“Seminar Studies Psychology, Spirituality Crossroad” plus 3 more

Seminar Studies Psychology, Spirituality Crossroad
The Psychology Of Loss Aversion (And How It Applies To Venture Capital)
CU-Boulder's newest professors beat students to campus
Focus is on octopus research and evolution (Brett Favre notwithstanding)

Seminar Studies Psychology, Spirituality Crossroad

Posted: 17 Aug 2010 10:07 AM PDT

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The Psychology Of Loss Aversion (And How It Applies To Venture Capital)

Posted: 17 Aug 2010 07:34 AM PDT

I've been reading the book "The Black Swan" recently on the recommendation of my two partners. I had heard about the book for years, but it never made it off my "to-read" list until now.

One of the concepts that the book discusses is the way we think of risk differently when we are generating profits vs. when we are minimizing losses. The simple illustration goes something like this:

If someone gave you the offer of $100, no strings attached, vs. flipping a coin for the chance of winning $200, what would you choose? Although both options are mathematically equivalent, most folks would choose the $100.

On the flip side, if things were reversed, and you could either lose $100 for sure, or have a 50% chance of losing $200 or nothing, what would you choose? Most people in this situation tend to prefer the possibility of losing nothing, even though there is the 50% chance of a larger loss.

This illustrates a simple point that we tend to be irrationally risk tolerant in protecting capital. Social scientists call this loss aversion.

This has major implications for the venture business in the realm of follow-on investment decisions. It's a part of the business that doesn't get much attention, but consider this: I think it's safe to say that well over 50% of a typical venture firm's capital actually comes in after the initial investment round of financing for a company. So even if a fund is supposed to be "early stage" focused, the reality is that the bulk of their capital is going into the follow-on investments in the B, C, D and later rounds.

I didn't realize this before I went into VC, but most VC firms are lifecycle investors, meaning that they have large reserves and expect to participate in most of the follow on rounds for companies that are doing reasonably well. One would think that the follow-on investing decision for VC's would be an easy one. After all, no one has more information on a company than the existing investors and board directors. Therefore, they should be very well equipped in figuring out which companies deserve follow-on capital, and which ones don't. Even though the follow-on capital is usually at a higher cost base than the earlier investments, this should be concentrated in the "best" companies, and should perform very well from a risk adjusted basis (even before considering the protection from being higher up in the preference stack).

Case closed right? Wrong. There are a lot of reasons why follow-on financings might happen when they shouldn't, causing VC's to "pour in good money after bad".

Loss Aversion. As discussed above, the uber-reason this happens is that one is irrationally risk tolerant when trying to preserve capital. Or put another way, once you have a vested interest (time or money) into a company, you are willing to take irrational risks to protect your investment.

Delayed Gratification. No investor wants to see a "zero" on their track record, and no investor wants to report "zeros" to LP's. This is true even though a small -100% return today might be much much better than a big -80% return in 5 years. The pressure of needing to raise a future fund, looking good in front of your partners, trying to get promoted, trying to look like a clever guy in the twitterverse, etc leads to unnecessary risk-taking in follow-on financing decisions. Even though almost every firm says they evaluate follow-on rounds like "new deals", I think this is actually far from reality.

The Signaling Death Spiral. Let's take the hypothetical case of a company raising a series B that is doing ok, but not great. The existing investors will often say they will support the company but have an outside lead price the round. The new investor will ask the existing investors if they are "in" for their pro rata as a signal that it's worth investing. If an outside lead is willing to price and lead a round, it's very very hard for the existing investor to say "you know what, I don't believe in this. I'm going to pass on this investment and risk that the whole deal blows up" (note that this is different than the follow-on dynamics of VC led seeds, where the investor will have a much smaller % of capital at risk and knows that they are buying 5 options to make 1 true investment.) So in this scenario, a follow-on round gets done, and both parties are heavily influenced by the fact that the other is investing. Puzzling no?

Confirmation Bias. This is the tendency for people to favor information that confirms their preconceptions regardless of whether that information is true or complete. When layered in with Loss Aversion, it creates a deadly combination. Because an investor is averse to losses, he/she is biased against any data that suggests that the initial investment decision was a mistake and will gravitate towards information that supports a follow-on investment.

The Bridge to Nowhere. Even if a company is really struggling, the following logic is very appealing: wouldn't you be willing to spend $2M to save the last $8M? Because investors usually buy preferred stock, they get paid first and so they only need the company to sell for the value of the preferred stock to get their money back. As a result, you often see struggling companies raise inside rounds under this logic (often crushing the employee's equity in the process). But many times, this round of "bridge" financing ends up being a bridge to nowhere.

So, follow-on investing ends up being a much more complicated endeavor than it would first appear. Clearly, there are some firms out there that have a great deal of discipline about follow-on financing and have been very successful. But I think that this is a very very easy way to falter as an investor because it's so natural to fall prey to these pitfalls. As some super-angel funds increase in size, it will be interesting to see how they deal with these hurdles as well. It's easy to say that one will "pile in on their winners", but the ability to do so will cut both ways.

Rob Go is a former senior associate for Spark Capital. Now he's an entrepreneur working on a secret project. This post was originally published on his personal blog and is re-published here with permission.

CU-Boulder's newest professors beat students to campus

Posted: 17 Aug 2010 06:49 AM PDT

Vijay Mittal, assistant professor of psychology and neuroscience, poses Friday in the storage room next to his office in Muenzinger Psychology on the CU campus.

Students are preparing to swarm the dorms at the University of Colorado as the fall semester nears, but they're not the only ones moving in.

Some of CU's new faculty members are already organizing their offices and unpacking in their new Boulder homes in preparation for the upcoming semester, which starts Aug. 23.

Vijay Mittal, CU's newest assistant professor of psychology and neuroscience, spent all day Friday organizing his office space and rearranging his lab.

Others, like Alan Jagolinzer, associate professor of business and accounting, are already making themselves at home in their new office and focusing on their upcoming courses.

With new faculty spread across various departments, returning students are likely to see at least one unfamiliar face this fall.

Psychology and Neuroscience

Besides organizing his workspace, Vijay Mittal is busy preparing for his psychopathology course this fall and his research on adolescents at risk for schizophrenia.

Mittal comes to CU after completing a postdoctoral fellowship at the University of California in Los Angeles, which inspired his research project with CU's Center for Longitudinal Evaluation and Adolescent Research.

A great psychology program and a beautiful location attracted Mittal to CU, he said.

Geography

Seth Spielman joins CU from Brown University in Rhode Island and will be teaching "Statistics for Earth Sciences" in the fall.

Spielman said he is excited about the reputation of the university's geography department and the "natural and cultural amenities" in Boulder.

During his time at CU, Spielman said he hopes to become a mentor to students and develop new geographical tools to study the relationship between the environment, health and behavior.

"My first goal is to support the intellectual development of students in and out of the classroom," Spielman.

Chemical engineering

Joel Kaar will be teaching in the chemical and biological engineering department this fall after leaving his previous position at the University of Cambridge in Massachusetts.

The department's "outstanding academic reputation" and "vibrant faculty" made the move to CU a no-brainer, Kaar said.

While at CU, Kaar plans to "build a successful research program while developing a strong record of teaching and mentoring at the graduate and undergraduate level," he said.

Mechanical engineering

Mark Borden, CU's newest assistant professor of mechanical engineering, will not be teaching classes this fall but focusing on moving his research program from Columbia University in New York City.

While Borden will not be teaching this semester, his goals for reaching students will start immediately in his lab.

"I plan to build an internationally recognized laboratory that engages in research to tackle some of the most challenging problems in medical imaging and therapeutics," Borden said.

Computer Science

Aaron Clauset, assistant professor of computer science, will be teaching "Inference, Models and Simulation for Complex Systems" this fall after finishing his Omiydar Fellowship at the Santa Fe Institute in New Mexico.

Clauset said he is excited about joining CU's Initiative for Molecular Biotechnology and developing a branch of the department that will use computers and algorithms to answer scientific questions.

"I came to CU because it's a world-class public research university with a great track record in highly interdisciplinary research," Clauset said.

Focus is on octopus research and evolution (Brett Favre notwithstanding)

Posted: 17 Aug 2010 08:29 AM PDT

News Release

Focus is on octopus research and evolution (Brett Favre notwithstanding)

Call him "Octopus Man." UB student Mike Lisieski celebrates his "many-armed love affair" with octopuses on his "cephalove" blog.

Download JPEG

Release Date: August 13, 2010

BUFFALO, N.Y. -- Mike Lisieski, a University at Buffalo psychology major, plans to earn an MD/PhD in neuroscience but for now he appears to be the web's chief "cephalover," using his blog cephalove to carefully analyze research about octopuses and related animals and post stunning photographs of them.

He describes his blog, which he started in May, as "documenting my intellectual love affair with the biology and psychology of our many-armed friends."

Asked about recent attempts by humans to use this highly intelligent species to make sports predictions (for example, predicting World Cup victors and Brett Favre's on-and-off-again retirement plans) Lisieski (pronounced Li-SHES-ki) thinks those efforts "say a lot more about people than they do about cephalopods, but if it generates more public interest in them, I can't complain."

Topics Lisieski, a Pennsylvania native, has tackled on the cephalove blog range from memory, observation and consciousness in cephalopods and the neuromuscular dynamics of octopus arm movements, to exquisite images of the suckers on octopus arms and their color- and texture-changing skin.

"The reason I decided to do this blog was because there wasn't much serious discussion about cephalopods on the Internet," said Lisieski, who will be a senior this fall at UB.

"There were a lot of sites where people wrote about cephalopods, saying, 'oh this is cute' and 'isn't this cool' and there are a lot of factoids," he says. "But there wasn't a lot of accessible information about research on cephalopods," he says.

His readers are increasingly diverse, but many are marine scientists and/or science writers; one is an artist who draws cephalopods.

Lisieski attributes his interest in octopus, squid and cuttlefish partly to PSY 647 "Theories of Learning," a UB Department of Psychology course taught by Assistant Professor Micheal Dent, which he took last spring in UB's College of Arts and Sciences.

"That class got me interested in comparative psychology, particularly as it relates to learning," he says.

While studying for that course, Lisieski came across research discussing observational learning in which a group of octopuses was trained to 'attack' a red ball and to leave a white ball alone, while a second group of octopuses watched. Later, the members of the second group attacked the "correct" ball, demonstrating that they had learned just by watching the first group.

"It was surprising to find this ability in the octopus, which is generally a very solitary animal that seems to have little reason to be able to learn socially," says Lisieski.

Recently, he discussed in his blog research on the grasping movements of octopuses.

"The octopus arm is flexible," he says, "it has no bones. But when it grabs something, the arm stiffens and bends, forming a joint that works like an elbow. They use it like a lever to retrieve an object, but then the joint disappears and the arm is flexible again."

That behavior, so similar to the behavior of humans, is intriguing, Lisieski says, because it shows up in two species that are so distinct.

"It's a pretty striking example of convergent evolution," he says. "That's when similar behavior or features evolve in two entirely distinct species. If we can discover principles of behavior common to both cephalopods and people, then it's likely that they are close to universal principles of behavior because it means they worked well enough to have evolved independently more than once."

Lisieski, who has loved animals since he was a child growing up in Irwin, near Pittsburgh, is an avid fan of zoos and aquariums. He says he is especially fond of "Twister," the giant Pacific octopus, which is among the world's largest octopus species, currently residing in the Niagara Falls Aquarium.

The University at Buffalo is a premier research-intensive public university, a flagship institution in the State University of New York system and its largest and most comprehensive campus. UB's more than 28,000 students pursue their academic interests through more than 300 undergraduate, graduate and professional degree programs. Founded in 1846, the University at Buffalo is a member of the Association of American Universities.

Psychology

Tuesday, August 17, 2010