Smaller companies hit hardest during emerging market crises

CORVALLIS, Ore. – A study of the reaction by the United States stock market to international financial crises shows that small companies are often hit hardest, and the impact is above and beyond what would be expected given their exposure to global market factors.

This unexpected result suggests the significant impact that investors’ actions can have during emerging market crises. During these crises, investors flee to the perceived safety of big companies and shed stocks of smaller companies, despite comparable levels of international exposure during normal periods.
“The take-away is, just because you invest locally doesn’t mean you are protected from the global market,” said David Berger, an assistant professor of finance at Oregon State University.

Looking at almost 20 years of data that covered about eight large emerging market crashes, Berger and H.J. Turtle of Washington State University uncovered this flight-from-risk trend on the part of investors that flee from small stocks. The results are published in the current issue of the Global Finance Journal.
“We would expect that stock markets in two different, but related economies would crash at the same time,” Berger said. “But we found that during big market crashes, investors adjust their holdings towards bigger corporate stocks that they perceive as being safer, even after controlling for economic exposures.”

Berger said the results of his study are unexpected because past research has focused on the aggregate U.S. market as a whole and found little impact during emerging market crises.
“Investors see these big blue chip stocks as the safer ones, and small, R&D intensive stocks for example, as riskier,” Berger said. “So the stock of a smaller domestic company could take a hit because of an international shock.”

Berger studies U.S. equity markets and international stocks, and said the findings from this study have important implications for investors, even those who tend to invest mainly in the domestic market.
“Interestingly, larger stocks often benefited from emerging market crises and exhibited positive returns,” Berger added. “Because investors started dumping smaller stocks in favor of safer, larger ones, the irony is that larger multinational corporations potentially see positive benefits during international crises.”

Source Oregon State University

Husband's employment status threatens marriage, but wife's does not, study finds

A new study of employment and divorce suggest that while social pressure discouraging women from working outside the home has weakened, pressure on husbands to be breadwinners largely remains.
The research, led by Liana Sayer of Ohio State University and forthcoming in the American Journal of Sociology, was designed to show how employment status influences both men's and women's decisions to end a marriage.

According to the study, a woman's employment status has no effect on the likelihood that her husband will opt to leave the marriage. An employed woman is more likely to initiate a divorce than a woman who is not employed, but only when she reports being highly unsatisfied with the marriage.
The results for male employment status on the other hand were far more surprising.
For a man, not being employed not only increases the chances that his wife will initiate divorce, but also that he will be the one who opts to leave. Even men who are relatively happy in their marriages are more likely to leave if they are not employed, the research found.
Taken together, the findings suggest an "asymmetric" change in traditional gender roles in marriage, the researchers say.

That men who are not employed, regardless of their marital satisfaction, are more likely to initiate divorce suggests that a marriage in which the man does not work "does not look like what [men] think a marriage is supposed to," the researchers write. In contrast, women's employment alone does not encourage divorce initiated by either party. That implies that a woman's choice to enter the workforce is not a violation of any marriage norms. Rather, being employed merely provides financial security that enables a woman to leave when all else fails.

"These effects probably emanate from the greater change in women's than men's roles," the researchers write. "Women's employment has increased and is accepted, men's nonemployment is unacceptable to many, and there is a cultural ambivalence and lack of institutional support for men taking on 'feminized' roles such as household work and emotional support."
The research used data on over 3,600 couples taken from three waves of the National Survey of Families and Households. Waves were conducted in 1987-88, 1992-94, and 2001-2.

Source  American Journal of Sociology via EurekaAlert!

Bitcoin value plummets as main exchange is hacked

Bitcoin freefall: the market plummets as large amounts of bitcoins are sold off at rock-bottom prices - bigger circles correspond to larger transactions (Image: Mt. Gox)

Following reports of theft last week, the Bitcoin community suffered another major loss of confidence yesterday when its largest exchange, Mt. Gox, was compromised, causing Bitcoin's value to fall from around $17.5 to just a few cents.

Although the online peer-to-peer currency has no central authority, Mt. Gox has become one of the most important Bitcoin players by allowing people to convert bitcoins to US dollars and back. As Mt. Gox's owner Mark Karpeles explains, the site itself was not hacked, but someone gained access to a computer used by one of Mt. Gox's auditors and stole a read-only copy of its database containing details of over 60,000 accounts.

The attacker then attempted to sell coins from one large account, but was prevented from emptying the account by a $1000 per day withdrawal limit. Even so, the sale caused the value of Bitcoin against the dollar to completely collapse.

Karpeles says that no other accounts were compromised and all trades will be rolled back to before the time of the hack, restoring Bitcoin's value to $17.5. Mt. Gox will also require every user to go through an authentication process to verify ownership of their account, since the leaked database contained encrypted user passwords that if cracked could allow access to other accounts.

While these measures should go some way to restoring faith in Mt. Gox and Bitcoin in general, they are a far cry from Bitcoin's promise of complete decentralisation. Some comments on the Mt. Gox forum are protesting the roll back, but it seems that even digital currency enthusiasts want some form of protection when large amounts of money are at stake. The principles behind the currency itself remain sound, but without a secure way to exchange bitcoins for real-life money, many Bitcoin holders will be looking to cash out.

Source New Scientist

Companies that combine exports, research outperform competitors

Economists recognize that companies that export are more productive. However, a more complex relationship between exporting and investing in research and development may better explain the high productivity of companies in "economic miracle" countries such as China and Taiwan, according to a team of economists.
"The old story is that there's some type of magic that makes your company more productive if it exports," said Bee-Yan Aw, professor of economics, Penn State. "Actually what we found is that really productive firms tend to export in the first place."

The researchers, who released their findings in the current issue of the American Economic Review, said companies that exported and invested in R&D significantly outperformed other companies significantly in productivity, including companies that just began exporting. They examined data on the relationship between R&D investments, exporting practices and productivity for Taiwanese electronic product manufacturing plants from 2000 to 2004.
A company that both invests in R&D and exports is 123 percent more productive than a plant that does neither, said Mark Roberts, professor of economics, Penn State. A plant that exports, but does not invest in R&D, is only 35 percent more productive. A plant that only invests in R&D has productivity that is twice as high.

According to Aw, manufacturers may be tempted to seize higher productivity gains by investing only in R&D and not in exports, but the costs of implementing new technology and updating equipment could be prohibitive.
"There are often higher costs associated with research and development that may make it impractical for companies to implement," said Aw. "Exporting may actually be a more desirable way to improve productivity initially because it is relatively low cost."
The Penn State researchers, who worked with Daniel Yi Xu, assistant professor of economics, New York University, said companies that export gain a competitive edge by learning more from their customers, which are often larger companies in Western countries.

Because companies that export are more productive, they may have a significant advantage over non-exporting firms that are hoping to sell their goods overseas. Government programs can help ease this transition for non-exporting companies that are looking for customers in foreign markets, according to Aw.
"Governments can set up programs that help non-exporting companies connect with customers in other countries," said Aw. "In fact, that's what a lot of countries are already doing."

Source EurekaAlert!

IPCC asks scientists to assess geo-engineering climate solutions

Leaked documents ahead of key Lima meeting suggest UN body is looking to slow emissions with technological fixes rather than talks.

Lighter-coloured crops, aerosols in the stratosphere and iron filings in the ocean are among the measures being considered by leading scientists for "geo-engineering" the Earth's climate, leaked documents from the UN climate science body show.

One of the geo-engineering solutions to climate change is to spray seawater droplets into marine clouds to make them reflect more sunlight.

In a move that suggests the UN and rich countries are despairing of reaching agreement by consensus at global climate talks, the US, British and other western scientists will outline a series of ideas to manipulate the world's climate to reduce carbon emissions. But they accept that even though the ideas could theoretically work, they might equally have unintended and even irreversible consequences.

The papers, leaked from inside the Intergovernmental Panel on Climate Change (IPCC), ahead of a geo-engineering expert group meeting in Lima in Peru next week, show that around 60 scientists will propose or try to assess a range of radical measures, including:
• blasting sulphate aerosols into the stratosphere to reflect sunlight into space;
• depositing massive quantities of iron filings into the oceans;
• bio-engineering crops to be a lighter colour to reflect sunlight; and
• suppressing cirrus clouds.

Other proposals likely to be suggested include spraying sea water into clouds to reflect sunlight away from the Earth, burying charcoal, painting streets and roofs white on a vast scale, adding lime to oceans and finding different ways to suck greenhouse gases out of the air and deposit heat deep into oceans.
The meeting is expected to provide governments with a scientific assessment of geo-engineering technologies, but is widely expected to be in favour of more research and possibly large-scale experimentation despite an international moratorium adopted by the UN last year in Japan.

This week, more than 125 environment, development and human rights groups from 40 countries published a letter sent to Rajendra Pachauri, the Nobel prize-winning head of the IPCC, warning that the body had no mandate to consider the legality or political suitability of using geo-engineering.
"Asking a group of geo-engineering scientists if more research should be done is like asking bears if they would like honey," said the letter, signed by groups including Friends of the Earth International, Via Campesina and ETC.

Concern over the IPCC meeting centres on who should decide what kind of geo-engineering takes place, and how it should be regulated and monitored. Some projects might, if they work, unintentionally change weather patterns and possibly affect farming and livelihoods in some of the most vulnerable areas in the world.
"[Geo-engineering] is not a scientific question, it is a political one. International peasant organisations, indigenous peoples and social movements have all expressed outright opposition to such measures as a false solution to the climate crisis," says the letter.

Britain is, along with the US, strongly backing geo-engineering research and has supported scientists with millions of pounds of university research, including a Bristol University plan to develop a "hose" held up by balloons through which sulphates can be sent into the stratosphere. The Royal Society is now trying to develop international guidelines and principles and is holding workshops around the world.
In a letter to the Guardian this week, Georgina Mace, professor of conservation science at Imperial College, London and Catherine Redgwell, professor of international law at UCL, said that investment in geo-engineering research had already begun and, "without international governance structures, schemes could soon be implemented unencumbered by the safeguards needed".

But according to abstracts of the papers, Redgwell will advise the IPCC in Peru next week that no new laws should be adopted. "A multilateral geo-engineering treaty is not likely or desirable. The appetite for climate change law-making is low."
The main principles, she suggests, should be that geo-engineering is a "public good", there should be public participation in schemes and independent assessment of the impacts.

"Geo-engineering is not a public good but could be a giant international scandal with devastating consequences on the poor," said Diana Bronson, researcher with international NGO the ETC Group.
In the papers, many of the scientists accept there are that major uncertainties around the technologies. However, the scientific steering group of the meeting, which will assess the technologies, includes many well-known geo-engineering advocates who have called for public funds to conduct large-scale experiments as well as scientists who have patents on geo-engineering technologies or financial interests in the technologies.
The meeting has been given added weight because last week, Christiana Figueres, head of the UNFCCC, told the Guardian that the world may have to investigate geo-engineering because emissions were continuing to rise.

"We are putting ourselves in a scenario where we will have to develop more powerful technologies to capture emissions out of the atmosphere", she said. "We are getting into very risky territory."

Source The Guardian

Facebook friends? Group identity helps consumers remember ads

When consumers think about the groups they belong to, they recall ads better, according to a new study in the Journal of Consumer Research.

"A key determinant of how much consumers remember from an ad is the connection between the ad content and the consumer's own self-concept," write authors Kathryn R. Mercurio (UCLA) and Mark Forehand (University of Washington, Seattle).
Consumers identify with many different demographic groups, such as race, gender, or age. They also identify with family role groups (mother, father, sister), or occupational groups such as lawyer, teacher, or politician. And they sometimes identify with brand consumption groups (Mac, Harley Davidson, Facebook). Although consumers identify with a large set of groups, at any given time they only think about a small set of them, called the active self-concept.

Advertising often includes information or images that encourage consumers to think about groups they belong to, and research has demonstrated that consumers temporarily prefer brands that target those specific groups. For example, a tampax commercial helps female consumers think about their gender self-concept and makes them more responsive to other ads that are aimed toward their gender.

The authors also found that thinking about one's group membership influences memory for advertising. "Specifically, when a consumer views advertising while they are also thinking about one of their group memberships they unconsciously connect the new information to the group membership in memory," the authors write. Later, when those consumers think about that group membership, they are more likely to remember the information they learned earlier.

"Pragmatically, this suggests that advertisers should consider how consumers are likely to think about themselves when they are choosing products," the authors conclude.

Source  EurekaAlert!

Bipolar kids: Victims of the 'madness industry'?

THERE'S a children's picture book in the US called Brandon and the Bipolar Bear. Brandon and his bear sometimes fly into unprovoked rages. Sometimes they're silly and overexcited. A nice doctor tells them they are ill, and gives them medicine that makes them feel much better.

The thing is, if Brandon were a real child, he would have just been misdiagnosed with bipolar disorder.

Also known as manic depression, this serious condition, involving dramatic mood swings, is increasingly being recorded in American children. And a vast number of them are being medicated for it.

 Kids' stuff?

The problem is, this apparent epidemic isn't real. "Bipolar emerges from late adolescence," says Ian Goodyer, a professor in the department of psychiatry at the University of Cambridge who studies child and adolescent depression. "It is very, very unlikely indeed that you'll find it in children under 7 years."

How did this strange, sweeping misdiagnosis come to pass? How did it all start? These were some of the questions I explored when researching The Psychopath Test, my new book about the odder corners of the "madness industry".

Freudian slip

The answer to the second question turned out to be strikingly simple. It was really all because of one man: Robert Spitzer.

I met Spitzer in his large, airy house in Princeton, New Jersey. In his eighties now, he remembered his childhood camping trips to upstate New York. "I'd sit in the tent, looking out, writing notes about the lady campers," he said. "Their attributes." He smiled. "I've always liked to classify people."

The trips were respite from Spitzer's "very unhappy mother". In the 1940s, the only help on offer was psychoanalysis, the Freudian-based approach of exploring the patient's unconscious. "She went from one psychoanalyst to another," said Spitzer. He watched the psychoanalysts flailing uselessly. She never got better.

Spitzer grew up to be a psychiatrist at Columbia University, New York, his dislike of psychoanalysis remaining undimmed. And then, in 1973, an opportunity to change everything presented itself. There was a job going editing the next edition of a little-known spiral-bound booklet called DSM - the Diagnostic and Statistical Manual of Mental Disorders.

DSM is simply a list of all the officially recognised mental illnesses and their symptoms. Back then it was a tiny book that reflected the Freudian thinking predominant in the 1960s. It had very few pages, and very few readers.

What nobody knew when they offered Spitzer the job was that he had a plan: to try to remove human judgement from psychiatry. He would create a whole new DSM that would eradicate all that crass sleuthing around the unconscious; it hadn't helped his mother. Instead it would be all about checklists. Any psychiatrist could pick up the manual, and if the patient's symptoms tallied with the checklist for a particular disorder, that would be the diagnosis.

For six years Spitzer held editorial meetings at Columbia. They were chaos. The psychiatrists would yell out the names of potential new mental disorders and the checklists of their symptoms. There would be a cacophony of voices in assent or dissent - the loudest voices getting listened to the most. If Spitzer agreed with those proposing a new diagnosis, which he almost always did, he'd hammer it out instantly on an old typewriter. And there it would be, set in stone.

That's how practically every disorder you've ever heard of or been diagnosed with came to be defined. "Post-traumatic stress disorder," said Spitzer, "attention-deficit disorder, autism, anorexia nervosa, bulimia, panic disorder..." each with its own checklist of symptoms. Bipolar disorder was another of the newcomers. The previous edition of the DSM had been 134 pages, but when Spitzer's DSM-III appeared in 1980 it ran to 494 pages.

"Were there any proposals for mental disorders you rejected?" I asked Spitzer. "Yes," he said, "atypical child syndrome. The problem came when we tried to find out how to characterise it. I said, 'What are the symptoms?' The man proposing it replied: 'That's hard to say because the children are very atypical'."

He paused. "And we were going to include masochistic personality disorder." He meant battered wives who stayed with their husbands. "But there were some violently opposed feminists who thought it was labelling the victim. We changed the name to self-defeating personality disorder and put it into the appendix."

DSM-III was a sensation. It sold over a million copies - many more copies than there were psychiatrists. Millions of people began using the checklists to diagnose themselves. For many it was a godsend. Something was categorically wrong with them and finally their suffering had a name. It was truly a revolution in psychiatry.

It was also a gold rush for drug companies, which suddenly had 83 new disorders they could invent medications for. "The pharmaceuticals were delighted with DSM," Spitzer told me, and this in turn delighted him: "I love to hear parents who say, 'It was impossible to live with him until we gave him medication and then it was night and day'."

Spitzer's successor, a psychiatrist named Allen Frances, continued the tradition of welcoming new mental disorders, with their corresponding checklists, into the fold. His DSM-IV came in at a mammoth 886 pages, with an extra 32 mental disorders.

Now Frances told me over the phone he felt he had made some terrible mistakes. "Psychiatric diagnoses are getting closer and closer to the boundary of normal," he said.

"Why?" I asked. "There's a societal push for conformity in all ways," he said. "There's less tolerance of difference. Maybe for some people having a label confers a sense of hope - previously I was laughed at but now I can talk to fellow sufferers on the internet."

Part of the problem is the pharmaceutical industry. "It's very easy to set off a false epidemic in psychiatry," said Frances. "The drug companies have tremendous influence."

One condition that Frances considers a mistake is childhood bipolar disorder. "Kids with extreme temper tantrums are being called bipolar," he said. "Childhood bipolar takes the edge of guilt away from parents that maybe they created an oppositional child."

"So maybe the diagnosis is good?"

"No," Frances said. "And there are very good reasons why not." His main concern is that children whose behaviour only superficially matches the bipolar checklist get treated with antipsychotic drugs, which can succeed in calming them down, even if the diagnosis is wrong. These drugs can have unpleasant and sometimes dangerous side effects.

Knife edge

The drug companies aren't the only ones responsible for propagating this false epidemic. Patient advocacy groups can be very fiery too. The author of Brandon and the Bipolar Bear, Tracy Anglada, is head of a childhood bipolar advocacy group called BP Children. She emailed me that she wished me all the best with my project but she didn't want to be interviewed. If, however, I wanted to submit a completed manuscript to her, she added, she'd be happy to consider it for review.

Anglada's friend Bryna Hebert has also written a children's book: My Bipolar, Roller Coaster, Feelings Book. "Matt! Will you take your medicines please?" she called across the kitchen when I visited her at home in Barrington, Rhode Island. The medicines were lined up on the kitchen table. Her son Matt, 14 years old, took them straight away.

The family's nickname for baby Matt had been Mister Manic Depressive. "Because his mood would change so fast. He'd be sitting in his high chair, happy as a clam; 2 seconds later he'd be throwing things across the room. When he was 3 he'd hit and not be sorry that he hit. He was obsessed with vampires. He'd cut out bits of paper and put them into his teeth like vampire teeth and go up to strangers. Hiss hiss hiss. It was a little weird."

"Were you getting nervous?" I asked. "Yeah," said Hebert. "One day he wanted some pretzels before lunch, and I told him no. He grabbed a butcher knife and threatened me."

"How old was he?"

"Four. That was the only time he's ever done anything that extreme," she said. "Oh, he's hit his sister Jessica in the head and kicked her in the stomach."

"She's the one who punched me in the head," called Matt from across the room.

It was after the knife incident, Hebert said, they took him to be tested. As it happened, the paediatric unit at what was then their local hospital, Massachusetts General, was run by Joseph Biederman, the doyen of childhood bipolar disorder. According to a 2008 article in the San Francisco Chronicle, "Biederman's influence is so great that when he merely mentions a drug during a presentation, tens of thousands of children will end up taking it." Biederman has said bipolar disorder can start, "from the moment the child opens his eyes".

"When they were testing Matt he was under the table, he was on top of the table," said Hebert. "We went through all these checklists. One of Dr Biederman's colleagues said, "We really think Matt meets the criteria in the DSM for bipolar disorder."

That was 10 years ago and Matt has been medicated ever since. So has his sister Jessica, who was also diagnosed by Biederman's people as bipolar. "We've been through a million medications," said Hebert. "There's weight gain. Tics. Irritability. Sedation. They work for a couple of years then they stop working."

Hebert was convinced her children were bipolar, and I wasn't going to swoop into a stranger's home for an afternoon and tell her they were normal. That would have been incredibly patronising and offensive. Plus, as the venerable child psychiatrist David Shaffer told me when I met him in New York later that evening, "These kids can be very oppositional, powerful kids who can take years off your happy life. But they aren't bipolar."

"Attention-deficit disorder?" he said. "Often with an ADD kid you think: 'My God, they're just like a manic adult.' But they don't grow up manic. And manic adults weren't ADD when they were children. But they're being labelled bipolar.

"That's an enormous label that's going to stay with you for the rest of your life. You're being told you have a condition which is going to make you unreliable, prone to terrible depressions and suicide."

The debate around childhood bipolar is not going away. In 2008, The New York Times published excerpts from an internal hospital document in which Biederman promised to "move forward the commercial goals of Johnson & Johnson", the firm that funds his hospital unit and sells the antipsychotic drug Risperdal. Biederman has denied the allegations of conflict of interest.

Frances has called for the diagnosis of childhood bipolar to be thrown out of the next edition of DSM, which is now being drawn up by the American Psychiatric Association.

This article shouldn't be read as a polemic against psychiatry. There are a lot of unhappy and damaged people out there whose symptoms manifest themselves in odd ways. I get irritated by critics who seem to think that because psychiatry has elements of irrationality, there is essentially no such thing as mental illness. There is. Childhood bipolar, however, seems to me an example of things having gone palpably wrong.

On the night of 13 December 2006, in Boston, Massachusetts, 4-year-old Rebecca Riley had a cold and couldn't sleep. Her mother, Carolyn Riley, gave her some cold medicine, and some of her bipolar medication, and told her she could sleep on the floor next to the bed. When she tried to wake Rebecca the next morning, she discovered her daughter was dead.

The autopsy revealed that Rebecca's parents had given her an overdose of the antipsychotic drugs she had been prescribed for her bipolar disorder. They had got into the habit of feeding her the medicines to shut her up when she was being annoying. They were both convicted of Rebecca's murder.

Rebecca had been diagnosed as bipolar at 2-and-a-half, and given medication by an upstanding psychiatrist who was a fan of Biederman's research into childhood bipolar. Rebecca had scored high on the DSM checklist, even though like most toddlers she could barely string a sentence together.

Shortly before her trial, Carolyn Riley was interviewed on CBS's 60 Minutes show by Katie Couric:

KC: Do you think Rebecca really had bipolar disorder?

CR: Probably not.             

KC: What do you think was wrong with her now?

CR: I don't know. Maybe she was just hyper for her age.

Jon Ronson is a writer and documentary maker living in London. He is the author of five books, including The Men Who Stare at Goats. His latest book, The Psychopath Test, is about the psychiatry industry

Source New Scientist

Can small loans reduce poverty?

Yale University economist says microfinance yields surprising results.


Small loans, somewhere in the neighborhood of $100 to $500 dollars, are an increasingly popular weapon in the fight to reduce poverty. Called microcredit, institutions dole out these monetary advances to help extremely poor people engage in successful entrepreneurship and improve their quality of life.
While proponents extol its virtues, researchers look for evidence; they want to know if it works. Does it really increase financial development and help individuals make solid monetary decisions as its supporters claim?
"Microfinance works," said Dean Karlan, economics professor at Yale University. "But it isn't the Hollywood ending that we've been sold."

Karlan, coauthor of a recent book More Than Good Intentions that also discusses research on this topic, and Jonathan Zinman, an economics professor at Dartmouth College in Hanover, N.H., recently published the results of a 22 month study that examined how individuals make economic decisions over time and whether micro-lending policies aid economic development.

"Proponents argue microcredit mitigates market failures, spurs microenterprise growth and boosts borrowers' well-being," the researchers write in a report, which appears in the June 10 issue of Science. The National Science Foundation's Division of Social and Economic Sciences funds the work.
The researchers found "microloans increase ability to cope with risk, strengthen community ties and increase access to informal credit." But they also found the subjective well-being of loan awardees slightly declined. In addition, they found awardees reduced their overall number of business activities and those in the study did not increase investment in their businesses.

"Enterprise growth is the canonical story that the microcredit industry promotes," said Karlan about the amount of financial investment. "This isn't to say that microcredit never produces such an impact. But it should not be seen as the singular story. We need to know more about how people actually use their loans, and we should not be judgmental if the answer is not always for investment in enterprise."

"Traditional" microlenders target women who operate small-scale businesses and use group lending mechanisms. But the expansion of microlending means it often ends up looking more like traditional retail or small business lending that has the same impact on women and men.
Optimism, calmness, worry and job satisfaction was about the same for both men and women in the study. "We do not find any evidence that treatment effects are more pronounced for female borrowers," the researchers write.

Treatment effects refer to the financial and psychological outcomes of the mircoloans.
Karlan and Zinman designed an innovative experiment that randomly assigned individual microloans of, on average, $225 through credit scoring to 1,601 individuals in the Philippines. The loans, assigned to microentrepreneurs, were short-term and were required to be repaid on fixed schedules with equal periodic repayments.

The research design employed credit scoring software to approve loans randomly for marginally creditworthy applicants and then used survey data to measure how the loans impacted the awardees' later access to credit.
By randomizing the marginal credit decisions, Karlan and Zinman were able to measure the impact of the loans, screening off other causal factors. Moreover, these standard, first-time-borrower loans were made through a lender that had no ties to the survey firm--important for eliminating potential bias.
Loans were to be paid back in 13 weeks, with weekly repayments and a monthly interest rate of 2.5 percent charged over the declining balance. But several upfront fees combined with the interest rate to produce an effective annual interest rate greater than 60 percent.

Karlan and Zinman say the high annual interest rate may have contributed to a marginal improvement in risk management. "We do find that microloans increase ability to cope with risk," they write, "strengthen community ties, and increase access to informal credit. Thus microcredit may work, but through different channels often hypothesized by its proponents."
Informal credit was loans provided by family members and friends. The researchers found awardees had greater access to these loans once they had been the recipient of a microcredit loan.
"Access to credit lowered the demand for risk mitigation tools elsewhere," said Karlan. "We also found a similar result in our earlier South Africa study, in which individuals with access to credit were more able to keep their jobs--more able to absorb some sort of shock, which if they did not absorb would have meant losing their job."

Karlan is the president and founder of Innovations for Poverty Action, a non-profit organization that seeks to bridge the gap between academia and economic development policy. Zinman is a research affiliate of the organization.
"The biggest lesson we see here is one of process, and of shedding ourselves of preconceived notions on what credit is for," said Karlan. "People use credit for many reasons, beyond business investment, and that is good."
"What we need now is more studies like this that help understand the patterns of how credit is used, and if credit is being used to alleviate poverty, then we need further studies to learn how and when that happens."

Source  EurekaAlert!

Will Psych Majors Make the Big Bucks?

A new crop of college graduates have just landed on the job market. Right now they’re probably just hoping to get any job, if at all. However, for psychology majors, the salary outlook in both the short and long term is particularly poor, according to a new study which will be published in an upcoming issue of Perspectives on Psychological Science, a journal of the Association for Psychological Science.

It’s generally known that psychology majors don’t make a ton of money when they’re starting out; they’re not like engineering students, many of whom go straight into a job that pays well for their technical skills. But some people have suggested that a psychology major may pay off later in the career, as the critical thinking skills and literacy of the liberal arts education become more valuable. D.W. Rajecki of Indiana University was skeptical. “Psychology educators say liberal arts skills should be valuable in the workplace. Employers say they value liberal arts skills in employees,” he says. “I say, ‘show me the money.’” So, with Victor M.H. Borden, he set out to examine several data sets on earnings for people in different fields.

As expected, they found that psychology majors’ median starting salary of $35,300 is well below the average for college graduates. But they found that this is also true at midcareer, when psychology majors are still paid below the average. They fare particularly poorly when compared to graduates in other science fields, engineering, and health.
“Face it, wages are tied to specific occupations, and real-world data show that psychology alumni just don’t work in areas that pay top dollar,” says Rajecki. Advanced degrees don’t help, either. “Even psychology professors obtain appointments at the lower end of that salary scale.”

Rajecki doesn’t think this means 18-year-olds should stop choosing psychology as a major. “Psychology is a remarkable academic discipline that seems to get more interesting every passing year.  Why should any student avoid the field?” he says. And, of course, money isn’t the only thing that matters. But when academic counselors are giving students advice, they should make it clear that psychology isn’t necessarily the road to riches.

Source Association for Psychological Science

To bluff, or not to bluff? That is the question.

University of Miami economist uses modern-day game theory techniques to examine legendary military bluffs and explain why they worked.

CORAL GABLES, FL (May 23, 2011)-- Economist Christopher Cotton from the University of Miami (UM), uses game theory to explore two of the most famous military bluffs in history. The findings are published in the current issue of the Journal of Peace Research.

The study is one of the first to use game theory to assess the Chinese military legends of Li Guang and his 100 horsemen (144 BC), and Zhuge Liang and the Empty City (228 AD). The stories appear in modern day translations of Sun Tzu's fundamental book on military strategy "The Art of War" to explain what is meant by deception.

Both legends involve a military that faces a much stronger opposing force. Instead of retreating, the commander of the weaker army orders his men to act as if they were preparing to bait the enemy into an ambush. The stronger army unsure of whether they are facing a weak army or an ambush decides to retreat and evade combat. In other words, the stronger opponent falls for the bluff.

The legends have been used for the past two-thousand years to illustrate military deception. What is new about this study is that it explains why their strategies were successful, says Christopher Cotton assistant professor in the Department of Economics at the UM School of Business Administration, and principal investigator of the study.

"With this study we gain insight about these legends that nobody had before. For example, bluffing doesn't work because it convinces an opponent that you are strong. It works because your opponent can't tell whether you are really strong, or whether you are only acting strong. This uncertainty is all that's needed," says Cotton. "The generals chose strategies that left their opponents uncertain, and this uncertainty was enough to avoid confrontation."

Game theory is a field of mathematics that started to gain ground in the 1940's. It provides a way to model strategic situations, in which the success of an individual's choices depends on the choices of his opponent(s), explains Cotton. "The theory basically says that what I want to do depends on what you do, and what you want to do depends on what I'm doing. We ask what strategy people should follow in such situations."

Cotton modeled the military legends as signaling games, where one player has all the information about the situation and the other does not. Equilibrium is achieved when the participants or "players" adopt strategies or "actions" that bring about the best outcome, or "payoff." These optimal strategies can be described as a situation where "what I'm doing should be consistent with what you have chosen to do, and given what you have chosen to do, I should not want to go do something else," says Cotton. In the case of the military legends, the researchers found that bluffing arose naturally as the optimal strategy in each situation.

The study says that "when the probability of a weak general is high, the equilibrium involves mix strategies, with weak general sometimes fleeing and sometimes bluffing….when the probability of a weak general is lower (which is reasonable given the reputations of Li Guang and Zhuge Liang), then the unique equilibrium always involves bluffing by the general and retreat by his opponent."

What the researchers are showing is that these famous generals were acting according to optimal strategy, as defined by modern-day strategic reasoning. "They are playing in a way that is consistent to what we would recommend them doing today, even though they were doing it two-thousand years before any of the modern tools for strategy were developed," Cotton says.

The paper is titled "100 Horsemen and the empty city: A game theoretic examination of deception in Chinese military legend," The co-author is Chang Liu, (PhD Student) in the Department of Finance, at the Georgia Institute of Technology. The study adds to the literature in which game theory is used to gain insight of historic events, it increases understanding on the role of deception in military and defense strategies and explores the logic used by experienced professionals, who unknowingly play strategic games to create innovative solutions to everyday problems.

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Source  EurekaAlert!

Cereal Killer: Climate Change Stunts Growth of Global Crop Yields

Rising temperatures are depressing yields of wheat, as pictured here, offsetting gains from improved farming practices

A crop-yield analysis reveals that warming temperatures have already diminished the rate of production growth for major cereal crop harvests during the past three decades.

The people of the world get 75 percent of their sustenance—either directly, or indirectly as meat—from four crops: maize (corn), wheat, rice and soybeans. The world's rising population—now predicted by the United Nations to reach 10.1 billion by century's end—has been fed thanks to rising yields of all four of these crops during the past century. Humanity's predilection for burning fossil fuels, however, is now contributing to the slowing of such rising yields, cutting harvests of wheat 5.5 percent and maize 3.8 percent from what they could have been since 1980, according to a new analysis of yields.

"On a global scale, we can see pretty clearly significant changes in the weather for most places where we grow crops," explains agricultural scientist David Lobell of Stanford University's Woods Institute for the Environment, who led the analysis published in the May 6 issue of Science. "Those changes are big enough to sum up to pretty big losses for wheat and corn."

Using U.N. Food and Agriculture Organization data going back to 1980 for crop yields in all major crop-growing regions of the world, and pairing that with temperature and precipitation data for their growing seasons, Lobell and his colleagues found that warming temperatures were reducing yields—although changes in precipitation did not appear to be having an effect, yet.

Those temperature changes are the result of increasing concentrations of atmospheric greenhouse gases, such as carbon dioxide (CO2), largely as a result of burning fossil fuels and agricultural practices. But CO2 also helps rice, soybeans and wheat grow. In fact, the researchers suggest the extra CO2 boosted yields for these crops by roughly 3 percent during the period studied. Unfortunately, in the case of wheat, that wasn't enough to overcome the loss in yields resulting from warming temperatures. "Temperature effects are already overriding CO2 effects," Lobell notes.

Of course, this loss of yield translates directly into food prices, which have been rocketing upward in recent months and years. The new analysis suggests that the climate-related yield loss has contributed as much as 18.9 percent to the average price of a given crop during the period of the study. Climate change "is not disastrous but it's a multibillion-dollar-per-year effect already," Lobell says.

More troubling, further climate change is already locked in: Current CO2 levels imply warming of at least another degree Celsius by 2100. That means areas that have not been affected to date, such as the "corn belt" of the U.S., may soon see the same or worse impacts. "No climate change [in the U.S. corn belt] meant productivity improvements all went to increased yields. By contrast, in Europe the improvements [in yield] went to counteracting the effects of higher temperature," says agricultural economist Gerald Nelson of the International Food Policy Research Institute (IFPRI), who was not involved in the study but found it convincing. "We need to think seriously about breeding crops for dealing with higher temperatures."

Already, agricultural companies such as Monsanto are investing in developing such strains for maize and soybeans, but that leaves less profitable wheat and rice at the mercy of shrinking public sector agricultural research budgets. "Working on a trait like drought resistance is more complex than introducing a trait like insect resistance," says plant breeder Robert Reiter, vice president of biotechnology at Monsanto. "We don't have a lot of genes [to work with] that help produce more grain under water stress."

Nevertheless, Monsanto plans to begin field trials of such a hybrid corn next year, and hopes to introduce it for sale as early as 2013. "Our first gene close to commercialization—what it seems to be doing is helping the plant basically maintain more normal metabolic levels as opposed to trying to shut those processes down under stress," Reiter explains. "We may be taking [genetic] leads from corn and putting them into wheat to help it be drought tolerant and high-yielding."

But IFPRI's Nelson also noted that extreme weather at "fragile points" in a crop's growing cycle, such as high temperatures during the few weeks of flowering in maize and rice plants, could have big impacts. "There are these narrow windows where a small spike in temperature can have a big effect…. Agronomists know these sensitivities but they haven't been looking at them in the context of future climate change."

Adapting agriculture to face a hotter—and potentially drier—future has become a necessity. "We're not saying the sky is falling and food is becoming scarcer and scarcer," Lobell adds. "But there's a real drag on food production from climate change already."

Source Scientific American

China's Energy Dragon Looks Tamer to One Forecaster

A revised forecast has China's energy growth tapering off decades earlier than previously thought, with implications for climate and diplomacy.

Chinese skylines are defined by construction cranes and the din of jackhammers. China produces 50 percent of the world's cement [pdf]—the next largest producer, India is responsible for just 6 percent—to build seemingly endless tracts of high rises, railroads, parking lots, highways, airports and shopping malls. But all booms end—and China's may end sooner than most people think.
A study released on April 27 by Lawrence Berkeley National Lab's (LBNL) China Energy Group says that this high-growth phase of China's development could wind down in less than two decades. China's energy use will cease to be a great unknown, threatening and shape-shifting as a dragon, and become something that is, if not tame, at least simpler to predict.

The LBNL forecast is the first such survey that attempts to come to grips not only with China's energy and resource needs during the current era of rapid development, but also attempts to pinpoint when that era will end. "Most conventional forecasting techniques use a process that assumes the future is going to look like the past—they establish certain relationships between energy and economic activity, and project forward what will be energy uses in the future," explains LBNL staff scientist and report co-author David Fridley. (He is referring specifically to energy forecasts by the International Energy Agency (IEA) and two scenarios prepared by the Energy Research Institute (ERI), a Beijing think tank affiliated with the Chinese government.) Yet the relationship between economic growth and energy demand is not just a straight line. "Nothing can grow exponentially forever."

Current thinking says China's energy demand will only go up and up throughout this century. The LBNL report, however, projects that after rising steeply for the next 15 years, China's energy growth curve will bend and begin to plateau; demand will then peak by 2050 at between 4.5 billion and 5.5 billion tons coal equivalent (depending on the government's success implementing various energy efficiency targets). That is considerably less than the amount if you simply extended other surveys forward. The report forecasts that energy use per person in China will rise to about 40 percent of what Americans consume.
The insights underlying the LBNL forecast are simple. First, the study simply extends further into the future than many forecasts. (The International Energy Agency's most recent "World Energy Outlook" only looks to 2035 and shows no sign of China's energy demand beginning to level off.) Second, their research takes account of what China Energy Group director Mark Levine calls "saturation points." That is the point at which energy demand in a given sector levels off. In a country where still more than half the population is rural, many people have yet to purchase even basic appliances. "But once you have a refrigerator, you don't need another," he says. The concept is simple, but actually integrating it into forecasting requires looking at the dynamics of each sector, and gathering data that can be hard to come by in China. "What makes our model unusual is that we actually account for the specific number and size of refrigerators, televisions, air-conditioners, and more per household," he says. "If you don't do that, you can't know there's a saturation point."

Take, for instance, the energy needs of China's massive infrastructure build-out. Currently 70 percent of China's energy demand is attributable to industry, and of that, fully 40 percent goes into the production of cement and steel. Yet at some point, China won't need to build as many new highways, bridges and parking lots. To envision the future, the LBNL team examined the total mileage of road networks in developed countries with comparable population densities. Then they mapped out just how many additional roads they think China will need—and estimated when the convoys of cement trucks will at last slow down.

China will then be more like developed countries, in which energy demand is flat —or rising at about 1 percent a year—even as standards of living continue to increase. The need for new infrastructure will have diminished, while the replacement of old technologies with newer energy-efficient ones will offset rising consumption. (From 1975–1986, energy in the U.S. did not increase at all, even while GDP increased 35 percent, Levine says.) China's city skylines will no longer feature rows of cranes.

A slower growing China has implications for climate scenarios. In 2010, China pumped about 3 billion tons coal equivalent into the atmosphere. The IEA extrapolates this would hit 5.5 billion tons by 2030 and would double by 2050. China's ERI shows about 6.1 billion tons coal equivalent in 2035. But the LBL study finds China's total carbon output, after roughly plateauing from 2030 to 2035, could be as low as 4.5 billion tons coal as far out as 2050. For China's carbon emissions to increase 50 percent between now and then is no small problem, but it's less of a problem than previously thought. "Will China overwhelm the world with its greenhouse gas emissions?" says Levine. "No, not necessarily."

Of course, the outlook is still dire—a 50 percent rise in China's energy demand and greenhouse gas emissions is tremendous. By identifying a future horizon point, the study may help international climate negotiators press Beijing to commit to absolute targets for reducing carbon emissions, which Beijing has staunchly resisted in favor of relative targets linked to domestic GDP.
The planet's most populous country is now laying the foundation for its future. The window of opportunity is very small. The time when China's planners, and their international advisors, can take steps to ward off future catastrophe—by ensuring that all those shiny new buildings, power plants and transportation systems are as energy efficient and environmentally sound as possible—is now, before the cement has dried.

Christina Larson, a contributing editor at Foreign Policy magazine, has reported extensively on environment and energy from across China. She is also a fellow at the New America Foundation.

Courtesy Scientific American