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Mother Yellen's Little Helper - The Rate-Hike Placebo Effect
Via ConvergEx's Nicholas Colas,
Americans are increasingly likely to respond positively to a placebo in a drug trial – more so than other nationalities. That’s the upshot of a recently published academic paper that looked at 84 clinical trials for pain medication done between 1990 and 2013. Over that time, Americans reported an almost 30% incremental reduction in pain symptoms when given a sugar pill or other placebo as compared to a 10% reduction for in non-U.S. studies. Why the difference? The paper’s authors suggest that drug advertising – only allowed in New Zealand and America – may be giving trial populations more confidence that a drug – any drug – will work. Also a factor: drug trials are better funded now, and therefore have more participants and go longer. All that may well spark more confidence in trial participants, even those taking placebos.
These findings, while bad for drug researchers, does shed some light on our favorite topic: behavioral finance.
Trust and confidence makes placebos work, and those attributes also play a role in the societal effectiveness of central banks. That’s what makes the Fed’s eventual move to higher rates so difficult; even if zero interest rates are more placebo than actual medicine, markets believe they work to support asset prices.
I keep a mental list of underappreciated scientific developments of the 20th century, and near the top is the placebo. While you can argue that the roots and herbs of ancient societies were the first faith-based medicines, modern placebo research dates to a relatively recent 1955. That was the year Harvard research Henry Beecher published “The Powerful Placebo” in the Journal of the American Medical Association. It was essentially a huge “You’re doing it wrong” to the pharmaceutical industry and showed that drug tests needed to be performed against a placebo and dual blind (neither subject nor researcher knows whether they were taking/dispensing a real medicine or a sugar pill).
The only problem is that placebos are really stiff competition. As Beecher noted, many subjects in non-placebo trials reported feeling better even when the drug in question was later found to be totally ineffective. And over the years, researchers have found ways to make placebos “Work” even better: yellow placebos work great as antidepressants, red pills are “Uppers”, branded pills work better than generics, and a placebo painkiller given 4 times a day performs better when you take only twice daily. The upshot of all this is that in highly competitive areas like depression medication, drug companies have to spend billions to produce products that beat the placebo.
Medical researchers know that the placebo effect has risen over the last 15 years, but one recent paper attributes this to a very specific reason: Americans. Dr. Jeffrey Mogil and his team at McGill University in Montreal looked at 84 drug trials dedicated to ameliorating pain caused by nerve damage. Here’s a summary of their findings and working theories:
Since the mid-1990s, Americans in drug trials to assess pain medication have reported a 30% increase in the efficacy of placebos. In Non-U.S. studies, that number is closer to 10%. Taken as a whole, therefore, American drug trials explain most of the increase in the global placebo effect.
The researchers at McGill do not have an explanation for this disparity, but suspect the changing scale of U.S. drug trials. We know that placebos tend to work better when patients trust their doctors (Kelley et al 2009). American drug companies have been extending the time involved in drug trials over the last decade as well as increasing their population size, in part to compete against the potentially wide variance of the placebo effect on smaller groups. As it turns out, large drug trials where researchers get to know the patients well after weeks of contact are exactly the type of environment where placebos can shine.
The other idea forwarded in the press coverage around this study is that the U.S. is one of only two countries (New Zealand is the other) where drug companies can advertise directly to the population at large. Pharma companies spend just over $4 billion/year on U.S. advertising, mostly on television ad buys. Some of the study’s authors posit that this has a halo effect on drug companies generally, since Americans are unique in viewing these advertisements. If called to participate in a drug trial, they may increasingly assume that they are going to get something new, innovative, and (presumably) effective. Even if it’s just a sugar pill.
We see the placebo effect as medicine’s version of behavioral economics, that wing of the dismal science that recognizes the fallibility of mankind rather than assuming an economic actor will always behave as the models say they should. If human psychology played no role in drug testing or medicine, you wouldn’t need a placebo option. If humans behaved like the wealth/utility maximizing animals described in economic models, you wouldn’t need a behavioral part of the discipline to explain why they often don’t. The truth is human emotion gets in the way of both, so we need placebos and psychologists.
The central lessons placebos have for medicine is remarkably simple.
First, the patient/doctor bond plays a large role in the success of a placebo. We know that from earlier studies and from surveys of doctors (one released two years ago in the U.K) which show they routinely prescribe placebos to their patients. The doctors mean no harm, and the most often given reason for the practice was to ward off requests for medication inappropriate to the patient’s condition.
Second, as the McGill study seems to show, is that some populations will react to placebos more readily than others. The preconditions seems to be background messaging (all those ads no TV) and large/lengthy trials that encourage confidence among the patients in the company performing the trial as well as the researchers on staff.
To draw the analogy to economics, try this model on for size:
- Central bankers around the world are the researchers, looking for effective treatments for slow global growth and sluggish price inflation.
- The general population are the people engaged in the trials to see which treatments are most useful.
The American Federal Reserve ran the most successful trial with its Quantitative Easing program. Asset prices went up, unemployment went down, and we don’t really have to care what parts of those outcomes were caused by the actual medicine of zero interest rates/bond buying versus the placebo effect of trust in Federal Reserve. Now, the Bank of Japan and the European Central Bank are running the same experiment and hoping for the same outcome. Whether the actual cure shows up or just the placebo effect is the big question just now.
The challenge for the Fed now is that no one is quite sure how much of the “Cure” was medicine and how much was the placebo effect. The first Fed rate hike will begin to tell the story, whenever that is, especially for equity markets. It will all come down to how much investors actually trust the Federal Reserve to reduce the dosage of low interest rates and at what speed. That is where the comparison to medical science is frustratingly inadequate. Medicine cures, but when it comes to economics there’s always another illness coming around the corner.
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Boring, light doom on this Friday.
Special peek to next weeks edition of the Chat Weekly digest. What you all have been missing out on.
DANGER / NSFW : http://bit.ly/ZHCWeek3 (Be prepared to be offended)
You're sick, I love it!
The most disturbing part of this whole thing is the amount of time it took someone to compile this. Imagine the wealth that could be created of human productivity was actually put into something useful...
"Psycholigically disturbing and highly erotic. A triumphant tour de force."
-- Rolling Stone Magazine
It would be great to hear a psychologists analysis of this publication.
In case the audience is a bit too young:
"Mother's Little Helper" - Rolling Stones
https://www.youtube.com/watch?v=E-62QgzmcDQ
"What a drag it is getting old..."
Dammit.
Janet.
I hate youuuuuuuu!
http://www.whatinvestment.co.uk/financial-news/funds/2496091/why-i-am-bu...
Gold has a huge placebo effect. People BELIEVE that gold has value, and belief is the only thing supporting it's value.
The fund manager got it right, that the opportunity cost RIGHT NOW of holding gold is low. However when interest rates rise, gold will plummet and everyone will get rid of gold.
sum' bitch!
The most interesting observation regarding the placebo effect is -- it works. People report feeling better. For no reason. Stop and think about that just a moment. Set aside the implications for the drug companies -- that a number of people can pretend to take an expensive medication and feel better and just maybe even get better -- and just think about what that says about our perceptions of reality.
Now I have a news flash for all you bright people out there: the entire human world (most of the parts that count) is an illusion.
If you've been reading my comments for very long (going on 5 years my niggas) then you'll recognize where I have been saying pretty much just that nearly the entire time. That none of this is real. Not the power, not the money, not the profits, not the risks, not the manipulations, not the fear, not the opportunity none of it is real, not now nor ever and certainly not for the last 200 years. Or 2,000 years.
Nothing. Real.
I have a theory regarding why you all live this way and you don't even know it. I won't go into it here, not worth my time. And if you are as deep into the illusion as I suspect then I could lay it all out for you and your confirmation bias would just tip the whole explanation over into the waste bin of your personal world. Which is also really interesting to watch happen though I have to tell you it's slightly unnerving.
Okay I'll leave you with this: You are making it up as you go, doing so collectively, telling each other a pretty story that everyone of you wants to believe and the desire for it to be the way you think is so strong as to make it real. Except it isn't. A story about wealth and profit and power, a story about fearful things, and beautiful things. About history that never happened, about imagined greatness, about heroes who were not, and about overcoming difficulties that you made up specifically so you could overcome them and then weave those into your story. A story that makes you all seem and sound a lot more on top of things than you really are because on a very deep and human level you all want to be part of something bigger and greater than yourselves. Even if that greater thing is a terrible thing. Anything, but it has to be big. Grand. Unapproachable. Divine even demonic. Infinite and immortal and forever and ever and all yours and all about you and your place at the dead center of a universe that exists entirely in your minds.
It's just a story, shared and borrowed and made up as you go.
You have amazing minds. Unfortunately it seems you think too much.
Who is "you"?
Who|What|However you think it to be.
Not sure, but I could agree with you. Depends on the secrect theory you're not taking the time to outline. Either way I enjoyed your post. I'm an optimist and agree in there being an illusion, but believe we will all (even Jamie Dimon) be introduced to true reality and that it will be cooler than we ever dreamed. Jesus will be involved
You are the only human to have ever lived -- or who will ever live -- who understands exactly what that means.
Before you become defensive -- think about why I put it in exactly those terms.
Good post Cougar, and your're right. Reality is not the "fixed" thing that most people think it is. I have some experience with this and some theories for my own. Try this:
Active visualization and manifestation activated by certainty and intent. Let me know where it takes you...
;-D
That is a big part of it. I translate "intent" (kind of a murky idea by itself) to solid motivations like wanting to be part of a group, avoiding a fatal mistake, not being caught outside the perimeter after nightfall, and so on. These are really base instincts that drive us all the time (I mean ALL THE TIME) and we don't even know they are at work.
But it's actually a lot worse than that.
The primary complexity of the human mind is the ability of the brain (an organ of finite size and limited linear processing power) to incorporate internally (nobody is really sure what that means) a very large unbounded abstraction. In fact many such abstractions, though not at the same time. The number of functional abstractions the human mind can juggle is not infinite, but it is a very large finite number -- though not all at the same time, they take turns loading, and we end up loading the ones that work together often. To pull that off abstractions can be nested inside each other, for example where abstract "letters" are used to create abstract "words" which when run together (in an agreed manner) create sentences being the thoughts (in abstraction) of a person you have never heard speak and regarding which you know absolutely nothing real about.
Being in this case, myself.
For a moment there you were in "reading" mode and you had loaded a bunch of abstractions that worked together. "reading" mode does not work with "speaking" mode unless you really practice. Neither of those work at all with "pitching a baseball" mode or "making love" mode and there is a lot of experimental evidence that "reading" and "speaking" modes do not work with "operating machinery" mode including driving. Some things exclude other things because the abstractions and illusory worlds so created do not nest inside the human mind. Why they do not is interesting, it has something to do with convention.
All these modes are not part of reality, they happen in our heads according to shared conventions. We at best agree to think alike. I see a particular string of words and might read into them something different than you do, because "reading" is an illusion, the letters and words are themselves meaningless, I add the meaning myself and a lot of that is drawn from my own experiences of life having nothing to do with your intent to communicate. It's all in my head.
The best illusions for human purposes are shared, this is how we communicate. Conventions regarding what we believe and how we act reduce error rates. To use your term, we INTEND to communicate therefore we must LEARN the same illusion of meaning so that we can do that using otherwise meaningless abstractions.
That right there is where all our shit comes completely unwired. It's horrific. A nightmare. We are completely doomed unless we can turn this around.
Because this shared reality is nothing of the sort -- it is not real -- it's just an agreement for a practical purpose. But it creates a kind of unexpected unity that we can then layer additional abstractions on, like "culture" and "nationality" and "race" and "freedom" and "party". None of that shit is real and it is less real even than the words I just used. A LOT less. It's just not there, does not emerge from nature, does not even emerge from human nature. Some cultures have no understanding of "nation" or "freedom" not because they are stupid but because it was never a particular layer of abstraction to add to the more practical things that keep people together for survival. "Nationality" is not even in the words we use, we create the additional constructs for ever higher levels of abstract intent further divorced from reality. Intent being whatever we want or need it to mean at a given time. People think to themselves "I want to get rich" and that this a perfectly normal human impulse but that's not the case at all. It emerges from a shared narrative about what matters, but none of that was ever or can ever be real.
Most people can go their entire day and not have a single thought about reality. Not touch it, not see it, not worry about it. They spend their entire waking day -- for days on end -- thinking about shit that is completely unhinged from the real world and never knowing why they are so unhappy or feel so ill.
Medicine does not 'cure' as it substitutes the symptomatology with pharmaceutical interventions. Pharmacologists, and Pharmacology proper, has known this since the 50s. Symptom Substitution has been defined for over half a century in academia, and that is precisely what the slimebucket douche whores in Economics are attempting to achieve, but will fail miserably in the short run, and the long run of events.
On a Behavioural level of analysis, the FED is a known criminal enterprise that has no possible, or potential, to qualitatively alter, or change, contemporary mass behaviours. Small gains may be made incrementally, but they will be lost over time due to degradation of the conditioned responses of participants. In brief, history reveals that all currency lasts about 100 years and then new forms of currency are required to re-instill 'belief' in that regime. Our current FED monopoly is known by all in the population to be dysfunctionally run by a cabal of insider Jews that have literally designed a system to steal the disposable income of 99 per cent of the population. The small cabal of Jews may want to revive their previous status as arbiters over all in the financial world, but since 2008 that fantasy has been thoroughly thrown out the window of opportunity that the FED bureaucracy has been unable to attain over the last seven years plus.
Bottom line is that the current currency is defunct, along with the FED itself, and the entirety of the United States of America. No matter how much the bureaucracy tries to bring back their financial largesse they will not succeed in gaining even the smallest portion of ground.
When the FED realizes that they have collectively lost complete control over the Global Economy they will abandon their fruitless search for the control they once manifested on the Global village, and they will run for their very lives in abject terror over the prospect that they will be incarcerated for their involvement of financial tyranny over the world populations for centuries. The masses will rise up and cut off the heads of these individuals, and that's why they cannot admit defeat in the face of complete abject failure and defeat.
In sum, they are functionally retarded Jews who's time at the helm is finished worldwide whether they want to recognize that or not, Greenspan, you piece-of-shit.
Up yours, Israel, de Rothschild Bank, and all the rest of the oligopoly in the Synagogue of Satan.
One thing that all these musings (studies) fail to recognize is that they make concrete claims predicated on what people tell them. If Americans say they feel better, it might not be a placebo effect. Americans may just be predisposed to telling people what they want to hear. Because overall, Americans are nice people.
We've been fed a ration of shit about how awful Americans are. We've been encouraged to stop calling ourselves Americans. Why do you suppose that is?
"Because overall, Americans are nice people."
That is so true and thanks for saying it.
I thought Mother Bernanke wrote the first prescription and told Mother Yellen to continue the dose until the festering sores were gone.
that's interesting, "Americans report a 30% increase in the efficacy of placebos while other populations report only 10% increase"
I've always imagined it'd be more or less the same for everyone, this is certainly interesting news, does that mean the American population is more heavily bombarded with advertising/marketing than others? ie, do Americans spend more time watching TV for example?
or would it be the American population is more willing to "believe"? hence explaining all the American presidents...
or maybe being the most advanced and well-developed nation has turned its population into the most lazy and easy-to-whine population? so they are more likely to take a pain pill even when unnecessary. One of the explanations for placebo effect is that - the patient isn't really that sick or in much stress in the first place, they're just loud whiners or crybabies. Hence any sugar pill and water, or soothing words and a pat, can take away their self-imagined stress.
Americans respond to placebos because America has the best and strongest placebos in the world!