Posts filed under “Mathematics”

Stop Hyperventilating Over U-6

@TBPInvictus here.

Since the economy’s been more or less chugging along like The Little Engine That Could, those with an agenda are having a harder and harder time finding ways to be critical of its performance under Obama.

Two of their favorite laments are the Labor Force Participation Rate (LFPR) and the U-6 Unemployment Rate.

What is probably my most comprehensive piece on the LFPR is here, published in May 2014. Bill McBride, over at Calculated Risk, has also done some work on this file (see here and here). (Bill is one of the best economic bloggers out there, and I have a ton of respect for his work and am thrilled to have gotten to know him a bit over the years.) LFPR out of the way, let’s move on.

U-6 is a comprehensive measure of unemployment that goes beyond the headline (U-3) number. For the record, BLS has several such measures. Here they are:

  • U-1, persons unemployed 15 weeks or longer, as a percent of the civilian labor force;
  • U-2, job losers and persons who completed temporary jobs, as a percent of the civilian labor force;
  • U-3, total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate);
  • U-4, total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers;
  • U-5, total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and
  • U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

U-3, as mentioned above, is the “headline” number that most media outlets pick up on. Or at least they did, until it started to decline precipitously (it’s now 5%) and they turned to U-6 to advance their dystopian vision about how Obama has ruined everything.

The more inclusive U-6 rate clocked in most recently at 9.8%. However, in a vacuum, with no context, that number by itself is of limited (or no) value. The fact of the matter is that it’s now down to 9.8% from a high of just over 17% shortly after the crisis.

But wait, there’s more.

Remember the so-called “Bush Boom”? (Well, neither do I, but supposedly it happened.) Anyway, during Bush’s two term presidency, U-6 averaged 9.2%. That’s correct. After a shallow recession in 2001, from which we got virtually no recovery whatsoever, U-6 was at or over 10% for 11 consecutive months from January through November 2003, not finally getting under 10% for good until April 2004.

I don’t recall Rick Santelli saying a single word about that. Rick, were you on CNBC during that stretch?

The labor market continues to heal, and that’s reflected in a variety of employment releases. Those who continue to harp on U-6 and/or the LFPR are really grasping at straws at this point.

u6 unrate

Category: Bad Math, Current Affairs, Data Analysis, Economy, Employment

Fantasy Sports as a Top Heavy Sucker Play

Regarding my Fantasy Football betting column this week, check out this from McKinsey via Sports Business Daily: ■ The top 11 players paid on average $2 million in entry fees and profited $135,000 each. They accounted for 17 percent of all entry fees. The winningest player in our sample profited $400,000 on $3 million in entry fees. ■…Read More

Category: Bad Math, Sports

Don’t Suffer From Denominator Blindness

Today I am going to indulge in a pet peeve of mine, one that I hope you will find helpful. It’s about a bias called denominator blindness and it is the scourge of anyone who has even the most rudimentary understanding of mathematics in the real world. A quick definition: Denominator blindness is the failure…Read More

Category: Bad Math, Cognitive Foibles, Psychology

Fantasy sports is a losing bet (for the players, not the house)

  As they say in poker, If you’ve been in the game 30 minutes and don’t know who the patsy is, you’re the patsy. – Warren Buffett   By now, you may have heard about the insider trading scandal at the two biggest fantasy sports companies. DraftKings employees, based on the bets they saw laid down by…Read More

Category: Bad Math, Really, really bad calls, Sports, Web/Tech

Fact, Hypothesis, Theory, and Law In Science

It’s time we learn the difference between a fact, a theory, a hypothesis, and a scientific law.




Hat tip Lifehacker

Category: Mathematics, Philosophy, Science, Video

Jim Simons: The Mathematician Who Cracked Wall Street

Jim Simons was a mathematician and cryptographer who realized: the complex math he used to break codes could help explain patterns in the world of finance. Billions later, he’s working to support the next generation of math teachers and scholars. TED’s Chris Anderson sits down with Simons to talk about his extraordinary life in numbers.

Category: Hedge Funds, Mathematics, Video

Simons: Mathematics, Common Sense, and Good Luck

James Simons – Mathematics, Common Sense, and Good Luck: My Life and Careers

Hat tip theirrelevantinvestor

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Category: Mathematics, Quantitative, Trading, Video

Interview with Richard Thaler

University of Chicago behavioral economist on stock markets, NFL drafts and the importance of trust Douglas Clement | Editor, The Region Published October 3, 2013   |  September 2013 issue Interview conducted July 17, 2013 We are rational, self-interested optimizers: Homo economicus. So the neoclassical model of economics has held for over a century. It has been a fruitful…Read More

Category: Bad Math, Cognitive Foibles, Psychology

Market Forecasters Are Like Blind Squirrels…

Earlier this summer, I tweeted a wonderful line from Brett Arends column, 25 things I wish I knew when I graduated from high school:



That led to a delightful column last week from Michael Johnston’s A Visual History of Market Crash Predictions.

Here are some of the more egregious calls, but the entire article is well worth your time to read:



Source: Fund Reference



Read More

Category: Analysts, Mathematics, Really, really bad calls

Red State, Blue State: Kansas & Washington

@TBPInvictus here. We have interesting experiments going on in the state of Kansas and the city of Seattle. Herewith a brief update on both. Thanks to the following Tweet, I was made aware of the fact that – as you can see – the state of Kansas, under Sam Brownback’s awesome tax cuts, recorded the…Read More

Category: Bad Math, Cognitive Foibles, Current Affairs, Data Analysis, Really, really bad calls