Opinion

Emanuel Derman

PPE morphs to PNE

Emanuel Derman
Aug 30, 2011 13:57 UTC

The internecine arguments by economists in the daily papers show that a good part of economics is about

    what is good; and how to achieve it,

i.e. about philosophy and politics.  In British universities a major in Economics used to be part of PPE – the triple concentration in Politics, Philosophy and Economics. Puts economics with the traditional moral “sciences” of values.

The emerging paradigm in academic economics is PNE – Psychology, Neuroscience and Economics. Puts economics with the traditional value-free sciences.

But, if economics is about what’s good and how to get it, it can’t be value-free. Hence …

No more time decay

Emanuel Derman
Aug 28, 2011 12:57 UTC

The hurricane edition of the NY Times contains an article about a new British TV show on the downside of immortality. It reminded me of something similar I once contributed to Edge’s 2009 Question. The link to their 2009 Question — What Will Change Everything? — is broken, and so I reproduce my paragraphs here:

 

What Will Change Everything?
NO MORE TIME DECAY

The biggest game-changer looming in your future, if not mine, is Life Prolongation. It works for mice and worms, and surely one of these days it’ll work for the rest of us.

The current price for Life Prolongation seems to be semi-starvation; the people who try it wear loose clothes to hide their ribs and intentions. There’s something desperate and shameful about starving yourself in order to live longer. But right now biologists are tinkering with reservatrol and sirtuins, trying to get you the benefit of life prolongation without cutting back on calories.

We the people

Emanuel Derman
Aug 26, 2011 02:39 UTC

I have been reading a column in the Sydney Morning Herald by their Economics Writer Jessica Irvine. She writes:

Kahneman says we can use this knowledge about our irrationality to influence public policy. We should make it so people have to opt out of things we find socially desirable and opt in to things we think undesirable. Innate inertia will do the rest. (My italics).

I don’t know whether she is quoting Kahneman in the second sentence, or quoting herself, but when I read it I was struck by the glib use of we and people. Who exactly are the “we” that will determine what is socially desirable and who are the “people” that will do the opting?

Globalization: Intended and actual

Emanuel Derman
Aug 24, 2011 14:12 UTC

I had thought globalization was a good idea. The developed world was rich, and it seemed as though outsourcing was going to diminish the wealth discrepancy between the rich and poor, decreasing the slope of the wealth line between the USA and the developing world.

 

  Globalization (Intended)

This is more or less what happened, actually. China and India are indeed richer.

But, what went wrong, in the USA and other parts of the west, seems to have been the following. If you look recursively at the USA  in the chart above, you see that the slope of the wealth line between the rich and poor within the outsourcing USA actually increased.

Tobin or not Tobin?

Emanuel Derman
Aug 18, 2011 13:25 UTC

If there’s one larger lesson one learns from options theory that transcends its technical details, it’s that there aren’t unmitigated goods. Every benefit thing has its price. Convexity/optionality is valuable, but its downside is rapid time decay.You can’t have your cake and eat it (unless you notice a kind of convexity that no one else has yet recognized).

Liquidity too is not an unmitigated good, and the world recognizes this in many important issues by creating friction and viscosity to slow things down. Without friction some things would never happen and life couldn’t go on.

You can have friction in the time dimension. People used to get engaged before they got married, then wait again for a marriage license, pass blood tests, etc. Divorce takes time, too. If you only join a gym, you have a few days to change your mind. Illiquidity makes people pause and think about the long run. Wall Street partnerships and the illiquidity of partners’ assets made firms think long term.

My life with the Maladroid

Emanuel Derman
Aug 16, 2011 14:34 UTC

Google’s big battle will be that they know (and care) nothing about customer support or user interface. I early-adopted and hated the clunky Motorola Droid and I’m intensely happy to be rid of it. Unlike Apple, there was no one responsible for the device as a device. And I couldn’t upgrade to newer ones when the hardware improved because Google’s own software wouldn’t successfully sync any newer Droid with Google’s own calendar.

Maybe Google will learn, but they released something unworthy of being sold for good money, even fiat money. I feel obliged to recycle bits excerpted from the web diary of the seven stages of grief I went thru in my year-long battle with the Droid:

Early days: patience and optimism

The insides of the Droid are fine. It’s the user interface that lacks deep polish, even though it oozes shallow polish. I suppose one should expect this; Google has little experience with designing complex interfaces and they have lots to learn. (I can point out some flaws on Apple’s Mail: when you delete a message, it doesn’t take you automatically to the next one.)

Capitalism with a human face?

Emanuel Derman
Aug 11, 2011 15:48 UTC

In the 1960s the key question for the East was: can you have Communism with a human face?

Hungary tried it in ’56, Poland and Czechoslovakia a decade later, and the answer pretty quickly turned out to be NO. Cuba hasn’t succeeded either, though it may not be all their fault. And as regards China, their face is only half human and it’s not Communist except in name.

But for us, on the heels of the Great & Ongoing Financial Crisis, the long poor tail of the income distribution in the U.S,. the general state of joblessness, and the riots in London, all coupled with some companies making records profits in the midst of a recession, the question is:

Karmic downgrades and upgrades

Emanuel Derman
Aug 6, 2011 14:34 UTC

About once a year I end up writing something about karma, and, in these uninspiring times,  this is one of those days.

According to Wikipedia:

“Karma is not punishment or retribution but simply an extended expression or consequence of natural acts. Karma … names the universal principle of cause and effect, action and reaction that governs all life. The effects experienced are also able to be mitigated by actions and are not necessarily fated … it is not a simple, one-to-one correspondence of reward or punishment. Karma is not fate, for humans act with free will creating their own destiny … The conquest of karma lies in intelligent action and dispassionate response.”

I have another definition, which I believe I once read somewhere:

“Karma is the mechanical expiation of sin.”

I always seem to remember that I saw it attributed to Tolstoy, whom it seems as though it suits, especially the older Tolstoy. I quoted it in my book “My Life as a Quant.” But when I google this quote, all I ever find is my own attribution of it, so I must be wrong. Anyhow, I like it. I take it to mean that the universe wants you to stop behaving mechanically in relation to the things you do that are wrong; if you don’t cease by voluntary expiation and repair things yourself,  then the universe will mechanically grind away at your vanities until you submit — involuntary expiation, an unpleasant prospect.

Sciences and nons(ci)ences

Emanuel Derman
Aug 5, 2011 10:50 UTC

I have spent too much time on Twitter*.

Nevertheless, one of the things I did notice is how many of the economic tweets are arguments about statistics. One in particular, pointed at by @FelixSalmon and @JustinWolfers, is an article that stresses:

… statistics is a rhetorical practice.  The goal is not just to convey information but rather to change minds.

The author of that extract, Jeff Ely, is a professor of Economics at Northwestern. I wonder whether professors of statistics would agree with his definition. In any event, it made me think about whether statistics is a science, or, indeed, what is a science**?

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