Foxes and Hedgehogs

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 associ...

..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.

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.

- 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 f...

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.

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.

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 we...