2. BIG MAC INDEX
This is an index used to compare the price of a good across
countries. The law of one price states that the price of a good sold
internationally should converge as entrepreneurs try to profit from
any price discrepancy. The purpose of Big Mac Index, which
compares the price of the Big Mac burger across countries, is to
establishing the purchasing power parity between currencies. It has
been published by the British Magazine The Economist since 1896.
one draw back of Big Mac index is that goods that look physically
similar to each other may not necessarily be similar in their economic
nature.
3. PAYOUT RATIO
Payout ratio is a financial metric used to express the proportion of
earnings that a company pays out to its shareholders in the form of
cash dividends. It is calculated by dividing the cash dividend paid
during the year by the total amount of earnings. Growth companies
that spot several opportunities to reinvest their earnings generally
have a lower payout ratio than mature companies with fewer
reinvestment opportunities. Some companies might even pay out more
than they earn during the year as dividends by plunging into their cash
pile or adding more debt to their balance sheet.
4. GOLD STANDARD
A monetary system where the supply of money in the economy was
fully backed by gold. Under this system, citizens could freely
exchange their currency notes for gold at the central bank. Most of
the world was under the gold standard until 1914, with each currency
being defined as a particular weight of gold. Since they are
essentially units of weight, the exchange rates among currencies
were naturally fixed under the gold standard. For instance, the pound
sterling which was defined as 1/4th of a gold ounce was always
exchanged for five US dollars which was defined as 1/20th of a gold
ounce.
5. LOSS AVERSION
A phenomenon that causes people to avoid taking risk, even though
it could lead to gains that are disproportionately higher than losses.
Loss aversion is explained by the fact that losses causes more pain
to people than equivalent amount of profit. It was first proposed by
Israeli-American behavioral psychologists Daniel Kahneman and
Amos Tversky in 1984. Loss aversion has been attributed to
evolutionary reasons that cause human beings to value goods that
they already possess more highly than goods that they do not yet
possess. Consequently, losses lead to more pain than profits.
6. DIVIDEND YIELD
The return that an investor in a stock earns in the form of cash
dividend. The dividend yield is calculated by dividing by the dividend
declared by a company during the year by the current market price of
its share. It increases as there is an increase in the size of dividends
paid by the company or a decrease in its share price. Since cash
represents real earnings, stocks with high dividend yields are
considered to be relatively safer investment and protected from volatile
swings in the market. So, many conservative investors adopt the
strategy of investing in stocks with high dividend yields.
7. HEIMAT
Heimat, a German concept for a ‘home’ or ‘home land’, desrcibes the
relationship of a being to a place through spatial and temporal
dimensions. Historically, it has connoted the positive aspects of a
relationship with ones homeland but it was misappropriated by the Nazis
to further their ideology. Towards the end of the 20th century, there was
renewed interest in the concept in Germany but more as a construct
rather than a place . Some scholars have thought of Heimat as a
practice – a notion that can be harnessed to order an entity’s
surrounding in a meaningful manner, such as to manage the
environment.
8. KONDRATIEV WAVE
The long wave-like movement witnessed in world economic growth, as it
alternates between periods of strong and weak growth. The
phenomenon is named after Soviet economist Nikolai Kondratiev who
introduce existence of such long term growth cycles in his 1925 book
The Major Economic Cycles. Each Kondratiev cycle is estimated to last
between forty to sixty years and is attributed to various reasons including
technological innovation and demographic changes. Critics argue that
there are no set patterns in the way the economy grows to suggest the
presence of regular growth cycles.
9. TEXAS SHARPSHOOTER FALLACY
A informal fallacy where a conclusion is derived using similarities in
observed data while ignoring any difference that might possibly
disprove the conclusion. It is named after the joke of a man from
Texas who randomly shoots holes on the wall of a barn and then
proceeds to draw a target around it to claim his prowess at shooting.
The fallacy is used to emphasize the point that the human mind is
prone to find patterns, often where none exist, to establish cause
and effect between two unrelated items. It also point to be
importance of taking into account contrary evidence while arriving at
conclusion.
10. PYGMALION EFFECT
A psychological phenomenon where higher expectation from
individuals lead to an improvement in their actual performance. In
contrast, lower expectations can lead to decreased performance
levels. The Pygmalion effect is commonly cited in the field of
management studies, where it is believed that managers significantly
improve the performance of workers under them by expecting more
out of them and treating them by expecting more out of them and
treating them as individual with high potential. The idea was first
proposed by American Business professor J sterling Livingston in a
1969 article named ‘Pygmalion in Management’.
11. YERKES-DODSON LAW
A psychological phenomenon where the performance of an individual
at a particular task increases with physiological arousal, but up to a
point. After a while, the positive relationship between the two
variables reaches a point of situation, and excessive arousal, in fact,
leads to a deterioration in the task performance. The law is named
after psychologists Robert Yerkes and Dillingham Dodson, who first
proposed it in 1908. They observed that mild electric shocks on rats
motivated them to complete task more efficiently, but as the shocks
became too strong, their efficiency dropped dramatically.