Comments on: Home Sweet Home Bias

By: Barkley Rosser

Barkley Rosser — Tue, 27 Mar 2007 18:56:29 +0000

Douglas,

One can “promote” all one wants, but that does not guarantee that one achieves
recognition (or gets cited sufficiently, to note the boring academic aspect of this).

By: Douglas Knight

Douglas Knight — Tue, 27 Mar 2007 02:55:17 +0000

reasonably anticipate such unfair neglect of their work

In practice, most people live to observe the unfair neglect of their work. If they understood the importance of it, they should have promoted it a decade later.

By: Robin Hanson

Robin Hanson — Mon, 26 Mar 2007 21:17:44 +0000

Adrian, your question is deep and important. I do think that if blame lies with colleagues for not appreciating the work, and if they could not reasonably anticipate such lack of appreciation, then we should judge their work as good. The harder question is what if they could reasonably anticipate such unfair neglect of their work?

By: Adrian Tschoegl

Adrian Tschoegl — Mon, 26 Mar 2007 21:14:02 +0000

Re Bachelier and Bronzin: If a tree falls in the forest with no one there to hear it, does it make a sound?

The cases of Bachelier and Bronzin point to an interesting problem in judging quality of research in academia. If a work is not highly cited, ie, if it is not part of a coversation, is it good, even if the failure to start a conversation is a failing of their colleagues, not a failing of their work?

By: Barkley Rosser

Barkley Rosser — Mon, 26 Mar 2007 19:20:34 +0000

One source of the home bias is that most people are not aware that they are
losing by not investing abroad when they fail to do so. If they do not travel,
they do not observe the changing exchange rates, or if they observe a devaluation
of their own currency, it may be in an obscure way, such as higher prices at
Wal Mart.

Of course, the normal distribution is not the accurate one for fin market returns.
They show leptokurtosis by and large, and so the Black-Scholes-Merton formula needs
considerable modifying, which practitioners are well aware of.

By: Robin Hanson

Robin Hanson — Mon, 26 Mar 2007 19:15:14 +0000

Cato, we are not talking about making bets on particular investments, we are talking about investing in broad aggregates in order to reduce risk. Most people don’t know enough to make wise bets on anything, at home or abroad.

By: Cato Renasci

Cato Renasci — Mon, 26 Mar 2007 14:23:15 +0000

It seems to me that at least in terms of investment, much “anti-foreign bias” is quite rational: while a reasonably well-informed investor with risk profile X can rationally assess the risks in a particular investment in his ‘home’ region (which I would define as a region in which expectations about legal risks, information reporting format, sovereign risk, taxation, and currency risk is more or less homogeneous), it requires considerably more effort to assess risks of a particular investment in a region with different legal structure governing contracts, different information reporting and accounting requirements, different taxation schemes, and with different amounts of sovereign risk and currency risk.

Unless the anticipated return from the foreign investment were sufficiently greater than that for a ‘home’ investment to exceed the cost of obtaining the knowledge necessary to assess such risks as effectively as one can assess risks at ‘home’ and to maintain both that knowledge and the knowledge to assess ‘home’ risks, then it seems to me perfectly rational for an investor to prefer ‘home’ investments.