Thursday, November 28, 2013

The Pyschology & Economics Of Decision Making Under Uncertainty (With Snoopy's Version From 1966)

See You’re So Self-Controlling by MARIA KONNIKOVA. From the 11-16 NY Times. She has a Ph. D. in psychology from Columbia University and is the author of the book Mastermind: How to Think Like Sherlock Holmes.

Also see A Talk With Lars Peter Hansen, Nobel Laureate. Also from the 11-16 NY Times. He won the economics prize for "contributing to the study of asset prices." It is related to the debate on theory of efficient markets. The idea is that stock prices make sense based on publicly available information. They won't be priced too high or too low.

Here is what Hansen says about "Decision Making Under Uncertainty."
"Yes, people struggle with how to cope with uncertainty; it’s not so easy for them to build probability models about the future in very complicated environments. That’s not realistic. We’re very much interested in rational agents who are coping with uncertainty.

What do you want to call behavior under those conditions? Well, you can call that irrational. I’m not sure that I want to do that; maybe it’s a useful term, maybe it’s not, I’m not quite sure.

How to cope with the uncertainties under complexity is a very important question that we’ve just scratched the surface of."

"Yes, the key thing there, too, is we were driven by empirical evidence, about how people behave. We were driven partly by that and partly by other insights coming out of decision theory — broadly conceived in terms of how people might cope with uncertainty. One thing I loved about rational expectations was that it said, to what extent is public policy grounded on being able to fool people systematically?"
The first article, discusses some recent research from psychology on "Decision Making Under Uncertainty." It looks into how people make decisions in the short-run based on expectations of the long-run. We might eat a slice of chocolate cake because that is great in the short-run but if we have a long-run goal to lose weight, it might seem like it is irrational or a case of low willpower if we eat the cake.

But what if it is uncertain as to how long it will take for a person to reach their weight loss goal? Once you are not sure when the payoff will come, you might think it will never come. So it is better, and perhaps rational, to at least have the cake now and get some pleasure because the weight loss may never come. Excerpt:
"A failure of self-control, suggest the University of Pennsylvania neuroscientists Joseph W. Kable and Joseph T. McGuire, may not be a failure so much as a reasoned response to the uncertainty of time: If we’re not quite sure when the train will get there, why invest precious time in continuing to wait?

Mr. Kable, who has been working on the psychology and neuroscience of decision making for more than a decade, argues that the truth is that in real life, as opposed to the lab, we aren’t nearly as sure we’ll get our promised reward, or if we do, of when it will come

“The timing of real-world events is not always so predictable,” he and Mr. McGuire write. “Decision makers routinely wait for buses, job offers, weight loss and other outcomes characterized by significant temporal uncertainty.” Sometimes everything comes just when we expect it to, but sometimes even a usually punctual bus breaks down or an all-but-certain job offer falls through. 

When we set a self-control goal for ourselves, we often have specific time frames in mind: I’ll lose a pound a week; a month from now, I’ll no longer get cravings for that cigarette; the bus or train will come in 10 minutes (and I’ve committed to taking public transportation as part of lessening my carbon footprint, thank you very much). 

But what happens if our initial estimate is off? The more time passes without the expected reward — it’s been 20 minutes and still nothing; I’ve been dieting for a week and a half now and still weigh the same — the more uncertain the end becomes. Will I ever get my reward? Ever lose weight? Ever get on that stupid train?
In this situation, giving up can be a natural — indeed, a rational — response to a time frame that wasn’t properly framed to begin with, according to a series of new studies conducted by Mr. Kable’s decision neuroscience lab at the University of Pennsylvania and published in Cognition and Psychological Review

There are lots of situations, probably the majority of situations, in the real world,” Mr. Kable told me, “where waiting longer is actually a valid cue that the reward is getting further and further away.""
They have also done some experiments that back this up. Now here is the Peanuts comic which was originally from 1966, although it appeared again on 11-23. I think what Snoopy does and says is what the article was all about.


Tuesday, November 26, 2013

Oil-rich Midland, TX is nation’s fastest growing metro area, with highest per-capita income in the country at $83,000

Great post from economist Mark Perry (his blog is called "Carpe Diem")
"The Bureau of Economic Analysis (BEA) released data today on “Local Area Personal Income” with new estimates for personal income in 2012 for the nation’s 381 metropolitan statistical areas (MSAs). Here are a few highlights:

1. Midland, Texas is clearly America’s “economic miracle city.” For the third year in a row, Midland was the nation’s fastest growing MSA, with growth in personal income in 2012 of 12.1%. Midland also led the country as the MSA with the highest per capita personal income in 2012 at $83,049, followed by Bridgeport-Stamford-Norwalk, CT ($81,068), San Francisco ($66,591), the Silicon Valley MSA of San Jose-Santa Clara-Sunnvale ($65,679) and Washington, DC ($61,743).

2. Following Midland’s income growth of 12.1% in 2012 were nearby No. 2 Odessa, TX (11.5%), No. 3 Grand Forks, ND (11.5%) and No. 4 Bismarck, ND (10.1%), which are all benefiting from America’s Shale Revolution that has made Texas and North Dakota the shining stars of the Great American Energy Boom. Other Texas and North Dakota MSAs that experienced strong personal income growth in 2012 were No. 7 Fargo, ND (8.3%), No. 14 Victoria, TX (7.1%), No. 16 Houston (6.7%) and No. 22 Austin (6.1%). Of the top 22 fastest growing metro areas in 2012, eight were either in Texas or North Dakota.

3. On a per-capita basis, the Grand Forks MSA led the country in 2012 with personal income growth of 9.5%, followed by No. 2 Odessa (7.9%), No. 3 Elkhart, IN (7.8%), No. 4 Bismarck (7.6%), No. 5 Columbus, IN (7.4%) and No. 6 Midland (7.2%). Of the six MSAs with the highest per-capita income growth in 2012, four were either in North Dakota and Texas.

MP: More evidence from today’s BEA report that America’s Shale Revolution is creating shale-based wealth, income, jobs and prosperity, especially in the states of Texas and North Dakota, the two shining stars of the Great American Energy Boom. And Midland, Texas has emerged as America’s “economic miracle city” with the highest per-capita income in the country ($83,049), higher even than average incomes in Silicon Valley ($65,679) by 26.4% and Washington, DC ($61,743) by 34.5%."

Thursday, November 21, 2013

The Dalai Lama Says It Is Sometimes OK To Be Selfish

And of course, Adam Smith said when people act selfishly they are led, as if by an invisible hand, to make society better off.

So when might it be OK to be selfish according to his holiness? When caring for others.

Wait, how can that be selfish? Or is this some kind of Zen riddle like what is the sound of one hand clapping? No, it's biology and evolution. See Lending a hand does a body good by Jessica Belasco, from the San Antonio Express-News, 10-25-2013.

She talked to Dr. James R. Doty, a neurosurgeon at the Stanford University School of Medicine and founder of Stanford's Center for Compassion and Altruism Research and Education. Excerpts:
"Practicing compassion — recognizing someone else is suffering and wanting to help relieve that suffering — just might be as important for health as exercise or a healthful diet, some scientists believe.

When we respond to another person's needs, our body responds in turn:

We become relaxed and calm.
Our blood pressure goes down.
Our stress level goes down.

Practicing compassion is associated with lengthened telomeres, the DNA that protects the ends of your chromosomes and is a marker of longevity.

To understand why humans are hard-wired for compassion, Doty said, just look at human evolution: Caring for others was essential to the survival of the species. Humans developed powerful neuropathways associated with nurturing and bonding with their offspring as motivation to care for them in a hostile environment; otherwise their genes could not be passed on. The same was true beyond the nuclear family when humans formed hunter/gatherer tribes.

A few hundred millennia later, our need for compassion remains strong. We may not be facing predators as our ancestors did, but frequent low-level stressors — work deadlines, traffic noise, our cellphone buzzing with texts — keep our fight-or-flight response continually engaged. That releases stress hormones, which raises the risk of disease.

When we're responding to others' needs, though, we engage the “parasympathetic nervous system,” relaxing us, Doty said. Stress hormones decrease, and the immune system is boosted. In fact, that occurs even if we just think about performing a good act for someone.

That's why intervening when someone needs help — whether in the form of a hug, reassurance, financial help or something else — has a powerful impact not just on the person being helped but on the helper.

Studies also have shown that volunteering, which is a way to practice compassion, helps increase longevity — but with an important exception. Study subjects who said they were volunteering to impress somebody or for some other benefit, not because they authentically wanted to help others, didn't enjoy the same benefit."
Adam Smith wrote a book called The Theory of Moral Sentiments. One point he made there was that we are able to sympathize with other people by trying imagine what they are going through (and I wonder if we need to be good storytellers to be able to do that). Neuroeconomist Paul Zak has been studying how the hormone oxytocin plays a role in making us feel good when we have empathy for others (beware: Zak is a big hugger). See an earlier post Adam Smith vs. Bart Simpson for more details.

There is an interesting book called Paleopoetics: The Evolution of the Preliterate Imagination. It relates storytelling to evolution.

Click here to go the Amazon listing. It is by Christopher Collins, professor emeritus of English at New York University. Here is the description:
"Christopher Collins introduces an exciting new field of research traversing evolutionary biology, anthropology, archaeology, cognitive psychology, linguistics, neuroscience, and literary study. Paleopoetics maps the selective processes that originally shaped the human genus millions of years ago and prepared the human brain to play, imagine, empathize, and engage in fictive thought as mediated by language. A manifestation of the "cognitive turn" in the humanities, Paleopoetics calls for a broader, more integrated interpretation of the reading experience, one that restores our connection to the ancient methods of thought production still resonating within us.

Speaking with authority on the scientific aspects of cognitive poetics, Collins proposes reading literature using cognitive skills that predate language and writing. These include the brain's capacity to perceive the visible world, store its images, and retrieve them later to form simulated mental events. Long before humans could share stories through speech, they perceived, remembered, and imagined their own inner narratives. Drawing on a wide range of evidence, Collins builds an evolutionary bridge between humans' development of sensorimotor skills and their achievement of linguistic cognition, bringing current scientific perspective to such issues as the structure of narrative, the distinction between metaphor and metonymy, the relation of rhetoric to poetics, the relevance of performance theory to reading, the difference between orality and writing, and the nature of play and imagination."
Click here to read a longer description by Collins himself

Tuesday, November 19, 2013

Internet Kills the Video Store

Blockbuster, Outdone by Netflix, Will Shut Its Stores and DVD Mail Service

Click here to read this NY Times story by Brian Stelter. Excerpt:
"Blockbuster, which had more than 9,000 retail stores across America just nine years ago, is closing the few hundred video-rental stores that it still has, the company’s owner, Dish Network, said on Wednesday in a bittersweet but long-expected announcement.
Dish, which acquired Blockbuster through a bankruptcy auction in 2011, after the retailer had already been crushed by digital video distributors like Netflix, said it still saw value in the brand name and would use it in limited ways. But it will close all Blockbuster locations — it says there are about 300 left — and the distribution centers that support its DVD-by-mail service, which is also being dismantled. 
The announcement amounted to a surrender: a statement that Netflix, symbolized by its little red envelopes and more recently its streaming service, had prevailed over the little blue boxes that Blockbuster VHS tapes and DVDs came in."
This reminds me of my favorite economist Joseph Schumpeter and his theory of innovation. The process whereby innovations occur was called "Creative Destruction" by Schumpeter in his book Capitalism, Socialism, and Democracy. "Creative Destruction" was
"The opening of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation if I may use that biological term-that incessantly revolutionizes the economic structure from with in, incessantly destroying the old one, incessantly creating the new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in (p. 83)."

Friday, November 15, 2013

If It Pays To Have Friends, Can You Pay To Have Friends?

I know, it sounds like Yogi Berra doing an Aflac commercial. But there were two related news stories this week. One was The boyfriends you can buy! Chinese website offers men by the hour to women ashamed of their single status. Some factoids:
  • Rent-a-boyfriends can advertise their wares on
  • Increasingly popular with women under parental pressure to marry
  • Services include dinners and cinema visits. Hand-holding is free
"Meeting someone new isn't always the easiest of tasks, so spare a thought for China's young women who face intense parental pressure to find the right man.

As a result, women terrified of returning home without a handsome other half resort to hiring 'boyfriends' for the duration of their visit.

Now a shopping website, Taobao, has launched a new rent-a-boyfriend service which allows would-be fake other halves to advertise their services - complete with price lists."
Then there was The rise of paid friends: How wealthy New Yorkers are socializing with hired staff over 'real' companions – because they’re easier 'to control'. Excerpts:
"Rappers have long had their entourages, and lonely stay-at-home mothers have similarly long had the tendency to enlist luxury department store salespeople as makeshift best friends.

But a new trend for paid best friends is only now sweeping the upper echelons of New York’s social circles, according to the New York Observer.

The paid friends, or PF’s for short, are not platonic escorts. They are personal trainers, stylists, chefs, and chauffeurs who take their jobs to more congenial levels.

They offer rich benefactors all of the benefits of a friend’s companionship, without the drawbacks like arguments.

A fashion designer, who was anonymously quoted in The Observer’s piece much like rest of the article’s sources, told the paper: ‘There is a market, a currency for paid friends in New York. Some people need the money, and some people need the friends.’

She added that paid friends can become addictive acquisitions.

The Observer’s various sources explained that PF’s offer wealthy men the opportunity of companionship without emotional strings attached.

Acording to one avid PF employer, ‘Once you’ve had paid friends who don’t argue with you, it’s actually quite hard to go back to real friends.’

The ex-wife of a PF hoarder said ‘many really successful men don’t actually have time for real friends,’ because normal friends ‘are either resentful or bitter or ask for money,’ and that some ‘are often competitive.’

She said that as a result, ‘very rich men have paid friends as an expensive filter, because they can control them.’"

Thursday, November 14, 2013

Was The October Jobs Report Really Good News?

See October surprise: Job gains soar to 204,000. It seems like most news reports said that the 200,000 added jobs was good news in view of the government shutdown. But the percent of the adult population that had a job actually fell from 58.6% in September to 58.3% in October. See Employment status of the civilian noninstitutional population 16 years and over, 1978 to date. The labor force participation rate also fell from 63.2% to 62.8%.

For all of 2007, the percent of the adult population that had a job was  63.0% (the recession started in December of 2007). Here are the percentages since 2007


The percentage was at least 60 for every year from 1985-2008. It was at least 62% every year from 1994-2008. So far this year, the average monthly percentage has been 58.58%. So compared to recent history, we have a long way to go. And 2013 probably won't be any better than 2012.

Thursday, November 07, 2013

Is The Old Comic Book Market A Ponzi Scheme?

See Those Comics in Your Basement? Probably Worthless. It seems like the forces of supply and demand have greatly reduced the price of most, but not all, old comic books. Excerpts:
"Barry T. Smith, 44, spent most of his life collecting comic books. And he always considered them an investment. “These books would someday be college tuition, or a house down payment,” Smith remembers thinking. “I would lay them all out in my parents’ living room, sorting them, cataloging them, writing down entries on graph paper while cross-referencing them against the Overstreet Price Guide.”

After college he landed a tech job in Silicon Valley but held on to all 1,200 of his comics, including several hundred early issues of Marvel’s X-Men, which his research suggested had grown in value every year. The comics sat in a storage unit, boarded and bagged, for close to two decades. When Smith found himself unemployed and in need of money to support his wife and two daughters, he decided the time was right to cash in on his investment.

The entire collection sold for about $500. “I’m not too proud to admit, I cried a bit,” Smith says.

Frank Santoro, a columnist for the Comics Journal and an avid collector himself, has noticed the same trend. “More and more of these types of collections are showing up for sale,” he says. “And they’re becoming more and more devalued. The prices are dropping.” He recently had to break the bad news to a friend’s uncle, who was convinced his comic collection—about 3,000 books—was worth at least $23,000. “I told him it was probably more like $500,” Santoro says. “And a comic book store would probably only offer him $200.”

Stories like these are a stark contrast to what’s typically reported. To go by media accounts, 2013 has been a huge year for the vintage comic market. A Minnesota man found a copy of Action Comics No. 1—the first appearance of Superman, published in 1938—in a wall of his house and sold it for $175,000 in June. Three decades ago a different copy of the same comic sold for about $5,000, a record at the time.

Outlandish claims and tales of amazing windfalls elicit only groans from Rob Salkowitz, a business analyst and author of Comic-Con and the Business of Pop Culture. He also happens to be, in his own words, “a guy in his 40s with a basement full of old comics.” He warns that too many people have been deluded into thinking they are sitting on a comic book gold mine.

“There are two markets for comic books,” Salkowitz says. “There’s the market for gold-plated issues with megawatt cultural significance, which sell for hundreds of thousands and sometimes millions of dollars. But that’s a very, very, very limited market. If a Saudi sheik decides he needs Action Comics No. 1, there are only a few people out there who have a copy.” And then there’s the other market, where most comics change hands for pennies and nobody is getting rich or even breaking even. “The entire back-issues market is essentially a Ponzi scheme,” Salkowitz says. “It’s been managed and run that way for 35 years.”

On the other end of the spectrum, almost any comic book store owner can supply eye-opening tales of depreciation. Walter Durajlija, an adviser for Overstreet and owner of Big B Comics in Hamilton, Ont., sold a copy of Uncanny X-Men No. 94 in 2010 for a record $26,500. Last year, that same comic sold in his store for only $12,000. “[My] last two sales [of X-Men No. 94] were $9,501 in February of 2013 and $8,089 three short days later,” he says. And that’s just the tip of the iceberg. “Incredible Hulk No. 181 was getting $20,000; they now trade for $8,000.”

There are many theories for why comic collectibles have stopped being valuable. Some blame readily available reprints. “What drove the collectibility of the old comics was that they were once genuinely rare,” says Salkowitz. Others point to the grading system, which now requires that comics be encased in plastic polymer. “It really is a shady process that’s completely changed the marketplace,” says Santoro. And there’s reason to suspect that the Internet era has yet again worked its magic on prices: “In the ’60s, the only way to read these stories was to own the original issues,” says Salkowitz. “Now you can go on Pirate Bay and download a torrent of anything you want for free.”"

Tuesday, November 05, 2013

eHarmony To Provide Personal Counselors To Help You Find Mr. Or Ms. Right

But there's a catch: it will cost you $5,000. See For $5,000, dating site will be your wingman: Premium eHarmony service will pre-screen prospective dates for you. Excerpt:
"The whole point of online dating sites was to make matchmaking so easy anyone could do it themselves. Which makes the pitch for a new premium service from dating giant eHarmony seem odd at first: Pay us $5000 and you’ll get a personal counselor to help not only sift through matches, but quietly approach them on your behalf. 
So why did they do it? After surveying 15,000 eHarmony members who earn more than $250,000 a year, it was clear there was huge demand for such a perk, says Grant Langston, eHarmony’s vice president of customer experience. The site has one other reason to fast-track the new counseling service: An unexpected marketing opportunity. Ben Stiller’s holiday movie, “The Secret Life of Walter Mitty,” features an eHarmony counselor. eHarmony didn’t pay for the plug or provide such a service — until now. “The counselor is going to have a lot of power,” Langston says. “The service is also designed to minimize the rejection and anxiety that comes with online dating.”
eHarmony’s 29 different dimensions — the company’s famous and sometimes parodied algorithms created by founder Neil Clark Warren, a clinical psychologist — cover personality and character rather than chemistry or physical attractiveness, Langston says. That’s where the counselor comes in. As with the fictional eHarmony counselor in Stiller’s movie, the real ones will talk to members by phone or Skype — or in person for those who live near eHarmony’s offices in Santa Monica, Calif.""
China has something similar. See The Price of Marriage in China. Excerpt:
"FROM her stakeout near the entrance of an H & M store in Joy City, a Beijing shopping mall, Yang Jing seemed lost in thought, twirling a strand of her auburn-tinted hair, tapping her nails on an aquamarine iPhone 4S. But her eyes kept moving. They tracked the clusters of young women zigzagging from Zara to Calvin Klein Jeans. They lingered on a face, a gesture, and then moved on, darting across the atrium, searching.

“This is a good place to hunt,” she told me. “I always have good luck here.”

For Ms. Yang, Joy City is not so much a consumer mecca as an urban Serengeti that she prowls for potential wives for some of China’s richest bachelors. Ms. Yang, 28, is one of China’s premier love hunters, a new breed of matchmaker that has proliferated in the country’s economic boom. The company she works for, Diamond Love and Marriage, caters to China’s nouveaux riches: men, and occasionally women, willing to pay tens and even hundreds of thousands of dollars to outsource the search for their ideal spouse.

In Joy City, Ms. Yang gave instructions to her eight-scout team, one of six squads the company was deploying in three cities for one Shanghai millionaire. This client had provided a list of requirements for his future wife, including her age (22 to 26), skin color (“white as porcelain”) and sexual history (yes, a virgin).

“These millionaires are very picky, you know?” Ms. Yang said. “Nobody can ever be perfect enough.” Still, the potential reward for Ms. Yang is huge: The love hunter who finds the client’s eventual choice will receive a bonus of more than $30,000, around five times the average annual salary in this line of work."

Friday, November 01, 2013

How Does The Price Of Gas In San Antonio Today Compare To A Year Ago?

See Falling gas prices in S.A. now below $3. I saw $2.92 last Saturday (I think it was in New Braunfels). Excerpts:
"A year ago, the price for regular unleaded was $3.50 in San Antonio.

Unless there is a major hurricane or an unexpected disruption in gasoline production and distribution, prices could continue to fall, AAA spokesman Doug Shupe said."

"'s chief oil analyst, Tom Kloza, said San Antonio likely will see average prices fall below $3.
“Demand is flat, but supplies are quite plentiful, particularly in Texas,” he said.

Cheaper crude oil and cheaper ethanol, which is blended into gasoline, also is helping suppress prices, said Kloza, who expects gas prices to bottom out between Election Day and Valentine's Day.

“People are driving less,” said Ed Hirs, energy economist at the University of Houston, “and the gasoline doesn't have to be processed as much in the fall and winter,” making it less expensive for refiners to produce. That helps lower prices.

Also, “I'd thank the Eagle Ford Shale and the Permian (Basin),” Hirs said, where oil production is soaring.
Refiners are buying “a huge amount of oil from the Permian and the Eagle Ford,” and the crude can be bought at a slight discount to the price on the Gulf Coast.

That's also contributing to lower prices at the pump, he said."
I don't think Kloza actually meant that the demand line for gas is flat. I think he meant that demand is simply not increasing recently (it might eve be going down if people are driving less). If the demand line is not moving and if the supply line is shifting to the right, then the price will fall.