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The riches of irrationality
Unknown nknowns Science Column
Buy low and sell high. In
other words, buy when
it's cloudy outside but sell
when the sun is shining.
Yes, aspects of the weather do
affect stock markets after all. In a
2001 paper, Ross School of Busi-
ness Prof. Tyler Shumway and a
colleague showed the existence of
the sunshine effect, which says the
amount of cloud cover in the vicin-
ity of major international stock mar-
kets has a significant correlation
with trading patterns for the day.
Moreover, this significance rises
into relevance as researchers show
that the sunshine effect will deliv-
er higher returns - even taking
into account the transaction costs
incurred with trading to the vicis-
situdes of meteorology.
Outdated economics philoso-
phies would predict otherwise; the
market must be too intelligent to
be tricked by something as simple
as the weather. But the maturing
field of behavioral economics holds
that the hyper-intelligent, hyper-
responsive market is just composed
of very many, very fallible people.
People whose dispositions range
from sunny to gloomy.
Shumway's data suggests that
beneath all of our layers of rational-
ity, behind our endless research,
data analysis and hand-wringing, a
much simpler factor may partially
explain our economic behaviors:
our moods.
In the last few decades, the brain
research revolution has swept into
the provinces of economics and
finance. The intersection of behav-
PATRIOTS
From page 5B
white shirt of an Orkin bug
exterminator, came out of a back
entrance and aimed his flashlight
at the cracks in the wall next to
me. The Orkin logos on his hel-
met and shirt, which had looked
like they were printed off the
Internet when I saw them close
up just minutes earlier, looked
completely real from my new
vantage point. At that moment,
it all hinged on the professor.
He took a sip of his coffee and
said into his microphone, "Wow,
that's pretty bad - looking for
bugs in a programmingclass." It
wasn't a bad joke and it meant that
the professor bought the disguise.
A large crowd gathered outside of Stucchi's ice cream shop on State Street yesterday. We know consumers respond to warm tem-
peratures when buying ice cream, but do balmy temperatures affect the stock market?
ioral psychology and capitalist running rats through mazes. "Now scanners can produce maps of
instinct has produced the offshoots we know something about how the activity to help answer the ques-
ofbehavioral finance, experimental brain works," they remark over tion "What makes us tick?" Now
finance and neuroeconomics. pints. "So how do we get rich?" the question is "What makes us
one can imagine the beginning The ongoingthense is the import- buy?"
of this unlikely union. A tweed- ing of psychological techniques Already, hazy constructs such
garbed gaggle of neuroscientists - and technologies into various fields as regret and buyer's remorse are
repair to the pub after a long day to tackle age-old problems. Brain being pinpointed in the brain (in
the orbitofrontal cortex, the strip of
grey matter right behind the eyes).
Lists of cognitive biases are
being compiled: Confirmation bias
means we pay extra attention to
what supports our position and
ignore evidence to the contrary;
the gambler's fallacy holds that we
guess tails on the next random flip
of a coin after along string ofheads;
and loss aversion, which holds that
we respond to losses more strongly
than to equivalent gains, leading to
non-optimal behavior.
If economic phenomena have
mental bases, perhaps mental phe-
nomena have economic bases? In
a neatly converse proposal, Dan
Silverman, an assistant professor
in the University's department of
economics, suggests that things
like willpower can be a depletable
resource, or a fungible internal
commodity. As we exercise more
self-control, we "spend" more will-
power. This leads to more irrespon-
sible decisions later on when we are
willpower-poor.
There might then be markets
inside of our skulls. Perhaps pro-
crastination is another form of
short-selling: the putting off of an
assignment for later on the reason-
ing that it will be less difficult then.
Elsewhere in this zeitgeist are the
more radical premises ofsocionomics,
whichhold that peopleunconsciously
tap into social moods. These social
trends extend into market trends and
can reportedly be predicted based on
probability and innate mathemati-
cal relationships. As price trends zig
See SCIENCE, Page 7B
it's not guaranteed that there will
be another group of engineers
standing ready to carry the torch.
How many future students will
be willing to dedicate their time
and energy to flying pirate
flags rather than preparing for
exams? It's possible that some-
day in the not-too-distant future,
traffic will slow on the Patriots'
website until the group fades
into obscurity as a fond and
bizarre memory of campus life.
But if it's going to happen, it
won't happen anytime soon. On
Valentine's Day this year, they
solidified their campus pres-
ence, at least for now. The Patri-
ots joined forces with another
unconventional campus group,
the Valentine's Day Ninjas.
See PATRIOTS, Page 7B
TALKING
POINTS
Three things you can talk about this week:
1. Possibility of a presidential pardon
2. 300
3. Green beer
And three things you can't:
1. Katie Couric
2. Katherine Heigl feeling snubbed
3. The warm weather (It won't last.)
BY THE NUMBERS
Homicides reported in Detroit in 2006. Detroit had slightly fewer
murders than Chicago, which had 467 homicides that year.
The percent increase in homicides in Detroit between 2004 and
2006. Homicides increased by an average of 10.9 percent in the 56
jurisdictions surveyed nationwide.
The first year since 1992 that violent crime increased nationally,
when it increased by 2 percent.
Source: A study by the Police Executive Research Forum and the FBI
QUOTES OF THE WEEK
The military
answers to one com-
mander in chief in
the White House,
not 535 commanders
in chief on Capitol
Hill."
- VICE PRESIDENT DICK CHENEY
in a speech lambasting congress for
undermining the troops by lobbying for
a gradual withdrawal.
YOUTUBE
VIDEO OF
THE WEEK
The nightmare on
Sesame Street
Sure, there's always been rumors.
Never, though, has a romantic rela-
tionship between "Sesame Street"
muppets Bert and Ernie been actu-
alized in such darkly heartbreaking
fashion as in T.C. Smith and Peter
Spears's "Ernest and Bertram."
After Miss Piggy outs the long-
time roommates in the Hollywood
tabloids, Ernie comes home to the
duo's L.A. mansion to find Bert
struggling to hide the fact that his
head was in the oven just minutes
before. Over martinis in the dining
room, Bert shows Ernie the head-
lines: "Bert and Ernie Gay Lovers!"
A revelatory conversation and excel-
lent cinematography follow, based
almost entirely on Lillian Hellman's
"The Children's Hour."
For those familiar with the play,
conclusion won't come as a shock,
but the inevitable ending - obvious
from the moment Ernie blurts out
"But maybe I love you that way, the
way they say I love you!" - will still
break your heart. The film is genu-
inely funny, but it's also genuinely
touching in its believability - don't
pretend you haven't imagined such
a scenario already.
- KIMBERLYCHOU
See this and other YouTube videos
Aft- f-- ---A - I
The class quieted down and
the lecture began. The profes-
sor started talking about the
homework assignment, which
many students were finding too
difficult, as the clandestine Patri-
ots in the audience readied their
video cameras. The trap was set.
A pretty girl sitting near the
aisle shot up from her seat, "Orkin
Man, look out!" The class turned
from her to Kevin, but her cry
came too late. A man dressed as
a giant bug ran from the back
door and landed on Kevin's back.
Their struggle was epic, twisting
back and forth until the bug got
the best of Kevin, throwing him
to the ground near the lectern.
The fake punches kept coming. It
looked as if the bug would exter-
minate the Orkin Man, but Kevin
reached into his utility belt, pulled
"A significant bond is legally
necessary given the fact he
absconded, admittedly for
one of the more unique rea-
sons I've heard in my time on
the bench."
- RACINE COUNTY CIRCUIT JUDGE EMILY
MUELLER of Wisconsin after she set the bond for
accused child molester Mario Sims at $50,000. The
man, 21, had cut off his security ankle bracelet and
traveled to Chicago via limo to appear on "The Jerry
Springer Show."
"Gringo go home."
-VENEZUELAN PRESIDENT HUGO CHAVEZ on Pres-
ident Bush's recent visit to Latin America.
out a spray can and doused the
bug with what was presumably
enough poison to kill a horse.
The bug was dead. The Orkin
Man picked up the pretty girl in
his arms and ran out of the room.
Once you've run
around dressed as
Pacman, what's
left to do?
I could still hear the rapturous
applause as we ran out of the
back door and into a neighboring
bathroom. The first-year engi-
neering students saw something
too enjoyable to considered per-
formance art and too artistic to
be considered a mere prank.
Underneath the costume, the
bug is Randy Wan, who also sprint-
ed out of a lecture hall as Super-
man last year. And now that the
Patriots need a new figurehead,
there could be nobody more com-
fortable as a leader than Randy.
As an unofficial and relatively
new student group, the future
of the Patriots is unsure. It's a
secret organization and there's
neither recruiting nor an insti-
tutionalized process for leader-
ship succession. After Kevin, the
outgoing leader, is gone, Randy
is ready to take over, but when
Randy and his friends graduate,
THEMED PARTY SUGGESTION
St. Longinus Day - Everyone knows it's St.
Patrick's Day this weekend. Stand out by throw-
ing a party for a lesser known saint. Celebrate St.
Longinus day tomorrow by throwing a party for
the saint who stabbed Jesus on the cross and was
portrayed by Heath Ledger in a TV mini-series.
Throwing this party? Let us know. TheStatement@umich.edu
WIKIPEDIA ARTICLE
OF THE WEEK
Tom Monahan
Tom Monaghan (born March 25, 1937 in Ann Arbor, Michigan),
formally known as Thomas S. Monaghan, is an entrepreneur and
Catholic philanthropist from Michigan who founded Domino's Pizza
in 1960.
He and his wife, the former Marjorie Zybach, a Lutheran, were
married in 1962 and they have four adult daughters. He has sub-
sequently dedicated his time and considerable fortune to Catholic
philanthropy and conservative political causes. A champion of the
right to life, Monaghan has spent hundreds of millions of dollars on
philanthropy and activism, which has garnered both appreciation
and criticism.
Monaghan enlisted in the United States Marine Corps in 1956
(by mistake; he had meant to join the Army). He received an honor-
able discharge in 1959. He then returned to Ann Arbor, Michigan
and enrolled in the University of Michigan, intending to become an
architect. While still a student, he and his brother James borrowed
$500 to purchase a small pizza store called DomiNick's in Ypsilanti,
Michigan. This business would grow into Domino's Pizza.