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Weekly Cartoon (Madoff’s Inspiration):
“The only thing more dangerous than an amateur economist is a professional economist.”
Miguel’s Weekly Favorites:
The Neuroscience Of Failed Resolutions - Via WSJ – Willpower, like a bicep, can only exert itself so long before it gives out; it’s an extremely limited mental resource.Given its limitations, New Year’s resolutions are exactly the wrong way to change our behavior. It makes no sense to try to quit smoking and lose weight at the same time, or to clean the apartment and give up wine in the same month. Instead, we should respect the feebleness of self-control, and spread our resolutions out over the entire year. Human routines are stubborn things, which helps explain why 88% of all resolutions end in failure, according to a 2007 survey of over 3,000 people conducted by the British psychologist Richard Wiseman. Bad habits are hard to break—and they’re impossible to break if we try to break them all at once.
Neuroeconomics & The Habit of Generosity – WSJ.com: – via Finance Professor “Paul Zak, a neuroeconomist and director of the Center for Neuroeconomics Studies at Claremont Graduate University in Claremont, Calif., has devoted his research to explaining this type of generosity. ‘I investigate the biological basis for generosity, focusing on the neuroactive hormone oxytocin,’ he says in his blog for Psychology Today. ‘Our studies have shown that this hormone partially explains generous behavior because it makes us feel more connected to others.’”
Using Menu Psychology to Entice Diners Part 2 - Via NYT – The use of menu engineers and consultants is exploding in the casual dining arena and among national chains, a sector of the business that has been especially pinched by the economy. In response, they are tapping into a growing body of research into the science of menu pricing and writing, hoping the way to a diner’s heart is not only through the stomach, but through the unconscious.
Dan Ariely’s The Significant Objects Project - Via Predictably irrational - Would you pay $76 for a shot glass? What about $52 for an oven mitt? And $50 for a jar of marbles?You may shake your head and say no way, but in a recent series of eBay auctions, the consumers did just that: they shelled out considerable cash for objects that to all appearances should never have fetched more than a couple bucks.So what made the difference? Each item came with a unique tale.
Televisions Unintended Consequences - Via SeedMagazine – Humans are made to move. Even just a century ago, few people spent their entire workday just sitting at a desk. Passive entertainment, too, is a relatively new innovation. Televisions have been widespread for barely 60 years. Radios, for less than a century. Books, for perhaps half a millennium. Sure, music and theater have existed for longer than that, but attending a live performance still involved trudging to the amphitheater or town square, sitting or standing on uncomfortable benches, and then making the same journey back home. And more people were likely to participate in making the music or plays when they couldn’t be recorded and electromagnetically transmitted through the air. Out of the hundreds of thousands of years Homo sapiens has existed, we’ve been intensely physically active for all but a few of them.
The Geoengineering Gambit - Via MIT Technology Review – For years, radical thinkers have proposed risky technologies that they say could rapidly cool the earth and offset global warming. Now a growing number of mainstream climate scientists say we may have to consider extreme action despite the dangers.
Is The Tipping Point Toast: Trend setters may only be visible in rear view mirror: – Via MindHacks- I’ve just found this excellent Fast Company article from last year challenging the idea that there is a ‘tipping point’ in fashions or trends driven by small numbers of highly connected people who have a disproportionate influence over which new products or ideas become popular.
A Collection Of Recent Austrian Economic Research - via Think Markets
For Happiness, Spend Money On Experiences - Via NPR – A few duds under the tree? Return them for cash and go to dinner. Psychologists say people report feeling happier when they spend their money on experiences rather than objects. Study author Ryan Howell, from San Francisco State University, explains the results and speculates on whether the findings extend to gift-giving.
How our brains keep multiple things in mind. – Via Bownds – Siegel et al. have made a fundamental advance in revealing how the brain manages to keep multiple things in mind in our working (short term) memory system. A review by Vogel and Fukada in the same issue of PNAS gives a nice description of the context and nature of the experiments:
New Year’s Resolutions and Memory: Self-protection and the Use of Negative Information - Via Social Psychology Eye – During the holiday season when surrounded by friends and family it is difficult not to reflect on the year gone by. As 2009 draws to a close many are contemplating what resolutions they’ll attempt to keep in the upcoming year. We spend a lot of time envisioning the hopes, dreams, and goals we’d like to achieve in 2010. Doing so requires us to reflect on the things about us or our lives that we aren’t very happy with. Memory with regard to the self is complex and often self-enhancing making it difficult to be realistic about negative feedback that will allow us to identify what needs to change. Recent work has demonstrated some flexibility in dealing with negative feedback (Sedikides & Green, 2009). The results include the already well-established self-protective effects that include simply avoiding negative information. In addition, Sedikides and Green (2009) have demonstrated the tendency to deal with negative feedback by channeling it into one’s goals (e.g., improving a skill) but only under specific circumstances like when feedback is provided by close others. Hopefully, we can all turn any negative aspects of our selves or our lives into positive goals and the motivation to achieve them and make the most of the fresh start this January 1st.
Robert Shiller: A Way to Share in a Nation’s Growth - Via NYT – Borrowing a concept from corporate finance, governments could sell a new type of security that commits them to paying shares in national “profit,” as measured by gross domestic product.Historically, one impediment to such a move was the difficulty in accounting on a national scale: governments didn’t even try to measure G.D.P. until well into the 20th century.
Upper Mismanagement: Why can’t Americans make things? Two words: business school. – Via TNR – One of the themes that came up while I was profiling White House manufacturing czar Ron Bloom earlier this fall was managerial talent. A lot of people talk about reviving the domestic manufacturing sector, which has shed almost one-third of its manpower over the last eight years. But some of the people I spoke to asked a slightly different question: Even if you could reclaim a chunk of those blue-collar jobs, would you have the managers you need to supervise them?
The Ponzi Economy - Via Big Think – There are essentially two ways to make money on Wall Street. The first—let’s call it the old-fashioned way—is to match people who have money with people who can use it to make or do something. This is how Wall Street really earns its money. By facilitating investment and diversifying risk, the finance sector adds enormous value to the overall economy. When it ceases to perform this function and credit dries up—as it partially has in this recession—the economy grinds almost to a halt. As galling as it was to have to bail Wall Street out, if we hadn’t, we would have found out just how vital what Wall Street does is to the economy.
Blood Diamonds Are Back - Via Foreign Policy – Why the U.N.-sanctioned system that’s supposed to ensure that gemstones aren’t mined at gunpoint is backfiring.It’s a safe bet that most of those surprised with diamond jewelry over the holidays did not pause long, if at all, to consider where their new gemstones came from. “Santa’s elves” is a good enough answer for most people, and even those who are aware that some diamonds have been known to come from African war zones may not have given the matter much thought this year.
What are your customers thinking? - Via QN The question has always been critical to marketers. However, with rapid innovations in technology—social networks, mobile technology, new ways of delivering content—and the following shifts in behavior, it might be harder to answer than ever. Rishad Tobaccowala, the CEO of Denuo, a company that helps clients grapple with these trends, gives his take on the pulse of marketing today.
Cognitive Commodities in the Neuro Marketplace - Via HPlus Magazine – The science of cognitive enhancement is evolving, which means the business of cognitive enhancement is evolving. Supplying cognitive enhancement to the masses can be viewed through the lens of any commodities marketplace. Human experience is already commoditized through drugs that pack mood and performance into portable units — pills or doses — that can be easily traded and consumed, and the drug market is one of the biggest on the planet. The same can be said for audio and visual experience. The platforms and hardware for trading audiovisual experience — TVs, computers, media players, telecomm, cell phones, software — are huge markets with influence over every facet of our lives. The media and drug markets are built upon the ideal of commoditizing consumer moods and experiences. The cognitive enhancement industry is now poised to undergo a similar market revolution.
A Decade In Review 4 Key Trends - Via Gallup – — As 2009 draws down, Gallup reviews four of the key trends that reveal how Americans reacted to the twists and turns experienced in public affairs and the economy over the past decade.
What Went Wrong? The Academy on the Crisis - Via Big Think -This week’s interviews for What Went Wrong? offers a glimpse into the world of the academy, and its culpability in causing the economic crisis of 2008. We sat down with Columbia Business School dean Glenn Hubbard, as well as Harvard Business School professor Bill George, who also sits on the boards of Goldman Sachs and Exxon. When posed the question (among others), “Are business schools to blame for the financial crisis?” Hubbard and George had some provocative things to say.
Finance & Investing:
Eric Sprott Is The US A Ponzi Scheme - Via Zero Hedge – Almost seven months later, however, nothing particularly bad has happened on the US debt front. There have been no failed auctions, no sovereign defaults, no downgrades of debt and no significant increase in rates…not so much as a hiccup in the treasury market. Knowing what we discussed this past June, we have to ask how it all went so smoothly. After all – it was pretty obvious there wasn’t enough buying power to satisfy the auctions under ‘normal’ circumstances.
Epoch Times – Insider Trading on the Rise: - Via Finance Professor – ““The Enron case illustrates one of the most pernicious effects of insider trading: It gives executives a reason to distort reports on corporate performance and find other ways to manipulate markets to their own benefit,” Strudler notes.”
How Overhauling Derivatives Died - Via WSJ - Lobbying by Wall Street has blunted efforts to step up regulation on derivatives trading by carving out exceptions or leaving the status quo in place. Derivatives took blame for some of the worst debacles of the financial crisis. But a year after regulators and critics began calling for an overhaul in the way they are traded, some efforts have been shelved and others have been watered down.
The Illegal Drug Industry – Via Investors Consigliere The WSJ as a great article about how the Mexican drug cartels function as a business,which is often ignored. You can learn a lot about business by studying illegal businesses like drugs because they represent a kind of pure capitalism and because there is no annoying corporate-speak to wade through. And it’s all applicable to legitimate businesses–this one article alone touches on risk-adjusted returns, how demand creates supply, low-cost distribution channels, how to create pricing leverage with your suppliers, diversification of revenue streams, innovation and adaptation, vertical integration, and (last but not least) how government intervention in the economy often makes things worse. It’s an MBA curriculum.
Everyone’s Defaulting, Why Don’t You?-Via slate – If billionaires don’t feel guilty about walking away from their debts, should homeowners?
Why new-home sales drop was a shock – Via Marketplace – Sales of newly-built houses fell more than 11% last month, surprising analysts who expected an increase of around 5%. After all, sales of previously owned homes were up. So how did the experts get it so wrong? John Dimsdale explains.
The Big Bond Bust Revisted - Via McAlvany Weekly Podcast
Macroprudence and the central bank - Via Bank of International Settlements – Sparked by the recent global financial crisis, there have been active discussions on how to prevent a recurrence of such a crisis. Those discussions cover securities market as well as financial markets more generally and the financial system. Last week, the Basel Committee on Banking Supervision (Basel Committee), for example, announced a package of proposals on capital adequacy rules and liquidity regulations and made this available for consultation until mid-April 2010.1 Given that the recent crisis originated in the United States and Europe, there appear to be some mixed feelings at Japanese financial institutions about the discussions in progress.
The Intelligent Investor: Golden Pay for CEOs Could Be Bad for Stocks – WSJ.com – via Finance Professor:”The first study, led by corporate-governance expert Lucian Bebchuk of Harvard Law School, looked at more than 2,000 companies to see what share of the total compensation earned by the top five executives went to the CEO. The researchers call this number—which averages about 35%—the ‘CEO pay slice.’ It turns out that the bigger the CEO’s slice of the pie, the lower the company’s future profitability and market valuation….”
Videos & Presentations:
The Tough Get Growing: How to Succeed in a Down Economy - Via MIT World
Stay calm, stick with your vision and business fundamentals, and you’ll survive and perhaps even thrive in rough economic times, counsel these entrepreneurial aces. In a conversation with the Kauffman Foundation’s Bo Fishback, panelists reflect on their experiences bringing novel tech products to market and new companies to fruition, in good times and bad.
Deficits are Bad, but the Real Problem is Spending – Via Reason Tv
A Global Investing Perspective: Where the World Is Going – Via Fora
Acumen Fund: Key Takeaways & Closing – Via Fora
Migrants and the Global Financial Crisis – Via Policy Pointers – This 8-page US policy brief explains how the global financial crisis has disproportionately affected migrants
The Global Networks of Multinational Firms - Via Harvard – When and why do multinationals group together overseas? Do they agglomerate in the same fashion abroad as they do at home? An answer to these questions is central to the long-standing debate over the consequences of foreign direct investment (FDI). It is critical to understand interdependencies of multinational networks and how multinationals influence one another in their activities at home and overseas. HBS professor Laura Alfaro and George Washington University professor Maggie Chen examine the global network of multinationals and study the significance and causes of multinational agglomeration. Their results provide further evidence of the increasing separation of headquarters services and production activities within multinational firms. The differential specialization of headquarters and subsidiaries leads to distinct patterns of agglomeration.
SSRN-Do Corporate Insiders Prefer Nasdaq? by Stanley Peterburgsky: - Via Finance Professor – “I examine whether the double-counting of reported trading volume on Nasdaq plays a role in insiders’ decisions to move their firms. Specifically, since volume on Nasdaq is exaggerated and SEC Rule 144 ties the limit on insider selling to total volume, insiders of troubled firms may be able to use private information to take advantage of other shareholders by switching to Nasdaq and unloading more stock. Consistent with the hypothesis, I find that insiders engage in heavy selling of company stock in the months following the move. Post-announcement abnormal returns are strongly negative.”
SSRN-Voting with Their Feet or Activism? Institutional Investors’ Impact on CEO Turnover by Jean Helwege, Vincent Intintoli, Andrew Zhang: - Via Finance Professor – “We find that voting with one’s feet is done largely by institutions that have less than 1% ownership in the firm while institutions that hold block levels of ownership at the time of the CEO turnover announcement significantly increase their ownership levels leading up to the turnover event. Moreover, we find evidence of activism in the financial press that is significantly related to CEO turnover. We conclude that voting with one’s feet is not a major mechanism by which institutions force corporate change.”
Other Interesting Articles:
Let’s face it, science is boring - Via NewScientist – It is now time to come clean. This glittering depiction of the quest for knowledge is… well, perhaps not an outright lie, but certainly a highly edited version of the truth. Science is not a whirlwind dance of excitement, illuminated by the brilliant strobe light of insight. It is a long, plodding journey through a dim maze of dead ends. It is painstaking data collection followed by repetitious calculation. It is revision, confusion, frustration, bureaucracy and bad coffee. In a word, science can be boring.
A Facial Expression Is Worth a Thousand Words- via ScienceDaily — Communication is a central aspect of everyday life, a fact that is reflected in the wide variety of ways that people exchange information, not only with words, but also using their face and body. Scientists from the Max Planck Institute for Biological Cybernetics in Tübingen, Germany, found out that we are able to recognize facial expressions in motion — for example in a movie — far better than in a static photograph. The video sequence needs to be at least as long as one tenth of a second to gain this dynamic advantage.
Ecologies of value- Via Harvard – These seals were the earliest sign of what is now known as terroir, the notion that a wine or other food embodies a sense of place.Centuries later, the French popularized the idea that the climate, soil, and topography of a place are reflected in the taste and quality of the food produced there. Hence, Burgundy or Champagne wines, named after regions in France, are expressions of terroir. Where they are produced is part of their nature.
K-State psychologists show that future-minded people make better decisions for their health - Via Eureka Alert- “If you are more willing to pick later, larger rewards rather than taking the immediate payoff, you are more future-minded than present-minded,” said James Daugherty, a doctoral student in psychology who led the study. “You’re more likely to exercise and less likely to smoke and drink.”
Infographics: (Click On Image For Larger Version)
Who & Where The Big Borrowers Live – Via CreditLoan-
The US Credit Card Crisis
Gift Giving & Our Present Economy
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