Bluematter.

Why model?

2012-07-21T12:37:00.001Z

The first question that arises frequently--sometimes innocently and sometimes not--is simply, "Why model?" Imagining a rhetorical (non-innocent) inquisitor, my favorite retort is, "You are a modeler." Anyone who ventures a projection, or imagines how a social dynamic--an epidemic, war, or migration--would unfold is running some model.
But typically, it is an implicit model in which the assumptions are hidden, their internal consistency is untested, their logical consequences are unknown, and their relation to data is unknown. But, when you close your eyes and imagine an epidemic spreading, or any other social dynamic, you are running some model or other. It is just an implicit model that you haven't written down.

This being the case, I am always amused when these same people challenge me with the question, "Can you validate your model?" The appropriate retort, of course, is, "Can you validate yours?"

The choice is not whether to build models; it's whether to build explicit ones.

Here's more Joshua Epstein on modelling.

Lady tasting tea - The adventures of R.A. Fisher in statistical science

2012-07-01T14:59:00.000Z

Already, quite soon after he had come to Rothamstead, his presence had transformed one commonplace tea time to an historic event. It happened one afternoon when he drew a cup of tea from the urn and offered it to the lady beside him, Dr. B. Muriel Bristol, an algologist. She declined it, stating that she preferred a cup into which the milk had been poured first. “Nonsense,” returned Fisher, smiling, “Surely it makes no difference.” But she maintained, with emphasis, that of course it did. From just behind, a voice suggested, “Let’s test her.”

Fascinating anecdote from the life of R.A. Fisher. The link has more on Fisher's exact test and on whether the lady was indeed able to tell the difference between cups.

**
www.ppiclaims.uk.com

Shopping in North Korea

2012-03-31T16:39:00.002Z

The politics of hate, Greece edition

2012-02-16T13:43:00.000Z

The moral condemnation directed towards the Greeks is the saddest aspect of this financial crisis, and it says a lot more about the givers than the receivers. Just like the smell of burning books, the demonisation of entire populations and a 'we good, they bad' mentality is an unmistakeable manifestation of pathology. Lacking the intelligence or the interest to understand what the hell is going on, the morally outraged resort to silly stories and juvenile good/evil dichotomies to make sense of the world.

Richard Parker, the Harvard economist, has an interesting article in the FT:

Greece desperately needs reforms. Mr Papandreou knew this well before the crisis, as did most Greeks. But the larger problem was the panic that swept over Europe and the easy moralising that financial crises evoke. Greeks were cast as tax-evaders, lazy and anti-business, their government as over-indebted, bloated and corrupt – a situation that required castor oil and humiliation.

But almost none of the moralising clichés were true. Greek taxes were more than a third of gross domestic product, near the European average. And if Greeks were anti-business, why then were there more small entrepreneurs per capita than anywhere else in Europe? Government was not bloated in terms of employees – at a fifth of the labour force, it was about the European average. Corruption was clearly a problem, but our data showed it was concentrated – incomprehensibly to non-Greeks – in the health sector, where minor “gifts” to doctors secured early scheduling of surgeries.

Two more facts to add here. One, Greeks work amongst the highest number of hours of all OECD countries. Two, while there is a lot of tax evasion in Greece (together with high tax rates so that overall tax take is comparable to elsewhere), this has to do with the fact Greece has a relatively large number of small, family businesses. The Germans have as much inherent propensity to tax evade as the Greeks.

Friday Special edition unknown, now back on Friday!

2012-02-10T07:00:00.001Z

How to bid on eBay. No, you don't just enter your valuation and relax.

Why men are better at mathematics and engineering.

Eugene Fama: My life in finance.

Open Yale courses.

Interviews of great econometricians.

Mad, mad men.

Beautiful Kokeshi dolls.

Stats and Bayesian econometrics resources

2012-02-08T07:00:00.001Z

The Foundations of Statistics: A Simulation-based Approach. Nice intro to R too.

A course in Bayesian Econometrics, by Gary Koop.

Friday special special, now on a Monday!

2012-02-05T22:20:00.000Z

Gary Becker, 2008: We're not headed for a depression. 'World economic growth will recover once we are over the present severe financial difficulties.'

Don't blow your nose when you have a cold.

Very interesting research on dating.

Why are modern scientists so dull?

Did people who knew about secret CIA coups game the market?

In the beginning, a crash in appetite for risk

2012-02-02T00:22:00.000Z

DeLong, December 2008:

Think of it this way: two years ago we lived in a world in which the wealth of global owners of capital was some $80 trillion — that was the market value of all of their property rights to dividends and contract rights to interest, rent, royalties, options, and bonuses.

In the past two years the wealth that is the global capital stock has fallen in value from $80 trillion to $60 trillion. Savings has not fallen through the floor. We have had little or no bad news about resource constraints, technological opportunities, or political arrangements.

$17 trillion of [the fall] comes by [my] arithmetic from a rise in the risk discount. There has been a massive crash in the risk tolerance of the globe’s investors.

Thus we have an impulse — a $2 trillion increase in the default discount from the problems in the mortgage market — but the thing deserving attention is the extraordinary financial accelerator that amplified $2 trillion in actual on-the-ground losses in terms of mortgage payments that will not be made into an extra $17 trillion of lost value because global investors now want to hold less risky portfolios than they wanted two years ago.

Our models predict that in normal times, with the ability to diversify portfolios that exists today, the risk discount on assets like corporate equities should be around 1% per year. It is more like 5% per year in normal times — and more like 10% per year today. And our models for why the risk discount has taken such a huge upward leap in the past year and a half are little better than simple handwaving and just-so stories. Our current financial crisis remains largely a mystery: a $2 trillion impulse in lost value of securitized mortgages has set in motion a financial accelerator that we do not understand at any deep level but that has led to ten times the total losses in financial wealth of the impulse.

**
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The wisdom of Chris Dillow

2012-02-02T00:00:00.000Z

The recession does not exist: individuals’ lived experience tells us little about macroeconomic phenomena such as booms and slumps. These are aggregate economic data, not direct sense data to any individuals.

An excellent piece by Chris Dillow on the inability of individuals to directly perceive macroeconomic phenomena. Yes - it's still clearing out my closet season, but hey - the recession's still here so I'll count this one as timely.

In more recent blogging, I like how Chris has something interesting to say, even when commenting on the most boring story in the world:

“Management“ functions rather like witchcraft. It’s a set of rituals which are wrongly supposed to have effects on the outside world.

Schools test often to teach inequality and hierarchy

2012-01-23T08:00:00.003Z

At school, our kids are rated and ranked far more often than most adults will tolerate, even though this actually slows their learning! It seems that modern schools function in part to help humans overcome their (genetically and culturally) inherited aversions to hierarchy and dominance. Modern workplaces require workers who are far more accepting than are foragers of being told what to do when, and of being explicitly ranked, and our schools prepare kids to accept this more primate-like environment.

The evidence strongly suggests that students learn better when they are not graded and certainly not when they are graded on a curve.

Subjects worked on different tasks and received performance-contingent payments that varied in amount from small to very large relative to their typical levels of pay. With some important exceptions, very high reward levels had a detrimental effect on performance.

This is Robin Hanson of Overcoming Bias making a plausible point, though I would not view this at all as a recent phenomenon. If anything, accepting hierarchy and dominance is probably less important today than it used to be at any point since pre-history.

Do click through, there's more interesting stuff there.

Gelman galore

2012-01-22T17:13:00.000Z

Clearing Out My Closet season continues, this time with a number of interesting posts from Andrew Gelman:

Uh.. Um..

I [Mark Liberman] took a quick look at demographic variation in the frequency of the filled pauses conventionally written as “uh” and “um”.

Marginal vs marginal

To me, the most interesting bit of terminological confusion is that the word “marginal” has opposite meanings in statistics and economics. In statistics, the margin (as in “marginal distribution”) is the average or, in mathematical terms, the integral. In economics, the margin (as in “marginal cost”) is the change or, in mathematical terms, the derivative.

If you are jumpy, you are less likely to be liberal

In a group of 46 adult participants with strong political beliefs, individuals with measurably lower physical sensitivities to sudden noises and threatening visual images were more likely to support foreign aid, liberal immigration policies, pacifism, and gun control, whereas individuals displaying measurably higher physiological reactions to those same stimuli were more likely to favor defense spending, capital punishment, patriotism, and the Iraq War.

Friday the 13th, unlucky?

A study published on Thursday by the Dutch Centre for Insurance Statistics (CVS) showed that fewer accidents and reports of fire and theft occur when the 13th of the month falls on a Friday than on other Fridays. . . . In the last two years, Dutch insurers received reports of an average 7,800 traffic accidents each Friday, the CVS study said. But the average figure when the 13th fell on a Friday was just 7,500.

Datacharmer recently made a good comment on this:

Apart from avoiding risky behaviour on Friday the 13th because it is deemed unlucky (which might well be happening), you should also consider that Friday the 13th – unlike other Fridays – CAN’T be Christmas or New Year’s (where people get drunk and drive), and it will also be associated with a lower (or higher) probability of falling before a bank holiday weekend (or I guess in the States Independence day, etc).

I guess all I’m saying that it could well be other factors driving this result other than a change in people’s behaviour because Friday the 13th is ‘unlucky’.

How about accidents on Friday the 12th of Friday the 14th? The article only compares Friday the 13th with an average Friday – in fact, it doesn’t even reveal whether the 13th is least accident prone Friday in the book…

If you can prioritise well you are probably not very creative

2012-01-21T23:17:00.001Z

In a 2003 study at Harvard, Dr. Carson and other researchers tested students’ ability to tune out irrelevant information when exposed to a barrage of stimuli. The more creative the students were thought to be, determined by a questionnaire on past achievements, the more trouble they had ignoring the unwanted data. A reduced ability to filter and set priorities, the scientists concluded, could contribute to original thinking.

The NY Times has more.

I'm clearing out my inbox of its 400+ emails, and many of these relate to stuff I wanted to post here - so expect a regular stream of content. Even if a couple years old, good links always stay fresh!

ASCII 3D

2012-01-17T19:51:00.002Z

OK, this is geeky - but love it.

Source.

A Mosque (1986)

2011-12-29T12:16:00.000Z

A mosque is where Muslim people learn, read and pray.Where I go with my little brothers we have to pay 2 pounds each week for learning everyday.We learn the Koran and how to pray.We have to go to everyday,if we don't we are punished.We must take an excuse note to say why we didn't come.I go in a van to the mosque Then I go to a big room to learn how to pray.We stay for one hour.Each week there is a test if you pass you go to another group for lessons.After the test you go to your own class where the register is taken.Then you must read to your teacher for one hour,if you make one mistake you are punished.The punishment is a beating with a bamboo stick.When we are finished we are taken home by van.

Shelina Akther(11)

From the BBC's Domesday Reloaded project, a remarkable - if somewhat misguided - attempt to document life in modern Britain circa 1986. Cool stuff.

In 1986, 900 years after William the Conqueror’s original Domesday Book, the BBC published the Domesday Project. The project was probably the most ambitious attempt ever to capture the essence of life in the United Kingdom. Over a million people contributed to this digital snapshot of the country.

The whole of the UK – including the Channel Islands and Isle of Man – was divided into 23,000 4x3km areas called Domesday Squares or “D-Blocks”.

Schools and community groups surveyed over 108,000 square km of the UK and submitted more than 147,819 pages of text articles and 23,225 amateur photos, cataloguing what it was like to live, work and play in their community.

This was about documenting everyday life - the ordinary rather than the extraordinary.

The project used the cutting edge technology of the day, and the data was eventually presented on a special type of Laser-Disc, read by a BBC master computer and navigated using an innovative tracker-ball pointing system.

But the technology didn’t catch on and the computers became very expensive for schools and libraries to buy. Very few people ever got to see the fruits of all of their hard work.

I heart Nixie tubes

2011-12-25T01:22:00.000Z

I'm looking to buy myself a nixie tube clock for (late) Christmas and ran into these awesome designs.

A European precedent: Socrates drank the conium

2011-12-15T01:12:00.002Z

Things in Europe are very simple.

There is only one way the Euro survives intact in the short to medium term: there need to be transfers from the core to the periphery. Nothing more, nothing less.

Now, there's two ways to do this: the democratic, 'above the table' way involves fiscal transfers, and it is crystal clear by now that won't be happening.

This leaves only one politically feasible way of ensuring the Euro remains the Eurozone currency for at least a while longer. When Italian spreads start increasing to unsustainable levels again (which they will do very soon), the ECB will need to step in and start buying more Italian bonds. Otherwise, the Banca d'Italia will need to start setting up parallel lira accounts for banks, bringing the Euro (and probably the world's financial system) to a rapid, unceremonious end.

Now, Mario Draghi has been at the receiving end of a lot of criticism for refusing to clearly commit to directly financing periphery debt, essentially making the necessary transfers from the core to the periphery in an undemocratic, 'under-the-table' way. The hope here amongst people who understand what's going on (many European leaders are not in this category) is that core country electorates won't notice that what the ECB is doing is essentially equivalent to a good old straightforward fiscal transfer.

These criticisms are fair in that it is clear now there is only the one option left, and the ECB is definitely not talking the talk. But - and this is where I sympathize with the ECB position - direct financing of government debt is illegal, clearly and unequivocally. At times of emergency, an elected government may have enough justification to temporarily suspend the constitution or undertake illegal actions in the hope that events will offer enough justification for its actions when the dust settles. Mario Draghi and the ECB, on the other hand, have no democratic legitimacy, and no justification - even in an emergency - to stray from what is legally required or explicitly demanded of them by democratically elected politicians.

ECB intervention is the only way to rescue the Euro, and it would involve an illegal action by a small group of people with no democratic legitimacy. There is a European precedence to that: Socrates refused to disobey the - clearly flawed - laws of Athens, and paid with his life. It is unclear whether he would have done the same if the lives of all Athenians, rather than merely his own, were at stake. This is the question events will soon force on the ECB.

It's a regrettable state of affairs, but I cannot blame Draghi for refusing to operate outside the law.

ADDENDUM: Another aspect of the criticism that I find misplaced relates to the demand the ECB does something 'now' or 'before it is too late'. The way I see it, they can do this up until the very last second (just before Monti presses the 'print' button on the lira machine would do just fine), so why would they do it earlier when, at least theoretically, politicians may finally own up to their responsibilities?

Also, just to say that I find it pretty surreal to be (kind of) defending the ECB, when they have made myriad serious mistakes throughout the crisis, and many in their ranks are clearly clueless (Trichet was a first-rate buffoon). But criticism in the Krugmosphere is a bit too one-sided.

**
jaguarpaydayloans.co.uk

The economic consequences of the referendum that wasn't

2011-11-04T01:47:00.001Z

The referendum may not be happening, but yesterday's events will have a deep impact on Greek and European affairs.

As I speculated yesterday, Prime Minister Papandreou explicitly said today that his main rationale for calling a referendum was to putting a stop to speculation that Greece is considering exiting the Eurozone. The chain of events that led to the referendum being called off demonstrated beyond doubt that the political classes will be keeping Greece in the Euro at all costs.

The fact there is now a credible commitment is very important. It means that some of the funds that have exited the country will find their way back to its banks and its economy, it means that bond investors need not fear Greece inflating its debt away or engaging in unilateral funny business, and it means that a great source of uncertainty has been dealt with.

This is not to say that staying the Euro is the right course of action for Greece. But since this seems to be what a majority of the Greek people want, making a binding commitment is the right way to go. There will be more investment, lower spreads, and an increased willingness of the rest of the EU to engage constructively.

Why the Greek referendum is exactly the right idea

2011-11-03T02:31:00.001Z

First, it is naive to believe the alternative was 'not holding a referendum'. With things continuing as they are, the government would have collapsed within the next few months, possibly in acrimonious circumstances. With virtually all Greek opposition parties reaching new heights of irresponsibility every passing day and the press following suit, things could not have continued 'as normal'. A referendum may actually turn out to be less disruptive than the alternatives.

Second, there's a genuine question to be asked here. Do the Greek people want to continue with Europe and the Euro and endure painful deflation and unemployment for years to come, or do they prefer to risk chaos and political alienation from their European peers for the possibility of a better tomorrow? Both alternatives are terrible, but the choice is real. At the time I'm writing this, the question that will be asked is not clear.

But if (as is likely) it is about Greek membership of the Euro or (less likely) about supporting the latest measures, I do not know which way I will be voting. No Prime Minister can - or should - take a decision of such gravity by himself. The people should vote.

Third, whichever way the referendum goes, Greece will benefit compared to a scenario where the government acts on its own. If the answer is 'yes to Europe' (and contrary to everything Greek and foreign pundits have been saying, this is the way I believe the referendum is most likely to go), Greece will have made a credible commitment that it will not be exiting the Euro any time soon. This is extremely important, as it will reverse the slow motion run on Greek banks and the corresponding flight of investment away from Greece. Furthermore, explicit popular support for austerity means that protests will be that much less disruptive and the resolve of the government that much more resolute. These will be welcome developments.

If, on the other hand, the answer is 'no', it only speeds up the inevitable. And unlike the case where the government chooses (or is forced) to take a decision to leave the euro, the people explicitly voting to do so will lessen the unrest that is likely to follow.

There is, of course, the risk that things will get out of hand (by which I mean a full blown bank run and violence on the streets) even before we reach the day of the referendum. This becomes uncomfortably likely if it starts looking like the answer will be no. The fact there hasn't been a bank run or chaos in the streets yet is a good sign, although it is no guarantee things will go smoothly. But as I've already said, there are no good or 'safe' choices on offer to the Greek people here.

Finally, there's another reason why I think Papandreou was right to call a referendum. It is a much needed reminder that Greece remains a sovereign nation, and that the Greek people will not be passive witnesses while their European peers decide exactly how much they should help Greece and how much punishment it deserves. If there's one thing that Germany et al have made abundantly clear in words and deeds throughout this crisis, it is that there is no European nation, and the only reason they display 'solidarity' is to protect the German/French/Finn citizen and taxpayer. I struggle to understand why Greece should be expected to behave any differently, and why Europeans express amazement at the desire of a nation to be treated with respect.

Forget sovereign debt, think sovereign equity

2010-12-08T01:46:00.001Z

Why don't countries issue part of their debt with equity-like characteristics to increase stability in crises, just like corporations do? You could have treasuries that pay a fixed percentage of tax revenue, GDP, or even GDP growth to the bearer, rather than a predefined interest rate.
Yes, it's a bit too late for Europe now, but moving forward this could be a useful bit of financial innovation.

***
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Sacrifice trade union to save the Euro

2010-12-08T01:06:00.001Z

Greece and Ireland need to depreciate their currencies, but exiting the Euro is unworkable for either of them. Extraordinary times call for extraordinary measures, so they could both temporarily introduce import tariffs for EU products, as well as potentially recycle some of the money generated to export tariffs.

Imports go down, exports go up, GDP increases, deficit goes down. Of course this doesn't work in the long-run the way depreciation would, but it would work a treat as a short-run stimulus and deficit-reducing measure.

Stata is blogging

2010-12-03T00:19:00.000Z

Stata now has an official blog, Not Elsewhere Classified. And here's a list of a few unofficial ones.

Development is mostly not about aid

2010-11-15T01:46:00.001Z

Whether you believe aid is effective or not, it has always struck me that, as a quantitative matter, it is a drop in the ocean. I am not saying that we should abandon aid; I am convinced it mostly makes things better. What I am saying, however, is that given how little it is and how widespread poverty is, the effect on national-level indicators can only be very, very small.

While aid can realistically only ever be a small part of the solution, other policies pursued by rich countries can have very widespread effects, and have perhaps received less attention than is warranted. In other words, we may be giving x euros in aid, but how much are we taking back by pursuing a Common Agricultural Policy? How much aid would a country have to give to make up for the effect on the poor of tight immigration policies?

The excellent Owen Barder links to a worthwhile attempt to rank rich countries according to how well they perform on development along these dimensions:

Though the effects of aid on development are uncertain, there is a huge amount that industrialised countries can do – or not do – which affects how quickly countries develop. The policies of rich countries on trade, investment, migration, the environment, security and technology can make a huge impact on how quickly poor countries are able to develop. Yet we tend to judge industrialized countries too much according to how much aid they give, and too little to how they behave in all these other ways.

The Center for Global Development provides an essential service by ranking the rich each year so we can see how we are doing. They use a series of quantitative measures on all these dimensions to create a composite picture of how a country’s policies affect development.

The 2010 results are now in. An excellent effort; I hope the next step is an attempt to monetize the value of the different policies pursued. However arbitrary this exercise may be, it will be another step in going beyond a qualitative understanding of the effect of aid, trade policies, etc, allowing us to better focus our collective efforts.

Empathy is the opposite of Utopia

2010-11-09T03:04:00.000Z

A beatiful presentation by Jeremy Rifkin:

Eat your heart out, Powerpoint.

Nicaragua invades Costa Rica due to Google error

2010-11-05T01:44:00.002Z

A Nicaraguan military commander recently invaded Costa Rican territory, and ordered troops to take down a Costa Rican flag and replace it with Nicaragua's. Was this the work of a brash commander, going rogue on his superiors? A new policy of Nicaraguan imperialism? Neither. The incident was caused by an error in Google Maps. [...] commander Eden Pastora blamed the incursion on a misleading border on Google Maps that was off by some 3000 meters.

La Nación points to a disparity between the borders on Bing and Google. We've highlighted the area in question:

Thanks Austin Carr.

The night they burned government bonds

2010-11-03T00:59:00.000Z

As I've noted before, one thing I've learned from this recession is that it's not as easy to increase the money supply as I thought.

This is Mark Thoma. But how about a big bond bonfire? (call it a bondfire if you must) How about direct financing of government debt?

I never got why Japan's lost decade was accompanied with such an explosion of government debt. The way I see it, below target inflation (let alone deflation) is a license to print money, and if the banks will do nothing with it, then the government should.

We seem to have forgotten the oldest trick in the book.