Archive for June, 2009

• I Really Like this Story
  Eddy Elfenbein, June 18th, 2009 at 9:21 am

  The BBC reports, Rats play odds in gambling task.
  (HT: Alea.)

• Pew Center Poll
  Eddy Elfenbein, June 18th, 2009 at 12:58 am

  Americans are saying that they’re hearing more good news about the economy. Not mostly good news, but not all bad news as it was a few months ago.
  

• Rainforest Discovered Through Google Earth
  Eddy Elfenbein, June 17th, 2009 at 7:59 pm

  This is a cool story. Scientists found a rainforest in Mozambique with the help of Google Earth.
  
  Here’s a similar story where Google Earth helped uncovered an ancient fish trap:

• Looking at the Iranian Elections
  Eddy Elfenbein, June 17th, 2009 at 2:16 pm

  Whoever made up numbers apparently forgot about Benford’s Law:

  The results of the 2009 Iranian presidential election presented by the Iranian Ministry of the Interior (MOI) are analysed based on Benford’s Law and an empirical variant of Benford’s Law. The null hypothesis that the vote count distributions satisfy these distributions is rejected at a significance of $p e 0.007$, based on the presence of 41 vote counts for candidate K that start with the digit 7, compared to an expected 21.2–22 occurrences expected for the null hypothesis. A less significant anomaly suggested by Benford’s Law could be interpreted as an overestimate of candidate A’s total vote count by several million votes. Possible signs of further anomalies are that the logarithmic vote count distributions of A, R, and K are positively skewed by 4.6, 5.8, and 2.5 standard errors in the skewness respectively, i.e. they are inconsistent with a log-normal distribution with $ p sim 4 imes 10^{-6}, 7 imes 10^{-9},$ and $1.2 imes 10^{-2}$ respectively. M’s distribution is not significantly skewed.

  For those unfamiliar, here’s wikipedia on Benford’s law.
  Three years ago, I looked at the decimals in the Dow’s daily close. I didn’t test them but it looks like they could follow Benford’s law.

• Humans prefer cockiness to expertise
  Eddy Elfenbein, June 17th, 2009 at 1:48 pm

  NewScientist reports that Humans prefer cockiness to expertise (if you click through to the article, you won’t be surprised to see whose picture they’ve used):

  EVER wondered why the pundits who failed to predict the current economic crisis are still being paid for their opinions? It’s a consequence of the way human psychology works in a free market, according to a study of how people’s self-confidence affects the way others respond to their advice.
  The research, by Don Moore of Carnegie Mellon University in Pittsburgh, Pennsylvania, shows that we prefer advice from a confident source, even to the point that we are willing to forgive a poor track record. Moore argues that in competitive situations, this can drive those offering advice to increasingly exaggerate how sure they are. And it spells bad news for scientists who try to be honest about gaps in their knowledge.
  In Moore’s experiment, volunteers were given cash for correctly guessing the weight of people from their photographs. In each of the eight rounds of the study, the guessers bought advice from one of four other volunteers. The guessers could see in advance how confident each of these advisers was (see table), but not which weights they had opted for.
  From the start, the more confident advisers found more buyers for their advice, and this caused the advisers to give answers that were more and more precise as the game progressed. This escalation in precision disappeared when guessers simply had to choose whether or not to buy the advice of a single adviser. In the later rounds, guessers tended to avoid advisers who had been wrong previously, but this effect was more than outweighed by the bias towards confidence.
  The findings add weight to the idea that if offering expert opinion is your stock-in-trade, it pays to appear confident. Describing his work at an Association for Psychological Science meeting in San Francisco last month, Moore said that following the advice of the most confident person often makes sense, as there is evidence that precision and expertise do tend to go hand in hand. For example, people give a narrower range of answers when asked about subjects with which they are more familiar (Organizational Behavior and Human Decision Processes, vol 107, p 179).
  There are times, however, when this link breaks down. With complex but politicised subjects such as global warming, for example, scientific experts who stress uncertainties lose out to activists or lobbyists with a more emphatic message.
  So if honest advice risks being ignored, what is a responsible scientific adviser to do? “It’s an excellent question, and I’m not sure that I have a great answer,” says Moore.

  (HT: TAR).

• Obama’s Plan For Financial Regulation
  Eddy Elfenbein, June 17th, 2009 at 1:27 pm

• Market Reaction to Unexpected Monetary Policy Announcement
  Eddy Elfenbein, June 17th, 2009 at 1:23 pm

  A bit wonky but interesting:

  This paper examines the daily response of euro area stock markets to unexpected ECB monetary policy announcements. We define ECB’s unexpected decisions in analyzing the consensus in the specialized press the days before the announcement. Our preliminary results show that very few ECB’s announcement’s are unexpected by ECB watchers, this is a sign that the ECB’s monetary policy is very predictable. We also find little responses of stock markets to unexpected monetary policy decisions. If Eurozone equity markets react homogeneously to unexpected monetary policy decisions, we can see that reactions are higher in France than in Germany. We find significant and heterogeneous responses from sectorial indexes which indicate that the financial channel of monetary policy is different following the sector. Finally, we find that markets are more sensitive to good news in bad times, but there is no evidence of the opposite.

• AFL Under $30
  Eddy Elfenbein, June 17th, 2009 at 1:02 pm

  If you’re looking to put free cash to use, Aflac (AFL) is a good buy under $30. That’s about six times the guidance they’ve given (and reaffirmed) for this year.

• What’s Behind Soaring T-Bond Yields
  Eddy Elfenbein, June 17th, 2009 at 10:48 am

  Many market observers have been alarmed by the surge in long-term bond yields. This has also sparked a debate on Wall Street: Are the higher yields due to an emergent recovery or fears of higher inflation?
  For now, I don’t think it’s either. More than higher bond yields, we’re really seeing a closing of the gap between Treasury yields and corporate yields. In other word, investors are more willing to take on risk. To be even more precise, the level of risk-taking is backing off from its extremely scared level of about six months ago.
  This chart shows the yield of the 30-year Treasury (red) along with an index of AAA bonds (blue).
  
  Notice the closing of the gap between the two. Corporate yields are higher but the major change has come from Treasuries. This means that the price of risk is finally returning to normal.

• Ex-con tried to get $15 trillion tax return
  Eddy Elfenbein, June 17th, 2009 at 9:35 am

  You might as well go all the way:

  Fresh out of prison on a money-laundering conviction, Marlon T. Moore tried to make a big score, federal prosecutors say.
  The Miami man — aka ”X-Large Moore” — filed an income tax return seeking a refund of almost $15 trillion.
  No joke. Now Moore is charged with filing false claims with the IRS and obstructing the agency’s laws.
  After his release from a Florida prison in late 2007, Moore allegedly prepared bogus documents claiming that the feds owed him various amounts, including $5,950,000,000,000, $2,975,000,000,000 and $6,000,000,000,000.
  “In fact, however, defendant Moore knew he was owed no such amounts,” according to a statement by the U.S. Attorney’s Office in Miami.
  Moore, 38, has a bond hearing on Thursday. If convicted, he faces up to five years in prison for each false claim and up to three years for impeding IRS laws.

  This is completely unacceptable. Still, I’d like to see X-Large appointed to the Fed.