CNBC and exploitable failures
By Fester
The Daily Show clip below is absolutely brutal on CNBC and the sell-side speculation and hawking that masks itself as news. This in and of itself is merely an execution of an unwitting victim, but it highlights some of the exploitable and systemic failures that Santelli et al used to pump their product for the past decade.
One of the great debates in economics during the middle of the 20th century was over the Friedman camp's claim that people act as if they were profit maximizing and rational actors and therefore could be modeled as such. The opposing camp said that there were limits to information and transaction costs which made the simple calculations none too useful. Herb Simon introduced the concepts of bounded rationality and satisficing where people made decisions based on heuristics and schemas that lowered processing and search costs by choosing 'good enough' solutions and that those 'good enough' solutions were often very good.
These basic insights by Simon spun off into the field of behavioral economics which studies the cognitive biases, insights and hitches that we, not always rational people, impart into decision making. And we have plenty of hitches that interfere in 'optimal' decision-making. People tend to be extraordinarily risk averse, momentum/trend followers and guilty of selection and confirmation biases. We also generalize way too early and from way too non-random of a sample.
However some of the schemas that we employ combat these tendencies. One of the more important schemas that we use people who are experts in a narrow sub-domain. In the CNBC smackdown case, people had been relying on experts on the economy. And they had been hearing a consistent message --- buy housing, it always goes up, and use exotic mortgages. Allan Greenspan, who until recently, was the undisputed economics expert encouraged people to flip to ARMS. Almost all television stations and pundits who by their position are assumed to be more knowledgable and informed than most, delivered the same message. And people followed, as their bankers, who again are assumed to be experts in money matters encouraged them.
I am not absolving individual decision making, but people were put into an environment in which their bounded rationality was stressed because their decision heuristics and schemas were being fed crap-sandwhiches from supposedly reliable sources of information. And for a while the crap was not visibly kludging the outcome process as home prices were appreciating and the NINJA loan was 'affordable' and that encouraged another wave of people to generalize from incomplete information and jump into the process as well.
But enough wonking out, enjoy the smackdown.
One of the Very Best that Jon Stewart and Krew have offered over the years - definitely Hall of Fame material.
the 8:29 long version is even better - especially Stewart's reaction after the CNBC interview with Ponzi Schemer Stanford who after being asked if it is good to be a billionaire answers yes oh yes.
Stewart's Two Word retort to that is priceless and will cause you to rise from your chair and shout it out also.
so, look for the 8:29 version - It Is Out There.
Posted by: Hall of Fame Material | March 05, 2009 at 02:51 PM
My favourite part was during the interview segment when Jon compared the interviews with the CEO's to interviewing Hurricane Katrina. "No, I'm warm and sunny!" Priceless.
Posted by: BJ Bjornson | March 05, 2009 at 07:21 PM