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Lakoff on his own frames April 24, 2014

Posted by larry (Hobbes) in economics, Frame Analysis, George Lakoff.
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Harry Feldman has brought to my attention that in terms of his reading of Lakoff, Lakoff fails to appreciate that he is speaking from within a particular frame and seems to be using it unanalytically. Quoting Harry directly, according to him, Lakoff

seems oblivious to the frames underlying what he himself says – that there is something he calls ‘American values’, that the Democrats are somehow ‘progressive’, that there is something natural about a ‘family’, nurturing or otherwise… Ultimately, the message appears to be that if ‘progressives’ are to defeat ‘conservatives’, they have to play by the conservatives’ rules by jettisoning rational argument and appealing to their perceived audience at a visceral level. It’s not at all clear how this differs from dishonesty.

To be frank, the phrase ‘American values’ puts me off some of Lakoff’s stuff. Which is why I have stuck with Goffman and others on this. (Perhaps it is apposite, parenthetically, to point out that we are not limited to Lakoff’s approach to frames. In addition to Goffman, there is also Kahneman and Tversky’s Choices, Values, and Frames,which I heartily recommend. Not all the articles in that volume are relevant to our concerns here, but some are.)

Harry’s point about Lakoff’s obliviousness seems well taken, but I alter L’s approach by marrying the two, the so-called emotional and the evidential, including the general framework. Or try to anyway. For Lakoff’s  emotional, however, I prefer the term, conceptual, and its cousin, conceptualization, which are both more general and more specific. Since data isn’t value-free, that is, comes with conceptual baggage and, as Lakoff would no doubt point out, a concomitant emotional commitment, in the fight we have at hand against the neoclassical economic worldview, it is not going to be sufficient to attack the data alone. The framework in which the data has been encased must also be undermined. (This is, I think, part of Galbraith’s point about Piketty’s interpretation, or framing, of his data.)

Balls, who I think is a good example of how not to do things, had a piece in the Guardian, on 14 April, and a more vacuous set of utterances I have yet to see. All fluff and no substance. Here is the link: http://www.theguardian.com/commentisfree/2014/apr/14/labour-party-cost-of-living-crisis

If I may, possibly, over-generalize just a tad, philosophers of a certain stripe think the best way of disarming the other guy is to show that his argument leads to contradiction, while certain psychologists think the best way of disarming the other guy is to undermine his value assumptions. Both approaches, however, require some sort of “factual” information to work with or they won’t fly. With Balls there is little or nothing to work with. And, in addition, he assumes that the other guy’s framework is the way to “frame” the debate. There is a way of doing this that might work but Balls isn’t doing that. In the case at hand, the attack on the NHS, the benefit “reforms”, the general attack on the poor, and the like, Balls has so far discussed the situation in ways laid out by the Tories. He needs to re-frame the debate. But since he basically accepts the way in which they have laid out the terms of the debate, he may be incapable of doing that.

Since their view of the economy, or Osborne’s anyway, is at the root of everything they are doing, it has not been sufficient to attack their lack of evidence for the policies and programs they have introduced. The way they view the economic system must also be shown to be completely mistaken. This involves a conceptual reorientation, or as Lakoff would say, a re-framing of the debate, root and branch. If this can be done successfully, the data themselves can be seen in a new light and acquire new relevance. While you can’t do without data or evidence, more is needed, and this is why I say: data isn’t enough.

Only by marrying the conceptual with the evidential can Osborne’s way of viewing society and how it works be placed in the coffin where it belongs and buried in the ground along with the rest of such conceptual detritus. Perhaps we may then regain some control of the debate.

I realize that I haven’t directly addressed Lakoff’s way of doing things. But I hope I have shown how we can avoid the pitfall that you point out may lie in Lakoff’s path by altering the frame framework (!?) in certain ways. Goffman and Kahneman and Tversky’s approaches aren’t so subject to the pitfall in question.

As an aside, related to all this is the notion of the “definition of the situation”, so well discussed by Goffman so many years ago. While highly relevant, this must be left for another occasion.

The Commercialization of Everything April 22, 2014

Posted by larry (Hobbes) in economics.
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George Monbiot has brought up once again the essential issue of the commercialization of the environment, which is part and parcel of the neoclassical economic worldview. In his discussion, he mentions an interview of George Lakoff done by the Guardian last February. Lakoff states outright why he thinks the Liberals lose and will continue to lose every time against the conservatives. I will not summarize the arguments of either, but Lakoff’s argument is more important than ever, and the Labour Party and the TUC and others are failing to get it. It isn’t about facts or money, it is about moral perspective. Whether you agree with Lakoff or not, it is now essential to engage with his argument.

http://www.monbiot.com/2014/04/22/reframing-the-planet/

http://www.theguardian.com/books/2014/feb/01/george-lakoff-interview

The interview refers to Lakoff’s book, Don’t Think of an Elephant: The Essential Guide for Progressives (1990). Since Lakoff’s argument relies on what are known as frames, ways of framing a point of view or an argument, I think it apposite to mention one of the first works in this area, that of the late Erving Goffman’s Frame Analysis (1974). It is unlikely that Lakoff is not aware of the book, but Monbiot has never mentioned Goffman with respect to this issue. I have not myself read this particular book of Lakoff’s, but if you have read Goffman, you may not need to.

Frame analysis, which can be tricky, is quite straightforward. It isn’t going to be sufficient for Miliband & Co. to have read Piketty’s Capital, they had better read Lakoff in addition and frame their ethical stance allied to the data without worrying about what the Tories are saying. It is data married to ethics that is required. Not simply pointing out the other chap’s empirical errors. These errors must be placed in an appropriate frame of reference.

Balls’ thinking has been captured by the alternative party’s position, as shown by virtually every statement he makes. He just tries to make it more acceptable. It seems doubtful to me that he can change. But Miliband might have a chance, if he can make himself cognitively and emotionally independent of those around him. I realize that this is nontrivial but I don’t know what else can really work in turning around the cultural capture of the economic system and its ancillary institutions that has taken place by adherents of the neoclassical worldview over the past 30 or so years. For this set of vested interests, for whom data is an irrelevance, if you have seen one Redwood tree, you’ve seen them all (attrib. Reagan). A more dangerous perspective is difficult to imagine.

Addendum:

Utilizing frame analysis, one could argue that Galbraith’s criticism of Piketty lies in what Galbraith conceives is a poor choice of frames of reference for analyzing and even cataloging his data. If Galbraith’s critique is accepted, this need not vitiate Piketty’s entire analysis, only that care must be used in assessing some of his conclusions and possibly some of the operations he carries out on his data. Whatever its faults, Piketty’s analysis is of greater worth than the dynamic duo’s upcoming sideshow on the so-called British economic recovery. Claims adduced will be either mendaciously inaccurate or at best misleading. Piketty is at least attempting to unravel what might be conceived to be the truth surrounding the issue of economic inequality.

Piketty’s new book, Capital in the 21st Century April 22, 2014

Posted by larry (Hobbes) in economic inequality, economics, Piketty.
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Thomas Piketty’s new book, Capital in the 21st Century, is making more headlines than one might have thought possible for an economics text. Although it is accessible for someone with little economics training, it is data driven in a big way. The book is an historical account of economic inequality in the West over the past few hundred years. The most important period for our current purposes is the latter 19th century in the US. During that period, you had a similar concentration of wealth (i.e., assets) as is taking place now, but without the seemingly more or less complete capture of the political system that appears to be taking place now, at least in the US. This capture is one of the features of extreme wealth inequity that bothers Piketty.

On a biographical note, Piketty was at MIT and left that institution for Paris. He has said that one of the reasons he left was that he didn’t think American economists were that good, in general. UMKC and the University of Texas at Austin are two centers of heterodox economics in the US that are excellent. But Piketty wasn’t there. Then again, the French offer might have been too good to ignore.

Paul Krugman, not the most original or heterodox economist on the planet, was interviewed by Bill Moyers. Krugman makes his usual mistakes on money creation in the economy, but his remarks about Piketty’s results deserve to be heard. Don’t miss Moyers’ remarks following the interview. They are worth listening to as well. In this interview, Krugman admits that he never realized what Piketty has been researching and found out, with Saez and others, for the past 10 years or so. Some Krugman critics will probably not be surprised. But, at least, he has admitted that he didn’t know. As probably most know, Piketty’s book is about economic inequality. And it is a big deal. One could argue that it is the source of all the other inequities to which almost everyone is subject, except for the 1% or the .1% who are getting wealthier all the time, every minute of every day. The disparity between them and the rest is, it could be said, astronomical.

[I have included the hyperlinks in case the embed codes do not work as they are supposed to, which will be the fault of WordPress.]

http://billmoyers.com/episode/what-the-1-dont-want-you-to-know-2/

Moyers refers to this study of US inequality and the emerging oligarchy by Gilens and Page. The study is entitled Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens (April 2014).

https://www.princeton.edu/~mgilens/Gilens%20homepage%20materials/Gilens%20and%20Page/Gilens%20and%20Page%202014-Testing%20Theories%203-7-14.pdf

Here is Krugman’s review of Piketty from the NY Review of Books.

http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/

But here is an interview of Piketty himself by CNN.

http://money.cnn.com/2014/04/21/news/companies/piketty-best-seller/

A colleague of mine, Julian Wells, reminded me of James Galbraith’s review of Piketty’s book which is eminently worth reading, although it is technical in places. (http://www.dissentmagazine.org/article/kapital-for-the-twenty-first-century) Julian makes the following points, which are worth noting.

Jamie G. marks Piketty down for a number of errors, of which the one that resonated most with me was his complaint that Piketty has what my friend Andrew Kliman has dubbed a “physicalist” perspective — essentially the misconception that capitalist production is at bottom about producing things, whereas what it’s actual objective is is the production of capital.

Worse still, Galbraith says, Piketty’s attempt to measure physical capital is also incoherent (essentially because any one-dimensional measure must be a financial one).

Naturally various further errors in analysis flow from the above, and culminate in utopian policy prescriptions of a social democratic kind.

Unfortunately, I neglected to mention it along with Krugman’s comments. Yes, one must distinguish between Piketty’s data and the various levels of interpretation and explanation that he imputes to it. I don’t know of anyone who rejects the most important implication of his data, that of wealth (i.e., assets) tending to concentrate in the hands of a few. Even Galbraith himself talks of a new class war, although this “war” is not between the classes of industrialists and workers as in Marx’s day but between the 1% and everyone else, though he doesn’t express it quite like that in his The Predator State.

Galbraith’s review of Piketty’s book is the most critical review I have yet to come across and Julian is right to point out its importance to this debate, which has now entered the public arena, at least to some degree. Gilens and Page in their study, whose methodology is not the greatest, has obtained data that also supports this contention of wealth concentration, preferring, however, to calls this phenomenon “economic elite domination” rather than “oligarchy”, which John Cassidy in The New Yorker  (Is America an Oligarchy?) contends is due to the former term being less pejorative in its connotations.

Of course, such wealth concentration is not new. It took place toward the end of the 19th century. When asked by Moyers why that didn’t lead to the result to which it seems to be leading today, Krugman contends that this was because the economy as a whole was growing so fast that the wealthy could not “get a lock” on the system. That is, wealth and its concomitant concentration was not growing as fast as general GDP. Which supports Piketty’s point in this respect, that wealth is currently growing faster than general GDP – i.e., it is outpacing it. Piketty’s remedy for this is progressive taxation, in this case, taxation used for redistributive purposes, as opposed to its other purposes (currency legitimation, influencing the direction and degree of spending, etc.).

However, even J. P. Morgan’s saving of the banking system from itself in the crash of 1907 could not have been achieved without the assistance of Teddy Roosevelt (the “Great Trustbuster”), i.e., the government, something Morgan himself at the time, and bankers since, prefer to forget. But a good, brief discussion of this can be found in Nomi Prins’s All the President’s Bankers.

The upshot seems to me to be, whether one agrees entirely or not with Piketty’s own interpretation of his data, is that he is bringing empirical data on economic inequality and its debate into the public arena and public discourse and forcing even economists like Krugman to face what many now are considering to be a “fact”, that economic inequality is an objective reality and not simply a matter of where one stands ideologically*.

Even Cameron appears to feel he has to respond to the influence of Piketty’s work, although his response, so far, has been extremely weak and vacillating. Rumor has it that the Miliband camp is reading and digesting the book.

Nevertheless, as Galbraith points out, one must be careful about Piketty’s own treatment of his data. Is this a subtlety that might perhaps escape the Cameron and Miliband camps, neither of which has so far conspicuously exhibited this particular trait in any substantial degree?

____________

* I realize that my argument here is enthymematic and thereby incomplete, but to go into it further here would take us too far afield.

Piketty & the recent US Supreme Court decision April 3, 2014

Posted by larry (Hobbes) in economics, Justice, Philosophy.
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Uh oh!
http://www.salon.com/2014/04/02/supreme_courts_abomination_how_mccutcheon_decision_will_destroy_american_politics/
It is looking worse for the 99% every week in the US, and eo ipso potentially in the UK. The piece linked to is by a law prof at University of Colorado at Boulder. Piketty’s Capital in the 21st Century gets a mention in this context, and it is relevant. I will quote from Campos: Piketty argues that

“…[I]n the long run, the return on capital tends to be greater than the growth rate of the economies in which that capital is located.

What this means [concludes Campos] is that in a modern market economy the increasing concentration of wealth in the hands of the already-rich is as natural as water flowing downhill, and can only be ameliorated by powerful political intervention, in the form of wealth redistribution via taxes, and to a lesser extent laws that systematically protect labor from capital. (Piketty argues that, because of historical circumstances that are unlikely to be repeated, this sort of intervention happened in the Western world in general, and in America in particular, between the First World War and the early 1970s.)”

This is as pessimistic as it gets. What is not mentioned in most discussions of this outcome is the view put forward a few years ago by Republicans that corporations are individuals, that is, people. This is a logical howler of immense proportions, but in this context, such fine distinctions seem to be irrelevant. It is this view that partially underpins the Supreme Court decision that,  just like people, corporations have free speech rights that need protection. This apparently includes the way that their CEOs and board members spend the corporation’s money.

Piketty’s data is extensive and runs for hundreds of years. It is a door-stopper of a book, around 600 pages of text and 100 pages of notes, not including the material Piketty has placed online. One could be forgiven for concluding that the greater the economic inequality, the greater the chance of political plutocracy and that this is the inevitable consequence of the political implementation of neoclassical economic principles. This relationship seems to me to inevitably entail that politics can not be divorced from economics, which is a central tenet of the neoclassical paradigm. It seems to follow, therefore, as the night the day, that since politics can never be value-free, the idea that economics can be, as claimed by the neoclassical econs, is a non-starter.

I would like to think that this constitutes another nail in the coffin of the neoclassical paradigm, but it doesn’t look like it. Despite the mounting evidence against it, the dominant economic paradigm rumbles on with hardly a hesitation along the way.

Also have a look at this and the links therein: http://www.slate.com/blogs/moneybox/2014/04/02/wealth_inequality_is_it_worse_than_we_thought.html. It is about new research by Saez and Zucman on US wealth disparity. As has been pointed out previously by researchers, it isn’t the 1% who are the biggest gainers from this financial crisis, it is the 0.1%, the 1/10th of 1%.

Varoufakis on game theoretic analysis of asymmetric expectations among the powerful & the powerless March 22, 2014

Posted by larry (Hobbes) in economics, Game Theory, Psychology, social justice.
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This is for those who have some experience, knowledge or interest in game theoretic analyses of social interaction. Varoufakis is a political economist who is intimately familiar with game theory, having written a book about it with Hargreaves Heap some years ago. Nevertheless, economically, this research falls within the domain of what has become known as microeconomics, as distinct from macroeconomics. But this research focuses on social group expectations, not the processes of the economic system as a whole.

There are links in the paper to more detailed and mathematical discussions of the issues. I don’t think that the PowerPoint slides are self-explanatory, as they assume more understanding of the mathematics underlying game theory than is perhaps possessed by the general population. But the conclusions Varoufakis reaches require no math to understand. They are:

Varoufakis-ConclusionsEvolutionaryGameTheoryExperiments-Spr2014

There are a number of books and articles dealing with applications of game theory to biological situations, one famous one by the late John Maynard Smith, Evolution and the Theory of Games, mentioned by Varoufakis. I think I should point out that Richard Lewontin, the population geneticist, has written that he thought that the appropriation of game theory to evolutionary contexts altered the character of the theory to such an extent that it ought to be called something other than “evolutionary game theory”. History and social convention have made the decision for him. The appellation has stuck.

To be fair to Varoufakis, he doesn’t think that these results are extraordinarily original, though they would seem to be unknown to mainstream economists, whose theoretical paradigm Varoufakis is concerned to attack. And he feels that one of the best ways of doing this is from within, as it were, a tactic utilized successfully by logicians for centuries to attack positions they don’t (didn’t) like. (Have a look at the way Socrates, as set out by Plato, operates.)

Here is the link to a non-technical discussion of this topic, including links mentioned.

http://yanisvaroufakis.eu/2014/03/21/how-do-the-powerful-get-the-idea-that-they-deserve-more-lessons-from-a-laboratory/

Reprise

Getting back to my simple example of being able to breathe, we know that the presence of oxygen is a necessary though not sufficient for breathing. We also know that the presence of CO2 is a necessary but not sufficient condition for breathing.

So, here we have two necessary conditions for breathing. For B for breathing, O for oxygen, and C for CO2, we have (if B, then O) and (if B, then C). Since we know that they must occur together for a person being able to breathe, we have (if B, then C & O).

Realizing that the system under discussion is more complex than this discussion, can we nevertheless go on to contend that the presence of oxygen and CO2 are individually necessary and jointly sufficient for breathing? That is, that B iff C & O? How should we then interpret this equivalence? As a kind of “law of breathing”, a kind of scientific regularity, or as a definition of the conditions of being able to breathe?

This question may seem to be a triviality, but it arises in the discipline of macroeconomics all the time. When is a statement to be interpreted as a substantive assertion that has a truth-value or as a definition of terms, which has no truth-value but is only useful or not? Too many economic discussions are not at all clear about this issue. And it can make a difference to how you treat what they are saying.

Read this book: Ann Pettifor, Just Money February 24, 2014

Posted by larry (Hobbes) in economics, money.
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After you finish reading this short book, devoted to explicating the nature and function of money in modern societies, you will be able to see not only just that almost everything that Osborne and Balls say about this aspect of the economy is wrong, but why it is is wrong. The intended audience of this book is that group of people who don’t quite understand what money is or how it works, which unfortunately includes both Osborne and Balls, so it is written in as jargon-free and elementary a manner as possible. It is in Chapter 4 where she really drives the knife into the neoclassical acolytes and their financial backers.

In reading this book, you will obtain a greater understanding of what is wrong with the austerity policies of this and other governments and what to do about it. I would recommend reading Just Money before going on to other more complicated, but also reasonably accessible, books like that of Randall Wray’s Modern Money Theory. Just Money and Modern Money Theory, in that order, the latter going beyond the former to cover the entire economic system, will tell you almost everything you need to know in order to understand what is wrong with contemporary economic policies. How they can be so wrong and their justifications so misguided is sometimes difficult to believe.

Also, the subject is not easy, but Ann Pettifor knows that and does her best to explicate what is difficult to explicate. In order to see that most journalists also fail to clearly understand the function of money in our society, even when that is supposedly their specialty, this book is a must read. It is available in pdf format from PRIME or in Kindle format from Amazon.

What do the elites think they are doing? Or are they thinking at all? February 13, 2014

Posted by larry (Hobbes) in Abuse of power, economics, Justice, social justice.
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If aggression and nastiness have been the drivers of natural selection that put humans at the top of the food chain, then maybe it is time we became extinct. Keanu Reeves made a great mistake in the film The Day the Earth Stood Still. He probably should have allowed the machine to do what it was brought here to do, exterminate the earth’s primary predator in order to save the planet itself.

When people look around and think about what is happening, some of them no doubt wonder what is wrong with the picture they see. There is something deeply awry. But only a perfect cataclysm will alter how the system currently works. That it used to work a little better was probably just an accident. The past thirty years was spent, more or less, working up to now, only of course it wasn’t supposed to go to shit. Which just shows you how stupid many members of  the élite (I’m lumping them all together.) actually are. And the funny thing is, if there is anything funny in this madness,  is that small government means that there won’t be the resources to bail out some of the asses the next time. And by next time, I don’t mean the housing bubble that will burst one of these days. I mean that they’ll do something so monumentally stupid that this past crash will look like a bit of a blip.

So far, the assholes are winning. And those who see that the economic system is in bad shape, fails to reflect actual economic reality, and needs to be reformed hardly get any air time on the mainstream media. Last week’s Question Time had George Galloway, MP for Bradford, a notoriously poor city, on the program. Galloway is a “deserter” from the Labour Party, which for the past 20 years hasn’t done much for its constituency, the average person including the working person. Galloway is someone the main parties love to hate. But last week, he uttered something quite profound and I doubt most people realized how profound it was. In response to some Tory on the panel saying that there weren’t funds for something involving poor people, Galloway pointed out that the government has found money for Trident, high-speed rail, the banks, and their friends in general. In other words, it is complete bullshit that the government is spending constrained.

In the US, it is almost the same. The governments of the US and the UK, which are quite large, can fund whatever they need to fund in their own currency. A related issue was being discussed on the program when Galloway’s comment was made. Neither of these governments can go broke. Of course, if they are much smaller than they are now, they won’t be able to go broke either, but they won’t have the internal resources, which the UK government is slowly dismantling, to be able to do much for anyone, even the rich. The ONS now admits that there are statistical data that it no longer has the resources to collect and analyze. And this is only one example. So, the élite is now cutting off its nose to spite its face, as it were. Except for the .1% and a few others who think they don’t need government anyway. They think they can buy whatever they need. And under the present regime, they can. But are they going to fund the education system or the various research systems that allow them to be able to do this when government becomes too small to support these activities? No matter how rich they are, they won’t have the resources to do it. They are marching spiritedly, and ignorantly, into the past.

The current elites are parasites destroying their own host.

Saving the Hypothesis August 22, 2013

Posted by larry (Hobbes) in economics.
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An Inherent Complication in Assessing Tests of Scientific Hypotheses

L Brownstein

The testing of scientific hypotheses is not as straightforward as it often looks and perhaps contributes to the fact that many politicians do not pay as much attention to the character and context of scientific evidence as they should.

Most of us are familiar with the probabilistic character of many scientific hypotheses and the ways in which these can affect the testing scenarios. But what is not as well-known is a strategy for “saving the hypothesis” that is independent of probabilistic considerations. This strategy makes the testing of scientific hypotheses more complicated than Karl Popper and others thought it was.

The methodology described briefly by the reviewer is that developed by Karl Popper, which is that scientists should concentrate on falsifying their theories rather than corroborating them. Many ordinary scientists use Popper’s falsification model as their guide. Effectively, what you do is list the initial conditions, and the lawful regularities, and in the case of the more formalized sciences, you deduce consequences from these, for instance a particular event – a procedure that has been discussed in physics and in other more formalized disciplines. If the event predicted by the theory under test does not occur, that is, is not observed, then Popper concludes that the theory has been decisively falsified. If the event does occur and has been observed, the theory has only been corroborated, that is, the likelihood that it is true has increased. For strictly logical reasons, no theory can ever be conclusively verified, that is, proved to be true, though Popper never explicitly points this out.

There is, however, a kind of get out of jail free card that can be used to “save the hypothesis”. This is known as the Duhem-Quine gambit. When you set up your theory testing scenario, in addition to listing all the initial conditions that apply and the regularities that are involved, there are a number of auxiliary hypotheses that usually go unstated with respect to the testing scenario. In physics, this is because experimental physicists often know what these possible contaminants of the testing process are and attempt to control for them. In less formalized sciences, such influences may be unknown or only informally considered. The Duhem-Quine gambit, when utilized appropriately, is a legitimate procedure, not an attempt to cheat the testing process.

Basically, if the result of the test of a given scientific hypothesis is not observed, for whatever reason, instead of directly falsifying the hypothesis or theory under test, the testers can select one or more of the auxiliary hypotheses as the culprit, such as the nature and operation of the equipment, any presumed biases on the part of the testers, sampling problems, the general environment in which the test takes place, and so forth. Selecting one or more of the auxiliary hypotheses that inevitably accompany any scientific testing situation will enable the scientist to “save the hypothesis”. Of course, one cannot continue to blame failure to obtain a result the theory says should have been observed but wasn’t on the auxiliary hypotheses. Continued failure to observe a result predicted by a theory must eventually lead to that theory (or a portion of it) being considered to be falsified.

Elliman’s point that more scientists should be involved in independent ways in policy decisions not subject to direct ministerial control becomes even more salient in light of the inevitable availability of the Duhem-Quine gambit, a central feature of any scientific testing scenario, which renders assessment of the relevance of scientific evidence for policy purposes even more problematic than it might otherwise be considered to be.

Apostrophe Quiz & probs w/ WordPress August 16, 2013

Posted by larry (Hobbes) in economics.
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I had thought I would gloat a little over getting 100% on the Independent’s apostrophe quiz. But most everyone else who took the quiz got most of them right. So, either it wasn’t very hard, which is difficult to judge, or there is a self-selection bias with respect to those taking the quiz. Anyway, here is the link so you can, if you like, also take the quiz. That is, if like me, you are an apostrophe nut.

http://www.independent.co.uk/voices/iv-drip/whos-theyre-youre-its-the-apostrophe-quiz-8770828.html

You can also see how others have done.

By the way, the hyperlink function isn’t working in WordPress, so you will have to copy and paste the above link to to directly to the relevant page. Sorry.  I can’t seem to add Media either.

When I published the post, the link did work. But the Media button still didn’t. Hmmm.

Some physicists should stick to their lasts July 22, 2013

Posted by larry (Hobbes) in economics.
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Here is one of the reasons I think some physicists should recognize their limitations. Forshaw is one of them. Should you have the time to peruse the article, you will find this:

“The most famous equation in finance was published in 1972 and is named after American economists Fischer Black and Myron Scholes. The Black-Scholes equation provided a means to value “European options”, which is the right to buy or sell an asset at a specified time in the future. Remarkably, it is identical to the equation in physics that determines how pollen grains diffuse through water.”

While Forshaw is right to claim that this is a famous equation, he neglects to mention that it is false in its intended application/interpretation. That it is identical to a physics formula rather undercuts the reasons for giving the authors the Swedish Bank prize. For your convenience, here is their formula.

 BlackSholesMertonOptionsFormula

Now, if the market conformed to two of their assumptions, one being central, that of the Gaussian character of the underlying distribution, all might be well. But market distributions are well known by many to be, and have been shown to be, non-normal by Mandelbrot more than 20 years ago. The Cauchy-Mandelbrot distribution, in fact, has no calculable mean or variance, hence no calculable volatility. Which makes it entirely useless for its intended purpose. Thorp came up independently with a similar set of equations to those of Bachelier, mentioned by Forshaw.

However, Thorp’s were initially developed for Blackjack, a situation more similar to the pollen example than that conceived by BSM. He was banned by every casino in Vegas for his trouble. But that didn’t bother him, as he had adequately tested his theory. Or perhaps I should say in this context, his policy recommendations on how to play Blackjack and win. (His recommendations require the player to compute large ratios in their heads, something most of us can’t do. Using a calculator is banned, as they think you’re counting cards which is a no-no.)

I am presuming Forshaw is thinking of Brownian motion, or something along those lines, which makes pollen distribution in a liquid more or less random and approximate a normal curve. Neither of which is true of the market.

What does this sort of thinking say about the burgeoning field of econophysics? Not much that is positive.

Here is the link: http://www.guardian.co.uk/science/2013/jul/21/physics-graduates-gravitate-to-finance.

Just to show I am being even-handed, here is an assessment of market behavior by a physicist and a financial economist, Vasquez and Farinelli. Here is the link:

http://arxiv.org/pdf/0908.3043v1.pdf. They argue that there is geometric curvature and, therefore, path dependence in real market data, something anathema to the neoclassical paradigm.

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