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Weekly Cartoon (via Schans Blog)
Weekly Joke (Via Dwm Beancounter)
A fellow has been learning to be a balloonist and takes his first solo flight. Unfortunately the wind gets up, he is blown off course and is forced to land. He is in a paddock close to a road but has no idea where he is. He sees a car coming along the road and hails it. The driver gets out and the balloonist says, “G’day sir, can you tell me where I am?”
“Yes, of course”, says the motorist. “You have just landed in your balloon and with this wind you have obviously been blown off course. You are in the back field on John Dawson’s farm, 13.5 miles from Knoxville. John will be plowing and sowing corn in the back field next week. There is a bull in the field. It is behind you and about to attack you.”
At the moment the bull reaches the balloonist and tosses him over the fence. Luckily he is unhurt. He gets up, dusts himself off and says to the motorist, “I see you’re an accountant”.
“Good Grief”, says the driver, “you’re right. How did you know that?”
“I employ accountants”, says the balloonist. “The information you gave me was detailed, precise and accurate. Most of it was useless and it arrived far too late to be of any help.”
Must Reads For All Visitors
Mass Animal Extinctions, Not Climate Change, Caused Major Shifts in Plant Communities - via NSF – NSF-supported researchers investigate a connection between the disappearance of certain plant communities and the late-Pleistocene extinction of large mammal species in North America
Why You Should: Chase Your Reading (habits) – via Overcoming Bias – Hunting has two main modes: searching and chasing. With searching you look for something to chase. With chasing, in contrast, you have a focus of attention that drives your actions. You may find something else worth chasing along the way, and then switch your focus to a new chase, but you’ll still maintain a focus.
Decision Researcher: Sheena Iyengar on the Situation of Choice - via Situationist – In her new book The Art of Choosing, Columbia University professor [and Situationist friend] Sheena Iyengar, a leading expert on choice, sets herself the task of helping us become better choosers. She asks fascinating questions: Is the desire for choice innate or created by culture? Why do we sometimes choose against our best interests? How much control do we really have over what we choose? Ultimately, she offers unexpected and profound answers, drawn from her award-winning, discipline-spanning research.
An autopsy of the US financial system: Accident, suicide, or negligent homicide? - via Voxeu – Many policymakers stress that the global crisis was caused by a series of unforeseen events and “suicidal” behaviour by market players. This column argues that this is a self-serving narrative. Policymakers designed, implemented, and maintained policies that destabilised the financial system in the decade leading up to 2006 – and were fully aware they were doing so. It is a case of “negligent homicide”.
Another Debt Crisis Is Brewing, This One in Student Loans - via Open Culture & NYT – This is not a long-term solution, because the interest on the loans continues to pile up. So in an eerie echo of the mortgage crisis, tens of thousands of people like Ms. Munna are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up. Meanwhile, universities like N.Y.U. enrolled students without asking many questions about whether they could afford a $50,000 annual tuition bill. Then the colleges introduced the students to lenders who underwrote big loans without any idea of what the students might earn someday — just like the mortgage lenders who didn’t ask borrowers to verify their incomes.
Economic Crisis and Globalization - via Openculture – The news isn’t good. The Euro is losing value daily. Countries are slipping into “sovereign debt crises” – meaning they’re going broke. And the markets are swooning once again. We’re watching the proverbial other shoe drop.
New Book: The Shallows: What the Internet Is Doing to Our Brains by Nicholas Carr - via My Mind On Books – “Is Google making us stupid?” When Nicholas Carr posed that question, in a celebrated Atlantic Monthly cover story, he tapped into a well of anxiety about how the Internet is changing us. He also crystallized one of the most important debates of our time: As we enjoy the Net’s bounties, are we sacrificing our ability to read and think deeply?
New book – ‘How Pleasure Works’ by Paul Bloom - via My Mind On Books – Yale psychologist Paul Bloom presents a striking new vision of the pleasures of everyday life. The thought of sex with a virgin is intensely arousing for many men. The average American spends over four hours a day watching television. Abstract art can sell for millions of dollars. Young children enjoy playing with imaginary friends and can be comforted by security blankets. People slow their cars to look at gory accidents, and go to movies that make them cry.
Toward a global risk map - via BIS – Global risk maps are unified databases that provide risk exposure data to supervisors and the broader financial market community worldwide. We think of them as giant matrices that track the bilateral (firm-level) exposures of banks, non-bank financial institutions and other relevant market participants. While useful in principle, these giant matrices are unlikely to materialise outside the narrow and targeted efforts currently being pursued in the supervisory domain. This reflects the well known trade-offs between the macro and micro dimensions of data collection and dissemination. It is possible, however, to adapt existing statistical reporting frameworks in ways that would facilitate an analysis of exposures and build-ups of risk over time at the aggregate (sectoral) level. To do so would move us significantly in the direction of constructing the ideal global risk map. It would also help us sidestep the complex legal challenges surrounding the sharing or dissemination of firm-level data, and it would support a two-step approach to systemic risk monitoring. That is, the alarms sounded by the aggregate data would yield the critical pieces of information to inform targeted analysis of more detailed data at the firm- or market-level.
BP Misleads You With Charts - via Good – Here’s the problem (first caught by Rachel Maddow’s blog): The volume of oil represented by those green bars is cumulative. It’s the running total amount of oil the riser insertion tool has collected, not each day’s individual total. So of course it’s increasing. It couldn’t possibly decrease. In the context of the video, however, you might well think that these ever-taller green bars represent an ever-more effective oil collection thanks to the parameter tweaking he’s just been talking about.
Impact of jobless benefits running out - via APR – There are now more than 10 million people nationwide getting unemployment checks. And with federal subsidies, the maximum length of time they can keep getting a check is 99 weeks. But people may run out of benefits before they reach that point because Congress hasn’t acted to keep funding the program. The House passed a bill to extend benefits, but the Senate left town without doing anything.
Whats really happening in Haiti - via NPR – Unprecedented amounts of money have been pledged to Haitian relief in the last few months. American households have given over $1 billion and in March, 120 countries pledged over $9 billion(!) to rebuild. The only problem is that – historically – blanketing a country in aid and money has never really worked so well. Is there a chance this time things could be different?
Miguel’s Weekly Favorites
Famous Psychologist Elizabeth Loftus: Truth or Consequences?Exploiting psychology in law and advertising. - Via Leadon Young & Slate.com- By the turn of the century, Elizabeth Loftus was the world’s most influential debunker of false memories. She had rescued defendants from mistaken eyewitness testimony and from the pedophile witch hunt of the repressed-memory movement. But two dangers lurked at the core of her work. She was learning more and more about how to manipulate beliefs. And her allegiance to truth was negotiable.
Polygraphs and Private Eyes: Inside the National Enquirer’s elaborate fact-checking process - viaCJR – Prior to returning my call, Barry Levine was on the phone with one of his reporters, discussing a source they hoped to use for a story. For Levine, the executive editor/director of news at the National Enquirer, that entailed discussing the strategy and questions that would be used during an upcoming polygraph examination of the source. Yes, things work a bit differently at the Enquirer.
The Why-Worry Generation - via NYT -For the past few years, it’s been open season on Generation Y — also known as the millennials, echo boomers or, less flatteringly, Generation Me. Once described by the trend-watchers Neil Howe and William Strauss as “the next great generation” — optimistic, idealistic and destined to do good — millennials, born between 1982 and 2002, have been depicted more recently by employers, professors and earnestly concerned mental-health experts as entitled whiners who have been spoiled by parents who overstoked their self-esteem, teachers who granted undeserved A’s and sports coaches who bestowed trophies on any player who showed up.
Video: Scholarship in the Age of Immediacy - via River Valley TV – How will scholars interact in the future? Winship discusses how radically his own practices have changed, problems with current delivery systems, information overload, and the rigidity of the current structure. Are intermediary structures, anAmazon for journal articles, the answer?
Tom Brakke Pricing glamour - via Research Puzzle – I found myself at a luxury car dealership the other day, talking to a salesman about pricing. I was trying to get at the price/value structure versus the competition. He was very open about everything and said, “People are willing to pay up for the name, and for this.”
Does good sex keep a marriage stable over the long term? - via Bakadesuyo – Sexual satisfaction, marital quality, and marital instability have been studied over the life course of couples in many previous studies, but less in relation to each other. On the basis of the longitudinal data from 283 married couples, the authors used autoregressive models in this study to examine the causal sequences among these 3 constructs for husbands and wives separately. Results of cross-lagged models, for both husbands and wives, provided support for the causal sequences that proceed from sexual satisfaction to marital quality, from sexual satisfaction to marital instability, and from marital quality to marital instability. Initially higher levels of sexual satisfaction resulted in an increase in marital quality, which in turn led to a decrease in marital instability over time. Effects of sexual satisfaction on marital instability appear to have been mediated through marital quality.
When recycling goes bad - via Grist – A growing share of the nation’s coal ash is being reused and recycled, finding its way into building materials, publicly used land and even farmland growing food crops. And despite the presence of toxins like arsenic, chromium, and lead found in coal ash, these reuses go largely unregulated by state and federal officials.
Does Living Close to Your Destination Make You Late? A Very Small Experiment - via Freakonomics – I have wondered about it many times, and I’m guessing you have too: if you lived right around the corner from your destination (school, work, church, whatever), wouldn’t you always be on time? After all, there’d be no travel hassle, no potential traffic delays, etc. Or, conversely, might your proximity dull your sense of punctuality?
Empathy Dropped 40% in College Students Since 2000 - via Stats – College students who hit campus after 2000 have empathy levels that are 40% lower than those who came before them, according to a stunning new meta-analysis by University of Michigan researchers, which includes data from over 14,000 students.
“Science vs. Religion” discovers what scientists really think about religion - via Washington Post – Rice University sociologist Elaine Ecklund offers a fresh perspective on this debate in “Science vs. Religion.” Rather than offering another polemic, she builds on a detailed survey of almost 1,700 scientists at elite American research universities — the most comprehensive such study to date. These surveys and 275 lengthy follow-up interviews reveal that scientists often practice a closeted faith. They worry how their peers would react to learning about their religious views.
Racial bias weakens our ability to feel someone else’s pain – via Discover – You’re watching a video of a needle piercing an anonymous hand, sinking slowly into the web between the thumb and index finger. You wince as you imagine the pain that the other person must feel, and for good reason. As you watch, you nervous system essentially duplicates the experience, responding as if you were vicariously feeling the pain yourself. This is typical of what happens when people see others in pain, but Italian scientist Alessio Avenanti has found an important exception to the rule. Racial bias can negate this ability to feel the pain of someone from a different ethnic group.
The marketing industry’s cognitive blindness - via I love Marketing -In a recent NYT review of her new book, “The Art of Choosing,” Sheena Iyengar says that “Human beings are born to choose. But human beings are also born to create meaning. Choice and meaning are intertwined. We use choice to define our identities, and our choices are determined by the meanings we give them, from advertising-driven associations to personal relationships and philosophical commitments.”
Has American Pop Music Displaced Local Culture? - via Freakonomics – Advances in communication technologies over the past half century have made the cultural goods of one country more readily available to consumers in another, raising concerns that cultural products from large economies – in particular the U.S. – will displace the indigenous cultural products of smaller economies. In this paper we provide stylized facts about the global music consumption and trade since 1960, using a unique data on popular music charts from 22 countries, corresponding to over 98% of the global music market. We find that trade volumes are higher between countries that are geographically closer and between those that share a language. Contrary to growing fears about large- country dominance, trade shares are roughly proportional to country GDP shares; and relative to GDP, the U.S. music share is substantially below the shares of other smaller countries. We find a substantial bias toward domestic music which has, perhaps surprisingly, increased sharply in the past decade. We find no evidence that new communications channels – such as the growth of country-specific MTV channels and Internet penetration – reduce the consumption of domestic music. National policies aimed at preventing the death of local culture, such as radio airplay quotas, may explain part of the increasing consumption of local music.
Learning by doing: Seeking best practices for immersive journalism – OJR – The fundamental idea of immersive journalism is to allow the audience to actually enter a virtually recreated scenario representing the news story. The pieces can be built in online virtual worlds, such as Second Life, or produced using a head-tracked head-mounted display system, or HMD. An HMD is a lightweight helmet that has screens covering the eyes and tracks head movement so ensure digital imagery on the screens stays in perspective to create a sensation of having a virtual body in a virtual location. Immersive journalism can also be constructed in a Cave, which uses full body-tracking technologies in a small room so that individuals can move their bodies around the space.
Are Women Nicer? To Each Other? - via Freakonomics – A bit of self-promotion: in a recent paper, Jason Abrevaya and I examined whether female economists are less likely to say no when making recommendations on publishing papers, and whether they favor female authors. With lots of fancy econometric adjustments on a huge amount of data, we found no evidence that women are nicer in general; nor are they nicer to each other than to male economists.
Anatomy of a “Smart” Word - via Good – The common denominator of many smart terms is the implication of some artificial intelligence in the form of independence or adaptability. “Smart dust” consists of tiny sensors that someday might alert us to traffic jams and earthquakes. We’re already using “smart spiders” to monitor volcano activity. The government’s description of a smart grid includes, among other features, “Self-healing from power disturbance events.” Though “smart drug” usually refers to a type of brain-enhancing, intellectual Wheaties, it can also be a drug that targets cancer cells with the precision we hope for from smart bombs. Other examples include smart mud, smart alloys, smart fabric, smart lamps, smart glass, smart rubber, and even smart bowling balls that help bowlers improve.
This Is Your Brain’s Anti-Drug – via Neuroskeptic – What’s your anti-drug? Well, it might well be hemopressin. At least, that’s probably your anti-marijuana. Hemopressin is a small protein that was discovered in the brains of rodents in 2003: its name comes from the fact that it’s a breakdown product of hemoglobin and that it can lower blood pressure.
Photos of Sick People Trigger a Staunch Immunological Response. - via Psych Today -What are the adaptive origins of disgust? Evolutionary psychologists have proposed that the key functional benefit of disgust is to serve as a disease-avoidance mechanism. For example, two universal cues that elicit disgust are spoiled food and bodily secretions. This is not surprising given the potential for contracting a pathogenic infection from either of the latter two sources.
Scent Increases Product Recall - via Neuromarketing -Would you prefer a scented pencil? How about a tennis ball? Tires? You might not care, or even prefer to avoid the olfactory assault altogether, but research shows you’ll remember the product better if it has a scent.
‘Law-Like’ Mathematical Patterns in Human Preference Behavior Discovered - via SD – In a study appearing in the journal PLoS ONE, Massachusetts General Hospital (MGH) scientists describe finding mathematical patterns underlying the way individuals unconsciously distribute their preferences regarding approaching or avoiding objects in their environment. These patterns appear to meet the strict criteria used to determine whether something is a scientific law and, if confirmed in future studies, could potentially be used to guide diagnosis and treatment of psychiatric disorders.
The Science of Self-Motivation - via ScienceDaily — Can you help you? Recent research by University of Illinois Professor Dolores Albarracin and Visiting Assistant Professor Ibrahim Senay, along with Kenji Noguchi, Assistant Professor at Southern Mississippi University, has shown that those who ask themselves whether they will perform a task generally do better than those who tell themselves that they will.
Love It or Hate It, PowerPoint Shapes Strategy-Making, Says New Paper - via ScienceDaily — It’s a staple presentation tool in most businesses. It’s been banned as a productivity killer. It’s even been recently criticized by a U.S. military General as “dangerous” for over- simplifying sophisticated problems of warfare.
Exclusive Picks + Financial Topics
Breaking the Cycle – A Conversation with Emanuel Derman – via MoneyScience -
Famous Financial Author & Historian – Russell Napier On When To Expect The Treasury Bubble Crash - via Zero Hedge – Russell Napier, whose Anatomy of the Bear is one of the better market analysis books available, had one quite insightful observation. As the CFA noted in its press release on the matter, “One point that Mr. Napier made toward the end of his presentation was that the difference between current borrowing and previous peaks in government debt is that previous surges in the debt load were linked with the financing of conflict. As he put it, the current borrowing is to keep people alive rather than to kill. The implication for the global economy of this key difference is that social programs to subsidize a certain quality of life are not a profit-making endeavor in the same way as traditional twentieth century conflicts.” We wish we were as sanguine about this conclusion as Mr. Napier. With a rapidly deteriorating geopolitical situation in both the Middle and Far East, perhaps the massive entitlement spending has been nothing short of a diversion from the the traditionally massive “defense” spending. After all, there have been over $257 billion in defense vendor payments by the US Treasury since October, an outlay smaller only than Social Security Outlays and Medicare.
Orgy of Financial Speculation - via Barrons – Insiders of the top Nasdaq companies, a recent tally shows, are overwhelmingly sellers.
Damodaran: Cash and Cross holdings – via Musings on Markets – I am sorry about the long break between posts but I was on the road for much of the last two weeks and grading exams prior to that. I started my road trip with sessions in Slovenia and Croatia and continued on to India to make a presentation to the Tata Group, one of India’s premier family groups, with a long history of operating in every aspect of Indian business. As part of the preparation, I did value a Slovenian pharmaceutical company (Krka), a Croatian tobacco company (Adris Grupa) and four Tata companies (Tata Chemicals, Tata Steel, Tata Motors and Tata Consulting Services). The presentations and the spreadsheets containing the valuations are online and can be accessed by going to:
Evidence of a housing ATM effect? The destination of home equity extracted by US households during the recent housing boom - via Voxeu – In this column, Federal Reserve Bank of Boston economist Daniel Cooper presents new evidence suggesting that the spending impact of equity extraction during the recent US housing boom was relatively small compared with the household balance sheet changes and residential investment. This finding contrasts with recent findings claiming that households consumed the vast majority of the money they extracted.
Treasury vs dodgers: A tale of fiscal consolidation and tax evasion – via Voxeu – Europe’s highly indebted countries – Portugal, Italy, Ireland, Greece, and Spain – also face the problem of tax evasion. This column analyses how governments can tackle their fiscal deficits while reducing the possibility of forcing activity underground. It suggests that fewer, better paid public workers could complement tax cuts in fighting tax evasion.
Illiquidity and All Its Friends - via Jean Tirole – The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don’t know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistics, and asks whether liquidity should be regulated given that a capital adequacy requirement is already in place. The paper then analyzes market breakdowns due to either adverse selection or shortages of financial muscle, and explains why such breakdowns are endogenous to balance sheet choices and to information acquisition. It then looks at what economics can contribute to the debate on systemic risk and its containment. Finally, the paper takes a macroeconomic perspective, discusses shortages of aggregate liquidity and analyses how market value accounting and capital adequacy should react to asset prices. It concludes with a topical form of liquidity provision, monetary bailouts and recapitalizations, and analyses optimal combinations thereof; it stresses the need for macroprudential
Academic Research Worth Reading
Binge drinking and risky sex among college students – via Voxeu – It is commonly acknowledged that heavy alcohol consumers are more likely to be having sex. This column examines carefully the causal link from drinking to sex on US college campuses. After accounting for other potential co-determinants, the evidence suggests that binge drinking is unlikely to be the trigger for sexual activity, but might lead to more promiscuous sex than would otherwise take place, putting students at risk of unsafe sex.
A Model of a Systemic Bank Run – via Ideas Repec – The 2008 financial crisis is reminiscent of a bank run, but not quite. In particular, it is financial institutions withdrawing deposits from some core financial institutions, rather than depositors running on their local bank. These core financial institutions have invested the funds in asset-backed securities rather than committed to long-term projects. These securities can potentially be sold to a large pool of outside investors. The question arises, why these investors require steep discounts to do so. I therefore set out to provide a model of a systemic bank run delivering six stylized key features of this crisis. I consider two different motives for outside investors and their interaction with banks trading asset-backed securities: uncertainty aversion versus adverse selection. I shall argue that the version with uncertainty averse investors is more consistent with the stylized facts than the adverse selection perspective: in the former, the crisis deepens, the larger the market share of distressed core banks, while a run becomes less likely instead as a result in the adverse selection version. I conclude from that that the variant with uncertainty averse investors is more suitable to analyze policy implications. This paper therefore provides a model, in which the outright purchase of troubled assets by the government at prices above current market prices may both alleviate the financial crises as well as provide tax payers with returns above those for safe securities.
The Payout Phase of Pension Systems - via Rocha & Vittas- This paper provides a comparative summary of the payout phase of pension systems in five countries— Australia, Chile, Denmark, Sweden, and Switzerland. All five countries have large pension systems with mandatory or quasi-mandatory retirement savings schemes. But they exhibit important differences in the structure and roleof different pillars, regulation of payout options, level of annuitization, market structure, capital regulations, risk management, and use of risk sharing arrangements. The paper summarizes the experience of these countries and highlights the lessons they offer to other countries.
News Diets of Media Figures Supplement to “Ideological Segregation Online and Offline” - via Booth – We use data from comScore,Mediamark Research & Intelligence (MRI), and The AtlanticWire “Media Diet” to study
the news diets of media figures such as David Brooks and Tyler Cowen. We estimate the conservative exposure of each media figure: the share conservative on the average news outlet the person visits on an average day. We then compare the conservative exposure of media figures to that of a representative sample of Internet news consumers.
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