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Related books:
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Wednesday, February 11, 2009
Monday, February 9, 2009
CNBC: Predicting Crisis: Dr. Doom & the Black Swan
Nouriel Roubini and Nassim Taleb on CNBC:
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Related books:
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Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (Also available in an Audio Book) - Note: Nassim Taleb updated this book last year. I belive it is about 1/3 longer than the first edition.
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Friday, February 6, 2009
WIRED Interview with Barry Schwartz
LONG BEACH, California -- Psychologist Barry Schwartz delivers the final presentation of TED 2009 on Saturday. Wired.com spoke to Schwartz about practical wisdom, moral skill without moral will, and the roles of hope and virtue.
Wired: You call practical wisdom the "master virtue." What is practical wisdom and why is it important?
Barry Schwartz: Very central to Aristotle was the notion that to do the right thing, and ultimately to be happy, required that you be a person with the right character -- courage, honesty, perseverance, and so on....
The problem was that having these virtues wasn't enough, because, how courageous should you be and when should you be courageous? The circumstances we face from day to day are varied and multiple, so you can’t be formulaic about it. You need to use your judgment. And the virtue that is the judgment virtue is what he called "practical wisdom." It's knowing when and how to display the other virtues. It's knowing how to choose when two virtues conflict.
Wired: It sounds like you're talking about the ability to reason.
BS: Well it’s a particular kind of reason. Practical wisdom is what's called for in situations that have a moral dimension to them. There are dozens of decisions we make every day that call upon us to be wise in our interactions with other people.... They're usually too small for us to even appreciate that there's a moral dilemma to them. And that's the kind of thing we think wisdom applies to.
The way Ken and I talk about wisdom, it's composed of two different components.
One is what we call moral skill, which is the ability to figure out what's called for in a given situation. It's kind of analogous to what people call emotional intelligence –- the ability to read people, understand where they're coming from, what they're aspiring to. The second component is moral will, which is the desire to do the right thing. If you have lots of moral skill but not the will do to the right thing, then you're a [Bernard] Madoff because you use all of the moral skill to manipulate people to serve your ends. It's Machiavellian if it's de-coupled from the desire to do the right thing.
Wired: You've said in the past that we've lost practical wisdom. How and when did we lose it?
BS: I think it's a gradual process. We've lost it in part because we don't appreciate how important it is and what it takes to develop it.
It takes two things to develop wisdom.... You need to have autonomy, and you need to try things [and] see them fail and get feedback and slowly over time develop a kind of sensitivity to what each situation demands. If you put people in a situation where they are rigidly following rules, they will never have the opportunity to develop this judgment. Rules eliminate the need for judgment. And one of the things we have increasingly done in American society -- partly I think because we're worried about somebody suing us -- is we develop more and more rules and take individual discretion increasingly out of the hands of the people who actually provide the service [in a company or organization].
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Wired: How do you nurture people to do the right thing?
BS: I think the first step toward achieving these things is appreciating that the tools we currently use are not sufficient.... The step after that is to identify and acknowledge the existence of moral exemplars – if you like, moral heroes -- that the people you're training can aspire to emulate. And they don't have to be people who do extraordinary things. There are people who do small things that count as moral heroes. And then giving the people you're training the room both to improvise and to have room in their lives for wanting to do the right thing and not just the profitable thing.
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Related books:
The Paradox of Choice: Why More Is Less
Practical Intelligence in Everyday Life
The Theory of Moral Sentiments
The Moral Consequences of Economic Growth
The Autobiography of Benjamin Franklin
Related previous post:
Ben Franklin's 13 Virtues
Related links:
TED
Barry Schwartz on practical wisdom
Thursday, February 5, 2009
Unfinished business
Charles Darwin’s ideas have spread widely, but his revolution is not yet complete
THE miracles of nature are everywhere: on landing, a beetle folds its wings like an origami master; a lotus leaf sheds muddy water as if it were quicksilver; a spider spins a web to entrap her prey, but somehow evades entrapment herself. Since the beginning of time, people who have thought about such things have seen these marvels as examples of the wisdom of God; even as evidence for his existence. But 200 years ago, on February 12th 1809, a man was born who would challenge all that. The book that issued the challenge, published half a century later, in 1859, offered a radical new view of the living world and, most radical of all, of humanity’s origins. The man was Charles Robert Darwin. The book was “On the Origin of Species”. And the challenge was the theory of evolution by natural selection.
Since Darwin’s birth, the natural world has changed beyond recognition. Then, the modern theory of atoms was scarcely six years old and the Earth was thought to be 6,000. There was no inkling of the size of the universe beyond the Milky Way, and radioactivity, relativity and quantum theory were unimaginable. Yet of all the discoveries of 19th- and early 20th-century science—invisible atoms, infinite space, the inconstancy of time and the mutability of matter—only evolution has failed to find general acceptance outside the scientific world. Few laymen would claim they did not believe Einstein. Yet many seem proud not to believe Darwin. Even for those who do accept his line of thought his ideas often seem as difficult today as they were 150 years ago.
The origin of the Origin
The idea of evolution by natural selection is not hard to grasp. It just requires connecting some uncontentious propositions. These are that organisms vary from one another, even within a species, and that new variation can arise from time to time; that some of this variation is passed from parent to offspring; and that more individuals are born than can exist in the available space (or be sustained by the available resources). The consequence is what Darwin described in his book as a “struggle for existence”. The weakest are eliminated in this struggle. The fit survive. The survivors pass on their traits to their offspring. Over enough time, this differential transmission of characters will lead to the formation of a new species.
…
Darwin’s theory explained why species were so well adapted to their environment and how new species would form. It suggested that all living things were related, from the beetle to the lotus, and that everything descended ultimately from a single common ancestor. Evolution thus removed the need for divine explanations of diversity and, along with evidence emerging at that time of the extreme age of the Earth, it further suggested that the wider universe might also owe nothing to divine intervention and everything to natural laws. Darwin understood all of this and was greatly troubled.
That trouble continues today. In the United States a Gallup poll conducted last year found that only 14% of people agreed with the proposition that “humans developed over millions of years”, up from 9% in 1982. Acceptance of evolution varies around the world, with the most ardent believers being in Iceland, Denmark and Sweden (see chart). In general, as you might expect, a country’s belief in evolution is inversely correlated with its belief in God. But there is an interesting twist.
Gregory Paul, an independent researcher on evolution, and Phil Zuckerman, a sociologist at Pitzer College in California, have argued controversially that a belief in God is inversely correlated with the level of what might be described as the intensity of the struggle for existence. In countries where food is plentiful, health care is universal and housing is accessible, people believe less in God than in those countries where their lives are insecure. A belief in God, and rejection of evolution, they suggest, is most valuable in those societies that are most subject to Darwinian pressures.
Making science work
Be that as it may, many aspects of modern science could not work without accepting evolution. Darwin’s ideas touch every corner of biology and medicine. They have also had an impact farther afield, in areas from art to politics. And their impact has been practical as well as theoretical. Both software engineers and drug developers, for example, often make use of evolutionary thinking when designing their products.
Economics, too, may be helped by Darwin. Ideas about “rational” economic man are being overturned by new ones from a discipline called behavioural economics. Rather than assuming that individuals faced with economic decisions will comport themselves in what “classical” economists regard as a rational manner—ie, to maximise their future wealth—behavioural economics tries to study how real people actually behave.
What is surprising is the degree to which human beings are not rational, and how the reasons for this are likely to involve Darwinian explanations. Take, for example, a phenomenon called the endowment effect, which is the tendency most people have to value objects they already own more highly than similar ones they have never owned—and, consequently, to be more reluctant to trade them than a classical economist would predict.
Because this effect has been observed in three primate species, most recently in a study of chimpanzees, it suggests this effect has evolutionary roots. Its strength seems to relate to the evolutionary salience of the item in question. People may be reluctant to trade goods related to food and mating because in the recent evolutionary past it meant parting with a known object in exchange for an uncertain proposition.
Another example of economic behaviour that may have deep evolutionary roots is the “herd” mentality that contributes to financial bubbles. In the past, copying the neighbours would have been helpful—in order to avoid danger or to find food. In today’s financial systems, however, it can create instability. The instinct to follow the herd can be rationalised as rational, so to speak, since everybody benefits in the short term by forcing the price up. But it does not look so rational when the instability is exposed by an external shock and the market crashes. In fact, at least part of what seems to be going on is that everyone instinctively feels compelled to copy the others, rather than making an independent assessment of the situation.
Whether the mystery is why people are so averse to risk, unable to estimate the time needed for a given task, or give different answers to the same question depending on how it is framed, there is a fair chance that the explanation will, at some point, involve evolution. To understand human behaviour properly, the world needs Darwin. Some have said it is the best idea that anyone ever had. If it isn’t, it certainly comes close.
Despite so much evidence, evolution remains difficult to accept because it implies everything living is largely accidental. Stephen Jay Gould, an American evolutionary biologist, who died in 2002, argued that misunderstandings about Darwinism were rife not because the theory is difficult to understand but because people actively avoid trying to understand it. He thought a misunderstanding about progress was the problem.
………………..
Related previous post:
Why we are, as we are
Related books:
The Autobiography of Charles Darwin
The Origin Of Species
The Voyage of the Beagle
The Selfish Gene
Mean Genes
THE miracles of nature are everywhere: on landing, a beetle folds its wings like an origami master; a lotus leaf sheds muddy water as if it were quicksilver; a spider spins a web to entrap her prey, but somehow evades entrapment herself. Since the beginning of time, people who have thought about such things have seen these marvels as examples of the wisdom of God; even as evidence for his existence. But 200 years ago, on February 12th 1809, a man was born who would challenge all that. The book that issued the challenge, published half a century later, in 1859, offered a radical new view of the living world and, most radical of all, of humanity’s origins. The man was Charles Robert Darwin. The book was “On the Origin of Species”. And the challenge was the theory of evolution by natural selection.
Since Darwin’s birth, the natural world has changed beyond recognition. Then, the modern theory of atoms was scarcely six years old and the Earth was thought to be 6,000. There was no inkling of the size of the universe beyond the Milky Way, and radioactivity, relativity and quantum theory were unimaginable. Yet of all the discoveries of 19th- and early 20th-century science—invisible atoms, infinite space, the inconstancy of time and the mutability of matter—only evolution has failed to find general acceptance outside the scientific world. Few laymen would claim they did not believe Einstein. Yet many seem proud not to believe Darwin. Even for those who do accept his line of thought his ideas often seem as difficult today as they were 150 years ago.
The origin of the Origin
The idea of evolution by natural selection is not hard to grasp. It just requires connecting some uncontentious propositions. These are that organisms vary from one another, even within a species, and that new variation can arise from time to time; that some of this variation is passed from parent to offspring; and that more individuals are born than can exist in the available space (or be sustained by the available resources). The consequence is what Darwin described in his book as a “struggle for existence”. The weakest are eliminated in this struggle. The fit survive. The survivors pass on their traits to their offspring. Over enough time, this differential transmission of characters will lead to the formation of a new species.
…
Darwin’s theory explained why species were so well adapted to their environment and how new species would form. It suggested that all living things were related, from the beetle to the lotus, and that everything descended ultimately from a single common ancestor. Evolution thus removed the need for divine explanations of diversity and, along with evidence emerging at that time of the extreme age of the Earth, it further suggested that the wider universe might also owe nothing to divine intervention and everything to natural laws. Darwin understood all of this and was greatly troubled.
That trouble continues today. In the United States a Gallup poll conducted last year found that only 14% of people agreed with the proposition that “humans developed over millions of years”, up from 9% in 1982. Acceptance of evolution varies around the world, with the most ardent believers being in Iceland, Denmark and Sweden (see chart). In general, as you might expect, a country’s belief in evolution is inversely correlated with its belief in God. But there is an interesting twist.
Gregory Paul, an independent researcher on evolution, and Phil Zuckerman, a sociologist at Pitzer College in California, have argued controversially that a belief in God is inversely correlated with the level of what might be described as the intensity of the struggle for existence. In countries where food is plentiful, health care is universal and housing is accessible, people believe less in God than in those countries where their lives are insecure. A belief in God, and rejection of evolution, they suggest, is most valuable in those societies that are most subject to Darwinian pressures.
Making science work
Be that as it may, many aspects of modern science could not work without accepting evolution. Darwin’s ideas touch every corner of biology and medicine. They have also had an impact farther afield, in areas from art to politics. And their impact has been practical as well as theoretical. Both software engineers and drug developers, for example, often make use of evolutionary thinking when designing their products.
Economics, too, may be helped by Darwin. Ideas about “rational” economic man are being overturned by new ones from a discipline called behavioural economics. Rather than assuming that individuals faced with economic decisions will comport themselves in what “classical” economists regard as a rational manner—ie, to maximise their future wealth—behavioural economics tries to study how real people actually behave.
What is surprising is the degree to which human beings are not rational, and how the reasons for this are likely to involve Darwinian explanations. Take, for example, a phenomenon called the endowment effect, which is the tendency most people have to value objects they already own more highly than similar ones they have never owned—and, consequently, to be more reluctant to trade them than a classical economist would predict.
Because this effect has been observed in three primate species, most recently in a study of chimpanzees, it suggests this effect has evolutionary roots. Its strength seems to relate to the evolutionary salience of the item in question. People may be reluctant to trade goods related to food and mating because in the recent evolutionary past it meant parting with a known object in exchange for an uncertain proposition.
Another example of economic behaviour that may have deep evolutionary roots is the “herd” mentality that contributes to financial bubbles. In the past, copying the neighbours would have been helpful—in order to avoid danger or to find food. In today’s financial systems, however, it can create instability. The instinct to follow the herd can be rationalised as rational, so to speak, since everybody benefits in the short term by forcing the price up. But it does not look so rational when the instability is exposed by an external shock and the market crashes. In fact, at least part of what seems to be going on is that everyone instinctively feels compelled to copy the others, rather than making an independent assessment of the situation.
Whether the mystery is why people are so averse to risk, unable to estimate the time needed for a given task, or give different answers to the same question depending on how it is framed, there is a fair chance that the explanation will, at some point, involve evolution. To understand human behaviour properly, the world needs Darwin. Some have said it is the best idea that anyone ever had. If it isn’t, it certainly comes close.
Despite so much evidence, evolution remains difficult to accept because it implies everything living is largely accidental. Stephen Jay Gould, an American evolutionary biologist, who died in 2002, argued that misunderstandings about Darwinism were rife not because the theory is difficult to understand but because people actively avoid trying to understand it. He thought a misunderstanding about progress was the problem.
………………..
Related previous post:
Why we are, as we are
Related books:
The Autobiography of Charles Darwin
The Origin Of Species
The Voyage of the Beagle
The Selfish Gene
Mean Genes
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"I have been speculating...what makes a man a discoverer of undiscovered things, and a most perplexing problem it is. Many men who are very clever, -- much cleverer than discoverers -- never originate anything. As far as I can conjecture, the art consists in habitually searching for causes or meaning of everything which occurs. This implies sharp observation and requires as much knowledge as possible of the subject investigated." -Charles Darwin
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Wednesday, February 4, 2009
Fortune: Loomis, Burke - Buffett's metric says it's time to buy
Looks like Carol Loomis, Doris Burke and me (and Will, who emailed me about this months ago) are all on the same page.
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According to investing guru Warren Buffett, U.S. stocks are a logical investment when their total market value equals 70% to 80% of Gross National Product.
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According to investing guru Warren Buffett, U.S. stocks are a logical investment when their total market value equals 70% to 80% of Gross National Product.
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Related previous posts:
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WCAM: How Inflation Became the Good Guy
Inflation has been an all-purpose bogeyman since the 1970s, but a small amount of inflation comes with a healthy, growing economy. The Federal Reserve focuses on managing inflation, not preventing it. We have written often that we feel the government measures inflation incorrectly, since the Consumer Price Index undervalues food, healthcare and energy costs. As a result, excessive inflation builds for a while before the government acknowledges it, and comes as a surprise, despite our constant measurement and analysis.
But the consumer price index is only one measure of inflation. Another is the Producer Price Index (PPI), which measures inflation faced by people who buy raw materials to create other products. Watching the constant rise of producer prices over the past years, as consumer prices appeared stable, a thoughtful observer sensed that “something’s gotta give.” Add a significant credit crisis, a sudden liquidity crisis, a Fed Chairman who dreads the Great Depression’s deflation, and the table is set for significant inflation, and the possibility of hyperinflation.
The current economic crisis raises the specter of both deflation and hyperinflation for many economists and journalists, and “specter” is the operative word here. Studying deflation and hyperinflation is a little bit like studying Bigfoot and the Loch Ness monster. Deflation and hyperinflation are real, but there is as much lore as evidence in the popular press and on the Internet. In times of crisis, one struggles to separate political agendas and fear mongering from analysis.
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With our currency likely to be dropping in value and our interest rates likely to be moving up (they certainly cannot go down much farther), what should one own?
Real assets and companies that can withstand and benefit from inflation over the long term are good options. Examples include companies with popular, everyday products, like Johnson & Johnson (NYSE: JNJ), Cadbury (NYSE: CBY), Clorox (NYSE: CLX), Kimberly Clark (NYSE: KMB), and Molson Coors (NYSE: TAP).
Another opportunity might lie with companies like Automatic Data Processing (NasdaqGS: ADP), which processes payrolls and earns float on the overnight deposits. As interest rates rise, so will ADP’s profits. Payroll processors might experience a dip in volume as layoffs and bankruptcies spread, so investors must consider that risk. Other ports in an inflationary storm usually include real assets like oil, coal, steel, lumber, copper, and gold.
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But the consumer price index is only one measure of inflation. Another is the Producer Price Index (PPI), which measures inflation faced by people who buy raw materials to create other products. Watching the constant rise of producer prices over the past years, as consumer prices appeared stable, a thoughtful observer sensed that “something’s gotta give.” Add a significant credit crisis, a sudden liquidity crisis, a Fed Chairman who dreads the Great Depression’s deflation, and the table is set for significant inflation, and the possibility of hyperinflation.
The current economic crisis raises the specter of both deflation and hyperinflation for many economists and journalists, and “specter” is the operative word here. Studying deflation and hyperinflation is a little bit like studying Bigfoot and the Loch Ness monster. Deflation and hyperinflation are real, but there is as much lore as evidence in the popular press and on the Internet. In times of crisis, one struggles to separate political agendas and fear mongering from analysis.
…
With our currency likely to be dropping in value and our interest rates likely to be moving up (they certainly cannot go down much farther), what should one own?
Real assets and companies that can withstand and benefit from inflation over the long term are good options. Examples include companies with popular, everyday products, like Johnson & Johnson (NYSE: JNJ), Cadbury (NYSE: CBY), Clorox (NYSE: CLX), Kimberly Clark (NYSE: KMB), and Molson Coors (NYSE: TAP).
Another opportunity might lie with companies like Automatic Data Processing (NasdaqGS: ADP), which processes payrolls and earns float on the overnight deposits. As interest rates rise, so will ADP’s profits. Payroll processors might experience a dip in volume as layoffs and bankruptcies spread, so investors must consider that risk. Other ports in an inflationary storm usually include real assets like oil, coal, steel, lumber, copper, and gold.
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