Weekly Roundup 11: A Curated Linkfest For The Smartest People On The Web
Here are some links to articles that didn’t make our front page. Several of the articles are very insightful I highly recommend reading them. As always, the articles are from different fields but should make you a more well rounded investor. Take Care.
(Click on the titles to access the articles)
1. How Do Hospitals Get Paid – Via Economix @ NYT – Few Americans probably have any inkling of how their neighborhood hospital prices the myriad of distinct services rendered patients. I doubt many patients can understand the long hospital bills that feature exotic items such as “cath porta cath perit” or “OP6-central line reposit,” and so on. Even fewer still likely understand why a Tylenol pill or a rubber glove can carry the humongous price tags hospitals put on them. Americans can be forgiven their ignorance on this issue because, as I put it in a recent paper on the subject, the pricing of hospital services is best described as “Chaos Behind a Veil of Secrecy.” For starters, a hospital is paid by several quite distinct methods, depending on who is paying.
2. Branding, Brain’s, & Google: Why Do we pick brands like Google? – Via Neuromarketing – Not long ago a press release went out with the provocative title, “Brain Works Like Google, New Study Finds.” More specifically, the news release claimed that the study showed that our brains choose brands from our memories using predictable unconscious rules, much like Google ranks sites using an algorithm:
3. Adam Smith Meet Captain Hook: The Upside Of Pirate Greed – Via Princeton University Blog – Lately it seems that barely a week passes without headlines of Somali pirates’ latest depredations and yet another, bigger, and more daring pirate attack. In November one crew captured a Saudi supertanker, the Sirius Star, along with the 25 crewmembers and $100 million in crude it was carrying—a prize big enough to make Blackbeard blush. Last week the pirates ransomed their prize for $3 million, releasing the ship and crew. Between January and October 2008, 63 pirate attacks were reported in the Gulf of Aden and off the coast of Somalia. Somali pirates hijacked 26 ships; fired on 21; and took nearly 540 sailors hostage. By contemporary standards, at least, these “pirate statistics” are remarkable. But an equally impressive “pirate statistic” has gone virtually unnoticed: the number of seamen who survived their harrowing captivities by Somali sea dogs and lived to tell the tale.
4. Social Psychology & Economic Sociology – Via OrgTheory – Why do we see little to no cross-fertilization between social psychology (especially the sociological variety) and economic sociology? It seems strange that there is so little overlap given that these areas are interested in similar kinds of outcomes and phenomena, e.g., valuation, status, power. Sociological social psychology studies the bread and butter concepts of sociology – status and identity, for example – while economic sociology tends to use bread and butter concepts to explain market phenomena. Yet strangely there is little cross-citation between the subfields. It’s almost as if they don’t know the other exists.
5. Siege On What Really Lies & Behind The Financial Crisis – Via Wharton – What was the true cause of the worst financial crisis the world has seen since the Great Depression? Was it excessive greed on Wall Street? Was it mark-to-market accounting? The answer is none of the above, says Jeremy Siegel, a professor of finance at Wharton. While these factors contributed to the crisis, they do not represent its most significant cause. Here is the real reason, according to Siegel: Financial firms bought, held and insured large quantities of risky, mortgage-related assets on borrowed money. The irony is that these financial giants had little need to hold these securities; they were already making enormous profits simply from creating, bundling and selling them. “During dot-com IPOs of the early 1990s, the firms that underwrote the stock offerings did not hold on to those stocks,” Siegel says. “They flipped them. But in the case of mortgage-backed securities, the financial firms decided these were good assets to hold. That was their fatal flaw.”
6. Do People Of All Cultures Believe In Free Will – Via Psychology Today – Imagine a universe in which everything that happens is completely caused by whatever happened before. So the things that happened at the very beginning of the universe caused the things that happened next, which caused the things that happened after that… right up until the present day. Now imagine that human decision making in this universe is no different from anything else. Just like anything else that occurs, human decisions are completely caused by whatever happened before them. Now ask yourself: Is our universe actually like that? Do we live in a universe in which everything is completely caused by whatever happened before it? Or do we live in a universe in which human actions are somehow special and are not completely caused by anything that happened previously? In a new cross-cultural study, the experimental philosopher Hagop Sarkissian and his colleagues asked this question to people living in India, Hong Kong, Colombia, and the United States.
7. Lottery Probabilities & Clueless Reporters – Via Good Math Bad Math Blog – Example of financial illiteracy of associated press.
8. Wall Street Got Drunk But Washington Setup The Open Bar – Via Thinking On The Margin – In reaction to the dot-com implosion and the collapse in business investment, Alan Greenspan rapidly cut interest rates to spur housing and consumer spending. In June 2003, even as the tax cuts were passing and the economy took off, he cut the fed funds rate to 1% and kept it there for a year. His stimulus worked — far too well. The money boom created a commodity price spike as well as a subsidy for credit across the economy. Economist John Taylor of Stanford has analyzed the magnitude of this monetary mistake in a new paper that assesses government’s contribution to the financial panic. The second chart compares the actual fed funds rate this decade with what it would have been had the Fed stayed within the policy lanes of the previous 20 years.
9. Theater Economics: Why Are There So Few Sequels – Via Economix @ NYT – A few weeks ago Dave Itzkoff reported that Andrew Lloyd Webber was creating a sequel to “The Phantom of the Opera,” entitled “Phantom: Love Never Dies.” While this is not the first theatrical sequel ever penned, it is relatively rare. But why? When a film is a hit, it is virtually guaranteed to be followed by a sequel — a continuation of the original plot, generally with the same characters, actors and themes. Make “Austin Powers 2.” “Naked Gun 33 1/3.” “Scary Movie 4.” “Halloween 5.” If people enjoyed the first one, they’ll come out to see the next one — or four — even if the sequels aren’t nearly as good as the original. Why wouldn’t this strategy also be true on the stage? Theater is a high-risk, low-return investment. Producers who hope to make a profit (and not all do) tend to be risk-averse, opting for tried-and-true revivals of plays and musicals. If “Guys and Dolls” was a hit once, surely it can be a hit again and again.
10. CEOs & Corporate Stock Donations – Via Harvard Law School Blog – In my paper Deductio Ad Absurdum: CEOs Donating Their Own Stock to Their Own Family Foundations, which was recently accepted for publication in the Journal of Financial Economics, I explore whether executives exploit the insider trading gift loophole to make well-timed charitable donations of stock in advance of price declines, a strategy that would allow the donors to use their access to inside information to obtain personal income tax benefits. Unlike open market sales, gifts of stock are generally not constrained by U.S. insider trading law, and company officers can often donate shares of stock to charities at times when selling the same shares would be prohibited.
11. Sleep Is Important For Learning – Via It’s not just the amount of sleep we get that is so important for learning, but the quality of that sleep. That’s according to a new study that made precise use of beeping noises to disrupt deep “slow-wave” sleep among 13 elderly participants (average age 60 years), without actually waking them up. The beeping was used in such a way that although the participants’ were deprived of deep sleep, their total sleep time and number of sleep stages were unaffected (compared with a comparison night of undisturbed sleep).
12. Studies Show You Have Control Of Your Own Life – Via Big Think Blog – If you’re like me, you usually make your New Year’s resolutions knowing that you won’t keep them. As soon as the ball drops I start thinking, “Yeah right I’ll exercise every day.” This year, I’ve found a motivation to hold myself to myself: death aversion. A new study from the Duke University Fuqua School of Business found that more than 55 percent of all deaths for individuals aged 15 to 64–more than one million premature deaths annually–can be attributed to personal decisions that have readily available alternatives.
13. Abstract Finance: Structured Investment Vehicles & Other Tricks – Via Peter Levin – Once you have securitization under your belt, it’s time to move on to SIV’s, structured investment vehicles. The basic idea is that one way to securitize financial value – whether they be assets, leases, or some other future income stream – is to dump them into a trust created for that purpose. A trust is just an entity created to take in assets on one end, and dish them out to some beneficiary on the other end. The trustee’s job is to dish out those assets within the confines of the trust’s terms. A common way to think about trusts are pools of money set aside for rich kids so that they don’t get $1M and spend it all at once. But a trust can be much more flexible than this.
14. Is Brain Science Becoming Voodoo Science – Via BPS Research – They are beloved by prestigious journals and the popular press, but many recent social neuroscience studies are profoundly flawed, according to a devastating critique – Voodoo Correlations in Social Neuroscience – in press at Perspectives on Psychological Science (PDF). The studies in question have tended to claim astonishingly high correlations between localised areas of brain activity and specific psychological measures. For example, in 2003, Naomi Eisenberger at the University of California and her colleagues published a paper purporting to show that levels of self-reported rejection correlated at r=.88 (1.0 would be a perfect correlation) with levels of activity in the anterior cingulate cortex.