On Financial Literacy, Past and Present

The Economic Logician picked up some of my recent research last week, and since I’ve been in the midst of trying to revise that paper and get it out, I figured it wasn’t a bad time to highlight it here myself.

Ann Carlos and Larry Neal, my coauthors, engaged in an extensive data collection project whereby they digitized the ledger and transfer books of some of the earliest English joint-stock companies and their share prices in the early 1700s. Picture hours upon endless hours in historical archives in London. You can imagine that for a data geek like myself, this was just too much fun to pass up, so with them, I have been exploring ways to combine these data and look at portfolio holdings of individuals over the period of the South Sea Bubble. We find two big things. First is that investors didn’t diversify. Despite transparent pricing and an active secondary share market, most investors we see both during the 1720s and three decades earlier owned stock in only one company. This isn’t to say that they weren’t diversifying in other ways. We don’t have full portfolio information for most, so we don’t know if they held land or bonds, for instance. We do know that within the set of financial instruments for which we have information, they didn’t diversity.

We explore a few reasons for this. Carruthers (which is a very good read) suggests that individuals traded their shares on a personal basis, mostly to business partners, family, or friends, as a way of ensuring that the stock stayed in the hands of individuals of a particular political persuasion. Stock market activity in this period does not support this hypothesis, with a large number of jobbers or brokers taking on the sale and purchase of stock and the rise of meeting places like the coffee shops in Exchange Alley where daily prices were posted.

We do not exactly, as Economic Logician suggests, show that individuals weren’t financially literate. Rather, we suggest that individuals didn’t diversity partially due to the voting rules of the companies. There was likely room for diversification to reduce idiosyncratic risk associated with holding in only one company, and many individuals had the requisite capital to purchase a portfolio of shares. However, the gains to purchasing in only one company were large for merchants who could use their vote or position on the governing boards to score lucrative contracts or help friends. We believe that the voting rules were a primary factor in the lack of diversification, at least where a wealth constraint didn’t bind.

Related: Carl Wennerlind released a very good book on this period explaining the rise of credit markets and their link to power, war, slavery, the pamphleteers, and more. Worth a read as well if you find this stuff interesting.


Zimbabwe bleg

I’m headed to Zimbabwe tomorrow! I’m super excited to see this beautiful country about which I’ve heard so much and meet with a number of government and UNICEF officials. We’ll be working on getting the ball rolling on a project to implement and cost victim services and prevention programs for child victims of sexual and interpersonal violence.

I’d also love to talk to some scholars in Zim while I’m there. I have a few local contacts, but if anyone knows any economists or political scientists or statisticians or sociologists or anthropologists, particularly those with knowledge of Zimbabwean data sources, send them my way. I’ll buy the Zambezi (does anyone actually drink that?).

Reading to girls

An Atlantic piece today outlines some current research that is very much in line with my own.

The researchers found a gender difference in what they call “teaching activities” that build cognitive skills in children as young as nine months old. Girls, not boys, in all three countries received more time from parents on three activities: reading, storytelling, and teaching letters and numbers. Baker and Milligan scrutinized data for first-born children, to control for differences arising when parents slack off after baby number two or three arrives. They also examined parents’ time spent with boy-girl twins and again found boys receiving less time than girls on the three teaching activities.

I’ve found a small, but statistically significant difference in the amount of time parents spend reading to girls at ages one, three, and five as part of a paper focused on relationship quality and investments in children.

They’ve got a very economist-y explanation for the behavior: “It is just more costly to provide a unit of reading to a boy than to a girl because the boy doesn’t sit still, you know, doesn’t pay attention,” Michael Baker told NPR (on his research with Kevin Milligan).

Costs are not just about money, people.

Primes and Probability

At the suggestion of a colleague, I recently started reading Charles Wheelan’s Naked Statistics: Stripping the Dread from the Data. So far, it’s a fun, demystifying sort of book, the kind I hope my students will enjoy (watch out Lafayette Economics, I’m coming, and I will make you read). It rests on the twin ideas that statistics can be fun and statistics are incredibly useful to explain, to tell stories.

The book was high in my mind this morning when I read this deliciously accessible Slate piece by Wisconsin professor Jordan Ellenberg about an advance in prime numbers by a University of New Hampshire mathematician. Economists like to make lots of bad jokes about how they are failed physicists, who are in turn failed mathematicians, so while it interests me, I wasn’t expecting to really understand the discovery when someone riffed on twitter about primes.

What’s so wonderful about this really intense mathematical discovery, at least according to the mathematician author of this piece, is that it’s really about statistics, which I can totally get my head around. The theory goes that primes come in infinitely many ‘twin pairs,’ like 3 and 5 or 17 and 19, and the intuition lies in that we can think about primes as random numbers.

And a lot of twin primes is exactly what number theorists expect to find no matter how big the numbers get—not because we think there’s a deep, miraculous structure hidden in the primes, but precisely because we don’t think so. We expect the primes to be tossed around at random like dirt.

Zhang didn’t quite prove the twin pairs theorem, but he made an important step towards proving it, it seems, and understanding probability and statistics is key to getting there.

Graduation Day

Today was Gettysburg’s graduation day, along with several other schools. President Obama spoke at Morehouse College and countless students threw their hats into the air at any number of institutions after deftly moving their tassels from right to left. With two siblings and three degrees of my own, I’ve seen my fair share of graduation ceremonies. There are plenty of similar elements, a commencement speaker encouraging graduates to go out and use their educations to change or save the world, a throwing of the caps, parading faculty, Harry Potter robes, Pomp and Circumstance (literally), and more, but each one also has the little bits that make it feel special.

This year, I’m leaving Gettysburg along with my students, so instead of just being a member of the faculty, it’s a little like I’m graduating, too, which makes it special. This class of graduating seniors also included some of my first students at Gettysburg, and by virtue of teaching an upper level required class three of my four semesters here, I had tortured 46 of the approximately 50 graduates leaving with an Economics major. They were my first students in Methods, my first students in Labor, and even a few wayward upper classmen who decided Principles of Micro was an easy way to round out their college career. Today was full of hugs and goodbyes and thanks and though I didn’t get to see everyone, I’m so glad I stayed for it. No one would have faulted me for bailing early, for getting home to Colorado, for leaving a place that no longer had a place for me, but it is days like today that I’m reminded of how important pomp and circumstance are, how important goodbyes are, how important are those markers of change to help guide us through the tumult and madness.

Teaching is often a field where feedback is in short supply, and some even call it thankless, but this weekend was one filled with joy and thanks. I talked to so many parents and brothers and sisters and cousins who told me thank you, who said they had heard so much about me, who wanted to make sure I knew that I had had an impact on their graduate’s life, on their learning, on their development. It was really wonderful to hear, and despite my excitement for summer in the mountains and Lafayette, it made leaving a little bit sweeter, and a little bit harder.

Each year I’ve taught, there have been a few students who have kept in touch, via facebook or continuos random run-ins at Boulder coffee shops, and I really hope that many of this year’s #gburg2013 grads continue to let me know how they’re doing. Congratulations, Gettysburgians!