Friday, June 26, 2020

Investors’ risk attitudes in the pandemic: Stock markets are less sensitive in jurisdictions that have restricted mobility less and that have enacted other containment measures against the pandemic

Investors’ risk attitudes in the pandemic and the stock market: new evidence based on internet searches. Marlene Amstad, Giulio Cornelli, Leonardo Gambacorta and Dora Xia. BIS Bulletin No. 25.

Key takeaways
• The sharp drop and subsequent rebound in global stock markets in the current pandemic focuses attention on changes in investors’ risk attitudes.
• A new Covid-19 risk attitude (CRA) index for 61 markets, based on internet searches in Google and Baidu, does a good job at capturing investors’ attitudes toward pandemic-related risks.
• Stock markets are more sensitive to changes in the CRA index in more financially developed economies. Stock markets are less sensitive in jurisdictions that have restricted mobility less and that have enacted other containment measures against the pandemic.

1. Introduction
The Covid-19 crisis has left a deep mark on stock markets, with a fall in prices similar to those experienced during the Great Depression in 1929, and a subsequent rebound. The observed equity price reaction relates to changes in traditional drivers such as relative price shifts and risk aversion measures, but it could also reflect changes in investors’ attitude towards risk in the pandemic.1 The aim of this Bulletin is to use information on internet searches on Google and Baidu to derive a measure of stock market investors’ concerns about the pandemic and to assess how such a measure could explain the sharp drop and subsequent rebound in stock markets. We focus on the initial period of the Covid-19 pandemic, covering up to end-April 2020.

The role of investors’ risk attitude could be particularly relevant in a time of sudden large shocks and when fundamental drivers suffer from higher uncertainty. The US Economic Policy Uncertainty index has peaked in April 2020 at levels more than twice as high as previous records (Baker et al (2020)). Shiller (2020) even sees Covid-19 as two pandemics – one in the real economy, and the other in the perception of the impact the first one might have. However, while the impact of fundamental drivers on US stock returns during the pandemic has already been studied (Ding et al (2020) and Alfaro et al (2020)), the role of investors’ risk attitudes has received less attention.

The analysis in this Bulletin focuses on mid-February to end-April 2020, including an initial period of severe sell-off in global equity markets (until mid-March), as well as a recovery – in some cases by almost half of the previous drop – from then to end-April. We show that traditional drivers of equity markets – such as changes in the value of the US dollar, oil prices, measures of risk aversion – and the unconventional monetary policy measures adopted are not able to fully capture the evolution of stock market prices during this period. To study the evolution of investors’ risk attitude towards the pandemic, we construct for each market a new “Covid-19 risk attitude” (CRA) index, based on the number of internet searches in different markets. The idea is that web searches for terms related to Covid-19 reflect people’s concern about the pandemic and its economic consequences. Interestingly, during the first months of the pandemic the CRA index foreshadowed the actual number of recorded infections globally. This indicates that for investors the economic effects of the pandemic are globally linked and are not confined to the areas directly affected by the virus. From the last week of March until the end of April, a fall in the CRA index reflects a reduction in investors’ concern and goes hand in hand with the recovery in equity prices.

Results indicate that investors’ risk attitude as captured by internet searches played a significant role in most stock markets over and above what is explained by other more traditional drivers. On average, the CRA index explains an additional 6% of the observed equity price variation in the sample period.2 In particular, stock markets are more sensitive to changes in the CRA index in more financially developed economies. Markets are less sensitive in those jurisdictions that have restricted mobility by less and have enacted other containment measures against the pandemic.

Defensive states driving active escape from immediate danger also facilitate decisions to help others, potentially by engaging neurocognitive systems implicated in caregiving across mammals

Vieira, Joana, Sabine Schellhaas, Erik Enström, and Andreas Olsson. 2020. “Help or Flight? Increased Threat Imminence Promotes Defensive Helping in Humans.” PsyArXiv. May 17. doi:10.31234/

Defensive responses to threatening situations vary with threat imminence, but it is unknown how those responses affect decisions to help others. Here, we manipulated threat imminence to investigate the impact of different defensive states on helping behaviour. Ninety-eight participants made trial-by-trial decisions about whether to help a co-participant avoid an aversive shock, at the risk of receiving a shock themselves. Helping decisions were prompted under imminent or distal threat, based on temporal distance to the moment of shock administration to the co-participant. Results showed that, regardless of how likely participants were to also receive a shock, they helped the co-participant more under imminent than distal threat. Individual differences in empathic concern were specifically correlated with helping during imminent threats. These results suggest defensive states driving active escape from immediate danger also facilitate decisions to help others, potentially by engaging neurocognitive systems implicated in caregiving across mammals.

Polite Speech Emerges from Competing Social Goals

Yoon, Erica J., Michael C. Frank, Michael H. Tessler, and Noah D. Goodman. 2018. “Polite Speech Emerges from Competing Social Goals.” PsyArXiv. December 29. doi:10.31234/

Language is a remarkably efficient tool for transmitting information. Yet human speakers make statements that are inefficient, imprecise, or even contrary to their own beliefs, all in the service of being polite. What rational machinery underlies polite language use? Here, we show that polite speech emerges from the competition of three communicative goals: to convey information, to be kind, and to present oneself in a good light. We formalize this goal tradeoff using a probabilistic model of utterance production, which predicts human utterance choices in socially-sensitive situations with high quantitative accuracy, and we show that our full model is superior to its variants with subsets of the three goals. This utility-theoretic approach to speech acts takes a step towards explaining the richness and subtlety of social language use.

Computational Modeling of Backwards-blocking Reasoning in Human Adults

Benton, Deon T., and David H. Rakison. 2020. “Computational Modeling of Backwards-blocking Reasoning in Human Adults.” PsyArXiv. May 27. doi:10.31234/

Causal reasoning is a fundamental cognitive ability that enables humans to learn about the complex interactions in the world around them. However, it remains unknown whether causal reasoning is underpinned by a Bayesian mechanism or an associative one. For example, some maintain that a Bayesian mechanism underpins human causal reasoning because it can better account for backward-blocking (BB) and indirect screening-off (IS) findings than certain associative models. However, the evidence is mixed about the extent to which learners engage in both kinds of reasoning. Here, we report an experiment and several computational models that examine to what extent adults engage in BB and IS reasoning using the blicket-detector design. The results revealed that adults’ causal ratings in a backwards-blocking and indirect screening-off condition were consistent with associative rather than a Bayesian computational model. These results are interpreted to mean that adults use associative processes to reason about causal events.

Seeing Our 3D World While Only Viewing Contour-drawings

Farshchi, Maddex, Alexandra Kiba, and Tadamasa Sawada. 2020. “Seeing Our 3D World While Only Viewing Contour-drawings.” PsyArXiv. June 25. doi:10.31234/

Abstract: Artists can represent a 3D object by using only contours in a 2D drawing. Prior studies have shown that people can use such drawings to perceive 3D shapes reliably, but it is not clear how useful this kind of contour information actually is in a real dynamical scene in which people interact with objects. To address this issue, we developed an Augmented Reality (AR) device that can show a participant a contour-drawing of a real dynamical scene in an immersive manner. We found that contour information, alone, is sufficient to perform a variety of run-of-the-mill tasks under natural viewing conditions. This contour information may be sufficient to provide the basis for our visual system to obtain all of the 3D information needed for successful visuomotor interactions in our everyday life.

Illusory Snakes Might Be Due to Asynchronized Respective Field Remapping

Yousef, Ahmad. 2019. “Illusory Snakes Might Be Due to Asynchronized Respective Field Remapping.” PsyArXiv. June 19. doi:10.31234/

Abstract: In this proposal, we try to virtually navigate inside the human brain to understand the neural mechanism of the perception of illusory snakes. To achieve this mission, we have to imagine the neural network of visual motion perception during spontaneous saccadic eye movements. We had previously discussed that conscious perception generated by the central retina has very different attributes than the visual awareness generated by the peripheral retina. It was clear that the central retina trigger visual perception which decelerates the apparent motion of the cyclic elements, and enlarge the size of these elements, see reference 2. The peripheral retina , however, not only accelerates the apparent motion, but it generates illusory motion reversals, see reference 19. Since there are clear discrepancies in the spatiotemporal characteristics between the central and the peripheral retina in the visual awareness, we hypothesized that the illusory rotating snakes might be due to asynchronized respective field remapping. Namely, the respective field remapping of the central retina has different spatial and temporal feeds to the visual awareness than the retinal peripheries. Interestingly, it had been found that deactivating the retinal peripheries through significant reduction against the contrast of the stimulus (that may stop the retinal peripheries from signaling the brain) eliminates the rotating snakes illusion. Elimination that might evidence the role of active retinal peripheries in creating the perception of illusory snakes. Collectively, we think that illusory snakes is due to a rivalry between the central and the peripheral retina; and their corresponding conscious brains; and the saccades are nothing but to convey parts of the retinal image from the center to the peripheries, and vice versa. Namely, the illusory snakes is generated by a spontaneous saccadic rivalry between the fovea & its corresponding conscious brain competing with the peripheral retina & its corresponding conscious brain. Similarly, peripheral drift illusion that requires peripheral vision to be perceived, may not be generated without the aforementioned saccadic rivalry; namely, we think that the perception of that illusion may not be occurred without spontaneous saccade away from the fixational peripheral visual space, see also reference 1 and 5. That saccade is mostly due to spatial attention which conveys the retinal image from the retinal peripheries (the fixational visual space) to the central retina (the attentional visual space). Namely, we think that without the aforementioned conveyance, the perceived illusion may not be generated because the aforementioned spatiotemporal discrepancies will be terminated. Importantly, we discuss the contribution of the human medial temporal complex in producing the illusory motion conscious perception with three different mechanisms: Cognitive control, deep breathing, and the arrangements of the patterns of the building blocks. The aforementioned processes are found to alter the visual perception of rotating snakes stimulus. Inclusively, we distinguish between two distinct visual awareness, namely, the central versus the peripheral visual and we show how active vision which requires cognitive control but not passive vision can ultimate control the perception the rotating snakes stimulus, namely, alternation between real and illusory visual awareness!