Emanuel Derman

Counterintuitive, but true

Emanuel Derman
May 9, 2012 20:14 UTC

I wrote a post a couple of weeks ago (Economists on the Skids) about the clear testability of counterintuitive ideas about mechanics and the much less clear testability of counterintuitive theses in economics.

Here is a counterintuitive truth I have discovered about the physical world.

Every Friday morning I get out of the subway at 34th and 7th, south-east side of the street, and proceed to walk to the middle of the south side of 34th street between 7th and 8th. To do so, I first have to cross the human river pouring out of the exit of Penn Station, shown below.

The thick white arrows denote the humans coming into Manhattan to earn their daily bread. They stream up the stairs and then through the anti-terrorist anti-vehicular barriers you can see in the photo, and then fight their fluid way onto the the 34th Street sidewalk.

The thin white line at the bottom of the picture has been my usual path. I approach from the subway exit at the left, hit the crowds and then move away from them to try to dodge the crowds as they spurt out of the barriers. It doesn’t work very well, because I am trying to cross, perpendicularly, all of these agents.

Last week I tried a new strategy: see the heavy red line at the top of the picture. I headed right into the dense thick of things behind the barriers. And Lo!, there they are moving slowly, held back by the barrier, and it’s easy to cross the flow. You easily emerge with them and go where you like.


Emanuel Derman
May 4, 2012 16:34 UTC

Thinking aloud:

As I understand it, all money is really an IOU created and issued by someone. When McDonald’s gives you coupons, you’re taking their credit; similarly with Frequent Flier Miles, and similarly with a bank that lends you U.S. dollars. All of these institutions are creating money, their own currency.

The question then is: what if they can’t fulfill their IOU?

In the case of McDonald’s, who cares?

With frequent flier miles, it’s irritating when they change the rules on you or impose blackout dates, but that’s what they do. They had given you a floor value for the miles, though you could trade them to someone for a fluctuating amount, and then they changed the value of the floor. Foul play.

The U.S. dollar is an IOU issued by the Treasury and backed by the full faith and credit etc. Which means what?

Economists on the skids

Emanuel Derman
May 2, 2012 20:30 UTC

Economists keep battling it out.

Martin Wolf in the latest FT comes across with heartfelt empathy for the difficult life of a central banker, someone whose limitless narrow power over the economy doesn’t extend to troubled individual consumers. Wolfe is against austerity but recognizes the political difficulties.

Gideon Rachman says there’s no alternative to austerity.

Paul Krugman sniffs, a little scornfully, still recommending more lending as a cure for too much.

When so many smart people disagree, how do they expect anyone to be convinced?

I am reminded of the equally counterintuitive advice I was given, as a teenager learning to drive, by my Juan Manuel Fangio-loving friend in Cape Town. No radial tires in those days, and cars skidded on De Waal Drive at 30 mph in rainy weather. I once braked slightly on the way to Varsity and had my car turn through 90 degrees and slide sideways towards some policemen at the side of another car that did the same. Luckily I didn’t hit them and they forgave me.

The business of universities is … education? Excellence? Job placement?

Emanuel Derman
Apr 30, 2012 01:32 UTC

Every day I seem to come across new articles or incidents concerning universities that indicate the increasing strength of the tidal forces pulling at them and their denizens:

Ethical problems: University of Pennsylvania sloppy about hiring someone with a fake PhD, then reluctant to fire him.

Profit-making as a dominant goal: The New Yorker on Stanford as Get-Rich U. Universities used to be safe jobs whose sole glamor was intellectual. Now not only university presidents but even faculty can make large amounts of money by patents, connections with business, consulting, boards, angel investing. There are massive discrepancies in salary across the faculty.

No more inhibition

Emanuel Derman
Apr 20, 2012 16:22 UTC

When I used to blog for Wilmott, I used to be a frivolous uninhibited person. But now, I’ve noticed, the gravitas of Reuters, and the fact that every post has to go through their editorial staff who have standards to uphold and probably don’t want to get sued either, has inhibited me. I think twice or even three times about writing unweighty garbage. Will it be long and significant enough? I don’t want to sound stupid.

The hell with that.

The other day I used the Chase app on my iPhone to deposit a check from my health insurance for $17.32. The app made me enter the amount,  and then asked me to use my iPhone’s camera to photograph both the back and front of the check. Then it sent it off, and later, I got an email telling me that the check had cleared.

Impressed, I sent out a short tweet saying “Chase iPhone app lets you deposit checks by photographing them. Just did. I’m hoping you can soon deposit cash the same way.”

The End

Emanuel Derman
Apr 16, 2012 13:00 UTC

When the era of rationality finally dawned, it became clear to everyone that love doesn’t last. Furthermore, everyone agreed that humans spend too much of their youth immersed in and distracted by the misery of courtship and the agony of unfulfilled sexual attraction, and so much of their middle and old age in the sadness of waning attraction and regret. No one in the era of rationality was in favor of unavoidable human pain. So, when the entire human race decided that the complications caused by lust weren’t, in the end, worth it, they concluded that people would live much more calmly and pleasantly in a society where sexual competition was absent. It soon became clear that humans would be better off if everyone simply stopped reproducing.

Some people argued that one should end not just the human experiment but the entire life-on-earth experiment, and humans did briefly consider putting an end to the reproduction of all life forms. Other people argued persuasively that (a) it wasn’t practical to eliminate every single species, especially the invisible ones, and (b) it wasn’t up to humans to make decisions for others. What was most convincing about the plea to let other species be was the argument that, since eliminating sexuality was really an attempt to eliminate pain, humans had no right to inflict on other animals the pain of forcible elimination of sex. This argument won the day. So, humans simply decided to stop reproducing, voluntarily, but to let animals and germs and viruses be. Some people suggested that in that way evolution might throw up something better, but no one really cared. It wasn’t their business.

It turned out to be easy to convince people to try to stop reproducing. And once everyone agreed, it wasn’t that hard to put into practice. People took to the idea surprisingly quickly. For a brief time some continued with occasional acts of contracepted sexual intimacy, but soon found that the greater ideal of human interactions free of the strains of lust was workable and preferable. Boys and girls became really good friends, even post adolescence; competition between people of the same sex and between the sexes themselves decreased; husbands and wives stopped arguing; eventually even gay couples whose continued sexual behavior would have been compatible with the cessation of the human race found that they weren’t really that interested in the act itself. As a result, everyone went about their work more seriously and the experiment became a movement and a success. Life became pleasant, though never ecstatic, and that seemed good.

Professionalism and its discontents

Emanuel Derman
Apr 10, 2012 13:46 UTC

“I must accept that my body cannot do too many things at once. I must learn to say, ‘No.’ I must take care to get sleep. I must think of myself. I must do things that are fun. I must get the ‘musts’ out of my life.”

The instructions a therapist in Sweden gave to an apparently fairly healthy
golf-playing woman who was on state-paid disability for three or more years.
2002 article in the NY Times

I recalled and then tracked down the existence of this self-indulgent-sounding paragraph in an article I read ten years ago. I was kind of struggling to do a thorough job at something I must do but didn’t feel like doing, and suddenly it popped into my head.

Partner$ in crime

Emanuel Derman
Apr 4, 2012 16:36 UTC

I don’t understand money too well, the idea of it, what exactly it is. For a class I’m teaching I just read an enlightening British book on that subject, Where Does Money Come From?, recommended to me by Perry Mehrling, the author of a biography of Fischer Black. (Perry is giving a talk at Columbia on The Inherent Hierarchy of Money in a seminar I run next week.)

As I understand the money book, which focuses on Britain, money is at bottom created by commercial banks every time they make a loan. But the currency they loan in is created by the sovereign/state (or whatever passes for it) that gives the money practical legitimacy (for paying taxes, etc).  When states or sovereigns pass on, so, often, does their money. As John Kenneth Galbraith once said, “The process by which money is created is so simple that the mind is repelled.”

So, banks and states are cronies.  The state gives the banks (and credit unions, to a much smaller extent) the right to create new money. And the state borrows from banks, and bails them out when necessary.

My blind date with Rina Kolick

Emanuel Derman
Mar 23, 2012 03:01 UTC


Spiller Alert: This post may contain TMI about Miracle Workers and Bodily Fluids. You can stop now.


“It wasn’t there in 2009, so that’s a bit suspicious,” I heard the CAT-scan doctor say. He wasn’t talking to me, thank God, because I hadn’t had my CAT scan yet, but it gave me pause for thought and gratitude.

The best revenge?

Emanuel Derman
Mar 19, 2012 13:08 UTC

I just returned from a one-week vacation in the Yucatan, doing pretty much nothing except staying on the beach, my all-time favorite activity perhaps owing to having grown up in a beachfront city. I was pretty tired when I went down there, and I began to wonder what life would be like if I hadn’t worked for a living.

I know many people who currently don’t and quite a few who never did. Some lived off inherited money. Some worked hard and successfully and made enough to do what they liked, and in their case “liked” meant no more work. (Some continued working when they didn’t need to. Is it work if you like it?) Others worked for a while and then tired of the slog, and lived off spouses or, very frugally, off whatever they had saved up to that point. And some essentially never worked, because they simply didn’t have what it takes to subject themselves to other people’s control, which is what most jobs involve; they survived however they could, some well and some poorly. It’s hard for me to decide whether living well without having worked is admirable or sad. I’m a bit of a Puritan and at bottom I’m afraid I don’t like to see people living well without having worked, though Calvin Tomkins has a positive view of it in his memoir of the Murphys in Southern France. But what would the world be without suffering (the mild kind)?

As more and more people I know edge into retirement lifestyles, I found myself thinking on vacation about how I’d like to live. I know people who travel nonstop, but that’s not for me.