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Evil finance should contribute to open source
This is a guest post from an friend who wishes to remain anonymous.
I’ve been thinking lately that a great way for “evil finance” to partially atone for its sins is to pay a lot of money to improve open source libraries like numpy/scipy/R. They could appeal to the whole “this helps cancer research” theme, which I honestly believe is true to some extent. For example, if BigData programs ran 10% faster because of various improvements, and you think there’s any value to current medical research, and the cancer researchers use the tools, then that’s great and it’s also great PR.
To some extent I think places like Google get some good publicity here (I personally think of them as contributing to open source, not sure how true it really is), and it seems like Goldman and others could and should do this as well — some sliver of their rent collection goes into making everybody’s analysis run faster and some of that leads to really important research results.
Personally I think it’s true even now; Intel has been working for years on faster chips, partially to help price crazy derivatives but it indirectly makes everybody’s iPhone a little cheaper. Contributing directly to open source seems like a direct way to improve the world and somewhat honestly claim credit, while getting huge benefit.
And it simultaneously has nice capitalist and socialist components, so who wouldn’t be happy?
There are actual problems banks care about solving faster, a lot of which uses pretty general purpose open source libraries, and then there are the maintainers of open source libraries doing this nice altruistic thing but I’m sure could do even better if only they didn’t have a “day job” or whatever.
And if the banks don’t want to give away too much information, they can just make sure to emphasise the general nature of whatever they help fund.
Privacy concerns
The theme of the day yesterday here at the IMA in Minnesota was privacy. There was a talk on privacy and information as well as a discussion later in the afternoon with the participants.
The talk, given by Vitaly Shmatikov, was pretty bad news for anyone who is still hoping to keep private info out of the hands of random internet trolls. Vitaly explained how de-identifying data is a relatively hopeless task, at least if you want to retain useful information in the data, because of the sparseness of most human data.
An example he gave was that the average Netflix user rates 200 films but can be identified on just 4 ratings, at least if you include timestamps. He also pointed out that, even though Netflix doesn’t directly expose its users’ movie preferences, you can infer quite a bit just by looking at how recommendations by Netflix (of the form “people who like House also like Friends”) evolve over time.
And never mind Facebook or other social media, which he explained people can crawl directly and infer the graph structure of; even without any labels for the nodes, which refer to people, one can infer an outrageous amount if you have a separate, labeled graph with overlap on the first.
Conclusion: when people think they’ve de-identified data they haven’t, because other people can collect lots of such data sets, and on top of that some small amount of partial private, identified information about individual users, and piece it together to get creep amounts of stuff.
An example I heard later that day is that someone has figured out how to take pictures of people and give them a large part of their social security number.
The conversation later that day focused more on how companies should protect their client data (through a de-indentifying algorithm), and how for the most part they do absolutely nothing right now. This is perhaps because the problem “isn’t solved” so people don’t see the reason to do something that’s not a perfect solution even though some basic procedures would make it a lot harder. My suspicion is that if they do nothing they are betting they’re more protected from litigation than if they do something that turns out to be too weak. Call me a skeptic but it’s always about litigation.
My contribution to both the talk and the conversation was this: why don’t we stop worrying about data getting out, since it’s kind of a done deal (no data ever disappears and our algorithms are only getting better). Why don’t we assume that all historical information about everyone is out there.
So, besides how to get into my bank account (I haven’t sorted that one out yet, maybe I’ll just have to carry all my money in physical form) I’ll assume everyone knows everything about me, including my DNA.
Then the question becomes, how can we live in a reasonable world given that? How can we, for example, prevent private insurance companies from looking up someone’s DNA or HIV status in order to deny coverage?
This is not an idle concern. As someone pointed out yesterday, 15 years ago nobody would have believed someone who described how much information about the average Facebook user is available now. We have no idea what it will look like in another 15 years.
To my Libertarian friends
First, I’d like to say thank you to the people who have been writing me very nice comments about the PBS Frontline special. It’s cool that people dug it, and it makes me really glad I did it. Thanks!
Second, I had a blast with Reno the other night doing her “Money Talks” show. You should definitely check her out soon.
Also, I’m on my way to the third day of a modeling conference at the IMA (which is part of the University of Minnesota) called User-Centered Modeling. I’ll be speaking tomorrow and I expect to be blogging quite a bit on the other talks between now and Friday.
And with that, I’d like to use the rest of my GoGo Inflight Internet service to start a conversation about the libertarian mindset.
By the way, in spite of my annoyingly opinionated personality, I actually love having friends I disagree with. It feels much more comfortable to be around people who give me friction and challenge my opinions than to be around people who all think similarly to me.
Why? Because it’s a lot easier to spot other people’s hypocrisies than it is to spot one’s own hypocrisies. So if I’m around people who agree with me, we are all very likely being totally blind to something obviously flawed in our mindset, but nobody’s there to point it out.
With that in mind, I really do want this to be a conversation about why libertarians think the way they do- so please comment if you have something to say (and feel free to tell me not to post your comment). I’ll start with what I see as an hypocrisy of the libertarian perspective.
Namely, the cry I hear over and over from the libertarian in the room (whichever one happens to be there) is that big government and welfare and socialized programs are helping people out who should be able to make shit work on their own, whereas they never asked anyone for any help.
This myth of the “pulled myself up by the bootstrap” kind of drives me nuts. It’s like they completely ignore the system in which they lived and (usually) thrived, and how advantaged they are in that system.
When people go into that riff where they talk about how they never owe anybody any money, and they put themselves through college and don’t see why they should feel bad for the students nowadays who owe a collective $1,000,000,000,000 in student loans because they managed to be successful without extra help, here’s what I ask them: do you think you could have been as successful as you are if you’d been born a female subsistence farmer in Africa?
That’s kind of an easy one (and I go from there) but what it does it contextualize the idea of what it means to not ask for help. Namely, when you have a good infrastructure set up with a good education, available health care, etc, then you don’t need to ask for help, because you can help yourself. But it doesn’t mean you’re doing it all by yourself!
So, if you were born into an honest family with a good work ethic and strong skills and intelligence, then yes it’s possible to work really hard and do well, and I’m always proud of people who work really hard and do well, but it needs to be understood that anyone who is a success in our culture is a success partly because our culture allows for such success – and then there’s the individual contribution component which is much much much smaller.
Did you ever notice in the Ayn Rand novel that there aren’t any kids in them? Or for that matter any disabled people, old people, or sick people? It’s a grownup world where you’re either brilliant and yearn to be free from the shackles of petty people trying to repress your innovation, or you’re one of those petty people.
But actually our world isn’t like that at all. We have a community of humans, and like it or not we each contribute to our culture and do our part in defining success or failure.
I always like to point out that I hate laziness, and I have no patience for laziness. It’s a distraction to talk about how lazy whiny entitled kids expect us to pay for their college and then also expect to be given a cushy job afterwards (because libertarians tend to start talking about such symbols of what is wrong with social programs).
Even if there are examples of such people, there are plenty of other examples of people who genuinely worked hard but needed to take out lots of loans and didn’t understand their terms and now are desperately looking for work but can’t find anything. If the conversation is going well I’ll even talk about how if, as a culture, we are raising a generation of entitled kids (which is an exaggeration), then maybe it’s our fault and not the kids’ fault. Because it is.
How are you a narcissist?
A few months ago I took a narcissist test on Oprah’s website (see here). I scored exactly average overall, meaning I’m not a narcissist, or rather I’m exactly in the middle for the population for the narcissistic traits, but if I looked at the actual categories I didn’t score average in each category.
In particular, I maxed out in the categories “Authority” and “Exhibitionism” but scored quite low on “Vanity,” “Exploitativeness,” and “Entitlement”.
I think about says it all for why I blog. It’s because I love you all so much and want the world to be a better place, and I know exactly how it should be and I seriously need you guys to listen to me.
Performing tomorrow night with Reno
I’ll be in the Lower East Side tomorrow night, at the Dixon Place Lounge, talking finance with Reno, who some of you may know. Here’s more info:
The meritocracy myth
Jack and Larry
Recently a Wall Street Journal article described what I’ll call a “Larry Summers” moment for women in business. Namely, Jack Welch, the former CEO of General Electric, spoke to a bunch of women about how if they work hard enough they’ll be appreciated and get ahead. From the article:
He had this advice for women who want to get ahead: Grab tough assignments to prove yourself, get line experience, and embrace serious performance reviews and the coaching inherent in them.
“Without a rigorous appraisal system, without you knowing where you stand…and how you can improve, none of these ‘help’ programs that were up there are going to be worth much to you,” he said. Mr. Welch said later that the appraisal “is the best way to attack bias” because the facts go into the document, which both parties have to sign.
Just as in the case of Larry Summer’s now-famous 2005 speech about women in science and math, a bunch of women left Welch’s talk in frustration.
There is no such thing as a meritocracy
Having been in academic mathematics and a quant in a hedge fund, I’d guess I’ve experienced what comes closest in many people’s minds as the closest to a meritocratic system. But my experience is that it’s anything but, even in these highly quantitative settings.
Instead, as it probably is everywhere, the job environment is a huge social game where it matters, a lot, what kind of priorities you demonstrate and what kind of other signals you give off or respond to. We don’t expect people to play golf and smoke cigars in academia but caring about teaching, or worse, getting a teaching award, can be the kiss of death.
I’m not saying that your personal efforts don’t matter at all, because they do, and you do need to produce stuff, and at a certain rate, but even “personal efforts” are first of all received in the context of a social order (i.e. the perceived importance of your efforts at the very least is a social invention), and second of all they’re are not really personal – one frames the questions one answers with the help of the community, so it’s important you have a good connection and social acceptance in that community (i.e. access to the experts).
Business in more generality is even less meritocratic- there’s a specific requirement that you must “play well with others,” which is absent from academics (mercifully). This means that instead of being an implicit social game, it’s been made very explicit. This is where people promote their work, take credit for others’ work, learn to say what people want to hear, etc. The performance review is a circle-jerk event for such empty-headed manipulations, which makes it particularly ironic that Welch suggested women take the criticism in an appraisal so seriously.
In my experience, it is unbelievably useful for these social games to have an alpha personality, which just kind of means you assume you’re in charge even when it’s not explicitly a situation where someone’s in charge. People respond to such personalities on a chemical level and there’s really nothing a so-called meritocratic system can do about that.
In other words, I’m not holding my breath for a truly meritocratic system. It’s just not what humans evolved for. Let’s acknowledge that and work on how to make the system responsive to good ideas anyway (whatever the system is).
Successful people want to believe that there is such a thing as meritocracy
This begs the question, why do people like Jack Welch and Larry Summers hold on so tight to the myth of meritocracy? My theory is that it serves a two-fold goal: as advertisement for new people and as a validation of the winners in the system.
People want to feel like they are entering a level playing field then the best thing you can do is advertise it as a meritocracy, because it’s human nature to think that you’re better than average. So everyone wants to enter such a field, assuming they will rise to the top.
At the same time, the `winners’ of the social game want desperately to think they did amazing stuff in order to be so successful. They hold on to the myth of meritocracy as a religious belief, and it is pure dogma by the time they reach upper management. This plays into another part of human nature where we discount luck and the infrastructure that led to our success and take it as a sign of our personal choices. Lots of people in finance in general suffer from this diseased mindset but actually anyone who is high enough up in their respective `meritocratic system’ does too.
That’s my simple explanation for why these guys can go in front of a bunch of women and be so unbelievably tone-deaf. They are true believers, because their entire egos are built on this belief, and it doesn’t matter how much counter-evidence is presented to them, even in the form of humans in the room with them.
One last thought. If I saw people leaving a room in disgust when I was giving a talk, I imagine I’d be slightly aghast- I might even pause and ask them what’s wrong. But I guess that’s because I’m not alpha enough.
Being a single mom is not a crime
I’m reading a book called “The Righteous Mind: Why Good People Are Divided by Politics and Religion” which explains how people first make moral decisions, then use their brains to argue those decisions.
It also promises to explain how you can actually change people’s minds, so I’m looking forward to that.
My goal of reading this is to understand how good, moral people can really believe some things that seem just so outrageous and illogical to me. I want to know when it makes sense to have a difficult conversation and how to approach it. I’ll tell you how that goes.
But every now and then I lose faith in the idea that those outrageous ideas come from an earnestly moral place. And one example came from my son, who is 12.
If you have a 12-year-old, or if you’ve ever been a 12-year-old, you may remember that they speak somewhat hyperbolically. So when mine told me there’s someone in Wisconsin making it illegal to be a single parent, I thought he was making it up.
But then he found this article for me. I was dumbfounded, and he said I’d have to blog about it since he was right and I was wrong. So here I am.
This just seems so so ass backwards on so so many levels, especially when you think about how it would go down if it became law. Do we get the fathers in trouble too? What if we don’t know who the father is? Do we make it illegal to have unprotected sex in the first place with someone you aren’t married to?
Beyond the crazy idea of where this would stop, I always get upset when I see vulnerable people further abused. If this guy can make a case that kids of single moms are more at risk for various things, why not take that as a cue to give them more support (rather than punishing them)?
Great news for NYC dataphiles: Microsoft Research is coming to NYC
This is a guest post by Chris Wiggins.
I was happy to see the news this morning that Microsoft is opening a new research lab in NYC, with 15 of the former members of the Yahoo R+D NYC lab as its founding members.
The Yahoo group is one of the most multidisciplinary research teams I’ve ever seen, with great research collaborations among physicists, machine learning experts, applied mathematicians, and social science, all learning about human behavior by analyzing web-scale datasets.
They have also managed to show how a research lab can make great contribution both to the local and international research communities in their field. For example, Jake Hofman at Yahoo has been teaching a great ‘Data Driven Modeling’ class at Columbia for years; John Langford has been a co-organizer of the New York Academy of Sciences’ one-day Machine Learning Symposium since it was founded (while also organizing international machine learning conferences, running a great machine learning blog, etc…)
Some particularly exciting aspects from the announcement include:
- Mathematical physicist Jennifer Chayes seems to be implying she’ll be spending at least part of her time here in NYC rather than her current home of MSR-Cambridge
- Multiple people in the story said they’re interested in ties with startups and universities, which should be good for the intellectual landscape of NYC dataphiles.
Congrats to all and to NYC!
Occupy Data!
My friend Suresh and I are thinking of starting a new working group for Occupy Wall Street, a kind of data science quant group.
One of his ideas: creating a value-added model for police in New York, just to demonstrate how dumb whole idea is. How many arrests above expected did each cop perform? [Related: you will be arrested if you bring a sharpie to the Bank of America Shareholder’s meeting in Charlotte!]
It’s going to be tough considering the fact that the crime reports are not publicly available. I guess we’d have to do it using Question, Stop, and Frisk data somehow. Maybe it could actually be useful and could highlight the most dangerous places to walk in the city.
Or I was thinking we could create a value-added model for campaign contributions, something like trying to measure how much influence you actually buy with your money (beyond the expected). It answers the age-old question, which super-PACs give you the best bang for your buck?
Please tell me if you can think of other good modeling ideas! Feel free to include non-ironic modeling ideas.
The student debt crisis
A few weeks ago I wrote about the higher education bubble that I saw at the individual level. This is the idea that, for a given student trying to decide whether or not to take on more loans to go to school, it’s essentially a no-brainer; it’s a cultural given that a college education pays off, statistically speaking, even if in a specific case it doesn’t.
As always, however, the situation at the individual level (a student going into debt) is informed by the overall system. Today I want to write a bit more about how this system got so out of whack.
I’ll actually write about a series of theories of mine, so please tell me if you think I’ve got the facts wrong. I don’t want to claim these are new ideas, but rather a storytelling version of a common understanding of how this all went down. In this case, it’s a story about money and perceived risk, no too dissimilar from the housing crisis.
Before I get into the details of the theory, let me throw in that the Ivy Leagues like Harvard and Princeton have always been super expensive, but that’s part and parcel of their brand. It’s actually intentional, they wouldn’t have it any other way, because part of being elite is being out of control expensive (although it needs to be said that their financial aid to poor kids is exemplary). In other words, I don’t think my theory is going to work on super elite colleges, but that’s fine because most people don’t attend those colleges.
And college always cost some money, although some state schools were really quite reasonable back in the day. It’s just a question of how long after college someone would have to wait or work before their student debts would be gone so they could move on with their lives and think about buying a house (more on that connection below).
Okay, with those disclaimers, let me get started. Namely, it’s all about bankruptcy laws. I know that sounds unbelievable, but it’s really true. From Justin Pope:
Until 1976, all education loans were dischargeable in bankruptcy. That year Congress began requiring borrowers to wait at least five years before they could discharge federal student loans. Since 1998, borrowers have been unable ever to discharge federal student loans, and in 2005 the then-Republican-controlled Congress made private loans almost impossible to discharge.
Why does this matter?
Because it meant that people lending to students wouldn’t need to worry about getting their money back. That sets up a perverse system where young people who are not creditworthy can take on piles of debt.
On the one hand, it’s good for students to be able to finance their education- you wouldn’t want young poor kids to not attend colleges at all for want of enough funding.
On the other hand, it meant that the tuition and fees could essentially rise without pause, since there was nothing to force them back- no supply vs. demand situation.
This is especially true because students aren’t told and do not generally “shop around” for a good deal in college, and moreover colleges are incredibly underhanded about making their tuition and fees clear (I am giving the CFPB about 3 more months to force them to present packages in a standard form before I really start complaining).
Another example: Pell Grants. These are grants given to poor kids to go to college, and they aren’t loans – the government pays them straight to the college. But the colleges have not really made it easier for kids to go to college because of this free money, but rather have raised their tuitions by the amount of the expected Pell Grant. Some colleges are better at getting Pell Grant money than others, and in particular for-profit colleges get 7 out of 10 such grants.
[Speaking of for-profit colleges, how are they allowed to exist? They are the worst of the worst and in particular have outrageous practices in terms of disclosing fees and tuitions, giving commissions to financial aid officers who then urge students to lie on their financial aid forms. Not to mention providing questionable educations.]
I hope it’s not too hard now to understand why student debt has just surpassed $1,000,000,000,000 in this country, ahead of credit cards. On the banker side of the room, these student debts are being bundled up and securitized and sold to investors just like old mortgage-backed securities (which, as you recall, couldn’t fail because the housing market always goes up) who are being told there’s very little risk since students can’t discharge student debt through bankruptcy. There’s a strong analogy with the previous housing bubble and the current education bubble: even ignoring the individual’s goal of becoming an educated citizen and qualified worker, there’s the demand side from the banking system itself which feeds on the fees of securitized products that seem riskless.
But the cost to those individual borrowers is heavy; we have a system whereby young people are being saddled with enormous and unreasonable debt in order to even qualify as a worker, and they are carrying it around like a noose. It is, for example, one thing preventing the housing market from recovering, because the generation of young people who should be buying a house right now is instead still trying to pay off student loans.
What should we do about this?
First of all, let’s focus on the culture of education and how we think about it. Is it a certification process that people should pay for? Or is it a part of what we offer our citizens as their right?
If the latter, it’s time we rethink why state schools should exist, and fund them accordingly, rather than removing more and more funding while expecting them to uphold their state-school mandates. I went to UC Berkeley in the early 1990’s and it was completely awesome, but it’s getting more and more squeezed by the state of California, which is forcing it to choose between becoming a bad school and becoming a private institution. And yes, that means taxpayer money going towards the investment of broad education rather than to banker bailouts.
Second of all, let’s rethink the bankruptcy laws. At the very least for private student debt. For public student debt it also needs to be negotiable in certain circumstances. We need to get the colleges themselves to lower their fees enough that the debt loads are tolerable.
Finally, let’s rethink how much to expect someone to pay down their debt depending on their salary. From Bloomberg:
The second crucial step is to mitigate the burdens of already distressed borrowers. The Obama administration has made progress, for instance by proposing an initiative that would let some students limit their loan repayments to 10 percent of their discretionary incomes next year and would forgive balances after two decades. Private lenders should be given incentives to offer more modifications and flexible payment options.
Yes, this means that some of those securitized student debt loans will default, just like mortgages. And that will mean that already undercapitalized banks will be even more so, because they’ve been taking risky bets yet again, and Sallie Mae will be up Shit’s Creek. But the alternative, of a continuing debt trap for young people, is an even worse alternative.
It’s May Day!
I’m leaving work early today to join the May Day Celebration with Occupy (May Day playlist here).
Bloomberg knows about it, and so does the Wall Street Journal, and if you do a search on the New York Times you can even find something there.
I’ll be participating in the Free University today, talking about “Weapons of Math Destruction” from 2-3 in Madison Square Park, and then meeting my kids there after school for a march down to Union Square with the signs we made in Alt Banking on Sunday. Woohoo!
Oh, and the PBS Frontline special on politics, banks, and Occupy that I’m in (Episodes 3 and 4) airs on PBS tonight at 10pm. Please watch it and tell me what you think, or watch it online here tomorrow, because I made a deal with myself that I’d do it as honestly as I could but never watch it myself. There are outtakes here from my interview that I consider unwatchable as well but people seem to like.
mathbabe 