Friday, December 29, 2006

0016 Top 10 list of stories that was not widely reported

It is that time of the year and top 10 lists for the year 2006 are being published, podcasted, telecasted and blogged. So here is a list which might not be viewed a lot but sure needs mention. Each year Foreign Policy magazine publishes “The Top Ten Stories You Missed”. If you have heard of most of these news items you know for sure your daily news sources are well diversified, plus its confirms your title as the news junky of your social network.

So here is a snap shot few Top Ten Stories You Missed in 2006

10 Hackable Passports : U.S. State Department began issuing biometric “ePassports” that contain a radio frequency identification (RFID) tag under the back cover…But a German hacker quickly found a vulnerability. With a laptop and a chip reader he bought for $200, he was able to steal data from an encrypted RFID tag, potentially allowing him to clone an ePassport.

9 What’s Worse Than Bird Flu? The Cure.

6 Iran and Israel Hold Secret Talks

2 China Runs up African Debt

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0015 Shopping Search Web 2.0: Helpful websites for the future

Good/Interesting website (web 2.0)

WikiMapia is a Web 2.0 project to describe the whole planet Earth. It was created by Alexandre Koriakine and Evgeniy Saveliev, inspired by Google maps and Wikipedia. Like Wikipedia individuals get to identify landmarks that matter to them and help increase the total information available on a map.

Interesting ideas, blogs and website on enhancing you online shopping experience

It’s the first true visual search engine, where the contents of photos are used to search and retrieve similar items. They believe that there are literally millions of items that are difficult to describe via text-based search and where individual tastes are all over the map -- think of your favorite pair of earrings or shoes and what an ordeal it can be to find something new but in a similar style. utilizes our Likeness Technology™ to create a digital signature that describes the photo's contents and enables a more accurate search for similar looking items and products. Their initial launch focuses on handbags, jewelry, shoes, and watches - allowing users to search and purchase items from thousands of leading and boutique brands. They will very quickly add clothing and a number of other aesthetically oriented product categories.

Featured as the 50 coolest website for 2006 and 2005 in TIME magazine, this company sells shoes and handbags with total sales for 2005 at $ 370 Mil and projected to hit $600 Mil in 2006. Need more convincing? Then check out their brand list. is fast and easy to use whether you are researching what to buy or simply deciding whom to buy it from.

One of the best shopping blog. Here is some about the blog from their website “Mighty Goods is a shopping blog that’s updated five days a week. We spend a great deal of time finding and posting things we love. These aren’t just any old things, these are exactly the right things. They will brighten your eyes, match your couch, and fix the annoying problem that’s been bothering you. They will make you want to fortify the economy with your purchasing power.”

Founded in 1996, Shopzilla is a leading comparison shopping service. The company's mission is to enable shoppers to quickly and easily find compare and buy anything, sold by virtually anyone, anywhere. Each month, Shopzilla connects millions of consumers with thousands of stores. In June 2006, Shopzilla attracted over 18.9 million unique visitors according to ComScore. Shopzilla also operates the BizRate consumer feedback network that collects millions of consumer reviews of stores and products each year. Featured as the 50 coolest website for 2006 in TIME magazine.

Boddit makes it simple for you to discover deals for what you want by aggregating deals from a huge selection of bargain hunting websites.

Yelp is the fun and easy way to find, review and talk about what's great (and not so great) in your world. You already know that asking friends is the best way to find restaurants, dentists, hairstylists, and anything local. Yelp makes it fast and easy by collecting and organizing your friends' recommendations in one convenient place.

Intuition has become known as the hottest boutique in Hollywood. Catering to celebrities and Hollywood wives ... Intuition continues to set the trends and offer the next "Must-Haves." A general store for fashionistas ... customers come to depend on its one-stop shopping ... everything is there ... a spot to find your favorite tee shirt, the best fitting jeans and the next "it" handbag ... You can always find the Next Big Thing at Intuition

Looking for independent art and design, picked by mighty goods as an interesting website, here is a website that might satisfy you needs. Here is what this website is all about Elsewares is Ryan Deussing and Audrey Aponte (in Brooklyn) and a network of designers, enthusiasts, and collaborators that spans the globe.

We have lots of cool stuff for you to buy, plus: 1) We’re passionate about design — We go to extraordinary lengths to find unique, high-quality products we feel good about selling. 2) We care where things come from and how they’re made — Many of our products come from individual artisans, but we also endeavor to work with and buy from manufacturers and vendors who respect worker rights and the environment. 3) We do more than just make money — We make a concerted effort to encourage creative business practices, support cottage industry, and keep corporate hegemony at bay.

Etsy is an online marketplace for buying and selling all things handmade. Etsy lets you shop by color, place, time and material.

Winner Webby Awards people choice 2006 for blog and culture. Wikipedia got this to say about this website. Cute Overload is a website created by Megan Frost. It is essentially a blog consisting of photos, either found on the internet (often on Flickr streams) or submitted directly to Frost, of "cute" animals. The website has created "rules of cuteness" such as "Rule #17: Have a teeny tiny tail" or "Rule of Cuteness #7: A thing, accompanied by a smaller version of that thing, is always cute".

There is also links to things you can buy from the so called cute pictures you see.


This is a blog on blogspot and describes itself as “Giving ugly animals their day in the sun. We avoid the simply tragic, diseased, or maimed. Rather, these creatures are only as hideous as nature - or their owners - intended.”

0014 Retirement - Roth IRA & 401k Fund Contributions Limits

Here is a quick reference to the limits on contribution for 2006 & 2007

401k Fund Contributions Limits for 2006

Your 401k fund contribution limits set by the IRS for 2006 are:
# $15000 for those under 50 years of age

# $15000 plus $5000 additional catch up contribution for those over 50 years of age

Be sure to check with your employer for any limits set by your company's 401k plan.

To maximize your 401k, you should try to contribute the maximum amount you are allowed each year. (Read more at

401k Fund Contributions Limits for 2007

Your 401k fund pre-tax contribution limits set by the IRS for 2007 are:

# $15500 for those under 50 years of age

# $15500 plus $5000 additional catch up contribution for those over 50 years of age

Be sure to check with your employer for any limits set by your company's 401k plan.

Some addition to the contribution limits

Contributions to 401(k) plans, currently (2006) limited to $15,000, had been scheduled to drop back to $14,000 after 2010. Now the higher level will remain until inflation triggers future increases.

If you are already contributing to your 401K and maximized the employer matching contribution, you could contribute to a Roth IRA and it will tax-free when you start making withdrawals in retirement.

To read more read this article SOLVED: I Have a 401(k). Do I Need a Roth IRA?

One scenario from another article:

If a 25-year-old contributes $4,000 each year until she retires and makes an average annual return of 8% on her investment, she'll have more than $1.1 million saved by the time she retires at age 65.

Who can open a Roth IRA

You can't contribute to a Roth if you're single and your income exceeds $110,000 or if you're married with a joint income of more than $160,000.

How to invest your 401K monies help is here

Starting next year, you can get specific answers. In one of the new laws (2006) most controversial provisions, plan providers, including mutual fund companies, will be authorized to offer in-person investment advice. To ensure that the advice is unbiased and in your best interest, it must be based either on a computer model or offered by a financial adviser who charges a flat fee that's not tied to the recommended investment products.

Wednesday, December 27, 2006

0013 Behavioral finance

In my last post there was some reference made to Behavioral Economics/Finance. Here is a good article with little more insight.


The Compromise Effect
. . . And the New Thinking About Money Is That Your Irrationality Is Predictable

By Steven Pearlstein
Washington Post Staff Writer
Sunday, January 27, 2002; Page H01

Chances are you know someone who sells his stocks only if they have gone up, never if they have gone down.

Or the person who regularly runs up credit card debt but would never think of dipping into her savings account.

Or maybe the guy who refuses to pay $15 to have someone else mow his lawn but wouldn't dream of mowing anyone else's lawn for $15.

And what about those folks who flock to all-you-can-eat buffets and cell-phone plans with unlimited minutes?

According to traditional economic theory, such people shouldn't exist. People aren't supposed to careen through life systematically making bad bets, leaving money on the table, assigning different values to the same products and paying too much for things they don't really want. Homo economicus is supposed to make intelligent, rational choices that maximize his or her wealth and financial well-being.

Reality, of course, turns out to be quite different from theory. As economic actors, people are as likely to be governed by their emotions as by reason, by prejudices as by careful cost-benefit analysis. Their rationality is bounded by limits on their time, intelligence and the information at their disposal.

Take the bargain hunters in the headline above. They get so excited about the 50 percent discount on that sweater they don't realize it's just as worthwhile for them to drive across town to get a 1.3 percent discount on a $750 chair. Ten dollars is ten dollars, any way you slice it.

Or that investor who won't sell a falling stock, because that would mean admitting a loss. He would be better off deciding which stocks to hold on to based solely on his expectation of their future performance, regardless of what happened in the past.

And by what logic should people be buying things for prices that are vastly different from what they are willing to sell them for, such as their time (mowing lawns) and their money (the high interest rates paid on credit cards compared with the low rates earned on savings deposits)?

As for folks with unlimited calling plans, they get so enchanted with all the extra long-distance calls that seem as if they are free, they don't focus on the fact that their monthly bills are higher.

In recent years, a growing cadre of economists and psychologists has begun to challenge the economic orthodoxy. Relying on clever laboratory experiments and data from businesses and financial markets, they have not only documented how irrational people become around issues of money and prices, but also demonstrated how predictably irrational they are.

"A lot of problems we have in real life come from our inability to deal with money," explained psychologist Daniel Ariely at the Sloan School of Management at the Massachusetts Institute of Technology. "Money is an abstract concept that we, as human beings, don't understand. How much money is it worth to eat sushi? Economists used to think we could calculate that, but it is really impossible. At any moment in time I may be able to say that I prefer sushi to a banana. I may even have a notion of how many bananas I would trade for one piece of sushi. But how much money are they worth? I have no idea."

To demonstrate the point, Ariely and two colleagues,MIT's Drazen Prelec and Carnegie Mellon economist George Loewenstein, corralled dozens of campus volunteers into a room and showed each volunteer one of several products: a cordless keyboard computer, a video game, a bottle of wine. The subjects were then offered the opportunity to buy the item at a price equal to the last two digits of their Social Security numbers -- essentially a random price. Additionally, they were each asked the maximum price they would be willing to pay.

What the research revealed was that the maximum price the subjects assigned was driven largely by the random offer they had received only moments before: Those with high Social Security numbers systematically bid more than those with low ones. Because they didn't have a clue about what the merchandise was worth to them, they were vulnerable to suggestion and manipulation.

The Compromise Effect

While such insights may be revolutionizing economics, they are hardly news to marketers and pitchmen.

When Oriental-rug salesmen and charitable fundraisers start out by mentioning a ridiculously high price or suggested donation, it's not because they think they'll get it but rather to establish the highest possible reference point in the minds of buyers and donors. They know they will get more than they would otherwise by starting high and coming down. The same goes for the "full" fares posted by airlines, the suggested retail prices listed in department-store ads and theposted room rates for hotels.

Similarly, many consumers shrink from buying either the highest- or lowest-priced item, seeming to prefer something in between.

Companies have relied on this "compromise effect" to manipulate their product lines to increase sales of their most profitable items.

Professor Itamar Simonson of the Stanford Business School notes that retailer Williams-Sonoma Inc. was able to increase sales of its $275 bread machine a decade ago by adding a second, slightly larger model to its catalogue at a price of just over $400.

And Thomas Nagle, a well-known pricing consultant based in Waltham, Mass.,reports that Xerox Corp. boosted sales of its high-volume copier to large corporations only after it brought out a higher-priced model with a few extra bells and whistles that purchasing managers could feel good about rejecting.

"The general view is that the top of the line is only for people with more money than brains," Nagle said.

The Endowment Effect

Another well-documented tendency in people's economic behavior is that they assign higher value to things they already have.

Ziv Carmon, a French marketing professor, and MIT's Ariely divided a group of nearly 100 Duke University students into two groups. One group was asked to state the highest price they would pay for a ticket to the NCAA Final Four basketball tournament, a highly prized item on that campus. The other group was told to imagine they had such a ticket and was asked for the lowest price at which they would be willing to sell it. The median selling price was $1,500; the median buying price was $150.

This tenfold difference, according to Carmon and Ariely, results from the different ways in which buyers and sellers think about a transaction. Buyers tend to think about what else they could do with the same amount of money, while sellers focus on the pleasure or enjoyment they would forgo.

Marketers had already formed an intuition about this "endowment effect." The Book-of-the-Month Club was founded on the proposition that people are more likely to buy the monthly selection once they have the thing in their hands. And magazine publishers figured out that the best way to persuade subscribers to renew is to focus on the pleasures readers will lose if they let the subscription lapse. When furniture stores or art galleries encourage customers to take something home and try it out for a while, they're not just being friendly.


One of the blind spots of traditional economic theory is that it can't explain why people do generous things with their money, such as leaving large tips for waitresses in restaurants they'll never visit again. Behavioral economists reason that it's because people have an emotional preference for fairness that competes with the desire to maximize wealth.

Consumers react very negatively to what they perceive as price gouging. The Miami Heat basketball team found that out when it doubled the price of tickets for Game 5 of the NBA championships back in 1997. Fans were so outraged many refused to buy tickets, leaving hundreds of empty seats and forcing the team to return prices to their normal levels for Game 7.

"While it is true that people prefer more money to less, we also like to be treated fairly -- and like to treat others fairly," said Richard Thaler of the University of Chicago, a leading behavioral economist. "To the extent these objectives are contradictory, people make trade-offs where their behavior appears to vary widely, depending on the context."

Sometimes the trick for the marketer is to manipulate that context. Thaler notes that most people think it fair for an auto dealer to suspend a $200 rebate program for particularly hot models that are in short supply. But only half as many thought it fair for the dealer to impose a $200 surcharge, even though the final price would be the same.

The Hilton hotel in Pasadena, Calif., tries to skirt the surcharge problem during the Rose Bowl by setting aside most rooms for $999 packages that include meals, tickets and transportation to the game. "The same people who like that proposition wouldn't tolerate it if we raised the room rate to a higher price," explained Dennis Koci, senior vice president for the hotel chain.

Mental Accounting

What's something worth? It all depends on how you calculate it.

Tom Nagle recalls his days as a young business professor, when he decided to do a little freelancing by offering companies a two-day pricing seminar, to be provided to 20 of their marketing executives, anywhere they wanted. He set the price at $9,000 and waited a long time before a potential buyer called. It was an assistant to a company president who said her boss was very interested but was having trouble with the idea of paying any college professor $4,500 per day. The boss was looking at the price in terms of the professor's pay. The next time someone called, however, Nagle framed it differently. When they questioned the price, he explained that if the company were to send 20 executives to attend the same program offered by his university, it would cost $480 for each one, or $9,600 total. In that context, the $9,000 price seemed fair enough.

Another way to reframe the pricing conversation is by adjusting the time parameters. Public television stations have discovered they can get significantly higher pledges from viewers by breaking the total amount down to so many cents a day; 41 cents a day doesn't sound as bad as $150 a year. On the other hand, the folks at Smokers Anonymous like to remind their pack-a-day clients that they can take a short Caribbean vacation for the $1,500 a year they spend on cigarettes.

For most people, figuring out which is the right time frame to use in their mental accounting is not always obvious.

In a recent study, Thaler, Loewenstein and two other researchers found that New York taxi drivers could earn 20 percent more each year if they would put in longer days when demand was high (rainy days, for example) and shorter ones when demand was low. Instead, drivers preferred to work each day until they covered their costs and paid themselves a target wage -- then quit for the day regardless of the market condition.

One of the key assumptions of economic theory is that money is money. But behavioral economists have shown that people routinely violate that principle by segregating income or costs into different mental buckets or accounts, even when it winds up hurting them financially.

Many people, for example, have vacation homes and time-share condominiums that wind up costing them more for each day of use than if they had vacationed at a nearby hotel. But more often than not, such comparative calculations are never made because vacations are supposed to be paid for out of "current income" while the condo is mentally accounted for under a separate "investment" category.

Other studies show that while people are apt to go right out and spend all of an unexpected windfall such as a bequest from a distant aunt, they are loath to spend profits they make on investments.

Spending and Guilt

For consumers, it turns out that their view of what something is worth can be influenced by the currency in which it is paid.

One reason casinos use chips rather than money is that people tend to be looser with something that has the appearance of play money. Similarly, people seem to spend more on things overseas because it just seems less painful to part with those funny bills and coins than "real" American cash.

And then there are credit cards. MIT's Prelec recently ran an experiment in which a group of men were asked to submit bids on a ticket to a big sporting event. Half of the group was told they could pay only in cash, the other half told they could pay only by credit card. The cash bids were half as high as the bids made with plastic.

"People feel guilty about spending money, which is part of the big appeal of credit cards," explained Prelec. "With the card, the payments are not only delayed, they are lumped in with all sorts of other expenses."

In fact, marketers have now come up with all sorts of schemes to separate the buying and paying and take advantage of this all-too-human instinct to avoid guilt about spending.

Although people probably wind up spending more money on their vacations by going to all-inclusive resorts, paying in advance offers the emotional advantage of not feeling guilty every time you have the urge to play tennis or get another planter's punch from the pool bar. All-you-can-eat restaurants and high-volume calling plans work on the same premise.

"We are able to get slightly more money from our customers in a way that they perceive is a value to them," said Harry Campbell, a Sprint vice president for marketing and sales, explaining his company's successful new $25-for-500-minutes plan. "People like the fact that they know what their bill is going to be and they can increase their usage in a guilt-free way."

Less guilt, yes, but not quite guilt-free. Having paid for goods or services in advance, people can feel bad if they don't get their money's worth. Health clubs, for example, notice that people come to work out much more frequently in the first months after paying the annual membership fee. And Thaler found in an experiment that regular patrons at a pizza joint that offered unlimited slices for $5 wound up eating considerably more than a group given a coupon allowing them to eat for free.

In fact, experience shows that people get very confused when thinking about "sunk costs" -- the money they have already spent for a project or purchase or investment. Rationally, they should forget about sunk costs and focus only on what the costs and benefits are going forward. Emotionally, they can't.

Psychologists Amos Tversky and Daniel Kahneman of Princeton University explored a situation in an oft-cited experiment involving a theater ticket back in 1984. They told one group of subjects to imagine that they have arrived at the theater only to discover that they have lost their ticket. Would you pay another $10 to buy another ticket? they asked. A second group were asked to imagine that they are going to the play but haven't bought a ticket in advance. Then, when they arrive at the theater, they realize they have lost a $10 bill. Would they still buy a ticket?

In both cases, the subjects were presented with essentially the same simple question: Would you want to spend $10 to see the play? That's largely the way the cash-losing group thought of it, with 88 percent opting to buy the ticket. But the ticket losers, focusing on sunk costs, tended to frame the question in a different way: Am I willing to spend $20 to see a $10 play? Only 46 percent said yes.

This focus on sunk costs and the aversion to losses play out every day in financial markets. Numerous studies have shown that investors systematically make bad decisions because of their reluctance to sell stocks or bonds on which they have a loss.

And Thaler has done extensive work showing that the reason stocks have outperformed bonds over long periods of time is that investors have exaggerated perceptions of the relative riskiness of stocks. As a result, investors generally put too much money in bonds and too little into stocks, driving their relative prices in opposite directions. Absent that bias, Thaler argues, the returns on stocks and bonds would have probably converged -- just as economic theory predicted.

Fear of risk also animates insurance markets, where independent studies show that people pay too much to insure themselves against risks of high frequency and low financial impact (low-deductible auto policies, for example, and service contracts on home appliances) while often failing to insure themselves against low-frequency, high-impact events (floods and earthquakes).

Homo Economicus

Vs. Homo Sapiens

Okay, so we're a bit crazy when it comes to money. But once we are confronted with these facts, surely we'll learn our lesson and become more rational in our economic behavior, right?

Alas, the early evidence is that we won't. In several of the experiments cited here, subjects were later presented with the results and the analysis and asked to go through the exercise again. In most cases the results were nearly identical.

"The thing that is striking is how little people learn," said Kahneman, the Princeton psychologist.

Yet, like others in the behavioral economics crowd, Kahneman is loath to call such behavior crazy or silly or even irrational.

"A lot of the so-called mistakes are the simplification people need to do just to get on with their lives," he said. "We don't have unlimited horizons, our attention can be switched from one thing to another, and our brains are limited. Putting bad words on it is unnecessary. We don't expect people to be able to run 50 miles an hour. So why should we expect them to have 360-degree recognition?"

Economist Loewenstein at Carnegie Mellon agreed.

"People make these choices and behave this way because it makes them happier," he said. "I don't find that unreasonable or irrational."

0012 We're not irrational or incompetent, just conflicted

Found this article about "Why Johnny can't save for retirement". Great article and from a very good show. Sadly, the show "Wall $treet Week with FORTUNE" is off the air since 2005.

You should read this if you want to understand the following
Behavioral economics
Libertarian paternalism
Richard Thaler

Here is the article

Why Johnny can't save for retirement
Money decisions are hard. It's not that we're stupid—we're just not wired properly. How brain science is changing the way we think about 401(k)s, Social Security, and the whole notion of retirement planning.

The first question, flashed on a screen a few inches from my eyes, is easy. Do I want an gift certificate worth $16.31 today, or one worth $16.31 a month from now? Even with my head and upper body wedged into a magnetic resonance imaging machine that clatters like an unmuffled motorcycle engine as it scans my brain, I answer without hesitation. I push the left button of the small keyboard in my hand: I want it today.

The next choice takes slightly more thought: Do I want $16.33 in a month, or $24.43 in a month and two weeks? I pick the latter. And so it continues, through 58 more such dilemmas. I am in the basement of Princeton University's psychology department, where professor Jonathan Cohen and post-doctoral fellow Sam McClure, along with economists from Harvard and Carnegie Mellon, designed this little exercise. Their goal was to watch where the blood flows in the brain—and thus which parts of the brain are most active—when people decide between current and future rewards.

What they found when they put Princeton undergraduates through these paces a year ago, with actual gift certificates at stake, was that we humans are of two minds. The calculating, cognitive, most advanced parts of the brain like the prefrontal cortex were hard at work computing and weighing options no matter what the students chose. But when they opted for the money now, something else happened. The more primitive limbic system, common to all mammals and associated with emotion and quick reactions, lit up as if it smelled dinner.

"You can think of the limbic system as having evolved at a time when many or all important goods were perishable," says Cohen, director of Princeton's Center for the Study of Brain, Mind, and Behavior. "It was use it or lose it." Then along came the higher brain, with which humans were able to devise such clever preservative innovations as beef jerky, refrigerators, and inflation-indexed bonds. The lower, mammalian brain was clearly not designed for this environment, and it has been acting up ever since.

Choosing between an gift certificate today and a larger one later is an interesting exercise, but it's not a very hard one. A similar but vastly more challenging experiment in balancing current rewards against future ones is being conducted today not with undergraduates lying in MRI machines but with millions of Americans and their retirement accounts.

As you may have heard, individuals are being asked to take on ever more responsibility for their upkeep when they get old. It's not just President Bush's plan for Social Security, in which private accounts would supplant part of the government program. Traditional corporate pensions are on the way out too, and while state and local government workers have so far been immune from this trend, California Governor Arnold Schwarzenegger wants to switch his state's pension funds—the nation's biggest pool of pension money—into something akin to a 401(k). Similar developments are afoot all over the world, or at least in the more affluent parts of it. Leaving aside for a moment the matter of whether we ought to be making these monumental shifts, here's a big question: Are we up to it?

During the 1990s, the prevailing assumption was that of course we were. "Investor nation" had declared its independence. The era of corporate and governmental hand- holding was over. Giving individual Americans the freedom to save their own money, invest it as they choose, and spend it according to their own needs and desires during their retirement years seemed a matter not just of expediency but of economic good sense. Then came the stock market collapse of 2000-02. Since then, most news on the retirement front has been dire. The Employee Benefit Research Institute estimates that by 2030, at current savings rates, American retirees will be $45 billion a year short of the income they need to meet basic food, housing, and medical needs.

This is where the brain scans come in. Functional magnetic resonance imaging is just the latest and coolest tool that economists and kindred spirits in fields like psychology and neuroscience are beginning to use to examine human decision-making involving money. The evidence delivered so far by the brain images is pretty tentative on its own. But what has excited the fast-growing community of scholars who study such matters is that it so neatly fits with what has been discovered in psychological experiments, economic experiments, and even empirical research into the behavior of 401(k) plan participants.

What is emerging from this research is less a despairing view of the human inability to make the right choices than an acknowledgment that the way choices are structured matters—a lot. We're not irrational or incompetent, just conflicted. We're not even always conflicted: It appears that the higher brain isn't able to stir us to action without the lower brain's help. The key to designing good retirement policies and institutions is to make sure they don't pander to our inner rodents or paralyze our higher brains with complexity.

As a result, some of the same economists who have been gazing at MRI scans and dreaming up psychological experiments to test our thinking patterns have developed very specific ideas about how to structure 401(k) plans and any Social Security private accounts that Congress might decide to create. They've even developed a political philosophy, which we'll call "neuroconservatism." Here's the most remarkable thing of all: Decision-makers in Washington and corporate America actually seem to be listening to them.

The idea that we humans harbor conflicts within us is not new. Plato figured it out 2,400 years ago, depicting the soul as a chariot drawn by two horses, one noble and one not. Economists, though, long found it easier to depict us as rational computing machines, weighing all the options and deciding on the path of action that optimizes our well-being.

Then, one night in 1974, Dick Thaler threw a dinner party for some fellow economists at his house just off the campus of the University of Rochester. Thaler, now at the University of Chicago, had just begun teaching at Rochester's business school. The predinner snack he provided his guests was a bowl of cashews. The nuts proved so popular that Thaler finally removed them to the kitchen so everyone didn't fill up before dinner, a move his guests applauded. They then began analyzing the strangeness of what they had just done: They clearly wanted to eat the cashews, or else they wouldn't have been eating them, but they also clearly wanted to stop eating them, or else they wouldn't have approved of their removal. Any normal person would simply chalk that up to the munchies. But these were economists in the process of having their paradigms shifted.

Thaler and his colleague Hersh Shefrin later built a model of this two-minded behavior, using a mathematical approach originally devised to describe the conflicts between executives and shareholders. Along the way they discovered the intriguing work of George Ainslie. Ainslie was a psychiatry student at Harvard Medical School in 1967 when he first tried out his idea in the famous pigeon lab founded by B.F. Skinner. Ainslie gave pigeons a choice of pecking a red key to get food immediately or leaving the key alone and getting even more food a few seconds later, and they invariably opted for the immediate reward. But when he added a green key that, if pecked, would prevent the red key from ever appearing, a minority of pigeons learned after repeated runnings of the experiment to peck the green key instead. That way they wouldn't be tempted by the red key and would end up with the larger helping of feed.

If one can devise mechanisms that enable even pea-brained birds to sensibly weigh present vs. future rewards, then surely the same can be done for humans. As Thaler and Shefrin noted in "An Economic Theory of Self-Control," a paper they published in 1981, people had already developed institutions to do just that, such as the monthly Christmas Club deductions banks offer to help customers amass a nice little wad to spend over the holidays. Then again, mankind has also developed lots of devices—the credit card springs to mind—that put the impatient brain in charge.

That raises some perplexing questions about just what is meant by choice and free will. Within us there are competing wills, and the ways in which choices and institutions are structured can determine which of those wills prevails. So which will is the free will? That's a consideration that ought to be at the heart of all economic policymaking. But it is only now really catching on. Empirical evidence coming from 401(k) plans is one major reason why.

As its awkward name suggests, the 401(k) is the inadvertent product of a change made deep in the bowels of federal law, in the form of a 1978 amendment to the Internal Revenue Code. It happened to arrive on scene just as the standard corporate pension was starting to run into trouble. The spread of pension plans after World War II had been sparked by yet another inadvertent regulatory decision (a 1948 ruling by the National Labor Relations Board) and enabled by the seeming immortality of the large American corporation. The problem was that big American corporations weren't immortal. After several major bankruptcies in the 1960s and 1970s, Congress tightened the laws surrounding pension funding, and those who set accounting standards made it harder for companies to hide pension commitments from shareholders. As a result, CEOs and CFOs began to sour on the things.

The 401(k), a retirement plan that shifted risks, responsibilities, and rewards away from the company and onto the shoulders of its employees, seemed to be an attractive alternative. It was attractive as well to the increasing ranks of job-switching employees, who were ill-served by traditional pension setups that rewarded those who stuck around for decades at the expense of short-termers.

In one crucial sense, these 401(k)s were designed to cater to the higher brain rather than the parts we share with, for example, the flying squirrel: Once an employee committed to a certain savings rate, the money was deducted from his paycheck before he ever got his hands on it. But in almost every other aspect, 401(k)s turned out to confound the human brain more than help it. The chief problem seems to be that the decisions associated with them are just too hard for many people. They only got harder over the course of the 1990s, as many companies expanded their 401(k) offerings beyond the five or six plain-vanilla funds originally offered to a full selection of dozens of name-brand mutual funds.

The results have been discouraging: A stubborn third or so of eligible workers still don't have 401(k) accounts. And of those who do, an alarmingly large minority have kept much of their money in either low-return stable-value funds or high-risk company stock—both entirely inappropriate as retirement investments—because that's where the money went if they failed to make a choice.

But for all the financial incompetence among 401(k) account holders, the really startling thing is the way the plans encourage that ineptitude. Suppose an employer were to ask new employees if they wanted to set aside as much of their income as it took to ensure a comfortable retirement and invest it in a way that balanced risk and return over their lifetimes. The almost universal answer would be, You betcha! But the question has been phrased instead as a series of increasingly complex choices: Do you want to contribute to a 401(k)? If so, what percentage of your salary do you want to put into it? Once you've decided that, tell us how you want to allot those contributions among the 73 mutual funds offered in our plan. The areas of the brain that get fresh blood while pondering such questions must be identical to the parts of a deer's brain that activate when it stares at a pair of headlights.

Evidence that hard choices can overwhelm our better selves gushes forth wherever researchers look for it. Baba Shiv of the University of Iowa and Alexander Fedorikhin of the University of Southern California gave half of a test group a seven-digit number to memorize and the other half a two-digit number. The test subjects were then offered a choice between a slice of cake or a bowl of fruit. Of those memorizing the longer numbers, 59% chose the cake, compared with 37% of the two-digit crowd. The explanation: The prefrontal cortex was too busy memorizing the number to rein in the limbic system, which wanted the damn cake now. Another experiment, devised by Sheena Iyengar of Columbia and Mark Lepper of Stanford, involved setting up a table of fancy jams in front of a gourmet food store near the Stanford campus. When there were 30 varieties of jam on the table, only 3% of those who stopped to examine them actually bought any. When only six varieties were displayed, fully 30% bought jam. Too many choices made choice almost impossible.

Not surprisingly, when employers frame 401(k) options differently or offer fewer options, behavior can change a lot. When companies switch from offering 401(k) participation to employees as a yes/no choice to automatically enrolling new hires but allowing them to opt out, participation invariably goes up dramatically. When Thaler and UCLA's Shlomo Benartzi proposed to workers at one company that they commit to automatically increasing their 401(k) contribution percentage every time they got a pay raise, savings rates shot up. Last fall, when Financial Engines, a company founded by former Stanford finance professor and Nobel laureate William Sharpe, offered to make the 401(k) investment choices for employees of Motorola and J.C. Penney, 15,000 jumped at the offer. Makes sense: Who wouldn't want a little help keeping that frisky limbic system on a leash?

So workers clearly want to do the right, rational thing with their money, but 401(k) policies have been making it too hard. Once the path was smoothed, their decisions changed. What this means is that determining the path and the structure of individual choice is a huge responsibility for 401(k) plan administrators, legislators, regulators, and anybody else in a position of authority. They cannot simply "let the people have what they want," because what the people want is affected by how the questions are posed.

For much of the 20th century, the standard policy response to people making bad choices was to take those choices away. But that approach does not appeal to many of the scholars studying our conflicted minds. "My great fear is that legislators are going to take this and say, 'Ah, people can't exercise self-control and therefore we need to pass laws to do it for them,'" says pigeon pioneer George Ainslie, who is now chief of psychiatry at the Coatesville Veterans Affairs Medical Center in Pennsylvania. "When you take it out of somebody's hands and control it externally, then the person is apt to cut back on his own efforts."

One neuroconservative alternative offered up by Thaler and Chicago law professor Cass Sunstein is what they call "libertarian paternalism," in which government and other institutions try to steer individual choices in what they deem the right direction, but allow individuals to opt out and choose their own path. Another group of behavioral economists has offered up a kindred approach, "asymmetric paternalism," in which financial decision-making is seen as something akin to drinking or driving: subject to age limits, restricted opening hours, and competence testing. "I think liquor regulation is about right," says one of this group, Colin Camerer of the California Institute of Technology. "You tax it, you make it hard to get all the time, you prohibit use by minors. That's something that's emerged after a wild pendulum swing of cycles."

You can see the pendulum beginning to swing right now in the 401(k) racket. Last fall, a quarter of the 180 big-company HR chiefs surveyed by Hewitt Associates said they were likely to start automatically enrolling employees in 401(k) plans. About 20% said they're considering offering contribution-increase plans along the lines prescribed by Thaler and Benartzi. Until recently, corporate executives shied away from any role in employees' 401(k) choices for fear of getting sued if those choices turned out badly. But lately companies have been sued for failing to tell employees not to risk blowing their retirement funds by keeping all the money in company stock, so intervention may prove unavoidable. Meanwhile, companies like Financial Engines and Guided Choice (affiliated with another finance guru and Nobel laureate, Harry Markowitz) have arisen to take on the responsibility and potential liability of telling people what to do with their 401(k) money.

What of Social Security? The modern critique of the program originated along libertarian lines: "The citizen of the United States who is compelled by law to devote something like 10% of his income to the purchase of a particular kind of retirement contract, administered by the government, is being deprived of a corresponding part of his personal freedom," argued University of Chicago economist Milton Friedman a half-century ago.

But if that citizen would be unlikely on his own to save enough for retirement or invest the money wisely even though he really meant to, then the pure libertarian case against the program begins to wobble. William Niskanen, a former Friedman student who is now chairman of the Cato Institute, the libertarian Washington think tank that for years has been one of the most vocal advocates of Social Security privatization, admits as much. "We've accepted the argument of behavioralists like Dick Thaler that people do dumb things," he says. As a result, he doesn't have a problem with the fact that just about every privatization plan floating around Washington—including President Bush's—would automatically stick the money in something low-fee and conservative, would strictly limit investment choices beyond that, and would force retiring private-account holders to buy an annuity with what they've saved so that they don't run out of money before they die.

If privatization requires such restrictions on liberty, why bother? Niskanen still makes the argument along libertarian lines: "It gives people a great deal more freedom than they have now." Harvard's Martin Feldstein, the most influential outside economic advisor to the Bush administration, offers another reason: People will see the money they put into the accounts not as taxes being paid to the government but as their own savings, a change in attitude that he thinks will positively affect work incentives. There's also the argument that most people will get higher returns from private accounts than the current Social Security system. But some people won't, and there's no way of knowing how big a percentage that "some" will be.

The most interesting argument for privatization comes out of the neurocon playbook: It would structure the taxing and spending choices faced by Congress in a way that might keep that august body's collective prefrontal cortex in charge. "I'm very skeptical of privatization, because I see all these pitfalls of investors making bad choices," says Harvard's David Laibson, a leading student of both 401(k)s and the brain. (He and Carnegie Mellon's George Loewenstein were the economists behind the MRI experiment at the beginning of this article.) "But it does have this one interesting benefit, which is that it gets the Social Security surplus off the government books." The U.S. will take in almost $200 billion more in Social Security payroll taxes this year than it pays out in benefits. This money is supposed to be socked away to pay for the retirement needs of the baby-boom generation; instead it is simply being counted as part of the unified federal budget, where, on paper at least, it reduces the size of the deficit. Instead of investing the money in any meaningful way, Congress is by all appearances simply spending it each year.

Think of our nation's lawmakers as pigeons in an extremely nice lab. In the face of budget pressures and political expediency, Senators and Representatives keep pecking the red key. Spend now; worry later. But a vote to take some of that money out of their own hands and divert it into private accounts—that would be pecking the green key. (Congress want a cracker?)

Even if the current privatization plans go nowhere—and it hasn't been looking good for President Bush lately—the question of spending now or later is one that we'll always face. But now, at least, we know that the way we pose the question matters as much as how we answer it.

Tuesday, December 26, 2006

0011 Relationship Matrix

1) Timing and Location

2) Availability

3) Sensory Appeal

4) Chemistry

5) Lifestyle and Morals

6) Teaming

Use the six key matrix to evaluate you dating and relationship.How do you use them. For example look at number 4, ask a question is there chemistry in your relationship and for 6, do you work well as a team? And don’t answer them as “Yes” or “No” rather on a scale from 0 to 10. Look at areas where you scored less and try figuring out how you can improve them. For more question about it add in your comments .

Monday, December 4, 2006

0010 False Start and Choices

Looking at my new blog (webaddress) reminded me of Steve Martin qoute from a movie.

"The new phone book's here! The new phone book's here!
This is the kind of spontaneous publicity I need. My name in print.
That really makes somebody. Things are going to start happening to me now!"

I got a email from a gal, looked like things started happening to me.

Opened up the email and started reading it, didn't look like a spam as it was about valuing peace and restrain in the a strife ridden part of the world.

Soon made to realized that it was a case of mistaken identity caused by a typo in the address bar. (no TUI)

I thanked her for the email with the clarification and went on to add.

But I do think it's time to give peace a chance. But you misspelled email message reminded me of Woody Allen's quote from a graduation speach, Don't ask me why, I must be stooped deep in pop culture. (when was the last time Woody Allen was part of the Popular Culture)

Ok here is what he said....

" More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly."

Never made sense to me, until now. He was speaking about choices and in the real world they come mainly in shades of gray, otherwise it would have been a no brainer choice. (Finally I get to use that word without referring to a dunk in the water). And some choices will take you through the longer and painful path, with no instant gratification. There will be growing pain but at least you will have the choice of seeing light at the end of the tunnel ...and the no brainer choice I am referring to is (short term) despair and (seemingly) utter hopelessness rather than total extinction.

More random thoughts than you asked for.

Sunday, December 3, 2006

0009 Non-Profit Organization and Google (.org)!

An email lead me to these websites of two impressive non-profit organizations and . Former a unique organization out of Washington DC does quite impressive work and got a different approach.

I have reproduced from their website some of Ashoka's central beliefs- mission, vision & theory :-

Ashoka's job is to make "everyone a changemaker." To help create a world where everyone has the freedom, confidence, and skills to turn challenges into solutions. This allows each person the fullest, richest life. And a society so constituted will evolve and adapt faster and more surely than any other: Each person, rather better than the body's white blood "attack" cells, courses though society spotting challenges and then conceiving and putting in place the next, better step…


Ashoka envisions a world where Everyone is a Changemaker: a world that responds quickly and effectively to social challenges, and where each individual has the freedom, confidence and societal support to address any social problem and drive change.


Ashoka strives to shape a global, entrepreneurial, competitive citizen sector: one that allows social entrepreneurs to thrive and enables the world’s citizens to think and act as changemakers.

If you want to read more or better watch more about this organization watch the Remarks by Google’s Sergey Brin, Anousheh Anasari (first women space tourist), Bill Drayton (founder of Ashoka) and others in celebration of Ashoka’s 18 new Fellows, on You Tube

So what’s Google doing in all this check out this link to read more about Google’s philanthropic arm has invested in Planet Read, a nonprofit organization that seeks to improve literacy by adding subtitles to Bollywood films and videos of popular folk songs, providing an easy way for Indians with limited literacy skills to practice reading. (from click to read more)

Saturday, December 2, 2006

0008 Some interesting Web site -- random and unorganized

Here are some Web 2.0 website that have been featured or have been talked about on the web. And I think people will soon use them.
Random website -- you can use
To learn more about digg you will have to go to what else wikipedia wikipedia on Digg
Get direction from

featured in TIME mag "step-by-step directions via bus or subway in four cities: New York, Boston, Washington and San Francisco."

Classified Ad
or if you looking for newyork ( oodle does not search craigslist

Predict airfare and find the cheap tickets

Real Estate
following is another website but may not a true web 2.0 site for real estate rental etc
Regulator for real estates

Job website

How to" website
(Nolo is the nation’s leading provider of do-it-yourself legal solutions for consumers and small businesses. Our goal is to help people handle their own everyday legal matters -- or learn enough about them to make working with a lawyer a more satisfying experience.)

Want to search Blogs

New online Calendar better than any web calendar out there

Calender 30boxes
there are more more web 2.0 office 2006 products on

The 30 essential pieces of free & open software for windows on simple dollar blog

1.Firefox 2.Thunderbird 3.Sunbird 4.Abiword 5.OpenOffice 6.ClamWin
7.Gaim 8.BitTorrent 9.GIMPShop 10.Gnucleus 11.VLC Media Player 12.Juice
13.Audacity 14.RSSOwl 15.Filezilla 16.Keynote 17.MusikCube 18.Handbrake
19.X-Chat 20.KeePass 21.TrueCrypt 22.PDFCreator 23.Freemind 24.NASA Worldwind
25.Notepad2 26.HealthMonitor 27.Workrave 28.GanttPV 29.GnuCash 30.TrueCombat

Also visit :

I found this link about 22 ways to keep you brain healthy on lifehackers

Check facts

Shopping guide
Cheap deals Boddit
Search restaurants etc in a city

Shoe shopping and others

Other website

Some blogs/business blogs you can read

Some way to order food online

New search that shows you a snap shot

Health search

Also go to TIME mag 50 coolest website for more

click on the link to find out Best of the web for 2006 according to

0007 IP version 6

Did you know that with the growth of internet and devices having its own IP addresses the world could soon run short of IP addresses. Luckly people/Goverments (US at least) have started thinking about it and we will see the solution to the issue get implemented early as 2008 in what is termed as the next generation of Internet Protocol called . This protocol will have enough room for 340,282,366,920,938,463,463,374,607,431,768,211,456 unique addresses while the current version IPv4 address space contains 4,294,967,296 addresses.

0006 Searchmash

Future look of google search page?

But before I begin do you want to get a sneak peak into the future look of google search? operated by Google Inc is a pretty interesting website at least from the look and feel department. With a cleaner interface than current Google search page it would make any minimalist proud. It does uncluttered the search result as compared to the current view from a Google search result page. I particularly liked the drop down tree on the right side of the frame to look for videos /images. It would be cool if Google or for that matter any search engine could search for keywords inside a video.

0005 Hip Hop and Violin

Sure there are lot of great music out there. But this new upcoming group Nutthin But Stringz made up of two Julliard educated brothers Damien and Tourie Escobar venture into hip-hop violin. You could listen to their interview on .

0004 Financial Capital and SOX

Also heard in the NY City-- with the latest change in the way NYSE trades and the impact of Sarbanes Oxley Act (SOX) the economy of lower Manhattan will changed for ever. There will be an increase in the high end residential spaces. This would fundamentally change the composition of lower Manhattan. But there is news also about companies moving back like the announcement that BearingPoint's (NYSE: BE) new national hub office at Three World Financial Center in Lower Manhattan which will house their Financial Services group headquarters. if certian provision of SOX is modified then NY might not loose the tag as the financial capital of the world to London. And if you get a chance watch the interview of Jack Bogle on forbes video network . He thinks there is a scope of improving the controversial SOX section 404 regarding controls.

0003 Boeing vs Airbus

The rivalry between Airbus and Boeing got hotter. Airbus decided to build a plane to complete with Boeing’s 787 (Dreamliner). This could also prove that the Boeing’s strategy to build mid size plan that is fuel efficient is in line with the market needs. To read more about the about the Airbus A350 XWB, the mid-sized jet designed to rival Boeing's 787 Click Here

0002 Interesting Sand Art clip from youtube

Watch this clip

Sand Art