Cass Sunstein and Richard Thaler wrote Nudge in 2008. Kahneman quoted from Nudge and from his own book, Thinking Fast and Slow and won the Nobel price in Economics in 2002. The Book landed Kahneman as a research associate with Sunstein and Thaler for life. Thaler landed a job as the head of a “Nudge Unit” in PM Davis Cameron’s UK office. Sunstein was appointed by Obama as the head of the Office of Information and Regulatory Affairs in the White House. Five years later these geniuses all went back to Academia after the economies of England and the US beat the 2008 recession and became the most productive in the world.
The case of the almonds is personal. I didn’t arrange a choice architecture in my office on purpose. I just left a handful of almonds on my desk and by the end of the day they were gone. Neither me nor the other people who spend time in my office are particularly kin on nibbling on Almonds but since the nuts were gone by the evening three days in a row and we started feeling less hungry for “junk” and more energized I checked the nutritional value of Almonds on Google and lo and behold these nuts are the most beneficial nuts for your body in the world. They even lower cholesterol. It’s been a month since I created inadvertently this Choice Architecture scenario. I am becoming “nuts” about these healthy nuts!
Dr. Elior Kinarthy: Capital, Labor, Management, Resources, Technology and The Human Factor: The Six Variables of a Sustainable Economics Model
Business Systems Laboratory 2nd International Symposium
SYSTEMS THINKING FOR A SUSTAINABLE ECONOMY
Advances in Economic and Managerial Theory and Practice
Universitas Mercatorum, Rome, Italy
January 23-24, 2014
Technology is a Two Edged Sword: Generating New Prosperity or Perpetuating Old Scarcity
Professor Elior Kinarthy (emeritus), Rio Hondo College, California
This paper proposes a new field of commerce for our times. We are witnessing the emergence of a new organizational structure for traditional economics and finance theory, more in tune with uniting and advancing the economies of the world. Studies by psychologists and economists; Kahneman, Thaler, Sunstein and Krugman, and observations by theorist Dan Sullivan and myself point out to a marriage between social media (Facebook, Twitter, LinkedIn, etc.), and exponential technology (mobile apps with infinite storage capacity, wireless, biometric, psychometric, voice and thought recognition), giving birth to a new context for business and social activity. The proposed new context suggests the addition of 3 new framing factor
1. Moore’s Law, describing a field of commerce immersed with exponential growth, doubling microchip power every other year (Moore, 1965, Sullivan, 2005).
2. Rules of behaviorism addressing the subtle psychological interplay between teams of players and regulators in the field of commerce.
3. Rules of classical conditioning that address the subtle emotional interplay between players and regulators in the field of commerce.
These three framing variables added to economics are prime movers in the process of forecasting and assessing risk/benefit in business and commerce. This paper explores 4 derivative trends that have recently emerged in society as a result of these structural changes in economic thinking taking roots.
Note: This is only the Abstract. Copies of full paper sold on Amazon. A free PPP is available from the author.
Imagine a future textbook used in an economics course called Understanding Bitcoins. It is coming soon. Backtrack to February 2014 and ask yourself, “What the heck is a bitcoin?” Why do people have to complicate things? For a minute I thought that I got it and someone said, “It’s a virtual coin.” So I imagine them disappearing like the Canadian penny… and someone else said, “Bitcoins are more solid than gold.” May be it’s time to simplify things, which is always my job since I started this blog, as some of you have noticed. I love the Law of parsimony as much as I love Aristotle the Greek philosopher who defined the language we use today.
A bitcoin is an electronic credit card, that’s it!
Get ready. The year is 2020. You want to buy a car. You swipe your self-registered bitcard (cost $10) and “pay” for your new car with your electronic money registered logarithmically on the internet (The bitcoin system have already started to replace the physical financial system in 2012 because electronic credit cannot be readily abused!).
Do you want to get rich? Buy bitcoins before you have to pay for them with bitcoins. The cost of bitcoins is going up because they will have million uses in the future. Be careful. Be careful. Be careful. Know what you are doing as the new system stabilizes itself.
Proceedings of the 2011 Annual Meeting of the Academy of Behavioral Finance and Economics, September 21-23, 2011, Los Angeles, California
“WE HAVE CURTAILED THE POWER OF BEHAVIORAL ECONOMISTS” Elior Kinarthy Rio Hondo College Drelk@shaw.ca
This article is an overview of the resistance by 20th century economic thinking to accept psychology as an equal partner in explaining economic behavior (with dire consequence to the economy in 2008). If anyone deserves the title of founding father of behavioral economics, Dr. D. Kahneman does for trying to break the “ice” between the two disciplines and formulating behavioral economics as a respected branch of economics that applies psychological principles to business and the economy. My behavioral investing theory applies psychological variables (e.g., CEO personality, psychology of banking, new statistical ratios, psychological estimate of share price, reading body language, psychological meaning of central tendencies, consumer confidence, etc.) to successful investing in the stock market. Converting a mutual fund portfolio to an individual stocks portfolio has quadrupled my capital gains.
Key words are: Turf Wars, Global Economy, Adam Smith, Ethics, John Keynes, Daniel Kahneman, Stock Market, Investing, Behaviorism, Behavioral Economics, CEO, Sigmund Freud, Yankee Ingenuity.
May 2011 Turf wars are as American as apple pie, a cultural phenomenon; an early historical development when industries were carving territories for their markets and roles were being delineated. Marking industrial boundaries and responsibilities were necessary for economic development. Today, the threat to my behavioral investing theory is the persistent chasm between psychology and economics. The turf wars that have delineated economic discipline boundaries should have ended when the American culture matured enough and the two disciplines were set up secure and functioning. Understanding the modern necessity of ending turf wars and reversing the trend by integrating psychology, economics, and politics in the market place is essential to prosperity. On the global scale, integrating culture, religion, national skills, natural resources and weather can determine the wealth and stability of any national economy and the ups and downs of specific markets. We have brushed off that truth. America will become a third world country by the end of the twenty-first century if we don’t heed the warning from a changing world. In the old days Afghanistan made inexpensive quality Afghans, Brussels sprouts came from Belgium, Jaffa oranges from Israel, French fries from France and potatoes from Idaho. Then came political and military restrictions on continental trade that resulted in multiple specializations, regional manufacturing, and local distribution. Yankee ingenuity excelled in everything for a long time, so isolationism became economically affordable and nationally desirable in a troubled world. The 21st century saw the trend reversing itself. The world (especially China and India) is producing many quality goods and services cheaper than we do. The clincher was when the Japanese who depend on exports for their survival decided in 1958 to learn from the Americans how to build cars, and beat Detroit at its own game by 1975!
The writing is on the wall.
The Chinese, who must feed a billion mouths, are importing our technology on a larger scale than the Japanese ever did. They are learning from the Americans how to do everything. Our traditional economy will be doomed in thirty years unless we change to a behavioral economy. No more turf wars between economics and psychology. The world has become a global village, to borrow the phrase from Hillary Clinton, and we are losing the competition. The United State’s “Yankee ingenuity” still reigns supreme in the world, but brushing off the psychological insights of behavioral economics when it comes to doing business in the world will lead to much more than just an intercultural nightmare. We have to overcome our proverbial shortsightedness ingrained in our smug culture. Even in the nineteenth century when economists Adam Smith and John Keynes clashed over whether capitalism or socialism would prevail in the world, most of their psychological insights were limited to morality and ethics, not the context of psychology and markets. Pavlovian conditioning, Skinnerian behavioral economics, or Freudian psychoanalysis of Market Relationships are still shunned upon by politicians and economists. Self-esteem, drive, self-assurance, values, expectations, confidence, intention, and motivation were never put to optimal use in any economic, political, social or military equation in America. It wasn’t (and still isn’t) in our culture. We were too big to worry about our “psychology.” We were too selfish to consider or try to understand others. America lacked empathy. When we lost markets because we underestimated the motivation of poor Indians or Chinese to get a life by working hard for pennies a day, we were surprised. Our Harvard economists didn’t understand that human stuff. There was no economic formula to explain why people would work 12 hour per day for a buck. We couldn’t learn how to prevent exporting our job. When we lost wars because we didn’t understand the motivation of poor insurgents to topple corrupt governments in South America, Middle East or Asia, we still didn’t learn. We are losing our edge in everything because we don’t realize the weak motivation of American students to take their education as seriously as Korean students do!
Some psychologists believed that we are only as good as our culture let us be, limiting us to a life in a box. We Americans are not using enough psychology to advance our economy. Our culture discourage us from using psychology no matter how popular Dale Carnegie’s book still is in this country. Although economic indicators were never more important than psychological insights, they have always been preferred. The media turned everything into TV channels competing to sell commercials. Skillful persuasive communication turned economic behavior and forecast upside down.
The complexity of competing forces over your wallet became staggering—a ‘do or die’ phenomenon. The focus on accumulating the mighty dollar when trading goods and services blurred the psychological motivation behind each trade. As long as success reigned, market psychology was only a sideshow with politically correct overtones. The truth is that behavioral economics is still a persona non grata as far as investing in the stock market is concerned. I chose this forum to come out of the woodwork to hammer home that issue.
I write about behavioral investing not because it is the most awesome discovery since the big bang, but because foreign governments, foreign students, foreign businessmen, and foreign investors are finally learning and using it and we Americans can’t be successful any longer without using it ourselves. When, in the nineteenth century, Adam Smith (capitalism) and John Maynard Keynes (socialism) introduced the role of morality and ethics Into economic behavior, economists were not threatened by a fledgling psychology invading their turf. The attempt to “kill” the psychological “monster” by economic professors in universities occurred only in the twentieth century after Dr. Sigmund Freud empowered man’s behavior with drives, motives and sexuality in the factory and the workplace. The threat to pure economics was born. Economists stared in disbelief at the behavioral “virus” invading almost every scholarly economic article written between 1910 and 1979! “Of course, “behaviorism” works. So does torture,” wrote Wystan Hugh Auden, the popular Anglo-American poet and ethicist in Behaviorism in a Certain World, 1970. I found it difficult, amidst such twentieth-century vituperative language against behaviorism, to clearly identify the genius peace-loving founding father of behavioral economics. It had to be someone who could reconcile and integrate bitter enemies. I had to wait until the twenty-first century to identify him. My designation of Tversky and Kahneman as the co-fathers of the movement will draw criticism—and I admit it is subjective—but someone had to notice their great contribution. A lot of writers wrote about money and the mind, but these two giants formalized the science with solid research in the last twenty years of the twentieth century! Dr. Amos Tversky taught cognitive psychology and mathematics at Stanford University and at the Hebrew University of Jerusalem. He worked on behavioral economics theory with Dr. Daniel Kahneman who was the only psychologist who ever received a Nobel Prize in Economics. If anyone deserves the title of founding father of behavioral economics, Kahneman does!
Behavioral economics is the branch of economics that applies psychological principles to business and the economy. It may seem more soft or complicated to apply than economic indicators, but it isn’t. Studying CEO behavior in the market place may smell like a soft science, less predictive of company success, less mathematical, less controlling, less involving balance sheets and accounting practices, but analyzing leadership is powerful, simple to apply and is less amenable to cheating! It is the cornerstone of my successful behavioral investing theory.
Proceedings of the 2011 Annual Meeting of the Academy of Behavioral Finance and Economics, September 21-23, 2011, Los Angeles, California
Knowing Psychology is like playing with magic. I told my friends to wait till Twitter went down from $70 to $30 per share and it did faster than expected for a dud, hey call me (don’t buy retail). T is down by $14 today! At $50 it’s not yet cool enough! The cult magic is wearing off slowly. No matter how much you love social media a SM company without earning is like a Phoenix without magic food, it will rise again when it is fed…and Twitter will be a fad until it gets hungry enough and goes hunting for commercials and advertisers who love Facebook right now! I’ll be ready, the money is already in my account ready to buy 5000-20,000 shares at between $27 and $30 per share. I did that great strategy with 15 other companies and all of them are making big bucks for 10 years. I suppose if Wall street had a competition on the best earning portfolio this decade I’d probably win! No one earns 25% per year for the last 10 years! You see, I already have Facebook for cheap and Twitter may be the worthy runner-up when it lures the ads. In business number 1 and 2 are in yoyo competition, What goes down will go up and what goes up will come down, it’s not just in sex, it’s in everything!! Remember, don’t follow blindly. Assess the risk of your decision-making. Play it cool, it’s fun to win. Cash is good to have – think Hawaii for a change! But, it’s easy only if you know how to lead or follow and load the info. Good luck, buddy.
At $60 per share with $0 earning and piling expenses to run this new IPO company, Twitter has become the psychological phenomenon of the century! With Dorsey, the founder of this social phenomenon being invited to sit on the board of Disney, another social phenomenon company, Twitter earned the right to be analysed by psychologists, not economists. Should you buy at $60? Absolutely not, unless you convert to the new religion. Kahneman’s System 2 analysis will certainly conclude that this “Social Babble bubble” phenomenon of market pseudo politics will burst under the weight of lower than expected profit quarters. First to sell will be those who are lukewarm about the new religion and last to sell will be the die-hards who bought high and are willing to lose their shirt for faith. In my first segment on Twitter I predicted a good buy at $30, after the honeymoon in over when the Twitter family budget kicks in. At $30-$40 they will have enough money to live on without being “Air billionaires.” For now, it’s Christmas time and there is magic in the air. Merry Christmas and a happy new year to you and your tweets.
In 1776 Adam Smith wrote the Wealth of Nations. The book brought together Capitalists (C), labor unions (LU), government officials (GO) and private entrepreneurs (PE) to interact and develop a system (Rules) how to exploit natural resources using individual skills, social and educated talents within the culture. The wealth of any nation is determined by the set of rules that C people, LU people, GO and PE have created and chose to enforced. Only the United States ($$$$$) started its economic journey in history with a fabulous Constitution. All the other countries on earth just picked up all kind of junk rules as they struggled through their histories (I am not apologizing for my statement about junk rules because my statement is true).
Capitalism describes the relationship between those people who provide capital (bankers, credit holders, wealth inheritors, crooks, etc.), those people who provide labor (workers, unskilled, semi-skilled, skilled), those people who organize the economic system (individuals, groups, governments) and those individuals, committees, families, religions, armed forces or groups that control legally or by force the countries’ natural resources.
How do you measure a nation’s wealth?
Smith did not include the human factor in his great economic theory (I will speak on that at the University of Rome on January 24th). The human factor determines the wealth of a nation more than all the other factors combined because only the human factor is responsible for the values and validity of the set of rules chosen that govern the economy. The simplest way to evaluate the economy of a country is to search Google for a nation’s GDP, GDS, GS, and GDS/GDP and GS/GDP. Each of these rules or ratios will provide you with rich data on the sum total of economic activity in a given country. For example, if the ratio of Gross Sales to Gross Domestic Products is 3/1, you can draw tentative conclusions on costs, prices, unemployment and inefficiency all in one breath!
By the way, I do not think that you will find a respectable study of these ratios to date, so I suggest that PhD candidates get to work on it!