Weekly Roundup 57: A Curated Linkfest For The Smartest People On The Web
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Weekly Joke: (Via Econosseur)
The Yield Curve walks into a bar. The Bartender says, “Hey, you’re really getting into shape!” The Yield Curve replies, “Yep. I believe the Expectations Hypothesis is working on my slope!” The bartender inquires, “Are you sure?” to which the Yield Curve responds, “I’m positive.”
Miguel’s Favorite Piece(s) Of The Week:
Psychology Of Flow: Time Flies When You’re Having Fun – Via Scientific American – A study in the journal Psychological Science finds that if people believe that time has flown, they think they had more fun. Karen Hopkin reports
Value Investing & Behavioral Finance – Via ValueHunter
Video: Nightly Business Report: Your Mind Your Money -Extended Interview With Daniel Kahneman – Via NBR
Video: Nightly Business Report: Your Mind Your Money- Behavioral Finance Basics: An Introduction
Video: Nightly Business Report: Your Mind Your Money – Following The Crowd – Via NBR
Video: Nightly Business Report: Your Mind Your Money – Behavioral Finance Lessons With Greg Barnes
Exclusive Features (The Must Reads):
Credit Derivatives Are Not ‘Insurance’ – Via SSRN – According to the conventional wisdom, credit derivative contracts are a form of insurance. This view is held by academics, pundits, journalists, and government officials. This essay shows why they are wrong. While there is some superficial similarity between some kinds of credit derivative contracts and insurance contracts – both involve payments by a party holding a risk to another party in return for a promise to make the first party whole under certain future conditions – providing risk-sharing does not make a contract one of insurance. All contracts involve allocating risk between parties, and the lines between insurance contracts and other contracts cannot be sensibly drawn in the abstract. Moreover, the primary reason insurance contracts are treated differently than other contracts (and ‘insurance law’ is a separate body of law) is not because of their nature as ‘insurance’ but rather because they are issued by insurance companies. We regulate insurance companies with special rules for three reasons: (1) the inverted production cycle of insurance; (2) the unique governance problems inherent in a model in which the firm’s creditors are policyholders; and (3) a view that state-based consumer protection is important to ensure a functioning market. This essay shows that none of these policy justifications obtain in credit derivative markets. Finally, the essay briefly discusses how a centralized clearinghouse or exchange can help improve the credit derivatives markets, as well as potential pitfalls with this
The Addiction Habit: Do we really need rehab centers for people who spend too much time shopping or using the Internet? – Via Slate – Like a compulsive crack user desperately sucking on a broken pipe, we can’t get enough of addiction. We got hooked on the concept a few centuries back, originally to describe the compulsive intake of alcohol and, later, the excessive use of drugs like heroin and cocaine. Now it seems like we’re using it every chance we can get—applying the concept to any behavior that seems troublesome or ill-advised. Take overuse of technology, for example: Over the summer, a flurry of media reports touted the services of the RESTART clinic in Washington state—apparently the first “Internet addiction” recovery center in the United States. For $15,000, you can enroll in a 45-day course designed to rid you of a dangerous or unhealthy fascination with, say, the online role-playing game World of Warcraft. So-called Internet addiction is just one of many new behavioral addictions to break into the mainstream: there’s also shopping addiction, sex addiction, eating addiction, love addiction, and others.
Even on mute, TV can perpetuate racial bias – Via SB – Those of us who have been on the receiving end of racial abuse know all too well that words can hurt. But they’re also the tip of the iceberg. According to a study of popular US television, we’re exposed to the spectre of racial bias on a regular basis, all without a single word being uttered. When scenes are muted, body language and facial expressions are enough to convey more negative attitudes towards black characters compared to white ones. This bias is so subtle that we’re largely unable to consciously identify it, yet so powerful that it can sway our own predispositions. In some ways, racial bias acts as a contagion and television as one of its vectors.
Why do people dance? The Psychology Of Confidence & Dancing – Via Guardian.Co.uk – The office party is in full swing, you’ve knocked back a few glasses of bubbly and edged on to the sticky dancefloor where Fred from accounts is looking strangely attractive as he struts out some wild moves. Nearby, Ian from IT is boogieing like nobody’s watching. What makes them so confident while your feet are shyly shifting from side to side? According to Dr Peter Lovatt, principal lecturer in psychology at the University of Hertfordshire, it’s to do with age, gender and genetic makeup.
Video of magicians discussing attention, perception, and memory at Neuroscience 2009 – Via BOP – On Saturday, Oct. 17, 2009, internationally known magicians Apollo Robbins and Eric Mead joined attendees at Neuroscience 2009 for an interactive discussion on Magic, the Brain, and the Mind. As the featured Dialogues Between Neuroscience and Society lecture, the magicians explored how attention, memory, and perception inform the art and practice of illusion and magic. View video of the dialogues below.
Video: How Do Metaphors Influence Or Decisions – Via TEd – Aphorism enthusiast and author James Geary waxes on a fascinating fixture of human language: the metaphor. Friend of scribes from Aristotle to Elvis, metaphor can subtly influence the decisions we make, Geary says.
The Internet & Dictionaries: Redefining Definition – Via NYTimes- If anything is guaranteed to annoy a lexicographer, it is the journalistic habit of starting a story with a dictionary definition. “According to Webster’s,” begins a piece, blithely, and the lexicographer shudders, because she knows that a dictionary is about to be invoked as an incontrovertible authority. Although we may profess to believe, as the linguist Dwight Bolinger once put it, that dictionaries “do not exist to define but to help people grasp meanings,” we don’t often act on that belief. Typically we treat a definition as the final arbiter of meaning, a scientific pronouncement of a word’s essence.
Modellers claim wars are predictable – Via Nature – Insurgent attacks follow a universal pattern of timing and casualties. Seemingly random attacks and a shadowy, mysterious enemy are the hallmarks of insurgent wars, such as those being fought in Afghanistan and Iraq. Many social scientists, as well as the military, hold that, like conventional civil wars, these conflicts can’t be understood without considering local factors such as geography and politics.
The personal side of economics – Via Harvard – Raj Chetty finished his Harvard doctorate, then started his career as an assistant professor at the University of California, Berkeley. Last spring he returned to Cambridge as one of the most cited young economists and an acknowledged leader in the field of public economics.
The Brain Is Far More Complex Than Believed – Via Al Fin – We have been bombarded with predictions that human-level artificial intelligence will be developed “within ten years.” These predictions inevitably come from persons with a computer science, engineering, or artificial intelligence background. Such prognosticators understand algorithms and / or electrical circuits, but do they understand how consciousness is created? Do they comprehend the basis for the only human-level intelligence that exists: the human brain? Clearly not.
Don’t Know Your Risk Tolerance? Here’s How to Find Out. – Via NBR – As Dan Grech notes in his latest report in our “Your Mind and Your Money” series, risk tolerance is something that varies greatly between investors. What’s more, a lot of people aren’t even aware of how much risk is within their comfort level when they make an investment decision.
Finance & Investing:
Video: Paul Sonkin Looks At Small Caps – Via Guru Focus –
Investing In Japan & The Far East: Words from First Eagle Funds – The most important thing to understand about our investment philosophy is that our long term goal is first and foremost to preserve the real purchasing power of our clients’ capital, and we do so by and large through the ownership of enduring enterprise, buying businesses that we think are there for the long haul and buying them with a valuation margin of safety. We’re very focused on avoiding permanent impairment of capital, that’s at the core of our philosophy. We have a great deal of flexibility in that we look across the entire world for opportunities. We’re also willing to look across the capital structure. Sometimes we’ll make an investment in a high-yielding bond if we think we can get an equity-like return with a more senior position in the capital structure. But the majority of our investments are in businesses that we think are good companies at good prices. We have a long term holding period; we tend to own businesses for five years or more on average. We believe that is a core advantage for us in that our patience is quite different from that of most global investors, and it enables us to take a bit different perspective and to accumulate more knowledge on the businesses that we own.
Near Graham net nets vs Ultra-low price-to-book value stocks – Via GreenBackd – I’m setting up a new experiment for 2009/2010 along the same lines as the 2008/2009 Net Net vs Activist Legend thought experiment pitting a little Graham net net against activist investing legend Carl Icahn (Net Net vs Activist Legend: And the winner is…). This time around I’m pitting a small portfolio of near Graham net nets against a small portfolio of ultra-low price-to-book value stocks. The reason? Near Graham net nets are stocks trading at a small premium to Graham’s two-thirds NCAV cut-off, but still trading at a discount to NCAV. While they are also obviously trading at a discount to book, they will in many cases trade at a higher price-to-book value ratio than a portfolio of stocks selected on the basis of price-to-book only. I’m interested to see which will perform better in 2010. The two portfolios are set out below (each contains 30 stocks). I’ll track the equal-weighted returns of each through the year.
Exclusive Interview: Nouriel Roubini on Latin America’s 2010 Outlook – Via AS-Coa- Chairman of Roubini Global Economic and New York University Professor of Economics Nouriel Roubini joined AS/COA Online’s Carin Zissis for an exclusive interview regarding Latin America’s economic outlook. Roubini forecasts and regional growth rate of 3.8 percent for 2010. He also offered his outlook for specific countries, including Brazil, Mexico, and Venezuela.
Videos & Presentations of The Week:
Sanjay Bakshi Psychology Of Human Misjudgement Series:
Your Mind Your Money & Interview With Terrance Odean – Via NBR –
Video: Federal Chancellor of Germany Angela Merkel at COP15 – Via Fora.Tv –
Finding the Right Tool for Dealing with Asset Price Booms – Via PIie.org – A 26-page speech discussing how asset price booms might be addressed in the future
Noncognitive skills in economics: models, measurement, and empirical evidence – Via GBC – There is an increasing economic literature considering personality. This paper provides an overview on the role of these skills regarding three main aspects of economic analysis: measurement, theoretical modeling, and empirical estimates. Based on the relevant literature from different disciplines, the common psychometric measures used to assess personality are discussed. A recently proposed theoretical framework of human capital production takes personality explicitly into account. It is reviewed to clarify the understanding of crucial features of skill development. Based on these foundations, the main results of the empirical literature regarding noncognitive skills are classified along the research questions and summarized.
Other Interesting Articles:
The Strange Process That Made Earth’s Oxygen – Via Discover Magazine – Less volcanism led to a “nickel famine,” which led to the downfall of methanogens, which led to the rise of cyanobacteria, which led to the boom in oxygen, which led to us.
Richard Thaler: Gauging the Odds (and the Costs) in Health Screening – Via NYT – A FEDERAL advisory panel recently set off a controversy by recommending that most women without special risk factors delay breast cancer screening until they turn 50, not 40 — and that mammograms then take place only every other year.