Weekly Roundup 107: A Curated Linkfest For The Smartest People On The Web
Handpicked to satisfy your intellectual curiosity!
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Must Read Articles!!
Video: 200 Countries & 200 Years in 4 Minutes, Presented by Hans Rosling – via Open Culture –
Paul Graham on Tablets – Via Paul Graham – I was thinking recently how inconvenient it was not to have a general term for iPhones, iPads, and the corresponding things running Android. The closest to a general term seems to be “mobile devices,” but that (a) applies to any mobile phone, and (b) doesn’t really capture what’s distinctive about the iPad. After a few seconds it struck me that what we’ll end up calling these things is tablets. The only reason we even consider calling them “mobile devices” is that the iPhone preceded the iPad. If the iPad had come first, we wouldn’t think of the iPhone as a phone; we’d think of it as a tablet small enough to hold up to your ear.
Napster, Winamp, & BitTorrent: The Men Who Stole the World – via Time- A decade ago, four young men changed the way the world works. They did this not with laws or guns or money but with software: they had radical, disruptive ideas, which they turned into code, which they released on the Internet for free. These four men, not one of whom finished college, laid the foundations for much of the digital-media environment we currently inhabit. Then, for all intents and purposes, they vanished.
Does Mr. Market Suffer from Bipolar Disorder? – via Journal of Behavioral Finance – Benjamin Graham, the father of value investing, argued that the stock market (which he coined “Mr. Market”) suffers from a mood disorder known as bipolar disorder (formerly called manic depression). Warren Buffet and John Maynard Keynes have also endorsed the idea that market psychology has an influential role to play in the stock market. According to Graham, the mood of Mr. Market is unstable and frequently oscillates between mania and depression. To engage a good understanding of mood disorders, the Diagnostic and Statistical Manual of Mental Disorders (DSM), published by the American Psychiatric Association, is consulted. Various versions of mood disorder are discussed. Based on observation, it is plausible that the stock market indeed suffers from bipolar disorder. The market mood model (MMM) is developed to model the dynamics of market mood. It is divided into six market phases, and each phase has its own set of market characteristics. There is a critical point for each phase and, once breached, the market moves on to the next phase. The application of the MMM utilizes three market bubbles as illustration: 1990 Japanese bubble, 2000 Internet bubble and 2007 subprime mortgage crisis. The final section examines the option of adopting a stable official interest rate policy to stabilize asset prices.
Making Right Choices: Art or Science? – via HBS – Decision-making, at its heart, involves a series of choices. Neuropsychologists tell us that the human brain can comfortably deal with only a limited number of alternatives (seven plus or minus two, according to a number of studies). Fields like decision theory were developed to help humans organize their thinking so that alternative actions could be arrayed according to their attractiveness, expressed in quantitative terms. Recently, brain-scan technology has enabled researchers to associate choice and decision-making with various parts of the brain. This may be why choice comes up frequently as a favorite subject of authors interested in explaining rational or irrational behavior. We have covered the topic in our previous discussions of Malcolm Gladwell’s Blink and Barry Schwartz’s The Paradox of Choice–which advises decision-makers to “choose when to choose; satisfice more and maximize less; make your decisions nonreversible; regret less; control expectations; and learn to love constraints in order to cope with uncertainty and avoid depression.”
Do You Want to Do Your Best, or Be the Best? – via Psych Science – People with “mastery goals” — like Steve Carell’s character Michael in the TV mockumentary, The Office — are individuals who want to improve themselves, striving to be the best they can be. People with “performance goals” — like The Office’s Dwight — are trying to outperform others: get a better grade than a friend, or be Employee of the Year, for example. Both kinds of goals can be useful in different contexts, but psychological scientists P. Marijn Poortvliet (Tilburg University) and Céline Darnon (France’s Clermont University), are less interested in how effective these goals are, and more interested in their social context — in other words, what impact having each goal has on your relationships.
Beyond C.S.I.: The Rise of Computational Forensics – via Ieee Spectrum – Pattern recognition and other computational methods can reduce the bias inherent in traditional criminal forensics
Behavioral biases and cognitive reflection – via In a large-scale laboratory experiment, we investigate whether subjects’ scores on the cognitive reflection test (CRT) are related to their susceptibility to the base rate fallacy, the conservatism bias, overconfidence, and the endowment effect.
Former Drug Smuggler Tells His Story – via Der Spiegel – The South American drug-smuggling business is becoming increasingly sophisticated as Colombian gangs use home-made submarines to get cocaine to Mexico. The crews have to put up with incredible heat, insanitary conditions and a lack of space. One former submersible captain told SPIEGEL about his experiences.
Using an Eye Tracker to Examine Behavioral Biases in Investment Tasks – via J of Behavioral Finance – Contrary to the premise of rational models, which suggests that investors’ aggregate portfolios are the appropriate informational asset for evaluating a file performance, we find, using an eye tracker, that investors spend more time looking at performances of an individual asset than at the performances of the overall aggregated portfolio and at the net value change more than the assets’ final value. We also find that investors look at the monetary value change longer than at change in percentages. Specifically, participants look longer at the value change of gaining assets than at the value change of losing assets. We propose the possibility that investors are not only engaged in judgment when evaluating their portfolio (leading to loss aversion and mental accounting) but may also be predisposed to looking for reassuring elements within it. Thus, it may be that humans use mental accounting by nature and not necessarily by judgment.
Narcissistic students don’t mind cheating their way to the top – via Eureka Alert – College students who exhibit narcissistic tendencies are more likely than fellow students to cheat on exams and assignments, a new study shows. The results suggested that narcissists were motivated to cheat because their academic performance functions as an opportunity to show off to others, and they didn’t feel particularly guilty about their actions. “Narcissists really want to be admired by others, and you look good in college if you’re getting good grades,” said Amy Brunell, lead author of the study and assistant professor of psychology at Ohio State University at Newark. “They also tend to feel less guilt, so they don’t mind cheating their way to the top.” Narcissism is a trait in which people are self-centered, exaggerate their talents and abilities and lack empathy for others, Brunell said. “Narcissists feel the need to maintain a positive self-image and they will sometimes set aside ethical concerns to get what they want.” The study appears online in the journal Personality and Individual Differences and will be published in an upcoming print edition.
Miguel’s Weekly Favorites:
Overeating, Like Drug Use, Rewards And Alters Brain – via Uveal Blues- If you’ve ever wondered why it’s hard to stay on a diet, consider this observation from Ralph DiLeone, a brain scientist at Yale University: “The motivation to take cocaine in the case of a drug addict is probably engaging similar circuits that the motivation to eat is in a hungry person.”
Supercomputers and the mystery of IQ – via Steve Hsu – Some of the world’s fastest supercomputers are being set up in Hong Kong to address the age-old mystery of human intelligence.
Intuitive Biases in Choice versus Estimation: Implications for the Wisdom of Crowds – via U Chicago – Although researchers have documented many instances of crowd wisdom, it is important to know whether some kinds of judgments may lead the crowd astray, whether crowds’ judgments improve with feedback over time, and whether crowds’ judgments can be improved by changing the way judgments are elicited. We investigated these questions in a sports gambling context (predictions against point spreads) believed to elicit crowd wisdom. In a season-long experiment, fans wagered over $20,000 on NFL football predictions. Contrary to the wisdom-of-crowds hypothesis, faulty intuitions led the crowd to predict “favorites” more than “underdogs” against point spreads that disadvantaged favorites, even when bettors knew that the spreads disadvantaged favorites. Moreover, the bias increased over time, a result consistent with attributions for success and failure that rewarded intuitive choosing. However, when the crowd predicted game outcomes by estimating point differentials rather than by predicting against point spreads, its predictions were unbiased and wiser.
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.
Peter Thiel Talks About Technology vs. the End-Times – via Paul Kedrosky – Peter Thiel is an internet entrepreneur and a libertarian. He wants to encourage free thinking and he thinks his business ventures demonstrate big ideas – PayPal, which he co-founded, created a way to make payments online. Facebook, which he took a big stake in, connected people around the world. Now he tells Mike Williams that his venture capital fund and philanthropy are aimed at encouraging the kind of technological innovation that the West needs to survive.
How Important Is an Apology to You? Forecasting Errors in Evaluating the Value of Apologies – via Sagepub – Apologies are commonly used to deal with transgressions in relationships. Results to date, however, indicate that the positive effects of apologies vary widely, and the match between people’s judgments of apologies and the true value of apologies has not been studied. Building on the affective and behavioral forecasting literature, we predicted that people would overestimate how much they value apologies in reality. Across three experimental studies, our results showed that after having been betrayed by another party (or after imagining this to be the case), people (a) rated the value of an apology much more highly when they imagined receiving an apology than when they actually received an apology and (b) displayed greater trusting behavior when they imagined receiving an apology than when they actually received an apology. These results suggest that people are prone to forecasting errors regarding the effectiveness of an apology and that they tend to overvalue the impact of receiving one.
Ten questions science must answer – via Big Picture – For 350 years, the Royal Society has called on the world’s biggest brains to unravel the mysteries of science. Its president, Martin Rees, considers today’s big issues, while leading thinkers describe the puzzles they would love to see solved.
Why Amazon Caved, and What It Means for the Rest of Us – via Columbia – Amazon Web Services dropped WikiLeaks material from its servers on Tuesday, a move that is widely assumed to be a direct response to pressure from the Senate Homeland Security Committee. A statement from Amazon disputed that, stating that they kicked WikiLeaks off for violating the terms of service: “For example, our terms of service state that ‘you represent and warrant that you own or otherwise control all of the rights to the content… that use of the content you supply does not violate this policy and will not cause injury to any person or entity.’”
The Treble Hook in Your To-Do List – via NeuroNarrative – If you’re into fishing, you know how important a treble hook can be to bringing in the big one. The concept is simple: instead of one hook, there are three. If one hook doesn’t gaff the prize, another one will.
Michael Eisner on Tech: Adapt or Die – via Paul Kedrosky – Typical mix of entertainingly smart/candid and tone-deaf in this Michael Eisner piece in the WSJ on technology and the future of media.
Do Japanese ATMs Price Discriminate? – via Freakonomics – In Japan, there is an extra charge of ¥100 (about $1.20) if you withdraw cash from an ATM evenings or weekends. One wise-guy friend suggested that perhaps this is to give the capital equipment the same overtime pay as received by workers. Seriously, though, the only possible cost-based justification for this price discrimination in ATM usage is that workers might have to make sure the machines don’t run out of cash at those times, and their labor requires overtime pay. But surely the same thing is true in the U.S. and Europe, and I don’t see this ATM surcharge there. A more likely explanation is demand-based price discrimination — the banks realize that people have fewer alternatives (no bank tellers available) at those times and price accordingly. Maybe — but the biggest cost to banks is tellers’ time, so I should think that they would do anything to encourage ATM usage, regardless of time of day or week.
Weather and the macroeconomy – Via Geary Behavior Center- Given the lousy weather and the lousy macroeconomy prevailing in Ireland it is natural to wonder do adverse weather shocks have an impact on economic activity? One’s intuition is that bad weather is bad for the economy though clearly there will be silver linings to the cloud for some, manufacturers and purveyors of galoshes for example.
Nuns gone wild – via Boston.com – Looking for music manuscripts, scholar Craig A. Monson uncovered surprising stories of what went on inside convents
What should you do after learning something that you need to remember? – via Bakadesuyo- These results support the notion that sleep immediately following acquisition, independent of time of day, promotes memory consolidation and that sleep deprivation may disrupt this process depending on the amount of sleep that is lost.
How to quickly and easily reduce regret: – Via Bakadesuyo- The findings suggest that across different comparison targets, making downward (relative to upward) social comparisons was consistently related to reduced regret intensity over time among older adults. Among young adults, making downward social comparisons with personally known others, as opposed to age peers, was associated with lower regret intensity.
How much does each vote cost a politician in campaign spending? – via Bakadesuyo- Our approach also implicitly delivers a novel method for estimating the impact of campaign spending on election outcomes: we find that an additional vote costs a politician on average 145 dollars.
Podcast: Kevin Kelly on EconTalk – via Value Investing World
How to be a grand strategist by not being a grand strategist – via Henry Lambert – Peter Taylor always insisted that he and Clough discussed tactics regularly, and had done since their days as players together at Middlesbrough. One of their great gifts was their ability to boil that down into simple instructions. They didn’t believe in drawing diagrams on blackboards, and they certainly didn’t, as Revie did, hand out dossiers on the opposition. “Telling them how to play took no time,” Taylor said in his autobiography.
Understanding the social butterfly effect – via PHys Org – A team of scientists from the University of Southampton, in collaboration with Royal Holloway, University of London and the Institute of Zoology at London Zoo, have been researching the social butterfly effect – the study of how we change our friends throughout our lives.
Contagious Cooperation – via Brain Blogger – Humans, and other animals, tend to cooperate with each other in a variety of social situations. Without working together toward a common goal, species as a whole would suffer and evolution may have been short-lived. In general, humans tend to be most cooperative and apt to help others when the costs are small to the donor, but the benefits are great to the recipient. Accordingly, this leads to a disconnect between what is best for the group and what is best for the individual. A survival-of-the-fittest mentality would assume that individual needs should prevail, since only the strong survive. However, new research asserts that human cooperation is contagious, with a likely evolutionary basis, and a pay-it-forward mentality spreads through social connections like a virus.
Female brain super sensitive to stress – via Futurity.org- Sex differences in the brain may explain why women are so sensitive to stress, and why they are more likely to suffer from stress-related diseases such as depression and post-traumatic stress disorder.
Damodaran – Are complex models the answer? – Via Musings on Markets – To those who believe that complex models with more variables are the answer to uncertainty, my response is a paper by Ed Lorenz in 1972, entitled Predictability: Does the flap of a butterfly’s wing in Brazil set off a tornado in Texas?, credited with creating an entire discipline: chaos theory. In the paper, Lorenz noted that very small changes in the initial conditions of a complex models created very large effects on the final forecasted values. Lorenz, a meteorologist, came to this recognition by accident. One day in 1961, Lorenz inputted a number into a weather prediction model; he entered 0.506 as the input instead of 0.506127, expecting little or no change in the output from the model. What he found instead was a dramatic shift in the output, giving rise to a Eureka moment and the butterfly effect. (One of my favorite books on the topic of Chaos is by James Gleick. It is an easy read and well worth the time.. for investors and economists)
Megalist of Distressed Debt Funds – via DDI – This week, I was sent a paper by Jongha Lim, a PHD student at Ohio State, entitled The Role of Activist Hedge Funds in Distressed Firms. In my opinion this is one of the best academic papers addressing distressed debt and distressed debt investing this year. I reached out to Jongha and we will be doing an interview with him in the coming weeks. Fascinating piece of work. With that said, Jongha compiled a list of all funds participating in distressed debt and he is allowing me to use his data here. And if you would like to add yourself or another name to the list, please email me.
John Cassidy – Unemployment Rate Hits 9.8 Per Cent – via Rational Irrationality – Today’s awful job figures crossed the wires just as I was mulling a post on how the Fed’s policy of pumping money into the bond market—a.k.a. quantitative easing—was showing signs of working. Over the past couple of weeks, a number of indicators have suggested that the economy is picking up a bit: purchases of cars and trucks have jumped significantly, retailers posted solid sales over Thanksgiving, and consumer confidence has rebounded. Even the bombed-out housing market—a direct beneficiary of Fed policy, which is largely aimed at keeping down mortgage rates—has shown signs of life: the number of home sales jumped last month. The U.S. economics team at Goldman Sachs, which has been one of the most pessimistic on Wall Street, just upgraded its forecast for G.D.P. growth in 2011 from 2.0 per cent to 2.7 per cent. That’s still not a great figure—after a recession, economies often expand at a rate of four or five per cent for a couple of years—but the upgrade was a signal that worries of a “double dip” recession were receding.
What’s So Funny About Tightwad’s Money? – via Miller McCune – One small rural bank’s humorous effort to expand succeeds fair and square, only to raise the eyebrows of the regulators tasked to oversee its health.
Managing Risk & Staying in the Game – via Information Arbitrage – The old investing adage “Cut losers short; let winners run” provides a valuable reminder of how to achieve superior returns, but misses one essential element: bet sizing. In venture investing there are really two key metrics: (1) mortality rate (batting average); and (2) average bet size of losers vs. winners. Assuming a common mortality rate, an investor will be more successful by having deployed less capital in losers and more capital in winners. This places a premium on risk analysis and discipline at every stage of the investment life cycle. Those who can face into painful but quick losses and double down on longer-term winners will be far more successful than those who defer pain and invest more capital in highly risky follow-on rounds, hoping that something good will happen to bail them out. Hope is generally a poor driver of investment returns, even if it feels better in the short run.
Managing Risk for JPMorgan, and Blindness – via Uveal Blues – As a trader at JPMorgan Chase in London, Ashish Goyal helps manage billions of dollars of the bank’s exposure to risks like foreign exchange fluctuations. In his spare time, he takes tango lessons, plays cricket and goes clubbing with friends. Mr. Goyal is also blind.
Companies are making profits faster than they are hiring workers– via Economist – AMERICA’S recession was cruel to capital and labour: both employment and profit margins collapsed. The recovery has been a different matter. Employment has barely grown and unemployment is near its peak, but profits are on a tear. Pre-tax profits were $1.7 trillion, annualised, in the third quarter, just topping their 2006 peak, though as a share of gross domestic income they remain short of a record.
“Safe Haven” Asset Bubbles Could Provoke Another Crisis – via Research Recap – Research by Joshua Aizenmann and other authors has shown that current account deficits tend to enhance the real (price-deflated) appreciation of residential housing markets with a lag of up to four years, and that the effects of an increase in the current account deficit on housing prices are greater than the effects of a fall in interest rates.
An Unlucky Feeling: Overconfidence & Noisy Feedback – via E Scholarship- How does overconfidence arise and how does it persist in the face of experience and feedback? In an experimental setting, we examine how individuals’ beliefs about their own performance on a quiz react to noisy, but unbiased feedback. In a control treatment, each participant expresses her beliefs about another participant’s performance, rather than her own. On average, they express accurate posteriors about others’ scores, but they overestimate their own score, believing themselves to have received ‘unlucky’ feedback. However, this driven by overconfident priors, as opposed to biased information processing. We also find that, while feedback improves estimates about the performance on which it is based, this learning does not translate into improved estimates of related performances. This suggests that people use performance feedback to update their beliefs about their ability differently than they do to update their beliefs about their performance, which may contribute to the persistence of overconfidence.
The ancestor effect: Thinking about our genetic origin enhances intellectual performance – via EJSP – The present research hypothesizes that thinking about one’s genetic origin (i.e. ancestors) provides people with a positive psychological resource that increases their intellectual performance. To test this line of reasoning, we manipulated whether participants thought about their ancestors or not (manipulation of ancestor salience), and measured their expected as well as actual intellectual performance in a variety of intelligence tasks. Four studies supported our assumptions: participants show higher expected (Study 1) and actual intellectual performance (Studies 2–4) when they are reminded about their ancestors. We also have initial evidence that this effect may be fuelled by increased levels of perceived control and promotion orientation. Theoretical and practical implications are discussed. It is certainly desirable to be well descended, but the glory belongs to our ancestors. (Plutarch 46–120 AD)
Donating to disaster victims: Responses to natural and humanly caused events – via EJSP – The effect of the cause of a disaster, i.e. whether it was perceived to be caused by human or natural factors, on willingness to donate money to disaster victims was examined. In Study 1 (N = 76), the cause of a fictitious disaster was experimentally varied. In Study 2 (N = 219), participants were asked about their views regarding donations to two real-life disasters, one of which was perceived to be naturally caused while the other one was perceived to be caused by humans. In Study 3 (N = 115), the cause of a fictitious disaster was experimentally varied, but this time measures of the proposed psychological mediators of the effect on donations were included, namely perceived victim blame and the extent to which victims were thought to make an effort to help themselves. A measure of real donation behaviour was also added. In Study 4 (N = 196), the proposed psychological mediators were manipulated directly, and the effect of this on donations was monitored. Across all studies, more donations were elicited by naturally caused rather than humanly caused disasters. This difference was driven by a perception that the victims of natural disasters are to be blamed less for their plight, and that they make more of an effort to help themselves. Implications for theory and practice are discussed.
Joint measurement of risk aversion, prudence and temperance – via Bonn Econ
Risk Capital as Commons – Distributive and Networked Governance – via Managemnet Exchange – Create more freedom to innovate and greater accountability by distributing the responsibility to manage risk capital as a “commons” throughout small groups within an organization that are networked to each other. This addresses some of the key communication and risk-appetite issues in managing a complex organization.