Progress Daily

People who are perceived to be trustworthy are more likely to have a higher credit score and pay lower interest rates on loans, and are less likely to default, according to a study by Jefferson Duarte & Stephan Siegel (”Trust and Credit“).

The researchers studied members of Prosper.com, where people looking for loans are matched up with individual lenders.

Each Prosper.com loan applicant submitted a profile which included credit and work history, education level, income and an optional photograph of themselves for lender review.

More than 6,800 loan applications, 2,600 loans and 12,000 photographs were used in the study.

Duarte hired a team of 25 people to rate the applicants’ trustworthiness on a scale of 1 to 5 using only the photographs of the borrowers. The team also judged the probability that the borrowers would repay a $100 loan.

Those judged to be trustworthy were more likely to get a loan from Prosper.com lenders and tended to have a credit score about 20 points higher than those determined to be untrustworthy.

“Untrustworthy” borrowers were 7% more likely to default on their loan than a perceived trustworthy borrower with the same credit score.

The researchers controlled for race, age, gender, obesity, attractiveness and education, employment status, income and homeownership.

“Creditworthiness may be linked to looks,” by Rebekah Kebede

According to Abhijit Banerjee & Esther Duflo (of the Poverty Action Laboratory), among the rural poor, fewer than half have children aged 13-18 in education, whereas among those living in cities and earning over $2 a day the figure is over three-quarters.

In emerging markets, among the very poorest (those living on less than $1 a day), the number of children in the household ranged from 1.8 to 3.6 per adult woman. In families that live on $6-10 per person, the average number of children per household was between 1 and 1.3 (these figures do not include China so they are not influenced by that country’s one-child policy).

“Notions of shopkeepers,” The Economist

The Internet gives access to a huge market at very low marginal cost. This creates the possibility of success at very low participation rates.

Wikipedia works despite the fact that only about 0.01% of readers regularly contribute material. With 680 million annual visitors, that’s still 75,000 active contributors — who have created 10 million articles.

YouTube works with just 0.1% of users uploading their own videos.

And spammers can make a fortune with response rates of 0.00001%.

“The miraculous power of scale,” by Chris Anderson

America, Britain, the euro area and Japan are probably in recession according to the popular rule of thumb of two successive quarters of falling GDP.

In an updated World Economic Outlook, published on November 6th, the IMF predicted that world GDP growth would fall to 2.2% in 2009, based on purchasing-power parity (PPP) weights, from 5% in 2007 and 3.7% in 2008.

Global GDP has not fallen in any year since the 1930s Depression. Its worst years since then were 1982 and 1991, with growth of 0.9% and 1.5% respectively.

The IMF suggests that a sufficient (although not necessary) condition for a global recession is any year in which world GDP per head declines. In each of the downturns in 1975, 1982 and 1991, growth in world GDP per head turned negative. In 2001, global GDP per head expanded by around 1%. The annual growth rate in world population has now slowed to 1.2%, so recent GDP forecasts would still allow average world income per head to rise.

The IMF forecasts that the advanced economies will shrink by 0.3% in 2009, which would be the first annual contraction since World War II. Emerging economies are expected to grow by around 5%.

Real income per head is expected to increase next year in countries that account for well over half of the world’s population. If the developed world does suffer an absolute decline, then 2009 would be the first year on record when emerging economies account for more than 100% of world growth.

“The global slumpometer,” The Economist

Vera Morhenn examined whether munificence towards strangers could be manipulated through touch. In her experiment (see “Monetary sacrifice among strangers is mediated by endogenous oxytocin release after physical contact“), she split 96 male and female graduate students into three groups. The first and second received a professional massage but the third did not. Then the first and third group took part in a “trust game.”

Participants were paired at random and seated in front of a computer, physically removed from their anonymous partner. Each also got $10 in cash, supposedly for showing up. The rules stipulated that for each pair, one person, the giver, could cede a part of their money to the other, the trustee. This amount would then be tripled and credited to the trustee, who was subsequently prompted by the computer to sacrifice a part of his stash by returning some to the giver.

Morhenn took blood samples at the start and end of each game and looked for changes in oxytocin levels. She found no effect in the massaged group who did not participate in the game, implying that trust acts as some sort of trigger. But in the players the hormone rose in those who were massaged and fell slightly in those who were not.

Despite receiving statistically identical trust signals from givers, the massaged trustees with their higher oxytocin levels returned a whopping 240% more than their unrubbed counterparts. Women appear more susceptible than men to tactile manipulation.

“A touch of generosity,” The Economist

Since the mid-1980s, workers at the bottom of the wage scale have seen their incomes fall relative to those at the top. However, a recent research paper (”Inequality and Prices.” Pdf file here), by Christian Broda and John Romalis, argues that standard measures of inequality do not reflect differences in the inflation rates faced by the rich and the poor. For most of the past three decades, the price of non-durable goods (on which the poor spend relatively more) has been falling relative to the price of the services (investment advice, personal care, domestic help, etc) that the rich spend more of their money on.

The authors constructed price indices for 12 income groups, using official figures and detailed private information on the spending habits of different households. This data set, created by shoppers themselves using in-store scanners, records the type and prices of goods bought by various income groups between 1994 and 2005.

The share of non-durable spending for the very poorest households was 12 percentage points higher than for the richest.

One standard measure compares the income of a household just below the top 10% of earners with one just above the bottom 10%. The richer household earned 10.6 times more than the poorer one in 1994; that multiple rose to 11.2 in 2005. The researchers calculate that around two-thirds of this increase was offset by the poor’s lower inflation rate. (The researchers found a similar result when they extend their analysis back to 1984.) Also, the range of goods consumed by poor households increased by far more than for rich households. If the gain in variety is quantified & expressed as an addition to real income, the remaining increase in inequality vanishes.

The authors matched their figures on non-durable spending with equally detailed import data, and calculated that imports from China alone offset more than a quarter of the measured rise in income inequality since 1994.

“Cheap and cheerful,” The Economist

According to a 2007 Pew Research Center survey of more than 45,000 people (pdf file here), from 47 nations:

In poorer nations, religion remains central to the lives of individuals, while secular perspectives are more common in richer nations. (Religiosity was measured using a three-item index ranging from 0-3, with “3″ representing the most religious position. Respondents were given a “1″ if they believe faith in God is necessary for morality; a “1″ if they say religion is very important in their lives; and a “1″ if they pray at least once a day.) There are some exceptions, including most notably the USA, which is a much more religious country than its level of prosperity would indicate — 57% say that one must believe in God to have good values and be moral, while 41% disagree.

—

In all 47 nations included in the survey, large majorities believe that international trade is benefiting their countries.

Large majorities in nearly every country surveyed express the view that there should be greater restriction of immigration and tighter control of their country’s borders.

“World Publics Welcome Global Trade — But Not Immigration,” Pew Global Attitudes Project

According to Joel E. Cohen, there is enough grain grown on earth to feed 10 billion vegetarians. But much of it is being fed to cattle, which are eaten by the world’s wealthy.

There may be enough acreage already planted to keep the planet fed forever, because 10 billion humans is roughly where the UN predicts that the world population will plateau in 2060. (In the late 1980s, Brown University’s World Hunger Program calculated that the world then could sustain 5.5 billion vegetarians, 3.7 billion South Americans or 2.8 billion meat-loving North Americans.)

The world’s current population, with 1,000 square feet of living space each, could fit into Texas.

A water shortage that raised prices to around $150 would make it profitable to build pipes from the polar icecaps, or desalinate seawater, as the Saudis already do.

“Malthus Redux,” by Donald G. McNeil Jr.

Once someone owns something, he places a higher value on it than he did when he acquired it. “The endowment effect” has been seen in hundreds of experiments, the most famous of which found that students were surprisingly reluctant to trade a coffee mug they had been given for a bar of chocolate, even though they did not prefer coffee mugs to chocolate when given a straight choice between the two.

The effect is not universally observed. Whereas coffee mugs generate an endowment effect, tokens that can be exchanged for coffee mugs do not.

Owen Jones and Sarah Brosnan suspect that, in the evolutionary past, giving things up, even when an apparently fair exchange seemed to be on offer, was just too risky. To test their theory, they have been training chimpanzees to trade (see “Law, Biology, and Property” — pdf file here).

When presented with a choice between peanut butter and frozen juice bars, 60% of the chimps preferred peanut butter to juice. However, when they were endowed with peanut butter, 80% of them chose to keep it instead of exchanging it for juice. And an opposite endowment effect was observed when the chimps were given juice.

Before they started work Jones & Brosnan predicted that the strength of the effect would vary with the evolutionary salience of the item in question. As predicted, when they tried the same experiments using bone and rope toys, no endowment effect was seen. Food is vital. Toys are not.

“The endowment effect,” The Economist

Globalization has accounted for only a small share of job creation and destruction over the past few decades. According to Pankaj Ghemawat, 90% of fixed investment around the world is domestic. Companies open plants overseas, but that’s mainly so their production facilities can be close to local markets.

According to Thomas Duesterberg, the US’s share of global manufacturing output has actually increased slightly since 1980.

The chief force reshaping manufacturing is technological change (hastened by competition with other companies, foreign and domestic). Manufacturing productivity has doubled over two decades. Employers now require fewer but more highly skilled workers. According to William Overholt, between 1994 and 2004 the Chinese shed 25 million manufacturing jobs, 10 times more than the US.

“The Cognitive Age,” by David Brooks