Last Friday I was honored with the Ig Nobel award in Medicine for a paper that Rebecca Waber, Ziv Carmon, Baba Shiv and I wrote on the effects of discounts on the efficacy of placebo pain medications. We basically showed that when drugs are discounted they just don’t work as well. We also tried to make the point that this basic effect of expectations might also be the reason that people just don’t experience generic drugs to be as effective as brand name medications. (more…)

“In theory, there is no difference between theory and practice, but in practice there is a great deal of difference.”

This is in my mind the basic lesson we learned this week from the negative reactions of the markets to the bailout.  

Given this, do you think we should revisit the bailout and maybe give the money directly to people who are struggling with their mortgages (maybe buying 1/2 of their mortgages and homes) instead of using the money to buy the financial instruments that represent these mortgages?
Sadly yours

Dan

Dear Irrational,

I am a finance professor at one of the top business schools in the U.S., and I am starting to doubt the assumptions of irrationality based on what I see in my students.

Here is the story: Every year when I teach the basic finance class to either the MBAs or the executive MBAs we get to the point where we talk at length about the benefit of diversification, including how to think about risk and return. (more…)

The WSJ recently reviewed a book called “Billion Dollar Lessons”

Here is one of the stories from the book (and the review): (more…)

 Happy new year (the Jewish new year)

I would like to propose that one reason people oppose the government bailout is because they want revenge on the companies that helped lead us into this disaster. Even though they know they will lose money and it doesn’t help them at all, at a very basic level a part of them want to see the companies suffer. (more…)

Dear Irrational,

I have a simple question: What issue do you think matters most to voters in this election?

A citizen
——–
(more…)

On Sept 14th 2008 the front page on the New York Times described some of the outcomes of Hurricane Ike as it traveled across Texas. In the previous 24 hours, Hurricane Ike distorted much of Galveston with a wall of water, flooding numerous coastal towns and leaving extensive damage across Houston. From the report it was clear that a few people died as a consequence of Hurricane Ike but it was not yet clear how many people died. It was clear however, that thousands and thousands are now homeless, that over three million people were left without electricity, and that the devastation has been incredible. (more…)

When John McCain picked Sarah Palin as his running mate, my first reaction was that the race was over and the Democrats will win for sure.

Here was my reasoning:
First, McCain has been running on the “old and experienced” ticket and now he was making a choice that would make it impossible to make such claims any more. (more…)

Every time I think that cheating in the public sector cannot possibly get worse I get amazed.

Here is a report from the New York Times, that I find just unbelievable.
The basic story is that the Interior Department agency responsible for collecting oil and gas royalties has been caught up in a wide-ranging ethics scandal — including allegations of financial self-dealing, accepting gifts from energy companies, cocaine use, and sexual misconduct.

I am not going to summarize it but here are my 2 reflections:

1) Will Congress actually do something with these reports and take some action to correct the situation (I suspect not)?
2) Was it relatively easy for the Interior Department agency that collects oil and gas royalties to be dishonest given the general lack of morality in the oil and gas industry? In other words, does the lack of ethical behavior in the corporate world also transfer to the government branches that are dealing with these sectors? I suspect that the answer is “yes” and this is very troubling — since the government agencies that need to be more honest are the ones dealing with more corrupt industries.

Sadly yours

Dan