analyzed the number of research papers published by more than 900 climate researchers and the number of times their work was cited by other scientists.
New Book: A Lively History of the Quirky Math of Voting - via Princeton – Since the very birth of democracy in ancient Greece, the simple act of voting has given rise to mathematical paradoxes that have puzzled some of the greatest philosophers, statesmen, and mathematicians. Numbers Rule traces the epic quest by these thinkers to create a more perfect democracy and adapt to the ever-changing demands that each new generation places on our democratic institutions.
Nudging People to Buy Health Insurance- via Economix – I have argued (in last week’s post, in January and last year) that if Americans want a private health insurance system that does not base the price of individually sold policies on that individual’s health status and that does not allow an insurer to refuse to sell a policy because of an individual’s health issues, then they should accept a mandate that all Americans purchase at least a minimum package of health insurance. That, in turn, requires that lower-income families be publicly subsidized to enable them to afford the insurance.
Obama Adopts Behavioral Economics- via Business Week – Peter R. Orszag, the White House budget director, plans to resign this summer, the first member of President Barack Obama’s Cabinet to do so. He leaves behind an indelible mark on two of the President’s signature issues: the $862 billion economic stimulus plan and the $940 billion health-care reform law, both of which he had a major hand in drafting.
Why Is Wordplay Still Sexy?- via Big Think – Is it fun to watch our finest writers being witty with one another, as it’s fun to watch Federer play Nadal? There are similarities. They rise to the occasion. Lauren Collins’s New Yorker Talk of the Town piece on dinner out with Salman Rushdie and Christopher Hitchens is a reminder of this, these two being a bit the literary Federer and Nadal of our day. Who else plays these kinds of games (“the-ruining-everything-by-changing-one-letter game,” for example), and what are they worth to the rest of us aside from idle, cool distraction? They are worth this: they remind us that, despite the many naysayers—including this week’s Observer piece on Why Fiction No Longer Matter As Much—there are reasons we prize the literary tradition in our culture, and there is reason why we prize fiction in particular.
Six Strange New Planets Discovered - via Good – Since 1995, astronomers have discovered about 450 exoplanets that exist outside our solar system. Recently, they found more than they bargained for. Space.com reports that the European CoRoT satellite has discovered six new exoplanets. One of the worlds is twice the size of Jupiter, and all of them have strange and unique characteristics. CoRoT (Convection Rotation and planetary Transits) is operated by the French space agency CNES. Launched in 2006, it is a planet-hunting spacecraft that observes stars over long periods of time. CoRoT contains 27-cm diameter afocal telescope and a 4-CCD camera designed to study stars and the light they emit. One way it looks for planets is to study the variations of lights passing by stars—many of which prove to be orbiting planets. And once CoRoT sees an exoplanet, it focuses in to reveal an abundance of information.
Do creative work activities create stress? - via PhysOrg – The demands associated with creative work activities pose key challenges for workers, according to new research out of the University of Toronto that describes the stress associated with some aspects of work and its impact on the boundaries between work and family life.
Television Series: Power of Art: Renaissance to Modern – via Open Culture – Simon Schama’s 2006 television series, Power of Art, takes you on a tour of eight transformative painters, moving from Rembrandt and Caravaggio to Picasso and Rothko. I have more to tell you about this series on Brainpickings today.
7 More Psychological Techniques- via PsyBlog – Trying to make connections? Here are seven more research-based techniques to increase creativity. “Creativity can solve almost any problem. The creative act, the defeat of habit by originality overcomes everything.” ~George Lois Sarah Jones on Stereotypes and Stereotyping - via Situationist – We highly recommend a 13-minute podcast in which Sarah Jones (a Tony Award winning playwright and performer) reflects on morals, racial stereotyping, and the perils of West Coast jaywalking. You can listen to the podcast (recorded live at The Moth Main Stage) here.
Ocean pollution ‘threatening the human food supply’ - via Raw Story – Sperm whales feeding even in the most remote reaches of Earth’s oceans have built up stunningly high levels of toxic and heavy metals, according to American scientists who say the findings spell danger not only for marine life but for the millions of humans who depend on seafood.
You’re Getting a Bonus! So Why Aren’t You Motivated? - via Harvard – If you’re like most professionals working in large corporations, you’re eligible for an annual bonus as part of your pay. If you’re one of the luckier ones, you’ve been hearing rumors lately that with the economy recovering, that bonus may become a reality again. Good for you. But maybe not so good for your company. Chances are, its bonus program is costing it plenty but it isn’t seeing much of a motivation boost in return, from you or anyone else.
The Age of the Infovore- via FT – Tyler Cowen’s “Create Your Own Economy” is now out in paperback entitled “The Age of the Infovore“, perhaps an acknowledgement that the initial title wasn’t working out. I liked the book at lot. As suits the infovoracious it is wide-ranging, somewhat scattershot but extremely creative, original and thought-provoking. If the book has a theme it is that different people think very differently – not just that they have different tastes or different beliefs but that the entire way they organise the world is different – and that the internet offers some people a much better way to order their encounters with the world than they have previously been offered. It changed the way I think.
Smoking ban or cigarette taxation?- via Economic Logic – While people are now used to widespread smoking bans in the United States, European countries are right now going through the painful transitions, with the expected anxieties from restaurant and bar owners. They will do fine, but one can still ask whether simple taxation of tobacco would not be sufficient and especially more efficient in internalizing second hand smoke.
Confidence Beats Competence - via Neuromarketing -What are the ideal characteristics for a person in a sales position? Great people skills? Strong product knowledge? Add confidence to the list. Continuing a discussion started in Convince With Confidence, there’s more evidence that the average person finds a confident demeanor persuasive, even when the confidence may mask a lower level of competence.
Podcast: False Memories – How Can Your Memory Be So Bad? - via PsychFiles – For some reason we believe that our memories are accurate. They are far from it. What we remember is a hodge-podge, a patchwork of images, stories, and bits and pieces from our past. In this episode I describe some of the very interesting research showing how our memories can be manipulated in surprising ways. Learn why you loved asparagus as a kid (really you did, really).
Gain Self-Insight Through Abstract Thinking- via Spring.co.uk – How to see yourself as others do: experiments suggest alternative to flawed intuitive technique. You and I can talk, we can reach out and touch each other on the arm and we can see each other, but we can never know exactly what’s going on in the other’s head. It’s partly why psychological science is so hard and it’s why understanding how we are viewed by others is so hard. Sex Differences in How Salary Increases Are Perceived- via Psychology Today – Men_Women_Pay_Raise If asked to choose between these two options, which would you pick? (A) You will receive a $500 salary increase, and your colleague will also receive a $500 salary increase; or (B) You will receive a $600 salary increase but your colleague will receive an $800 salary increase. Of course, the dilemma here is whether to choose more money for one’s self (option B) that ultimately though yields more money to one’s peer, or less money for one’s self (option A) but an equal salary increase for one’s peer. From a strict income maximization perspective (as has been traditionally postulated by classical economists), option B is the “rational” choice. Of course though, people have a disutility for perceived unfairness, and as such they often choose option A.
Secret of AA: After 75 Years, We Don’t Know How It Works – The church will be closed tomorrow, and the drunks are freaking out. An elderly lady in a prim white blouse has just delivered the bad news, with deep apologies: A major blizzard is scheduled to wallop Manhattan tonight, and up to a foot of snow will cover the ground by dawn. The church, located on the Upper West Side, can’t ask its staff to risk a dangerous commute. Unfortunately, that means it must cancel the Alcoholics Anonymous meeting held daily in the basement.
Do scientists make “broad, and quite likely false, claims about what drives human behavior”? - via Brains On Purpose – Have you sometimes been skeptical about the results of research when the subjects are all college undergrads, and wondered how representative these subjects were of people as a whole? Regarding that skepticism, here’s the abstract of an article for you from Science (AAAS):
Types of Thinkers - via Overcoming Bias – What we don’t have, in other words, are thinkers. People who can think for themselves. … Thinking means concentrating on one thing long enough to develop an idea about it. Not learning other people’s ideas, or memorizing a body of information, however much those may sometimes be useful. Developing your own ideas. In short, thinking for yourself. You simply cannot do that in bursts of 20 seconds at a time, constantly interrupted by Facebook messages or Twitter tweets. (more)
Difference Wisdom - via Overcoming Bias – Seek serenity to accept what you cannot change, courage to change what you can, and wisdom to know the difference. Imagine that you were thinking of buying or building a house. Now consider various possible hypothesis you might have about your degree of influence over this resulting house.
Salem witches & Game Theory - via Mind Your Decisions – a math puzzle I came across a fun math puzzle that’s relates to the game theory of guessing. The puzzle was posted by James Grime, a mathematician who has posted some nice videos under the name singingbanana.
Exclusive Picks + Financial Topics
How do regulators cope with terabytes of data? – via Jayanath R Varma – Traditionally, securities regulators have coped with the deluge of high frequency data by not asking for the data in the first place. The exchanges are supposed to be the front line regulators and leaving the dirty work to them allows the US SEC and its fellow regulators around the world to avoid drowning under terabytes of data. But the flash crash seems to be changing that. The US SEC had to figure out what happened in those few minutes on May 6, 2010. When it attempted to reconstruct the market using data from different exchanges, it ended up with nearly 10 terabytes of data. The SEC says in its joint report with the CFTC on the preliminary findings about the flash crash:
What might history tell us about the Greek crisis?- via China Financial Markets – The Greek crisis may in many ways seem unprecedented, but of course it isn’t. I think by now everyone already knows that Greece has spent much of the past 200 years – more than half by some counts – in default or in one form or another of debt restructuring, but in fact there are plenty of other periods of sovereign default and restructuring that can tell us something about what is happening and what will happen. I would suggest that there at least five things we can “predict” with some degree of confidence from looking at historical precedents:
A special report on debt - via Economist – There is an old joke about a stranger who asks a local for directions and gets the cheerful reply: “If I wanted to go there, I wouldn’t start from here.” That advice sums up the dilemma the developed countries face in dealing with their debt. They have accumulated a mountain of it at every level, from the personal to the corporate and the sovereign. As this special report has shown, this was encouraged by a legal system that sheltered debtors, a corporate and financial sector that used debt to boost its returns and a cultural change that made it more respectable.
Physics Risk Isn’t Market Uncertainty- Via PsyFi Blog – The idea that economics should be modelled on the concepts of physics has been prevalent for the best part of a century. It’s a deliciously engaging idea, that the steadfast and unbending rules of science should be the template for the queen of the social sciences. The only trouble is that in economics human beings are part of the system and don’t tend to behave as economists would wish them to. On the other hand the ideas generated by analogies between physics and economics have generated a whole bunch of truly great economic ideas and are the basis of the whole of microeconomics. Although it’s tempting to argue that these ideas don’t truly make sense it’s actually quite hard to make this accusation stick. Economics and physics are connected – only just not quite the way economists like to imagine.
Nial Ferguson – The people’s banker- via FT – “For me the greatest interest and enjoyment were human relations,” Siegmund Warburg observed in later life to the academic George Steiner. “It was the human side, in practice the negotiating side, which attracted me to banking.” For most of the postwar period, from the foundation of SG Warburg & Co in 1946 until his death in 1982, Warburg was the most dynamic figure in the City of London. If anyone embodied the era of relationship banking, it was Warburg.
Three debts: A view from emerging Europe - via Voxeu – As the debate rages over the best path for fiscal policy, this column looks at the causes of the Eurozone crisis, especially in emerging Europe. It argues that despite the debate focusing on public debt, the key issue is the development of private debt. That suggests that the key policy remedy would be private debt consolidation supported by countercyclical fiscal policy.
Curbing speculation could destabilize commodity prices, study says- via PhysOrg – Price spikes for gasoline, grain and other commodities could be magnified if lawmakers curb speculative trading in futures markets, according to a new study released today in conjunction with this weekend’s G20 summit.
Survey challenges popular beliefs about high-tech startup patents- via Physorg – A new survey of high-technology entrepreneurs finds that patents provide less incentive to innovate than popularly believed, but offer tangible benefits by limiting competition, attracting financing, and increasing the chances of an acquisition or IPO.
Academic Research Worth Reading
The insurance industry in Brazil: a long-term view – via HBS – This paper surveys the formation and development of insurance business in Brazil. It describes its origins, from the colonial times and imperial era to recent events. Particular attention is given to regulatory changes, showing how they evolved in response to macroeconomic shocks that affected the Brazilian economy during this period.
