Weekly Roundup 97: A Curated Linkfest For The Smartest People On The Web
Handpicked to satisfy your intellectual curiosity!
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CFO= Chief Fun Officer
Must Read Articles for Weekly Visitors
Current decisions shape your future preferences – via Eurkea Alert – Psychologists have known for a long time that after you make a choice, you adjust your opinion to think better of the thing you chose. Now a new study has found that this is true even if you don’t know the options that you’re choosing between. People change their minds about a choice after they make it. If you ask someone how he feels about Athens and Paris, he might rate them the same. But after you make him choose one as a vacation destination, he’ll rate that city higher. This is thought to be a way to reduce the psychological tension that is created by rejecting one perfectly reasonable alternative and picking another one. But recently critics have pointed out a flaw in this experimental design: the person might actually have already liked Paris more than Athens, but for some reason this preexisting preference didn’t show up when he was asked to rate them.
Video: A look at historical bubbles – via Finance Professor
Competitive Intelligence In the The Age of Google – via Intrepid Insights
Risk seeking behavior of preschool children in a gambling task – via Science Direct- A recent neurobiology study showed that monkeys systematically prefer risky targets in a visual gambling task. We set a similar experiment with preschool children to assess their attitudes toward risk and found the children, like the monkeys, to be risk seeking. This suggests that adult humans are not born risk averse, but become risk averse. Our experiment also suggests that this behavioral change may be due to learning from negative experiences in their risky choices. We also showed that though emotional states and predetermined prenatal testosterone can influence children’s preferences toward risk, these factors could not override learning experiences.
Why Greece will never make it: self-fulfilling expectations about social security – via Economic Logic – Mediterranean countries have many things in common, one of them is an early retirement age. You certainly read about the uproar when the Germans learned that they had to bail out the Greeks who enjoy retirement many years earlier. Now there is much pressure on Greece to lower and delay pensions, but there is tremendous resistance from the street. The same is happening right now in France as well. Yet, initiative to delay retirement in Northern Europe or North America, where retirement age is already higher, do not generate much discussion.
More evidence that value stocks beat glamour – via finance professor – “In a study that may be published in the Journal of Behavioral Finance, it found that when value and glamour stocks failed to live up to earnings expectations, glamour stocks fell while prices for value stocks rose. A value stock is one that trades lower than its fundamentals would suggest. A bargain, in short.
Stereotype Threat Affects Financial Decision Making – via Psych Science – The research presented in this article provides the first evidence that one’s decision making can be influenced by concerns about stereotypes and the devaluation of one’s identity. Many studies document gender differences in decision making, and often attribute these differences to innate and stable factors, such as biological and hormonal differences. In three studies, we found that stereotype threat affected decision making and led to gender differences in loss-aversion and risk-aversion behaviors. In Study 1, women subjected to stereotype threat in academic and business settings were more loss averse than both men and women who were not facing the threat of being viewed in light of negative stereotypes. We found no gender differences in loss-aversion behavior in the absence of stereotype threat. In Studies 2a and 2b, we found the same pattern of effects for risk-aversion behavior that we had observed for loss-aversion behavior. In addition, in Study 2b, ego depletion mediated the effects of stereotype threat on women’s decision making. These results suggest that individuals’ decision making can be influenced by stereotype concerns.
The Financial Crisis : Causes & Cures – via Propublica- This 110-page publication cuts through the technical jargon using easily understood metaphors and explains the working of the financial system, the causes of the crisis and the concepts and justifications for financial reforms
A Look at IDEO’s Book of the Future – via Good – As Zach mentioned, the incomparable design firm IDEO has created three visions of the book of the future, all of which exist, predictably, on some sort of iPad-like tablet.
New England’s hidden history – via Boston – In the year 1755, a black slave named Mark Codman plotted to kill his abusive master. A God-fearing man, Codman had resolved to use poison, reasoning that if he could kill without shedding blood, it would be no sin. Arsenic in hand, he and two female slaves poisoned the tea and porridge of John Codman repeatedly. The plan worked — but like so many stories of slave rebellion, this one ended in brutal death for the slaves as well. After a trial by jury, Mark Codman was hanged, tarred, and then suspended in a metal gibbet on the main road to town, where his body remained for more than 20 years.
Money, drugs and chicken feet? What consumers will do for social acceptance – via Psych Science – People who feel excluded will go to any length to try to become part of a group, even if it involves spending large sums of cash, eating something dicey, or doing illicit drugs, according to a new study in the
The science behind deception – via Psych Science – Think you can tell when people are lying? After decades of accepted methods for detecting lies, communications PhD student Edward Reynolds may have a case for challenging those tactics.
Nature or Nurture: What Determines Investor Behavior? – via Bakadesuyo- Using data on identical and fraternal twins’ complete financial portfolios, we decompose the crosssectional variation in investor behavior. We find that a genetic factor explains about one third of the variance in stock market participation and asset allocation. Family environment has an effect on the behavior of young individuals, but this effect is not long-lasting and disappears as an individual gains experiences. Frequent contact among twins results in similar investment behavior beyond a genetic factor. Twins who grew up in different environments still display similar investment behavior. Our interpretation of a genetic component of the decision to invest in the stock market is that there are innate differences in factors affecting effective stock market participation costs. We attribute the genetic component of asset allocation – the relative amount invested in equities and the portfolio volatility – to genetic variation in risk preferences.
Are smart people more likely to be victimized at work? – via Bakadesuyo – Drawing on the victim precipitation model, this study provides an empirical investigation of the relationship between cognitive ability and victimization at work. We propose that people high in cognitive ability are more prone to victimization. In this study, we also examine the direct and moderating effects of victims’ personality traits, specifically the 2 interpersonally oriented personality dimensions of agency and communion. Results support the direct positive relationship of cognitive ability and victimization. The positive relationship between high cognitive ability and victimization is moderated by the victims’ personality traits; agency personality traits strengthen the relationship of cognitive ability and victimization, whereas communion personality traits weaken this relationship.
What is a Representative Sample Size for a Survey? – via Measuring Usability – Will users purchase an upgrade? What features are most desired? Will they recommend the product to a friend? Part of measuring the user experience involves directly asking users what they think via surveys. The Web has made surveys easy to administer and deliver. It hasn’t made the question of how many people you need to survey any easier though. One common question is “How many people do I need to survey to have a representative sample?” This question mixes two concepts: representativeness and sample size
James Grant On John Kenneth Galbraith: The Non-Economist’s Economist – via WSJ – John Kenneth Galbraith avoided technical jargon and wrote witty prose—too bad he got so much wrong
Miguel’s Weekly Favorites
The Secret of Google Instant: Behavioral Psychology – via Leadon Young – It’s possible that Google borrowed a few principles from behavioral psychologists when building Google Instant in order to get people to search more. They have 5 ‘suggested results’ as a maximum for a reason (in the previous version they were 10), and we suspect it has to do with psychological principles. Also, they have done their best to reduce every possible effort the searcher takes in order to get what he’s looking for. Will this result in more queries, and more importantly, more loyal searchers for Google? We look at the potential below.
Power Makes the Hypocrite Bolder and Smugger – via Psych Today – We’ve all had the experience of listening to someone in a position of power rail against the moral ineptitude of others. Turn on the news on any given day and you’re likely to see someone moralizing about family values, for example. Most of us listen to these diatribes and wonder if those doing the judging would fare well under judgment–though we strongly suspect they would not.
Dan Ariely: Want People to Save? Force Them – via Predictably Irrational – In Chile last June, I had the opportunity to spend some time with Felipe Kast, the new government’s minister of planning, and a few of his compadres. (We also went dancing, but that is another story.) One of the topics we talked about was the Chilean retirement saving plan. By law, 11% of every employee’s salary is automatically transferred into a retirement account. Employees select their preferred level of risk, with the following restrictions: They may not choose either 100% equities or 100% bonds, and the percentage of equity that they can select diminishes as they age. When employees reach retirement, their savings are converted into annuities. The government auctions off the rights to annuitize retirees in groups of 250,000.
Culture-Specific Perception of Emotion – via APS – When we want to know how others are feeling we look for a smile or a frown…at least in Western cultures. A new study published in Psychological Science examined how Dutch and Japanese people assess others’ emotions and found that when a Japanese person wants to know how a friend is feelinghe pays attention to the tone of the person’s voice, not their facial expression.
Why Women Apologize More Than Men: Gender Differences in Thresholds for Perceiving Offensive Behavior – via PsychScience – Despite wide acceptance of the stereotype that women apologize more readily than men, there is little systematic evidence to support this stereotype or its supposed bases (e.g., men’s fragile egos). We designed two studies to examine whether gender differences in apology behavior exist and, if so, why. In Study 1, participants reported in daily diaries all offenses they committed or experienced and whether an apology had been offered. Women reported offering more apologies than men, but they also reported committing more offenses. There was no gender difference in the proportion of offenses that prompted apologies. This finding suggests that men apologize less frequently than women because they have a higher threshold for what constitutes offensive behavior. In Study 2, we tested this threshold hypothesis by asking participants to evaluate both imaginary and recalled offenses. As predicted, men rated the offenses as less severe than women did. These different ratings of severity predicted both judgments of whether an apology was deserved and actual apology behavior.
Reciprocity and the power to persuade increases sales – via WiredServices – Sales people who understand the power of persuasion are far more successful than those who lack these abilities. Reciprocity and the power to persuade increases sales
Can Behavioural Economics Contribute to Feminist Discussions? – via SSRN – Feminist and other heterodox economists have provided a detailed and sustained critique of the standard model of an economic decision maker: Homoeconomicus, or rational economic man. The notions of rationality embedded in this model, its asocial and context-free nature, as well as its complete absence of emotion have all drawn extensive and well deserved criticism. Recent developments in behavioural economics provide an opportunity to bring these critiques forward again and to advance the development of more descriptively relevant and inclusive models of decision making. In particular, Daniel Kahneman’s Nobel Lecture of 2002 identifies opportunities to move beyond rational framings of decision making; to explore the importance of intuitive thought; and to examine the fundamental importance of contextual factors on the judgments and behaviours of individuals. In doing so, Kahneman’s lecture creates avenues for feminist and other heterodox researchers to further advance and disseminate their understandings of decision making.
Do we really know what our partners like or want? – via Bakadesuyo – To test the influence of relationship length on ability to predict a partner’s preferences, 58 younger (M = 24.1 years) and 20 older (M = 68.7 years) couples made predictions in three domains that varied in daily importance. While prediction accuracy was generally better than chance, longer relationship length correlated with lower prediction accuracy and greater overconfidence. The difference in accuracy between older and younger couples increased for strong preferences and when controlling for preference reliability over time. Independent of relationship length, prediction accuracy was higher for important domains, for strong, reliable, and stereotypical preferences, and when couples were more similar.
Video: Jack Ma (Founder and Chairman of Alibaba) on Charlie Rose – via Value Investing World
Been There, Done That…I Think – via APS – While conducting an experiment on imagination, Gerald Echterhoff, of Jacobs University Bremen, and his co-authors found that people who had watched a video of someone else doing a simple action — like shaking a bottle or shuffling a deck of cards — often remembered doing the action themselves two weeks later. The scientists changed course to examine this phenomenon more closely with a series of experiments.
Book Review: Risk and the Smart Investor – via Aleph Blog – Not every book grabs me at first. “Risk and the Smart Investor” was one such book. But it grew on me. Having been through many exercises in risk control inside insurance companies, I can sympathize with the much more complex job that it is to control risk inside investment banks.
Oxytocin Selectively Improves Empathic Accuracy – via Psych Science
Does the Digital Classroom Enfeeble the Mind? – via Deric Bownds- How can you be ambidextrous in the matter of technology and education? Education — in the broadest sense — does what genes can’t do. It forever filters and bequeaths memories, ideas, identities, cultures and technologies. Humans compute and transfer nongenetic information between generations, creating a longitudinal intelligence that is unlike anything else on Earth. The data links that hold the structure together in time swell rhythmically to the frequency of human regeneration. This is education.
Will the psychological impact of the recession last? – via Pop Economics – I went to the movies to see Wall Street: Money Never Sleeps today. I actually enjoyed it more than the first one. It takes place during the financial crisis of 2008 and includes several goings on that roughly mimic the collapse of Lehman Bros. and subsequent fallout.
By what age do children recognise that plagiarism is wrong? – via Bps Research – To view plagiarism as an adult does, a child must combine several pieces of a puzzle: they need to understand that not everyone has access to all ideas; that people can create their own ideas; and that stealing an idea, like stealing physical property, is wrong.
Yes, It’s True: The Internet Makes You Happier – via NYT – There are those who believe that too much time spent on the Internet makes people less social and causes them to lose touch with the real world, but a new British study released today found that access to the Internet and the web, and especially to social networks such as Facebook, can improve people’s levels of happiness. The study found that Internet access improves the overall well-being of lower-income users, those with less education and women — particularly those in developing countries — by giving them a sense of freedom and control over their lives.
A fast food marketing trick waiting to happen – via Nudge Blog – Those who viewed the chili alone rated it as averaging 699 calories. By contrast, those who were shown the chili combined with the green salad estimated the meal to have only 656 calories. Thus, adding a green salad to the bowl of chili lowered the perceived caloric content of the entire meal by 43 calories — as if the green salad had negative calories. This negative-calorie illusion was observed with all four meals tested, indicating the prevalence of the belief that one can consume fewer calories simply by adding a healthy item to a meal.
Sharpshooting the Investment Gurus – via PsyFi Blog – Take a rifle and randomly spray bullets at the side of a barn. Invite some gun-toting friends around to see your handiwork and accept their lavish praise as a dead-eyed sharpshooter, knowing all the while it’s an illusion. The trick is to paint the targets after you’ve made the bullet holes. This, the Sharpshooter Effect, is essentially how many business gurus and investment analysts make their living. Worse, the effect affects statistical analysis of data that are genuinely important, like clusters of birth defects. The problem is that we’re not very good at distinguishing randomness from order and this causes us no end of grief as we pursue illusory patterns in the belief that we’re being smart.
Eat Your Stocks – via PsyFi Blog – Scientists study stuff which exist: physicists the physical laws of nature, biologists the nature of life and psychologists the human mind. Economists, on the other hand, study money: which is surely a figment of the human imagination. Given the ephemeral nature of the subject it’s a wonder that there’s any mileage in spending any effort on the subject at all, but huge amounts of time and money are expended in doing so. So if money is fundamentally unreal, what the hell is economics all about?
Why Psychologists Don’t Imitate Economists – via Seths Blog – When I watch and speak with my friends in psychology, very little of their work is about analyzing observational data. It’s about experiments, real experiments, with very interesting interventions. So they have a different method of trying to isolate causation. I am certain that we have an enormous amount to learn from them. But I am curious why we have not been able to convince them of the importance of careful analysis of observational data.
Conversational Well-Being: Quality Over Quantity – via Miller McCune – Research repeatedly finds a correlation between happiness and more gregarious individuals, but it hadn’t determined what element of sociability — bubbling over with shallow, inconsequential conversation or exchanging content of personal significance — leads to contentment.
Are We Having ‘Fun’ at Work Yet? – via NYT – The cult of fun has spread throughout the corporate world “like some disgusting hemorrhagic disease,” a columnist says.
Financial Topics & Investing
Fannie / Freddie Acquitted – via Modeled Behavior – The wave of housing price increases was kicked off by changes in private label securitization. These changes left Fannie and Freddie with a smaller market share and lower absolute level of securitizations. Fannie and Freddie attempted to adjust their basic business practices to stay competitive in bubble markets and among aggressive borrowers.
Most Americans want wealth distribution similar to Sweden – via Raw Story – Americans generally underestimate the degree of income inequality in the United States, and if given a choice, would distribute wealth in a similar way to the social democracies of Scandinavia, a new study finds.
Stores Scramble to Accommodate Budget Shoppers – via NYT- The country’s continued economic doldrums have stores scrambling for the once-ignored low-end customer, as people make fewer costly shopping trips to stock their pantries, and increasingly, can only afford inexpensive items in small quantities like those sold at dollar stores.
A proposal to repair the US mortgage mess – via Voxeu- Recent estimates suggest as many as 23% of US mortgages are “underwater” –the value of the home collateralising the mortgage has fallen below the loan’s balance. This column outlines a proposal to remove the threat of strategic default in these cases – one that it argues is not only fair but also the most likely to allow the US housing market to recover
A Corporate Governance Risk Manual – via Aswath Damodaran- About a year ago, I agreed to do a series of seminars for the IFC, an arm of the World Bank that invests in privately owned businesses, primarily in emerging markets. The focus of the seminars was risk governance and the audience was directors in companies. While I was leery of getting entangled in the layers of bureaucracy that characterize the World Bank, I agreed to do it for two reasons. First, I had done the bulk of the work already in my book on Strategic Risk Taking (published by Wharton Press), published a couple of years ago. Second, I thought it would be interesting to talk about risk management, from a broader perspective.
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