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The year of the Dragon, the Year of the euro and Superstition

Why do seemingly irrational superstitious beliefs form and persist? To what extent do strong cultural beliefs translate into observable behavior? And how do superstitions about luck and success translate into performance in foreign environments that do not share these beliefs?

Many East Asians, especially ethnic Chinese, have long believed that children born in the Year of the dragon (which comes once every 12 years in the eastern lunar calendar) were especially fortunate, are likely to do well in school, and generally have a better life. Despite this belief, there was no noticeable increase in birth rates among Asian populations in most dragon years before 1976. However demographers began to notice a sizeable boost in births among nations with large ethnic Chinese populations, such as Taiwan, Hong Kong, nd Singapore (though not in mainland China) beginning in 1976 and again in 1988 …

This is taken from the recently published paper “Does fortune favor dragons?” by 2 researchers from George Mason University in the prestigious Journal of Economic Behavior & Organization. The authors’ findings are fascinating:

Our first main finding is …. evidence that individuals born in dragon years are more fortuitous than those born in non-dragon years…..We find that Asian-Americans born in dragon years have about a third of a year more education, on average, than non-dragon year Asians….

Our second main finding is that Asian-American dragons experience good fortune because they have good parents…. We show that Asian mothers of children born in the 1988 or 2000 dragon years are more educated, richer, and older, than non-Asian mothers of dragon year babies…. We infer from this that the positive educational and economic outcomes associated with being a dragon child are due to the disproportionate self-selection of parents who are more likely to invest in their children into the dragon birth year cohort. Thus, the dragon year superstition is an example of a self-sustaining cultural institution.

In their equally fascinating final discussion, in the paper, the authors ask why superstitions exist.

They might exist because there is too little observable evidence to dismiss them or because information against them is costly to gather.

Another possibility is due to self-fulfilling beliefs. After all, dragon year outcomes are observable. But in this case they confirm the superstition, reinforcing it and making it a self-fulfilling prophecy. To quote again the authors:  According to Merton (1948),the self-fulfilling prophecy is, “. . . in the beginning, a false definition of the situation evoking a new behavior which makes the originally false conception come true” (p. 695). The “new behavior” by which the false belief is made true, in our case, stems from the differential selection of parents into dragon birth cohorts with attributes that are positively correlated with investment in their children. A prerequisite for our explanation of the dragon superstition is that acting on the belief is costly, but not too costly (this might explain why this Dragon-year effect is not seen in China with its strict birth rules).

All this stuff is fascinating by itself and I encourage you to read the paper. I am instead here driven to ponder about another superstition, currently this one too very popular in a specific region: the euro area. The superstition goes as follows: in a recession driven by lack of demand, austerity drives stability and stability drives growth and recovery.

One reason why this superstition is alive today might be due to the fact that we have very little recent information to dismiss it. In fact the last dramatic demand-driven recession was almost 90 years ago. Possibly, we might have forgotten the disastrous consequences of what happens in it when you implement austerity simply because those who witnessed it died.

But in the United States current crisis the right policies with the Obama administration were taken. So why Europe does not use evidence to dismiss this superstition? One possible answer is related to the German belief that the 1930’s crisis and Hitler came because of inflation. That is obviously wrong, inflation came as a desperate solution to lack of growth and lack of growth came both for the international crisis AND  because of creditors’ stubbornness to repay and not forgive WWI debt (yes indeed, France then with Germany behaved like Germany today with Greece). But still, it might be the case that Germans still don’t see it that way.

Another explanation has to, indeed, with Merton’s view of self-fulfilling prophecies. So imagine that you are told that stability drives growth in a recessionary-environment (false definition). This evokes new behavior. Indeed, Germany, the only country mattering for these decisions, seeing that it is not too costly for them (because of their productivity virtues), invokes new behavior, for example a Fiscal Compact, that generates more growth for Germany, by making the competitiveness of other trade rival euro-countries sink and businesses close and thus makes the superstition true, i.e. the false belief, in the eyes of the German citizen, also comes true. German imposed stability drives German-growth.

The problem is, just like for Chinese families, that Europe finds it terribly costly to follow Germany in this self-fulfilling superstition for the  Germans but self-fulfilling nightmare for everyone else involved. Just as for France stubbornness in not understanding Germany’s woes in the 1930’s we are risking that dramatic social and political consequences arise out of superstitions.

2012 is the year of the Dragon. Good. Let us just hope it might turn out to be also the (Good) year of the euro.

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