Why Do We Laugh? The Function Of Laughter

That was funny...that's why you laughed, right? You sure? I was watching the Roast of David Hasselhoff on Comedy Central, and it got me thinking. What exactly is laughter?! Evolutionarily, it must have some sort of function. And after some research and digging through a lot of crackpot theories, I found that it does.

You can go anywhere in the world, visit any culture, no matter what their language or their value system, they have laughter. There is something very important about this enjoyable but elusive little tendency of ours. Turns out that laughter isn't put there just for our enjoyment. Its actually serves a crucial and very important function in our lives.

Humans are tribal by nature, meaning we have a tendency to herd and form cliques (yes high school cliques are completely natural, sorry to disapoint). But the mechanism we use to form the bonds that build tribes is the very feeling we enjoy the most: laughter. Laughter is a way for our minds to both anchor positive feelings about others and to express those feelings externally. This way others can read our social cues about how we feel about them too.

So I started digging a little more and started to think of things like "Ok, well what makes something funny?" Comedians and researchers all over the country have come up with three theories as to what makes things funny, each having tendencies to contradict each other. So for my own sanity, I decided to come up with a new one that incorporates them all, coupled with an interesting piece of science to back it up.

Laughter is actually nothing more than the end result, its actually whats behind the laughter that is interesting. We have these things in our brains called mirror neurons. They are the neurons that allow us to visualize and empathize with people. They are the very reason why laughter as well as depression is infectious: we see some one laughing and we start laughing, we see someone crying and we get teared up. We as humans, use these neurons to empathize and understand people in order to solidify relationships. And these mirror neurons are the very reason why we laugh too.

Take a stand up comic for example. The reason we laugh is because these mirror neurons allow us to empathize or visualize a situation (or a joke) being described. This empathy then causes a building of tension as you listen and picture him in this situation. And for a brief moment you step into the comic's reality. This reality is meant to directly conflict with normal reality. This cognitive dissonance builds further until we become self-aware again. The moment of self-awareness creates surprise (due to how much tension we realize we now have!) which leads to a release of the tension through laughter. Which leads me to two important principles of humor:

1) Laughter is a mechanism for the release of tension and thus pleasurable feelings, (Think of a massage, that release of tension feels good right?), with the external action itself being a social cue to others as to what we are feeling about them.

2) The two required elements in all humor: tension and surprise.

And in case you try to notice all this happening at once, you probably won't, I tried. It all happens in less than a second!

To prove 2) take this for example. You can't tickle yourself, and when I say that I mean you can't tickle yourself to the extent someone else can. This is because when someone else tickles you, the anticipation of them tickling you builds the necessary tension, which is released by surprise when they actually do it! The mind's mechanism for laughter uses the same two ingredients in all cases.

As far as the social mechanism goes, it makes perfect sense. How many times have you found you've liked a person who never makes you laugh, nor who you've never seen laugh? Probably none. Laughter is a genius and enjoyable way that humans solidify relationships. This also explains forced laughter, which is what people do to bad jokes to show the person "hey i liked it! I like you!"

Its also why women always look for a man who can make them laugh. They instinctively know that laughter forms the bond they need to feel closer to him. Guys, how many times have you had girls laughing at stuff you said that wasn't even that funny? Girls, how many times have you found yourself laughing at everything he says? Social bonding at its finest.

I will point out something else I learned through all this is that humor relies on the individual's tension levels, which thus makes it subjective and thus more of an art than a science. What someone may find funny someone else may not because it failed to either raise or release their tension levels. Therefore there is both a values and an intelligence factor in humor.

Intelligence (intelligence being defined as "awareness") affects humor because in order for us to find something funny, we need to be able to visualize it or empathize with the person. If we can't visualize it, we won't find it funny. When someone says "I don't get it," chances are they failed to visualize or empathize with what was said. And it may not be you, it may be them. If someone lacks the awareness (i.e a calculus joke), its going to be harder for them to empathize with your funny calculus joke. They just "won't get it" because they can't visualize it happening. The more intelligence or global awareness of different experiences someone has, the more likely they will have the necessary empathy to understand the humor.

While intelligence affects empathy ability, values affect tension levels. If you crack a joke about a sensitive subject, you'll send tension levels through the roof without proper release caused by surprise. If you crack a racial joke that ends badly, its because the person on the receiving end's tension flew through the roof, but was not released through surprise. Maybe they weren't surprised because they have a personal experience with that particular perspective of reality that didn't end well for them. This leaves them just tense, and thus, feeling outraged.

Hope you found this interesting, its late and I'm going to bed.

Being Dynamic In A Dynamic World

There's a lot of bad information and bad advice circulating out there. The problem with bad advice is that it presents itself in the form of good advice by containing a kernel of truth. Its akin to a wolf in sheep's clothing that taught himself how to to say "BAA-AHH-AHH!"

Ever hear the phrase "don't be someone you're not?" Well what I'm about to talk about is really going to fly in the face of "don't be someone you're not." So here we go.

When we say "don't be someone your not," what are we talking about? Identity. Okay, so what is identity? Who are we, right? Well, we are our thoughts, beliefs, values, and actions. All of these come together to form a self perception of what kind of person we are. So essentially what we are saying is don't be someone that doesn't hold the same beliefs and values as you and don't do something that other person would do. But there is an inherent assumption in this, and that assumption is that beliefs and values do not change.

Usually when we see someone acting different and "being someone they're not," it's because some or all of the above factors have changed. What they used to believe they found doesn't hold up all the time or what they valued isn't really what they were after in the first place. These changes in beliefs and values lead to different actions, which in turn, completes the shift of identity.

But what about the creepy people acting all weird and stuff?! They're trying too hard, it just doesn't go, the shoe doesn't fit, or somethings just off. What we are perceiving is a lack of congruence. Essentially, we are seeing a divide in what they are thinking and what they are doing. Its like if someone is gritting their teeth, yelling, and turning red in the face, our social senses tell us they're angry. But what if someone lightly puts their hands on their hips, scowls in disappoint at you and then says, "Oooo I am soooo angry at you?" Incongruity, between what they're saying and what they really are thinking tells us they aren't really that angry.

Okay, now lets get back to those weirdos acting all strange and stuff, so what is this lack of congruence caused from? Why is there a divide between what they're saying and what they're doing? It all boils down to one concept: reference experiences. Case in point, lets take a guy who's very successful with women. Where does the road to his success in the sack start? It starts the very first time he has a crush on a girl, probably around elementary school. This innocent little crush at a very young age will set precedent for the rest of his pubescent years (and possibly longer in some cases!), because if the little girl returns the affection, it will boost his ego and solidify his identity as a young Giacomo Casanova. If he is rejected, he will remember the crushing blow for years to come. Either way the ego registers an experience to reference back to when placed in similar situations in the future.

Fast forward to his next pre-pubescent crush, what is going to happen here? Well if he was successful the first time he'll probably be thinking "well Suzy liked me, so she'll probably too, because I'm the shiz-nit and I got it goin' on!" On the flip side if he was unsuccessful, he will may very well be thinking "I dunno, Suzy turned me down, she's probably too, why would she like YOU? I can't do anything right" Then when he displays his affection, he does something incongruent because there's a divide between what he's saying and what he's thinking. In turn, Suzy thinks he's weird and blows him off.

The interesting thing about this is that it doesn't really matter what happens as a result of the first crush, or the second, or any for that matter. What matters is how it is perceived by the ego and integrated into our identity. The most fundamental law about the ego is that it always wants to be right, even when its wrong. It doesn't care that you can't get a date, it doesn't care that you can't go to the high school prom, and it certainly doesn't care that you are now a forty year old virgin. What it does care about is this: "Hey, at least I was right about being a loser! I always knew it! You can't say I was wrong!"

Is this any way to go through life? Being slaves of our egos? The problem with the ego is this: its static, doesn't wanna change. Comfortable. All Set. Its A-Okay! The mind is a resource-conserving machine and will do anything possible to be efficient and resourceful. Changing neural synapses is a burden and takes effort and energy. The ego is the mind's way of providing resistance towards environmental influence (which can be a good thing!). If every time someone told you something, you believed it...you'd probably be dead in a week. The ego is what protects us and solidifies our identity and ultimately enables us to operate with confidence.

What we must do then is to work around the ego, and the way to do that is with logic. As stubborn as the ego is, its rational. Its a slow process but essentially if we can find things that rattle our beliefs and values, we can create enough cognitive dissonance to influence a change. Remember how the ego is always right? Well its also pattern-finding and likes to assume things. So if we give it reasons why a belief isn't necessarily true, it will take those logical reasons as to why that belief doesn't work and form a new belief that takes into account the new information.

Case in point, lets say you have a personal belief that all Chinese people are short. Okay, well we could say well how short is short? Shorter than who? Than me? I'm pretty tall though. Have I really not met any Chinese people taller than me? What about Yao Ming? He's tall.

So our ego has just received a barrage of contradictory information that flies in the face of what it initially perceived to be reality. It will now make a new belief along the lines of "Okay, Okay, GENERALLY Chinese people are of shorter stature. However, exceptions and genetics play a huge factor in addition to cultural origin." It has taken our old belief plus the new information and created a new all encompassing belief.

So getting back to our little discussion on "don't be someone your not," all we are essentially saying is "don't be dynamic, don't adapt, don't change." But as with all bad advice, there is always a kernel of truth that makes it believable, and that kernel of truth is that you shouldn't be someone that is of different ethical or moral standards than you perceive yourself to be. Case in point, if you consider yourself to be a honest and good person, being a con artist would not be a wise career decision. This is because there is a divide between the ethical standards of a good and honest person and con artist. You can't be an honest con artist and be successful.

What it comes down to is this: don't be afraid to be dynamic and fluid, the only thing constant in life is change and yes, that includes you! Just remember that the mind and body come with complicated software, and sometimes it takes a little bit of time to make a totally congruent change.

ROT: Return on Tomatoes

I eat dinner every Sunday with my family, usually my parents, sister, her husband, and my girlfriend. At the beginning of every summer my parents always planted a small garden. Ever since I was a kid, they'd be in the backyard tilling the soil, planting seeds and just getting plain old dirty.

This past Sunday, I walked around the house to check out how the garden was coming along and was surprised by what I saw. Of course, I saw the zucchini, fresh peppers, lettuce, and some other lil' knick knacks in there, but what really caught my eye were the tomatoes. There were tons of them, some riper than others of course, but it was the shear number of them that made me really see them in a different light.

I couldn't help but think of how novel the idea of a garden is. You spend some time doing a little research on how to garden, then spend some time planting, getting dirty and tired in the sun. And once you're done, you're not done. You gotta water...and wait....and water...and wait...until something starts to grow.

But when you finally see the pay off it, you learn something. Something just clicks. About how doing something today and letting it grow for tomorrow really ends up working out. This can apply to your career, relationships, finances, and even your hopes and dreams. Gardening...I mean its a really novel idea, and the pay off is astounding in two ways. First because if you've never tasted a fresh homegrown tomato you haven't lived, and second, because of the pride you must get from knowing that "I...created...this."

How similar to life gardening is, especially investing. We put away money, not knowing how it'll ripen or what it will truly yield. During the interim watering periods nothing seems to happen. During dry spells some stocks shriveling and dying...others coming close, all the while we're sweating, and watering, and sweating, and watering!

Yet there's one thing that a garden can teach you about stocks, and its that all the tomatoes don't ripen at the same time. Some turn red before others, so while you're picking today's salad or sandwich topping there are still others that are there for tomorrow.

Just concentrate on the ones that are turning ripe today, and leave the unripe ones for another day.

So maybe its time to ask you: how's your garden coming along?

~J

The Stock Market is a Lot Like Baseball

The stock market has always amazed me. It's such an integral part of our economy, our jobs and our financial futures yet the average person has very little knowledge as to how it functions. You would think that such an important aspect of our daily lives would have been taught to us in school, yet we walk away with only basic economic concepts.

The underlying fact is that because so many people know little about it, investing can be a daunting and in the case of Madoff, be a harmful experience. So much relies upon what we have already accumulated, yet we still aren't where we want to be. Understanding the stock market and how it functions can help us make investment decisions with a little more confidence.

The stock market can be compared to the World Series. There are two teams, announcers, an audience and a whole bunch of other components that really tie the two together concepts together in similarities.

In the stock market there are buyers and sellers, these can be likened to the two teams playing. There are two teams playing against each other and only one will win. The fundamental truth here is that in order to buy a stock, someone has to sell it to you. That means that the person selling it to you thinks no more economic value will be extracted from it while you think there is still potential. One of you is wrong.

Another component in the stock market is mutual funds. Mutual funds are the employees who work in the back office for the championship team. They'll get a ring if their team wins, but their bonus is never as big as the players themselves.

The audience can be likened to index funds, they're just there to watch be at the game and win over time just for being there. However, they don't really see any immediate benefit besides exposure to the game.

The announcers are like Wall Street, calling the play by play and reporting on recent happenings. They sway between excitement to lethargy depending on what is happening in the moment. However, as knowledgeable as they may seem, they cannot be relied upon to accurately predict the long term outcome. The only thing they do is broadcast and sometimes point out arbitrary facts.

Now that all the basic components of the stock market have been described, we need to talk about the game itself. Now while a typical World Series game lasts nine innings, the stock market world series is game that doesn't end. So how is a winner determined? The winner is determined depending upon the individual time horizon of the players on each team.

So if you are buying Procter & Gamble for a long term investment and it drops in the short term, you haven't lost the game yet until your time horizon has been reached. This allows there to be multiple winners and losers all simultaneously, making the game a little more fair to the participants involved.

Also, unlike the World Series where only one game is played at a time, there are many games being played all at once in the stock market depending upon what stock you are talking about. Each stock has its own game being played. So there is the Johnson & Johnson game being played along side the Procter & Gamble game and so on and so forth. As an investor, you will find yourself playing in different games on all different teams depending upon the position you've taken in your portfolio. Some you may feel are going to be winners making you a buyer, while some you may feel is going nowhere or down, making you a seller (or even a short).

This sort of competitive play goes on in all the different markets associated with the stock markets (derivatives, CDS's, futures, etc.) and it is up to you as an investor to decide what games you want to be in and what your role is going to be. Are you a player, a back office manager, or an audience member? It depends upon your strengths and comfort level in the games you are a part of.

(This article originally posted on April 19th, 2010 on Technorati. Read the original article here.)

Is Intrinsic Value the Most Important Thing in Investing?

Many people may be familiar with investing in common stocks as growth vehicles in their financial portfolio. With information a click away on the internet and various books just as available on investing, it seems that everyone has the power to manage their own portfolio like they were a professional investment manager.

Many of these sources point toward Warren Buffet's style of investing, commonly known as value investing. The premise behind the strategy cites that investors own a small piece of a company. The basic philosophy is that a good investment is made in good companies selling at a discount to their intrinsic value.

However, caution and an analytical approach should be taken when defining intrinsic value, which is loosely defined as the price at which a person would be willing to pay for the whole business. This assumption is vague and not useful in practicum at all.

The truth about intrinsic value is that it is subject to the participants involved, meaning that, depending on the buyers and sellers own reasoning, intrinsic value will differ. If you were a small bank up for sale, you would most likely charge a far lower price to a private buyer than you would, say to Bank of America. This is mostly because variables such as the size of the buyer and synergy value come into play.

Furthermore, intrinsic value differs between how the buyer or the seller are evaluating it. While things such as future earnings are factored into both perspective values, there are variables that will discount the value of the business on the side of the buyer that would not affect the value to the seller. These are things such as lack of liquidity and non-diversifiable risk.

Likewise, the value of the business to the seller will factor in the size of the buyer that would not affect the value calculation on the part of the buyer. As a buyer, how big the company is should not make me change my estimate of what another prospective company is worth to me, but it will to the seller.

How Much Is That Business In The Window?

Let's pretend for a second, you are the owner of a dry cleaners business. Business has been good the past few years, you've managed to grow your business at about 20% per year by opening a few new locations. You've even managed to sock away about $50k per year in cash after all expenses and re-investments. You remember back only four years ago that with only a $15,000 investment, you've come a long way.

One day, a representative from a larger chain of dry cleaners, comes in and offers you $250,000 to buy you out. Do you take the money?

Knowing the value of your business is a crucial part of being a business owner. Unfortunately, the price of a business is not as clearly defined as say, the value of your house, which has comparables and mortgage value assigned to it by a bank. Unlike a single asset such as a house, anything that produces a profit takes a significant amount of financial analysis, future projections, and discounting to determine what the true value is.

In this example above, you'd be foolish to accept such a low price since a worst case scenario, valuation would still put your worth at well over $200,000. Ironically, about five years ago, insurance agents found themselves in the same scenario when a large insurance corporation came around offering independent agents a buyout price. Most of them had no idea what they were worth and were ill-prepared for the situation.

The truth of the matter is, a buyout proposition can happen at any time to any business, especially in highly fragmented industries that are cost competitive. It is the responsibility of the business owner to know what they're worth in multiple income scenarios so they can make sure the price offered is fair.

Hiring a skilled business appraiser is an investment in your business that will pay for itself many times over in the future.

I would suggest this to anyone who in the future plans to sell their business or pass it on to their children through their estate. You can do an online search for one in your area. Just make sure they have credible experience or are certified by one of the accredited valuation bureaus (IBA, ASA, NACVA, CFA Institute, or a CPA with a ABV distinction).

Having the financial transparency of a proper business appraisal will give you and anyone else the proper assurance that your business is worth the time and effort you put into it.

The Inevitable Bankruptcy of Domino's Pizza

I happened to get a stock tip that Domino's Pizza (DPZ) was undervalued and was both shocked and appalled at what I saw after further analysis. Over the past 10 years, Domino's Pizza has had increasing negative stockholder's equity, a situation which I thought was only theoretical and seen in business books. Alas, here it is in the flesh.

For those of you with limited accounting background, stockholder's equity appears on the balance sheet. Every company has assets with a certain total worth and the money that the company used to obtain those assets can come from three main sources: borrowing, purchase of stock from investors, or retained earnings (from business operations).

So what we have here on the balance sheet is that domino's assets in total are worth $453 million. But it has borrowed over $1.7 billion dollars! This results that should the company default, the stockholders will owe the creditors an extra $1.2 billion dollars* (and that's excluding the interest on those loans!)! I have never seen this in practice before, never mind in a company with such huge brand equity such as Domino's.

But wait! There's more! In 2008, Domino's Pizza recapitalized its debt by issuing long term notes at about 6%, due in 2037, in order to pay off its current loans. This is the equivalent of paying off your student loans with credit cards. Smart move...

So as Domino's reaches terminal velocity falling down the black hole of debt, it looks like its just a matter of time until it splatters on the bottom. My question is, who the heck are these analysts issuing "buy" ratings for Domino's (here)?! These people need to be reevaluated by their respective firms for not being able to read an annual report. Shame on you Wall Street...




*Of course, due to the laws of incorporation, shareholder's would not be personally liable for these liabilities. See the value of being incorporated? ;o)