There are a few parts of my brain that are missing. I know this not because I used to have them, because I didn’t, but because of how other people refer to their own feelings and thoughts, which I simply can’t relate to or sometimes even decipher.
One of them is the part of the brain that enjoys art. I already explained how I don’t like or understand paintings. I just don’t get why people look at art. The closest I can get to enjoying art is photography, and then usually I only like naked photos. But at that point I don’t think it’s liking it for the artistic part exactly.
Here’s another confession. I don’t have a regret center in my brain. I am someone who regrets nothing. I mean, every now and then I certainly realize I made a mistake, and I do experience an “oh shit!” feeling that I made that mistake. Like, I’ll get in the wrong line at a check-out counter and the other line will go faster (“oh shit!”). But that doesn’t seem to compare with other people’s concept of regret.
Here’s how I argue that nobody should experience regret. Let’s assume you a regret decision you’ve made, that you later believe you should have made differently. But when you’re faced with a choice, there are things you can control and things you can’t. There are things you know and things you don’t. There are consequences that you can measure and those you can’t. You do the best you can with the information you have when you make your decision. Then it’s done. What’s to regret? If you went back to that place and that time, knowing what you knew then, and being that person you were then, you’d do the same thing. It’s kind of a tautology, but it’s convincing to me.
Maybe you are mourning for not being a person who could have made a different, better choice? Even so, (I’d suggest), don’t be regretful about that, but rather try now to become someone who would make the right decision next time.
What is the utility of a regret? Does it help us do better next time? I’m all for learning from mistakes, but I don’t see why it should be such a negative process. Maybe I learn more slowly from my mistakes because I don’t have regretful feelings.
On the other hand, from my observation of this alien emotion, I’d argue that the fear of having future regrets is more of a problem than the possible mistakes people actually make. That fear seems pretty unpleasant and it seems to cloud people’s decisions: they end up experimenting less and taking fewer risks.
Am I missing something? Since I can’t understand regretting, I probable am, so please explain it to me.
I recently got annoyed by this New York Times “Bitz” blog, written by Somini Sengupta, about paying for privacy. It correctly pointed out that we get services on the web that seem `free’ to us, but there is an actual price which we pay, namely we are targets of ads and are sometimes forced to hand over personal information. Moreover, when we use `free’ services such as sending invitations to a party, we are subjecting all of our friends to advertising as well. From the post:
It was a perfect microcosm of the bargain we make with the Web every day. Send me ads based on what you know about me (bachelorette party vs. child’s birthday party) or take my money to keep my screen free of ads. That bargain was the topic of a fascinating study that asked how much we are willing to pay to keep our personal data to ourselves.
The article then explained the recent study. Namely, it seems that Germans aren’t willing to pay an extra 50 Euro cents for movie tickets to avoid giving out their cells numbers, but they do claim to care about personal information gathering. If there was no price difference they wanted the less intrusive version. The author seemed to think this is a paradox.
What? That’s kind of like me saying, I like better quality chocolate, but I’m not willing to pay $400 per serving for better chocolate, and then you say I’m a hypocrite and must not like chocolate.
The fact is, it’s all about the price. It’s always all about the price. There is no way, absolutely no way, that a cell phone number, reluctantly given in a situation such as for buying movie tickets, is worth 50 Euro cents to the company collecting the number. Therefore there’s no way you should have to pay that much to avoid giving it.
Here’s another example the blog gave, when explaining sending out a dozen web-based invitations to a party:
Faced with the choice of paying an extra $10 to keep my invitation advertisement-free, I dithered. It would be easy and inexpensive, I thought, to follow Wikipedia’s lead on this (the online encyclopedia is stubbornly ad-free). But then I thought about that little risk that accompanies the ease of digital consumption: Would my credit card information be safe with this online greeting card company? The worrywart in me won out. I did not pay the extra $10. I chose to lob advertisements at my friends.
I’m in internet advertising, and I can tell you right now that a very generous estimate of how much each opportunity to advertise for your guests on an invitation, and presumably the original email and anything you’d click on in receiving the invitation, could be worth up to 10 cents, max. That is to say, the offer of keeping your invitations advertisement free for $10 is an approximately 10x markup, and you’d be a fool to pay that much for something worth so little on the open market.
So here’s what drives me crazy. It’s not that people aren’t willing to pay for privacy. They are. They’re just not willing to overpay by an outrageous amount for privacy. Far from seeming like a paradox, this seems like good intuition for a market price. If there is a web-based company that offers to send out advertisement-free invitations for a dime per guest, I think about my friends and I say, yeah they’re worth a dime each (but actually I just send them an email to come to my party).
Consumers don’t (yet) actually have access to the market price of privacy- that market is dominated for now by large-scale institutional collectors of information, which is why we’re seeing outrageous markups like these for individuals. It will be interesting to see how that changes.
Sometimes I imagine what my life would have been life if I’d been born way earlier, like in 1850. Knowing how difficult it was back then to be a female mathematician, and not wanting to assume some special property like I was born royalty or otherwise incredibly rich, I usually settle on something like a farmer’s life, with 7 kids and a butter churn, Little-House-on-the-Prairie style. To satisfy my nerdy urges I imagine myself knitting difficult patterns and formally organizing the community’s crop rotations.
I really don’t have much insight into what it must have been like back then, but even a short thought experiment like this helps me appreciate the story of Sofia Kovalevskaya, who was indeed born in Moscow in 1850 and unbelievably contributed majorly to mathematics, even though (hat tip Robert Lipshitz):
- it was illegal to go to university in Russia at the time so she had a faux marriage in order to get permission from her husband to go abroad to study,
- got a Ph.D. in Berlin studying under some famous men (Helmholtz, Kirchhoff and Bunsen in Heidelberg, Weirstrass), becoming the first woman in Europe to ever get hold the degree,
- after which time nobody in Germany would let her work so she did various jobs including installing streetlamps,
- and finally managed to get some kind of weird position in Sweden (here‘s a more complete bio).
Did I mention that she eventually had a kid with her husband and then died at the age of 41 from the flu?
I’d really love to go back in time for a day, find Sweden, and buy that amazing woman a drink (and I’d try to arrange to slip some antibiotics into said drink).
Today we are celebrating Sonia at Barnard College (here’s the schedule), where for the nth time (where n is at least 5) we’re having a Sonia Kovalevsky Day with a crowd of young women mathematicians, 9th graders from the Urban Assembly Institute of Math & Science for Young Women, will come and enjoy math talks from Barnard and Columbia professors and then engage in a team competition (with their teachers, which is my favorite part) to see who will win incredibly small prizes but for which they will all scream their heads off for 2 hours. It’s fun!
I started this tradition when I was a Barnard math professor back in 2006 with my friend Kiri Soares who runs the UA Institute, and that fact that it’s still going makes me very happy. Every time I go I try to teach the students how to solve the Rubiks cube using a few tricks which stem from group theory. It’s fun to do and they all get to take home their cubes, along with other math toys and goodies. Mmmm… math toys.
Yesterday there was a Bloomberg article that explained how badly students understand their student debt. It occurred to me reading this, and not for the first time, that students are really the perfect choice of victim for the educational financing machine: they are typically naive about money, and a combination of incredibly hopeful and incredibly thoughtless about their futures – if they think about the future at all, they project themselves to be as successful as some chosen role model, against all odds. I was lucky enough to go to a state school which my parents could afford and were willing to pay for, graduating in 1994, but looking back I would have signed away on whatever dotted lines if I’d been asked.
Students don’t think to shop around for a better deal, or even bother to understand the deal they’re in. What’s the incentive for good deals in these circumstances?
More generally, the existence and price of college itself is a perfect trap for students. It’s been a growing assumption in the past few decades that one needs a college education to get a good job, and certainly in a poor job market like the one right now that is certainly true. And yet, the student debt load is increasing faster than the opportunities higher education provides.
We are just now finally seeing a “market reaction” to the outrageous costs and relatively meager returns on law school education. For example see this recent New York Times article, which I found through Naked Capitalism (and which also gave me the title for this post).
My mother and I were recently talking about Occupy Wall Street protesters and student debt. She’s been a professor in computer science for more than 40 years, and explained how she sees it:
Academia expands for students and gets subsidized by all the loans to them, without regard to what the society actually can accommodate.
So not only are students fed the line that they have to go to college, no matter the cost, and whatever the resulting debt, but they then go to college and end up with majors and/or knowledge that is actually not needed or useful to them or anybody else when they graduate.
In a given individual situation, you can always sort of blame the choice someone makes- why did you major in that at that over-priced college with that outrageous private loan? Did you really think you’d be a hot item on the job market?
But when you step back and look at this system, it’s maddening. We are essentially forcing, as a rite of passage to adulthood, each generation of our young people to go through a process which leaves them with ever more questionable skills and saddles them with an ever-increasing debt burden. When you add to this that fewer and fewer jobs are willing to train people while paying them, the advantage that a wealthy young person gets from having no debt and being able to intern for free means this system is also increasing inequality.
I understand that professors don’t like to think of their departments as businesses, and I am not someone who wants to corporatize academics in the sense of wanting departments to prove their business models by producing revenue streams or winning grants just to stay alive. But at the same time we’ve got to do a better job with this overall and help give our younger people a better chance.
Update: apropos article from Bloomberg just published here.
The original goal of my blog, or at least one of them, was to expose the inner workings of modeling, so that more people could use these powerful techniques for stuff other than trying to skim money off of pension funds.
Sometimes models are really complicated and seem almost like magic, so part of my blog is devoted to demystifying modeling, and explaining the underlying methods and reasoning. Even simple sounding models, like seasonal adjustments (see my posts here and here), can involve modeling choices that are tricky and can lead you to be mightily confused.
On the other hand, sometimes there are “models” which are actually fraudulent, in that they are not based on data or mathematics or statistics at all- they are pure politics. Supply-side economics is a good example of this.
First, the alleged model. Then, why I think it’s actually a poser model. Then, why I think it’s still alive. Finally, conclusions.
At its most basic level, supply-side economics is the theory that raising taxes will stifle growth so much that the tax hike will be counterproductive. To be fair, the underlying theory just says that, once tax rates are sufficiently high, the previous sentence is valid. But the people who actually refer to supply-side economics always assume we are already well withing this range.
To phrase it another way, the argument is that tax cuts will “pay for themselves” by freeing up money to go towards growth rather than the government. That extra growth will then result in more taxes taken in, albeit at the lower rate.
Now, as we’ve states this above, it does sound like a model. In other words, if we could model our tax system and economy well enough, and then change the tax rate by epsilon, we could see whether growth grows sufficiently that our tax revenue, i.e. the amount of money that the government takes in with the lower tax rate, is actually bigger. The problem is, both our tax system and economy are way too complicated to directly model.
Let’s talk abstractly, if it’s the best we can do. If tax rates (which are assumed flat, so not progressive) are at either 0% or at 100%, the government isn’t collecting any money: none at 0% because in that case the government isn’t even trying to collect money, and none at 100% because at that level nobody would bother to work (which is an assumption in itself).
On the other hand, at 35% we clearly do collect some money. Therefore, assuming continuity, there’s some point between 0% and 100% which maximizes revenue (note the reference to the Extreme Value Theorem from calculus). Let’s call this the critical point. This is illustrated using something called the Laffer Curve. Now assume we’re above that critical point. Then raising taxes actually decreases revenue, or conversely lowering taxes pays for itself.
Supply-side economics is not a model
Let me introduce some problems with this theory:
- We don’t have flat taxes. In fact our taxes are progressive. This is really important and the theory simply doesn’t address it.
- The idea of a 100% tax rate is mathematically flawed, because it may well be a singular point. We should instead consider how people would behave as we approach 100% taxation from below. For example, I can imagine that at 90% taxation, people would be perfectly happy to work hard, especially if their healthcare, education, housing, and food were taken care of for them. Same for 99% taxation. I do think people want some power over their money, so it makes more sense to think about taxation approaching 100% than it does to imagine it at 100%. Another way of saying this is that the critical point may be at 97%, and the just plummets after that or does something crazy.
- It of course does depend on what the government is doing with all that money. If it’s just a series of Congressional bickering sessions, then nobody wants to pay for that.
- The real problem is that we just don’t know where the critical point is, and it is essentially impossible to figure out given our progressive tax system and the enormous number of tax loopholes that exist and all the idiosyncratic economic noise going on everywhere all the time.
- The best we can do is try to figure out whether a given tax increase or decrease had a positive revenue effect or not on different subpopulations that for some reason are or are not left out, so what’s called a natural experiment. This New York Time article written by Christina Romer explains one such study and the conclusion is that raising taxes also raises revenue. From the article:
Where does this leave us? I can’t say marginal rates don’t matter at all. They have some impact on reported income, and it’s possible they have other effects through subtle channels not captured in the studies I’ve described. But the strong conclusion from available evidence is that their effects are small. This means policy makers should spend a lot less time worrying about the incentive effects of marginal rates and a lot more worrying about other tax issues.
- There are plenty of ways that natural experiments are biased (namely the subpopulations that are left out of tax hikes are always chosen very carefully by politicians), so I wouldn’t necessarily take these studies at face value either.
Supply-side economics is a political model, not a statistical model
In this recent Economix blog in the New York Times, Bruce Bartlett explains the history of supply-side economics and the real reason this flawed model is so popular. He explains an old essay of Jude Wanniski’s entitled “Taxes and a Two-Santa Theory,” which if you read it is an political, idiosyncratic argument for supply-side economics. Bartlett describes Wanniski’s essay thus:
Instead of worrying about the deficit, he (Wanniski) said, Republicans should just cut taxes and push for faster growth, which would make the debt more bearable.
Mr. Kristol, who was very well connected to Republican leaders, quickly saw the political virtue in Mr. Wanniski’s theory. In the introduction to his 1995 book, “Neoconservatism: The Autobiography of an Idea,” Mr. Kristol explained how it affected his thinking:
I was not certain of its economic merits but quickly saw its political possibilities. To refocus Republican conservative thought on the economics of growth rather than simply on the economics of stability seemed to me very promising. Republican economics was then in truth a dismal science, explaining to the populace, parent-like, why the good things in life that they wanted were all too expensive.
The Kristol quoted above is Irving Kristol, the “godfather of neoconservatism”. So he went on record saying that whatever the statistical merits of the supply-side theory were, it was awesome politics.
First, my conclusion is that Christina Romer should be ahead of Larry Summers on the short list to be the head of the World Bank. I mean, at least she’s trying to use actual data to figure this stuff out.
Second, I think there’s some lessons here to be learned about how people think and how they want to be convinced things work. When confronted with something they don’t like, like taxes, they are happy to believe a secondary effect, namely stifled growth, actually dominates a primary effect, namely tax revenue. It’s wishful thinking but it’s human nature.
My first question is, can Democrats come up with something along those lines too, which uses wishful thinking and fuzzy math to get what they want done? How about they come up with an economic model for how getting rid of big banker bonuses and terrible corporate governance will improve the economy, with a reference to a calculus theorem thrown in for authentification purposes?
My second question is, can we get to the point where people can figure out they are being manipulated by wishful thinking and fuzzy math with unnecessary references to calculus theorems? I know, wishful thinking.
I’m kind of into Greg Smith telling us that those guys at Goldman Sachs consider us all muppets, because the muppets fucking rock.
Depending on my mood, I’m either Miss Piggy or one of those guys in the balcony complaining about stuff.
I’m back from Amsterdam. Can I hear a “fuck yeah” for my guest blogger Becky while I was gone?
Lots of things to talk about, sausage wall-related and otherwise, but here’s what’s first.
After reading Karen Ho’s book Liquidated, which I blogged about here, it’s impossible not to understand Goldman Sachs and other investment banks recruitment plans as not coincidental but absolutely central to their overall business strategy of seeming elite and smart. That’s one reason Greg Smith’s resignation letter is so awesome: it erodes the brand of GS, and perhaps keeps young people from joining, cutting them off at the source.
This recent article from the New York Times discusses this issue and quotes both Karen Ho and my friend Chris Wiggins, which is cool because Chris told me about Karen’s book. From the article:
“Everything from Occupy Wall Street to larger critical discourses of ‘fat cats,’ all of that has had some trickle-down effect” to young people, said Karen Ho, an associate professor of anthropology at the University of Minnesota, who has studied the culture of Wall Street.
The decline in the finance industry’s allure has been accelerated by the explosion of the technology industry. A 2011 survey of 6,700 young professionals by the consulting firm Universum ranked Google, Apple and Facebook as the most coveted workplaces; JPMorgan Chase, the highest-ranking bank on the survey, was 41st.
This doesn’t really tell us much since i-banks only recruit at certain colleges, and we don’t know where the survey took place. Also, I’m hearing disappointingly large numbers of kids are currently planning to go into investment banking. However, I’m guessing that the numbers of students going into investment banking from Princeton and Harvard are going to go down about two or three years after Occupy started – these older students had already been brainwashed by the time Occupy got to them. More of the article:
At this year’s SXSW Interactive conference in Austin, Tex., a panel called “Keeping Kids off the Street: Wall St. vs. Start-ups” was convened to address questions including whether the finance industry was to blame for what organizers called a “failure to nurture a culture of innovation” in New York. Chris Wiggins, an associate professor of applied math at Columbia University who sat on the panel, said he was seeing students shy away from Wall Street and veer toward industries where they could work and profit without bringing their morality under the microscope.
“The claim of investment banking that it serves a social purpose by ‘lubricating capitalism’ has eroded,” Professor Wiggins said. “It’s simply very difficult for young people to believe that they’re serving any social purpose now.”
First of all, great quote from Chris.
Next, I have no problem trying to talk young people out of going into investment banking and into internet start-ups, because one industry is just too big and the other is enjoying explosive growth. But on the other hand, there’s plenty of reason to worry about the idea that ones morality isn’t under the microscope if one is engaged in highly scalable modeling that affects people’s lives. In fact that’s exactly what I’m worried about right nowadays.
By the way, I’ll be talking about the job of the quant in these two industries, as well as my related concerns, tonight at Emanuel Derman’s Financial Engineering Practitioner’s Seminar at 6pm at Columbia.