Intelligence is the capacity to learn or understand. Although intelligence is possessed by all people, it varies in amount for each person, and remains the same throughout life from approximately 18 years of age.
In psychology, intelligence is defined as the capacity to acquire knowledge or understanding, and to use it in novel situations.
IQ is the abbreviation for intelligence quotient. Intelligence quotient (IQ) is an age-related measure of intelligence and is defined as 100 times mental age. The word ‘quotient’ means the result of dividing one quantity by another, and intelligence can be defined as mental ability and quickness of mind.
I investigate how the quality of accounting disclosure influences market efficiency in the context of stock markets as a Keynesian beauty contest, a metaphor first introduced by Keynes (1936). At that time, a London newspaper was running a beauty contest in which readers were asked to select a set of six “most beautiful” pictures from 100 photographs of women. Whoever picked the most popular pictures was entitled for a raffle prize. To win the competition, players should not naively select six faces they believed the most beautiful; instead, they should use their information to infer which faces other players would believe the prettiest and other players would believe that other players would believe the prettiest and so on. Keynes observed that stock markets shared the essence of this competition, in that many rational but short-horizon investors’ actions were similarly governed by expectations about what other investors believed, rather than by genuine expectations about the true value of a firm.
Allen, Morris, and Shin (2006) rationalize this Keynesian-beauty-contest effect as a consequence of investors’ short horizons. Since a short-horizon investor exits a firm before its fundamental value is known, her payoff depends on how much other investors would like to pay, rather than on how much she expects the fundamental value of the firm will be. Given access to both public and private information, she puts an extra weight on public information due to its dual role. Public information does not only convey information about the fundamental value (hereafter the information-content role), but also anchors an investor’s belief about other investors’ beliefs (hereafter the coordination role). This additional coordination role biases stock prices away from the consensus fundamental value toward public information.
The recent reform of America’s bankruptcy law favored the interests of creditors. In the two years since the reform, obtaining consumer bankruptcy relief has become more expensive, time consuming, and difficult. These legal changes were motivated by a perceived need to reduce the incentives and ability of consumer debtors to “overborrow” and then seek relief from the bankruptcy system. The credit industry aggressively promoted this “strategic behavior” model of bankruptcy, which focuses on consumers’ personal responsibility for financial outcomes. In the credit industry’s view, many bankruptcy debtors were prodigal spenders who accumulated debts through irresponsible financial activity. The credit industry assailed bankrupt families for lacking the moral conviction to repay their debts. Bankruptcy was proffered as an easy way out that attracted consumers who were intent on gaming the credit system. The credit industry convinced Congress that curtailing bankruptcy relief was sound social policy; such reforms were needed to dampen prodigality and encourage consumers to make prudent financial decisions.
The competing model of causation focused on the role of adverse financial events such as job loss, illness, or divorce in causing financial distress and bankruptcy filings. The adverse events model posits that most families fail to pay their debts because of an external financial shock not because they lack moral fiber or borrowed with no intention of repaying. This view focuses on macroeconomic and social trends, rather than individual consumers’ decisions, to understand the rise in bankruptcy filings. Advocates of the adverse events model note that America offers families a relatively weak, and declining, social safety net to help them cope with adverse financial events.The expansion of consumer credit in recent decades has left families more highly leveraged and less able to weather financial shocks. If the adverse-events model is correct, creditors’ lending practices and the scope of social programs are necessary loci for reforms aimed at reducing the incidence of bankruptcy.
