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Weekly Cartoon (Via CFO Humor)
Weekly Joke (via Jokes for All)
A company, feeling it was time for a shakeup, hires a new CEO. This new boss is determined to rid the company of all slackers.
On a tour of the facilities, the CEO notices a guy leaning on a wall. The room is full of workers and he wants to let them know he means business!
The CEO walks up to the guy and asks, “And how much money do you make a week?” Undaunted, the young fellow looks at him and replies, “I make $300.00 a week. Why?”
The CEO then hands the guy $300 in cash and screams, “Here’s a week’s pay, now GET OUT and don’t come back!”
Feeling pretty good about his first firing, the CEO looks around the room and asks “Does anyone want to tell me what that goof-off did here?”
With a sheepish grin, one of the other workers mutters, “Pizza delivery guy from Domino’s.”
Must Read Articles For All Weekly Visitors!!!
Kindergarten and Class - via NYT – A new paper by Raj Chetty and five other economists – the subject of my column this week – suggests kindergarten can have lasting effects on students. Students who learn more in kindergarten appear to earn more, to be less likely to become teenage parents and even to be less likely to die young. When we were talking about the research in his office last week, I told Mr. Chetty that I assumed the effects were bigger for poorer children than richer ones. The children of well-off, well-educated parents arrive at school knowing vastly more than poorer students, as research by Annette Lareau and others has shown. So school itself seems as if it should matter more for poorer students.
World Population to Hit 7 Billion Next Year – via PopScience – The Population Reference Bureau has projected that in 2011, the planet Earth will be home to more than seven billion living humans. At current growth rates, we’ll top 9 billion in 2050. By that year, the population of Africa is expected to double, and that of Asia to grow by 1.3 billion.
The Latest From Behavioral Economics: Being Hungry Makes Traders Take Bigger Risks In The Market - via Business Insider – “When I worked at a large (Connecticut)-based hedge fund a few years ago, I always wondered why the company kitchen was so well stocked with chips, sodas and other snacks. At my next trading gig, the company founder insisted on having lunch, as a group, every day at exactly noon,” Colas wrote Monday in an analysis. “Whether they knew it or not, both fund managers knew that staying well fed is actually a risk management tool, at least if the BPS study is any guide. Hungry traders are, well, riskier traders.”
Extreme Risks – A New Paper by Watson Wyatt - via MoneyScience – Watson Wyatt has identified and ranked fifteen extreme risks that would have a high impact on global economic growth and asset returns if they occurred. In a new paper, entitled Extreme Risks, the firm ranks depression, hyperinflation and excessive leverage as its top three based on their impact and the risk together with the degree of uncertainty in assessing the risk. The bottom three are the end of fiat money, a major global conflict and a killer pandemic.
Sites Feed Personal Details To New Tracking Industry – via WSJ – The largest U.S. websites are installing new and intrusive consumer-tracking technologies on the computers of people visiting their sites—in some cases, more than 100 tracking tools at a time—a Wall Street Journal investigation has found.
Dan Ariely: Public and Private Values – via FRBB – This paper experimentally examines whether looking at other people’s pricing decisions is a type of heuristic—a decisionmaking rule—that people use even when it is not applicable, as in the case of clearly private value goods. We find evidence that this is indeed the case—an individual’s valuation of a purely subjective experience under full information, elicited using an incentive compatible mechanism, is highly influence by valuations made by others. This result can shed light on price behavior, price rigidities, and rents.
Video: Neuroscience of Emotions – Emotion, psychology and neurophysiology; how the brain processes emotion and their function in our functioning. A good talk for a lay audience as part of the Google Tech Talks series.
Video: 4 Brilliant Mathematicians & Dangerous Knowledge – via Bayesian Heresy – In this one-off documentary, David Malone looks at four brilliant mathematicians – Georg Cantor, Ludwig Boltzmann, Kurt Gödel and Alan Turing – whose genius has profoundly affected us, but which tragically drove them insane and eventually led to them all committing suicide.
Signaling Status with Luxury Goods: The Role of Brand Prominence - via Journal Of Marketing – This research introduces brand prominence, a construct reflecting the conspicuousness of a brand’s mark or logo on a product. We propose a taxonomy that assigns consumers to one of four groups based on wealth and need for status, and demonstrate how each group’s preference for conspicuously or inconspicuously branded luxury goods corresponds predictably with their desire to associate or dissociate with members of their own and other groups. Wealthy consumers low in need for status wish to associate with their own kind and pay a premium for quiet goods only they can recognize. Wealthy consumers high in need for status use loud luxury goods to signal to the less affluent that they are not one of them. Those who are high in need for status but cannot afford true luxury use loud counterfeits to emulate those they recognize to be wealthy. Field experiments along with analysis of market data (including counterfeits) support our proposed model of status signaling using brand prominence.
City of Fear - via Vanity Fair – Operating by cell phone, a highly organized prison gang launched an attack that shut down Brazil’s largest city last May, with the authorities powerless to stop it. For many in São Paulo, this vast, amorphous criminal network is the only government they have.
Miguel’s Weekly Favorites
Just Buy It: Impulsiveness Tied To Brain Chemical : NPR: – via Finance Professor – “Joshua Buckholtz, a researcher at Vanderbilt University in Nashville, Tenn., thinks that the brains of impulsive people have too much dopamine. Dopamine is a chemical involved with many different brain functions, but in this case researchers are interested in drive. They believe high levels of dopamine are causing some individuals to behave rashly, perhaps by buying a food dehydrator they don’t need.
What You Daydream About Matters - via Aps – Do you ever catch yourself zoning out, letting your mind wander into the wonderful world of daydreaming? After a daydream it is hard to resume what we were doing just before the dream, but recent research from Psychological Science shows that some types of daydreams can actually make it harder for us to access recently-acquired memories.
Do men and women see luck very differently? - via Bakadesuyo – We present experimental evidence which sheds new light on why women may be less competitive than men. Specifically, we observe striking differences in how men and women respond to good and bad luck in a competitive environment. Following a loss, women tend to reduce effort, and the effect is independent of the monetary value of the prize that the women failed to win. Men, on the other hand, reduce effort only after failing to win large prizes. Responses to previous competitive outcomes explain about 11% of the variation that we observe in women’s efforts, but only about 4% of the variation in the effort of men, and differential responses to luck account for about half of the gender performance gap in our experiment. These findings help to explain both female underperformance in environments with repeated competition and the tendency for women to select into tournaments at a lower rate than men.
Tracking Costs of Time and Money: How Accounting Periods Affect Mental Accounting - via UChicago – After people incur costs to get future benefits, they usually track these costs in their mental accounts and are keen to receive the benefits when they become available. We introduce the notion that costs and benefits can occur either in the same accounting period (day, season, etc.) or in different periods. Our key argument is that monetary costs are tracked across accounting periods but that temporal costs are written off at the end of the period in which they are incurred. Thus, accounting periods lead to a time‐money asymmetry in the tracking of costs and, consequently, in the likelihood of seeking benefits. In a laboratory study, an online‐panel study, and a field study with movie‐theater patrons, we demonstrate how this relationship among accounting periods, cost tracking, and benefit seeking is different for time than for money. Our findings offer insights into the sunk‐cost effect, time‐money differences, and mental accounting.
The financial crisis and the structure of contracts - via MoneyScience -The structure of contracts in financial markets is deeply rooted in history. This column retraces the origins of financial contracting and explains why mutual fund banking proposals are wrong headed. It proposes to shift more of the functions of our current banking system away from limited liability back into partnerships. This would involve requiring hedge funds to be entirely separated from banks.
Robert Shiller: What Would Roosevelt Do? – via Economist View – ACROSS the United States, thousands of federally financed stimulus projects are under way, aimed at bolstering the economy and putting people to work. The results so far have not been spectacular. Why not? There’s nothing wrong with the idea of fiscal stimulus itself. We need more stimulus, not less — but we need to focus much more on actually putting people to work.
Master Planner: Fred Brooks Shows How to Design Anything - via Wired- You can’t accelerate a nine-month pregnancy by hiring nine pregnant women for a month. Likewise, says University of North Carolina computer scientist Fred Brooks, you can’t always speed up an overdue software project by adding more programmers; beyond a certain point, doing so increases delays. Brooks codified that precept 35 years ago in a small technical book, The Mythical Man-Month, which he named after the flawed assumption that more manpower meant predictably faster progress. Today, his insight is known as Brooks’ law. The book still sells 10,000 copies a year, and Brooks—who oversaw the creation of IBM’s System/360, the company’s most successful mainframe—is hailed as a legend. Now he’s written a new book, The Design of Design. It’s a collection of essays that extends his ideas into the fields of architecture, hardware systems, and leadership. Wired’s founding executive editor, Kevin Kelly, spoke with Brooks to discuss the upside of failure, lowercase letters, and what we can learn from Apple
In Crimes of Passion, Women Get Benefit of the Doubt – via Miller McCune – New research finds women who kill their cheating lovers receive shorter sentences than men in the same situation.
Video: Jeff Bezos on Charlie Rose - via Value Investing World
Technology used to help spies. Now it hinders them - via Economist – DEPENDING on what kind of spy you are, you either love technology or hate it. For intelligence-gatherers whose work is based on bugging and eavesdropping, life has never been better. Finicky miniature cameras and tape recorders have given way to pinhead-sized gadgets, powered remotely (a big problem in the old days used to be changing the batteries on bugs).
Atul Gawande: What should medicine do when it can’t save your life? - via New Yorker – Modern medicine is good at staving off death with aggressive interventions—and bad at knowing when to focus, instead, on improving the days that terminal patients have left.
Video: Ted Talk – Lewis Pugh’s mind-shifting Mt. Everest swim – via Ted- After he swam the North Pole, Lewis Pugh vowed never to take another cold-water dip. Then he heard of Mt. Everest’s Lake Imja — a body of water at an altitude of 5300 m, entirely created by recent glacial melting — and began a journey that would teach him a radical new way to approach swimming and think about climate change.
I Suppress, Therefore I Smoke – Effects of Thought Suppression on Smoking Behavior - via PsychScience -Thought suppression is a method frequently employed by individuals who are trying to control their thoughts and behaviors. Although this strategy is known to actually increase unwanted thoughts, it is unclear whether thought suppression also results in behavioral rebound. The study presented in this article investigated the effects of suppressing thoughts of smoking in everyday life on the number of cigarettes subsequently smoked. Study participants recorded their daily cigarette intake and stress levels over a 3-week period. In Week 1 and Week 3, participants monitored intake and stress. During Week 2, in addition to monitoring intake and stress, participants in the experimental groups either suppressed or expressed smoking thoughts, whereas the control group continued monitoring. Our results showed a clear behavioral rebound: The suppression group smoked significantly more in Week 3 than the expression or control group did. Moreover, the tendency to suppress thoughts (measured by the White Bear Suppression Inventory) was positively related to the number of attempts to quit smoking. The implications of our findings for smoking cessation are discussed.
How to Think, Say, or Do Precisely the Worst Thing for Any Occasion - In slapstick comedy, the worst thing that could happen usually does: The person with a sore toe manages to stub it, sometimes twice. Such errors also arise in daily life, and research traces the tendency to do precisely the worst thing to ironic processes of mental control. These monitoring processes keep us watchful for errors of thought, speech, and action and enable us to avoid the worst thing in most situations, but they also increase the likelihood of such errors when we attempt to exert control under mental load (stress, time pressure, or distraction). Ironic errors in attention and memory occur with identifiable brain activity and prompt recurrent unwanted thoughts; attraction to forbidden desires; expression of objectionable social prejudices; production of movement errors; and rebounds of negative experiences such as anxiety, pain, and depression. Such ironies can be overcome when effective control strategies are deployed and mental load is minimized.
What’s the reason most people want to leave their jobs? - via Bakadesuyo – A whopping 48 percent of those who want to change jobs are mainly motivated by a loss of trust in their employers, according to Deloitte’s fourth annual “Ethics & Workplace Survey.”
The cult of martyrs - via Ferrero- This paper suggests a rational explanation for extreme voluntary sacrifice in situations in which the state of the world when the decision must be made is observable only by the agent. Such explanation is the cult of martyrs, heroes, and saints. This cult may get out of control and fuel fanaticism, or excessive sacrifice from the standpoint of the sponsoring organization. A survey of the historical evidence of Christian martyrdom strongly suggests that martyrs were driven by the expectation of a cult in this world, not by otherworldly rewards. In particular, it is argued that the evidence of excess martyrdom in both Muslim Spain and the Roman Empire strongly speaks for the cult theory.
Reciprocity engages our brain’s reward system. - via Deric Bownds – Brain reward circuitry, including ventral striatum and orbitofrontal cortex, has been independently implicated in preferences for fair and cooperative outcomes as well as learning of reputations. Using functional MRI (fMRI) and a “trust game” task involving iterative exchanges with fictive partners who acquire different reputations for reciprocity, we measured brain responses in 36 healthy adults when positive actions (entrust investment to partners) yield positive returns (reciprocity) and how these brain responses are modulated by partner reputation for repayment. Here we show that positive reciprocity robustly engages the ventral striatum and orbitofrontal cortex. Moreover, this signal of reciprocity in the ventral striatum appears selectively in response to partners who have consistently returned the investment (e.g., a reputation for reciprocity) and is absent for partners who lack a reputation for reciprocity. These findings elucidate a fundamental brain mechanism, via reward-related neural substrates, by which human cooperative relationships are initiated and sustained.
Financial Topics & Investing
Why Stewardship is Proving Elusive for Institutional Investors – via Harvard Law – As the dominant owners of listed companies in many developed markets, institutional investors have been under increasing pressure to act as responsible shareholders. In the UK, where institutions own more than 70% of the stock market, a Stewardship Code has been developed to encourage pension funds, insurance companies, and their asset managers to monitor and engage investee companies actively with the view to protect and enhance shareholder value (see Figure 1). Similar efforts are underway in Canada, France, the Netherlands, and other markets.
Ending the land cycle – or the mortgage cycle - via Knowing & Making – Martin Wolf has an intriguing proposal to “end the land cycle” – by which he means: make sure that any future rise in the value of land goes to society rather than the individual landowner. This argument has three parts. First, he makes a moral case that increases in land value are largely a function of external effects – increasing population density and infrastructure investments – and therefore why should the current occupier of the land capture all the benefits? Second, a practical case that the current system has stymied productive new development – because it’s easier and cheaper for landowners to get a return by reducing the competitive supply of new housing (through the planning system) than by investing in new infrastructure which benefits everyone.
Anatomy of Lehman’s Failure, and the Importance of Liquidity Requirements – via Economics of Contempt – Remember the Lehman Examiner’s Report? The 4000+ page report by the court-appointed examiner was lauded for a couple of weeks after it was released, and then largely forgotten. The media and blogosphere quickly moved on to the next outrage-du-jour (among others, the SEC’s suit against Goldman), and never looked back. Well, I did not forget about it, and thanks to the uptick in flights — and thus reading time — in the last few months, I can now credibly claim to have read….well, not every single word in the Examiner’s Report (some appendices are just pages of CUSIPs), but all of the substantive sections, including all of the substantive appendices, and many of the underlying documents.
Interview with Zeke Ashton - via Street Capitalist – I had a chance to interview Zeke Ashton of Centaur Capital and manager of the Tilson Dividend Fund. I think you’ll enjoy the interview. Ashton is a generalist, he is willing to short stocks, and looks across all types of companies — from microcaps to large caps. Plus, he’s based out of Texas. I’ve been hoping to showcase more Texas-based fund managers to prove that we’re not all energy traders down here.
Academic Research Worth Reading
I like what I know: Is recognition a non-compensatory determiner of consumer choice? – via SJDM- What is the role of recognition in consumer choice? The recognition heuristic (RH) proposes that in situations where
recognition is correlated with a decision criterion, recognized objects will be chosen more often than unrecognized ones, regardless of any other relevant information available about the recognized object. Past research has investigated this non-compensatory decision heuristic in inference. Here we report two experiments on preference using a naturalistic consumer choice task. Results revealed that, although recognition was a powerful driver of preferences, it was used in a compensatory rather than a non-compensatory way. Specifically, additional information learned about recognized bran objects significantly affected choices. It appears that recognition is processed in a compensatory manner and combined with other attributes in preferential choice.
Think or blink—is the recognition heuristic an “intuitive” strategy? - via SJDM -Several approaches to judgment and decision making emphasize the effort-reducing properties of heuristics. One prominent example for effort-reduction is the recognition heuristic (RH) which proposes that judgments are made by relying on one single cue (recognition), ignoring other information. Our research aims to shed light on the conditions under which the RH is more useful and thus relied on more often. We propose that intuitive thinking is fast, automatic, and effortless whereas deliberative thinking is slower, stepwise, and more effortful. Because effort-reduction is thus much more important when processing information deliberately, we hypothesize that the RH should be more often relied on in such situations. In two city-size-experiments, we instructed participants to think either intuitively or deliberatively and assessed use of the RH through a formal measurement model. Results revealed that, in both experiments, use of the RH was more likely when judgments were to be made deliberatively, rather than intuitively. As such, we conclude that the potential application of heuristics is not necessarily a consequence of “intuitive” processing. Rather, their effortreducing features are probably most beneficial when thinking more deliberatively.
Why Don’t Issuers Choose IPO Auctions? The Complexity of Indirect Mechanisms – via NBER – At least 25 countries have used IPO auctions, but most have since abandoned them. We argue that this is because auctions, being indirect mechanisms, require a level of sophistication above that of many investors. Through suitably calibrated examples, we show that even sophisticated investors can make mistakes while bidding in auctions, especially when facing uncertainty about the number and type of bidders, and such mistakes impose costs on other participants. We provide empirical support for our arguments. IPO auctions have been plagued by unexpectedly large fluctuations in the number of participants, return chasing investors, and high-bidding free riders. Our analysis suggests that a direct mechanism that resembles a transparent version of book building would be preferable to auctions
How Situational Contingencies Shape Action Semantics and Social Behavior – via PsychScience – What is the role of ecology in automatic cognitive processes and social behavior? Our motivated-preparation account posits that priming a social category readies the individual for adaptive behavioral responses to that category—responses that take into account the physical environment. We present the first evidence showing that the cognitive responses (Study 1) and the behavioral responses (Studies 2a and 2b) automatically elicited by a social-category prime differ depending on a person’s physical surroundings. Specifically, after priming with pictures of Black men (a threatening out-group), participants responded with either aggressive behavior (fight) or distancing behavior (flight), depending on what action was allowed by the situation. For example, when participants were seated in an enclosed booth (no distancing behavior possible) during priming, they showed increased accessibility of fight-related action semantics; however, when seated in an open field (distancing behavior possible), they showed increased accessibility of flight-related action semantics. These findings suggest that an understanding of automaticity must consider its situated nature.
The distributional burden of cap and trade - via Voxeu- The carbon-pricing implications of cap-and-trade programmes have raised concern that they might be a regressive policy tool. This column documents how allowance allocation schemes similar to those in recently proposed US legislation address distributional concerns and challenges the view that carbon pricing is necessarily regressive.
Tricky treats: Paradoxical effects of temptation strength on self-regulation processes - via EJSP – This series of studies examined the effect of temptation strength on self-regulation processes in the context of eating behavior. Based on the critical level model, it was hypothesized that weak, rather than strong, temptations yield the most unfavorable conditions for effective self-regulation, because the negative consequences of the former are underestimated. In line with the assumptions of this model, Studies 1 and 2 showed that weak temptations inhibited the mental accessibility of the weight watching goal, in contrast to strong temptations. Study 3 showed that exposure to weak temptations lead to higher consumption in comparison to exposure to strong temptations. It is concluded that weak temptations, as compared to strong temptations, have an inhibiting effect on self-regulation processes and may therefore form a bigger threat for long-term goal attainment.Are Beliefs a Matter of Taste? A case for Objective Imprecise Information
Red and romantic behavior in men viewing women - via EJSP – In many non-human primate species, a display of red by a female increases attraction behavior in male conspecifics. In two experiments, we investigate an analogous effect in humans, specifically, whether red on a woman’s shirt increases attraction behavior in men. In Experiment 1, men who viewed an ostensible conversation partner in a red versus a green shirt chose to ask her more intimate questions. In Experiment 2, men who viewed an ostensible interaction partner in a red versus a blue shirt chose to sit closer to her. These effects were observed across participants’ perceptions of their own attractiveness (Experiment 1) and general activation and mood (Experiment 2). Our findings suggest that red acts as a basic, non-lexical prime, influencing reproduction-relevant behavior in like manner across species.
Are Beliefs a Matter of Taste? A case for Objective Imprecise Information- via Ouvertes – We argue, in the spirit of some of Jean-Yves Jaffray’s work, that explicitly incorporating the information, however imprecise, available to the decision maker is relevant, feasible and fruitful. In particular, we show that it can lead us to know whether the decision maker has wrong beliefs and whether it matters or not, that it makes it possible to better model and analyze how the decision maker takes into account new information, even when this information is not an event and finally that it is crucial when attempting to identify and measure the decision maker’s attitude toward imprecise information.
Our bias towards negative interpretation of ambiguous faces - via Deric Bownds -Neta and Whalen make some interesting observations (on the usual cadre of undergraduate psychology students usually involved in such studies), showing that we have a ‘better be safe than sorry’ strategy in responding to ambiguous expressions of surprise that could signal either a negative or positive situation. We pick the negative interpretation, and our background bias towards being positive or negative biases this effect.: