inverse function
in [Lisp]
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From: Tim Bradshaw on 22 Feb 2010 13:22 On 2010-02-22 17:52:50 +0000, Ron Garret said: > I have bad news for you. I once worked as a consultant for someone who > is a serious dude in the financial world. Very famous. Manages > billions of dollars. His primary model was an Excel spreadsheet. Not > only that, but it was the most horrible mess that you can imagine, an > unspeakable monstrosity. Dozens of separate sheets, many tens of > thousands of cells, many of which led off into dead ends that never > affected the final result. And in the middle of it all were a set of > arbitrary fudge factors that he tweaked according to his intuition, so > that the end result was basically just a wild guess. This actually terrifies me less than it might. He may have been a really rotten programmer (to the extent that he probably did not understand what he was doing was programming), but at least he was using a spreadsheet to do some kind of numerical modelling, which is what they're mostly for. What just makes me feel ill are all the people using a spreadsheet (generally Excel of course) when they actually want a database, or a project planning tool, or a word processor or something. > > I really think that the vast majority of the people on Wall Street > really are completely clueless. The only question in my mind is whether > they are *all* completely clueless, or if at the core there are a few > guys who actually understand what's going on and keep things humming > along. I agree with this. My theory (about 3 years ago) was that, well, they used to suck up physics PhDs, and my experience of physicists (having been one for a short while) is that they are some of the best people I have ever known at really understanding how the things they're interested in work, and just not taking any bullshit at all[*]. So surely those people would have understood stuff? But, in fact, I think that maybe if you are offered enough money to stop worrying about what your model means and just keep tweaking it until more money falls out, perhaps even physics people decide they don't need to really understand it: certainly it looks like they didn't. (Or, perhaps they *did*, and they knew it would all fall to bits, but hopefully not until after their bonus. Maybe that's even a reasonable, if selfish, strategy.) --tim [*] Having been a physicist can be very damaging in later life. Physicists (and maybe all hard scientists) tend to be very capable of *just saying when something is wrong* and equally *not minding when someone says some idea of yours is wrong* (because it's the *idea* that's wrong, not *you*). This makes technical discussions go very quickly. Then you try this with other tribes, and they suddenly go off in an enormous huff because they can't work this out and think that if you say their idea is wrong you are calling them stupid. Instead you have to do all sorts of bullshit hint-dropping until they eventually realise that the idea is wrong themselves, and everything takes much, much longer. Damn, I miss being a physicist more than anything, I think. (There needs to be a reference to Erik here.)
From: Ron Garret on 22 Feb 2010 13:50 In article <hlui10$qob$1(a)news.eternal-september.org>, Tim Bradshaw <tfb(a)tfeb.org> wrote: > I agree with this. My theory (about 3 years ago) was that, well, they > used to suck up physics PhDs, and my experience of physicists (having > been one for a short while) is that they are some of the best people I > have ever known at really understanding how the things they're > interested in work, and just not taking any bullshit at all[*]. So > surely those people would have understood stuff? But, in fact, I think > that maybe if you are offered enough money to stop worrying about what > your model means and just keep tweaking it until more money falls out, > perhaps even physics people decide they don't need to really understand > it: certainly it looks like they didn't. (Or, perhaps they *did*, and > they knew it would all fall to bits, but hopefully not until after > their bonus. Maybe that's even a reasonable, if selfish, strategy.) It's not only reasonable, it's *necessary*. You can't succeed on Wall Street any other way. The fundamental problem is that Wall Street's *customers* don't really understand what's going on, and that ignorance infects the system because ultimately enough people to the quality metric of who made the most money last year that nothing else matters. It's not much consolation when your competition is flying their private jets to their private islands to know that your strategy, if everyone had followed it, would not have led to collapse. Because you can do the Right Thing and the collapse will happen anyway, because everyone *else* is an idiot. So what's the point in being smart and prudent? Damn, and this was shaping up to be such a good day. I just got the last feature of the new version of lexicons to work. Now look what you've gone and made me do! Totally harshed my mellow. > [*] Having been a physicist can be very damaging in later life. > Physicists (and maybe all hard scientists) tend to be very capable of > *just saying when something is wrong* and equally *not minding when > someone says some idea of yours is wrong* (because it's the *idea* > that's wrong, not *you*). This makes technical discussions go very > quickly. Then you try this with other tribes, and they suddenly go > off in an enormous huff because they can't work this out and think that > if you say their idea is wrong you are calling them stupid. You mean like when someone suggests that there might be a better way to do namespacing than packages? > Instead > you have to do all sorts of bullshit hint-dropping until they > eventually realise that the idea is wrong themselves, and everything > takes much, much longer. Damn, I miss being a physicist more than > anything, I think. (There needs to be a reference to Erik here.) Eh, we've still got Kenny. rg
From: Tamas K Papp on 22 Feb 2010 14:13 On Mon, 22 Feb 2010 18:22:24 +0000, Tim Bradshaw wrote: > On 2010-02-22 17:52:50 +0000, Ron Garret said: > >> I really think that the vast majority of the people on Wall Street >> really are completely clueless. The only question in my mind is >> whether they are *all* completely clueless, or if at the core there are >> a few guys who actually understand what's going on and keep things >> humming along. > > I agree with this. My theory (about 3 years ago) was that, well, they > used to suck up physics PhDs, and my experience of physicists (having > been one for a short while) is that they are some of the best people I > have ever known at really understanding how the things they're > interested in work, and just not taking any bullshit at all[*]. So > surely those people would have understood stuff? But, in fact, I think > that maybe if you are offered enough money to stop worrying about what > your model means and just keep tweaking it until more money falls out, > perhaps even physics people decide they don't need to really understand > it: certainly it looks like they didn't. (Or, perhaps they *did*, and > they knew it would all fall to bits, but hopefully not until after their > bonus. Maybe that's even a reasonable, if selfish, strategy.) All empirical results so far indicate that markets process information pretty efficiently. That is to say, you can't beat markets systematically (after adjusting for risk). The qualifier, of course, is "unless you have information no one else has", but most people don't, and those who do are closely watched (eg insider trading regulations). This is very hard to stomach for most people, who are looking for fabulous extra returns. Unfortunately, there are always people who are willing to promise this, since they benefit from your investment --- usually a fixed share of your assets, which can be quite low for a plain vanilla index fund, and very large for actively managed funds which promise higher returns (but fail to deliver systematically, when adjusted for risk). The market for investments is, in a certain sense, like the market for laundry detergent or toothpaste: suppliers make (amazing) claims which most buyers are not in the position to evaluate or validate. Physicists are employed in this industry because they have been trained to deal with the math --- mostly continuous time differential equations and statistics. The rest is easy to pick up on a superficial level, but lacking training in economics, what they are doing is mostly mechanical. The models they are using are not that sophisticated, and since there is only so much information you can extract from data using pure statistical methods (without economic ingredients beyond no-arbitrage), you can't expect a lot from them. For example, most pricing "models" calculate the "fundamentals" from today's prices (basically inverting a bijection), which they use to calculate other prices, but they don't really care if the "fundamentals" are different from one minute to the next. That said, Excel spreadsheets & such are certainly not to blame for the current crisis, and neither are physicists without economic training. If you want to read about such things, look up Nicholas Dunbar's Inventing Money: The story of Long-Term Capital Management and the legends behind it, it is an entertaining book. Tamas
From: Ron Garret on 22 Feb 2010 14:38 In article <7ug3b0Ft9jU1(a)mid.individual.net>, Tamas K Papp <tkpapp(a)gmail.com> wrote: > On Mon, 22 Feb 2010 18:22:24 +0000, Tim Bradshaw wrote: > > > On 2010-02-22 17:52:50 +0000, Ron Garret said: > > > >> I really think that the vast majority of the people on Wall Street > >> really are completely clueless. The only question in my mind is > >> whether they are *all* completely clueless, or if at the core there are > >> a few guys who actually understand what's going on and keep things > >> humming along. > > > > I agree with this. My theory (about 3 years ago) was that, well, they > > used to suck up physics PhDs, and my experience of physicists (having > > been one for a short while) is that they are some of the best people I > > have ever known at really understanding how the things they're > > interested in work, and just not taking any bullshit at all[*]. So > > surely those people would have understood stuff? But, in fact, I think > > that maybe if you are offered enough money to stop worrying about what > > your model means and just keep tweaking it until more money falls out, > > perhaps even physics people decide they don't need to really understand > > it: certainly it looks like they didn't. (Or, perhaps they *did*, and > > they knew it would all fall to bits, but hopefully not until after their > > bonus. Maybe that's even a reasonable, if selfish, strategy.) > > All empirical results so far indicate that markets process information > pretty efficiently. That is to say, you can't beat markets > systematically (after adjusting for risk). First, that depends on how you define risk. Economic models invariably define risk in terms of volatility, but that breaks badly when you're playing a martingale. Second, even if no one can beat the market that is not necessarily because information is being processed efficiently. You can't beat the house in Vegas either, but that's not because everyone is processing the available information efficiently. Third, Goldman Sachs does seem to have an uncanny ability to beat the markets (though the possibility that they're doing so through some shady means cannot be ruled out). And fourth, if you have the U.S. Congress in your hip pocket you don't have to give a tinker's damn about the market because you can just shake down the taxpayers whenever you need to restock the minibar on the G5 with '78 Montrachet and you're feeling a little short. > The qualifier, of course, > is "unless you have information no one else has", but most people don't, > and those who do are closely watched (eg insider trading regulations). Again, that depends. If you're hooked in to the right communications channels you can easily have information no one else has without running afoul of the SEC -- for short periods of time. But that can be enough. rg
From: Tamas K Papp on 22 Feb 2010 15:27
On Mon, 22 Feb 2010 11:38:25 -0800, Ron Garret wrote: > In article <7ug3b0Ft9jU1(a)mid.individual.net>, > Tamas K Papp <tkpapp(a)gmail.com> wrote: > >> All empirical results so far indicate that markets process information >> pretty efficiently. That is to say, you can't beat markets >> systematically (after adjusting for risk). > > First, that depends on how you define risk. Economic models invariably > define risk in terms of volatility, but that breaks badly when you're Economists usually understand risk via utility (using the concept of the stochastic discount factor). Volatility is used more in finance (of course macroeconomics and finance are converging on various frontiers). > cannot be ruled out). And fourth, if you have the U.S. Congress in your > hip pocket you don't have to give a tinker's damn about the market > because you can just shake down the taxpayers whenever you need to Agreed. In fact, you don't even need to have them in your hip pocket, making everyone believe that you are "too big to fail" is enough for a bailout. This will remain a challenge for regulators in the future. >> The qualifier, of course, >> is "unless you have information no one else has", but most people >> don't, and those who do are closely watched (eg insider trading >> regulations). > > Again, that depends. If you're hooked in to the right communications > channels you can easily have information no one else has without running > afoul of the SEC -- for short periods of time. But that can be enough. Certainly. But such possibilities are not available for most ordinary people, and thus play no role in their investment strategies. I would love to continue this discussion, but it is quite off-topic, so I will stop here. Tamas |