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Bill Gates: Africa Needs Aid, Not Flawed Theories - via WSJ – The science writer Matt Ridley made his reputation with books like “The Red Queen: Sex and the Evolution of Human Nature” and “Genome: The Autobiography of a Species in 23 Chapters.” His latest book, “The Rational Optimist: How Prosperity Evolves” is much broader, as its title suggests. Its subject is the history of humanity, focusing on why our species has succeeded and how we should think about the future. Although I strongly disagree with what Mr. Ridley says in these pages about some of the critical issues facing the world today, his wider narrative is based on two ideas that are very important and powerful.
An Irrational Guide to Gifts – via Dan Ariely – I have recently been asking people around me what they think makes a good gift. And I don’t mean specific items like sunglasses or one of my books (which are all excellent gifts); I was looking to find some of the basic principles and characteristics of good gifts. One of the best answers I’ve gotten so far is this: “A good gift is something that someone really wants, but feels guilty buying it for themselves.” What is interesting about this answer is that the ideal gift from this perspective is not about getting the person something that they can’t afford, or something that they have no idea that they want – it is all about alleviating guilt connected with the purchase of a highly desirable (yet guilt invoking) item. So, lets consider two ways in which good gifts can eliminate guilt.
Video: David McCandless: Information Is Beautiful - via Fora.tv – David McCandless is a London-based author, writer and designer. He has written for The Guardian, Wired and others. Currently, he is an independent data journalist and information designer. He is passionate about visualizing information – facts, data, ideas, subjects, issues, statistics, questions – all with the minimum of words.
Video: Sheena Iyengar: The Art of Choosing - via Fora.tv – Sheena Iyengar is the inaugural S.T. Lee Professor of Business in the Management Division at Columbia Business School and the Research Director at the Jerome A. Chazen Institute of International Business. She is known for her research on choice.
Who Cares If It’s All Meaningless Anyway? - via MillerMcCune -A startling proportion of the population, the existentially indifferent, demonstrates little concern for meaning in their lives.
Hemisphere Inc. – via Boston.com – We tend to think of the globe-spanning corporation as a creation of the modern economy. ExxonMobil, GE, JPMorgan, Halliburton — juggernauts of vast reach and influence, they’re seen by both critics and supporters as an extreme and very modern form of private-sector power.
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“Shorting Fiscal Consolidation” by Robert J. Shiller – via Princeton U – “Real long-term interest rates – that is, interest rates on inflation-protected bonds – have fallen to historic lows in much of the world. This is an economic fact of fundamental significance, for the real long-term interest rate is a direct measure of the cost of borrowing to conduct business, launch new enterprises, or expand existing ones – and its levels now fly in the face of all the talk about the need to slash government deficits Nominal interest rates – quoted in terms of dollars, euros, renminbi, etc. – are difficult to interpret, since the real cost of borrowing at these rates depends on the future course of inflation, which is always unknown. If I borrow euros at 4% for ten years, I know that I will have to pay back 4% of the principal owed as interest in euros every year, but I don’t know what this amounts to. If inflation is also 4% per year, I can borrow for free – and for less than nothing if annual inflation turns out to be higher. But, if there is no inflation over the next ten years, I will pay a hefty real price for borrowing. One just doesn’t know.”
Are Humans Moral? - via Sleigh of Hand – So my rambling thoughts continued. If risk of detection and punishment are the only deterrent to unethical behavior, then can we consider human beings moral? What role does morality play in relationships and society?
The price of Amazon Prime - via Knowing & Making – One challenge was selecting the annual fee for the service; there were no clear financial models because no one knew how many customers would join or how it would affect their purchasing habits. The team ultimately went with $79 mainly because it’s a prime number.
How College Kills Creativity; Nothing Succeeds Like Failure – via Chronicle of Higher Ed – Jean-Paul Sartre said that the greatest gift a father can give his son is to die early. Sartre’s remark, though harsh, isn’t implausible. In a new book, Sudden Genius: The Gradual Path to Creative Breakthroughs (Oxford University Press), Andrew Robinson notes that a remarkable number of super-high achievers suffered the death of a parent at a young age. He cites a 1978 study of almost 700 historical figures that found that 25 percent of them—including J.S. Bach, Dante,
Brand Loyalty: Like It Now, Love It Later – via Miller MCCUne – Researchers show why it’s good that the elderly habitually stick to their favorite brands and how less ambitious shopping can make you a happier senior.
Our Minds Are Like Computers (Ditto for Worms) - via Miller McCune – Physicist Dani Bassett discusses the structural similarities between the human brain and that of worms — or of nearly any system that processes information.
Biases about economic facts - via Knowing & Making – In theory, it would still be possible for rich, sophisticated arbitrageurs to bet against the public in all these areas, and thus bring the overall path of markets back in line with the predictions of any given model. But most of the wealth of the economy is (directly or indirectly) under the control of the people who have these wrong impressions; so I think it unlikely that rational expectations can effectively operate. Especially since the errors are not random, but systematic; Derek Thompson in the article above has five explanations for why this might be.
Chance is a very fine thing – via Understanding Uncertainty – This month’s NRich has a fine collection of exercises on uncertainty, chance and coincidences, designed to be useful for primary schools to sixth forms.
Happy Thanksgiving! Feed Your Guests Wisely - via Aps – It’s that time of year again: turkey, stuffing, and gravy! As you prepare your Thanksgiving meal for family and friends, heed this warning from an upcoming article in Psychological Science: The taste of the food and drinks that you serve your guests may impact their moral judgments of you in more ways than one.
Global Warming Warnings Can Backfire - via APS – From Priuses to solar panels and plastic-bag bans (and even green dating!), it seems that everyone’s going green. The message that our world is in danger if we do not take action is also everywhere: from images of baby polar bears drowning to frightening images of a parched barren future. The push to go green is based in good intentions, but an upcoming study in Psychological Science shows that the popular “do or die” global-warming messages can backfire if the situation is presented too negatively.
Video: Ted Talk – Creative houses from reclaimed stuff - In this funny and insightful talk from TEDxHouston, builder Dan Phillips tours us through a dozen homes he’s built in Texas using recycled and reclaimed materials in wildly creative ways. Brilliant, low-tech design details will refresh your own creative drive.
Google, Yahoo, other Silicon Valley tech giants add economists to arsenal - via Mercury News – In addition to software engineers, computer scientists and Web designers, Silicon Valley giants ranging from Yahoo to Google to eBay are scrambling to hire economists, little-known and increasingly valuable weapons as these companies create new businesses and fine-tune existing ones.
Video: Ted Talk – Protecting the brain against concussion - In a lively talk from TEDxDU, neuropsychologist Kim Gorgens makes the case for better protecting our brains against the risk of concussion — with a compelling pitch for putting helmets on kids.
Are Charter Schools a Choice for Segregation? - via MillerMcCune – Miller-McCune interviews two education experts about the promise and betrayal of diversity in the charter school movement.
Run For Your Life! Detecting Living and Nonliving Threats – via BPS Research @ APs – It is important to be able to quickly detect threats in the environment, but how clear and detailed do dangerous stimuli need to be for us to avoid them?
Wolfpack Heuristic - via Wray Herbert – The ancestral world was a perilous place, and many of our cognitive biases are rooted in the cautious ways we learned to navigate that world. I don’t write about the ‘wolfpack heuristic’ in On Second Thought, but here is some intriguing evidence that we may carry in our neurons the vestiges of our early and constant watchfulness for predators–including social hunters like wolves.
Happy after all? Parenting and life satisfaction - via Evidence Based Mummy – In the last few months, the happiness of parents or, to be more accurate the lack of it, has received considerable attention in the media. Contrary to many parents’ perceptions, most research to date has concluded becoming a mother or a father reduces people’s happiness rather than increases it. So what’s going on? Why do parents believe they’re happier when the research is suggesting the opposite? Economist Luis Angeles from the University of Glasgow has some new insights.
Richard Thaler Question’s Edge - via Edge – The flat earth and geocentric world are examples of wrong scientific beliefs that were held for long periods. Can you name your favorite example and for extra credit why it was believed to be true?
Inside the bullied brain The alarming neuroscience of taunting – via Boston.com – In the wake of several tragedies that have made bullying a high-profile issue, it’s becoming clear that harassment by one’s peers is something more than just a rite of passage. Bullied kids are more likely to be depressed, anxious, and suicidal. They struggle in school — when they decide to show up at all. They are more likely to carry weapons, get in fights, and use drugs.
Red Bull Pumps Energy into the Sporting World - via Spiegel – The Red Bull energy drink company has built up its very own sporting empire. It organizes aerobatics competitions, sponsors snowboarders and runs a soccer team in New York. However, its greatest coup to date has been winning the Formula One motor racing world championship with driver Sebastian Vettel.
Information overload, the early years - via Boston.com – Five centuries years ago, a new technology swamped the world with data. What we can learn from the aftermath.
Trouble with numbers? Try zapping your brain – via Deric Bownds – Kodosh et al. in the Nov. 4 issue of Current Biology (noted by ScienceNow) report that administering a small electrical charge (transcranial direct current stimulation) to stimulate a center implicated in math operations located on the right side of the parietal lobe (beneath the crown of the head) can enhance a person’s ability to process numbers for up to 6 months. The mild stimulation is said to be harmless, and might be tried to restore numerical skills in people suffering from degenerative diseases or stroke.
The Situation of Perceived Intentionality - via Situationist – There are many potential situational factors that can contribute to the fundamental attribution error and the sinister attribution error. Recent research shows that intoxication is among them. Why? Because, much like dispositionist default, people tend automatically to see intention behind others’ behavior and must exert cognitive effort to consider other possibilities. Such an effort is more difficult (and thus less likely) for a mind impaired by intoxication. Here’s the abstract for the recent article in Personality and Social Psychology Bulletin summarizing that research.
Magic at the dawn of psychology - via MindHacks – Some of the world’s best illusionists are now collaborating with cognitive scientists to better understand the mind and brain but this turns out to be old news. A brilliant article in The Psychologist charts the remarkably long history of magicians and psychologists working together to understand the human mind.
Anthony Bourdain and anti-incentives - via Nudge Blog – Ian Ayres has coined the term “anti-incentives” to describe incentives that “can help you learn how much you really care about something.” The classic example of an anti-incentive is the offer e-retailer Zappos makes to its employees: A week into an intensive training program, the company offers $1,000 to employees to quit. With such a generous offer, employees usually think about their own commitment to their potential Zappos job – certainly worth much more then $1,000 – and turn down the money.
47 Mind-Blowing Psychology-Proven Facts You Should Know About Yourself - via BUsinessInsider
A marketer’s guide to behavioral economics - via A Taste for Tea – Marketers have been applying behavioral economics—often unknowingly—for years. A more systematic approach can unlock significant value.
We’ll save energy if the neighbours do first – via Greenblog – Across America, a number of homeowners are beginning to reduce their household energy usage. But why? It seems like a simple question with an obvious answer: those who conserve energy are probably doing so either to save money or to reduce their impact on the environment. But, as with many issues involving human decision-making, the reality is not that simple
New Documentary – via Nova: The World’s Strongest Stuff – via PBS – Ask a materials scientist to choose the strongest material, and you are likely to get a question instead of an answer. What kind of strong? Tensile strength? Toughness? Yield strength? Hardness? When it comes to materials, there isn’t a single definition of strength but rather ways to measure certain characteristics. And each material can be strong in some ways and weak in others. If you build a bridge out of glass, it may be able to hold a heavy load, but if a boat passing underneath were to strike it, it might shatter. Some materials, however, rate relatively highly in several strong characteristics, as the sampling below demonstrates.
Behavioural Economics on RTE Radio 1 – via Geary Behavior Lab
ONLY human writers can distill a heap of sports statistics into a compelling story. Or so we human writers like to think- via Uveal Blues – StatSheet, a Durham, N.C., company that serves up sports statistics in monster-size portions, thinks otherwise. The company, with nine employees, is working to endow software with the ability to turn game statistics into articles about college basketball games.
Should We Hope Congestion Gets Worse? - via Freakonomics Blog – One of the less cheery parts of studying transportation is that the activity you have devoted your life to is widely considered an unmitigated downer. Even aside from the external environmental costs each trip places on society, travel is held to be no fun for the traveler. We don’t hop behind the wheel for the love of being honked at, cut off and stuck behind a creeping bus or semi; we endure travel only because we’ve got someplace to go. Right?
Does watching TV make us happy? - via Bakadesuyo- We find that heavy TV viewers, and in particular those with significant opportunity cost of time, report lower life satisfaction. Long TV hours are also linked to higher material aspirations and anxiety.
Do you need a break in order to keep working? No, you don’t- via Bakadesuyo -Not so, says the Stanford team. Instead, they’ve found that a person’s mindset and personal beliefs about willpower determine how long and how well they’ll be able to work on a tough mental exercise. “If you think of willpower as something that’s biologically limited, you’re more likely to be tired when you perform a difficult task,” said Veronika Job, the paper’s lead author. “But if you think of willpower as something that is not easily depleted, you can go on and on.”
Know Thy Future Self - via Columbia – Differences in our perception of our present identity versus our future identity influence the trade-offs we make, offering direction for better decision making.
Follow the Retail Traders - via Columbia – New research shows that retail investors don’t merely follow temporary upward trends but can actually predict future stock returns.
Helping Consumers Cross the Boundary - via Columbia – Seemingly minor situational cues can prompt greater customer engagement and commitment, enhancing satisfaction and loyalty.
Being rationally agnostic – via Economic Logic – What religion should people adopt if there is uncertainty about the existence of deity? If there were only one choice, to believe or not in a god, the choice would be rather simple as Pascal’s wager taught us: believe in the god just in case he turns out to exist. Things become a bit more complex if one has also to choose in which god to potentially believe. First, the fact that they are multiple candidate gods means all but at most one may turn out to be frauds, and choosing the wrong one may have serious adverse consequences. What to believe then? Luckily, economists have you covered.
Rick Bookstaber – Secular Deflation - My last post posited a future world where technology-driven production and consumption lead to a secular drop in demand, and with it a drop in employment, resulting in what I called a consumption trap:
The Anthropology of Jerome Kerviel – via Paul K
Do homeowners achieve more household wealth in the long run?- via Bakadesuyo – All else equal, those who owned homes and owned for longer periods of time had significantly higher household net wealth by 2001. These results are compelling because house price appreciation over the period was near its long-run average while stock gains were above and real rent increases below their long-run averages. Hence, the findings are suggestive of a positive influence of ownership over long periods on net wealth, even during a period when alternative investments produced higher than normal returns and rents grew slowly
Vancouver: The Last of the Really Great Real Estate Bubbles - via Paul K – UBC geographer David Ley has attempted to address the question of “Who’s buying these places?” in a different way, checking sales data for Vancouver neighbourhoods against variables like interest rates, unemployment levels and house construction—none of which correlated well. Instead, the strongest indicators of price movement were related to international investment and immigration. The arrival of other Canadians from elsewhere in the country actually dampened prices. The same effect showed up when Ley widened his lens to Greater Vancouver: The highest values occurred in areas with high immigrant populations and a predominant Chinese ethnicity. So Vancouver may be the first North American city where the phrase “there goes the neighbourhood” should be uttered when a Caucasian moves in next door.
Elinor Orstrom – Are our institutions up to the job? - via Yale Q- The massive problems associated with sustainability, from climate change to resource preservation, require the kind of coordinated, society-wide response that frequently breaks down. Elinor Ostrom, a winner of the 2009 Nobel Prize in Economics, argues for the importance of giving small, local institutions enough power and describes how people can work together to better manage common resources—though it’s not easy.
SSRN-Internal Sources of Finance and the Great Recession by Michelle Barnes, N. Pancost: - via Finance Professor – “The rising stockpile of cash as a share of total assets at US firms has intrigued economists…We…show that the rise in cash holdings has coincided with an increased willingness to save internally-generated cash. We show that although investment is normally sensitive to externally-generated cash, the increased sensitivity of investment to cash during the Great Recession is driven by cash from internal sources. Smaller firms were also more affected by the recent downturn than larger firms.”
Video: David Einhorn Speaks - Consuelo Mack interview with hedge fund manager – and part-time poker player – David Einhorn.
492 Days From Default to Foreclosure - via WSJ- 492: The number of days since the average borrower in foreclosure last made a mortgage payment. Banks can’t foreclose fast enough to keep up with all the people defaulting on their mortgage loans. That’s a problem, because it could make stiffing the bank even more attractive to struggling borrowers.
Economics of Electric Cars - via Reflections on Value Investing – The department’s website notes that the cost of charging plug-in vehicles will typically be from 50 to 75 percent less per mile than using gasoline. A family that pays $60 a week for gas may pay $20 a week for electricity to fuel a vehicle if it is charged at night, the department says, which could result in a five-year saving of $10,000 or more on fuel. Although the department did not mention it, the battery packs for both the Chevrolet Volt and Nissan Leaf are warranted for eight years or 100,000 miles, whichever comes first.
Valuation When Cash Flow Forecasts Are Biased - via HBS – The valuation of forecasted cash flows can be an inaccurate process, especially when the forecasts are created by optimists who neglect to consider worst-case scenarios. In this paper, Harvard Business School professor Richard S. Ruback has developed methods of valuating forecasted cash flow when the predictions are biased upward.
Credit Rating Agencies: A Market Failure? - via PsyFi Blog – Although the Credit Rating Agencies (CRAs) haven’t been blamed for world famine there isn’t much else that hasn’t been laid at their door. With good reason, for without the co-operation of the CRA’s the vast explosion of securitised loans which eventually imploded in 2008 couldn’t have occurred.
The (Agency) Problem of Risk Incentives within Financial Institutions - via HLS – In the paper, Downside Risk and Agency Problems in the U.S. Financial Sector: Examining the Effect of Risk Incentives from 2007 to 2010, I consider risk incentives within financial institutions in the presence of two types of potential agency problems: the standard manager-shareholder agency problem and the risk-shifting problem between shareholders and society. First, I evaluate the effect of risk incentives on shareholder returns during the financial crisis. Next, I examine the relation between risk incentives and three downside risk statistics. Value-at-risk resembles a financial institution’s tolerance to losses, expected shortfall resembles losses when the firm does poorly, and marginal expected shortfall resembles an institution’s exposure to loss spillovers from its peers.
Hedge Fund Manager Interview Series – Harris Kupperman Part II - via Distressed Debt Investing – Yesterday, we brought you the first part of a two part series interviewing hedge fund manager Harris Kupperman. After the interview, for those interested, Harris runs a fantastic blog: http://adventuresincapitalism.com/ that I suggest you check out. Enjoy the second part of the interview!
Managing credit booms and busts - via Voxeu – The damage caused by the global crisis and fiscal crises in several developed countries has rejuvenated support for regulation and has reignited research interest. This column presents one recent proposal: A Pigouvian tax to help bring the amount of debt and capital held by the financial sector closer to the socially optimal level.
Consumer Prices Fall for a 20th Month in Japan - via NYT – Consumer prices in Japan fell 0.6 percent during the month of October, the government said Friday, marking the 20th straight month of declines as the country struggles to keep its economic recovery alive. Japan’s critical consumer price index, which excludes volatile fresh food prices, was down from the same month a year ago. News of the continued price declines in Japan came as the country’s Parliament held final debates over a new $61 billion stimulus package, which includes financial support for small businesses and spending to bolster regional economies. The extra budget for the stimulus was expected to be passed Friday evening.
Accounting for critical evidence while being precise and avoiding the strategy selection problem in a parallel constraint satisfaction approach: A reply to Marewski - via JDM – In Glöckner, Betsch and Schindler (2010) we observed predecisional information distortions (coherence shifts) in probabilistic inferences that indicate bidirectional reasoning. In response to Marewski’s (2010) critique, we explain why coherence shifts cannot be explained by currently specified fast and frugal heuristics (FFH). In contrast, parallel constraint satisfaction (PCS) models can easily account for such effects. We show that the PCS model used in the target paper is sufficiently well specified with respect to predicting the observed effects and demonstrate that it circumvents the problem of strategy selection by using a single-strategy approach. Taking a broader perspective, we argue that empirical and theoretical challenges to the FFH approach have become so substantial that a mere extension of the suggested toolbox might not sufficiently solve the problem. We suggest that further theoretical work in the field of judgment and decision making should be more responsive to well-established findings and insights from other fields of cognition such as memory and perception
Females Avoid Fathers When Fertile - via Sagepub- A commonplace observation in humans is that close genetic relatives tend to avoid one another as sexual partners. Despite the growing psychological research on how antierotic attitudes develop toward relatives, few studies have focused on actual behavior. One prediction, stemming from parental investment theory, is that women should be more vigilant of reproduction-compromising behaviors, such as inbreeding, during times of peak fertility than during times of low fertility. Indeed, females of other species avoid interactions with male kin when fertile—but the corollary behavior in humans has yet to be explored. Here we fill this gap. Using duration and frequency of cell-phone calls, an objective behavioral measure that reflects motivations to interact socially, we show that women selectively avoid interactions with their fathers during peak fertility. Avoidance specifically targeted fathers, which rules out alternative explanations. These data suggest that psychological mechanisms underlying mating psychology regulate sexual avoidance behaviors, and in women they fluctuate according to fertility status.
Effects of Adult Attachment and Emotional Distractors on Brain Mechanisms of Cognitive Control - via SagePub – Using data from 34 participants who completed an emotion-word Stroop task during functional magnetic resonance imaging, we examined the effects of adult attachment on neural activity associated with top-down cognitive control in the presence of emotional distractors. Individuals with lower levels of secure-base-script knowledge—reflected in an adult’s inability to generate narratives in which attachment-related threats are recognized, competent help is provided, and the problem is resolved—demonstrated more activity in prefrontal cortical regions associated with emotion regulation (e.g., right orbitofrontal cortex) and with top-down cognitive control (left dorsolateral prefrontal cortex, anterior cingulate cortex, and superior frontal gyrus). Less efficient performance and related increases in brain activity suggest that insecure attachment involves a vulnerability to distraction by attachment-relevant emotional information and that greater cognitive control is required to attend to task-relevant, nonemotional information. These results contribute to the understanding of mechanisms through which attachment-related experiences may influence developmental adaptation.