lake wobegon effect

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pages: 190 words: 53,409

Success and Luck: Good Fortune and the Myth of Meritocracy by Robert H. Frank

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, attribution theory, availability heuristic, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, carried interest, Daniel Kahneman / Amos Tversky, David Brooks, deliberate practice, en.wikipedia.org, endowment effect, experimental subject, framing effect, full employment, hindsight bias, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, invisible hand, labor-force participation, lake wobegon effect, loss aversion, minimum wage unemployment, Network effects, Paul Samuelson, Report Card for America’s Infrastructure, Richard Thaler, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Rory Sutherland, selection bias, side project, sovereign wealth fund, Steve Jobs, The Wealth of Nations by Adam Smith, Tim Cook: Apple, ultimatum game, Vincenzo Peruggia: Mona Lisa, winner-take-all economy

In any event, it’s easy to find examples of cases in which we embrace implausible beliefs about how good we are. Almost 70 percent of the faculty surveyed at one university believed themselves to be in the top 25 percent of their colleagues with respect to teaching ability.3 And another survey found that 87 percent of students in an elite MBA program believed their academic performance placed them in the top half of their class.4 This pattern has been called the Lake Wobegon Effect, after Garrison Keillor’s mythical Minnesota small town where “all the children are above average.” The pattern is typically more pronounced for traits or characteristics that are difficult to measure objectively, such as driving ability. Only 2 percent of high school students in one survey said they had below-average leadership ability, and virtually all rated themselves as better than average at getting along with others.5 False beliefs about luck are also common.

., 27 gratitude, 98–103 Great Recession, the, 124, 134 Gross, Terry, 5 H&R Block, 43 Harvard University, 34, 36, 48, 72, 136 headwinds, 63, 64, 80, 81 height, 8 Hewlett-Packard, 53 High School Baseball Web, 62 high-speed rail, 87 hindsight bias, 21 Homo economicus, 129 hostile takeover litigation, 36 human capital, 40, 66 Huo, Yuezhou, 95 Huxley, Aldous, vii IBM, 34, 35, 51 Ice King, 37 income inequality, 52–55, 112, 113; and bankruptcy rates, 114, 115; and divorce rates, 114, 115; and government stimulus policy, 162, 163; and hours worked, 115; and long commute times, 114, 115; and spending by the wealthy, 165 individual vs. collective incentives, 17, 110, 117, 169 infrastructure, 12, 18, 87, 90, 91, 98, 111, 119, 120, 124, 147, 162 jealousy, 122 Johnson, Harold, 134–41 Journal of Political Economy, 28 JVC, 44 Kahneman, Daniel, 28, 70 Kardashian, Kim, 9 keeping up with the Joneses, 112 Keillor, Garrison, 72 Kildall, Gary, 34–36 Koble, Amy, 102 Koufax, Sandy, 142 Kristof, Nicholas, xiv, xv Krueger, Alan, 8 LaBelle, Patti, 103 Lake Wobegon Effect, 72 Landier, Augustin, 50 Langone, Kenneth, 104 last-name effects, 39 Lazarsfeld, Paul, 21 Leonard, Elmore, 5 Leslie, Ian, 22 Lewis, Michael, xii, xiii, xv, xvi Liar’s Poker, xiii liberals, xi, 17, 83 Little League baseball, 142 Lockdown, 30 Locke, John, 96 Lokkins, Elmer, 106 London School of Economics, 4 Long Tail, The, 47 lost-envelope thought experiment, 130 lottery winners, 69, 72 Louvre, the, 22 Major League Baseball, 62, 141 Manove, Michael, 74 markets for classical music, 46, 47 Marshall, Alfred, 41 Martin, Brett, 31 material living standards, 14, 90 Matthew Effect, 24 Mauboussin, Michael, 69 McCullough, Michael, 102 Mechanical Turk, 95, 137 meritocracy, xi, xii Merton, Robert K., 24 Mialon, Hugo, 14 Microsoft, 34, 35, 44 Milanovic, Branko, 7 Mlodinow, Leonard, 35 Mona Lisa, 9, 22–23 Morocco, 87 motivated cognition, 72 MS DOS, 35 Munger, Charlie, 39 Murphy, Liam, 97 Music Lab, 30, 45 Nagel, Thomas, 97 naïve optimism, 11, 12, 70–72, 75 National Center for Education Statistics, 87 National Institutes of Health, 135 natural selection, 73, 116 natural stupidity, 70 Nepal, 7, 14, 86, 112 Nepotist, The, 30, 49 Netflix, 47 Netherlands, 20 network effects, 43–45, 48 New Orleans, 25 New York City, 107; cost of weddings in, 110; dwelling sizes of the wealthy in, 120; hypercompetitive music scene in, 30; penthouses with sweeping views in, 121 New York Metropolitan Opera, 47 New York Times, xiv, 4, 29 New Yorker, 61, 103 New Zealand, 20 Nixon, Richard, 105 no-free-lunch principle, 109 Nobel Prize, 28 Northeastern University, 98 NPR, 5, 126 numerical simulation, 64 Nunn, Sam, 126 Obama, Barack, 84, 91 Ohio State University, 135 O’Neal, Ryan, 23 Organization for Economic Cooperation and Development, 115 orthodox (or standard, or traditional) economic theories, 13, 69, 70, 112, 115 Our Kids, 144 Pacino, Al, 23 Palomar, 128 Patterson, Tim, 35, 36 Peace Corps, 7, 86 Perkins, Tom, 104 Peruggia, Vincenzo, 22 piano manufacturing, 42 Piketty, Thomas, 55 political polarization, 17 Porsche, 15, 16, 91, 119 positional arms control agreements, 118 positional arms races, 116, 117, 118, 144 positional concerns, 115, 116, 118, 122 positive feedback loops, 9, 44, 51, 104, 105 potholes, 16, 91 poverty, 14 Prince Ali Lucky Five Star, 72 Princeton University, xii, 133 progressive consumption tax, 118–27, 158–71; and consumption by retirees, 164; and regressivity, 160; as a Pigouvian tax, effect on economic growth, 161, 162; as a Pigouvian tax, effect on wealth inequality, 166; transition from the current tax system, 162; treatment of durable purchases, 160; treatment of loans, 159, 160; versus taxes on specific luxuries, 163, 164 public investment (see also infrastructure), 13 Putnam, Robert, 144 Puzo, Mario, 23 QDOS (“quick and dirty operating system”), 35 Rai, Birkhaman, 7, 86 Reagan, Ronald, 90 Reardon, Sean, xv Reddit, 56 Reese, PeeWee, 142 Regan, Dennis, 131 relative purchasing power, 92 Review of Economics and Statistics, 28 Rhodes, Frank H.


pages: 202 words: 58,823

Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bernie Madoff, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, principal–agent problem, profit maximization, profit motive, Richard Thaler, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, ultimatum game

All the while, I think of myself as a rational person. One final confession: I’m not all that embarrassed by any of this because it’s the human condition. I don’t believe myself to be particularly afflicted with behavioral biases, the place to turn nowadays when we’re not living up to a high standard of rationality. Well, maybe I do fall into traps from time to time, like the “endowment effect” (overvaluing things I already own) or the “Lake Wobegon effect” (rating myself a better-than-average driver, for example, along with 93 percent of Americans). It’s hard to be certain—after all, behavioral economics deals with blind spots. But I don’t think that biases are the cause of my pig­headedness, aversion to leisure, letting problems build up even though I know by now that an ounce of prevention is worth a pound of cure, sloppiness with personal finances, random displays of altruism, or other seemingly nonrational behavior.

See also mercy ambiguity effect, 24 American Work-Sports (Zarnowski), 191 Anaximander, 190 anchoring, 168 angel investors, 212–213n1 “animal spirits,” 169 Antipater of Tarsus, 134–135, 137 “anxious vigilance,” 73, 82 arbitrage, 70, 78 Aristotle, 200, 220n24 Asian financial crisis (1997–1998), 13 asset-backed securities, 93–95 asset classes, 75 astrology, 67 asymmetric information, 96, 210n2 authenticity, 32–37, 114 of challenges, 176–179 autism, 58, 59 auto safety, 139 Bank of New York Mellon, 61 Battle of Waterloo, 71, 205 Bear Stearns, 85 Becker, Gary, 33, 108–109 behavioral economics, 4, 10, 198–199 assumptions underlying, 24 insights of, 24–25 rational choice complemented by, 6 Belgium, 191 beliefs: attachment to, 51 defined, 50 evidence inconsistent with, 54, 57–58 formation of, 53, 92 persistence of, 26–28, 54 transmissibility of, 92–93, 95–96 Bentham, Jeremy, 127, 197–198 “black swans,” 62–64 blame aversion, 57, 72 brain hemispheres, 161 Brexit, 181–185 “bull markets,” 78 capital asset pricing model, 64 care altruism, 38, 104, 108–114, 115, 120, 135, 201 Casablanca (film), 120, 125 The Cask of Amontillado (Poe), 126–127 challenges, 202–203 authenticity of, 176–179 staying in the game linked to, 179–181 changes of mind, 147–164 charity, 40, 45–46, 119, 128 choice: abundance of, 172–174 intertemporal, 149–158, 166 purposeful vs. rational, 22–23 Christofferson, Johan, 83, 86, 87, 88 Cicero, 133–134 Clark, John Bates, 167 cognitive bias, 6, 23, 51, 147–148, 167, 198–199 confirmation bias, 200 experimental evidence of, 10–11, 24 for-itself behavior disguised as, 200–201 gain-loss asymmetry, 10–11 hostile attribution bias, 59 hyperbolic discounting as, 158 lawn-mowing paradox and, 33–34 obstinacy linked to, 57 omission bias, 200 rational choice disguised as, 10–11, 33–34, 199–200 salience and, 29, 147 survivor bias, 180 zero risk bias, 24 Colbert, Claudette, 7 Columbia University, 17 commitment devices, 149–151 commodities, 80, 86, 89 commuting, 26, 38–39 competitiveness, 11, 31, 41, 149, 189 complementary skills, 71–72 compound interest, 79 confirmation bias, 57, 200 conspicuous consumption, 31 consumption planning, 151–159 contrarian strategy, 78 cooperation, 104, 105 coordination, 216n15 corner solutions, 214n8 cost-benefit analysis: disregard of, in military campaigns, 117 of human life, 138–143 credit risk, 11 crime, 208 Dai-Ichi Kangyo Bank (DKB), 12–14, 15, 17, 87, 192–193 Darwin, Charles, 62–63 depression, psychological, 62 de Waal, Frans, 118 Diogenes of Seleucia, 134–135, 137 discounting of the future, 10, 162–164 hyperbolic, 158, 201 disjunction effect, 174–176 diversification, 64–65 divestment, 65–66 Dostoevsky, Fyodor, 18 drowning husband problem, 6–7, 110, 116, 123–125 effective altruism, 110–112, 126, 130, 135–136 efficient market hypothesis, 69–74, 81–82, 96 Empire State Building, 211–212n12 endowment effect, 4 endowments, of universities, 74 entrepreneurism, 27, 90, 91–92 Eratosthenes, 190 ethics, 6, 104, 106–108, 116, 125 European Union, 181–182 experiential knowledge, 59–61 expert opinion, 27–28, 53, 54, 56–57 extreme unexpected events, 61–64 fairness, 108, 179 family offices, 94 Fear and Trembling (Kierkegaard), 53–54 “felicific calculus,” 197–198 financial crisis of 2007–2009, 61, 76, 85, 93–94, 95 firemen’s muster, 191 flow, and well-being, 201–202 Foot, Philippa, 133–134, 135 for-itself behavior, 6–7, 19, 21, 27, 36, 116, 133–134, 204–205, 207–208 acting in character as, 51–53, 55–56, 94–95, 203 acting out of character as, 69, 72 analyzing, 20 authenticity and, 33–35 charity as, 39–40, 45–46 comparison and ranking lacking from, 19, 24, 181 consequences of, 55–64 constituents of, 26–31 defined, 23–24 difficulty of modeling, 204 expert opinion and, 57 extreme unexpected events and, 63–64 flow of time and, 30 free choice linked to, 169–172 in groups, 91–100 incommensurability of, 140–143 in individual investing, 77–78 in institutional investing, 76 intertemporal choice and, 168, 175, 176 job satisfaction as, 189 mercy as, 114 misclassification of, 42, 44, 200–201 out-of-character trading as, 68–69 purposeful choice commingled with, 40–43, 129, 171 rationalizations for, 194–195 in trolley problem, 137 unemployment and, 186 France, 191 Fuji Bank, 14 futures, 80–81 gain-loss asymmetry, 10–11 Galperti, Simone, 217n1 gambler’s fallacy, 199 gamifying, 177 Garber, Peter, 212n1 Germany, 191 global equity, 75 Good Samaritan (biblical figure), 103, 129–130, 206 governance, of institutional investors, 74 Great Britain, 191 Great Depression, 94 Greek antiquity, 190 guilt, 127 habituation, 201 happiness research (positive psychology), 25–26, 201–202 Hayek, Friedrich, 61, 70 hedge funds, 15–17, 65, 75, 78–79, 93, 95 herd mentality, 96 heroism, 6–7, 19–20 hindsight effect, 199 holding, of investments, 79–80 home country bias, 64–65 Homer, 149 Homo ludens, 167–168 hostile attribution bias, 59 housing market, 94 Huizinga, Johan, 167–168 human life, valuation of, 138–143 Hume, David, 62, 209n5 hyperbolic discounting, 158, 201 illiquid markets, 74, 94 index funds, 75 individual investing, 76–82 Industrial Bank of Japan, 14 information asymmetry, 96, 210n2 innovation, 190 institutional investing, 74–76, 82, 93–95, 205 intergenerational transfers, 217n1, 218n4 interlocking utility, 108 intertemporal choice, 149–159, 166 investing: personal beliefs and, 52–53 in start-ups, 27 Joseph (biblical figure), 97–99 Kahneman, Daniel, 168 Kantianism, 135–136 Keynes, John Maynard, 12, 58, 167, 169, 188–189 Kierkegaard, Søren, 30, 53, 65, 88 Knight, Frank, 145, 187 Kranton, Rachel E., 210–211n2 labor supply, 185–189 Lake Wobegon effect, 4 lawn-mowing paradox, 33–34, 206 Lehman Brothers, 61, 86, 89, 184 leisure, 14, 17, 41, 154, 187 Libet, Benjamin, 161 life, valuation of, 138–143 Life of Alexander (Plutarch), 180–181 Locher, Roger, 117, 124 long-term vs. short-term planning, 148–149 loss aversion, 70, 199 lottery: as rational choice, 199–200 Winner’s Curse, 34–36 love altruism, 104, 116, 123–125, 126, 203 lying, vs. omitting, 134 Macbeth (Shakespeare), 63 MacFarquhar, Larissa, 214n6 Madoff, Bernard, 170 malevolence, 125–127 Malthus, Thomas, 212n2 manners, in social interactions, 104, 106, 107, 116, 125 market equilibrium, 33 Markowitz, Harry, 65 Marshall, Alfred, 41, 167 Mass Flourishing (Phelps), 189–191 materialism, 5 merchant’s choice, 133–134, 137–138 mercy, 104, 114–116, 203 examples of, 116–120 inexplicable, 45–46, 120–122 uniqueness of, 119, 129 mergers and acquisitions, 192 “money pump,” 159 monks’ parable, 114, 124 Montaigne, Michel de, 114, 118 mortgage-backed securities, 93 Nagel, Thomas, 161 Napoleon I, emperor of the French, 71 neoclassical economics, 8, 10, 11, 22, 33 Nietzsche, Friedrich, 21, 43, 209n5 norms, 104, 106–108, 123 Norway, 66 Nozick, Robert, 162 observed care altruism, 108–112 Odyssey (Homer), 149–150 omission bias, 200 On the Fourfold Root of the Principle of Sufficient Reason (Schopenhauer), 209n5 “on the spot” knowledge, 61, 70, 80, 94, 205 Orico, 13 overconfidence, 57, 200 “overearning,” 44–45 The Palm Beach Story (film), 7 The Paradox of Choice (Schwartz), 172 parenting, 108, 141, 170–171 Pareto efficiency, 132–133, 136, 139–140 Peirce, Charles Sanders, 53–54, 67, 94 pension funds, 66, 74–75, 93, 95 permanent income hypothesis, 179 Pharaoh (biblical figure), 97–99 Phelps, Edmund, 17, 189–191 Philip II, king of Macedonia, 181 planning, 149–151 for consumption, 154–157 long-term vs. short-term, 148–149 rational choice applied to, 152–158, 162 play, 44–45, 167, 202 pleasure-pain principle, 18 Plutarch, 180–181 Poe, Edgar Allan, 126 pollution, 132–133 Popeye the Sailor Man, 19 portfolio theory, 64–65 positive psychology (happiness research), 25–26, 201–202 preferences, 18–19, 198 aggregating, 38–39, 132, 164 altruism and, 28, 38, 45, 104, 110, 111, 116 in behavioral economics, 24, 168 beliefs’ feedback into, 51, 55 defined, 23 intransitive, 158–159 in purposeful behavior, 25, 36 risk aversion and, 51 stability of, 33, 115, 147, 207, 208 “time-inconsistent,” 158, 159, 166, 203 present value, 7, 139 principal-agent problem, 72 Principles of Economics (Marshall), 41 prisoner’s dilemma, 105 private equity, 75 procrastination, 3, 4, 19, 177–178 prospect theory, 168 protectionism, 185–187 Prussia, 191 public equities, 75 punishment, 109 purposeful choice, 22–26, 27, 34, 36, 56, 133–134, 204–205 altruism compatible with, 104, 113–114, 115–116 commensurability and, 153–154 as default rule, 43–46 expert opinion and, 57 extreme unexpected events and, 62–63 flow of time and, 30 for-itself behavior commingled with, 40–43, 129, 171 mechanistic quality of, 68 in merchant’s choice, 135, 137–138 Pareto efficiency linked to, 132 rational choice distinguished from, 22–23 regret linked to, 128 social relations linked to, 28 stable preferences linked to, 33 in trolley problem, 135–136 vaccination and, 58–59 wage increases and, 187.


pages: 383 words: 108,266

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions by Dan Ariely

air freight, Al Roth, Bernie Madoff, Burning Man, butterfly effect, Cass Sunstein, collateralized debt obligation, computer vision, corporate governance, credit crunch, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, endowment effect, financial innovation, fudge factor, Gordon Gekko, greed is good, housing crisis, IKEA effect, invisible hand, lake wobegon effect, late fees, loss aversion, market bubble, Murray Gell-Mann, payday loans, placebo effect, price anchoring, Richard Thaler, second-price auction, Silicon Valley, Skype, The Wealth of Nations by Adam Smith, Upton Sinclair

OUR PROPENSITY TO overvalue what we own is a basic human bias, and it reflects a more general tendency to fall in love with, and be overly optimistic about, anything that has to do with ourselves. Think about it—don’t you feel that you are a better-than-average driver, are more likely to be able to afford retirement, and are less likely to suffer from high cholesterol, get a divorce, or get a parking ticket if you overstay your meter by a few minutes? This positivity bias, as psychologists call it, has another name: “The Lake Wobegone Effect,” named after the fictional town in Garrison Keillor’s popular radio series A Prairie Home Companion. In Lake Wobegone, according to Keillor, “all the women are strong, all the men are good-looking, and all the children are above average.” I don’t think we can become more accurate and objective in the way we think about our children and houses, but maybe we can realize that we have such biases and listen more carefully to the advice and feedback we get from others.

., 273–74 job performance. 320–24 public scrutiny and, 322 relationship between compensation and, 320–21, 322–24 Jobst suit, 192–94 Johnston, David Cay, 204 JP Morgan Chase, 280 judgment and decision making (JDM), xxviii see also behavioral economics “Just say no” campaign, 100, 101 K Kahneman, Daniel, 19, 129 Keeney, Ralph, 264 knee surgery, arthroscopic, 174–76 Knetsch, Jack, 129 Knight-McDowell, Victoria, 277 Koran, 215 L “Lake Wobegone Effect,” 268–69 Latin America, lack of trust in, 214 Lay, Kenneth, 219 learned helplessness, 312–16 experiments on, 312–14 in financial meltdown, 314–16 recovering from, 315–16 Leaves of Grass (Whitman), 40–41 Lee, Leonard, 21, 157–59, 161, 337 legal profession: attempts at improving ethics of, 213–14 decline of ethics and values in, 209–10 Lehman Brothers, 280, 310 leisure, blurring of partition between work and, 80, 81 Leland, John, 122–23 Leo III, Pope, 188 Leonardo da Vinci, 274 Levav, Jonathan, 231–37, 337 Levitt, Steven, xvi Li, Jian, 166–68 Lincoln, Abraham, 177 Linux, 81 List, John, xvi loans: punitive finance practices and, 300–301, 304 see also mortgages lobbyists, congressional restrictions on, 205 Loewenstein, George, 21, 26, 30–31, 39, 89,, 320–21, 337–38 Logic of Life, The (Harford), 291–92 Lorenz, Konrad, 25, 43 loss: aversion to, 134, 137, 138, 148–49 fear of, 54–55 Lost World, The (Crichton), 317–18 loyalty: in business-customer relations, 78–79 of employees to their companies, 80–84 M Macbeth (Shakespeare), 188 Madoff, Bernard, 291 Maier, Steve, 312-13 major, college students’ choice of, 141–42 manufacturer’s suggested retail price (MSRP), 30, 45 marketing: high price tag and, 24–25 hype of, related to satisfaction derived from product, 186–87, 190–91 relativity and, 1–6, 9–10 “trial” promotions and, 136–37 zero cost and, 49–50 market norms, 67–88 companies’ relations with their customers and, 78–80 companies’ relations with their employees and, 80–84, 252–54 doing away with, 86–88 education and, 85 mere mention of money and, 73–75 mixing signals of social norms and, 69, 73–74, 75–77, 79, 214, 250–52 reducing emphasis on, 88 social norms kept separate from, 67–69, 75–76, 77–78 willingness to risk life and, 84 working for gifts and, 72–74 working under social norms vs., 69–72 Maryland Judicial Task Force, 210 Mazar, Nina, 196–97, 206, 219–20, 224, 320–21, 338 McClure, Sam, 166–68 Mead, Nicole, 74–75 medical benefits, recent cuts in, 82 medical care, see health care medical profession: conflicts of interest and, 293, 295 decline of ethics and values in, 210 salaries of, as practicing physicians vs.


pages: 1,351 words: 385,579

The Better Angels of Our Nature: Why Violence Has Declined by Steven Pinker

1960s counterculture, affirmative action, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, availability heuristic, Berlin Wall, Bonfire of the Vanities, British Empire, Broken windows theory, business cycle, California gold rush, Cass Sunstein, citation needed, clean water, cognitive dissonance, colonial rule, Columbine, computer age, conceptual framework, correlation coefficient, correlation does not imply causation, crack epidemic, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, demographic transition, desegregation, Doomsday Clock, Douglas Hofstadter, Edward Glaeser, en.wikipedia.org, European colonialism, experimental subject, facts on the ground, failed state, first-past-the-post, Flynn Effect, food miles, Francis Fukuyama: the end of history, fudge factor, full employment, George Santayana, ghettoisation, Gini coefficient, global village, Henri Poincaré, Hobbesian trap, humanitarian revolution, impulse control, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), invention of the printing press, Isaac Newton, lake wobegon effect, libertarian paternalism, long peace, longitudinal study, loss aversion, Marshall McLuhan, mass incarceration, McMansion, means of production, mental accounting, meta analysis, meta-analysis, Mikhail Gorbachev, moral panic, mutually assured destruction, Nelson Mandela, open economy, Peace of Westphalia, Peter Singer: altruism, QWERTY keyboard, race to the bottom, Ralph Waldo Emerson, random walk, Republic of Letters, Richard Thaler, Ronald Reagan, Rosa Parks, Saturday Night Live, security theater, Skype, Slavoj Žižek, South China Sea, Stanford marshmallow experiment, Stanford prison experiment, statistical model, stem cell, Steven Levy, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, theory of mind, transatlantic slave trade, Turing machine, twin studies, ultimatum game, uranium enrichment, Vilfredo Pareto, Walter Mischel, WikiLeaks, women in the workforce, zero-sum game

The winner of the contest was the player who had more money, if their nation survived at all, at the end of several rounds of play. The players interacted with each other by computer and could not see each other, so the men didn’t know whether they were playing with another man or with a woman, and vice versa. Before they began, participants were asked to predict how well they would do relative to everyone else playing the game. The experimenters got a nice Lake Wobegon Effect: a majority thought they would do better than average. Now, in any Lake Wobegon Effect, it’s possible that not many people really are self-deceived. Suppose 70 percent of people say they are better than average. Since half of any population really is above average, perhaps only 20 percent think too well of themselves. That was not the case in the war game. The more confident a player was, the worse he or she did. Confident players launched more unprovoked attacks, especially when playing each other, which triggered mutually destructive retaliation in subsequent rounds.

An early exposé was the sociologist Erving Goffman’s The Presentation of Self in Everyday Life, and recent summaries include Carol Tavris and Elliot Aronson’s Mistakes Were Made (but Not by Me), Robert Trivers’s Deceit and Self-Deception, and Robert Kurzban’s Why Everyone (Else) Is a Hypocrite.23 Among the signature phenomena are cognitive dissonance, in which people change their evaluation of something they have been manipulated into doing to preserve the impression that they are in control of their actions, and the Lake Wobegon Effect (named after Garrison Keillor’s fictitious town in which all the children are above average), in which a majority of people rate themselves above average in every desirable talent or trait.24 Self-serving biases are part of the evolutionary price we pay for being social animals. People congregate in groups not because they are robots who are magnetically attracted to one another but because they have social and moral emotions.

Capacity for evil: Baumeister, 1997; Baumeister & Campbell, 1999. 20. Narratives of harm: Baumeister, Stillwell, & Wotman, 1990. 21. Rate of anger: Baumeister et al., 1990. 22. Harm narratives with harm controlled: Stillwell & Baumeister, 1997. 23. Self-serving biases: Goffman, 1959; Tavris & Aronson, 2007; Trivers, in press; von Hippel & Trivers, 2011; Kurzban, 2011. 24. Cognitive dissonance: Festinger, 1957. Lake Wobegon Effect and other positive illusions: Taylor, 1989. 25. Moral emotions as the basis for cooperation: Haidt, 2002; Pinker, 2008; Trivers, 1971. 26. Advantages of the Moralization Gap: Baumeister, 1997; Baumeister et al., 1990; Stillwell & Baumeister, 1997. 27. Self-deception as an adaptation: Trivers, 1976, 1985, in press; von Hippel & Trivers, 2011. 28. Orwell: Quoted in Trivers, 1985. 29. Problems with self-deception: Pinker, 2011. 30.


Beautiful Data: The Stories Behind Elegant Data Solutions by Toby Segaran, Jeff Hammerbacher

23andMe, airport security, Amazon Mechanical Turk, bioinformatics, Black Swan, business intelligence, card file, cloud computing, computer vision, correlation coefficient, correlation does not imply causation, crowdsourcing, Daniel Kahneman / Amos Tversky, DARPA: Urban Challenge, data acquisition, database schema, double helix, en.wikipedia.org, epigenetics, fault tolerance, Firefox, Hans Rosling, housing crisis, information retrieval, lake wobegon effect, longitudinal study, Mars Rover, natural language processing, openstreetmap, prediction markets, profit motive, semantic web, sentiment analysis, Simon Singh, social graph, SPARQL, speech recognition, statistical model, supply-chain management, text mining, Vernor Vinge, web application

Just as the statisticians tend to their tsk-tsk blogs, the behavioral economists have made a field from their own chronicles of infamy. The narrative fallacy, confirmation bias, paradox of choice, asymmetry of risk-taking, base rate fallacy, and hyperbolic discounting were mentioned earlier. Psychologists have indexed many others, ranging from anchoring (overreliance on a single recent data point in making a decision) to the Lake Wobegon effect (the phenomenon of more than half of individuals in a population believing they are above average). As these effects become better documented, we can develop tools and intuitions to help take data at face value (part of my work is focused on developing tools for financial decisionmaking). In some sense, the solution is simple: data doesn’t do much if you don’t understand its limits. Conclusion It’s no news that we live in an age of abundant data.

(author), 35–53 Human Genome Project, 250 (see also DNA) INDEX Download at Boykma.Com I Image Compression Sub-System (ICS), 42 images (see Geograph archive; Phoenix Mars Lander system; Radiohead’s “House of Cards” video) Information Platforms, 74, 83 (see also Facebook’s Information Platform) information visualization, 86 informative test for surfacing, 142 informativeness test for surfacing, 136 Inmon, Bill (Building the Data Warehouse), 76 Integrated Public Use Microdata Series (IPUMS) databases, 186 integrating data from separate sources (see data integration) International Cancer Genome Consortium, 253 IPUMS (Integrated Public Use Microdata Series) databases, 186 J Jonas, Jeff (author), 105–118 K Kahneman, Daniel (experiment about prospect theory), 208, 215 Kastellec, Jonathan P. (author), 323–332 Kimball, Ralph (The Data Warehouse Toolkit), 76 Klump, Valdean (author), 149–165 Koblin, Aaron (author), 149–165 Krumme, Coco (author), 205–217 L Lake Wobegon effect, 217 Lang, Andrew (author), 259–277 language identification of corpus data, 239 “Learning Organization” concept, 78 Lewin, Kurt (“action research” concept), 78 libraries, as Information Platforms, 73 Lidar scanner (see Velodyne Lidar scanner) Lindenbaum, Pierre (author), 259–277 Lindsay, Jeff (Web Hooks concept), 127 Linguistic Data Consortium, 219 location information, representation of for Geograph archive, 95–98 for Oakland Crimespotting project, 174–181 for PEIR system, 8–11 for political data, 330 for sense.us website, 188–194 Luhn, Hans Peter (“A Business Intelligence System”), 75 luxury product, survey for (see customer survey project) M machine translation of corpus data, 240 Madhaven, Jayant (author), 133–147 maps (see location information, representation of) Mars Lander system (see Phoenix Mars Lander system) mastership of records, 60, 61 materialized views, 66 Matlab (data analysis package), 282 Matplotlib (data analysis package), 282 Matsumoto, Yukihiro (Ruby programming language), 89, 98 MECA Optical Microscope (OM) camera, 38 mediator accessing Deep Web using, 135 for social data (see Gnip) Medicare website, 337 message boards, public data available from, 337 Microsoft Azure SDS, 70 Microsoft’s data management stack, 82 Migurski, Michal (author), 167–182 MObStor system, 71 Modest Maps library, 8 Morville, Peter (“findability” concept) motivation considerations for data collection, 21, 30 music video based on data (see Radiohead’s “House of Cards” video) N narrative fallacy, 207 National Center for Biotechnology Information (NCBI) website, 336 natural language corpus data, 219, 240 author identification of, 239 DNA sequencing of, 240 document unshredding of, 240 language identification of, 239 machine translation of, 240 search strategies used for, 241 secret codes in, analysis of, 228–234 spam detection in, 239 spelling correction of, 234–239 word segmentation analysis of, 221–227 NCBI (National Center for Biotechnology Information) website, 336 INDEX Download at Boykma.Com 361 Neylon, Cameron (author), 259–277 normalization of social data, 128–131 Norvig, Peter (author), 219–242 Num Py (data analysis package), 282 O Oakland Crimespotting project, 167 data collection from CrimeWatch, 169–174 visualizing data online, 174–181 Oakland CrimeWatch application, 169–174 OAuth, 130 O’Connor, Brendan (author), 279–301 Open Notebook Science, 261 Optical Microscope (OM) camera, 38 P P2P protocol, 121 partitioning data, 56 patterns, people’s skill at recognizing, 206 PEIR (Personal Environmental Impact Report) system, 2 data collection for, 3, 4 data processing for, 6 data visualization for, 8–12 database design for, 5 participating in, 15 sharing data from, 12 perception considerations for data collection, 20–21 persistent context, 115 personal data collection of, 3–5 visualization of, 7–14 Personal Environmental Impact Report (see PEIR system) Phoenix Mars Lander system, 35–40 cameras (imagers) for, 38, 53 computer used for, 37 data collection for, 37 data packing for, 40 data processing for, 42, 46–51, 53 data storage for, 43–46 data transfer for, 37, 52 image compression for, 50 websites about, 54 photographs (see Geograph archive; Phoenix Mars Lander system) planning fallacy, 212 PNUTS system, 56 comparison with Azure SDS, 70 comparison with BigTable system, 68 comparison with Cassandra system, 70 comparison with Dynamo system, 69 geo-replication of data in, 56, 58 362 partitioning data for scale-out, 56, 62 querying data, 64–67 updating data, 57–64 political data, 323 age, effect on vote choice, 328 graphics used for, 323 mapping partisanship in Pennsylvania, 330 predicting vote choice, 326 redistricting, effect on partison bias, 324 supreme court nominees, senate voting patterns on, 328 polling, 123 Poole, David (author), 303–321 Popper, Karl (statement about falsifiability), 209, 213 predictions, difficulty in making from data, 213 privacy, with “data finds data” systems, 118 probabilistic model, 221 probability, 215, 220 public data, sources of, 336 Purves, Ross (research using Geograph), 92 PyHive framework, 81 Q Quants, as Data Scientists, 84 R R (data analysis package), 282, 300 RAC (Robotic Arm Camera), 38 Radiohead’s “House of Cards” video, 149 data capture equipment for, 150–154 data capturing process for, 155–159, 164 data processing for, 160 data sample for, 154 launching, 161–164 Ramakrishnan, Raghu (author), 55–71 range-partitioned data, 62 rate limiting, used with polling, 123 raw data, providing to users application for querying live data, 265 collecting crowdsourced data, 260 further experiments suggested by, 271–274 integrating data with other data resources, 266 problems created by, 275–277 reasons for, 259, 274, 276 representing data online, 263–271 self-describing data formats for, 269 unique identifiers required for, 263, 269 validating crowdsourced data, 262 Raynard, Robert (Secret Code Breaker), 233 RDF (Resource Description Framework), 269 INDEX Download at Boykma.Com real estate sales, analysis of (see housing market analysis) record-level mastership, 61 relational model for data, 76 replication of DNA, 247 geo-replication of data, 56, 58 reporting on data results (see data visualization) REpresentational State Transfer (REST), 122 Resource Description Framework (RDF), 269 resources (see books and publications; website resources) REST (REpresentational State Transfer), 122 Rice algorithm for compression, 51 Robotic Arm Camera (RAC), 38 roulette wheel example of “data finds data”, 107–111 S San Francisco housing market analysis (see housing market analysis) Sanger Institute’s sequencing platform for DNA data, 254–257 SAS (data analysis package), 282 scale-out feature for data storage, 56 Sci Py (data analysis package), 282 search engines, accessing Deep Web from (see surfacing) search strategies for corpus data, 241 Secret Code Breaker (Raynard), 233 secret codes in corpus data, analyzing, 228–234 Securities and Exchange Commission website, 336 Segaran, Toby (author), 335–348 semantically reconciled and relationshipaware directories, 114 semantically reconciled directories, 114 Senge, Peter (The Fifth Discipline), 78 sense.us website, 184, 186 Birthplace Voyager graph, 191 census data used for, 186–188 collaboration features of, 194–199, 201 doubly linked discussions, 195 field tests of, 199–203 Job Voyager graph, 191 pointing with graphical annotations, 196 population pyramid, 192 scatter plot display, 192 social navigation, 198 state map, 192 views, collecting and linking, 197 views, sharing, 194 visualization of data, 188–194 Sequencescape tools, 254 sequencing platform for DNA data, 254–257 shift ciphers, 228 Singh, Simon (The Code Book), 230 social data, 119 business value of, 129–131 formats for, current, 121 normalizing, 128–131 public versus private data, 130 sharing and collaborating on, 194–199, 201 transporting, APIs for, 122–128 transporting, current methods for, 120 visualization and analysis of, 184, 199 visualization of, 188–194 social networks, public data available on, 336 social stereotypes, researching, 279 clustering types of people, 295–300 data analysis, 282, 290–294 gendered words, determining, 294 preprocessing the data, 280 presentation of data results, 285–290 Sokol, Lisa (author), 105–118 space missions (see Phoenix Mars Lander system) spam detection in corpus data, 239 spelling correction of corpus data, 234–239 SPSS (data analysis package), 282 Srivastava, Utkarsh (author), 55–71 Stata (data analysis package), 282 Stereo Surface Imager (SSI), 38 stereotypes (see social stereotypes, researching) storage cloud, 56, 70 (see also PNUTS system) stories created from data, 208, 211 stylometry of corpus data, 239 substitution ciphers in corpus data, analyzing, 228–234 surfacing, 135, 136 challenges of, 136 informative test for, 136, 142 inputs for, selecting, 140, 144–146 queries for, selecting, 138–144 query templates for, 139, 141, 143 survey project (see customer survey project) Swayne, Deborah F.


pages: 486 words: 148,485

Being Wrong: Adventures in the Margin of Error by Kathryn Schulz

affirmative action, anti-communist, banking crisis, Bernie Madoff, car-free, Cass Sunstein, cognitive dissonance, colonial rule, conceptual framework, cosmological constant, cuban missile crisis, Daniel Kahneman / Amos Tversky, dark matter, desegregation, Johann Wolfgang von Goethe, lake wobegon effect, longitudinal study, mandatory minimum, Pierre-Simon Laplace, Ronald Reagan, six sigma, stem cell, Steven Pinker, Tenerife airport disaster, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, trade route

.* In other words, if we want to discredit a belief, we will argue that it is advantageous, whereas if we want to champion it, we will argue that it is true. That’s why we downplay or dismiss the self-serving aspects of our own convictions, even as we are quick to detect them in other people’s beliefs. Psychologists refer to this asymmetry as “the bias blind spot.” The bias blind spot can be partly explained by the Lake Wobegon Effect, that endlessly entertaining statistical debacle whereby we all think that we are above average in every respect—including, amusingly, impartiality. But a second factor is that we can look into our own minds, yet not into anyone else’s. This produces a methodological asymmetry: we draw conclusions about other people’s biases based on external appearances—on whether their beliefs seem to serve their interests—whereas we draw conclusions about our own biases based on introspection.

., 70–71, 90–91 of the body, 67–69, 79–82 certainty vs., 163–64 confabulations and, 77–86 memory failures and, 71–77 perception and, 53–54 reliance on other people’s, 137–44 Kocourek, Tom, 380n Kolbert, Elizabeth, 367n Kraepelin, Emil, 82 Krugman, Paul, 90 Kübler-Ross, Elisabeth, 229–30 Kuhn, Thomas, 125–27, 126n, 167, 186, 187n, 208, 349n Ku Klux Klan (KKK), 273–79, 284n, 294–95 Lake Wobegon Effect, 106–7 Lancaster Sound, 48–50, 353n Landsgemeinde, 147–48, 151 language, 97, 98, 116n, 119–21, 252–53, 307–9 Lanir, Zvi, 374n Laplace, Pierre-Simon, 34–35 La Rochefoucauld, François de, 263 Larousse, 29, 348n Laser Interferometer Gravitational-Wave Observatory, 94 laughter, 321–26, 389–90n Lee, Keunwoo, 210n Leka, Donald, 122–23 Leno, Jay, 175 Letters on Natural Magic (Brewster), 63–64 Levin, Harry, 390n Levitt, Arthur, 90 Levy, Paul, 301, 302, 304–5, 316, 385n Lewis, Meriwether, 48 Lewis, Michael, 89 Limits to Growth, The, 25–26 Linton, Ralph, 31 listening, 309–11 Liszt, Franz von, 223–24, 377n Locke, John, 22, 139, 253 “losing face,” 26 love, 259–72 characteristic emotions of falling in, 261–62 in literarature, 251–52, 260–61 notion of, 259–66 rift between us and the world, 253–59 self-knowledge and the self, 283n tools for understanding one another, 251–53 Lynch, Jessica, 64n Lynd, Helen Merrell, 191, 373n Lysenko, Trofim Denisovich, 154n lysenkoism, 154n McArdle, Megan, 196–97n McCain, John, 177 McGrath, Michael, 234–37, 245–46, 379n McGregor, Angus, 128 machines, and belief, 334–35 Mack, Maynard, 172n, 390n MacMillan, Donald, 52n Madison, James, 314 madness, 35, 38–40, 41, 190 Madoff, Bernie, 187, 215–16 Magliozzi, Ray, 141 Magliozzi, Tom, 141 Maistre, Joseph-Marie de, 312 “management by fact,” 305–6 Margalit, Avishai, 142, 250n Mariana Trench, 141 market self-regulation, 87–90 Markus, Greg, 185, 371–72n Masada, 161, 161n May, Rollo, 178–79, 326 Mbeki, Thabo, 232, 379n Meadows, Donella, 26 medical errors, 299–302, 301n, 304–6, 316, 317, 386n Mele, Alfred R., 375–76n Melnikoff, Arnold, 235 melted by fire, 189–90 memories, 71–77, 184–85 Menand, Louis, 34 Midnight Cry, The, 204 military psychological operations (psyops), 64n Miller, William (Millerites), 201–16, 218–19, 373n, 374–75n mind belief.


pages: 237 words: 67,154

Ours to Hack and to Own: The Rise of Platform Cooperativism, a New Vision for the Future of Work and a Fairer Internet by Trebor Scholz, Nathan Schneider

1960s counterculture, activist fund / activist shareholder / activist investor, Airbnb, Amazon Mechanical Turk, barriers to entry, basic income, bitcoin, blockchain, Build a better mousetrap, Burning Man, capital controls, citizen journalism, collaborative economy, collaborative editing, collective bargaining, commoditize, conceptual framework, crowdsourcing, cryptocurrency, Debian, deskilling, disintermediation, distributed ledger, Ethereum, ethereum blockchain, future of work, gig economy, Google bus, hiring and firing, income inequality, information asymmetry, Internet of things, Jacob Appelbaum, Jeff Bezos, job automation, Julian Assange, Kickstarter, lake wobegon effect, low skilled workers, Lyft, Mark Zuckerberg, means of production, minimum viable product, moral hazard, Network effects, new economy, offshore financial centre, openstreetmap, peer-to-peer, post-work, profit maximization, race to the bottom, ride hailing / ride sharing, SETI@home, shareholder value, sharing economy, Shoshana Zuboff, Silicon Valley, smart cities, smart contracts, Snapchat, TaskRabbit, technoutopianism, transaction costs, Travis Kalanick, Uber for X, uber lyft, union organizing, universal basic income, Whole Earth Catalog, WikiLeaks, women in the workforce, Zipcar

We can call these “Lake Wobegon systems,” after the town in the Garrison Keillor short stories where “all the children are above average.” Such systems fail to discriminate among good and bad service providers, and researchers have confirmed that there is often no real relationship between rating and quality. There is no evidence that an Uber driver with a rating of 4.9 is better than one with a rating of 4.6, even though the latter is in danger of being kicked off the Uber platform. One underlying reason for the Lake Wobegon effect is that when we are unhappy at an interaction, many people follow the maxim “if you can’t say anything nice, say nothing at all.” Some leave no rating after a substandard Airbnb visit because they do not want the awkwardness that may go along with putting out a negative evaluation for the world to see. A reputation system acts as a guestbook at a bed-and-breakfast or a small museum: we leave comments and it looks nice, but it does not solve the hard problems of establishing trust.


pages: 250 words: 64,011

Everydata: The Misinformation Hidden in the Little Data You Consume Every Day by John H. Johnson

Affordable Care Act / Obamacare, Black Swan, business intelligence, Carmen Reinhart, cognitive bias, correlation does not imply causation, Daniel Kahneman / Amos Tversky, Donald Trump, en.wikipedia.org, Kenneth Rogoff, labor-force participation, lake wobegon effect, Long Term Capital Management, Mercator projection, Mercator projection distort size, especially Greenland and Africa, meta analysis, meta-analysis, Nate Silver, obamacare, p-value, PageRank, pattern recognition, publication bias, QR code, randomized controlled trial, risk-adjusted returns, Ronald Reagan, selection bias, statistical model, The Signal and the Noise by Nate Silver, Thomas Bayes, Tim Cook: Apple, wikimedia commons, Yogi Berra

See also misrepresentation and misinterpretation brain’s hardwiring for, 60–61 challenges in, 54–55 Ioannidis, John, 75 iPhones, 46–48, 58 “Ipse dixit” bias, 94 J Japan earthquake of 2011, 123–125 Jordan, Michael, 53 Journal of Epidemiology and Community Health, 80 Journal of Finance, 139–140 Journal of Safety Research, 20 Journal of the American Medical Informatics Association, 148 Journal of the National Cancer Institute, 69–70 K Katz, David, 22 Keillor, Garrison, 43 L Lake Wobegon effect, 42–43 Landon, Alfred, 132 Law360, 146–148 Lawyer Satisfaction Survey, 146–148 Literary Digest, 132 longevity, 4, 87–92 Los Angeles Times, 17–18 Lotto Stats, 133 Lund, Bob, 10 M magnitude, 77–78, 81 in birth month and health study, 149 map projections, 83–85 margins of error, 38, 68–69 Marie Claire, 34–35 math mistakes, 101–102, 103 mayors/deputy mayors salaries, 35–36 McCarthy, Jenny, 61 McGwire, Mark, 39 meaning, difficulty of extracting from too much data, 4.


pages: 340 words: 92,904

Street Smart: The Rise of Cities and the Fall of Cars by Samuel I. Schwartz

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, active transport: walking or cycling, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, autonomous vehicles, car-free, City Beautiful movement, collaborative consumption, congestion charging, crowdsourcing, desegregation, Enrique Peñalosa, Ford paid five dollars a day, Frederick Winslow Taylor, if you build it, they will come, Induced demand, intermodal, invention of the wheel, lake wobegon effect, Loma Prieta earthquake, longitudinal study, Lyft, Masdar, megacity, meta analysis, meta-analysis, moral hazard, Nate Silver, oil shock, Productivity paradox, Ralph Nader, rent control, ride hailing / ride sharing, Rosa Parks, self-driving car, skinny streets, smart cities, smart grid, smart transportation, the built environment, the map is not the territory, transportation-network company, Uber and Lyft, Uber for X, uber lyft, Unsafe at Any Speed, urban decay, urban planning, urban renewal, walkable city, Wall-E, white flight, white picket fence, Works Progress Administration, Yogi Berra, Zipcar

What was it that made moving to the suburbs so damned appealing? The answers are, like the subject, complicated. Some people did—and still do—dream of a house with a fence in front and a garden (or swimming pool!) out back. Others sought out suburbs as an escape from cities that seemed, and often were, dirty, crowded, and dangerous. A lot of families continue to shop for a suburban school district in search of what I call the Lake Wobegon Effect: a place where all the children are above average and therefore get an above-average education (though their math must be a little below average if they believe this to be true). But the best explanation for why Americans overwhelmingly chose suburban living for more than fifty years, and so many continue to do so today, is money. They voted with their wallets, for suburban houses whose cost per square foot was so much lower than that of the available housing stock in densely populated urban centers.


pages: 825 words: 228,141

MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins

3D printing, active measures, activist fund / activist shareholder / activist investor, addicted to oil, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, backtesting, bitcoin, buy and hold, clean water, cloud computing, corporate governance, corporate raider, correlation does not imply causation, Credit Default Swap, Dean Kamen, declining real wages, diversification, diversified portfolio, Donald Trump, estate planning, fear of failure, fiat currency, financial independence, fixed income, forensic accounting, high net worth, index fund, Internet of things, invention of the wheel, Jeff Bezos, Kenneth Rogoff, lake wobegon effect, Lao Tzu, London Interbank Offered Rate, market bubble, money market fund, mortgage debt, new economy, obamacare, offshore financial centre, oil shock, optical character recognition, Own Your Own Home, passive investing, profit motive, Ralph Waldo Emerson, random walk, Ray Kurzweil, Richard Thaler, risk tolerance, riskless arbitrage, Robert Shiller, Robert Shiller, self-driving car, shareholder value, Silicon Valley, Skype, Snapchat, sovereign wealth fund, stem cell, Steve Jobs, survivorship bias, telerobotics, the rule of 72, thinkpad, transaction costs, Upton Sinclair, Vanguard fund, World Values Survey, X Prize, Yogi Berra, young professional, zero-sum game

It’s what psychologists call motivational bias. Most of us think we’re better than we really are at predicting patterns and luckier than we really are when there’s a jackpot at stake. What else can explain why so many people play the lottery?! A famous 1981 study at Stockholm University found that 93% of US drivers think their skills are above average. There’s even a name for this phenomenon: “the Lake Wobegon Effect,” referring to author Garrison Keillor’s mythical town where “all the children are above average.” Hey, who doesn’t think they’re above average! But when it comes to money, delusions that you’re better than everybody else can kill you. If you’re a man, you’re guilty of this bias by biochemistry. Testosterone equals overconfidence. Study after study show that women tend to be better investors because they don’t overestimate their abilities to anticipate the future accurately.

Morgan, 309, 498–99, 501–2 junk bonds, 318, 323 Kadlec, Gregory, 114 Kamen, Dean, 566 Karp, David, 125–26 Kay, Alan, 551 Keillor, Garrison, 334 Kennedy, John F., 19 Ki-hoon, Kim, 266–67 King, Martin Luther Jr., 586 Kissinger, Henry A., 230 knowledge, as potential power, 65 Kodak, 269, 318 Krom, Erik, 117 Kurzweil, Ray, 47, 410, 421, 551, 557, 563–67, 568–69, 571 Labor Department, U.S. (DOL), 146–47, 152 LaChappelle, Easton, 557–59 Lake Wobegon Effect, 334 Lao-Tzu, 26, 29 Las Vegas Sands Corp., 62 Lauer, Matt, 270, 349–50, 485 Lawrence, T. E., 203 leadership, 501 Leape, Jim, 556 learned helplessness, 180 Lee, Bruce, 42 Lehman Brothers, 378 Lewis, JT, 591–93 Lewis, Michael, 7 LIBOR (London Interbank Offered Rates), 123, 516 lies we tell ourselves, 183–99, 249 and breakthroughs, 184–99 and fear of failure, 183–84 and fear of unknown, 185 life: as adventure, 291 artificial, 566 balance in, 258, 577 decisions in, 244, 246 as information technology, 566 quality of, 37, 292, 538, 576, 577, 580–82, 583 race of, 233 you as creator of, 226, 229, 246 your stage in, 331–32 lifecycle funds, 157 life expectancy, 31–32, 409, 538 life insurance: borrowing from, 446–47 death benefit proceeds from, 447 PPLI, 443–48 in Security/Peace of Mind Bucket, 309 lifestyle, 209–10, 218 changing, 287–92, 612 and Dream Bucket, 341 moving to another place, 288–91 437 Lifetime Income plan, 46, 170–71, 308, 406–18, 613–14 annuities, 416–18, 419–41 income insurance, 415–16 John’s case, 412–14 Susan’s case, 414–16 Lincoln, Abraham, 19 liquidity, 302, 331 Livermore, Jesse, 525 living trust, 448–49 LL Cool J, 15 Lombardi, Vince, 51 longevity insurance, 426–27 “lost decade,” 107, 357, 366, 396 lottery: in retirement, 412 spending money on, 37, 334 love and connection, 77 luck, 228–29, 343, 412 Lynch, Peter, 354, 400 Magellan fund, 400 Maker Revolution, 559–61 Malkiel, Burton, 49–52, 59, 96–97, 326, 354, 356–58 on compounding, 50–52 on diversification, 325 on dollar-cost averaging, 355, 358, 365, 366 and index funds, 49, 97 on rebalancing, 359, 361 on tax-loss harvesting, 362 Mallory, George, 406, 409 Marcus Aurelius, 381 marketing, 85, 97, 102 market timing, 97, 296 Markowitz, Harry, 297, 379, 472 Marley, Bob, 232 mastery: execution as, 65 levels of, 42 Mayweather, Floyd “Money” Jr., 53–54, 210 McCarty, Oseola, 60–61, 62, 63 McDonald’s, 373–74 McGonigal, Kelly, 190–99 meaning, 575, 580–82 Meat Loaf, 52 Medicare/Medicaid, 149 Mellon, Andrew, 315 Merckle, Adolf, 66, 71–72, 73 Metallica, 314 MF Global, 123 Microsoft, 377 millionaires vs. billionaires, 208–10 minimum wage, 263 mob mentality, 348–49 momentum trading, 325 money: as abstract concept, 3–4 compounding, 35–36, 49–52, 58, 60, 62–65, 256, 364 control of, 14 critical mass of, 33, 58, 89, 90, 408 doubling, 283, 284 emergency/protection fund, 216–17, 302 and emotion, 209, 210 and financial freedom, 5–6 and happiness, 588–91 loss of, 336 love of, as root of evil, 195 to make money, 192 mastery of, 6, 71 nest egg, 58, 257 and power, 3 as reflection of creativity, 193 for retirement, 32, 210–11 spending plan, 253–56 as tool, 3 trading time for, 54 what you earn vs. what you keep, 273 where to put, see asset allocation worry about, 190–91 Moneyball, 65 Moneychimp, 119 money machine, 184, 192, 230, 254 savings as, 55–70 money market deposit accounts, 303 money market funds, 303 money masters: advice from, 455–57 author’s interviews with, 453–55 money pass, 333 Money Power Principles, 57, 230 1.


pages: 327 words: 103,336

Everything Is Obvious: *Once You Know the Answer by Duncan J. Watts

active measures, affirmative action, Albert Einstein, Amazon Mechanical Turk, Black Swan, business cycle, butterfly effect, Carmen Reinhart, Cass Sunstein, clockwork universe, cognitive dissonance, coherent worldview, collapse of Lehman Brothers, complexity theory, correlation does not imply causation, crowdsourcing, death of newspapers, discovery of DNA, East Village, easy for humans, difficult for computers, edge city, en.wikipedia.org, Erik Brynjolfsson, framing effect, Geoffrey West, Santa Fe Institute, George Santayana, happiness index / gross national happiness, high batting average, hindsight bias, illegal immigration, industrial cluster, interest rate swap, invention of the printing press, invention of the telescope, invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, Joseph Schumpeter, Kenneth Rogoff, lake wobegon effect, Laplace demon, Long Term Capital Management, loss aversion, medical malpractice, meta analysis, meta-analysis, Milgram experiment, natural language processing, Netflix Prize, Network effects, oil shock, packet switching, pattern recognition, performance metric, phenotype, Pierre-Simon Laplace, planetary scale, prediction markets, pre–internet, RAND corporation, random walk, RFID, school choice, Silicon Valley, social intelligence, statistical model, Steve Ballmer, Steve Jobs, Steve Wozniak, supply-chain management, The Death and Life of Great American Cities, the scientific method, The Wisdom of Crowds, too big to fail, Toyota Production System, ultimatum game, urban planning, Vincenzo Peruggia: Mona Lisa, Watson beat the top human players on Jeopardy!, X Prize

Around 90 percent of Americans believe they are better-than-average drivers, and a similarly impossible number of people claim that they are happier, more popular, or more likely to succeed than the average person. In one study, an incredible 25 percent of respondents rated themselves in the top 1 percent in terms of leadership ability.7 This “illusory superiority” effect is so common and so well known that it even has a colloquial catchphrase—the Lake Wobegone effect, named for Prairie Home Companion host Garrison Keillor’s fictitious town where “all the children are above average.” It’s probably not surprising, therefore, that people are much more willing to believe that others have misguided beliefs about the world than that their own beliefs are misguided. Nevertheless, the uncomfortable reality is that what applies to “everyone” necessarily applies to us, too.


pages: 358 words: 95,115

NurtureShock: New Thinking About Children by Po Bronson, Ashley Merryman

affirmative action, Columbine, delayed gratification, desegregation, hedonic treadmill, impulse control, index card, job satisfaction, lake wobegon effect, longitudinal study, meta analysis, meta-analysis, randomized controlled trial, social intelligence, Steven Pinker, telemarketer, theory of mind

Now we turn the spotlight on children’s aggressiveness—a catchall term used by the social scientists that includes everything from pushing in the sandbox to physical intimidation in middle school to social outcasting in high school. The easy explanation has always been to blame aggression on a bad home environment. There’s an odd comfort in this paradigm—as long as your home is a “good” home, aggression won’t be a problem. Yet aggression is simply too prevalent for this explanation to suffice. It would imply a unique twist on the Lake Wobegon Effect—that almost every parent is below average. Aggressive behavior has traditionally been considered an indicator of psychological maladaptation. It was seen as inherently aberrant, deviant, and (in children) a warning sign of future problems. Commonly cited causes of aggression were conflict in the home, corporal punishment, violent television, and peer rejection at school. While no scholar is about to take those assertions back, the leading edge of research suggests it’s not as simple as we thought, and many of our “solutions” are actually backfiring.


pages: 364 words: 99,613

Servant Economy: Where America's Elite Is Sending the Middle Class by Jeff Faux

back-to-the-land, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, call centre, centre right, cognitive dissonance, collateralized debt obligation, collective bargaining, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, David Brooks, David Ricardo: comparative advantage, disruptive innovation, falling living standards, financial deregulation, financial innovation, full employment, hiring and firing, Howard Zinn, Hyman Minsky, illegal immigration, indoor plumbing, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kickstarter, lake wobegon effect, Long Term Capital Management, market fundamentalism, Martin Wolf, McMansion, medical malpractice, mortgage debt, Myron Scholes, Naomi Klein, new economy, oil shock, old-boy network, Paul Samuelson, plutocrats, Plutocrats, price mechanism, price stability, private military company, Ralph Nader, reserve currency, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, school vouchers, Silicon Valley, single-payer health, South China Sea, statistical model, Steve Jobs, Thomas L Friedman, Thorstein Veblen, too big to fail, trade route, Triangle Shirtwaist Factory, union organizing, upwardly mobile, urban renewal, War on Poverty, We are the 99%, working poor, Yogi Berra, Yom Kippur War

They did not trust government. All of these were true. But the polls also revealed something else: a gap between people’s perception of the nation’s economic fate and their own. The same polls that reported that Americans were pessimistic about the country’s future and believed that the next generation would be poorer also showed that they were optimistic about their own prospects. What one might call the “Lake Wobegon effect” is strikingly persistent. In June 2010, for example, 71 percent of Americans reported that they were doing better than average. Their neighbors and coworkers might be in for a rough time, but they and their children would be fine. When asked by Pew Charitable Trust pollsters about the next forty years, 56 percent thought that the U.S. economy would be weaker, but 64 percent were optimistic about the prospects for themselves and their children.


pages: 397 words: 109,631

Mindware: Tools for Smart Thinking by Richard E. Nisbett

affirmative action, Albert Einstein, availability heuristic, big-box store, Cass Sunstein, choice architecture, cognitive dissonance, correlation coefficient, correlation does not imply causation, cosmological constant, Daniel Kahneman / Amos Tversky, dark matter, endowment effect, experimental subject, feminist movement, fixed income, fundamental attribution error, glass ceiling, Henri Poincaré, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, job satisfaction, Kickstarter, lake wobegon effect, libertarian paternalism, longitudinal study, loss aversion, low skilled workers, Menlo Park, meta analysis, meta-analysis, quantitative easing, Richard Thaler, Ronald Reagan, selection bias, Shai Danziger, Socratic dialogue, Steve Jobs, Steven Levy, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, William of Occam, Zipcar

European Americans at Berkeley rate themselves as more conscientious than do Asian Americans at Berkeley, but not when you have both groups compare themselves to the explicit reference group of “typical Asian American Berkeley students.”13 Other things being equal, people in most cultures believe they are superior to most others in their group. This self-enhancement bias is sometimes known as the Lake Wobegon effect, after Garrison Keillor’s mythical town where “all the children are above average.” Seventy percent of American college students rate themselves as above average in leadership ability, and only 2 percent rate themselves below average.14 Virtually everyone self-rates as above average in “ability to get along with others.” In fact, 60 percent say they are in the top 10 percent and 25 percent say they are in the top 1 percent!


pages: 913 words: 265,787

How the Mind Works by Steven Pinker

affirmative action, agricultural Revolution, Alfred Russel Wallace, Buckminster Fuller, cognitive dissonance, Columbine, combinatorial explosion, complexity theory, computer age, computer vision, Daniel Kahneman / Amos Tversky, delayed gratification, double helix, experimental subject, feminist movement, four colour theorem, Gordon Gekko, greed is good, hedonic treadmill, Henri Poincaré, income per capita, information retrieval, invention of agriculture, invention of the wheel, Johannes Kepler, John von Neumann, lake wobegon effect, lateral thinking, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, Mikhail Gorbachev, Murray Gell-Mann, mutually assured destruction, Necker cube, out of africa, pattern recognition, phenotype, plutocrats, Plutocrats, random walk, Richard Feynman, Ronald Reagan, Rubik’s Cube, Saturday Night Live, scientific worldview, Search for Extraterrestrial Intelligence, sexual politics, social intelligence, Steven Pinker, theory of mind, Thorstein Veblen, Turing machine, urban decay, Yogi Berra

Darwin’s anti-Darwinism: Fridlund, 1992. 415 Voluntary and involuntary facial expressions, method acting, and the brain: Damasio, 1994. 415 Honest signaling in animals: Dawkins, 1976/1989; Trivers, 1981; Cronin, 1992; Hauser, 1996; Hamilton, 1996. 416 Emotions and the body: Ekman & Davidson, 1994; Lazarus, 1991; Etcoff, 1986. 417 Theory of mad love: Frank, 1988. 417 Marriage market: Buss, 1994; Fisher, 1992; Hatfield & Rapson, 1993. 419 Tactics for controlling self and others: Schelling, 1984. 420 Grief as a deterrent: Tooby & Cosmides, 1990a. 421 Self-deception: Trivers, 1985; Alexander, 1987a; Wright, 1994a; Lockard & Paulhaus, 1988. Self-deception and Freudian defense mechanisms: Nesse & Lloyd, 1992. 422 Split brains: Gazzaniga, 1992. 422 Lake Wobegon effect: Gilovich, 1991. 422 Beneffectance: Greenwald, 1988; Brown, 1985. Cognitive dissonance: Festinger, 1957. Cognitive dissonance as self-presentation: Aronson, 1980; Baumeister & Tice, 1984. Beneffectance and cognitive dissonance as self-deception: Wright, 1994a. 424 Argument between husband and wife: Trivers, 1985, p. 420. 424 Explaining Hitler: Rosenbaum, 1995. 7. Family Values 426 Greening of America controversy: Nobile, 1971. 426 Nineteenth-century Utopias: Klaw, 1993. 427 Human universals: Brown, 1991. 427 The thirty-six dramatic situations: Polti, 1921/1977. 427 Darwinian competitors: Williams, 1966; Dawkins, 1976/1989, 1995. 428 Homicide rates: Daly & Wilson, 1988.

., 568, 573, 581 Knill, David, 575, 576 Knowledge, problem of, 559, 560, 565 Koch, Christof, 136, 570, 572 Koehl, Mimi, 170, 573 Koehler, J., 579 Koestler, Arthur, 77, 545, 549, 551, 587 Konner, Melvin, 506, 578, 583, 586 Kosslyn, Stephen, 77, 289, 292, 569, 570, 576, 577 Kowler, Eileen, 576 Kpelle (Liberia), 302–303 Kubovy, Michael, 575, 576, 577, 587 Kubrick, Stanley, 582 !KungSan, 51, 489, 505, 506 Kunstler, William, 54 Kwakiutl, 500 La Rochefoucauld, François, 423 Lachter, Joel, 571 Lake Wobegon effect, 422 Lakoff, George, 311–312, 357, 574, 578, 579, 580, 586 Lamarck, Jean Baptiste, 158, 206, 209 Lamarckian evolution, 158–159, 160, 206–208, 209, 414 Land, Edwin, 246–248, 576 Landau, Barbara, 579 Landsburg, Steven, 477, 540, 584, 587 Landscapes, 374–378 Langlois, Judith, 585 Language, in children, 48, 356–357, 450; combinatorics of, 88; and connectionism, 112–113, 118–122, 125; and emotion, 366–367; and evolution, 165, 184, 186, 190, 403; and intuitive psychology, 330; mental representations for, 90, 139–140; and music, 528–529, 534–535, 538; and shape, 270–271; and thought, 69–70, 86, 88, 492.


pages: 384 words: 118,572

The Confidence Game: The Psychology of the Con and Why We Fall for It Every Time by Maria Konnikova

attribution theory, Bernie Madoff, British Empire, Cass Sunstein, cognitive dissonance, coherent worldview, Daniel Kahneman / Amos Tversky, endowment effect, epigenetics, hindsight bias, lake wobegon effect, lateral thinking, libertarian paternalism, Milgram experiment, placebo effect, Ponzi scheme, post-work, publish or perish, Richard Thaler, risk tolerance, side project, Skype, Steven Pinker, the scientific method, tulip mania, Walter Mischel

We were simply not armed to deal with someone who lied on such an extraordinary scale.” In June 2013, Tilly’s appeal of his sentence came before the court. He had wanted clemency. It was too much to believe he had had the power over such discerning people. Surely they were to blame. The judge listened closely. And he did award him a new sentence: ten years, instead of the original eight. It goes by many names. The Lake Wobegon effect. The better-than-average effect. Illusory superiority. Superiority bias. Whatever you call it, it means the same thing: we believe we are singular, whatever the circumstances. It could be that we’re especially attractive and brilliant, in the case of Frampton, or that our family legacy is unique in history. Regardless of the specifics, we hold an unwavering commitment to the notion that we are special—and not just special, but more special than most anyone else.


pages: 460 words: 131,579

Masters of Management: How the Business Gurus and Their Ideas Have Changed the World—for Better and for Worse by Adrian Wooldridge

affirmative action, barriers to entry, Black Swan, blood diamonds, borderless world, business climate, business cycle, business intelligence, business process, carbon footprint, Cass Sunstein, Clayton Christensen, cloud computing, collaborative consumption, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate social responsibility, creative destruction, credit crunch, crowdsourcing, David Brooks, David Ricardo: comparative advantage, disintermediation, disruptive innovation, don't be evil, Donald Trump, Edward Glaeser, Exxon Valdez, financial deregulation, Frederick Winslow Taylor, future of work, George Gilder, global supply chain, industrial cluster, intangible asset, job satisfaction, job-hopping, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kickstarter, knowledge economy, knowledge worker, lake wobegon effect, Long Term Capital Management, low skilled workers, Mark Zuckerberg, McMansion, means of production, Menlo Park, mobile money, Naomi Klein, Netflix Prize, Network effects, new economy, Nick Leeson, Norman Macrae, patent troll, Ponzi scheme, popular capitalism, post-industrial society, profit motive, purchasing power parity, Ralph Nader, recommendation engine, Richard Florida, Richard Thaler, risk tolerance, Ronald Reagan, science of happiness, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, Steven Levy, supply-chain management, technoutopianism, The Wealth of Nations by Adam Smith, Thomas Davenport, Tony Hsieh, too big to fail, wealth creators, women in the workforce, young professional, Zipcar

Nell Minnow, one of the fiercest critics of executive pay, argues that companies spend a lot of money preserving bosses’ rights to make these warm personal gestures. The financial services industry spends $600 million a year in lobbying in Washington, DC. The result of all this political manipulation is nothing less than a “hostile take-over of capitalism by company executives.” For those who find this explanation a little crude, there is a more ingenious one called “the Lake Wobegon effect.” Rachel Hayes and Scott Schaefer, two economists, argue that companies want to signal that they have the best CEOs, so they raise their pay to impressive levels. More generally, companies want to make sure that they pay their CEOs above average in the business because they want to employ above-average people. So CEO pay is set on an inflationary spiral. What should we make of all this? There is no doubt that there are lots of galling examples of CEOs who are paid too much or who are rewarded for poor performance.


pages: 512 words: 165,704

Traffic: Why We Drive the Way We Do (And What It Says About Us) by Tom Vanderbilt

Albert Einstein, autonomous vehicles, availability heuristic, Berlin Wall, call centre, cellular automata, Cesare Marchetti: Marchetti’s constant, cognitive dissonance, computer vision, congestion charging, Daniel Kahneman / Amos Tversky, DARPA: Urban Challenge, endowment effect, extreme commuting, fundamental attribution error, Google Earth, hedonic treadmill, hindsight bias, hive mind, if you build it, they will come, impulse control, income inequality, Induced demand, invisible hand, Isaac Newton, Jane Jacobs, John Nash: game theory, Kenneth Arrow, lake wobegon effect, loss aversion, megacity, Milgram experiment, Nash equilibrium, Sam Peltzman, Silicon Valley, statistical model, the built environment, The Death and Life of Great American Cities, traffic fines, ultimatum game, urban planning, urban sprawl, women in the workforce, working poor

It is the other person’s behavior that needs to be controlled, not mine; this reasoning helps contribute to the longstanding gap, concerning evolving technology, between social mores and traffic laws. We think stricter laws are a good idea for the people who need them. Another problem with our view of ourselves is that we tend to rank ourselves higher, studies have shown, when the activity in question is thought to be relatively easy, like driving, and not relatively complex, like juggling many objects at once. Psychologists have suggested that the “Lake Wobegon effect”—“where all the children are above average”—is stronger when the skills in question are ambiguous. An Olympic pole-vaulter has a pretty clear indication of how good she is compared to everyone else by the height of the bar she must clear. As for a driver who simply makes it home unscathed from work, how was their performance? A 9.1 out of 10? Most important, we may inflate our own driving abilities simply because we are not actually capable of rendering an accurate judgment.


pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, bank run, banking crisis, Basel III, Black Swan, blood diamonds, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Gordon Gekko, hiring and firing, income inequality, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, pension reform, performance metric, pirate software, plutocrats, Plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

Stancata, Stephane Cote, Rodolfo Mendoza-Denton, and Dacher Keltner, “Higher Social Class Predicts Increased Unethical Behavior,” Proceeds of the National Academy of Sciences, February 27, 2012. 15 For example, see: Randall Morck, Andrie Shleifer, and Robert Vishny, “Alternative Mechanisms for Corporate Control,” American Economic Review, 1989, 79:842–852. 16 Ian Austen, “Shake-Up at Canadian Pacific Railway As Activist Investor Takes Control,” New York Times, May 18, 2012. 17 Peter Whoriskey, “The Lake Wobegon Effect Lifts CEO’s Pay,” Washington Post, Oct. 4, 2011, and Ryan Chittum, “Cronyism and Executive Compensation,” The Audit, Columbia Journalism Review, Oct. 4, 2011. 18 Whoriskey, Ibid. 19 Heather Landy, “Executives Took, But the Directors Gave,” New York Times, April 5, 2009. 20 David Cay Johnston, Perfectly Legal, 2003, 250. 21 David Carr, “Why Not Occupy Newsrooms?,” New York Times, Oct. 24, 2011. 22 Executive Viewpoints on Employee Benefits, “Corporate Director Compensation Grew Modestly in 2008,” Liberty Publishing vol. 52, no. 11, 2009. 23 John Gillespie and David Zweig, Money for Nothing, 2. 24 Steven M.


pages: 898 words: 266,274

The Irrational Bundle by Dan Ariely

accounting loophole / creative accounting, air freight, Albert Einstein, Alvin Roth, assortative mating, banking crisis, Bernie Madoff, Black Swan, Broken windows theory, Burning Man, business process, cashless society, Cass Sunstein, clean water, cognitive dissonance, computer vision, corporate governance, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, end world poverty, endowment effect, Exxon Valdez, first-price auction, Frederick Winslow Taylor, fudge factor, George Akerlof, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, IKEA effect, Jean Tirole, job satisfaction, Kenneth Arrow, knowledge economy, knowledge worker, lake wobegon effect, late fees, loss aversion, Murray Gell-Mann, new economy, Peter Singer: altruism, placebo effect, price anchoring, Richard Feynman, Richard Thaler, Saturday Night Live, Schrödinger's Cat, second-price auction, Shai Danziger, shareholder value, Silicon Valley, Skype, software as a service, Steve Jobs, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, ultimatum game, Upton Sinclair, Walter Mischel, young professional

OUR PROPENSITY TO overvalue what we own is a basic human bias, and it reflects a more general tendency to fall in love with, and be overly optimistic about, anything that has to do with ourselves. Think about it—don’t you feel that you are a better-than-average driver, are more likely to be able to afford retirement, and are less likely to suffer from high cholesterol, get a divorce, or get a parking ticket if you overstay your meter by a few minutes? This positivity bias, as psychologists call it, has another name: “The Lake Wobegone Effect,” named after the fictional town in Garrison Keillor’s popular radio series A Prairie Home Companion. In Lake Wobegone, according to Keillor, “all the women are strong, all the men are good-looking, and all the children are above average.” I don’t think we can become more accurate and objective in the way we think about our children and houses, but maybe we can realize that we have such biases and listen more carefully to the advice and feedback we get from others.


pages: 1,205 words: 308,891

Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

Airbnb, Akira Okazaki, big-box store, Black Swan, book scanning, British Empire, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbian Exchange, conceptual framework, correlation does not imply causation, Costa Concordia, creative destruction, crony capitalism, dark matter, Dava Sobel, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, double entry bookkeeping, en.wikipedia.org, epigenetics, Erik Brynjolfsson, experimental economics, Ferguson, Missouri, fundamental attribution error, Georg Cantor, George Akerlof, George Gilder, germ theory of disease, Gini coefficient, God and Mammon, greed is good, Gunnar Myrdal, Hans Rosling, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, immigration reform, income inequality, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, Islamic Golden Age, James Watt: steam engine, Jane Jacobs, John Harrison: Longitude, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labor-force participation, lake wobegon effect, land reform, liberation theology, lone genius, Lyft, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, means of production, Naomi Klein, new economy, North Sea oil, Occupy movement, open economy, out of africa, Pareto efficiency, Paul Samuelson, Pax Mongolica, Peace of Westphalia, peak oil, Peter Singer: altruism, Philip Mirowski, pink-collar, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, purchasing power parity, race to the bottom, refrigerator car, rent control, rent-seeking, Republic of Letters, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scientific racism, Scramble for Africa, Second Machine Age, secular stagnation, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, spinning jenny, stakhanovite, Steve Jobs, The Chicago School, The Market for Lemons, the rule of 72, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, total factor productivity, Toyota Production System, transaction costs, transatlantic slave trade, Tyler Cowen: Great Stagnation, uber lyft, union organizing, very high income, wage slave, Washington Consensus, working poor, Yogi Berra

The usual way of talking about poverty relies on the percentage distribution of income, staring fixedly for example at an official-sounding but relative “poverty line.” As the progressive Australian economist Peter Saunders observes, however, such a definition of poverty “automatically shift upwards whenever the real incomes [and hence the poverty line] are rising.”3 The poor are always with us, but merely by definition, the opposite of the Lake Wobegon effect—it’s not that all the children are above average, but that there is a bottom fifth or tenth or whatever, always, in any distribution whatsoever. Of course. It’s not higher math. The philosopher Harry Frankfurt noted long ago that “calculating the size of an equal share [of income in the style of poverty lines or Gini coefficients] is plainly much easier than determining how much a person needs in order to have enough”—”much easier,” as in dividing GDP by population and reporting with irritation that some people earn, or get, more.4 It is the simplified ethics of the schoolyard, or dividing a cake among friends: “That’s unfair.”


Engineering Security by Peter Gutmann

active measures, algorithmic trading, Amazon Web Services, Asperger Syndrome, bank run, barriers to entry, bitcoin, Brian Krebs, business process, call centre, card file, cloud computing, cognitive bias, cognitive dissonance, combinatorial explosion, Credit Default Swap, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, Debian, domain-specific language, Donald Davies, Donald Knuth, double helix, en.wikipedia.org, endowment effect, fault tolerance, Firefox, fundamental attribution error, George Akerlof, glass ceiling, GnuPG, Google Chrome, iterative process, Jacob Appelbaum, Jane Jacobs, Jeff Bezos, John Conway, John Markoff, John von Neumann, Kickstarter, lake wobegon effect, Laplace demon, linear programming, litecoin, load shedding, MITM: man-in-the-middle, Network effects, Parkinson's law, pattern recognition, peer-to-peer, Pierre-Simon Laplace, place-making, post-materialism, QR code, race to the bottom, random walk, recommendation engine, RFID, risk tolerance, Robert Metcalfe, Ruby on Rails, Sapir-Whorf hypothesis, Satoshi Nakamoto, security theater, semantic web, Skype, slashdot, smart meter, social intelligence, speech recognition, statistical model, Steve Jobs, Steven Pinker, Stuxnet, telemarketer, text mining, the built environment, The Death and Life of Great American Cities, The Market for Lemons, the payments system, Therac-25, too big to fail, Turing complete, Turing machine, Turing test, web application, web of trust, x509 certificate, Y2K, zero day, Zimmermann PGP

In reality however people with this type of brain damage tend to be very ineffective decision-makers because they’ve lost the emotion-driven ability to make decisions based on what actually matters to them (the same lack of emotion in decision-making was also a problem with the patient described in “It’s not a Bug, it’s a Feature!” on page 132). In other words the decision-makers don’t really know what they care about any more [353][354]. There’s a well-documented phenomenon in psychology in which people have an unrealistically positive opinion of themselves, often totally unsupported by any actual evidence. This phenomenon is sometimes known as the Lake Wobegon effect after US humorist Garrison Keillor’s fictional community of the same name, in which “the women are strong, the men are good-looking, and all the children are above average”, or more formally the Dunning-Kruger effect in which unskilled people, unable to recognise their own lack of skill in an area and therefore to determine whether they’ve performed well or not, make poor decisions based on an overestimation of their own abilities [355], and is something that’s uniformly present across people from all age groups, races, education levels, and socioeconomic statuses [356].