Weekly Roundup 153: A Curated Linkfest For The Smartest People On The Web!
Handpicked to satisfy your intellectual curiosity!
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All things Inequality:
Rick Bookstaber: Class Warfare and Revolution (Circa 1850) – via rick.bookstaber.com – The rise of the capitalist class during the Industrial Revolution is well known, with a select few, the barons of industry, be it steel, rail, or textiles, catapulting to a level of wealth rarely known before. But less considered is the other tail of the distribution, the downward spiral of what today might be termed the middle class.
Thomas Ferguson: How to Take Back Our Political System From the 1% | Economy – via AlterNet – Firstly, the rot is very deep. In short pieces for the Financial Times, the Washington Spectator, and some scholarly work, I’ve focused attention on the way both parties in Congress now “post prices” for committee slots, chair positions, and leadership posts. Congress today is all too reminiscent of Best Buy or Target: You want a committee slot or an important leadership post, you buy it. The result is a kind of arms race in contributions, which just gets worse over time. Most Americans don’t know this. When they learn it, they usually are disgusted. Secondly, the astronomical sums politicians now collect to run for office define only part of the problem. As Rob Johnson and I documented in a paper, the disparity between regulators’ salaries and what you can make in the private sector has transformed our regulatory institutions (including the White House staff) into employment agencies for the industries – like finance – that they are supposed to regulate. This has nothing to do directly with running for office. It won’t be fixed by fixing campaign spending.
The 1% are the very best destroyers of wealth the world has ever seen | George Monbiot | Comment is free – via The Guardian -If wealth was the inevitable result of hard work and enterprise, every woman in Africa would be a millionaire. The claims that the ultra-rich 1% make for themselves – that they are possessed of unique intelligence or creativity or drive – are examples of the self-attribution fallacy. This means crediting yourself with outcomes for which you weren’t responsible. Many of those who are rich today got there because they were able to capture certain jobs. This capture owes less to talent and intelligence than to a combination of the ruthless exploitation of others and accidents of birth, as such jobs are taken disproportionately by people born in certain places and into certain classes. The findings of the psychologist Daniel Kahneman, winner of a Nobel economics prize, are devastating to the beliefs that financial high-fliers entertain about themselves. He discovered that their apparent success is a cognitive illusion. For example, he studied the results achieved by 25 wealth advisers across eight years. He found that the consistency of their performance was zero. “The results resembled what you would expect from a dice-rolling contest, not a game of skill.” Those who received the biggest bonuses had simply got lucky.
The Inequality Map – via NYTimes.com – Foreign tourists are coming up to me on the streets and asking, “David, you have so many different kinds of inequality in your country. How can I tell which are socially acceptable and which are not?”
Toy models of inequality, negative interest rates, revolutions, and trade deficits – via www.interfluidity.com – In the model, I posit a world in which abundant labor and scarce land yield an unstorable crop in great quantity. But because labor is so abundant (and so the marginal labor unproductive), wages are low and a vast surplus accrues to the landowners, far more than they can possibly consume. I posited that in this economy, the interest rate would be -100%. Laborers would be eager to “borrow” but would have no way to repay. Land owners would lose nothing to “lend”.
The First Step to Change The Status Quo: Focusing On the Negative – via Association for Psychological Science – “In order for people to feel like they can actually affect the world and actually do something, they have to view the world as changeable,” Johnson says. “If you want people to be able to make that leap, you have to first get them to that point. Then they’ll be willing to seek out the negative information.” Of course, there are more steps to changing the system than just finding out what’s wrong with it. “Even after you get the negative information, you might say, this is too much. I can’t do anything about it,” Johnson says. She plans to do more research on the next steps to bringing about social change.
U.S. Ultra Wealthy to Outnumber Asia Rich Until 2032 – via Bloomberg – North America’s super-rich will outnumber Asians with a net worth of at least $30 million for the next 20 years, according to a report from Wealth-X.There are 62,960 so-called ultra-high-net-worth individuals in North America compared with 54,325 in Europe, Wealth-X, a Singapore-based research and advisory firm said in a report published today. The Asia-Pacific region, which has 42,525, will leapfrog North America in 2032 and Europe in 2024, it said.
Artificial intelligence: When Robots Replace Workers – via The Economist – Whether the exchange was true or not is irrelevant. The point was that any increase in productivity required a corresponding increase in the number of consumers capable of buying the product. The original Henry Ford, committed to raising productivity and lowering prices remorselessly, appreciated this profoundly—and insisted on paying his workers twice the going rate, so they could afford to buy his cars.
Are We a Democracy? – via NYTimes.com – We are, in effect, not a democracy but a multarchy (note to classicists: sorry to mix Latin and Greek roots, but political scientists use polyarchy in a different sense): a complex interweaving of many forms of government — indeed, of all Plato’s five types. Our fundamental and enduring challenge is to find the right balance among these elements to protect fundamental freedoms while also ensuring that our leaders have the power, abilities, and character to, as our Constitution says, “promote the general welfare”.
Infographic: Are You In the 99% – via Visual.ly – Who’s in the 99%? Those who earn less than $355,000 a year, according to IRS tax returns from 2009, which provide some information on the top 5%, top 1%, and top 0.1%. The U.S. Census provides 2010 household income data up to $250,000, which represents the lower 98%. Above $250,000 is the top 2%, and contained within, the top 1%. 50% of households earn less than $50,000. This graph also shows the breakdown by race.
Best Articles of The Week
Michael Lewis on the King of Human Error | Business – via Vanity Fair – hen you wander into the work of Kahneman and Tversky far enough, you come to find their fingerprints in places you never imagined even existed. It’s alive in the work of the psychologist Philip Tetlock, who famously studied the predictions of putative political experts and found they were less accurate than predictions made by simple algorithms. It’s present in the writing of Atul Gawande (Better, The Checklist Manifesto), who has shown the dangers of doctors who place too much faith in their intuition. It inspired the work of Terry Odean, a finance professor at U.C. Berkeley, who examined 10,000 individual brokerage accounts to see if stocks the brokers bought outperformed stocks they sold and found that the reverse was true. Recently, The New York Times ran an interesting article about a doctor and medical researcher in Toronto named Donald Redelmeier, whose quirky research projects upended all sorts of assumptions you might not know you even had. He’d shown that changing lanes in traffic is pointless, for instance, and that an applicant was less likely to be admitted to a medical school if he was interviewed on a rainy day. More generally he had demonstrated the power of illusions on the human mind. The person who had sent him down this road in life, he told the Times reporter, was his old professor Amos Tversky.
Life Inc: How modern life became corporate and history of pr – via HiLobrow – In his book, Life Inc., author and media ecologist Douglas Rushkoff traces the rise and rise of the corporation, from its beginnings in the late Middle Ages, through its adolescence in the Industrial Revolution, to its present global and virtualized maturity. Life Inc. remains as relevant as when it was first published in 2009, as the public debate over the economy becomes more widespread, and the need for an accurate long view intensifies. In this interview, Rushkoff locates the roots of the corporation in the Renaissance, explains how the corporation has made us over into its own image, reveals why there’s a God on the money, and warns what we’re really buying into when we buy that mortgage. But it’s not all talk. In addition to looking back, Rushkoff looks forward to offer some practical — and provocative — ideas on how to unincorporate, and better occupy, our lives.
NOVA: The Fabric of The Cosmos – viaNova – Time. We waste it, save it, kill it, make it. The world runs on it. Yet ask physicists what time actually is, and the answer might shock you: They have no idea. Even more surprising, the deep sense we have of time passing from present to past may be nothing more than an illusion. How can our understanding of something so familiar be so wrong? In search
The Unanticipated Uses of Technology – via paul.kedrosky.com – The strongest impacts of an emergent technology are always unanticipated. You can’t know what people are going to do until they get their hands on it and start using it on a daily basis, using it to make a buck and using it for criminal purposes and all the different things that people do. The people who invented pagers, for instance, never imagined that they would change the shape of urban drug dealing all over the world. But pagers so completely changed drug dealing that they ultimately resulted in pay phones being removed from cities as part of a strategy to prevent them from becoming illicit drug markets. We’re increasingly aware that our society is driven by these unpredictable uses we find for the products of our imagination.
Gary Taubes On the Paleo Lifestyle – via www.valueinvestingworld.com – When last I posted, oh so long ago, I promised next to discuss the food reward/palatability hypothesis of obesity and why I find it so uncompelling and more than a little bit disheartening. Why, in effect, I think it is the kind of bad science that begs to be challenged, as I did, when it is presented in a public forum, as Dr. Stephan Guyenet of Whole Health Source did at the Ancestral Health Symposium back in August. This is the first of five posts to address this and I promise (really) that it will be days between posts, not months. And because I think the energy balance paradigm of obesity is more or less the root of all scientific evil in this business — not just because it’s taken obesity researchers down a century-long blind alley, but because of its implications that fat people just can’t control their urges the way lean people do — I find Dr. Guyenet’s promotion of this hypothesis and its acceptance, limited as it may be, in the paleo and low-carb blogospheres to be very disheartening. I could be wrong (of course) about the scientific bankruptcy of this hypothesis, but I’m going to argue (of course) that I’m not.
Nice Guys Finish Last – via Altruism may be rewarded with prestige, but seldom with leadership – “Do nice guys finish last?” Livingston ruminates. “In competitive contexts, the answer is often yes. The reason that they finish last is because being nice, contributing costly resources to the group, acts of generosity—these all increase your prestige. Other people admire you and say, ‘Oh, that’s really great. This is a kind person who’s doing all these wonderful things.’ But it decreases your dominance. It makes you look not so tough.” “Altruism is a double-edged sword,” he says. “On the one hand, generous individuals are admired for their kindness, compassion, and willingness to help. On the other hand, they may be perceived as feeble ‘bleeding hearts’ who lack the guts to make tough decisions that might advance the goals of the organization.”
Radio 4′s brilliant brain season now being scattered – via mindhacks.com – BBC Radio 4′s Brain Season is in full swing, which, in typical BBC fashion, is both brilliantly conceived and chaotically scattered over their webpages like a drunken farmer chasing birds off his field with a seed planter.
Why Do People Eat Too Much? | Wired Science – via Wired.com – Serving size isn’t the only variable influencing how much we consume. As M.F.K. Fisher noted, eating is a social activity, intermingled with many of our deeper yearnings and instincts. And this leads me to a new paper by David Dubois, Derek Ruckner and Adam Galinsky, psychologists at HEC Paris and the Kellogg School of Management. The question they wanted to answer is why people opt for bigger serving sizes. If we know that we’re going to have a tough time not eating all those French fries, then why do we insist on ordering them? What drives us to supersize?
Behavioral Finance Lecture : The Economic Crisis – via www.valueinvestingworld.com – Steve Keen: Behavioral Finance Lecture 11: The Economic Crisis
Behavioral Economics, Complexity Research, Decision Making, Psychology, & Risk
Like What You Like or Like What Others Like? -Conformity and Peer Effects on Facebook – via Egebark & Ekstrom- Users of the social networking service Facebook have the possibility to post status updates for their friends to read. In turn, friends may react to these short messages by writing comments or by pressing a Like button to show their appreciation. Making use of five Swedish accounts, we set up a natural field experiment to study whether users are more prone to Like an update if someone else has done so before. We distinguish between three different treatment conditions: (i) one unknown user Likes the update, (ii) three unknown users Like the update and (iii) one peer Likes the update. Whereas the first condition had no effect, both the second and the third increased the probability to express a positive opinion by a factor of two or more, suggesting that both number of predecessors and social proximity matters. We identify three reasonable explanations for the observed herding behavior and isolate conformity as the primary mechanism in our experiment.
Does Nudge require regulators to be “more rational” than consumers? – via www.knowingandmaking.com – Second, everyone specialises in something. A lawyer specialises in the law – I wouldn’t expect them to be better at making business decisions than me, but where my business decisions have legal ramifications I’d like to have their input. A doctor does not know better than me what I should choose to eat for dinner, but they can give me useful information to help me pick the foods that are right for me. And similarly, somebody who spends their professional life thinking about decision-making and examining the extensive research in this field is likely to be able to help me make decisions that I’ll be happier with.
The Availability Heuristic: Why Your Children Probably Aren’t Going to be Murdered – via Why We Reason – There are negative consequences of these attention grabbing tactics. German cognitive psychologist Gerd Gigerenzer estimates that the year after the 9-11 attacks, 1,500 people died in car accidents because they chose to drive fearing that their plane might be hijacked. Add that up over the course of a few years and you’ll find that “the number of people who died by avoiding air travels was six times the number of people who died in the airplanes on September 11.” Similarly, did you know that you are eight times more likely to die from walking home drunk than driving home drunk, the chances of getting murdered from hitchhiking is virtually zero, and owning a pool is astronomically more dangerous that owning a gun. To be sure, the availability heuristic is a vital cognitive resource. It allows us to quickly assess the frequency and importance of an event with little cognitive effort. Sometimes this is a good thing; famine, wars and natural disasters get a lot of media attention for good reasons. But sometimes availability gives us a false sense of reality, which the examples outlined here illustrate.
Inattentional Blindness – via youarenotsosmart.com – You are “blind” to that which you are not attentive. As events unfold before you, you tend to pay attention to a small cone of information and then, when thinking back on what you saw, you tend to believe you saw more than you did. Consciousness is all about filling in the gaps. You assume you know what’s happening right outside whatever it is you are focused on, but all over the place, you are imagining the things you can’t see.
‘You Are Not So Smart’: Why We Can’t Tell Good Wine From Bad – David McRaney – Life – via The Atlantic – You look for cues from our environment whenever you find things you like. These clues help you to get back to the good stuff by recognizing the cues that got you the reward last time. For the testers, the two products tasted pretty much the same. So, forced to make a choice, they moved to another set of cues to make their decision — which letter was more pleasant. Apparently, M is better than Q, and in other research people tend to pick A instead of B and 1 instead of 2. Branding works the same way. Vodka, for instance, has no flavor. So advertisers can’t sell you on how great it tastes. Instead, they hijack your natural affinity for visual shortcuts by pummeling your brain with advertising. When you are standing in front of all those vodka bottles in the liquor store, the brands hope their marketing campaign has built enough expectation in your consciousness to lead you to their product.
Behavioral Economics Foils an Obama Tax Cut? – via Businessweek – In the past decade, this new set of ideas about economic behavior has gone from the margins of academia to the intellectual mainstream. In 2002 one of its godfathers, the psychologist Daniel Kahneman, won the Nobel Prize in Economics, and the years since have seen a growing list of best-sellers (Malcolm Gladwell’s Blink, Richard Thaler and Cass Sunstein’s Nudge, Dan Ariely’s Predictably Irrational) describing and drawing on its findings. Unlike neoclassical economists, behavioral economists don’t see people as rational actors coolly weighing costs and benefits. Behaviorists argue instead that people rely on a set of instincts, biases, and cognitive shortcuts to make decisions, which often lead them to choices they come to regret. We save too little and spend too much, we stick with the status quo even when it costs us money, we avoid smart risks and take dumb ones.
Fear Causes Trust, Blindness – via www.overcomingbias.com – When they feel unknowledgeable about a threatening social issue, … [people] also appear motivated to avoid learning new information about it. … In the context of an imminent oil shortage—as opposed to a distant one—participants who felt that the issue was “above their heads” reported an increased desire to adopt an “ignorance is bliss” mentality toward that issue, relative to those who saw oil management as a relatively simple issue. This effect … is at least partly due to participants’ desire to protect their faith in the capable hands of the government. Among those who felt more affected by the recession, experimentally increasing domain complexity eliminated the tendency to seek out information. These individuals avoided not only negative information but also vague information, that is, the types of information that held the potential (according to pretesting) to challenge the idea that the government can manage the economy. Positive information was not avoided in the same way.
Too smart to be selfish? Measures of intelligence, social preferences, and consistency – via Munich Personal RePEc Archive – Although there is an increasing interest in examining the relationship between cognitive ability and economic behavior, less is known about the relationship between cognitive ability and social preferences. We investigate the relationship between strongly incentivized measures of intelligence and measures of social preferences. We have data on a series of small-stakes dictator-type decisions, known as Social Value Orientation (SVO), in addition to choices in a larger-stakes dictator game. We also have access to the grade point averages (GPA) and Scholastic Aptitude Test (SAT) outcomes of our subjects. We find that subjects who perform better on the math portion of the SAT are more generous in both the dictator game and the SVO measure. By contrast we find that subjects with a higher GPA are more selfish in the dictator game and more generous according to the SVO. We also find that the consistency of the subjects is related to GPA but we do not find evidence that it is related to either portion of the SAT.
When it’s an error to mirror… – via mindblog.dericbownds.net – Mimicry and imitation also play an important role in dyadic social interactions. People mimic their partners’ mannerisms, which increases rapport and the partners’ liking of the mimickersA collaboration between psychologists and philosophers at the Univ. of California, San Diego asks whether and how mimicry unconsciously influences evaluations made by third-party observers of dyadic interactions. Their results indicate that third-party observers make judgments about individuals’ competence on the basis of their decisions concerning whether and whom to mimic. Contrary to the notion that mimicry is uniformly beneficial to the mimicker, people who mimicked an unfriendly model were rated as less competent than nonmimics. Thus, a positive reputation depends not only on the ability to mimic, but also on the ability to discriminate when not to mimic.
It’s Not All About Me – via pss.sagepub.com – Diseases often spread in hospitals because health care professionals fail to wash their hands. Research suggests that to increase health and safety behaviors, it is important to highlight the personal consequences for the actor. However, because people (and health care professionals in particular) tend to be overconfident about personal immunity, the most effective messages about hand hygiene may be those that highlight its consequences for other people. In two field experiments in a hospital, we compared the effectiveness of signs about hand hygiene that emphasized personal safety (“Hand hygiene prevents you from catching diseases”) or patient safety (“Hand hygiene prevents patients from catching diseases”). We assessed hand hygiene by measuring the amount of soap and hand-sanitizing gel used from dispensers (Experiment 1) and conducting covert, independent observations of health care professionals’ hand-hygiene behaviors (Experiment 2). Results showed that changing a single word in messages motivated meaningful changes in behavior: The hand hygiene of health care professionals increased significantly when they were reminded of the implications for patients but not when they were reminded of the implications for themselves.
The Effect of Financial Incentives and Task-specific Cognitive Abilities on Task Performance – via Rydval– We extend evidence on the interaction between financial incentives and cognitive abilities by focusing on the effect of task-specific abilities. In a memory-intensive task situated in an accounting context, the effect of accounting education on performance is stronger under financial incentives as compared to flat rate pay. Subjects with more accounting education respond stronger to financial incentives. Hence using incentives efficiently may involve targeting them at high-ability individuals. More generally, taking into account the incentive-ability interaction seems important when interpreting observed behavior in cognitively demanding lab and field economic environments.
Business, Economics, Finance, Investing, Start-ups
Why Wall Street Can’t Handle the Truth – via www.valueinvestingworld.com – Over the past 12 years, longtime banking analyst Mike Mayo has issued numerous calls to sell bank stocks, a rarity in a system where nearly all stocks are rated buy or hold. His negative ratings have frequently gotten him in trouble with banks, clients and his own bosses, who didn’t want to alienate those companies. In this excerpt from his new book, “Exile on Wall Street,” Mr. Mayo gives an inside view of the fights, the scolding and the threatening phone calls he received as a result of yelling “sell”—and offers a proposal to fix the banking sector.
Known Unknowns – via By Neel Kashkari – We believe investment managers can analyze numerous data sources and apply lessons learned from past economic cycles to make reasonable assessments about the global economic outlook. We also believe managers can make reasonable judgments about asset classes over the long term and, through rigorous bottom-up research, develop an edge regarding the outlook for individual companies.
Bundled, Buried & Behind Closed Doors: The Physical Underbelly of the Internet – via Brain Pickings – We keep thinking and reading about the Internet as a cultural phenomenon, but what about its palpable physicality? In 2010, it was estimated that the world produced over one thousand exobytes of new data, or one trillion gigabytes. Most of it doesn’t stay put — instead, it travels through the world’s servers, but where exactly does it go? That’s precisely what Ben Mendelsohn set out to answer in Bundled, Buried & Behind Closed Doors, a fascinating short documentary for his masters thesis at The New School. The film takes us inside 60 Hudson Street in Lower Manhattan — a deceptively nondescript building that houses one of the world’s major nodes of the Internet. The rest…well, you’ll have to see for yourself:
Why Americans Won’t Do Dirty Jobs – via BusinessWeek – For decades many of Alabama’s industries have benefited from a compliant foreign workforce and a state government that largely looked the other way on wages, working conditions, and immigration status. With so many foreign workers now effectively banished from the work pool and jobs sitting empty, businesses must contend with American workers who have higher expectations for themselves and their employers—even in a terrible economy where work is hard to find. “I don’t consider this a labor shortage,” says Tom Surtees, Alabama’s director of industrial relations, himself the possessor of a job few would want: calming business owners who have seen their employees vanish. “We’re transitioning from a business model. Whether an employer in agriculture used migrant workers, or whether it’s another industry that used illegal immigrants, they had a business model and that business model is going to have to change.”
Zell to L.A. Times: Drop Dead – via LA Review of Books – Zell was known for constructing complicated deals, especially ones in which he personally had very little at stake. For the Tribune deal, Zell put a paltry $315 million of his own money into a purchase offer of $8.2 billion. To raise the other $7.9 billion, he proposed making Tribune an S corporation owned by a nonprofit ESOP (Employee Share Ownership Plan), which would be exempt from federal income taxes. The ESOP could then borrow the rest of the money needed to buy the stock owned by the Chandlers, the McCormick Trust, employees, and other shareholders in order to complete the sale and take the company private. If the deal went through, Tribune managers would be rewarded with large “success bonuses.” The investment bankers and advisors, for six months of work, would take in about $160 million. The deal would saddle the company with $12-13 billion in debt. In other words, everyone stood to gain except the newspaper, the company, and their employees, all of whom were risking a great deal and, in the case of the employees, without their consent. The deal from hell went through. Exactly 12 months later the company would file for the largest bankruptcy in the history of the American media industry. Over 4,200 people lost their jobs in the three years that followed.
Exxon Secrets – via Visual.ly – Documenting Exxon-Mobil’s funding of climate change skeptics.
United Bases of America – via Chart Porn – A summary of America’s military reach around the world.