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~ Dollars, Sense, and Probabilities.

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Category Archives: Uncategorized

Is Climate Science Really Settled?

21 Sunday Sep 2014

Posted by JC in Uncategorized

≈ 2 Comments

Tags

Climate Change, science

There is an interesting op-ed in the Wall Street Journal by Steven Koonin, a physicist and undersecretary for science in the Energy Department during President Obama’s first term. He is not a Climate Change denier, yet he notes that much is unknown about Climate Change and that climate models are riddled with assumptions and guesswork, and not based simply on observations and physical laws.

While some parts of the models rely on well-tested physical laws, other parts involve technically informed estimation. Computer modeling of complex systems is as much an art as a science.

For instance, the latest IPCC report uses 55 different climate models. To say they aren’t on the same page is an understatement. They have a margin of error in describing the global average surface temperature of over 3 times the warming actually observed over the last century. Similar margins of error exist in the estimation of other basic climate features such as rainfall, feedbacks, climate sensitivity, the oceans, etc.

As a result, the models give widely varying descriptions of the climate’s inner workings. Since they disagree so markedly, no more than one of them can be right.

And let’s not forget the natural variability of climate. The models and modelers aren’t even close to untangling human influence and natural variability, and human influence is much smaller than natural variability. This explains the current 16 year observed pause in warming that none of the models predicted.

The IPCC Report versus the “Summary for Policy Makers”

Yet these doubts and concerns in the IPCC report are not contained in the political document, the “Summary for Policy Makers,” which animates the press and the left in their calls for punitive carbon taxes and other austerity measures. Such austerity measures resemble a penance for humanity, rather than a reasonable and exhaustive search for a cost-effective solution.

What Should We Do Now?

Still, Koonin doesn’t believe this is an excuse for inaction.

Society’s choices in the years ahead will necessarily be based on uncertain knowledge of future climates. That uncertainty need not be an excuse for inaction. There is well-justified prudence in accelerating the development of low-emissions technologies and in cost-effective energy-efficiency measures.

But climate strategies beyond such ‘no regrets’ efforts carry costs, risks and questions of effectiveness, so nonscientific factors inevitably enter the decision. These include our tolerance for risk and the priorities that we assign to economic development, poverty reduction, environmental quality, and intergenerational and geographical equity.

This gibes with my view that we should take reasonable steps, such as investing in technology to improve the efficiency of solar power, that will be beneficial in any case. Approaching the problem by investing in a technological Manhattan Project should allow us to solve the problem out of abundance, instead of the costly and punitive prescriptions for austerity through carbon taxes and such.

Post Climategate, Let’s Have an Honest Re-Opening of the Debate

This is where cost-benefit analysis, consideration of tradeoffs, and an honest political debate should enter the picture. So much of the scientific community seems to have discredited itself through Climategate, with their admitted attempts to “hide the decline” and with claims that “the science is settled,” that it will be difficult for them to backtrack.

They have compounded that error with Stalinist smears of any scientist that deviates from the orthodoxy. Whatever your views of the Climate Change issue, such witch-hunting and smears of those who disagree are hardly indicative of a scientific cast of mind.

We need other, more honest voices in the scientific community to rise and admit what science knows and what it doesn’t know. Then it should be left to the electorate to make priorities and decide what should be done as the science hopefully advances over the next decades.

In any case, the idea of scientists as some “high, priestly caste” (in Peter Robinson’s phrase) that should rule over the rest of us is deeply flawed. They have no expertise in economics, cost/benefit analysis, or determining societal priorities. The people should be educated honestly and trusted to decide their own fate. This, after all, is the way of democracy.

Despite the statements of numerous scientific societies, the scientific community cannot claim any special expertise in addressing issues related to humanity’s deepest goals and values. The political and diplomatic spheres are best suited to debating and resolving such questions, and misrepresenting the current state of climate science does nothing to advance that effort.

See Also:

The Scientific Method and Climate Change

The Biggest Problem in the World Today? Disconnection from Reality

18 Thursday Sep 2014

Posted by JC in Uncategorized

≈ 1 Comment

Tags

politics, problem solving, Reality

With all of the unrest and conflict in the world today, the news seems to be an ever-growing miasma of negativity. It is easy to get lost in hopeless resignation or casting blame on others for all of the problems. It seems this is where many if not most people stay stuck.

A constructive approach requires seeking solutions instead of just wallowing in negativity. But before you can seek solutions, you must see things as they are, and not as your prejudices and illusions make them appear.

Kent Thune, The Financial Philosopher, has a great post addressing the dysfunction in the world and the blindness of most to the causes thereof.

The Symptoms of Disconnection From Reality

Here are 3 of 5 of Thune’s symptoms of Disconnection from Reality, followed by my comments:

Lack of Understanding: When we fail to see, respect or at least tolerate the perspectives of other people, we create separation, conflict, and related problems. This is the work of ego: We fail to listen because the ego only listens to respond. We are knowingly or unknowingly rejecting and disconnecting from reality, the only place where peace, love and understanding can be found.

Thune sees most people as being unconscious minds cut off from reality by confirmation bias and ego. We don’t see reality as it is because it is easier to scapegoat the other party or some other group for all of the world’s problems.

Extreme Voices Dominating: The world is made to be much more complex, frightening, and contentious than it really is because the loudest voices, which are also the extreme ones, are magnifying the wrong problems (or creating ones where none exist). The way we connect to (or rather disconnect from) the world is primarily through some form of media, which includes network television, the Internet, and social media. A 10-second sound bite from one radical individual or an image of a few dozen people performing a disturbing act can color our perspective of an entire community or nation.

We tend to seek out the extreme voices that gibe with our worldview. These people are paid to gin up controversy. Talk radio, MSNBC, Fox News, etc. They are incentive-caused bias writ large. Their incentives for higher ratings run exactly counter to the best interests of the country. They paint radically different pictures of the world that are at best illusions and at worst lies. These different pictures are incompatible with one another and lead directly to our poisoned culture.

Broken Political System: Politicians today do not get elected based upon the substance of their ideas but on the effectiveness of their illusions. Money does not win elections; money buys higher quality illusions in greater quantities. In a world of illusion, the best illusionists rule. The individuals best suited to serve in government may not even run for office because they refuse to play the deceptive game. This has always been true to some degree but more so with today’s information technology.

The politics of lies and illusions is what we are left with. You almost can’t be elected as a non-extreme problem solver any more, and the few in office should be put on the endangered species list. And it isn’t the politicians fault. The politicians we have are a product of all of us as voters. We want people in office who represent our own distorted view of reality.

You Can Light a Candle or Curse the Darkness

As Kent says above, “We fail to listen because the ego only listens to respond.” The problem isn’t another party or group, we are all a big part of it until we shed our own self-serving and distorted views. This is the prerequisite to solving problems, rather than just impotently lamenting how the world seems to be going to Hell.

Like it or not, we are all in this together. Let’s sacrifice our egos and illusions to get connected with reality and start solving some of our problems.

Less than 1% of Daytraders Are Consistent Winners!

12 Friday Sep 2014

Posted by JC in Uncategorized

≈ 1 Comment

Tags

Investing, Trading

This shocking result comes from the TraderFeed blog of Dr. Brett Steenbarger, who is a well-known trading coach and psychologist. He references a study by Barber, Lee, Liu, and Odean.

Coming from Dr. Steenbarger, these findings are hard to dismiss as the ravings of someone with an ax to grind against trading.

From the study:

In the average year, 360,000 individuals engage in day trading. While about 13% earn profits net of fees in the typical year, the results of our analysis suggest that less than 1% of day traders (less than 1,000 out of 360,000) are able to outperform consistently.

Trading Is Not For Me

Disclaimer: I studied technical analysis and trading several years ago and decided that I had neither the skill nor the temperament for it. It also seemed to me like a zero-sum game that had a winner-take-all dynamic about it, with a bunch of people donating their capital or slogging along near breakeven to finance a few big winners.

I had informally figured 5% to 10% of traders made real money, so it shocked even me that the figure is less than 1%.

Maybe you figure you will be part of the lucky 0.28%. Good luck, but the upset stomach and 24/7 nature of the endeavor wouldn’t be worth it for me even if the odds of success were 50/50.

Don’t Trade, Invest

I suggest instead a lengthened time horizon and thinking like a partner in a business. Focus on intrinsic value and buying with a margin of safety.

I also suggest dropping everything to read Risk Revisited, the latest memo from Howard Marks. It is a master tour of the world of risk from one of the world’s great investors.

Associate With the Right People

And since humans are doomed to mimicry, you should follow Jason Zweig’s advice:

So try to socialize — in the real world and in online social media — only with investors who are calm and methodical. After all, whatever your peers pay attention to, you will also concentrate on — so following more-sensible people will help inoculate you against panic.

Other Links of Interest:
Video: Howard Marks on Risk Assessment, Market Strategy

Why you shouldn’t watch the market intra-day

The Stock Market’s Missing Ingredient

Even Warren Buffett Gets Killed In the Stock Market

An Important Dividend Cut Case Study

Video: Eric Falkenstein Interview on the Flawed Academic Notion of Risk

René Girard and Mimetic Desire: Imitation and Envy Are the Keys to Human Behavior

31 Sunday Aug 2014

Posted by JC in Uncategorized

≈ 2 Comments

Tags

Envy, Human Behavior, Investing

René Girard is one of the great intellectuals of the 20th Century. He can perhaps best be called a theoretical anthropologist, but he is a true multi-disciplinary thinker. In addition to anthropology, his work crosses into such fields as literary criticism, philosophy, theology, sociology, and psychology.

His many books include Violence and the Sacred, The Scapegoat, Things Hidden Since the Foundation of the World, and Battling to the End. In my search for understanding, I feel privileged to have encountered his genius.

He sees myth and anthropology as one and the same, and both as vital to understanding humanity.

Mimetic Desire

Girard’s concept of Mimetic Desire is a revelation that explains humanity on both a micro and a macro level. His basic insight is that imitation, and in particular imitated desire, is the foundation of human relationships.

One person desires an object and designates it to another as desirable. The imitated individual is confirmed as correct in his desire when he sees the other also moving toward the same object.

Whether food, water, or a desirable mate, truly desirable objects are always limited in number. This causes conflict as multiple individuals move toward the same scarce objects.

The Scapegoat and Archaic Religion

This natural state of conflict should have prevented humans from gathering in permanent groups, save the scapegoat mechanism.

The scapegoat allowed the group to unite against a victim and quelled conflict within the group. In allowing the group to unite and society to form, the victim was god-like in allowing humanity to progress.

Girard thus sees scapegoating, as codified by ritual sacrifice in archaic religions, as being critical to the evolution of human society.

He sees evidence of this in the fact that there is a universal foundational myth of the periodic sacrifice of a sacred king who dies and is resurrected.

Girard and the Christian Deviation

Girard sees Christianity as a sea change for humanity. For the first time it is revealed that the victim is innocent.

Whether or not you are a Christian, it is fascinating to consider the story of Christ in light of Mimetic Theory and the universal foundational myth.

Girard sees Christianity as potentially destroying the power of scapegoating and the archaic sacred to solve problems by revealing the truth about its foundational lie, that the victim was innocent.

In this way, Christianity paved the way for rational, scientific inquiry to explain the world. In Girard’s formulation, we didn’t stop burning witches because we invented science, we invented science because we stopped burning witches.

History is a Test that Humanity is Failing

As the superstitions of the old order no longer restrain human behavior, humanity increasingly also rejects Christianity’s message of peace and refusal of violence.  Human destructive potential has grown as we have lost our moral bearings.

Girard sees these as truly apocalyptic times as our capacity to destroy each other and our world seemingly dwarfs our inclination to move beyond the old, primitive order of envy, conflict, and the search for scapegoats.

My Conclusions

So Girard sees imitation of behavior as key to understanding humans and humanity. Not just imitation of desire, but imitation of conflict, imitation of rivalry, and other behaviors. This goes a long way toward explaining herding and boom/bust cycles in markets.

Imitated desire plus scarcity means envy is key to understanding human behavior. Envy better describes human nature than greed.

Imitation and envy together explain rivalry between friends and peers as well as sports, capitalism, and war.

Imitation, scarcity, envy, and scapegoating are powerful and omnipresent factors in human behavior, many times subconscious. There are many profound lessons here for politics, business, investing, and life.

Looking at things through a Girardian lens has altered my understanding of myself and the world.

“It’s not greed that drives the world, but envy.” — Warren Buffett

Also see:

Insights with René Girard

Bishop Barron on René Girard

Rene Girard | The Scapegoat | Complete 5-part CBC ‘Ideas’ series with David Cayley (2001)

Michael Mauboussin: Investment Wisdom

05 Tuesday Aug 2014

Posted by JC in Uncategorized

≈ Leave a comment

Tags

Investing

This interview of Michael Mauboussin by Barry Ritholtz is just fantastic. If you really want to understand how to think about investing, you couldn’t have a better guide. The interaction between Michael and Barry is very revealing and a must listen.

https://soundcloud.com/bloombergview/barry-ritholtz-interviews-mauboussin-masters-in-business

Along the same lines, both men are big fans of Charlie Munger. Here is a link to several Munger gems:

Special Treat: All Things Charlie Munger

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