April 2012 – artdiamondblog.com

Physicist Says “Financial Models Are Only Mediocre Metaphors”

Source of book image: online version of the WSJ review quoted and cited below.

(p. A19) Trained as a physicist, Emanuel Derman once served as the head of quantitative analysis at Goldman Sachs and is currently a professor of industrial engineering and operations research at Columbia University. With “Models Behaving Badly” he offers a readable, even eloquent combination of personal history, philosophical musing and honest confession concerning the dangers of relying on numerical models not only on Wall Street but also in life.

Mr. Derman’s particular thesis can be stated simply: Although financial models employ the mathematics and style of physics, they are fundamentally different from the models that science produces. Physical models can provide an accurate description of reality. Financial models, despite their mathematical sophistication, can at best provide a vast oversimplification of reality. In the universe of finance, the behavior of individuals determines value–and, as he says, “people change their minds.”
In short, beware of physics envy. When we make models involving human beings, Mr. Derman notes, “we are trying to force the ugly stepsister’s foot into Cinderella’s pretty glass slipper. It doesn’t fit without cutting off some of the essential parts.” As the collapse of the subprime collateralized debt market in 2008 made clear, it is a terrible mistake to put too much faith in models purporting to value financial instruments. “In crises,” Mr. Derman writes, “the behavior of people changes and normal models fail. While quantum electrodynamics is a genuine theory of all reality, financial models are only mediocre metaphors for a part of it.”

For the full review, see:
BURTON G. MALKIEL. “BOOKSHELF; Physics Envy; Creating financial models involving human behavior is like forcing ‘the ugly stepsister’s foot into Cinderella’s pretty glass slipper.'” The Wall Street Journal (Weds., December 14, 2011): A19.

The book under review is:
Derman, Emanuel. Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life. New York: Free Press, 2011.

“In a Garage Pursuing a Dream”

(p. 257) The increase in computer-animated films . . . marked the dawning of a democratic moment in artistic expression and entrepreneurship. Just as technological developments in digital production were (p. 258) opening the door more widely in live-action filmmaking, technology was making computer animation more accessible every year.
Computer animation was still an art form that required talent and intense Commitment; it wasn’t within reach of Everyman. The accessibility of its tools, however, brought new possibilities. Where Pixar’s early years had required a succession of wealthy patrons–Alexander Schure, George Lucas, and Steve Jobs–an enterprising artist of the early twenty-first century was not so dependent. The hardware and software of an animator’s workstation, once the province of major studios and effects houses, could now be had for the cost of a good used car. As Pixar started its new life as a crown jewel of the Walt Disney Co., it was plausible that it would sooner or later have to jockey release dates with a new kind of rival. Or, rather, it would have to face a rival that looked much the way Pixar itself did thirty years earlier, as a group of men and women in a garage pursuing a dream.

Source:
Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.
(Note: ellipsis added.)
(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)

The Danger and Despair of Dark Streets

“”I don’t go out to get gas at night. I don’t run to any stores. I try to do everything in the daytime and to be back before night falls,” said Juanita Kennedy, a resident of Highland Park, Mich.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A11) HIGHLAND PARK, Mich. — When the sun sets in this small city, its neighborhoods seem to vanish.

In a deal to save money, two-thirds of the streetlights were yanked from the ground and hauled away this year, and the resulting darkness is a look that is familiar in the wide open cornfields of Iowa but not here, in a struggling community surrounded on nearly all sides by Detroit.
Parents say they now worry more about allowing their children to walk to school early in the morning. Motorists complain that they often cannot see pedestrians until headlights — and cars — are right upon them. Some residents say they are reshaping their lives to fit the hours of daylight, as the members of the Rev. D. Alexander Bullock’s church did recently when they urged him to move up Saturday Bible study to 4 p.m. from the usual 7 p.m.
“It’s just too dark,” said Mr. Bullock, of Greater St. Matthew Baptist Church. “I come out of the church, and I can’t see what’s in front of me. What happened to our streetlights is what happens when politicians lose hope. All kinds of crazy decisions get made, and citizens lose faith in the process.”
. . .
(p. A16) “The people were basically left in the dark,” said DeAndre Windom, who was elected mayor in November. He said the disappearing streetlights were the top concern of residents as he campaigned door to door.
“When you come through at night, it’s scary; you have to wonder if anyone is lurking around waiting to catch you off your guard,” said Juanita Kennedy, 65, who said she had installed a home security system and undergone training to carry a handgun in the weeks since workmen carried away the streetlight in front of her house. “I don’t go out to get gas at night. I don’t run to any stores. I try to do everything in the daytime and to be back before night falls.”

For the full story, see:
MONICA DAVEY. “Darker Nights as Some Cities Turn Off Lights for Savings.” The New York Times (Fri., December 30, 2011): A11 & A16.
(Note: ellipsis added.)
(Note: the online version of the story is dated December 29, 2011, and has the title “Darker Nights as Some Cities Turn Off the Lights.”)

Climate Scientists “Conspiring to Bully and Silence Opponents”

(p. A15) [In November 2011], 5,000 files of private email correspondence among several of the world’s top climate scientists were anonymously leaked onto the Internet. Like the first “climategate” leak of 2009, the latest release shows top scientists in the field fudging data, conspiring to bully and silence opponents, and displaying far less certainty about the reliability of anthropogenic global warming theory in private than they ever admit in public.
The scientists include men like Michael Mann of Penn State University and Phil Jones of the University of East Anglia, both of whose reports inform what President Obama has called “the gold standard” of international climate science, the Intergovernmental Panel on Climate Change (IPCC).
. . .
Consider an email written by Mr. Mann in August 2007. “I have been talking w/ folks in the states about finding an investigative journalist to investigate and expose McIntyre, and his thus far unexplored connections with fossil fuel interests. Perhaps the same needs to be done w/ this Keenan guy.” Doug Keenan is a skeptic and gadfly of the climate-change establishment. Steve McIntyre is the tenacious Canadian ex-mining engineer whose dogged research helped expose flaws in Mr. Mann’s “hockey stick” graph of global temperatures.

For the full commentary, see:
JAMES DELINGPOLE. “OPINION; Climategate 2.0; A new batch of leaked emails again shows some leading scientists trying to smear opponents.” The Wall Street Journal (Mon., November 28, 2011): A15.
(Note: ellipsis added.)

NGO Workers Are More Concerned with Following Plan than Achieving Mission

Source of book image: http://www.bibliovault.org/thumbs/978-0-8047-7672-1-frontcover.jpg

In the quote below, “NGO” means “Non-Government Organization,” for instance, a philanthropy.

(p. 17) As for the state’s representatives, their authority was what Coburn calls a “useful fiction.” The district governor wielded his connections to Kabul as best he could, but did not possess great influence, in part because — in keeping with the most sophisticated state-building methods — government aid was mainly distributed by locally elected committees. Istalif’s police were seen as hapless at best, predatory at worst; Coburn found that villagers were eager to protect him from a local officer. The French soldiers who periodically showed up in the bazaar had little impact, though their presence did become an excuse for keeping women out of the area. But Coburn observed that “no group was less effective at accumulating influence” than the NGO community. The best development experts accomplished little: their turnover was high, and they frequently bestowed their largess on deserving locals — women, refugees who’d returned from abroad with some education, victims of wartime injuries — who didn’t have the connections or ability to capitalize on their good fortune. NGO workers seemed less concerned with achieving a valuable outcome than with demonstrating to their backers that they had followed a mission plan to the letter.

For the full review, see:
ALEXANDER STAR. “Applied Anthropology.” The New York Times Book Review (Sun., November 20, 2011): 16-17.
(Note: the online version of the commentary is dated November 18, 2011, and has the title “Afghanistan: What the Anthropologists Say.”)

The book being discussed is:
Coburn, Noah. Bazaar Politics: Power and Pottery in an Afghan Market Town. Stanford Studies in Middle Eastern and Islamic Societies and Cultures. Stanford, CA: Stanford University Press, 2011.

Intellectual Property Rights as Refined in Case Law

The questions and answers in court illustrate how case law would approach the issue of refining and reforming intellectual property issues based on concepts of justice, but also on practical issues. (This is from Disney and Pixar lawyer Steve Marenberg questioning Dick Cook in testimony before Judge Clarence Brimmer, Jr. on November 1, 2001, the day before Monsters, Inc. was scheduled to be released.)

(p. 193) Q : So obviously the delay of the film by injunction or otherwise would affect the first weekend and the ability to gain all of the benefits you’ve gotten by virtue of the tact that November second is the first weekend?

A : It would be a disaster.
Q : And that would affect, then, not only the theatrical performance of the film, but what other markets in the United Sates?
A : Well, it would completely be a snowball effect in a reverse way in that it would certainly put a damper on all of the home video activities, all the DVD activities; in fact, would influence international because international is greatly influenced on how well it does in the United States, and by taking that away, it would definitely, definitely, have a big, big impact on the success of the film.
And furthermore, going further, is that it would take away any of the other ancillary things that happen, you (p. 194) know, whether it would become a television series, whether or not it becomes a piece of an attraction at the parks, whether it becomes a land at the parks, or any of those kinds of things.

Source:
Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.
(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)
(Note: on p. 190 of the book, Price misspells Marenberg’s name as “Marenburg.”)

Campion Plant Sprouts from 32,000 Year-Old Seed

“OLD DNA; A plant has been generated from the fruit of the narrow-leafed campion. It is the oldest plant by far to be grown from ancient tissue.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. D1) Living plants have been generated from the fruit of a little arctic flower, the narrow-leafed campion, that died 32,000 years ago, a team of Russian scientists reports. The fruit was stored by an arctic ground squirrel in its burrow on the tundra of northeastern Siberia and lay permanently frozen until excavated by scientists a few years ago.

This would be the oldest plant by far that has ever been grown from ancient tissue. The present record is held by a date palm grown from a seed some 2,000 years old that was recovered from the ancient fortress of Masada in Israel.
Seeds and certain cells can last a long term under the right conditions, but many claims of extreme longevity have failed on closer examination, and biologists are likely to greet this claim, too, with reserve until it can be independently confirmed. Tales of wheat grown from seeds in the tombs of the pharaohs have long been discredited. Lupines were germinated from seeds in a 10,000-year-old lemming burrow found by a gold miner in the Yukon. But the seeds, later dated by the radiocarbon method, turned out to be modern contaminants.
. . .
The new report is by a team led by Svetlana Yashina and David Gilichinsky of the Russian Academy of Sciences research center at Pushchino, near Moscow, and appears in Tuesday’s issue of The Proceedings of the National Academy of Sciences of the United States of America.
“This is an amazing breakthrough,” said Grant Zazula of the Yukon Paleontology Program at Whitehorse in Yukon Territory, Canada. “I have no (p. D4) doubt in my mind that this is a legitimate claim.” It was Dr. Zazula who showed that the apparently ancient lupine seeds found by the Yukon gold miner were in fact modern.

For the full story, see:

NICHOLAS WADE. “Dead for 32,000 Years, an Arctic Plant Is Revived.” The New York Times (Tues., February 21, 2012): D1 & D4.
(Note: ellipsis added.)
(Note: the online version of the review is dated February 20, 2012.)

Wilson’s Advice to Conservative Academics: “Be Twice as Productive and Four Times as NIce”

(p. A13) Pat Moynihan once reportedly told Richard Nixon (who was known for his disdain for intellectuals), “Mr. President, James Q. Wilson is the smartest man in the United States. The president of the United States should pay attention to what he has to say.”
. . .
At one point in my academic career, I called Jim for advice about how best to navigate the waters of liberal academia when one is openly conservative. “Simple,” he told me lightheartedly, “Be twice as productive and four times as nice as your colleagues.” It was a formula he himself had followed.

For the full commentary, see:
ARTHUR C. BROOKS. “OPINION; Social Science With a Soul; Life for James Q. Wilson was like a roadside curio shop, full of hidden and unrecognized intellectual treasures..” The Wall Street Journal (Sat., March 3, 2012): C4.
(Note: ellipsis added.)

Today Is Tweflth Anniversary of Democrats’ Infamous Betrayal of Elián González

“In this April 22, 2000 file photo, Elian Gonzalez is held in a closet by Donato Dalrymple, one of the two men who rescued the boy from the ocean, right, as government officials search the home of Lazaro Gonzalez, early Saturday morning, April 22, 2000, in Miami. Armed federal agents seized Elian Gonzalez from the home of his Miami relatives before dawn Saturday, firing tear gas into an angry crowd as they left the scene with the weeping 6-year-old boy.” Source of caption and photo: online version of JENNIFER KAY and MATT SEDENSKY. “10 years later, few stirred by Elian Gonzalez saga.” Omaha World-Herald (Thurs., April 22, 2010): 7A. (Note: the online version of the article is dated April 21, 2010 and has the title “10 years after Elian, US players mum or moving on.”)

Today (April 22, 2012) is the twelfth anniversary of one of the darkest days in American history—when the Democratic Clinton Administration seized a six year old child in order to force him back into the slavery that his mother had died trying to escape.

Workers Want to See Compensation Related to Contribution

This is a great example contra (or at least qualifying) Daniel Pink’s claim that all you need do for knowledge workers is provide them enough money so that they can provide for the basic needs of themselves and their family.

(p. 145) The public offering process brought details of the intended allocation of Pixar stock options into view. A registration statement and other documents with financial data had to be prepared for the Securities and Exchange Commission and a prospectus needed to be made ready for potential investors. These documents had to be reviewed and edited, and it was here that the word apparently leaked: A small number of people were to receive low-cost options on enormous blocks of stock. Catmull, Levy, and Lasseter were to get options on 1.6 million shares apiece; Guggenheim and Reeves were to get 1 million and 840,000, respectively. If the company’s shares sold at the then-planned price of fourteen dollars, the men would be instant multimillionaires.

The revelation was galling. Apart from the money, there was the symbolism: The options seemed to denigrate the years of work everyone else had put into the company. They gave a hollow feel to Pixar’s labor-of-love camaraderie, its spirit that everyone was there to do cool work together. Also, it was hard not to notice that Levy, one of the top recipients, had just walked in the door.
“There was a big scene about all that because some people got (p. 146) huge amounts more than other people who had come at the same time period and who had made pretty significant contributions to the development of Pixar and the ability to make Toy Story,” Kerwin said. “People like Tom Porter and Eben Ostby and Loren Carpenter–guys that had been there since the beginning and were part of the brain trust.”
Garden-variety employees would also get some options, but besides being far fewer, those options would vest over a four-year period. Even employees who had been with the organization since its Lucasfilm days a decade earlier–employees who had lost all their Pixar stock in the 1991 reorganization–would be starting their vesting clock at zero. In contrast, most of the options of Catmull, Lasseter, Guggenheim, and Reeves vested immediately–they could be turned into stock right away.
“I decided, ‘Well, gee, I’ve been at this company eight years, and I’ll have been here twelve years before I’m fully vested,’ ” one former employee remembered. ” ‘It doesn’t sound like these guys are interested in my well-being.’ A lot of this piled up and made me say, ‘What am I doing? I’m sitting around here trying to make Steve Jobs richer in ways he doesn’t even appreciate.’ ”

Source:
Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.
(Note: italics in original.)
(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)

For Daniel Pink’s views, see:
Pink, Daniel H. Drive: The Surprising Truth About What Motivates Us. New York: Riverhead Books, 2009.

Stevenson and Wolfers Find People in Rich Countries Are Happier

“Betsey Stevenson and Justin Wolfers are the go-to pair on what some might call “lovenomics,” having produced much research on marriage, divorce and child-rearing. They are shown at home with their daughter, Matilda, and family dog, Max.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) . . . when Ms. Stevenson, 40, and Mr. Wolfers, 39, start talking about say, diapers or nursing, the conversation takes an odd turn. Suddenly, words like “inputs” and “outputs” — the economic kind — creep in. Mention loading the dishwasher and he tosses out “fungibility.” The low cost of two big teddy bears they bought for Matilda gets Ms. Stevenson ruminating on productivity gains.

If they don’t quite sound like the rest of us, that’s because these two Harvard Ph.D.’s form a sort of power couple in the world of the dismal science, or at least a certain corner of it. Faculty members at the Wharton School of the University of Pennsylvania, and currently visiting fellows at Princeton, Ms. Stevenson and Mr. Wolfers have become the go-to pair on the economics of marriage, divorce and child-rearing. That they are themselves a couple — unmarried, for tax reasons they regularly cite — adds to the allure.
. . .
Their research shows that men have grown happier as women have become unhappier. (Why? They don’t really know.) Are people in rich countries happier than people in poor countries? (Yes.) And contrary to popular belief, they show that the divorce rate in America has been falling, not rising, for decades. They cite a number of possible reasons, including more balanced expectations between men and women about how a marriage will actually work, as well as the fact that fewer people are marrying in the first place.
. . .
(p. 4) LAST month, Ms. Stevenson and Mr. Wolfers presented new research into what is known as the Easterlin Paradox. First documented by the economist Richard Easterlin in the 1970s, this concept involves the link between economic growth and happiness. The idea is that, within a given country, people with higher incomes are more likely to be happy, and yet, for the most part, the average level of happiness doesn’t vary much from rich countries and poor countries. What’s more, as countries become richer, their populations don’t become happier.
Using a red laser pointer to highlight PowerPoint graphs, Ms. Stevenson told a group of economists, psychologists and other experts gathered at the Russell Sage Foundation on the Upper East Side of Manhattan that earlier research had failed to take into account that as people and countries grow richer, it takes a much bigger amount of absolute dollars to raise incomes, and thus happiness.
So while it could appear that increases in happiness flattened out after incomes reached a certain point, “the richer you are, the more dollars it takes to give you the same increase in well-being,” Ms. Stevenson said. “To get a 10 percent increase in income, you need more dollars than when you are poor.”

For the full story, see:
MOTOKO RICH. “It’s the Economy, Honey.” The New York Times, SundayBusiness Section (Sun., February 11, 2012): 1 & 4.
(Note: ellipses added.)
(Note: the online version of the review is dated February 11, 2012.)