Weekly Roundup 65: A Curated Linkfest For The Smartest People On The Web
I spend 8 hours every Sunday putting this together…If you like this roundup kindly include a reference to SimoleonSense.com .Thanks!
Weekly Cartoon (Via Google):
Weekly Joke (Via Econosseur):
ECONOMISTS do it at bliss point
ECONOMISTS do it cyclically
ECONOMISTS do it in an Edgeworth Box
ECONOMISTS do it on demand
ECONOMISTS do it risk-free (in reference to the risk-free interest rate)
ECONOMISTS do it with a dual
ECONOMISTS do it with an atomistic competitor
ECONOMISTS do it with crystal balls
ECONOMISTS do it with interest
Most Important Article(s) Of The Week!!!!!!!
“I Feel Your Pain” – Via The Neural Basis of Empathy – Last month, a terrible earthquake raised havoc in Port-au-Prince, Haiti. While the Haitians in Port-au-Prince are miles away from us, witnessing media images of their physical and emotional suffering moves us tremendously, and motivates many of us to respond to their distress with monetary and other donations. In a sense, this is an amazing human feat—that we are able to feel for other people’s far away tragedies. How is it that we are so moved? This is a question about human empathy, and it has boggled the minds of great thinkers for centuries. Indeed, German philosopher Rudolf Lotze coined the term empathy (einfuhlung) to literally mean “in” (em) and “feeling” (pathos), or “to feel into.”
Social Loafing – Don’t Be a Sucker or a Free Loader! – Via Psych Files – Do you like working in a group? Most people don’t because they’re afraid that they’ll have to do most of the work (wind up being a sucker) and that other group members won’t do their share of the work (free loaders). Want to find out how to avoid this and make your group work productive? Learn how the Agile software development technique can be adapted to your help your next group project be a success.
Pavlovian Conditioning on Film – Via Advances in the History of Psychology – This black and white, silent film, attempts to show the difference between conditioned and unconditioned responses in animals and humans. It begins by enacting Pavlov’s experiments on a dog’s salivary mechanism. Gradually we are shown how the unconditioned production of saliva at the sight or smell of food can be conditioned to appear at the sight of a flashing light. We also examine a newborn baby’s reflexes of sucking and grabbing and see how they become conditioned as it grows older. Simple animated diagrams attempt to explain changes in the brain as a subject becomes conditioned. Professor Krasnagorski enacts a salivary test on a young boy in his laboratory. Attention is paid to the difference between instinctive behaviour in animals and learned behaviour. This is illustrated by images of animals in the wild and those in zoos. We see trained seals performing tricks for rewards and Prof. Gladishikov demonstrating ‘the pain method of training’ on lions and bears.
Materialism: Here’s why you buy so much stuff you don’t need – Via Bakadesuyo – We examine age differences in materialism with children and adolescents 8–18 years old. In study 1, we find materialism increases from middle childhood to early adolescence and declines from early to late adolescence. Further, we find that age differences are mediated by changes in self‐esteem occurring from middle childhood through adolescence. In study 2, we prime self‐esteem to obtain further evidence of a causal link between self‐esteem and materialism. As expected, we find that inducing high self‐esteem decreases expressions of materialism. Inducing high self‐esteem reduces materialism among adolescents so dramatically that age differences in materialism disappear.
Interview With The Kissing Expert: Why Do We Kiss – Via Book Of Odds – The main reason is to express our affection, our love for our partner. Another reason is cultural—we’re surrounded by TV shows and movies where kissing is extremely important in a romantic context, so we learn through a kind of osmosis. And the third reason is, as Freud pointed out, we all go through various stages of development, the first of which is the oral stage, and so, certainly it’s still a part of our pleasure drive—oral contact is a lot of fun.
How to Avoid Gullibility – Via Open Forum – Who among us have not fallen for a stupid idea, pitch, or proposal? At some level, we’re all gullible where “gullibility” is defined as “an unusual tendency toward being duped or taken advantage of.” Fortunately, Stephen Greenspan has written a book called Annals of Gullibility: Why We Get Duped and How to Avoid It. In the conclusion of his book, Greenspan explains how to become less gullible.
Video: Science of Love: Romance and Patterns of Attraction – As part of the Girls Night Out series at the New York Academy of Sciences (NYAS), neuroanthropologist Fisher talks about romantic love, misconceptions about love, its effects on the brain, and why we choose one mate over another. She discusses her early research as well as recent work with Chemistry.com. Slides are not visible, but still a fascinating lecture with 27 minutes of Q&A. A Valentine’s fave here at Channel N, see also this Stonybrook lecture, another 2006 lecture, an interview, and a New York Times interview.
Love: What’s oxytocin got to do with it? – Via Futurity.org- Neuroscientist Larry Young has been studying brain chemicals linked to the ability to form lasting bonds of affection. “A single molecule can have a profound effect on relationships,” he says.The work by the Emory University researcher involves prairie voles, highly social animals that tend to form life-long bonds with their mates.An infusion of oxytocin, a hormone associated with neural rewards and addictions, can cause female prairie voles to become attached to the nearest male, while the hormone vasopressin spurs males’ interest in a female.
Miguel’s Weekly Favorites:
The World’s Most Respected Companies – Via Barrons – Apple, J&J, Procter & Gamble, IBM and Berkshire Hathaway top our annual list of the 100 companies most admired by major investors. Not surprisingly, ethics matter more this time around. Video: Apple of the Market’s Eye
Quantum Psychology? – Via Permutations – Let me be frank; I think “The conjunction fallacy and interference effects” (ungated version) is a horrible misuse of math and indicates an embarrassing failure of peer review. The author, Riccardo Franco, introduces a parameter that does doesn’t have any foundation in the phenomena it is trying to explain, nor is it shown to aid in modeling. Please tell me I’m missing something. What? You’ve never heard of the conjunction fallacy? It is yet another cognitive bias studied by Amos Tversky and Daniel Kahneman. They gave people the following problem (quoting from Wikipedia):
Suvivor Bias – Via World Beta – Is an enormous issue, and one of the biggest NO-NOs if you are a quant. If you are not familiar with survivor bias it is when a backtest, or reported results, exclude companies that have been delisted due to mergers, acquistions, bankruptcies, etc. If you are a long time World Beta reader you would recall the fantastic Blackstar study that shows just how big of a deal this is. Roughly 20% of all public company stocks go to zero. And that is the Russell 3000, not even small and micro penny stocks where it would be much worse.
Fixing “global imbalances” in three easy steps – Via Interfluidity – Some problems are not, except when we blind ourselves to pretty obvious solutions. Addressing “global financial imbalances”, or, more specifically, the fact that some countries are running persistent current account deficits that they (correctly) perceive not to be in their interest, falls into the second class of problems. It is flawed ideology, nothing more, that makes this problem seem difficult. If you want something to stop, stop it. Let me break it down for you into three easy steps.
How to Want to Change Your Mind – Out of all the cognitive biases and logical fallacies, I think the most pernicious of all is a kind of meta-bias, one underlying tendency that makes us more susceptible to all of the others: simply not wanting to be wrong. It’s so automatic that it’s hard to notice it coloring your judgment unless you really pay attention, but once you do, you realize how frequently it makes you grasp for a fallacious argument just so you don’t have to admit to yourself that you were wrong. I’m definitely no exception — I can’t count the number of times I’ve caught myself reacting to an argument by asking myself, “OK, why is that false?” rather than “Is that false?”
Online math resources -Via The Ludwigs – Finding that Wolfram Alpha is also becoming more useful. Easier to run to it to figure out the integral of x^2 sinx sinhx than spinning up mathematica or maple or matlab.
Exclusive Features (The Must Reads):
Bad Intel: The U.S. intelligence community gets it wrong on Bosnian Serbs. – Via Foreign Policy -Last week, Director of National Intelligence Dennis Blair delivered U.S. intelligence community’s 2010 Annual Threat Assessment to the Senate Select Committee on Intelligence. The report recommends greater Western engagement to address political instability and ethnic tension in the Balkans, particularly in Bosnia-Herzegovina. Specifically, the report warns of growing separatist sentiment on the part of Bosnian Serbs. “Bosnian Serb leaders seek to reverse some reforms, warn of legal challenges to the authority of the international community, and assert their right to eventually hold a referendum on secession, all of which is contributing to growing interethnic tensions,” the assessment states. “This dynamic appears likely to continue, as Bosnia’s leaders will harden their positions to appeal to their nationalist constituents ahead of elections this fall.”
How Schools Spent Their Stimulus Money – Via Modeled Behavior – Pretty quickly, it seems. According to a new study, schools spent 38% of their stimulus money in the ‘08-’09 school year, 48% this year, and have 14% left over for next year. From a Keynesian perspective, that seems like a pretty decent pace to spend $100 billion. Some states, in fact, managed to spend 100% of their education stimulus money “immediately”. Even better, some of the money that was tied to reforms, like the $4.3 billion Race to the Top program, will probably pay many future dividends as well.
James Altucher: A Simple Way to Beat Hedge Funds – Via WSJ – I once met with representatives of a very wealthy family from Switzerland. You know how people say, “If you had taken $10 and compounded it from 1700 on, you’d have a zillion dollar by now”? Well, this was the type of family that had been compounding its wealth since the 1300s. Many families like this have ungodly amounts of wealth stashed away.
Physics Envy; or Why No One Respects Psychologists – Via Chronicle – The social sciences are easier than the natural sciences, according to second graders. Adults more or less agree. A study published in the Journal of Experimental Psychology took a look at which disciplines children and adults thought were the most difficult to learn. For the most part, people of all ages think psychology is easy and physics is hard. That bias begins early and changes some, but not much, the older we get.
Around The World, People Living Longer Lives, But Not Better Ones – Via rferl – Human longevity is an accomplishment of modern society. It reflects improvements in science, public policy, and socioeconomic development. But increased longevity does not necessarily mean improved quality of life. On the contrary, as people age, their well-being and social support tend to dwindle.
Elizabeth Warren: Wall Street’s Race to the Bottom– Via WSJ – Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don’t trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.
A Little More About Medical Bankruptcy – Via Megan McArdle -I want to talk a bit more about why I dislike the Himmelstein et. al. study that found more than half of all bankruptcies were due to medical reasons. There are a few reasons that I don’t find their work very convincing. First, the rate of respondants attributing the bankruptcy to medical problems was more in line with other studies I’ve seen, at 30-40%. The extra folks come from their addition of, for example, people who had medical bills that total 5% of income. Now, having medical problems is one of the most socially acceptable reasons for bankruptcy (compared to other major causes like divorce, overspending, or a gambling or drug addiction, so we’d normally expect people to overemphasize the medical problems compared to other factors.
Finance & Investing:
Seth Klarman’s Baupost Group Discloses New Positions (13F Filing Q4 2009) – Via Market Folly –
This is the fourth quarter 2009 edition of our hedge fund portfolio tracking series. Before beginning, check out our series preface on hedge fund 13F filings. Fittingly, we’ll begin our coverage of fourth quarter holdings with arguably the most successful and respected modern hedge fund manager, Seth Klarman and Baupost Group. Klarman received his MBA from Harvard Business School and went to work for Baupost when he was 25. The rest is history as he has been one of the most successful investors of our time in terms of performance. Prior to this portfolio update, we had already covered Baupost’s sale of RHI Entertainment (RHIE) and reduction in their Syneron Medical position (ELOS).
IMF Draws Lessons from the Crisis, Reviews Macro Policy Framework – Via IMF – The Fund has just published a paper, “Rethinking Macroeconomic Policy,” part of a series of policy papers prepared by IMF staff reassessing the macroeconomic and financial policy framework in the wake of the devastating crisis. Several of the papers will be discussed at a conference to be held in Seoul, Korea, later this month.
Videos & Media:
Roberts on Smith, Ricardo, and Trade – Via Russ Roberts – host of EconTalk, does a monologue this week on the economics of trade and specialization. Economists have focused on David Ricardo’s idea of comparative advantage as the source of specialization and wealth creation from trade. Drawing on Adam Smith and the work of James Buchanan, Yong Yoon, and Paul Romer, Roberts argues that we’ve neglected the role of the size of the market in creating incentives for specialization and wealth creation via trade. Simply put, the more people we trade with, the greater the opportunity to specialize and innovate, even when people are identical. The Ricardian insight masks the power of market size in driving innovation and the transformation of our standard of living over the last few centuries in the developed world.
Video: Greed, Irresponsibility, or Policy Mistakes: What Caused the Recession? – Via Cato – The boom and bust of the housing and financial sectors raise the natural question: what happened? As economists, politicians, and the general public point their fingers or scratch their heads, this panel will look beyond populist bogeymen and currently dominant economic theories to examine the Austrian school of economics—based on the work of F. A. Hayek, Ludwig von Mises, and Carl Menger—and how its theory of business cycles offers a better basis for understanding financial crises and recessions.
Can Lower Tax Rates Be Bought? Business Rent-Seeking and Tax Competition Among U.S. States – Via FRBSF – The standard model of strategic tax competition – the non-cooperative tax-setting behavior of jurisdictions competing for a mobile capital tax base – assumes that government policymakers are perfectly benevolent, acting solely to maximize the utility of the representative resident in their jurisdiction. We depart from this assumption by allowing for the possibility that policymakers, given the political and electoral environments in which they operate, also may be influenced by the rent-seeking (lobbying) behavior of businesses. Firms recognize the factors affecting policymakers’ welfare and may make campaign contributions to influence tax policy. These changes to the standard strategic tax competition model imply that business contributions affect not only the levels of equilibrium tax rates but also the slope of the tax reaction function between jurisdictions. Thus, business campaign contributions may affect tax competition and enhance or retard the mobility of capital across jurisdictions.
Dual Regulatory Classes of Financial Institutions and the Path to Financial Crisis in Sweden and the United States – Via SSRN – This article presents the following model of two regulatory classes of financial institutions interacting in financial and political markets to spur deregulation and riskier lending and investment, which in turn contributes to the severity of a financial crisis:
Shock Transmission Mechanism of the Economic Crisis in East Asia – Via PolicyPointers – Japanese discussion paper investigates the impacts of the 2008 economic crisis on industries in East Asia
Equity Risk Premiums (ERP): Determinants, Estimation and Implications – – Via SSRN
Equity risk premiums are a central component of every risk and return model in finance and are a key input into estimating costs of equity and capital in both corporate finance and valuation. Given their importance, it is surprising how haphazard the estimation of equity risk premiums remains in practice. We begin this paper by looking at the economic determinants of equity risk premiums, including investor risk aversion, information uncertainty and perceptions of macroeconomic risk. In the standard approach to estimating equity risk premiums, historical returns are used, with the difference in annual returns on stocks versus bonds over a long time period comprising the expected risk premium. We note the limitations of this approach, even in markets like the United States, which have long periods of historical data available, and its complete failure in emerging markets, where the historical data tends to be limited and volatile. We look at two other approaches to estimating equity risk premiums – the survey approach, where investors and managers ar asked to assess the risk premium and the implied approach, where a forward-looking estimate of the premium is estimated using either current equity prices or risk premiums in non-equity markets. We also look at the relationship between the equity risk premium and risk premiums in the bond market (default spreads) and in real estate (cap rates) and how that relationship can be mined to generated expected equity risk premiums. We close the paper by examining why different approaches yield different values for the equity risk premium, and how to choose the “right” number to use in analysis.
Systemic risk: how to deal with it? – Via SSRN – This paper analyses systemic risk and considers appropriate policies to reduce it. It examines systemic risk as a negative externality in two dimensions: the cross-sectional and the time dimension. Policies to reduce externalities in the cross-sectional dimension seek to limit the damage that can arise from interlinkages and common exposures. Policies to address procyclicality in the time dimension seek to build up capital and liquidity margins of safety during the upswing that can be drawn upon in the downturn. The paper further argues that financial regulatory policies are not enough to address systemic risk. Other policies – especially monetary and fiscal policy – also have a role to play. It also argues that policy coordination is essential, nationally among monetary, fiscal and macro- and microprudential policies, as well as internationally. Already, the Basel Committee on Banking Supervision, working with the Financial Stability Board, has made great progress in addressing the regulatory shortcomings highlighted by the financial crisis.
Other Very Interesting Articles:
Sucking up to Dictators Is Harder Than It Looks – Via Foreign Policy – Inside the failed attempt to turn Central Asia’s most insular regime. – September 21, 2009, was a day of blitz diplomacy for U.S. Secretary of State Hillary Clinton: She had more than eight and a half hours of bilateral meetings to juggle, along with a marathon of press briefings and camera sprays at the Waldorf-Astoria hotel in New York. But one of her sit-downs that day required particular finesse. It was with an obscure dictator whose name alone presented a challenge — Gurbanguly Berdimuhamedov, the president of Turkmenistan. He came into the room with an immediate advantage: The United States needed his help. Clinton needed to convince him to let NATO transports through his country, a move that would ease pressure on U.S. supply lines into Afghanistan and probably save some U.S. troops. The usual approach — money — would not work with energy-rich Turkmenistan. It was a test of her skill as a diplomat.
Is eBay rigged?: – Via Bakadesuyo – We introduce a bidding strategy which allows the seller to extract the full surplus of the high bidder in eBay auctions. We call this a “Discover-and-Stop” bidding strategy and estimate that 1.39 percent of all bids in eBay auctions are placed by sellers (or accomplices) who execute this strategy. We argue that this kind of shill bidding is unnecessarily effective due to eBay’s proxy system and the predictability of other bidders’ bids. We also model eBay auctions with shill bidding and find that, in equilibrium, eBay’s profits are higher with shilling than without it. Finally, to determine whether bidders have an incentive to bid on their own items, we mimic the bidding behavior of shill bidders in actual eBay auctions and find some evidence of the strategy’s success.
How Many More Are Innocent? – Via Reason – Freddie Peacock of Rochester, New York, was convicted of rape in 1976. Last week he became the 250th person to be exonerated by DNA testing since 1989. According to a new report by the Innocence Project, those 250 prisoners served 3,160 years between them; 17 spent time on death row. Remarkably, 67 percent of them were convicted after 2000—a decade after the onset of modern DNA testing. The glaring question here is, How many more are there?
The Royal Mail: A Passion for the Post – Via History Today – For 400 years the delivery of letters has been integral to British life. As Royal Mail confronts an uncertain future charts the Post Office’s development and discovers, through the correspondence of ordinary people, just how much letter writing meant to them.
A brief history of your investors (and their investors) – Via Venture Hacks – Why should you read this post? So you know what questions to ask your potential investors about their investors (their limited partners). You need to understand how your investors are compensated, how they’re motivated, and how they’ll act in critical situations — so you know if you and your investor’s commitments are well aligned. By the end of this two-part post I’ll provide a list of questions to ask investors to help determine if they’re the right investors for you. This post focuses on the history of venture capital. The second post will focus on the present and future of venture capital and how it will affect startups.