economics

‘History is the science of what never happens twice.’ —Paul Valéry

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A recent Wall Street Journal/NBC News poll found that 49% of Americans still believe the U.S. economy is in recession, even though we are now in the sixth year of the recovery. […] If investing when others are skeptical has historically been a successful strategy, why don’t more investors do so? […] Taking advantage of the findings discussed earlier requires investing when the economy and market seem to be at their worst, and rebalancing when conditions appear to be the best. This is counterintuitive for many investors, who tend to wait for confirming evidence before acting. This is related to herd behavior, the tendency to follow the crowd with portfolio decisions. Investing when others are skeptical is emotionally difficult but, as we’ve shown, tends to be when rewards are the greatest.

{ JP Morgan Funds | PDF }

related { It is not possible for a human to know whether Bank of America made money or lost money last quarter. }

art { Jim Campbell, Ambiguous Icon #1 Running Falling, 2000 }

As sparrows eagles, or the hare the lion

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We conduct an empirical study to analyze how waiting in queue in the context of a retail store affects customers’ purchasing behavior. […] pooling multiple queues into a single queue may increase the length of the queue observed by customers and thereby lead to lower revenues. We also find that customers’ sensitivity to waiting is heterogeneous and negatively correlated with price sensitivity, which has important implications for pricing in a multiproduct category subject to congestion effects.

{ Management Science | Continue reading }

photo { Garry Winogrand }

It rubs the lotion on its skin. It does this whenever it is told.

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When individual performance was publicly posted in the workplace, employees working in a group performed better than when working alone; however, when individual performance was not posted, employees working in a group performed worse than when working alone.

{ Management Science | Continue reading }

photo { Lionat Natalia Petri }

‘Nothing will come of nothing.’ —Shakespeare

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The next time I had to negotiate a contract, it began in typical fashion with a prospective employer sending me a lopsided agreement and asking me to counter-propose. I said I was incompetent to do that and suggested they write a new contract as if they were me, putting in everything that would be in my best interests, and then taking out everything they would never agree to. Since that would be the best I could get, I would accept it subject to agreement on compensation.

We started with base pay. I wrote down the least I would work for and asked them to write down the most they would offer a perfect person, irrespective of whether I was that person or not. If when we exchanged papers, their number wasn’t higher than mine then we could stop there and save time. Their number was twice the best base pay I had ever received in past jobs, and my request was for $0. I explained that my goal is to live a debt-free life, and therefore I wanted to give value before receiving compensation.

{ qz | Continue reading }

Yes, and plum pudding and gooseberry pie

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[They] analyzed a database of 6,500 restaurant menus describing 650,000 dishes from across the U.S. Among their findings: fancy restaurants, not surprisingly, use fancier—and longer—words than cheaper restaurants do (think accompaniments and decaffeinated coffee, not sides and decaf). Jurafsky writes that “every increase of one letter in the average length of words describing a dish is associated with an increase of 69 cents in the price of that dish.” […]

Cheaper establishments also use terms like ripe and fresh, which Jurafsky calls “status anxiety” words. Thomas Keller’s Per Se, after all, would never use fresh—that much is taken for granted—but Subway would.

{ The Atlantic | Continue reading }

photo { Maurizio Di Iorio }

related { Guests given the numeral-only menu (00.) spent significantly more than those who received a menu with prices showing a dollar sign ($00.00) }

Center stage on the mic

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Peter Drucker once observed that, “Much of what we call management consists of making it difficult for people to work.” […]

Bain & Company studied a sample of big firms, finding that their managers spent 15% of their time in meetings, a share that has risen every year since 2008. Many of these meetings have no clear purpose.

The higher up you go, the worse it is. Senior executives spend two full days a week in meetings with three or more colleagues.

{ The Economist | Continue reading }

Everything interesting takes place in the dark

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Recent theoretical developments in evolutionary psychology suggest that more intelligent individuals may be more likely to prefer to remain childless than less intelligent individuals.

Analyses of the National Child Development Study show that more intelligent men and women express preference to remain childless early in their reproductive careers, but only more intelligent women (not more intelligent men) are more likely to remain childless by the end of their reproductive careers. […]

Because women have a greater impact on the average intelligence of future generations, the dysgenic fertility among women is predicted to lead to a decline in the average intelligence of the population in advanced industrial nations.

{ Social Science Research | PDF }

photo { Richard Kern }

Or have we eaten on the insane root that takes the reason prisoner?

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What you order may have less to do with what you want and more to do with a menu’s layout and descriptions.

After analyzing 217 menus and the selections of over 300 diners, a Cornell study published this month showed that when it comes to what you order for dinner, two things matter most: what you see on the menu and how you imagine it will taste.

{ Cornell | Continue reading }

[Buzz Lightyear flies above the bandits and slices their car with his laser.]

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This paper examines whether demands for bribes for particular government services are associated with expedited or delayed policy implementation. […]

[F]irms confronted with demands for bribes take approximately 1.5 times longer to get a construction permit, operating license, or electrical connection than firms that did not have to pay bribes and, respectively, 1.2 and 1.4 times longer to clear customs when exporting and importing.

{ World Bank | PDF }

‘Nothing can come of nothing.’ —Shakespeare

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Since The Fed’s extension of Operation Twist (and subsequent unveiling of QE3) in 2012, the stocks of “weak balance sheet” companies are up over 100%. In that same period, the stock prices of “strong balance sheet” companies are up a mere 43%.

{ ZeroHedge | Continue reading }

The last 5 days saw “strong” companies outperform “weak” companies by the most in 3 years - something appears to be changing.

{ ZeroHedge | Continue reading }

My art… keeps me sane [gestures at golf ball]

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In Japan, the U.K., and, to a lesser extent, around the world, golfers buy insurance to protect themselves from the potentially bankrupting consequences of sinking a hole in one.

The concept of hole in one insurance may baffle the uninitiated, but to many it is a wise precaution as golf tradition holds that anyone who scores a hole in one should buy drinks back at the clubhouse for his playing group — if not everyone present. In Japan, many give extravagant gifts to friends and family after scoring a lucky ace.

{ Priceonomics | Continue reading }

Come and play with us, Danny. Forever, and ever, and ever.

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To understand how a state acquires legal capacity, we need to study a state that lacked it. France, at the end of the sixteenth century did not possess a centralized legal or tax system. This reflected the way French monarchs had gradually added territories to their growing kingdom since the middle ages. Moreover, as more and more territories were added, the king was forced to concede old, and sometimes new, privileges to the regions so as to ensure their loyalty. In the words of one economic historian, the complexities of the resulting fiscal and legal system almost ‘defy description.’

Legal and fiscal fragmentation reflected the underlying political equilibrium of the French monarchy. This was based on a time-tested and simple quid pro quo: The ruler used his military power to protect local privileges, and in exchange, local elites gave the king their political and fiscal support. France was a ‘natural state’ and control over local courts was a source of rents for the provincial nobility. The disbursement of these revenue streams helped to ensure domestic peace.

The legal authority of the Crown was weak in many parts of the country as well. In some regions the provincial nobility still reigned as semi-independent rulers. Even in those areas where the authority of the monarchy was strong, local families dominated the regional parlements and elections.3 As a result, there was ‘a lack of a coherent and common set of laws,’ and ‘the absence of unified laws even within each governmental region.’ […]

Historians have noted that judges of local or ‘inferior’ jurisdictions usually demonstrated much more zeal in prosecuting witches than did the central authorities, and when left to their own de- vices they generally executed more witches than when they were closely supervised by their judicial superiors.’ […]

The crime of witchcraft had two components: ‘maleficia’, or harm through supernatural means, and ‘diabolism’, or crimes relating to the devil. Maleficia could range from harming cattle or causing a blight on grain to actually committing homicide. For example, in 1611 Jacques Jean Thiébaud in Montbéliard was accused of killing the livestock of neighbors and making them sick. […] Diabolism was defined as having dealings with the Devil or his agents. Attendance at a ‘Devil’s Sabbath’, flying through the air, the use of magic powders or unguents, were identified as common behavior among witches.

Witchcraft was difficult to prosecute under conventional legal procedures and standards of proof. Maleficia may have sometimes actually occurred and, in rare cases, may even have left evidence. However, diabolism was, by its nature, beyond the pale of rational legal procedure. Since dealings with the devil existed only in the fantasies of accusers and (rarely) the accused, it was a thought crime. In order to get around the difficulty of prosecuting a suspected witch according to traditional standards of legal proof, local judges turned to the theories of the demonologists. […]

The unobservable nature of the crime combined with the use of torture created a self-replicating logic to witchcraft trials. Accusation led to torture, which led to further accusations. This logic is illustrated by the following example which took place in 1599 in the area of Bazuel which lies in the North of France. A widow named Reine Perceval was accused of sorcery and brought to the local abbey for interrogation. Initially, she denied the accusa- tions, despite the attempts of her interrogator to coerce her confession by pointing to another recently accused woman who, by admitting to the crimes, was released. […] Later, under torture, the widow Perceval did confess to being a witch and named several ‘accomplices.’ […]

It was costly in a purely financial sense to try an individual witch. Furthermore, fear of witchcraft could get out of control and result in lynchings and murders or in devastating mass trials in which large numbers of individuals who would not usually be suspected of witchcraft came under suspicion. […]

We establish that witchcraft trials were more likely to take place where the central state had weak legal institutions. Combining data on the geographic distribution of witchcraft trials with unique panel data on tax receipts across 21 French regions, we find that the rise of the tax state can account for much of the decline in witch trials during this period. Further historical evidence supports our hypothesis that higher taxes led to better legal institutions.

{ Johnson and Koyama | Continue reading }