• Monetary Metals
    05/02/2016 - 01:28
    The price of gold shot up this week, and silver moved proportionally. Headlines are screaming for gold to hit $10,000 or $50,000. Does this alleged new bull market have legs?

'Trust', 'Faith', And Macroeconomic Policy

Tyler Durden's picture


The “Marshmallow Test” is a landmark study in child psychology which tests a toddler’s ability to delay gratification in return for the promise of a reward in the future.  Those who can wait 15 minutes unattended to eat a marshmallow are rewarded with a second treat. ConvergEx's Nick Colas, however, notes that more recent work on the topic, however, shatters the notion that innate self-control defines future success.  The real answer is, Colas adds, not surprisingly, trust.  If the child doesn’t believe their environment to be sufficiently predictable, they will be much more likely to gobble up the first treat regardless of any promised reward for waiting.  Since all investing is ultimately a game of delayed gratification, trust plays an under-appreciated role in the success of any macroeconomic policy on long term capital market and economic outcomes. What it essentially says is that you can’t keep whacking away with novel policy programs until one catches hold.  Trust in the system is what keeps the population playing along.  And when that trust erodes, the next iteration of confidence-boosting measures is less effective.  Repeat that cycle a few times and you end up with a population that will take the first marshmallow, gobble it down, and move on.

Via ConvergEx's Nick Colas,

New York is known for, among other things, its hyper-competitive private school system.  Almost before conception, parents start plotting how to get their child into the “Right” feeder kindergarten with the best record of eventual acceptance to an Ivy League school.  Preferably Harvard, but Yale and Brown are acceptable outcomes as well.  There is a closet industry of consultants to help complete admissions packages, train children for their interviews, and network among alumni parents to get the “Right” recommendation letters.

In my experience, most of these parents have heard about the dreaded “Marshmallow Test,” first administered at a nursery school associated with Stanford University in the early 1970s.  It goes like this:

A young child – 4 years old, give or take – sits at a table with an adult researcher.


The researcher places a marshmallow or other treat on the table.  He explains that he must leave the room for a few minutes.


The child is told that if he or she can wait until the researcher returns before eating the treat, they will receive a second treat as a reward.


The researcher leaves the room.

About 66% of children tested can hold out until the researcher returns, typically 15 minutes or so.  It is essentially a test to see if the child has the innate self-control to delay gratification.  Follow-up surveys of the children involved in the original study found that those who could wait for treat #2 had much better life outcomes.  They went to better schools, got better jobs, and expressed greater satisfaction with their lives.  The lesson here seems clear – either you have it (self-control), or you don’t.

Turns out the whole Marshmallow Test is deeply flawed, if not entirely wrong.  A doctoral candidate in brain and cognitive sciences named Celeste Kidd happened to be working in a homeless shelter during her studies and realized that none of the children there would think twice about gobbling up the first marshmallow given their generally uncertain living conditions.  A totally rational decision, that.  So she and her colleagues ginned up a study that went like this:

Prior to administering the Marshmallow Test, the researcher gave the subject child some poor quality art supplies – a broken black crayon and a scrap of paper, for example.  They told the child that they would return in a few minutes with some better supplies.


Sometimes the researcher returned with the promised better supplies.  And sometimes they didn’t, saying that they had run out.


The children who received the better supplies as promised could hold out for 12 minutes on average before eating the first marshmallow.  Those who didn’t receive the promised supplies could only hold out for three.

Turns out that the Marshmallow Test is as much a measure of how predictable the child’s home life might be, and not just an independent measure of “Will power.”  Frankly, that makes a lot more sense than the first interpretation of the test, which seems to point to some innate ability to delay gratification as the key demarcation for a success adult life. If you trust your surroundings, whether you be 4 or 40, you are more likely to forgo immediate reward for a later and larger payoff.

The transition to the psychology of saving and investing is an easy one, since the choice between spending finite resources and putting them into a financial system is essentially the Marshmallow Test writ very, very large.  Delayed gratification only works if you trust the system underpinning the promise of future payoffs.  Works with kids in their most formative stages of life; no reason to think adults are much different, especially when it comes to emotional topics such as investing and the fear of loss.


Take, for example, the savings rates in various developed and emerging countries around the world (table above).  The typical economic explanation to explain why countries like Germany have a 10% net savings rate and the U.S. is closer to 2-3% revolves around capital flows, the depth of lending markets, and other structural factors.  Other interesting pairs: Sweden at 11%, Estonia 4%, and Austria at 8% and Ireland at 2%.  No doubt that conventional economics explains much of these disparities.

But I can’t help but think that ‘Trust’ must play some kind of role as well.  China has a phenomenal savings rate of something like 30%; the U.S. languishes well below 5%.  Could it be that some combination of culture and the relative success of these two economies color the psychology of its citizens/savers?  If I worked in an economy that got me off the farm and into a decent job in a city I know I’d be more likely to trust that financial system than one with 2 ferocious stock market “Corrections” over a decade and sequential stock and housing busts over the same period.  Don’t get me wrong – the Chinese system has potentially fatal flaws.  But as for which might engender more ‘Trust’ by virtue of success, there is room for debate.

And it its core, I think this notion of the keystone importance of “Trust” is at the heart of every logical hyper-bearish argument out there.  The Bank of Japan’s move last night to super-size its Quantitative Easing program to 10% of GDP is a case in point.  In the United States, the Federal Reserve’s own aggressive liquidity programs have brought huge returns to capital in the form of a double in equity values but only a muted response from the real economy.  Is that how to build trust in your policies?  Granted, the jury is still out and things may work out yet.  Japan may get to 2% inflation, and the Fed may get its targeted 6.5% unemployment rate.  But if they don’t, you’d expect the populations of these two countries to lose a lot of trust in their respective economic systems.

The revised Marshmallow Test, which measures trust and confidence, is a cautionary tale as we wind our way through the ongoing “Recovery” in the global financial system.  What it essentially says is that you can’t keep whacking away with novel policy programs until one catches hold.  Trust in the system is what keeps the population playing along.  And when that trust erodes, the next iteration of confidence-boosting measures is less effective.  Repeat that cycle a few times and you end up with a population that will take the first marshmallow, gobble it down, and move on.

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Fri, 04/05/2013 - 12:49 | 3413292 Banksters
Banksters's picture

FUCK MARSHMELLOWS, I want my cocaine NOW!  And bring some strippers and booze while you are at it.

Fri, 04/05/2013 - 12:50 | 3413303 whotookmyalias
whotookmyalias's picture

Warning, I shorted the DOW and S&P500 today.  I could not resist the marshmallow. Those of you shorting may want to close your positions until I get spooked and cut my losses, because I'm sure now that I'm short it will continue to rise.

edit - also bought some paper gold and silver for the short term trade. So get out of those before they drop.

Fri, 04/05/2013 - 12:59 | 3413345 Ahmeexnal
Ahmeexnal's picture

Burnt aspartame is very dangerous.
Same with burnt high fructose corn syrup.

Fri, 04/05/2013 - 13:00 | 3413351 malikai
malikai's picture

I hear Burnt Ends are pretty good.


Fri, 04/05/2013 - 13:03 | 3413355 Ahmeexnal
Ahmeexnal's picture

Silver on an upward vertical move doensn't sound like a "trust and faith" reinforcer to me.
Nasdaq & DOW about to be halted?

Fri, 04/05/2013 - 13:19 | 3413404 kaiserhoff
kaiserhoff's picture

Harvard, Yale, Brown?

Brown has produced mostly hard as nails lesbians for the last few decades, so unless you want your daughter going that way, or your son to get his nuts chewed off, I'd be careful with that shit.

The concrete canyons...., sheeesh.

Fri, 04/05/2013 - 13:32 | 3413446 francis_sawyer
francis_sawyer's picture

The STAY PUFT Marshmallow Man: The chosen Destructor Form of Gozer [he just popped into my head]


There's only one way out ~ We'll have to cross the streams...

Fri, 04/05/2013 - 13:34 | 3413459 Skateboarder
Skateboarder's picture

The crackers and the chocolate need s'more marshmallow bailout in order to work. Thank god we have an infinite supply of marshmallows. Right?

Fri, 04/05/2013 - 14:53 | 3413717 Boris Alatovkrap
Boris Alatovkrap's picture

Marshmallow Test! What idiot child is want to eat fungus - quick or later!? If want real world test, is use delicious cuisine like cabbage roll. Marshmallow Test is stupid idiocy doom for false results.

Fri, 04/05/2013 - 14:56 | 3413726 Boris Alatovkrap
Boris Alatovkrap's picture

Sorry, wife is to explain difference between Mushroom and Marshmallow. Please to ignore previous comment. Okay?

Fri, 04/05/2013 - 19:02 | 3414558 Boris Alatovkrap
Boris Alatovkrap's picture


Boris is go with wife to super market (long story - Boris is lose license and is must wife drive) and buy Marshmallow to test experiment for children.

Unfortunate, Boris is try Marshmallow in car before get home, and eat bag whole. Maybe experiment is work with cabbage roll?

Fri, 04/05/2013 - 20:43 | 3414976 Colonel Walter ...
Colonel Walter E Kurtz's picture

LOL! You are my favorite Russkie...carry on.

Sun, 04/07/2013 - 07:05 | 3418093 Go Tribe
Go Tribe's picture

What did your wife promise you if you delayed eating the second marshmallow?

Fri, 04/05/2013 - 14:57 | 3413733 Boris Alatovkrap
Boris Alatovkrap's picture

Brown has produced mostly hard as nails lesbians

Of course lesbian is hard as to nail. Lesbian is by definition not want to be nail, that is why is lesbian. Do not need University degree to know such simple facts for life.

Fri, 04/05/2013 - 15:31 | 3413866 kaiserhoff
kaiserhoff's picture

Boris is understanding beyond contemplation;)

Fri, 04/05/2013 - 16:49 | 3414226 Boris Alatovkrap
Boris Alatovkrap's picture

Boris is to posit simple theory of lesbian gender - is disgust by hairy back.

Boris is try shave back, but is always grow back more thick. Boris give up.

Fri, 04/05/2013 - 13:30 | 3413436 Groundhog Day
Groundhog Day's picture

Halted you say?

for what locked limit up?

The market can't even hang on to a 130 point loss for more then an hour before it ramps higher... we could be even or up by 4:00


Fri, 04/05/2013 - 18:31 | 3413742 Boris Alatovkrap
Boris Alatovkrap's picture

Market is only halted when gang boss (ak "Banksters") is to lose money.

Fri, 04/05/2013 - 13:09 | 3413368 earnyermoney
earnyermoney's picture

OT Anyone puruse voltairenet.org on occasion? Last night I attempted to visit the site and got a warning from google that the site had failed a couple of their mal ware tests. I found this strange, first time I've ever seen this response to a URL. voltairenet.org has the opposite story line on what you hear/read in the Western media. Especially it's coverage of Libya/Syria. Beginning to think this was Google proxy for U.S. propaganda over the "dirty" wars.

Fri, 04/05/2013 - 12:50 | 3413307 Cursive
Cursive's picture


If you were not an Instawallet user and you still have 229.99BTC, apparetly, you can have some "AVALANCHE SPA POWDER" delivered to your door.


Sun, 04/07/2013 - 07:09 | 3418096 Go Tribe
Go Tribe's picture

This test is too easy. Replace those marshmallows with Doritos and see how many kids delay gratification.

Fri, 04/05/2013 - 12:48 | 3413301 SoundMoney45
SoundMoney45's picture

Trust us, the fiat currency is sound.  Not a problem in sight.

Fri, 04/05/2013 - 12:56 | 3413329 akak
akak's picture

No risk of that, zero chance.

Fri, 04/05/2013 - 15:04 | 3413747 Boris Alatovkrap
Boris Alatovkrap's picture

Population is sleep like baby in dreamland, where rocking horse people is eat marshmallow pie.

Fri, 04/05/2013 - 12:50 | 3413308 Moe Hamhead
Moe Hamhead's picture



Fri, 04/05/2013 - 12:59 | 3413313 earleflorida
earleflorida's picture

Harvard = POS


Ps. Harvard's library #1... Yale's Library #2 in the country

you can lead a horse [student] to water, but you cannot make him [think outside the desert?] drink-- the greatest minds in the world had little or no formal education except for grandiose self esteem, motivated only their unquenchable thrist for knowledge...

Fri, 04/05/2013 - 13:10 | 3413370 DoChenRollingBearing
DoChenRollingBearing's picture

That is a great observation.  I hear about some Harvard students who really do study very hard and are very bright.  I have also heard about those who do zip while there...

As well as students, like you mention, who learn and advance on their own.  It all comes down to what's within.

Nicely done!

Fri, 04/05/2013 - 13:29 | 3413429 kaiserhoff
kaiserhoff's picture

At the time of Shakespeare, the Bodleian Library at Oxford was probably the most extensive in the world.

It held only 6,000 volumes, all but a handful in Latin.

There is no evidence the Stratford actor ever went near Oxford, or for that matter, ever owned a book.

As Mark Twain pointed out, great writers have been known to own a book..., sometimes two.

Fri, 04/05/2013 - 13:33 | 3413448 NoDebt
NoDebt's picture

Harvard grads do a great job administering the businesses started by Harvard drop-outs.

Somebody had to say it.

Fri, 04/05/2013 - 12:55 | 3413321 cherry picker
cherry picker's picture

Who can trust .gov?

They say one thing to get elected or write a law, and then something different appears.

It was like this thing with no new taxes at the beginning of the year, meanwhile neglecting to inform all Americans that the payroll tax would be coming in.

It may not be a new tax, but it was in limbo for awhile so when it reappears, it is a new confiscation, is it not?

Fri, 04/05/2013 - 12:55 | 3413322 slightlyskeptical
slightlyskeptical's picture

We may get to the 6.5% Fed unemplyment target, but will anyone really TRUST that those numbers are real?

Fri, 04/05/2013 - 13:41 | 3413473 NoDebt
NoDebt's picture

Not I, said the fly.

The article this morning by Tyler about crossing the 90MM threshold of non-working adults thanks to a ~700K labor force drop-out number for the month went viral everywhere..... but in the MSM.  For crying out loud, even Rush Limbaugh gave Tyler and ZH attribution on quotes from that article no more than half an hour ago.

It's the only reason headline unemployment numbers continue to fall.  The ONLY reason.  Yet everywhere out in CandyLand the report is "unemployment continues to decline".  Bullshit.  We're falling apart every day.  Anyone halfway plugged into reality knows not to believe the propoganda.  That's still a small minority, unfortunately.


Fri, 04/05/2013 - 14:11 | 3413573 earnyermoney
earnyermoney's picture


Barry's a compliant puppet.

Suckers vote.

Fri, 04/05/2013 - 12:55 | 3413325 nicoacademia
nicoacademia's picture

wtf is gg on in Denmark that they're eating all their marshmellows n borrowing some?

Fri, 04/05/2013 - 12:56 | 3413328 Moe Hamhead
Moe Hamhead's picture

Someon help me.  Don't I recall a statistic on world leaders that claimed an unnaturally high percentage were from an orphaned childhood.

-Just jarred my memory, but it was long ago, so I may have forgotten.

Fri, 04/05/2013 - 12:56 | 3413335 Bear
Bear's picture

I've waited since March 2009, give me the fuc.ing marshmallow already!

Fri, 04/05/2013 - 13:05 | 3413360 sansnobel
sansnobel's picture

Why invest in anything other than yourself?  Why invest in any market that is just going to confiscate your earned wealth through risk, or taxation or Inflation/Deflation of Credit?  Why not just invest in land and self sufficiency and realize that there is no such thing as "Safety" in a world of cheats, liars and thieves in and outside of government?  Without the rule of law there can be no society other than one run by thuggery and graft.  In our case in the United States we have grifters touting how law abiding they are and how they should be chosen to lead, but in reality they are the people who are least likely to apply the law equitbaly in any and all cases.  You don't own it unless you can defend it from confiscation in one form or another.

Fri, 04/05/2013 - 13:10 | 3413366 ebworthen
ebworthen's picture

My marshmallow was burnt in 2008.

Since then I see nothing but bankers and politicians sharing a big bag of marshmallows I bought for them.

Like those homeless kids I have learned my lesson, and now I keep what marshmallows I have left at home, guarded.

Fri, 04/05/2013 - 13:10 | 3413369 Hubbs
Hubbs's picture

Damn, only got to read the first half of this before commenting. No wonder the millenials and youth of today are noticeably lazier, and less motivated, want it all now, think they deserve it all now etc.


They know the system is going to screw them.


So, in my opinion, I am left with two disturbing issues of fact:

1.) Millenials in general are lazy, unreliable, unmotivated workers. For the most part, I wouldn't hire a millenial because they are high risk for poor work ethic etc. I look no further than my estranged manipulative daughter and her mooching, lazy, lying oxycontin popping boyfriend who together have two children, and spend more time and effort trying to qualify for govt assistance than getting on their feet. They can't even support themselves and now they want society to support their children too. They had one child out of wedlock, I raided $350,000 from my retirement account to give them $200,000 to finish school, living expenses and get on their feet, but they turned around and had another baby and are now right back where they started, no nursing or IVY tech degrees, just asking for more money.

2.) The Millenials , even those who do not fit the above stereotype but who are educated, motivated, dependable etc., nevertheless are going to get screwed by the system. If I were 20 today, I would revolt!!!

Fri, 04/05/2013 - 13:32 | 3413451 Provocateur
Provocateur's picture

Enjoy your $200,000 education. Sounds like you learned a lot.

Fri, 04/05/2013 - 13:54 | 3413516 Matt
Matt's picture

Where did the other $150,000 go?

Fri, 04/05/2013 - 15:57 | 3413981 Hubbs
Hubbs's picture

income tax at marginal bracket, plus the 10% penalty...yeah the government will take 1/3, gladly.

Fri, 04/05/2013 - 15:55 | 3413975 Hubbs
Hubbs's picture

Oww, good hit, provocateur!  Nope, nothing learned. Wife and I discussed the issue of enabling their reckless and indulgent behavior. As always, there are other issues, but  I guess a clear conscience has it's price.

Fri, 04/05/2013 - 13:36 | 3413464 donsluck
donsluck's picture

I am sorry about your spawn, but they ARE yours! You sound just like them, you would revolt, but only if the impossible occured (time went backwards). Lame, dude!

Fri, 04/05/2013 - 15:53 | 3413970 Hubbs
Hubbs's picture

Nope , not lame.  If I were one of the hard working, motivated, not self indulgent millenials, I would revolt. If I were one of the usual ones I have stereotyped, then I would not. I would continue to expect society to hand things over to me, and therefore your premise is wrong. Yes I procreated them, but one is at Duke doing a residency , is very hard working, frugal and probably as best as can be turned out. So, no kids...then you is paying for your retirement?

Fri, 04/05/2013 - 15:53 | 3413971 Hubbs
Hubbs's picture

Nope , not lame.  If I were one of the hard working, motivated, not self indulgent millenials, I would revolt. If I were one of the usual ones I have stereotyped, then I would not. I would continue to expect society to hand things over to me, and therefore your premise is wrong. Yes I procreated them, but one is at Duke doing a residency , is very hard working, frugal and probably as best as can be turned out. So, no kids...then you is paying for your retirement?

Fri, 04/05/2013 - 13:41 | 3413478 kaiserhoff
kaiserhoff's picture

They are too busy texting to care, which is only one reason so many of them are unemployable.

A generation obsessed with gossip and pop culture, and yet lacking basic communication skills.

As if there were any real jobs for them.  The world ending in a whimper.

Fri, 04/05/2013 - 14:04 | 3413546 Matt
Matt's picture

Boomers lived in a time of dollars reedemable for gold, a time when working for a single company for your entire working life was not only possible, but common. A time where retirement seemed inevitable.

These days, it doesn't really matter how good of an employee you are, you can get fired over office politics, something you say or do outside of work, or the whole company can just get vaporized at no fault of the worker.

It seems people rightly have less trust in their environment, not just for saving money, but also their employment; why put in the effort at a job that can vanish at anytime, at no fault of your own?

Fri, 04/05/2013 - 14:37 | 3413655 Diogenes
Diogenes's picture

"Boomers lived in a time of dollars reedemable for gold, a time when working for a single company for your entire working life was not only possible, but common. A time where retirement seemed inevitable."

Maybe when they were babies. The time you describe ended in the 1970s.

Fri, 04/05/2013 - 14:42 | 3413676 Matt
Matt's picture

I suggest that people are more heavily shaped by their childhood and early adulthood, and that their perspectives become more concrete and less changeable as they get older.

I think the Great Depression / Dustbowl would have more long term impact shaping someone that spent their teens in the 1930s, then someone who was already in their 30s.

It isn't so much the redeemability, as the general faith in the system, the certainty that going to college will get you a good job, that your pension will cover your retirement, etc.

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