Thursday, September 5, 2013

O’Connell, Stats & Curiosities

The official publication date for Stats & Curiosities from Harvard Business Review, written and edited by Andrew O’Connell (Harvard Business Review Press), is October 15, so consider this a pre-release preview.

Remember the Bangladeshi butter-production theory of asset prices gag? Some twenty years ago David Leinweber and Dave Krider looked for a non-financial series that had the highest correlation with the S&P 500 over a ten-year period. The winner: butter production in Bangladesh. As Leinweber subsequently wrote, “we had a good laugh over it, added a few more dairy products and third world livestock [butter production in the U.S., U.S. cheese production, and sheep population in Bangladesh and U.S.], and lo and behold, found a regression that ‘explained’ 99% of the S&P 500 using this nonsense.” (Forbes, 7/24/2012)

Well, amid the 165 stats and curiosities in O’Connell’s collection, some sound an awful lot like these useless investment signals. And that despite the fact that they stem from serious academic and field studies. Does that mean that the studies were flawed? Or did the researchers unearth genuine connections that occasionally simply seem odd or unnerving? For the most part, I assume the latter is true.

But then, as the author points out, “using legitimate statistical analyses, researchers were able to show in an experiment that participants were nearly 1.5 years younger after listening to the Beatles’ ‘When I’m Sixty-Four’ than after listening to a song that comes with the Windows 7 operating system—an obviously ridiculous finding.” (p. 133)

Moving to less ridiculous (though still odd) findings, “about one-third of drivers of Prius hybrids failed to yield to pedestrians in a series of experiments on crosswalks in the San Francisco Bay area, giving the brand one of the highest rankings for ‘unethical driving.’” (p. 36) Along the same lines, “people who viewed images of food labeled ‘organic’ made harsher moral judgments about others’ behavior and volunteered 6 minutes less of their time to help someone out, compared with people who viewed nonorganic foods.” (p. 44) So much, I guess, for the good earth folks.

A team of researchers from the Federal Reserve Bank of San Francisco studied the link between happiness levels and suicide rates and found that “countries and US states with higher happiness levels tend to have higher suicide rates. … Unhappy people may become suicidally distressed by others’ contentment, the researchers suggest.” (p. 50) Somehow I doubt this interpretation of the data. Findings from two states may prompt readers to formulate an alternative hypothesis: “Utah is ranked number 1 in life satisfaction but has the ninth-highest suicide rate, whereas New York, ranked 45th in satisfaction, has the lowest suicide rate in the United States.”

Here’s another finding that may help to account for the high rate of obesity among the poor. “People who were observed choosing large-size coffees, pizzas, and smoothies were rated by others as having higher status—an average of 4.98 on a 1-to-7 scale—than people who chose small sizes (3.03). … The research shows, moreover, that people who feel powerless tend to choose larger options than people who feel powerful, regardless of the items’ price.” (p. 53)

Some stats that apply directly to the world of finance:

Only 24% of workers in finance and banking would recommend their job to their children as opposed to 67% in agriculture and ranching (presumably they want to keep the family business going), 44% in professional services, 43% in IT, and 42% in health care.

Firms provide more stock options in areas with fewer Protestants.

Negative online chatter volume about company products predicts lower stock prices; positive chatter and five-star ratings have no predictive value.

“Research participants who strongly trusted their feelings were able to predict future levels of the Dow Jones average with 25% greater accuracy than people who didn’t.” (p. 185)

And here’s a truly weird one: “Wide-faced CEOs’ companies perform better.”

So, all of you who are looking for an edge, cast your net wide, be imaginative, but beware the Bangladeshi-butter syndrome or the “fountain of youth” effect of listening to “When I’m Sixty-Four.”

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