The Mind of the Market by Michael Shermer

Here are my notes on the rest of Michael Shermer's The Mind of the Market: Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics (click here to read my notes through chapter five, here to read my notes on chapter six and seven, and here to read my initial thoughts on this book).

In chapter eight, Why Money Can't Buy You Happiness, Shermer introduces Jeremy Bentham's "seven circumstances" by which "the value of a pleasure or a pain in considered (part of Bentham's "hedonistic calculus" to measure happiness):

• purity: "the chance it has of not being followed by sensations of the opposite kind"
• intensity: "the strength, force, or power of the pleasure"
• propinquity: "the proximity in time or place of the pleasure"
• certainty: "the sureness of the pleasure"
• fecundity: "the chance it has of being followed by sensations of the same kind"
• extent: "the number of persons to whom it extends"
• duration: "the length of time the pleasure will last"

Shermer then describes all the ways in which the standard of living has dramatically risen over the past fifty years -- median income is up, crime is up, leisure is up, pollution is down, and more -- and contrasts that with the statistic that "by all measures of the Subjective Well-Being (SWB), people are no happier today than they were half a century ago" (this I know I learned from The Paradox of Choice: Why More is Less by Barry Schwarz and other books related to positive psychology) which he calls the "Happiness Disconnect."

Chapter eight continues quoting many ideas from positive psychology; since I've written much about this topic I'll refrain from writing about it here. Instead I'll list some of the books quoted in this chapter:

• The Social Organization of Sexuality: Sexual Practices in the United States by Edward O. Laumann
• The Happiness Myth by Jennifer Hecht
• The Origin of Minds: Evolution, Uniqueness, and the New Science of the Self by Peggy La Cerra and Roger Bingham
• The Genesis of Animal Play: Testing the Limits by Gordon Burghardt

Chapter nine, Trust with Credit Verification, seems highly relevant to the current credit crisis. Shermer has a spot-on quote from Paul Zak: "when trust is low, investment lags. The same positive correlation holds for GDP growth and trust." Shermer goes on to say that "countries that have higher rates of generalized trust show higher rates of return on national stock markets" and "that in order for a nation to achieve prosperity it is vital to maximize positive social interactions among its members in order to increase trust." Surprisingly, Zak found that people in polluted environments tend to have less trust (related to levels of oxytocin) and found many other conclusions related to trust:

• trust and happiness: "people who trust and are trustworthy report being hapier"
• trust and touch: touch increases trust
• trust and smell: trust may be mediated by smell (read The Scent of Desire: Discovering Our Enigmatic Sense of Smell by Rachel Herz for more on smell)
• trust and neglect: "animals that are abused or neglected shortly after birth show a loss of regions in the brain that have oxytocin receptors, and those animals become withdrawn, socially inappropriate, and depressed."

Shermer continues to discuss Zak's findings throughout this chapter, including Zak's postulate that "evil" people (people who do not respond to oxytocin and who basically cannot be trusted) "are necessary from an evolutionary standpoint because they keep physiologic balance between appropriate levels of trust and distrust optimally tuned. Without these exceedingly selfish people, humans might have evolved into being unconditional trusters. If so, we would become susceptible to invasion by those who would prey on our perfectly trusting nature."

Chapter ten, The Science of Good Rules, starts out with Shermer's story of founding the three-thousand-mile nonstop transcontinental bicycle Race Across America (RAAM) from Los Angeles to New York and the subsequent creation of the Ultra-Marathon Cycling Association (UMCA) to deal with the development and adjudication of the rules as the rules increased in complexity with the number of participants. This chapter is all about the need for a society based on the rule of law and formal institutions, due to our evolved potential sources of conflict: "our selfish desire for self improvement conflicts with or altruistic desire for social enhancement, and our competitive desire to better our lot in life sometimes comes in conflict with the same desire that others have in themselves."

Chapter eleven is named after Google's corporate motto, Don't Be Evil. Shermer states:

For markets to be moral, there must be two conditions: (1) internal trust reinforced by personal relationships, and (2) external rules reinforced by social institutions.

This chapter what happens when those institutions fail, our desire to conform to the social norms of our group, WorldCom and Enron type corporate failures, Phil Zimbado's classic Stanford Prison Experiment, Stanley Milgram's well-known experiments on obedience to authority (increasing "shocks" to help someone "learn"), and (of course) Google. I have lots of friends who work at Google so the passage about the free meals and such at Googleplex weren't new to me, but they might be surprising to non-nerds.

Chapter twelve, Free to Choose, discusses the importance of freedom and the problems with paternalism while the epilogue, To Open the World, returns to the Yanomamo hunter-gatherers and the Manhattan consumer-traders that the book began with. Shemer's oversimplified conclusion?

Power kills; democracy saves. Spread democracy.

Trade leads to peace and prosperity. Spread trade.

Where Starbucks crosses frontiers, armies will not.

Where information and knowledge cross frontiers, armies will not.

Freedom finds a way.

I don't want to sound harsh, but I would not recommend this book. Maybe it's just me and my constant reading, but I found much of the book unoriginal. And I felt mislead about the book's premise, and that gives me a generally bad feeling.

Still, I enjoyed the education on free market theory!

Obama!

Yay for Obama!

As an alumnus of Punahou School and as an American, I am ecstatic and proud about Obama's victory tonight!

If you haven't read either of his books -- Dreams from My Father: A Story of Race and Inheritance and The Audacity of Hope: Thoughts on Reclaiming the American Dream -- I highly recommend them.

I've listened to the audio version of Dreams from My Father and it is fantastic! Every bit as wonderful as you'd except from a Grammy winner -- Obama's ability to do voices (including those of his Kenyan relatives) is unbelievable.

I haven't finished The Audacity of Hope yet but will try to do so before Obama's inauguration on January 20, 2009!

Influencer: The Power to Change Anything

During a recent conversation with friends recently, the topic of building a business to create change in third world countries came up -- I guess the United States presidential election has led to some intense conversations about the state of the world.

Naturally, I thought of a fantastic book I read earlier this year: Influencer: The Power to Change Anything by Joseph Grenny, Kerry Patterson, David Maxfield, Ron McMillan & Al Switzler (click here to view the table of contents). Influencer was written by the authors of the best-selling books Crucial Confrontations: Tools for Resolving Broken Promises, Violated Expectations, and Bad Behavior and Crucial Conversations: Tools for Talking When Stakes are High.

I highly recommend these three books. Communication is important in all aspects of life -- personal and business relationships -- and these books provide readers the tools to become better communicators.

I'm certainly not an expert -- I still fly off the handle when people needle me, and I could still improve on my tactics for getting my points across, but I'd like to think I'm much improved.

Sadly, I read these books before I started this blog so I don't have comprehensive notes on them. Though this excerpt from the book sums up Influencer quite well:

Influencer takes you on a fascinating journey from San Francisco to Thailand where you'll see how seemingly “insignificant” people are making incredibly significant improvements in solving problems others would think impossible. You'll learn how savvy folks make changenot only achievable and sustainable, but inevitable. You'll discover why some managers have increased productivity repeatedly and significantly-while others have failed miserably.

...

In Influencer you’ll meet change geniuses who have used the principles of Influence to solve some of the world’s most profound and catastrophic problems. You’ll meet:

• One woman who has turned 14,000 thieves, prostitutes, and murderers into upstanding citizens without therapists, a professional staff, donations, grants, or guards.
• A health advocate who has nearly eradicated a debilitating disease without traditional medicines or vaccines.
• A healthcare professional who has helped save more than 120,000 lives in America’s hospitals without a medical degree.

And many others who have lost weight, saved a struggling community, improved damaged relationships, secured bottom-line results, revamped corporate culture, etc…

The stories from Influencer are heartwarming and educational. The authors teach their theory of vital behaviors (high-leverage action that will directly lead to the results you desire that are behaviors and not results and are recognizable and repeatable) and six sources of influence to effect change:

• Personal Motivation
• Personal Ability
• Social Motivation
• Social Ability
• Structural Motivation
• Structural Ability

You know, I liked this book so much that I may add it to my list of books to purchase.

Click here to visit the authors' comprehensive website for this book, where you can download a pdf excerpt of the first chapter, download a pdf of the Influencer Self-Assessment, download a pdf of the Influencer Worksheet, download a pdf of the Influencer Discussion Questions, and much more!

Books on Publishing

I'm interested in learning about the book publishing industry. I've been told to read:

• Dan Poynter’s Self-Publishing Manual, 16th Edition: How to Write, Print and Sell Your Own Book by Dan Poynter


• Publishing for Profit: Successful Bottom-Line Management for Book Publishers by Thomas Woll


• How To Start And Run A Small Book Publishing Company: A Small Business Guide To Self-Publishing And Independent Publishing by Peter I. Hupalo

I tried my local library but they don't seem to have many books on this topic.

Any other suggestions?

Michael Shermer's The Mind of the Market: chapter six & seven

Here are my notes on chapter six of Michael Shermer's The Mind of the Market: Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics (click here to read my notes through chapter five and click here to read my initial thoughts on this book).

Chapter six, The Extinction of Homo Economicus, focuses on behaviorism and behavioral economics. Much of this chapter felt familiar from my college introductory psychology course and here are some of the terms:

• matching law: "organisms will match their rate of responding to the rate of reinforcement" (discovered by Harvard psychology Richard Herrnstein and author of Bell Curve: Intelligence and Class Structure in American Life)
• habituation: a decrease in response to a stimulus after repeated stimulation
• undermatching effect: "the more variables added to a choice, the more complicated the decision and the less predictable the behavior"
• law of supply and demand: an example of an autocatalytic feedback loop that "predicts that if the price of a good is at a low enough level to cause consumers to demand more of it than producers are prepared to supply, the price will go up until demand decreases"; the converse it true and "market equilibrium is reached at the point where the quantity supplied is approximately equal to the quantity demanded, and the balance is maintained through this interaction of consumers, producers, and prices"
• time preference: "how we discount value over time"
• intertemporal choice: "decisions that include tradeoffs among costs and benefits occurring at different times" (people prefer long-term options if given an incentive; most people would rather take $20 today versus $22 in one week, but most people would rather take $22 in eight weeks over $20 in seven weeks)
• experienced utility: moment by moment experience
• retrospective utility: the recollection of the aggregate experiences
• peak-end rule: "we judge a past event almost entirely on how the experience was at its peak and at its end . . . instead of a net average for the entire duration of the event"
• coefficient of determination: r squared (where r is the correlation coefficient), a statistic that determines how well a model fits

Shermer concludes chapter six with the finding that how risk-averse or risk-seeking we are depends on our brains and starts chapter seven, The Value of Virtue, with a classic moral dilemma to illustrate that "evolution has designed us to value humans over nonhumans":

You are walking along a railroad line when you come upon a fork in the track and a switch. There are five workers on one track and one worker on the other track. Suddenly, you realize that a trolley car is hurtling along and is about to hit and kill the five workers unless you throw the switch and divert the car down the other branch, killing the one worker instead. Kill one to save five. Would you throw the switch? Most people say that they would. In a second scenario, instead of coming upon a switch, you happen across a bridge where there is a large man standing next to you. The trolley is once again speeding down the track and is about to hit and kill the five workers, nless you push the large man onto the track, killing him but stopping the car. Kill one to save five. Would you throw the man? Most people say that they would not.

Shermer then teaches readers about what we find attractive in mates -- people whose bodies and faces are bilaterally symmetrical, men with an inverted-pyramid-shaped upper body (and a strong jaw), women with a waist-to-hip rtio of 0.7:1 (and full lips, strong cheek bones, thick and silky hair, ) -- from David Buss's The Evolution of Desire: Strategies of Human Mating (which I read in 2002) and provides extensive lists of human universals as determined by anthropologist Donald Brown:

Universal moral emotions

• affection expressed and felt: necessary for altruism and cooperation
• attachment: necessary for bonding, friendship, mutual aid
• coyness display: courtship, moral manipulation
• crying: expression of grief, moral pain
• empathy: necessary for moral sense
• envy: moral trait
• fears: basis of guilt
• generosity admired: reward for cooperative and altruistic behavior
• incest taboo: moral prohibition with genetic implications
• judging others: foundation of moral approval/disapproval
• mourning: expression of grief
• pride: a moral sense
• self-control: moral behavior
• sexual jealousy: foundation of moral mate guarding
• shame: moral sense

Universal moral behaviors

• age statuses: social hierarchy, dominance, respect for elder wisdom
• coalitions: foundation of social and group morality
• collective identities: basis of xenophobia, group selection
• conflict mediation: foundation of much of moral behavior
• customary greetings: part of conflict prevention and resolution
• dominance/submission: foundation of social hierarchy
• etiquette: enhances social relations
• family (or household): the most basic social and moral unit
• food sharing: form of cooperation and altruism
• gift giving: reward for cooperative and altruistic behavior
• government: social morality
• group living: social morality
• groups that are not based on family: necessary for higher moral reasoning and indirect reciprocity
• inheritance rules: reduces conflict within families and communities
• institutions: rule enforcement
• kin groups: foundation of kin selection/altruism and basic social group
• law (rights and obligations): foundation of social harmony
• marriage: moral rules of foundational relationship
• reciprocal exchanges: reciprocal altruism
• redress of wrongs: moral conflict resolution
• sanctions: social moral control
• sanctions that include removal from the social unit: social moral control

Universal economic emotions and behaviors (based on the fundamental principle of reciprocity universally expressed as the golden "do onto others as you would have them do unto you")

• cooperative labor: part of kin, reciprocal, and indirect altruism
• fairness: equity
• food sharing: form of cooperation and altruism
• generosity admired: reward for cooperative and altruistic behavior
• gestures: signs of recognition of others, conciliatory behavior
• gift giving: reward for cooperative and altruistic behavior (also in above list)
• hospitality: enhances social relations
• insulting: communication of moral disapproval
• judging others: foundation of moral approval/disapproval
• planning for future: foundation of moral judgment
• pride: a moral sense
• promise: moral relations
• negative reciprocity: revenge, retaliation, reduces reciprocal altruism
• positive reciprocity: enhances reciprocal altruism
• redress of wrongs: moral conflict resolution
• shame: moral sense
• turn-taking: conflict prevention

Whew that was exhausting! Shermer then goes on to discuss evolution -- particularly evolutionary choices of monogamy, adultery, and jealousy -- in economic terms.

Additional terms learned include:

• kin altruism: evolved to aid and reinforce cooperation to facilitate genetic propagation through children
• reciprocal altruism (inclusive fitness): "I'll scratch your back if you'll scratch mine"
• blind altruism: "if you scratch my back now, I'll scratch yours later"
• Evolutionary Stable Strategies (ESS): Nash equilibrium which is "evolutionarily" stable meaning that once it is fixed in a population, natural selection alone is sufficient to prevent alternative strategies from successfully gaining traction
• Costly Signaling Theory (CST): "people sometimes do things not just to help those related to them genetically, and not just to help those who will return the favor, either now or later, but to send a signal, or a message that says, in essence, 'My altruistic and charitable acts prove that I am an honest and trustworthy member of the community, and that I am so successful that I can afford to make such sacrifices for other and for the group.'"

Okay that's all I can stand to write today. To learn more, click here to visit Shermer's website.

Sheila Bair Lecture

Sheila Bair, 19th Chairman of the Federal Deposit Insurance Corporation (FDIC), will be speaking November 20th as part of Johns Hopkins University Carey Business School “Leaders and Legends” speaker series, scheduled for the 3rd Thursday of every month beginning in October 2008.

Johns Hopkins University recently consolidated various educational programs in the business domain and created the Carey Business School (named after the Trustee who created the endowment to do this).  Critical to the School’s success will be its ability to understand the realities of the “marketplace” and to integrate its activities with the real world. To that effect, the new Dean, Yash Gupta, has started a “Leaders and Legends” speaker series that will showcase prominent leaders and allow them to share their experience and thoughts on current, relevant topics and issues facing the global economy.

With the financial crisis, Bair has frequently been in the news and I suspect that she is the star of the "Leaders and Legends" series. What you might not know about Bair is that she is the author of two books that teach children about financial management: Rock, Brock, And the Savings Shock and Isabel's Car Wash.

Before her appointment to the FDIC, Ms. Bair was the Dean's Professor of Financial Regulatory Policy for the Isenberg School of Management at the University of Massachusetts-Amherst and she has had extensive experience in the financial industry.

Each 8am lecture (generally the 3rd Thursday of every month) is preceded by breakfast at 7:30am and takes place at the Renaissance Hotel at 202 E. Pratt Street, Baltimore. Tickets cost $35/person and may be purchased here.

Scheduled Dates
October 16, 2008 – General James Cartwright, Vice Chairman of the Joints Chief of Staff
November 20, 2008 - Sheila Bair, Chairman of the FDIC
December 18, 2008 - Mike Griffin, Administrator of NASA
January 15, 2009 - Ed Nusbaum, CEO of Grant Thornton
February 19, 2009 - Chris Inglis, Deputy Director, NSA
March 19, 2009 – Robert Stevens, Chairman, President and CEO of Lockheed Martin
April 16, 2009 - To be determined
May 14, 2009 (different week due to JHU Commencement) - To be determined
June 18, 2009 - To be determined