baypond

Cers = wind , is that what some contributors have sometimes? [:D]  

Irrational everything By Guy Rolnik Prof. Daniel Kahneman has dozens, perhaps hundreds, of stories about people's irrational behavior when it comes to making economic decisions. It's no wonder, because for dozens of years he and his late colleague Amos Tversky researched human behavior. Many of their studies concerned the making of financial decisions. But the story Kahneman recalls when asked about the economic models at the root of the current financial crisis is actually taken from history, not an experiment. It concerns a group of Swiss soldiers who set out on a long navigation exercise in the Alps. The weather was severe and they got lost. After several days, with their desperation mounting, one of the men suddenly realized he had a map of the region. They followed the map and managed to reach a town. When they returned to base and their commanding officer asked how they had made their way back, they replied, "We suddenly found a map." The officer looked at the map and said, "You found a map, all right, but it's not of the Alps, it's of the Pyrenees." According to Kahneman, the moral of the story is that some of our economic models, perhaps those of the investment world, are worthless. But individual investors need security - maps of the Pyrenees - even if they are, in effect, worthless. I first came to know Kahneman's work some 17 years ago, when I was studying for my bachelor's degree in economics at Tel Aviv University and took a course on the psychology of economics. At the time, Kahneman's course was considered entertaining and interesting, but marginal compared to "serious" economics courses, in which students learn that individuals make decisions rationally. Kahneman and Tversky demonstrated, however, after many experiments done over many years, that individuals are irrational. Not only are they irrational, it's even possible to predict the irrational manner in which they will make economic decisions. Kahneman and Tversky found that people do not gather data in a systematic or statistical way, but usually make economic decisions based on "rules of thumb" - heuristics, to borrow the term they used. For example, let's take two groups of people and ask the first if the tallest tree in the world is taller than 300 meters. Then let's ask them how tall the tallest tree in the world is. Then we repeat the exercise with the second group, asking them whether the tallest tree in the world is taller than 200 meters, and then how tall it is. At the end of the experiment, we find that the first group's average answer to the second question is, around 300 meters, and the second's is around 200 meters. Why? Kahneman and Tversky say this is "anchoring": People tend to latch on to a certain "anchor" - usually one they come across by chance - instead of trying to use a more rational way to gather and process data and make economic decisions. My second encounter with Kahneman came at a meeting of the World Economic Forum, in New York, in 2002. I spotted his name on the list of speakers and sent him an e-mail requesting an interview. He replied, "You must be mistaken. I am a professor of psychology, of no interest to anyone." Only after I insisted I knew exactly whom I was addressing, and that I remembered quite well his theory from my economics studies, did he agree to speak with me. That year Kahneman won the Nobel Prize in Economics; overnight, he became an international star, constantly quoted and cited. Today his theory of irrational decision making is considered an integral part of any discussion about economics. 'Nothing insightful to say' But when I met him again two months ago at the World Economic Forum in Davos, he was the same modest Kahneman. "The truth is, I have nothing insightful to say," he warned me right off. "Nor am I involved in what they have been discussing at this session of the Forum. I've spent the last three days cloistered in my room writing. This is the first time I've ventured out. I must work." When I asked him why he even bothered to come to Davos, he said, "I guess because Yossi Vardi kept asking me," referring to the veteran Israeli high-tech entrepreneur. A few days before Davos, Kahneman appeared jointly with the mathematician Nassim Taleb in Munich. Taleb himself has become a major star during the current financial crisis, thanks to his books claiming that the financial establishment is unprepared to anticipate or handle various sudden events unfamiliar to historical statistics. Not surprisingly, it turns out that Kahneman met Taleb five years ago in Rome, and the two men hit it off. They have since been exchanging ideas about our strange world, where economic models prove worthless in times of great crisis. "People ignore the tremendous impact rare events can have on the decisions they make. People are simply unwilling to accept the fact that they are actually taking huge risks," Taleb says. "They prefer to cross the street with their eyes closed. Alan Greenspan, the former chairman of the Federal Reserve Bank of the United States, was driving a bus full of children with his eyes closed while he was in office. When you bet against rare events, over time you are always making a little bit of money. But when the rare event occurs, you lose big." From Kahneman's point of view, the most important moment of the recent economic crisis came when Alan Greenspan admitted at a congressional hearing that his theory of the world had been mistaken. "Greenspan expected financial firms to protect their interests, because they are rational companies and the market is rational, so they would not take risks that would threaten their very existence," Kahneman says. "Where did he go wrong? Because he did not distinguish between the firms and their 'agents' [their managers]. There is a huge gulf between the companies and their agents. Firms take the long view, while agents have short perspectives and take the short view. The compensation models of the corporation and their agents are different. The executives did not commit suicide when they took risks; it was the corporations managed by these agents that committed suicide. "People are always asking me: 'Are the people who got caught up in the financial crisis idiots?' The answer is, the bank managers were not complete idiots. Greenspan's admission speaks for itself: The theory that a bank is some sort of rational agent that protects the public's interest is wrong. The assumption of rationality is a fallacious one in the first place, and in the second place, the assumption that a bank should be seen as a single, rational player is irrelevant. One must look at who is managing the bank - management that receives incentives to do things that are not connected to anybody's interests." Not just optimism The worlds of business and finance have long recognized the problem of conflicting interest between companies and executives; the surprising aspect of the world financial crisis, however, has been the behavior of millions of mortgage borrowers and investors. Here's where Kahneman's theory comes in. "At the lowest level, you have the psychology of the borrowers - those who took out mortgages - who believed that the prices of real estate, of homes, would go up forever. This is an interesting phenomenon. It's not just optimism, it's not just that people believe what they're told; it goes deeper than this," he says. "Psychology today differentiates between two methods of thinking: There is the intuitive method, and there is the rational one. The intuitive method is characterized by rapid learning, and it concludes very quickly that what has happened the last three times will happen forever, again and again." Why is it that we believe that if it has happened three times, it will happen again? "I once told a story about this: We once traveled from New York to Boston on a Sunday night, and we saw a car on fire on the side of the road. A week later, again on a Sunday night, we were traveling and again saw a car on fire in the same place. The fact is, we were less surprised the second time than the first because we had learned a rule: Cars burn at this spot. "We find this everywhere - the speed at which people create rules, norms and expectations, even when they know it's ridiculous. This is the intuitive method at work. It remains true that whenever I travel, I always look for burning cars at that spot." Over the last 40 years you have demonstrated that we never employ the statistical method of thinking, just the heuristic one - rules of thumb. Some economists today say the models were indeed based on statistics, but the problem is that they were based on statistics according to which the market goes up, rather than on long-term statistics. "When it comes to finance, people link risk to volatility, but in reality, there is no connection between the two at all. There is a connection, but not when we're talking about huge risks. Greenspan and others believed that the global system - by virtue of its being global - was ipso facto more stable. Then it turned out that while it might have been more stable, it was also more extreme. "In the last half year, the models simply didn't work. So the question arises: Why do people use models? I liken what is happening now to a system that forecasts the weather, and does so very well. People know when to take an umbrella when they leave the house, or when it will snow. Except what? The system can't predict hurricanes. Do we use the system anyway, or throw it out? It turns out they'll use it." Okay, so they use it. But why don't they buy hurricane insurance? "The question is, how much will the hurricane insurance cost? Since you can't predict these events, you would have to take out insurance against many things. If they had listened to all the warnings and tried to prevent these things, the economy would look a lot different than it does now. So an interesting question arises: After this crisis, will we arrive at something like that? It's hard for me to believe." The financial world's models are built on the assumption that investors are rational. You have shown that not only are they not rational, they even deviate from what is rational or statistical, in predictable, systematic ways. Can we say that whoever recognized and accepted these deviations could have seen this crisis coming? "It was possible to foresee, and some people did. There were quite a few smart people with a lot of experience who said bubbles are being created and they have to be allowed to burst by themselves. But it turns out that this bubble did not have to be allowed to burst by itself. I have a colleague at Princeton who says there were exactly five people who foresaw this crisis, and this does not include [Fed Chairman] Ben Bernanke. One of them is Prof. Robert Shiller, who also predicted the previous bubble. The problem is there were other economists who predicted this crisis, like Nouriel Roubini, but he also predicted some crises that never came to be." He was one of those who predicted 10 crises out of three. "Ten out of three is a pretty good record, relatively. But I conclude from the fact that only five people predicted the current crisis that it was impossible to predict it. In hindsight, it all seems obvious: Everyone seemed to be blind, only these five appeared to be smart. But there were a lot of smart people who looked at the situation and knew all the facts, and they did not predict the crisis." Of all the observations and behaviors you have observed over the last 40 years - and you have observed many kinds of irrational behavior - which would you say is most responsible for the current crisis? "Well, that's a good question, and it can be looked at from the lowest level: the borrowers, those who took out mortgages. What happened to them? They were really convinced that real estate prices would go up forever. How could they have believed such a thing? They believed it because people who had certain interests told them. They were not suspicious enough, and the market permitted it." Of all your experiments, which demonstrates similar behaviors? "The general phenomenon of suggestibility - when people believe too much in what is being suggested to them. It's related to the anchoring we saw before. How easy is it to influence people? You introduce a number into their heads, and they attribute importance to it when there really is none. There's a sucker born every minute." So how do we deal with this? What are the lessons to be learned from this crisis? "I think that in the future there will be rules obligating lenders to give much more information to borrowers. Financial firms' problems are less interesting from a psychological point of view. These are problems of agents and companies that economists already understand. The interesting psychological problem is why economists believe in their theory, but this is the problem with the theory, any theory. It leads to a certain blindness. It's difficult to see anything that deviates from it." We only look for information that supports the theory and ignore the rest. "Correct. That appears to be what happened with Greenspan: He had a theory under which the market operates, and that the market would correct itself." A personal question. When you look at your own behavior in the world of economics, do you feel you make the same mistakes, or that you are aware and thus consider yourself immune? "I am not immune, I am a coward. That's something else. Several years ago, I decided that I should not take any risks, that I want a European retirement, linked to the cost-of-living index. In the United States, there is no such thing. I asked an investment counselor to look into whether she could arrange a European retirement for me, something linked to the cost of living, without any risk. She threw me out of her office; she considered it something incompatible with American values." So in what have you invested? "Index-linked bonds. I know this is not popular. Many people think it's a mistake, but that's the mistake I make." You've never owned stocks? "I used to have a quarter to a third of my portfolio in stocks. Psychology teaches us that people like a combination of something safe and a gamble. I have something like that: a few stocks. But I don't advise anyone else to act that way." Let's end with your story of the Swiss soldiers and the map of the Pyrenees. I know why the map helped the soldiers: it gave them confidence. But why didn't they use a map of the Alps? Why don't we use the right economic models, ones that are relevant to extreme cases as well? "Look, it's possible that there simply is no map of the Alps, that there is nothing that can predict hurricanes."

The worst thing we ever did was (for the benefit of charity) auction our house out for a week's free holiday at a school fundraising evening. We thought by offering a week, they would choose Easter or May bank holiday etc The next morning we got a phone call from some parents in my son's class (who we knew fairly well) to say they had won the auction. I was immediately placed on the spot when they asked for an extra week, and could they go in August. Although we don't rent at present, I explained that we do get a lot of family traffic and would have to charge them for the extra week to cover all our costs. I told them that for the extra week they would have to pay £1000 (£333 per family). The guy seemed a bit taken aback, so after the phone call ended, I decided to call him back as I thought he may have thought I was asking £1000 per family! When I said it was only £1000 for all 3 families he replied "well I certainly hope so, because if it was £1000 each we could have gone to Dubai for the week" Unfortunatley what started as a gesture to charity (all auction proceeds went to a childrens hospice) ended up being a pain in the wotsits. We gave them a car to use, we filled the fridge for their arrival, we heated the pool and the only real comments we got back from them was that it was a bit quiet for them, that they were not that keen on the local food, that the basin that holds the rolled up pool cover was dirty and a risk to health (they then took them to a small lake where they got ear infections), and the kids sat on all the sofas with dripping magnums. Oh and they used the phone for business and still havn't handed over the £24 in phone charges a year later. Never again. I think it is why we havn't got round to actually renting the property. You spend all you time and effort making the place you love look how you want it to look, and then people come along and criticize it and generally take the p...

Thank you Clair. French lesson over

Thank you ladies, just a thought but if Biche mummy, what is daddy called ?

Clearly not, but I think it is indicative conditions in UK plc and also of the state of Council funding, especially when our local Council lost £50 mio in Icelandic banks. Tax rises are on the way as we will see in today's budget I guess. Unfortunately, the biggest losers amongst the Brits in France/Europe, are those that have costs in EUROs and income in GBP. The best case would be owning French house with a GBP mortgage, but I guess that would be a very small proportion of people.  

Hi, is Biche a general name for deer, or is it a specific type? When I googled it, the images shown did not look like the deer we have in the Gers that the locals call biche.   Tx

I have been looking for a site like this, excellent stuff. The piece on the snakes is helpful too. We have many snakes around our house and garden, but no sign of vipers. The previous owners also said they had never seen vipers there either which is good news with the kids running around.

Ernie, I have a friend who firmly believes the only way to go over the speed bumps in France is to approach at 30mph, punch the brakes a few feet in front and release straight away. This lifts the suspension just as you hit the bump, and makes for a smoother passage without having to slow down too much.

I am biased, but I found South of France gets a little too crowded for me, especially close to the coast where it gets packed and you can't easily move around by car. However, if Sun is top of your list then you will tend to compromise that criteria wherever else you go as the weather is not so predictable elsewhere. South tends to be 20/50% more expensive than elsewhere too. I love the South West, especially in July which statistically is the dryest month. The Pyrenees have some great climbing. There are plenty of cheap flights to Toulouse Rodez Pau Bordeaux etc etc The wine is basic drinking plonk, but I really like it - Cotes de Gasgoine, and loads of Armagnac too. I find seafood is well catered for in most of France, either at the frequent markets or in all supermarkets. So you don't really have to be on the coast. Have fun looking, I am sure you will find lots of other opinions about other areas of France that will be just as good.

Clearly wrong!   Congrats to all you Welsh and Irish fans. Only one real gripe - what on earth are they doing taking Powell. Armitage and Croft unlucky but with the Heineken Cup semis and final involving 19 of the 37 players picked, there are sure to be one or two who get injured unfortunately.

Announced Squad: 1. Euan Murray 2. Gethin Jenkins 3. Adam Jones 4. John Hayes 5. Andrew Sheridan 6. Ross Ford 7. Dylan Hartley 8. Jerry Flannery 9. Paul O`Connell 10. Nick Kennedy 11. Alun Wyn Jones 12. Nathan Hines 13. Martyn Williams 14. John Barclay 15. David Wallace 16. Jamie Heaslip 17. Ryan Jones 18. Tom Croft 19. Joe Worsley 20. Mike Blair 21. Mike Philips 22. Harry Ellis 23. Danny Cipriani 24. Ronan O`Gara 25. Stephen Jones 26. Nicky Robinson 27. Riki Flutey 28. Brian O`Driscoll 29. Jamie Roberts 30. Tom Shanklin 31. Leigh Halfpenny 32. Thom Evans 33. Shane Williams 34. Tommy Bowe 35. Ben Foden 36. Rob Kearney 37. Lee Byrne     This team list came out some time this morning on Wikepedia as the 'announced squad' I wonder if it is real - we find out in 10 minutes

It was reported on South Eastern TV news last week that the local councils would not be filling in the multitude of pot holes in our local roads after the winter damage because ................................ the pot holes were good for slowing down traffic. Quite incredible - even Sarkosy couldn't have dream't that one up

Hi John Back in ol blighty at the moment. I will be sitting at the French computer next Friday, I will update you then. Or if I am unsuccessful then when I get home on Sunday! Thanks for asking!

 baypond wrote:"Just remember that if you do re-register your car in France or take up Sweet's no-doubt generous offer you will be able to drive it anywhere in Europe EXCEPT the UK ...." That can't be right? really? If it is legal, insured, C/T'd and registered in France, then it is legal to be driven in the UK, surely... Nick Trollope wrote: How many times? It is illegal to drive a foreign-registered car in your country of residence. Thats how!! Maybe I have missed the point somewhere. I am UK resident with a maison secondaire. I took a UK renault clio to use in France, and changed it to fully comply with all regs in France i.e CT, insurance , carte gris etc. It stays at the house in France permenently, but are you saying that now I have done this, I can't drive the same car to the UK for the weekend and return a few days later if I needed to?

[quote user="Dog"]Cervia is pleasant apparently - never been there myself. [/quote] On a Velosolex, in 2 weeks you still may never have been to Cervia [:)]

"Just remember that if you do re-register your car in France or take up Sweet's no-doubt generous offer you will be able to drive it anywhere in Europe EXCEPT the UK ...." That can't be right? really? If it is legal, insured, C/T'd and registered in France, then it is legal to be driven in the UK, surely...

sounds about par for the course....

NFU mutual are always very good, although their premiums bounce around all overthe place so you have to catch them on a good day. Their only concern was that the MOT  and car tax was valid for the duration of the stay. http://www.nfumutual.co.uk/local-offices/ for your nearest office.

I am confused... I thought high pressure was sun, and low pressure brought rain.... this site is showing the complete opposite.... lower and lower pressure throughout next week culminating in 24c and broken clouds/cloudy. I need to do some basic meteo training

[quote user="Dog"] It would be cheaper to drive to the swimming lake or river. [/quote] Every time my children go near a 'swimming lake' they get nasty ear infections - blood and puss pouring out -  never again!

It is the best luxury ever...well worth every penny.

It is a shame that we constantly destroy habitat by repairing/converting barns without providing alternative environments for them to nest in. I will have to repair the facades on a gite where the stonework is getting to the stage where it needs to be fixed. However, there is a group of house sparrows that nest in the walls each year and I am loathe to destroy their nesting locations (look what has happened in the UK). I think I will leave open the main nesting holes and 'crepis' the rest. Rather than getting rid of you birds, why not consider putting up a tarpaulin or corregated plastic cover where you park the cars? That way your cars are free of muck and the birds can still nest...

Is it coincidental that we have several nesting green woodpeckers in and around the copse. Are they also a natural predator ? In a 1/2 acre copse we have at least 5 woodpecker holes, and lost two in the tempest.

Hi Very sorry to read all about your current situation. To go back to your orginal post, did anyone mention PASSWORDS. If your husband has any passwords to anything at all, it is well worth you knowing what they are at all times. There would be nothing worse than not being able to access accounts, computers and information at this time. It may also be time to sort out bank accounts if you have any in single name that could just as easily be managed under joint name and access. Sorry this post is more practicle than sympathetic. I hope I havn't repeated any other replies, I couldn't see any relating to this. All the best.