Kevin Lewis

November 02, 2009

Do Smart Investors Outperform Dumb Investors?

Mark Grinblatt, Matti Keloharju & Juhani Linnainmaa
University of Chicago Working Paper, September 2009

This study analyzes whether high IQ investors exhibit superior investment performance. It combines equity return, trade, and limit order book data with two decades of scores from an intelligence test administered to nearly every Finnish male of draft age. Controlling for wealth, trading frequency, age, and determinants of the cross-section of stock returns on each day, we find that high IQ investors exhibit superior stock-picking skills, particularly for purchases, and superior trade execution for both purchases and sales.


Lightning, IT Diffusion and Economic Growth Across US States

Thomas Barnebeck Andersen, Jeanet Bentzen, Carl-Johan Lars Dalgaard & Pablo Selaya
University of Copenhagen Working Paper, September 2009

Empirically, a higher frequency of lightning strikes is associated with slower growth in labor productivity across the 48 contiguous US states after 1990; before 1990 there is no correlation between growth and lightning. Other climate variables (e.g., temperature, rainfall and tornadoes) do not conform to this pattern. A viable explanation is that lightning influences IT diffusion. By causing voltage spikes and dips, a higher frequency of ground strikes leads to damaged digital equipment and thus higher IT user costs. Accordingly, the flash density (strikes per square km per year) should adversely affect the speed of IT diffusion. We find that lightning indeed seems to have slowed IT diffusion, conditional on standard controls. Hence, an increasing macroeconomic sensitivity to lightning may be due to the increasing importance of digital technologies for the growth process.


She's Got the Look: Inferences from Female Chief Executive Officers' Faces Predict their Success

Nicholas Rule & Nalini Ambady
Sex Roles, November 2009, Pages 644-652

Inferences from faces can predict success. This may be particularly important for women, who are often evaluated by their appearance. Here 170 northeastern U.S. undergraduates judged personality traits or leadership ability from the faces of all 20 U.S. Fortune 1,000: 2006 female chief executive officers (CEOs) and we compared these ratings to the same trait ratings made for male CEOs in a previous study. After controlling for cues important for female leaders (attractiveness, affect, age, and masculinity/femininity), ratings of competence and leadership predicted the amount of profits that the CEOs' companies made and ratings of dominance predicted the amount of individual compensation that the CEOs received. CEOs' success is therefore related to their facial appearance regardless of target and perceiver gender.


Economics and Greed

Long Wang
Northwestern University Working Paper, October 2009

Greed is a classic topic in human development (Balot, 2001; Robertson, 2001) and it inevitably affects many of our choices and decisions. Although greed is typically viewed as uniformly negative and reprehensible, we propose that people's attitudes and opinions about greed are actually subject to change. In particular, studying economics may help legitimize and even beautify greed. Previous research shows that economics education might make people more self-interested because self-interest maximization is central to most economic models (Marwell & Ames, 1981; Frank, et al, 1993). Because greed and maximizing self-interest are sometimes difficult to separate, conceptually or empirically, we propose that studying economics may make people view greed as potentially positive and beneficial. Two complementary studies support our proposition. Study 1 shows that students who are pursuing economics view greed more positively than students who are pursuing other majors and taking other courses. Study 2 indicates that positively priming greed can significantly increase people's positive attitudes and opinions about greed.


The pleasure of being nasty

Klaus Abbink & Abdolkarim Sadrieh
Economics Letters, December 2009, Pages 306-308

We introduce the joy-of-destruction game. Two players each receive an endowment and simultaneously decide on how much of the other player's endowment to destroy. In a treatment without fear of retaliation, money is destroyed in almost 40% of all decisions.


Soaring Minds: The Flight of Israel's Economists

Dan Ben-David
Contemporary Economic Policy, July 2009, Pages 363-379

The brain drain issue used to revolve primarily around migration from developing to developed countries. In recent years, there is an accumulation of evidence that this is an issue that should interest developed countries as well. Recently published numbers by the European Commission and the Organization for Economic Co-operation and Development indicate a nonnegligible flow of European academics to American universities. This article provides the first case study conducted on the most massive out-migration of academics on record. At a time when Europe and other developed countries have begun to express concern about the phenomenon, the rate of academic emigration from Israel to the United States is already four to six times the European emigration rate. The particular focus here is on the area of economics, in which the exodus of younger academics from Israel coupled with a heightened retirement rate among the older academics has brought Israel's top economics departments - among the best in the world, until now - to the brink. Countries wanting to create conditions for fostering and nurturing the necessary productivity advances underlying economic growth must become aware of how far and how quickly an academic implosion can occur, if left unchecked. The findings brought forth here should help increase the level of this awareness.


The Economics of Rape: Will Victims Pay for Police Involvement?

Jordan Matsudaira & Emily Greene Owens
Cornell Working Paper, May 2009

In 2006, approximately 49% of violent crimes were not reported to police. Being the victim of sexual assault is expensive; each incident imposes an external cost of over $100k on the victim. However, recent estimates of the total social cost are an order of magnitude larger suggesting that from a social welfare standpoint rape is likely to be underreported if the victim's demand for reporting is price elastic. In spite of the centrality of victim reporting in the functioning of the criminal justice system, to date there is very little systematic evidence on what governments can do to encourage victims to report crimes. We estimate the sensitivity of victims to the cost of reporting in an Alaskan city between 1993 and 2006, during which time a chief of police publicly supported a policy of charging victims of sexual assault for medical procedures required to collect evidence against their attackers. Using a triple differences approach that compares trends in reported sexual assaults to other index crimes over time and across Alaskan cities, we estimate that this shift in cost of approximately $1,200 from the city government to victims reduced the number of reported rapes by between 50 and 80%. This large response highlights the importance of public policies which reduce the private cost of reporting crime.


Effects of Urban Sprawl on Obesity

Zhenxiang Zhao & Robert Kaestner
NBER Working Paper, October 2009

In this paper, we examine the effect of changes in population density - urban sprawl - between 1970 and 2000 on BMI and obesity of residents in metropolitan areas in the US. We address the possible endogeneity of population density by using a two-step instrumental variables approach. We exploit the plausibly exogenous variation in population density caused by the expansion of the U.S. Interstate Highway System, which largely followed the original 1947 plan for the Interstate Highway System. We find a negative association between population density and obesity and estimates are robust across a wide range of specifications. Estimates indicate that if the average metropolitan area had not experienced the decline in the proportion of population living in dense areas over the last 30 years, the rate of obesity would have been reduced by approximately 13%.


Marriage: Cause or mere indicator of future earnings growth?

Ronald Mincy, Jennifer Hill & Marilyn Sinkewicz
Journal of Policy Analysis and Management, Summer 2009, Pages 417-439

The hypothesis that marriage increases men's earnings has contributed to legislative support for the Healthy Marriage Initiative (HMI). However, previous studies of this phenomenon have not controlled for many relevant characteristics that select men into marriage, nor have they focused on low-income, unmarried fathers - the population targeted by HMI. We use the Fragile Families and Child Wellbeing Study, which measures many previously unobserved confounders, to test for a relationship between marriage and earnings. We use a variety of analytic strategies to control for selection (including differencing and propensity scores) and find no evidence of an effect of transitions to marriage on the earnings of unmarried fathers that differs from zero, either for the full sample or subsamples defined by race-ethnic category and baseline cohabitation status.


Testing Contest Theory: Evidence from Best-of-Three Tennis Matches

David Malueg & Andrew Yates
Review of Economics and Statistics, forthcoming

Many contests feature a best-of-N structure. We focus on best-of-three contests between equally-skilled players. Using a general symmetric contest success function, we determine the relationship between the players' efforts in the various rounds. These results imply that the contests are more likely to end in two rounds rather than in three. Data from professional tennis matches strongly support this prediction. Our findings generalize and reinforce the mechanism Klumpp and Polborn (forthcoming) use to explain the New Hampshire effect in US presidential primaries.


The Thrill of Victory: Measuring the Incentive to Win

Bentley Coffey & Mike Maloney
Journal of Labor Economics, forthcoming

We undertake an exhaustive test of the tournament model. There is ample evidence that incentive-pay structures such as tournaments result in increased performance, but is it due to selection or increased individual effort, and is any increased individual effort caused by monetary inducements or merely thirst for the thrill of victory? Prior literature has not found a way to break these out. We look at performance in horse and dog racing. We find that both horses and dogs do respond to the thrill of victory, but only horses exhibit performance corresponding to monetary payouts. That horses can be made to respond to monetary incentives shows that pay structures matter over and above selection effects.


O Brother, Where Art Thou? The Effects of Having a Sibling on Geographic Mobility and Labour Market Outcomes

Helmut Rainer & Thomas Siedler
Economica, July 2009, Pages 528-556

This paper formulates a model to explain how parental care responsibilities and family structure interact in affecting children's mobility characteristics. Our main result is that the mobility of young adults crucially depends on the presence of a sibling. Siblings compete in location and employment decisions to direct parental care decisions towards their preferred outcome. Only children are not exposed to this kind of competition. This causes an equilibrium in which siblings exhibit higher mobility than only children, and also have better labour market outcomes. Using data from the German Socio-Economic Panel, we find evidence that confirms these patterns.


The ecological importance of species and the Noah's Ark problem

Neil Perry
Ecological Economics, forthcoming

Using the Noah's Ark problem - the problem of efficiently allocating limited funds to conserve biodiversity - the standard economic approach to endangered species conservation constructs a human-centered biodiversity by favoring species directly valuable to humans. I analyze this approach and draw on the functional ecology literature to offer an alternative emphasizing the role species play in their ecosystems. The aim is to create a working ecosystem on the Ark rather than a collection of charismatic and distinct species. To do so, I construct a new measure of a species' ecological importance and an ecological objective appropriate for cost-effective resource allocation. The ecological approach fundamentally changes the notion of species-value from a direct value based on a species' appearance or taxonomic difference to an indirect value based on a species' ecological role in its ecosystem. In the process, 'populations' of species become the fundamental unit of biodiversity rather than 'species', and abiotic processes also possess value. When compared to the economic approach, the ecological approach prioritizes different species for the Ark and achieves superior economic outcomes in all but the mythical Noah's Ark scenario where interactions are non-existent. The analysis challenges the approach of US endangered species legislation and I call for a reformulation based on endangered ecological interactions.


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