What’s the News: Just as the real-world economy is crawling out of a recession, the virtual economy based around online games like World of Warcraft is booming to the tune of $3 billion per year. This money is actually making a measurable economic impact in developing countries, providing up to 100,000 jobs in China and Vietnam. According to Tim Kelly, the Lead ICT Policy Specialist of infoDev, a technology development finance program of the World Bank and IFC, “This could significantly boost local economies and support further development of digital infrastructure in regions such as Africa and southeast Asia.”
“It’s a jungle out there,” you might hear a big shot Wall Street type say about the high-stakes world of high finance. Yet, the jungle-ecosystem metaphor may be most applicable not to the competitiveness of the world’s financial system, but to its vulnerability.
For an unusual study in this week’s edition of the journal Nature, an economist (Andrew Haldane of the Bank of England) and a zoologist (Robert May of Oxford University) team up to argue that the banking and financial system is much like a natural system in the way that a key hit to one area caused the cascading wave of doom, which wrecked the world economy in 2008.
One way to see the resemblance is to think of the world’s many banks as the bean plants in a vast industrial mega-farm, where the nearly identical plants are all vulnerable to the same pest.
When a biological or social system is full of uniform individuals—be they bean plants or banks—one shared weakness can spell disaster for the whole lot. Even when a new beneficial trait or tool enters the picture, if all organisms adopt it, as many financial institutions did with credit default swaps and other risky trades that led to the financial meltdown of 2007-08, a tenuous balance can be quickly upset. [Scientific American]
Before the collapse, Haldane and May say, the financial sector believed that the high level of connectivity between financial firms was a way to lessen risk. No one firm was at particularly high risk, it was thought, which made it unlikely that any firm would fail. Yet little thought was given to the failure of the system as a whole.
A new study out this week has rekindled an old economics fight: When countries get richer, do they get happier?
For Richard Easterlin, the answer has always been “no.” He became famous in economics circles beginning in the 1970s for articulating his namesake idea, the “Easterlin paradox.” He found that when you compare rich countries to poor countries, the people in the wealthy nations were more satisfied. But when a country’s economic position improved over time, the people in that country didn’t get happier.
“If you look across countries and compare happiness and GDP [gross domestic product] per capita, you find that the higher the country’s income, the more likely it is to be happier,” Easterlin said. “So the expectation based on point-in-time data is if income goes up, then happiness will go up. The paradox is, when you look at change over time, that doesn’t happen.” [LiveScience]
Now Easterlin is back with a new study in the Proceedings of the National Academy of Sciences, one that extends his argument to even more countries.
The new study, Easterlin said, is the broadest finding about the paradox so far. The researchers gathered between 10 and 34 years of happiness data from 17 Latin American countries, 17 developed countries, 11 Eastern European countries transitioning from socialism to capitalism and nine-less developed countries. They found no relationship between economic growth and happiness in any case. Even in a country like China, the researchers wrote, where per capita income has doubled in 10 years, happiness levels haven’t budged. South Korea and Chile have shown similarly astronomical economic growth with no increase in satisfaction. [LiveScience]
The global economic crisis has everybody looking for scapegoats–and now we may have a couple, in the form of a pair of genes that influence people’s desire to take financial risks. The two genes regulate dopamine, the brain chemical associated with reward and risk-taking, and serotonin, the chemical linked to mood and anxiety. In a new study, researchers found that people with the “high-risk” version of the dopamine gene tended to invest in risky but potentially lucrative propositions, while those with the “high anxiety” version of serotonin managed their money more carefully [Reuters].
While an experiment showed a clear correlation between the genes and risk-taking behavior, study coauthor Camelia Kuhnen says the results don’t suggest that all bankers should get their DNA tested. “I wouldn’t want to oversell this as a screening device to find good traders…. Even if I have a gene that predisposes me to taking a lot of financial risk, I could go through a stock market crash that will make me less risk-taking” [Scientific American], says Kuhnen.