Oh Si can you see Part Deux: Errol and the noisemakers.

Well folks I’m not quite sure where to start as Slabbed chips in another 2 cents worth on the remaking of the Times Picayune. By now I hope you guys have “Sometimes Picayune” fatigue but I know that is not the case with some of ya so here goes for those of you that want to get the deep down low on this topic.  I haven’t had more to say on this since late July because Slabbed has been out on assignment doing high quality investigative journalism such as blowing open Aaron Broussard’s use of oversea business ventures as a conduit for graft and bribery and  uncovering a specious real estate transaction involving a small school district. You lifers well know these are far from the only skins hanging on the wall here at the worldwide headquarters of Slabbed New Media as we’ve become a powerful voice in the local media landscape in our own right.

People are naturally resistant to change, to the point where it is to their detriment.  It is a well-studied topic and one in which I am familiar via my interest in behavioral economics. Throw in competing financial interests and it made for an interesting summer as Errol Laborde and the noisemakers made sure their newly disenfranchised voices would be heard loud and clear via sheer mass and repetition. Occasionally something highly insightful would be written, mostly in the new media on websites like American Zombie and Library Chronicles along with certain trade journals.  Since the news broke in May media alliances have been made, broken and remade.  As a long time blogger on stock message boards the business implications of the spectacle were both informative and amusing to me as I often thought of the following while watching the gyrations:

Graph courtesy of The AtlanticNow don’t get me wrong, when the 500 pound gorilla in the room decides it is time to go on a diet the local inhabitants of the forest are going to be impacted especially since local food sources have been on a drastic decline.  My problem is that even when it is shown that the numbers in the new Newhouse business model make sense, old line cognitive biases cause the noisemakers to ignore the “newsonomics” those numbers present. Leaky pay-walls are a joke and are easily defeated.  The concept that the readers will make up for the drastic declines in advertising are a pipe dream along with the notion “the news”, whatever that is, has intrinsic value to the general public. Continue reading “Oh Si can you see Part Deux: Errol and the noisemakers.”

And the word for the day is Heuristics. My point exactly.

This post is for the departed Nowdy, a true student of human behavior as I thought of her when I read this post by NMC on a book by author Daniel Kahneman’s, Thinking, Fast and Slow. Kahneman is a behavioral economist and it just so happens we’re littered with practical applications of the marriage of human psychology to economics and the law right here on Slabbed using it to explain not only why people confess to crimes they do not commit but also how insurers managed to institutionalize fraudulent claims handling practices in the aftermath of hurricanes.

What Kahneman describes is known as heuristics and that concept underpins the legal profession and our justice system.  Evidently Kahneman explains how it leads to arbitrary and/or plain silly outcomes in the courtroom to where even the insurance defense bar can understand it.

The bottom line folks is “rational” economists are dinosaurs walking.

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Prepare for a ______ blast…..

The post title is an old basher throw away line with the worst of it self censored but I was reminded of it by two headlines I spied on Yahoo Finance this morning, namely:

  • Growth anemic, debt fight poses recession risk. ~ One word folks, the economy remains fugley.
  • Insiders Selling at Unusually Fast Pace. ~  One basic stock stat every owner must know and heed IMHO. I never cease to be amazed at the number of people who own stocks that have no clue what a Form 4 is about much less where to find them. On the other hand Josh Brown, @reformedbroker checked in early this month via the Wall Street Journal on how too much disclosure may actually foster reckless behavior. On the forums where I learned the craft of stock speculation the main thrust of our Charlie Brown Syndrome discussions centered on Lucy pulling the ball out every time to a predictable end but Josh’s column is excellent reading.

All this is a fancy way of saying that I am standing by my post of June 10th as the economic data revisions going back to the 2007-2009 recessions indicate clearly you can’t trust the early official economic data or Mike Hoss’ pronunciation of same while filling in for the Toolman.  😉

To fill in the blank above watch the this Youtube video which explains it pretty well.

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So who cheats more? Wall Street Bankers or Congressional Staffers. Dan Ariely solves the mystery.

Long time readers of Slabbed well know my affinity for Behavioral Economics/Finance. Behavioral economist/MIT professor Dan Ariely shared some of the results of his research on the topic of cheating recently in San Fransisco and the answer does not surprise me.

[youtube=http://www.youtube.com/watch?v=GSTizvMHfGY]

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Slabbed takes the regulatory challenge part 2: Which school do you belong to?

Ok folks, we had some fun in part 1 where the good people at econstories.tv contrasted classical economist Friedrich Hayek (Austrian School of Economics) with the father of Keynesian economics John Maynard Keynes via a well done rap song. Our friends over at Greenbackd are unabashed adherents to the Austrian model (Toby has written several excellent posts on the topic) while Team Obama thus far has favored the Keynesian school in their economic policy with programs like stimulus and cash for clunkers. These distinctions are important as they fundamentally shape how their adherents view the regulation of our financial system which is a vital subject given the implosion of our financial system in late 2008. Before I give my thoughts let’s visit with Wiki and get some background, first on the Austrian School:

According to Austrian School economist Joseph Salerno, what most distinctly sets the Austrian school apart from neoclassical economics is the Austrian Business Cycle Theory:

The Austrian theory embodies all the distinctive Austrian traits: the theory of heterogeneous capital, the structure of production, the passage of time, sequential analysis of monetary interventionism, the market origins and function of the interest rate, and more. And it tells a compelling story about an area of history neoclassicals think of as their turf. The model of applying this theory remains Rothbard’s America’s Great Depression.

Austrian School economists focus on the amplifying, “wave-like” effects of the credit cycle as the primary cause of most business cycles. Austrian economists assert that inherently damaging and ineffective central bank policies are the predominant cause of most business cycles, as they tend to set “artificial” interest rates too low for too long, resulting in excessive credit creation, speculative “bubbles” and “artificially” low savings.

According to the Austrian School business cycle theory, the business cycle unfolds in the following way. Low interest rates tend to stimulate borrowing from the banking system. This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. This in turn leads to an unsustainable “monetary boom” during which the “artificially stimulated” borrowing seeks out diminishing investment opportunities. This boom results in widespread malinvestments, causing capital resources to be misallocated into areas which would not attract investment if the money supply remained stable. Economist Steve H. Hanke identifies the financial crisis of 2007–2010 as the direct outcome of the Federal Reserve Bank’s interest rate policies as is predicted by Austrian school economic theory. Continue reading “Slabbed takes the regulatory challenge part 2: Which school do you belong to?”

OK, so the genders really do have unique viewpoints….

Who says being a financial geek is boring? As Behavioral Economist extraordinaire / Harvard University Professor Dan Ariely points out the sexes really do have different outlooks on life and he uses the google search auto complete feature to illustrate this fact. And that my friends best explains why my focus here on slabbed has been explaining the myriad of ways certain insurers f*cked us after Katrina while Nowdy’s focus has been reconciling the differing viewpoints so everyone can kiss and make up.  😉

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Slabbed Daily Weekend Edition: Who else is reading “the untouchables”????

Mel flattered us with the comment he made last night with us. We hope to live up to the standards of the legend.

We are blessed with a diverse readership and our willingness to host pretty much all viewpoints from people from all walks of life makes us an interesting laboratory for those whose interests are scientifically motivated so it should come as no surprise we were linked in a recent psychology today article. For my part I think we are all “insane” in one way shape or fashion, as my good friend Russell pointed out via an article he sent me dating to the late the 1980’s which addresses what he termed delusional reality (Sorry I do not have the link handy).

Those that do not sleepwalk through life understand this concept and accept the fact Continue reading “Slabbed Daily Weekend Edition: Who else is reading “the untouchables”????”

Have we seen the end of rational economics? Behavioral Economics explains the Scheme.

With the very recent publishing of yet another list of the worst bad faith insurers, this time by the American Association for Justice, the topic of why the public holds these companies in such low esteem again becomes topical.

We’ve well chronicled the dirty tricks and underhanded tactics these socially deviant companies employ to satisfy their relentless thirst for profit but that is not the thrust of this post. Rather, in keeping with today’s theme of “the why” as Nowdy linked my comment on the Yahoo Allstate message board in her Daily slab post I’m expanding on the concepts from that post and in the process explain one of the possible reasons why an insurer with a good reputation in Chubb will be inherently more profitable than one with a bad reputation in Allstate.

When I first met Nowdy and we began to get to know each other I told her my favorite hobby was investing and to that end, the fields of Game Theory and Behavioral Finance were of great interest to me along with their political first cousin Public Choice theory, the latter two economic disiplines being relative newcomers to our body of collective knowledge.

After 20 months of writing here at slabbed I finally get to indulge those passions and perhaps educate our readers on the mechanisms at work that resulted in what became known here on Slabbed as The Scheme, a series of posts by Nowdy that explained the bad behavior of the insurers here after Katrina. In short not only do we tell you who dunnit but also how it could happen in a large organization like State Farm, Nationwide, USAA, Allstate and others. We start with the July-August edition of the Harvard Business Review and Dan Ariely’s article The End of Rational Economics:

In 2008, a massive earthquake reduced the financial world to rubble. Standing in the smoke and ash, Alan Greenspan, the former chairman of the U.S. Federal Reserve once hailed as “the greatest banker who ever lived,” confessed to Congress that he was “shocked” that the markets did not operate according to his lifelong expectations. He had “made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders.” Continue reading “Have we seen the end of rational economics? Behavioral Economics explains the Scheme.”