The First Map of How Our Brain Organizes Everything We See

by Monica Diana Bercea

NeuroRelay
December 27, 2012

A research published in the Cell Press journal Neuron on the 20th of December 2012 (Alexander G. Huth, Shinji Nishimoto, An T. Vu, Jack L. Gallant. "A Continuous Semantic Space Describes the Representation of Thousands of Object and Action Categories across the Human Brain." Neuron, 2012; 76 (6): 1210) describes the first developed map of how our brain sorts everything we see.

While neuromarketers aim to understand how people make sense of the thousands of advertisements that flood their retinas each day, scientists at the University of California have found that the brain is wired to put in order all the categories of objects and actions that we see. They have created the first interactive map of how the brain organizes these groupings, and you may see it below (it looks like fractals, doesn’t it?):

“Humans can recognize thousands of categories. Given the limited size of the human brain, it seems unreasonable to expect that every category is represented in a distinct brain area,” says first author Alex Huth, a graduate student working in Dr. Jack Gallant’s laboratory at the University of California, Berkeley.

Here is a video of the author that explains his work:

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Timur Kuran, "The Long Divergence: How Islamic Law Held Back the Middle East"

Princeton University Press
2010

In the year 1000, the economy of the Middle East was at least as advanced as that of Europe. But by 1800, the region had fallen dramatically behind--in living standards, technology, and economic institutions. In short, the Middle East had failed to modernize economically as the West surged ahead. What caused this long divergence? And why does the Middle East remain drastically underdeveloped compared to the West? In The Long Divergence, one of the world's leading experts on Islamic economic institutions and the economy of the Middle East provides a new answer to these long-debated questions.

Timur Kuran argues that what slowed the economic development of the Middle East was not colonialism or geography, still less Muslim attitudes or some incompatibility between Islam and capitalism. Rather, starting around the tenth century, Islamic legal institutions, which had benefitted the Middle Eastern economy in the early centuries of Islam, began to act as a drag on development by slowing or blocking the emergence of central features of modern economic life--including private capital accumulation, corporations, large-scale production, and impersonal exchange. By the nineteenth century, modern economic institutions began to be transplanted to the Middle East, but its economy has not caught up. And there is no quick fix today. Low trust, rampant corruption, and weak civil societies--all characteristic of the region's economies today and all legacies of its economic history--will take generations to overcome.

The Long Divergence opens up a frank and honest debate on a crucial issue that even some of the most ardent secularists in the Muslim world have hesitated to discuss.

Timur Kuran is professor of economics and political science and the Gorter Family Professor of Islamic Studies at Duke University. He is the author of Islam and Mammon: The Economic Predicaments of Islamism (Princeton).

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Yannis M. Ioannides, "From Neighborhoods to Nations: The Economics of Social Interactions"

Princeton University Press
Press Release
December 2012

Just as we learn from, influence, and are influenced by others, our social interactions drive economic growth in cities, regions, and nations--determining where households live, how children learn, and what cities and firms produce. From Neighborhoods to Nations synthesizes the recent economics of social interactions for anyone seeking to understand the contributions of this important area. Integrating theory and empirics, Yannis Ioannides explores theoretical and empirical tools that economists use to investigate social interactions, and he shows how a familiarity with these tools is essential for interpreting findings. The book makes work in the economics of social interactions accessible to other social scientists, including sociologists, political scientists, and urban planning and policy researchers.

Focusing on individual and household location decisions in the presence of interactions, Ioannides shows how research on cities and neighborhoods can explain communities' composition and spatial form, as well as changes in productivity, industrial specialization, urban expansion, and national growth. The author examines how researchers address the challenge of separating personal, social, and cultural forces from economic ones. Ioannides provides a toolkit for the next generation of inquiry, and he argues that quantifying the impact of social interactions in specific contexts is essential for grasping their scope and use in informing policy.

Revealing how empirical work on social interactions enriches our understanding of cities as engines of innovation and economic growth, From Neighborhoods to Nations carries ramifications throughout the social sciences and beyond.

Yannis M. Ioannides is the Max and Herta Neubauer Professor of Economics at Tufts University.

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Income and Democracy: Lipset's Law Revisited

by Anke Hoeffler, Robert H. Bates and Ghada Fayad

International Monetary Fund
Working Paper No. 12/295
December 17, 2012

We revisit Lipset‘s law, which posits a positive and significant relationship between income and democracy. Using dynamic and heterogeneous panel data estimation techniques, we find a significant and negative relationship between income and democracy: higher/lower incomes per capita hinder/trigger democratization. Decomposing overall income per capita into its resource and non-resource components, we find that the coefficient on the latter is positive and significant while that on the former is significant but negative, indicating that the role of resource income is central to the result.

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Albert O. Hirschman (1915–2012)

Princeton University
Institute for Advanced Study
December 12, 2012

Renowned social scientist Albert O. Hirschman, whose highly influential work in economics and politics in developing countries has had a profound impact on economic thought and practice in the United States and beyond, died at the age of 97 on December 10 at Greenwood House in Ewing Township, N.J. Hirschman was Professor Emeritus in the School of Social Science at the Institute for Advanced Study, where he had served on the Faculty since 1974.

“Albert Hirschman developed innovative methods for promoting economic and social growth through his study of the intellectual underpinnings of economic policies and political democracy,” said Robbert Dijkgraaf, Director and Leon Levy Professor at the Institute. “An impassioned observer who sought to understand the world as well as change it, Albert will be sorely missed by the Institute community and by the international community at large where his voice has influenced and guided advancement for more than half a century.”

Over the course of his long and extraordinarily productive career, Hirschman earned a reputation for progressive, lucid and brilliantly argued contributions to economics, the history of ideas and the social sciences. He explored a vast range of topics, inspired by the complexity of human behavior and social reality rather than by traditional economic models. He applied a subtle and iconoclastic perspective to reappraising conventional wisdom, resulting in original work that was a constant stimulus to critical thought in the social sciences. In a 1993 interview with Carmine Donzelli, Hirschman noted, “The idea of trespassing is basic to my thinking. Attempts to confine me to a specific area make me unhappy. When it seems that an idea can be verified in another field, then I am happy to venture in this direction. I believe this is a simple and useful way of discovering ‘related’ topics.”

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Commerce Claus: The behavioral economics of Christmas

by George Loewenstein and Cass R. Sunstein

New Republic
December 20, 2012

Some economists dislike Christmas. They allege that it “destroys value,” which is, in Econoland, the first and only sin. The economist Joel Waldfogel, author of Scroogenomics, goes so far as to contend that the winter holiday season is “an orgy of value destruction.”

Waldfogel’s main concern is that the value of gifts to their recipients is typically far lower than the money that was spent on them. He found that of the $65 billion spent on winter holiday gifts in 2009, about 20 percent was wasted, in the sense that the gifts were worth that much less to the recipient than they cost. And indeed, it is an inescapable fact of life that people who receive holiday gifts often don’t much like what they get. If you’ve ever been presented with a sweater that you would never wear in public or electronic equipment whose purpose escapes you, you will understand what Waldfogel is talking about.

In hard economic times, when both the government and ordinary people are trying desperately to save money, this is a sobering analysis. We don’t propose that Congress should try to solve the debt crisis by requiring people to give holiday season money to the Treasury Department rather than spending it on presents. But mis-giving does no good for anyone, and we have a few ideas about how to make it through the season a bit more easily.

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Saving Economics from the Economists

by Ronald Coase

Harvard Business Review
December 2012

Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.

That was not the case in the past. When modern economics was born, Adam Smith envisioned it as a study of the “nature and causes of the wealth of nations.” His seminal work, The Wealth of Nations, was widely read by businessmen, even though Smith disparaged them quite bluntly for their greed, shortsightedness, and other defects. The book also stirred up and guided debates among politicians on trade and other economic policies. The academic community in those days was small, and economists had to appeal to a broad audience. Even at the turn of the 20th century, Alfred Marshall managed to keep economics as “both a study of wealth and a branch of the study of man.” Economics remained relevant to industrialists.

In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter. Today, production is marginalized in economics, and the paradigmatic question is a rather static one of resource allocation. The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost.

This separation of economics from the working economy has severely damaged both the business community and the academic discipline. Since economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions. In times of crisis, when business leaders lose their self-confidence, they often look to political power to fill the void. Government is increasingly seen as the ultimate solution to tough economic problems, from innovation to employment.

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Urging Economists to Step Away From the Blackboard

by Brendan Greeley

Bloomberg
November 29, 2012

Ronald Coase published his career-making paper, The Nature of the Firm, 75 years ago. He won the Nobel prize for economics in 1991. In a lecture in 2002, he argued that physics has moved beyond the assumptions of Isaac Newton, and biology beyond Darwin. (Not that he knew them.) But economics, he said, had failed to advance past the efficient-market assumptions of Adam Smith. This year Coase, a professor emeritus at the University of Chicago Law School, is attempting to start a new academic journal ambitiously titled Man and the Economy. The premise: Economics is broken. Coase’s journal is still just a plan, but his frustration with orthodox economics has energized his followers.

The financial crisis forced economists to confront the limitations of their profession. Former Federal Reserve Chairman Alan Greenspan admitted as much when he told Congress in October 2008 that markets might not regulate themselves after all. Coase says the problem runs deeper: Economists study abstractions and numbers, instead of firms and people. He doesn’t believe this can be fixed by tweaking models. An entire generation of economists must be encouraged to think differently.

The idea for the journal stems from his collaboration with Ning Wang, an assistant professor at the School of Politics and Global Studies at Arizona State University who grew up in a rice- and fish-farming village in the Hubei province of China. Coase, 101, began working with Wang in the 1990s at the University of Chicago. Neither has a degree in economics; the two understood each other. “We’re not constrained by a mainstream, orthodox view,” says Wang. “A lot of people would see this as a weakness.” Coase declined to be interviewed.

When Coase and Wang hosted a conference on China in 2008, they noticed that many Chinese academics had never talked to either policymakers or entrepreneurs from their own country. They had learned only what Coase calls “blackboard economics,” sets of theories and mathematical relationships between bits of data. “I came from China,” says Wang. “We have a lot of nationals come here; they’re taught game theory and econometrics. Then they’re going home … without a basic understanding of how the real world functions.”

In an essay published on Nov. 20 in Harvard Business Review, Coase argues that in the early 20th century, economists began to focus on relationships among statistical measures, rather than problems that firms have with production or people have with decisions. Economists began writing for each other, instead of for other disciplines or for the business community. “It is suicidal for the field to slide into a hard science of choice,” Coase writes in HBR, “ignoring the influences of society, history, culture, and politics on the working of the economy.” (By “choice,” he means ever more complex versions of price and demand curves.) Most economists, he argues, work with measures like gross domestic product and the unemployment rate that are too removed from how businesses actually work.

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Are wealth and prosperity synonymous?

by James Melik

BBC News
November 23, 2012

What is it besides the money in people's pockets that makes a society prosperous?

Many people argue there are ingredients other than hard cash to consider - such as personal freedom and good governance.

The International Energy Agency recently predicted the US could become self-sufficient in energy within a couple of decades - a move that should make any nation more prosperous.

Will Hutton, who chairs the economic research think tank Big Innovation Centre, and is principal of Hertford College in Oxford, says: "A secure energy supply will lead to lower energy prices, which could lead to a more vigorous US manufacturing sector."

It might make the US more prosperous financially, but will it feel safer and more at peace with itself?

Not necessarily so, thinks Jeff Gedmin at London-based think tank the Legatum Institute, which says its aim is to advance ideas and policies in support of free and prosperous societies around the world.

"I don't think there is any kind of mechanical relationship between material wealth and the well-being of citizens," he says.

"Every year we publish the Prosperity Index, and we find this year, for the first time, the US drops out of the top 10."

"When you look at access to education, access to health care, or access to opportunity, there are problems," he says. "The feeling Americans have is that hard work, as it once was, does not get them ahead any more in the same way."

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The lottery of life: Where to be born in 2013

Economist
November 21, 2012

Warren Buffett, probably the world’s most successful investor, has said that anything good that happened to him could be traced back to the fact that he was born in the right country, the United States, at the right time (1930). A quarter of a century ago, when The World in 1988 light-heartedly ranked 50 countries according to where would be the best place to be born in 1988, America indeed came top. But which country will be the best for a baby born in 2013?

To answer this, the Economist Intelligence Unit (EIU), a sister company of The Economist, has this time turned deadly serious. It earnestly attempts to measure which country will provide the best opportunities for a healthy, safe and prosperous life in the years ahead.

Its quality-of-life index links the results of subjective life-satisfaction surveys—how happy people say they are—to objective determinants of the quality of life across countries. Being rich helps more than anything else, but it is not all that counts; things like crime, trust in public institutions and the health of family life matter too. In all, the index takes 11 statistically significant indicators into account. They are a mixed bunch: some are fixed factors, such as geography; others change only very slowly over time (demography, many social and cultural characteristics); and some factors depend on policies and the state of the world economy.

A forward-looking element comes into play, too. Although many of the drivers of the quality of life are slow-changing, for this ranking some variables, such as income per head, need to be forecast. We use the EIU’s economic forecasts to 2030, which is roughly when children born in 2013 will reach adulthood.

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Misery Leads to Myopia on Money

by Daniel Akst

Wall Street Journal
November 16, 2012

If you’re organizing the funeral of a recently deceased loved one, beware. Sadness makes people more short-sighted when it comes to money, a new paper reports.

In experiments, researchers first primed participants by showing short films known to instill either sadness, disgust or neutral feelings. Then participants were offered choices between immediate sums of money or larger sums they would receive months later.

Faced with such choices—a staple in social science experiments—people typically discount future rewards heavily. But results in this case show that sad people discounted the future much more than people feeling neutral or disgusted. In one experiment, neutral-feeling people required $56 to forgo $85 three months later, but sad people required only $37.

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Women eager to negotiate salaries, when given the opportunity

by William Harms

UChicagoNews
November 15, 2012

Although some scholars have suggested that the income gap between men and women is due to women’s reluctance to negotiate salaries, a new study at the University of Chicago shows that given an invitation, women are just as willing as men to negotiate for more pay.

Men, however, are more likely than women to ask for more money when there is no explicit statement in a job description that wages are negotiable, the study showed.

“We find that simple manipulations of the contract environment can significantly shift the gender composition of the applicant pool,” said UChicago economist John List, the Homer J. Livingston Professor in Economics.

List was a co-author of a paper based on a study of people responding to job advertisements in which salaries were advertised either as negotiable or fixed. Women were three times more likely to apply for jobs with negotiable salaries and to pursue negotiations once they applied, the study found.

Among those responding to an explicit salary offer, 8 percent of women and 11 percent of men initiated salary negotiations. When the salary was described as negotiable, 24 percent of women and 22 percent of men pursued salary discussions.

“By merely adding the information that the wage is ‘negotiable,’ we successfully reduced the gender gap in applications by approximately 45 percent,” said List.

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For Investors, Costly Academic Studies

by Daniel Akst

Wall Street Journal
November 7, 2012

A wide variety of investment strategies are described in the finance literature, but they do have something in common: after the professors write about them, returns are diminished.

That’s the finding of a couple of finance professors who looked at 82 market anomalies exploited by investors and then described in academic papers. In a working paper, the authors estimate that “the average anomaly’s post-publication return decays by about 35%.”

Mostly this seems to be the result of investors learning about the strategy from the academic papers and trading on it, thereby diminishing the precious anomaly in just the way markets are supposed to work. The effect is most pronounced, the professors write, “in large market capitalization stocks, high dollar volume stocks, low idiosyncratic risk stocks, and stocks that pay dividends.”

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The Intelligence Boom

James R. Flynn

by Bryan Caplan

Wall Street Journal
October 9, 2012

James R. Flynn, one of the most influential figures in modern psychology, isn't a psychologist. He is a trained political philosopher. He broke into psychology in his 50s by painstakingly documenting the now-famous "Flynn effect"—the strong tendency of nations' average measured intelligence ("IQ") to rise over time. "Are We Getting Smarter?" interweaves the author's expertise in psychology, political philosophy and sociology to shed light on a loosely related set of questions about human intelligence. At times the book feels like a collection of essays, but it forms one continuous argument.

When most people hear about the Flynn effect, they conclude that we really are getting smarter. Mr. Flynn is more cautious. He opens the book by reviewing his previous work on intelligence tests. IQs have risen, but we're definitely not smarter across the board. We're better with puzzles and similarities but not better at arithmetic. Vocabulary and general information have risen for adults but barely budged for children.

If you still want to say that people are "smarter" than they used be, Mr. Flynn doesn't object, but, he writes, "it would probably be better to say that we are more modern." Modern humans, he explains, see the world through what Flynn calls "scientific spectacles." We are comfortable with abstract classification, logic, and hypotheticals—including, Mr. Flynn suspects, moral hypotheticals. He amusingly recounts youthful arguments with his racist father: "[W]hen he endorsed discrimination, we [Mr. Flynn and his brother] would say, 'But what if your skin turned black?' As a man born in 1885, and firmly grounded in the concrete, he would reply, 'That is the dumbest thing you have ever said—whom do you know whose skin ever turned black?'"

Mr. Flynn then moves on to a grab-bag of IQ-related topics. Are less-developed countries experiencing a Flynn effect? Usually. IQ is rising very rapidly in Kenya and fairly rapidly in Saudi Arabia, but slowly in Sudan and Brazil. What does the Flynn effect imply for the death penalty? Courts call the execution of the mentally retarded "cruel and unusual," but how should we measure retardation? Mr. Flynn argues that a killer considered competent by the standards of 1960 could easily be categorized as mentally retarded by the standards of today.

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Researcher Questions Whether Women More Risk-Averse Than Men

by Susanna Kim

ABC News
September 30, 2012

While previous academic research has shown women to be less willing to engage in risk than men in situations like gambling, a new economics paper released this week finds men can be just as risk-averse, if not more.

Julie Nelson, chairwoman of the economics department at University of Massachusetts-Boston, wrote “Are Women Really More Risk-Averse Than Men?” as a working paper this week.

Julie A. Nelson

“The paper finds a lot of the economics and finance research in behavioral differences between men and women is vastly exaggerated,” Nelson said.

Nelson and a research assistant reviewed more than 24 published articles about the subject, many of which studied men and women’s gambling habits and often concluded that women were less willing to gamble.

“My paper goes over the literature and says ‘not so fast,’” she said.

Nelson often found small differences in the averages of the two genders that measured how willing they were to take risks.

“Academic articles hide that there is a lot of overlap between men and women,” Nelson said.

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Thinking Fast Can Mean Doing Good

by Daniel Akst

Wall Street Journal
September 25, 2012

Is it better to act intuitively or after lots of consideration? The question has had a lot of attention in recent years.

Books like Malcolm Gladwell’s Blink remind us of how effectively we can perceive and decide in an instant. But Daniel Kahneman’s Thinking Fast and Slow focuses on the pitfalls of our intuitive system as well as its strengths.

Perhaps the real challenge is figuring out when to use which; Freud suggested that we deliberate by all means over small matters (spread collar or button down? Fish or chicken?) but that on really big decisions, like whom to marry, it was best to go with your gut.

Now comes a study based on a series of Harvard experiments, showing that people are more likely to act for the collective good—and less likely to pursue self-interest—when they act intuitively.

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Paying attention to inattention

by Olivier Coibion and Yuriy Gorodnichenko

Vox
August 24, 2012

Economics and economists have taken a beating in the last few years. One practice on the receiving end of much criticism has been the use of models that assume rational expectations when individuals are well informed. This column proposes some tests of these assumptions and argues that 'imperfect information' models may succeed where others have failed.

It should be clear that among the causes of the recent financial crisis was an unjustified faith in rational expectations ...

Paul Volcker, 27 October 2011

Macroeconomics has taken a public flogging since the onset of the financial crisis, both from those outside the profession (such as the Oscar-winning documentary Inside Job) as well as from some insiders (such as Krugman’s Dark Age of Macroeconomics). One prevalent criticism is the assumption of full-information rational expectations (FIRE) under which economic agents know the structure and parameters of the economic model, observe all shocks and variables in real time, and form identical expectations. And while the FIRE assumption is indeed common in macroeconomic models, macroeconomists have long been exploring departures from full information. Lucas (1972) and Kydland and Prescott (1982) are early examples of models in which agents face imperfect information, and both Tom Sargent and Chris Sims – the two most recent Nobel recipients in economics – have done groundbreaking work along these lines.

Attention to models of inattention has been particularly high over the last decade since the pioneering work of Mankiw and Reis (2002), Sims (2003) and Woodford (2001). Each propose models that embed face information rigidities – frictions which lead rational agents to have only imperfect information about economic conditions – thereby departing from the full-information component of FIRE. The recent survey of this literature by Mankiw and Reis (2011) documents that models of imperfect information can address a number of puzzles in macroeconomics, international economics and finance.

At the same time, empirical evidence on the nature of the expectations formation process has been limited. While there is a long literature testing the FIRE assumption, it has proven difficult to quantify the economic significance (for example, does a departure make a difference for the macroeconomy?) and to interpret the nature of the rejections (for example, is it irrationality or imperfect information?). In recent work (Coibion and Gorodnichenko 2011, 2012), we propose and apply new empirical tests – derived directly from theoretical models of imperfect information – that shed new light on the expectations formation process of economic agents by addressing both limitations of traditional tests.

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Income Inequality Enrages Monkey

Dr. Frans B. M. de Waal

by Brian Fung

Atlantic
August 21, 2012

Many humans have highly developed senses of fairness and morality. Some monkeys may not be far behind. Watch as one gets cucumbers and the other gets delicious, delicious grapes.

Recent research shows that although economic gains make us happier over the short term, money still can't buy happiness in the long run. What may be more important is how deep your neighbor's pockets are: Income inequality tends to make us more unhappy and less trustful, and in the short term can lead to explosions of anger and resentment.

Many humans have highly developed senses of fairness and morality, and it seems monkeys aren't far behind. Alex Tabarrok highlights research by Emory University psychologist Dr. Frans B.M. de Waal, who studied how monkeys and other mammals share many of our social mores. The reaction to unequal pay is (ahem) priceless.

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Red States, Blue States, Gray Matter

by Tom Jacobs

Pacific Standard
August 10, 2012

Ever wonder why your stance on such hot-button issues as immigration or gay marriage feels so self-evident, while someone else finds the opposite opinion so obviously correct? There are various reasons for this, but researchers have just documented a startlingly basic one:

Your brain is different from his brain.

A research team led by Gary Lewis, a postdoctoral research fellow at the University of California, Santa Barbara’s Sage Center for the Study of the Mind, has found structural differences between the brains of individuals who have different moral values.

We’re not just talking about differences in the way the brains function. Rather, they have documented significant variations in the actual volume of gray matter. That’s a big deal, and it “suggests a biological basis for moral sentiment,” Lewis and his colleagues write in the Journal of Cognitive Neuroscience.

“This does not explain political attitudes, but it improves our explanation of political attitudes,” said New York University psychologist Jonathan Haidt, who developed the framework of moral attitudes used by Lewis and his team, but did not participate in the study. “Slight differences in brain structure and function make people more prone to develop one ideology or another.

“Having these pictures will make it easier for people to believe that, when we look at questions like taxes or gay marriage or work-to-welfare rules, we’re not perceiving the same reality.”

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Images of specific regions of the brain show differences between people with different moral values, especially on issues related to purity (center right), and in-group loyalty (lower right). (Courtesy Gary Lewis)

Why the Dismal Science Deserves Federal Funding

by Gary S. Becker and James J. Heckman

Wall Street Journal
August 10, 2012

The federal deficit has ballooned in recent years, and even larger deficits are coming due to the expected growth of entitlement spending. There is little disagreement among members of both political parties that federal spending should be reduced. In such an environment it is crucial that the right criteria guide the cuts that will be made. Across-the-board cuts are not a thoughtful way to make choices.

The guiding principle is basic and obvious: We should cut federal government activities that can be performed at least as well by the private sector, and maintain, or even increase, productive federal activities that the private sector alone cannot handle effectively. There is legitimate disagreement about which activities belong in which category, but the great majority of economists have long agreed that the federal government should have an important role in the sponsorship of basic research. For-profit companies have weak incentives to invest in basic research partly because the results are not patentable, and partly because the culture of basic researchers, and the journals they publish in, makes the results of basic research available to all.

For these reasons the U.S. government has long played a leading role in supporting research in physics, chemistry, biology and medicine, and to a smaller extent in economics and other social sciences. It has also played a leading role in creating objective databases on which to make wise policy. This research and data have paid great dividends in helping to provide a better understanding of DNA, genetics and the human genome, and many other phenomena crucial to the modern world.

Indeed, the remarkable growth in life expectancy in the developed world in the past 60 years has been the result of the combined efforts of federally supported basic researchers at universities and elsewhere, and applied researchers in for-profit drug and biotech companies, and nonprofit institutes.

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The Bad History Behind ‘You Didn’t Build That’

by Virginia Postrel

Bloomberg
August 3, 2012

The controversy surrounding President Barack Obama’s admonishment that “if you’ve got a business -- you didn’t build that. Somebody else made that happen” has defied the usual election-year pattern.

Normally a political faux pas lasts little more than a news cycle. People hear the story, decide what they think, and quickly move on to the next brouhaha, following what the journalist Mickey Kaus calls the Feiler Faster Thesis. A gaffe that might have ruined a candidate 20 years ago is now forgotten within days.

Three weeks later, Obama’s comment is still a big deal.

Although his supporters pooh-pooh the controversy, claiming the statement has been taken out of context and that he was referring only to public infrastructure, the full video isn’t reassuring. Whatever the meaning of “that” was, the president on the whole was clearly trying to take business owners down a peg. He was dissing their accomplishments. As my Bloomberg View colleague Josh Barro has written, “You don’t have to make over $250,000 a year to be annoyed when the president mocks people for taking credit for their achievements.”

Hectoring Entrepreneurs

The president’s sermon struck a nerve in part because it marked a sharp departure from the traditional Democratic criticism of financiers and big corporations, instead hectoring the people who own dry cleaners and nail salons, car repair shops and restaurants -- Main Street, not Wall Street. (Obama did work in a swipe at Internet businesses.) The president didn’t simply argue for higher taxes as a measure of fiscal responsibility or egalitarian fairness. He went after bourgeois dignity.

Bourgeois Dignity is both the title of a recent book by the economic historian Deirdre N. McCloskey and, she argues, the attitude that accounts for the biggest story in economic history: the explosion of growth that took northern Europeans and eventually the world from living on about $3 a day, give or take a dollar or two (in today’s buying power), to the current global average of $30 -- and much higher in developed nations. (McCloskey’s touchstone is Norway’s $137 a day, second only to tiny Luxembourg’s.)

That change, she argues, is way too big to be explained by normal economic behavior, however rational, disciplined or efficient. Hence the book’s subtitle: “Why Economics Can’t Explain the Modern World.”

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Kids Just Wanna Be Helpful

by Tom Jacobs

Pacific Standard
August 1, 2012

There’s a school of thought that considers young children essentially pure. “All things are good as their creator made them,” wrote philosopher Jean Jacques Rousseau, “but everything degenerates in the hands of men.”

Newly published research provides some support for his supposition.

“From an early age, humans seem to have genuine concern for the welfare of others,” concludes a research team led by Robert Hepach of the Max Planck Institute for Evolutionary Anthropology.

Writing in the journal Psychological Science, he and his colleagues argue that before they are socialized into selfishness, children are intrinsically motivated to help others—and not because they wish to “take credit” for their beneficence.

But how exactly do you discover a toddler’s motivation? The researchers took a novel approach: by looking straight into his or her eyes.

They note that our pupils enlarge in response to emotionally stimulating sights, and deduced this could provide an indication of what specifically prompts kids to perk up and take notice. Are they aroused by the sight of someone in need—or, perhaps, by the realization that they could play the hero by helping?

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Romney Hasn’t Done His Homework

by Jared Diamond

New York Times
August 1, 2012

Mitt Romney's latest controversial remark, about the role of culture in explaining why some countries are rich and powerful while others are poor and weak, has attracted much comment. I was especially interested in his remark because he misrepresented my views and, in contrasting them with another scholar’s arguments, oversimplified the issue.

It is not true that my book Guns, Germs and Steel, as Mr. Romney described it in a speech in Jerusalem, “basically says the physical characteristics of the land account for the differences in the success of the people that live there. There is iron ore on the land and so forth.”

That is so different from what my book actually says that I have to doubt whether Mr. Romney read it. My focus was mostly on biological features, like plant and animal species, and among physical characteristics, the ones I mentioned were continents’ sizes and shapes and relative isolation. I said nothing about iron ore, which is so widespread that its distribution has had little effect on the different successes of different peoples. (As I learned this week, Mr. Romney also mischaracterized my book in his memoir, No Apology: Believe in America.)

That’s not the worst part. Even scholars who emphasize social rather than geographic explanations — like the Harvard economist David S. Landes, whose book The Wealth and Poverty of Nations was mentioned favorably by Mr. Romney — would find Mr. Romney’s statement that “culture makes all the difference” dangerously out of date. In fact, Mr. Landes analyzed multiple factors (including climate) in explaining why the industrial revolution first occurred in Europe and not elsewhere.

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"Loss Aversion," Teacher Bonuses and Student Performance

by Christopher Shea

Wall Street Journal
July 27, 2012

Here’s a new twist on teacher bonuses that may produce better results than the standard approach: Give instructors the bonuses at the start of the school year but yank them back if students underperform. (The current economics literature finds that standard bonuses are effective in poor countries where teacher absenteeism is a serious problem — bonuses get them to at least show up — but in the United States so far researchers have turned up little evidence they do much.)

In an experiment described in a new National Bureau of Economic Research paper, 150 teachers in nine poor K-8 schools in Chicago Heights, Illinois took part in the experiment. One group of teachers got $4,000 in a lump sum at the start of the school year, but were told they’d lose some of all of it if their students did not improve sufficiently. (They could get more, up to $8,000, for exceptional performance.) The other group was simply offered a traditional bonus, also $4,000, payable at the end of the year. (That figure could also grow).

The standard bonuses had little to no effect, but students taught by teachers who got the advance bonus saw their relative standing, on a math test, rise 6.8 to 9.6 percentile points—an effect comparable to that caused by reducing class size by a third, the authors said. In more technical terms, the results were the same as raising the quality of a teacher by more than one standard deviation — that is to say, by quite a lot.

The study was inspired by three decades of psychological research into “loss aversion”: People fear financial losses more than they are excited by potential gains.

Bonuses always raise the likelihood of cheating, but the authors found no evidence of this: Students’ performance on the math test that was used to give or strip away bonuses correlated closely with their performance on other standardized math tests they took.

The effects of the intervention were stronger in lower grades than in higher grades.

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Do social incentives matter? Evidence from an online real effort experiment

by Mirco Tonin and Michael Vlassopoulos

Vox
July 26, 2012

Money matters, but is that all? This column presents evidence that social incentives can boost productivity in sectors that rely on pro-social behaviour such as health, education, and social care. It argues that this may help explain the growing popularity of Corporate Social Responsibility programmes within firms.

Corporate Social Responsibility (CSR) activities, ranging from corporate philanthropy to the adherence of firms' operations to code of conducts involving, for instance, environmental protection or labour standards, are important and growing in their importance. As the Economist (2008) puts it, "it is almost unthinkable today for a big global corporation to be without [a corporate CSR policy]". Given their heterogeneous nature, it is not easy to quantify CSR activities in a comprehensive manner. However, the available figures suggest that CSR is more than a declaration of intents. For instance, the 139 US companies surveyed by the Conference Board gave $8.45 billion in charitable donations in 2010 (Tonello and Torok 2011).

One rationale for CSR is that various stakeholders have some demand for corporations to engage in philanthropy on their behalf (Benabou and Tirole 2010). Usually it is underlined how CSR may be valued by customers (Casadesus-Masanell et al. 2009, Elfenbein and McManus 2010) or employees and investors. Additionally, CSR activities may be rewarded by regulators or by social activists and NGOs (Baron 2001). There is, however, not much evidence on the impact of CSR on employees, despite the fact that, as The Economist (2008) emphasises, "[a]sk almost any large company about the business rationale for its CSR efforts and you will be told that they help to motivate, attract and retain staff".

In recent research (Tonin and Vlassopoulos 2012), we set up a ‘real effort’ experiment to assess the impact of social incentives brought about by CSR activities on productivity.

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Bubbles without Markets

by Robert J. Shiller

Project Syndicate
July 23, 2012

A speculative bubble is a social epidemic whose contagion is mediated by price movements. News of price increase enriches the early investors, creating word-of-mouth stories about their successes, which stir envy and interest. The excitement then lures more and more people into the market, which causes prices to increase further, attracting yet more people and fueling “new era” stories, and so on, in successive feedback loops as the bubble grows. After the bubble bursts, the same contagion fuels a precipitous collapse, as falling prices cause more and more people to exit the market, and to magnify negative stories about the economy.

But, before we conclude that we should now, after the crisis, pursue policies to rein in the markets, we need to consider the alternative. In fact, speculative bubbles are just one example of social epidemics, which can be even worse in the absence of financial markets. In a speculative bubble, the contagion is amplified by people’s reaction to price movements, but social epidemics do not need markets or prices to get public attention and spread quickly.

Some examples of social epidemics unsupported by any speculative markets can be found in Charles MacKay’s 1841 best seller Memoirs of Extraordinary Popular Delusions and the Madness of Crowds.The book made some historical bubbles famous: the Mississippi bubble 1719-20, the South Sea Company Bubble 1711-20, and the tulip mania of the 1630’s. But the book contained other, non-market, examples as well.

MacKay gave examples, over the centuries, of social epidemics involving belief in alchemists, prophets of Judgment Day, fortune tellers, astrologers, physicians employing magnets, witch hunters, and crusaders. Some of these epidemics had profound economic consequences. The Crusades from the eleventh to the thirteenth century, for example, brought forth what MacKay described as “epidemic frenzy” among would-be crusaders in Europe, accompanied by delusions that God would send armies of saints to fight alongside them. Between one and three million people died in the Crusades.

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Compassion Made Easy

by David DeSteno

New York Times
July 14, 2012

ALL the major religions place great importance on compassion. Whether it’s the parable of the good Samaritan in Christianity, Judaism’s “13 attributes of compassion” or the Buddha’s statement that “loving kindness and compassion is all of our practice,” empathy with the suffering of others is seen as a special virtue that has the power to change the world. This idea is often articulated by the Dalai Lama, who argues that individual experiences of compassion radiate outward and increase harmony for all.

As a social psychologist interested in the emotions, I long wondered whether this spiritual understanding of compassion was also scientifically accurate. Empirically speaking, does the experience of compassion toward one person measurably affect our actions and attitudes toward other people? If so, are there practical steps we can take to further cultivate this feeling? Recently, my colleagues and I conducted experiments that answered yes to both questions.

In one experiment, designed with the psychologist Paul Condon and published in the Journal of Experimental Social Psychology, we recruited people to take part in a study that was ostensibly about the relation of mathematical ability to taste perception — but that in actuality was a study of how the experience of compassion affects your behavior.

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Ruth Gwily

Endowment Effect in Chimpanzees Can Be Turned On and Off

Science Daily
July 5, 2012

Groundbreaking new research in the field of "evolutionary analysis in law" not only provides additional evidence that chimpanzees share the controversial human psychological trait known as the endowment effect -- which in humans has implications for law -- but also shows the effect can be turned on or off for single objects, depending on their immediate situational usefulness.

In humans, the endowment effect causes people to consider an item they have just come to possess as higher in value than the maximum price they would have paid to acquire it just a moment before. Economists and lawyers typically assume this will not be the case. And some consider the endowment effect a human-centered fluke, subject to widespread and seemingly unpredictable variation. The origins of the quirk, and satisfying explanations for how it varies, have proved elusive.

In this new research, Vanderbilt University professor Owen Jones, who is one of the nation's few professors of both law and biology, and evolutionary biologist Sarah Brosnan of Georgia State University, developed and tested predictions rooted in evolutionary theory about when and how the endowment effect would appear.

Drawing on prior theoretical work by Jones on the evolution of seemingly "irrational" behaviors, Brosnan and Jones found consistency between chimpanzees and humans with respect to the existence of the endowment effect and, more importantly, showed that variations in the prevalence of the effect could be predicted.

"These results strongly support the idea that the endowment effect reflects the deep influence of evolutionary processes -- notably natural selection -- on psychological predispositions that affect how brains ascribe value to objects. The endowment effect, and several other seemingly quirky psychological predispositions, may trace to the sharp differences between modern environments and ancestral ones, in which these predispositions may once have minimized losses and maximized gains," said Jones, the New York Alumni Chancellor's Chair in Law, professor of biological sciences and director of the MacArthur Foundation Research Network on Law and Neuroscience.

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Bankers and the neuroscience of greed

by Ian Robertson

Guardian
July 2, 2012

On 11 August 2011, Bob Diamond, chief executive of Barclays, delivered the BBC Today Programme business lecture. In it he declared that "culture" was the critical element in responsible banking, and the best test of it is "how people behave while no one is watching." We now know that banking failed the test and so must ask why, in Sir Mervyn King's words, "excessive compensation", "shoddy treatment of customers", "mis-selling" and "the deceitful manipulation of a key interest rate", flourished in the banking sector. Cognitive neuroscience can point to some answers.

Senior bankers hold enormous power, greater than that of many elected national leaders. Largely unaccountable except to occasional shareholders meetings and often quiescent boards, their power is much less constrained than that of democratically elected leaders. And given that power is one of the most potent brain-changing drugs known to humankind, unconstrained power has enormously distorting effects on behaviour, emotions and thinking.

Holding power changes brains by boosting testosterone, which in turn increases the chemical messenger dopamine in the brain's reward systems. Extraordinary power causes extraordinary brain changes, which in their extreme form manifest themselves in personality distortions, such as those seen in dictators like Muammar Gaddafi.

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The psychology of discounting: Something doesn’t add up

Economist
June 30, 2012

When retailers want to entice customers to buy a particular product, they typically offer it at a discount. According to a new study to be published in the Journal of Marketing, they are missing a trick.

A team of researchers, led by Akshay Rao of the University of Minnesota's Carlson School of Management, looked at consumers' attitudes to discounting. Shoppers, they found, much prefer getting something extra free to getting something cheaper. The main reason is that most people are useless at fractions.

Consumers often struggle to realise, for example, that a 50% increase in quantity is the same as a 33% discount in price. They overwhelmingly assume the former is better value. In an experiment, the researchers sold 73% more hand lotion when it was offered in a bonus pack than when it carried an equivalent discount (even after all other effects, such as a desire to stockpile, were controlled for).

This numerical blind spot remains even when the deal clearly favours the discounted product. In another experiment, this time on his undergraduates, Mr Rao offered two deals on loose coffee beans: 33% extra free or 33% off the price. The discount is by far the better proposition, but the supposedly clever students viewed them as equivalent.

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Limited rationality

Economist
June 14, 2012

Much has been made of the amount of deposits that has left the Greek banking sector since the start of the debt crisis: some €70 billion in total, leaving around €160 billion-170 billion still in place. A rush of withdrawals after the first Greek election on May 6th sparked fears of a full-scale run, although the pace has slowed since then—“a dribble”, says one Athens-based banker.

The outflows may pick up again in the final days before this weekend’s second election: one Athenian businessman says he will be taking €1,000-2,000 out of his account in the next couple of days so that he can have cash on hand in case the vote leads to chaos. Multiply that across many accounts, and things will start to feel very hairy again.

But the greater mystery to some is not how many deposits have gone, but how many remain. When banks need to be recapitalised, when the guarantee of the Greek government carries little weight, and when there is a risk of redenomination from euros into drachmas, the rational thing to do is to take money out of the bank, to either send it abroad or put it under the mattress. Why aren’t more Greeks doing it?

Conversations with a small sample of Athenians suggest a number of explanations. One is emotional: some people see it as a matter of honour not to turn their back on the country by taking money out of the bank. “Part of this is about not contributing to a problem I want to avoid,” says a local lawyer. “Banks need deposits to be able to extend funds, and I don’t want to be part of the problem.”

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Are You With the Dumb Money or the Smart Money?

by James Heaton and Nicholas Polson

Bloomberg
June 14, 2012

Market observers often divide investors into “smart money” and “dumb money.” Our research shows there may be a way to figure out which group you are in.

The first place to look is prices, which reflect the interaction of smart money and dumb money and may contain valuable information about the proportion of either in the market. In other words, the price knows which category we belong to. The trick is to extract that information.

Consider a simple example of a simple market: betting on a horse race. Say there are two horses, A and B. And there are two types of bettors, smart money and dumb money. We place our bet on horse A because we think it is more likely to win. It turns out that 75 percent of the money is on horse B, and 25 percent is on A. These “prices” can help us learn whether we are more likely to be the dumb money or the smart money.

We want to compare the probability that we are the dumb money given the market price to the probability that we are the smart money given the market price. We can write this as P(dumb|market)/P(smart|market). If this ratio is greater than one, then it is more likely that we are the dumb money. Less than one, we are more likely to be the smart money.

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What Traders’ Testosterone Tells Us About Markets

by Mark Buchanan

Bloomberg
June 11, 2012

An unusual study of traders’ spit may offer a taste of the future in how we understand what drives markets -- and why they aren’t as stable and efficient as we might hope.

Several years ago, two neuroscientists undertook an experiment on the trading floor of a major investment bank in London. Over eight consecutive business days, at both 11 a.m. and 4 p.m., John Coates and Joe Herbert took samples of saliva from the mouths of 17 traders. With these samples, taken before and after the bulk of the day’s trading activity, they measured the rising and falling levels of a number of steroid hormones, including testosterone, adrenaline and cortisol.

The data revealed physiological changes not evident to the eye. To begin with, Coates and Herbert found that when traders did well and made money, they didn’t do it solely through cleverness and cerebral dexterity. Guts also played a role, although “testicles” would actually be more accurate. Traders performed better on days in which they registered higher morning levels of the hormone testosterone, which is mostly produced in the testes.

This isn’t actually surprising. After all, testosterone increases the level of hemoglobin in the blood, enabling it to carry more oxygen. Experiments in both animals and humans show that it boosts searching persistence, fearlessness and appetite for risk, qualities that obviously help any trader exploit real opportunities in the market. Athletes preparing for a competition produce more testosterone, which helps bring them to an optimal state of readiness for intense action.

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Happyism: The creepy new economics of pleasure

by Deirdre N. McCloskey

The New Republic
June 8, 2012

In the first panel of a Peanuts strip—the preceding ones had been about Lucy scolding her little brother, Linus, for not being a good brother—Lucy asks what Linus is offering her: “What’s this?” “A dish of ice cream.” Then Linus explains: “I brought it to you in order that your stay here on Earth might be more pleasant.” She smiles genially, and uncharacteristically: “Well, thank you ... You’re a good brother.” In the final panel, Linus walks away smiling: “Happiness is a compliment from your sister!”

That about sums it up. Pleasure is to be achieved by things like dishes of ice cream. Psychologists have shown rigorously that people are most pleasured exactly as you might have thought if you are a human being: when eating, say, a heaped pastrami on rye at Manny’s Deli off Roosevelt Road in what was once the garment district of Chicago. Happiness, by contrast, is more complicated, though it can also be pursued at Manny’s. It is the pleasure of kosher comfort food, down to the diminishing marginal utility of that last bite—but it is also expressing one’s urban identity and Chicago-ism, even at the costs of the considerable inconvenience in getting to Manny’s and braving the insults of the countermen. It is introducing your friend, a naïve gentile, to the Jewish side of the City of the Big Shoulders, affirming thereby your philo-Semitism. It is participating in the American democracy of a 1950s cafeteria. It is facing, too, the cost of a little addition to the love handles. And it is a compliment from your sister. Pleasure is a brain wave right now. Happiness is a good story of your life. The Greek word for happiness is “eudaimonia,” which means literally “having a good guiding angel,” like Clarence the angel in It’s a Wonderful Life. The schoolbook summary of the Greek idea in Aristotle says that such happiness is “the exercise of vital powers along lines of excellence in a life affording them scope.”

But nowadays there is a new science of happiness, and some of the psychologists and almost all the economists involved want you to think that happiness is just pleasure. Further, they propose to calculate your happiness, by asking you where you fall on a three-point scale, 1-2-3: “not too happy,” “pretty happy,” “very happy.” They then want to move to technical manipulations of the numbers, showing that you, too, can be “happy,” if you will but let the psychologists and the economists show you (and the government) how.

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