Weekly Roundup 76: A Curated Linkfest For The Smartest People On The Web
I spend 8 hours every Sunday putting this together. If you like this roundup or plan on linking to it kindly include a reference to SimolenSense Thanks!
“Someone once said about economists that they use economic data the way a drunkard uses a lamppost–for support rather than illumination.”
Must Read Articles For All Visitors
It’s Complicated: Making Sense of Complexity – via NYT – “Complexity creeps up on you,” he said in an interview. “It grows in ways, each of which seems reasonable at the time. It seemed reasonable at the time that we went into Afghanistan. It’s the cumulative costs that makes a society insolvent. Everything the Roman emperors did was a reasonable response in the situation that they found themselves in. It was the cumulative impact that did them in.”
Are people remembered by how they lived their entire lives? – via Eric Barker @ Bakadesuyo – When evaluating the moral character of others, people show a strong bias to more heavily weigh behaviors at the end of an individual’s life, even if those behaviors arise in light of an overwhelmingly longer duration of contradictory behavior. Across four experiments, we find that this “end-of-life” bias uniquely applies to intentional changes in behavior that immediately precede death, and appears to result from the inference that the behavioral change reflects the emergence of the individual’s “true self”.
The Gift of Status Affiliation – via Overcoming Bias – Status affiliation is a common function of many of our activities – we like to make personal connections with high status folks, as that is commonly seen as raising our status. Among their other functions, the personal contact in seeing a doctor, attending a lecture, hiring a sculptor, or meeting with a CEO, creates a status affiliation.
Bad Habits Can Age You by 12 Years – via Discovery – Smoking, excessive drinking and other bad habits can dramatically shorten your lifespan.
The 4% Rule – At What Price? – via SSRN – The 4% rule is the advice many retirees follow for managing spending and investing. We examine this rule’s inefficiencies—the price paid for funding its unspent surpluses and the overpayments made to purchase its spending policy. We show that a typical rule allocates 10–20% of a retiree’s initial wealth to surpluses and an additional 2–4% to overpayments. Further, we argue that even if retirees were to recoup these costs, the 4% rule’s spending plan remains wasteful, since many retirees actually prefer a different, cheaper spending plan.
A Cheap, Thin Film Gives Portable Night Vision to Cell Phones and Eyeglasses – via PopSci – What we regularly refer to as “night vision goggles” are actually less like goggles and more like heavy, bulky (and outrageously expensive) pieces of machinery. But DARPA funded research at the U. of Florida has adapted technology regularly found in flat-screen OLED televisions to create a thin film that turns any infrared signal into visible light, which could integrate cheap night vision tech into car windshields, cell phone cameras and even regular eyeglasses.
Most Important Links of The Week
The Financial Bailout – Latest Updates – via Subsidyscope – Subsidyscope began posting analysis of the financial bailout in January 2009 and is providing updates with new information and estimates where available. The purpose of the Troubled Asset Relief Program (TARP) was to infuse banks with capital to prevent failure and insolvency. One of the most notable developments since early 2009 has been the faster than anticipated repayments of monies originally disbursed by the Treasury Department to financial institutions under TARP. This has dramatically reduced estimates of TARP’s ultimate cost.
The Kelly Formula and Event-Driven Investing – via Distressed Debt Investing – The Kelly Formula, and its application to investing has been discussed by Charlie Munger, Monish Pabrai, and other legends in the value investing community. A few months ago, we presented commentary from Peter Lupoff, founder of Tiburon Capital Management. We saw some of his new commentary on the Kelly Formula and Event-Driven Investing and he allowed me to share it on the site. Enjoy.
Q&A with Niall Ferguson – via Vancouver Sun – Mr. Ferguson, whose latest bestseller is The Ascent of Money: The Financial History of the World, was in Calgary this past week as the headliner at the Teatro salon speaker series. He touched on everything from why he thinks the International Monetary Fund will soon be bailing out Britain, to why the United States must now tread carefully around the globe or risk the wrath of China. And he shared his thoughts on money and power and who he thinks will win the U.K. election.
Surviving A Terrorist Attack – via The New Yorker – So suppose a ten-kiloton bomb—smaller than the one that fell on Hiroshima—detonated on Wall Street, eight miles south. Redlener looked out the window. “The first thing we’d see is a tremendous flash of light,” he said. “Don’t look at it, if you can help it. It could blind you.” But if you can see it, how can you not look at it? Never mind. “We’d have between fifteen and thirty seconds to get over to the core,” he went on—meaning the center of the building, by the elevators, away from the windows, which the blast wave would shatter. He grabbed a little red emergency kit and started down the hall, ambling past the cubicles, at a dry-run pace. The kit contained sixteen ounces of water, a battery-operated radio, nutrition bars, a whistle, a flashlight, and some gauze pads. The peanut-butter-and-jelly sandwich he left behind.
Why Do Americans Admire Success Regardless of Its Origins – via Epicurean Deal Maker – That is one big reason why the ongoing scandals rocking the financial sector are creating such outrage and upset among the American polity. Citizens are discovering that a very large percentage of people whom they used to admire and envy for mouth-watering financial success earned a large portion of that success by cheating, by gaming the system, and by rigging the rules in their favor. What seems to outrage many Americans even more is that these very financiers do not seem to recognize that they have violated the implicit social norms almost everybody else seems to accept. They hide behind a defense of arrogance, superciliousness, and moral obliviousness which makes most Americans’ teeth grind in frustration.
What is the actual discount? Doing the math for coupons and sales that sound better than they actually are – via Mind Your Decisions – I remember when discounts were easy to understand. Most stores would have sales like “25 percent off” and that would be that. Even the foolish K-mart ad shown above of “0 percent off” can at least be praised for its transparency. Nowadays discounts come in a variety of coupons and sales, and they are much harder to understand. So many offers only seem good, and so many others offer illusory savings.
Goldman Sachs and Rational Irrationality – via New Yorker – As I explained in my book “How Markets Fail: The Logic of Economic Calamities,” my quick answer is none of the above. Of course, these things were all present during the housing boom, but, to some extent, they are always present. As a theorist would say, they are primitives of the capitalist model. The interesting question is what other factors allowed them to run riot, creating an unprecedented real estate and credit bubble that could only end in disaster?
Ed Chancellor: Greece a bad omen for others in debt – via FT -The Eurosceptics have long argued that a currency union was inappropriate for Europe. However, Greece’s problems are not merely to do with the single currency. Rather, they are the result of national profligacy. Other governments have also over-indulged themselves. If the current economic recovery falters, sovereign debt crises are likely to break out beyond the borders of Europe.
Miguel’s Weekly Favorites
The Anatomy of Desire – Women’s Hip to Waist Ratios – via Mind hacks & NYT – “The more hourglass shaped, the more attractive,” which would be necessary to favor the curvier mannequin over the figure that was only somewhat less so.
Are Ant Colonies more Rational than Humans: Lessons for Organization Theory? – via Cheap Talk – Like me, ants like dark houses/nests with small entrances. Facing a choice between a dark nest with a large entrance (option A) and a light nest with a small entrance (option B), an ant colony faces a trade-off. Some go this way to A and some go that way to B. Suppose we add a third decoy nest option D. Option D is as dark as A but has an even larger entrance. It is thus dominated by A but not by B. How will the ant colony’s behavior change when they face the three options together versus just A and B?
When do human groups form states? – via Deric Bownds Mind Blog – Spencer suggests that human states evolve (without contact with any preexisting states) when the area controlled by a group becomes larger than a day’s round trip from the capital:
How the Two Systems of Cognition & Decision Making Work Together – via Timreidpartnership – The more primitive, intuitive System 1 influences our more sophisticated System 2 in almost all decisions, and does so profoundly.
Why Behavioural Economics is so important to the future of advertising – via Henry Lambert- Here are some meanderings on Behavioural Economics. Something we’ve all heard of, but not really worked out to use. The problem with behavioural economics has been its own success. The popularity of Nudge has ensured that most marketing people see it as a below the line, point of sale thing, not a means to change mass behaviour.
Numbers, Nature & the sublime – via Nick Gogerty – numbers and nature show up together all the time. It is just having the ability to see them that is the gift. Here is a great video showing the golden ratio in nature. I would suggest reading the golden Ratio by Mario Livio or his book the Equation that couldn’t be solved which is a brilliant history of group theory and the people who fought & died pursuing the quintic.
Herd of Investors – via PsyFi Blog – It seems sort of obvious that investors, a generally bovine group when not in asinine mood, will tend to congregate in herds and then charge about randomly, often over the edge of the nearest cliff. If this is true, however, it poses a set of puzzles that it’s not clear that any of the current approaches to understanding mass market behaviour can properly explain.
Getting Better: Deliberate Practice for Investors – via Street Capitalist – But sheer hours aren’t enough. You have to ensure that you are putting in a lot of hours of the right type of work. To me, this is where most new investors trip up. Instead of actually analyzing companies, they often become fixated on celebrity-investor navel gazing. What I mean is, instead of going out and finding undervalued companies, they spend most of their time reading about what famous investors are doing. They have no real knowledge of the companies they invest in aside from the fact that someone famous has a stake in the company. You become the equivalent of a chicken running around with your head cut off. The other problem I saw was that some investors merely advocated the daily reading of a 10k. This kind of practice does not yield much if you are not able to connect what you read with the company and the industry they inhabit.
A trust driven financial crisis: fraud and other ethical problems – via EUI – This paper uses information to document the collapse of trust, show its link to emergence of frauds in financial industry and discuss its consequences for the demand of financial instruments, portfolios, and investor reliance on financial markets.
The Economic Value of Virtue – via IZA – Virtue is modeled as an asset that women can use in the marriage market: since men value virginity in prospective mates, preserving her virtue increases a woman’s chances of marrying a high-status husband, and therefore allows for upward social mobility. Consistent with some historical and anthropological evidence, we find that the prevalence (and the value) of virginity, across societies and over time, can be influenced by socio-economic factors such as male income inequality, gender differences, social status and stratification, and overall economic development.
Why Do Humans Pretend – via Overcoming Bias – The homo hypocritus hypothesis I’ve been exploring lately is that large fraction of modern behavior is explained by our evolved capacities and tendencies to pretend to do X while really doing Y. For each such X and Y, this raises a number of basic questions about how such a situation could be an equilibrium:
How “Fast Zebras” Navigate Informal Networks – via A fast zebra is someone who is singularly focused on achieving performance results, knows how the organization can both hinder and help, and charts their course accordingly. In particular, they are wise about when to use the formal and rational elements of organization (such as hierarchy, processes, and monetary rewards) and when to use the informal and emotional elements (including values, networks, and feelings about the work).
The Use Of Heuristics In Persuasion– via Uiowa – Dual-process models of persuasion contrast the expertise heuristic “experts’ statements can be trusted” with systematic processing of message content. Studies in which source expertise and argument quality were simultaneously manipulated revealed that the expertise manipulation affects attitudes when receivers are not highly motivated to scrutinize the provided message. In contrast, when receivers are highly motivated and are able to scrutinize a message their attitude is usually affected by argument quality but is independent of the expertise cue. We argue that this does not rule out that receivers still make use of the expertise heuristic. Rather, they may consider argument quality to infer the expertise of the source. We show that a classic study (Petty, Cacioppo, & Goldman, 1981) may be interpreted by this alternative explanation and present a study, in which the effect of argument quality on receivers’ attitudes was partially mediated by perceived source expertise. This mediation tended to be stronger among receivers reporting low self-expertise than among receivers reporting high self-expertise.
Has civil society helped the poor? – A review of the roles and contributions of civil society to poverty reduction” – via BWPI – This paper sets out to explore the achievements of civil society in the area of poverty reduction. The focus is mainly on three domains (1) Advocacy; (2) Policy Change and (3) Service Delivery.
Three case studies illustrate how poverty can be addressed at various levels and through different approaches:
Book Review: Wisdom: From Philosophy to Neuroscience” – via Slate – Is there such a thing as wisdom — a thing, stuff, an abstract entity — or are there only wise individuals and wise actions and attitudes, these latter not exclusively the possession of the individuals in question given that even fools can sometimes be wise?
Warning: Homophily and Contagion Are Generically Confounded in Observational Social Network Studies – via Archive – We consider processes on social networks that can potentially involve three phenomena: homophily, or the formation of social ties due to matching individual traits; social contagion, also known as social influence; and the causal effect of an individual’s covariates on their behavior or other measurable responses. We show that, generically, all of these are confounded with each other. Distinguishing them from one another requires strong assumptions on the parametrization of the social process or on the adequacy of the covariates used (or both). In particular we demonstrate, with simple examples, that asymmetries in regression coefficients cannot identify causal effects, and that very simple models of imitation (a form of social contagion) can produce substantial correlations between an individual’s enduring traits and their choices, even when there is no intrinsic affinity between them. We also suggest some possible constructive responses to these results.
Exclusive Picks + Financial Topics
Who Knew Bankruptcy Paid So Well? – via NYTimes – MORE than $263,000 for photocopies in four months. Over $2,100 in limousine rides by one partner in one month. And $48 just to leave a message. Explanations for these charges? Priceless.
Are Courts Becoming Less Friendly to Distress Investors? – via Harvard Law School – Even if the developments are adjustments to perceived excesses, they could cause a reaction with its own negative consequences. The growth in secondary or distress investing has been at least thirty years in the making and is a significant contributor to the the prompt resolution of cases. The bankruptcy arena has been one of contention over issues of position, value and expectations for generations. There have been economic crises before that have flooded the courts with cases. However, this may be the first time a class of investor is the apparent target of critical judicial sentiment.
Greece Reaches Bailout Deal With EU, IMF – via WSJ – Greece reached a historic deal with other euro-zone countries and the International Monetary Fund for a three-year, €110 billion ($146.5 billion) bailout, as the country’s prime minister on Sunday exhorted his nation to bear the sacrifices needed to mend broken public finances and vowed that his government won’t “allow the country to become bankrupt.”
Athens Confronts Sisyphean Task in Austerity Program – via WSJ With Greeks already taking to the streets of Athens to protest measures announced so far, many analysts say the Greek government will be unable to impose the spending cuts needed to trim its budget deficit by 12% of its gross domestic product in three years. But history suggests that such efforts aren’t that unusual.
Greece Agrees to a Bailout Deal With EU and I.M.F. – via NYT -Prime Minister George Papandreou said Sunday that Greece had reached an agreement with the International Monetary Fund and the European Union on a long-delayed rescue package that is expected to be worth as much as €120 billion. The deal aims to help the country avoid debt default and prevent economic contagion from spreading throughout the region.
A Concise History of Exchange Rate Regimes In Latin America – via Policy Pointers – This US paper analyzes the exchange rate experience of the major Latin American countries including Argentina, Brazil, Mexico, Colombia, Chile, Peru and others in the post-World-War period, up to the crisis caused by the collapse of the U.S. housing bubble
The Importance of Following The Money – via Econbrowser – What happened to housing and financial markets over the last decade? To find out, follow the money. According to Yale Professor Robert Shiller’s data, the run-up and collapse of U.S. home prices over the last decade were without precedent over the previous century. Where did U.S. households get the money they needed to bid up house prices so high?
Reputational Capital and Incentives in Organizations – via Rajiv Sethi – If the preservation of its reputation for serving the interests of its clients was a major organizational goal for Goldman, then something clearly went terribly wrong. Consider, for example, Chris Nicholson’s report on the manner in which the bank managed to shed its holdings of mortgage backed securities shortly before they collapsed in value, allegedly serving itself “at the expense of its clients.” Nicholson reproduces the following email from an employee at the European sales desk to the head of mortgage trading:
Some benefits and costs from participating in a monetary union – via Voxeu – Why would countries share a single currenty? This column introduces a new CEPR Policy Insight and argues that some aspects are missing in the current debate on the merits of the EMU. Benefiting from monetary union is a matter of time, perseverance, and seizing opportunities.
Business Failure Case Study: The rise and demise of Lucent Technologies – via MPRA – We analyze the rise and demise of Lucent Technologies from the time that it was spun off from AT&T in April 1996 to its merger with Alcatel in December 2006. The analysis, contained in the three sections that form the body of this paper, considers three questions concerning Lucent’s performance over the decade of its existence. 1.How was Lucent, with over $20 billion in sales in 1995 as a division of AT&T, able to almost double its size by achieving a compound growth rate of over 17 percent per year from 1995 to 1999? 2.What was the relationship between Lucent’s growth strategy during the Internet boom and the company’s financial difficulties in the Internet crash of 2001-2003 when the Lucent was on the brink of bankruptcy? 3.After extensive restructuring during the telecommunications industry downturn of 2001-2003, why was Lucent unable to re-emerge as an innovative competitor in the communications equipment industry when the industry recovered?
SEC Seeks Records of GE’s Disclosures in Financial Crisis – via Propublica – Last week, the company disclosed that the Securities and Exchange Commission is reviewing what the company said publicly about its liquidity in September 2008, as the crisis unfolded. Paulson’s book says Immelt told him on Sept. 8 and Sept. 15 that GE was having difficulties selling its short-term debt, or commercial paper, and that Immelt’s description of the problem alarmed him.
Academic Research Worth Reading
Gender and the Influence of Peer Alcohol Consumption on Adolescent Sexual Activity– IZA – I consider the alcohol consumption of opposite-gender peers as explanatory to adolescent sexual intercourse and demonstrate that female sexual activity is higher where there is higher alcohol consumption among male peers. This relationship is robust to school fixed effects, cannot be explained by broader cohort effects or general anti-social behaviors in male peer groups, and is distinctly different from any influence of the alcohol consumption of female peers which is shown to have no influence on female sexual activity. There is no evidence that male sexual activity responds to female-peer alcohol consumption.
Testing Predictions From Personality Neuroscience : Brain Structure and the Big Five Personality Traits – via APS – each trait with the volume of different brain regions. Controlling for age, sex, and whole-brain volume, results from structural magnetic resonance imaging of 116 healthy adults supported our hypotheses for four of the five traits: Extraversion, Neuroticism, Agreeableness, and Conscientiousness. Extraversion covaried with volume of medial orbitofrontal cortex, a brain region involved in processing reward information. Neuroticism covaried with volume of brain regions associated with threat, punishment, and negative affect. Agreeableness covaried with volume in regions that process information about the intentions and mental states of other individuals. Conscientiousness covaried with volume in lateral prefrontal cortex, a region involved in planning and the voluntary control of behavior. These findings support our biologically based, explanatory model of the Big Five and demonstrate the potential of personality neuroscience (i.e., the systematic study of individual differences in personality using neuroscience methods) as a discipline.
Domain-specific temporal discounting and temptation – via SJDM – In this investigation, we test whether temporal discounting is domain-specific (i.e., compared to other people, can an individual have a relatively high discount rate for one type of reward but a relatively low discount rate for another?), and we examine whether individual differences in the types of rewards one finds tempting explain domain-specificity in discount rates. Adults discounted delayed rewards they found particularly tempting (defined as the visceral attraction to and enjoyment of a reward) more steeply than did adults who did not find the rewards as tempting, contrary to what might be expected from the magnitude effect. Furthermore, we found significant group by domain interactions (e.g., chip lovers who do not like beer have relatively high discount rates for chips and relatively low discount rates for beer, whereas beer lovers who do not like chips showed the opposite pattern). These results suggest that domain-specificity in temptation partially accounts for corresponding domain-specificity in temporal discounting.
Other Great Reads
Why Executive Pay Is So High – via Finance Professor – “… the boards supposedly overseeing management are instead packed with lackeys with appalling frequency. It’s a familiar complaint but one that he believes is responsible for out-of-control pay, the short-term greed that helped spawn the recent financial meltdown and a staggering waste of resources. Wilson’s solution: Abolish the joint role of chief executive and chairman and install independent bosses to oversee boards.
Berkeley Scientists Discover Inexpensive Metal Catalyst for Generating Hydrogen from Water – via NSF – ydrogen would command a key role in future renewable energy technologies, experts agree, if a relatively cheap, efficient and carbon-neutral means of producing it can be developed. An important step towards this elusive goal has been taken by a team of researchers with the U.S. Department of Energy’s (DOE) Lawrence Berkeley National Laboratory (Berkeley Lab) and the University of California, Berkeley. The team has discovered an inexpensive metal catalyst that can effectively generate hydrogen gas from water.
Baby-Face Your CEO – via Overcoming Bias – We conduct beauty contest experiments, using close to 2,000 subjects. … We use pairs of photographs and find that subjects rate CEO faces as appearing more “competent” and less “likable” than non-CEO faces. Another experiment matches CEOs from large firms against CEOs from smaller firms and finds large-firm CEOs look more competent and likable. …We find that executive compensation is linked to these perceived “competence” ratings. … [This] can be explained by a quantitative scoring of the “maturity” or “baby-facedness” of the CEO. That is, more mature looking CEOs are assigned higher “competence” scores. …
Megatrends and megashocks: a new view of our future world – via PHys Org – A new report from CSIRO identifies five global megatrends and eight megashocks that are changing the world.
Old age improves reasoning about social conflicts – via Deric Bownds – It is well documented that aging is associated with cognitive declines in many domains. Yet it is a common lay belief that some aspects of thinking improve into old age. Specifically, older people are believed to show better competencies for reasoning about social dilemmas and conflicts.
Islams Beginnings – via Boston.com – In ’’Muhammad and the Believers: At the Origins of Islam,’’ University of Chicago historian Fred M. Donner wants to provide a similar back story for Islam — a religion which, in the popular imagination, sprang wholly formed from the seventh-century sands of Arabia. Mohammed preached at the juncture of the Roman and Sassanian empires, winning support from Christians, Jews, Zoroastrians, and various deist polytheists. According to Donner, Mohammed built a movement of devout spiritualists from many faiths who shared a few core beliefs: God was one, the end of the world was near, and the truly religious had to live exemplary lives rather than merely pay lip service to God’s laws. It was only a century after Mohammed founded his ’’community of believers” and launched the great Islamic conquest that his followers started to define their beliefs as a distinct religious faith.
Global Interest Rate Tracker – via ChartPorn –
How We pay – via guardian
Visualizing The Housing Bubble – via Data Viz