Weekly Roundup 99: A Curated Linkfest For The Smartest People On The Web

Handpicked to satisfy your intellectual curiosity!

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Weekly Saying/ Joke

“The quickest way to double your money is to fold it in half and put it back in your pocket.”

Must Read Articles!!!

Vaclav Smil: Local scientist’s theories on globalization and energy consumption have wide influence - via WinniepegFreePress- Dr. Vaclav Smil, a distinguished professor in the Faculty of Environment at the University of Manitoba, has published 30 books, four in 2010. His latest, Prime Movers of Globalization, is receiving positive reviews.

As the World Burns: How the Senate and the White House missed their best chance to deal with climate change - via The New Yorker -Kerry, Graham, and Lieberman were not alone in their belief that transforming the economy required coöperation, rather than confrontation, with industry. American Presidents who have attempted large-scale economic transformation have always had their efforts tempered—and sometimes neutered—by powerful economic interests. Obama knew that, too, and his Administration had led the effort to find workable compromises in the case of the bank bailouts, health-care legislation, and Wall Street reform. But on climate change Obama grew timid and gave up, leaving the dysfunctional Senate to figure out the issue on its own.


Heuristics Revealed:Understanding Our Sometimes Perilous Mental Shortcuts
- via APS- Heuristics are amazing time savers, which makes them essential to our busy lives. Many, like the familiarity heuristic, are an amalgam of habit and experience. We don’t want to deliberate every minor choice we make every day, and we don’t need to. But there are always risks when we stop deliberating. McCammon’s avalanche victims, for example, were almost all experienced backcountry skiers, and indeed almost half had had some formal training in avalanche awareness. This expertise didn’t guarantee that they would make the smartest choices. Paradoxically, their expertise may have hurt them. They were so familiar with the terrain that it seemed safe — simply because it always had been safe before. It was familiar, and thus unthreatening. The skiers let down their guard because they all remembered successful outings that looked pretty much the same as the treacherous one. In fact, McCammon found in his research that there were significantly more avalanche accidents when the skiers knew the specific locale, compared to ski parties exploring novel terrain.

Disillusionment: The Invisible Gorilla : And Other Ways Our Intuitions Deceive Us - via American Scientist – Now Chabris and Simons have written a book called The Invisible Gorilla, which takes as its theme two kinds of errors: gaps of various kinds in people’s cognitive abilities, and the inability of people to recognize those gaps or even to believe in their existence. Each of the six chapters analyzes a different category of “illusion”: the illusions of attention, memory, confidence, knowledge, cause and potential. The book, which is very entertaining and readable, is a pleasant mixture of experimental studies and anecdotal information. Many of the anecdotes are derived from criminal cases, in which the reliability of observation and of memory are issues of paramount importance.

How Four Drinking Buddies Saved Brazil – via NPR – Brazil is booming, but for most of the 20th century it was an economic mess. For a while, inflation was so high that grocery stores were raising their prices every day. Shoppers would run ahead of the guy changing the price tags, so they could pay the previous day’s price.A series of leaders tried and failed to stop inflation. One guy instituted a price freeze. Another froze peoples’ bank accounts. None of it worked. Then, the government brought in in four economists who had been talking to each other for years about how to fix Brazil’s inflation problem. Their solution: Create a currency that doesn’t exist. No coins, no bills.

The Cost of Anchoring on Credit-Card Minimum Repayments - via SagePub

Choices Shape Preferences – via APS – It has been proven that after you make a choice, you adjust your opinion to think better of the option you chose. Now a study published in Psychological Science has found that this is true even if you don’t know the options that you’re choosing between. Think about choosing Rome or Paris for a vacation. When first starting to decide, you may rate them about the same. But after choosing one as your destination, you’re likely to say that you prefer that city. This is thought to be a way to reduce the psychological tension created by rejecting one perfectly reasonable alternative and picking another one. Recently, critics have pointed out a flaw in this experimental design: you might actually have already liked Paris more than Rome, but for some reason this preference didn’t show up when you were asked to rate them.

Video: Jeff Bezos: What Life Story Will You Write? – via Open Culture -A quick bit of inspiration from the man who has changed the way we buy books, and now the way we’re reading them – Jeff Bezos (CEO, Amazon). Speaking at Princeton’s graduation last May, Bezos discussed the life choices that we all face: Will you follow dogma? Or be original? Will you play it safe? Or take good risks? Will you be a cynic? Or a builder? Will you be clever at the expense of others? Or will you be kind?

Will you lose more when there are lots of people at the casino? - via Bakadesuyo – The results suggest that gambling venues with more players tend to increase gambling persistence and contribute to greater long term monetary losses.

What makes people save? - via Economic Logic- Henrik Cronqvist and Stephan Siegel use data from identical twins in Sweden and conclude a little bit over everything is contributing. Of course, results will depend on whether people have faced circumstances that make saving difficult. 35% of the differences in saving propensity can be explained by genes, more so for men, educated and wealthier people. Parental influence is stronger when other siblings are present, which the authors interpret as a situation with less competition for parental resources (why? they are also competing for the parents’ attention). But all this means there is still 65% of the variation that can be educated. Which is a lot.

Dissent is a sterling asset – via FT – Sir Alec Issigonis, the designer of the Mini and the Morris Minor, once declared the camel to resemble “a horse that was planned by a committee”. He has a point: this column wasn’t written by a committee either. The risks of committee thinking were highlighted in 1972 by the psychologist Irving Janis in his famous analysis of the role of “groupthink” in the Bay of Pigs fiasco. Groupthink is the tendency of committees to congeal around a particular point of view, reassured by the fact that everybody agrees with everybody else, and nervous about expressing dissent.

Psychology for Economists – via Uu.nl- Orthodox economics focuses on the analysis of the way the economic force or motivation operates, thereby abstracting from the functioning of other primary forces or motivations, such as the social and the psychic motivation. By assuming perfect rationality psychic problems are ignored. This text discusses six approaches in psychology – cognitive, behaviourist, biological, psychodynamic, humanistic and social psychology – to find out what orthodox economics needs in order to extend its analysis with the more realistic idea of imperfect rationality. In this discussion the state of the art of behavioural economics in included.

Austrian Economics: A Primer - via PolicyPointers- This 120-page primer is an introduction for anyone who wants to understand the key insights of the Austrian School economists and their relevance and importance to our economic situation today

Risk aversion and physical prowess: Prediction, choice and bias – via SpringerLink – This paper reports on experiments where individuals are asked to make risky decisions for themselves, and to predict the risky decisions of others. Prior research shows that people predict women to be more risk averse than men, a result we confirm. We investigate whether differences in physical prowess underlie actual and perceived gender differences, a hypothesis suggested by both evolutionary and economic theories. Overall we find that perceptions of others’ risk attitudes reflect stereotypes about gender and strength but tend to exaggerate the underlying relationships. Physically stronger and taller people and those perceived as attractive are predicted to be more risk tolerant, while women are perceived to be more risk averse. The impact of gender and physical prowess measures on actual gamble choices is much weaker. Sources of prediction bias are examined, showing that specific characteristics of the target and predictor lead to systematic over-prediction or under-prediction of risk aversion.

“People forget what you say, but they remember how you made them feel” - via Influence People – Persuasion is defined by many as the ability to move a person or a group from one level of thought or abstraction to a level the person performing the persuasion wants to move them to. Aristotle, often regarded as the founding father of persuasion, devised a simple equation of how persuasion can be both defined and performed with the outcome of moving a person or a group from point A to point B.

Are mentally-stimulating activities good or bad for the brain? The true story- via Sharp Brains- Con­se­quence: In healthy peo­ple, more fre­quent cog­ni­tive activ­ity is related to delayed and slower cog­ni­tive decline. Even if Alzheimer’s pathol­ogy is devel­op­ing in the brain, the symp­toms will not show until later. Demen­tia onset is thus post­poned. Whether pathol­ogy is present in the brain or not, engag­ing in cog­ni­tive activ­ity con­tributes to delay a decline that oth­er­wise would occur.

Forget What You Know About Good Study Habits - via NYT – Every September, millions of parents try a kind of psychological witchcraft, to transform their summer-glazed campers into fall students, their video-bugs into bookworms. Advice is cheap and all too familiar: Clear a quiet work space. Stick to a homework schedule. Set goals. Set boundaries. Do not bribe (except in emergencies).

Video: Documentary Series: Quants the Alchemists Of Wall St- via DataVisualization.ch-  a series of documentaries covering topics that involve our current financial and economical “industry” world-wide. In one episode, directed by Marije Meerman, “Quants” talk about the way they think and how their way of thinking can determine the direction of our economy. This 50 minute long document, contains 6 custom short abstract animations we did, to “explain” the complexity, randomness, speed and danger of the economical world we live in.

Miguel’s Favorite Articles

Prospect Theory and the Taxpayer Receipt - via MotherJones- If you apply this to the idea of the taxpayer receipt you can see why it’s unlikely to happen. Suppose that the current budget allocation contains $1 billion of goodies for Republicans and $1 billion of goodies for Democrats. And suppose both sides accurately believe that the receipt idea gives them a 50-50 chance of getting the other’s guy’s goodies and a 50-50 chance of losing their existing $1 billion in goodies. Neither side would take the gamble. In fact, it’s even worse than that: both sides might believe they have a 50-50 chance of gaining $1.5 billion in goodies along with a 50-50 chance of losing their existing goodies and they still wouldn’t take the gamble. The risk of losing something they currently have is just too strong.

Psychology shows up thinking of economists
- via Business Day – IN MY next life I’m going to be a psychologist. If I can make myself work harder at uni than I did last time, I’ll become an academic and start a new branch of the discipline called PPP – public policy psychology. Why? Because there’s such a glaring need for it. The politicians themselves have a reasonable feel for how people think and behave, but much of their advice comes from a profession that believes the principles of human behaviour need only be assumed, not studied empirically. Assume everyone behaves ”rationally” – that we all think like Albert Einstein, store as much memory as IBM’s Big Blue and have the willpower of Mahatma Gandhi, that our preferences never change – and your equations will work perfectly.

Thinking About Time Or Money Impacts How We Spend Our Days
- via SciAm- Priming our mind with thoughts of time or money influences our future behavior. Christie Nicholson reports

If You Want to Catch a Liar, Make Him Draw - via Neuronarrative – A man accused of a crime is brought into a police interrogation room and sits down at an empty table. There’s no polygraph equipment in sight, and the typical two-cop questioning team isn’t in the room either. Instead, one officer enters the room with a piece of paper and a pencil in his hands. He sets them in front of the suspect, steps back, and calmly says, “draw.”

Outsmart your brain by knowing when you are wrong - via Troy Simpson- Humans are incredibly bad at summing up a bunch of small numbers. I had recently read a study that looked into why people are so bad at this task, but the important part was people commonly underestimate the total. As soon as we were talking about the remaining slots I knew that we would be all wildly underestimating the number of remaining tickets.

Dan Ariely: Taxes and fun? – via Predictably Irrational – April: That time of year when the weather is perfect and the mosquitoes have yet to emerge full swarm. When you can start to think about lying by the pool without fully having to come to terms with wearing a bathing suit in public….…And yet it’s that time of year when the majority of the country will be gripped by stress as that fateful day moves ever closer – April 15th, tax day. No one likes cutting a check to Uncle Sam, and the fact that the process of filling out the tax forms resembles a nightmarish (Choose-Your-Own-Adventure) story does nothing to improve matters. But as is often the case, the anticipation is arguably the worst part, and typically one dedicated night (in addition to a more substantial amount of time taken to organize) is sufficient to finish the paperwork. It’s just a matter of convincing yourself to sit down and do it.

Defaults: Tools of choice architecture
– via Decision Science News – Defaults are settings or choices that apply to individuals who do not take active steps to change them (Brown & Krishna, 2004). Collections of default settings, or “default configurations” determine the way products, services, or policies are initially encountered by consumers, while “reuse defaults” come into play with subsequent uses of a product. At the finest level, a single question can have “choice option default”, which on electronic forms can take the shape of a pre-checked box (Johnson, Bellman, and Lohse, 2002).

At what ages are we happiest? - via Bakadesuyo- We find that life satisfaction reaches another local maximum around the age of 83, with a level identical to that of a 26-year old.

Does power make you spend more money on yourself vs others?
- via Bakadesuyo – We propose that this effect occurs because power and powerlessness affect the psychological utility of self versus others, and this in turn affects the monetary worth allocated to spending on self versus others.

Rebate card comes with a catch - via Oregon Live – Specifically, I fell prone to “labeling bias,” said Dilip Soman, a marketing professor at the University of Toronto who studies consumer behavior. I earmarked my rebate for remodeling expenses, perhaps even because the card said “Electrolux” on it. How we label or categorize money affects how we think and spend it, often in ways we don’t even realize, economists have found, and they can be swayed by outside factors, including labels or framing.


Barbarians at the gates of complexity
- via John Kay – The defining characteristic of civilisation is the complexity of its organisation. But complexity breeds complexity, and is subject to diminishing returns. Eventually the costs of increased complexity exceed the benefits.

Video: RSA Animate – 21st century enlightenment - Matthew Taylor explores the meaning of 21st century enlightenment, how the idea might help us meet the challenges we face today, and the role that can be played by organisations such as the RSA

Why revenge is so sweet - via PopEconomics – A few years ago, Swiss researcher Ernst Fehr ran an experiment to see how far we’re willing to go to punish bad behavior. The game went like this. Player A and Player B were given $10 each. Player A was given the option of giving his money to Player B, and if he did the money would quadruple, making Player B’s take $50 in total. Player B could then chose to keep the money or give some money back to A. In a completely rational world, Player B would keep the entire $50, leaving A with nothing. Player A could easily expect that outcome, so he probably wouldn’t give B the money in the first place.

Black Swans in the ER — or, Purell is Lovely with a Little Chianti - via Paul Kedrosky – From an Emergency Medicine journal piece about “black swans” during toxicology rounds in an ER. An excerpt. Be sure to hang in until the last paragraph.

How much salt is in your fast food?
- via PLOS BLogs – Way too much, according to a study by Johnson and colleagues, published in the Archives of Internal Medicine.

Psychology beyond the Brain - via SciAm- More surprising, however, is the role of the entire body in psychology and the capacity for body parts inside and out to influence and regulate the most intimate operations of emotional and social life. The stomach’s gastric activity , for example, corresponds to how intensely people experience feelings such as happiness and disgust. The hands’ manipulation of objects that vary in temperature and texture influences judgments of how “warm” or “rough” people are. And the ovaries and testes’ production of progesterone and testosterone shapes behavior ranging from financial risk-taking to shopping preferences.

Maxwell’s Demon Investor- via PsyFi Blog – In the long-term we’ll all be dead because, in the long-term, there is no escape from the iron hand of thermodynamics which tells us that every system moves from a state of order to one of disorder. It’s a bit like your wardrobe spontaneously re-organising itself. Only when it’s finished you can’t actually find anything in it any more. Neat but bloody useless. The measurement of order in a system is known as entropy and the idea that entropy always increases is bound up with the idea that energy ultimately moves from a useful and usable state to one in which it’s unusable and useless. And this is as true of stockmarkets as any other system – not even the perfect demon can outperform the markets other than by luck unless they can also escape the laws of physics. Entropy rules – OK?

Video: PBS Series – The Human Spark - via APS- It’s Friday! Today’s video comes from The Human Spark. In the three-part series originally broadcast on PBS, Alan Alda visited dozens of scientists on three continents to explore nature of human uniqueness. In this video clip below, Social Networks and the Spark, Alda finds out from APS Member Robin Dunbar at Oxford University how human social networks compare to those of chimps. At Yale University, Alda watches babies as young as three months old pick cooperative puppets over those that won’t play.

Diworsification is Good for You – via PsyFi Blog – We all know that over-diversifying our stock portfolios is bad for our wealth. Even if our main aim is simply to avoid the problems of correlated stocks all falling together it’s well known that you can get most of the benefits of diversification from a portfolio of no more than fifteen companies. Anything else isn’t diversification it’s diworsification: it adds no benefit and costs us more. Only, like so many well-known truths about stocks, this is a myth. Owning as few as fifteen stocks opens you up to all of the terrible things that happen to investors that take on too much risk. In the worst case everyone loses money and you get a socialist government. How bad is that?

Products, Products Everywhere: Do companies really need to sell so many varieties of similar goods? No- via MIT Sloan Review – Consumer-goods companies, take note: It may be time to clean out the clutter. Manufacturers and retailers have expanded their product offerings at unprecedented rates over the past decade, often by taking a popular product and selling it in various sizes, brands, colors, fabrics and flavors. Some of these companies think that by being all things to all people—say, by offering 17 varieties of toothpaste—they will increase sales and deter competitors from entering the market. Others are afraid to remove products that have been around for a while—or are declining—for fear of turning off important customers. And sometimes, big retailers ask manufacturers to produce a unique version of a product just for them, so they can prevent customers from comparison shopping.

Learning and the “Social Brain”
- via NSF – New findings suggest that at birth, young children are prepared to learn from so-called social agents–other members in a group or society. Findings also suggest the “social brain” enhances and constrains social learning over a person’s lifetime. But, beyond learning social skills, can social interaction be used to acquire specific types of learning?

Is There Any Evidence for the “Porn-Addicted Brain”? – via Neurocritic- Sure, compulsive overconsumption of porn that intrudes upon one’s daily life and hinders the ability to have healthy relationships is problematic, even when the viewer is not a criminal. And the escalating levels of violence, and weirdness, of internet video can add fuel to the fire. Religious organizations use this as an excuse for promoting campaigns to condemn any form of sex that occurs outside of holy matrimony.

Is Gossip Good for You? - via NyT- “IF you can’t say something good about someone, sit right here by me,” Alice Roosevelt Longworth, a self-proclaimed “hedonist,” used to say. But it seems the greater pleasure comes from more temperate gossip. New research finds that gossiping can be good for you — as long as you have something nice to say.

Should We All Learn Computer Programming? - via Good- Rushkoff argues that people need to learn computer programming because, unless they do, they won’t be able to recognize when they’re being exploited by technology.

Young, Educated, and Unemployed: A New Generation of Kids Search for Work in their 20s - via Good – “Young college graduates are vastly underutilized. They go ahead and complete school and we don’t have anything to offer them once they’re out,” says Sum, referring to the young college graduates who are without work. In the more than 20 years that he’s been studying the issue, Sum says that the current downturn has negatively affected young people the most—and not just in terms of their take-home pay. For some people, the recession has forever altered perceptions of how the world works, creating the impression that success has more to do with luck than with hard work.

Vintners, growers show some optimism - via Nudge Blog – The wine industry’s big push into social marketing to tap a much-anticipated surge in direct sales to “millennial” generation consumers might pay off in reaching older consumers as the spending power of the younger group has suffered along with the economy, a wine marketing veteran said. By 2005 the millennial generation — the oldest among them about age 30 — became seen as “driving the wine train” for growth in sales because of a greater proportionate affinity for wine than Generation X, Hahn Family Wines President Bill Leigon told the symposium gathering of about 220 mostly winery and banking executives.

Choke! -via Boston.com- A psychologist’s new look at why we choke under pressure, and what we can do about it

Family and Culture Affect Whether Intelligence Leads to Education - via APS – Intelligence isn’t the only thing that affects your education: family, culture, and other factors are important, too. A new study published in Psychological Science, compared identical and fraternal twins in Minnesota and Sweden to explore how the genetic and environmental factors involved in education differ in countries with different educational systems. It turns out, family background can increase education even for people of low intelligence, but it helps much more in Minnesota, than in Sweden.

Financial/Investing Related

Video: 23 Things They Don’t Tell You About Capitalism – via Fora.tv – Development economics expert Ha-Joon Chang dispels the myths and prejudices that have come to dominate our understanding of how the world works.

Slim Odds for Inventors - via WSJ- Stu Berger has created more than 50 consumer products from inventors’ ideas—including some of his own—in hopes of turning them into commercial hits. He expects his first big break later this month when one of those products, a posture-correcting pillow called the Side Sleeper Pro, goes on sale at some Bed Bath & Beyond Inc. stores as well as the retailer’s website. “I thought this day would never come,” says Mr. Berger, owner of Integrated Merchandise Group International Ltd., a sole proprietorship in Mamaroneck, N.Y.

Convex Payoffs – Implications for Risk-Taking and Financial Reform – via Seth’s Posterous- Financial executive pay is a convex function of profits if recipients get a greater increment in pay when returns are high as opposed to moderate, compared with when returns are moderate as opposed to low. Convex compensation packages give financial executives incentive to adopt risky investment projects, implement highly levered capital structures, and create new risk. Financial regulators may be able to enforce changes in compensation that would attenuate these adverse effects.

Do investors obtain their returns smoothly over time or is their performance determined by the return of a few outliers? - via Bakadesuyo -The evidence from the Dow Jones Industrial Average over the 1900-2006 period shows that a few outliers have a massive impact on long-term performance. Missing the best 10 days resulted in portfolios 65% less valuable than a passive investment and avoiding the worst 10 days resulted in portfolios 206% more valuable than a passive investment. Given that 10 days represent 0.03% of the days in the sample, the odds against successful market timing are staggering.

Who Owns A.I.G. (a Continuing Story) - via NYT- The federal government’s exit plan from the American International Group involves one of the largest corporate reorganizations in history. It contemplates the conversion and sale of $49.1 billion in the government’s preferred share ownership interests, the $15.5 billion sale of A.I.G.’s Alico subsidiary to MetLife, the approximately $15 billion initial public offering of the company’s American International Assurance subsidiary and the repayment of a $20 billion loan to the Federal Reserve. This is an example of how the government has employed a deal-like approach to its investments and used corporate finance tools to meet its goals. This restructuring also involves a rejiggering of the government’s ownership and control position in A.I.G., one that will bring the insurance giant under the direct control of the Treasury Department.

It Pays to Violate:How Effective are the Basel Accord Penalties? -via Tokyo- The internal models amendment to the Basel Accord allows banks to use internal models to forecast Value-at-Risk (VaR) thresholds, which are used to calculate the required capital that banks must hold in reserve as a protection against negative changes in the value of their trading portfolios. As capital reserves lead to an opportunity cost to banks, it is likely that banks could be tempted to use models that underpredict risk, and hence lead to low capital charges. In order to avoid this problem the Basel Accord introduced a backtesting procedure, whereby banks using models that led to excessive violations are penalised through higher capital charges. This paper investigates the performance of five popular volatility models that can be used to forecast VaR thresholds under a variety of distributional assumptions. The results suggest that, within the current constraints and the penalty structure of the Basel Accord, the lowest capital charges arise when using models that lead to excessive violations, thereby suggesting the current penalty structure is not severe enough to control risk management. In addition, an alternative penalty structure is suggested to be more effective in aligning the interests of banks and regulators.

Resolving Sovereign Debt Crises - via policy Pointers – This 42-page German study aims at guiding governments, parliamentarians, and an interested public in today’s critically indebted low- and middle-income countries in the global South to possible alternative crisis resolutions mechanisms

The Longer Tail: The Changing Shape of Amazon’s Sales Distribution Curve
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via SSRN – Internet consumers derive significant surplus from increased product variety, and in particular, the “Long Tail” of niche products that can be found on the Internet at retailers like Amazon.com. In this paper we analyze how the shape of Amazon’s sales distribution curve has changed from 2000 to 2008, and how this impacts the resulting consumer surplus gains from increased product variety in the online book market. Specifically, in 2008 we collected sales and sales rank data on a broad sample of books sold through Amazon.com and compare it to similar data we gathered in 2000. We then develop a new methodology for fitting the relationship between sales and sales rank and apply it to our data. We find that the Long Tail has grown longer over time, with niche books accounting for a larger share of total sales. Our analyses suggest that by 2008, niche books account for 36.7% of Amazon’s sales and the consumer surplus generated by niche books has increased at least five fold from 2000 to 2008. We argue that this increase is consistent with the presence of “secondary” supply- and demand- side effects driving the growth of the Long Tail online. In addition, our new methodology finds that, while power laws are a good first approximation for the rank-sales relationship, the slope is not constant for all book ranks, becoming progressively steeper for more obscure books.

Frontline and ProPublica Detail BP’s Corporate Culture in ‘The Spill’ - via ProPublica – Though BP’s Deepwater Horizon oil spill in the Gulf has prompted investigations of the disaster itself and who’s to blame, we’ve reported that over the past decade BP’s [1]own internal investigations [2] warned that the company was risking major accidents by disregarding safety and environmental rules.

Academic Papers

Should husband and wife pool their incomes? - via Bakadesuyo – This article addresses the problem of optimal provision of household public goods in family decision-making. In particular, we attempt to answer the question of whether or not the family is better off as an entity when spouses pool their incomes. Our findings suggest that the equilibrium attained when incomes are pooled is Pareto superior to the Cournot-Nash equilibrium outcome.

The Problem of the Commons: Still Unsettled After 100 Years - via RFF – The problem of the commons is more important to our lives and thus more central to economics than a century ago when Katharine Coman led off the first issue of the American Economic Review. As the U.S. and other economies have grown, the carrying-capacity of the planet in regard to natural resources and environmental quality — has become a greater concern, particularly for common-property and open-access resources. The focus of this article is on some important, unsettled problems of the commons. Within the realm of natural resources, there are special challenges associated with renewable resources, which are frequently characterized by open access. An important example is the degradation of open-access fisheries. Critical commons problems are also associated with environmental quality. A key contribution of economics has been the development of market-based approaches to environmental protection. These instruments are key to addressing the ultimate commons problem of the twenty-first century global climate change.

Respect as an Incentive - via IZA – Assuming that people care not only about what others do but also on what others think, we study respect as a non-monetary source of motivation in a context where the length of the employment relationship is endogeneous. In our three-stage gift-exchange experiment, the employer can express respect by giving the employee costly symbolic rewards after observing his level of effort. This experiment sheds light on the extent to which symbolic rewards are used, how they affect employees’ further effort, the duration of relationships, and the profits of employers. Furthermore, we study whether employers’ decisions to give symbolic rewards are driven by strategic considerations, by manipulating the bargaining power of employers and employees. We find that employers make use of symbolic rewards and chiefly to express their satisfaction with the employee. Indeed, symbolic rewards are more frequently used when there is excess supply of labor in the market while they are used in almost the same proportion when the market is balanced and when there is excess demand of labor. They are associated with higher profits and increased probability of continuing employment relationships. Overall, however, the opportunity of expressing respect does not improve efficiency compared with an environment in which it does not exist, possibly due to a crowding-out of extrinsic incentives by the availability of non-monetary incentives.

Group Reciprocity - via Uni Jenna- People exhibit group reciprocity when they retaliate, not against the person who harmed them, but against somebody else in that person’s group. Group reciprocity may be a key motivation behind intergroup conflict. We investigated group reciprocity in a laboratory experiment. After a group identity manipulation, subjects played a Prisoner’s Dilemma with others from different groups. Subjects then allocated money between themselves and others, learning the group of the others. Subjects who knew that their partner in the Prisoner’s Dilemma had defected became relatively less generous to people from the partner’s group, compared to a third group. We use our experiment to develop hypotheses about group reciprocity and its correlates.


Financial Decision Making and Cognition in a Family Context
-via Rand- In this paper, we studied the association of cognitive traits and in particular numeracy of both spouses on financial outcomes of the family. We found significant effects, particularly for numeracy for financial and non-financial respondents alike, but much larger effects for the financial decision maker in the family. We also examined who makes these financial decisions in the family and why. Once again, cognitive traits such as numeracy were an important component of that decision with larger effects of numeracy for husbands compared to wives.

Infographics

Where Does The Average American’s Money Go


About Miguel Barbosa

I run this site.

10. October 2004 by Miguel Barbosa
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