Warren Buffett and critical thinking

These days the stock market is always in the local news. Warren Buffett is of course a great investor (and I think even more admirable as a philanthropist), but it is nice to hear that he sees critical and independent thinking as the basis of his success:

From http://www.gurufocus.com/news.php?id=4388

I asked Buffett about the state of the securities markets in the U.S. going forward and how they will compare to the period in which he operated and how he could make 50% or more per year…

Buffett : “It’s a structural issue…yes, with a small sum like a million dollars, I could make 50% or more a year. The key is rationality. There are always going to be times when humans act irrational and this is time to make your money. I’ve made a career of cashing in when people act irrational.”

More choices might not be better

From this blog

“When Choice is Demotivating: Can One Desire too Much of a Good Thing?” Iyengar, S. S., & Lepper, M. Journal of Personality and Social Psychology, 79, 995-1006. (2000).

This paper explored the phenomena of “choice overload.” Here is what they did.

They created two displays of gourmet jams. One display had 24 jars. The other had 6. Each display invited people to try the jams and offered them a discount coupon to buy the jam. They alternated these displays in a grocery store and tracked how many people passed the displays, how many people stopped and sampled the jams, and how many subsequently used the offered coupon to buy the jam.

The results were surprising.

* 24 jar display: 60% of the people passing the display sampled the jam, 3% purchased jam.
* 6 jar display: 40% of the people passing the display sampled the jam, 30% purchased jam.

Researchers use brain scans on shoppers | Science Blog

Link: Researchers use brain scans on shoppers | Science Blog.

For the first time, researchers have used functional magnetic resonance imaging (fMRI) to determine what parts of the brain are active when people consider whether to purchase a product and to predict whether or not they ultimately choose to buy the product. The study appears in the journal Neuron and was co-authored by scientists at Carnegie Mellon University, Stanford University and the MIT Sloan School of Management.

This paper is the latest from the emerging field of neuroeconomics, which investigates the mental and neural processes that drive economic decision-making. The results could have a profound impact on economic theory, because the decision of whether to purchase a product is the most basic and pervasive economic behavior.

Previous imaging studies have found that separate parts of the brain are activated when people are confronted with financial gains versus financial losses. The authors of this latest study believed that distinct brain regions would be activated when people were presented with products they wish to purchase (representing a potential gain) and when they were presented with those products’ prices (representing a potential loss). The researchers wanted to see if they could then use this information to predict when a person would decide to buy a product, and when they would pass it up.

Twenty-six adults participated in the study, in which they were given $20 to spend on a series of products that would be shipped to them. If they made no purchases, they would be able to keep the money. The products and their prices appeared on a computer screen that the participants viewed while lying in an fMRI scanner. The researchers found that when the participants were presented with the products, a subcortal brain region known as the nucleus accumbens that is associated with the anticipation of pleasure was activated. When the subjects were presented with prices that were excessive, two things happened: the brain region known as the insula was activated and a part of the brain associated with balancing gains versus losses — the medial prefrontal cortex — was deactivated.

Furthermore, by studying which regions were activated, the authors were able to successfully predict whether the study participants would decide to purchase each item.

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Subliminal advertising does work!

NewScientist.com news service Journal of Experimental Social Psychology, DOI: 10.1016/j.jesp.2005.12.2005

IT WAS a stunt that launched a thousand conspiracy theories. Market researcher James Vicary claimed in 1957 that he could get movie-goers to “drink Coca-Cola” and “eat popcorn” by flashing those messages on the screen for such a short time that viewers were unaware of it. People were outraged, and the practice was banned in the UK, Australia and the US.

Vicary later admitted that his study was fabricated, and scientists through the years who have tried to replicate it have largely failed. But now researchers have shown that if the conditions are right, subliminal advertising to promote a brand can be made to work.

Johan Karremans at the University of Nijmegen in the Netherlands and his colleagues wanted to see if they could subliminally induce volunteers to favour a particular brand of drink, Lipton Ice. For comparison, they chose a brand of mineral water called Spa Rood, as it was deemed to be as well known as Lipton Ice and equally thirst-quenching.

The researchers asked 61 volunteers to perform a nonsense task – counting how many times a string of capital Bs was infiltrated by a lower-case b as they flashed up on a screen. The B strings appeared for 300 milliseconds each, and before them, a string of Xs always appeared, flanking a 23-millisecond subliminal message. For the experimental group, the message was “Lipton Ice”. Controls saw “Nipeic Tol”.

When the volunteers had completed this task, they were asked to choose between Lipton Ice and Spa Rood by clicking one of two keys – though they were told this was part of a separate study. They were also asked how likely they would be to order either of these drinks if they were sitting on a terrace, and to rate how thirsty they were. Volunteers who rated themselves as thirsty were more likely to choose Lipton Ice, but only if they had received the subliminal message.

In a second study the researchers made half of their 105 volunteers thirsty by giving them a very salty candy before the task. As predicted, among the thirsty, subliminal messaging had an impact. Eighty per cent of thirsty volunteers who had been exposed to the Lipton Ice message chose that product, compared to only 20 per cent of the controls.

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