Handpicked to satisfy your intellectual curiosity!
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–Via Investment Banker Jokes–
The economy is so bad that…
I got a pre-declined credit card in the mail.
I ordered a burger at McDonald’s, and the kid behind the counter asked, “Can you afford fries with that?”
CEOs are now playing miniature golf.
If the bank returns your check marked “Insufficient Funds,” you have to call them and ask if they mean you or them.
Hot Wheels and Matchbox stocks are trading higher than GM.
Parents in Beverly Hills and Malibu are firing their nannies and learning their children’s names.
A truckload of Americans were caught sneaking into Mexico.
Motel Six won’t leave the light on anymore.
The Mafia is laying off judges.
BP Oil laid off 25 congressmen.
Congress says they are looking into the Bernard Madoff scandal. Oh great! The guy who made $50 billion disappear is being investigated by the people who made $1.5 trillion disappear!
Podcast/ Lecture: Prof Paul Slovic – ‘The Feeling of Risk’ – via Institute of Risk & Hazard – We were delighted to have Prof Paul Slovic give a seminar in IHRR as well as a public lecture at Durham University. Below is an audio recording of Paul’s seminar ‘The Feeling of Risk: New Directions in Risk Perception’. A video of Paul’s public lecture will be available on IHRR’s website and posted on this blog in the near future. For those who are unfamiliar with Paul Slovic’s research, this seminar gives a good introduction to his work in human judgment and how people perceive risk.
Atul Gawande: Cowboys and Pit Crews: Commencement Speech @ Harvard – via New Yorker – We are at a cusp point in medical generations. The doctors of former generations lament what medicine has become. If they could start over, the surveys tell us, they wouldn’t choose the profession today. They recall a simpler past without insurance-company hassles, government regulations, malpractice litigation, not to mention nurses and doctors bearing tattoos and talking of wanting “balance” in their lives. These are not the cause of their unease, however. They are symptoms of a deeper condition—which is the reality that medicine’s complexity has exceeded our individual capabilities as doctors.
Why Are Spy Researchers Building a ‘Metaphor Program’? - via Atlantic- A small research arm of the U.S. government’s intelligence establishment wants to understand how speakers of Farsi, Russian, English, and Spanish see the world by building software that automatically evaluates their use of metaphors.
Little Bets: A New Theory of Creativity and Innovation - via Brain Pickings- The seed of this book was planted while I was attending Stanford Business School. One of the most common things I would hear people say was that they would do something new — take an unconventional career path or start a company — but that they needed a great idea first. I had worked before then as a venture capital investor, and in that work, I had learned that most successful entrepreneurs don’t begin with brilliant ideas — they discover them.” ~ Peter Sims
Entrepreneurship/ Finance/ Investing:
Absolute Must Watch: Office Hours With Paul Graham At TC Disrupt - via Tech Crunch – Today we tried something new at TechCrunch Disrupt: a special, on-stage office hour with Y Combinator cofounder Paul Graham. The goal was to reproduce the sessions that Graham and other YC partners hold with each of the startups who participate in Y Combinator — except the startups at Disrupt were getting sage advice in front of a few thousand people. And boy, was it awesome.
Gold: The 4,000 Year Old Bubble - via Mr. Market Blog – NPR’s Planet Money had a great episode recently about bubbles where they referenced work by Arlington Williams. Williams actually gave students the intrinsic value of the single stock they were trading, called them insane, and posted what the price should be on the wall. The result? The price sky rocketed even further from intrinsic value.
The MIT factor: celebrating 150 years of maverick genius - via The Guardian – The Massachusetts Institute of Technology has led the world into the future for 150 years with scientific innovations. Its brainwaves keep the US a superpower. But what makes the university such a fertile ground for brilliant ideas?
Jason Zweig: 1930s Lessons: Brother, Can You Spare a Stock? – via WSJ- So many readers have emailed me to warn that we are going into another Great Depression that I decided to find out which companies and sectors did best after the Crash of 1929. With the Standard & Poor’s 500-stock index down 39% last year and another 8.5% this year, it can’t hurt to learn what separated the winners from the losers back then.
Visualizing Keynesian & Monetarist recessions - via Interfluidity- So this will be an unusual post, more picture book than essay. Plus, it’s interactive! If you are willing to install the Mathematica plug-in, you can be the central banker / fiscal authority of your very own graphical economy!
How “Magic” is the Magic Formula? - via Empirical Finance – Explore the use of quality/cheapness factors for long-only investment systems, but be prepared for a very volatile ride.
Investigators Eye the Wall Street Mortgage Machine - via CJR – After years of going nowhere, the investigation of the Wall Street securitization machine behind the financial crisis is finally showing some promise, with probes in New York and California ramping up and even the federales getting into the act. The Department of Justice preparing to hit Goldman Sachs with subpoenas, The Wall Street Journal reported on Friday.
Bloomberg Digs on Secret Money:A report on unreported election spending - via CJR- A tip of the hat to Bloomberg for a recent quadruple-bylined story on the growing role of outside spending—much of it anonymous dollars—in federal elections. Noting that the “restocking of the outside-money war chests for the presidential election has already begun,” (not to mention the opening of new war chests) Bloomberg looks back at how some such money flowed in 2010, including these “secretive groups’ strategy, their willingness to cooperate with one another on tactics and their spending on close races in the final days of the 2010 campaigns.”
Bloomberg Ferrets Out New Details on the Fed’s Bailouts - via CJR- Bloomberg gets a scoop this morning on details of an $80 billion Federal Reserve lending program that flew under the radar.
Do banks learn from crises? – via Voxeu- Crises are a regular event in financial markets. But do banks that have been hit particularly hard in one crisis learn from the experience and suffer less in future crises? This column suggests not. It shows that banks particularly hard hit by the 1998 financial crisis were also badly affected by the recent financial crisis. It blames the high-risk business models on which these banks rely.
What Do Financial Economists Have to Say About “Value”? - via Columbia- Contrary to a widespread belief among practitioners of value investing, value has been the focus of much academic finance research for at least three decades. The literature on the value premium — a term researchers use to mean something very precise, but that is closely related to practitioners’ notion of value — is simply staggering. On the practitioner side, value investing stretches back to 1934, when Columbia Business School professors Benjamin Graham and David Dodd ’21 published the first edition of their magnum opus, Security Analysis. Practitioners of value investing thus have a considerable head start over academics. But this does not mean that academic research is of no use to practitioners, if only because academics have a habit of working a topic to death and, in the process, uncovering otherwise unknown regularities in the data.
Bruce Greenwald: Value Investing’s Long Run - via Columbia – The finance discipline is in the process of a halting transition. The efficient markets/modern portfolio theory is giving way to broader perspectives that incorporate the realities of information asymmetry — the fact that all market participants do not have the same access to relevant information — and deeply ingrained behavioral biases that often dominate actual financial market outcomes. At the leading business schools these latter approaches are now firmly established even though in the finance profession at large they remain relatively unfamiliar.
All Revenue is Not Created Equal: The Keys to the 10X Revenue Club - via Above the Crowd- With the IPO market now blown wide-open, and the media completely infatuated with frothy trades in the bubbly late stage private market, it is common to see articles that reference both “valuation” and “revenue” and suggest that there is a correlation between the two. Calculating or qualifying potential valuation using the simplistic and crude tool of a revenue multiple (also known as the price/revenue or price/sales ratio) was quite trendy back during the Internet bubble of the late 1990s. Perhaps it is not peculiar that our good friend the price/revenue ratio is back in vogue. But investors and analysts beware; this is a remarkably dangerous technique, because all revenues are not created equal.
Decision Making/ Psychology/ Risk:
Terror risk in US airplanes vs threat to public health?- via Institute of Hazard & Risk – While loss of cabin pressure itself seems a rarity nowadays, this recent regulation shows that risks posed by terrorism can transform how we view other risks, such as health. And while releasing information about eliminating this security risk definitely seems reasonable, will other airlines outside the US have to follow suit since the risk has been made available publicly? Where do the boundaries lie between security, risk and national law? When does making something secure create new risks while preventing others? Obviously, preventing the possibility of terrorist attacks through various means has priority, as these risks can lead to disasters resulting in the loss of many lives and tremendous damage.
The Science of Compassion - via There Are Free Lunches- When people are less focused on self and the problems of the self, there is a kind of alleviation of stress. There’s nothing like reaching out and contributing to the lives of others to give a person, first of all a sense of significance and purpose. The idea of the helper’s high has been around since the early 1990’s. Allen Lukes, a psychologist, had individuals going out and helping others in various ways, at low thresholds, a couple of hours of activity at a soup kitchen or helping down the block or whatever it might be. And about half of the individuals, and this is a kind of half full/half empty paradigm, reported a feeling of elation; a kind of emotional buoyancy, if you will. Forty-three percent reported a sense of warmth and tranquility. Certainly many of them reported a sense of significance and meaning in life. And interestingly, even 13 percent said they felt an alleviation of chronic aches and pains.
The Learning Brain Gets Bigger-Then Smaller - via SciAm- With age and enough experience, we all become connoisseurs of a sort. After years of hearing a favorite song, you might notice a subtle effect that’s lost on greener ears. Perhaps you’re a keen judge of character after a long stint working in sales. Or maybe you’re one of the supremely practiced few who tastes his money’s worth in a wine
The cost of collaboration – via Cognition & Culture- Existing research asserts that specific group characteristics cause members to disregard outside information which leads to diminished performance. In the present study we demonstrate that the very process of making a judgment collaboratively rather than individually contributes to such myopic disregard of external viewpoints. Dyad members exposed to the numerical judgments made by another dyad gave significantly less weight to those judgments than did individuals exposed to the judgments of another individual. The difference in the willingness to use peer input shown by individuals versus dyads was fully mediated by the greater confidence that the dyad members reported in the accuracy of their estimates. Consequently, although dyad members made more accurate initial estimates than individuals, they were less able to benefit from peer input.
Why positive fantasies make your dreams less likely to come true - via BPS Research- Finally, Kappes and Oettingen highlighted the role of context, showing that positive fantasies about a pressing need are particularly de-energising. This elaborate study involved asking student participants to refrain from food and water for several hours, and then having some of them eat crackers (ostensibly as part of a taste test). For these super-thirsty participants it was a positive fantasy about a tall glass of icy water, not a fantasy about exam success, that led them to be de-energised (as indicated by a drop in blood pressure). For participants allowed to have a glass of water, by contrast, it was positive fantasies about exam success, not water, that led to them being de-energised.
Ads Implant False Memories - via Wired- A new study, published in The Journal of Consumer Research, helps explain both the success of this marketing strategy and my flawed nostalgia for Coke. It turns out that vivid commercials are incredibly good at tricking the hippocampus (a center of long-term memory in the brain) into believing that the scene we just watched on television actually happened. And it happened to us.
Paulo Coelho on The Fear of Failure – via Open Culture- I’m never paralyzed by my fear of failure… I say “Ok, I’m doing my best… ” And, from the moment that I can say that I’m doing my best … I sit down, I breathe, and I say “I put all of my love into it, I did it with all my heart.” … And whether they like [the book] or not is irrelevant, because I like it. I’m committed to the thing that I did. And so far nobody has criticized or refused it. When you put love and enthusiasm into your work, even if people don’t see it, they know it’s there, that you did this with all of your body and soul, so that is what I encourage you to do.
Being Frugal May Be More Genetic Than Learned - via Miller McCune- If cheapskates are born and are not entirely the product of learned behavior, as a growing body of research suggests, policies to promote frugal living may do little good.
Profit From Self Knowledge- via PsyFI Blog- t’s easy to talk about the fundamental errors people make in investment but, in truth, we rarely get to see this in action. To judge from the terabytes of trading derring-do published daily you’d be hard pressed to find anyone who actually loses money on the stockmarket. Most people seem to adopt the attitude that, if these behavioral biases make a difference, it’s to other people and never themselves. And often, they believe their own rhetoric.
Peer Effect, Risk-Pooling and Status Seeking: Which Matters to Gift Spending Escalation in Rural China? - via AgEcon- It has been widely recognized that the poor spends a significant proportion of their income on social spending even at the expense of basic nutrition. What are the motives behind the observed lavish social spending among the poor? We attempt to test three competing explanations, risk-pooling, peer effect, and status concern, via a uniform framework based on a unique primary dataset. The data set include household information from a three-wave census-type household survey as well as detailed gift record for all households in three villages in a poor region in rural China. We find peer effect and intense status seeking matter to the observed patterns of social spending, in particular among the low tail of the community, while risking pooling is not a significant explanatory factor. Specifically, a 100% increase in peers’ gift per occasion raises own spending by 20%. Large income windfall and marriage market squeeze further intensify status competition, escalating gift giving behavior.
How to Think Your Way out of a Bad Marriage - via BigThink- In a particularly incisive column published earlier this year, New York Times columnist David Brooks surveyed some of the best ideas put forward in an Edge.org symposium that asked 164 contributors the question “What scientific concept would improve everybody’s cognitive toolkit?” Among the many fruitful contributions Brooks highlighted, one point in particular captured his attention: “Public life would be vastly improved if people relied more on the concept of emergence,” he wrote.
Your beliefs taste terrible – via Boston.com -Blasphemy has been a serious offense throughout history, and a new study helps us understand why, at least psychologically. Students who identified themselves as believing Christians were asked to taste two ostensibly different — though actually identical — lemon-water drinks. In between tasting the two drinks, participants were randomly assigned to hand-copy a passage from the Koran, the atheist book “The God Delusion,” or the preface to a dictionary. The drink was rated significantly more disgusting — but not more bitter, sour, or sweet — after copying the Koran and atheist passages. In another experiment, allowing participants to use a hand wipe after copying passages nullified the perception of disgust and made the drink less bitter. The researchers did not test atheists or members of other religions.
When We’re Cowed by the Crowd – via WSJ- America depends upon the wisdom of crowds. When voting, we rely on the masses to pick the best politicians. When investing in stocks, we assume that, over time, people will gravitate toward the best companies. Even our culture is increasingly driven by the collective: Just look at “American Idol.”
The Psychology of Dictatorship: Why Gaddafi Clings to Power - via Time- Any attempt to diagnose a defining psychological feature of dictatorship would be facile. But in the public record available on many of them — Stalin and Mao, Saddam Hussein and Gaddafi himself — one can begin to see patterns that shape a dictatorial personality. At least since the Office of Strategic Services (now known as the Central Intelligence Agency) commissioned a secret profile called “A Psychological Analysis of Adolf Hitler,” which was issued in 1943, psychologists have sought an explanation for the authoritarian mind. New research has brought us closer than ever to understanding how leaders become despots.
Lottery probability update - via Statistical Modeling & Social Sciences- It was reported last year that the national lottery of Israel featured the exact same 6 numbers (out of 45) twice in the same month, and statistics professor Isaac Meilijson of Tel Aviv University was quoted as saying that “the incident of six numbers repeating themselves within a month is an event of once in 10,000 years.”
Predicting the conscious experience of other people - via Deric Bownds- Our findings indicate that certain neural mechanisms universally covary with the contents of visual consciousness, and mark a potentially important step in the design of devices for decoding the contents of consciousness in individuals unable to report their experience behaviorally.
Eggs, Butter, Milk – Memory Is Not Just A Shopping List! - via APS- Often, the goal of science is to show that things are not what they seem to be. But now, in an article which will be published in an upcoming issue of Perspectives on Psychological Science, a journal of the Association for Psychological Science, a veteran cognitive psychologist exhorts his colleagues in memory research to consult the truth of their own experience.
Videos: Introduction to Social Psychology and Social Cognition - via Situationist-
Faculty Books Explore Pricing, Decision Making - via Stanford- Recent books by faculty at the Stanford Graduate School of Business include the selected works of Nobel laureate William Sharpe, a look at communication across academic disciplines by Myra Strober, and two books on human “bounded rationality” in politics by Jonathan Bendor. A book on corporate governance is due out soon by David Larcker.
The Psychology of Fair Play - via Video Game Psychology- I thought these were interesting questions, and psychology does have some things to say about them. Fairness is a judgment, and we know that judgments can be radically different depending on how the situation is framed or presented. Unfortunately while the question is interesting (I think) I didn’t have a chance in this article to really reach out game designers, academics, or other experts on the topic, so I think the article suffers a bit because of it. But still, I love the artwork and layout that goes along with this one. It’s a nice example of what print magazines still do that web usually doesn’t.
Video: The Brain & The Law- via Channel N- An overview of neuroethics and neurolaw that covers a lot of ground, from Phineas Gage to comas. Ways that the brain controls behaviour, issues of responsibility and accountability in the legal system, decision making, recidivism and rehabilitation, predicting violence, the hype and reality of fMRI lie detectors and the implicit association test (IAT), and more.
The Economic Part of Our Brains – via Freakonomics- Researchers at the University of Pennsylvania have conclusively identified a part of the brain that’s necessary for making everyday decisions about value. Previous magnetic imaging studies suggested that the ventromedial frontal cortex, or VMF, plays an evaluative role during decision-making. New research led by Joseph Kable, an assistant professor of psychology in Penn’s School of Arts and Sciences, shows that people with damaged VMF’s (victims of strokes, aneurysms, or brain tumors) are less able to choose things that are most valuable, and are also less consistent in their choices. The results were published in The Journal of Neuroscience.
Biased Perceptions of Income Distribution and Preferences for Redistribution – via IZA- Individual perceptions of income distribution play a vital role in political economy and public finance models, yet there is little evidence regarding their origins or accuracy. This study examines how individuals form these perceptions and posits that systematic biases arise from the extrapolation of information extracted from reference groups. A tailored household survey provides original evidence on the significant biases in individuals’ evaluations of their own relative position in the distribution. Furthermore, the data supports the hypothesis that the selection process into the reference groups is the source of those biases. Finally, this study also assesses the practical relevance of these biases by examining their impact on attitudes towards redistributive policies. An experimental design incorporated into the survey provides consistent information on the own ranking within the income distribution to a randomly selected group of respondents. Confronting agents’ biased perceptions with this information has a significant effect on their stated preferences for redistribution. Those who had overestimated their relative position and thought of themselves relatively richer than they were demand higher levels of redistribution when informed of their true ranking. This relationship between biased perceptions and political attitudes provides an alternative explanation for the relatively low degree of redistribution observed in modern democracies.
The Eclectic Mix:
This American Life: On Infidelity - via American Radio- Stories of cheating, cheaters and the cheated. Writer James Braly with a story about temptation (performed and recorded at The Moth), Dani Shapiro on being the mistress, and more.
Will PayPal Billionaire Peter Thiel’s Team of College Dropouts Change Learning? - via GOod- In April, Peter Thiel, one of the co-founders of PayPal and the first major investor in Facebook, announced “20 Under 20,” his experiment that will pay students from some of the nation’s most elite colleges $100,000 each to drop out and start companies. Thiel’s views on college degrees are pretty controversial—he believes they’re unnecessary for talented, entrepreneurially-minded students. After sifting through 400 applications, Thiel announced his inaugural class of fellowship recipients and their projects on Wednesday.
How To Fix Science - via Neuroskeptic- Over at Bad Science, Ben Goldacre discusses a big problem with modern science – the published literature is all very well and good, but we don’t know what people are finding that goes unpublished:
Why Lying Matters- via Zocalo- Perjury, journalist James B. Stewart likes to remind people, used to be punishable by having one’s tongue cut out or hanging by one’s ears in the pillory. These days, perjury in the United States is punishable by, at most, five years in prison. And perhaps unsurprisingly, the number of people willing to lie under oath has increased dramatically.
Naomi Klein on how corporate branding has taken over America - via The Guardian- Ten years after the publication of No Logo, Naomi Klein switches her attention from the mall to Barack Obama and discovers that corporate culture has taken over the US government
Is the workplace contributing to higher obesity rates? – via Stats Blog – A new study finds that rising obesity rates in the United States may be associated with less physical activity in the workplace. The study used statistics from the U.S. Bureau of Labor Statistics to evaluate energy expenditure in private industry from the early 1960s to the present.
Grouponomics, and the power of counterfactual thinking – via Junk Charts- Felix Salmon wrote thousands of words to convince himself that Groupon has a viable business model. I have a lot of respect for Felix and love his blog, but he missed a key issue here. Maybe he drank the Koolaid, or perhaps I am an even bigger skeptic than Felix is. I don’t have a rebuttal as much as an alternative narrative.
The Evolution of Entrepreneurial Skill – via Organization & Markets- This research suggests that a Darwinian evolution of entrepreneurial spirit played a significant role in the process of economic development and the dynamics of inequality within and across societies. The study argues that entrepreneurial spirit evolved non-monotonically in the course of human history. In early stages of development, risk-tolerant, growth promoting traits generated an evolutionary advantage and their increased representation accelerated the pace of technological progress and the process of economic development. In mature stages of development, however, risk-averse traits gained an evolutionary advantage, diminishing the growth potential of advanced economies and contributing to convergence in economic growth across countries.
Video- Ted Talk: Visualizing humanity - An interface can be a powerful narrative device, and as we collect more personally and socially relevant data, we have an opportunity and maybe even an obligation to maintain a humanity and tell some amazing stories as we explore and collaborate together.
Why you shouldn’t eat farmed fish – a graphical explanation – via Flowing Data & Nigel Upchurch -
Geography of Hate - via Flowing Data-
Microsofts Acquisitions as Subway Map – via Cool Infographics
USA Education vs The World - via Cool Infographics
Documentary: J is for Junkie - via Neuroanthropoogy- J is for Junkie comes as a hard-hitting and beautifully shot documentary on crack and being homeless. Filmed in “The Living Room” in Atlanta, a small cove tucked in behind a Texaco gas station, the documentary captures African-American men and women opening up to Corey Davis, a young filmmaker with an artistic flare and an anthropologist’s care for documenting lived reality.