Tag: behavioral finance

In Praise of Debates

It’s been a few years since I’ve taught a course in behavioral finance, but back when I used to teach it, one of the first few lectures would always be this excellent debate between Fama and Thaler:

The video is excellent for many reasons, here are some of them:

  1. It’s a good way to help students realize that the question (are markets efficient) is far from settled, one way or the other. Hey, if the Nobel prize winners can’t agree…
  2. There is a way to disagree. Disagreement need not mean that the other person is vile, evil or an idiot. It simply means that the other person has a different take than yours. And that’s fine. This is an important, and currently very underrated lesson.
  3. Regardless of which side of this debate you personally favor, there is much to learn by watching two experts express and defend their stance.
  4. Reasonable dialogue, the purpose of which is to arrive at a synthesis, is a worthy way to engage in debate. This is worth repeating: the purpose of a debate is not to win it, but for all sides to arrive at a happy medium. Medium need not mean agreement, but it certainly can (and should) mean acquiring an appreciation of the other’s viewpoint.
  5. Listening to two people debate is infinitely more entertaining, motivating and informative than listening to one person drone on for eternity

The reason I bring this up is because Pranay asked an excellent question on Twitter recently:

It is excellent (this tweet), not just because it helped me write this post, but because it received some excellent replies – please do go through them.

And while I am not sure if Pranay intended this, but it also serves as an excellent reminder that there are ways to have debates in public. Civil disagreement is possible, and when both parties engage in good faith, crucial and desirable. That is how society learns and moves forward – through debate, disagreement and dissent.

Speaking of which, here’s your word for the day: erisology.

Etc: Links for 29th Nov, 2019

  1. “When the British actor Jonathan Routh published the first edition of his Good Loo Guide (“Where to Go in London”) in 1965, he singled out the device for mention every time he found one. Only five toilets, out of more than a hundred, held hand dryers – of the pedal-operated kind that, in the 1965 movie Help!, inhale the jacket sleeves of Ringo Starr and Paul McCartney. Mostly, Routh encountered towels of cloth or paper, and quite often, he had to pay to use these products. (“Do loos ever advertise their attractions?” he wondered, while extolling the virtues of the splendid restrooms of Hyde Park in the 1968 update. “Has anyone ever seen an ad saying ‘Just arrived – new free electric hand-drier at the so-and-so loos.’”) Even in the third and final edition of the guide, released in 1987, I counted more instances of electric razors, armchairs and pre-pasted disposable toothbrushes than of hand dryers.”
    ..
    ..
    The excellent, excellent Samanth Subramanian in this lovely article about (of all things) paper towels and hand driers. Yes, really. What’s more, Samanth won the Financial/Economic story of the year award for this write-up. Read the book by clicking on his name here, also read Following Fish, and definitely read this article itself. Congratulations, Samanth!
    ..
    ..
  2. “And which book takes the very top prize for best of the year? You can’t compare the Alter to the others, so I will opt for Eric Kaufmann’s Whiteshift and also Pekka Hämäläinen’s Lakota America, with Julia Lovell on Maoism and Alain Bertaud on cities as the runner-ups. But again a strong year all around.”
    ..
    ..
    Tyler Cowen’s list of books he found worth his time in 2019. As he would say, self-recommending.
    ..
    ..
  3. “So what’s a desperate founder to do? Smith impulsively flew to Las Vegas and played blackjack with the last of the company money .Amazingly, when he came back the next week, he had turned the remaining $5,000 into $27,000 – just enough for the company to stay in operation for another week.

    In the book “Changing How the World Does Business: FedEx’s Incredible Journey to Success – The Inside Story,” Roger Frock, a former senior vice president of operations at FedEx, describes the scene when he found out what Smith did. “I said, ‘You mean you took our last $5,000 – how could you do that? [Smith] shrugged his shoulders and said, ‘What difference does it make? Without the funds for the fuel companies, we couldn’t have flown anyway.'””
    ..
    ..
    A lovely story about how Fedex came back from the dead.
    ..
    ..

  4. “The money of the world’s mega-wealthy, though, is heading there in ever-larger volumes. In the past decade, hundreds of billions of dollars have poured out of traditional offshore jurisdictions such as Switzerland and Jersey, and into a small number of American states: Delaware, Nevada, Wyoming – and, above all, South Dakota. “To some, South Dakota is a ‘fly-over’ state,” the chief justice of the state’s supreme court said in a speech to the legislature in January. “While many people may find a way to ‘fly over’ South Dakota, somehow their dollars find a way to land here.””
    ..
    ..
    Oh hey, Tiebout. Whassup.
    ..
    ..
  5. “Behavioral finance is finance. That individual human beings can sometimes do silly things, for reasons to do with either nature or nurture, is not under dispute. That they may make these same mistakes in the aggregate is no longer heretical. That is the gift of those that have been “misbehaving” by attacking hallowed, efficient market doctrine. Economists now can consider potential irrationality versus a standard model of profit-maximizing utility without being disinvited to (those wild and crazy) economist parties. Economists can now suggest that cognitive biases can affect asset prices without threatening their tenure.”
    ..
    ..
    The term may be overrated – the logic isn’t: in defense of behavioral finance.