Emanuel Derman

I recently ran into someone who I had always regarded as more or less compos mentis, but they told me quite seriously that the Rothschilds ran the world because they owned countries rather than corporations. Now, I’m not immune to the charms of conspiracy theories; some things in the world are so messed up that I can see how only a conspiracy could explain them. If a small cabal of invisible people ruled the world for their own profit and pleasure it very likely would turn out just the way it has, only probably a little more organized. Unless they are fiendishly clever and add the noise to make it look unplanned.

I think the real hidden conspiracy is the conspiracy of the A____’s and think they are to blame for screwing up the world, even if they are working in the service of the Rothschilds.

I refer to the Advertisers. I’m tired of anti-depressant ads. And I’m especially appalled at how advertising funds the fortunes of the giant internet companies, the manipulative G___’s and  F____’s.  I’ve grown to dislike advertising and the way it pays and affects so much. I particularly hate it for the fact that G___ and F____ make their money by delivering me to companies who pay for me to use it, which explains most of the bad things about G___ lately. Companies used to get paid for delivering eyeballs; now they get paid for delivering souls.

I wish people could pay their own money for what they want. There should be a law that prevents other people paying for your use of things if it compromises you, just like there’s a law against bribery. Maybe having entertainment that doesn’t violate you isn’t impossible — look at HBO and movies and books, still so far supported by paying customers.

I am sorry that a lot of Big Data (not all of it), a new and interesting field for quantitative people, is driven by pleasing advertisers too.

I thought of this again when I  read an article about Dwight Macdonald* in the latest NY Review of Books. (The article is behind the paywall — hooray. If you want to read it you have to subscribe or go to a library that subscribes.) The article quotes Macdonald in the 1950s:

If the US doesn’t or cannot change its mass culture…it will lose the war against [the] USSR. Americans have been made into permanent adolescents by advertising, mass culture—uncritical, herdminded, pleasure-loving, concerned about trivia of materialistic living, scared of death, sex, old age….

I’d like a world where you somehow have the ability to pay for what you consume directly.

* I don’t really know much about Dwight Macdonald. I once met his daughter who was a teacher in the ’80s at my son’s nursery school. But I do like these other quotes about him in the NY Review of Books article (my italics below):

Politics (Macdonald’s magazine published in the 1940s) differed from all other political magazines by treating politics as a branch of morals.

And:

Macdonald believed that an active subjective judgment was a more valid way to approach moral reality than any fixed, existing system, whether it based itself on allegedly scientific Marxist authority or on divine authority. And he believed that subjective judgment was required in order to achieve any real community: “I think each man’s values come from intuitions which are peculiar to himself and yet—if he is talented as a moralist—also strike common chords that vibrate respondingly in other people’s consciences. This is what ethical teachers have always done; it is the only way we have learned anything essential about ethics or communicated our discoveries to others….”

My carefully concealed always positive outlook on life is taking a beating these days, and the only pleasures are (i) attacking inconsistencies in other people’s positions and (ii) defending my own right to the same.

In that respect, the other day I received an email from my publisher, Simon and Schuster, exhorting me urgently to list not only Amazon on my website but Barnes and Noble too:

BN supports your book online and in stores and it’s crucial that they are represented.

Obviously, publishers are getting worried about competition from Amazon, who are now not only distributing other publishers’ book but also  publishing Amazon’s own. They should worry; Amazon is so efficient and publishers are still living in a cramped archaic world. If I ever wrote another book I would certainly consider publishing it through Amazon, which provides quick turnaround.

Nevertheless, Amazon is too powerful. It’s one thing to be a distributor of everyone else’s books; it’s totally another to also simultaneously be a publisher. Those two functions are best separated, via arguments similar to the ones that suggest that producing financial securities should perhaps be separated from market-making. Too much concentrated power over the entire market.

So, I was amenable to Simon and Schuster’s request to treat B&N on an equal footing with Amazon.

But then, I took a look at the page for my book on the B&N website, and there is minimal information there. In contrast, on Amazon, S&S has loaded the site with excerpts from any good reviews. If you want to buy a book, you get much more information (even excluding reader reviews) on Amazon.

I think I won’t do any work on this until they do.

I have been reading The Connectome: How The Brain’s Wiring Makes Us Who We Are, by Sebastian Seung, a Professor of Computational Neuroscience and Physics at MIT, and formerly a theoretical physicist.

One of his talks on the web is called “I am my connectome.” My own private connectome usually has a sort of uncontrollable synaptic response to statements like that, which seems to deny itself, but that would be quibbling with PR, and so, having functioned my whole life while knowing nothing at all about my insides, I have enjoyed the first 60 pages.

But one paragraph on pages 63-64 did throw me off:

If I could observe the activity of all your neurons, I would be able to decode what your are perceiving or thinking. This kind of mind reading would require knowing the “neural code,” which you can picture as a huge dictionary. Each entry of the dictionary lists a distinct perception and its corresponding pattern of neural activity. In principle, we could compile this dictionary by recording the activity patterns generate by a huge number of stimuli.

Now, just prior to reading this paragraph I had read Peter Woit’s latest blog post about the absence of signs of supersymmetry at the LHC in Switzerland.

And then my connectome wondered: is there a pattern in my connectome’s neurons that corresponds to my connectome’s discovery of the correct Theory of Everything?

Or can that pattern only be there after other people have found the right concepts?

Put another way, was there a neuronal pattern residing in Aristotle’s neuronal dictionary that corresponded to Newton’s Laws?

If so, then somewhere in my connectome is the answer to everything that can be known, even if the steps towards it and the concepts necessary have not been articulated yet.

Does a statement like that really mean anything at all?

I watched two recent finals — The Australian Tennis Open (Djokovic vs. Nadal) and the Super Bowl (Giants vs. Patriots) and their endings were very different in spirit. I liked the Super Bowl ending better, surprisingly for me.

Tennis is a non-contact sport,  and even today you can’t foul your opponent. But when Djokovic won a close very exciting game filled with reversals, he went literally ape — snarled, looked up at the sky, roared several times with bared teeth, tore off his shirt, flexed his muscles.

Intimidating to the other apes, though the game was already over.

I understand being happy about winning, and aggression is necessary to do so, but I dislike this kind of triumphalist gloating. Personally, Borg and the other Swedes were my stylistic heroes, plus Sampras and Federer. Still, no one gets hurt and it’s not violent.

The Super Bowl was diametrically opposite. The game was filled with aggression and violence in the cause of getting the ball into the end zone. But when someone got a touchdown they spiked the ball and did a dance of joy, not triumph. And when the Giants finally won, they didn’t roar, they didn’t trample, they didn’t gloat. They merely looked genuinely happy.

Strange that tennis brings out the worst at the end, and football the best.

PHOTOS: Novak Djokovic of Serbia celebrates after defeating Rafael Nadal of Spain in their men’s singles final match at the Australian Open tennis tournament in Melbourne January 30, 2012. REUTERS/Ryan Pierse/Pool. New York Giants quarterback Eli Manning raises the Vince Lombardi Trophy after defeating the New England Patriots to win the NFL Super Bowl XLVI football game in Indianapolis, Indiana, February 5, 2012. REUTERS/Matt Sullivan

Some interesting stuff I’m reading:

Schopenhauer, in The World as Will and Representation, has a chapter on The Metaphysics of Sexual Love, and remarks how strange it is that love ceaselessly occupies people’s thoughts, interests and readings, and yet has gone relatively unexamined from a philosophical point of view. He brands as naive Spinoza’s view that love is merely pleasure associated with an external object, and I’m inclined to agree. For Schopenhauer, it’s all about matter propagating itself, the temporary unity of lovers’ feeling reflecting the unity of the yet unborn child. Strong mutual attraction, he says, is related to the suitability of the characteristics of the future child from the point of view of the species, and has nothing to do with personal lifelong compatibility. Not a cheerful guy.

Money, the other topic of people’s relentless focus, is a mystery, too. Where does it come from and what is its real purpose and how much does an economy need? Forty economists were recently quoted as saying that a return to the gold standard is ridiculous, and that money ought to be controlled according to economic principles (though I don’t think the forty agree on what those are). Ben Bernanke has said gold is NOT a form of money, but was still at a loss to explain why central banks keep gold reserves, and could only invoke tradition.

So, I am just about to reread Fischer Black’s interesting paper Banking and Interest Rates in a World without Money.

Something about naive liberal humanitarianism often bugs and irritates me more than correspondingly naive reactionary beliefs, and I (probably wrongly) end up judging more severely than I should otherwise good people who espouse it naively.

Paul Berman, in his  rambling but very interesting post about the late Vaclav Havel, captures Havel’s description of what that something is. I quote Berman and Berman’s quotes of Havel. All italics are mine.

(Berman:) The Western-style democracies boasted of rule of law, human rights, democratic elections, market economies, and so on. Havel reminded everyone that these institutions, for all their charms, are “technical instruments,” useful only for achieving other purposes; and it was still necessary to acknowledge and refine and choose among the other purposes. In his estimation, an acknowledgment of other purposes required a notion of the transcendent.

He was happy to speak about what he called “the basic values of the West,” meaning a democratic market society with human rights. He looked on the “rapid dissemination” of the Western values as “the only salvation of the world today”—the best guarantee of “human freedom, justice, and prosperity.” Only, he could understand why, in different parts of the world, the spreading of these particular Western values might arouse skepticism and hostility:

(Havel:) The main source of objections would seem to be what many cultural societies see as the inevitable product or by-product of these values: moral relativism, materialism, the denial of any kind of spirituality, a proud disdain for everything suprapersonal, a profound crisis of authority and the resulting general decay of order, a frenzied consumerism, a lack of solidarity, a selfish cult of material success, the absence of faith in a higher order of things or simply in eternity, an expansionist mentality that holds in contempt everything that in any way resists the dreary standardization and rationalism of technical civilization.

(Berman:) He blamed the democratic world for what he called “its limited ability to address humanity in a genuinely universal way.”

Havel: As a consequence, democracy is seen less and less as an open system that is best able to respond to people’s basic needs; as a set of possibilities that must be continually rediscovered, redefined, and brought into being. Instead democracy is seen as something given, finished, and complete as is, something that can be exported like cars or television sets, something that the more enlightened purchase and the less enlightened do not.

In other words, it seems to me that the mistake lies not only with the backward consumers of exported democratic values, but in the very form or understanding of those values at present, and in the climate of the civilization with which they are directly connected, or seem to be connected in the eyes of a large part of the world. And that means of course that the mistake also lies in the way those values are exported, which often betrays an attitude of superiority and contempt for all those who hesitate to accept the offered goods automatically.

1. Consider two countries, America and China. Suppose (only suppose) China manipulates its currency to keep it low, thereby making exports cheaper and imports expensive, benefiting its balance of payments and mercantile ambitions, harming America’s.

2. Now consider America alone, with two subpopulations: borrowers and savers. Suppose someone at the top manipulates T-bill prices, keeping them high (i.e. keeping interest rates low), benefiting the borrowers and harming the savers.

My question:

Why is 1. often considered reprehensible and unfair, while 2. is merely business as usual and unremarkable, even praiseworthy? Is there something fundamentally different about 1. when compared with 2.? Are bonds fundamentally different from currencies, stocks, real-estate, other assets?

Or does it just depend on who you are?

We’ve been in a bull market for Treasury Bonds since the late 1970s, and, as a student pointed out to me recently, and I think I can confirm, we’ve been in a bull market for academic grades too.

As long-term rates have compressed towards zero, so have grades compressed towards A and even A+.

In grad school, many universities consider anything below an A- the moral equivalent of an F, even though a B sounds like one note below an A, and expect students to understand that. It’s hard to figure out why this happened — I remember the start of it during the Vietnam war, when low grades might have annulled an academic deferment. But it’s also part of some general feel-good thing. And the subtle pressure of student grading of faculty, and faculty being judged on it.

The day will come, though not too soon, when universities, like ratings agencies, will be held liable for the judgement implied in the grades they hand out.

Meanwhile, we need a new gold standard for grades.

I have been reading an interesting post by Mark Thoma on how the Fed can prevent the next financial crisis, inspired by the release of minutes of Fed meetings in 2006.

Professor Thoma makes the following good points:

The Fed’s errors can be placed into two broad categories, the failure to ask the right questions before the crisis, and the failure to act quickly and aggressively enough once the crisis began. The first problem had a lot to do with economists’ undue faith in their own models and abilities – the financial meltdown problem had been solved so no need to worry about that – while the second problem is at least partly due to the way in which the public interest is represented on the Fed.

I’d like to add a third error. The Fed’s blithe confidence in their models and forecasts influenced society’s behavior. Therefore, not only were their models wrong, but their unacknowledged wrongness arguably made things worse.

In the social arena, wrong models have psychological consequences that affect the things they are modeling. Nonlinearity is built into the system, and is especially large and significant when forecasts made using the models are widely disseminated from the top.

How is belief in the Fed’s current projections affecting the projections themselves?

When I say that the probability of throwing 3 heads in succession is 1/8, that refers to the fact that if I toss three coins a large number of times, I believe that the number of times I get three simultaneous heads will asymptotically approach a ratio of 1/8. Each individual throw is of course governed by well understood mechanical laws, but the sequence of uncontrolled tiny effects at the start of and during each coin toss effectively produces a pseudo-random result.

When I say the probability of Ron Paul getting elected is small, I don’t refer to an ensemble of identical events at all. Randomness doesn’t come into it either. I think that what I really mean is that I CANNOT EASILY IMAGINE A PLAUSIBLE DETERMINISTIC SERIES OF EVENTS THAT WILL CAUSE THAT TO HAPPEN.

These are two very different uses of the word probability. There should probably be a different word for the second use. All of this makes me increasingly suspicious of the use of probabilities in describing societal events.