When trying to make a reasonably objective analysis of a problem, a good rule is to wait until the evidence presents itself before coming to a conclusion. And this works pretty well with physical problems. Once we enter the world of ideas this natural process can get bogged down. The rule has value in its attempt to leave the "me" in the closet. Once "I" have laid claim to something there remains an ongoing interest in seeing this viewpoint through. The strength of our interest grows with the depth of its network, but even if we have only declared the opinion to ourselves we can become powerfully committed to its success (or at least it seems this way to me, it seems like I have read good supporting evidence to this but I'd have to look into it).
So this leads me to a semi-obsurd view on just about everything these days. Basically my line is that "I am in fact gathering mode." Its too early to come to a decision. When we talk about deeply complicated issues, i.e. what drives growth?, there are experts that have been working for decades that still don't have clear answers. It seems better to error on the side of caution here than to pre-commit and bias a lifetime of research. My fear is that I will never deem it acceptable to get out of fact gathering mode, never being able to commit to a policy side. Bad thing?
But then again, I doubt people decide on their favored policies in such a logical Decartestian manner. For its when you get out in the real world and are forced to lay claim to something that you find out what your "beliefs" are. Only when we are constrained by career paths, families, and money do we find ourselves more clearly "understanding" the truth. A well financed student such as myself lives a comfortable life and has claimed little intellectual territory (needless to say I have publicly or professionably claimed no territory). I can't help but feel embarrassed by the favorable circumstances that allow such an attitude. But if your objective is to find some sort of truth in social science, there are advanatages to a leisured self-motivated lifestyle. (Unless of course you seek to justify this leisured lifestyle through your work.)
Tuesday, August 18, 2009
Tuesday, June 16, 2009
Education is not about learning
So I'm going to go on an uncharacteristic rant here. Mainly I've just got to get something off my chest and I'm too ashamed to say this out loud as I realize I may simply be a sore loser.
I've just finished a difficult math course and received a dismal grade. This has been quite a setback as I've put monumental effort into this course. But what's angering me is that from all I could see over the course of two quarters with this professor, she showed no signs of caring that I learned anything about the material. The professor seemed only interested in engaging in a contest to see who is the smartest and weed out the weak links. Now of course I should have expected this but angered I still am.
This is the stereotypical example of a brilliant professor at a prestigious school being an obliviously incompetent teacher (although I can't overlook the more sinister possibility that this was an overt strategy). The professor came with high credentials and unequivocal mastery of her trade. However, she seemed completely unaware of the structure of the social environment she was creating. She was more likely to mock a student than to engage in search of the underlying confusion. Her primary tools were fear and an extremely demanding course load.
Now a challenge is exactly what any interested student needs to progress. However, discretion is required in setting the bar. Lacking that discretion, her office hours and discussion sessions became mandatory attendance. Although this fact was never made explicit so for many homework sessions I didn't go to office hours (falsely assuming that we were prepared well enough in class), and proceeded to flutter my wings in the library for entire weekends, only blaming myself for my incompetence. Only later did I notice that upon attendance to office hours students would receive invaluable hints that would only then allow them to properly solve the homework. But not only must you attend office hours, you must attend both sessions and be prepared to discuss the problems almost a week before they are due to make headway.
Her discussion sessions broke another implicit student-teacher agreement. A discussion session serves to sharpen understanding of previous material. Not to mention the fact that she effectively discouraged all questions of the material, she went further to teach new material in the discussion session; showing utter disregard for academic rules. Discussion sessions are scheduled with the full understanding that not everyone will be able to make them. If the intent was mandatory attendance they would be scheduled by the registrar similarly to any normal class session. Effectively she is using office hours and discussion sessions to teach new material when the students have clearly demonstrated they have yet to master the given material.
But I can't be to angry I suppose. I knew I was in for this. I knew that taking this math classes was 80% a signalling effort to show that I am smart enough to go to economics grad school. And whether she realizes it or not she may be utilizing her strategy to weed out the lesser students in an effort to elevate the status of her profession. But of course teachers won't admit this, and schools won't admit this. I assume administrators, faculty, and donors of a prestigious university would state that they intend to be an institution of learning. And I bet they believe it wholeheartedly. The question is whether this is a reasonable goal or not.
I won't be a complete pessimist though. It should be a school's job to recognize that a natural incentive of a university will always be to promote pure difficultly over education in an effort to produce the smartest graduating class. And once they recognize this they should takes steps to more properly align their incentives back towards education. (I guess "should" is too strong here. On what basis? I guess because I'd like them to.)
The unfortunate part of this whole inquiry is my self doubt in my own motives. A highly plausible scenario occurs to me that I only engage in higher learning in an effort to signal my abilities. I act in self deception when I claim I go to school to "learn." Furthermore, I was perfectly complaint with the system until it punished me with a low grade. Only now I am I willing to protest my anger towards its unwholesome activities. And as I am the worst arbiter of my own motives I have no reply to this criticism.
I've just finished a difficult math course and received a dismal grade. This has been quite a setback as I've put monumental effort into this course. But what's angering me is that from all I could see over the course of two quarters with this professor, she showed no signs of caring that I learned anything about the material. The professor seemed only interested in engaging in a contest to see who is the smartest and weed out the weak links. Now of course I should have expected this but angered I still am.
This is the stereotypical example of a brilliant professor at a prestigious school being an obliviously incompetent teacher (although I can't overlook the more sinister possibility that this was an overt strategy). The professor came with high credentials and unequivocal mastery of her trade. However, she seemed completely unaware of the structure of the social environment she was creating. She was more likely to mock a student than to engage in search of the underlying confusion. Her primary tools were fear and an extremely demanding course load.
Now a challenge is exactly what any interested student needs to progress. However, discretion is required in setting the bar. Lacking that discretion, her office hours and discussion sessions became mandatory attendance. Although this fact was never made explicit so for many homework sessions I didn't go to office hours (falsely assuming that we were prepared well enough in class), and proceeded to flutter my wings in the library for entire weekends, only blaming myself for my incompetence. Only later did I notice that upon attendance to office hours students would receive invaluable hints that would only then allow them to properly solve the homework. But not only must you attend office hours, you must attend both sessions and be prepared to discuss the problems almost a week before they are due to make headway.
Her discussion sessions broke another implicit student-teacher agreement. A discussion session serves to sharpen understanding of previous material. Not to mention the fact that she effectively discouraged all questions of the material, she went further to teach new material in the discussion session; showing utter disregard for academic rules. Discussion sessions are scheduled with the full understanding that not everyone will be able to make them. If the intent was mandatory attendance they would be scheduled by the registrar similarly to any normal class session. Effectively she is using office hours and discussion sessions to teach new material when the students have clearly demonstrated they have yet to master the given material.
But I can't be to angry I suppose. I knew I was in for this. I knew that taking this math classes was 80% a signalling effort to show that I am smart enough to go to economics grad school. And whether she realizes it or not she may be utilizing her strategy to weed out the lesser students in an effort to elevate the status of her profession. But of course teachers won't admit this, and schools won't admit this. I assume administrators, faculty, and donors of a prestigious university would state that they intend to be an institution of learning. And I bet they believe it wholeheartedly. The question is whether this is a reasonable goal or not.
I won't be a complete pessimist though. It should be a school's job to recognize that a natural incentive of a university will always be to promote pure difficultly over education in an effort to produce the smartest graduating class. And once they recognize this they should takes steps to more properly align their incentives back towards education. (I guess "should" is too strong here. On what basis? I guess because I'd like them to.)
The unfortunate part of this whole inquiry is my self doubt in my own motives. A highly plausible scenario occurs to me that I only engage in higher learning in an effort to signal my abilities. I act in self deception when I claim I go to school to "learn." Furthermore, I was perfectly complaint with the system until it punished me with a low grade. Only now I am I willing to protest my anger towards its unwholesome activities. And as I am the worst arbiter of my own motives I have no reply to this criticism.
Friday, May 8, 2009
Good Judgment
Unfortunately I have no time to write these days, but I have time to quote. So here is a gem I just came across. This is a philosophy that I wholeheartedly endorse but was largely ignorant of in times past. From Tetlock's wonderful "Expert Political Judgment," (p.215).
Good judgment, then, is a precarious balancing act. We often learn we have gone too far in one direction only after it is too late to pull back. Executing this balancing act requires cognitive skills of a high order: the capacity to monitor our own thought processes for telltale signs of excessive closed- or open- mindedness and to strike a reflective equilibrium faithful to our conceptions of the norms of fair intellectual play. We need to cultivate the art of self-overhearing, to learn how to eavesdrop on the mental conversations we have with ourselves as we struggle to strike the right balance between preserving our existing worldview and rethinking core assumptions. This is no easy art to master. If we listen to ourselves carefully, we will often not like what we hear. And we will often be tempted to laugh off the exercise as introspective navel-gazing, as an infinite regress of homunculi spying on each other...all the way down. No doubt, such exercises can be take to excess. But, if I had to bet on the best long-term predictor of good judgment among the observers in this book, it would be their commitment--their soul-searching Socratic commitment--to thinking about how they think.
Wednesday, January 21, 2009
A Concise History of the Russian Revolution
I'm excited to start a new book today, "A Concise History of the Russian Revolution" by Richard Pipes. Thought this paragraph worth quoting:
This idea holds an irresistible attraction for intellectuals because it elevates them from the position of passive observers of life into its shapers. Their superior knowledge of what is rational and virtuous permits them to aspire to the status of mankind's "educators." While ordinary people, in pursuit of a living, acquire specific knowledge relevant to their particular occupation, intellectuals--and they alone--claim to know things "in general." By creating "sciences" of human affairs--economic science, political science, sociology--they feel at liberty to dismiss as irrelevant practices and institutions created over millennia by trial and error. It is this philosophical revolution that has transformed some intellectuals into an intelligentsia, actively involved in politics. And, of course, involvement in politics makes them politicians, and, like others of the breed, prone to pursue their private interests in the guise of working for the common good. [p. 23]
Friday, January 9, 2009
Madison's Argument for Bigger Govt
One of my usual arguments when discussing systems of government, and incentive systems more generally, is the notion that smaller is better. A local government will be more in tune with the sentiments of the people, hence have better information compared to a government entrusted with a large populace. Better information will allow the government to more appropriately serve its constituents.
This argument faces some opposition in my current read, (American Creation by Joseph Ellis). Its a passage on James Madison's thoughts as he prepares for the Philadelphia convention of 1787.
I interpret this as nothing other than the age old wisdom of the law of large number, or the diversity principle, whereby increasing the quantity of data reduces expected variation. This is a nice point, but there is a fundamental difference to this view as compared to the conventional view I briefly outlined above. Madison is looking at the negative of government involvement. More specifically the use of government to exact concentrated gains from the unconcentrated whole.
Clearly, this is an excellent point. A very useful way to approach government action. On the other hand it is hardly the whole story. Politicians will always have an incentive to provide valuable services to thier constituents in order to promote re-election. (However, a valuable service must be easily traceable to its source in order for it to be effective. Also, as is all too apparent, politicians may make actions that appear valuable, but in reality are destructive.) The worse the politician's information and the less percentage any single constituent makes up of the whole, the less a citizen can expect his preferences to matter.
Admittedly, this is a big question and I have given an short answer. But, it may reveal a bit of the flavor of this balance/tradeoff.
Which is better, big or small?
This argument faces some opposition in my current read, (American Creation by Joseph Ellis). Its a passage on James Madison's thoughts as he prepares for the Philadelphia convention of 1787.
So Madison reversed the conventional logic [apparently I am one of those conventionalists]. Small republics, like the states, were actually more vulnerable to factional squabbling and sectarian divisions than large republics, because of the larger scale of the enterprise vastly increased the number of competing factions, thereby producing "a greater variety of interests, of pursuits, of passions, which check each other...So an extensive Republic meliorates the administration of a small Republic." It was not just that a fully empowered national government was likely to attract a better class of statesmen more capable of resisting local pressures, though Madison believed that was true too. More fundamentally, an extended American republic, contrary to the prevailing wisdom, made space an asset rather than a liability. (p. 105-106)
I interpret this as nothing other than the age old wisdom of the law of large number, or the diversity principle, whereby increasing the quantity of data reduces expected variation. This is a nice point, but there is a fundamental difference to this view as compared to the conventional view I briefly outlined above. Madison is looking at the negative of government involvement. More specifically the use of government to exact concentrated gains from the unconcentrated whole.
Clearly, this is an excellent point. A very useful way to approach government action. On the other hand it is hardly the whole story. Politicians will always have an incentive to provide valuable services to thier constituents in order to promote re-election. (However, a valuable service must be easily traceable to its source in order for it to be effective. Also, as is all too apparent, politicians may make actions that appear valuable, but in reality are destructive.) The worse the politician's information and the less percentage any single constituent makes up of the whole, the less a citizen can expect his preferences to matter.
Admittedly, this is a big question and I have given an short answer. But, it may reveal a bit of the flavor of this balance/tradeoff.
Which is better, big or small?
Thursday, November 13, 2008
Endowment Effect II
So I had a nice discussion about probability distributions concerning ideas. Unfortunately I failed to make a sufficient connection to answer the question.
How would a method of more accurately accounting for the truth of our beliefs counteract the endowment effect?
Normally when considering the probability of alternatives there are two keys parameters: 1.) probability of outcome's occurrence 2.) magnitude of gain or loss given the outcome's occurrence. In this way widely different "projects" become tradeable. For example, I have $100,000. I am proposed an investment opportunity in the stock market with a 5% chance of earning a 100% and a 95% percent chance of earning 0%. The expected payoff for this investment is simply calculated [.05*($100,000*1.0) + .95($100,000*0.0) = $5,000]. One could compare this opportunity with say an investment in alpaca farms. Let's say this opportunity is expected to yield $20,000 during the same time horizon. Although these are wildly different projects, they are tradeable in the sense that they are alternatives.
In the market of ideas, the value of ideas don't appear to be tradeable. Ideas are limited to the topic, within the topic they are tradeable, cross-topic tradeability doesn't hold. So we have millions of topics (could be policy issues, philosophical questions, scientific inquires, etc) and within each topic are alternatives. Each alternative could theoretically have a truth probability. Hence the only value ideas hold are their truth probability. We could conceivably multiply this probability by some measure of the value of the topic in general, which would enable cross topic idea rankings. But that is not the subject of our inquiry. We are concerned with the appropriate level of confidence in our idea's truth concerning a specific topic.
Back to the endowment effect. What the endowment effect means in this context is that ideas that are "owned" are given too great of value. Hence, their truth probability is ratcheted up too high. My argument is for a method that more accurately understands truth probabilities. I do not attempt to counterbalance the bias but instead hope to improve the mechanism causing the error.
Often I find myself falling into the trap of discrete thinking towards ideas. Either and ideas is "right" or "wrong." 0% or 100% probability. When in reality nothing is so cut and dry, especially on complex issues. This flaw seems a natural shortcut for the mind and may be behind the endowment effect in ideas. (Although we certainly haven't proven there is such an endowment effect, and given its different features it may deserve a different title.) If we can learn to think probabilistically, instead of in all-or-nothing terms, we may realize greater rationality in the domain of ideas.
How would a method of more accurately accounting for the truth of our beliefs counteract the endowment effect?
Normally when considering the probability of alternatives there are two keys parameters: 1.) probability of outcome's occurrence 2.) magnitude of gain or loss given the outcome's occurrence. In this way widely different "projects" become tradeable. For example, I have $100,000. I am proposed an investment opportunity in the stock market with a 5% chance of earning a 100% and a 95% percent chance of earning 0%. The expected payoff for this investment is simply calculated [.05*($100,000*1.0) + .95($100,000*0.0) = $5,000]. One could compare this opportunity with say an investment in alpaca farms. Let's say this opportunity is expected to yield $20,000 during the same time horizon. Although these are wildly different projects, they are tradeable in the sense that they are alternatives.
In the market of ideas, the value of ideas don't appear to be tradeable. Ideas are limited to the topic, within the topic they are tradeable, cross-topic tradeability doesn't hold. So we have millions of topics (could be policy issues, philosophical questions, scientific inquires, etc) and within each topic are alternatives. Each alternative could theoretically have a truth probability. Hence the only value ideas hold are their truth probability. We could conceivably multiply this probability by some measure of the value of the topic in general, which would enable cross topic idea rankings. But that is not the subject of our inquiry. We are concerned with the appropriate level of confidence in our idea's truth concerning a specific topic.
Back to the endowment effect. What the endowment effect means in this context is that ideas that are "owned" are given too great of value. Hence, their truth probability is ratcheted up too high. My argument is for a method that more accurately understands truth probabilities. I do not attempt to counterbalance the bias but instead hope to improve the mechanism causing the error.
Often I find myself falling into the trap of discrete thinking towards ideas. Either and ideas is "right" or "wrong." 0% or 100% probability. When in reality nothing is so cut and dry, especially on complex issues. This flaw seems a natural shortcut for the mind and may be behind the endowment effect in ideas. (Although we certainly haven't proven there is such an endowment effect, and given its different features it may deserve a different title.) If we can learn to think probabilistically, instead of in all-or-nothing terms, we may realize greater rationality in the domain of ideas.
Friday, November 7, 2008
Endowment Effect
The endowment effect is one of many cognitive biases recognized by the behavioral camp of economics. I like the name "ownership bias" better (I think its clearer). In short, the ownership bias results in the placement of greater value in goods that are owed as opposed to ones not owned, but rather out in the marketplace somewhere.
My question is: can this bias be applied to ideas?
Well, first of all, how can we "own" ideas? I'll define the ownership of an idea as the state where an individual moves beyond a stage of fact gathering and has reached a conclusion on the relevant issue.
The consequences of such a bias would be that the individual no longer views all ideas fairly, but disproportionately values the ideas in which he has determined to be "correct" in the past. Such as state would pose a dilemma regarding the individual's hopes for rationality in the consideration of alternative ideas.
Obviously, I haven't tested this. Nor have I checked for similar concepts throughout prior literature. On merely intuitive grounds it seems to make some sense. Observationally, it seems that people exert resistance to changing their minds (of course the variance in resistance must be massive concerning different types of issues). Also when a mind is confronted with unfalsifiable evidence of a mistaken belief, severe cognitive dissonance is the usual symptom. Such a reaction would coincide with the destruction of a large value (the owner's idea) and the gain of a small value (the new idea), resulting in a net pain or loss, even though this new idea must be superior based on the evidence.
With this in mind, how can we restore some semblance of rationality? The first logical answer is to not be hasty towards conclusions. This is good advice, but quite well known and, therefore, boring. At some point for some issues we will inevitably be forced to reach a conclusion. No matter how well thought-through the process of acceptance, according to the ownership bias theory, the end result will be a disproportionate assignment of value to the idea's merit, validity, truth, etc. However, it does stand to reason that on issues where one is relatively uninformed the best policy may be not to reach a conclusion.
Upon reaching a conclusion, a good technique may be to take inventory of the likely truth of your ideas. Assign some sort of probability toward their correctness. It seems that when most utilize this advice they come up with a distribution where a 99% probability is reserved for those ideas of the utmost certainty and a 51% percent probability reserved for issues of a tenuous nature. However, this would only apply to simpler true false questions, where there are only two options. It is important to note that for real world issues there will be infinitely many possible solutions. It is only through the correct framing (e.g. will the human race become extinct in the next 100 years?) that the problem can be circumvented. But this framing often removes much of the importance of the initial inquiry.
The point is that when you consider the probability that your view is correct think of all the possible alternatives. It may be very realistic to hold a 5% chance that your view is correct. This may be a view you have thought very long and hard about. You may be relatively more confident in your correctness on this issue than most of the conclusions you indulge. However, given the complexity of the problem, it is very likely that you are wrong (95% chance). Yet the view you have chosen remains the most likely winner of all possible candidates.
Without resisting the urge to wildly speculate, 5% seems a much more realistic probability than 51% on many social science questions (and the 5% may not even be a relatively tenuous position as the 51% was).
Whether this type of "realistic" probability distribution assignment has the power to overcome the endowment effect or ownership bias, is a question I will not answer.
My question is: can this bias be applied to ideas?
Well, first of all, how can we "own" ideas? I'll define the ownership of an idea as the state where an individual moves beyond a stage of fact gathering and has reached a conclusion on the relevant issue.
The consequences of such a bias would be that the individual no longer views all ideas fairly, but disproportionately values the ideas in which he has determined to be "correct" in the past. Such as state would pose a dilemma regarding the individual's hopes for rationality in the consideration of alternative ideas.
Obviously, I haven't tested this. Nor have I checked for similar concepts throughout prior literature. On merely intuitive grounds it seems to make some sense. Observationally, it seems that people exert resistance to changing their minds (of course the variance in resistance must be massive concerning different types of issues). Also when a mind is confronted with unfalsifiable evidence of a mistaken belief, severe cognitive dissonance is the usual symptom. Such a reaction would coincide with the destruction of a large value (the owner's idea) and the gain of a small value (the new idea), resulting in a net pain or loss, even though this new idea must be superior based on the evidence.
With this in mind, how can we restore some semblance of rationality? The first logical answer is to not be hasty towards conclusions. This is good advice, but quite well known and, therefore, boring. At some point for some issues we will inevitably be forced to reach a conclusion. No matter how well thought-through the process of acceptance, according to the ownership bias theory, the end result will be a disproportionate assignment of value to the idea's merit, validity, truth, etc. However, it does stand to reason that on issues where one is relatively uninformed the best policy may be not to reach a conclusion.
Upon reaching a conclusion, a good technique may be to take inventory of the likely truth of your ideas. Assign some sort of probability toward their correctness. It seems that when most utilize this advice they come up with a distribution where a 99% probability is reserved for those ideas of the utmost certainty and a 51% percent probability reserved for issues of a tenuous nature. However, this would only apply to simpler true false questions, where there are only two options. It is important to note that for real world issues there will be infinitely many possible solutions. It is only through the correct framing (e.g. will the human race become extinct in the next 100 years?) that the problem can be circumvented. But this framing often removes much of the importance of the initial inquiry.
The point is that when you consider the probability that your view is correct think of all the possible alternatives. It may be very realistic to hold a 5% chance that your view is correct. This may be a view you have thought very long and hard about. You may be relatively more confident in your correctness on this issue than most of the conclusions you indulge. However, given the complexity of the problem, it is very likely that you are wrong (95% chance). Yet the view you have chosen remains the most likely winner of all possible candidates.
Without resisting the urge to wildly speculate, 5% seems a much more realistic probability than 51% on many social science questions (and the 5% may not even be a relatively tenuous position as the 51% was).
Whether this type of "realistic" probability distribution assignment has the power to overcome the endowment effect or ownership bias, is a question I will not answer.
Monday, September 22, 2008
You Can Never Have "Just One" Regulation
Arnold Kling at Econ Log,
So in order to comply with one regulation (mark to market, an accounting regulation), banks begin to violate another regulation (capital reserve requirements, a banking regulation). See once you regulate in one area, the incentive distortions lead to problems in others. Therefore, a regulation is needed to correct the distortion. Of course this inevitably leads to further incentive distortions. The process never ends.
In some modes of business people seem unfazed by unregulated activity. In others the thought is horrifying. I'll put banking in the horrifying category (along with education, health care, etc.). If you look at contagion effects due to psychology, you can make a case.
In unregulated activity it often may be difficult to perfectly align incentives. Markets don't always work perfectly. Two points though. First, we don't really know how a market in many areas would work since it have never enjoyed a true laissez-fair state. Second, simply because incentives are misaligned in an unregulated state doesn't justify regulation. The analysis is one of degree: to what degree are incentives aligned without the regulation vs. with the regulation. Just because a market can create unfavorable outcomes doesn't mean that there is automatically a top down regulatory solution to create more favorable outcomes.
Why worry about the clog in the first place? Because banks have some of these securities, they are marking these securities to market value, which means marking them way down. As a result, their balance sheets show a shortage of capital. To come back into compliance with regulations, they either have to sell new shares of stock (good luck with that) or curb lending. As they curb lending, the economy suffers.
So in order to comply with one regulation (mark to market, an accounting regulation), banks begin to violate another regulation (capital reserve requirements, a banking regulation). See once you regulate in one area, the incentive distortions lead to problems in others. Therefore, a regulation is needed to correct the distortion. Of course this inevitably leads to further incentive distortions. The process never ends.
In some modes of business people seem unfazed by unregulated activity. In others the thought is horrifying. I'll put banking in the horrifying category (along with education, health care, etc.). If you look at contagion effects due to psychology, you can make a case.
In unregulated activity it often may be difficult to perfectly align incentives. Markets don't always work perfectly. Two points though. First, we don't really know how a market in many areas would work since it have never enjoyed a true laissez-fair state. Second, simply because incentives are misaligned in an unregulated state doesn't justify regulation. The analysis is one of degree: to what degree are incentives aligned without the regulation vs. with the regulation. Just because a market can create unfavorable outcomes doesn't mean that there is automatically a top down regulatory solution to create more favorable outcomes.
Wednesday, September 17, 2008
American Revolution
Many Americans fiercely believe that the American revolution was justified. But a strong case can be made that it wasn't. Regardless of the moral justification of a revolution, revolution in general is pretty messy business. Revolution often results in a bloody mess ending with similar system of governance as before. The winning faction gains power and proceeds to abuse it.
A practical man in 1776 probably would have placed only a slight probably of success for the American revolution. Consider the odds against military victory alone. Next consider the odds of the formation of a stable, democratic government. Cost of defeat? Thousands of lives and a likely loss in degree of civil liberties. The benefit of victory? A gain in degree of civil liberties, but with a high variance in outcomes minus the cost of thousands of lives.
With this perspective maybe our founding fathers took some pretty large risks to secure a relatively small degree of liberties.
How did a stable government form? A big question in history for sure. I'll blurt out that it might have something to do with numerous competing factions instead of a single overthrowing party. The revolution succeeded militarily through the consolidation of the states. The same may be true for the success of government, but for opposite reasons. In order to remain a viable government they needed to consolidate to ward off future invaders. The initial pressure to form united states may have provided the pressure needed to keep diverse groups practical, enabling compromise. Although some states were clearly more powerful than others, the disparity of power seems thin. Equal yet competing agents may have been a critical ingredient towards the acceptance of disagreement and establishment of a tradition of compromise. The emergence of these cultural norms may have contributed to the production of both governmental stability and liberty.
A practical man in 1776 probably would have placed only a slight probably of success for the American revolution. Consider the odds against military victory alone. Next consider the odds of the formation of a stable, democratic government. Cost of defeat? Thousands of lives and a likely loss in degree of civil liberties. The benefit of victory? A gain in degree of civil liberties, but with a high variance in outcomes minus the cost of thousands of lives.
With this perspective maybe our founding fathers took some pretty large risks to secure a relatively small degree of liberties.
How did a stable government form? A big question in history for sure. I'll blurt out that it might have something to do with numerous competing factions instead of a single overthrowing party. The revolution succeeded militarily through the consolidation of the states. The same may be true for the success of government, but for opposite reasons. In order to remain a viable government they needed to consolidate to ward off future invaders. The initial pressure to form united states may have provided the pressure needed to keep diverse groups practical, enabling compromise. Although some states were clearly more powerful than others, the disparity of power seems thin. Equal yet competing agents may have been a critical ingredient towards the acceptance of disagreement and establishment of a tradition of compromise. The emergence of these cultural norms may have contributed to the production of both governmental stability and liberty.
Financial Crises and Regulation
Following a financial crisis the topic of regulation in inescapable. The default response by an overwhelming majority seems to be "we need more." Isn't there logically another response though? Couldn't it just as well be that we need less?
Tuesday, August 19, 2008
My Model of the Body's Energy System
Based on two simple observations, I have produced a model of the body’s system of rest and energy. I have no training in biology, but I have noticed two strange facts of personal disposition.
1. A good night’s sleep does not assure me to feel good the next day
2. Exercise feels good and increasingly so with frequency
Many might assume the more sleep enjoyed the night before the better one will feel the next day. Through my experience this simpler observation does not hold. Or at least not so directly. Often it takes many days of consistently good sleep to produce an energetic state of body and mind.
It may not seem strange that exercise feels good (and by feel good I mean after it is done.) But in one sense, exercise is the very activity we should wish to avoid and minimize. Exercise requires more calories relative to the resting state. As a result pleasure in the activity signals a human to find more food than would otherwise be required. This is inefficient. Donning the evolutionary lens, food is scarce. A human that utilizes less calories to survive will outcompete one that requires more. So why would the body reward us for this wasteful behavior?
In summary, humans are constantly preparing for the unforeseeable stressful event. The world usually follows a mundane routine. However, occasionally (I won’t define a time period for “occasionally”) an unforeseeable crisis arises. This crisis requires great energy. If this energy threshold cannot be met death follows. You can never lose (at least not until you have fathered or birthed some children).
In order to prepare for the stressful event, the body maintains an energy reserve (adrenaline?). The energy reserve is a fixed cost that the body pays nearly every day. The energy reserve maintains the annoying property that it doesn’t store well. It needs to be continually replenished. It doesn’t go down to zero every day but continually needs a topping off.
Once the energy reserve has been satisfied the body feels free to release extra energy to the regular workings of the day. Now obviously this is a tricky relationship. The body doesn’t strictly release energy after the reserve has been satisfied, since this would mean regular operations couldn’t take place until the reserve is met. It’s more like the body delegates energy between regular activity and the reserve until the reserve is met. It is only when the reserve is met that the body releases extra energy. This release can be noticed through a positive attitude or natural exuberance.
The key here is consistency. In order to consistently feel “good” the reserve must be met every day and enough energy produced to consistently exceed the reserve. A good night’s rest for several nights will slowly improve a person’s natural mood. The fact that the improvement is slow implies that the energy reserve is a significant cost. Consistency is also good in that it allows the body to plan. Erratic rest may signal erratic times.
Where does exercise come in? Exercise can be thought of as an investment. During the process it feels terrible—the unavoidable cost. Shortly after, the body often releases a short term pleasure emotion. Usually if someone rarely or never exercises this short term benefit is largely outweighed by the short term cost. (The nature of these costs and benefits are not static.) But exercise also has a long term benefit. This is what an investment is: the exchange of a current cost for a long term benefit. Exercise challenges the body and in the processes improves the efficiency of energy production. Exercise is practice. It not only prepares the body for the future unforeseeable stressful event but also improves the body’s ability to produce the energy reserve along with the daily energy requirement for regular tasks. The short term pleasure signal, which seems strange, signals the mind to invest in the body.
The key here is also consistency. For simplicity sake let’s say that exercise costs net $1 today (to the body) and benefits $3 three days from now. If invested in every day the effective yield is a $2 benefit every day. The consistent benefit improves the incentive to continue exercising. In this way it can be thought of as a positive feedback cycle. This positive feedback serves as a subtler signal. "When I exercised in the beginning it hurt a lot, but felt good at the end. As I continue, it doesn't quite hurt as much and I am able to enjoy the benefit" (a stronger net benefit through time. If inconsistent the signal is much less clear. There is a net cost on the initial day of exercise rather than the net benefit experienced for the consistent exerciser.
This concludes my simple model. A fixed toll must be paid each day to the energy reserve. Exercise is an investment with a positive feedback cycle. This simple model has one simple policy prescription: if interested in feeling good, sleep and exercise consistenly. (Prescription might be good, but the model may be just pandering to it.)
1. A good night’s sleep does not assure me to feel good the next day
2. Exercise feels good and increasingly so with frequency
Many might assume the more sleep enjoyed the night before the better one will feel the next day. Through my experience this simpler observation does not hold. Or at least not so directly. Often it takes many days of consistently good sleep to produce an energetic state of body and mind.
It may not seem strange that exercise feels good (and by feel good I mean after it is done.) But in one sense, exercise is the very activity we should wish to avoid and minimize. Exercise requires more calories relative to the resting state. As a result pleasure in the activity signals a human to find more food than would otherwise be required. This is inefficient. Donning the evolutionary lens, food is scarce. A human that utilizes less calories to survive will outcompete one that requires more. So why would the body reward us for this wasteful behavior?
In summary, humans are constantly preparing for the unforeseeable stressful event. The world usually follows a mundane routine. However, occasionally (I won’t define a time period for “occasionally”) an unforeseeable crisis arises. This crisis requires great energy. If this energy threshold cannot be met death follows. You can never lose (at least not until you have fathered or birthed some children).
In order to prepare for the stressful event, the body maintains an energy reserve (adrenaline?). The energy reserve is a fixed cost that the body pays nearly every day. The energy reserve maintains the annoying property that it doesn’t store well. It needs to be continually replenished. It doesn’t go down to zero every day but continually needs a topping off.
Once the energy reserve has been satisfied the body feels free to release extra energy to the regular workings of the day. Now obviously this is a tricky relationship. The body doesn’t strictly release energy after the reserve has been satisfied, since this would mean regular operations couldn’t take place until the reserve is met. It’s more like the body delegates energy between regular activity and the reserve until the reserve is met. It is only when the reserve is met that the body releases extra energy. This release can be noticed through a positive attitude or natural exuberance.
The key here is consistency. In order to consistently feel “good” the reserve must be met every day and enough energy produced to consistently exceed the reserve. A good night’s rest for several nights will slowly improve a person’s natural mood. The fact that the improvement is slow implies that the energy reserve is a significant cost. Consistency is also good in that it allows the body to plan. Erratic rest may signal erratic times.
Where does exercise come in? Exercise can be thought of as an investment. During the process it feels terrible—the unavoidable cost. Shortly after, the body often releases a short term pleasure emotion. Usually if someone rarely or never exercises this short term benefit is largely outweighed by the short term cost. (The nature of these costs and benefits are not static.) But exercise also has a long term benefit. This is what an investment is: the exchange of a current cost for a long term benefit. Exercise challenges the body and in the processes improves the efficiency of energy production. Exercise is practice. It not only prepares the body for the future unforeseeable stressful event but also improves the body’s ability to produce the energy reserve along with the daily energy requirement for regular tasks. The short term pleasure signal, which seems strange, signals the mind to invest in the body.
The key here is also consistency. For simplicity sake let’s say that exercise costs net $1 today (to the body) and benefits $3 three days from now. If invested in every day the effective yield is a $2 benefit every day. The consistent benefit improves the incentive to continue exercising. In this way it can be thought of as a positive feedback cycle. This positive feedback serves as a subtler signal. "When I exercised in the beginning it hurt a lot, but felt good at the end. As I continue, it doesn't quite hurt as much and I am able to enjoy the benefit" (a stronger net benefit through time. If inconsistent the signal is much less clear. There is a net cost on the initial day of exercise rather than the net benefit experienced for the consistent exerciser.
This concludes my simple model. A fixed toll must be paid each day to the energy reserve. Exercise is an investment with a positive feedback cycle. This simple model has one simple policy prescription: if interested in feeling good, sleep and exercise consistenly. (Prescription might be good, but the model may be just pandering to it.)
Wednesday, June 11, 2008
Hot Broads, Sweet Dudes
It’s a common phrase among us dudes, “the chicks at that bar are super-hot.” The claim is that some bars night in and night out host better looking women than others. Now I can think of a lot of reasons why this statement may be deluded, most of them having a lot to do with alcohol consumption, but I’ll let it be true. I have no real way of measuring, and I have experienced similar feelings (which means slightly more than nothing). Let’s grant it’s true and fool around with the implications.
Since we live in a relatively free society, I’ll knock out the possibility that male bouncers filter through the female applicants and systematically turn down the less ocularly pleasant.
OK, so the hot women must collectively choose a bar to patronize for this to work. Let’s take a normal population with a normal distribution of lookers compared to not-so-lookers. Given this population of female nightlife-seekers, more good looking girls choose a particular bar over another. Therefore, by implication a pretty woman must share similar preferences with other pretty women but these preferences must be distinct to the preferences of the ugly, at least on average. We need these different and distinct preferences to get this result.
So how do you as a bar owner go about attracting pretty women? Easy, you say. Make the place look really nice. Offer drink specials on martinis. Make it swanky, sexy, and trendy. Make it clean. Make it give off an aura of luxury. OK, sounds good. But wait, won’t this attract all women? what makes these things attract only good looking women?
Ah hah, I’ve got it. These are all nice things, but what hot women really want is men. Not just any man but a rich man, and maybe he’ll look ok and talk alright too. But in order to attract men, what do you signal or advertise? I would assume men don’t much care what the place looks like as long as the hot women are present. So the bar can go right ahead and mainly signal towards women’s desire with minimal consideration of men’s preferences (except the one preference).
Back to the rich part though. I’m not going to get into debate about what women value on average the most in men. I’ll just say it’s tough to screen men for anything other than wealth. And although wealth may not be the most important quality of a man, I’d make the safe bet that women on average would prefer a man with wealth over a man without it if all of their other qualities were exactly the same. So a bar can screen for rich men. How? Why charge high prices of course. Seems like a strange business model and certainly one with offsetting incentives at some point, but it certainly may help in weeding out the poor. After you charge high prices, put luxury items all over the place so the wealthy look more wealthy, and there you’ve got it—a room full of rich men. And what good is a room full of rich men with a normal distribution of looks, wit, charm? Well, it’s better than a room full of poor men with a normal distribution of wit, looks, and charm.
But wait a second; won’t the less than hot women prefer the room full of rich men better as well? Men don’t necessarily want rich women (not a bad thing), they want HOT women, especially when alcohol is involved. And since we can't restrict the supply, we’re back to square one.
Unless we delve into psychology and its games. Consider an ugly woman’s perspective. Let’s say that an ugly woman knows she’s ugly. She says to herself: “Men like hot women, women like rich men, therefore, many women will want to go the rich man’s bar. Men know that women like rich men. A rich man knows he’s rich, therefore, he will demand a better looking woman than had he not been rich. With these higher expectations, I [an ugly woman] will have less of chance of finding a mate at the rich man’s bar.” Or at least she’ll have to work a lot harder to showcase her other talents. You see it’s though this pyschologic process of circular expectations that an ugly woman may view her chances less favorably at the rich man’s bar.
[Tangent: If there weren't these cirular pychological expectations the first, say, 100 would get in the rich man's bar. The ability to show up early doesn't screen the population so a normal distribution exists. The ugly woman would have the same chances as she does in a normal population plus richer men to choose from so wouldn't be particularly disuaded from entering (they have no expectation that rich men have higher standards). So if these circular expectations are untrue or don't influence behavior much, this model breaks down quickly]
She also knows that poor men like hot women as well, but they have less to choose from (hot women know they’re hot so more go to the rich man’s bar due to higher expectations of success) so her relative status will be higher at the poor man’s bar. So if the ugly woman has a 10% chance of hooking it at the rich man’s bar and a 50% chance at the poor man’s bar, she’ll make her decision based on how much she values that differential between the two types of men. So within this framework, we could conceivably get a result where some bars have better looking women, on average, than others.
So do the swankier, more expensive bars have hotter women? I don’t know, all I can say is “maybe, probably” based on experience. This simple analysis opens up a wild world of signals and countersignals.
Example, ok I’m a rich man. I know that these swanky bars are going to have hotter women. But these women are going to expect me to be rich. I may be rich, but I don’t like that expectation. I want them to like me for my charm, wit and looks, not my money. And I especially don’t want them to expect me to buy them something expensive every other minute. So even though I’m rich I’ll go to the poor man’s bar and seek out the few good looking women there.
Or another. Ok I’m poor. I know the hot women like the rich guys, but I like hot women. I’m going to the rich man’s bar and living over my means for a night to score with a hot woman (and go back to her place of course, cause I live out in the suburbs). But women have heard about these “fakers.” So in the end if you play this game you are caught in and endless dance of signals and countersignals.
Fuck it, I quit. I’m not playing this stupid game [some crowd will say]. I’m above these petty signals. And here’s where you get your freaks in varying degrees. People seeking to send signals that they don’t send signals. They go to weird bars (and there’s a whole continuum of weirdness). Or maybe just dirty bars, dives. We of the dive bars don’t play games. Except we all play the game to see who can play the least games.
So are there hot-chick-bars? Maybe, but if you go, don’t look at your credit card statement in the morning.
Since we live in a relatively free society, I’ll knock out the possibility that male bouncers filter through the female applicants and systematically turn down the less ocularly pleasant.
OK, so the hot women must collectively choose a bar to patronize for this to work. Let’s take a normal population with a normal distribution of lookers compared to not-so-lookers. Given this population of female nightlife-seekers, more good looking girls choose a particular bar over another. Therefore, by implication a pretty woman must share similar preferences with other pretty women but these preferences must be distinct to the preferences of the ugly, at least on average. We need these different and distinct preferences to get this result.
So how do you as a bar owner go about attracting pretty women? Easy, you say. Make the place look really nice. Offer drink specials on martinis. Make it swanky, sexy, and trendy. Make it clean. Make it give off an aura of luxury. OK, sounds good. But wait, won’t this attract all women? what makes these things attract only good looking women?
Ah hah, I’ve got it. These are all nice things, but what hot women really want is men. Not just any man but a rich man, and maybe he’ll look ok and talk alright too. But in order to attract men, what do you signal or advertise? I would assume men don’t much care what the place looks like as long as the hot women are present. So the bar can go right ahead and mainly signal towards women’s desire with minimal consideration of men’s preferences (except the one preference).
Back to the rich part though. I’m not going to get into debate about what women value on average the most in men. I’ll just say it’s tough to screen men for anything other than wealth. And although wealth may not be the most important quality of a man, I’d make the safe bet that women on average would prefer a man with wealth over a man without it if all of their other qualities were exactly the same. So a bar can screen for rich men. How? Why charge high prices of course. Seems like a strange business model and certainly one with offsetting incentives at some point, but it certainly may help in weeding out the poor. After you charge high prices, put luxury items all over the place so the wealthy look more wealthy, and there you’ve got it—a room full of rich men. And what good is a room full of rich men with a normal distribution of looks, wit, charm? Well, it’s better than a room full of poor men with a normal distribution of wit, looks, and charm.
But wait a second; won’t the less than hot women prefer the room full of rich men better as well? Men don’t necessarily want rich women (not a bad thing), they want HOT women, especially when alcohol is involved. And since we can't restrict the supply, we’re back to square one.
Unless we delve into psychology and its games. Consider an ugly woman’s perspective. Let’s say that an ugly woman knows she’s ugly. She says to herself: “Men like hot women, women like rich men, therefore, many women will want to go the rich man’s bar. Men know that women like rich men. A rich man knows he’s rich, therefore, he will demand a better looking woman than had he not been rich. With these higher expectations, I [an ugly woman] will have less of chance of finding a mate at the rich man’s bar.” Or at least she’ll have to work a lot harder to showcase her other talents. You see it’s though this pyschologic process of circular expectations that an ugly woman may view her chances less favorably at the rich man’s bar.
[Tangent: If there weren't these cirular pychological expectations the first, say, 100 would get in the rich man's bar. The ability to show up early doesn't screen the population so a normal distribution exists. The ugly woman would have the same chances as she does in a normal population plus richer men to choose from so wouldn't be particularly disuaded from entering (they have no expectation that rich men have higher standards). So if these circular expectations are untrue or don't influence behavior much, this model breaks down quickly]
She also knows that poor men like hot women as well, but they have less to choose from (hot women know they’re hot so more go to the rich man’s bar due to higher expectations of success) so her relative status will be higher at the poor man’s bar. So if the ugly woman has a 10% chance of hooking it at the rich man’s bar and a 50% chance at the poor man’s bar, she’ll make her decision based on how much she values that differential between the two types of men. So within this framework, we could conceivably get a result where some bars have better looking women, on average, than others.
So do the swankier, more expensive bars have hotter women? I don’t know, all I can say is “maybe, probably” based on experience. This simple analysis opens up a wild world of signals and countersignals.
Example, ok I’m a rich man. I know that these swanky bars are going to have hotter women. But these women are going to expect me to be rich. I may be rich, but I don’t like that expectation. I want them to like me for my charm, wit and looks, not my money. And I especially don’t want them to expect me to buy them something expensive every other minute. So even though I’m rich I’ll go to the poor man’s bar and seek out the few good looking women there.
Or another. Ok I’m poor. I know the hot women like the rich guys, but I like hot women. I’m going to the rich man’s bar and living over my means for a night to score with a hot woman (and go back to her place of course, cause I live out in the suburbs). But women have heard about these “fakers.” So in the end if you play this game you are caught in and endless dance of signals and countersignals.
Fuck it, I quit. I’m not playing this stupid game [some crowd will say]. I’m above these petty signals. And here’s where you get your freaks in varying degrees. People seeking to send signals that they don’t send signals. They go to weird bars (and there’s a whole continuum of weirdness). Or maybe just dirty bars, dives. We of the dive bars don’t play games. Except we all play the game to see who can play the least games.
So are there hot-chick-bars? Maybe, but if you go, don’t look at your credit card statement in the morning.
Tuesday, April 15, 2008
A late in coming conclusion
Tonight I was reminded of a time in school when I gave a presentation on US health care regulation. I tried to lay out its forms, vehicles, and operations. It was such a complex topic that I struggled greatly to adhere to the time limit. In the end it was a pretty pitiful performance. Not one of my better efforts, but in truth I didn’t feel anyone would appreciate it even if it was. At the end of the presentation I was asked if I had a conclusion. “No not really.” I stammered. “It’s an important issue and it is important to be informed”—was all I could muster.
Although I did have a conclusion. However, I was reluctant to give it since its presentation would reveal my bias which could question the integrity of my research. (I think I have learned now that we all have a bias and not to reveal it is the real signal of questionable integrity). So if I had the question again the following would be my answer.
My research was presented with the intention of drawing a focus to the myriad of regulatory complexities that our health care/health insurance industry is riddled with. The chief effect of this regulation is a loosening of the association of cause with effect. It is through clear feedback mechanisms that intelligent beings are able to change a course of behavior in hopes of creating improved outcomes. Just as punishment of a dog an hour after it has overstretched its bounds is futile, paying for health benefits through tax revenues and insurance programs also confuses the costs of prior behavior. The regulatory complexity removes health decisions from the universe of practical everyday decisions. These sorts of decisions are feasibly within human abilities. Granted errors are made constantly, but on average people are able to decide which products work best for them; and in the process reward those goods and services that hold value. This simple, but essential mechanism is constantly under attack in the realm of health care.
But you say: “Health care is different from other goods. We NEED it. Without it we would die.” Would you die without food? shelter? clothing? And if so are you able to reliably find those goods with high quality and at low costs? And what sort health care would you really die without? There are rare incidences when people suffer from a critical circumstance, but every trivial health benefit is covered in these third party plans; and the benefits are growing all the time. And what does “need” mean anyways? Does need mean if it was cheaper you would consume no more of it? Does need mean that you would sacrifice literally everything you own to obtain it? With any procedure there are costs and benefits, but we seem to be unable to consider the alternative that for any procedure the cost could exceed the benefit. Yes, these procedures still have the same costs no matter who pays for them. It’s a scary thought to think of someone empowered with the ability to consume without any regard for the costs. But a scarier thought is that this disincentivizing trend will continue and we will fail to reward innovation that leads toward health care advances.
Although I did have a conclusion. However, I was reluctant to give it since its presentation would reveal my bias which could question the integrity of my research. (I think I have learned now that we all have a bias and not to reveal it is the real signal of questionable integrity). So if I had the question again the following would be my answer.
My research was presented with the intention of drawing a focus to the myriad of regulatory complexities that our health care/health insurance industry is riddled with. The chief effect of this regulation is a loosening of the association of cause with effect. It is through clear feedback mechanisms that intelligent beings are able to change a course of behavior in hopes of creating improved outcomes. Just as punishment of a dog an hour after it has overstretched its bounds is futile, paying for health benefits through tax revenues and insurance programs also confuses the costs of prior behavior. The regulatory complexity removes health decisions from the universe of practical everyday decisions. These sorts of decisions are feasibly within human abilities. Granted errors are made constantly, but on average people are able to decide which products work best for them; and in the process reward those goods and services that hold value. This simple, but essential mechanism is constantly under attack in the realm of health care.
But you say: “Health care is different from other goods. We NEED it. Without it we would die.” Would you die without food? shelter? clothing? And if so are you able to reliably find those goods with high quality and at low costs? And what sort health care would you really die without? There are rare incidences when people suffer from a critical circumstance, but every trivial health benefit is covered in these third party plans; and the benefits are growing all the time. And what does “need” mean anyways? Does need mean if it was cheaper you would consume no more of it? Does need mean that you would sacrifice literally everything you own to obtain it? With any procedure there are costs and benefits, but we seem to be unable to consider the alternative that for any procedure the cost could exceed the benefit. Yes, these procedures still have the same costs no matter who pays for them. It’s a scary thought to think of someone empowered with the ability to consume without any regard for the costs. But a scarier thought is that this disincentivizing trend will continue and we will fail to reward innovation that leads toward health care advances.
Friday, April 4, 2008
Hidden Gem
I confess a bit of a music obsession. I have consumed a good proportion of my life randomly following my melodic interests. Typically the search isn't completely random but confined to my usual time period (around 1966 to around 1972). I'm pretty biased towards this time period. Really enjoy blues music and its initial fusion with rock to make the greatest of all genres: blues rock. Big fan. Of course within this genre there a tons of styles.
One of the better bands that I have become familiar with recently is called Free. I'm sure this name isn't news to anyone with much interest in the period. This was Paul Rodger's band before he started Bad Company. "All Right Now" is the familiar hit. So the band isn't so much of a hidden gem, but I'm going to make the case that their first album is.
The album is called "Tons of Sobs" released in 1968. In many ways it is a typical bluesy release that many bands were putting out around this time. In fact it may have been a bit behind the curve. Not exactly original or highly creative. But what I am praising here is just plain blues rock excellence. I guess it all starts with Paul Rogders. He has a nice soothing voice if you'll remember from Bad Company. Sounds nice, maybe a little plain, and even though he is British sounds pretty American (that is the description that comes to mind when I think of Bad Company). But if you take Paul Rodgers for granted you might miss something. When he lets it loose he's amazing. I will say that I actually know nothing about music. However, his voice seems capable of great range while maintaining depth, and it just sounds really nice everywhere. But more than that he sings blues how (I think) its supposed to be sung. You really understand while listening to this album how blues grew into hard rock. Its loud, emotional, and perhaps honest. See blues music has more of an honest feel to me than other music from the era in contrast to psychedelic influences. Don't get me wrong I love psychadelic music and am all for mixing it up and creating new sounds, but I will always be drawn to the honest simplicity of blues music, its pureness of expression.
Other highlights of the group include the guitarist, Paul Kossoff, and the bassists Andy Fraser. Simoun Kirke is the drummer who also stayed with Rodgers through Bad Company. Kossoff is real good. His guitar is high flying. He was your typical drug and alcohol shitshow, and sadly his life ended early because of it. Andy Fraser was 16 when he joined the band and released this album. Before joining the prodigy was the bassist for (the great) John Mayall and the Bluesbreakers. What's even more impressive about him though was that he was the group's chief song-writer at such a young age. Although he contributed on only three songs on this album he quickly established himself as the main lyrical force in the outfit. Another impressive fact about this album (especially for blues music) is that all the material is original except for two covers "Goin' Down Slow" and "The Hunter" (which are both great).
If you listen to one song on this album listen to "Walk in My Shadow" and for Godsakes play it loud.
One of the better bands that I have become familiar with recently is called Free. I'm sure this name isn't news to anyone with much interest in the period. This was Paul Rodger's band before he started Bad Company. "All Right Now" is the familiar hit. So the band isn't so much of a hidden gem, but I'm going to make the case that their first album is.
The album is called "Tons of Sobs" released in 1968. In many ways it is a typical bluesy release that many bands were putting out around this time. In fact it may have been a bit behind the curve. Not exactly original or highly creative. But what I am praising here is just plain blues rock excellence. I guess it all starts with Paul Rogders. He has a nice soothing voice if you'll remember from Bad Company. Sounds nice, maybe a little plain, and even though he is British sounds pretty American (that is the description that comes to mind when I think of Bad Company). But if you take Paul Rodgers for granted you might miss something. When he lets it loose he's amazing. I will say that I actually know nothing about music. However, his voice seems capable of great range while maintaining depth, and it just sounds really nice everywhere. But more than that he sings blues how (I think) its supposed to be sung. You really understand while listening to this album how blues grew into hard rock. Its loud, emotional, and perhaps honest. See blues music has more of an honest feel to me than other music from the era in contrast to psychedelic influences. Don't get me wrong I love psychadelic music and am all for mixing it up and creating new sounds, but I will always be drawn to the honest simplicity of blues music, its pureness of expression.
Other highlights of the group include the guitarist, Paul Kossoff, and the bassists Andy Fraser. Simoun Kirke is the drummer who also stayed with Rodgers through Bad Company. Kossoff is real good. His guitar is high flying. He was your typical drug and alcohol shitshow, and sadly his life ended early because of it. Andy Fraser was 16 when he joined the band and released this album. Before joining the prodigy was the bassist for (the great) John Mayall and the Bluesbreakers. What's even more impressive about him though was that he was the group's chief song-writer at such a young age. Although he contributed on only three songs on this album he quickly established himself as the main lyrical force in the outfit. Another impressive fact about this album (especially for blues music) is that all the material is original except for two covers "Goin' Down Slow" and "The Hunter" (which are both great).
If you listen to one song on this album listen to "Walk in My Shadow" and for Godsakes play it loud.
Tuesday, March 25, 2008
Put the Onus on the Company
I’ve recently been getting real cool and studying for the CFA (Chartered Financial Analyst) test. Going through the accounting sections can be mind numbing. But I have gotten a better idea of some hairy details of accounting for financial statements and reporting to the SEC. This by day and hearing about financial troubles by night has got me thinking about transparency and reporting. I’m going to provoke a bit of a thought experiment in financial reporting from a stance that no one else seems to be willing to take (especially at these times). However, I am at liberty to take such a stance mainly due to ignorance, inexperience, and maybe a hint of stupidity.
Ever since the SEC was formed, shortly after the crash of 1929, there has been push toward the mandating increasing transparency on public companies. Seems like a great idea. The more information people have the better investment decisions they should be able to make. I am going to hit the issue from another perspective, however, and argue it may not be such a good idea, especially as the economy becomes increasingly dynamic. The main thrust being; what if we put the onus on companies to supply us information and not on regulators? Instead of regulators trying to devise ways for every public company in every industry to conform to some universal standards what if companies decided to choose a way that fit their company and industry best? Well, I’ll admit, so far this sounds like idealistic horse-manure, but there are some hidden incentives here.
Investors will demand information of companies. If they don’t provide information, they will receive no capital. And in this way, this approach may unleash a competition for the most accurate and transparent disclosure. Companies may be more directly compensated for excellent standards than in today’s environment where essentially everyone is given either the stamp of approval or are under investigation. With the SEC model there are only two options, yes or no, good or bad. A company may have an incentive to cheat as much as possible while staying approved. Once approved all companies are basically on the same playing field. Information quality is viewed by most (but not the savvy) as uniform in quality. Do we really want uniformity in quality? What is the incentive for providing superior quality?
Cheating as much as one can while staying within the guidelines can be found in off-balance sheet accounting. It is perfectly legal, although it may be perfectly deceptive. There are loopholes to be exploited as there always will be. Especially as the nature of business changes more rapidly—the only thing we can be sure of in the future.
So let’s put the onus on the corporation. “No, I’m not going to give you rules. You give me the information. If I don’t like it I won’t invest. Furthermore, I’m going to see what your competitor does. If it does it better, well fat chance you’ll get anything.”
You may say this is too much of a burden for an ordinary investor. And it may well be. But there is already an industry for this, and this industry (one that I am quite fond of, to include my bias) is independent research. If there is no SEC, then independent research would become all the more important. This private industry is capable a moving at the speed of its focus industries. Specialization, superior flexibility (in comparison to a legislative timescale), new entrants, quick adoption of technology, etc. are all reasons why this industry could perform quite well. Will there be conflicts of interests? Sure, there always are (even at the SEC). But just as there is pressure to exploit conflicts of interest, there is always pressure to decouple conflicts of interest in order to enhance reputation.
Ever since the SEC was formed, shortly after the crash of 1929, there has been push toward the mandating increasing transparency on public companies. Seems like a great idea. The more information people have the better investment decisions they should be able to make. I am going to hit the issue from another perspective, however, and argue it may not be such a good idea, especially as the economy becomes increasingly dynamic. The main thrust being; what if we put the onus on companies to supply us information and not on regulators? Instead of regulators trying to devise ways for every public company in every industry to conform to some universal standards what if companies decided to choose a way that fit their company and industry best? Well, I’ll admit, so far this sounds like idealistic horse-manure, but there are some hidden incentives here.
Investors will demand information of companies. If they don’t provide information, they will receive no capital. And in this way, this approach may unleash a competition for the most accurate and transparent disclosure. Companies may be more directly compensated for excellent standards than in today’s environment where essentially everyone is given either the stamp of approval or are under investigation. With the SEC model there are only two options, yes or no, good or bad. A company may have an incentive to cheat as much as possible while staying approved. Once approved all companies are basically on the same playing field. Information quality is viewed by most (but not the savvy) as uniform in quality. Do we really want uniformity in quality? What is the incentive for providing superior quality?
Cheating as much as one can while staying within the guidelines can be found in off-balance sheet accounting. It is perfectly legal, although it may be perfectly deceptive. There are loopholes to be exploited as there always will be. Especially as the nature of business changes more rapidly—the only thing we can be sure of in the future.
So let’s put the onus on the corporation. “No, I’m not going to give you rules. You give me the information. If I don’t like it I won’t invest. Furthermore, I’m going to see what your competitor does. If it does it better, well fat chance you’ll get anything.”
You may say this is too much of a burden for an ordinary investor. And it may well be. But there is already an industry for this, and this industry (one that I am quite fond of, to include my bias) is independent research. If there is no SEC, then independent research would become all the more important. This private industry is capable a moving at the speed of its focus industries. Specialization, superior flexibility (in comparison to a legislative timescale), new entrants, quick adoption of technology, etc. are all reasons why this industry could perform quite well. Will there be conflicts of interests? Sure, there always are (even at the SEC). But just as there is pressure to exploit conflicts of interest, there is always pressure to decouple conflicts of interest in order to enhance reputation.
Tuesday, March 11, 2008
That Damn Fed
Here's a good quote from Steve Forbes:
"One reason the Fed is feeding inflation is that it thinks it's grappling with a conundrum: Inflation is rising, and the economy is weakening. How can our central bank stimulate the economy without risking even more inflation? Rotten ideas never seem to die. The Fed's notion that it must choose between economic growth and inflation is absolutely false. Experience has repeatedly shown that there is no tradeoff between inflation and a vigorous economy. We can have both excellent growth and a stable currency"
"One reason the Fed is feeding inflation is that it thinks it's grappling with a conundrum: Inflation is rising, and the economy is weakening. How can our central bank stimulate the economy without risking even more inflation? Rotten ideas never seem to die. The Fed's notion that it must choose between economic growth and inflation is absolutely false. Experience has repeatedly shown that there is no tradeoff between inflation and a vigorous economy. We can have both excellent growth and a stable currency"
Thursday, March 6, 2008
Wednesday, March 5, 2008
"From the very first instance, automation replaced human work"
Here's a passage from Out of Control by Kevin Kelly:
Ktesibios was a barber who lived in Alexandria in the first half of the third century B.C. He was obsessed with mechanical devices, for which he had a natural genius. He eventually became a proper mechanician--a builder of artifactual creations--under King Ptolemy II. He is credited with having invented the pump, the water organ, several kinds of catapults, and a legendary water clock. At the time, Ktesibios's fame as an inventor rivaled that of the legendary engineer Archimedes. Today Ktesibious is credited with inventing the first honest-to-goodness automatic device.
Ktesbios's clock kept extraordinarily good time (for them) by self-regulating its water supply. The weakness of most water clocks until that moment was that as the reservoir of water propelling the drive mechanism emptied, the speed of emptying would gradually decrease (because a shallow level of water provides less pressure than a high level), slowing down the clock's movements. Ktesibios got around this perennial problem by inventing a regulating valve (regula) comprised of a float in the shape of a cone which fit its nose into a mating inverted funnel. Within the regula, water flowed from the funnel stem, over the cone, and into the bowl the cone swam in. The cone would then float up into the concave funnel and constrict the water passage, thus throttling its flow. As the water diminished, the float would sink, opening the passage again and allowing more water in. The regula would immediately seek a compromise position where it would let "just enough" water for a constant flow through the metering valve vessel.
Ktesibios's regula was the first nonliving object to self-regulate, self-govern, and self-control. Thus, it became the first "self" to be born outside of biology. It was a true "auto" thing--directed from within. We now consider it to be the primordial automatic device because it held the first breath of life-likeness in a machine.
It truly was a "self" because of what it displaced. A constant autoregulated flow of water translated into a constant autoregulated clock and relieved a king of the need for servants to tend the water clock's water vessels. In this way, "auto-self" shouldered out the human self. From the very first instance, automation replaced human work.
Some may call me evil, but I find great beauty in getting humans out of the picture.
Each time a new device is created, human toil is replaced with non-human toil. And in this way human capital is released. Released to take on a new task that inconveniences lives. Ad infinitum.
Ktesibios was a barber who lived in Alexandria in the first half of the third century B.C. He was obsessed with mechanical devices, for which he had a natural genius. He eventually became a proper mechanician--a builder of artifactual creations--under King Ptolemy II. He is credited with having invented the pump, the water organ, several kinds of catapults, and a legendary water clock. At the time, Ktesibios's fame as an inventor rivaled that of the legendary engineer Archimedes. Today Ktesibious is credited with inventing the first honest-to-goodness automatic device.
Ktesbios's clock kept extraordinarily good time (for them) by self-regulating its water supply. The weakness of most water clocks until that moment was that as the reservoir of water propelling the drive mechanism emptied, the speed of emptying would gradually decrease (because a shallow level of water provides less pressure than a high level), slowing down the clock's movements. Ktesibios got around this perennial problem by inventing a regulating valve (regula) comprised of a float in the shape of a cone which fit its nose into a mating inverted funnel. Within the regula, water flowed from the funnel stem, over the cone, and into the bowl the cone swam in. The cone would then float up into the concave funnel and constrict the water passage, thus throttling its flow. As the water diminished, the float would sink, opening the passage again and allowing more water in. The regula would immediately seek a compromise position where it would let "just enough" water for a constant flow through the metering valve vessel.
Ktesibios's regula was the first nonliving object to self-regulate, self-govern, and self-control. Thus, it became the first "self" to be born outside of biology. It was a true "auto" thing--directed from within. We now consider it to be the primordial automatic device because it held the first breath of life-likeness in a machine.
It truly was a "self" because of what it displaced. A constant autoregulated flow of water translated into a constant autoregulated clock and relieved a king of the need for servants to tend the water clock's water vessels. In this way, "auto-self" shouldered out the human self. From the very first instance, automation replaced human work.
Some may call me evil, but I find great beauty in getting humans out of the picture.
Each time a new device is created, human toil is replaced with non-human toil. And in this way human capital is released. Released to take on a new task that inconveniences lives. Ad infinitum.
Saturday, March 1, 2008
Friday, February 29, 2008
Thoughts on Income
How does one make money in this world? Who is best at it? Are the wealthiest the most intelligent? The hardest workers? The most determined?
I will argue that the wealthiest people are those that serve the greatest number to the greatest extent. Intelligence, work ethic, and determination certainly contribute to this ability, but these are traits rather than an essence. In fact, in my experience many highly intelligent people choose not to make a great deal of money since this service requires a sacrifice of their time towards nurturing their intellect, which may be a greater motivational force, marginally, than increased income. Although, most, if not all, would choose greater income than less, tradeoffs exist in the allocation of time towards intellectually stimulating endeavors and thrifty endeavors.
Take the case of an individual sitting on the sidelines and observing the economy. He then decides that he too would like to enter the game and create personal income. How would he create income, or make a profit?
In the most general terms, he has to provide a product that is “better” than some current product. Better is a relative term of course. There are two general characteristics of goodness in the economic sense: cost and quality. The “better” product is that product (or service) which provides the higher quality to cost ratio. This ratio, however, is unique for each individual. For both components may be different for each individual. It may cost more to provide a product for individuals in different geographic locations. But even if we assume the cost of providing the good are equal for all individuals, each ratio will still be unique.
Measures of quality differ based on unique personal preferences. Furthermore, the distributions of subjective quality for certain goods vary.
[As an aside I have to talk about willingness to pay. Willingness to pay is equal to an assessment of quality of items. An individual’s differences in willingness to pay represent his/her preferences in goods. However, it is not correct to compare willingness to pay across individuals for purposes of comparison of subjective value. Since some possess greater wealth, their absolute willingness to pay in nominal terms may be much greater than a poorer person’s nominal willingness to pay who may in fact value the item more. Therefore, a correct representation of willingness to pay will be willingness to pay as a percentage of wealth (wtp%w). This distinction is necessary only for my discussion of different “desires” for similar goods.]
For example, take a washing machine vs. a piece of modern art. If you were able to plot a population of individuals’ assessments of the quality (wtp%w) of these two items I suspect you would find the distribution to be much tighter for a washing machine than a piece of modern art. (In fact I suspect the range for the modern art piece would be a one extreme highly positive and at the other highly negative, essentially trash.) Therefore, the value in a good varies with subjective assessment.
Ok, once we know what to make, who shall we target? Two general groups look promising: masses and niches.
Masses are the dominant force to getting rich. If a profit margin is fixed, the only way to earn more wealth is to provide your product to more people. The masses approach is the one observed in TV commercials, mass marketing schemes, and generally anything to do with mass media. In being an approach that sells to a huge number and variety of people, mass campaigns try to appeal to common characteristics. These common characteristics often appeal to generally superficial qualities. Beauty is constant theme of mass marketing. It is easy to grow frustrated with the shallowness of advertisements based purely on sex appeal. But, sex appeal is a trait common to all human beings and, therefore, it shouldn’t be surprising that marketers are relentless plug sexual themes.
In general campaigns to the masses tend to ignores individualism and focus on collectively human themes. The larger the audience the more a company can be expected to engage in this type of activity.
But there is another driver of profit: individual interests. Rather than increasing the customer base, servicers to niche groups try to increase profit margin. Certainly there exists a tradeoff between advertising to unique interests and to large numbers. There is value in providing goods for unique interests taking advantage of higher willingness’s to pay due to increased desirability. As transactions costs decrease, an increasing number of niche groups will be provided to on profitable terms. The internet is a great facilitator towards desires of niches. Therefore, the niche influence (profit margin influence) places greater emphasis on individuality and customization. Future improvements in technology can only be expected to increase the amount of unique interests provided for.
The reason I have gone through discussion is that I think many people, especially thoughtful people, are disgusted with mass commercialism and its inherent superficiality. And what’s more, if you’re an intelligent, curious person seeking to pursue your intellectual desires often you’re left with few alternatives to both satisfy your curiosities and provide income. When this marriage happens it is a beautiful thing. I often think of engineers and scientists pursuing new creations. But even a great engineering achievement does not promise commercial success without mass-desirability. The value of the creation is in many ways unique to the creator and his peers.
As a strong advocate of individualism, I am also frustrated with difficulty in monetarizing my unique desires and ideas. Career paths can seem limited since creating income can reduce or eliminate time spent on personal interests. The internet and similar technologies provide hope, however, by connecting those with weird, wacky, and unique interests. Business in the future will increasingly segregate consumers. As transactions costs fall, entrepreneurs will seek to further differentiate their product.
I will argue that the wealthiest people are those that serve the greatest number to the greatest extent. Intelligence, work ethic, and determination certainly contribute to this ability, but these are traits rather than an essence. In fact, in my experience many highly intelligent people choose not to make a great deal of money since this service requires a sacrifice of their time towards nurturing their intellect, which may be a greater motivational force, marginally, than increased income. Although, most, if not all, would choose greater income than less, tradeoffs exist in the allocation of time towards intellectually stimulating endeavors and thrifty endeavors.
Take the case of an individual sitting on the sidelines and observing the economy. He then decides that he too would like to enter the game and create personal income. How would he create income, or make a profit?
In the most general terms, he has to provide a product that is “better” than some current product. Better is a relative term of course. There are two general characteristics of goodness in the economic sense: cost and quality. The “better” product is that product (or service) which provides the higher quality to cost ratio. This ratio, however, is unique for each individual. For both components may be different for each individual. It may cost more to provide a product for individuals in different geographic locations. But even if we assume the cost of providing the good are equal for all individuals, each ratio will still be unique.
Measures of quality differ based on unique personal preferences. Furthermore, the distributions of subjective quality for certain goods vary.
[As an aside I have to talk about willingness to pay. Willingness to pay is equal to an assessment of quality of items. An individual’s differences in willingness to pay represent his/her preferences in goods. However, it is not correct to compare willingness to pay across individuals for purposes of comparison of subjective value. Since some possess greater wealth, their absolute willingness to pay in nominal terms may be much greater than a poorer person’s nominal willingness to pay who may in fact value the item more. Therefore, a correct representation of willingness to pay will be willingness to pay as a percentage of wealth (wtp%w). This distinction is necessary only for my discussion of different “desires” for similar goods.]
For example, take a washing machine vs. a piece of modern art. If you were able to plot a population of individuals’ assessments of the quality (wtp%w) of these two items I suspect you would find the distribution to be much tighter for a washing machine than a piece of modern art. (In fact I suspect the range for the modern art piece would be a one extreme highly positive and at the other highly negative, essentially trash.) Therefore, the value in a good varies with subjective assessment.
Ok, once we know what to make, who shall we target? Two general groups look promising: masses and niches.
Masses are the dominant force to getting rich. If a profit margin is fixed, the only way to earn more wealth is to provide your product to more people. The masses approach is the one observed in TV commercials, mass marketing schemes, and generally anything to do with mass media. In being an approach that sells to a huge number and variety of people, mass campaigns try to appeal to common characteristics. These common characteristics often appeal to generally superficial qualities. Beauty is constant theme of mass marketing. It is easy to grow frustrated with the shallowness of advertisements based purely on sex appeal. But, sex appeal is a trait common to all human beings and, therefore, it shouldn’t be surprising that marketers are relentless plug sexual themes.
In general campaigns to the masses tend to ignores individualism and focus on collectively human themes. The larger the audience the more a company can be expected to engage in this type of activity.
But there is another driver of profit: individual interests. Rather than increasing the customer base, servicers to niche groups try to increase profit margin. Certainly there exists a tradeoff between advertising to unique interests and to large numbers. There is value in providing goods for unique interests taking advantage of higher willingness’s to pay due to increased desirability. As transactions costs decrease, an increasing number of niche groups will be provided to on profitable terms. The internet is a great facilitator towards desires of niches. Therefore, the niche influence (profit margin influence) places greater emphasis on individuality and customization. Future improvements in technology can only be expected to increase the amount of unique interests provided for.
The reason I have gone through discussion is that I think many people, especially thoughtful people, are disgusted with mass commercialism and its inherent superficiality. And what’s more, if you’re an intelligent, curious person seeking to pursue your intellectual desires often you’re left with few alternatives to both satisfy your curiosities and provide income. When this marriage happens it is a beautiful thing. I often think of engineers and scientists pursuing new creations. But even a great engineering achievement does not promise commercial success without mass-desirability. The value of the creation is in many ways unique to the creator and his peers.
As a strong advocate of individualism, I am also frustrated with difficulty in monetarizing my unique desires and ideas. Career paths can seem limited since creating income can reduce or eliminate time spent on personal interests. The internet and similar technologies provide hope, however, by connecting those with weird, wacky, and unique interests. Business in the future will increasingly segregate consumers. As transactions costs fall, entrepreneurs will seek to further differentiate their product.
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