 |
|
Why youth hostel showers are like the stock market
February 12, 2008New economics research stresses importance of variety
Diversity keeps you warm. At least that is true while you're having a shower in youth hostels. If you like, this sums up the research project just published by scientists from the Universities of Fribourg and Bonn. Their result is not as trivial as it sounds. Ultimately it shows that heterogeneity provides stability, whether this is in a shower, in power grids or even on the stock market.
Having a shower in a youth hostel can be risky when there is not enough hot water for everybody. If only one visitor turns up the hot tap during the early morning shower, everyone else is threatened by an icy gush of water. This unwanted form of hydrotherapy is particularly likely to happen when all the shower taps have the same possible settings, in other words if cold and hot water can be adjusted to exactly the same amount in all showers. But if the water taps in each shower have their individual quirks, the risk of extreme fluctuations is less.
At least that is what the Bonn economist Christina Matzke and her colleague Damien Challet, a physicist at the University of Fribourg, say. They modelled the temperature profile of showers in a youth hostel on the computer. 'All in all, heterogeneous taps offer advantages - they prevent the average shower temperature of all guests from suddenly dropping or rising,' Christina Matzke explains. 'From the perspective of the individual they also have disadvantages, as it's more difficult for each person to set the right temperature.'
The problem sounds comical, but in principle it can be applied to all situations where people compete for a scarce resource, whether this is hot water, electricity or equities. One thing is always true, the more individualistic the behaviour of those involved in the market is, the more stable the whole system becomes. Put simply, the only reason why our electricity grid does not break down is that not all the inhabitants of Germany switch on the tumble drier at the same time. And if all shareholders made strictly rational decisions on their investments, there would probably be a lot more turbulence on the stock market.
The result is also significant from a theoretical point of view. 'We show what different results economic models can produce, depending on whether they are based on homogeneous or heterogeneous behaviour,' Christina Matzke emphasises. Accordingly, it is important to account for differences in individual behaviour when making forecasts. Although it sounds obvious, economists long ignored this insight. For decades their models were dominated by 'homo economicus', an imaginary standardised market investor who always made rational decisions rather than deciding according to individual criteria.
University of Bonn
At least that is what the Bonn economist Christina Matzke and her colleague Damien Challet, a physicist at the University of Fribourg, say. They modelled the temperature profile of showers in a youth hostel on the computer. 'All in all, heterogeneous taps offer advantages - they prevent the average shower temperature of all guests from suddenly dropping or rising,' Christina Matzke explains. 'From the perspective of the individual they also have disadvantages, as it's more difficult for each person to set the right temperature.'
The problem sounds comical, but in principle it can be applied to all situations where people compete for a scarce resource, whether this is hot water, electricity or equities. One thing is always true, the more individualistic the behaviour of those involved in the market is, the more stable the whole system becomes. Put simply, the only reason why our electricity grid does not break down is that not all the inhabitants of Germany switch on the tumble drier at the same time. And if all shareholders made strictly rational decisions on their investments, there would probably be a lot more turbulence on the stock market.
The result is also significant from a theoretical point of view. 'We show what different results economic models can produce, depending on whether they are based on homogeneous or heterogeneous behaviour,' Christina Matzke emphasises. Accordingly, it is important to account for differences in individual behaviour when making forecasts. Although it sounds obvious, economists long ignored this insight. For decades their models were dominated by 'homo economicus', an imaginary standardised market investor who always made rational decisions rather than deciding according to individual criteria.
University of Bonn
Stock Market News and Current Stock Market Events RSSK-State research shows consumers can predict inflation as well as professional economists
When it comes to predicting the rate of inflation, professional economists might tell consumers, "Your guess is as good as mine."
Ancient Oak Trees Help Reduce Global Warming, MU Study Finds
The battle to reduce carbon emissions is at the heart of many eco-friendly efforts, and researchers from the University of Missouri have discovered that nature has been lending a hand. Researchers at the Missouri Tree Ring Laboratory in the Department of Forestry discovered that trees submerged in freshwater aquatic systems store carbon for thousands of years, a significantly longer period of time than trees that fall in a forest, thus keeping carbon out of the atmosphere.
Fishing Throws Targeted Species Off Balance, Scripps Study Shows
Fishing activities can provoke volatile fluctuations in the populations they target, but it's not often clear why. A new study published in the journal Nature by scientists at Scripps Institution of Oceanography at UC San Diego and colleagues has identified the general underlying mechanism.
Boosting self-esteem can backfire in decision-making
Smart business leaders understand that confidence affects decision-making and ultimately a company's earnings.
The business of natural selection
Many gamblers claim to have a "system", whether they're shooting craps, backing horses, or punting on the stock market. Now, researchers in Taiwan have devised an approach to spotting when a company is likely to fail based on the principles of natural selection.
A question of trust
Credit card firms and life insurance companies are the least trusted of all financial bodies in the UK, according to a unique new 'Trust Index' developed at The University of Nottingham by the Financial Services Research Forum.
UN issues analysis of global investors' sustainable energy 'gold rush'
Climate change worries coupled with high oil prices and increasing government support top a set of drivers fueling soaring rates of investment in the renewable energy and energy efficiency industries.
Who needs environmental monitoring?
We monitor the stock market, the weather, our blood pressure. Yet environmental monitoring is often criticized as being unscientific, expensive, and wasteful.
Stunning Animations Illustrate Cutting Edge Research and Herald a New Era in Mathematics Visualization
A collaboration between a mathematician and an artist-geometer has resulted in some of the most mathematically sophisticated and aesthetically gripping animations ever seen in the field.
Penn physicists track the random walks of ellipsoids, test 'lost' theory of Brownian motion
Research carried out at the University of Pennsylvania has definitively measured and described the Brownian motion of an isolated ellipsoidal particle, completing a path laid out by Einstein 100 years ago when he first described rotational Brownian motion for spheres in water.
More Stock Market News Articles
 | The Neatest Little Guide to Stock Market Investing by Jason Kelly A comprehensively updated edition of an essential guide to stock market investing For over a decade, Jason Kelly has provided investors with the insider knowledge and time-tested strategies they need to maximize their investment programs. This thoroughly updated edition of The Neatest Little Guide to Stock Market Investing includes: • Kelly’s Maximum Midcap Strategy, an innovative investment... |
 | Jim Cramer's Real Money: Sane Investing in an Insane World by James J. Cramer How do we find hot stocks without getting burned? How do we fatten our portfolios and stay financially healthy? Former hedge-fund manager and longtime Wall Street commentator Jim Cramer explains how to invest wisely in chaotic times, and he does so in plain English in a style that is as much fun as investing is -- or should be, when it's done right.For starters, Cramer recommends devoting a... |
 | Alcohol Can Be a Gas!: Fueling an Ethanol Revolution for the 21st Century by David Blume Alcohol Can Be a Gas! is the only comprehensive book ever written on alcohol fuel production and use for home and farm. Until now, it has been very difficult for farmers, contractors, alternative energy aficionados, those concerned about Peak Oil, and small-scale entrepreneurs to obtain good, accurate information on producing alcohol, or on converting vehicles to run on alcohol fuel. And with all... |
 | The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits) by John C. Bogle Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner’s game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), but after the substantial costs of investing are deducted, it becomes a loser’s game. Common sense tells us—and history confirms—that... |
 | Reminiscences of a Stock Operator (Wiley Investment Classics) by Edwin Lefèvre Stock investing is a relatively recent phenomenon and the inventory of true classics is somewhat slim. When asked, people in the know will always list books by Benjamin Graham, Burton G. Malkiel's A Random Walk Down Wall Street, and Common Stocks and Uncommon Profits and Other Writings by Philip A. Fisher. You'll know you're getting really good advice if they also mention Reminiscences of a Stock... |
 | One Up On Wall Street : How To Use What You Already Know To Make Money In The Market by Peter Lynch THE NATIONAL BESTSELLING BOOK THAT EVERY INVESTOR SHOULD OWNPeter Lynch is America's number-one money manager. His mantra: Average investors can become experts in their own field and can pick winning stocks as effectively as Wall Street professionals by doing just a little research.Now, in a new introduction written specifically for this edition of One Up on Wall Street, Lynch gives his take on... |
 | Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude by Mark Douglas Maximizing the trader's state of mind is the key to successful results. Conflicts, contradictions and paradoxes in thinking can spell disaster for even a highly motivated, astute and well grounded trader. Mark Douglas, a trader, personal trading coach, and industry consultant since 1982, sends the message that "thinking strategy" will profoundly influence a trader's success rate. Douglas... |
 | How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition by William J. O'Neil From the school of unemotional investing comes the classic How to Make Money in Stocks, by Wall Street analyst and publisher William O'Neil. Readers new to securities will find it an excellent primer, one that relies on time-honored indicators such as quarterly earnings, market capitalization, and daily indexes. O'Neil's study of winning stocks stretches back to the 1960s, and he shares his... |
 | A Bull in China: Investing Profitably in the World's Greatest Market by Jim Rogers If the twentieth century was the American century, then the twenty-first century belongs to China. Now the one and only Jim Rogers shows how any investor can get in on the ground floor of “the greatest economic boom since England’s Industrial Revolution.”In this indispensable new book, one of the world’s most successful investors, Jim Rogers, brings his unerring investment... |
 | The Complete TurtleTrader: The Legend, the Lessons, the Results by Michael W. Covel This is the true story behind Wall Street legend Richard Dennis, his disciples, the Turtles, and the trading techniques that made them millionaires. What happens when ordinary people are taught a system to make extraordinary money? Richard Dennis made a fortune on Wall Street by investing according to a few simple rules. Convinced that great trading was a skill that could be taught to... |
| © 2008 BrightSurf.com |