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Via New Yorker
Most Important Reads:
The Truth About “Class War” in America - via Truthout- Republicans and conservatives have done us a service by describing federal policies in terms of “class war.” But by applying the term only to Obama’s latest proposals to raise taxes on the rich, they have it all backward and upside down. The last 50 years have indeed seen continuous class warfare in and over federal economic policies. But it was a war waged chiefly by business and conservatives. They won, as we show below, and the mass of middle-income and poor Americans lost. Obama’s modest proposal for tax increases on the rich does not begin a class war. On the contrary, it is a small, modest effort to reduce the other side’s class war victories.
What’s the Best Way to Measure Poverty: Income or Consumption? – via Freakonomics- But income is just one way to measure poverty, and a particularly tricky (and narrow) way at that – so says Notre Dame economist and National Poverty Center research affiliate, James Sullivan, who believes that to measure poverty strictly by income fails to accurately reflect people’s true economic circumstances. Income alone ignores the effects of things like the Earned Income Tax Credit, Medicaid, food stamps, and housing subsidies. From a Notre Dame press release on Sullivan’s recent poverty research:
Income Inequality Produces Indebtedness and Global Imbalances – via Naked Capitalism- The IMF has a passel of articles up on income inequality. “Unequal = Indebted,” by Michael Kumhof and Romain Rancière, focused on macroeconomic effects. It stars with the observation that countries showing a significant increase of income inequality (defined as the share going to the top 5%) have deteriorating current accounts (note these are all advanced economies; they discuss the glaring exception of China later in the article).
Mark Cuban on Reality of Taxes & The Rich: – via Blog Maverick- There is an ongoing refrain from some that any increase in Taxes will have a negative impact on investment and job creation. Not true in 99.99pct of cases. Never has been. Never will be. First the .01% times where it may be true. Potentially, a person could have some amount of money less than what they need to start a company because they paid say 1k dollars more in taxes this year than they did last year. This could happen and I’m sure it has happened. but its the exception that proves the rule. Now the rule… People driven to succeed are driven to succeed. People driven by money are driven by money. People driven to compete, compete. We live in a country that puts an emphasis on achievement. Not just financial achievement. The ability to set goals and achieve them. We celebrate and reward those that accomplish their goals. It is part of the very fabric of what makes this country so amazingly unique. Those of us who are driven by money have a number that we strive for. People like me. (If you want to learn more about people like me, read this). We want to be a millionaire. Once we become a millionaire, some of us want more. Some of us don’t. But once you hit the first number you begin to make decisions in your life about how you might get to the next number or just use what you have to make your life (and possibly the life of others) better.
Poverty In America: A Special Report – via ZeroHedge- America is getting poorer. The U.S. government has just released a bunch of new statistics about poverty in America, and once again this year the news is not good. According to a special report from the U.S. Census Bureau, 46.2 million Americans are now living in poverty. The number of those living in poverty in America has grown by 2.6 million in just the last 12 months, and that is the largest increase that we have ever seen since the U.S. government began calculating poverty figures back in 1959.
What has happened to the labor market in the Great Recession? – via Yale QN- With 14 million people out of work in the U.S., labor markets are receiving a lot of attention. Yale SOM’s Lisa Kahn did groundbreaking work on the impact of graduating into a bad economy. She offers her take on what’s happening now and what to expect.
The Very Important and of Course Blacklisted BIS Paper About the Crisis - via Naked Capitalism – Why would that be? One might surmise that this is a case of censorship. Borio has been a long-standing critic of the Greenspan and later Bernanke thesis that central banks should ignore asset and credit bubbles if prices are stable. He and William White went public (as public as you can go in the BIS) in 2003 with their contention that an international housing bubble was underway and action was warranted. Greenspan and virtually all other right-thinking economists ignored the bubble and other signs of trouble (like a sustained near zero consumer savings rate in the US) and drank the Great Moderation Kool-Aid instead.
Harry Markopolos: How to Spot a Fraud - via Bloomberg- It’s easy. It’s like whack-a-mole. Focus on the manager or the company that is head and shoulders above the rest. Whenever somebody has outstanding performance, Wall Street assumes genius. I assume fraud until genius is proven. Look for the outperformance and investigate there. Compare a money manager’s record vs. others using a similar strategy, or a company’s record against others in the same asset class. If the numbers are too good to be true, they rarely are. A decade ago, there was one energy company head and shoulders above all the others. That was Enron. There was also an insurance company above the rest. That was American International Group. In telecommunications, there was one company above all others. That was WorldCom. They were all accounting frauds.
The Evolution of Cooperation Edge Master Class 2011 – via Edge.Org- I’m a mathematical biologist. What is a mathematical biologist? A mathematical biologist is best described by the following story: There’s a shepherd and a flock of sheep. A man comes by and says, “If I guess the correct number of sheep in your flock, can I have one?” The shepherd says, “All right, try.” So the man looks and says, “Eighty-three.” And the shepherd is completely amazed because it’s right. So the man picks up a sheep and starts to walk away and the shepherd says, “Hang on, if I guess your profession, can I have my sheep back?” And he says, “Please, try.” “You must be a mathematical biologist.” “How did you know?” “Because you picked up my dog.” If you really think about it, the important essence of our field is to get the numbers right.
Steven Pinker On The Disappearance of Violence – via Seth’s Posterous- We believe our world is riddled with terror and war, but we may be living in the most peaceable era in human existence. Why brutality is declining and empathy is on the rise.
How do we get rid of our bad habits? - via Bakadesuyo- the thing I find helps most people is to understand that you can’t refrain from doing something you like. You can, however, change the person you are into the kind of person who doesn’t even like that stuff. Sugar Smacks still taste the same as they did under Carter, but I don’t know anybody who still eats them. Do the same for soda. In medical school a lot of the guys (who went into ortho) went to the gym and would discuss with euphoria how much canned tuna they ate. “There’s 15g of protein and zero fat!” they’d whisper to each other, and they’d sooner eat salamander eyes than lick a Dorito. That was the kind of guys they were. This may not be a reassuring solution to some, but I can promise you that it is the only solution: you have to decide you’re not the kind of person who wastes time on that. Condemning it, banning it, hiding from it– all will lead to failure.
Michael Shermer on Liberty and Science - via Cato- Such stereotypes are so annealed into our culture that everyone understands them enough for comedians and commentators to exploit them. And like many stereotypes, both of them have an element of truth. Here, it is an emphasis on differing moral values, especially those we derive intuitively. In fact, research now overwhelmingly demonstrates that most of our moral decisions are grounded in automatic moral feelings rather than deliberatively rational calculations. We do not reason our way to a moral decision by carefully weighing the evidence for and against; instead, we make intuitive leaps to moral decisions and then after the fact we rationalize our snap decisions with rational reasons. Our moral intuitions—reflected in such conservative-liberal stereotypes—are more emotional than rational. As with most of our beliefs about most things in life, our political beliefs come first, the rationalization of those political beliefs comes second. I suppose this is one reason why I am a libertarian.
The Milo Criterion & Startups - via Ribbon Farm – There is a saying that goes back to Milo of Croton: lift a calf everyday and when you grow up, you can lift a cow. The story goes that Milo, a famous wrestler in ancient Greece, gained his immense strength by lifting a newborn calf one day when he was a boy, and then lifting it every day as it grew. In a few years, he was able to lift the grown cow. The calf grew into a cow at about the rate that Milo grew into a man. A rather freakish man apparently, since grown cows can weigh over 1000 lb. The point is, the calf grew old along with the boy.
Decision Making/ Behavioral Economics/Psychology/ Risk/ Sciences:
Why being relaxed makes us spend too much money -via Wired- The typical casino is an intentionally unpleasant place. The ceiling is low and the sight lines are hidden, producing a claustrophobic effect. The lights are dim and the air is filled with the clatter of randomness, as slot machines spit out coins and sound effects. The floor is a labyrinth of drunk gamblers and card tables, making it all but impossible to navigate. (There are also no clocks, so people have no idea what time it is.)
More Information Cuts Confidence - via Overcoming Bias- Since things with fewer details are seen more in far mode, and since in far mode we are more confident in our theories, we should expect people to be more confident in their classifications of things that have fewer details, and so have a smaller fraction of things left as hard to explain. I’d like to see this tested elsewhere, such as planes seen near or far, or crimes known in little or much detail.
More Winning Hands in Poker = Less Money – via Random Acts of Kurtosis – he most interesting finding in article is that the more hands you win the less money you collect. The likely reason, said Cornell sociology doctoral student Kyle Siler, whose study analyzed 27 million online poker hands, is that the multiple wins are likely for small stakes, and the more you play, the more likely you will eventually be walloped by occasional but significant losses.
The Effects of Sleep Debt on Risk Perception, Risk Attraction and Betting Behavior During a Blackjack Style Gambling Task – via SpringerLink- Gamblers often gamble while experiencing fatigue due to sleep deprivation or cumulative sleep debt. Such fatigue has been shown to make decision makers behave more riskily. The present study aimed to test the role of two cognitive processes, risk perception and risk attraction, in this effect. Two hundred and two participants played twelve hands of a black-jack style card game while either fatigued or reasonably alert. Findings showed that both fatigued and alert participants rated higher risk bets as more risky than lower risk bets, suggesting risk perception was unaffected by fatigue. However, fatigued participants did not rate higher risk bets as less attractive than lower risk bets, and reduced the size of their wager to a lesser extent when objective risk increased. These findings are discussed in relation to the effects of fatigue on motivated tasks and the need for gamblers to be aware of the effects of fatigue.
Being In the “No”: Questions Influence What We Remember - via APS- Hoffman concludes that perhaps everything we see makes its way into our memory, such as billboard ads when driving by or perimeter signage at sport arenas, but we need to know how to ask, and we need to carefully listen to the answer: “I don’t think I remember” does not mean “I remember not!
The Effect of Future Positive Emotions on Consumption – via Jstor- Although positive affect may enhance self-control, some research suggests that this is not always the case. To clarify this relationship, we investigate the role of temporal focus on the effect of specific positive emotions on self-control dilemmas in snack consumption. In four studies, we demonstrate that participants experiencing a future-focused positive emotion (i.e., hopefulness) consume less unhealthy food and have lower preferences for unhealthy snacks than those in a past- or present-focused emotional state (i.e., pride, happiness). We demonstrate the role of temporal focus through its natural occurrence in emotion-induction essays (study 1), chronic temporal focus (study 2), and manipulation of anticipated versus retrospective emotional states (study 3). A fourth study demonstrates that self-control benefits do not arise from future-focused negative emotions (i.e., fear) as they do from future-focused positive emotions. These results suggest that consumers may benefit from adapting the temporal focus of positive emotions to the future.
How can you make others more likely to agree with your choices? - via Bakadesuyo- We focus on an advantage accruing to a policy from just calling it status quo, which is that the mere label makes it look better. When comparing pros and cons of competing policies, labeling one status quo sets it up as the reference point with respect to which pros and cons are potentially either losses or gains. Since “losses loom larger than gains,” pros one has weigh more than pros one does not, while the reverse holds for cons, thereby tilting the overall balance of pros and cons in favor of the policy designated as status quo. Direct evidence for this account is presented by showing that: (a) A policy’s attractiveness increases when it is labeled status quo; (b) A policy’s attractiveness is predictable from its pros and cons; and (c) The magnitude of status quo enhancement is predictable from a quantitative model that measures aversion to potential losses (accruing to having it replaced)
Why laughing feels so good… – via Deric Bownds- Although laughter forms an important part of human non-verbal communication, it has received rather less attention than it deserves in both the experimental and the observational literatures. Relaxed social (Duchenne) laughter is associated with feelings of wellbeing and heightened affect, a proximate explanation for which might be the release of endorphins. We tested this hypothesis in a series of six experimental studies in both the laboratory (watching videos) and naturalistic contexts (watching stage performances), using change in pain threshold as an assay for endorphin release. The results show that pain thresholds are significantly higher after laughter than in the control condition. This pain-tolerance effect is due to laughter itself and not simply due to a change in positive affect. We suggest that laughter, through an endorphin-mediated opiate effect, may play a crucial role in social bonding.
Overconfidence and Bubbles in Experimental Asset Markets – via Kiel- This paper investigates the relationship between market overconfidence and occurrence of stock-price bubbles. Sixty participants traded stocks in ten experimental asset markets. Markets were constructed on the basis of subjects’ overconfidence, measured in pre-experimental sessions. The most overconfident subjects form “overconfident markets”, and the least overconfident subjects “rational markets”. Prices in rational markets tend to track the fundamental asset value more accurately than prices in overconfident markets and are significantly lower and less volatile. Additionally we observe significantly higher bubble measures and trading volume on overconfident markets. Altogether, our data provide evidence that overconfidence has strong effects on prices and trading behavior in experimental asset markets.
Trust, Reciprocity and Rules - via Chapman.edu- In the absence of enforceable contracts, many economic and personal interactions rely on trust and reciprocity. Research shows that although this reliance often works well, sometimes it breaks down. Simple rules mandating minimum standards on reciprocation prevent the most egregious trust violations, but may also undermine behavior that would have otherwise produced higher overall economic welfare. We test the efficacy of exogenously imposed minimum return rules using experimental trust games. We find that rules fail to increase trust and trustworthiness. Thus low minimum standards significantly decrease economic welfare. Although sufficiently restrictive rules restore welfare, trust and trustworthy behavior never returns.
Women More Likely Than Men to See Nuance When Making Decisions - via SciAm- New research suggests gender plays a role in these decisions because men tend to organize the world into distinct categories whereas women see things as more conditional and in shades of gray.
Videos of The Week:
What we learned from 5 million books – via Ted.com- Have you played with Google Labs’ NGram Viewer? It’s an addicting tool that lets you search for words and ideas in a database of 5 million books from across centuries. Erez Lieberman Aiden and Jean-Baptiste Michel show us how it works, and a few of the surprising things we can learn from 500 billion words.
The 6 killer apps of prosperity - via Ted.com- Over the past few centuries, Western cultures have been very good at creating general prosperity for themselves. Historian Niall Ferguson asks: Why the West, and less so the rest? He suggests half a dozen big ideas from Western culture — call them the 6 killer apps — that promote wealth, stability and innovation. And in this new century, he says, these apps are all shareable.
How Time Works, from Cosmology to Cognition- via Paul Kedrosky - Another FQXi video from the recent conference, this time a panel with some of the main speakers. Good stuff.
The Longform.org Guide to Michael Lewis – via LongForm
The internet has reduced dramatically the cost of varying prices, displays, and information provided to consumers. This column discusses how this change enables both passive and active experimentation by retailers, and how this experimentation can be used by economic researchers in a way that takes advantage of the scale and heterogeneity of online markets.
The Eclectic Mix:
Dan Ariely: How to Pay People – via Bloomberg-
Most of the time, when you hire people you don’t want to specify exactly what they are to do and how much they would get paid—you don’t want to say if you do X you will get this much, and if you do Y you will get that much. That type of contract is what we call a complete contract. Creating one is basically impossible, especially with higher-level jobs. If you try to do it, you cause “crowding out.” People focus on everything you’ve included and exclude everything else. What’s left out of the contract tends to drop out of their motivation as well. You are taking away from their judgment and goodwill and teaching them to be like rats in a maze. It’s like the difference between asking someone to help you change a tire and offering them $5 to do it. The moment you introduce money, you change how the person views the exchange. They say, “Oh, this is work. I don’t work for $5. Give me $150 and we can talk.” When I was at MIT, they told us we had to teach 112 points per year. They had a complex formula for how many students and how many hours and so on would translate into teaching points. Basically, MIT was conditioning me to put the least effort into getting the most points. This became the game. I was quite good at it. And I taught very little.
How to Be a Chief Information Officer – via Bloomberg-
For a lot of chief information officers, the best-case scenario is not to be noticed. Why? No. 1, these people are typically responsible for the largest cost center in your organization. No. 2 is that most of the technology budget is for things that were bought in previous years. So the CIO comes from a place of caution and conservatism and ends up moving slowly, while being the face of technology—one of the fastest-moving industries in the world. There are these cosmic pressures like cloud computing services and the rise of consumer technology—smartphones, tablets, and all the rest—that are forcing change in the landscape.
Culturomics 2.0 Aims to Predict Future Events – via Miller McCune-
By analyzing tens of millions of news stories, a supercomputer in Tennessee may be able to predict future human events.
United We Buy: Using Patriotism and War to Sell Products – via Sociological Images