Foxes and Hedgehogs

How Krugman Works

2011-09-05T10:06:00.000-04:00

From Krugman, the gist of an article, titled, How I Work:

In the course of describing my formative moment in 1978, I have already implicitly given my four basic rules for research. Let me now state them explicitly, then explain. Here are the rules:
Listen to the Gentiles
Question the question
Dare to be silly
Simplify, simplify

I think this is why I appreciate his insights, that they are not dogmatic, #1 and #2, and that they are clear, #4.

Analysis of Forecast Accuracy in the Political Media

2011-05-03T06:04:00.003-04:00

Krugman, in a recent post, mentions a recent study comparing the accuracy of various pundits.

Conclusion:

Our findings seem to agree with Tetlock’s research. Some studies suggest that conservatives have more rigid ideologies (Jost et al., 2003) In other words, they would be considered “hedgehogs.” Similarly, lawyers are taught to argue one side with a single analytical method; they, too, would be “hedgehogs” under Tetlock’s model. While not all liberals are foxes and not all conservatives are hedgehogs, these trends may be informative in explaining why our results are as they are. It may be that conservatives are inherently disadvantaged as prognosticators due to their ideological “hedgehoginess.”

Perhaps most importantly, being a good prognosticator seems to be a product of choices, not birth. Anyone can be good; all they need to do is avoid law school and buy into liberalism as an overarching philosophy. There is no inferior ability associated with being born, say, black or female.

Mind Changing Events, ala Paul Krugman

2011-03-19T14:42:00.000-04:00

..thinking like a fox.

If one wants to be correct in one's predictions and general models, one needs to be willing to change one's opinions. All around in American culture, we see the veneration of single-minded 'hedgehogs', that are the most strident, and no matter how wrong, that explain away their mistaken judgments, but never consider their model wrong.

I've sometime worried about you, Mr. Krugman, becoming corrupted by media exposure, since the more exposure the more incorrect theorists become, having to spend so much time defending and selling their ideas to an America that likes absolute opinions delivered with absolutely certainty.

Cheers to you, and hoping you stay smart, like a fox.

Financial Reform

2010-01-31T06:22:00.000-05:00

This morning, I read Volcker's editorial in the NY Times, and with the reforms he thinks of putting in place - he advocates more control over banks than most of those with any say - the banks "would be free to to innovate, to trade, to speculate, to manage private pools of capital...". My sense is that trading can't go backwards, and that the use derivatives and securitization will continue unabated, albeit correlated with ups and downs in market activity.

Near-Term Changes in Finance

2010-01-30T07:56:00.001-05:00

- Even if an equivalent of Glass-Steagall was put in place, little would change, since the money would simply move to hedge funds and private equity firms. A driver for many of the changes was an increasing unequal society, and there is little chance of it becoming more equitable any times soon.

- I assumed that Obama's policies would be 'Better-Same' than Republicans, meaning generally better for people, but with the same entrenched interests. His presidency will not change very much in the US political landscape, and the same corporate interests will be served, for the most part unabated, including finance.

- Being in banking technology, the only significant changes in banking I've seen, and these are not transformative, are algorithmic trading and an intensification of risk systems. One of the big change drivers in banking/finance is technology, such that more and more activities are handled electronically and by technology.

- The middle office, notably a morass of failed trades that need to be settled, and there are large numbers of them, is being moved offsite and overseas, as well as automated. As previously mentioned, the CTB/RTB division had as a component Six Sigma, looking for ways to prevent failed trades, largely by designing better systems. An obvious change likely to occur is the outsourcing of more jobs to Asia, and not just India, as well as to locations within the US, outside of New York.

- Geitner is from the same entrenched groups, and will possibly go to Goldman's after his tenure, and there is talk of him leaving soon.

A Response to Twilight of the Polymaths (NY Times)

2009-09-29T06:47:00.002-04:00

Since you are aware of the fox and hedgehog dichotomy, you might be aware of Tetlock’s book and long-term study showing how foxes best hedgehogs in political prediction, Expert Political Judgment: How Good Is It? How Can We Know?

Although depth in specialties has its merits, I can see how that depth also leads to a kind of blindness, a ‘man with a hammer’ problem, while polymaths, or people with broad awareness can sometimes pull together diverse facts to form insights that are not bound by one’s expertise.

Along the same lines, many insights in technology don’t come so much from depth, but by ‘cross-pollination’ of ideas, of taking the basic concepts of one specialty and applying them to a peripherally-related one.

The Illusion of Certainty

2009-09-13T07:30:00.005-04:00

This article goes to the point that the quants were part of the problem, which I don't disagree with, it's just how much they can be accountable for:

Wall Street’s Math Wizards Forgot a Few Variables

During the internet bubble, I read a book by a Yale professor, Schiller - he's had a company for the past few years that tracks the RE market - that was titled Irrational Exuberance. Schiller was credited with saying the markets had bubbled and would implode, and his academic analysis was based on market mania, behavioral economics. It was obviously true at the time, but I remember that a finance professor at Fordham didn't get around to reading it until 2 years later.

The problem with numbers, with quant analysis, I think, is the illusion of certainty that comes from mathematical analysis. It often gives a definite number to things that are somewhat fluid, like probability.

Iraq: Failed State or Fledgling Democracy?

2008-04-14T07:01:00.006-04:00

I have always been against the Iraq War, and marched in some of the earlier demonstrations around NY, but my thinking about the war has changed over time. I was always concerned about the number of people that the war would kill, although not military personnel, but the indirect casualties of war, primarily women and children. I never thought, although I have wondered, a strong viable democracy would emerge.

The disconnected and nonsensical justifications always wrung hollow, and were obvious falsities presented to justify war. What I thought the drivers, in retrospect, both wrong and right:

Oil
increase in military expenditures
Warped concepts of security
Hubris

Later, I thought a collusion of business interests pushed for war. Over time, the drivers for war seemed to be less long-term and the more immediate land, money, and power grab: the need to ingratiate the military and its contractors, to obligate the US to long-term presence, and to access the countries oil reserves, as well as to inflate oil's price.

Based on what I believe to be the real drivers, the following are the most relevant questions:

Will Iraq become a viable democracy?
Will the US setup permanent bases in Iraq?
Will the multinationals maintain access to Iraqi oil?

What to Consider....

2008-03-17T07:38:00.003-04:00

I'm certainly not an expert in world affairs, nor on economics, and I am wondering to myself about what one could try and make predictions:

Iran
North Korea
Recession/Depression
Election/Primary Outcomes
Effects of the war
Global Warming
Popular Movements

More for myself to consider...

Foregone Conclusion

2008-03-16T13:45:00.002-04:00

I haven't recently written here about the recession, but it seems like there is an seeming consensus that there will be, or currently is, a recession, and that it will long-lasting. No predictions on my part...

Former Elections

2008-02-15T06:45:00.004-05:00

In a post on another of my sites, a prediction of the 2004 election, I reprinted an email I sent to Brian Lehrer's show of my election prediction. I was wrong in multiple ways, not only because I was overly optimistic, hoping that American's would reject the Republican party, but also because I thought the turn away would be based on mass awareness of economic and social injustice.

Even if I had been correct, the turning away I predicted would have likely been based on more concrete and less lofty reasons, since it seems that the Republicans' fall from grace seems more based on their inability to win a war, not the humanitarian crisis of the war itself.

Recession Redux

2008-02-09T09:58:00.000-05:00

The Bloomberg website recently posted an article stating that economists gave the likelihood of a recession at .50, which made me think, since economists are thought to overpredict recessions, that I should lower the likelihood of a recession to .40.

Along the same lines, experts will tend to overpredict the likelihood of a positive or negative change, and conversely underpredict the likelihood of no change,

Some Simple Guesses...

2008-02-08T07:26:00.000-05:00

Before creating this site, I had searched for a site that I had used that allowed individuals to predict the likelihood of numerous events, and would provide a 'wisdom of crowds' calculations. When I first signed up, and put in predictions on the likelihood for (1) proof of God and (2) the US attacking Korea, both of which I place at .02 and .10, respectively. No great feat to get these correct though although the Korean estimate might change if Kim-Jong Il falls; I've read that the US and China are making plans to rush in and take over.

A pressing concern for myself and the much of the US population is the likelihood of a recession. With so much negativity in the business world, subprime fiascos, potential monoline failures, the war in Iraq, increasing consumer defaults/bankruptcies, and a reduction in consumer spending portends a recession. I don't know whether there is much of an upside, other than increased exports because of the weak US dollar. I'd give the likelihood of a recession .60 with a general belief that it started in this quarter, 2008 Q1.

Potential Topics

2008-02-07T17:05:00.000-05:00

As for topics, the following are the most immediate:

Likelihood of a US recession
Likelihood of an international recession and/or impact
Democratic primary winner (between Obama and Hillary)
Republican primary winner (it seems forgone that it will be McCain)
Military action against Iran
Military action against Korea

There are many other potential ideas or topics, centered around national and international politics, as well as economic outcomes, and I will aim to take shots at interesting and complex questions, not just the easy ones.

Raison d'Etre (Reason for Being)

2008-02-07T09:46:00.000-05:00

I recently picked up Philip Tetlock's Expert Political Judgment, an insightful analysis of expert opinion. Although there are many factors that might distinguish experts in the ability to predict outcomes, liberal versus conservative, intellectual depth and education, source material, etc., Tetlock found that the best predictor of forecasting accuracy was thinking like a fox, as opposed to the hedgehog, ala Isaiah Singer's essay. Fox thinking is nuanced and composed of many different themes, often conflicting, while hedgehogs tend to believe in one big, overarching idea.

This site, and my expected use, is to document my own failures and successes in predicting political and economic futures. The title, Elephant's Memory, alludes to the fox-like tendency, maybe even need, to remember one's own flawed predictions and adjust future reasoning accordingly.