I apologize for the delay.
If you are a value investor check out my friend Tim Du Toit’s latest Newsletter he has an interesting writeup on Sage.
Handpicked to satisfy your intellectual curiosity!
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Most Interesting Reads:
Vaclav Smil: Why Steve Jobs is No Edison - via The American – It takes nothing away from Steve Jobs to say he is no Thomas Edison. You only need to understand what Edison accomplished.
Atul Gawande: Top Singers & Athletes Have Coaches Should you? – via New Yorker- During the first two or three years in practice, your skills seem to improve almost daily. It’s not about hand-eye coördination—you have that down halfway through your residency. As one of my professors once explained, doing surgery is no more physically difficult than writing in cursive. Surgical mastery is about familiarity and judgment. You learn the problems that can occur during a particular procedure or with a particular condition, and you learn how to either prevent or respond to those problems.
Video: Ted Talk – Battling bad science - via Ted- Every day there are news reports of new health advice, but how can you know if they’re right? Doctor and epidemiologist Ben Goldacre shows us, at high speed, the ways evidence can be distorted, from the blindingly obvious nutrition claims to the very subtle tricks of the pharmaceutical industry.
Video: Malcolm Gladwell: The Virtues of Obnoxiousness - via Fora.tv
Protecting Against Low-Probability Disasters: The Role of Worry - via Behavioral Decision Making- We carry out a large monetary stakes insurance experiment with very small probabilities of losses and ambiguous as well as exact probabilities. Many individuals do not want to pay anything for insurance whether the probabilities are given exactly or are ambiguous. Many others, however, are willing to pay surprisingly large amounts. With ambiguity, the percentage of those paying nothing is smaller and the willingness to pay (WTP) of the other individuals larger than with exact probabilities. Comparing elasticities with ambiguity, we find that worry is much more important than subjective probability in determining WTP for insurance. Furthermore, when the ambiguous loss probability is increased by a factor of 1000, it has almost no effect on WTP
Income inequality and the death of culture in New York City - via Orion – During the vaunted 2002–07 economic expansion—the housing-boom bubble that ended in our current calamity, this Great Recession—average income for the One Percenters in New York went up 119 percent. Meanwhile, the number of homeless in the city rose to an all-time high last year—higher even than during the Great Depression—with a record 113,000 men, women, and children, many of them comprising whole families, retreating night after night to municipal shelters. But here’s the most astonishing fact: the One Percenters consist of just 34,000 households, about 90,000 people. Relative to the great mass of New Yorkers—9 million of us—they’re nobody. We could snow them under in a New York minute.
Rick Bookstaber: What can we learn from the policies that spurred the Industrial Revolution? - via RB- Some of the dominant policy issues of today – immigration, energy, the emergence of China – have their analogues in the great Industrial Revolution. The key government policies that laid the foundation for the Industrial Revolution in England include supporting the immigration of skilled workers, allowing for private ownership of farm land, weakening the unions of the day (the guilds), and addressing the energy crisis (in charcoal). And contrary policies in Italy and Spain – countries that were far wealthier and advanced than was pre-Industrial Revolution England – derailed a similar revolution from occurring in continental Europe.
Tim Harford: The honest truth about kickbacks - via TH- It may be better to get 10 per cent of a booming economy than 100 per cent of a stagnating one
Duncan Watts: The Myth of Common Sense: Why The Social World Is Less Obvious Than It Seems - via Freakonomics- Social scientists have struggled with all these questions for generations, and continue to do so. Yet many people feel they could answer these questions themselves—simply by examining their own experience. Unlike for problems in physics and biology, therefore, where we need experts to tell us what is true, when the topic is human or social behavior, we’re all “experts,” so we trust our own opinions at least as much as we trust those of social scientists.
Benford’s Law: using stats to bust an entire nation for naughtiness. - via Bad Science- This week we might bust an entire nation for handing over dodgy economic statistics. But first: why would they bother? Well, it turns out that whole countries have an interest in distorting their accounts, just like companies and individuals. If you’re an Euro member like Greece, for example, you have to comply with various economic criteria, and there’s the risk of sanctions if you miss them.
Ducan Watts: The Perils of Thinking Like an Individual by Duncan Watts - via Leadon Young- The solution is to rely less on common sense and pay more attention to what the evidence tells us. We do, for example, have some evidence about which government policies have and haven’t worked in the aftermath of recessions, just as we have evidence about the lack of impact of top marginal tax rates on economic growth. And if more of the political conversation was devoted to arguing about the economic facts — and where they need to be refined — it might push us do a more effective job of collecting evidence for the future. We possess the tools and technologies to measure more about the world than we could have imagined just a generation ago. It’s time to stop trusting our common sense and start learning what it is that we don’t know.
Delayed gratification – 40 years later. – via Deric Bownds- a followup of the famous “marshmallow experiments” that showed young children who are better at delaying gratification to obtain a greater reward do better latter in life. They were able to test 60 individuals from the original study, now in their mid-40s, and in a subset of these were able to demonstrate stable differences in frontostriatal circuitries that integrate motivational and control processes in low delayers versus high delayers.
Tim Harford- Academics and defending their research - via Tim Harford- Academics are always being asked to demonstrate the “impact” of their research. (Is it like being hit by a rogue cyclist? Or is it more like a pile-driver, or even an asteroid strike?) But while it is not unreasonable to ask whether a particular piece of academic research is useful, the difficulties in answering the question are extraordinary.
Class warfare and public goods - via Physics of Finance- I think this is about the best short description I’ve heard yet of why wealth isn’t created by heroic individuals (a la Ayn Rand’s most potent fantasies). I just wish Elizabeth Warren had been appointed head of the new Bureau of Consumer Protection. Based on the words below, I can see why there was intense opposition from Wall St.
Learning to Accept Envy – via FalkenBlog- Economists are pretty comfortable with simple self-interest, where individuals maximize their own wealth. It’s part of what makes them flint-eyed realists as opposed to naive social philosophers who think the world can be made better by convincing men to be selfless. That is, after being beaten up by utopians who envisaged a society ruled by thinking about society instead of themselves, most now see how selfishness is consistent with a growing economy (the invisible hand, Adam Smith), being nice (reciprocal altruism, see Robert Axelrod or Robert Trivers), and is an efficient way to incent people with relevant information to get them to do the right thing (Friedrich Hayek’s work). Just consider that ants, who sacrifice themselves without pause for the group and work tirelessly for the tribe, are also genocidal maniacs. Our selfishness, paradoxically, makes us wealthy and nice.
Decision Making/ Behavioral Economics/Psychology/ Risk/ Sciences:
How Your Brain Reacts To Mistakes Depends On Your Mindset - via APS- “One big difference between people who think intelligence is malleable and those who think intelligence is fixed is how they respond to mistakes,” says Jason S. Moser, of Michigan State University, who collaborated on the new study with Hans S. Schroder, Carrie Heeter, Tim P. Moran, and Yu-Hao Lee. Studies have found that people who think intelligence is malleable say things like, “When the going gets tough, I put in more effort” or “If I make a mistake, I try to learn and figure it out.” On the other hand, people who think that they can’t get smarter will not take opportunities to learn from their mistakes. This can be a problem in school, for example; a student who thinks her intelligence is fixed will think it’s not worth bothering to try harder after she fails a test.
The cognitive consequences of envy: - via Psyc Info- In a series of 4 experiments, we provide evidence that—in addition to having an affective component—envy may also have important consequences for cognitive processing. Our first experiment (N = 69) demonstrated that individuals primed with envy better attended to and more accurately recalled information about fictitious peers than did a control group. Studies 2 (N = 187) and 3 (N = 65) conceptually replicated these results, demonstrating that envy elicited by targets predicts attention and later memory for information about them. We demonstrate that these effects cannot be accounted for by admiration or changes in negative affect or arousal elicited by the targets. Study 4 (N = 152) provides evidence that greater memory for envied—but not neutral—targets leads to diminished perseverance on a difficult anagram task. Findings demonstrate that envy may play an important role in attention and memory systems and deplete limited self-regulatory resources available for acts of volition.
Stanford researchers predict long-term personal finances in the lab - via Finance Professor-Psychology has traditionally held that learning is learning, but neuro-economics takes a different position. Positive emotions like excitement and negative emotions like anxiety, supported by separate brain circuits, seem to motivate gain and loss learning, respectively. Being good at winning money doesn’t necessarily mean you’re good at not losing it..
Importance of understanding Cause Consequence Matching - via Robyn Leboeuf & Mike Norton - This article documents a bias in people’s causal inferences, showing that people nonnormatively consider an event’s consequences when inferring its causes. Across experiments, participants’ inferences about event causes were systematically affected by how similar (in both size and valence) those causes were to event consequences, even when the consequences were objectively uninformative about the causes. For example, people inferred that a product failure (computer crash) had a large cause (widespread computer virus) if it had a large consequence (job loss) but that the identical failure was more likely to have a smaller cause (cooling fan malfunction) if the consequence was small—even though the consequences gave no new information about what caused the crash. This “consequence-cause matching,” which can affect product attitudes, may arise because people are motivated to see the world as predictable and because matching is an accessible schema that helps them to fulfill this motivation.
She just doesn’t look like a philosopher…? Affective influences on the halo effect in impression formation – via EJSP- Can good or bad moods influence people’s tendency to rely on irrelevant information when forming impressions (halo effects)? On the basis of recent work on affect and cognition, this experiment predicted and found that positive affect increased and negative affect eliminated the halo effect. After an autobiographical mood induction (recalling happy or sad past events), participants (N = 246) read a philosophical essay, with an image of the writer attached, showing either an older man or a young woman (halo manipulation). Judgements of the essay and the writer revealed clear mood and halo effects, as well as a significant mood by halo interaction. Positive affect increased halo effects consistent with the more assimilative, constructive processing style it recruits. Negative affect promoting more accommodative and systematic processing style eliminated halo effects. The relevance of these findings for impression formation in everyday situations is considered, and their implications for recent affect-cognition theories are discussed.
A Short History of the Income Tax – via WSJ-One original sin was the separation of the corporate and personal tax, giving lawyers, accountants and the wealthy a chance to game the system
The Financial Zoo: An Interview with Satyajit Das – Part I – via Value Investing World- It’s amazing how much money you can make just shuffling paper backwards and forwards. Malcolm Gladwell wrote a piece praising John Paulson who made a killing from the subprime disaster as an entrepreneur. But what did he make? What did he leave behind? Paul Volcker, the former chairman of the Federal Reserve, argued: “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence. US financial services increased its share of value added from 2% to 6.5% but is that a reflection of your financial innovation, or just a reflection of what you’re paid?”
Interesting weekly linkfest from a former derivatives trader – via More Livers Daily
Are Japanese Businesses Worth More Dead Than Alive? – via Jacob Taylor- In 1932, in the midst of a more than an 80% decline in the U.S. stock market, Benjamin Graham wrote an article for Forbes magazine titled, “Is American Business Worth More Dead Than Alive?” In his 3-part series, Graham examined several important issues facing investors at the time, including market sentiment, dividend policies, and company liquidations.
The Eclectic Mix:
Listen to your elders! Study shows old people really DO have more wisdom than youth – via APS- A new study has found adults aged 60 and over are better at strategising their decisions than those in their late teens and early 20s, who tend to focus on instant gratification.
Americans have more than enough education to fill 21st Century jobs. - via RealityBase- Schmitt’s excellent point is that a decline in wages is strong evidence against the argument that there has been a shortage of workers with BAs and MAs. When there have been such shortages in the past, wage levels have risen, but not so in the 21st Century. As I’ve written before, we can’t fix this by increasing the number of people that have higher education—in fact, adding to that existing oversupply will depress their wages further, which is the actual objective of some. Nor can we fix the problem by doubling or tripling the number of people who get Ph.D.s and professional degrees—there is no plausible prospect that all of them could find appropriate employment, and those wages would also be driven into decline by an oversupply.
How Exercise Can Strengthen the Brain – via NYT- Can exercise make the brain more fit? That absorbing question inspired a new study at the University of South Carolina during which scientists assembled mice and assigned half to run for an hour a day on little treadmills, while the rest lounged in their cages without exercising.
America’s Top Cities: Cheapest Real Estate In The World – via Visual.ly – With bad news hitting the real estate market month after month, it’s easy to lose sight of the bigger, global picture. Namely, even though many economists predict that prices may continue to fall, thus expressing a view that U.S. real estate is still overpriced, real estate in America’s top cities is cheap when compared with the rest of the world. Consider this: at an average $1,068 per square foot, Manhattan real estate is prohibitively expensive for most Americans — yet is more than three times cheaper than real estate in Paris, an average $3,287 per square foot.