Weekly Wisdom Roundup # 82- The Smartest Linkfest On The Web

Original source: SimoleonSense.com .

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Weekly Cartoon

Weekly Jokes

Q: What’s an actuary?

A: An accountant without the sense of humor.

Q: Why do some accountants decide to become actuaries?

A: They find bookkeeping too exciting.

Q: What do actuaries do to liven up their office party?

A: Invite an accountant.

Must Read Articles For All Weekly Visitors

Borrowers Who Are Bad at Math More Likely to Go Into Foreclosure – via Naked Capitalism – Columbia University assistant business professor, Stephan Meier…. found that borrowers with poor math skills were three times more likely than others to go into foreclosure. Mr. Meier conceded that the results were not shocking, but he said he had not expected the connection between math skills and mortgage default to be so pronounced. About 340 borrowers in Connecticut, Massachusetts and Rhode Island who took out subprime loans in 2006 and 2007 were surveyed in 2008. None were in foreclosure.

How unhealthy is a diet based solely on television advertisements? – via Stats – Just how unhealthy is a diet based solely on television advertisements? The research finds that if you make food choices on TV commercials alone, you would consume 25 times the recommended daily servings for sugar and exceed the recommended serving of fat by 20 times. Advertisements also had less than half of the recommended amounts of vegetables, dairy, and fruits.

The risks of war and peace – via Understanding Uncertainty – Who is exposed to the greater lethal risk: a member of the UK forces serving in Afghanistan, or an average patient spending the night in an English hospital? Of course the question can’t be answered exactly: it all depends on who we mean and how we measure risk. But statistics can give us a ball-park figure that may be surprising.

Why Economic Advisors Are Paid to Be Economic Advisors – via Economists View – Say you’re a high government official with some responsibility for advising the President on what he should be doing and saying about the economy. You know the economy is still in a deep hole, the deepest since the Great Depression. The jobs report for May was dismal…

Are you what you eat? Impatience and Diet – via Voxeu – Smoking, heavy drinking, and being overweight are known causes of disease. This column presents experimental evidence to try and understand why people ignore this advice. It compares lifestyle choices with people’s attitudes to risk and their patience, finding that while people with an unhealthy lifestyle are no more risk-loving than other people, they are more impatient.

Are Americans as Individualistic as They Think? via Boston.com – Americans like to see themselves as rugged individualists, a nation defined by the idea that people should set their own course through life. Think of Clint Eastwood rendering justice, rule-bound superiors be damned. Think of Frank Sinatra singing “My Way.”

The impact of annual report language on firms via Economic Logic – ….publishing an annual report in English, in addition to the local language, increases the pool of potential investors and thus reduces information assymetry. They are careful to address the endogeneity issue here, of course, as a firm may issue an English report because the investor base has broadened. This language effect is similar to the adoption of particular accounting standards, as this allows investors to better understand the firm. Empirically, this improved information translates into lower bid-ask spreads on the stock market, larger following by analysts, and a larger share of foreign ownership. Whether this impacts also firm value is not addressed, though.

Driving While Distracted Is a Primary-Care Issue, Physician Says; Talking or Texting Behind the Wheel Is Roughly Equivalent to Driving Drunk via Science Daily – It’s time for physicians to talk to patients about driving while distracted, a problem that has risen to the rough equivalence of drunken driving thanks to the proliferation of phones that allow drivers to talk and text, Amy Ship, MD, a primary care physician at Beth Israel Deaconess Medical Center suggests.

Walter Brennan Reading Mark Twain – via ear ideas – “It is too clear and so it is hard to see. A dunce once searched for a fire with a lighted lantern. Had he known what fire was, He could have cooked his rice much sooner.” -Zen Flesh, Zen Bones..

Video: What I Wish I Had Known When I Was 18 via Open Culture

Just How Risky Are Risky Businesses? via WSJ – “My recommendation to companies faced with low-probability and high-severity events would be to worry less about quantifying the probability of those events and focus on developing business continuity and disaster recovery plans that can minimize or contain the damage,” said Barry Franklin, a director in Towers Watson’s corporate risk management practice.

Miguel’s Weekly Favorites

How lucky charms really work
– via Only Humans – Wade Boggs, the former Red Sox slugger and third baseman, was very ritualistic about his warm-ups. For night games, he took batting practice at precisely 5:17 and ran wind sprints at exactly 7:17. He fielded 150 ground balls before every game, never more nor less, and always ended his infield practice by stepping—in the same order—on third, second and first base, then the baseline, followed by two steps in the coaching box and four more steps into the dugout. He ate chicken before every game, and even though he was not Jewish, he scratched the Hebrew word for “life” in the dirt before every at-bat.

Richard Thaler: Recipes for Ruin, in the Gulf or on Wall Street – via NYT -AS the oil spill in the Gulf of Mexico follows on the heels of the financial crisis, we can discern a toxic recipe for catastrophe. The ingredients include risks that are erroneously thought to be vanishingly small, complex technology that isn’t fully grasped by either top management or regulators, and tricky relationships among companies that are not sure how much they can count on their partners.

Video: Mit World: Environmental Impacts of Aviation
– via MIT – Knowing more about the environmental impacts of aviation is increasingly essential, but according to Ian Waitz, it is also an area where uncertainties abound. One thing we know for sure is that the airplanes developed today will be flying for next 30 years, as the fleet dynamics are very stable, due to the extraordinary costs and lead-time to design and build. Meanwhile, an increasingly affluent population will travel more, and more of that travel will take place on today’s airplanes.

Ditch the Coffee, Go Outside Instead – via Good – A new study backs up the proverbial wisdom that a little fresh air and time spent communing with nature does a person a lot of good. The study, published in this month’s issue of the Journal of Environmental Psychology, suggests that spending a small window of time out in nature rejuvenates us, both mentally and physically. Treehugger has details on the study and analysis from its lead author, Richard Ryan, a professor of psychology at the University of Rochester.

Video: Stephen Hawking on Religion: ‘Science Will Win Because it Works – via Youtube

Can Utilizing Knowledge of Cults Help Us with Terrorist Groups? – via Robert Cialdini – The author and psychologist Robert Cialdini writes about the six “weapons of influence” that are implemented in persuasion and coercion techniques. The six “weapons” – reciprocity, commitment and consistency, social proof, authority, liking and scarcity – are tools used jointly that are meant to affect influence and persuasion in individuals. This is often done through lies and deception – the result being instability that leads to greater dependence on the cult organization.

Memory Improved By Saying Words Aloud
– via PsyBlog -Committing words to memory is a notoriously hit-and-miss business. Over the last forty years psychologists have found three methods which consistently improve memory for words.

Narcissism and Aggressive Driving: Is an Inflated View of the Self a Road Hazard? – via JAS – A total of 210 drivers varying in levels of trait narcissism were presented with 10 scenarios of objectionable driving situations and were asked to make assessments of intentionality, level of inconsideration, and anger and to indicate the behavioral responses they would likely make in such situations. It was hypothesized that responses would reflect attributions made in assessing the behaviors of other motorists. Our results confirmed the associations among attributions, anger, and behavioral reactions. Positive correlations were found between attributions and levels of anger and driver aggression. Individuals high in narcissism were also found to respond more aggressively toward the frustrating driving behavior of others, but this relationship varied by gender and anger experience.

Want to be more creative? Move via Bakadesuyo – Research suggests that living in and adapting to foreign cultures facilitates creativity. The current research investigated whether one aspect of the adaptation process—multicultural learning—is a critical component of increased creativity. Experiments 1-3 found that recalling a multicultural learning experience: (a) facilitates idea flexibility (e.g., the ability to solve problems in multiple ways), (b) increases awareness of underlying connections and associations, and (c) helps overcome functional fixedness. Importantly, Experiments 2 and 3 specifically demonstrated that functional learning in a multicultural context (i.e., learning about the underlying meaning or function of behaviors in that context) is particularly important for facilitating creativity. Results showed that creativity was enhanced only when participants recalled a functional multicultural learning experience and only when participants had previously lived abroad. Overall, multicultural learning appears to be an important mechanism by which foreign living experiences lead to creative enhancement.

Mindhacks weekly link festival – via Mind Hacks

How Can It Be A Surprise When You Knew It Was Happening? – via Al Fin – Humans took millions of years to evolve into their different distinct population groups across the globe. As the array of breeding populations experimented with the spectrum of political and economic systems, a set of likely winners and perennial losers grew more distinct. But a funny thing happened on the way to the awards ceremony: the winners started disappearing, and in their place popped up growing colonies of the perennial losers.

Six reasons why there are too many graduates – via Knowing & Making – Canada, like many other countries, has expanded access to post-secondary education, but the demand for educated workers has not kept up to the supply. A study by Marc Frenette based on data from the 1980s and 1990s found over thirty percent of university graduates were over-qualified for their jobs.

Contingent liquidity: A proposal to reduce liquidity risk – via Voxeu – The global crisis ruthlessly exposed the weakness of the market for liquidity. This column suggests that banks should issue securities with a “Roll-Over Option Facility” that would allows banks to keep funds if there is turmoil in liquidity markets. It adds that these facilities would help reallocate liquidity risk outside the banking sector, thus reducing the probability and severity of a crisis.

Does the meaning of “happiness” change as we age? – via Bakadesuyo – The research finds that the meaning of happiness shifts as people age: Whereas younger people are more likely to associate happiness with excitement, older people are more likely to associate happiness with feeling peaceful—a change driven by increasing feelings of connectedness (to others and to the present moment) as one ages.

A simple math puzzle about dice probability
– via Mind Your Decisions – With a pair of dice, one can throw the sum 10 either as the combination 5+5 or 6+4. The sum 5 can also be obtained in two ways, namely, by 1+4 or 2+3. However, in repeated throws, the sum 5 will appear more often than 10. Why?

What’s wrong with the disclosure of conflicts of interests? – via Dr Schock – A lot. Medical journals often don’t designate which specific types of interests they want to be disclosed. Far less than 50% of medical journals specify a monetary threshold for author disclosure. Only 16% of medical journals include a time period over which the authors should disclose their financial interest, is it the last year, three years or five years? This is often left to their own discretion for the time period when nothing is specified in the conflict of interest policy. This can vary from physician to physician as well as region our country.

Exclusive Picks + Financial Topics

Consuelo Mack Interviews James Grant – via GuruFocus – This week on : why the dollar, gold and the ballooning federal deficit are critical issues for investors. Consuelo sits down for a rare one-on-one interview with contrarian market observer and historian James Grant, publisher of the influential newsletter, Grant’s Interest Rate Observer.

Wealthy Are the Only Ones Spending via WSJ – Higher-income “consumers seemed to be holding back on spending prior to May in response to the length and depth of the recession, the financial crisis, and a general feeling of economic uncertainty,” wrote Dennis Jacobe, Gallup chief economist. “In May, this seemed to change. It could be that many upper-income consumers are experiencing ‘frugality fatigue.’”

Rick Bookstaber: Common Sense Crisis Risk Management – via Rick Bookstaber – All days in a normal market seem the same, but when a crisis occurs, it seems as if we have never seen the likes of it before. Each crisis brings evocations of Black Swans with twenty standard deviation tails swimming in the waters of a hundred year flood. But of course, we have seen it many times before, or at least some aspects of it. The cause might be different, the initial market from which it propagates might take us by surprise. But the path a crisis takes, at least in broad strokes, hardly differs from one case to the other.

Superheroes and supervillains – why the cult of the CEO blinds us to reality – via Guardian – Take two fictional chief executives. Terry is clinging onto his job after President Obama lambasted him over a food poisoning scandal in the US division of his supermarket empire. Tony is winning plaudits for steadying the oil company he heads after his predecessor left under a cloud, and for his ambitious deepwater drilling project in the Gulf of Mexico.

Greed’s Not Good For Shareholders via PsyFi Blog -Greed is not a quality that seems to drive the world’s greatest creators of shareholder value and creating shareholder value is not the aim of the companies that are best at it. In fact we can pretty much guarantee the alternative: wherever you find over-rewarded executives presiding over companies whose main aim is to increase their market capitalisation we should pick up our skirts and get the hell out of it. Corporate greed is bad for ordinary shareholders.

The Simple Economics of Broadband Regulation
– via Economists View – Shane Greenstein discusses “The Simple Economics of Broadband Regulation.” The discussion (from mid May) comes in response to a court ruling in the Comcast v. FCC case. Here’s how the FCC describes the regulatory problems caused by the ruling in the Comcast case:

Phishing, Bribery and Falsification: Combating the Complexities of Carbon Fraud – via Wharton – Early this year, a group of rogue traders took advantage both of lax Internet security and Europe’s burgeoning carbon trading system to steal as much as $4 million. The crooks, posing as regulators, set up a fake but official-looking website, and used it to obtain carbon trading account information from companies and traders who thought they were complying with government requests. The scheme forced the German Emissions Trading Authority to suspend trading, but not until 250,000 permits (each allowing the emission of one ton of carbon dioxide) had been stolen.

How much of our chronic unemployment problem is due to automation?
– via Reality Base – Martin Ford, author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, is another who thinks America is not just in a recession but that there are long-term structural problems causing high unemployment with resulting stagnant or shrinking economic growth. Whereas I have identified globalization as an underlying contributor to this problem, Ford focuses on the significant contribution of automation.

Some Bubbles Are Missed, Others Embraced
– via Atlantic – Let’s think about an example, going back about a decade to the tech bubble. Technology is a very important concept in economics, because when a market sees a huge technological advance, the dynamics change. That’s why the tech bubble was so hard to see. The Internet had appeared to have harnessed technology and created an incredible amount of potential new wealth. But a lot of that presumed value turned out worthless: not every dot-com was a pot of gold.

Academic Research Worth Reading

Information About Low Participation in Cancer Screening Demotivates Other People – via Sage Pub –

Corporate Governance and Internal Capital Markets – via Harvard – What is the impact of corporate ownership on corporate diversification and on the efficiency of firms’ internal capital markets? Corporate governance and internal capital markets are two topics closely intertwined in theoretical research; for example, agency problems—which corporate governance mechanisms seek to mitigate in a variety of ways—are at the heart of every theory of inefficient internal capital markets. Yet surprisingly few empirical studies have looked into the actual link between corporate governance and internal capital markets. This paper by University of Amsterdam professor Zacharias Sautner and HBS professor Belén Villalonga seeks to fill the gap by taking advantage of a natural experiment provided by a tax change in Germany in 2002. The researchers provide direct evidence of the effect of governance structures on how markets work, as well as new evidence about the benefits and costs of ownership concentration. Key concepts include:

The Dark Side of Outside Directors
– via Harvard Law -I focus on a cost of board independence that has not received attention so far and demonstrate that it is economically significant. Corporate governance reforms following the corporate scandals of the turn of the century focused heavily on increasing the representation of outside directors on boards. Listing standards on U.S. exchanges were changed to require boards to have a majority of outside directors. Many countries have introduced requirements on the percentage of outside directors on boards as well as on the fraction of outside directors on the nominating committee, compensation committee, and audit committee.

Bridging Aficionados’ Perceptual and Conceptual Knowledge to Enhance How They Learn from Experience via Chicago – The aficionado consumer is one who consumes and enjoys a hedonic product regularly but has failed to obtain product expertise from his/her many experiences. We conceptualize the aficionado as having asymmetric perceptual and conceptual knowledge and posit that when these two types of knowledge are bridged with a sensory consumption vocabulary, the aficionados are better able to learn from their experiences. In experiment 1, we find that providing aficionados a cross‐modal learning tool (wine aroma wheel) during their tasting helps them strengthen their experiential memory and withstand influence from misleading marketing communications. We also find that when aficionados are presented with a misleading consumption vocabulary during their tasting, they more readily accept the marketing misinformation that results in memory distortion. In experiment 2, we find that accurate multisensory information delivered through either the wine aroma wheel or advertising can enhance how aficionados learn from their direct tasting experience.

Business History: Creative Language, Creative Destruction, Creative Politics via MPRA – Why did the North-Sea folk suddenly get so rich, get so much cargo? The answers seems not to be that supply was brought into equilibrium with demand—the curves were moving out at breakneck pace. Reallocation is not the key. Language is, with its inherent creativity. The Bourgeois Revaluation of the 17th and 18th centuries brought on the modern world. It was the Greatest Externality, and the substance of a real liberalism. Left and right have long detested it, expressing their detestation nowadays in environmentalism. They can stop the modern world, and in some places have. The old Soviet Union was admired even by many economists—an instance of a “cultural contradiction of capitalism,” in which ideas permitted by the successes of innovation rise up to kill the innovation. We should resist it.

Why Blu-ray vs. HD-DVD is not VHS vs. Betamax: The Co-evolution of Standard-setting Consortia
– via Oldenburg – Extensive research has been conducted on the economics of standards in the last three decades.
To date, standard-setting studies emphasize a superior role of demand-side-driven technology diffusion; these contributions assume the evolution of a user-driven momentum and network externalities. We find that consumers wait for a dominant standard if they are unable to evaluate technological supremacy. Thus, supply-side driven activities necessarily need to address an absence of demand-side technology adoption.

How to get what you want when you do not know what you want via LEM – In this paper we present a model of the interplay between learning, incentives and the allocation of decision rights in the context of a generalized agency problem. Within this context, not only actors face conflicting interests but diverging cognitive “visions” of the right course of action as well. We show that a principal may obtain the implementation of desired organizational policies by means of appropriate incentives or by means of appropriate design of the allocation of decisions, when the latter is cheaper but more complex. We also show that when the principal is uncertain about which course of action is more appropriate and wants to learn it from the environment, organizational structure and incentives interact in non-trivial ways and must be carefully tuned. When learning is not at stake, incentives and organizational structure are substitutes. When instead learning is at stake, organizational structure and incentives may complement each other and have to be fine tuned according to the complexity of the learning process and the competitive pressure which is put on fast or slow learning.

Reconciling Pro-Social vs. Selfish Behavior: Evidence for the Role of Self-Control – We test the proposition that individuals may experience a self-control conflict between short-term temptation to be selfish and better judgment to act pro-socially. Using a dictator game and a public goods game, we manipulated the likelihood that individuals identified self-control conflict, and we measured their trait ability to implement self-control strategies. Consistent with our hypothesis, we find that trait self-control exhibits a positive and significant correlation with pro-social behavior in the treatment that raises likelihood of conflict identification, but not in the treatment that reduces likelihood of conflict identification.


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