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Saturday, November 8, 2008

Edge 264: Putting Psychology Into Behavioral Economics - Thaler, Mullainathan, Kahneman

Edge 264 — November 7, 2008

(16,450 words)

http://www.edge.org

This online EDGE edition is available at:
http://www.edge.org/documents/archive/edge264.html

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THE THIRD CULTURE
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THE DOUBLE HELIX MEDAL FOR SCIENTIFIC RESEARCH
James D. Watson & J. Craig Venter

At the Cold Spring Harbor Board of Director's Dinner in New York City, James Watson and Craig Venter were co-recipients of the Double Helix Medal for Scientific Research.

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SWATTING ATTACKS ON FRUIT FLIES AND SCIENCE
By Jerry Coyne

Sarah Palin's criticism of the critters is just bad buzz. Research on them offers insights into learning, genes, diseases.

In her usual faux-folksy style, Palin lit out after a congressional earmark involving these insects: "You've heard about some of these pet projects ó†they really don't make a whole lot of sense ó†and sometimes these dollars go to projects that have little or nothing to do with the public good. Things like fruit-fly research in Paris, France. I kid you not." (Reading this diatribe is not sufficient; only video reveals the scorn and condescension dripping from her words.)

JERRY COYNE is a professor in the department of ecology and evolution at the University of Chicago, where he works on diverse areas of evolutionary genetics. He is the author (with H. Allen Orr) of Speciation, and Why Evolution Is True.

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Once again, real life is not a casino with simple bets. This is the error that helps the banking system go bust with an astonishing regularity.

REAL LIFE IS NOT A CASINO
By Nassim Nicholas Taleb

On New Years day I received a a prescient essay from Nassim Taleb, author of The Black Swan, as his response to the 2008 Edge Question: "What Have You Change Your Mind About?" In "Real Life Is Not A Casino", he wrote:

"I've shown that institutions that are exposed to negative black swans—such as banks and some classes of insurance ventures—have almost never been profitable over long periods. The problem of the illustrative current subprime mortgage mess is not so much that the "quants" and other pseudo-experts in bank risk-management were wrong about the probabilities (they were) but that they were severely wrong about the different layers of depth of potential negative outcomes."

Taleb had changed his mind about his belief "in the centrality of probability in life, and advocating that we should express everything in terms of degrees of credence, with unitary probabilities as a special case for total certainties and null for total implausibility".

"Critical thinking, knowledge, beliefs—everything needed to be probabilized. Until I came to realize, twelve years ago, that I was wrong in this notion that the calculus of probability could be a guide to life and help society. Indeed, it is only in very rare circumstances that probability (by itself) is a guide to decision making. It is a clumsy academic construction, extremely artificial, and nonobservable. Probability is backed out of decisions; it is not a construct to be handled in a stand-alone way in real-life decision making. It has caused harm in many fields."

The essay is one of more than one hundred that have been edited for a new book What Have You Changed Your Mind About? (forthcoming, Harper Collins, January 9th).

NASSIM NICHOLAS TALEB is an essayist and mathematical trader and the author of Fooled by Randomness and The Black Swan.

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PUTTING PSYCHOLOGY INTO BEHAVIORAL ECONOMICS
A Talk By Richard Thaler, Daniel Kahneman, Sendhil Mullainathan

Class 6: A Short Course In Behavioral Economics
Sean Parker, Anne Treisman, Paul Romer, Danny Hillis, Jeff Bezos, Salar Kamangar, George Dyson, France LeClerc

RICHARD THALER: ehavioral economics and good psychology, there's a lot of art. There is science and there are well-crafted experiments, but thinking about what the right experiment to run, was art and, there are 80 gazillion experiments, which ones are relevant to getting people to plant the right seed. That's a problem that Sendhil and I have been talking about for, well, since he was born. You're now seeing the results of 15 years of conversations. And there wasn't a scientific way of answering that question.

SENDHIL MULLAINAITHAN: A lot of what makes behavioral economics interesting is psychology, it is about what happens inside the mind. These phenomena are taking things that are happening inside the mind and interfacing them with things happening in the world, the environment, and getting feedback or getting interesting responses from that.

We happen to call the word economics. But it's not economics. You could be talking about crime, you could be talking about many things, in the social domain, the entire spectrum of human behavior. Anyone who is interested in the broader world should be interested in something we currently call "behavioral economics".

DANIEL KAHNEMAN: What we're saying is that there is a technology emerging from behavioral economics. It's not only an abstract thing. You can do things with it. We are just at the beginning. I thought that the input of psychology into behavioral economics was done. But hearing Sendhil was very encouraging because there was a lot of new psychology there. That conversation is continuing and it looks to me as if that conversation is going to go forward. It's pretty intuitive, based on research, good theory, and important.

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ARTICLES OF NOTE
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FINANCIAL TIMES
Obama's technology czar: the betting begins
By Richard Waters

Obama's technology czar: the betting begins
By Richard Waters

Barack Obama's promise to appoint the first chief technology officer for the US has had Silicon Valley buzzing all year. Now the election is over, it's time for the real horse race to begin.

John Doerr of Kleiner Perkins got things going this afternoon at the Web 2.0 Summit in San Francisco. Asked who should get the job, the always-outspoken Doerr didn't hesitate.

His first pick was Sun co-founder, Kleiner partner and all-round brainiac Bill Joy (pictured above left.)

As an alternative he suggested Danny Hillis (above right), a supercomputer pioneer and leading exponent of artificial intelligence.
Both men would certainly be a good fit for Doerr's personal job description for the first US CTO: someone to lead a new, much-needed focus on fundamental research, the sort of work that will bring new breakthroughs as significant as the birth of the internet (a product of DARPA.) ...

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NEW YORK REVIEW OF BOOKS
Science: The Coming Century
By Martin Rees

...Science is the only truly global culture: protons, proteins, and Pythagoras' theorem are the same from China to Peru. Research is international, highly networked, and collaborative. And most science-linked policy issues are international, even global—that's certainly true of those I've addressed here.

It is worth mentioning that the United States and Britain have been until now the most successful in creating and sustaining world-class research universities. These institutions are magnets for talent—both faculty and students—from all over the world, and are in most cases embedded in a "cluster" of high-tech companies, to symbiotic benefit.

By 2050, China and India should at least gain parity with Europe and the US—they will surely become the "center of gravity" of the world's intellectual power. We will need to aim high if we are to sustain our competitive advantage in offering cutting-edge "value added." ...

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THE NEW YORK TIMES
A Conversatrion with Stuart L. Pimm
By Claudia Dreyfus

'I realized that extinction was something that as a scientist, I could study. I could ask, Why do species go extinct?'

For a man whose scholarly specialty is one of the grimmest topics on earth — extinction — Stuart L. Pimm is remarkably chipper. On a recent morning, while visiting New York City, Dr. Pimm, a 59-year-old zoologist, was full of warm stories about the many places he travels: South Africa, Madagascar and even South Florida, which he visits as part of an effort to save the endangered Florida panther. Fewer than 100 survive in the wild. In 2006, Dr. Pimm, who holds the Doris Duke professorship of Conservation Ecology at Duke University, won the Heineken Prize for Environmental Sciences, the Nobel of the ecology world. ...

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SCIENCE
THE GONZO SCIENTIST
Flunking Spore
John Bohannon

...So over the past month, I've been playing Spore with a team of scientists, grading the game on each of its scientific themes. When it comes to biology, and particularly evolution, Spore failed miserably. According to the scientists, the problem isn't just that Spore dumbs down the science or gets a few things wrong--it's meant to be a game, after all--but rather, it gets most of biology badly, needlessly, and often bizarrely wrong. I also tracked down the scientists who appeared on television in what seemed like an endorsement of Spore's scientific content on the National Geographic channel. They said they had been led to believe that the interviews were for a straight documentary about "developmental evolutionary" science rather than a video promoting a computer game (see the news story in Science's 24 October issue). "I was used," says Neil Shubin, a paleontologist at the University of Chicago in Illinois, who worries that science has been "hijacked" to promote a product. How did things go so wrong for a game that seemed so good? ...

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THE BOSTON GLOBE
U Tube
Want a free education? A brief guide to the burgeoning world of online video lectures.
By Jeffrey MacIntyre

Graduate Studies: Edge.org

For those seeking substance over sheen, the occasional videos released at Edge.org hit the mark. The Edge Foundation community is a circle, mainly scientists but also other academics, entrepreneurs, and cultural figures, brought together by the literary agent John Brockman.

Edge's long-form interview videos are a deep-dive into the daily lives and passions of its subjects, and their passions are presented without primers or apologies. It is presently streaming excerpts from a private lecture, including a thoughtful question and answer session, by Nobel laureate Daniel Kahneman to Edge colleagues on the importance of behavioral economics.

It won't run to everyone's tastes. Unvarnished speakers like Sendhil Mullainathan, a MacArthur recipient with intriguing insights on poverty, are filmed in casual lecture, his thoughts unspooling in the mode of someone not preoccupied with clarity or economy of expression. The text transcripts are helpful in this context.
Regardless, the decidedly noncommercial nature of Edge's offerings, and the egghead imprimatur of the Edge community, lend its videos a refreshing air, making one wonder if broadcast television will ever offer half the off-kilter sparkle of their salon chatter. ...

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PUBLISHERS WEEKLY
What Have You Changed Your Mind About?
Edited by John Brockman. Harper Perennial, $14.95 paper (384p)

In this wide-ranging assortment of 150 brief essays, well-known figures from every conceivable field demonstrate why it's a prerogative of all thoughtful people to change their mind once in a while. Technologist Ray Kurzweil says he now shares Enrico Fermi's question: if other intelligent civilizations exist, then where are they? Nassim Nicholas Taleb (The Black Swan) reveals that he has lost faith in probability as a guiding light for making decisions. Oliver Morton (Mapping Mars) confesses that he has lost his childlike faith in the value of manned space flight to distant worlds. J. Craig Venter, celebrated for his work on the human genome, has ceased to believe that nature can absorb any abuses that we subject it to, and that world governments must move quickly to prevent global disaster. Alan Alda says, "So far, I've changed my mind twice about God," going from believer to atheist to agnostic. Brockman, editor of Edge.org and numerous anthologies, has pulled together a thought-provoking collection of focused and tightly argued pieces demonstrating the courage to change strongly held convictions. (Jan.)

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HUFFINGTON POST
Man Versus Machine
Thomas B. Edsall

...Jaron Lanier takes on the debate about the role and power of computers in shaping human finances, behavior and prospects from a radically different vantage point faulting -- in an article published on the Edge web site -- "cybernetic totalists" who, absolve from responsibility for "whatever happens" the individual people who do specific things. I think that treating technology as if it were autonomous is the ultimate self-fulfilling prophecy. There is no difference between machine autonomy and the abdication of human responsibility. . . .There is a real chance that evolutionary psychology, artificial intelligence, Moore's law fetishizing, and the rest of the package will catch on in a big way, as big as Freud or Marx did in their times.

[Also: Nathan Myhrvold, George Dyson, Ray Kurzweil]

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WALL STREET JOURNAL
October Pain Was 'Black Swan' Gain
Scott Patterson

For most of October, it seemed nearly everything that could go wrong with the markets did. But the rout turned into a jackpot for author and investor Nassim Nicholas Taleb.

Mr. Taleb last year published "The Black Swan," a best-selling book about the impact of extreme events on the world and the financial markets. He also helped start a hedge fund, Universa Investments L.P., which bases many of its strategies on themes in the book, including how to reap big rewards in a sharp market downturn. Like October's. ...

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PROSPECT
The emerging moral psychology
Dan Jones

Long thought to be a topic of enquiry within the humanities, the nature of human morality is increasingly being scrutinised by the natural sciences. This shift is now beginning to provide impressive intellectual returns on investment. Philosophers, psychologists, neuroscientists, economists, primatologists and anthropologists, all borrowing liberally from each others' insights, are putting together a novel picture of morality—a trend that University of Virginia psychologist Jonathan Haidt has described as the "new synthesis in moral psychology." The picture emerging shows the moral sense to be the product of biologically evolved and culturally sensitive brain systems that together make up the human "moral faculty."...

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THE RECORD (WATERLOO)
This is the column that changed the world
Bill Bean

I was watching a PBS production the other day entitled Dogs That Changed the World, and wondered about our contemporary fascination with things "That Changed the World."

The Machine That Changed the World (a 1991 book about automotive mass production). Cod: A Biography of The Fish That Changed the World (a 1998 book about, well, cod). The Map That Changed The World (2002 book about geologist William Smith). 100 Photographs That Changed the World (Life, 2003). Bridges That Changed the World (book, 2005). The Harlem Globetrotters: The Team That Changed the World (book, 2005). How William Shatner Changed the World (documentary, 2006). Genius Genes: How Asperger Talents Changed the World (book on brilliant people with autism, 2007). The Book That Changed the World (2008 article in the Guardian, about The Origin of Species).

This "Changed the World" stuff is getting to be a bit tedious, isn't it? Now that we have Dogs That Changed the World, can Cats That Changed the World be far behind? ...

...Bill Bean notes that there is already a place to read about People Who Changed the World and Then Changed Their Minds. Every year, the people at the Edge Foundation ask writers, thinkers, psychologists, historians and others what major ideas they have changed their minds about. Go to www.edge.org. It's good reading.

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FRANKFURTER ALLGEMEINE ZEITUNG
The Turkey Was Amazed
By Frank Schirrmacher

Nassim Nicholas Taleb, professor of risk research, had already described the process of the financial crisis, when Ben Bernanke believed we were already in an "era of security". His new book could become to the standard work of a society, that is experiencing the destruction of its life security. ..

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THE NEW YORK TIMES
Your Comments On The Economy Column
By Nicholas Kristof

...Yet I also think that it's important to keep the economy in perspective. During the boom years, we tended to equate wealth with happiness, and if there's some reordering of our national value system, that would be a good thing. Over the last year, I've become interested in the work of social psychologists like Jonathan Haidt who have conducted research on happiness. And the evidence is pretty strong that the things that we believe will make us happy, such as winning the lottery, won't do that except in the short term. In the long term, the way to be happy is to have friends and spend time with them, and to connect to a cause larger than yourself that gives you a sense of meaning.

As my column suggested, I'm influenced by the work of Alan Krueger at Princeton. He believes that networks are truly important for happiness and fulfillment — and the cost of a lay-off or foreclosure is that it tears people out of their networks. So he thinks that falling incomes aren't so bad as we may think, but that layoffs and evictions are worse, and that makes sense to me. ...

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ATLANTIC ONLINE
Too Soon To Tell
Ross Douthat

I've written before about Jonathan Haidt's view that our moral impulses can be grouped into five categories, two "liberal" (harm/care, and fairness/reciprocity) and three "conservative" (ingroup/loyalty, authority/respect, and purity/sanctity) - and I've argued before with Will Wilkinson about whether it's possible to envision a successful society in which the liberal impulses dominate completely, and the conservative impulses are stigmatized and/or essentially disappear. Haidt, for his part, thinks that it probably isn't; here's Will arguing with him:

?Frankly, I find this extremely unconvincing, and I daresay even pernicious ... What Jon needs to show is that there is a threshold on the conservative channels of the moral equalizer below which social stability is threatened. In the talk, he barely gestures toward evidence to this effect ... Indeed, my sense is that the societies in which the space between high liberal settings and low conservative settings is the greatest-that is, the most imbalanced-are by and large the best places for human beings to live."...

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TECHNOLOGY REVIEW
Wikipedia and the Meaning of Truth
By Simson L. Garfinkel

... In a May 2006 essay on the technology and culture website Edge.org, futurist Jaron Lanier called Wikipedia an example of "digital Maoism"--the closest humanity has come to a functioning mob rule. ...

.. Lanier's complaints when his Wikipedia page claimed that he was a film director couldn't be taken seriously by Wikipedia's "contributors" until Lanier persuaded the editors at Edge to print his article bemoaning the claim. This Edge article by Lanier was enough to convince the Wikipedians that the Wikipedia article about Lanier was incorrect--after all, there was a clickable link! Presumably the editors at Edge did their fact checking, so the wikiworld could now be corrected. ...


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TECHNOLOGY REVIEW
Moving Freely between Virtual Worlds
By Erica Naone

...But the issue goes deeper than virtual cars and shopping malls. Jaron Lanier, interdisciplinary scholar in residence at the Center for Entrepreneurship and Technology at the University of California, Berkeley, and a virtual-reality pioneer, says that the search for a 3-D Internet is important for humanity. "Human cognition was designed to function in 3-D, and our computation eventually has to have a 3-D interface to maximize the matchup with the human brain as it evolved," he says. People will need to find a way to combine a concrete, 3-D spatial understanding with the connective power of the 2-D Internet, Lanier says. ...

... Lanier, who notes that he has many professional connections to people involved with virtual worlds, says that while he very much wants the 3-D Internet to succeed, he is skeptical about whether it will be possible for developers to agree on a set of standards. "There's a virtual land rush of people who want to come in and grab the standard," he says, noting that the history of IBM and Microsoft provides some indication of the money that can be made by establishing a standard. But Lanier thinks a successful standard for the 3-D Internet is unlikely to develop the same way that HTML did--that is, as an abstract definition that people then adopted. He thinks it is more likely that a well-designed package will become a standard, similar to the way that Adobe Flash is becoming standard for rich Internet applications.

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TECHNOLOGY REVIEW
Immortalizing a Piece of Yourself
By Emily Singer

Church won't be alone in distributing his cells. The scientist aims to create hundreds or thousands of cell lines over the next few years as part of the Personal Genome Project, an effort that he launched two years ago to capitalize on advances in gene-sequencing technologies. So far, the project has enrolled 10 volunteers--and garnered headlines, mainly for its genomic-era exhibitionism. Volunteers, including Harvard psychologist Steven Pinker and entrepreneur Ester Dyson, released their medical records and preliminary genetic analyses on the Web earlier this month. But media attention has mostly ignored that fact that they've also given something that may be even more personal. Each has undergone a skin biopsy, which will be used to generate stem-cell lines.

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TECHNOLOGY REVIEW
Linda Avey and Anne Wojcicki
The founders of startup 23andMe want to know your genome.
By Emily Singer

Church won't be alone in distributing his cells. The scientist aims to create hundreds or thousands of cell lines over the next few years as part of the Personal Genome Project, an effort that he launched two years ago to capitalize on advances in gene-sequencing technologies. So far, the project has enrolled 10 volunteers--and garnered headlines, mainly for its genomic-era exhibitionism. Volunteers, including Harvard psychologist Steven Pinker and entrepreneur Ester Dyson, released their medical records and preliminary genetic analyses on the Web earlier this month. But media attention has mostly ignored that fact that they've also given something that may be even more personal. Each has undergone a skin biopsy, which will be used to generate stem-cell lines.

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This online EDGE edition is available at:
http://www.edge.org/documents/archive/edge264.html

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Edge Foundation, Inc. is a nonprofit private operating foundation under Section 501(c)(3) of the Internal Revenue Code.
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EDGE

John Brockman, Editor and Publisher
Russell Weinberger, Associate Publisher
Karla Taylor, Editorial Assistant

Copyright (c) 2008 by EDGE Foundation, Inc.
All Rights Reserved.

Published by EDGE Foundation, Inc.,
5 East 59th Street, New York, NY 10022

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Wednesday, October 29, 2008

Edge 263: Sendhil Mullainathan - "The Irony of Poverty"

Edge 263 - October 30, 2008

(16,460 words)

http://www.edge.org

This online EDGE edition with streaming video is available at:
http://www.edge.org/documents/archive/edge263.html

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THE THIRD CULTURE
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I want to close a loop, which I'm calling "The Irony of Poverty." On the one hand, lack of slack tells us the poor must make higher quality decisions because they don't have slack to help buffer them with things. But even though they have to supply higher quality decisions, they're in a worse position to supply them because they're depleted. That is the ultimate irony of poverty. You're getting cut twice. You are in an environment where the decisions have to be better, but you're in an environment that by the very nature of that makes it harder for you apply better decisions.

THE IRONY OF POVERTY
A Talk By Sendhil Mullainathan

SENDHIL MULLAINATHAN, a Professor of Economics at Harvard, a recipient of a MacArthur Foundation "genius grant", conducts research on development economics, behavioral economics, and corporate finance. His work concerns creating a psychology of people to improve poverty alleviation programs in developing countries. He is Executive Director of Ideas 42, Institute of Quantitative Social Science, Harvard University.

Sendhil Mullainathan's Edge Bio Page: http://www.edge.org/3rd_culture/bios/mullainathan.html

Daniel Kahneman, Paul Romer, Richard Thaler, Danny Hillis, Jeff Bezos, Sean Parker, Anne Treisman, France LeClerc, Salar Kamangar, George Dyson

Class 5: A Short Course In Behavioral Economics
Edge Video

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SENDHIL MULLAINATHAN: I told you there was a bunch of pieces to the puzzle to the poor, and I wanted to finish that argument because I got out the first piece of the puzzle, but there are two other pieces that are important and I want to kind of walk through those pieces. I'll walk through the other piece of the puzzle, and then I'll close on a slide about mental models. I realized in trying to write that up, everything can be shown in this one slide, and it's kind of a stunning fact.

To recap: The first piece of the puzzle is that scarcity buys a broader frame, the need for a broader frame. And one implication of a lot of this which is worth keeping in the back of your mind and that what should resonate for a lot of you is that even positive expenditures are tainted by the trade-offs.

If you're poor and you spend money on a luxury good, you're always at least partly thinking during the moment of consumption about what you're giving up to buy that good. If you are time scarce and you're spending time on a leisure good, you're at least partly thinking about what you're not doing during that time. That's an interesting hedonic aspect of things, which could turn out to be important.

The problem of a broader frame isn't just a planning problem, there's also a hedonic problem that it induces, which is the inability to not think about trade-offs during the consumption. That's an interesting indication. I won't talk more about it because I'm not talking that much about hedonics. But it's important.

Here's the second piece of the puzzle. And this is related to the question of, what is causing, what's preventing the vendors from saving up? Here's a little thought experiment. Eve and Ben both pass by a clothing store. A summer suit draws their eye and in a moment of weakness both make an ill-advised purchase.

Eve goes home and thinks, what a bad purchase. Ben goes home and thinks, what a bad purchase; now I won't have the money to repair my car. Why is this example is useful? It's that temptations have consequences. If you have slack, the consequences are that you've now used up some of your slack on this pointless purchase. And you may feel bad because it was a pointless purchase and it was in the spur of the moment. Of course, we're tempted by certain consumption acts. The poor are tempted by certain consumption acts. Here's an interesting observation. Suppose that the goods that tempt us, so say I make ten times as much as somebody else, suppose the goods that tempt me are ten times as expensive as the goods that tempt the other person. Then we both face the same structural problem. We've taken one problem and scaled it up.

It's like an exchange rate. Just multiply it by ten, but everything else is still the same, so nothing has changed. If, on the other hand, the things that tempt me are only twice as expensive or three times as expensive it's interesting that now I face the fundamentally easier problem than the poorer person. Does that make sense to everybody?

What that means is now that if I cave in, I'm caving in. The psychological experience is the same. I'm giving into something I don't want to give in to, but the monetary consequence is very different. It's going to be in proportion to my slack, my income it's one tenth as big. ...

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IN THE NEWS
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THE NEW YORK TIMES
OP-ED COLUMN
THE BEHAVIORAL REVOLUTION
By David Brooks

...Economists and psychologists have been exploring our perceptual biases for four decades now, with the work of Amos Tversky and Daniel Kahneman, and also with work by people like Richard Thaler, Robert Shiller, John Bargh and Dan Ariely.

My sense is that this financial crisis is going to amount to a coming-out party for behavioral economists and others who are bringing sophisticated psychology to the realm of public policy. At least these folks have plausible explanations for why so many people could have been so gigantically wrong about the risks they were taking.

Nassim Nicholas Taleb has been deeply influenced by this stream of research. Taleb not only has an explanation for what's happening, he saw it coming. His popular books "Fooled by Randomness" and "The Back Swan" were broadsides at the risk-management models used in the financial world and beyond.

In "The Black Swan," Taleb wrote, "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup." Globalization, he noted, "creates interlocking fragility." He warned that while the growth of giant banks gives the appearance of stability, in reality, it raises the risk of a systemic collapse - "when one fails, they all fail."

Taleb believes that our brains evolved to suit a world much simpler than the one we now face. His writing is idiosyncratic, but he does touch on many of the perceptual biases that distort our thinking: our tendency to see data that confirm our prejudices more vividly than data that contradict them; our tendency to overvalue recent events when anticipating future possibilities; our tendency to spin concurring facts into a single causal narrative; our tendency to applaud our own supposed skill in circumstances when we've actually benefited from dumb luck. ...

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THIS IS MONEY
NASSIM TALEB AND THE SECRET OF THE BLACK SWAN
Bill Condie, Evening Standard

Options trader turned author and philosopher Nassim Taleb has delivered returns of 50% - in some cases 110% - for investors he advises this year despite the market meltdown, thanks to his non-conformist view on managing risk. The Evening Standard investigates...

Lebanese-born Taleb is scathing of traditional risk-managers and says they should be jailed for the pain they have caused.
'We would like society to lock up quantitative risk managers before they cause more damage,' he says.

Those same risk managers have scoffed at Taleb's theories but may have to think again after his extraordinary returns over the past months.

'I am very sad to be vindicated,' Taleb says.

'I don't care about the money. We're proud we protected our investors.'

Taleb wrote last year at length about the market risks that have come home to roost lately. 'The financial ecology is swelling into gigantic, incestuous, bureaucratic banks - when one fails, they all fall,'

Taleb wrote in his book The Black Swan: The Impact of the Highly Improbable, published last year. He warned specifically of the dangers from mortgage finance giants Freddie Mac and Fannie Mae.

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THE TELEGRAPH
DEAN KAMEN: PART MAN, PART MACHINE

Some see Dean Kamen as a Willy Wonka character whose most famous invention - the Segway personal transporter - is still the butt of jokes. Others compare him to Henry Ford. His next project, after perfecting an electric car, is to 'to fix the world' - using a 200-year-old engine nobody else thinks can work. By Adam Higginbotham

Ten years ago, on the summit of a hill in the verdant New England countryside, at the highest point he could find between Boston and Manchester, New Hampshire, Dean Kamen designed and built the sprawling, hexagonal house he called Westwind. Filled with gadgets, tools and curios - including a 25-ton tugboat steam engine that once belonged to Henry Ford and an elevator featured in The Sting - and furnished with a 50,000 watt wind turbine to generate electricity and a floodlit baseball field to entertain his employees, it lies just seven miles from the headquarters of his research and development company, Deka.

Now 57, Kamen has a variety of ways of covering this distance: at the wheel of his gleaming black Humvee, or perhaps his Porsche coupé, the journey takes some 20 minutes; often, he chooses to pilot his helicopter, a two-seat, jet-powered Enstrom 480, which he keeps in a hangar beneath the house, and will put the inventor on the roof of his office in about three -and-a-half minutes. ...

...Kamen is now regarded as one of the most accomplished electro-mechanical engineers in the world - 'He's extraordinary,' says Bob Tuttle, who has worked with him since 1976 and is now executive vice-president of Deka, 'the ultimate systems engineer.'

'He's often compared to Thomas Edison or Henry Ford,' says Bill Doyle, who met Kamen while working at Johnson & Johnson in the mid-1990s. 'The comparisons are not without merit.' ...

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THE GUARDIAN
'PEOPLE SAY I'M STRIDENT'

He sold 1.5m copies of The God Delusion, and this week stumped up £5,500 for atheist adverts. So why does Richard Dawkins think science is losing its war with religion?

By Decca Aitkenhead

...This week, as Dawkins retires from the Charles Simonyi professorship for the public understanding of science, the Oxford post he has held for 12 years, you might expect him to feel that the secular, scientific cause to which he has devoted his career is winning. On Tuesday, campaigners announced plans for an atheist advertising campaign to appear on the side of buses with the message: "There is probably no God. Now stop worrying and enjoy your life." The campaign, which was launched by TV comedy writer Ariane Sherine, blogging on Commentisfree.co.uk, hoped to raise £5,500 from supporters, which Dawkins had pledged to match with his own money, but by yesterday public donations had already raised more than £96,000.

In the same week, immigration minister, Phil Woolas, predicted that constitutional reforms would banish bishops from the House of Lords within the next 50 years, and record numbers of new maths and science undergraduates were reported. Even in America, the religious right seemed to be losing its grip.

But when I ask Dawkins, now 67, if he feels that public understanding of science has improved during his career, he looks doubtful. "I would say that when my academic career began there was probably just as much ignorance - but less active opposition [to science]. If you were to actually travel around schools and universities and listen in on lectures about evolution you might find a fairly substantial fraction of young people, without knowing what it is they disapprove of, think they disapprove of it, because they've been brought up to."

Does he attribute that to lower standards of scientific education, or to the rise of religious fundamentalism? "Oh," he says without hesitation, "I think it's due to greater religious influence."

In Dawkins' view, there is a battle taking place in Britain between the forces of reason, and religious fundamentalism and it is far from won. He is one of its most famous and prolific combatants - but the question might be whether he is among its most effective. The God Delusion's stated aim was to "convert" readers to atheism - but he admits that as a proselytising tool it has broadly failed. "Yes," he smiles. "I think that was a bit unrealistic. A worthwhile aim, but unrealistic." ...

[...MORE]

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THE TELEGRAPH
HARRY POTTER FAILS TO CASE SPELL OVER PROFESSOR RICHARD DAWKINS
By Martin Beckford and Urmee Khan

Harry Potter has become the latest target for Professor Richard Dawkins who is planning to find out whether tales of witchdraft and wizardy have a negative effect on children.

The prominent atheist is stepping down from his post at Oxford University to write a book aimed at youngsters in which he will warn them against believing in "anti-scientific" fairytales.

Prof Dawkins said: "The book I write next year will be a children's book on how to think about the world, science thinking contrasted with mythical thinking.

"I haven't read Harry Potter, I have read Pullman who is the other leading children's author that one might mention and I love his books. I don't know what to think about magic and fairy tales."

Prof Dawkins said he wanted to look at the effects of "bringing children up to believe in spells and wizards".

"I think it is anti-scientific - whether that has a pernicious effect, I don't know," he told More4 News.

"I think looking back to my own childhood, the fact that so many of the stories I read allowed the possibility of frogs turning into princes, whether that has a sort of insidious affect on rationality, I'm not sure. Perhaps it's something for research." ...

[...MORE]

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TIME
Q & A
NASSIM NICHOLAS TALEB
By Tim Morrison

...You've said that this current market crisis isn't necessarily a black swan event. People did see this coming.

It is a white swan, but very few people saw it coming, I guarantee. Nobody saw the real cost. And let me tell you the problem. The system used to analyze risk is completely defective, and actually could not keep up with the complexity of the financial products that are involved. You have what I call a geometric or exponential increase in risks. For example, if the market drops 10% you lose $100 million. But if the market drops 15%, you don't lose another $50 million, you lose an extra $2 billion. And if the market moves an extra 5% you lose an extra $10 or $15 billion. All the metrics have the effect of underestimating the impact of the possibility of very large deviations. In other words it tells you how uncomfortable the plane ride is going to be, but tells you nothing about the crash.

But how do you get beyond that besides widening your margins of risk?

Eliminating leverage. If you don't have leverage, you don't have that problem. We have a faulty risk management system that underestimated probabilities while giving people the illusion of understanding them. It gave people the illusion of comfort. If I give you a number, you're going to take more risk. Regardless of the confidence you have in the number. It's psychological. If I ask you to write down the last 4 digits of your social security number, and then take you out to lunch and ask you how many dentists there are in Manhattan, there's going to be a high correlation between those two numbers. What happens is that the number psychologically makes you feel confident. It's kind of like a seatbelt on a plane. It doesn't do anything. ...

[...MORE]

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THE VANCOUVER SUN
MOTIVATED BY FEAR
By Peter McKnight

Recent volatility in the markets is largely a result of mob mentality and the herding instinct, with anxiety spreading faster than any virus

By Peter McKnight

...This presents a problem for economists in their attempts to explain what's happening now and to predict what will happen in the future since many economic theories depend on the assumption that investors will act rationally. But what if that assumption is wrong, as seems to be the case right now?

Perhaps it's time to turn to psychology, as many economists have done in recent years. While psychologists and economists didn't have much to do with each other throughout most of the 20th century, the last few decades have seen something of a rapprochement between these two seemingly disparate disciplines, a meeting of minds that has produced the interdisciplinary field of behavioural economics.

The seeds of this rapprochement were sown by famed psychologists Daniel Kahneman and Amos Tversky, who in the 1970s demonstrated the phenomenon known as loss aversion. Despite having never taken an economics course, Kahneman was awarded the 2002 Nobel Prize in economics for his work; Tversky unfortunately died in 1996.

As the name of the theory suggests, loss aversion tells us that people are much more concerned with avoiding losses than they are with making gains. ...

[...MORE]

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NATURE
Editorial
A LOOK WITHIN

A series of Essays examines what science has to say about being human.

...The combustibility of the interface between science and society is one major reason for the extraordinary fragmentation of research that tackles human behaviour. In part because of the sociobiology battle, most social scientists still steer clear of using evolutionary hypotheses. And even researchers who do work under the unifying framework of evolution tend to fall into distinct camps such as gene-culture co-evolution or human behavioural ecology - their practitioners divided by differences of opinion on, say, the relative importance of culture versus genes.

Given that humans are such a complicated species, it is no surprise that researchers from fields such as economics, political science, anthropology and biology are driven to pursue similar questions using their own distinct tools and approaches. But the lack of crosstalk between disciplines and subdisciplines means that efforts are too often duplicated, and opportunities to exchange insights lost. Much of the ethnographic data on hunter-gatherers collected by anthropologists, for instance, are largely unknown to modellers interested in the emergence of particular human traits. Similarly, evolutionary biologists constantly accuse social scientists of either ignoring evolution or invoking outdated versions of evolutionary theory.

It doesn't have to be this way. In other domains, such as the study of complex systems, scientists from biological, physical and social sciences are increasingly sharing information. Now is a particularly opportune moment for those studying human behaviour to follow suit. Genomics is beginning to provide a window onto many thousands of years of human history. Advances in mathematical analyses have greatly clarified our picture of the evolutionary process. And, because of the rapid assimilation of nomadic hunter-gatherer populations into modern societies, researchers have collected most of the ethnographic data on these groups they are ever likely to obtain.

In the spirit of fostering dialogue between disparate fields of research, Nature has commissioned a series of Essays that asks how discoveries in psychology, anthropology, genetics, neuroscience, game theory and network engineering are altering our understanding of particular human characteristics, or of issues that are central to human life. Starting this week with religion (see page 1038), and appearing every two weeks for the next five months, these Essays move from human prehistory to look at how we operate within self-made highly interconnected cities and communication networks. ...

[EDITOR NOTE: Philip Campbell is Editor of Nature]

[...MORE]

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NATURE

Essay

BEING HUMAN: RELIGION: BOUND TO BELIEVE?

Pascal Boyer

Pascal Boyer is in the Departments of Psychology and Anthropology, Washington University in St Louis, Missouri, USA, and is the author of Religion Explained.

Atheism will always be a harder sell than religion, Pascal Boyer explains, because a slew of cognitive traits predispose us to faith.

Is religion a product of our evolution? The very question makes many people, religious or otherwise, cringe, although for different reasons. Some people of faith fear that an understanding of the processes underlying belief could undermine it. Others worry that what is shown to be part of our evolutionary heritage will be interpreted as good, true, necessary or inevitable. Still others, many scientists included, simply dismiss the whole issue, seeing religion as childish, dangerous nonsense.

Such responses make it difficult to establish why and how religious thought is so pervasive in human societies - an understanding that is especially relevant in the current climate of religious fundamentalism. In asking whether religion is one of the many consequences of having the type of brains we come equipped with, we can shed light on what kinds of religion 'come naturally' to human minds. We can probe the shared assumptions that religions are built on, however disparate, and examine the connection between religion and ethnic conflict. Lastly, we can hazard a guess at what the realistic prospects are for atheism. ...

[...MORE]

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Edge Foundation, Inc. is a nonprofit private operating foundation under Section 501(c)(3) of the Internal Revenue Code.
----------------------------------------------------
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EDGE

John Brockman, Editor and Publisher
Russell Weinberger, Associate Publisher
Karla Taylor, Editorial Assistant

Copyright (c) 2008 by EDGE Foundation, Inc.
All Rights Reserved.

Published by EDGE Foundation, Inc.,
5 East 59th Street, New York, NY 10022

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Thursday, October 23, 2008

Edge 262: Daniel Kahneman: "Two Big Things Happening in Psychology Today"

Edge 262 - October 23, 2008

(16,000 words)

http://www.edge.org

This online EDGE edition with streaming video is available at:
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THE THIRD CULTURE
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There's new technology emerging from behavioral economics and we are just starting to make use of that. I thought the input of psychology into economics was finished but clearly it's not!

TWO BIG THINGS HAPPENING IN PSYCHOLOGY TODAY
A TALK BY DANIEL KAHNEMAN

EDGE Video

DANIEL KAHNEMAN, a psychologist at Princeton University, is the recipient of the 2002 Nobel Prize in Economics for his pioneering work integrating insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty. Daniel Kahneman's Edge Bio page: http://www.edge.org/3rd_culture/bios/kahneman.html

Danny Hillis, Richard Thaler, Nathan Myhrvold, Elon Musk, France LeClerc, Salar Kamangar, Anne Treisman, Sendhil Mullainathan, Jeff Bezos, Sean Parker

Class 4
A Short Course In Behavioral Economics

DANIEL KAHNEMAN: I want to tell you a bit of straight psychology that I find very exciting, that I found more exciting this year than I had before, and that in some ways is changing my view about a lot of things in psychology.

There are two big things happening in psychology today. One, of course, is everything that's got to do with the brain, and that's dominating psychology. But there is something else that is happening, which started out from a methodological innovation as a way to study memory, and we've always known, that's the idea of the notion of association of ideas, which has been around for 350 years at least.

We know about how associations work because we have one thought, and when it leads to another windows and doors and things like that, or white and black and we have our ideas of associations, and it's always been recognized as important and interesting. But our view of how associations work has been changed in a profound way by a technical innovation, which is something that happens a great deal in psychology and I suppose in all sciences.

This innovation is the following: If, for example, you hear the word "sick", there are few associations that come to mind. But there are a number of other things that you can do, that are little more refined. You can present words, and measure the amount of time that it takes people to read the words. Or you can measure words and non-words, and the task is to decide whether they're a set of letters, or a word, or a non-word, and it's the ease with which words are recognized as words as against non-words. I'll begin by focusing on reaction time, because that's the simplest one.

Here's how it works: after the presentation of the word "sick", the number of words that are affected to which you react differently than you reacted before is enormous. You will be faster, obviously, to "ill", and to "death", and so on, but it will be "hospital", and it will be "nurse", and it will be "doctor", and all of a sudden you've got a huge range of things to which the response is influenced by just presenting that one thing. We find that associative networks that we have in our minds appear to be a lot richer than it did before.

But that's not the only thing that happens. It turns out that the kinds of associations that are built in are a lot richer than we thought. When I want to make an impression while giving a talk, I put the word "vomit" on the screen. Just imagine the word "vomit" on the screen. I point out we know from experiments what happens to people within the first second or two that the word "vomit" is present. In the first place there is that enormous range of changes in the associative structure, and the readiness as well. ...

[...MORE]

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THE REALITY CLUB
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On "Two Big Things Happening In Psychology Today:
A Talk By Daniel Kahneman"

W. Daniel Hillis, Daniel Kahneman, Nathan Myhrvold, Richard Thaler

DANIEL KAHNEMAN: Let me postulate a few things:

1) I know my date of birth. Priming will not change my mind about it.
2) I do not believe there is anything anyone could do within the law to make me vote for a Republican this November.

So yes, of course there are limits to priming effects and to all forms of influence. My point was not that priming can make a person do anything at all. It was that priming has much more influence than people think it could have. Furthermore, people are generally not aware of having been influenced. [MORE...]

NATHAN MYHRVOLD: Priming as Danny presents it is quite a strange phenomenon:

* Omnipresent-happening all the time, all around you.

* Impossible to guard against.

* Equally hard to detect-in yourself anyway, but also in others (unless you have a control group and can do the statistics, as one does in an experiment).

* Very important to understanding human perception.

* Also very important in terms of real world impact on thinking and decisions, with large real-world consequences.

I'm pretty sure Danny said each of these, one way or another. Or maybe I was just primed to draw these conclusions myself, but I think they are accurate.

If find that set of characteristics to be fascinating. However, they are also strange, and perhaps a bit alarming if you really take them seriously. It very naturally begs a set of other questions. [...MORE]

[...MORE]

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IN THE NEWS
----------------------------------------------------
THE GUARDIAN
Comment Is Free

ALL ABOARD THE ATHEIST BUS CAMPAIGN
It's real, it's happening: you can sponsor the first atheist advert on a bus - and Richard Dawkins will match your money

By Ariane Sherine

[bus photo caption: The godless move in mysterious ways: what the atheist bus campaign's advert will look like.]

The atheist bus campaign launches today thanks to Comment is free readers. Because of your enthusiastic response to the idea of a reassuring God-free advert being used to counter religious advertising, the slogan "There's probably no God. Now stop worrying and enjoy your life" could now become an ad campaign on London buses - and leading secularists have jumped on board to help us raise the money.

The British Humanist Association will be administering all donations to the campaign, and Professor Richard Dawkins, bestselling author of The God Delusion, has generously agreed to match all contributions up to a maximum of £5,500, giving us a total of £11,000 if we raise the full amount. This will be enough to fund two sets of atheist adverts on 30 London buses for four weeks.

If the buses hit the road, this will be the UK's first ever atheist advertising campaign. It's an exciting development, which I never expected when I first proposed the idea on Cif in June. Back then, I was just keen to counter the religious ads running on public transport, which featured a URL to a website telling non-Christians they would spend "all eternity in torment in hell", burning in "a lake of fire". ...

[...MORE]

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THE NEW YORK TIMES
The DNA Age - Taking a Peek at the Experts' Genetic Secrets
By Amy Harmon

Is Esther Dyson, the technology venture capitalist who is training to be an astronaut, genetically predisposed to a major heart attack?
Does Steven Pinker, the prominent psychologist and author, have a gene variant that raises his risk of Alzheimer's, which his grandmother suffered from, to greater than 50 percent?...

...On Monday, they may learn the answers to these and other questions - and, if all goes according to plan, so will everyone else who cares to visit a public Web site, www.personalgenomes.org. The three are among the first 10 volunteers in the Personal Genome Project, a study at Harvard University Medical School aimed at challenging the conventional wisdom that the secrets of our genes are best kept to ourselves. ...

...The project is as much a social experiment as a scientific one. "We don't yet know the consequences of having one's genome out in the open," said George M. Church, a human geneticist at Harvard who is the project's leader and one of its subjects. "But it's worth exploring." ...

...J. Craig Venter, a pioneer in human genome sequencing, said his nonprofit institute planned to sequence several dozen human genomes by the end of next year and to deposit the information in the public domain along with phenotype information in a model similar to that of the PGP. He said he had already heard from thousands of volunteers.

...And Sergey Brin, the co-founder of Google, recently revealed on his blog that he learned he has a considerably higher than average risk of developing Parkinson's disease, which was diagnosed in his mother several years ago. (Mr. Brin is the husband of Anne Wojcicki, a co-founder of 23 and Me.)
...
Further Reading on Edge: "Life: What A Concept!" [8.27.07] (George Church, J. Craig Venter et al); "George Church: Constructive Biology" [6.26.06]

[...MORE]

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THE ATLANTIC
Why Washington's crusade against swearing on the airwaves is f*cked up
By Steven Pinker

A WORD IS an arbitrary label that's the foundation of linguistics. But many people think otherwise. They believe in word magic: that uttering a spell, incantation, curse, or prayer can change the world. Don't snicker: Would you ever say "Nothing has gone wrong yet" without looking for wood to knock?

Swearing is another kind of word magic. People believe, contrary to logic, that certain words can corrupt the moral order-that piss and Shit! and fucking are dangerous in a way that pee and Shoot! and freakin' are not. This quirk in our psychology lies in the ability of taboo words to activate primitive emotional circuits in the brain.

My interest in swearing is (I swear) scientific. But swearing is not just a puzzle in cognitive neuroscience. It has figured in the most-famous free-speech cases of the past century, from Ulysses and Lady Chatterley to those of Lenny Bruce and George Carlin. Over the decades, the courts have steadily driven government censors into a precarious redoubt. In 1978, the Supreme Court, ruling on a daytime broadcast of Carlin's "Filthy Words" monologue, allowed the Federal Communications Commission to regulate "indecency" on broadcast radio and television during the hours when children were likely to be listening. The rationale, based on rather quaint notions of childhood and of modern media, was that over-the-air broadcasts are uninvited intruders into the home and can expose children to indecent language, harming their psychological and moral development.

[...MORE]

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THE NEW YORK TIMES
The Downturn's Upside
By Nicholas D. Kristof

Income doesn't have much to do with happiness. Americans haven't become any happier as they have prospered in the last half-century. And winning the lottery doesn't make people happier in the long term.

This is called the Easterlin Paradox: Once they have met their basic needs, people don't become happier as they become richer. In recent years, new research has undermined the Easterlin Paradox, yet it's still true that happiness has less to do with money than with friendships and finding meaning in a cause larger than oneself.

"There's pretty good evidence that money doesn't matter much for how you feel moment to moment," said Alan Krueger, a Princeton University economist who is conducting extensive research on happiness. "What seems to matter much more is having good friends and family, and time to spend on social activities."
The big exception to all this is people who lose their jobs or homes, and the new president should act immediately to help them. Professor Krueger argues that for these people, the losses are greater than we have generally realized, for their losses are not only monetary but also the erosion of self-esteem and friendships as they are wrenched out of social networks that enrich their lives (and help them find new jobs). And for those who lose health insurance, a medical or dental problem is enormously stressful, even life-threatening.

[...MORE]

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NATURE

The Cranial Endoskeleton of Tiktaalik Roseae
By Jason P. Downs, Edward B. Daeschler, Farish A. Jenkins & Neil H. Shubin

Among the morphological changes that occurred during the 'fish-to-tetrapod' transition was a marked reorganization of the cranial endoskeleton. Details of this transition, including the sequence of character acquisition, have not been evident from the fossil record. Here we describe the braincase, palatoquadrate and branchial skeleton of Tiktaalik roseae, the Late Devonian sarcopterygian fish most closely related to tetrapods. Although retaining a primitive configuration in many respects, the cranial endoskeleton of T. roseae shares derived features with tetrapods such as a large basal articulation and a flat, horizontally oriented entopterygoid. Other features in T. roseae, like the short, straight hyomandibula, show morphology intermediate between the condition observed in more primitive fish and that observed in tetrapods. The combination of characters in T. roseae helps to resolve the relative timing of modifications in the cranial endoskeleton. The sequence of modifications suggests changes in head mobility and intracranial kinesis that have ramifications for the origin of vertebrate terrestriality.

[...MORE]

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THE NEW YORK TIMES
Fish Fossil Yields Anatomical Clues on How Animals of the Sea Made It to Land
By John Noble Wilford

Fish Fossil Yields Anatomical Clues on How Animals of the Sea Made It to Land
By John Noble Wilford


In a new study of a fossil fish that lived 375 million years ago, scientists are finding striking evidence of the intermediate steps by which some marine vertebrates evolved into animals that walked on land. ...

...Several skeletons of the fish were excavated four years ago on Ellesmere Island, in the Nunavut Territory of Canada, 700 miles above the Arctic Circle, by a team led by Neil H. Shubin, an evolutionary biologist at the University of Chicago and the Field Museum, and Ted Daeschler of the Academy of Natural Sciences. The Devonian Age rocks containing the fossils indicated that the fishapod lived in shallow waters of a warm climate. It may have made brief forays on land. ...

...Dr. Shubin said Tiktaalik was "still on the fish end of things, but it neatly fills a morphological gap and helps to resolve the relative timing of this complex transition."

For example, fish have no neck but "we see a mobile neck developing for the first time in Tiktaalik," Dr. Shubin said.

"When feeding, fish orient themselves by swimming, which is fine in deep water, but not for an animal whose body is relatively fixed, as on the bottom of shallow water or on land," he added. "Then a flexible neck is important."

[...MORE]

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BLOGGINGHEADS.TV
John Horgan & David Berreby

[...MORE]

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This online EDGE edition with streaming video is available at:
http://www.edge.org/documents/archive/edge262.html
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Edge Foundation, Inc. is a nonprofit private operating foundation under Section 501(c)(3) of the Internal Revenue Code.
----------------------------------------------------
----------------------------------------------------
EDGE

John Brockman, Editor and Publisher
Russell Weinberger, Associate Publisher
Karla Taylor, Editorial Assistant

Copyright (c) 2008 by EDGE Foundation, Inc.
All Rights Reserved.

Published by EDGE Foundation, Inc.,
5 East 59th Street, New York, NY 10022

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Thursday, October 9, 2008

Edge 260: A Short Course In Behavioral Economics - Class 2

Edge 260 - October 9, 2008

(14,500 words)

http://www.edge.org

This online EDGE edition with graphics and video is available at:
http://www.edge.org/documents/archive/edge260.html

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THE THIRD CULTURE
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A SHORT COURSE IN BEHAVIORAL ECONOMICS

At a minimum, what we're saying is that in every market where there is now required written disclosure, you have to give the same information electronically and we think intelligently how best to do that. In a sentence that's the nature of the proposal. —Richard Thaler

                             CLASS 2:
                RICHARD THALER & SENDHIL MULLAINATHAN

Jeff Bezos, Nathan Myhrvold, Salar Kamangar, Daniel Kahneman, Danny Hillis,
Paul Romer, Elon Musk, Sean Parker

Edge Master Class 2008
Richard Thaler, Sendhil Mullainathan, Daniel Kahneman
Sonoma, CA, July 25-27, 2008

AN EDGE SPECIAL PROJECT

Permilink: http://www.edge.org/3rd_culture/thaler_sendhil08/class2.html

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IN THE NEWS
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FRANKFURTER ALLGEMEINE ZEITUNG
Feuilleton
ASSUME THE FETAL POSITION!
By Frank Schirrmacher
http://www.edge.org/documents/archive/edge260.html#faz


NEW YORK REVIEW OF BOOKS
STRUGGLE FOR THE ISLANDS
By Freeman Dyson
http://www.edge.org/documents/archive/edge260.html#nyrb

STRATEGY & BUSINESS
TEA AND EMPATHY WITH DANIEL GOLEMAN
By Lawrence M. Fisher
http://www.edge.org/documents/archive/edge260.html#sb

FINANCIAL TIMES
THE SHORT VIEW: POLITICAL RISK
By John Authers, Investment Editor
http://www.edge.org/documents/archive/edge260.html#ft

NEW SCIENTIST
ANYONS: THE REAL BREAKTHROUGH QUANTUM COMPUTING NEEDS?
Don Monroe
http://www.edge.org/documents/archive/edge260.html#ns

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This online EDGE edition with graphics and video is available at:
http://www.edge.org/documents/archive/edge260.html

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Edge Foundation, Inc. is a nonprofit private operating foundation under Section 501(c)(3) of the Internal Revenue Code.
----------------------------------------------------
----------------------------------------------------
EDGE

John Brockman, Editor and Publisher
Russell Weinberger, Associate Publisher
Karla Taylor, Editorial Assistant

Copyright (c) 2008 by EDGE Foundation, Inc.
All Rights Reserved.

Published by EDGE Foundation, Inc.,
5 East 59th Street, New York, NY 10022


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Friday, October 3, 2008

Edge 259: Thaler, Mullainathan, Kahneman: A Short Course In Behavioral Economics

Edge 259 - October 3, 2008

(17,100 words)

http://www.edge.org

This online EDGE edition with graphics and video is available at:
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----------------------------------------------------
THE THIRD CULTURE
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A SHORT COURSE IN BEHAVIORAL ECONOMICS
EDGE Master Class 2008
Sonoma, CA, July 25-27, 2008

RICHARD THALER, SENDHIL MULLAINATHAN, DANIEL KAHNEMAN

The Master Class with text and video is comprised of six classes which is being published one per week for the next six weeks. Class One is published in today's EDGE edition. The PERMALINK URL is: http://www.edge.org/3rd_culture/thaler_sendhil08/thaler_sendhil_index.html

----------------------------------------------------

A year ago, EDGE convened its first "Master Class" in Napa, California, in which psychologist and Nobel Laureate Daniel Kahneman taught a 9-hour course: "A Short Course On Thinking About Thinking". Among the attendees were a "who's who" of the new global business culture.

This year, to continue the conversation, we invited Richard Thaler, the father of behavioral economics, to organize and lead the class: "A Short Course On Behavioral Economics". Thaler, in turn, invited Harvard economist and former student Sendhil Mullainathan, as well as Daniel Kahneman, to teach the class with him.

Beginning October 1st, EDGE will begin to publish on a weekly basis the text, selected video highlights, and photos of the six classes comprising "A Short Course In Behavioral Economics". This EDGE edition includes the Table of Contents, Introduction By Daniel Kahneman, Summary of Day 1 By Nathan Myhrvold, Summary of Day 2 By George Dyson; Link to the Photo Gallery; and Link to Class One.

-John Brockman, Editor


RICHARD H. THALER is the father of behavioral economics-the study of how thinking and emotions affect individual economic decisions and the behavior of markets. He investigates the implications of relaxing the standard economic assumption that everyone in the economy is rational and selfish, instead entertaining the possibility that some of the agents in the economy are sometimes human. Thaler is Director of the Center for Decision Research at the University of Chicago Graduate School of Business. He is coauthor (with Cass Sunstein) of Nudge: Improving Decisions About Health, Wealth, and Happiness.

SENDHIL MULLAINATHAN, a Professor of Economics at Harvard, a recipient of a MacArthur Foundation "genius grant", conducts research on development economics, behavioral economics, and corporate finance. His work concerns creating a psychology of people to improve poverty alleviation programs in developing countries. He is Executive Director of Ideas 42, Institute of Quantitative Social Science, Harvard University.

DANIEL KAHNEMAN is Eugene Higgins Professor of Psychology, Princeton University, and Professor of Public Affairs, Woodrow Wilson School of Public and International Affairs. He is winner of the 2002 Nobel Prize in Economic Sciences for his pioneering work integrating insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.

PARTICIPANTS: Jeff Bezos, Founder, Amazon.com; John Brockman, Edge Foundation, Inc.; Max Brockman, Brockman, Inc.; George Dyson, Science Historian; Author, Darwin Among the Machines; W. Daniel Hillis, Computer Scientist; Cofounder, Applied Minds; Author, The Pattern on the Stone; Daniel Kahneman, Psychologist; Nobel Laureate, Princeton University; Salar Kamangar, Google; France LeClerc, Marketing Professor; Katinka Matson, Edge Foundation, Inc.; Sendhil Mullainathan, Professor of Economics, Harvard University; Executive Director, Ideas 42, Institute of Quantitative Social Science; Elon Musk, Physicist; Founder, Tesla Motors, SpaceX; Nathan Myhrvold, Physicist; Founder, Intellectual Venture, LLC; Event Photographer; Sean Parker, The Founders Fund; Cofounder: Napster, Plaxo, Facebook; Paul Romer, Economist, Stanford; Richard Thaler, Behavioral Economist, Director of the Center for Decision Research, University of Chicago Graduate School of Business; coauthor of Nudge; Anne Treisman, Psychologist, Princeton University; Evan Williams, Founder, Blogger, Twitter.

http://www.edge.org/documents/archive/edge259.html#shortcourse
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NOTABLE QUOTE
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"Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks - when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur Š.I shiver at the thought."

- Nassim Taleb, The Black Swan (2006)

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IN THE NEWS
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NEW SCIENTIST
EDITORIAL: WHEN THE NUMBERS DON'T ADD UP
http://www.edge.org/documents/archive/edge259.html#nstaleb

BOSTON GLOBE
WHAT ABOUT AUSTERITY?
By Juan Enriquez and Jorge Dominguez
http://www.edge.org/documents/archive/edge259.html#enriquez

THE NEW YORK TIMES
PRIVATE COMPANY LAUNCHES ITS ROCKET INTO ORBIT
By John Schwartz
http://www.edge.org/documents/archive/edge259.html#nytmusk

YOU TUBE
ELON MUSK'S SPACEX SUCCESSFULLY LAUNCHES FALCON 1
http://www.edge.org/documents/archive/edge259.html#yt

BOSTON GLOBE
HIDDEN HISTORIES
By Jonathan Gottschall
http://www.edge.org/documents/archive/edge259.html#globe

BLOGGINGHEADS TV
John Horgan & George Johnson
http://www.edge.org/documents/archive/edge259.html#bh.928

THE OBSERVER
THE NEW SAGE OF WALL STREET
Profile: Nassim Nicholas Taleb
Edward Helmore
http://www.edge.org/documents/archive/edge259.html#observer

THE COLBERT REPORT
Nicholas Carr
http://www.edge.org/documents/archive/edge259.html#colbert

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This online EDGE edition with graphics and video is available at:
http://www.edge.org/documents/archive/edge259.html

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Edge Foundation, Inc. is a nonprofit private operating foundation under Section 501(c)(3) of the Internal Revenue Code.
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EDGE

John Brockman, Editor and Publisher
Russell Weinberger, Associate Publisher
Karla Taylor, Editorial Assistant

Copyright (c) 2008 by EDGE Foundation, Inc.
All Rights Reserved.

Published by EDGE Foundation, Inc.,
5 East 59th Street, New York, NY 10022

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Thursday, September 25, 2008

Edge 258: Nassim Taleb: "The Fourth Quadrant"

Edge 258 - September 25, 2008

(5,150 words)

http://www.edge.org

This online EDGE edition is available at:
http://www.edge.org/documents/archive/edge258.html

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THE THIRD CULTURE
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ECONOMIC DIS-EQUILIBRIUM
Can You Have Your House And Spend It Too?
By George Dyson

George Dyson writes: "Readers of Nassim Taleb's The Fourth Quadrant may enjoy the following piece on fraud-resistant financial instruments of the 13th century—progenitors of a multitude of derivatives that are plaguing us today." ...

...The breakthrough was in money being duplicated: the King gathered real gold and silver into the treasury through the Exchequer, with the tally given in return attesting to the credit of the holder who could enter into trade, manufacturing, or other ventures, eventually producing real wealth with nothing more than a notched wooden stick. So what's the problem? Aren't we just passing around digital versions of the tallies we've been using for almost one thousand years? Aren't mortgages, whether prime or sub-prime, just a modern version of paying for houses with fraud-resistant sticks? ...

http://www.edge.org/documents/archive/edge258.html#dysong

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THE REALITY CLUB
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Jaron Lanier & George Dyson
On Nassim Taleb's "The Fourth Quadrant: A Map of the Limits of Statistics"


GEORGE DYSON: ...What to do now? I'd prefer less Paulson, and more Newton. In the 17th century, English coinage had become widely debased, much as our system of financial instruments has become debased today. In 1696, Sir Isaac Newton was appointed Warden of the Mint, with authority to prosecute counterfeiters, who were not only hung, but drawn and quartered. This, accompanied by a systematic recoinage, worked.

JARON LANIER: This is a superb piece and I hope it is widely read and taken to heart in Wall Street, Silicon Valley, and Washington. All these centers of power and creativity are drowning in illusions brought about by thunderous misuses of statistics that have become implacably seductive only with the recent availability of vast, connected computer resources.

Edge.org has become the most dramatic point of contact between the critics and supporters of the fallacies Taleb elucidates. ...

http://www.edge.org/documents/archive/edge258.html#rc

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IN THE NEWS
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BLOGGINGHEADS TV
Sean Carroll & Jenifer Ouellette
http://www.edge.org/documents/archive/edge258.html#bh

ECONOMIC TIMES
Enlightened Pursuit Of Pleasure
By Vithal C Nadkarni
http://www.edge.org/documents/archive/edge258.html#etimes

NEWSWEEK
When Atheists Attack
By Sam Harris
http://www.edge.org/documents/archive/edge258.html#harris

GAWKER
What We Need More Of Is Science
Scientists Explain Why People Vote For Republicans
http://www.edge.org/documents/archive/edge258.html#gawker

SEEKING ALPHA
Managing Risk: A Probability Model
http://www.edge.org/documents/archive/edge258.html#alpha

DESERET NEWS — SALT LAKE CITY
Gps Units, Internet Helping Little Dogies Get Along
http://www.edge.org/documents/archive/edge258.html#deseret

PITTSBURGH POST-GAZETTE
Hardwired Conservatives
Compiled by Greg Victor
http://www.edge.org/documents/archive/edge258.html#pittsburgh

THE NEW YORK TIMES
Technology Doesn't Dumb Us Down. It Frees Our Minds.
By Damon Darlin
http://www.edge.org/documents/archive/edge258.html#nytdarlin

THE ECONOMIST
User-Generated Science
Web 2.0 tools are beginning to change the shape of scientific debate
http://www.edge.org/documents/archive/edge258.html#economist

THE GUARDIAN
Turkish Court Bans Richard Dawkins Website
By Riazat Butt
http://www.edge.org/documents/archive/edge258.html#guardianturkey

NEWSWEEK
Is Morality Natural?
By Marc D. Hauser
http://www.edge.org/documents/archive/edge258.html#mdh

FLORIDA TREND
Darwin, Einstein, and Five Challenges for Florida
By Juan Enriquez
http://www.edge.org/documents/archive/edge258.html#enriquez

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This online EDGE edition is available at:
http://www.edge.org/documents/archive/edge258.html
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Edge Foundation, Inc. is a nonprofit private operating foundation under Section 501(c)(3) of the Internal Revenue Code.
----------------------------------------------------
----------------------------------------------------
EDGE

John Brockman, Editor and Publisher
Russell Weinberger, Associate Publisher
Karla Taylor, Editorial Assistant

Copyright (c) 2008 by EDGE Foundation, Inc.
All Rights Reserved.

Published by EDGE Foundation, Inc.,
5 East 59th Street, New York, NY 10022

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Monday, September 15, 2008

Edge 257: Nassim Taleb - "The Fourth Quadrant"

Edge 257 - September 15, 2008

(7,950 words)

http://www.edge.org

This online EDGE edition is available at:
http://www.edge.org/documents/archive/edge257.html

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THE THIRD CULTURE
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"Statistical and applied probabilistic knowledge is the core of knowledge; statistics is what tells you if something is true, false, or merely anecdotal; it is the "logic of science"; it is the instrument of risk-taking; it is the applied tools of epistemology; you can't be a modern intellectual and not think probabilistically - but... let's not be suckers. The problem is much more complicated than it seems to the casual, mechanistic user who picked it up in graduate school. Statistics can fool you. In fact it is fooling your government right now. It can even bankrupt the system (let's face it: use of probabilistic methods for the estimation of risks did just blow up the banking system). "

THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS
By Nassim Nicholas Taleb

An Edge Original Essay

Introduction

When Nassim Taleb talks about the limits of statistics, he becomes outraged. "My outrage," he says, "is aimed at the scientist-charlatan putting society at risk using statistical methods. This is similar to iatrogenics, the study of the doctor putting the patient at risk." As a researcher in probability, he has some credibility. In 2006, using FNMA and bank risk managers as his prime perpetrators, he wrote the following:

"The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events 'unlikely.' "

In the following Edge original essay, Taleb continues his examination of Black Swans, the highly improbable and unpredictable events that have massive impact. He claims that those who are putting society at risk are "no true statisticians", merely people using statistics either without understanding them, or in a self-serving manner. "The current subprime crisis did wonders to help me drill my point about the limits of statistically driven claims," he says.

Taleb, looking at the cataclysmic situation facing financial institutions today, points out that "the banking system, betting against Black Swans, has lost over 1 Trillion dollars (so far), more than was ever made in the history of banking".
But, as he points out, there is also good news.

"We can identify where the danger zone is located, which I call "the fourth quadrant", and show it on a map with more or less clear boundaries. A map is a useful thing because you know where you are safe and where your knowledge is questionable. So I drew for the Edge readers a tableau showing the boundaries where statistics works well and where it is questionable or unreliable. Now once you identify where the danger zone is, where your knowledge is no longer valid, you can easily make some policy rules: how to conduct yourself in that fourth quadrant; what to avoid."

-John Brockman

NASSIM NICHOLAS TALEB, essayist and former mathematical trader, is Distinguished Professor of Risk Engineering at New York University's Polytechnic Institute. He is the author of Fooled by Randomness and the international bestseller The Black Swan.

PERMALINK: http://www.edge.org/3rd_culture/taleb08/taleb08_index.html

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IN THE NEWS
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DER SPIEGEL
"Was halten Sie für wahr, ohne es beweisen zu können?"
By John Brockman
http://www.edge.org/documents/archive/edge257.html#spiegel

THE NEW YORK TIMES
No Laughing Matter
By Judith Warner
http://www.edge.org/documents/archive/edge257.html#nyt

FRANKFURTER ALLGEMEINE ZEITUNG
Amazons Lesegerät Kindle
Das Buch, das aus dem Äther kam
Von Hubert Spiegel
http://www.edge.org/documents/archive/edge257.html#faz

NATIONAL REVIEW ONLINE
The Corner
BY John Derbyshire
http://www.edge.org/documents/archive/edge257.html#nro

THE GUARDIAN
Tuesday memo: The road to the bridge to nowhere that wasn't there
By Oliver Burkeman
http://www.edge.org/documents/archive/edge257.html#guardian

THE MALTA INDEPENDENT
J'accuse: The meaning of life
by Jacques René Zammit
http://www.edge.org/documents/archive/edge257.html#malta

LAS VEGAS SUN
It's not the issues that likely make up many minds
By J. Patrick Coolican
http://www.edge.org/documents/archive/edge257.html#vegas

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This online EDGE edition is available at:
http://www.edge.org/documents/archive/edge257.html
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Edge Foundation, Inc. is a nonprofit private operating foundation under Section 501(c)(3) of the Internal Revenue Code.
----------------------------------------------------
----------------------------------------------------
EDGE

John Brockman, Editor and Publisher
Russell Weinberger, Associate Publisher
Karla Taylor, Editorial Assistant

Copyright (c) 2008 by EDGE Foundation, Inc.
All Rights Reserved.

Published by EDGE Foundation, Inc.,
5 East 59th Street, New York, NY 10022

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