These two women were walking through the forest when they hear this voice from under a log. Investigating, the women discovered the voice was coming from a frog:
“Help me, ladies! I am an investment banker who, through an evil witch’s curse, has been transformed into a frog. If one of you will kiss me, I’ll be returned to my former state!”
The first woman took out her purse, grabbed the frog, and stuffed it inside her handbag. The second woman, aghast, screamed, “Didn’t you hear him? If you kiss him, he’ll turn into an investment banker?”
The second woman replied, “Sure, but these days a talking frog is worth more than an investment banker!”
Most Important Articles of The Week
Choice Overload: How Humans Cognitively Manage an Abundance of Mate Options - via PsychScience – To contribute to researchers’ understanding of how humans choose mates, we examined how the number of mate options influenced the dating decisions made by 1,868 women and 1,870 men across 84 speed-dating events. Multilevel modeling of these decisions revealed that when faced with abundant choice, choosers paid less attention to characteristics requiring more time to elicit and evaluate (e.g., occupational status and educational attainment) and more attention to characteristics that are quickly and easily assessed (e.g., height and weight). Human mate choice sits squarely within the domain of general cognition, as this study shows it to be constrained by bounds on cognitive resources.
Words of wisdom from Seth Klarman & How Lehman Screwed Up – via Barrons – HOCUS-POCUS. THAT, IT EMERGES, SANK LEHMAN Brothers and damn near the entire financial system, to say nothing of the economy as a whole. So charged a court-appointed examiner named Anton Valukas, may his tribe increase, in a 2,200-page bombshell of a report made public on Thursday by U.S. Bankruptcy Judge James Peck.
Much of U.S. Water Safe, But Problems Remain- via NSF – The United States has benefitted from centuries of improvements in drinking water safety, and most Americans can trust that clean water comes from their taps. Yet, closer inspection is showing that on a house-by-house basis, water quality is not guaranteed–even in communities with high marks for water safety.
Do higher cigarette prices deter smoking?- via Voxeu- Do higher cigarette prices deter smoking? This column finds that policymakers in developing countries could reduce cigarette consumption by youths by raising taxes. A 10% increase in the price will reduce youth cigarette demand by 18.3%
What do Quants have to do with Bernard Madoff?- via Money Sciene – The collapse of the phenomenal Ponzi scheme perpetrated by Bernard Madoff will hurt those who were gullible enough to trust him. It should be noted, however, that many investors were directed to Bernard Madoff Investment Securities by intermediaries – the so-called funds of hedge funds — who now will have to answer for not doing proper due diligence on behalf of their clients.
Group Think: How many minutes does it take for social norms to inhibit survival instinct?- via Cognition & Culture – This study explores the interaction of natural survival instincts and internalized social norms using data on the sinking of the Titanic and the Lusitania. We show that time pressure appears to be crucial when explaining behavior under extreme conditions of life and death. Even though the two vessels and the composition of their passengers were quite similar, the behavior of the individuals on board was dramatically different. On the Lusitania, selfish behavior dominated (which corresponds to the classical homo economicus); on the Titanic, social norms and social status (class) dominated, which contradicts standard economics. This difference could be attributed to the fact that the Lusitania sank in 18 min, creating a situation in which the short-run flight impulse dominated behavior. On the slowly sinking Titanic (2 h, 40 min), there was time for socially determined behavioral patterns to reemerge. Maritime disasters are traditionally not analyzed in a comparative manner with advanced statistical (econometric) techniques using individual data of the passengers and crew. Knowing human behavior under extreme conditions provides insight into how widely human behavior can vary, depending on differing external conditions.”
Africa’s Gift to Silicon Valley: How to Track a Crisis - via NYT – Imagine if any Pakistani could send an anonymous text message to the authorities suggesting where to look. Each location could be plotted on a map. The dots would be scattered widely, perhaps, with promising leads indistinguishable from rubbish. But on a given day, a surge of dots might point to the same village, in what could not be coincidence. Troops could be ordered in.
What Alcohol Does to Your Mind: Attentional Myopia - via PsyBlog – Similarly psychologists have found that alcohol can have all sorts of counter-intuitive effects. Studies have even shown that after drinking people can become less aggressive and less likely to engage in risky sexual behaviours. Doesn’t sound like alcohol does it? So, how can we understand and explain all these different states?
Performance of Darwin’s darlings - via Greenbackd – Yesterday I highlighted an investment strategy I first read about in a Spring 1999 research report called Wall Street’s Endangered Species by Daniel J. Donoghue, Michael R. Murphy and Mark Buckley, then at Piper Jaffray and now at Discovery Group, a firm founded by Donoghue and Murphy. The premise, simply stated, is to identify undervalued small capitalization stocks where a catalyst in the form of a merger or buy-out might emerge to close the value gap. I believe the strategy is a natural extension for Greenbackd, and so I’m going to explore it in some depth over the next few weeks.
Self-Control Without a ”Self”? : Common Self-Control Processes in Humans and Dogs - via Psych Science – Self-control constitutes a fundamental aspect of human nature. Yet there is reason to believe that human and nonhuman selfcontrol processes rely on the same biological mechanism—the availability of glucose in the bloodstream. Two experiments tested this hypothesis by examining the effect of available blood glucose on the ability of dogs to exert self-control. Experiment 1 showed that dogs that were required to exert self-control on an initial task persisted for a shorter time on a subsequent unsolvable task than did dogs that were not previously required to exert self-control. Experiment 2 demonstrated that providing dogs with a boost of glucose eliminated the negative effects of prior exertion of self-control on persistence; this finding parallels a similar effect in humans. These findings provide the first evidence that self-control relies on the same limited energy resource among humans and nonhumans. Our results have broad implications for the study of self-control processes in human and nonhuman species.
Hunting endangered species - via Greenbackd – Back in the spring of 1999, when the world was enamored of dot coms and not much else, three guys at Piper Jaffray, Daniel J. Donoghue, Michael R. Murphy and Mark Buckley*, produced a superb research report called Wall Street’s Endangered Species. The thesis of the paper was that there were a large number of undervalued companies with strong fundamentals and solid growth prospects in the small cap sector (defined as stocks with a market capitalization between $50M and $250M) lacking a competitive auction for their shares. Donoghue, Murphy and Buckley argued that the phenomenon was secular, and only mergers or buy-outs would ”close their value gap:”
Trajectory of risky decision making for potential gains and losses from ages 5 to 85 - via JBDM – The ability to make advantageous decisions in the face of uncertainty is an essential human skill, yet the development of such abilities over the lifespan is still not well understood. In the current study, from childhood through older adulthood, we tracked the developmental trajectory of risk taking for gains and losses, and expected value (EV) sensitivity in risky choices. In the gain domain, risk-taking decreased consistently across the lifespan. In the loss domain, risk-taking was relatively constant across ages, a result we attribute to the pervasiveness of loss aversion. EV sensitivity showed an inverted-U-shaped function, increasing from childhood to adulthood but then decreasing for the elderly, which occurred for both risky gains and risky losses. This finding is consistent with neuropsychological and neuroanatomical evidence concerning the role of the frontal lobe in decision making, which is relatively late to develop during childhood but may degrade earlier in the later years
Exclusive Features (The Must Reads)
Posting calories in restaurants is Pareto improving - via Economi Logic – With increasing frequency, it is proposed that restaurants should post on their menus nutritional information. The restaurants resist this because they think it may shoo customers away, or at least make them eat less (assuming they underestimated the calories, which may not be always true). But if they eat less, why not make portions smaller and thus reduce costs and possibly increase profits? The Rules: Government’s proper role in the market Eliot Spitzer - via Boston Review – Every day we read the headlines, feel the tensions, observe the consequences of the recent failures of market and government. Having a serious conversation about how to remedy these failures lies at the heart of current American politics.
Thoughts of randomness enhance supernatural beliefs. - via Deric Bownds – They take their data to suggest:
…that belief in supernatural sources of control, such as God and karma, may function, in part, to defend against distress associated with randomness, even when the perception of randomness is not related to traumatic events.
Moneyball, Geeks, and the New Era of Human Performance Analytics - via Harvard – Even if you loathe sports and think pro-athletes are selfish morons, you couldn’t find a better discussion about what it really takes to get the best out of competitive, highly-paid high performers than the “What Geeks Don’t Get: The Limits of Moneyball” all-star panel at this past weekend’s MIT Sloan’s Sports Analytics conference. Management committees at Goldman Sachs, General Electric, and Toyota could do worse than snag a transcript of the spirited session for their own personnel policy and planning efforts. For people owning, leading, or managing talented teams of temperamental super-performers, the future of hiring, on-boarding, pay-for-performance, and firing will look shockingly similar to what confronts the NFL, NBA, MLB, and Champions League soccer. Just win, baby.
Patinformatics – An Emerging Scientific Discipline – via SSRN – Patinformatics is the application of informatics methods to provide the solution to the patent information and the analysis related problems. Although this term was introduced only a few years ago, but its applications can be in a wide range of scientific and business related fields. Method and techniques of different origins have now merged into one discipline that is full of interesting and informative activities. This paper primarily focuses on presenting a general overview of patinformatics and their application in business and various scientific fields including chemicals and pharmaceuticals with special reference to India. Although all the areas of science and technology can benefit from patinformatics methods, still there are many challenging patent information and analysis related problems waiting for solutions through further development of patinformatics.
How to Become an Insta-Expert: A Confession – via Freakonomics – It’s time for me to confess: I’ve barely seen any movies this year, and know little about the industry. But I didn’t want to get left out of the water-cooler conversations about the Oscars. And so these forecasts were simply a fun application of prediction markets. By quickly scanning the latest market prices, I managed to become an insta-expert. In fact, I managed to become such an insta-expert that I’ll be returning to the water cooler today to gloat about my successful picks in all the major award categories.
Where Wall Street and Hollywood Collide- via The Atlantic – Are you a film buff who can’t seem to find a way to put your excessive knowledge of movies to good use? Do you think: “Gosh, if I knew as much about stocks as I do about Hollywood, I’d be rich!”? Well, your time may have finally come. Investment firm Cantor Fitzgerald will be starting an online service in April that will allow users to bet on the success (or failure) of movies. Corporate Candidates Running For Office? Campaign stunt launches a corporate ‘candidate’ for Congress- via Washington Post – Murray Hill might be the perfect candidate for this political moment: young, bold, media-savvy, a Washington outsider eager to reshape the way things are done in the nation’s capital. And if these are cynical times, well, then, it’s safe to say Murray Hill is by far the most cynical.
The Second-Mortgage Conundrum - via The New Yorker – Since putting up my last post, I’ve been doing some more research into the vexed question of whether big banks are hiding enormous losses on home equity loans and other second mortgages. The Roosevelt Institute’s Mike Konczal reckons that is what is happening. He argues that this practice makes a mockery of last year’s “stress tests,” which the Treasury and Fed carried out to assure investors of banks’ solvency. Finding reliable data on this issue isn’t easy, but after speaking to industry experts and government officials, as well as reading various reports, this is what I’ve found out.
Video: Michael Lewis on 60 Minutes - Writer Michael Lewis got a bonanza of press for his new book this weekend. The television show 60 Minutes profiled him and his “The Big Short” in a piece called “Inside the Collapse”.
It’s time to end the FASB (and shake up the SEC) – via Information Arbitrage – Recent “revelations” concerning the Lehman debacle highlighted a very important point: media and regulators alike have had their heads in the sand for decades. The headline of a recent New York Times article plainly makes the point: “Findings on Lehman Take Even Experts by Surprise.” If this is really true, it is quite an indictment on either the lack of intelligence or truthfulness of our regulators. Sadly, either one could be the case.
Bain’s Global Private Equity Report 2010 - via MOI – Bain & Company has released an interesting report for those with an interest in private equity.
Marco Avellaneda – Risk Magazine’s Quant of the Year 2010 – via MoneyScience - His paper, “A dynamic model for hard to borrow stocks”, co-authored with Mike Lipkin of Katama Trading, was published in Risk in June last year (pages 92–97), and has quickly become a classic of market microstructure literature. “Marco addresses complicated issues in his characteristic style, with simplicity and clarity,” says Alex Lipton, co-head of the global quantitative group at Bank of America Merrill Lynch and visiting professor of mathematics at Imperial College London.
Shareholder Activism and Distressed Debt - via DDI – Earlier in the week, I discussed some interesting details and facets about the bankruptcy of Visteon. Well today, Davidson Kempner, Brigade, and Plainfield Asset Management (all places I thoroughly respect and where I know analysts) filed a 13D on Visteon. According to the document, shares were bought between 2/26/2010 and 3/8/2010 meaning some of the lots were purchased in mid 20 cent range.
Frank Partnoy: Lehman Examiner Punted on Valuation- via Naked Capitalism – The buzz on the Lehman bankruptcy examiner’s report has focused on Repo 105, for good reason. That scheme is one powerful example of how the balance sheets of major Wall Street banks are fiction. It also shows why Congress must include real accounting reform in its financial legislation, or risk another collapse. (If you have 8 minutes to kill, here is my recent talk on the off-balance sheet problem, from the Roosevelt Institute financial conference.)
Roubini: The Rise of Sovereign Risk in Advanced Economies- via RGE – The Great Recession of 2008-09 was triggered by the excessive debt accumulation and leverage of private agents – households, financial institutions and even a fat tail of the corporate sector – in many advanced economies. And while there is a lot of talk about deleveraging, the reality is that private sector debt ratios have stabilized at very high levels while, as a consequence of the fiscal stimulus to get economies out of a severe recession and the socialization of part of private losses, there is now a massive re-leveraging of the public sector with deficits in excess of 10% of GDP in many advanced economies and debt to GDP ratios expected to sharply rise and in some cases double in the next few years.
Videos & Media
Gary Vaynerchuk: Do what you love (no excuses!) - via TED – At the Web 2.0 Expo, entrepreneur Gary Vaynerchuk gives a shot in the arm to dreamers and up-and-comers who face self-doubt. The Internet has made the formula for success simpler than ever, he argues. So there’s now no excuse not to do what makes you happy.
Academic Papers
Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2010 Edition – via SSRN – Equity risk premiums are a central component of every risk and return model in finance and are a key input into estimating costs of equity and capital in both corporate finance and valuation. Given their importance, it is surprising how haphazard the estimation of equity risk premiums remains in practice. We begin this paper by looking at the economic determinants of equity risk premiums, including investor risk aversion, information uncertainty and perceptions of macroeconomic risk. In the standard approach to estimating equity risk premiums, historical returns are used, with the difference in annual returns on stocks versus bonds over a long time period comprising the expected risk premium. We note the limitations of this approach, even in markets like the United States, which have long periods of historical data available, and its complete failure in emerging markets, where the historical data tends to be limited and volatile. We look at two other approaches to estimating equity risk premiums – the survey approach, where investors and managers are asked to assess the risk premium and the implied approach, where a forward-looking estimate of the premium is estimated using either current equity prices or risk premiums in non-equity markets. We also look at the relationship between the equity risk premium and risk premiums in the bond market (default spreads) and in real estate (cap rates) and how that relationship can be mined to generated expected equity risk premiums. We close the paper by examining why different approaches yield different values for the equity risk premium, and how to choose the “right” number to use in analysis.
Quantum Dating Market – via Arxiv – We consider the dating market decision problem under the quantum mechanics point of view. Quantum states whose associated amplitudes are modified by men strategies are used to represent women. Grover quantum search algorithm is used as a playing strategy. Success is more frequently obtained by playing quantum than playing classic.
Brief history of the Reserve Bank of Australia- via BIS – Fifty years ago, the Reserve Bank of Australia commenced operations as Australia’s central bank. That occasion, though, was the end of a long journey.
Other Very Interesting Articles
Are You REALLY Listening? Sanford Meisner, Acting and Psychology – via Psych Files – A lot of people get into psychology because they think they have good listening skills, but are you really a good listener? What does it mean to be a good listener? In this episode I look at a fascinating acting exercise created by Sanford Meisner called the “repetition exercise” which trains actors how to truly listen. Are you as good a listener as these trained actors?
Keeping Love Alive: Scientific American Does Its Part - via SciAm – With half of all first marriages ending in divorce, how can we build lasting relationships? A Scientific American event explores the science of love.
Ancestor Worship is Efficient - via Overcoming Bias – Maybe not “worship” exactly, but at least great respect and deference. By “efficient” I mean that it increases economists’ standard “cost-benefit” concept of welfare. That is: as usually estimated, the benefits of deferring greatly to distant ancestors far outweigh its costs. And while this does suggest that we should defer more to ancestors, it also shows just how much distorted prices can break economists’ favorite tools.
Drinking and studying: they don’t mix – via Geary Behavior Center – This paper examines the effect of alcohol consumption on student achievement by exploiting the discontinuity in drinking at age 21 at a college in which the minimum legal drinking age is strictly enforced. We find that drinking causes significant reductions in academic performance, particularly for the highest-performing students. This suggests that the negative consequences of alcohol consumption extend beyond the narrow segment of the population at risk of more severe, low-frequency, outcomes. Thus, our results indicate policies that combat drinking—particularly binge drinking that occurs around age 21—may well have large positive effects that are broader than previously known.
Infographics (Click On Images For Larger Versions)
I spend 8 hours every Sunday putting this together…If you like this roundup kindly include a reference to SimoleonSense.com .Thanks!
Weekly Cartoon
Joke of Week
Q: How many central bank economists does it take to screw in a light bulb?
A: Just one — he holds the light bulb and the whole earth revolves around him.
Most Important Articles Of The Week !!
Happy people have the gift of gab- via MSNBC- Happy people tend to talk more than unhappy people, and when they do, it tends to be less small talk and more substance, a new study finds.A group of psychologists from the University of Arizona and Washington University in St. Louis set out to find whether happy and unhappy people differ in the types of conversations they tend to have.
Sheena Iyengar’s The Art of Choosing & Deciding – Via Situationist – The power of choice: Understanding the motivations, biases, and cultural influences that determine the choices, large and small, we make in our lives.” As interesting as those issues are, the interview itself is at its best when Sheena discusses her own remarkable situation and how that influenced her research.
Complexity is the handmaiden of deception- via Naked Capitalism – After Elizabeth Warren had her chance to speak, the thought on my mind was ‘complexity is the handmaiden of deception.’ That wasn’t the only point of her presentation on consumer protection, but that was the takeaway for me. Her point was simply that contracts are the bedrock of the U.S. legal system in promoting law and order. The purpose of contracts is to support the ‘invisible hand’ by allowing both sides of the contract to walk away happy.
What is neuroeconomics? – via QN – This new field looks at how economic decision-making actually happens inside the brain. Jonathan Cohen, co-director of the Princeton Neuroscience Institute at Princeton University, describes insight that are emerging from the collaborative work of neuroscientists, psychologists, and economists.
Some CEOs Are Selling Their Companies Short- via Finance Professor – “‘There is no question these transactions should be a red flag for investors,’ says Carr Bettis, the co-founder of forensic accounting firm Gradient Analytics and co-author of a recent study on hedging. ‘The evidence is pretty compelling that hedges tend to be used before bad news hits the market.’ Bettis’ research found that in the year after executives and directors had engaged in hedging, their company’s stock often dropped markedly. He also found evidence of an increase in financial restatements and shareholder lawsuits during the same period. Executives at MCI, Enron, ImClone (IMCL), Krispy Kreme—companies that suffered some of the great stock melt-downs of the last decade—hedged their shares.”
Billionaire Alert! -The Other Ron Burkle - via Investors Consigliere & Business Week – The billionaire has been belittled for his celebrity friends and bitter lawsuits. But his moves on Barnes & Noble and Barneys are no laughing matter
Consumer Product Makers Going Direct To Consumers- via Business Week – Move over, Amazon. Consumer-products makers, squeezed by private-label goods at retailers like Wal-Mart, are hawking their wares directly to buyers online.
A New Age of Monopolies- via WSJ – ‘If monopoly persists, monopoly will always sit at the helm of the government,” Woodrow Wilson once wrote. “If there are men in this country big enough to own the government of the United States, they are going to own it.”
Miguel’s Weekly Favorites
Fantastic Presentation! The Age of Impossible Numbers-Via Seed Magazine – The human brain is poorly equipped for comprehending massive quantities. This makes sense from an evolutionary perspective; large numbers are relatively new features of our mental landscapes. Thousands, millions, billions, and recently trillions—once reserved for describing cosmic distances of faraway galaxies—have been brought down to Earth in terms of the national deficits we accrue, the bytes of information we clock, and critically, the stuff we consume. But how to wrap one’s head around such unfathomable figures in a meaningful way? In Running the Numbers, photographer Chris Jordan attempts to convey the vastness of modern consumption by breaking down annual statistics into more graspable quantities depicted by clever visualizations made of individual objects or groups of objects that he photographs. The 106,000 aluminum cans consumed in the US every 30 seconds, for instance, become the individual dots of Seurat’s Sunday Afternoon on the Island of La Grande Jatte. “There’s a disconnect that happens when we assume we know what we’re talking about when we talk about hundreds of millions of plastic bottles,” Jordan says. “I’m trying to translate these numbers from the deadening language of statistics into a visual language that allows some kind of comprehension.”
Behavioral Economics and The Bachelor: Why Jake is a perfect example of predictable irrationality- via Brooks Bell – Besides being written in a conversational and engaging style, the facts within are fascinating. Who knew that we were so easily and willingly manipulated as a society of consumers? Since finishing the book, I’ve been noticing examples everywhere of the content covered. Decision paralysis in the grocery store. The Achilles’ heel of arousal. And so on. But one popular television show really demonstrates some of the principles that Ariely covers. And those principles are dramatically and glaringly obvious—in high definition.
Wisdom is a tree- via DFA – Wisdom is a tree. The attributes of wisdom are its fruit. As man knows the attributes of wisdom man tries to teach these attributes. It is very difficult and frustrating to cultivate these attributes because it is the same as trying to produce bananas without the banana tree. Cultivate the tree and the bananas will emerge automatically.One must be fully trained to play the game of life to the best of one’s fully developed potential. While the world is focused on researching and refining ways of how to develop one’s regular intelligence potential one’s other equally important emotional intelligence potential is more or less neglected. And as result most people live their lives struggling with a partially developed emotional intelligence potential. By the time experience grinds down this gap in potential they are ready to retire having missed out on playing the game of life as it is supposed to be played in full prime of life.
Neuromarketing the Neurology of Facebook - via Neurocritic – First, we had the fictitious Neurology of Twitter study, sponsored by The Neurocritic. Now it appears there’s been an actual (unpublished) fMRI study of viewing Facebook pages, conducted by Netway, a neuromarketing firm. Is it okay to ignore results from people you don’t trust? – via Bad Science – If the media were actuarial about drawing our attention to the causes of avoidable death, your newspapers would be filled with diarrhoea, Aids, and cigarettes every day. In reality we know this is an absurd idea. For those interested in the scale of our fascination with rarity, one piece of research looked at a 3 month period in 2002 and found that 8,571 people had to die from smoking to generate one story on the subject from the BBC, while there were 3 stories for every death from vCJD.
Cultural Cognition of Scientific Consensus - via SSRN – Why do members of the public disagree – sharply and persistently – about facts on which expert scientists largely agree? We designed a study to test a distinctive explanation: the cultural cognition of scientific consensus. The “cultural cognition of risk” refers to the tendency of individuals to form risk perceptions that are congenial to their values. The study presents both correlational and experimental evidence confirming that cultural cognition shapes individuals’ beliefs about the existence of scientific consensus, and the process by which they form such beliefs, relating to climate change, the disposal of nuclear wastes, and the effect of permitting concealed possession of handguns. The implications of this dynamic for science communication and public policy-making are discussed.
Mark Twain on Risk- via Street Capitalist – Most people fixate on interesting accidents over frequent accidents. This often causes sensationalist reporting and people start to fear a shark attack over crashing into a deer, even though the latter is 300 times more likely to occur. The Cold Hard Facts of Cold Reading - via Point of Inquiry – Ian Rowland is a Mentalist and Mind Reader living near London, UK. The world’s foremost authority on cold reading, he is the author of the Full Facts Book of Cold Reading. In this book, Rowland has defined and categorized the different types of psychic readings, and created a taxonomy of cold reading techniques. Rowland was the first person to lecture on cold reading to the Magic Circle and his book has been described as “the definitive work” on the subject by Derren Brown, James Randi, Martin Gardner, Teller, and Banachek.
Do Green Products Make Us Better People?- via Sagepub – Consumer choices reflect not only price and quality preferences but also social and moral values, as witnessed in the remarkable growth of the global market for organic and environmentally friendly products. Building on recent research on behavioral
priming and moral regulation, we found that mere exposure to green products and the purchase of such products lead to markedly different behavioral consequences. In line with the halo associated with green consumerism, results showed that people act more altruistically after mere exposure to green products than after mere exposure to conventional products. However, people act less altruistically and are more likely to cheat and steal after purchasing green products than after purchasing conventional products. Together, our studies show that consumption is connected to social and ethical behaviors more broadly across domains than previously thought.
Will Airlines and Passengers Call a Truce?- via NYT – When weather forecasters predicted severe winter storms across the country in the last few weeks, airlines sent their customers a steady stream of e-mail and text messages, giving them a chance to change their itineraries ahead of the bad weather.
Finance: Where The Law Of One Price Doesn’t Apply - via PsyFi – Even the smartest amongst us can be fooled by the pricing structures of relatively simple financial products. In any normal industry we would expect the law of one price would be prominent – in efficient markets all identical goods must have only one price.
The Top Ten Ways to Crack Down on Corporate Financial Crime - via Counterpunch – Ninety-five percent of criminologists study blue collar crime. Five percent study white collar crime. Of the tiny minority who study white collar crime, ninety five percent focus on the individuals who rip off the corporation. We are left with a small handful of criminologists – think Edwin Sutherland, John Braithwaite, Gil Geis – who have studied or are studying – corporate crime.
New York Isn’t Silicon Valley. That’s Why They Like It. – via NYT – “Just a year ago, it was less than half that,” he said in an e-mail message. “New York has become a hotbed of innovation,” he said. “Many start-ups there have as much promise as the best start-ups here in Silicon Valley. And the ecosystem of entrepreneurs, engineers, investors and other players is growing at a pace similar to Silicon Valley when it first got started.”
Stiglitz, Nobel Prize-Winning Economist, Says Federal Reserve System ‘Corrupt’ - via Huffington Post – One of the world’s leading economists said Wednesday that the very structure of the Federal Reserve system is so fraught with conflicts that it’s “corrupt.” Nobel laureate Joseph Stiglitz, a former chief economist at the World Bank, said that if a country had applied for World Bank aid during his tenure, with a financial regulatory system similar to the Federal Reserve’s — in which regional Feds are partly governed by the very banks they’re supposed to police — it would have raised alarms.
The Fully Disclosed Fraud- via False Profits Blog – Until recent years, to “prove” that an endless chain income or sales scheme was a fraud only required explaining that it was in fact an endless chain. In other words, endless chain schemes were understood to be “inherent” frauds. They are not good businesses gone bad or good people doing wrong. They are, by definition, frauds, custom-designed scams that must deceive and will always cheat the majority who join them. The fraud of endless chains may be reduced to a simple fact: They make a false promise, much like a “bait and switch” proposition does. That false promise is that everyone, always, has the opportunity to make unlimited money from an ever-expanding base of new investors.
Finance & Investing
Private Equity and Industry Performance- via Harvard Law – Overall, we are unable to find evidence supporting the detrimental effects of PE investments on industries.
The Corporate Pyramid Fable - via Harvard Law – Our results indicate matters worked out much differently. Although politicians may have supported the intercorporate dividends tax because they believed that it would induce corporations to unwind stakes held in other publicly traded corporations, tax reform apparently did not have that effect. Corporations that owned large stakes in publicly traded firms rarely sought to exit in the years immediately following the introduction of intercorporate taxation of dividends, and many corporations even increased their ownership stakes in other corporations. A key reason the introduction of intercorporate taxation of dividends did not have the anticipated impact was that the tax burden was so modest. Although dividends by one corporation to another corporation were no longer completely tax-free, they remained largely exempt.
Videos & Media
1. Videos from The Encultured Brain– Via NeuroAnthro- It gives me great pleasure to announce that you can apparently now access streaming .wmv files of the four long-format talks that were given at The Encultured Brain Conference at the University of Notre Dame in October 2009. No, you do not have to rush out to your video store, nor do you need to send me a stamped self-addressed envelope as well as a surprisingly large fee for ‘postage and handling.’ Yes, it has taken a while, so file this in the ‘much better late than never’ box, and enjoy.
Academic Papers
An effort based analysis of the paradoxical effects of incentives on decision-aided performance - via JBDM – This study examines the effect of incentives on decision-aided performance. In particular, the study provides further insight into whether, when, and how incentives affect task performance in the presence of decision aids by (1) replicating previous research showing the negative effects of incentives on performance; (2) investigating whether this effect generalizes to a more realistic scenario in which decision makers have access to additional contextual information not captured by the decision aid; and (3) applying an effort-based framework to explain the link between incentives and performance. In contrast to the findings of prior research, our study shows that incentives do not necessarily decrease performance in the presence of decision aids. Rather, we demonstrate that the effect of incentives on decision-aided performance depends on other contextual factors such as the absence or presence of additional contextual information. By further specifying the conditions under which incentives result in increases or decreases to decision-aided task performance, our results have implications for both future research and the design of incentive systems in practice.
You’re Having Fun When Time Flies – The Hedonic Consequences of Subjective Time Progression - via Psychological Science – Seven studies tested the hypothesis that people use subjective time progression in hedonic evaluation. When people believe that time has passed unexpectedly quickly, they rate tasks as more engaging, noises as less irritating, and songs as more enjoyable. We propose that felt time distortion operates as a metacognitive cue that people implicitly attribute to their enjoyment of an experience (i.e., time flew, so the experience must have been fun). Consistent with this attribution account, the effects of felt time distortion on enjoyment ratings were moderated by the need for attribution, the strength of the “time flies” naive theory, and the presence of an alternative attribution. These findings suggest a previously unexplored process through which subjective time progression can influence the hedonic evaluation of experiences.
Goal Management in Sequential Choices: Consumer Choices for Others Are More Indulgent than Personal Choices – via Chicago – What are the differences in exerting self‐control in sequential choices when consumers choose for others (family or friends) rather than for themselves? Sequential choices represent an opportunity to manage the pursuit of one’s multiple personal goals. Consumers typically manage these personal goals by combining indulgent and virtuous choices. When choosing for others, however, this is not the case. Consumers then focus on a pleasure‐seeking goal, which leads to indulgent choices for others. Six experiments demonstrate this phenomenon and uncover conditions that encourage more virtuous choices for others.
I’m No Longer Torn After Choice : How Explicit Choices Implicitly Shape Preferences of Odors – via Psych Science – Several studies have shown that preferences can be strongly modulated by cognitive processes such as decision making and choices. However, it is still unclear whether choices can influence preferences of sensory stimuli implicitly. This question was addressed here by asking participants to evaluate odors, to choose their preferred odors within pairs, to reevaluate the odors, and to perform an unexpected memory test. Results revealed, for the first time in the study of olfaction, the existence of postchoice preference changes, in the sense of an overvaluation of chosen odors and a devaluation of rejected ones, even when
choices were forgotten. These results suggest that chemosensory preferences can be modulated by explicit choices and that such modulation might rely on implicit mechanisms. This finding rules out any explanation of postchoice preference changes in terms of experimental demand and strongly challenges the classical cognitive-dissonance-reduction account of such preference changes. THE ROLE OF MOBILE PHONES IN SUSTAINABLE RURAL POVERTY REDUCTION - via ICT – Many developing country governments and developing agencies are focusing on extending telecommunications services into rural areas, as they seek to alleviate poverty, encourage economic and social growth, and overcome a perceived ‘digital divide’. However, relatively little is known about how rural communities benefit from modern telecommunications services and what impact it is having on their lives and livelihoods. This paper endeavors to redress the balance, by examining the role of mobile telephones in sustainable poverty reduction among the rural poor.
Other Very Interesting Articles
Alcohol as a social lubricant – Alcohol is an important part of life in many cultures throughout the world, but there are many misperceptions about this common social lubricant. Obamacare worth the price to Democrats - via OC Register – So there was President Obama, giving his bazillionth speech on health care, droning yet again that “now is the hour when we must seize the moment,” the same moment he’s been seizing every day of the week for the past year, only this time his genius photo-op guys thought it would look good to have him surrounded by men in white coats.
Algebra in Wonderland - via NYT – SINCE “Alice’s Adventures in Wonderland” was published, in 1865, scholars have noted how its characters are based on real people in the life of its author, Charles Dodgson, who wrote under the name Lewis Carroll. Alice is Alice Pleasance Liddell, the daughter of an Oxford dean; the Lory and Eaglet are Alice’s sisters Lorina and Edith; Dodgson himself, a stutterer, is the Dodo (“Do-Do-Dodgson”).
Brain Science vs. Criminal Law- via NYT – Advances in neuroscience put it increasingly in conflict with criminal law: If all our mental states can ultimately be reduced to neurophysiological conditions, and there is really no such thing as free will, how can people be held accountable for crimes? Fake Drugs: Causes, Consequences, and Possible Solutions - via Policy Pointers – A US speech addressing the problem of substandard and counterfeit drugs
I spend 8 hours every Sunday putting this together…If you like this roundup kindly include a reference to SimoleonSense.com .Thanks!
Weekly Cartoon
Joke of Week
Patient: Doctor, I can’t stop stealing things.
Psychiatrist: Take these pills. They should help you.
Patient: But what if they don’t?
Psychiatrist: Pick up a Rolls for me.
Manufacturing Tail Risk: A Perspective on the Financial Crisis of 2007-09- via SSRN – We argue that the fundamental cause of the financial crisis of 2007-09 was that large, complex financial institutions (“LCFIs”) took excessive leverage in the form of manufacturing tail risks that were systemic in nature and inadequately capitalized. We employ a set of headline facts about the build-up of such risk exposures to explain how and why LCFIs adopted this new banking model during 2003-2Q 2007, relative to earlier models. We compare the crisis to other episodes in the United States, in particular, the panic of 1907, the failure of Continental Illinois and the Savings and Loan crisis. We conclude that several principal imperfections, in particular, distortions induced by regulation and government guarantees, developed in decades preceding the current one, allowing LCFIs to take on excessive systemic risk. We also examine alternative explanations for the financial crisis. We conclude that while moral hazard problems in the originate-and-distribute model of banking, excess liquidity due to global imbalances and mispricing of risk due to behavioral biases have some merit as candidates, they fail to explain the complete spectrum of evidence on the crisis.
Miguel’s Weekly Favorites
Why Are Millennials So Darn Optimistic? – Via The Atlantic – That’s how Pew Research defines the Millennial generation — Americans born since 1980. We’re socially liberal, technologically savvy and wildly optimistic.
Neuromarketing appeals to your senses - via Dana Foundation – There really is no limit to how far companies are willing to go to get inside the heads of consumers—literally. At least, that’s the take-home message I got from a new article in Time about “neuroadvertising,” the business of using new neuroscientific understanding to, well, generate more business.
Better live in Sweden than in the US: Why More Equal Societies Almost Always Do Better - via Cog Culture – Let’s talk about politics for once. It is common knowledge that in rich societies the poor have shorter lives and suffer more from almost every social problem. In a quite fascinating book, The Spirit Level: Why More Equal Societies Almost Always do Better, epidemiologists Richard Wilkinson and Kate Pickett demonstrate that more unequal societies are bad for almost everyone – the well-off as well as the poor (here is the Guardian review, and here is Nature’s). The remarkable data the book lays out and the measures it uses are like a ’spirit level’ which we can hold up to compare the conditions of different societies. The differences revealed, even between rich market democracies, are striking. Almost every modern social and environmental problem – ill-health, lack of community life, violence, drugs, obesity, mental illness, long working hours, big prison populations – is more likely to occur in a less equal society. The book goes to the heart of the apparent contrast between the material success and social failings of many modern societies. The Spirit Level does not simply provide a key to diagnosing our ills. It tells us how to shift the balance from self-interested ‘consumerism’ to a friendlier and more collaborative society. It shows a way out of the social and environmental problems which beset us and opens up a major new approach to improving the real quality of life, not just for the poor but for everyone. Last but not least, (at least for the reader of the ICCI’s blog), it is a very good piece of sociology based on cognition and evolution.
How Your Brain Groups Words- via Brain Blogger – When you say or hear a concrete noun, such as “apple”, what happens in your mind? Even without seeing a physical apple in front of you, your brain is drawing up an image of an apple, maybe the last one you ate or saw in the stores or on TV. A team of researchers at Carnegie Mellon used an fMRI (functional magnetic resonance image) machine to find out. Rather than using complex transparent concepts, like “honesty”, the team used simple words that convey physical, everyday objects to see which parts of the brain was activated. The goal was to see how the brain functions when we think of an object, rather than just trying to see an object in our mind. The brain was activated in many different parts for the simplest words, showing a complex, networked effect for even the easiest thoughts.
Big Thinkers Speaker Series with Richard Thaler- via Farnam St – Economist and University of Chicago Professor Richard Thaler kicked off the Yahoo! Labs 2010 Big Thinkers Speaker Series with a talk about his New York Times bestselling book, “Nudge: Improving Decisions about Health, Wealth, and Happiness.” In short, people have to make decisions every day that affect every aspect of their lives, personally and professionally. The way people make decisions is often impacted by human fallibility such as bounded self-interest, willpower, and rationality, according to Thaler, they could do with a little help, or “nudge”, in making such decisions.
The Science of Hollywood Films: It’s All in the Chaos Theory - via National Geographic – A cognitive psychologist from Cornell University studied over 150 films from the past 70 years, shot by shot, to find out just what makes one a snoozer and another an edge-of-the seat thriller.
Interview With Harry Markopolos: Math Is Hard - Via NYtimes – What was it like to spend nine years trying to persuade the Securities and Exchange Commission that Bernard Madoff was a fraud, only to learn that the agency thought he was perfectly reputable?
How America Can Rise Again – via The Atlantic – Is America going to hell? After a year of economic calamity that many fear has sent us into irreversible decline, the author finds reassurance in the peculiarly American cycle of crisis and renewal, and in the continuing strength of the forces that have made the country great: our university system, our receptiveness to immigration, our culture of innovation. In most significant ways, the U.S. remains the envy of the world. But here’s the alarming problem: our governing system is old and broken and dysfunctional. Fixing it—without resorting to a constitutional convention or a coup—is the key to securing the nation’s future.
Behavioral Portfolios- Beer Balancing Behavioralism - Via PsyFi – Perusing the literature on behavioural finance you might be inclined to the thought that although this stuff is all very interesting and even occasionally amusing it’s not much use when you come to actually investing. It’s a bit like posture – it’s easy enough to point out to someone that they slouch like a sloth with a dose of haemorrhoids, it’s entirely another to explain to them how to retrain their muscles to start balancing pitchers of beer on their head on the way back from the bar.
Consumer Expectations and Culture: The Effect of Belief in Karma in India - via Chicago – In the customer expectations arena, relatively little attention has been paid to the impact on expectations of variation in cultural variables unique to a country. Here we focus on one country, India, and a major cultural influence there—the extent of belief in karma. Prior research in the United States suggests that disconfirmation sensitivity lowers expectations. Here we examine whether belief in karma and, consequently, having a long‐term orientation, counteracts the tendency to lower expectations in two studies that measure and prime respondents’ belief in karma. Results show that the extent of belief in karma, operating largely through its impact on long‐run orientation, does moderate (decrease) the effect of disconfirmation sensitivity on expectations. These findings suggest that it is important to tailor advertising messages by matching them with customer expectations and their cultural determinants.
Planning to Make Unplanned Purchases? The Role of In‐Store Slack in Budget Deviation - via U Chicago – We propose that consumers have mental budgets for grocery trips that are typically composed of both an itemized portion and in‐store slack. We conceptualize the itemized portion as the amount that the consumer has allocated to spend on items planned to the brand or product level and the in‐store slack as the portion of the mental budget that is not assigned to be spent on any particular product but remains available for in‐store decisions. Using a secondary data set and a field study, we find incidence of in‐store slack. Moreover, we find support for our framework predicting that the relationship between in‐store slack and budget deviation (the amount by which actual spending deviates from the mental trip budget) depends on factors related to desire and willpower.
Nonprofits Are Seen as Warm and For‐Profits as Competent: Firm Stereotypes Matter - via U Chicago – Consumers use warmth and competence, two fundamental dimensions that govern social judgments of people, to form perceptions of firms. Three experiments showed that consumers perceive nonprofits as being warmer than for‐profits but as less competent. Further, consumers are less willing to buy a product made by a nonprofit than a for‐profit because of their perception that the firm lacks competence. Consequently, when perceived competence of a nonprofit is boosted through subtle cues that connote credibility, discrepancies in willingness to buy disappear. In fact, when consumers perceive high levels of competence and warmth, they feel admiration for the firm—which translates to consumers’ increased desire to buy. This work highlights the importance of consumer stereotypes about nonprofit and for‐profit companies that, at baseline, come with opposing advantages and disadvantages but that can be altered.
Does the Devil Really Wear Prada? The Psychology of Anthropomorphism and Dehumanization- via APS – People talk to their plants, pray to humanlike gods, name their cars, and even dress their pets up in clothing. We have a strong tendency to give nonhuman entities human characteristics (known as anthropomorphism), but why? In a new report in Current Directions in Psychological Science, a journal of the Association for Psychological Science, psychological scientists Adam Waytz from Harvard University and Nicholas Epley and John T. Cacioppo from University of Chicago, examine the psychology of anthropomorphism.
Gain from the pain of failure- via FT – Failure has always been a fundamental part of a market economy. When markets work, they do so because new ideas are constantly being tried out. Most fail. Those that succeed cause older ideas to fail instead. In the US, about 10 per cent of businesses disappears each year. This is an awkward insight – but trial and error could be starting to take its rightful place as a business technique, rather than the dirty little secret of capitalism.
TV Ads May Be More Effective If We Pay Less Attention- via ScienceDaily — Viewers pay less attention to creative television advertisements, shows new research from the University of Bath, but may make themselves more vulnerable to the advertiser’s message.
The Long-Term Effects of Short-Term Emotions - via HBR – The heat of the moment is a powerful, dangerous thing. We all know this. If we’re happy, we may be overly generous. Maybe we leave a big tip, or buy a boat. If we’re irritated, we may snap. Maybe we rifle off that nasty e-mail to the boss, or punch someone. And for that fleeting second, we feel great. But the regret—and the consequences of that decision—may last years, a whole career, or even a lifetime.
The Psychology of Chocolate - via Dr Shock – The authors explain that chocolate as used nowadays is completely different from how it was probably originally consumed as a frothy, tart-tasting, and mildly alcoholic beverage among the Olmec and Maya. Those days it also was a critical source of calories in a calorie-constrained society. For the history of chocolate read Cacao and Chocolate Timeline
Reward centers in men activated by optimal hip-to-waist ratio in women - via Deric Bownds – Observations from Platek and Singh add to the evolutionary psychologists’ discussion of determinants of men’s sexual preferences. They take male preference for lower hip waist ratio in females (as indicative of reproductive quality) to be culturally universal, but I recall debate on this point, and indeed find that debate covered by cited references (17,18) at the end of the article. Their core observation is that when men view photographs of women after and before plastic surgery to achieve an optimal (~0.7) waist to hip ratio (with redistributed body fat but relatively unaffected body mass index), an increase in activation of brain rewards centers can be observed. They suggest their observations “are the first description of a neural correlate implicating waist to hip ratio as a putative honest biological signal of female reproductive viability and its effects on men’s neurological processing.”
Behavioral Economics & Redrawing the Route to Online Privacy – via Ny Times – It is an artifact of the 1990s, intended as a light-touch policy to nurture innovation in an emerging industry. And its central concept is “notice and choice,” in which Web sites post notices of their privacy policies and users can then make choices about sites they frequent and the levels of privacy they prefer. But policy and privacy experts agree that the relentless rise of Internet data harvesting has overrun the old approach of using lengthy written notices to safeguard privacy.
Exclusive Features (The Must Reads)
The data deluge Businesses, governments and society are only starting to tap its vast potential – via The Economist – Everywhere you look, the quantity of information in the world is soaring. According to one estimate, mankind created 150 exabytes (billion gigabytes) of data in 2005. This year, it will create 1,200 exabytes. Merely keeping up with this flood, and storing the bits that might be useful, is difficult enough. Analysing it, to spot patterns and extract useful information, is harder still. Even so, the data deluge is already starting to transform business, government, science and everyday life (see our special report in this issue). It has great potential for good—as long as consumers, companies and governments make the right choices about when to restrict the flow of data, and when to encourage it.
Niall Ferguson -Complexity and Collapse: Complexity and Collapse - via FA – There is no better illustration of the life cycle of a great power than The Course of Empire, a series of five paintings by Thomas Cole that hang in the New-York Historical Society. Cole was a founder of the Hudson River School and one of the pioneers of nineteenth-century American landscape painting; in The Course of Empire, he beautifully captured a theory of imperial rise and fall to which most people remain in thrall to this day.
Corporate Governance and the Financial Crisis: Causes and Cures - via Harvard Law – A recent discussion that I moderated at the Corporate Directors Forum at the University of San Diego focused on the changing regulatory landscape triggered by the financial crisis. The focus was on the changing rhetoric in the corporate governance debate, and whether the rhetoric matches the proposals being advanced – i.e., does the “talk-the-talk” fit with the “walk-the-walk”.
It is time to treat Wall Street like Main Street – via FT – Thirty years ago, when we were still using typewriters and fewer than 25 per cent of households invested in the stock market, economists conjectured that employees would work harder and make better decisions under a “pay-for-performance” system. This theory became popular in boardrooms – especially since it was an influential argument for increasing the pay of the chief executive and top officers. Bonuses tied to performance became standard practice in US companies and on Wall Street in particular. 20 (More) Reality-Checking Questions for Would-Be Entrepreneurs - via HBR – I find too many business bloggers fail to describe the real experience of starting up a company. They ignore the human aspects. It seems like there is some unwritten law of business blogging that says you can only write about the inspirational and positive aspects of creating a start–up business.
The Mathematics Behind a Good Night’s Sleep- via ScienceDaily — Why can’t I fall asleep? Will this new medication keep me up all night? Can I sleep off this cold? Despite decades of research, answers to these basic questions about one of our most essential bodily functions remain exceptionally difficult to answer. In fact, researchers still don’t fully understand why we even sleep at all. In an effort to better understand the sleep-wake cycle and how it can go awry, researchers at Rensselaer Polytechnic Institute are taking a different approach than the traditional brain scans and sleep studies. They are using mathematics.
Game theory shows evolution follows most successful member- via Ars Technica – Game theory has become a useful way to evaluate strategies for survival in evolution scenarios. In a new study, scientists set up a model where human players engage with each other and compete for resources, and can change their strategies for doing so in various ways. They found that as more rounds of the game were played, the human players developed a tendency to imitate the best player, causing the players as a group to tend to play the game the same way. This implies that in evolution, as one member of a species enjoys more and more success, its methods become hard to ignore for the others, which will eventually follow its lead.
Am happy, will be selfish; Am sad, will be fair. Oh Really?!? - via The Mouse Trap – Many a times, researchers have their own personal agendas and its very human to fall in to the temptation to interpret study results or spin them to suit ones long term subject matter and expertise. This is a trap in which Joe Forgas et al fall when they report in JESP that happy people are selfish and sad people are fair. They have a long research interest that goes aka sadness is beneficial for you and every result has to fit in that model.
What raises murder rates- via Boston – A recent analysis of global homicide rates came up with some interesting conclusions. It turns out that the proportion of young males, population density, degree of urbanization, and income inequality are not significant predictors of the homicide rate. Instead, ethnic and linguistic diversity, education, and the quality of governing institutions were the most significant factors. Although it’s not surprising that ethnic strife and law enforcement matter for the homicide rate, there was a surprising effect found for education: An extra year of school for the average female increased the homicide rate almost as much as one less year of school for the average male. Think Twice: How the Gut’s “Second Brain” Influences Mood and Well-Being- via SciAm – The emerging and surprising view of how the enteric nervous system in our bellies goes far beyond just processing the food we eat
Finance & Investing
Macroeconomics for the 21st century: Part 1, Theory- Via Voxeu – What are the implications of combining Keynesian ideas with Walrasian general equilibrium theory in a way that does not assume sticky prices? This column presents the first of a two-part outline of a new macroeconomics paradigm for the 21st century, starting with the theory. Macroeconomics for the 21st century: Part 2, Policy - via Voxeu – What are the implications of combining Keynesian ideas with Walrasian general equilibrium theory in a way that does not assume sticky prices? This column presents the second in a two-part outline of a new paradigm for macroeconomics in the 21st century, focusing on policy. It argues that fiscal policy is not the right response to a financial crisis.
The economics of cloud computing - via Voxeu – What will the next big technology be? This column argues that “cloud computing” will have a dramatic effect on how we live our lives and how we do business. The economic impact of the diffusion of this technology could match that of telecommunication infrastructures in the ’70s and ’80s or the introduction of the internet in the ’90s. Once diffusion gathers apace, cloud computing could significantly boost GDP growth and could create around a million EU jobs within five years. Mining booms and the Australian economy - via BIS – The topic of my talk tonight is “Mining Booms and the Australian Economy”. I have chosen this topic because the Australian economy is currently experiencing a surge in mining activity, one of a sequence of mining booms since the European settlement of Australia. These have been a powerful force in shaping the Australian economy. Tonight I want to review the effects of these booms. Of particular interest is the question of whether there are recurring themes from which we can draw lessons on how to manage the current episode.
2 Videos of Andrew Lo: on Quants and the Financial Crisis- via Money Science – Andrew W. Lo, director of the Massachusetts Institute of Technology’s Laboratory for Financial Engineering, breaks down the hot debate over the current financial crisis and how math may have played a part. Explore the arguments for and against the claim that the mathematical models used to manage specific complex financial securities are responsible for the Great Recession. Was it systematically programmed or just human nature?
Sean Carroll on the arrow of time - via Ted – In Part 1 of his lecture at the University of Sydney, cosmologist Sean Carroll gives an entertaining and thought-provoking talk about the nature of time, the origin of entropy, and how what happened before the Big Bang might be responsible for the arrow of time we observe today.
Academic Papers
Olympic expectations gone awry: Plushenko conforms to silver medalist syndrome.- via Social Psych – Avid Olympic watchers most likely tuned in to Thursday night’s main event: the men’s figure skating free skate. Evan Lysacek won gold for the United States, becoming the first American man to win it since 1988. Russia’s Evgeni Plushenko took the silver – losing by a mere 1.31 points overall – and ended Russia’s streak in the sport. Had Plushenko won the gold, as he expected, he would have been the first man to win back-to-back Olympic gold medals since 1952.
Geography and Attentiveness - via Social Psych – Geography is a factor in relationships. Not surprising, working, taking a class, or sharing a common space with someone may lead to a long-term friendship or relationship. An NPR news report notes that many people make long time friends when in college. Although geographical closeness at times leads to friendships the question remains as to what motivates these relationships. Cross (2009) points to a variable known as the relational self-construal defined in terms of how an individual see’s oneself in relation to others close to us. So close relationships must have lasted because someone (or both) in the dyad is high on the relational self-construal. For the purpose of continuing the relationship these individuals tend to be particularly attentive to the needs of others by paying close attention to information. Cross writes that actions such as give and take, openness, providing support and encouragement are characteristic of those high in relational self-construal. While geography may be a factor when it comes to who you are acquainted with, attentiveness to others in relation to oneself determines who your friends will be .
Culture, corruption, and the endorsement of ethical leadership. - via Wisom Research – In this chapter, we propose that society- and organization-level social context cues influence the endorsement of ethical leadership. More specifically, we propose that certain organizational culture values provide proximal contextual cues that people use to form perceptions of the importance of ethical leadership. We further propose that specific societal culture values and societal corruption provide a set of more distal, yet salient, environmental cues about the importance of ethical leadership. Using data from Project GLOBE, we provide evidence that both proximal and distal contextual cues were related to perceptions of four dimensions of ethical leadership as important for effective leadership, including character/integrity, altruism, collective motivation, and encouragement.
Other Very Interesting Articles
The price of ideas: competing incentives for innovation- Via Knowing & Making – Only someone with Nathan Myhrvold’s Microsoft money – and reputation as a mad genius – could get away with starting Intellectual Ventures and still being taken seriously. But since he can, it makes it an interesting concept.
NYT Should Rely on Experts Who Are Not Employed by J.P. Morgan- via American Prospect – The NYT reports that strong demand is causing wages to rise rapidly in China. While the article describes this as a “labor shortage,” this is actually a normal process in a growing economy. Workers move from less productive sectors to more productive sectors. Firms that cannot afford to pay the market wage go out of business.
Focusing on the Cinematic Mind- via We’re Only Human – Our household is a rolling Alfred Hitchcock festival. We almost always have at least one of the celebrated director’s films on DVD, and over the years we have watched most of our favorites—Suspicion, North by Northwest, The 39 Steps—time and time again. It’s a tribute to the master’s skills and sensibility that his films have such enduring appeal, because many films from the same time period have a distinctly “old” feel to them. It’s not just the primitive cameras and films. There is something about the rhythm and texture of early cinema that has a very different “feel” than modern films. But it’s hard to put one’s finger on just what that something is.
Experiences, Perspectives, and Frames - via Every Day Sociology – In the many meetings I attend at school, I often notice people saying things like, “in my previous life, …” or “where I used to work, …” to give examples of why or how things are done. It often annoys me since the rest of us weren’t there to know what the heck they are talking about so the connection to our present situations is lost on most of us.
RegInfo.gov – a tool to track legislative progress - via Nudge Blog – The site’s launch coincides with Nudge co-author Cass Sunstein’s first public remarks since taking over the Office of Information and Regulatory Affairs (OIRA), the office in charge of reviewing, developing, and overseeing regulations across the federal government. Speaking at an American University law school conference, Sunstein emphasized that OIRA’s goal is to create regulatory policy for Humans, not Econs; “homo sapiens rather than homo economicus,” he explained.
Why Poker Players Wear Sunglasses: Your eyes betray the timing of your decisions – via Science Blogs – When it comes to making decisions, timing can be everything, but it is often beneficial to conceal the decision that has been made. Take a game of poker, for instance: during each round, the player has to decide whether to bet, raise the stakes, or fold, depending on the hand they have been dealt. A good player will have perfected his “poker face”, the blank expression which conceals the emotions he feels and the decisions he makes from the other players sitting at the table. Increasing numbers of researchers are using brain scanning techniques to perform what is commonly referred to as “mind reading”. Their efforts have had limited success, however, and our decisions are still private mental events which are inaccessible to others. Until now, it was unclear whether there are outwardly visible physiological responses associated with the decision-making process. But a new study now shows that dilation of the pupils can predict when a decision has been made before an individual voluntarily reports making the decision.
The education of Nathan Myhrvold – Via Information Processing – I came across this long 1998 interview with Nathan Myhrvold, which covers his childhood, education as a physicist, brief postdoc with Hawking, software startup and its acquisition by Microsoft, subsequent role there including the creation of Microsoft Research.
Video: Elizabeth Warren On Commercial Real Estate- via Nick Gogerty – This is a summary of an excellent and clear report put out by Elizabeth Warren chair of the Congressional oversight panel. Warren is a refreshingly honest and clear voice among the politicking, greed and fear mongering that surrounds this historically defining issue. The report is a 190 page turner for me (under employed hedgie / consultant).
Mapping America’s Eating Habits – via Good – What state spends the most on fast food? Or drinks the most soda? Or eats its vegetables? Check out this fun set of maps from the Daily Yonder that show how our diets differ by state and county.
Miguel’s Weekly Favorites
Investing: Getting a grip on emotions - via FInance Professor – “Here’s a tip someone passed along during the financial crisis: If you find that emotions are taking over your investing decisions, deliberately enter the wrong password three times on your online brokerage account. That will block your access, and you’ll only go to the trouble of unlocking your account if you’re really, really sure you want to buy or sell something.
Wanna make a bet that women gamble? - via PhysOrg – Typical Australian gamblers are no longer just men playing poker, with more women becoming addicted, isolated and even suicidal, a researcher from The University of Queensland has warned.
Is Neuro-Linguistic Programming:Cargo Cult Psychology? - via Jarhe – NLP is a popular form of inter-personal skill and communication training. Originating in the 1970s, the technique made specific claims about the ways in which individuals processed the world about them, and quickly established itself, not only as an aid to communication, but as a form of psychotherapy in its own right. Today, NLP is big business with large numbers of training courses, personal development programmes, therapeutic and educational interventions purporting to be based on the principles of NLP. This paper explores what NLP is, the evidence for it, and issues related to its use. It concludes that after three decades, there is still no credible theoretical basis for NLP, researchers having failed to establish any evidence for its efficacy that is not anecdotal.
Happiness Is … Looking Forward to Your Vacation - via Science Daily – It takes more than a vacation to make people happy. Indeed, vacationers tend to be happier than non-vacationers in the lead up to their break, but once they are back, there is very little difference between the two groups’ levels of happiness.
Slot-machine gamblers are hard to pin down - via Guardian – It’s hard to get good payoffs from slot machines, yes. But it’s also hard to get good information from slot-machine gamblers, and that made things awkward for psychologists Mark Griffiths, of Nottingham Trent University, and Jonathan Parke, of Salford University. They explained how, in a monograph called Slot Machine Gamblers – Why Are They So Hard to Study?
West Brain, East Brain: What a difference culture makes. - via Newsweek – By now, it should come as no surprise when scientists discover yet another case of experience changing the brain. From the sensory information we absorb to the movements we make, our lives leave footprints on the bumps and fissures of our cortex, so much so that experiences can alter “hard-wired” brain structures. Through rehab, stroke patients can coax a region of the motor cortex on the opposite side of the damaged region to pinch-hit, restoring lost mobility; volunteers who are blindfolded for just five days can reprogram their visual cortex to process sound and touch.
Exclusive Features (The Must Reads)
From shame to game in one hundred years: An economic model of the rise in premarital sex and its de-stigmatisation- via Voxeu – Attitudes to sex have changed dramatically over the last hundred years. This column presents a model where socialisation – the passing on of norms and ideologies by parents and institutions such as the church or state – is determined by the technological environment in which people live. Contraception has reduced the chance of unwanted pregnancies from premarital sex, and this in turn has changed social attitudes.
Wall Street’s Bailout Hustle - Via Matt Taibbi – Goldman Sachs and other big banks aren’t just pocketing the trillions we gave them to rescue the economy – they’re re-creating the conditions for another crash The Dawn of ‘Neurocapitalism’- via Nytimes – Today’s idea: We’re becoming a “neurocapitalist” world, an essay says. The demands of performance-driven, self-enhancing societies will expand markets for neuro-psychotropic drugs beyond those for depression, dementia and attention deficit disorder. And they will cost our health care systems dearly.
The Brainy Benefits of Being Fit - Via Good – Tonight, when you’re watching the ladies zip around the short track in Vancouver, some history to keep in mind. In the 1970s, Title IX allowed for greater numbers of high school and college-aged women to participate in sports. Six years after it was enacted, “the percentage of girls playing team sports had jumped sixfold, to 25 percent from about 4 percent,” reports today’s New York Times.
Imaginary Crime Rates - Via Boston.com – In 2009, crime went down. In fact it’s been going down for a decade. But more and more Americans believe it’s getting worse. Why do we refuse to believe the good news?
Currencies: Redemption or abstinence? – via Voxeu – Is “original sin”, a situation in which the domestic currency is not used to borrow abroad or to borrow long-term even domestically, no longer a problem? This column argues that, while original sin has diminished and countries are making greater use of their domestic bond market, foreign currency debt is still too risky to be sensible.
A midday nap markedly boosts the brain’s learning capacity – via Eureka alret – If you see a student dozing in the library or a co-worker catching 40 winks in her cubicle, don’t roll your eyes. New research from the University of California, Berkeley, shows that an hour’s nap can dramatically boost and restore your brain power. Indeed, the findings suggest that a biphasic sleep schedule not only refreshes the mind, but can make you smarter.
Finance & Investing
Tea Party U.S.A.: It’s Still the Economy, Stupid! - Via New Yorker – In the wake of yesterday’s fascinating report in the Times about sixty-something Tea Party activists bracing for a violent counter-revolution, several people have asked me why Americans are so angry. I am tempted to say that that is what age and a steady diet of Fox News does to people, but that can’t be the full story. (Roger Ailes and his gang have been on air since 1996.)
James Galbraith – We need jobs, not deficit cuts - via Guardian – Listen to Keynes and ignore those behind all the noise about deficits, who are simply looking to profit from private debt Transactions Costs and Beating the Market- via Damodaran – One of my books, Investment Fables, is directed at answering one of the most puzzling questions in investments: How is that there seem to be so many ways to beat the market on paper but that so few money managers seem to do it in practice? A key reason, in my view, is that transactions costs have a much greater impact on returns than we realize.
Watsa’s Fairfax Agrees to Buy Insurer Zenith for $1.3 Billion- via Street Capitalist – When I saw the 13F for Fairfax Financial Holdings (TSE:FFH) come out, one of the things I wondered was when Prem Watsa would do another acquisition. With Fairfax’s success over the last few years and good financial shape, I thought the company would be poised for an acquisition. Watsa has publicly said that they are not interested in straying too far out of the insurance business when it comes to acquisitions. They don’t want to build another Berkshire Hathaway
Brookfield Asset Management (BAM) – Q4 2009 Letter To Shareholders- via Above Average odds – AAOI portfolio holding Brookfield Asset Management’s latest letter to shareholders is a worthwhile read (as usual). The letter discusses BAM’s (and fellow AAOI holding BIP’s) newly acquired assets from Babcock & Brown, a brief mention of their purchase of General Growth’s debt, and their thoughts on the past, present, and future for Brookfields shareholder’s. Enjoy!
Taking the ‘R’ out of BRIC: How the Economic Downturn Exposed Russia’s Weaknesses – Via Wharton – Last June, when Russia’s president, Dmitry Medvedev, gathered fellow BRIC heads of state — Brazil’s President Luiz Inácio Lula da Silva, India’s Prime Minister Manmohan Singh and China’s President Hu Jintao — in the central Russian city of Yekaterinburg for the group’s first-ever leaders summit, he called for those present to “create the conditions for a fairer world order … a multi-polar world order.”
‘Main Street’ economic conditions misread by GDP - via PHys Org – Traditional gauges of economic activity severely overstate the standard of living as experienced on ‘Main Street,’ say University of Maryland researchers, who have worked with their state officials to apply a more accurate and greener index.
In Defense of Much, But Not All, Financial Innovation- via Brookings – After decades of being celebrated as one of the hallmarks and virtues of American-style capitalism, “financial innovation” has come onto hard times. Soon after the financial crisis began in 2007 and 2008, certain instruments of recent high finance – the collateralized debt obligation (CDO) and the credit default swap (CDS), as leading examples – were blamed by the media, the public, many policymakers, and even by some top economists for nearly bringing the U.S. and global financial systems and their economies to their knees. It didn’t take long for financial innovation more broadly to be condemned. How a New Jobless Era Will Transform America- via Huffington Post – The Great Recession may be over, but this era of high joblessness is probably just beginning. Before it ends, it will likely change the life course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come. Why Do Foreign Firms Leave U.S. Equity Markets? – via Harvard law – In our paper, which is forthcoming in the Journal of Finance, we analyze a sample of firms that voluntarily deregister from the SEC and leave the U.S. equity markets over the period from 2002 through 2008. Because it was extremely difficult to deregister before March 21, 2007 when the SEC adopted its new Exchange Act Rule 12h-6, foreign firms that wished to deregister most likely did not do so because they were unable to meet the necessary requirements. When Rule 12h-6 came into effect, deregistration became substantially easier and the change in the rules was followed by a large spike in the number of deregistrations. We investigate why foreign firms deregister, how the Rule change affected firms’ deregistration decisions, and what the economic consequences are of the decisions to deregister.
Videos & Media
Digital, Life, Design 2010 Conference on Disruptive Technology - Via Fora.tv – In a high-level session, four disruptive entrepreneurs discuss what disruption is all about: Mitchell Baker (Mozilla), Jimmy Wales (Wikipedia), Niklas Zennstrom (Atomico) and – also moderating the discussion – Yossi Vardi (DLD Co-Chairman) all have created organizations or products that disrupted their industries. It turns out there are a few things all of them have in common: Serving a huge user base with a very small organization; getting the users actively involved in the main business of your company; and an open mind to collaboration and partnership over competition.
Full Digital Reconstructions of Brains – Via BIL – The Knife Edge Scanning Microscope (KESM) is a tool that allows high-throughput digital microscopy. It can take an entire mouse brain (or human tumor) and digitize it at a sub-micron level. Originally developed for analyzing long neural paths, it’s also excellent at tracing microvasculature in a sample. This technology has been under development for 10 years at Texas A&M, and is now being commercialized by Todd Huffman and his company, 3Scan, for many different industries including cancer research (angiogenesis inhibitors).
The Role of Information Technology in Improving Transit Systems- via MIT World – “Punch brothers! Punch with care! Punch in the presence of the passenjare!…” This ditty about tram car ticketing made famous by Mark Twain might spring to mind during Nigel Wilson’s talk. Technology unimaginable in Twain’s day is spurring a global shift in urban transit, Wilson says, from manual to automatic systems. Ticket punching by conductors has given way to fare cards swiped through machines — not to mention real-time GPS tracking of trains and buses, and network monitoring via computers. As part of MIT’s Transit Research Program, Wilson and colleagues have been taking advantage of a trove of data resulting from this digital transformation, working in London, Chicago, Puerto Rico, and Boston on ways to improve urban public transport.
Academic Papers
Why So Cynical?: Asymmetric Feedback Underlies Misguided Skepticism Regarding the Trustworthiness of Others- via APS – People tend to grossly underestimate the trustworthiness of other people. We tested whether this cynicism grows out of an asymmetry in the feedback people receive when they decide to trust others. When people trust others, they painfully learn when other people prove to be untrustworthy; however, when people refrain from trusting others, they fail to learn of instances when the other person would have honored their trust. Participants saw short videos of other people and had to decide whether to trust each person in an economic game. Participants overall underestimated the trustworthiness of the people they viewed, regardless of whether they were given financial incentives to provide accurate estimates. However, people who received symmetric feedback about the trustworthiness of others (i.e., who received feedback regardless of their own decision to trust) exhibited reduced cynicism relative to those who received no feedback or asymmetric feedback (i.e., who received feedback only after they trusted the other person).
Other Very Interesting Articles
Real Housewives of Gomorrah!- Via Boston.com – The phenomenon of reality television, in which ordinary people are shown in unscripted dramatic situations, is generally assumed to have begun in earnest in the late 1990s. However, a deluge of recent findings is forcing scholars in the field of Reality Studies to push their timelines back hundreds if not thousands of years. Dr. Arvid Jokum of Helsinki University has recently published a groundbreaking work entitled “Virkeligheten Ytelse Gjennom det Historie” (“Reality Performance through History”) that traces the historical antecedents of today’s modern reality television shows. The evidence in Jokum’s account is convincing, from his unique interpretation of hieroglyphics (Jokum asserts they are actually show reels) to his painstaking examination of the architectural record (he theorizes that the numerous bedrooms, ornate finishings, and exaggerated size of Versailles indicate it was clearly built as a set for a “Real World”-like ensemble show). Below, some of the ancient programming he has discovered: Mind Power: Harvard professor Ellen Langer’s research transformed psychology. Now she wants it to transform you. - Via Boston.com – Langer is a famous psychologist poised to get much more famous, but not in the ways most researchers do. She is best known for two things: her concept of mindlessness – the idea that much of what we believe to be rational thought is in fact just our brains on autopilot – and her concept of mindfulness, the idea that simply paying attention to our everyday lives can make us happier and healthier. She was Harvard’s first tenured woman professor of psychology, and her discoveries helped trigger, among other things, the burgeoning positive-psychology movement. Her 1989 book, “Mindfulness,” was an international bestseller, and she remains in high demand as a speaker everywhere from New York’s 92d Street Y to the leadership guru Tony Robbins’s Fiji resort. And now a movie about her life is in development with Jennifer Aniston signed on to star as Langer.
Overruled: What language experts don’t care about- via Boston.com – If you care about how to use language – and if you’re reading this column, it’s a safe bet that you do – then you care about language rules. There are basic rules that everyone agrees with – for example, that the word moon has exactly two o’s, no more and no less – and then there are slightly more arcane rules (such as when to use “such as” and when to use “like”) that are subtle signals to other literate people that you, too, know your way around what’s “right.”
Can You Trust a Facebook Profile? – via Psyblog – Do people display their actual or idealised personalities on social networking sites? How to Change A Skin Cell Into A Nerve Cell or Cellular Anarchy & The Great Leap Sideways - via H+ – Eyeballs just don’t become toenails — even though the same genome sits in the nucleus of every cell. The difference is in the parts of the genome that are expressed — a cell’s identity is determined by the specific genes that are active within that cell. The differentiation of a cell, and a cell’s commitment to become a particular type, have been long considered irreversible processes.
I spend 8 hours every Sunday putting this together…If you like this roundup kindly include a reference toSimoleonSense.com .Thanks!
Weekly Cartoon (Via Google):
Weekly Joke (Via Econosseur):
ECONOMISTS do it at bliss point ECONOMISTS do it cyclically ECONOMISTS do it in an Edgeworth Box ECONOMISTS do it on demand ECONOMISTS do it risk-free (in reference to the risk-free interest rate) ECONOMISTS do it with a dual ECONOMISTS do it with an atomistic competitor ECONOMISTS do it with crystal balls ECONOMISTS do it with interest
Most Important Article(s) Of The Week!!!!!!!
“I Feel Your Pain” – Via The Neural Basis of Empathy – Last month, a terrible earthquake raised havoc in Port-au-Prince, Haiti. While the Haitians in Port-au-Prince are miles away from us, witnessing media images of their physical and emotional suffering moves us tremendously, and motivates many of us to respond to their distress with monetary and other donations. In a sense, this is an amazing human feat—that we are able to feel for other people’s far away tragedies. How is it that we are so moved? This is a question about human empathy, and it has boggled the minds of great thinkers for centuries. Indeed, German philosopher Rudolf Lotze coined the term empathy (einfuhlung) to literally mean “in” (em) and “feeling” (pathos), or “to feel into.”
Social Loafing – Don’t Be a Sucker or a Free Loader! – Via Psych Files – Do you like working in a group? Most people don’t because they’re afraid that they’ll have to do most of the work (wind up being a sucker) and that other group members won’t do their share of the work (free loaders). Want to find out how to avoid this and make your group work productive? Learn how the Agile software development technique can be adapted to your help your next group project be a success.
Pavlovian Conditioning on Film – Via Advances in the History of Psychology – This black and white, silent film, attempts to show the difference between conditioned and unconditioned responses in animals and humans. It begins by enacting Pavlov’s experiments on a dog’s salivary mechanism. Gradually we are shown how the unconditioned production of saliva at the sight or smell of food can be conditioned to appear at the sight of a flashing light. We also examine a newborn baby’s reflexes of sucking and grabbing and see how they become conditioned as it grows older. Simple animated diagrams attempt to explain changes in the brain as a subject becomes conditioned. Professor Krasnagorski enacts a salivary test on a young boy in his laboratory. Attention is paid to the difference between instinctive behaviour in animals and learned behaviour. This is illustrated by images of animals in the wild and those in zoos. We see trained seals performing tricks for rewards and Prof. Gladishikov demonstrating ‘the pain method of training’ on lions and bears.
Materialism: Here’s why you buy so much stuff you don’t need – Via Bakadesuyo – We examine age differences in materialism with children and adolescents 8–18 years old. In study 1, we find materialism increases from middle childhood to early adolescence and declines from early to late adolescence. Further, we find that age differences are mediated by changes in self‐esteem occurring from middle childhood through adolescence. In study 2, we prime self‐esteem to obtain further evidence of a causal link between self‐esteem and materialism. As expected, we find that inducing high self‐esteem decreases expressions of materialism. Inducing high self‐esteem reduces materialism among adolescents so dramatically that age differences in materialism disappear.
Interview With The Kissing Expert: Why Do We Kiss – Via Book Of Odds – The main reason is to express our affection, our love for our partner. Another reason is cultural—we’re surrounded by TV shows and movies where kissing is extremely important in a romantic context, so we learn through a kind of osmosis. And the third reason is, as Freud pointed out, we all go through various stages of development, the first of which is the oral stage, and so, certainly it’s still a part of our pleasure drive—oral contact is a lot of fun.
How to Avoid Gullibility – Via Open Forum – Who among us have not fallen for a stupid idea, pitch, or proposal? At some level, we’re all gullible where “gullibility” is defined as “an unusual tendency toward being duped or taken advantage of.” Fortunately, Stephen Greenspan has written a book called Annals of Gullibility: Why We Get Duped and How to Avoid It. In the conclusion of his book, Greenspan explains how to become less gullible.
Valentines Day Articles!
Video: Science of Love: Romance and Patterns of Attraction - As part of the Girls Night Out series at the New York Academy of Sciences (NYAS), neuroanthropologist Fisher talks about romantic love, misconceptions about love, its effects on the brain, and why we choose one mate over another. She discusses her early research as well as recent work with Chemistry.com. Slides are not visible, but still a fascinating lecture with 27 minutes of Q&A. A Valentine’s fave here at Channel N, see also this Stonybrook lecture, another 2006 lecture, an interview, and a New York Times interview.
Love: What’s oxytocin got to do with it? – Via Futurity.org- Neuroscientist Larry Young has been studying brain chemicals linked to the ability to form lasting bonds of affection. “A single molecule can have a profound effect on relationships,” he says.The work by the Emory University researcher involves prairie voles, highly social animals that tend to form life-long bonds with their mates.An infusion of oxytocin, a hormone associated with neural rewards and addictions, can cause female prairie voles to become attached to the nearest male, while the hormone vasopressin spurs males’ interest in a female.
Miguel’s Weekly Favorites:
The World’s Most Respected Companies – Via Barrons – Apple, J&J, Procter & Gamble, IBM and Berkshire Hathaway top our annual list of the 100 companies most admired by major investors. Not surprisingly, ethics matter more this time around. Video: Apple of the Market’s Eye
Quantum Psychology? – Via Permutations – Let me be frank; I think “The conjunction fallacy and interference effects” (ungated version) is a horrible misuse of math and indicates an embarrassing failure of peer review. The author, Riccardo Franco, introduces a parameter that does doesn’t have any foundation in the phenomena it is trying to explain, nor is it shown to aid in modeling. Please tell me I’m missing something. What? You’ve never heard of the conjunction fallacy? It is yet another cognitive bias studied by Amos Tversky and Daniel Kahneman. They gave people the following problem (quoting from Wikipedia):
Suvivor Bias - Via World Beta – Is an enormous issue, and one of the biggest NO-NOs if you are a quant. If you are not familiar with survivor bias it is when a backtest, or reported results, exclude companies that have been delisted due to mergers, acquistions, bankruptcies, etc. If you are a long time World Beta reader you would recall the fantastic Blackstar study that shows just how big of a deal this is. Roughly 20% of all public company stocks go to zero. And that is the Russell 3000, not even small and micro penny stocks where it would be much worse.
Fixing “global imbalances” in three easy steps - Via Interfluidity – Some problems are not, except when we blind ourselves to pretty obvious solutions. Addressing “global financial imbalances”, or, more specifically, the fact that some countries are running persistent current account deficits that they (correctly) perceive not to be in their interest, falls into the second class of problems. It is flawed ideology, nothing more, that makes this problem seem difficult. If you want something to stop, stop it. Let me break it down for you into three easy steps.
How to Want to Change Your Mind – Out of all the cognitive biases and logical fallacies, I think the most pernicious of all is a kind of meta-bias, one underlying tendency that makes us more susceptible to all of the others: simply not wanting to be wrong. It’s so automatic that it’s hard to notice it coloring your judgment unless you really pay attention, but once you do, you realize how frequently it makes you grasp for a fallacious argument just so you don’t have to admit to yourself that you were wrong. I’m definitely no exception — I can’t count the number of times I’ve caught myself reacting to an argument by asking myself, “OK, why is that false?” rather than “Is that false?”
Online math resources -Via The Ludwigs – Finding that Wolfram Alpha is also becoming more useful. Easier to run to it to figure out the integral of x^2 sinx sinhx than spinning up mathematica or maple or matlab.
Exclusive Features (The Must Reads):
Bad Intel: The U.S. intelligence community gets it wrong on Bosnian Serbs. - Via Foreign Policy -Last week, Director of National Intelligence Dennis Blair delivered U.S. intelligence community’s 2010 Annual Threat Assessment to the Senate Select Committee on Intelligence. The report recommends greater Western engagement to address political instability and ethnic tension in the Balkans, particularly in Bosnia-Herzegovina. Specifically, the report warns of growing separatist sentiment on the part of Bosnian Serbs. “Bosnian Serb leaders seek to reverse some reforms, warn of legal challenges to the authority of the international community, and assert their right to eventually hold a referendum on secession, all of which is contributing to growing interethnic tensions,” the assessment states. “This dynamic appears likely to continue, as Bosnia’s leaders will harden their positions to appeal to their nationalist constituents ahead of elections this fall.”
How Schools Spent Their Stimulus Money – Via Modeled Behavior – Pretty quickly, it seems. According to a new study, schools spent 38% of their stimulus money in the ‘08-’09 school year, 48% this year, and have 14% left over for next year. From a Keynesian perspective, that seems like a pretty decent pace to spend $100 billion. Some states, in fact, managed to spend 100% of their education stimulus money “immediately”. Even better, some of the money that was tied to reforms, like the $4.3 billion Race to the Top program, will probably pay many future dividends as well.
James Altucher: A Simple Way to Beat Hedge Funds – Via WSJ – I once met with representatives of a very wealthy family from Switzerland. You know how people say, “If you had taken $10 and compounded it from 1700 on, you’d have a zillion dollar by now”? Well, this was the type of family that had been compounding its wealth since the 1300s. Many families like this have ungodly amounts of wealth stashed away.
Physics Envy; or Why No One Respects Psychologists - Via Chronicle - The social sciences are easier than the natural sciences, according to second graders. Adults more or less agree. A study published in the Journal of Experimental Psychology took a look at which disciplines children and adults thought were the most difficult to learn. For the most part, people of all ages think psychology is easy and physics is hard. That bias begins early and changes some, but not much, the older we get.
Around The World, People Living Longer Lives, But Not Better Ones - Via rferl – Human longevity is an accomplishment of modern society. It reflects improvements in science, public policy, and socioeconomic development. But increased longevity does not necessarily mean improved quality of life. On the contrary, as people age, their well-being and social support tend to dwindle.
Elizabeth Warren: Wall Street’s Race to the Bottom- Via WSJ – Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don’t trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.
A Little More About Medical Bankruptcy - Via Megan McArdle -I want to talk a bit more about why I dislike the Himmelstein et. al. study that found more than half of all bankruptcies were due to medical reasons. There are a few reasons that I don’t find their work very convincing. First, the rate of respondants attributing the bankruptcy to medical problems was more in line with other studies I’ve seen, at 30-40%. The extra folks come from their addition of, for example, people who had medical bills that total 5% of income. Now, having medical problems is one of the most socially acceptable reasons for bankruptcy (compared to other major causes like divorce, overspending, or a gambling or drug addiction, so we’d normally expect people to overemphasize the medical problems compared to other factors.
Finance & Investing:
Seth Klarman’s Baupost Group Discloses New Positions (13F Filing Q4 2009)- Via Market Folly -
This is the fourth quarter 2009 edition of our hedge fund portfolio tracking series. Before beginning, check out our series preface on hedge fund 13F filings. Fittingly, we’ll begin our coverage of fourth quarter holdings with arguably the most successful and respected modern hedge fund manager, Seth Klarman and Baupost Group. Klarman received his MBA from Harvard Business School and went to work for Baupost when he was 25. The rest is history as he has been one of the most successful investors of our time in terms of performance. Prior to this portfolio update, we had already covered Baupost’s sale of RHI Entertainment (RHIE) and reduction in their Syneron Medical position (ELOS).
IMF Draws Lessons from the Crisis, Reviews Macro Policy Framework - Via IMF – The Fund has just published a paper, “Rethinking Macroeconomic Policy,” part of a series of policy papers prepared by IMF staff reassessing the macroeconomic and financial policy framework in the wake of the devastating crisis. Several of the papers will be discussed at a conference to be held in Seoul, Korea, later this month.
Videos & Media:
Roberts on Smith, Ricardo, and Trade – Via Russ Roberts - host of EconTalk, does a monologue this week on the economics of trade and specialization. Economists have focused on David Ricardo’s idea of comparative advantage as the source of specialization and wealth creation from trade. Drawing on Adam Smith and the work of James Buchanan, Yong Yoon, and Paul Romer, Roberts argues that we’ve neglected the role of the size of the market in creating incentives for specialization and wealth creation via trade. Simply put, the more people we trade with, the greater the opportunity to specialize and innovate, even when people are identical. The Ricardian insight masks the power of market size in driving innovation and the transformation of our standard of living over the last few centuries in the developed world.
Video: Greed, Irresponsibility, or Policy Mistakes: What Caused the Recession? - Via Cato - The boom and bust of the housing and financial sectors raise the natural question: what happened? As economists, politicians, and the general public point their fingers or scratch their heads, this panel will look beyond populist bogeymen and currently dominant economic theories to examine the Austrian school of economics—based on the work of F. A. Hayek, Ludwig von Mises, and Carl Menger—and how its theory of business cycles offers a better basis for understanding financial crises and recessions.
Can Lower Tax Rates Be Bought? Business Rent-Seeking and Tax Competition Among U.S. States - Via FRBSF – The standard model of strategic tax competition – the non-cooperative tax-setting behavior of jurisdictions competing for a mobile capital tax base – assumes that government policymakers are perfectly benevolent, acting solely to maximize the utility of the representative resident in their jurisdiction. We depart from this assumption by allowing for the possibility that policymakers, given the political and electoral environments in which they operate, also may be influenced by the rent-seeking (lobbying) behavior of businesses. Firms recognize the factors affecting policymakers’ welfare and may make campaign contributions to influence tax policy. These changes to the standard strategic tax competition model imply that business contributions affect not only the levels of equilibrium tax rates but also the slope of the tax reaction function between jurisdictions. Thus, business campaign contributions may affect tax competition and enhance or retard the mobility of capital across jurisdictions.
Equity Risk Premiums (ERP): Determinants, Estimation and Implications- – Via SSRN
Equity risk premiums are a central component of every risk and return model in finance and are a key input into estimating costs of equity and capital in both corporate finance and valuation. Given their importance, it is surprising how haphazard the estimation of equity risk premiums remains in practice. We begin this paper by looking at the economic determinants of equity risk premiums, including investor risk aversion, information uncertainty and perceptions of macroeconomic risk. In the standard approach to estimating equity risk premiums, historical returns are used, with the difference in annual returns on stocks versus bonds over a long time period comprising the expected risk premium. We note the limitations of this approach, even in markets like the United States, which have long periods of historical data available, and its complete failure in emerging markets, where the historical data tends to be limited and volatile. We look at two other approaches to estimating equity risk premiums – the survey approach, where investors and managers ar asked to assess the risk premium and the implied approach, where a forward-looking estimate of the premium is estimated using either current equity prices or risk premiums in non-equity markets. We also look at the relationship between the equity risk premium and risk premiums in the bond market (default spreads) and in real estate (cap rates) and how that relationship can be mined to generated expected equity risk premiums. We close the paper by examining why different approaches yield different values for the equity risk premium, and how to choose the “right” number to use in analysis.
Systemic risk: how to deal with it? – Via SSRN – This paper analyses systemic risk and considers appropriate policies to reduce it. It examines systemic risk as a negative externality in two dimensions: the cross-sectional and the time dimension. Policies to reduce externalities in the cross-sectional dimension seek to limit the damage that can arise from interlinkages and common exposures. Policies to address procyclicality in the time dimension seek to build up capital and liquidity margins of safety during the upswing that can be drawn upon in the downturn. The paper further argues that financial regulatory policies are not enough to address systemic risk. Other policies – especially monetary and fiscal policy – also have a role to play. It also argues that policy coordination is essential, nationally among monetary, fiscal and macro- and microprudential policies, as well as internationally. Already, the Basel Committee on Banking Supervision, working with the Financial Stability Board, has made great progress in addressing the regulatory shortcomings highlighted by the financial crisis.
Other Very Interesting Articles:
Sucking up to Dictators Is Harder Than It Looks- Via Foreign Policy – Inside the failed attempt to turn Central Asia’s most insular regime. – September 21, 2009, was a day of blitz diplomacy for U.S. Secretary of State Hillary Clinton: She had more than eight and a half hours of bilateral meetings to juggle, along with a marathon of press briefings and camera sprays at the Waldorf-Astoria hotel in New York. But one of her sit-downs that day required particular finesse. It was with an obscure dictator whose name alone presented a challenge — Gurbanguly Berdimuhamedov, the president of Turkmenistan. He came into the room with an immediate advantage: The United States needed his help. Clinton needed to convince him to let NATO transports through his country, a move that would ease pressure on U.S. supply lines into Afghanistan and probably save some U.S. troops. The usual approach — money — would not work with energy-rich Turkmenistan. It was a test of her skill as a diplomat.
Is eBay rigged?: – Via Bakadesuyo – We introduce a bidding strategy which allows the seller to extract the full surplus of the high bidder in eBay auctions. We call this a “Discover-and-Stop” bidding strategy and estimate that 1.39 percent of all bids in eBay auctions are placed by sellers (or accomplices) who execute this strategy. We argue that this kind of shill bidding is unnecessarily effective due to eBay’s proxy system and the predictability of other bidders’ bids. We also model eBay auctions with shill bidding and find that, in equilibrium, eBay’s profits are higher with shilling than without it. Finally, to determine whether bidders have an incentive to bid on their own items, we mimic the bidding behavior of shill bidders in actual eBay auctions and find some evidence of the strategy’s success.
How Many More Are Innocent? - Via Reason -Freddie Peacock of Rochester, New York, was convicted of rape in 1976. Last week he became the 250th person to be exonerated by DNA testing since 1989. According to a new report by the Innocence Project, those 250 prisoners served 3,160 years between them; 17 spent time on death row. Remarkably, 67 percent of them were convicted after 2000—a decade after the onset of modern DNA testing. The glaring question here is, How many more are there?
The Royal Mail: A Passion for the Post- Via History Today – For 400 years the delivery of letters has been integral to British life. As Royal Mail confronts an uncertain future charts the Post Office’s development and discovers, through the correspondence of ordinary people, just how much letter writing meant to them.
A brief history of your investors (and their investors) - Via Venture Hacks - Why should you read this post? So you know what questions to ask your potential investors about their investors (their limited partners). You need to understand how your investors are compensated, how they’re motivated, and how they’ll act in critical situations — so you know if you and your investor’s commitments are well aligned. By the end of this two-part post I’ll provide a list of questions to ask investors to help determine if they’re the right investors for you. This post focuses on the history of venture capital. The second post will focus on the present and future of venture capital and how it will affect startups.
The High Cost of Low Educational Performance – Via OECD – While governments frequently commit to improving the quality of education, it often slips down the policy agenda. Because investing in education only pays off in the future, it is possible to underestimate the value and the importance of improvements. This report uses recent economic modelling to relate cognitive skills – as measured by PISA and other international instruments – to economic growth, demonstrating that relatively small improvements to labour force skills can largely impact the future well-being of a nation.
Free: Searchable World Government Data – Via Guardian – Governments around the globe are opening up their data vaults – allowing people to check out the numbers for themselves. Now The Guardian has created one single interface to rule them all.
Miguel’s Weekly Favorites:
Video: We feel, therefore we learn: The neuroscience of social emotion. Daniel Siegel - Via SlowTv - Andrew Lo& Robert Merton, Systemic Risk and the Refinancing Ratchet Effect - Via SSRN – The confluence of three trends in the U.S. residential housing market – rising home prices, declining interest rates, and near-frictionless refinancing opportunities – led to vastly increased systemic risk in the financial system. Individually, each of these trends is benign, but when they occur simultaneously, as they did over the past decade, they impose an unintentional synchronization of homeowner leverage. This synchronization, coupled with the indivisibility of residential real estate that prevents homeowners from deleveraging when property values decline and homeowner equity deteriorates, conspire to create a “ratchet” effect in which homeowner leverage is maintained or increased during good times without the ability to decrease leverage during bad times. If refinancing-facilitated homeowner-equity extraction is sufficiently widespread – as it was during the years leading up to the peak of the U.S. residential real-estate market – the inadvertent coordination of leverage during a market rise implies higher correlation of defaults during a market drop. To measure the systemic impact of this ratchet effect, we simulate the U.S. housing market with and without equity extractions, and estimate the losses absorbed by mortgage lenders by valuing the embedded put-option in non-recourse mortgages. Our simulations generate loss estimates of $1.5 trillion from June 2006 to December 2008 under historical market conditions, compared to simulated losses of $280 billion in the absence of equity extractions.
A Story About Motivation – Via Harvard – Because when we consider whether to do something, we subconsciously ask ourselves a simple question: “Am I the kind of person who . . ?” And money changes the question. When the lawyers were offered $30 an hour their question was “Am I the kind of person who works for $30 an hour?” The answer was clearly no. But when they were asked to do it as a favor? Their new question was “Am I the kind of person who helps people in need?” And then their answer was yes.
The decoy effect as a covert influence tactic – Via JBDM – The purpose of this research was to determine whether individuals could use the decoy effect to influence others’ choices. In study 1, undergraduates (n = 50) and executive master’s of business administration (EMBA) students (n = 24) read an employee selection scenario in which they were randomly assigned to prefer one of two candidates that were equal in overall attractiveness, but that had different strengths and weaknesses. They were then asked to choose one of three inferior candidates to add to the choice set that would make their preferred candidate more likely to be chosen by other decision makers. The correct inferior candidate was asymmetrically dominated – dominated by one of the two existing candidates, but not the other. Participants chose the correct decoy candidate at better than chance levels. In study 2, undergraduates and EMBA students (total n = 66) completed a set of four decision tasks, in which they were asked to choose from potential decoy alternatives that would highlight their preferred job candidate or the product they preferred to sell to a customer. Participants again chose the correct option at better than chance levels. When participants provided free-response reasons for their choices, these responses indicated a fairly strong recognition of the influential nature of creating a dominating relationship. Implications for understanding this effect and how it may be used by hiring managers, sales personnel, and others who attempt to influence others people’s decisions at work, are discussed.
Loss aversion in the eye and in the heart: The autonomic nervous system’s responses to losses- Via JBDM – The common view in psychology and neuroscience is that losses loom larger than gains, leading to a negativity bias in behavioral responses and Autonomic Nervous System (ANS) activation. However, evidence has accumulated that in decisions under risk and uncertainty individuals often impart similar weights to negative and positive outcomes. We examine the role of the ANS in decisions under uncertainty, and its consistency with the behavioral responses. In three studies, we show that losses lead to heightened autonomic responses, compared to equivalent gains (as indicated by pupil dilation and increased heart rate) even in situations where the average decision maker exhibits no loss aversion. Moreover, in the studied tasks autonomic responses were not associated with risk taking propensities. These results are interpreted by the hypothesis that losses signal the subjective importance of global outcome patterns.
Lawyers, Guns, and Money: How big banks, powerful lobbyists, sneaky attorneys, and a host of businessmen funnel dirty cash into the US.- Via Motherjones – Among Bank of America’s 50 million customers, Pierre Falcone was far from ordinary. An infamous global arms dealer who unlawfully sold weapons to Angola for its civil war and an international fugitive, Falcone was convicted of tax fraud and illegal arms dealing in 2007 and 2009 and is currently serving six years behind bars. Yet for nearly two decades, Falcone and his relatives freely used 29 different bank accounts to funnel at least $60 million into the US from secretive havens like the Cayman Islands, Luxembourg, and Singapore, and from shell corporations and secret clients. Despite his criminal record and worldwide notoriety, Bank of America essentially treated him like any other depositor.
Economists, Crises and Cartoons- H/T Paul Kedrosky Via SSRN – Economists have occasionally noticed the appearance of economists in cartoons produced for public amusement during crises. Yet the message behind such images has been less than fully appreciated. This paper provides evidence of such inattention in the context of the eighteenth century speculation known as the Mississippi Bubble. A cartoon in The Great Mirror of Folly imagines John Law in a cart that flies through the air drawn by a pair of beasts, reportedly chickens. The cart is not drawn by chickens, however, but by a Biblical beast whose forefather spoke to Eve about the consequences of eating from the tree of the knowledge. The religious image signifies the danger associated with knowledge. The paper thus demonstrates how images of the Mississippi Bubble focused on the hierarchy of knowledge induced by non-transparency. Many of the images show madness caused by alchemy, the hidden or “occult.” Video: How Will You Manage Employment/Unemployment - via Cool Infographics – Loaded with labor statistics, How Will You Manage? is a new infographic video put together by XPLANE for Kronos Workforce Management. Using a mix of statistics, illustrations and some infographics the video does a good job of looking at our changing workforce, and the challenges faced by both companies and employees.
Exclusive Features : (The Must Reads)
Five things you should know about climate change - via Ars Technica – Writing about vaccines, evolution, and even dark matter has ended up setting off contentious discussions here at Ars. But no area seems to bring out impassioned arguments as reliably as climate change. Covering the latest scientific results can bring forth cries of scientific fraud, conspiracies, and denialism; considering policy implications can be even worse. It can be really difficult for anyone not well-versed in the debate to get any sense of the science at all, something that’s clear from the huge gap between the scientific community’s acceptance of climate change and the public’s wariness about the topic. So it’s probably useful to step back from the latest findings, and look at science’s basic understanding of how greenhouse gasses can force climate change, which often gets lost in the arguments.
People are Deciding to Paying Credit Cards before Mortgage - Via Calculated Risk – The percentage of consumers current on their credit cards but delinquent on their mortgages first surpassed the percentage of consumers up to date on their mortgages but delinquent on their credit cards in the first quarter of 2008, according to TransUnion.
Is a Sovereign Debt Crisis Looming? – Via Carnegie Endowment- This US article argues that sustaining growth—not withdrawing stimulus—should remain most countries’ top priority if they are to break the debt spiral
The Counterfeiter: The story of how one of pharma’s biggest enemies was nabbed in Houston, Texas - Via TheScientist – Drugs can pass through a dozen or more hands on the way to the pharmacy and a consumer’s medicine cabinet. The patchiness of the drug distribution network and the absence of a proper paper trail, as investigative journalist Katherine Eban revealed in her 2005 book Dangerous Doses, has allowed unscrupulous middlemen to launder counterfeit medications within the legitimate supply chain that leads to a local pharmacy. Foreign-produced drugs are also illegally “diverted” into the domestic supply chain.
Black Swans, Male Strippers and Uncertainty - Via Big Think – “This too, shall pass.” Folk tales say this was engraved on a ring given to King Solomon, who had demanded a gift that would make him sad when he was happy, and happy when he was sad. I recall it whenever I’m confronted with the claim that history has a positive direction–that, by and large, we’re progressing toward a more peaceful, just and prosperous future. And conversely, too, when I hear someone say we’re on an inevitable path of decline and doom.
British Library to Offer 65,000 Free eBooks - Via OpenCulture – More than 65,000 19th-century works of fiction from the British Library’s collection are to be made available for free downloads by the public from this spring.
Finance & Investing:
Nobel Winner: Robert Merton Lectures – A Functional Perspective on Financial System Design with Observations on Issues from the Financial Crisis - Via NYU – The entire structure you see globally, of the financial system, is largely driven by the fact there’s a true uncertainty. Non-predictability, and it’s significant. And if you look at the most modern parts of finance, or at least what–it’s not so modern anymore, but it’s finance–the whole derivatives area and all the applications that have come out of it, that model succeeded, not just intellectually but in practice, precisely because what it didn’t have is an input.
Tom Barrack’s Latest: Real Estate is Cyclical but the American Dream is Not - Via Colony Capital – Today, the dream has turned into a nightmare and our children and our children’s children will inherit tens of trillions of dollars in debt. We are not concerned with dreaming the dream and working to get there — we are concerned with “living the life” and making sure someone gives it to us. We are in the midst of a populist revolution, which is shifting incentive from opportunity to entitlement. We are having a hard time separating heroes from villains. Yet through it all, the underlying foundation stone of everyone’s dream – be it opportunity or entitlement – revolves around the dream or hope of prosperity, self-fulfillment and ownership. Real estate has always been an inherent part of the American Dream ñ the dream to own a home, a house, a gas station, a bakery, an office, a store. Through good times or bad times, the pureness of the desire has remained steadfast. Only the belief and conviction in how to get it and preserve it has faltered.
This Crisis Won’t Stop Moving - Via NYT – YOU know we’re in trouble when we’re told that the economic problems in Greece, Portugal and Spain, the most indebted countries in the euro zone, are likely to remain safely contained in those nations.
Boech Investment Letter: Global Disequlibria: Don’t expect lasting stability - Our basic view remains unchanged;
we remain positive on equity markets, credit spreads and most commodities because liquidity flows are still very positive and key indicators discussed below are supportive. However, we still are very concerned about the artificial nature of the economic recovery and financial markets and when the relatively benign environment might change for the worse.
Five myths about how to create jobs- Via Washington Post – With the unemployment rate in the United States lingering just below 10 percent and the midterm elections just nine months away, job creation has become the top priority in Washington. President Obama has called for transferring $30 billion in repaid bank bailout money to a small-business lending fund, saying, “Jobs will be our number one focus in 2010, and we’re going to start where most new jobs do, with small business.” The fund is among several measures — tax incentives, infrastructure projects, efforts to increase exports — that the White House has proposed to help boost employment. As Americans consider the various approaches, we must have realistic expectations. We need to debunk some myths about what it takes to stimulate job growth.
Contagion: From Foreign Exchange Research, Barclays Capital – Via Zero Hedge – The key lesson from the ERM crisis of 1992 and the Asian crisis of 1997 is that contagion can emerge quickly and often in unpredictable ways. Unwinding of leveraged positions by distressed market participants, herding behaviour among investors, and loss of liquidity that gives way to general flight to quality can all lead to heightened correlations between markets and, in extremely circumstances, set off a self-filling crisis on a regional/global scale. There have been clear signs over the past week that the distress in the Greek government bond market is increasingly being felt in other euro area countries such as Spain and Portugal. The most likely explanation of this development is the “demonstration effect” – the Greek crisis is likely to have caused investors to re-evaluate the fundamentals of these countries. Spain and Greece may not have strong financial or economic links, but their fundamentals have a lot in common. Weekly List of Insider Transactions - Via Shadow Stock
Lecture: From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity – Via Cato – The discipline of economics is not what it used to be. For years, conventional economists told us an incomplete story that leaned on the comfortable precision of mathematical abstraction and ignored the complexity of the real world. What they left out of the story were the positive forces of creativity, innovation, and advanced technology that propel economies forward. They also left out the negative forces that can hold economies back: bad governance, counterproductive social practices, and patterns of taking wealth instead of creating it. From Poverty to Prosperity narrates and explains the revolutionary reorientation of economics in recent decades toward a new focus on understanding the huge differences in the standard of living across time and across borders. Mixing interviews with the world’s most important economists with their own clear and insightful analysis, Arnold Kling and Nick Schulz have produced an illuminating and thought-provoking guide to what they call “Economics 2.0.” Lecture: MultiMedia at Your Fingertips 2.0 – Boosting the Multimedia Knowledge Transfer: From Research to Products- Via Video Lectures – Opinions, experiences and visions regarding the trends and challenges in multimedia research and knowledge transfer will be presented by internationally well-known academic and industrial experts. A Multimedia knowledge market will concentrate on the demonstrators of multimedia research from TU Delft and its scientific and industrial partners, both national and international ones, and will provide a venue for networking, discussions, meetings and creating new collaborations.
Academic Papers:
Why Does Spain not Have a Policy for Latin America? - Via Policy Pointers – Spanish policy brief argues that since the region is not a priority for the EU, Latin America offers an excellent platform for Spain to develop an independent policy and influence the European agenda
Staying, Dropping, or Switching: The Impacts of Bank Mergers on Small Firms – Via Oxford – Assessing the impacts of bank mergers on small firms requires separating borrowers with single versus multiple banking relationships and distinguishing the three alternatives of “staying,” “dropping,” and “switching” of relationships. Single-relationship borrowers who “switch” to another bank following a merger will be less harmed than those whose relationship is “dropped” and not replaced. Using Belgian data, we find that single-relationship borrowers of target banks are more likely than other borrowers to be dropped. We track postmerger performance and show that many dropped target-bank borrowers are harmed by the merger. Multiple-relationship borrowers are less harmed, as they can better hedge against relationship discontinuations.
Insider Trades and Demand by Institutional and Individual Investors- Via Oxford Journals – There is a strong inverse relation between insider trading and institutional demand the same quarter and over the previous year. Our analysis suggests a combination of factors contribute to this relation. First, institutional investors are more likely to provide the liquidity necessary for insiders to trade. Second, insiders are more likely to buy low valuation and low lag return stocks while institutions are attracted to the opposite security characteristics. Last, the results are consistent with the hypothesis that insiders are more likely to view their securities as overvalued (undervalued) following a period when institutions were net buyers (sellers).
The Current Financial Crisis- Via Sage – It is now clear that the global economy is facing the worst economic and financial crisis since the Second World War. The crisis manifested itself initially in the subprime mortgage market in the US, but quickly spread to Europe; in the breakdown in the market for credit default swaps—a huge, unregulated and thoroughly opaque market; and in the general collapse of the markets for securitised instruments across the global financial system. It was aggravated, most analysts agree, by the initial policy missteps in handling the crisis, including in dealing with the problems at Lehman Brothers, which effectively froze the interbank market.
How Central Bank Policies Affect Global Economies and Markets - Via CFA – The world is more interconnected now than ever before, and as a result, central bank policy affects not only the country’s domestic economy but also the economies of other nations. To have an edge in this environment, investment professionals need to pay attention to global (not just U.S. or even European) central bank policies with an eye, in particular, on Japan, China, and India.
Other Very Interesting Articles:
Brain Dopamine Receptor Density Correlates With Social Status- Via Science Daily – People have typically viewed the benefits that accrue with social status primarily from the perspective of external rewards. A new paper in the February 1st issue of Biological Psychiatry, published by Elsevier suggests that there are internal rewards as well.
Power Of Kindness - Via Dr Deb – Research says that witnessing simple acts of everyday kindness, such as one person giving up a seat on the bus, holding a door open for another, or helping someone pick something that dropped to the floor can promote altruism. This pychological phenomenon that makes us feel great, lifts our emotions and motivates us to do good is called elevation. Witnessing an uplifiting act inspires us to do the same for others. In essence, kindness is contagious. -
World in Chaos and Market Meltdowns, Too Costly To Bear - Via Marketoracle – Though this piece was originally released via our paid research publication – The Investor’s Mind – in September 2006, if not timeless, its contents are certainly applicable to our current markets and economic environment. While we have taken the liberty of updating some of the charts, it is largely unchanged:
I spend 8 hours every Sunday putting this together…If you like this roundup kindly include a reference toSimoleonSense.com .Thanks!
Weekly Cartoon (Via Google ):
Weekly Joke (Via Econosseur):
Christopher Columbus was perhaps the first economist. When he left to discover America, he didn’t know where he was going. When he got there, he didn’t know where he was. When he returned, he didn’t know where he had been. And it was all done on a government grant!
Most Important Article(s) Of The Week!!!!!!!
The Evolution of Fraud – Via False Profits – As business has grown more complex, fraud has evolved and adapted accordingly. Multi-level marketing (MLM), the most common form of pyramid/ponzi fraud, is the product of years of evolutionary adaptation in the scam and swindle field, matching the adaptation of the legitimate marketplace. Public awareness and law enforcement always lag behind new forms of fraud. The success of MLMs and other financial Ponzis at duping millions of people, rich and poor, educated as well as illiterate, shows that public understanding has not caught up to this new mutation. A study of consumer fraud’s evolution shows three stages that parallel the three levels of development in American business. America evolved from leading the world in manufacturing (now China) to becoming the financial capital of the world (now moving to Asia/Europe/Middle East), to our present status as the world leader of consumer-purchases driven by marketing.
Howard Zinn, historian who challenged status quo, dies at 87- Via Boston – Howard Zinn, the Boston University historian and political activist who was an early opponent of US involvement in Vietnam and whose books, such as “A People’s History of the United States,” inspired young and old to rethink the way textbooks present the American experience, died today in Santa Monica, Calif, where he was traveling. He was 87.
Mortgage Packagaing Was Not New: Lessons From The Roarin 20’s - Via NYT – The original wave of securitizations took place in the 1920s, when the United States went on the greatest building boom ever. Many investors saw how rapidly real estate prices were rising and wanted in on the action. The builders and brokers were only too happy to oblige.
Ed Chancellor: Reports On The Growing Concerns In China: China: hard to extinguish speculators’ animal spirits - Via FT – Recent moves in Beijing to tighten lending conditions have spooked Chinese investors. Given that easy money fuels asset price bubbles, it is tempting to believe that the withdrawal of liquidity signals an imminent end to the good times. However, history suggests that once a boom has got going, it takes several sharp blows with the monetary cudgel to extinguish the speculators’ animal spirits
Miguel’s Weekly Favorites:
Happy peasants and miserable millionaires: Happiness research, economics, and public policy – Via Voxeu – What measures of human wellbeing are the most accurate benchmarks of economic progress and human development? This column presents new research suggesting that while people can adapt to be happy at low levels of income, they are far less happy when there is uncertainty over their future wealth. This may help explain why different societies tolerate such different levels of health, crime, and governance, and why US happiness plummeted during the global financial crisis but has since been restored despite incomes remaining lower.
From Davos, predicting the next economic crisis- Via Washington Post – Harvard economist Kenneth Rogoff kicked off the Wednesday discussion with a simple, depressing argument: The banking collapse is morphing into a long-term crisis of government debt. Instead of financial panic, we now face an “illusion of normalcy,” with governments stepping in to guarantee everything. They’ve succeeded in fending off another Great Depression — great! — but at the cost of skyrocketing debt. And if history is any guide, he said, financial crises are often followed precisely by a wave of sovereign debt crises a few years later. “In countries like the United States and Britain, I’m not talking about default, but we certainly may have to see very painful political crises,” Rogoff predicted, “belt tightening, higher taxes, slower growth.”
Interdisciplinarity in Socio-economics, mathematical analysis and predictability of complex systems - Via Arxiv – n this essay, I attempt to provide supporting evidence as well as some balance for the thesis on `Transforming socio-economics with a new epistemology’ presented by Hollingworth and Mueller (2008). First, I review a personal highlight of my own scientific path that illustrates the power of interdisciplinarity as well as unity of the mathematical description of natural and social processes. I also argue against the claim that complex systems are in general `not susceptible to mathematical analysis, but must be understood by letting them evolve over time or with simulation analysis’. Moreover, I present evidence of the limits of the claim that scientists working within Science II do not make predictions about the future because it is too complex. I stress the potentials for a third `Quantum Science’ and its associated conceptual and philosophical revolutions, and finally point out some limits of the `new’ theory of networks.
Confirmation Bias, The Investor’s Curse – Via PsyFi Blog – The problem of confirmation bias – the tendency of people to seek evidence confirming an already held opinion and to avoid looking for that which might upset their carefully constructed mental models has attracted a lot of attention from researchers. It occurs across all domains of human endeavour and triggers all sorts of implausible behaviour, yet investors and institutions remain in its thrall.
BBC Looks at Hawthorne Effect: – Via Situationist – For some interesting listening, here is an excellent BBC podcast looking at the 1920s experiment in a Chicago factory that gave rise to the phenomenon known as the Hawthorne Effect.
Robert Shiller : Stuck in Neutral? Reset the Mood- Via NYT – THE United States and other advanced economies may be facing a long, slow period of disappointing growth….In reality, business recessions are caused by a curious mix of rational and irrational behavior. Negative feedback cycles, in which pessimism inhibits economic activity, are hard to stop and can stretch the financial system past its breaking point.
How to Reform Our Financial System – Via NYT – PRESIDENT OBAMA 10 days ago set out one important element in the needed structural reform of the financial system. No one can reasonably contest the need for such reform, in the United States and in other countries as well. We have after all a system that broke down in the most serious crisis in 75 years. The cost has been enormous in terms of unemployment and lost production. The repercussions have been international.
Your Politics Your Portfolio - When a Portfolio Is Red or Blue - Via NYT – YOU’RE likely to feel more confident about the economy when your political party is in power. That’s no surprise. But a new study has found that your feelings probably affect the way you invest your stock portfolio
VIdeo: Stiglitz: Freefall: America, Free Markets and the Sinking of the World Economy- On January 21, 2010, Nobel Laureate and Economics Professor Joseph Stiglitz presented his new book, Freefall: America, Free Markets, and the Sinking of the World Economy at the World Bank. The event was sponsored by the World Bank’s Poverty Reduction and Economic Management Network (PREM) and chaired by PREM Vice-President Otaviano Canuto. The book assesses the impact of the financial crisis and forecasts patterns in the international economy for years to come.
Universal and culture-specific recognition of emotions – Via Cognition & Culture – Emotional signals are crucial for sharing important information, with conspecifics, for example, to warn humans of danger. Humans use a range of different cues to communicate to others how they feel, including facial, vocal, and gestural signals. We examined the recognition of nonverbal emotional vocalizations, such as screams and laughs, across two dramatically different cultural groups. Western participants were compared to individuals from remote, culturally isolated Namibian villages. Vocalizations communicating the so-called “basic emotions” (anger, disgust, fear, joy, sadness, and surprise) were bidirectionally recognized. In contrast, a set of additional emotions was only recognized within, but not across, cultural boundaries. Our findings indicate that a number of primarily negative emotions have vocalizations that can be recognized across cultures, while most positive emotions are communicated with culture-specific signals.
Monetary Cycles, Financial Cycles, and the Business Cycle – Via NY Fed – One of the most robust stylized facts in macroeconomics is the forecasting power of the term spread for future real activity. The economic rationale for this forecasting power usually appeals to expectations of future interest rates, which affect the slope of the term structure. In this paper, we propose a possible causal mechanism for the forecasting power of the term spread, deriving from the balance sheet management of financial intermediaries. When monetary tightening is associated with a flattening of the term spread, it reduces net interest margin, which in turn makes lending less profitable, leading to a contraction in the supply of credit. We provide empirical support for this hypothesis, thereby linking monetary cycles, financial cycles, and the business cycle.
Exclusive Features : (The Must Reads)
Investment Losses Cause Steep Dip in University Endowments, Study Finds – Via Reflecting the difficult financial environment for higher education, university endowments lost an average of 18.7 percent in the last fiscal year, the worst returns since the Great Depression, according to a study of hundreds of public and private institutions.
Why do high-end prostitutes make so much money? - Via Marginal Revolution- In this paper, we present evidence from high-end prostitution, the so called escort market, a market that is, if not entirely safe, notably safer than street prostitution. Analyzing wage information on more than 40,000 escorts in the U.S. and Canada collected from a web site, we find strong support for EK. First, escorts in the sample earn high wages, on average $280/hour.
The Growing Underclass: Jobs Gone Forever – Via NYT – But one major obstacle to that goal — and one that has so far gone mostly unacknowledged — is that many of the jobs slashed during this recession are not coming back.
Five myths about America’s credit card debt- Via Washington Post – They’re yuppie food stamps. They give new meaning to the question “paper or plastic?” And they’re in everyone’s wallet. Americans have nearly 700 million all-purpose bank credit cards, plus nearly 500 million retail store cards — and they have transformed how we live and consume. Today, Americans are more dependent on credit than savings, a radical departure from the last major economic crisis, in the 1930s. Congress’s effort to change that, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act signed by President Obama last spring, will go into effect in a few weeks. But it won’t fix everything. Or maybe not much of anything. Here are the myths that muddle our understanding of how we’ve racked up so much credit card debt.
Finance & Investing:
Is Barter Countercyclical? - Via Canadian Initiative – The Wall Street Journal (H/T Peter Gordon) says that barter is countercyclical. Barter increases in recessions, like now, and decreases in booms. Can anyone confirm this? Because that fact (if it is a fact) is really important in understanding the nature of business cycles and recessions. Countercyclical barter is exactly what one would predict from a monetary (deficient aggregate demand) theory of recessions. It makes no sense from a real business cycle or recalculation theory of recessions. And the very existence of barter, even in normal times and booms, is evidence in favour of doing macroeconomics with monopolistic competition. A Historical Look at the Labor Market During Recessions – Via Dallas Fed – Turmoil in housing, credit and financial markets plunged the U.S. economy into a recession that has taken a heavy toll on the labor market. The weakness that began during the second half of 2007 gravely worsened during a period of extreme financial stress in 2008, and the labor market has yet to recover.
The financial crisis in Iceland and the fault lines in cross-border banking - So what I will present here today is unavoidably a partial picture.1 You could say that it is just as well, for this is a complex saga with many twists. To paint with a broad brush, we can say that economic and financial developments in Iceland during the last decade or so are a combination of two separate but interrelated stories. On the one hand, there is Iceland’s boom-bust cycle and problems with macroeconomic management in small, open and financially integrated economies. This is a well known story that has played out in Iceland and other countries several times. On the other hand, we have the story of the rise and fall of three cross-border banks operated on the basis of EU legislation
Shadow banking, financing markets and financial stability – Via BIS – This evening I am going to focus on one part of the “structure” debate: shadow banking. It has become commonplace that shadow banking somehow exacerbated the boom, and complicated the rescue efforts of the authorities during the bust.1 That is true. But there has been relatively little discussion about what this means for policy.
Video: How Oakmark Puts a Currency Hedge On – Via Morningstar – The Oakmark manager explains the firm’s policy of hedging only when the foreign currency looks 20% or more overvalued–and where their hedges are today.
Video: Herro Answers ‘Why Go Overseas?’ – VIa Morningstar – Any time you can broaden your subset, broaden your investable universe, you have a higher probability of achieving success, says the Oakmark manager.
Attention Activist Investors – The Altman Group: Governance Compendium - Via Activist Investor Blog -The proxy solicitation firm The Altman Group recently put together their first edition of “Governance Compendium Series”. The contributions are very good and cover a wide range of topics. The .pdf can be downloaded
1 Year Later: SPAC Returns - Via Activist Investor Blog – Last January we (Hedge Fund Solutions) wrote an article for TheStreet.com’s RealMoney that discussed the no-downside risk of investing in Special Purpose Acquisition Companies – SPACs. In the piece we highlighted 19 SPACs trading at an average 5% discount to their trust value. All 19 companies needed to buy an operating company within 12 months.
Esther Duflo: Ending Poverty – Via POPTech -
Esther Duflo, MIT economist and co-founder of the Poverty Action Lab, asks why the world’s poorest people tend to stay poor. Duflo’s pioneering research applies randomized trials, used extensively in drug discovery research, to development economics. What she discovers are strategies for transforming current approaches to development policy.
Academic Papers:
Universal statistical properties of poker tournaments - Via Arxiv.org- We present a simple model of Texas hold’em poker tournaments which retains the two main aspects of the game: i. the minimal bet grows exponentially with time; ii. players have a finite probability to bet all their money. The distribution of the fortunes of players not yet eliminated is found to be independent of time during most of the tournament, and reproduces accurately data obtained from Internet tournaments and world championship events. This model also makes the connection between poker and the persistence problem widely studied in physics, as well as some recent physical models of biological evolution, and extreme value statistics.
The Measurement of Rent Inflation- Via Federal Reserve of Ny – providing for shelter represents a large portion of the typical household budget. Accordingly, rent, paid either to a landlord or to oneself as an owner-occupant, has a large weight in the CPI and in the personal consumption expenditures deflator, resulting in substantial scrutiny of how tenant rent and owners’ equivalent rent are measured in these price indexes. In this paper, we describe how the Bureau of Labor Statistics (BLS) estimates tenant rent and owners’ equivalent rent. We then estimate alternative inflation rates for tenant rent and owners’ equivalent rent based on American Housing Survey data, following BLS methodology as closely as possible. Our alternative tenant rent inflation series is generally consistent with the corresponding BLS series. However, our alternative owners’ equivalent rent inflation series is consistently lower than the corresponding BLS series by an amount large enough to have a significant effect on the overall inflation rate. This result is driven by the inverse relationship between rent inflation and the level of monthly housing cost evident in the American Housing Survey data.
Can the strategic use of coffee make you more persuasive? - Via Bakadeysuo – Two experiments are reported that examine the effects of caffeine consumption on attitude change by using different secondary tasks to manipulate message processing. The first experiment employed an orientating task whilst the second experiment employed a distracter task. In both experiments participants consumed an orange-juice drink that either contained caffeine (3.5 mg/kg body weight) or did not contain caffeine (placebo) prior to reading a counter-attitudinal communication. The results across both experiments were similar. When message processing was reduced or under high distraction, there was no attitude change irrespective of caffeine consumption. However, when message processing was enhanced or under low distraction, there was greater attitude change in the caffeine vs. placebo conditions. Furthermore, attitudes formed after caffeine consumption resisted counter-persuasion (Experiment 1) and led to indirect attitude change (Experiment 2). The extent that participants engaged in message-congruent thinking mediated the amount of attitude change. These results provide evidence that moderate amounts of caffeine increase systematic processing of the arguments in the message resulting in greater agreement.
Other Very Interesting Articles:
Thomas Friedman: Never Heard That Before – Via NYT – As a political barometer, the Davos World Economic Forum usually offers up some revealing indicators of the global mood, and this year is no exception. I heard of a phrase being bandied about here by non-Americans — about the United States — that I can honestly say I’ve never heard before: “political instability.”
2010 Lemelson-MIT Invention Index reveals ways to enhance teens’ interest in STEM – Via Physorg- The nation is hoping for a bright future. Many believe the key to strengthening the U.S. economy and competing globally lies in fostering an innovative culture and educating America’s youth in science, technology, engineering and mathematics (STEM). According to this year’s Lemelson-MIT Invention Index , an annual survey that gauges Americans’ perceptions about invention and innovation, teens are enthusiastic about these subjects, with 77 percent interested in pursuing a STEM career. Doctors cut back hours when risk of malpractice suit rises - Via Eureka Alert – A new study shows that the number of hours physicians spend on the job each week is influenced by the fear of malpractice lawsuits. Economists Eric Helland and Mark Showalter found that doctors cut back their workload by almost two hours each week when the expected liability risk increases by 10 percent. The study, published in the new issue of the Journal of Law and Economics, notes that the decline in hours adds up to the equivalent of one of every 35 physicians retiring without a replacement. Is South America on the brink of an arms race?- Via Policy Pointers – A Swedish essay examining whether an arms race is looming in South America
IBEX 35: 1991-2009 – Value Creation and Return – Via SSRN – We compute the shareholder value creation and the return of the companies in the IBEX 35 for the 18-year period 1991-2009. The average return was 12.5%, but 4.4% was due to the decline in interest rates (from 13% to 4%). The shareholder value creation in the whole period was 101 billion euros, despite a value destruction of 238 billion euros in 2008.
Infographics
20 Things That Can Happen In One Minute – Via Contexts
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Weekly Cartoon (Via Econosseur ):
Weekly Joke (Via ND.edu):
What does an accountant use for birth control?
His personality.
Most Important Article(s) Of The Week!!!!!!!
Jared Diamond Explains Haiti’s Enduring Poverty- Via OpenCulture – Jared Diamond, the Pulitzer Prize-winning author of Guns, Germs & Steel (and Collapse: How Societies Choose to Fail or Succeed), offers some timely thoughts on why Haiti, once a fairly prosperous country, has sunk into enduring poverty — a condition not comparatively shared by its neighbor on the same island, the Dominican Republic. According to Diamond, Haiti’s environmental conditions offer a partial explanation. But you will also find clues in the country’s language, and in the legacy of slavery that has shaped Haiti’s economic relationship with Europe and the US. This interview — quite a good one — aired this morning in San Francisco.
Simple Passwords Remain Popular Despite Increasing Risk Of Being Hacked-Via NYT – Back at the dawn of the Web, the most popular account password was “12345.” Today, it’s one digit longer but hardly safer: “123456.” Despite all the reports of Internet security breaches over the years, including the recent attacks on Google’s e-mail service, many people have reacted to the break-ins with a shrug.
We all have a stake in corporate behavior - Via SF Gate – Corporations are crucial institutions in our society. Consumers rely on them for everything from the basic provisions of food and clothing to the more dispensable delights of computers and cell phones. Workers rely on them for jobs. Communities need them for a tax base. Shareholders rely on them for profits that fund retirement, or entrepreneurial activity.
Freedom Of Financial Choice Is A Myth- Psy-Fi Blog – As we’ve navigated the nether regions of investing folklore like a drunken Frankenstein’s monster in search of a late night high cholesterol snack you may have formed the opinion that this author is somewhat sceptical of all investment processes that don’t explicitly guard against human psychological perversity and highly doubtful that those that do can overcome ingrained biases and an industry dedicated to causing us to do exactly the wrong thing at exactly the wrong time. Still, scepticism isn’t cynicism, and along the way we’ve found one small chink of light in the gloom; the finding that if you give people a financial education early enough in life it improves their money management. Planet’s most biodiverse corner under threat - Via Futurity.org- Adding to the body of research on distracted driving is a new report showing that driving impairs our ability to comprehend and produce language.
Driven To Distraction - Via ScienceDaily — It is well known that having a conversation (for example on a cell phone) impairs one’s driving. A new study indicates the reverse is also true: Driving reduces one’s ability to comprehend and use language.
Does power increase hypocrisy?- Via Cognition & Culture – Five studies explored whether power increases moral hypocrisy, a situation characterized by imposing strict moral standards on others but practicing less strict moral behavior oneself. In Experiment 1, compared to the powerless, the powerful condemned other people’s cheating, while cheating more themselves. In Experiments 2-4, the powerful were more strict in judging others’ moral transgressions but more lenient in judging their own transgressions. A final study found that the effect of power on moral hypocrisy depends on its legitimacy: When power was illegitimate, the moral hypocrisy effect not only disappeared but reversed, with the illegitimate powerful becoming more strict in judging their own than others’ behavior. This pattern, which might be dubbed hypercrisy, was also found among low-power participants in Experiments 3 and 4. We discuss how patterns of hypocrisy and hypercrisy among the powerful and powerless can help perpetuate social inequality.
Consumer Behavior: Does 9 Just Sound Cheap?- Via Priceless Blog – We have all heard of calculating prodigies, those rare souls able to perform astounding feats with numbers. For many of these individuals, numbers have colors, flavors, sounds, or other qualities alien to the rest of us. Mental calculator Salo Finkelstein detested the number zero and adored 226. The Russian mnemonist S.V. Shereshevskii associated the number 87 with a visual image of a fat woman and a man twirling his mustache. This is known as synesthesia, the association of a sensory experience with an unlikely object. A recent study suggests that most people may have a bit of number synesthesia. It might help explain the mysterious appeal of prices ending in the digit 9 (as in $19.99).
The Psychology Of Power: Power corrupts, but it corrupts only those who think they deserve it - Via Economists – REPORTS of politicians who have extramarital affairs while complaining about the death of family values, or who use public funding for private gain despite condemning government waste, have become so common in recent years that they hardly seem surprising anymore. Anecdotally, at least, the connection between power and hypocrisy looks obvious.
A toy model of money, growth, and inequality- Via Interfluidity – I’ve been trying to develop my intuitions about how inequality might affect aggregate growth. It’s not like this is a new question. Theoretical arguments have been made both ways, and an empirical literature found a consensus in the 1990s (inequality looked bad for growth), then squinted harder to find little relationship in the 2000s. For some careful theorizing about how inequality might harm growth, take a look at this paper by Philippe Aghion, Eve Caroli, and Cecelia Garcia-Penalosa (”ACG”). They tell three stories, with very careful models: i) when capital markets are imperfect, inequality might reduce the efficiency of investment, as the less productive opportunities of the wealthy are funded in preference to the more productive opportunities of the poor; ii) the borrowing required to fund investment under inequality impose agency costs, because entrepreneurs expend less effort when the benefits and costs of their labors are shared with financiers; and iii) unequal access to investment opportunities may combine with financial market imperfections to create macroeconomic downcycles during which savings cannot be efficiently invested. The Age of Affirmation - Via Farnam Street & Miller Mcune – The study in the December issue of Media, War & Conflict by Shawn Powers, a fellow at the USC Center on Public Diplomacy, and Mohammed el-Nawawy, an assistant professor in the department of communication at Queens University of Charlotte, found that the longer viewers had been watching Al Jazeera English, the less dogmatic they were in their opinions and therefore more open to considering alternative and clashing opinions.
Pitt research explores how categories and environment create satisfied and well-informed consumers - Via Eureka Alert -
“How can retailers help consumers become more informed about the products they use while also making them happy?” write authors Cait Poynor, Pitt assistant professor of business administration in the Joseph M. Katz Graduate School of Business, and Stacy Wood, University of South Carolina professor of marketing. The answer seems to be in organizing products tailored to customers’ knowledge levels. Their research indicates that simply organizing a store’s existing stock in different ways can improve consumers’ learning and their degree of satisfaction.
Those Less Motivated to Achieve Will Excel on Tasks Seen as Fun - Via ScienceDaily — Those who value excellence and hard work generally do better than others on specific tasks when they are reminded of those values. But when a task is presented as fun, researchers report, the same individuals often will do worse than those who say they are less motivated to achieve.
MIT economist finds temporary jobs may actually reduce workers’ income and employment prospects – Via Physorg- While the U.S. economy struggles, one form of employment is on the rise: Temporary jobs. In December, the country lost 85,000 jobs overall, but added 47,000 temp positions, according to the Bureau of Labor Statistics. Increasingly America relies on these contingent employees — or “disposable workers,” as BusinessWeek put it in a recent cover story.
Wall Street Pay: A Primer - Via Brookings – Wall Street will be paying near-record bonuses for 2009 and the public is furious, given Wall Street’s role in triggering the recent severe recession. Unfortunately, there is a great deal of misunderstanding surrounding the whole complex topic. This paper attempts to explain the underlying issues comprehensively by giving the facts and the arguments from all sides, as well as expressing a few of the author’s own opinions. For the record, I was a Wall Street investment banker for nearly two decades, primarily at J.P. Morgan, ending in 2008. I now work at the Brookings Institution analyzing government policy related to finance. (Paper)
Joseph Stiglitz: Why we have to change capitalism - Via Telegraph.co.uk – In an exclusive extract from his new book, Freefall, the former World Bank chief economist, reveals why banks should be split up and why the West must cut consumption.
Mind Reading, Brain Fingerprinting and the Law- Via ScienceDaily — What if a jury could decide a man’s guilt through mind reading? What if reading a defendant’s memory could betray their guilt? And what constitutes ‘intent’ to commit murder? These are just some of the issues debated and reviewed in the inaugural issue of WIREs Cognitive Science, the latest interdisciplinary project from Wiley-Blackwell, which for registered institutions will be free for the first two years.
Charity Is Social- Via Frontal Cortex – There’s a new and very timely paper out this week that looks at the cortical mechanics of charitable giving. While it’s been known for a few years that giving away money activates the dopamine reward pathway – that’s why doing good feels good – this latest paper attempted to investigate the philanthropic system in detail. In a world full of need, how do we choose where to give?
Exclusive Features : (The Must Reads)
Oil windfalls and living standards: New evidence from Brazil- Via Voxeu- Does the “resource curse” exist? This column presents new evidence from Brazil. Municipalities that receive oil windfalls report significant increases in spending on infrastructure, education, health, and transfers to households. However, the windfalls do not trickle down and much of the money goes missing. Indeed, oil revenues increase the size of municipal workers’ houses but not the size of other residents’ houses.
Murray Rothbards Lecture On Economic Theory – Via Mises – Murray is in GREAT form in this new series of lectures on economic theory. He is marching through the whole works here. This is the first lecture, and, warning, it is hilarious!
China on Path to Become Second-Largest Economy- Via NYT China said on Thursday that its economy rose by 10.7 percent in fourth quarter compared with a year ago, as the country continued to surge forward even as many other nations are still trying to punch through the global recession. That was up from a revised growth rate of 9.1 percent in the third quarter.
Boxed In: The Constraints of U.S. Foreign Policy- Via World Affairs Journal – To this day, Americans deny that they are an imperial power, even when—well, during one of the World Series games last fall, at the patriotic seventh-inning stretch, with the cameras turned to soldiers and sailors among the fans, Derek Jeter of the Yankees said on behalf of the players that those guys were the real heroes, and the commentator said that their thoughts were with all the brave American men and women of the armed forces, in the 175 countries where they are based.
The Politics of Humanitarian Aid: U.S. Foreign Disaster Assistance, 1964–1995 – Via Missouri – Previous studies of U.S. foreign aid have firmly established that foreign policy and domestic considerations strongly influence allocations of military and economic development assistance. Uncharted,however, is the question of similar influences on U.S. humanitarian aid. Analyzing U.S. foreign disaster assistance data from 1964 through 1995, this paper concludes that foreign policy and domestic factors not only influence disaster assistance allocations but that they are the overriding determinant. This impact is, however, somewhat differential: the initial “yes/no” decision to grant disaster assistance is markedly political, but the subsequent “how much” decision is also not devoid of political considerations.
Parametric estimations of the world distribution of income - Via Voxeu-World poverty is falling. This column presents new estimates of the world’s income distribution and suggests that world poverty is disappearing faster than previously thought. From 1970 to 2006, poverty fell by 86% in South Asia, 73% in Latin America, 39% in the Middle East, and 20% in Africa. Barring a catastrophe, there will never be more than a billion people in poverty in the future history of the world.
Mervyn King: Monetary policy developments- Via BIS – Some dates are easier to remember than others. 1789 and the French Revolution, 1989 and the fall of the Berlin Wall, 1929 and the Wall Street Crash are easily recalled. How will 2009 be remembered: as the year when the world economy fell off a cliff but was rescued by government and central bank intervention around the world? Or the year when we finally recognised that genuine reform to the international monetary and banking system was essential to restore prosperity? Time will tell.
Prop Trading: Gambling with House Money- Via NPR – We take a closer look at proprietary trading, which is under attack by the latest proposal from the Obama administration. The new banking regulations proposed by the president call for a ban on commercial banks engaging in potentially risky trades with their own funds– or, in some cases, your funds. So we called up MIT Sloan School of Management professor Andrew Lo to shed some light on the murky world of ‘prop trading’, as the cool kids like to call it. The greenness of China: Household carbon dioxide emissions and urban development - Via Voxeu- China’s economic growth has profound environmental implications. This column estimates the household carbon emissions of China’s major cities. Even in China’s most polluting city, per household emissions are just one-fifth of those in San Diego, the greenest city in the US.
Finance & Investing:
Compensation in the Financial Industry - Via HLS – We find that the top-five executive teams of these firms cashed out large amounts of performance-based compensation during the 2000-2008 period. During this period, they were able to cash out large amounts of bonus compensation that was not clawed back when the firms collapsed, as well as pocketing large amounts from selling shares. Overall, we estimate that the top executive teams of Bear Stearns and Lehman Brothers derived cash flows of about $1.4 billion and $1 billion respectively from cash bonuses and equity sales during 2000-2008. These cash flows substantially exceeded the value of the executives’ initial holdings in the beginning of the period, and the executives’ net payoffs for the period were thus decidedly positive. Tom Barrack: Don’t Stress the Distress - Via Colony Capital – Both distressed investors and investors in distress are anxious and discontent because they are languishing in the doldrums of “status quo.” The unanticipated tranquility of zero interest rates and the new mantra of “pretend and extend” by holders of debt instruments have sent both groups into a holding pattern that has become a bit surprising.
What if America’s Urban Economies Were National Ones? – Via Streetsblog – The U.S. Conference of Mayors released a report this week with some dire conclusions for the nation’s cities: Even the payroll growth that many prognosticators anticipate this year won’t make a dent in double-digit urban unemployment. Half of the 363 biggest metro areas won’t return to their pre-recession jobs levels until 2013 or beyond.
A Spin-off for Loews? - Via Lonely Value Investor – Loews Corp (L) is set to announce earnings on February 8th. With that date fast approaching, I thought it was time to revisit our running discussion of the company. Chearp Stock, 1/22/2010 Update -Via Cheap Stocks – Well we couldn’t post a gain this week. But at least we were down less than the averages. We “only” lost 2.5% last week and remain in positive territory for the year with a 4% gain.
Assessing the systemic risk of a heterogeneous portfolio of banks during the recent financial crisis – Via BIS – This paper extends the approach of measuring and stress-testing the systemic risk of a banking sector in Huang, Zhou, and Zhu (2009) to identifying various sources of financial instability and to allocating systemic risk to individual financial institutions. The systemic risk measure, defined as the insurance cost to protect against distressed losses in a banking system, is a summary indicator of market perceived risk that reflects expected default risk of individual banks, risk premia as well as correlated defaults. An application of our methodology to a portfolio of twenty-two major banks in Asia and the Pacific illustrates the dynamics of the spillover effects of the global financial crisis to the region. The increase in the perceived systemic risk, particularly after the failure of Lehman Brothers, was mainly driven by the heightened risk aversion and the squeezed liquidity. Further analysis, which is based on our proposed approach to quantifying the marginal contribution of individual banks to the systemic risk, suggests that “too-big-to-fail” is a valid concern from a macroprudential perspective of bank regulation.
Videos & Media
Bill & Melinda Gates: Why We Are Impatient Optimists
Google & The Study of History – Via CSPan – Historians talked about historical research and the use of web-based search engines like Google. Among the topics they addressed were book digitization, intellectual property issues, academic scholarship, and the scope of current book scanning projects being performed by Google. They also answered questions from the audience.
Computational Complexity and Information Asymmetry in Financial Products- Via SSRN – Traditional economics argues that nancial derivatives, like CDOs and CDSs, ameliorate the negative costs imposed by asymmetric information. This is because securitization via derivatives allows the informed party to nd buyers for less information-sensitive part of the cash ow stream of an asset (e.g., a mortgage) and retain the remainder. In this paper we show that this viewpoint may need to be revised once computational complexity is brought into the picture. Using methods from theoretical computer science this paper shows that derivatives can actually amplify the costs of asymmetric information instead of reducing them. Note that computational complexity is only a small departure from full rationality since even highly
Efficient Regulation - Via NBER – Regulation of economic activity is ubiquitous around the world, yet standard theories predict it should be rather uncommon. I argue that the ubiquity of regulation is explained not so much by the failure of markets, or by asymmetric information, as by the failure of courts to solve contract and tort disputes cheaply, predictably, and impartially. The approach accounts for the ubiquity of regulation, for its growth over time, as well as for the fact that contracts themselves are heavily regulated. It also makes predictions, both across activities and across jurisdictions, for the efficiency of regulation and litigation as strategies of enforcing efficient conduct.
Automatic Stabilizers and Economic Crisis: US vs. Europe - Via Policy Pointers – This 39-page working paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis
The State of the World’s Indigenous Peoples – Via Policy Pointers – This 250-page report on the state of the world\’s indigenous peoples reveals alarming statistics on poverty, health, education, employment, human rights and the environment
Why Peak Oil Doom is for Dummies: Hotelling Rule- Via Alfin – The “Hotelling rule”, named after the late US mathematician Harold Hotelling, states that the price of an exhaustible commodity should converge towards the price of a substitute resource.
Heartbreak and Home Runs: The Power of First Experiences - Via Psych Today – From winning the science fair to losing a first boyfriend, certain youthful experiences cast a long shadow, revealing character and at times actually shaping it.
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*Weekly Joke & Cartoon are removed this week out of solidarity to Earthquake Victims
Most Inspiring Story: Auto-appendectomy in the Antarctic – Via BMJ - After several weeks Rogozov fell ill. He noticed symptoms of weakness, malaise, nausea, and, later, pain in the upper part of his abdomen, which shifted to the right lower quadrant. His body temperature rose to 37.5°C.1 2 Rogozov wrote in his diary: “It seems that I have appendicitis. I am keeping quiet about it, even smiling. Why frighten my friends? Who could be of help? A polar explorer’s only encounter with medicine is likely to have been in a dentist’s chair.”
Most Important Article(s) Of The Week!!!!!!!
A Venture Capitalist Helps Haiti - Via Florida Venture Blog – Like many of you, I’ve been wondering how best to help the Haiti earthquake victims. The following list (thanks Bro!) makes it easy…
Nobody wants your old shoes: How not to help in Haiti – Via AidWatch – Donating stuff instead of money is a serious problem in emergency relief. Only the people on the ground know what’s actually necessary; those of us in the rest of the world can only guess. Some things, like summer clothes and expired medicines are going to be worthless in Haiti. Other stuff, like warm clothes and bottled water may be helpful to some people in some specific ways. Separating the useful from the useless takes manpower that can be doing more important work. It’s far better to give money so that organizations can buy the things they know they need.
Jeffery Sachs: How To Rebuild Haiti- Via Washington Post – To prevent a deepening spiral of death, the United States will have to do things differently than in the past. American relief and development institutions do not function properly, and to believe otherwise would be to condemn Haiti’s poor and dying to our own mythology.
ValueHuntr Report: Donate to Haiti and Become a Premium Member - Via ValueHuntr -In solidarity with those affected by the earthquake in Haiti, ValueHuntr.com will be providing a free premium membership, including a subscription to our monthly ValueFocus Newsletter, to readers who donate more than $30 to the ValueHuntr Haiti Relief Fund below. This offer expires Friday, January 22nd.
Miguel’s Weekly Favorites:
Where happiness lies – Via FT – That is Julian Baggini surveying a number of books on happiness: ranging from empirical to delusional to depressive. Interesting throughout. Links on inequality and the macroeconomy- VIa Interfluidity – I am one of those people who thinks that extreme inequality is inconsistent with a healthy economy. I am not here claiming that extreme inequality is morally wrong or unjust (although it may be). I think that inequality is harmful under conventional macroeconomic criteria of sustainable GDP growth with moderate business cycles. Nick Rowe (whom I generally adore) is dead wrong when he writes, “Sure, there might be distribution effects, but distribution effects are the last refuge of a …. person who can’t think up a better argument.” Distributional questions are central to macroeconomics, and underemphasized for reasons that I think are ideological. A good economy must accommodate three coequal but contradictory concerns: incentives, distribution, and dynamism. Pick any two and what you end up with is crap.
“The Wayfinders: Why Ancient Wisdom Matters in the Modern World” - Via Long Now – The thousands of different cultures and languages on Earth have compellingly different answers to that question. “We are a wildly imaginative and creative species,” Davis declared, and then proved it with his accounts and photographs of humanity plumbing the soul of culture, of psyche, and of landscape.
Jason Zweig – Why Many Investors Keep Fooling Themselves – Via Farnam St & WSJ – What are we smoking, and when will we stop? A nationwide survey last year found that investors expect the U.S. stock market to return an annual average of 13.7% over the next 10 years.
Stop buying stocks and start buying businesses.- Via Nick Gogerty – Business values are tied to 2 things, a competitive dynamic and perceived value by the purchaser. Put these 2 pieces together and you end up with price. Please note this is a little more subtle than supply and demand and the framework varies with each market. Paul Volcker’s Moskowitz Lecture - Via Rajiv Sethi – Back in 1978, Paul Volcker delivered the annual Charles C. Moscowitz memorial lecture at New York University’s College of Business and Public Administration. The lecture was published (along with the remarks of two discussants) under the title The Rediscovery of the Business Cycle. Ten years later the College had been renamed after Leonard Stern, and the book was out of print. When I looked for it about a month ago the Columbia library came up empty and I couldn’t find a single copy available for purchase online. I finally managed to get one on inter-library loan from NYU.
How to Cure 1 Billion People?–Defeat Neglected Tropical Diseases- Via Scientific American – The poorest people are not only poor. They are also chronically sick, making it harder for them to escape poverty. A new global initiative may break the vicious cycle
Joseph Stiglitz: Moral Bankruptcy – Why are we letting Wall Street off so easy? - Via Mother Jones – It is said that a near death experience forces one to reevaluate priorities and values. The global economy has just escaped a near-death experience. The crisis exposed the flaws in the prevailing economic model, but it also exposed flaws in our society. Much has been written about the foolishness of the risks that the financial sector undertook, the devastation that its institutions have brought to the economy, and the fiscal deficits that have resulted. Too little has been written about the underlying moral deficit that has been exposed—a deficit that is larger, and harder to correct.
Rational Irrationality: Interview with Raghuram Rajan – Via The New Yorker – I met Rajan in his office at the Booth School of Business. I began by asking him about the academic work he and several colleagues at the business school did in the years leading up to 2007 on banking and liquidity. In addition to exploring theoretical issues that turned out to be important, Rajan, in the summer of 2005, issued a prescient warning about the dangers of a financial blowup involving the credit markets. It was striking, I remarked, that despite Chicago’s image as a bastion of market efficiency, it was also home to much more questioning research in the financial system.
The Puzzling Inventory Growth Risk Premium - Via SSRN – In the cross-section of U.S. publicly traded firms, we document that the spread in expected returns between firms with high versus low inventory growth rates is as high as 7% per annum, after controlling for differences across the firm’s capital investment rate. We investigate the ability of existing macroeconomic models of inventory behavior to simultaneously match the cross-sectional properties of asset prices and real quantities in the data. Calibrated to match quantities as close to the data as possible, we find that none of the models considered here can quantitatively explain the observed large dispersion in risk associated with inventory growth. Adding convex adjustment costs in inventory investment slightly improves the ability of these models to match the asset pricing facts, but it deteriorates the fit along the quantity dimension. We conclude that the strong link between inventory growth and firms’ risk documented here is a quantitative puzzle for existing macroeconomic models of inventory behavior.
How to Bounce Back from Adversity - Via HBS – Things are humming along, and then: A top client calls and says, “We’re switching suppliers, starting next month. I’m afraid your company no longer figures into our plans.” Or three colleagues, all of whom joined the organization around the same time you did, are up for promotion—but you aren’t. Or your team loses another good person in a third round of layoffs; weak markets or no, you still need to make your numbers, but now you’ll have to rely heavily on two of the most uncooperative members of the group.
Testosterone and the Ultimatum Game- Via Freakonomics – The common wisdom on testosterone is that it contributes to risky and aggressive behavior, but new research reveals a different pattern. In a study, 121 women were dosed with testosterone or a placebo and then played the ultimatum bargaining game (see Chapter 3 of SuperFreakonomics for more than you ever wanted to know about Ultimatum). The results were counterintuitive: women given testosterone actually made higher initial offers in the bargaining game, resulting in less conflict and more efficient social interactions. The researchers attributed the results to “a desire of the testosterone group to maintain their images — by avoiding rejection — aligning with the so-called social status hypothesis.”
Mean reversion in earnings - Via Greenbackd – One of the most fascinating examples of the phenomenon of mean reversion was identified by Werner F.M. DeBondt and Richard H. Thaler in Further Evidence on Investor Overreaction and Stock Market Seasonality. DeBondt and Thaler examined the relative performance of quintiles of stocks on the NYSE and AMEX ranked according to book value. As an adjunct to the main study, one of the variables they analyzed was the relative earnings performance of stocks in the lowest and highest price-to-book quintiles.
Hidden Levers: A New website for portfolio sensitivity analysis - via HL – What is HiddenLevers?
What happens to your portfolio if interest rates rise to 10%? What about if oil prices spike up to $150 per barrel? Do know what impact health care reform could have on your portfolio? HiddenLevers can help you answer these questions and much more! HiddenLevers ties together how different economic factors (levers) affect investments, empowering investors to plan for different economic scenarios. You can use HiddenLevers to test your portfolio against different scenarios, to find stocks which will perform well in a particular scenario, or to research investments and learn what factors might affect them.
Close Encounters Of The Desired Kind: Study Reveals Wanted Objects Are Seen As Closer – Via Medical News- We assume that we see things as they really are. But according to a new report in Psychological Science, a journal of the Association for Psychological Science, if we really want something, that desire may influence how we view our surroundings.
Basel, Faulty? Containment, Not Cure – PsyFi Blog – The international banking regulations known as the Basel II Accord have come in for some stick, given the fallout from the banking crisis of 2008. This is, on the face of it, a bit unfair given that Basel II hasn’t yet been fully implemented in most countries and anyway was designed to try to head off some of the problems that have occurred.
How Mathematical Economists Overreach - Via Think Markets – In recent months there has been a discussion both in the traditional media and in the blogosphere about why orthodox macroeconomics failed to predict or explain the financial crisis and the subsequent Great Recession. Some of that discussion focused around Paul Krugman’s criticism that economics mistook (mathematical) beauty for truth. Subsequently, there was a further discussion about the role of mathematics in economics.
Wall Street Tries to Explain Itself Today- Via Good – The Financial Crisis Inquiry Commission gets to work today, interrogating CEOs, academics, and economists to find out why our financial system collapsed, how the bankers got so rich, and whether the two might be related. You can watch it live here.
Jamie Dimon Says They Didn’t Model Massive House Price Collapse- Via Megan McArdle – Kevin Drum is shocked to find Jamie Dimon admitting that they weren’t modeling a total collapse in house prices. I’m shocked to find that Kevin is shocked. That’s pretty much the standard explanation–at least, a partial one–for why lenders became willing to take on so much risk. Massive house price depreciation had pretty much dropped out of their models, which mostly focused on prepayment risk.
The impact of class size on the performance of university students- Via Voxeu – The effect of increasing class size in tertiary education is not well understood. This column estimates the effects of class size on students’ exam performance by comparing the same student’s performance to her own performance in courses with small and large class sizes. Going from the average class of 56 to a class size of 89 would decrease the mark by 9% of the observed variation in marks within a given student. The effect is almost four times larger for students in the top 10%.
THE NEXT HUNDRED MILLION: America in 2050 - Via Wilson Quarterly – Joel Kotkin, along with his some-time nemesis Richard Florida, is perhaps the leading purveyor of a kind of psychoeconomic demography, a predictive chronicler armed with Census tract data, Pew surveys, and some old-fashioned shoe-leather reporting, all recounted in an urgent, assuaging, insider-y tone—a kind of Kiplinger Report for the national soul. I can imagine Kotkin and Florida randomly encountering each other—in, say, the Admiral’s Club at DFW, as each is en route to his assignation with civic leaders eager to sup the sooth—and engaging in a dueling-PowerPoint exercise, with Florida touting his “creative class” metropoles and their cappuccino-fueled dynamism, and Kotkin his “ephemeral cities”—places such as Portland that are elaborate stage sets for hip urban play, ultimately overregulated and hostile to the wants of average Americans, who would find fuller expression of their economic (and reproductive) potential in a place such as Boise. Only one man would be left standing amid the acrid tang of overheated hard drives, but I’m not sure which.
Property: The Great Problem Solver- Via Mises – Most social problems which perplex national leaders could be solved fairly simply by an increase in the amount and type of property owned. This would entail the equally important, general recognition that ownership is and must be total, rather than merely a governmental permission to possess and/or manage property so long as certain legal rules are complied with and “rent” in the form of property taxes is paid. When a man is required to “rent” his own property from the government by paying property taxes on it, he is being forbidden to fully exercise his right of ownership. Although he owns the property, he is forced into the position of a lessee, with the government the landlord.
Video: Sam Zell On Real Estate -
Academic Papers:
Monetary policy in the crisis – past, present, and future- ViaBIS – As a prelude to discussing where we are now and issues for the future, I thought it would be helpful to summarize the actions that we took over the past two years. In August 2007, we recognized that we were coping with a potentially serious disruption in financial markets that could feed back adversely on the economy and job creation. With liquidity in key funding markets drying up and some securitization markets closing down, lower policy interest rates alone were not going to be enough to keep financial conditions from tightening severely for households and businesses. In the end, we had to operate on multiple fronts to stabilize the financial markets and foster a rebound in the economy.
Ten Thoughts for Ordering Governance Relationships in 2010 – Via HLS – As the 2010 proxy season nears, we encourage both boards and shareholders to rethink the contours of their relationship. We expect institutional shareholders to have greater influence in director elections this year given the increasing prevalence of majority voting requirements and, for the first time, the absence of discretionary voting by brokers of uninstructed shares. Institutional shareholder power will expand further in 2011 if the SEC moves forward with proxy access rules and Congress enacts legislation mandating majority voting and “say on pay.” In this environment, boards and shareholders will be well served by considering in an open way how this shift in influence should be reflected in changes in behavior.
Optimal Auction Design and Equilibrium Selection in Sponsored Search Auctions – Via HBS – Reserve prices may have an important impact on search advertising marketplaces. But the effect of reserve prices can be opaque, particularly because it is not always straightforward to compare “before” and “after” conditions. HBS professor Benjamin G. Edelman and Yahoo’s Michael Schwarz use a pair of mathematical models to predict responses to reserve prices and understand which advertisers end up paying more.
Labor Regulations and European Private Equity- Via HBS – European nations substitute between employment protection regulations and labor market expenditures (e.g., unemployment insurance bene ts) for providing worker insurance. Employment regulations more directly tax rms making frequent labor adjustments than other labor insurance mechanisms. Venture capital and private equity investors are especially sensitive to these labor adjustment costs. Nations favoring labor expenditures as the mechanism for providing worker insurance developed stronger private equity markets in high volatility sectors over 1990-2004. These patterns are further evident in US investments into Europe. In this context, policy mechanisms are more important than the overall insurance level provided.
Other Interesting Articles:
California: The Coast of Dystopia – Via NY Mag – I didn’t move to California to become a “Californian.” I usually say that I came for a job; the truth is, I was young and in love and I followed a boy. That was 21 years ago, and much to my surprise, I’m still here. The relationship fizzled, but I was seduced by the romance of the state. I’d become a true believer in the California dream, right as it began to fall apart.
How To Teach Descartes’ Meditations: ‘Every Virtue and But One Small Defect’ edition, Part I – Wax and World – Via Crooked Timber – Descartes’ Meditations is one of the more frequently assigned primary texts from the whole history of philosophy. And yet it’s a screwy old thing: supposed to inaugurate Modern Philosophy (a.k.a. European philosophy from the 17th to 19th Century, givertake). But tangled up with medieval philosophy notions and heavily dusted with contents of the dustbin of history of science (no matter how hard you try to keep it clean). So how to teach it?
The Difficulty of Modifying Second Mortgages – Via McArdle – One of the many obstacles to resolving the housing mess is that so many people during the boom used their houses as piggybanks, taking out second mortgages and helocs that were often originated by different banks from the originator of the first lien mortgage. In order to do a short sale–or much of anything short of foreclosure–you need to get the second lien holder on board. This is even harder than getting your first mortgage holder to help you, since there’s usually nothing in it for the second guy in line except a sure and certain loss. The Obama administration has made some efforts to pull the second lien servicers into the process, but the results have been even more pitiful than the single-loan modification process.
Infographics: (Click On Image For Larger Version)
The Growth Of Filing Online Taxes (Via Data Viz & Chart Porn)
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Weekly Cartoon (Via ):
Weekly Joke (Via ND.edu):
Why God Never Received Tenure at the University
1. He had only one major publication.
2. And it was in Hebrew.
3. And it had no cited references.
4. And it wasn’t published in a refereed journal or even submitted for peer review.
5. And some even doubt he wrote it himself.
6. It may be true that he created the world but what has he done since?
7. His cooperative efforts have been quite limited.
8. The scientific community has had a very rough time trying to replicate his results.
9. He never applied to the Ethics Board for permission to use human subjects.
10. When one experiment went awry, he tried to cover it up by drowning the subjects.
11. When subjects didn’t behave as predicted, he often punished them, or just deleted them from the sample.
12. He rarely came to class, just told students to read the book.
13. He had his son teach the class.
14. He expelled his first two students for learning.
15. Although there were only ten requirements, most students failed his tests.
16. His office hours were infrequent and usually held on a mountaintop.
Most Important Article(s) Of The Week!!!!!!!
Buying You: The Government’s Use of Fourth-Parties to Launder Data about ‘The People’ - Via SSRN – Your information is for sale, and the government is buying it at alarming rates. The CIA, FBI, Justice Department, Defense Department, and other government agencies are at this very moment turning to a group of companies to provide them information that these companies can gather without the restrictions that bind government intelligence agencies. The information is gathered from sources that few would believe the government could gain unfettered access to, but which, under current Fourth Amendment doctrine and statutory protections, are completely accessible. Fourth-parties, such as ChoicePoint or LexisNexis, are private companies that aggregate data for the government, and they comprise the private security-industrial complex that arose after the attacks of September 11, 2001. They are in the business of acquiring information, not from the information’s originator (the first-party), nor from the information’s anticipated recipient (the second-party), but from the unavoidable digital intermediaries that transmit and store the information (third-parties). These fourth-party companies act with impunity as they gather information that the government wants but would be unable to collect on its own due to Fourth Amendment or statutory prohibitions. This paper argues that when fourth-parties disclose to law enforcement information generated as a result of searches that would be violations had the government conducted the searches itself, those fourth-parties’ actions should be considered searches by agents of the government, and the data should retain privacy protections. This Time Is Not Different!!! Reinhart and Rogoff: Higher Debt May Stunt Economic Growth- Via WSJ- To all the reasons to worry about the rapid rise in government debt in the wake of the financial crisis, add another: It’ll stunt our growth. In a new paper presented Monday at the annual meeting of the American Economic Association, Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard study the link between different levels of debt and countries’ economic growth over the last two centuries. One finding: Countries with a gross public debt debt exceeding about 90% of annual economic output tended to grow a lot more slowly. For advanced countries above the 90% threshold, average annual growth was about two percentage points lower than for countries with public debt of less than 30% of GDP.
The 50 Great Myths of Popular Psychology - Via Psych Files – I interview Dr. Scott Lilienfeld, author of 50 Myths of Popular Psychology and we talk about, a) does the polygraph actually work?, b) do women talk more than men?, c) does handwriting analysis reveal your personality? and d) when you’re taking a multiple choice test should you change your first answer or leave it alone? Along the way we also talk about whether the full moon really does make people act strangely (and cause more dog bites). Finally, Dr. Lilienfeld provides his opinion on whether psychotherapists need to be more up-to-date on the scientific research behind the various types of psychotherapy.
Stereotypes: Why We Act Without Thinking - Via Psy Blog – Despite their bad name, stereotypes can be handy short cuts that give us useful information about the world and other people. For example the stereotype of psychologists is that they are going to analyse you, then start meddling. There’s certainly some truth to that, after all that is their job. Outgroup Bias: Prejudice towards migrants stems partly from the fact that they’re awkward to think about - Via BPS Research – Survey research consistently shows that people tend to have a poor view of migrants. It’s unpalatable but psychologically-speaking, it’s no great surprise. After all, the odds are stacked against new-comers: most of us display inherent biases against people who we perceive to be in a different social group from our own – the so-called ‘out group bias’ – together with a similar aversion to people who are members of a social minority. Migrants usually fit both these descriptions.
Awesome!!: No Money, No Problems at Turin’s Barter-based Marketplace - Via Good – In Turin, Italy, the Gifts Without Money—or, if you prefer, Regali Senza Moneta—initiative has transformed a marketplace into a money-free zone, where people exchange goods and services without the intermediary of a legal tender. The idea is that without bringing cash or credit into the marketplace, people can recognize the true value of exchanges—that value having more to do with interpersonal connections than with profits and loss. From La Stampa:
Desire influences visual perception- Via We tend to assume that we see our surroundings as they really are, and that our perception of reality is accurate. In fact, what we perceive is merely a neural representation of the world, the brain’s best guess of its environment, based on a very limited amount of available information. This is perhaps best demonstrated by visual illusions, in which there is a mismatch between our perception of the stimulus and objective reality.
Myths of the American Revolution - Via Smithsonian – We think we know the Revolutionary War. After all, the American Revolution and the war that accompanied it not only determined the nation we would become but also continue to define who we are. The Declaration of Independence, the Midnight Ride, Valley Forge—the whole glorious chronicle of the colonists’ rebellion against tyranny is in the American DNA. Often it is the Revolution that is a child’s first encounter with history.
How the World Balances Health Care Risk – Via NYT – The health systems of Switzerland, the Netherlands and Germany are frequently cited as potential models for a reformed American health system. All three countries offer their citizens a wide choice of health insurers — none of which is a government-run health plan. Yet in all three countries full community rating is de rigueur.Swiss citizens, for example, are required to purchase insurance coverage for a comprehensive health-benefit package from a large menu of private health insurance companies that compete for customers on the basis of the premium they charge for that coverage.
100 things we didn’t know last year – Via Farnam St – The most interesting and unexpected facts can emerge from the daily news stories and the Magazine documents some of them in its weekly feature, 10 things we didn’t know last week. To kick off 2010, here’s an almanac of the best from the past year.
Corruption = monopoly + discretion – accountability. – Via Aguanomics – Thus, you see why I spend so much time on this blog discussing the troubles with monopolies, asymmetric information (water managers know more than us) and community oversight of water agencies.
Does Making a Public Commitment Really Help People Lose Weight?- Via NeuroNarrative – Several of the most popular weight loss programs operate on the public commitment principle. Individuals are challenged to state “publicly” (which may simply mean in front of a small weight loss group) that they want to lose so much weight in a given time period. The commitment hinges on social pressure working against the possibility of failure. If someone doesn’t succeed, or at least make substantial progress toward the goal, everyone will know it.
Video: The Next Giant Leaps In Energy, Environment, & Air transportation – via MIT World – It’s no exaggeration to say John Holdren’s job involves tackling the most critical issues of our age: economic recovery and growth, health care, energy, climate change, global pandemics, national security, ecosystem preservation…the list goes on. As President Obama’s science and technology advisor, Holdren leverages the resources and collective acumen of the nation’s researchers and innovators to address these complex and urgent matters. To an MIT audience, Holdren makes the case that aerospace science, technology and education will provide a “crucial contribution to and driver of many relevant capabilities” the U.S. will need to meet this century’s challenges.
The Masters of The Diamond Trade – Via Investors Consigliere & NYT – EVERY diamond is a story as old as the earth and will outlast us all. Diamonds are, indeed, forever, but they are not forever in view.
The Economist Sends The: Bubble Warning - Via The Economist & Value Investing World – Markets are too dependent on unsustainable government stimulus. Something’s got to give A $123 Trillion China? Not Likely. – Via Foreign Policy -The many, many reasons — from the financial crisis to the country’s aging population to environmental limitations — why Robert Fogel’s forecast for China is completely inconceivable.
Japan’s Fake Economic Reforms – Why Tokyo could use a little more creative destruction. - Via Foreign Policy – Just before the recently elected Japanese government released its new 10-year growth strategy, two top policymakers locked horns in a sterile economic debate. Heizo Takenaka, economic advisor to former Prime Minister Junichiro Koizumi, said the chief priority should be business-oriented supply-side measures to generate new wealth. Naoto Kan, the new deputy prime minister and finance minister, stressed the need to boost demand and help consumers. Arguing that the Koizumi cohort had failed, Kan said that companies would neither hire new workers nor boost capacity if they couldn’t sell their output.
Your Guide to Cutting the Cord to Cable TV - Via Media Shift – What’s causing those bills to skyrocket? A lack of competition among cable and satellite providers, and the rising costs of programming. The most recent programming dustup happened when News Corp. demanded carriage fees from Time Warner Cable, and settled before any channels were dropped. Time Warner is planning an upcoming rate hike. Like other traditional media, TV networks (both cable and broadcast) are being squeezed by lower advertising income, and think they can just keep raising the cable bills indefinitely. Unfortunately for the cable TV industry, they’ve picked a bad time to raise their rates. Centris found in a separate report (PDF) that due to the economic meltdown, eight percent of U.S. households were likely to cancel their pay TV in the third quarter of ‘09, and nearly half of households contacted TV providers for discounts or cheaper packages.
Jason Zweig: Inefficient Markets Are Still Hard to Beat – Via WSJ – Can’t anyone here play this game? With the market so erratic at pricing stocks, it is tempting to think you can do better. Between the Dow Jones Industrial Average’s record in October 2007 and the bear-market low in March 2009, Bank of America’s stock fell 94%. Then, by year-end 2009, it went up 380%. It wasn’t just financial stocks that acted like yo-yos: Over the same period, Alcoa’s stock fell 87%, then more than tripled.
Free Book – Market Myth’s Exposed - via Pragmantic Capitalist – Do you think you have to diversify? That small caps are always better? That earnings drive stocks? That the FDIC can protect you? That bubbles can be unwound slowly? This excellent research paper from Elliott Wave International answers all these questions and more (can’t post directly for copyright reasons).
Why Sex: The Origins of Reproduction- Via Wilson Quarterly – There are so many simpler ways to reproduce than sex. Consider bacteria. They just divide. Or aspen trees. They just send out runners. So how did such an inefficient system—requiring cell division, finding a mate, hooking up, and producing a new, unique combination—triumph over other reproductive methods? Carl Zimmer, a science writer whose most recent book is Microcosm: E. coli and the New Science of Life (2008), says new evidence from a colony of New Zealand snails explains how sex simply improves the fitness of a population more reliably than asexual reproduction.
Physicists in Finance – A Growing Presence- Via Money Science – Futures trading often attracts people with math or physics training. From an investor’s point of view, this means that a manager has very impressive credentials but it may not be easy to understand how the academic background translates to the down-to-earth activity of trading.
The Art Recession - Via Wilson Quarterly – The remarkably uniform plunge in the endowments of New York City’s best known arts institutions during the 2008–09 recession raises troubling questions about the prudence of the city’s cultural leaders. If the investment goal of the financial managers of storied museums and companies is to preserve capital, why were so many of them long in risky investments in domestic and foreign stocks?
Beyond Dubai: What’s Ahead for the Middle East This Year? – Via Wharton -When the 818-meter Burj Dubai tower, the world’s tallest building, opened for occupancy with lots of fanfare on January 4, it was proclaimed to be a crowning achievement of the emirate of Dubai, with its bold plans to establish itself as a regional trade and services hub. The $4 billion tower included an Armani hotel, an observation deck, homes, offices and more, and was nothing less than “a symbol of Dubai’s can-do spirit,” according to the building’s owner, state-owned Emaar Properties.
Smile or Die: How Positive Thinking Fooled America and the World by Barbara Ehrenreich- Via Times Online – Back in 2003, a US government official called Armando Falcon warned the White House that companies such as Freddie Mac and Fannie Mae were backing far too many dodgy mortgages, risking financial collapse and “contagious illiquidity in the market”. Did the White House look at tightening up regulations? Nope. They tried to sack Falcon. He was just being “negative”.
Finance & Investing:
A snapshot of current markets: The danger of the bounce- Via Can Turtles Fly – THE opening of the Burj Khalifa, the world’s tallest building, in Dubai on January 4th had symbolic as well as architectural significance. Skyscrapers have long been associated with the ends of financial booms. The Empire State Building opened in 1931, two years after the Wall Street crash. The Petronas towers in Kuala Lumpur were unveiled in 1998, in the depths of the Asian crisis. Such towers are commissioned when money is cheap and optimism about economic growth is at its height; they are often finished when the champagne has gone flat. The Lulling Effect of Expert Financial Advice- Via Smart Money -Is there a more reviled creature as 2010 begins than the expert? Or, as he or she is more commonly known, the “so-called expert”? The so-called experts said the housing market was sound. The so-called experts told us one thing, and then a totally contradictory thing, about when women should start getting regular mammograms. The so-called experts told us Bear Stearns was fine… just before it collapsed.
Do Hedge Fund Indexes Tell Only Part of Story? – Via Finance Professor – “Taken at face value, historic index figures suggest that even an average hedge fund manager can easily beat the stock market while taking less risk. Since 1990, a weighted index of hedge funds has returned around 12 percent annually — about four percentage points more than the returns for the Standard & Poor’s 500-stock index — with just half the volatility, according to Hedge Fund Research.
Ori Eyal’s Yearend 2009 Letter to Investors - Via Manual Of Ideas – As always, up-and-coming value investor Ori Eyal’s letter to investors is an enlightening read. In the letter, Eyal not only discusses his investment philosophy but also some specific investments worthy of closer consideration.
Using Altman’s Z-Score to Create a Short-Only Portfolio - Via Value Huntr – We aim to use Altman’s Z-Score model to create the Valuehuntr Short-Only Portfolio and track the effectiveness of Altman’s regression. Private Equity and Industry Performance - Via HBS – The growth of the private equity industry has spurred concerns about its potential impact on the economy more generally. This analysis looks across nations and industries to assess the impact of private equity on industry performance. Industries where PE funds have invested in the past five years have grown more quickly in terms of productivity and employment. There are few significant differences between industries with limited and high private equity activity. It is hard to find support for claims that economic activity in industries with private equity backing is more exposed to aggregate shocks. The results using lagged private equity investments suggest that the results are not driven by reverse causality. These patterns are not driven solely by common law nations such as the United Kingdom and United States, but also hold in Continental Europe. James Chanos: Contrarian Investor Sees Economic Crash in China- Via NYT – Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc. As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.
Billionaire Li Urges Caution After Stock Price Surge - Via Business Week – Hong Kong billionaire Li Ka-shing said global stock gains in 2009 outstripped growth in economic fundamentals and investors should be cautious. “You saw how much the stock prices gained in 2009, in the U.S., everywhere. The rises have run ahead of economic fundamentals,” Li said in impromptu comments to reporters at a convention center in Hong Kong today. “When it comes to investments, it’s better to be careful. The world has just emerged from the financial crisis.” Compensation and Risk Under New SEC Rules - Via HLS – The SEC has amended its disclosure rules to require, among other matters, a discussion about a company’s compensation policies and practices for all employees if they create risks that are “reasonably likely” to have a material adverse effect on the company. [1] Prior SEC guidance, to which the SEC referred in adopting the amendments, indicates that the “reasonably likely” threshold is higher than “possible” but lower than “more likely than not.” Additional Views on What TARP Has Achieved - via HLS – The Emergency Economic Stabilization Act of 2008 and the Troubled Asset Relief Program it created, in my opinion, were significant contributors to stabilizing a full blown financial panic in October 2008. It is clear to me that for that reason, we are better off as a nation for the existence of TARP than if we had done nothing. Of course this proposition is very hard to prove, but I am convinced it is true. Many people deserve credit for doing TARP rather than doing nothing, but three people who in particular deserve credit are Federal Reserve Chairman Ben Bernanke, Treasury Secretary Timothy Geithner, and in particular, former-Treasury Secretary Henry Paulson.
Google’s Eric Schmidt on why bankers deserve little sympathy and Obama does - via Telegraph – Eric Schmidt, the chief executive of Google, tells Kamal Ahmed why America needs to take its share of the blame for the financial crisis and what 2010 holds for the world economy
Walk Away From Your Mortgage! -Via NYT – John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told The Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.” Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay.
Altman Z score Redux – Covering your back side better- Via Chroma Investing- Altman Z score has been around since the 1960’s and I have posted about it previously. Originally it was set up and measured the risk of bankruptcy amoung manufacturing firms. It turns out that in subsequent studies it was found that the original Altman Z score might be under reporting bankruptcies among non-manufacturing firms. Given that used correctly it has a 80%-90% accuracy of predicting bankrupcty in the next year, Altman Z is a great tool, but it must be used correctly.
A Fund manager’s reflections on life, the universe and the meaning of money – Via Money Science – In their daily commute on trains or the underground, most bankers read the financial press, work on their BlackBerries or dream about what to do with their bonuses. Eric Lonergan mulls over philosophical principles about life and money, and their deeper meanings.
Observing passengers on the train into the City, the M&G investments fund manager wonders how the bankers and civil servants can be so immersed in their own thoughts that they can, for example, remain sitting comfortably while pregnant women are left to stand.
Harnessing Brain Power: Computer scientist Luis von Ahn’s programs harness the human brainpower to solve complex problems. von Ahn invented ReCaptcha, a program that uses squiggly characters that humans easily decipher but blocks spambots – and helps digitize millions of old texts. The CMU professor also makes games that use human knowledge to improve computers.
Academic Papers:
International Differences in the Size and Roles of Corporate Headquarters: An Empirical Examination - Via HBS – Are small headquarters more nimble and efficient than large ones? Not necessarily, according to HBS adjunct professor David Collis and coauthors David Young and Michael Goold. Even within a single industry in one country, the variance can be enormous: In Germany in the late 1990s, for instance, Hoechst, the chemical and pharmaceutical manufacturer, had only 180 people in the headquarters function at the same time that Bayer had several thousand. This paper seeks to fill gaps in the research by using a unique database of over 600 companies in seven countries to determine whether systematic differences in the size and roles of corporate headquarters between countries actually exist, and if so, how they differ. In particular, the authors examine whether there is a systematic difference between market- and bank-centered economies, and between developed and developing countries. Multinational firms, agglomeration, and global networks - Via vox.eu- Agglomeration effects are important but difficult to measure. This column uses a new database with precise geographical information to investigate the locational interdependence of multinational firms. Knowledge spillovers and capital- and labour-market externalities exert a significant effect on the co-agglomeration of multinational headquarters, while input-output linkages also play a significant role in the case of subsidiary co-agglomeration. The impact of crisis-driven protectionism on EU exports: The “Russian doll” effect- Via Voxeu – What is the impact of crisis-led protectionism on trade? This column provides a new way to interpret protectionism – the “Russian doll” effect – and shows that the effect on EU exports has been more severe than the rest of the world.
The most interesting and unexpected facts can emerge from the daily news stories and the Magazine documents some of them in its weekly feature, 10 things we didn’t know last week. To kick off 2010, here’s an almanac of the best from the past year. – Via ESR – This paper briefly summarises the evidence that Ireland has a relatively high level of income inequality, which has been rather stable over time and reflects institutional legacies and choices made in the past. A comparative and over time perspective suggests that modest reductions in income inequality are achievable within the framework of Ireland’s current socioeconomic model, but bringing it below the (EU or OECD) average may well be beyond the capacity of that model. The current financial, fiscal and economic crises require very substantial increases in tax revenue and reductions in state spending. The imperative to close the fiscal deficit provides a window of opportunity to restructure the tax system in a fashion that is not only more economically efficient but also more equitable. Another core aim should be to minimise the number experiencing long-term unemployment and thus the long-term impact of the recession on labour market careers. Once the most immediate needs of the situation are met, this context may provide an opportunity to debate fundamental questions about the role of the state, the extent and nature of social provision and its financing, and the broader relationship between economic performance, the Welfare State, and the underlying goals of Ireland’s socio-economic policy.
‘I’ve Got Nothing to Hide’ and Other Misunderstandings of Privacy - Via SSRN – In this short essay, written for a symposium in the San Diego Law Review, Professor Daniel Solove examines the nothing to hide argument. When asked about government surveillance and data mining, many people respond by declaring: “I’ve got nothing to hide.” According to the nothing to hide argument, there is no threat to privacy unless the government uncovers unlawful activity, in which case a person has no legitimate justification to claim that it remain private. The nothing to hide argument and its variants are quite prevalent, and thus are worth addressing. In this essay, Solove critiques the nothing to hide argument and exposes its faulty underpinnings.
The Consumer Interest in Corporate Law - Via SSRN – This Article provides a comprehensive assessment of the consumer interest in dominant theories of the corporation and in the fundamental doctrines of corporate law. In so doing, the Article fills a void in contemporary corporate law scholarship, which has failed to give sustained attention to consumers in favor of exploring the interests of other corporate stakeholders, especially shareholders, creditors, and workers. Utilizing insights derived from the law and behavioralism movement, this Article examines, in particular, the limitations of the shareholder primacy norm at the heart of prevailing “nexus of contracts” and “team production” theories of the firm. The Article concludes that fundamental reforms in corporate governance may be needed in order to vindicate the consumer interest in corporate enterprise.
Other Interesting Articles:
Free budget spreadsheet and expense tracker – Via Mind Your Own Decisions Blog - Astronomers say they could find Earth-like planets soon – Via Value Investing World – Astronomers say they are on the verge of finding planets like Earth orbiting other stars, a key step in determining if we are alone in the universe. A top NASA official and other leading scientists say that within four or five years they should discover the first Earth-like planet where life could develop, or may have already. A planet close to the size of Earth could even be found this year if preliminary hints from a new space telescope pan out.
Infomercial Products Take One on the Chin – Via NYT – IT may come as no surprise that in the February issue of Consumer Reports, where the product-testing magazine rates 15 infomercial products like the Snuggie (“The blanket with sleeves!”) and the ShamWow (“You’ll say wow every time!”), nearly all are found to be lacking.
Infographics: (Click On Image For Larger Version)
Comparing Unemployment – Via NYT -
US Data Consumption In 1 Day – Via Data Viz –
Whats Changed This Decade – Via Data Viz -
