Published: Tuesday, April 30 2013 7:00 a.m. MDT
A criticism of economics has been reliance on statistic models that encouraged
companies to engage in financially-risky behaviors because the "models"
suggested that they were prudent. The soft social sciences –
the study of people behavior have long had "physics envy." That is, the
hard sciences use sophisticated empirical techniques to quantify the natural
world, and economics, psychology, sociology, and business disciplines strive to
use similar methods to demonstrate equal rigor. The problem is that
human behavior (e.g., purchase intentions, behavioral reactions to a tax
incentive, etc.) is much more difficult to measure compared to say the physical
reactions of chemicals. The latest Harvard Business Review
includes a study on how the size of a CEO's signature is predictive of
corporate financial performance and that the signature is an indicator of CEO
narcissism. There are plenty of leaps of faith here, but because it is
"empirical," using sophisticated math and probability methods, some are
accepting it as "truth."Now I challenge any investor to use
signature size to pick stocks! Perhaps some do ... and that may be why people
make bad decisions.
Pretty simple. If there isn't an objective, it goes to wast.
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