Posts filed under “Philosophy”

Apocalypse Thinking: All Too Human Pattern Seeking

I was a little surprised about some of the pushback to the Oh, No, Not the End of the World (Again) column.

Which made this column in New Scientist all the more delightful.

It starts with pattern seeking:

“Cognitively, there are several processes at work, starting with the fact that our brains are pattern-seeking belief engines. Consider this evolutionary thought experiment. You are a hominid on the plains of Africa 3 million years ago. You hear a rustle in the grass. Is it just the wind or is it a dangerous predator? If you assume it is a predator but it turns out that it is just the wind, you have made what is called a type I error in cognition, also known as a false positive, or believing something is real when it is not. You connected A, the rustle in the grass, to B, a dangerous predator, but no harm. On the other hand, if you assume that the rustle in the grass is just the wind but it turns out that it is a dangerous predator, you have made a type II error in cognition, also known as a false negative, or believing something is not real when it is. You failed to connect A to B, and in this case you’re lunch.

The problem is that assessing the difference between a type I and type II error is highly problematic in the split second that often determined the difference between life and death in our ancestral environments, so the default position is to assume that all patterns are real; in other words, assume that all rustles in the grass are predators. Thus, there was a natural selection for the cognitive process of assuming that all patterns are real.”

And it just builds on that:

Apocalypse thinking is a form of pattern-seeking based on our cognitive percepts of time passing. We connect A to B to C to D causally because they are connected chronologically, and even though occasionally they form false patterns, in the natural world they are connected often enough that in our brains time and causality are inseparable.

Apocalyptic visions also help us make sense of an often seemingly senseless world. In the face of confusion and annihilation we need restitution and reassurance. We want to feel that no matter how chaotic, oppressive or evil the world is, all will be made right in the end. The apocalypse as history’s end is made acceptable with the belief that there will be a new beginning.”

And that’s my selective perception for the day (Take that, you pattern seekers!)

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Source:
The end is always nigh in the human mind
Michael Shermer
New Scientist 07 June 2011
http://www.newscientist.com/article/mg21028156.300-the-end-is-always-nigh-in-the-human-mind.html

Category: Philosophy, Psychology, Science

Welcome to Socialist America!

To those of you who irrationally fear the US is turning into a Socialist state, I say unto thee: YOU ARE TOO LATE! We’ve already turned into a red nation of commies! At least, that seems to be how some folks see it.  It is a quite a bit more accurate to describe the current…Read More

Category: Economy, Philosophy

The Power of Words

This short film illustrates the power of words to radically change your message and your effect upon the world: Created by RedSnappa (www.redsnappa.com) Filmed/directed & edited by Seth Gardner Music by Giles Lamb ‘One to One’ Homage to Historia de un letrero, The Story of a Sign by Alonso Alvarez Barreda Music by: Giles Lamb…Read More

Category: Philosophy, Weekend

Minsky Conference “Gary Gorton” Debate

Last week, the Levy Economics Institute hosted the 20th Annual Hyman P. Minsky Conference, a wonkish discussion on all things Hyman Minsky. This year’s focus was on Financial Reform and the Real Economy.

For those of you who are not academic economists, Professor Hyman Minsky argued that stability eventually leads to instability. The stable economic backdrop causes people to become complacent and take on more risks than they might during riskier times.

For some background, see this discussion on Minsky by Prof. Steve Mihm. You can see our earlier guest posts on the Minsky Conference here and here.

The purpose of the Minsky Conference was to “address the ongoing effects of the global financial crisis on the real economy, and examine proposed and recently enacted policy responses. Should ending too-big-to-fail be the cornerstone of reform? Do the markets’ pursuit of self-interest generate real societal benefits? Is financial sector growth actually good for the real economy? Will the recently passed US financial reform bill make the entire financial system, not only the banks, safer?”

I was unable to attend, but several colleagues not only went, but reported back what they saw. The following discussion was art of a longer email thread on some of the emails; it is reproduced here with the permission of the authors.

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Steve Waldman (Interfluidity)  writes about the original updates:

I find little to disagree with in your note, except that I find little resemblance between what you say and what I heard in Gorton’s speech.

You write “His key observation is that what is gained by having the Fed and other policymakers guarantee bank liabilities –- namely, financial stability –- is lost through the ensuing complacency which tends to spawn longer, more damaging crises.”

That’s just not what I took from the speech. What I heard was quite the opposite, that the crisis was basically a result of the financial system having evolved means of duration-mismatched finance that were NOT guaranteed, and that therefore the liquidity crises endemic to the system pre-Fed/FDIC had returned.

Gorton carefully avoided making specific policy recommendations, preferring instead to shelter in his self-aggrandizing evidence fetish and putting all hope in Dodd Frank’s Office of Financial Research.

But it seems to me that the clear implication of Gorton’s story — which described the crisis as an old-fashioned, individually rational but collectively destructive bank run — is to guarantee the shadow banking system. I heard nothing of a critique of, say, FDIC in his speech. (Gorton did point out that FDIC was something of a policy accident. Neither FDR nor the banks initially supported deposit guarantees but popular support forced Congress to act. But my sense was that he took this to be a happy accident, that despite an odd process we had stumbled into good policy.)

If you think the crisis was a run on the shadow banking system, AND you think that the sponsors and guarantors of the shadow banking system actually did an okay job in underwriting, AND you think that the right way to prevent “sunspot” bank runs is with deposit guarantees, then the logical policy response is to guarantee the shadow banking system, and not to worry so much about regulating or holding to account sponsors and guarantors, since market forces have in fact proven sufficient to enforce good-enough behavior.

This is almost a syllogism. Gorton set up all three assumptions quite explicitly. That he didn’t state the conclusion was rhetorically savvy, but doesn’t alter the implicit recommendation.

And yet what you heard was almost precisely opposite to what I heard. You see Gorton’s speech as a criticism of complacency due to guarantees, as a warning about moral hazard. I heard Gorton explicitly mock people for “jumping” to moral hazard as an explanation without “evidence”.

Maybe I misheard, and your description is a better characterization of Gorton’s view than my own. If I’m going to write so much about it, maybe I should give the speech another listen. Perhaps others can weigh on with their recollections.

I like your suggestion that lender of last resort activity should be provided, but carefully rationed to parties relatively distant from poor decisionmaking like money market funds, and that more comprehensive guarantees as were provided to several of the larger banks should be explicit and accountable rather than implicit and deniable, as they were via the “no more Lehmans / SCAP” approach.

I wish I had heard Gary Gorton use his considerable intellect and rhetorical skill to make that case. But that is not at all what I heard.

-SW

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Category: Economy, Philosophy, Really, really bad calls

Minsky Conference Update

From an institutional sales desk that must remain anonymous ~~~ There something very unnerving about this Minsky conference and I may be getting closer to putting my finger on what that is. There are myriad differences between adherents of the Austrian School of economics (“Austrians” from now on) and Minskians, who view themselves as a…Read More

Category: Bailouts, Philosophy, Think Tank

On Executive Compensation & Wealth Transfer

Today’s QOTD: “Middle-class America experienced a lost decade in their retirement accounts, whereas executives enjoyed record compensation packages through the subterfuge of stock option programs. There has been a massive wealth transfer from middle-class America’s retirement accounts to the bank accounts of the privileged few. The social consequences of this wealth transfer bear scrutiny.” -Albert…Read More

Category: Corporate Management, Options, Philosophy

Tool’s Lesson on Fibonacci: Think ‘Laterally’

This was originally posted by Kent Thune at The Financial Philosopher.

Whether you are an investment trader, a music fan, a mathematician, a curious observer wishing to learn more about human nature, or any combination thereof, you will appreciate this lesson on the Fibonacci Sequence (more on this after the YouTube link):

The video, created by a college student to help explain the Fibonacci sequence, features images of space from the Hubble Telescope and music from the cerebral and progressive hard rock band Tool.  What makes the video and song incredibly compelling is the lyrics, which teach a lesson on pattern recognition.

For those non-traders and non-mathematicians out there, a Fibonacci sequence is a series of numbers where, after two starting values, each number is the sum of the two preceding numbers.  For example, the number sequence 2, 3, 5, 8 and 13 are a Fibonacci sequence (2+3=5, 3+5=8, 5+8=13, and so on).

Making the video and song more interesting is that the cadence of the lyrics (number of syllables of succeeding verses) follows a Fibonacci sequence.  What’s more, the meaning and lesson of the lyrics implies that humans are hopelessly addicted to looking for patterns everywhere they turn:  The “over-thinking” and “over-analyzing,” as the lyrics suggest, have an effect of dulling intuitive thought and often results in missed opportunities.

Pattern Recognition: Strength, Weakness or Both?

Philosopher and mathematician, T.L. Fine, once said, “A keen eye for pattern will find it anywhere.” This profound statement is neither a compliment nor an affront to humankind but it suggests that a fundamental awareness of the human tendency for pattern recognition allows for a healthy balance of intuitive thought and science.

Pattern recognition is a means of making sense of randomness.  This search for understanding, which is rooted in the desire for control and safety, can be self-defeating.   Wanting to find patterns can be considered thinking “inside the box,” but the answers are not always in the box.  Additionally, being comfortable without having answers can often open doors to new ideas, new opportunities and success.  Therefore asking questions is more important than having answers.  As 19th century philosopher and spiritual leader Jiddu Krishnamurti once said, “Freedom from the desire for an answer is essential to the understanding of a problem.”

Balance Linear And Lateral: Seek But Remain Open to Discovery

Returning to the message within the Tool song, aptly named Lateralus, too many people think and live linearly (in straight lines, black and white, inside the box), whereas thinking and living laterally (randomness, color, outside the box)–embracing the unknown–is healthy.

Perhaps the wisest solution is to balance the linear with the lateral.  There is no stopping your nature to seek and find patterns; and to eliminate this nature is nothing less than attempting to become something other than a human being.  Just be aware of your nature, and its potential limitations, and you’ll open doors to intuitive thought–expand beyond the narrow-minded linear thought–balance responsibility with adventure–seek but remain open to discovery.

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Kent Thune is an investment adviser, free-lance writer and blog author of The Financial Philosopher, where his philosophical musings guide readers to think independently and to place “meaning before money, purpose before planning.”

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Category: Philosophy, Psychology

Birthdays and Investment Risk

Birthdays and Investment Risk By John Mauldin April 4, 2011 > “Tail risk (the risk of large losses) is dramatically underestimated by many investors and the tools we have available to manage such risks are hopelessly inadequate. Financial theory which is taught at business schools and universities all over the world is plainly wrong.” This…Read More

Category: Investing, Philosophy, Quantitative, Think Tank

What is Consciousness ?

Cool stuff from Information is Beautiful: > click for interactive version

Category: Philosophy, Weekend

What is the Half Life of Your Favorite Technology?

I mentioned this on Bloomberg early this morning, but its worth exploring further: What is the average half life of your favorite technology? We operate under the false assumption of substance and solidity, when in reality, things are deeply in flux. Everything changes, nothing lasts. The various technologies we use are physical manifestations of ideas,…Read More

Category: Cycles, Philosophy, Technology