Understanding our animal spirits

Prof Shiller (remember him from “Irrational Exuberance) has partnered with George A Akerlof in a strangely titled new book: Animal Spirits. I’m recommending it even before reading it.

It’s basically about why we don’t behave as rational consumers when faced with economic choices.

If you don’t want to wait, then there’s an excerpt from the book – the first chapter, which you can read over at Yale MBA’s Financial Crisis website.

Here are the five animal spirits – emotive things that often dictate our economic behaviour.

  • The cornerstone of our theory is confidence and the feedback mech­anisms between it and the economy that amplify disturbances.
  • The setting of wages and prices depends largely on concerns about fairness.
  • We acknowledge the temptation toward corrupt and antisocial behavior and their role in the economy.
  • Money illusion is another cornerstone of our theory. The public is confused by inflation or deflation and does not reason through its effects.
  • Finally, our sense of reality, of who we are and what we are doing, is intertwined with the story of our lives and of the lives of others. The aggregate of such stories is a national or international story, which itself plays an important role in the economy.

Just those five statements make for interesting pondering – so here is my quick take.

Confidence is everything – it is the difference between buying something (on credit even) and choosing to hunker down and not spend. When a depressed or optimistic feeling rolls out to entire populations then it causes and exacerbates busts and booms.

It’s true that we care most about parity and fairness when setting wages and paying prices. This is particularly evident in New Zealand where we tend to look down at those with unhealthily large incomes and spending habits and where we have a nationally loved TV program called Fair Go that goes after companies that rip people off. Interestingly the feeling of fairness to members was the overriding thing that governed our thinking in the days when I was involved in setting prices at Trade Me.

We also score pretty well as a country on corrupt and anti-social behaviour – scoring at of near the top of the list in the annual Transparency International surveys as a result. On the other hand we are a little divergent on our strong norms about what is anti-social behaviour – though we tend not to shoot each other and mostly we don’t rip each other off.

It’s true that we all tend to compare our income now to our income years ago, and fail to understand that $1m now is worth a whole lot more than $1m at retirement. This is the money illusion – where we look at the dollar figures and not at the real worth, the nominal not the real. Having grown up through inflationary times it did improve my own approach to this versus, say, my grandparents generation who often didn’t change the dollar value of their Christmas presents to grandkids (mine were a bit different). The trick is to constantly reset the current value of everything.

Finally I am guessing “stories” refers to the formal and informal coverage of things like bubbles and busts. Everyone was talking up dot coms in 2000, real estate in 2007/8 and stocks in 1929.  Fast forward a couple of years and the picture was (and will be) diametrically opposed – the media coming down hard on what were correctly seen in hindsight as speculative investments. I try to be contraian, using taxi drivers and ultimately my mother as the unfailing barometer – if Mum says buy, then I go ahead and sell.

They use these five animal spirits in the rest of the book to answer eight questions – such as why do economies fall into depression and why do real estate markets go through cycles?

Interesting stuff to be sure – I recommend just reading the first chapter and having a ponder – the answers may not be that difficult to work out, and if we can be internally aware of those “animal spirits” then perhaps we will make better decisions.

Now I need to decide where to buy it from. Fishpond don’t have it but Amazon who do. However I am really annoyed with them as most of the things I want (electronics, accessories) are not shipped to New Zealand.

Posted in Business, Investing, media, Trade Me | Tagged , | 2 Comments

ANZ’s tragic teller system

First you dub an application as “Platinum” – critical to your business. That’s a good idea, so you now know you need to get the system and support absolutely right.

You choose to run a trial before rolling it out to all branches – another good idea.

However that’s where things started going wrong for ANZ.

You chose also to run it on Windows, which not exactly secure nor stable in a banking sense, and attracts licensing payments for each installation. But that’s not necessarily a bad thing if done right.

However it seems that it takes 30 to 45 people to support the application at the 20 pilot branches – which implies that it really doesn’t sound like you are “providing tools to make banking easier” for your branch staff.

You next announce to staff that you will outsource support for this application to India, which means the 30-45 people that are currently supporting the trial are going to be out of a job or very nervous about being so. Their personal inclination to professionally support the pilot will be challenged as concern about job stability preys on their minds. This does not bode well for the roll-out.

Finally it all gets leaked to the media, and as a kicker it appears that the Reserve bank may need to approve outsourcing these jobs supporting a core system. Meanwhile an Australian bank gettting rid of New Zealand jobs will not play well in the media or with customers contemplating the (currently) better mortgage rates over at Kiwibank.

The application is MyTell, the new teller application for ANZ and National Bank. It is, I guess, only used when tellers and back office staff are actually in banks, which is during normal working hours, and the jobs to be lost are in Wellington.

From the short article my guess is that ANZ was overwhelmed with the budget required for the amount of support demanded by this application, and are seeking to do everything they can to reduce costs.

I would humbly submit that either fixing the system so that it needs essentially nobody to help, or abandoning it and trying again are the more viable medium and long term options.

This is of course my analysis from a scant 7 sentence article – not doubt there are nuances large and small.

However I’m guessing that this saga will bring a smile to the faces of the folk at Kiwibank.

Posted in Business, media, NZ Business, wellington | Tagged , , | 2 Comments

Lingopal is launched for iPhone

We at Lingopal were pretty happy this weekend-  as Lingopal was finally released for the iPhone.

Check it out

We think it’s vastly better than any other translation application on iPhone – with 42 languages (next best is about 6) and some really crazy fun phrases.

Where else can you learn how to say “I am a Dolphin Trainer” in 41 other languages?

Perfect for when you next meet someone from somewhere exotic.


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Homepage review: Pundit

I was shown Pundit the other day. It’s a site that is agglomerating a few writers to create a super blog.Good idea, but the home page needs some work.

The site design does little to draw me in, and indeed I was not tempted to click on any of the articles during the time I was looking at the site. So I trust that the owners are constantly improving the site usability.


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Dick Smith sale still three times more expensive

It’s nice that Dick Smith have a 15% off everything sale, however I am simply not interested in shopping there any more.

Dick Smith are meant to be a cheap place to get electrical and electronic kit, but they seemingly abandoned that cause a while ago, and are now selling products to unsuspecting consumers at unjustifiable prices.

I refer of course to HDMI cables (or any cables really).

The cheapest HDMI cable you can buy on sale at Dick Smith, with the 15% discount, is a staggering $55.23.

Meanwhile the cheapest HDMI cable on Ascent is $18.23 – and they have 14 HDMI cables under $36.

HDMI cables carry digital signals. Digital signals either get there or not – there is no degradation. So you can compare those prices directly.

Simply put - Dick Smith is selling HDMI cables for three times more than Ascent. They are doing this because they are either buying expensive branded cables, or they are marking up the cheaper cables by outrageous amounts. In short they could give their customers a  much fairer go but are choosing not to.

The Lesson

Dick Smith has now successfully completed the transformation my impression of their stores from cheap places to buy stuff to expensive rip-off merchants. It now seems that I will go out of my way to tell people to avoid Dick Smith stores.

The 15% off sale seems to be an indication both that their margins are far too fat across the board, and that they are struggling with sales volumes. It raises the question of just what their business model is, and how much longer they will last.

What you can do

We need to send a message to Dick Smith. They are destroying their business, and frankly I’d rather they didn’t.

So ask for HDMI cables at your local Dick Smith store, and when you see the prices loudly exclaim that they are three times more expensive than Ascent and ask “Why is Dick Smith so expensive?” The people behind the counter know just as well as you do that the prices are out of whack, but this is a fun exercise to do with the store manager.

If you do need cables, or anything electronic, then buy them at Ascent or Trade Me.

Wait a few more weeks or months, and then pick up the real bargains at the Dick Smith closing down sales.

To summarise it all nicely when I tried to repeat the search for other types cables I got this:

Posted in Business, Internet Business, NZ Business | Tagged , , , | 38 Comments

Xero’s capital raising


While I still believe that Xero’s IPO was expensive, I also believe in the business opportunity and how Xero is going about pursuing it.

While the latest round of share issues at $0.90 is dillutive to the original $1.00 IPO,  it is an excellent price nonetheless:

  1. The IPO was expensive – and that was proven as the price languished well below the initial price of $1 for most of Xero’s listing period. As an early stage deal the offer should have been for a larger share of the company per share as the information available (actual results and plans) was sketchy.
  2. Times have changed, and changed for the worse in for the economy and particularly for the money raising game. Getting any money at all is hard these days, and finding over $23 million is an excellent acheivement.
  3. The source of the funds is telling – one of the founders of MYOB, a lumbering giant that owns the top end of the market that Xero is intent on stealing. They must be feeling pretty desperate right now. MYOB have proven, and will no doubt continue to prove, that they are  culturally incapable of  replying to the threat from Xero.

Xero has managed to execute well on their business plan, with features coming out at a steady rate and after a slow start, pleasing customer growth. They have also cracked their approach to selling – convert the accountants and they will bring along their clients. That’s not exactly viral for now, but it’s a path to sustainability.

Well done to the entire team at Xero.

The money eases pressure for Xero, and means they can focus on the three tasks at hand:

  • Keep the feature improvements coming, becoming clearly superior in feature volume and usability than the competition. Also have some fun and offer features that the MYOB’s have no answer to.
  • Sell sell sell – expand within Australiasia and in particular the UK, and make a beachhead into the USA.
  • Become sustainable – in theory this should be the last capital round required for sustainablity, although the option remains for a much larger further round to really launch hard into the big Kahuna – the USA.

A great story.

Posted in Business, Internet Business, Investing, NZ Business | 10 Comments

Getting the basics right makes money – Ascent

Yesterday I went shopping for a laser printer. I went to Pricespy and Trade Me, along with Ascent where I have successfully purchased before.

Pricespy sent me to a few stores, including Ascent, but I will pick on Computer Direct who came back  as the cheapest. They have a good url, but they are not a company that I have heard of. Still, they looked professional enough, and so I placed printer into the cart.
All good, if a little dated, but when I clicked on check out I was confronted with this:

Sorry – I don’t know you, and although I’d buy a printer from you I have no wish whatsoever to register on your website. You have also not yet told me how much shipping will cost, and given that I do not trust you I choose to stop. Goodbye.

For a simple lesson on how to do this (and to buy my printer), I headed on over to Ascent. Here is their cart:

and here is the next screen, which is excellent. I can simply click the center button and buy what I want to buy. I don’t have to register, I don’t have to remember a login and password.

Oh – and before you can say lock-in and email spam, you should know that not only did I buy something else from Ascent two days ago, I have also purchased several expensive items from them over the years. Each time I just go through a normal checkout process. What I am trying to say is that it is not being registered that increases loyalty, it’s the site usability and the service. And that’s clearly worth a few extra bucks.

Ascent were first recommended to me by a red headed chap at Trade Me a few years back, and I’ve since recommended Ascent to others over the years, and I also commend them to you.

From Twitter @normnz agrees – “Ascent are worth every extra penny. Their service levels are extra-ordinary” and @vavroom says “Been dealing with Ascent for years. Service is *exceptional*. Would not think about using anyone else.

This sort of word of mouth marks the difference between really successful businesses and lousy businesses.

What are you doing for your business to generate this sort of response? How do you stack up versus your competitors? Do you even know?

Posted in Business, Internet Business, NZ Business, Trade Me | Tagged , , | 10 Comments