What High-I.Q. Investors Do Differently

YOU don’t have to be a genius to pick good investments. But does having a high I.Q. score help?

The answer, according to a paper published in the December issue of The Journal of Finance, is a qualified yes.

The study is certainly provocative. Even after taking into account factors like income and education, the authors concluded that people with relatively high I.Q.’s typically diversify their investment portfolios more than those with lower scores and invest more heavily in the stock market. They also tend to favor small-capitalization stocks, which have historically beaten the broader market, as well as companies with high book values relative to their share prices.

The results are that people with high I.Q.’s build portfolios with better risk-return profiles than their lower-scoring peers.

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Does Austerity Promote Economic Growth?

In his classic Fable of the Bees: or, Private Vices, Publick Benefits (1724), Bernard Mandeville, the Dutch-born British philosopher and satirist, described – in verse – a prosperous society (of bees) that suddenly chose to make a virtue of austerity, dropping all excess expenditure and extravagant consumption. What then happened?

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Spend, Spend, Spend. It’s the American Way.

GRIDLOCK in Congress implies that there won’t be any collective decision to spend more as a nation to get out of our slump. Increases in deficit spending seem unlikely, and so does the balanced-budget stimulus I’ve been advocating in this column. For now, we must pin our hopes for a robust recovery on the willingness of millions of consumers to spend substantially more.

But what really drives consumer spending? Economists are reasonably good at divining how consumers tend to react to changes in government policy, but in the absence of such policy, and when the economy is in the doldrums, they aren’t very good at predicting spending shifts.

A new book, “Beyond Our Means: Why America Spends While the World Saves” (Princeton University Press), offers some insights. It was written by Sheldon Garon, a Princeton professor who is not an economist but rather a historian with a sociological bent.

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A Tax Credit to Fix A Housing Mess

WE used to talk a lot about helping homeowners in trouble.

Instead, the bankers were bailed out — and now we hardly talk at all about aiding ordinary Americans.

Yet the problems facing homeowners today are even bigger than they were in the dark days of the financial crisis. According to the S.& P./Case-Shiller 20-city Home Price Index, home prices have fallen 13.2 percent since Lehman Brothers collapsed in September 2008. Over the same period, of course, unemployment has climbed.

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The Fire Bell of Unemployment

THE failure of the Congressional supercommittee to come up with any agreement on the budget deficit makes it even less likely that Congress will rise above its partisan divisions and act on behalf of the millions of out-of-work Americans.

Yet without government intervention, we may well have high unemployment and social discord for years to come. How did this disaster happen?

Probably the most important reasons for the failure to rescue the unemployed are intellectual, rather than purely political. First, there is a lack of scientific proof that government spending — fiscal stimulus — will do much to remedy unemployment. Second, there is a lack of appreciation of the human impact and social consequences of high, long-term joblessness.

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The Neuroeconomics Revolution

Economics is at the start of a revolution that is traceable to an unexpected source: medical schools and their research facilities. Neuroscience – the science of how the brain, that physical organ inside one’s head, really works – is beginning to change the way we think about how people make decisions. These findings will inevitably change the way we think about how economies function. In short, we are at the dawn of “neuroeconomics.”

Efforts to link neuroscience to economics have occurred mostly in just the last few years, and the growth of neuroeconomics is still in its early stages. But its nascence follows a pattern: revolutions in science tend to come from completely unexpected places. A field of science can turn barren if no fundamentally new approaches to research are on the horizon. Scholars can become so trapped in their methods – in the language and assumptions of the accepted approach to their discipline – that their research becomes repetitive or trivial.

Then something exciting comes along from someone who was never involved with these methods – some new idea that attracts young scholars and a few iconoclastic old scholars, who are willing to learn a different science and its different research methods. At a certain moment in this process, a scientific revolution is born.

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Video: Robert Shiller at Neuroscience 2011

Robert J. Shiller, PhD, presents "Animal Spirits: How Human Behavior Drives the Economy," with SfN President Susan Amara and neuroscientists Antonio Rangel and Wolfram Schultz on November 12 at Neuroscience 2011 in Washington, DC.

Note: Dr. Shiller's remarks begin at 19 minutes.