Category — The Good Life

I like Nassim Taleb, author of the Black Swan and Fooled by Randomness. His criticism of risk management and the notion that we fail to notice that for every success story we see, there are many failures – don’t be fooled by randomness (so-called selection bias). At the same time he is extremely harsh towards those he criticizes and always a fun, but not too serious read.

He has a new essay up on his website where he anecdotically promotes a new form of living and exercise. Instead of working out an hour everyday and getting our healthy steady 8 hours of sleep, he suggest we should live like hunter gatherers. Fast randomly a couple of days, vary our sleeping schedule and walk low intensity a couple of hours a day, but mix that with some very intense ones, introducing stochasticity, Black Swans, and leptokurtosis into our efficent, normally distributed lives.

A few quotes:

“The only thing currently missing from my life is the absence of panics, from, say, finding a gigantic snake in my library, or watching the economist Myron Scholes, armed to the teeth, walk into my bedroom in the middle of the night.”

“walks in a stimulating urban setting, but with occasional (and random) very short sprints, making myself angry imagining I were chasing the bankster Robert Rubin with a big stick trying to catch him to bring him to human justice.”

Read it here

Working in business might be quite challenging

via Locklin on science

-JHA

We do what we can to keep the battle of ideas raging.

Here at Tallinn University of Technology, our professor Wolfgang Drecshler pointed out today that as ICT enables more choice in where to get political commentary and analysis, the tendency is that people choose to only get it from sources with whom they already agree. The predictable effect is more political polarization and less real public debate.

To the extent that the authors of Evolution-Revolution are amongst those who humbly provide political commentary and analysis, we pledge to do what we can to help prevent such polarization. By eclectically embracing the ideas of the political left, right, and radical center, we sincerely hope that none of you will agree with us all the time.

Picture from http://www.jimrlong.us/

On our recent and very pleasurable trip the the United States, some of my more conservative friends who we were visiting insisted on showing us one of their new favorite movies - An American Carol. The movie is a railing if highly inconsistent criticism of any and every idea championed by liberal America anno 2008, in particular its anti-war sentiment. The main character of the movie is Michael Moore (“Malone” in the movie), who takes the role as the scrooge of 4th of july – and is visited by three ghosts, amongst them General George Patton and country singer Trace Atkins (proudly playing himself). On his way to salvation and pro-war attitudes, he is slapped in the face repeatedly by an (as always) morally righteous Bill O’Reilly (also played by himself), who warns Moore that he is abusing his freedom of speech by preaching pacifism. In particular, the film echoes conservative America by claiming that Michael Moore and his followers – by questioning the moral superiority of the United States at war [Read more →]

Picture by Josh Abene

In economics, the assumption that economic actors – i.e. people – are “rational” is a common one. By “rational” we mean that people, given a ranking of their preferences, will choose whatever options they prefer the most. Ironically, our definition of “rationality” means doing whatever you feel like.

More importantly, it means that if we propose to know how “rational” economic actors will behave, we are in fact proposing that we are intimately familiar with the emotional life of every economic actor relevant to our model.

It is of course easy to assume a preference ranking when working in the abstract. Also, we can argue that by putting a price or “pseudo-price” on anything and everything, we can just assume that everyone just wants a ton of money because this can be traded in for whatever else you might want. If you ask me, such a argument only proves right those who claim economists are amongst those who “know the price of everything, but the value of nothing.”

The authors of this blog merrily receive about 82000 Norwegian kroner (NOK, €10 000) every academic year in living support for students from the Government of Norway. As we study in Estonia and do not engage in currency hedging, our standard of living (in economic terms) is subject to the NOK/EUR exchange rate. (Estonia has pegged its currency to the Euro and is most probably joining next year)

Over at Financial Times they report that Credit Suisse has made its currency predictions for the next year and betting on the strength of the krone and selling the Euro. With the budget balance and current account surplus larger than 10 percent of GDP, lowest unemployment rate in Europe and buoyant stock and housing markets Norway looks like a sure bet. It looks like we can expect a lenient new year in Tallinn.

Of course there are certain caveats to such a prediction. Foreign exchange markets are notoriously hard to predict and from what I remember investment banks tend to fare worse than just predicting the current exchange rate. Further, as a small economy, Norway would suffer under the curse of small currencies if a new financial crisis was to arise (which many are predicting). Last, the krone correlates rather well with the oil price which might / might not be a benefit for an eventual speculator.

Thanks go to Radu, a loyal evolution-revolution reader, for sharing the FT-article.

Update (May 4th, 2010): More on the Future Prospects of the Norwegian Krone (it’s still on the way up) – New article

The authors of Evolution-Revolution are currently visiting New York as part of our January tour of the United States. A proud bastion of capitalism and free markets, Manhattan also has some fine examples of what decent government can accomplish. Try asking a New Yorker whether Central Park ought to be sold off to a real-estate developer because having it government-owned is socialism.

Me and the Sundance Kid have recently to an old Norwegian economist by the name of Torkel H. Aschehoug. Although he died a little more than a hundred years ago, his economics – and especially his approach to economics – remain highly relevant today. As opposed to presenting a single theory or logical system as proven and true, his work is characterized by broad inclusiveness. Firmly rooted in the history of economic thought, he consistently presents the work of several different schools of thought when dealing with economic questons, as if creating a “smorgasbord” of economics for the critical reader to pick and taste from. In the first edition of his 2400-page magnum opus, Socialøkonomik (Economics), written during the last years of his life, he cites almost 900 different economists, and more than a thousand in the second. He examines the work of different and disagreeing economists critically – often pointing out weak points in the various theories presented – but refrains from canonizing any one as indisputable and true. Rather, his epistemology is founded on the attitude that objectivity is achieved by viewing a particular question from as many different angles as possible. Above the age of 80, the old conservative eagerly read new and critical writings, constantly revising his manuscripts in order to include and reflect upon new and interesting directions taken in economics.

This “Smorgarbord Approach” to economics is radically different from what is the norm in mainstream economics today. In the latter, theory tend to be presented without reference to their origin or author – implying a timelessness and irrefutability far beyond what most of it deserves. And while some academic conflics are laid out, the vast majority of mainstream economics is not presented as the view of a particular school of thought – the Neoclassical one – in conflict with other schools, but rather as established truth. More importantly, its epistemological foundations suffer from an increased emphasis on the ability of new theory to be derived from particular mathematical methods and fit within the established axiomatic framework. Importantly, while there may be furious disagreements within the school, the theories of the various belligerents tend to be based on very similar methods and theoretical foundations. Still, empirical work within the mainstream has to some extent helped it stay more relevant and connected to reality. It has also tended to produce conclusions less consistent with established theory. However, econometric research also suffers from the fact that it largely emanates from a single school of thought, with biases and holy ghosts like any academic school of thought is bound to suffer from. There are always endless questions of what to control for and how to define variables, and as my econometrics professor at William & Mary tellingly taught his students: “If in doubt, we go with the theory.” – a rather dubious doctrine from a Popperian perspective.

I am not amongst those that think the methods, models, and theories of the Neoclassical school are devoid of value and relevance – far from it. I do, however, think that it is extremely damaging for Economics as well as the quality of work in the Neoclassical school that the latter is a de-facto “academic monopolist”. Neoclassical economists are right in their claim that structural monopolies tend to stifle both innovation and product quality – the same is true in academic research. Comparative advantage also applies – while Neoclassical economics may have a comparative advantage in dealing with some economic issues, other schools have a comparative advantage in areas that have been strongly dominated by the mainstream. Development economics is one field where this is particularly true, financial macroeconomics and (in)stability is another.

It is time for a return to a much more diverse Smorgasbord. As any nutritionist can tell you, a varied diet is key to good health. Even broccoli is unhealthy if you eat nothing but it.

While writing the last post I came over this by Paul Krugman:

“I should also mention that you don’t need to go back to Tobin 1975 to see serious academic analysis of the issue. Gautti Eggertson at the NY Fed has been doing yeoman work on all of this, for example here.”

Implying, to me at least, that there should be some intrinsic value to the freshness of the analysis. I concur that something new might well be more relevant, but then its the relevancy that makes it better and not the novelty. It is not at all given that the newest is the most relevant; it depends. 

I would much rather follow the somewhat impossible advise of Vicor Niederhoffer in his “The Education of a Speculator”, that you should only read books that are at least a hundred years old; it is first when they are still deemed valuable after so long that they have proven their real worth and quality.