Handpicked to satisfy your intellectual curiosity!
If you like this roundup or plan on linking to it (or from it) kindly include a reference to SimoleonSense Thanks.
“Where ignorance is bliss, ’tis folly to be wise!”
Two women were walking through the woods when a frog called out to them and said: “Help me, ladies! I am a stockbroker who, through an evil witch’s curse, has been transformed into a frog. If one of you will kiss me, I’ll be returned to my former state!”
One woman took out her purse, grabbed the frog, and stuffed it inside her handbag. The other woman, aghast, screamed, “Didn’t you hear him? If you kiss him, he’ll turn into a stockbroker!”
The second woman replied, “Sure, but these days a talking frog is worth more than a stockbroker!”
Must Read Articles!!!
Gullibility Is The Principle Cause of Bubbles (MUST Read!)- Via Odlyzko- Gullibility is the principal cause of
bubbles. Investors and the general public get snared by a “beautiful illusion” and throw caution to the wind. Attempts to identify and control bubbles are complicated by the fact that the authorities who might naturally be expected to take action have often (especially in recent years) been among the most gullible, and were cheerleaders for the exuberant behavior. Hence what is needed is an objective measure of gullibility.
This paper argues that it should be possible to develop such a measure. Examples demonstrate, contrary to the efficient market dogma, that in some manias, even top business and technology leaders fall prey to collective hallucinations and become irrational in objective terms. During the Internet bubble, for example, large classes of them first became unable to comprehend compound interest, and then lost even the ability to do simple arithmetic, to the point of not being able to distinguish 2 from 10. This phenomenon, together with advances in analysis of social networks and related areas, points to possible ways to develop objective and quantitative tools for measuring gullibility and other aspects of human behavior implicated in bubbles. It cannot be expected to infallibly detect all destructive bubbles, and may trigger false alarms, but it ought to alert observers to periods where collective investment behavior is becoming irrational.
The proposed gullibility index might help in developing realistic economic models. It should also assist in illuminating and guiding decision–making.
Overconfidence : videos, links, and Moore (as in more Moore) - via Finance Professor -
For Behavioral Finance we will be covering overconfidence, here are some videos you may enjoy on the topic:
Generous Paupers and Stingy Princes: Power Drives Consumer Spending on Self versus Others - via UChicago – This research examines how consumers’ spending on themselves versus others can be affected by temporary shifts in their states of power. Five experiments found that individuals experiencing a state of power spent more money on themselves than on others, whereas those experiencing a state of powerlessness spent more money on others than on themselves. This effect was observed using a variety of power manipulations (hierarchical roles, print advertisements, episodic recall, and mental role-playing), across spending intentions and actual dollars spent, and among college and national samples. 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. The research makes novel contributions to appreciating how the spending on the self versus others varies as a function of psychological states and increases our understanding of the role of power in consumer behavior.
Overinvestment in financial expertise – via Economic Logic – One conventional story about the 2007-2008 financial crisis is that some bright financial bankers created complex financial instruments that have then been traded by people who did not understand them, thus leading to mispricing and ultimately to a major market correction. In other words, financial advisors were not too bright. No, Wall Street has hired a lot of PhDs, so how could this happen?
Why Balance Sheets Fall Short as Indicators of Credit Risk - via Research Recap – A company with a high ratio of assets to liabilities should, in theory, be better placed to service its debts than one with fewer assets supporting its obligations. However, the balance sheet – the primary record of an entity’s assets and liabilities – is rarely employed by credit analysts as a standalone indicator of credit risk.
Rick Bookstaber: The Technology-Driven Consumption Trap - via RB – The root of our economic problems is the ever widening income gap. The rich, who are laying claim to a higher and higher percentage of income, don’t spend as much of their income as do those down the income ladder, so demand for goods and services is dropping. The solution is to move income toward those who will spend more of what they earn, namely the workers who are producing all the goods. Put another way, we need to redistribute income so that those who produce can afford to buy what they are producing. This is one of those “gee, I should have thought of that” sorts of arguments, a reasoned argument for income redistribution based not on some notion of fairness, but on economic results. Rather than the government priming the pump through fiscal measures, which is obviously a short-term solution, he argues that we need to change the structure of the system to shift income toward those who will consume. But I would like to sketch a path for technology that makes this approach, income redistribution as a Keynesian solution of sorts, unsustainable, indeed a path that leads us to a land where no magic can return us to the economy we have enjoyed in the past. This path is one that takes two of the very problems Reich pinpoints and assumes they deepen. These two problems are, first, that the marginal propensity to consume drops with an increase in income, and second, that the contribution of labor to production declines over time.
Gold and Financial Assets: Are There Any Safe Havens in Bear Markets? - via CEPII- This paper looks into the role of gold as a safe haven against stocks during recessions and bear markets. Following Baur and McDermott (2010) and Baur and Lucey (2010), we characterize safe havens by their negative correlations with stocks during crises. We extend their results in three ways. First, we identify crisis periods by exogeneous means using, successively, recession periods provided by the NBER and periods of bear US stock markets. Second, we estimate a model allowing for time varying conditional covariances between gold and stocks returns. Third, we test if long run relationships exist between gold and stocks and explore whether they can be used to construct portfolios immune to crises. The regressions are run on monthly data for gold and several stock market indices (France, Germany, UK, US, G7) over the period 1978:2-2009:1. In the short run, we find that the correlation between gold and stocks is close to zero during recessions, which qualifies gold for being a “weak safe haven”. This is also the case during bear markets against the stock indices of most considered countries, although gold appears as a strong hedge versus the US stock index. A closer look at the data shows that these results only hold on average and not for every crisis episode or every country. In the longer run a negative relationships exists between gold and some stock markets (France, UK, US). However, it does not allow the construction of a hedged portfolio immune to all crises. Overall, despite its interest for the diversification of portfolios, gold stays a risky investment, even during crises.
Miguel’s Favorite Articles
Dan Ariely: Wealth Inequality in America - via Predictably Irrational – Perform the following thought experiment. Remove yourself for a moment from your present socioeconomic circumstances and imagine that you are to be replaced randomly into society at any class level.Now, before you know your particular place in society you are told that it is within your powers to redistribute the wealth of that society in any way that you choose. What distribution would you choose? This famous thought experiment is the basis of political philosopher John Rawls, as outlined in his highly influential 1971 work, “A Theory Of Justice,” in which he argues that the lowest class should be made as well off as possible. But this of course assumes that we all come to the same conclusion when we perform the thought experiment ourselves. To test this, Mike Norton and I recently conducted a study in which we asked Americans to first guess at the distribution of wealth in the United States, and then we asked them to perform the thought experiment and lay out what they think would be the ideal distribution of wealth if they were to enter society and be placed randomly in a class.
Why income distribution can’t be crowd-sourced - via Seths Posterous- Earlier this month I published a 10-part Slate series (PDF; serial version; slide show) about the 30-year rise in income inequality that Princeton’s Paul Krugman has dubbed “The Great Divergence.” In the first installment, I noted that in 1915, when the richest 1 percent accounted for about 18 percent of the nation’s income, the prospect of class warfare was imminent. Today, the richest 1 percent account for 24 percent of the nation’s income, yet the prospect of class warfare is utterly remote. Indeed, the political question foremost in Washington’s mind is how thoroughly the political party more closely associated with the working class (that would be the Democrats) will get clobbered in the next election. Why aren’t the bottom 99 percent marching in the streets?
How elastic is the demand for shopping bags? Depends on if you think those bags are free - via Nudge Blog- Demand for shopping bags is “extremely elastic” says Kellogg’s Marty Lariviere, commenting on the success of the District of Columbia’s recently imposed $.05 per shopping bag tax (on paper or plastic) to pay for cleaning the river. Already there’s been an average of 60 percent reduction in the number of bags handed out across retailers. Maybe the program is a failure then since it was designed to be a revenue generator and it’s not hitting its targets.
Our brain connections become more sparse and sharp with aging- via Deric Bownds – I have the clear feeling that my 68-year old brain is more rye-crisp and sharp, less likely to experience rich emotional immersions in a passing moment, than my 28-year old brain was. I wonder if part of the explanation for this is suggested by work of Dosenbach et al., who recently have developed an index of resting-state functional connectivity (how tightly neuronal activities in distinct brain regions are correlated) from several three different data sets based on fMRI scans of 150 to 200 individuals from ages 6 to 35 years old. Networks become more sparse and sharp with brain maturation, as long-range connections increase while short-range connections decrease. Here is their abstract and a summary figure from the paper (I don’t understand the statistics, but do give definitions of the abbreviations)
High income improves life evaluation, but not emotional well-being - via Deric Bownds – Recent research has begun to distinguish two aspects of subjective well-being. Emotional well-being refers to the emotional quality of an individual’s everyday experience—the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one’s life pleasant or unpleasant. Life evaluation refers to the thoughts that people have about their life when they think about it. We raise the question of whether money buys happiness, separately for these two aspects of well-being. We report an analysis of more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 US residents conducted by the Gallup Organization. We find that emotional well-being (measured by questions about emotional experiences yesterday) and life evaluation (measured by Cantril’s Self-Anchoring Scale) have different correlates. Income and education are more closely related to life evaluation, but health, care giving, loneliness, and smoking are relatively stronger predictors of daily emotions. When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.
Video: Ted Talk – How Mr. Condom made Thailand a better place – At TEDxChange, Thailand’s “Mr. Condom,” Mechai Viravaidya, walks us through the country’s bold plan to raise its standard of living, starting in the 1970s. First step: population control. And that means a lot of frank, funny — and very effective — talk about condoms.
The Tight Collar: The New Science of Choking Under Pressure - via Wired – Late in May 2009, perched in superb seats a few rows behind home plate at Chicago’s Cellular Field, I took in a White Sox-Indians game with Sian Beilock, a professor of psychology at the University of Chicago who studies what is surely, other than serious injury, the most feared catastrophe in sports: the choke.
What makes people vote - via Boston – Although an important role for the government is helping poor people, the poor themselves are less likely to vote than more affluent citizens. Some of this may be due to transportation or job constraints, but an experiment with public housing residents in Boston before the 2007 municipal elections confirms that motivation plays a big role. Residents were divided into three groups. The first group was not contacted. The second group was visited where they lived, and urged to vote. And the final group received visits, but also copies of their turnout history. While a simple face-to-face appeal improved the odds that someone would vote from around 10 percent to the 15-20 percent range, showing voters their turnout history boosted the voting odds to around 25 percent.
Why we will never defeat the microbes - via We Beasties – The best defense against pathogens is to never let them gain access to our delicious, gooey insides. Our skin is pretty good for this purpose: it’s pretty tough and mostly impermeable, and the only way most of our surface tissues can get infected is if that skin barrier is broken. But we can’t have skin everywhere. Our airways and digestive tract have to be permeable so that we can absorb air and nutrients. In our gut, we can’t have skin, but we do have tens of trillions of commensal (friendly) bacteria that colonize us, and they can generally out-compete the bad bugs that want to do us harm.
Back to Basics on Pricing - via Iterative Path – When it comes to price increases and making customers pay more, there are many broad generalizations like the 1% price increase fallacy and behavioral nudges. Today’s journal features big brands that are slowly testing price increases. These brands are ignoring the popular fads and instead are practicing effective pricing.
The test has been canceled-Final exams are quietly vanishing from college- via Boston.com- They incite panic in the souls of even the most diligent students. Everything about final exams is fraught with terror: the blue books passed out from the front of the room, the clock ticking on the wall, three hours to finish in some large auditorium with banked seating, and grade point averages hanging in the balance. If professors listen closely enough, they can hear the sound of pens scribbling and caffeine pumping through the veins of 200 students who have been cramming for days, intent on learning, if for no other reason than they don’t want to fail.
Nothing To Be Friends About:Before the 20th century, friendship was single-sex - via Slate – The concept that sex is the main obstacle to platonic friendship is so familiar, it might seem timeless. It’s endorsed by Dear Prudence readers and by Hollywood. It’s why it was awkward for me to sleep on Jeff’s trundle bed and took the M79 home, instead. At heart, the “sex problem” is a “man problem”: Even if women can repress their sexuality, the story goes, men can’t. That’s the notion behind a hokey meme several readers sent me called the Ladder Theory, which posits that men have a single “ladder” for all the women they know, with those they actively want to bed at the top rung and those they would screw only if extremely drunk at the bottom. This meme, in turn, corresponds to well-publicized claims that the “sexual pursuit area” of the male brain is 2.5 times larger than that of the female brain and that testosterone drives men into a sort of chemical trance when they see a pair of breasts. How could a beast like the human male, whose mind turns to pornographic pulp whenever a female enters his frame of vision, maintain a friendship with a woman?
How Plants Drove First Animals Onto Land - via Wired- About 350 million years ago, evolution took one small step for fish, and a giant leap for every terrestrial animal since. According to a new study, it was all made possible by plants. Prehistoric oxygen levels extrapolated from ancient mineral sediments suggest aquatic life went into overdrive after plants boosted atmospheric oxygen levels. Oceans became so fiercely competitive that some fish sought safe haven outside them. Some scientists have proposed as much, but the new research, published Sept. 28 in the Proceedings of the National Academy of Sciences, provides the first solid evidence.
Time to ditch PowerPoint and embrace ‘naked teaching’ – via Irish Times- Let’s throw out the overhead projectors and return to interactive discussion. ALMOST exactly 30 years ago, I began work as a full-time university lecturer in Trinity College Dublin. That same month, there were some 15 or so other new lecturers starting in the university, and to get us into the mood, we were given an induction course. I don’t remember all that much about the course now (though I did meet my wife there), but one session was all about the use of “overheads”.
David Cameron’s ‘nudge unit’ aims to improve economic behaviour - via Guardian.co.uk- Cabinet office team will look at how to create environments that help people choose what’s best for themselves and society
Google’s CEO: ‘The Laws Are Written by Lobbyists’ - via Atlantic- “The average American doesn’t realize how much of the laws are written by lobbyists” to protect incumbent interests, Google CEO Eric Schmidt told Atlantic editor James Bennet at the Washington Ideas Forum. “It’s shocking how the system actually works.”
In a wide-ranging interview that spanned human nature, the future of machines, and how Google could have helped the stimulus, Schmidt said technology could “completely change the way government works.”
Dying to Invest- via PsiFiBlog- Death, they say, is a great leveller and historically it’s the case that this has been true. Back in the early part of the twentieth century the richest man in the world, Nathan de Rothschild, couldn’t stop tuberculosis taking his life. Today, of course, fifty cents could have saved him. On the other hand Steve Job’s vast wealth has helped him survive pancreatic cancer via the best medical treatment on the planet. Maybe, in economic terms, death isn’t what it was. No matter, the Grim Reaper will eventually take Apple’s saviour from us as he will us all. Sex is designed to mix genes to help humanity in its never-ending fight against microbes seeking to destroy us: infinite longevity would come at the price of eventual human annihilation, always assuming we didn’t do the job ourselves first. In economics as in science, however, we advance one death at a time and death has been one of the most important subjects for economics: no pain, no gain.
Everything Important In Life Depends On Your Ability To Answer This Kindergarten Question- business Insider – Harvard Professor Raj Chetty and a group of other researchers have performed a much-discussed study (via Gene Expression) that looks at what factors really affect things like income, your likelihood to own a home, and odds of getting married.
Specific brain areas for sex, money - via Physorg- A team of French researchers headed by Jean-Claude Dreher of the Centre de Neuroscience Cognitive in Lyon, France, has provided the first evidence that the orbitofrontal cortex (located in the anterior ventral part of the brain) contains distinct regions that respond to secondary rewards like money as well as more primary gratifications like erotic images. These findings, published in The Journal of Neuroscience, open new perspectives in the understanding of certain pathologies, such as gambling addiction, and the study of the neural networks involved in motivation and learning.
No Room for Error With Sex Stereotypes - via Miller McCune – For men and women in leadership positions usually occupied by the other gender, a single mistake is seen as evidence of incompetence.
Newly Discovered Planet May Be First Truly Habitable Exoplanet – via NSF – A team of planet hunters led by astronomers at the University of California, Santa Cruz (UC Santa Cruz), and the Carnegie Institution of Washington, and supported by the National Science Foundation (NSF) and NASA, has announced the discovery of an Earth-sized planet (three times the mass of Earth) orbiting a nearby star at a distance that places it squarely in the middle of the star’s “habitable zone,” where liquid water could exist on the planet’s surface. If confirmed, this would be the most Earth-like exoplanet yet discovered and the first strong case for a potentially habitable one.
How the Gates Foundation Will Spend Its Education-Technology Dollars - via Chronicle – If you work in education technology, get ready. The Gates money is coming. Waves of it. This fall the Bill & Melinda Gates Foundation and several partners will announce a new project aimed at harnessing technology to help prepare students for college and get them to graduation. The senior program officer leading that effort is Josh Jarrett, a former software entrepreneur with a Harvard M.B.A. who joined Gates after five years with the consulting firm McKinsey & Company. In an interview, he previewed that program and offered his take on the online-learning scene.
Empathy’s failures - via Bad Science – The results were extremely depressing. These were cases where people from corporations had been found guilty of negligently exposing members of the public to toxic substances such as asbestos, lead paint, or toxic mould, and their victims had all suffered significantly. They were all from 2000 to 2009, they were all jury trials, and the researchers’ hypothesis was correct: people who harm larger numbers of people get significantly lower punitive damages than people who harm smaller number of people. Juries punish people less harshly when they harm more people.
Bringing Children’s Media off the Screen - via Mit – Virtual play can take a child only so far, suggests Breazeal, who was inspired by master movie puppeteer Stan Winston. They shared a vision of a “living, breathing droid” — a fabricated creature that could exist off- as well as onscreen. Breazeal has refashioned this idea over the years to meet her evolving goals in artificial intelligence. She pioneered the area of social robotics and human-robot interaction, developing creatures that can actually learn from and work with people. More recently, as a mother of young children, Breazeal has turned her attention to how socially intelligent machines might offer children new forms of expression and better ways to play.
Do procrastinators score higher in school than non-procrastinators? - via Bakadesuyo- No:Evidence from online assignments in an intermediate microeconomics course suggests that nonprocrastinators (both early-starters and front-loaders) score higher than their dilly-dallying counterparts. Students who are busier in school tend to start their assignments earlier.
Are female CEO’s undercompensated? - via Bakadesuyo- In this article we continue the examination of top executive pay by comparing performance, total pay and the influence of CEO gender. We analyse compensation differences between male and female CEOs using nonparametric analysis. We calculate the potential compensation for each executive using two benchmarks. First, each executive’s performance and compensation are evaluated relative to members of the same gender to produce a same-gender measure of under-compensation. Each executive’s compensation is also benchmarked against the other gender’s potential compensation, producing an other-gender measure of under-compensation. Together, both measures allow an analysis of the gender-specific potential salaries of each executive while controlling for performance. The approach is applied to a sample of male and female executives. The results indicate that women are under-compensated.
The Bond ‘Bubble’: Are Small Investors Taking Too Big a Bet? – via Jason Zweig – The bond market is a bubble, and the little guy is blowing it. That has been a constant refrain on Wall Street lately, as retail investors poured over $375 billion into bond mutual funds last year and another $230 billion thus far in 2010—even as interest rates have shriveled toward zero and the risk of future losses has risen. Households also have yanked roughly $70 billion out of U.S. equity funds this year, though the stock market has gained 4%.
Is Wall Street Twice the Size it Should Be? - via Fortune- The survivors may laugh at the inherent leverage in their jobs, but they probably won’t be chuckling for long. I wrote two weeks ago about analyst Meredith Whitney’s projection that Wall Street will lose anywhere from 40,000 to 80,000 jobs in the next few years. [See: "Wall Streeters finally back to earning their keep."] I called Meredith a sourpuss, but I didn’t mean anything by it beyond the fact that she has a disposition to call bullshit when her peers will not.
Game On: Basel III -Bonfire of the Principles - Via Psy-Fi Blog- The next set of banking regulations, aka Basel III, has arrived, albeit it’ll be implemented one micro-step at a time. It has, of course, been accompanied by horse-trading of the kind that can only be done behind closed doors by an unelected and unaccountable body. After all, it’s not as though their actions will ever affect the rest of us, is it? Regardless of what this shadowy group has decided the actual behaviour of the world’s financial community will continue to be cautious while the pain engendered by its latest fiasco remains large in the minds of its officers. Yet these memories will fade and animal spirits will once again take over, when Basel III will become, like its predecessors, an opportunity to be gamed, not a constraint on unethical behaviour. In the end we need less rules, more principles and better regulators.
Video: Michael Tennenbaum’s Interview on Distressed Debt - via DDI -In an interview on Bloomberg News, Michael Tennenbaum, founder of Tennenbaum Capital Partners, presented his thoughts on the current state of the distressed debt market. (Interview video embedded below). In addition, Bloomberg held it’s Dealmaker’s Summit, which I will also report on later today / tomorrow (lots of fantastic speakers)
A Fantastic Distressed Debt in Institutional Investor - via DDI – Here is a fantastic distressed debt article that was sent to me earlier today. I have copied and pasted both below (sorry for the length) – My comments will be in a post later tonight (in addition to my notes on Michael Tennenbaum’s interview on Distressed Debt)
Tobacco excise tax structure: Implications for public health - via Voxeu- Governments tax tobacco products for both revenue and public health purposes. How should they structure tobacco taxes? This column uses data from 21 EU countries between 1998 and 2007 to argue that cigarettes should be subject to a high, uniform specific tax in the interest of both objectives.
$10,000 Gold? Kenneth Rogoff - via Ps- If you are a high-net-worth investor, a sovereign wealth fund, or a central bank, it makes perfect sense to hold a modest proportion of your portfolio in gold as a hedge against extreme events. But, despite gold’s heightened allure in the wake of an extraordinary run-up in its price, it remains a very risky bet for most of us. Of course, such considerations might have little influence on prices. What was true for the alchemists of yore remains true today: gold and reason are often difficult to reconcile.
Director and Executive Compensation of the 100 Largest US Public Companies - via Harvard – The most striking change in this season’s proxy statements is the increased prominence accorded to discussions of “risk.” This year’s Survey indicates that a decisive majority of the Top 100 Companies addressed the impact of the company’s compensation programs on its overall risk profile (see page 18). Regulatory developments, including the applicability of the new SEC disclosure rules, help explain the enhanced emphasis on risk.
Video: Niall Ferguson: Empires on the Edge of Chaos - via Fora.tv – Throughout history the rise and fall of empires isn’t slow or cyclical, as we like to think, but arrhythmic…it mostly happens very, very suddenly. America is a superpower on the edge of chaos, according to economic historian and author Niall Ferguson. U.S. debt levels, he says, and its unwillingness to address the problem, has put it in the same category as other great empires which have collapsed throughout the ages. Ferguson argues the world is changing. There’s the rise of authoritarian China as a super-power; a Keynesian president leading a weakened United States; the re-emergence of democratic India as a great power; the continued decline of Japan; and the probability of continued global economic instability ahead.
Flash crash report is superficial and disappointing - via Jayanth R Varma- The joint report by the US CFTC and SEC on the flash crash of May 6, 2010 was released late last week. I found the report quite disappointing and superficial. Five months in the making, the report provides a lot of impressive graphs, but few convincing answers and explanations.
The Pension Benefit Guaranty Corporation’s $168 billion problem - via Nick Gogerty -What the heck is the PBGF and why is their $168billion problem going to become yours? here is the PBGF “about us” summary: PBGC is a federal corporation created by the Employee Retirement Income Security Act of 1974. It currently protects the pensions of more than 44 million American workers and retirees in more than 29,000 private single-employer and multiemployer defined benefit pension plans. PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans.
How the pension extension works for bonus enhancement - via Gogerty – In the yearning for earnings and need for the CEO to be a “world class performer”, it is required to be financially innovative. One of the great financial innovations and wonders of contemporary fiscal mythology is the Pension Extender.
The Bailout Yearbook: The Stars and the Slackers - via Propublica – After two years and half a trillion dollars, the federal bailout fund is set to expire Oct. 3. After that, the government won’t be able to start new programs through the bailout, though it can continue paying money that’s already committed. We’ve been following every dollar via our Bailout Tracker . But with the end now in sight, we’ve decided it’s time to get a bit nostalgic, take a step back and look at the bailout’s recipients and programs that have shined — and those that have flopped.
Why are big banks suspending foreclosure proceedings?- via Reality Base – As Yves Smith describes here, it’s because mortgage securitization practices evolved in a way that, to reduce costs, many of the mortgage notes were never conveyed to the trustees responsible for bringing the foreclosure actions. In 45 states a creditor can’t foreclose without exhibiting the original note in court. This widespread problem has been “solved” by a new industry of document forging. Obviously, there are going to be criminal prosecutions and jail time, but what does this do to the value of mortgage-backed securities, many of which have been purchased, probably at face value, by the Fed in its “quantitative easing” program? Perhaps the trustees of these securities will discover merit in loan modifications which, if nothing else, will give them new notes and a second chance not to foul up the paperwork.
Yes We Can!: Prejudice Reduction Through Seeing (Inequality) and Believing (in Social Change) - via APS – We investigated the effect of differential perceived efficacy to reduce racial inequality (in the context of increased awareness of illegitimate in-group advantages) on White Americans’ intergroup attitudes and antidiscrimination behavior. White American university students read a passage describing the underrepresentation of African Americans in their university’s faculty and then wrote letters to the university administration in support of appointing more African Americans to the faculty. We experimentally varied feedback concerning efficacy to change institutional racism. Before writing their letters, participants were told that there was a low, moderate, or high chance that their efforts would be effective. Later in the experiment, participants’ perceived efficacy to influence their university system was measured. Intergroup attitudes improved and antidiscrimination actions increased among participants with higher perceived efficacy in comparison with participants with low perceived efficacy. Collective guilt partially mediated the effects of efficacy beliefs on antidiscrimination actions and fully mediated the effects of efficacy beliefs on intergroup attitudes.
Warding Off the Evil Eye: When the Fear of Being Envied Increases Prosocial Behavior - via APS – The fear of being envied makes people act prosocially, in an attempt to ward off the potentially destructive effects of envy. In three experiments, people who were in a superior position and could be envied were more likely than control participants to give time-consuming advice to a potentially envious person or to help a potentially envious person pick up erasers she had accidentally scattered. However, helping behavior increased only if envy was likely to be malicious rather than benign. People who were better off did not increase their helping behavior toward people in general, but increased their helping only toward the potentially envious. This finding is consistent with the idea that the better off act more prosocially as an appeasement strategy. The fear of being envied serves useful group functions, because it triggers prosocial behavior that is likely to dampen the potentially destructive effects of envy and simultaneously helps to improve the situation of people who are worse off.
Do Babies Learn From Baby Media? - via APS – In recent years, parents in the United States and worldwide have purchased enormous numbers of videos and DVDs designed and marketed for infants, many assuming that their children would benefit from watching them. We examined how many new words 12- to 18-month-old children learned from viewing a popular DVD several times a week for 4 weeks at home. The most important result was that children who viewed the DVD did not learn any more words from their monthlong exposure to it than did a control group. The highest level of learning occurred in a no-video condition in which parents tried to teach their children the same target words during everyday activities. Another important result was that parents who liked the DVD tended to overestimate how much their children had learned from it. We conclude that infants learn relatively little from infant media and that their parents sometimes overestimate what they do learn.
Do lenient bankruptcy laws promote entrepreneurship? - via Bakadesuyo- Recent initiatives in a number of countries have sought to promote entrepreneurship through relaxing the legal consequences of personal bankruptcy. Whilst there is an intuitive link, relatively little attention has been paid to the question empirically, particularly in the international context. We investigate the relationship between bankruptcy laws and entrepreneurship using data on self-employment over 16 years (1990–2005) and fifteen countries in Europe and North America. We compile new indices reflecting how “forgiving” personal bankruptcy laws are. These measures vary over time and across the countries studied. We show that bankruptcy law has a statistically and economically significant effect on self-employment rates when controlling for GDP growth, MSCI stock returns, and a variety of other legal and economic factors.
Inferring Beliefs as Subjectively Uncertain Probabilities - via GSU- We propose a method for estimating subjective beliefs, viewed as a subjective probability distribution. The key insight is to characterize beliefs as a parameter to be estimated from observed choices in a well-defined experimental task, and to estimate that parameter as a random coefficient. The experimental task consists of a series of standard lottery choices in which the subject is assumed to use conventional risk attitudes to select one lottery or the other, and then a series of betting choices in which the subject is presented with a range of bookies offering odds on the outcome of some event that the subject has a belief over. Knowledge of the risk attitudes of subjects conditions the inferences about subjective beliefs. Maximum simulated likelihood methods are used to estimate a structural model in which subjects employ subjective beliefs to make bets. We present evidence that some subjective probabilities are indeed best characterized as probability distributions with non-zero variance.