--- "pgreenfinch" <pgreenfinch@...> wrote:

>
> BTW, talking about tax havens, are there some research
> in taxpayer psychology? An intriguing topic, largely
> studied I guess by all tax administrations in the world,
> under the title "how to pluck the poultry without it
> feeling the pain?".
>

Peter,

Here in the U.S. most people have taxes withheld from their paychecks
during the year and and then settle up with the taxman each April..
People can choose how much to have withheld, subject to a minimum
amount below which they would pay a penalty.  From an economic
standpoint, it is most profitable (or least costly) to have the
minimum amount withheld and then pay the difference in April.  By
doing that, people essentially enjoy an interest-free loan from the
government during the year.  Here's where BF rears its ugly head:
Most people choose an amount that will result in their receiving a
check in April.  In effect, they give the government an interest-free
loan for the year.

Why do they do that?  They like looking forward to receiving a check
(even if it's just their own money being returned to them) and don't
like the idea of writing one...

Sorry I can't point you to any scholarly articles on this subject but
I can give you one bit of anecdotal evidence.  Last year my two
brothers and I received an inheritance, and each of us specified the
amount to be withheld for taxes.  Having already arranged to have the
minimum amount withheld from my other income, I elected to have
nothing withheld from my inheritance.  Even after I explained the
above to my brothers, they chose to withhold enough money to cover
their tax burden.  I invested the amount not withheld in a
money-market fund, and next month I plan to write a check for the
interest it earned, cash it, and show the cash to my brothers.  Maybe
that will affect how they "feel" about their approach, but probably not...

Here's the part I won't tell my brothers:  I shifted that money into
my stock investment strategy, which has lost money lately along with
the rest of the market... Oh well, my expectation remains positive,
and that's what counts....

Cheers,

Neil

Quite educative story, Neil ;-)
Peter

--- In Behavioral-Finance@yahoogroups.com, "Neil Stoloff"
<hilsum1@...> wrote:
>
> --- "pgreenfinch" <pgreenfinch@> wrote:
>
> >
> > BTW, talking about tax havens, are there some research
> > in taxpayer psychology? An intriguing topic, largely
> > studied I guess by all tax administrations in the world,
> > under the title "how to pluck the poultry without it
> > feeling the pain?".
> >
>
> Peter,
>
> Here in the U.S. most people have taxes withheld from their
paychecks
> during the year and and then settle up with the taxman each April..
> People can choose how much to have withheld, subject to a minimum
> amount below which they would pay a penalty.  From an economic
> standpoint, it is most profitable (or least costly) to have the
> minimum amount withheld and then pay the difference in April.  By
> doing that, people essentially enjoy an interest-free loan from the
> government during the year.  Here's where BF rears its ugly head:
> Most people choose an amount that will result in their receiving a
> check in April.  In effect, they give the government an interest-
free
> loan for the year.
>
> Why do they do that?  They like looking forward to receiving a check
> (even if it's just their own money being returned to them) and don't
> like the idea of writing one...
>
> Sorry I can't point you to any scholarly articles on this subject
but
> I can give you one bit of anecdotal evidence.  Last year my two
> brothers and I received an inheritance, and each of us specified the
> amount to be withheld for taxes.  Having already arranged to have
the
> minimum amount withheld from my other income, I elected to have
> nothing withheld from my inheritance.  Even after I explained the
> above to my brothers, they chose to withhold enough money to cover
> their tax burden.  I invested the amount not withheld in a
> money-market fund, and next month I plan to write a check for the
> interest it earned, cash it, and show the cash to my brothers.
Maybe
> that will affect how they "feel" about their approach, but probably
not...
>
> Here's the part I won't tell my brothers:  I shifted that money into
> my stock investment strategy, which has lost money lately along with
> the rest of the market... Oh well, my expectation remains positive,
> and that's what counts....
>
> Cheers,
>
> Neil
>

----- Original Message -----

From: Shalu Kalra

To: Behavioral-Finance@yahoogroups.com

Sent: Friday, March 07, 2008 6:09 AM

Subject: Re: [Behavioral-Finance] Re: Types of BF (was "disputs")

I am little confused between the kind of sentiments that affest the buying and selling behaviour of individuals.. what is the difference between overconfident investor and optimist investor. are they both same.....

On Thu, Mar 6, 2008 at 10:20 PM, pgreenfinch <pgreenfinch@orange.fr> wrote:

Mispricings and other "market anomalies" (i.e. return
anomalies) are the consequence of individual and collective
investor biases (errors) when deciding to buy or sell.
This leads to two main BF disciplines

* The study of market anomalies is "Quantitative
behavioral finance" or "Behavioral finance macro".
It uses statistical analysis methods to see how
market prices and returns evolve.

* The study of investor biases is "Psychological Behavioral
finance", or "Behavioral finance micro" or more specifically
"Investor psychology". It uses experimental methods to
see how investor make decisions.

Of course, relations between the two types of findings
are also looked for (and usually found) by researchers.

You might look at:
* A synopsis about those phenomena at:
http://pagesperso-orange.fr/pgreenfinch/conference/BFconcepts.htm
* Something more detailed at:
http://pagesperso-orange.fr/pgreenfinch/bfdef.htm

Hope it helps
Peter

--- In Behavioral-Finance@yahoogroups.com, Nasrin ALINAGHIAN
<n.alinaghian@...> wrote:
>
> Thanks a lot for your help
>
> you point out individual investment biases , I want to know how
many biases are there in behavioral finance ?
> and is mispricing is different from these biases? Is it a separate
branch in behaviore finance?
>
>
>
__________________________________________________________
______________
> Looking for last minute shopping deals?
> Find them fast with Yahoo! Search.
http://tools.search.yahoo.com/newsearch/category.php?category=shopping
>

Moderator's note:
There is only a weak relation with BF, and
it is now the second message on this course,
so let us consider it is the last boarding call
in our group.

BTW, Lazlo, I trust that your course is enlightening,
Magyars are great mathematicians, but you could offer
also Tokaj wine, goose liver and other Hungarian
delicacies to applicants, to help at...
social s(t)imulation. Just a wink ;-)

All the best!
Peter

*******************************************************
Extended Deadline: March 21st  - New scholarships -  New sponsors
*******************************************************
Complex Systems and Social Simulations Summer Course
Central European University
July 7 - 18, 2008, Budapest, Hungary
*******************************************************
Web site: http:// www.sun.ceu.hu/complex-systems/
*******************************************************

- New scholarsihps available covering:
     Tuition fee
     Housing
     Travel allowance (only for a limited number of students)


- Application deadline for scholarship applications:
March 21st, 2008


- New sponsors:
European Social Simulation Association http://www.essa.eu.org/
Wolfram Research http://www.wolfram.com/
Collegium Budapest http://colbud.hu/
Aitia International http://www.aitia.ai


- Topics:
CSS and Innovation, Social Networks, CSS in Political Science, CSS
Tools with a Special

Emphasis on Simulation, Bio-Inspired CSS Models, Efficient Studies of
CSS: Supercomputers

and Grids, Evolutionary Game Theory and Social Systems, CSS in
Socio-Economics, CSS in

Sociology


- Course Directors:
Laszlo Gulyas, Collegium Budapest and AITIA Inc., Budapest, Hungary;
Gyorgy Kampis, Collegium Budapest and Eötvös University, Hungary


- Course Managers:
Laszlo Laufer, Central European University and Budapest University of
Technology and

Economics, Hungary (lauferl@...)
Gyorgy Farkas, Eotvos University of Sciences, Hungary
(gyfarkas@...)


- Course Faculty:
Petra Ahrweiler, National Institute of Technology Management, UCD
School of Business
Stefano Battiston, Eidgenössische Technische Hochschule Zürich
Lars-Erik Cederman, ETH Zürich
Laszlo Gulyas, Collegium Budapest and AITIA Inc, Budapest
George Kampis, Collegium Budapest
Krzystof Kurowski, Poznanskie Centrum Superkomputerowo Sieciowe, Poznan
Scott Page, University of Michigan, Ann Arbor
Flaminio Squazzoni, University of Brescia, Italy
Klaus G. Troitzsch, University of Koblenz


- Target group:
MA and Ph.D. students, postdoctoral fellows, junior faculty,
researchers and professionals.

Undergraduates without a university degree will not be considered.


- Course Summary:
The terms Complex Systems (CSs) denotes an inderdisciplinary research
methodology currently

successful in the social sciences and elsewhere. CS research
originated from phyiscs and

nonlinear systems some decades ago but its models have soon permeated
distant fields as

economy, political science or more recently sociology. As implied by
the name, a CS is

essentially a system of many complicated interactions. Complex Systems
methodology has

developed sophisticated yet well understood tools to cope with this
challenge. In social

systems the essence of CS is the characterization of the distributed
dynamics of how the

interaction of many actors and variables leads to predictable
phenomena, that often involve

hierarchy, emergence, dynamic structures and large scale transitions.

Each day in the course focuses on one tool of this encompassing
methodology. CS methods

include various mathematical models (nonlinear systems, networks,
statistical approaches),

computer simulations (e.g. systems dynamics, agent-based modeling). CS
simulations are

highly computation intensive and pose problems of supercomputing and
parallelization.

The CSSS course offers lectures, tutorials and discussions on the
whole spectrum of the

above. Lectures are from leading experts, specifically focusing on CS
concepts, modeling and

(social) simulation, followed by discussion.


- The language of instruction: English

- Tuition fee: The 500 EUR/2 weeks.

- Application deadline:
For scholarship applicants: March 21, 2008;
For fee-paying applicants: May 30, 2008

Online application: https://online.ceu.hu/osun/osun (attachments to be
sent via email to

summeru@...

For further information queries can be directed to the SUN office by
email (summeru@...),

via skype (ceu-sun) or telephone (00-36-1-327-3811).

What can you refer me to regarding the "Quantitative behavioral
finance"?

Thank you in advance,
Dimitry

--- In Behavioral-Finance@yahoogroups.com,
"pgreenfinch" <pgreenfinch@...> wrote:
> * The study of market anomalies is "Quantitative
> behavioral finance" or "Behavioral finance macro".
> It uses statistical analysis methods to see how
> market prices and returns evolve.

Hi, Dimitry
Basically, it is using statistics and mathematics
to spot discrepancies between:
* real market prices and returns
* and the standard financial market models and paradigms
(efficient market hypothesis, random walk hypothesis,
CAPM, Black-Scholes...).

You might get a first approach in the related Wikipedia
article, but of course you will have to dig further with
Google Scholar.

Peter


  --- In Behavioral-Finance@yahoogroups.com, "dimitryp2005"
<dimitry12@...> wrote:
>
> What can you refer me to regarding the "Quantitative behavioral
> finance"?
>
> Thank you in advance,
> Dimitry
>
> --- In Behavioral-Finance@yahoogroups.com,
> "pgreenfinch" <pgreenfinch@> wrote:
> > * The study of market anomalies is "Quantitative
> > behavioral finance" or "Behavioral finance macro".
> > It uses statistical analysis methods to see how
> > market prices and returns evolve.
>

Dear BF fellows,

I am considering a research topic about individual investors' heuristic
information process.

I would like to ask you if there exists literature that suggests that
affects of heuristics-such as framing or motivated reasoning-are the
matter of means (e.g. 0/1, do or do not, process a certain information
item or do not process), BUT NOT the matter of magnitude (e.g. more or
less credibility for a certain info item, the less degree of
utilization by an individual for a certain information item).

I would really appreciate if you can recommend some articles to read
about the above matter.

Thanks,

Charles

----- Original Message -----

From: epeeist109

To: Behavioral-Finance@yahoogroups.com

Sent: Monday, March 10, 2008 3:54 AM

Subject: [Behavioral-Finance] Literature: affect heuristic - means versus magnitude

Dear BF fellows,

I am considering a research topic about individual investors' heuristic
information process.

I would like to ask you if there exists literature that suggests that
affects of heuristics-such as framing or motivated reasoning-are the
matter of means (e.g. 0/1, do or do not, process a certain information
item or do not process), BUT NOT the matter of magnitude (e.g. more or
less credibility for a certain info item, the less degree of
utilization by an individual for a certain information item).

I would really appreciate if you can recommend some articles to read
about the above matter.

Thanks,

Charles

Hi, Peter,

Thanks for your kind reply.

Yes, I do understand that cognitive bias in real world like stock
markets may not show binary move. That is, 'aggregate' prices are
formed collectively by countless participants. However, the market
participants include someone who see through things without cognitive
bias and someone who anchor on something due to his/her cognitive
bias.

BTW, I should thank you for organising this wonterful discussion
group and the website (pagesperso-orange.fr/pgreenfinch/behavioral-
finance.htm).

Cheers!

Charles


--- In Behavioral-Finance@yahoogroups.com, "pgreenfinch"
<pgreenfinch@...> wrote:
>
> Hi, Charles!
> I do not know precise literature, and I hope some members
> can signal you some.
> But maybe you might find some by exploring "fuzzy logic" literature
> As for me I considers binary reasoning (0/1... as you says) as a
> cognitive bias in itself in many fields where things are not so
> clearcut as reality is very often more a matter of degree.
> All the more in human and social things like economiccs
> and finance.
> Generalizations such as representativeness heuristics and
> stereotypes seems to me related to such a "reductive" and
> oversimplifying bias.
> Peter
>
>   ----- Original Message -----
>   From: epeeist109
>   To: Behavioral-Finance@yahoogroups.com
>   Sent: Monday, March 10, 2008 3:54 AM
>   Subject: [Behavioral-Finance] Literature: affect heuristic -
means versus magnitude
>
>
>   Dear BF fellows,
>
>   I am considering a research topic about individual investors'
heuristic
>   information process.
>
>   I would like to ask you if there exists literature that suggests
that
>   affects of heuristics-such as framing or motivated reasoning-are
the
>   matter of means (e.g. 0/1, do or do not, process a certain
information
>   item or do not process), BUT NOT the matter of magnitude (e.g.
more or
>   less credibility for a certain info item, the less degree of
>   utilization by an individual for a certain information item).
>
>   I would really appreciate if you can recommend some articles to
read
>   about the above matter.
>
>   Thanks,
>
>   Charles
>

Dear all,

I'm new to this group and I've got a first question:

Are there any empirical studies which proof correlations between
heuristics, e.g. anyone who has stong anchoring alsohas stong
representativeness?

And: Are there any papsers which deal with this topic?

Thanks all for your help and answers!

Michael

[ source: http://www.physorg.com/news124537641.html ]

To bet or not to bet: How the brain learns to estimate risk

Researchers from EPFL and Caltech have made an important neurobiological
discovery of how humans learn to predict risk. The research, appearing
in the March 12 issue of the Journal of Neuroscience, will shed light on
why certain kinds of risk, notably financial risk, are often
underestimated, and whether abnormal behavior such as addiction (e.g. to
gambling or drugs) could be caused by an erroneous evaluation of risk.

Planning entails making predictions. In an uncertain environment,
however, our predictions often don't pan out. And erroneous prediction
of risk often leads to unusual behaviour: euphoria or excessive gambling
when risk is underestimated, and panic attacks or depression when we
predict that things are riskier than they really are. To understand
these anomalous reactions to uncertain situations, we need to look to
the neurobiological mechanisms that underlie how we learn to predict
risk. Surprisingly little research has been done in this topic, and we
do not yet know precisely how the brain is involved in our estimation of
risk.

Using functional imaging in a simple gambling task in which risk was
constantly changed, the researchers discovered that an early activation
of the anterior insula of the brain was associated with mistakes in
predicting risk. The time course of the activation also indicated a role
in rapid updating, suggesting that this area is involved in how we learn
to modify our risk predictions. The finding was particularly
interesting, notes lead author and EPFL professor Peter Bossaerts,
because the anterior insula is the locus of where we integrate and
process emotions.

"This represents an important advance in our understanding of the
neurological underpinnings of risk, in analogy with an earlier discovery
of a signal for forecast error in the dopaminergic system," says
Bossaerts, "and indicates that we need to update our understanding of
the neural basis of reward anticipation in uncertain conditions to
include risk assessment."

Contrary to what Descartes held dear, the finding that risk prediction
and processing of emotions are related suggests that emotions may be
intimately involved in rational decision making -- they may help us to
correctly assess risk in an uncertain world.

Source: Ecole Polytechnique Fédérale de Lausanne

Peter,

I lack knowledge of heuristics, but since what we are dealing with is
human behavior, which is unpredictable, we might pursue looking at
the concept of "value" as a reflection of economic choices we make in
everyday life.

Rick

--- In Behavioral-Finance@yahoogroups.com, "pgreenfinch"
<pgreenfinch@...> wrote:
>
> Hi, Charles!
> I do not know precise literature, and I hope some members
> can signal you some.
> But maybe you might find some by exploring "fuzzy logic" literature
> As for me I considers binary reasoning (0/1... as you says) as a
> cognitive bias in itself in many fields where things are not so
> clearcut as reality is very often more a matter of degree.
> All the more in human and social things like economiccs
> and finance.
> Generalizations such as representativeness heuristics and
> stereotypes seems to me related to such a "reductive" and
> oversimplifying bias.
> Peter
>
>   ----- Original Message -----
>   From: epeeist109
>   To: Behavioral-Finance@yahoogroups.com
>   Sent: Monday, March 10, 2008 3:54 AM
>   Subject: [Behavioral-Finance] Literature: affect heuristic -
means versus magnitude
>
>
>   Dear BF fellows,
>
>   I am considering a research topic about individual investors'
heuristic
>   information process.
>
>   I would like to ask you if there exists literature that suggests
that
>   affects of heuristics-such as framing or motivated reasoning-are
the
>   matter of means (e.g. 0/1, do or do not, process a certain
information
>   item or do not process), BUT NOT the matter of magnitude (e.g.
more or
>   less credibility for a certain info item, the less degree of
>   utilization by an individual for a certain information item).
>
>   I would really appreciate if you can recommend some articles to
read
>   about the above matter.
>
>   Thanks,
>
>   Charles
>

I wrote a book called the Four Filters, and I am waiting for Wiley to
offer me a contract. It describes the Buffett and Munger decision
framing process.
http://www.fatpitchfinancials.com/776/sneak-preview-of-the-four-
filters-by-bud-labitan/

Here is an audio clip of Warren Buffett talking about the 4 filters:
  http://www.frips.com/4filters.mp3

1. Understand a business
2. Sustainable Competitive Advantage
3. Able and Trustworthy Managers
4. Bargain Price is the Margin of Safety

I would appreciate feedback on the use of filters in framing better,
or optimizing decisions... Takemura? What is the current thinking in
the field?

Bud
budlabitan@...

Bud,

Very interesting article.  I think it has a lot to say about the
behaviors of investors.  What do you mean by "sustainable competitive
advantage?"  Do you mean "favorable long-term economics?"

Thanks,

Rick

--- In Behavioral-Finance@yahoogroups.com, "Bud Labitan, MD MBA"
<c_labitan@...> wrote:
>
> I wrote a book called the Four Filters, and I am waiting for Wiley
to
> offer me a contract. It describes the Buffett and Munger decision
> framing process.
> http://www.fatpitchfinancials.com/776/sneak-preview-of-the-four-
> filters-by-bud-labitan/
>
> Here is an audio clip of Warren Buffett talking about the 4 filters:
>  http://www.frips.com/4filters.mp3
>
> 1. Understand a business
> 2. Sustainable Competitive Advantage
> 3. Able and Trustworthy Managers
> 4. Bargain Price is the Margin of Safety
>
> I would appreciate feedback on the use of filters in framing
better,
> or optimizing decisions... Takemura? What is the current thinking
in
> the field?
>
> Bud
> budlabitan@...
>

Rick,

Yes. Here is an abridged version of my book in a pdf file that you
may share with others. I study how Warren Buffett and Charlie
Munger "frame" their investing decisions.

http://www.frips.com/4fab.pdf

Bud



--- In Behavioral-Finance@yahoogroups.com, "Rick Leslie"
<brecht62@...> wrote:
>
> Bud,
>
> Very interesting article.  I think it has a lot to say about the
> behaviors of investors.  What do you mean by "sustainable
competitive
> advantage?"  Do you mean "favorable long-term economics?"
>
> Thanks,
>
> Rick
>
> --- In Behavioral-Finance@yahoogroups.com, "Bud Labitan, MD MBA"
> <c_labitan@> wrote:
> >
> > I wrote a book called the Four Filters, and I am waiting for
Wiley
> to
> > offer me a contract. It describes the Buffett and Munger decision
> > framing process.
> > http://www.fatpitchfinancials.com/776/sneak-preview-of-the-four-
> > filters-by-bud-labitan/
> >
> > Here is an audio clip of Warren Buffett talking about the 4
filters:
> >  http://www.frips.com/4filters.mp3
> >
> > 1. Understand a business
> > 2. Sustainable Competitive Advantage
> > 3. Able and Trustworthy Managers
> > 4. Bargain Price is the Margin of Safety
> >
> > I would appreciate feedback on the use of filters in framing
> better,
> > or optimizing decisions... Takemura? What is the current thinking
> in
> > the field?
> >
> > Bud
> > budlabitan@
> >
>

Hi, Bud!
You might also try to load it into
http://finance.groups.yahoo.com/group/Behavioral-Finance/files/
So as we have a permanent access
And you have more audience.
I'm sure it would be appreciated
Thanks
Peter

--- In Behavioral-Finance@yahoogroups.com, "Bud Labitan, MD MBA"
<c_labitan@...> wrote:
>
> Rick,
>
> Yes. Here is an abridged version of my book in a pdf file that you
> may share with others. I study how Warren Buffett and Charlie
> Munger "frame" their investing decisions.
>
> http://www.frips.com/4fab.pdf
>
> Bud
>
>
>
> --- In Behavioral-Finance@yahoogroups.com, "Rick Leslie"
> <brecht62@> wrote:
> >
> > Bud,
> >
> > Very interesting article.  I think it has a lot to say about the
> > behaviors of investors.  What do you mean by "sustainable
> competitive
> > advantage?"  Do you mean "favorable long-term economics?"
> >
> > Thanks,
> >
> > Rick
> >
> > --- In Behavioral-Finance@yahoogroups.com, "Bud Labitan, MD MBA"
> > <c_labitan@> wrote:
> > >
> > > I wrote a book called the Four Filters, and I am waiting for
> Wiley
> > to
> > > offer me a contract. It describes the Buffett and Munger
decision
> > > framing process.
> > > http://www.fatpitchfinancials.com/776/sneak-preview-of-the-four-
> > > filters-by-bud-labitan/
> > >
> > > Here is an audio clip of Warren Buffett talking about the 4
> filters:
> > >  http://www.frips.com/4filters.mp3
> > >
> > > 1. Understand a business
> > > 2. Sustainable Competitive Advantage
> > > 3. Able and Trustworthy Managers
> > > 4. Bargain Price is the Margin of Safety
> > >
> > > I would appreciate feedback on the use of filters in framing
> > better,
> > > or optimizing decisions... Takemura? What is the current
thinking
> > in
> > > the field?
> > >
> > > Bud
> > > budlabitan@
> > >
> >
>

[ source: http://www.physorg.com/news124979558.html ]

Tightwads outnumber spendthrifts

We all have a friend who can't seem to save, constantly splurging on new
shoes or the latest gadgets. But, contrary to persistent media coverage
of overspending and under-saving, a recent international survey of more
than 13,000 shoppers suggests that chronic under-spending is far more
widespread than originally thought. In fact, the study reveals that
tightwads outnumber spendthrifts by a 3 to 2 ratio.

Appearing in the April 2008 issue of the Journal of Consumer Research,
the study by Scott Rick (University of Pennsylvania), Cynthia Cryder,
and George Loewenstein (Carnegie Mellon University) reveals that
tightwads save, not because they care more about the future than
spendthrifts, but because forking out the money is too painful of an
emotional experience.

Therefore, those who experience the pain of spending money more
intensely tend to spend less than they would ideally like to spend. On
the other end of the 'Spendthrift-Tightwad' scale, spendthrifts
typically experience minimal pain when spending money and tend to spend
more than they would ideally like to spend.

"Spending differences between tightwads and spendthrifts are greatest in
situations that amplify the pain of paying and smallest in situations
that diminish the pain of paying," the researchers explain. "The
evidence suggests that frugality is driven by a pleasure of saving, as
compared with tightwaddism, which is driven by a pain of paying."

The researchers also found that tightwads and spendthrifts differ
demographically:

-- Females are no more likely to be tightwads than spendthrifts, but
males are nearly three times more likely to be tightwads than spendthrifts.

-- Respondents under the age of 30 were only slightly more likely to be
tightwads than spendthrifts, but respondents over 70 were five times
more likely to be tightwads than spendthrifts.

Whether one is a spendthrift or a tightwad also predicts a wide range of
spending behavior, the researchers found. Spendthrifts are no more
likely than tightwads to use credit cards, but spendthrifts who use
credit cards are three times more likely to carry debt than tightwads
who use credit cards.

[ source: http://www.physorg.com/news124982339.html ]

Time isn't money: Study finds that we spend the resources differently

Economists usually treat time like money -- as another scarce resource
that people spend to achieve certain ends. Money is used to pay for
things like furniture and plane tickets; time is spent assembling the
do-it-yourself bookshelf or searching for cheap flights on the Internet.
But despite the old adage that time is money, the two are far from
psychologically equivalent, reveals a study from the April issue of the
Journal of Consumer Research -- particularly when it comes to consumer
spending decisions.

In a series of experiments, Ritesh Saini (George Mason University) and
Ashwani Monga (University of Texas, San Antonio) demonstrate that a
qualitatively different form of decision making gains prominence when
consumers work with time instead of money. Specifically, consumers
thinking about expenditure of time are more likely to rely on
heuristics: intuitive, quick judgments based more on prior experience
than on analysis of the information presented.

For example, one experiment had participants consider the purchase of a
used car. They were told that a search on a used-car website had yielded
80 cars meeting their criteria but that viewing each accident record
would take either $1 or 5 minutes of time. They were then asked how many
records they would like to view, with a catch: the researchers used
classic experimental "anchoring" techniques to manipulate the answers.

Participants were asked whether they would view "up to 2" or "up to 40"
records, before indicating the specific number of records they would
view. The use of an anchor, for those thinking in terms of time
expenditure, turned out to have a significant impact.

When the anchor value was high in the time condition, consumers chose to
view an average of 23.7 accident reports, versus 9.1 when the anchor
value was low. The number of records consumers in the money condition
chose to view was statistically the same, irrespective of whether the
anchor value was high or low.

"People face difficulties in accounting for time because they do not
routinely transact in time as they do in money," explain the
researchers. "Although people in some professions (e.g., lawyers) do
keenly monitor their time expenditures, most other people are not
trained to do so."

Furthermore, by measuring response times--the time taken by participants
to arrive at decisions--the researchers find supporting evidence for the
idea that quick and easy heuristics are used more in time than in money.

"These results suggest that businesses need to be aware that decisions
regarding products and services might be made differently if consumers
spend their time rather than money," Saini and Monga explain. "Unlike
money which is unambiguous--a dollar is a dollar in all
circumstances--the value of time changes from one situation to another."

Hello,

This email message is a notification to let you know that
a file has been uploaded to the Files area of the Behavioral-Finance
group.

   File        : /4fab.pdf
   Uploaded by : c_labitan <c_labitan@...>
   Description : The Four Filters Invention of Buffett and Munger.  abridged
version.

You can access this file at the URL:
http://groups.yahoo.com/group/Behavioral-Finance/files/4fab.pdf

To learn more about file sharing for your group, please visit:
http://help.yahoo.com/l/us/yahoo/groups/original/members/web/index.htmlfiles

Regards,

c_labitan <c_labitan@...>

Peter,

The file is now posted on this website's files section.

While I am not a trained researcher in Behavioral Finance, I study
the "framing" processes of Warren Buffett, Charles Munger, and that
circle of long term value practitioners. As you might have guessed, I
think "the 4 filters invention" ( circa 1977 ) is a highly effective
process of using both qualitative and quantitative filters for
seeking and finding an optimal individual investment prospect.

I am seeking comments and perspectives from the members of this
message board on their thoughts about each of the 4 filters:

1. Developing Understanding of Company and Its Products - qualitative
2. Sustainable Competitive Advantage - qualitative and quantitative
3. Able and Trustworthy Managers - qualitative
4. Bargain Price is Margin of Safety

I will keep an open mind to all views shared,

Bud

budlabitan@...




--- In Behavioral-Finance@yahoogroups.com, "pgreenfinch"
<pgreenfinch@...> wrote:
>
> Hi, Bud!
> You might also try to load it into
> http://finance.groups.yahoo.com/group/Behavioral-Finance/files/
> So as we have a permanent access
> And you have more audience.
> I'm sure it would be appreciated
> Thanks
> Peter
>
> --- In Behavioral-Finance@yahoogroups.com, "Bud Labitan, MD MBA"
> <c_labitan@> wrote:
> >
> > Rick,
> >
> > Yes. Here is an abridged version of my book in a pdf file that
you
> > may share with others. I study how Warren Buffett and Charlie
> > Munger "frame" their investing decisions.
> >
> > http://www.frips.com/4fab.pdf
> >
> > Bud
> >
> >
> >
> > --- In Behavioral-Finance@yahoogroups.com, "Rick Leslie"
> > <brecht62@> wrote:
> > >
> > > Bud,
> > >
> > > Very interesting article.  I think it has a lot to say about
the
> > > behaviors of investors.  What do you mean by "sustainable
> > competitive
> > > advantage?"  Do you mean "favorable long-term economics?"
> > >
> > > Thanks,
> > >
> > > Rick
> > >
> > > --- In Behavioral-Finance@yahoogroups.com, "Bud Labitan, MD
MBA"
> > > <c_labitan@> wrote:
> > > >
> > > > I wrote a book called the Four Filters, and I am waiting for
> > Wiley
> > > to
> > > > offer me a contract. It describes the Buffett and Munger
> decision
> > > > framing process.
> > > > http://www.fatpitchfinancials.com/776/sneak-preview-of-the-
four-
> > > > filters-by-bud-labitan/
> > > >
> > > > Here is an audio clip of Warren Buffett talking about the 4
> > filters:
> > > >  http://www.frips.com/4filters.mp3
> > > >
> > > > 1. Understand a business
> > > > 2. Sustainable Competitive Advantage
> > > > 3. Able and Trustworthy Managers
> > > > 4. Bargain Price is the Margin of Safety
> > > >
> > > > I would appreciate feedback on the use of filters in framing
> > > better,
> > > > or optimizing decisions... Takemura? What is the current
> thinking
> > > in
> > > > the field?
> > > >
> > > > Bud
> > > > budlabitan@
> > > >
> > >
> >
>

Bud,

Thanks for the link.  I'm reading it with great interest, albeit from
an Austrian point of view.  Forgive me.

Rick

--- In Behavioral-Finance@yahoogroups.com, "Bud Labitan, MD MBA"
<c_labitan@...> wrote:
>
> Rick,
>
> Yes. Here is an abridged version of my book in a pdf file that you
> may share with others. I study how Warren Buffett and Charlie
> Munger "frame" their investing decisions.
>
> http://www.frips.com/4fab.pdf
>
> Bud
>
>
>
> --- In Behavioral-Finance@yahoogroups.com, "Rick Leslie"
> <brecht62@> wrote:
> >
> > Bud,
> >
> > Very interesting article.  I think it has a lot to say about the
> > behaviors of investors.  What do you mean by "sustainable
> competitive
> > advantage?"  Do you mean "favorable long-term economics?"
> >
> > Thanks,
> >
> > Rick
> >
> > --- In Behavioral-Finance@yahoogroups.com, "Bud Labitan, MD MBA"
> > <c_labitan@> wrote:
> > >
> > > I wrote a book called the Four Filters, and I am waiting for
> Wiley
> > to
> > > offer me a contract. It describes the Buffett and Munger
decision
> > > framing process.
> > > http://www.fatpitchfinancials.com/776/sneak-preview-of-the-four-
> > > filters-by-bud-labitan/
> > >
> > > Here is an audio clip of Warren Buffett talking about the 4
> filters:
> > >  http://www.frips.com/4filters.mp3
> > >
> > > 1. Understand a business
> > > 2. Sustainable Competitive Advantage
> > > 3. Able and Trustworthy Managers
> > > 4. Bargain Price is the Margin of Safety
> > >
> > > I would appreciate feedback on the use of filters in framing
> > better,
> > > or optimizing decisions... Takemura? What is the current
thinking
> > in
> > > the field?
> > >
> > > Bud
> > > budlabitan@
> > >
> >
>

[ source: http://www.physorg.com/news125585969.html ]

Too much information? Study shows how ignorance can be influential

In the current issue of The RAND Journal of Economics, USC researchers
provide a challenge to the classic economic model of information
manipulation, in which knowing more than anybody else is the key to
influence.

Instead, economists Isabelle Brocas and Juan D. Carrillo present a
situation -- commonly observed in real life -- in which all parties have
access to the same information, but one party still manages to control
public opinion.

For example, a pharmaceutical company such as Merck may be obliged to
make public the findings of all studies related to a new drug.
Preliminary trials may indicate no short-term side effects, and the
company may elect not to perform follow-up trials before releasing the
drug on the market.

"Optimally, you want to provide enough information so the other party
reaches a certain level of confidence, but stop once you reach that
level," Brocas explained. "Otherwise, it may be the case that more
information causes the confidence level to go down."

The study, "Influence Through Ignorance," is the first to thoroughly
examine situations in which power comes from controlling the flow of
public information, as opposed to the possession of private information.

As Brocas and Carrillo explain, there are secrets -- facts that are
deliberately withheld -- and there are facts that are not known to anybody.

"It's not necessary to have extra information," Brocas said. "You can
induce people to do what you want just by stopping the flow of
information or continuing it. That's enough."

Notably, the party manipulating the flow of information must
deliberately choose to remain uninformed as well -- which can backfire.

In Merck’s case, a study released five years after the drug was
introduced on the market showed that taking Vioxx significantly
increased the risk of heart attacks. Merck funded the study, which had
been intended to see if the painkiller was also effective against colon
polyps.

Now, embroiled in a $4.85 billion settlement, the company claims that
Vioxx poses no statistically significant long-term risk to the heart
once it is no longer taken. This claim is disputed: Merck stopped
monitoring patients after only a year, discontinuing the study once the
drug was taken off the market.

Similarly, the researchers explain, the head of a council may terminate
discussion and introduction of new evidence about, say, whether to
continue searching for weapons of mass destruction. Calling for a vote
when sentiment seems biased in a certain direction effectively curtails
how much all members, including the chairperson, know about the issue at
stake.

"Overall, the ability of to control the flow of news and remain publicly
ignorant gives the leader some power, which is used to influence the
actions of the follower," the researchers wrote. "Our result suggests
that the chairperson, the President and media can bias the decision of
the committee, electorate and public by strategically restricting the
flow of information."

Brocas and Carrillo are in the midst of a follow-up to the study that
gauges how well individuals intuitively understand the "influence
through ignorance" phenomenon: "We're interested in whether people
understand their ability to manipulate information and if they do it
optimally," Brocas said.

The paper also provide implications for several important variants, such
as how public opinion is affected when there is more than one source of
information available to everyone and it is not excessively costly to
obtain.

Competition, supported by media diversity and public sources of research
funding, not only induces outlets to release more information but also
causes the "influence through ignorance" effect to diminish -- and under
certain circumstances to vanish -- the researchers found.

Source: University of Southern California

This would to some degree be dependent on a) the amount of time spent
and b) the amount & quality of the information available. Usally we
think of the investor as having 'another line of work', and until
recently having very poor quality information. The institutions were
always first with expensive news services such as the Dow Jones Wire,
etc. Now, with on-line streaming news and CNBC being almost free, a
person is more on an equal playing field, information access-wise. It
certainly is faster and less expensive, anyway. In the recent Bear
Stearns collapse, one could watch in unfold in real time, especially
if one watched Bloomberg the night before.

Clearly, an investor with 'another line of work' will not have as
much time to gain adequate trading skills, except over a long period
of time, which puts him at a disadvantage. But, if that person were
did not have 'another line of work' and used the time to develop the
best trading skills, they might actually be able to significantly
outperform such institutions as mutual funds, banks, the U.S. Gov't,
etc.

Joe

--- In Behavioral-Finance@yahoogroups.com, John Black <jblack010@...>
wrote:
>
> I for one do believe it is impossible for the individual investor
to succeed in the long run in active management. He does not have the
resources of the large institutions. It is foolhardy to think a
single investor, obtaining his data from the internet, can analyze a
company and determine the value of the stock before that stock has
been discovered by many other, better capitalized, and
technologically more advanced investors.
>
> That said, I do believe the individual investor can outperform his
institutional counterpart by using the very tools that institution
uses against them. For example, investing on a shorter time frame
using statistical analysis of stock prices, much the same as used in
option pricing. And of course, the construction and implementation of
a statistically diversified portfolio.
>
> I understand that there are those who will claim that statistical
analysis is nothing more than forecasting volatility and that is
probably a losers game also, but at least in that game the individual
has a chance of success at least equal to that of the large, resource-
rich institutions.
>
> John
>
> ----- Original Message ----
> From: leif_ericssen <leif_ericssen@...>
> To: Behavioral-Finance@yahoogroups.com
> Sent: Friday, August 31, 2007 7:50:24 PM
> Subject: [Behavioral-Finance] What Do You Think of This Statement?
>
>
>
>
>
>
>
>
>
>
>
>
>
>             "Individual investors possess neither the time nor the
resources to
>
> succeed in active management of marketable securities portfolios.
>
> Sophisticated institutional investors dominate the marketable
security
>
> landscape, agressively competing to unearth the rare security that
>
> promises risk-adjusted excess returns.  Individuals who atempt to
>
> compete with resource-rich money management organizations simply
>
> provide fodder for large instutional cannon."
>
>
>
>
>
>
>
>
>
>
>
>
>
>
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______________________________________________________________________
______________
> Be a better Heartthrob. Get better relationship answers from
someone who knows. Yahoo! Answers - Check it out.
> http://answers.yahoo.com/dir/?link=list&sid=396545433
>

You might like to look into any technical analysis on the topic
of "contracting triangles", or more particualrly Elliott Wave theory
on the topic of contracting triangles. Here, there is an expectation
of shorter time frames for ever short price movements. If the "target
price" you mention in your note is in the middle of the triangle, the
price action you mention would be noted in the triangle.

But it must be stated that the price action referred to is not a
universal expectation of price action. For example, after hitting the
price that this sceanrio expects a rebound from, the price could fail
to hit the higher "target price" and then go below the "rebound from"
price in a true decline.

The benefit of the technical analysis is to know when triagular price
action is expected and when it is not.

Joe

--- In Behavioral-Finance@yahoogroups.com, "Michael Wannke"
<michael.wannke@...> wrote:
>
> Dear group members,
>
> are there studies showing that a "rebound" to a certain price level
of an equity is faster/more probable than a first hit of this price
level?
>
> E.g. let's take NASDAQ during the last year:
> Starting from 2400 the first time, it has taken approx. 3 months to
reach the 2500.
> The second time NASDAQ hit 2400, it has taken only approx. 1.5-2
months to reach 2500.
>
> Firstly, it seems to me that there are some more examples of this
(DAX, etc.) , but is this an effect that takes place regularly?
Secondly, if this hypothesis is valid, it seems to me that it might
strongly be driven by psychological effects - which ones would you
consider for an explanation?
>
> Thanks for your comments on this topic!
>
> Michael
>