65% of Americans believe they are above average in intelligence: Results of two nationally representative surveys. Patrick R. Heck, Daniel J. Simons, Christopher F. Chabris. PLOS One, https://doi.org/10.1371/journal.pone.0200103
Abstract: Psychologists often note that most people think they are above average in intelligence. We sought robust, contemporary evidence for this “smarter than average” effect by asking Americans in two independent samples (total N = 2,821) whether they agreed with the statement, “I am more intelligent than the average person.” After weighting each sample to match the demographics of U.S. census data, we found that 65% of Americans believe they are smarter than average, with men more likely to agree than women. However, overconfident beliefs about one’s intelligence are not always unrealistic: more educated people were more likely to think their intelligence is above average. We suggest that a tendency to overrate one’s cognitive abilities may be a stable feature of human psychology.
Tuesday, July 3, 2018
Rattner in TNYT: The Myth of Corporate America’s Short-Term Thinking
The Myth of Corporate America’s Short-Term Thinking. Steven Rattner. The New York Times Jul 02 2018, https://www.nytimes.com/2018/07/02/opinion/corporate-stock-buyback-short-term-profit.html
American companies, according to their critics, are so focused on making quick profits that they have abdicated building for the long term. That idea has captivated policymakers, commentators and even some leading business executives.
The complaint has reached a fevered pitch amid news that companies are diverting much of their proceeds from the recent tax cut into buying back record amounts of their own shares.
But there is little evidence to back up the idea that American businesses are overly focused on short-term boosts to profits and stock prices.
The easiest path for companies to goose earnings would be to cut back on investment. However, business investment has remained between 11 percent and 15 percent of gross domestic product since 1970. Last year, corporate investment, which includes structures, equipment and the like, totaled 12.6 percent (https://www.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&1910=x&0=-99&1921=survey&1903=14&1904=1970&1905=2018&1906=a&1911=0#reqid=19&step=3&isuri=1&1910=x&0=-99&1921=survey&1903=14&1904=1970&1905=2018&1906=a&1911=0) of G.D.P.
Included in those investments is corporate spending on research and development — an undertaking with a long payback — which has reached its highest (http://www.bea.gov/iTable/iTableHtml.cfm?reqid=19&step=3&isuri=1&1910=X&0=-99&1921=survey&1903=14&1904=1970&1905=2018&1906=A&1911=0) ever percentage of G.D.P. and has become a more important part of overall investment.
I have spent three decades analyzing, advising and investing in companies, and I believe American businesses are as willing to fund worthy projects as they have ever been. Investors are fully prepared to back companies focused on the long term. Far from penalizing public companies building for the future, the stock market often rewards them.
Consider America’s five largest public companies by market capitalization: Apple, Amazon, Alphabet (Google), Microsoft and Facebook. All have been investing heavily, and all sport heady valuations.
Amazon, in particular, often appears almost disdainful of profits; last year, it earned just $3 billion on its vast $178 billion of revenues. With a stock market capitalization of $805 billion, that gives it a price to earnings ratio of 268. By comparison, the average S&P 500 company trades at 21 times earnings. On the smaller end, many biotech companies, which often have no revenues, let alone any profits, also trade at handsome (some would say absurd) valuations.
Away from the public markets, a towering wall of venture capital — hardly a short-term investment strategy — stands ready to fund pretty much any vaguely promising new idea.
That brings us back to the stock repurchases. Yes, they often bump up share prices. But they are really a consequence of the vast cash reserves — $2.4 trillion and rising — held by American companies. When top executives don’t see more attractive investment opportunities, at least not in the United States, it can be a prudent use of that cash to buy back shares in their own companies.
As companies return capital to shareholders through buybacks or dividends, the money doesn’t disappear. Its recipients typically reinvest it in other opportunities. That’s not short-term thinking; that’s efficiency.
Advocates of the recent tax legislation say it will provide more incentives for American companies to invest at home. I’d certainly welcome that. But taxes are only part of the equation. Businesses must also see the possibility of attractive returns, which are not always readily available in our relatively slow-growth economy.
That’s why many American companies see greater opportunity to expand abroad. Between 2000 and 2015, American multinationals hired 4.3 million people in the United States but added 6.2 million jobs overseas.
Meanwhile, spending on factories and equipment in the United States has become a less important part of overall business investment, consistent with the decline in manufacturing’s share as companies shift production to lower-cost countries.
Decrying “short-termism” is hardly a new phenomenon. A Harvard Business Review article pronounced that American business is “servicing existing markets rather than creating new ones” and is devoted to “short-term returns and management by the numbers.”
That was in 1980. Nine years later, Akio Morita, the co-founder of Sony, declared that “America looks 10 minutes ahead; Japan looks 10 years.”
Today, American technology firms are, of course, dominant, while Sony is a shadow of its former self.
Across the spectrum, companies in the United States continue to lead the developed world, and profits are at record levels. If American business had been short-term focused since 1980, profits would be falling, not rising, and our companies would be faltering.
Recently, the Business Roundtable — corporate America’s pre-eminent trade organization — called for eliminating quarterly earnings guidance as a means of reducing short-termism. Such recommendations are, at best, a distraction. Only 28 percent of major companies even provide quarterly guidance, and those forecasts help set investors’ expectations and smooth market volatility.
The Business Roundtable should make it a higher priority to call for tighter corporate governance. While the “buddy system” of picking directors has subsided considerably, boards are often still too compliant. Executive compensation (https://www.nytimes.com/2018/05/25/business/top-ceo-pay-packages.html), which has grown exponentially faster than workers’ pay, is out of control and should be more closely tied to long-term performance.
Shareholders should be able to nominate directors more easily. To better represent owners, the roles of chairman and chief executive officer should be split, as they are in many European companies.
But corporate executives recoil from those ideas. They prefer to complain about equity markets that often swiftly punish laggards. Isn’t that what investors are supposed to do?
American companies, according to their critics, are so focused on making quick profits that they have abdicated building for the long term. That idea has captivated policymakers, commentators and even some leading business executives.
The complaint has reached a fevered pitch amid news that companies are diverting much of their proceeds from the recent tax cut into buying back record amounts of their own shares.
But there is little evidence to back up the idea that American businesses are overly focused on short-term boosts to profits and stock prices.
The easiest path for companies to goose earnings would be to cut back on investment. However, business investment has remained between 11 percent and 15 percent of gross domestic product since 1970. Last year, corporate investment, which includes structures, equipment and the like, totaled 12.6 percent (https://www.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&1910=x&0=-99&1921=survey&1903=14&1904=1970&1905=2018&1906=a&1911=0#reqid=19&step=3&isuri=1&1910=x&0=-99&1921=survey&1903=14&1904=1970&1905=2018&1906=a&1911=0) of G.D.P.
Included in those investments is corporate spending on research and development — an undertaking with a long payback — which has reached its highest (http://www.bea.gov/iTable/iTableHtml.cfm?reqid=19&step=3&isuri=1&1910=X&0=-99&1921=survey&1903=14&1904=1970&1905=2018&1906=A&1911=0) ever percentage of G.D.P. and has become a more important part of overall investment.
I have spent three decades analyzing, advising and investing in companies, and I believe American businesses are as willing to fund worthy projects as they have ever been. Investors are fully prepared to back companies focused on the long term. Far from penalizing public companies building for the future, the stock market often rewards them.
Consider America’s five largest public companies by market capitalization: Apple, Amazon, Alphabet (Google), Microsoft and Facebook. All have been investing heavily, and all sport heady valuations.
Amazon, in particular, often appears almost disdainful of profits; last year, it earned just $3 billion on its vast $178 billion of revenues. With a stock market capitalization of $805 billion, that gives it a price to earnings ratio of 268. By comparison, the average S&P 500 company trades at 21 times earnings. On the smaller end, many biotech companies, which often have no revenues, let alone any profits, also trade at handsome (some would say absurd) valuations.
Away from the public markets, a towering wall of venture capital — hardly a short-term investment strategy — stands ready to fund pretty much any vaguely promising new idea.
That brings us back to the stock repurchases. Yes, they often bump up share prices. But they are really a consequence of the vast cash reserves — $2.4 trillion and rising — held by American companies. When top executives don’t see more attractive investment opportunities, at least not in the United States, it can be a prudent use of that cash to buy back shares in their own companies.
As companies return capital to shareholders through buybacks or dividends, the money doesn’t disappear. Its recipients typically reinvest it in other opportunities. That’s not short-term thinking; that’s efficiency.
Advocates of the recent tax legislation say it will provide more incentives for American companies to invest at home. I’d certainly welcome that. But taxes are only part of the equation. Businesses must also see the possibility of attractive returns, which are not always readily available in our relatively slow-growth economy.
That’s why many American companies see greater opportunity to expand abroad. Between 2000 and 2015, American multinationals hired 4.3 million people in the United States but added 6.2 million jobs overseas.
Meanwhile, spending on factories and equipment in the United States has become a less important part of overall business investment, consistent with the decline in manufacturing’s share as companies shift production to lower-cost countries.
Decrying “short-termism” is hardly a new phenomenon. A Harvard Business Review article pronounced that American business is “servicing existing markets rather than creating new ones” and is devoted to “short-term returns and management by the numbers.”
That was in 1980. Nine years later, Akio Morita, the co-founder of Sony, declared that “America looks 10 minutes ahead; Japan looks 10 years.”
Today, American technology firms are, of course, dominant, while Sony is a shadow of its former self.
Across the spectrum, companies in the United States continue to lead the developed world, and profits are at record levels. If American business had been short-term focused since 1980, profits would be falling, not rising, and our companies would be faltering.
Recently, the Business Roundtable — corporate America’s pre-eminent trade organization — called for eliminating quarterly earnings guidance as a means of reducing short-termism. Such recommendations are, at best, a distraction. Only 28 percent of major companies even provide quarterly guidance, and those forecasts help set investors’ expectations and smooth market volatility.
The Business Roundtable should make it a higher priority to call for tighter corporate governance. While the “buddy system” of picking directors has subsided considerably, boards are often still too compliant. Executive compensation (https://www.nytimes.com/2018/05/25/business/top-ceo-pay-packages.html), which has grown exponentially faster than workers’ pay, is out of control and should be more closely tied to long-term performance.
Shareholders should be able to nominate directors more easily. To better represent owners, the roles of chairman and chief executive officer should be split, as they are in many European companies.
But corporate executives recoil from those ideas. They prefer to complain about equity markets that often swiftly punish laggards. Isn’t that what investors are supposed to do?
Again, "no evidence of loss aversion": Cheating, incentives, and money manipulation
Cheating, incentives, and money manipulation. Gary Charness, Celia Blanco-Jimenez, Lara Ezquerra, Ismael Rodriguez-Lara. Experimental Economics, https://link.springer.com/article/10.1007/s10683-018-9584-1
Abstract: We use different incentive schemes to study truth-telling in a die-roll task when people are asked to reveal the number rolled privately. We find no significant evidence of cheating when there are no financial incentives associated with the reports, but do find evidence of such when the reports determine financial gains or losses (in different treatments). We find no evidence of loss aversion in the standard case in which subjects receive their earnings in a sealed envelope at the end of the session. When subjects manipulate the possible earnings, we find evidence of less cheating, particularly in the loss setting; in fact, there is no significant difference in behavior between the non-incentivized case and the loss setting with money manipulation. We interpret our findings in terms of the moral cost of cheating and differences in the perceived trust and beliefs in the gain and the loss frames.
h/t: Rolf Degen https://twitter.com/DegenRolf
Abstract: We use different incentive schemes to study truth-telling in a die-roll task when people are asked to reveal the number rolled privately. We find no significant evidence of cheating when there are no financial incentives associated with the reports, but do find evidence of such when the reports determine financial gains or losses (in different treatments). We find no evidence of loss aversion in the standard case in which subjects receive their earnings in a sealed envelope at the end of the session. When subjects manipulate the possible earnings, we find evidence of less cheating, particularly in the loss setting; in fact, there is no significant difference in behavior between the non-incentivized case and the loss setting with money manipulation. We interpret our findings in terms of the moral cost of cheating and differences in the perceived trust and beliefs in the gain and the loss frames.
h/t: Rolf Degen https://twitter.com/DegenRolf
Gender difference in time use decreased 1965-1995, remained constant since; differences in social attitudes by political ideology & income increased over the last four decades; whites and non-whites have converged somewhat on attitudes but have diverged in consumer behavior
Coming Apart? Cultural Distances in the United States over Time. Marianne Bertrand, Emir Kamenica. NBER Working Paper No. 24771, www.nber.org/papers/w24771
Abstract: We analyze temporal trends in cultural distance between groups in the US defined by income, education, gender, race, and political ideology. We measure cultural distance between two groups as the ability to infer an individual's group based on his or her (i) media consumption, (ii) consumer behavior, (iii) time use, or (iv) social attitudes. Gender difference in time use decreased between 1965 and 1995 and has remained constant since. Differences in social attitudes by political ideology and income have increased over the last four decades. Whites and non-whites have converged somewhat on attitudes but have diverged in consumer behavior. For all other demographic divisions and cultural dimensions, cultural distance has been broadly constant over time.
Abstract: We analyze temporal trends in cultural distance between groups in the US defined by income, education, gender, race, and political ideology. We measure cultural distance between two groups as the ability to infer an individual's group based on his or her (i) media consumption, (ii) consumer behavior, (iii) time use, or (iv) social attitudes. Gender difference in time use decreased between 1965 and 1995 and has remained constant since. Differences in social attitudes by political ideology and income have increased over the last four decades. Whites and non-whites have converged somewhat on attitudes but have diverged in consumer behavior. For all other demographic divisions and cultural dimensions, cultural distance has been broadly constant over time.
A paper shopping list includes more items than a digital shopping list, & products on the first are less hedonic than those on the second list; also, the use of a digital shopping list leads to more unplanned & hedonic purchases in the store
Write or Type? How a Paper versus a Digital Shopping List Influences the Way Consumers Plan and Shop. Yanliu Huang and Zhen Yang. Journal of the Association for Consumer Research, https://www.journals.uchicago.edu/doi/abs/10.1086/698877
Abstract: This research examines how a traditional handwritten paper shopping list differs from a digital shopping list created on smart devices in influencing consumers’ planning and shopping behavior. We propose that a paper shopping list includes more items than a digital shopping list, and products on a paper shopping list are less hedonic than those on a digital shopping list. Furthermore, the use of a digital shopping list leads to more unplanned and hedonic purchases in the store, while the use of a paper shopping list results in more planned purchases. We also discuss psychological processes underlying these effects. We conduct three studies in which we manipulate shopping list type and track consumers’ actual purchases to provide support for our hypotheses.
Abstract: This research examines how a traditional handwritten paper shopping list differs from a digital shopping list created on smart devices in influencing consumers’ planning and shopping behavior. We propose that a paper shopping list includes more items than a digital shopping list, and products on a paper shopping list are less hedonic than those on a digital shopping list. Furthermore, the use of a digital shopping list leads to more unplanned and hedonic purchases in the store, while the use of a paper shopping list results in more planned purchases. We also discuss psychological processes underlying these effects. We conduct three studies in which we manipulate shopping list type and track consumers’ actual purchases to provide support for our hypotheses.
Support for redistribution is strongly correlated with the perceived composition of immigrants –their origin & economic contribution– rather than with the perceived share of immigrants per se
Immigration and Redistribution. Alberto Alesina, Armando Miano, Stefanie Stantcheva. NBER Working Paper No. 24733. http://www.nber.org/papers/w24733
We design and conduct large-scale surveys and experiments in six countries to investigate how natives' perceptions of immigrants influence their preferences for redistribution. We find strikingly large biases in natives' perceptions of the number and characteristics of immigrants: in all countries, respondents greatly overestimate the total number of immigrants, think immigrants are culturally and religiously more distant from them, and are economically weaker – less educated, more unemployed, poorer, and more reliant on government transfers – than is the case. While all respondents have misperceptions, those with the largest ones are systematically the right-wing, the non-college educated, and the low-skilled working in immigration-intensive sectors. Support for redistribution is strongly correlated with the perceived composition of immigrants – their origin and economic contribution – rather than with the perceived share of immigrants per se. Given the very negative baseline views that respondents have of immigrants, simply making them think about immigration in a randomized manner makes them support less redistribution, including actual donations to charities. We also experimentally show respondents information about the true i) number, ii) origin, and iii) “hard work” of immigrants in their country. On its own, information on the “hard work” of immigrants generates more support for redistribution. However, if people are also prompted to think in detail about immigrants' characteristics, then none of these favorable information treatments manages to counteract their negative priors that generate lower support for redistribution.
We design and conduct large-scale surveys and experiments in six countries to investigate how natives' perceptions of immigrants influence their preferences for redistribution. We find strikingly large biases in natives' perceptions of the number and characteristics of immigrants: in all countries, respondents greatly overestimate the total number of immigrants, think immigrants are culturally and religiously more distant from them, and are economically weaker – less educated, more unemployed, poorer, and more reliant on government transfers – than is the case. While all respondents have misperceptions, those with the largest ones are systematically the right-wing, the non-college educated, and the low-skilled working in immigration-intensive sectors. Support for redistribution is strongly correlated with the perceived composition of immigrants – their origin and economic contribution – rather than with the perceived share of immigrants per se. Given the very negative baseline views that respondents have of immigrants, simply making them think about immigration in a randomized manner makes them support less redistribution, including actual donations to charities. We also experimentally show respondents information about the true i) number, ii) origin, and iii) “hard work” of immigrants in their country. On its own, information on the “hard work” of immigrants generates more support for redistribution. However, if people are also prompted to think in detail about immigrants' characteristics, then none of these favorable information treatments manages to counteract their negative priors that generate lower support for redistribution.
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