The following quotes are from a book describing a real set of events:
[The incident] is an extraordinary example of what happens when you get… a dozen people with an average IQ of 160… working in a field in which they collectively have 250 years of experience… employing a ton of leverage.
It’s hard to overstate the significance of a [government-led] rescues of a private [corporation]. If a [company], however large was too big to fail, then what large [company] would ever be allowed to collapse? The government risked becoming the margin of safety. No serious consequences had come about in the end from the… near-meltdown.
Was the incident:
a) The savings and loan scandal
b) The collapse of Enron
c) The sub-prime mortgage meltdown
d) none of the above
First correct answer gets to invest in an exciting new bridge project I’m involved with in New York!…
I’m giving my “2009 Q1 award for most concise, lucid comment” to Paul Phillips for this gem:
Viewed from a thousand miles, the financial system has a incalculably large incentive to fail catastrophically as frequently as it can do so without killing the goose that lays the golden eggs.
As long as there is such a thing as “too big to fail” and trillions of dollars are available for siphoning, according to what logic can this cycle be dampened? Nobody has to explicitly pursue this outcome (although there are many who will) for it to be inevitable; the system obeys its own logic above all else.
[ commenting on Alfred Hubler on Stabilizing CAS ]
With his permission, I am posting an email thread between myself and Alfred Hubler. I had contacted him on the recommendation of John Miller when Kevin and I were posting on the possibility of dampening boom-bust cycles in the financial markets through policy or other mechanisms. Here’s what Hubler had to say:…
I remember reading this Wired article in 1998 suggesting that the “debunking” of cold fusion may have been way premature. Last night, 60 Minutes did a pretty convincing piece claiming that more than 20 labs around the world have reported “excess heat” from cold fusion experiments:
It’s interesting to me that the best skeptic they could find on the subject (Richard Garwin) was thoroughly unconvincing, simply asserting that there must be a measurement problem, without he himself daring to go measure. You’d think it would be worth a looksy. More interesting still was the independent expert in measuring energy (Rob Duncan) who came in as a total skeptic and came out as a believer.
But my favorite part of the story is near the end when Fleischmann (co-discoverer of cold fusion) appears to be having both a literal and figurative last laugh. Man, what a bad beat he and Pons got.
Besides Garwin, who are the …
Kevin just posted about a great article by Felix Salmon in Wired. I underlined three quotes in my reading of it:
- “Correlation trading has spread through the psyche of the financial markets like a highly infectious thought virus.” (Tavakoli)
- “…the real danger was created not because any given trader adopted it but because every trader did. In financial markets, everybody doing the same thing is the classic recipe for a bubble and inevitable bust.” (Salmon)
- “Co-association between securities is not measurable using correlation…. Anything that relies on correlation is charlatanism.” (Taleb)
There is a proposed symposium on “Complex Adaptive Systems and the Threshold Effect: Views from the Natural and Social Sciences” on Nov. 5 – 7, 2009 in Arlington, VA. According to the details, “A final determination for scheduling this event will depend partially on the amount of interest from the community…” If you want to learn more or express your interest, email firstname.lastname@example.org.…
The following is a recent paper by Henry Heng published in JAMA. I’ve linked concepts mentioned in the paper to corresponding explications from this blog.
The Conflict Between Complex Systems and Reductionism
Henry H. Q. Heng, PhD
Author Affiliations: Center for Molecular Medicine and Genetics, Wayne State University School of Medicine, Detroit, Michigan.
Descartes’ reductionist principle has had a profound influence on medicine. Similar to repairing a clock in which each broken part is fixed in order, investigators have attempted to discover causal relationships among key components of an individual and to treat those components accordingly. …
Parrondo’s paradox is the well-known counterintuitive situation where individually losing strategies or deleterious effects can combine to win…. Over the past ten years, a number of authors have pointed to the generality of Parrondian behavior, and many examples ranging from physics to population genetics have been reported. In its most general form, Parrondo’s paradox can occur where there is a nonlinear interaction of random behavior with an asymmetry, and can be mathematically understood in terms of a convex linear combination.
One of the most basic but misleading heuristics that the human mind uses is that of linearity. If we see a progression (say 0, 1, 2), our first instinct is that the next step follows linearly (namely 3). But there is no a priori reason to prefer the linear interpretation to any other, say quadratic (which would suggest the next step in the sequence is 4). For whatever reason – probably due to the relative simplicity of linearity – our brains seem wired to prefer linear explanations to non-linear.…
A recent study funded by the Centers for Disease Control and Prevention (CDC) in Atlanta claims that thimerosal, a mercury-based preservative used for many years in vaccines, is “not associated with problems in speech, intelligence, memory, coordination, attention, or other measures of childhood development.” For those unaware of the thimerosal controversy, it has been claimed by many that it causes or is a factor in the development of autism. Michael Goldstein, vice president of the American Academy of Neurology said of the CDC study that it was, “enough to convince me that this small amount of mercury … was not harmful to the children.”
However, there is a glaring problem with this study. While it seemed comprehensive with respect to thimerosal exposure, it apparently did so by combing health plan records, not by attempting to measure levels of mercury in the actual bodies of the children or their mothers during pregnancy.…