Hardly Rational

One would assume that individuals would endeavor to be rational and logical when making decisions, especially when the lives and fates of others lie in the balance. However, surprise surprise, this is not the case. Now you might be saying, "obviously Komma, this is nothing new, emotion tinges our decision making process!" and you would be right -- but there is more.

I am in the process of reading this article by Dan Simon and I just had to post. The idea is this: when making a decision humans do not (necessarily) follow the unidirectional flow of logical processes, from premises to conclusions etc; instead the process is *bidirectional* "premises and facts both determine conclusions and are affected by them in return".

Lets look at an example. In one experiment individuals were presented with 12 vignettes and a statement or two that could be inferred with the vignette. After reading the vignettes, the participants were asked to rate how well they agree with the 12 inferences.

Next, the participants were asked to play the role of a judge in a court case. They were then presented with 12 arguments, 6 from the prosecution and 6 from the defense -- the rub is, the vignettes and the arguments were _virtually_ identical. The facts of the case are complex, and strong arguments could be made for both the prosecution and the defense. After deciding a verdict, the participants were asked to rate how well they agreed with the arguments from each side.

Now logically, you would expect that the individuals would rate the arguments the same way they rated the vignettes -- however they didn't! There was a statistically significant difference in how a participant rated the same vignette/story from before/after the decision making process! For instance, if a participant judged for the prosecution, then the arguments for the prosecution would be rated higher than arguments for the defense, even though both vignettes would be rated about the same before hand.

Even more fun -- when participants were asked to recall their original ratings they incorrectly recalled ratings that matched their post-decision ratings. In all cases, deciding for the prosecution or the defense, the participants were highly confident of their decisions.

To make a long story short, Simon argues that for decision to be made "effectively and comfortably", individual must possess a "coherent" mental model -- one which there is strong support for the decision and weak support for the opposite decision. And when this isn't in the case, us humans go about and make it so :).

Now this paper is focused on legal decision making, but its clear to me that these types of effects seem to appear in all areas of society. I've always wondered why nearly every issue quickly becomes polarized (democrats vs. republicans, pro vs. anti abortion, pro vs. anti war; etc) and perhaps a coherence based theory of decision making can account for some of this tendency. As we make decisions, we start reducing our belief in the opposite's arguments, naturally leading us to a polarized state.

I don't know how to stop this, although Simon claims to have some ideas in mind for rectifying this situation in the context of juries, and perhaps we can't. Maybe we will just have to survive with a polarized society.

Liberty - Why Don't People Get It?

For a really really long time, I have been baffled as to why people don't believe in freedom - whether it is economic or social. It often seems like I'm speaking in a different language and people give me looks like I'm talking about a "utopia" that is not practical.

Since his op-ed in the WSJ on health care (thanks Rug!) I've been reading up on John Mackey. (This guy ROCKS! He is really the Ayn Rand Hero of today.) For the first time, I'm starting to see why more people don't believe in freedom or the type of freedom advocated by libertarians. In this transcript of a speech he gave in 2004, he identifies why the Freedom Movement is struggling. In hindsight, I really should have realized this on my own.

Here are a couple of excerpts from the article that got me thinking:

"Let's start with the critique. How many of you have read Ayn Rand? How many of you have been influenced by her? "Atlas Shrugged" remains one of the five greatest novels I have ever read. Who can ever forget characters like Dagny Taggart, Hank Rearden, Francisco d'Anconia, from "Atlas Shrugged," as well as Howard Roark in "The Fountainhead"? These characters all demonstrated tremendous passions and drive, backed by high self-esteem. Each one inspired this young entrepreneur. I wanted to be just like those heroic characters in "Atlas Shrugged."

However, despite her literary greatness and many positive contributions to the freedom movement, I believe that Rand has also harmed the movement. How? She was overly provocative. The "virtue of selfishness" is an oxymoron. Selfishness is not a virtue. Now, I understand all the arguments — I've read all the books. I know that self-interest channeled to the social good, as expressed through Adam Smith's "invisible hand," is the single most brilliant insight about social organization ever made in history. That being said, selfishness (as opposed to self-interest) is still not a virtue. It is something to be discouraged, and not something to be supported."

"When I was a naive (some people in the audience by this time probably think I'm still naive) and idealistic young man, I migrated to the Left for my value system. Why did I do that? Because the Left provided an idealistic vision of the way the world could be. However, the reality of the Left's vision proved to be terribly flawed. Its socialist economic system not only didn't work very well, but in its communist manifestation it justified monstrous governments directly responsible for the murders of over 100 million people in the 20th century. Despite the horrible track record of leftist ideology, millions of young Americans continue to migrate to an intellectually bankrupt Left because the Left still seems to be idealistic, and idealism is magnetic to the young. Idealism will always be magnetic to the intelligent and sensitive young people of the world.

How sad that the freedom movement often refuses to be idealistic. We usually don't even attempt to compete. We simply forfeit the field to the Left because we pride ourselves on our "realism" and "tough-mindedness." We talk about freedom and prosperity — and that is about it. We have no real theory of either the good life or the good society except the fundamental belief that if people have sufficient personal and economic liberties (as in Friedrich Hayek's spontaneous order) we will create a prosperous society.

Freedom and prosperity are important goals, but they must be only the beginning goals for us. If we are to win the allegiance of the young people of America then we must dare to be more idealistic. We must create a vision of the good life and the good society that is irresistible to the young."

On glory that’s past and the danger that’s now....and on movies

Warning: This post ended up longer than intended. But if you stick with it till the end there are two poems – one’s a Hindi/ Urdu classic and the other’s a never-before published original by yours truly.

I am not really a movie buff. Never been. Too impatient for the 3-hr Bollywood kind (forwarding through songs, fights, comedy and romance doesn’t help because there is little left) and too psychic for Hollywood (Kevin Spacey is the killer, Darth Vader is Luke’s dad, Bruce Willis is the ghost) – thanks to Bollywood for the foresight. I do have some favorites (thanks to Quentin Tarantino), but for the most part movies for me are an ordeal.

So the other day, as I lay sulking in my usual physics-grad-studentish misery looking everywhere and anywhere for a pick-me-upper, I chanced upon Rang De Basanti to watch during my ritual morning cardio. I had seen this movie before, at the theater even (a rare treat in midwestern Champaign) and I knew I liked it. But my pensive mood revealed layers and brought forth a powerful reaction that I had somehow previously missed. Let me explain. No spoilers here, so no worries.

Rang de basanti, for the uninitiated, is a Bollywood blockbuster unlike any other. Lets start with the title - the literal title translation is “Color it Saffron” – saffron (basanti) is a deep orange color and is of profound significance in India. It’s a holy color for one and also symbolizes blood. In fact, it’s even featured in the Indian flag – as the first of the three stripes, saffron symbolizes the sacrifice (bloodshed) needed for India to win its independence. There is a less well-known meaning as well, Rang De Basanti was a popular anti-British cry during India’s struggle to break free from the British (damn the British – their accents, their tea, their language and all!). The slogan has its roots in a patriotic song written by Bhagat Singh, a heroic revolutionary freedom fighter. Bhagat Singh in his poem mera rang de basanti chola called for people to dye their robes the color of Spring (spring, the season that symbolizes change is “Basant” in hindi), for times are about to change – the time has come to sacrifice lives if that’s what it takes to get freedom. Thus, Rang de basanti is actually a powerful call to change the status quo. (Obama would have loved it, he needs some Bollywood researches on his campaign)

Just from the depth of the title you are probably beginning to see why this might be a good movie. But the homage to Bhagat Singh (and other Indian revolutionaries) doesn’t end there. The movie is set in contemporary India and draws parallels between revolutionaries of Bhagat Singh's era and modern Indian youth. It’s an ingenious commentary on what it cost our ancestors to fight for our freedom, what we have done with it and how nonchalantly we treat it today. A bloody freedom struggle (from less than 80 years ago) is juxtaposed against our (or more generally the Indian youth’s) irresponsibility to the corrupt Indian political system that is typically cooly attributed to “we-are-like-this-only”. Then it calls for action. To Do something. Anything.

It’s a brilliant movie. Very inspiring. Even the sound track uses patriotic lyrics set to modern tunes. Specifically, they featured one particular old revolutionary poem popularized during the freedom struggle that really made clear the glory of a lost era. To see why, here’s my favorite part (I’ve translated it here –the verse is much more beautiful in Hindi / Urdu and the video is below):

Title: Sarfaroshi ki Tamanna: The desire to sacrifice

There sits the enemy, armed and ready to fire
Ready too are we - to thrust our hearts out to them
With blood we shall play Holi, for our home and country is in trouble -
the desire to sacrifice is now etched within our hearts.

No sword can sever hands that carry the throes of passion,
Heads that have risen won't easily bow when challenged.
It'll flare up even more, the flame struck within our hearts
- the desire to sacrifice is now etched within our hearts.

You can really get a sense for the movie from the this clip featuring the poem:



The first thing that struck me was – no one talks like that anymore. About anything. The words, the values, the passion simply doesn’t exist in contemporary lexicon. Even if they do, they sure as hell don’t carry the same meaning. Don’t we stand for anything anymore? Don't we as a nation, a generation have any cause? Maybe we do. But I was in a coffee shop on campus as I was pondering the movie later in the day and the difference was stark. No, it's not just a cultural thing - and its not specific to India. America has a similar rich history. Our current values or lack-there-of is reflected in everything we do- contemporary art is a joke, a la mode literature is unreadable or depressing at best, and philosophy is out of style. With nothing left to do, I took out my disappointment on pop-culture in an outdated form of expression - verse. Here goes:

Pop goes the Culture

A lost voice a lost cause
Here we rock on without a pause
What we move to- undefined
Synched to the values of our times.

Of our roots, few remain
Best forgotten, coz of the pain?
For it’s a sanguine history that we share
Of freedom-fighters and folk who dared
To stand up for what they breathed-
liberty, justice and to be left in peace.
To arms they took or were beat to death
For the hopes and dreams in unison shared
Of a free world where people walked
Without any fear to mock or talk.

Well, here we are, few suns bygone,
Sheep we are, with no sense of wrong.
Moving to the tunes of time,
Orchestrated by the media chime.

Now we know not what we want,
A pandemonium in faculty, we flaunt.
Like the name, pop it’ll go -
A culture fashioned with mindless woes.

- Rug

Now for the happy ending - The movie did strike a chord. The entire nation rose to salute it. Blogs crept up everywhere urging for action. It was discussed in cafés, shopping malls and classrooms. I’m not sure if anything concrete came out of it. But it sent a message to a whole nation. And I now have a contemporary Bollywood movie I highly recommend. After all, it inspired me to write my second poem. Simply put, this movie is so good that had this been a Hollywood movie, George Clooney would have been proud.

All that glitters can be better than gold

People have been talking about investing in gold for a while now. As Peter Schiff likes to point out, in the Roman Empire an ounce of gold purchased a Roman citizen a toga (suit), a leather belt, and a pair of sandals. Today, one ounce of gold will still buy a man a suit, a leather belt, and a pair of shoes. So gold is definitely a long term inflation hedge. But here are the cons of investing in gold and some other inflation-hedge options.

Cons of Gold:

1) Gold has large volatility and long periods of time (like 20 years around the 80s) when the prices won’t go anywhere.

2) From a contrarian standpoint, we hear way too much about gold now in days. Everyone knows about Cash4Gold etc. For your cash-type ready-to-use money, other useful commodities that have not increased in price as much as gold yet might be better. Oil, Iron, copper, etc. are all great inflation hedges for the same reason as gold. No one can print them. They take hard work to find and unearth, and thus have intrinsic value. And they are not on late night infomercials… yet.

Option 1 – Better -than- gold Tier I stocks

Asset-backed / Necessary-Goods stocks: Gold is *only* an inflation hedge. In the long run you are much better off with a company that is producing something useful, since, over time that company can be worth more, not just the same. So for example any asset backed / commodity stock (oil, energy, food) is a better inflation hedge. The value of any asset backed /commodity company will get automatically adjusted for inflation, which will be reflected in the stock price. A better hedge against inflation is a company that sells something that people will always need, even when they are broke and thus, has a competitive advantage. So they can quickly pass along price-increases and potentially grow your money profitably. Examples of companies like this might be Johnson and Johnson, 3M, etc. On top of inflation-adjustment, you will also see the usual returns/ losses of investing in businesses. It might get hard to decouple the two, but you won't be "wasting" your dollar because of inflation.

Option II - Even- better inflation hedge – Tier II Stocks

Necessary-Goods Companies with High Leverage: The dream inflation hedge would be in a company that apart from selling ever-needed products with a steady stream of earnings (what we call the Tier-I stocks) and having some competitive advantage is also heavily leveraged. Then if inflation does happen, they would able to easily pay back their debt in much cheaper dollars. Now you’ve got a hat-trick - a company with real value, that make something people need, has pricing power and is actually taking advantage of inflation to pay off their debts. Warren Buffett’s purchase of Burlington Northern is a brilliant inflation hedge as it satisfies all these criteria to the T. Large moat, steady earnings, asset based, highly leveraged, and good potential for growth.

Aside: Alternatively, you can take on personal leverage as well, you might be able to find a company that satisfies the dream criteria above AND pays a dividend that will cover the cost of margin for example. Also just taking large loans can make a good inflation bet since you would be able pay them back for a fraction of their original "value". This assumes two things though. 1) You can continue to make the payments. 2) You invest the money in something of value. For example you could buy a house on a highly leveraged basis, subsidized by Uncle Sam.

Option 3: Best bang for your dollar-buck? – Tier III stocks

Highly-Leveraged Necessary-Goods Companies outside the US: The third option is to could invest in tier-II stocks outside the US (the Euro or the Yen for instance) if on top of inflation you are worried about the dollar losing value because of a demotion from its current place as a global currency standard. A global currency standard means that if a French bank and an Indian bank need to conduct a transfer, they would both have to transfer their currency into dollars, transfer the money and then back again. The same is true for buying oil. This means that there is an additional "artificial", if you will, demand for the dollar effectively raising its intrinsic value. There are now talks about replacing the global standard with the Euro, or Yen, or a "bag of currencies" - if this happens, there will a related devaluation of the dollar, which has nothing to do with inflation. For this you could check out countries that Peter Schiff recommends in his book “Crash Proof”. Australia and New Zealand come to mind.

These are fun times we live in. Smart moves can give über -smart returns.

Move the world - lessons for tomorrow's leaders

TED has some of the best talks ever - the content, the message and the delivery are unparalleled. Needless to say, some of the best brains of the world contribute here. This is an exemplary instance of such a skill:

http://www.ted.com/talks/hans_rosling_asia_s_rise_how_and_when.html

Here, Hans Rosling, Professor of International Health at Karolinska Institute and Director of the Gapminder Foundation, which developed the Trendalyzer software system gives a mind blowing talk on how and when Asia will catch up to the Western super powers. Its a powerful talk. Watch it once for the message and then watch it again to learn. He owns the presentation, he owns the stage and he owns the audience . For those of us wanting to be the future movers of the global economy, what can we learn from it?

1. Mastering the art of Presenting <----- Leadership skills

TED or not-TED, every talk you give is momentous. For those 15 minutes, every single person in the room eagerly gives you their undivided attention. At least they want to. So do your audience a favor and deliver. Expectations are high and attention spans are low. You can grab on it, unleash their imagination and take them on a guided tour of your choosing. You need to use everything within your disposal to your advantage. Its not just the slides and a memorized speech any more. You have your whole body - use it. Body language, facial expressions, actions and motion can all be used to communicate. Use articulation - customize tone, speed, volume and emphasis to the point at hand.

Watch Hans walk around stage, use facial expressions, actions and gestures to deliver this talk - he even uses props! Pay extra attention to how he matches his voice to the speed of the animation to convey excitement. He engages you and you are simply drawn in.

Professionally, what can your talk do? Talks are where you plant a seed for powerful change, unveil your expertise, initiate collaborations and bag deals. Not only do passion for a venture and level of knowledge come through, but people will know if you are a natural leader. They are after all witnessing an ultimate test of leadership - can you make people listen? You can establish your stance, making it natural for people to fund your ventures, or recommend you to the C-level . It also a natural icebreaker - you have given them a easy opening line- "nice talk"! Professionally, you need not only excel at giving talks- but you should be seeking them out.

2. Data Showcasing <----- Product placement

All data are not created equal - some are more interesting than the others. Having said that, even if you have the most important message in the world, it will be lost if you don't know how to showcase it. The era of pie charts and excel figures are long gone. Apart from being clear and to-the-point, your graphs need to be alive, dynamic and the center-of-attention. They need to capture attention, help understanding not confusion. Your data contains the meat of the message - serve it tastefully.

How can you boost your business via a talk? This is the man's product - Trendalyzer is a software for animation of statistics. Clearly, he had a very interesting message. This would have been an amazing talk - simply for the message. But he didn't just stop there. Neither did he parade his wares. Hans has a great product and he knows it. He highlights the features of his product by simply using it remarkably well.
Aside: Notice how he casually acknowledges and offhandedly cheers Trendalyzer new owner and Gapminder's business affiliate, Google. Everyone likes to be remembered.


3. World Changing <----- Stepping up your game

It appears to take more than just in depth know-hows and covetable soft skills to be a successful business leader. What is it that sets these visionaries apart? There is a trend these days - aspirations to set make a venture bigger than just the product, to integrate business models with the ever changing socio-economic patterns of today's society, or simply put, to include the guy-in-country-next-door in what you do. Such social moves is not necessarily just a feel-good holier-than-thou reaction or a cosmetic move to erase the popular notion of evil corporations, or even a use-behavioral-economics-to-increase-sales effort, but a necessary step in the evolution of capitalism or a good business. The world is getting flatter, the economy more global and thus capitalism more innovative. Capitalism not only lifts the entire society economically but thrives with the overall health - successful businesses open up doors for new ventures, more capital flow helps create new capital, and great ideas inspire new ones. Enterprise success, like happiness, is addictive. You can see this happening in India right now. Ever since India opened its business doors in the 90's the country is booming, the middle class expanding and the overall health is improving. Measures to uplift society at large is more than a admirable goal - it makes long-term business sense. You are simply making the playing field better. So this new trend, creative capitalism specifically, is a inevitable, but nonetheless brilliant, step in upping the anti. This is what sets the Googles, the Microsofts and Whole Foods of the world apart. Capitalism doesn't work against society - properly executed, it works for the society.

Hans could have used Trendalyzer to track statistics of shoppers and predict hot retail stocks for the holidays- this would have also been quite useful, informative and interesting. From an advertising and clientele point of view, this actually makes more sense. But, he reached out to a wider audience, used his business to impact the world and reached out at TED. By seamlessly integrating a socio-economic message into the product over his entire talk, he made Trendalyzer stand out without ever once mentioning the product. None of this appeared fake or superficial. Here is a visionary entrepreneur and he CARES. Far from suffering for his actions, he now has random blogs blog about his product and obscure scientists think about using Trendalyzer. Absolutely brilliant.

What global impact will your venture have?

Health Care - Where Can I Get A Life Boat?

One of my favorite quotes of Ayn Rand comes from We The Living:

"Do you believe in God, Andrei? No. Neither do I. But that's a favorite question of mine. An upside-down question, you know. What do you mean? Well, if I asked people whether they believed in life, they'd never understand what I meant. It's a bad question. It can mean so much that it really means nothing. So I ask them if they believe in God. And if they say they do—then, I know they don't believe in life. Why? Because, you see, God—whatever anyone chooses to call God—is one's highest conception of the highest possible. And whoever places his highest conception above his own possibility thinks very little of himself and his life. It's a rare gift, you know, to feel reverence for your own life and to want the best, the greatest, the highest possible, here, now, for your very own."

My new favorite question is "Do you believe that the government should provide health care?" I think the answer to this question tells me more about a person's view on individual liberty than anything else I could ask.

Anyway, if the health care public option bill passes after the debate in the Senate floor... I think I'll be ready to admit that we are all on a sinking titanic and start looking for a life boat.

Check out this extremely interesting article on religion and it's impact on the economy:

Satan, the great motivator

Here is a tidbit that should interest everyone:

"... Their results show a strong correlation between economic growth and certain shifts in beliefs, though only in developing countries. Most strikingly, if belief in hell jumps up sharply while actual church attendance stays flat, it correlates with economic growth. Belief in heaven also has a similar effect, though less pronounced. Mere belief in God has no effect one way or the other. Meanwhile, if church attendance actually rises, it slows growth in developing economies."

If that doesn't motivate you to read the entire article, i don't know what will!

On HealthCare

Here is and interesting interview of David Goldhill, the author of the stunningly coherent article "How American Health Care Killed My Father". If you have ever been confused the the debacle that is our health care system, this is the article for you. How is it that doctors can't be bothered to wash their hands properly? How come the doctor gives you a stunned stupid expression of incomprehension when you ask what something costs? Why is my health care stuck to my employer instead of to me? How is it that both doctors AND insurance companies claim their not making enough money? I literally felt the confusion fall away when I read this article, I highly recommend it. And I'm super grateful to APOS for sending it to me.

Video below:

Comical discomfort with the human body.

This is outrageous and funny all at the same time:




The poor guys just trying to get his morning pick-me-up and suddenly the cops are involved. I personally think its obvious enough that this was not crime that the arresting officers should be liable for grief they've caused the guy. It sounds like the state has zero chance of convicting him, but it could be an interesting jump off point for a discussion of property rights. The guy was in his own home on his own property. The person who saw him was IN HIS YARD. She was peering into his home early in the morning. What obligations does a person have the power to impose on you without your knowledge simply buy peeping into your window? How does the fact that she was and is free to make it a habit not to look into people homes apply to the question? How would the situation change if she was standing on the public right of way? Would it change at all? What percentage of people do you suppose could be arrested for the same crime of daring to be naked in their own home without bolting all the shudders? My guess is its north of 99.99% and the people aren't guilty likely have some deep seated issues.

BTW by what stretch of the imagination are we supposed to believe that the mere, momentary sight of another human being sans clothing could somehow damage either the woman or the little boy?

We're all just folks, one built same as the last. If you don't like the view move along.

The Buisiness of Marriage 2 - The Plot Thickens

Posted as a comment on The Business of Marriage

On the surface, it might appear as though the State's authority to approve a marriage is required because of its needed involvement when things go south in a bad marriage. Legal separation, custody battles, the traditionally-required alimony become the State's problem when two not-so-happy-ever-after-the-wedding parties decide to break up a marriage. So we can try to conclude right here that a State needs to authorize a union just so it can "fairly" unauthorize it.

"But aha", cry Apos and Trisco (they both actually and separately did, when I presented this argument to them), "why can't marriage then be just like another business contract? A contract that can be drawn up between two separate parties, albeit with a notary present, and doesn't require a license , State's approval, definitely no tax breaks and can still be a legal basis for fairness when the parties break the contract!"

That's a great point. So why can't a marriage just be a business contract? Lets dig deeper.

A marriage is a legal union of two individuals. The State has to be in the dirty business of this union because it has put itself in the dirty business of approving of who is legally an individual! The State is in one's life to begin with (that's right ...at the moment when you were born and had no idea of what's right and what's wrong - in the hospital...right after you blink your pretty little eyes at your loving mom). Must to Realism's outrage and Nihilism's delight, you don't really exist as an individual until the State grants you an existence license in the form of a birth certificate. And in fact, it's even consistent in handing out a nice tax break, albeit to your parents, for your recent appearance in this world. The State is there to begin with - without this birth certificate, you cannot get a drivers license, a passport or hell, even a marriage license. Since we all have implicitly accepted this power of the State to authorize the existence of an individual, by extension we have to accept (damn, logically, for rationality's sake, we have to demand !) the State's power to grant the union of two individuals as a single entity (and again by extension, demand a tax break for the same).

You cannot drink, travel, drive, earn, move, own, marry, and technically exist, without the State's consent.

Realism squirms and Nihilism shrugs as we walk away with our driver's license secure in our pockets.

ps: As a side note, it is very interesting how the tax breaks encourage the traditional role of a female as a home-keeper. The tax breaks, when filing as a couple, help only those whose incomes are very lopsided (maximized when only one person earns). In fact, if you have a spouse who makes the same amount (albeit extremely low), you are better off filing separately. Being single, why do I know this? Coz,I am suspicious of Govts. trying to nudge the masses. With nudge comes power (and we all know with great power comes current squared times resistance :P). And marriage is a classic instance of this.

What Is Property?

When it comes to property rights, it is easy for me to follow the logic that when you CREATE something, like a sword or a painting or a piece of furniture, that it belongs to you*. I can also follow the logic that when you trade what someone has created at some agreed price, that it now belongs to you. However, I have a difficult time following the logic of land rights, or rights to anything that none of us created. Anyone have an opinion about this? I would love to be able to understand this better!

*you can be an individual or an organization

What Do You Deserve?

We live in a world where everyone talks about how the weak deserve food, deserve money, deserve happiness.. that it is our moral obligation to make sure that they get these things. But what about those people who create their own wealth, who create their own means to food and who create their own means to happiness.... why do we think that these people don't deserve to keep what they have created?

Mental vs. Physical pain.

I often hear the idealogy (and I am paraphrasing) : “People should be free to do whatever they want, as long as it doesn’t hurt an innocent third party” .

I really like this idealogy, and I feel it is the correct ideaology to have -- deep down this rings true in my soul. However, as a practical man, and a man who thinks about how to implement this in a government, I sometimes ask very pressing, even annoying questions about what this means. We cannot build a government on what we “feel” is right, but rather must have a logical and rational basis for our beliefs.

To this end, I’d like to discuss the concept of “hurt”. What does it actually mean? “To hurt” is defined as “1) cause physical pain or injury to; 2) cause mental pain or distress to; 2) feel mental pain or distress; 4) be detrimental to” accodeing to the dictionary on my Macbook.
We can see two key things in the definition of hurt, physical and mental pain or distress. Let’s focus on these two.

In physical pain or injury, there is some impediment that causes an inability to act in a manner that one sees fit. If someone breaks my leg, it means that I cannot walk or run, even if I want to. for instance. To a large extent we are very familiar with what physical pain and injury means.

However, the same is not true for mental pain or distress. Suppose I tell someone that they are ugly, we can kind of intuit that this causes mental pain or distress. However it is much more complicated because we don’t actually see the effect on the person directly, but must see it through their actions and behaviors.

Now, whenever I discuss the idealogy above, I am always flummoxed by why physical pain is almost always the only definition of hurt that is considered. Oftentimes, mental pain is said to be something that can be “just gotten over”. But I think if we take a deeper look things are not as clear.

First, who says that mental pain can be just gotten over? If so, the area of psychology would not exist, and people would be able to get over experiences from their childhood easily -- but clearly not. Painful incidences and memories permeate the present and influence behavior -- and some, people, if not all, cannot control how these past incidents influence and bias their current decision making.

Secondly, if we look at the biology of the brain, aren’t memories stored in neurons? Thus memories change the physical nature of the brain by causing certain neurons to fire etc. Now if someone sets your neurons in a particular way which causes you to not be able to do what you want, then isn’t that a physical hurt akin to a breaking of the leg? Perhaps we cannot set the neurons to certain values, but we can say stuff to the person and that could set the neurons.

As I said, I really like the idealogy stated above and I want this idealogy to become more prominent in the government. However to do so, we will have to ask the hard questions and not rely on just our intuition to tell us what is “hurt” and what isn’t -- as always, we should let rationality and logic be our light. And by we, I mean all those who believe in this idealogy and want to see it shine forth, of which I count myself one.

The Business Of Getting Married

First of all let me say that I am a romantic at heart and the idea of a forever after with your true love sounds wonderful, and I might even go "awwww". But then reality dawns on me of the dirty business of getting married. I say "dirty" because of the involvement of the state in terms of issuing marriage licenses. Um, can I ask WHY in the world is this the business of the state?? It seems ridiculous to me that the government has monopolized this industry of marriages. Not to mention their tax breaks and other benefits of marriage, which certainty create incentives for us to get married. And why exactly should I pay less in taxes if I am married? Or more in taxes if I am not married? I also say "dirty" because I ask myself "what is the point of marriage?" and it is nothing but setting a contract with another person that you will be there for them in x, y and z situations, and establishing a power-of-attorney-type-exchange. In which case, WHY WHY WHY is this something that the state needs to be involved in?

Perhaps at one time in the distant past, people believed that marriages, in this type of contract form, would ensure that they creates a stable family.. but really does this even exist anymore? With the insanely high divorce rates and prenuptial agreements to get ready for divorce before getting married.. it is difficult to argue that marriages create a stable family.

Please enlighten me with your positive views towards marriage so that I can be less cynical about it. :)

Healthcare "Raises"

Here is a beutiful chart from econompicdata:

The real costs and benefits is essentially health care. If you were given the choice, wouldn't you rather have the cash? The sad part is most of this rise is inflating health care costs, not more or better health care.

Frankly, banks own the place!

Some time ago, in a breathless freak-out over Bailouts (If I get to thinking about it, I practically hyperventilate with anger and frustration at the sheer multi-leveled injustice of it all, so lately I try not to.) I asserted that your congress and senate are bought and payed for. I gave you links to some undigested data to figure this out for your self.

Now straight from Senator Dick Durbin (D-IL):

"Frankly, banks own the place."

And from Collin Peterson, Chairman of the Agriculture Committee:

“The banks run the place. I will tell you what the problem is — they give three times more money than the next biggest group. It’s huge the amount of money they put into politics.”

If its not enough to hear it straight from the horses mouth, this morning on The Big Picture, I came across some truely great linkage (Seriously, read this and follow a few links!) that more obviously makes the case.

I would just like to highlight something:
This is not freedom. This is not laissez faire. This is not capitalism. This is people buying government interference on their behalf to protect them from competition and their own failures. If we want to keep our freedom, bailout can not be tolerated.

A few of my favorite bits:

Also here is a excel file with that shows how much TARP recipients gave to congress, with a calculation of their absurd return on investment.

The Bank Job: Part II

In the comments to The Bank Job, which by the way contains our first derivation (thanks Guy!), Dan was wondering, given the fractional reserve system, how do banks handle bank runs. He quite reasonably assumed that they took out insurance which is the smart way to handle high cost, low probability events. The following is my attempt to explain my understanding of the situation.

Your reasoning is quite correct. Insurance against this sort of thing would be prudent, and as long as you were talking about protecting against runs on individual banks, as opposed to the whole system, it could probably be written profitably. But your thinking suffers from a malady with which I am myself often afflicted. I haven’t quite nailed it down, but it’s something like the assumption, “if this is so obviously the way the world ought to work, it must be that way.”

Sadly, its not.

Banks have come up with a much better solution, from their point of view. In the event that they need more cash then they have, they have the Federal Reserve print it. It essentially comes out of all of our pockets through inflation. Now I’m about three books ahead of you in understanding this mess, so I’m no expert either, but here is roughly how it works. If a particular bank is in need of cash, due to withdrawals, they simply borrow it from other banks. If other banks don’t have it to spare, there is one Meta-bank. That bank is the Federal Reserve, which is tasked with being the lender of last resort. Since the FED, simply prints money it can lend all the banks need, completing the counterfeiting cycle by finally printing the cash we’ve all been pretending existed. Of course, as soon as people calm back down, and put their money back in the bank, this new money is considered excess reserves, promptly lent out, and ends up itself multiplied by ten.

Now in the event that a bank is technically bankrupt, that is its assets are less then its liabilities, as opposed to simply being short cash on hand, then it is taken over by the Federal Deposit Insurance Corporation or FDIC (a bank would be technically bankrupt if, for e.g., half the loans went bad, so now there are not enough loans supporting deposits). “A ha! So there is insurance.”

Well sort of. It works a lot like an insurance company, but is not insurance. Banks pay a premium of sorts, that is a fixed percentage of their deposit base. The difference between this and insurance is in the utter lack of even an attempt to avoid moral hazard. As Apos, could explain better than I, its important in any insurance contract that the insured retains some motivation to avoid the catastrophe being insured. For example with car insurance, not only would I hate to get in an accident, but I don’t even want to risk a speeding ticket, for fear that my premium will go through the roof. But with premiums depending only on the size of deposits, banks are encouraged to push risk to the limit to get their moneys worth. It would be like if my car insurance only depended on what the car cost… lets just stay I’d get places faster! If the FDIC insurance were instead allowed to be replaced with an insurance industry trying to earn a profit, risk in banking would be largely reduced, since lower risk would be reflected in higher profits, from lower premiums.

There is another important sense in which the FDIC is different from an insurance company. When the “premiums” are paid to the FDIC, they are deposited in the FDIC’s account at the Treasury. The government then spends the money and replaces it the IOU’s. I know I know sounds crazy! But here is it straight from the former FDIC Chairman William Isaac:

When I became Chairman of the FDIC in 1981, the FDIC’s financial statement showed a balance at the U.S. Treasury of some $11 billion. I decided it would be a real treat to see all of that money, so I placed a call to Treasury Secretary Don Regan:

Isaac: Don, I’d like to come over to look at the money.
Regan: What money?
Isaac: You know ... the $11 billion the FDIC has in the vault at Treasury.
Regan: Uh, well you see Bill, ah, that’s a bit of a problem.
Isaac: I know you’re busy. I don’t need to do it right away.
Regan: Well ... it’s not a question of timing ... I don’t know quite how to put this, but we don’t have the money.
Isaac: Right ... ha ha.
Regan: No, really. The banks have been paying money to the FDIC, the FDIC has been turning the money over to the Treasury, and the Treasury has been spending it on missiles, school lunches, water projects, and the like. The money's gone.
Isaac: But it says right here on this financial statement that we have over $11 billion at the Treasury.
Regan: In a sense, you do. You see, we owe that money to the FDIC, and we pay interest on it.
Isaac: I know this might sound pretty far-fetched, but what would happen if we should need a few billion to handle a bank failure?
Regan: That’s easy — we’d go right out and borrow it. You’d have the money in no time ... same day service most days.
Isaac: Let me see if I’ve got this straight. The money the banks thought they were storing up for the past half century — sort of saving it for a rainy day — is gone. If a storm begins brewing and we need the money, Treasury will have to borrow it. Is that about it?
Regan: Yep.
Isaac: Just one more thing, while I’ve got you. Why do we bother pretending there’s a fund?
Regan: I’m sorry, Bill, but the President’s on the other line. I’ll have to get back to you on that.

Once upon a time, there was indeed a segregated FDIC fund. During the Johnson Administration, someone had the bright idea to put the FDIC into the federal budget as a way to reduce the deficit. This was in the good old days when the FDIC always produced a surplus. Putting the FDIC on budget reduced the deficits being created by spending on the Great Society programs in tandem with the war in Vietnam.

The reality is that there is no FDIC fund. Anything the FDIC lays out to handle a bank failure must be borrowed by the Treasury, which adds to the federal deficit. The total amount of the current outlay is charged against the federal budget even if recoveries are expected in the future, as problem assets are collected by the FDIC. That’s the case whether the FDIC’s nominal balance at the Treasury is positive or negative.

(The above text is an excerpt from a document that used to be here, but has apparently been removed. One wonders if he was asked to remove it. A more charitable possibility is he just couldn't handle all the traffic. Luckily it was so funny I had saved it.)

So at the end of the day the FDIC also gets its funds from the Federal Reserve, or in other words from the rest of us through inflation.

Thoughts on Grad School

This is too good (true) to be missed: http://blog.penelopetrunk.com/2009/02/03/dont-try-to-dodge-the-recession-with-grad-school/#more-2071.

Part 2: http://philip.greenspun.com/careers/women-in-science

Interpreting the Second Amendment

My first post will be on an interesting linguistic interpretation issue that is having national reprecussions here in the U.S. This post will be summarizing issues with the second amendment that were brought up by Prof. Baron et. al. See the references below for more information.

The second amendment to the U.S. Constitution states:

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.

A modern English user will find the phrasing of this amendment quite clunky; in particular it seems like the phrase before the second comma (“A well regulated .... State,”) and after the comma (“, the right of the people... “) are two independent phrases that are just jammed together. For ease of discussion, let L1 refer to the first part and L2 refer to the second part.

Clearly the framers of the constitution were not English neophytes, thus this is not merely an “error” -- so what does it mean? We can view this at the grammatical and semantic level. From the grammatical point of view, L1 and L2 are grammatical independent. The question that mainly concerns us is whether the two phrases are semantically interdependent -- does the meaning of L1 affect the meaning of L2? There are two cases:

1) Semantically independent: L1 has no bearing on L2, it is merely “constitutional throat clearing” [Baron]. From this interpretation, we find that the 2nd amendment says that everyone should have the right to own a gun.
2) Semantically dependent: L1 impacts L2 in a if-then or cause-effect relationship. From this interpretation, it can be argued that the 2nd amendment only meant for state militia to have arms, and not everyone to have arms.

Clearly this grammatical difference has great import on national law! How do we decide which of these interpretations is correct? One way to do this is to try to understand the English of the founders. Prof. Baron does a great job of this in this article (from which most of this material is drawn).

To summarize some of his argument, English textbooks at the time discussed what is called the “absolute construction”, in which two phrases are grammatically independent and placed in a sentence. In particular he says:

“ In addition, grammarians from the 18th century down to the present affirm that the absolute construction invariable establishes a semantic dependence in a sentence.” [Baron]

I refer the reader to the post by Prof. Baron for more in depth examples.

The opposing argument, from an amicus brief filed by the opposing side, argues that L1 is merely providing context, but is not the *only* reason for protecting gun ownership. A great example from the brief is a passage in Article 3 of the Northwest Ordinance (written about the same time as the amendments):

“Religion, morality, and knowledge, being necessary to good government and the happiness of mankind, schools and the means of education shall forever be encouraged.“

Does this mean that schools should only be used for teaching religion, morality and knowledge?

Clearly, resolving this problem is not something that can be done easily. In this particular case, the Supreme Court viewed L1 as basically “constitutional throat clearing” [Baron] which does not affect the “meat” of the amendment.


It seems clear that the unambiguous interpretation of laws is, if not impossible, highly improbable. Readers add their own interpretations and biases, and we must recognize that and provide a means for the continual reinterpretation of historical documents.

As a side note, I think this case argues for the political need for research in liberal arts and sciences. When we interpret legal documents it is not just the words we must understand, but rather the context in which they were written. Language is a powerful tool, yet it is inherently a convention -- meaning of words and phrases are agreed upon by the users of language; and thus language can, and does, change as society changes. In order to understand a legal document, one must also understand the writers and the society they lived in.

And finally, take a look at the post by Prof. Baron for a much more in depth look at this issue: The Web of Language

Moral Hazard: The Gift That Keeps On Giving

I love the concept of karma - the idea that you do an action and the consequence depends on your action. It is just so clean. Systems that employ karma as the guiding principle for how they operate work so well! We do use this idea in various aspects of our society: We create laws such that people who harm others are punished. People who make productive contributions in their job can look forward to better earnings. People who drive carefully get better auto insurance rates.

However, when it comes to the karmic balance of our economy... well I’m not sure it exits anymore. The recent bailouts have tossed out this relationship of action and its consequences. The bailouts repulse me in many ways: first of all the govt is taking ownership in private enterprises, secondly the companies that are being bailed out have very little probability of producing any returns greater than or equal to zero, thirdly the govt doesn’t have the money!

As much as these reasons upset me, the one thing that scares me is the amount of moral hazard* now prevalent in our economy. The idea that if you make bad decisions you will suffer for it, is no longer true! Because of the bailouts, especially of the auto industry, we have removed karma as our guiding principle. What incentives do people or companies have now to manage their risk and to make good decisions? We have created a system that allows for companies to make terrible decisions without them worrying about the consequences. Rather, we have created a system where the consequences of actions have changed, and incentives are altered.

Suppose you have a situation where two events are possible. You can make a lot of money say $X with 60% probability and you can loose a lot of money say –$X with a 40% probability. Suppose, now, the situation has changed (as in the case of the bailouts). The probabilities and the amounts are the same, but what you will experience is changed. Instead of experiencing –$X profit you will end up with $0 and the government as your new owner. How will this influence your decisions?

I am not claiming that in all situations and all companies will make more risky decisions because they might feel like the government will bail them out. In depends on how –$X relates to ‘$0 and the government as the new owner’. Maybe having the government as your new owner is worse. If all other companies in your industry are functioning well and don’t need to be bailed out, but you do, then maybe it is far worse to have the government as your owner. But if all other companies in your industry are being bailout out... what kind of decisions are you going to make?

Since I am an Actuary, I love making predictions based on trends. So, here is my prediction: Many more companies will make bad decisions based on their new found security of the bailouts (at least in the short term future). Of course these companies will probably make rational decisions based on their risk analysis, but people will see them as being greedy and unreliable. And greed is bad right? So maybe we will venture off again on our quest to find the magic pill to get rid of it. And reliable? I wonder why companies don’t like to make decisions that will be similar to suicide, even though they would be doing it for the good of society. Oh well, atleast it will give us some ammunition in our fight against "Corporate America". And THIS can most definitely help the Democrats to usher in a new era of socialism.


*Moral hazard is the change in the behavior of people and organizations when their share of loss is reduced.

Adventures in Photon Land or Massive Communication Gap

Ok it’s time for a light-hearted anecdote (but it is still faithful to VERITAS).

My lab notebook is filled with sighs (“Oh God, why me ??”), curses (*$%& you too, detector! [sorry mom, but trust me it’s appropriate !] ) and monologues to my future self (“Get out here while you are still sane”). Of course there is the requisite amount of bad data, empty pages, and specifications of equipment that never meet specs, but these are for another post. Let’s go back now to that part about me-talking-to-my-future self. The most recent of these conversations started about two years ago. My past self had written down very clearly “Dearest Radzie, please don’t ever touch the allignment laser – it’s a bitch. She will not bother you, if you don’t bother her”. For those of you who don’t know about my experiment (which is everyone but me), the alignment laser is a bright red laser used to correctly position the million optics (lenses, prisms and such) in my experiment, because I can’t see the actual photons that traverse these dangerous terrain. Simply put, I use the alignment laser to visualize my photons’ adventures. Remember that this note was about two years ago. Of course 3 months after I had written that, I promptly removed(!!) the alignment laser (I hope my advisor is not reading this blog – he’d know what an idiot I am and that I write to myself, which somehow seems worse than talking to yourself even though it is just another form of communication – hmmm. Note to future self: think about why this is so). Why did I remove the alignment laser? Because it was in my way- duh! So first instance of future self not listening to past self (bad bad future-self). Let’s start keeping scores: Future Self = -1. Past Self = +1. Yes, I penalize people for not listening to me and reward those who do. Roughly a day after I removed the laser, my then-future-self but now-past-self wrote another note “ Yeah gurl, remember that note about the alignment laser – yeah very very true. Don’t ever touch that again. TRUST ME - Its really a bitch!”. Now this time, my past-self did one step better – she tried to etch into my memory the pain involved in realigning the alignment laser. She didn’t do a very good job. I promptly took it down three months later and had to tearfully realign it two weeks after that. Score: Future Self =-2. Past Self = +2. This kept happening. Fast forward to now: you’ll know what transpired in between from the latest scores - Future Self =-5 and Past Self = +5. Notes to future self are now covered in curse words, some in ALL-CAPS and some were just empty pages (an example of my past-self trying the silent treatment on the future-self – “I don’t even wanna talk to you anymore”). The last of these misadventures happened yesterday. As I was wondering how I could improve communications between these different time zones, I finally figured out why we (i.e., my past self and my future self) have such a massive communication gap. No - its not really a memory thing – I always remember the warnings and have slight forebodings of the pain involved. It is not a language problem either - I have known and will know the meaning of “DON’T”. The vile vicious virulent villain is the middle man – the present self! AKA: yours truly, ME (oh man, it sucks to be the bad guy)! The minute the thought to move the alignment laser enters my head, I start playing with the laser’s knobs (physicists like to touch knobs – to see how sensitive they are [that’s what she said!]). Of course, when things are aligned and you are turning knobs just a wee-bit, everything seems under control. The middle (wo)man gets confident. I start thinking, “oh my past self aligned optics like a little girl (the expressions somehow seems less punchy than throwing-like-a-girl, or hitting-like-a-girl. Nevertheless, it is meant to communicate the same sort of disdain). This must have looked hard to her. Haha! Look at me now – I am the queen of optics…and this is my humble subject. My wish is its command”. Then of course in my vain red-queenly manner I proceed to “chop off the optic’s head” and almost immediately conjure to disappear from the scene leaving nothing behind but a I-told-you-so past self and a very disappointed what-have-I-done future self. The problem is ME. Or YOU - if the me we are talking about is you.

We’ll turn to the moral of the story (the Duchess would have wanted this anyways) to explain the last line: turns out neuropsychology says that this miscommunication is a well known phenomenon. We all work very hard, sacrifice our youth building something that we think we would value when we turn older. Be it pulling all-nighters in college, becoming stressed-out lawyers and consultants or renouncing the castle to elope with a knight (OMG, that is so 2008!) When you get there – you aren’t any happier! Why? Because the future self isn’t really your past self. You have changed. Turns out the best way to judge whether you will be happy in a particular career, lifestyle, country is to poll multiple people doing what you want to do in the future. The chances are you will side with the majority when you get there. Only now – you can save yourself from the pain involved in getting there - if it turns out that there is not the never-never-land you were hoping for! The key is not to ask questions like “oh, are you happy you did this?”, because most people cannot be objective about their life-changing decisions, but questions about their day-to-day life and then trying to picture yourself in their shoes. I know what you are thinking “but I am not them. I am different. Smarter, perhaps prettier, but definitely better”. That’s also a known phenomenon. It’s called the middle man - you or, in-my-case, me!

Ps: Now you probably realize why I am taking so long to do my PhD. Not only do I keep doing the same things over and over again (“hey, that’s how you become an expert !”), but there are voices in my head – all competing for attention and shown in different colors. That or I have severe ADD. I don’t know – lets go ride bikes.

PPs: This post is dedicated to Alice (the one in wonderland) and Lewis Carroll. I just finished rereading it. Note to future self (both mine and yours): “It’s brilliant . Reread it in about 5 years!” :).

The Bank-Job: A real-life thriller

This is one of those things that you'd like to assume is an urban legend; one of those little facts about the world that as the potential to totally blow your mind. I haven't been this astounded that the world works this way since I found out peoples wages aren't indexed to inflation. This is the story of how banks, quite legally, counterfeit money and charge you interest on it. Hey, it’s a great job if you can get it…

Imagine a small town out west somewhere that has been living peacefully without a bank all these years. When the bank comes to town they are all happy to have a place that will protect there money AND pay them to do it! Life is hard out here and they’re a little suspicious of a free lunch, but after word gets out that you don’t have to sit through a sermon everyone piles in and is happy to be rid of Jimbob. (Jimbob owns the gun shop and used to charge a small rent to let people keep their savings in his safe.)

Let’s see what happens to the money after the bank gets a hold of it. We’ll follow the $100 that Tom deposits. Well, Tom comes in with his money and they assure him it will be safe in their big fancy vault. They show him the 10 inch thick doors and the absurdly large wheel you use to open the door. Then they tell him he can come and get his money whenever he wants, or he could just spend it with these here checks. Tom likes the sound of that and hands over his hard earned dough. As soon as Tom turns around the bank carefully places $10 of his money in the vault, and throws the other $90 in the “For Loan” pile. You see banks operate under what they call a “Fractional Reserve System”, as Jimmy Stewart famously explained in “It’s a Wonderful Life”, the bank keeps some fraction of the deposits on hand incase you as for it, in this case 10%, and loans the rest out.






Now the bank makes a $90 loan to little Billy and charges him 8% interest. They give 1% to Tom and keep the rest for all their hard work right? Well, yes, but what Jimmy didn’t explain is what the late, great Paul Harvey would call The Rest of the Story:

Now Billy spends the $90 of a new bike for his paper route. Then Sam, who owns the bike shop, deposits it in his new fangled account. At which point the banker carefully puts $9 in the vault and throws the other 81 in the “For Loan” pile. Did you catch what just happened there?








Now, where before the there was 100 dollars, there is promise of 190 dollars! They claim both Tom and Sam can come get their money whenever they want and the bank is earning 8% interest in 171 dollars! Of course that 81 dollar loan is spent as well and finds its way back to the bank who keeps a portion of it in the safe and loans the rest out at 8%. This process goes on with the money always finding its way back to the bank to be re-loaned. After awhile the situation might look like this:






















And this process continues until eventually, inevitably, Toms entire real $100 is consumed as “reserves” to support $1000 in deposits and $900 in loans on which the bank is earning 8% interest. $900 x 8% = $72. 1% of this they pay to depositors, leaving $63 for the bank! That’s a 63% return for all the money the town puts in the bank!

More importantly there is now 1000 dollars in deposits that the bank claims you can come and get whenever you want. And the problem isn’t just that the money is loaned out “to support your community” as is claimed in “It’s a Wonderful Life”, it’s that 900, of the 1000 dollars does not even exist!

Talk about false advertising! Is there any other business allowed to exist, that is so premised upon a lie? It is an impossibility that your money can be both in your account at your disposal, AND loaned to someone else. It’s a scheme that would make Ponzi blush, but like all good marks were blinded by the promise of something for nothing.