As far as I know, no-one has pointed out the link between the surge in support for the Lib Dems, Congress’s grilling of Goldman’s executives, the Graham Nortification of Doctor Who and the Go Compare advert. Let me rectify this omission. The common link is that all are manifestations of the fact that people have limited attention; they just don‘t notice a lot of things.
On that first leaders’ debate Nick Clegg was not astoundingly brilliant. For this reason, the instant reaction of some commentators was quite downbeat: “It’s still about blues versus reds” said the FT’s Jim Pickard; “unlikely to be a game changer”, said Tim Montgomerie; and Jackie Ashley called Brown the winner.
So, why did Clegg win so much support? It’s because many voters don’t normally pay much attention to politics. They simply hadn’t given the Lib Dems much thought. The leaders’ debate changed this, by bringing Mr Clegg to their notice. He only had to turn up sober to be a winner.
Because the political classes are obsessed with political minutiae, they don’t appreciate this and so some missed the significance of that debate.
A similar thing explains Congress’s interest in Goldman Sachs. Any rival investment banker could for years have given you allegations of - ahem - sharp business acumen at Goldman’s. So why should such allegations be more noticed now than years ago? It’s because the financial crisis brought Goldman’s to greater public attention. Hence Congress’s grandstanding.
Goldman’s is much the same company as it was a few years ago, just as Clegg is the much the same guy. The obloquy of one and the acclaim of the other arise from how attention has shifted, not from how they’ve changed.
However, advertisers and TV bosses do know that attention matters. This is why adverts get repeated so much. If they tell us about a price comparison site only once or twice, we’ll forget. We need the message rammed home every 15 minutes. It’s also why the BBC ran that trailer during Doctor Who. BBC bosses knew that it wasn’t enough to trail Over the Rainbow days before or to publicize it in TV listings. It needed more attention.
The underlying theme here is that people don’t - can’t - know everything, so we limit our attention to what we need to know. The result is that it can take some effort to change our information set.
This has effects in financial markets. It might help explain the profitability of momentum strategies - the fact that stocks that have recently risen carry on rising. When a share rises a low, it attracts attention which attracts more buying; in the presence of even informal short sales constraints, prices are set by optimists.
It can also mean that share prices move because of prior information - in clear violation of the efficient market hypothesis. For example, we know that beer consumption is heavy among 20-somethings. If, therefore, a lot of people are born in a given year, you’d expect strong beer consumption 20 years later, which would benefit brewing stocks. The EMH says this should cause such stocks to rise in the year when many people are born. However, Stefano Dellavigna has shown (pdf) that in fact the stocks rise in the year of the consumption, 20 years later. This, he suggests, is because of limited attention; investors don’t pay heed to the importance of demographics.
Which brings me to my point, insofar as I have one. Gilt yields have fallen in the last couple of days as the Greek crisis has intensified. This suggests markets regard gilts as one of the good guys that benefit from a flight to quality, rather than PIIGs-type bonds that suffer contagion effects.
If you believe in the EMH, this just shows that the UK is not like Greece. But what if investors don’t have full information but limited attention? What if these cognitive limits cause them to overweight information such as our relatively low debt-GDP ratio (yes - PDF) and long debt maturity, but underweight other information which might become relevant?
I’m not saying this is happening - I suspect it isn’t. But if I were a Tory desperately trying to cling onto the idea that the UK is like Greece, I’d be using the notion of limited attention as part of my argument.
On that first leaders’ debate Nick Clegg was not astoundingly brilliant. For this reason, the instant reaction of some commentators was quite downbeat: “It’s still about blues versus reds” said the FT’s Jim Pickard; “unlikely to be a game changer”, said Tim Montgomerie; and Jackie Ashley called Brown the winner.
So, why did Clegg win so much support? It’s because many voters don’t normally pay much attention to politics. They simply hadn’t given the Lib Dems much thought. The leaders’ debate changed this, by bringing Mr Clegg to their notice. He only had to turn up sober to be a winner.
Because the political classes are obsessed with political minutiae, they don’t appreciate this and so some missed the significance of that debate.
A similar thing explains Congress’s interest in Goldman Sachs. Any rival investment banker could for years have given you allegations of - ahem - sharp business acumen at Goldman’s. So why should such allegations be more noticed now than years ago? It’s because the financial crisis brought Goldman’s to greater public attention. Hence Congress’s grandstanding.
Goldman’s is much the same company as it was a few years ago, just as Clegg is the much the same guy. The obloquy of one and the acclaim of the other arise from how attention has shifted, not from how they’ve changed.
However, advertisers and TV bosses do know that attention matters. This is why adverts get repeated so much. If they tell us about a price comparison site only once or twice, we’ll forget. We need the message rammed home every 15 minutes. It’s also why the BBC ran that trailer during Doctor Who. BBC bosses knew that it wasn’t enough to trail Over the Rainbow days before or to publicize it in TV listings. It needed more attention.
The underlying theme here is that people don’t - can’t - know everything, so we limit our attention to what we need to know. The result is that it can take some effort to change our information set.
This has effects in financial markets. It might help explain the profitability of momentum strategies - the fact that stocks that have recently risen carry on rising. When a share rises a low, it attracts attention which attracts more buying; in the presence of even informal short sales constraints, prices are set by optimists.
It can also mean that share prices move because of prior information - in clear violation of the efficient market hypothesis. For example, we know that beer consumption is heavy among 20-somethings. If, therefore, a lot of people are born in a given year, you’d expect strong beer consumption 20 years later, which would benefit brewing stocks. The EMH says this should cause such stocks to rise in the year when many people are born. However, Stefano Dellavigna has shown (pdf) that in fact the stocks rise in the year of the consumption, 20 years later. This, he suggests, is because of limited attention; investors don’t pay heed to the importance of demographics.
Which brings me to my point, insofar as I have one. Gilt yields have fallen in the last couple of days as the Greek crisis has intensified. This suggests markets regard gilts as one of the good guys that benefit from a flight to quality, rather than PIIGs-type bonds that suffer contagion effects.
If you believe in the EMH, this just shows that the UK is not like Greece. But what if investors don’t have full information but limited attention? What if these cognitive limits cause them to overweight information such as our relatively low debt-GDP ratio (yes - PDF) and long debt maturity, but underweight other information which might become relevant?
I’m not saying this is happening - I suspect it isn’t. But if I were a Tory desperately trying to cling onto the idea that the UK is like Greece, I’d be using the notion of limited attention as part of my argument.
Though, of course, "Ignore the markets, they have limited attention (when they don't agree with my view)" might undermine other central tenets of Tory thinking.
Posted by: Giles Wilkes | April 28, 2010 at 04:16 PM
Here's another example: prior to the Dr Who advert, I might have dismissed Over the rainbow as yet another sad but irrelevant piece of Graham Norton's shit, but now I actively detest both of them. Over the Rainbow hadn't changed, but the BBC brought it to my attention.
Posted by: william | April 28, 2010 at 04:21 PM
Unfortunately, the "house" always wins. Instead of putting some controls on pension plans and what they're allowed to invest in, we just have video footage of a f-tard congressman who can't stop using profanity and who is angry because a company got some other companies to purchase admittedly crappy investments.
Buy low and sell high is the capitalist mantra. Why do we suddenly expect that to change? It's not like the institutional investors who bought these things didn't know exactly what they were getting. They knew what they were. They were just willing to accept the risk. Goldman Sachs was, quite frankly, very smart for seeing that the bubble was getting ready to pop and unloading the crap.
And NOWHERE have I seen anyone mention the legislation that drove banks to offer up the "No doc" loans in the first place. Both sides of the aisle are being awfully mum about that.
Posted by: SMU Cox MBA | April 28, 2010 at 04:43 PM
Ah yes, this could all certainly explain why, when in February 2007, Eddie George did explain to the Treasury Select Committee just how they deliberately stoked the loose money policy in the early naughties to try to ensure there wasn't a disastrous recession before Labour got the chance to be re-elected and that they knew they were storing up trouble for the future and that his legacy to the current Bank of England management and MPC was to "sort it out" it was never mentioned again - http://jockcoats.me/biggest_frauds_go_unpunished_and_we_are_all_victims
Posted by: Jock | April 28, 2010 at 05:37 PM
1. The Lib Dems were already going up in the polls BEFORE the first debate.
2. Your advertising point contradicts your debate point. Why, on adverts, do you say "We need the message rammed home every 15 minutes", but on the debate you say that one debate was all that was needed to make Clegg popular?
3. Tim Montgomerie saying that it was "unlikely to be a game changer" doesn't prove anything. He's a Conservative partisan. He would say that.
4. "What if these cognitive limits cause them to overweight information such as our relatively low debt-GDP ratio (yes - PDF) and long debt maturity, but underweight other information which might become relevant?" Other information such as ....?
Posted by: Alex | April 28, 2010 at 08:59 PM
"Alex
2. Your advertising point contradicts your debate point. Why, on adverts, do you say "We need the message rammed home every 15 minutes", but on the debate you say that one debate was all that was needed to make Clegg popular?"
Because there are hundreds of adverts thrown at us every day for very similar products, but only three political parties who get their own special place in the news cycles. Politics would be subject to the Von Restorff effect in this respect.
Posted by: chris c | April 29, 2010 at 12:58 AM
Also Alex, on point 2 - the media have magnified the impact of the debate and kept it alive. You only have to read a newspaper, blog or listen to a news bulletin to be reminded of the Clegg effect. This has the repeat benefits of adverts.
I wonder about the extent to which the Clegg effect has been driven by not so much the debates themselves first hand but by the subsequent media coverage and analysis.
Posted by: Bruce | April 29, 2010 at 12:44 PM
Due to the vagaries it's still reds vs blues, even with the Clegg surge: unless of course he gets a vote share past about 32, 33 per cent.....still not expecting it myself! Jim Pickard
Posted by: Jim PIckard | April 29, 2010 at 06:21 PM
"the media have magnified the impact of the debate and kept it alive"
Yes, but polls straight after the first debate overwhelming showed he'd won.
Posted by: Alex | April 30, 2010 at 01:39 AM