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BOOKS - General, Non-finance literature
nipper
post Posted: Jan 4 2015, 12:55 PM
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John Kampfner is the author of The Rich, From Slaves to Super Yachts, a 2000-Year History, published by Little Brown, $32.99.

[quote]This wasn't any old ­lobster. It was super-sized, a giant crustacean struggling to fit onto my bone-china plate. ­Opposite me the wife of a British diplomat smiled nervously, sharing my anxiety about how to tackle this dead ­monster. This was 1992, my first social engagement with a Russian oligarch. Vladimir Gusinsky and his wife Lena had invited a small group to dinner to their ­Moscow apartment, just down the road from the city's largest sculpture of Lenin at October Square. The waiters in their bow ties hovered around us with excessive ­courtesy, constantly refilling our glasses with Chablis premier cru.

Russia was changing before my eyes. A tiny slew were getting rich beyond their wildest dreams. Only a year or two earlier, the roles were reversed.

Although the best I could offer guests was a can of Heineken, from a foreigners-only hard-currency shop, I knew that, as part of a small band of comfortable Western expats, I was the object of envy.


By the middle of that decade and back in London, I watched the gradual invasion of the first generation of New Russians. Some of those friends of mine would pick disdainfully at their food at Gordon Ramsay's three-Michelin-star restaurant in Chelsea, leaving most of it on their plate for show. Or they would drop into conversation their most recent long weekend in Cap Ferrat.

Thus began my personal fascination with the global super rich, their lifestyles, but more – their psychology.

First things first: we should admit that we are obsessed with the super rich. We envy and abhor their lifestyles. We say we loathe what they have done to society, but we love to read about them in glossy magazines and to chart their success on lists.

How have these people achieved their success – if success is the right term for the sudden appropriation of wealth? Why are they so blessed? Are they smarter, more determined or just luckier than the rest of us? Is the present crop of wealthy any ­different from those who have come before?

We think in the second decade of the third millennium AD that we are living through a uniquely divisive and unequal era.

But are we? I decided to investigate, to delve into the past – 2000 years in fact – in search of answers.

I asked myself two questions. Do the rich always win? And is there anything new about the contemporary era? In a much shorter time-frame, the past seven years since the global financial crash, a further question could be added: why have the rich got away with it – again? But in the past few months, a supplementary could be inserted: are we, finally, becoming ­exercised about inequality?
The past year has seen a plethora of books on the subject (including mine), but none with the impact of Thomas Piketty's missive, Capital in the Twenty-First Century. It is the kind of book everyone in politics, economics and social policy must claim to have read – or at least to have it on their bookshelves. Perhaps the moment was crying out for Piketty, or perhaps he encapsulated the ­anxieties of an era that had failed to elucidate the concerns shared by pretty much ­everyone – except a few ideological diehards.

Yet across the democratic world, the ­centre-left failed to exploit the huge open goal it had been offered.

Was this because it lacked courage or a compelling intellectual argument? Cue Piketty in early 2014 and his contention that capitalism necessarily increased inequality and that as a result societies became not just more divided, but also less efficient. Many would draw swords with him, but at least the battle had finally been joined.

The task I set myself for my book was less to find an economic solution – that must be the preserve of the specialists – but to delve into history in a search for trends. Immediately I came to a stark conclusion; with the exception of the brief period between the end of the World War II and the start of the "big bang", the deregulation of financial ­markets in the mid-1980s, governments have rarely intervened. Everything we are living through now is consistent with history.

In any case, how do you define the rich? How then to disentangle those who have become well-off through their own ­endeavours, by opening a business or ­working hard in what used to be known as "the professions", and those who got rich quick on the commodity or money markets? Best to stick with the (only slightly) narrower term: the super rich. And where better to start than the global money launderette – London.

Politicians continue to struggle to ­disentangle entrepreneurs from spivs and business leaders from plutocrats. Once you have reached the top, it is easy to manage (or launder) your reputation. The robber ­barons did it in the mid-19th century.

Now it is easier than ever. Britain has an entire service sector designed to cater to the needs of the super rich. At the heart of this mechanism is tax avoidance. Everything possible is done to minimise the debt they owe to the host country for building the roads that their limousines whisk them along, and for providing a police force and other emergency services that keep them safe. Their knowledge of Britain's National Health Service or state education may be sketchier. Their homes are almost certainly owned by an offshore company, ensuring that they do not even pay the small dues they are charged.

London is the capital of the global nomads – the sheikhs, the geeks, the ­oligarchs and bankers of no fixed abode and no fixed allegiance, except to accumulating and spending ever more money.
These are the 0.1 or 0.01 per cent. They fraternise among themselves in their luxury homes in Mayfair or Chelsea, in country mansions or on the super yachts moored off St Tropez or Portofino. The private jet and helicopter are always on hand to whisk them from one to the other.

They compare themselves only against each other, leading them often to be ­dissatisfied with their lot, believing themselves to be not wealthy or powerful enough. They pay as little back to the state in tax as they can get away with. They reinforce each other in their certainties, convinced that their acquisition of wealth, and spending of it through charitable enterprise, has earned them their place at the apex of global decision-making and moral ­supremacy. Lloyd Blankfein, chairman and chief executive of Goldman Sachs, spoke for many of his group when he famously quipped that he was "doing God's work".

From the Roman property scammer turned general, Marcus Licinius Crassus, to the Malian king, Mansa Musa (possibly the richest man in history), via Cosimo de' Medici and the bankrolling of Renaissance Florence, to the conquistadores and the great American tycoons, the same impulses emerge.



At an early stage, the laws of gravity ­intervene. The richer you are, the richer you become. Equally, the poorer you are, the easier it is to fall further. Investment advisers say that making the first 10 million is the hard part. Once you've achieved that, beneficent tax regimes, lawyers and ­regulators will do the rest.

In order to consolidate your wealth, you need to buy influence among the political leadership. Identify the power brokers and ensure they are on your side. The German industrialist, Alfred Krupp, who would sell anything to anyone, ensured that not just the Kaiser, but also the Shah of Persia and the Emperor of Brazil were impressed by the entertainment on offer at his Villa Hügel. Medici extended a solemn invitation to popes, dukes and rival businessmen to share Mass with him in his intimate private chapel at the palazzo that bears his name. The modern-day fundraiser for the president or game of tennis with the prime minister might be seen as tame.

The super rich are compulsively competitive – in the making of money and spending of it. Opulence has been ­manifested differently over the ages, but the psychology underlying it has rarely changed. For slaves, concubines, gold and castles of ancient and mediaeval times, read private jets, holiday islands and football and baseball clubs of the contemporary era.

As in centuries past, for most of the super rich, status symbols are not enough. They become bored and anxious to be remembered for more than making a fortune. They employ a well-paid army to look after their brand, to wash away inconvenient facts about their past. Lawyers are hired to slap libel writs; public relations agents massage the ­message. Crisis PR is a booming business, helping to divert attention from the antics of offspring and gold-diggers. The shadier the road to wealth that is taken, the more ­determined is the billionaire to become a ­pillar of the new establishment, emulating the manners and the lifestyles of those who became rich before them.

In ancient times, it was important to fund an army. During the Roman republic, Crassus made his money by dubious means – training his slaves to become fire-fighters just as fires were mysteriously taking place across Rome. He then built new properties, providing cheap accommodation to ­senators who would be beholden to him.In mediaeval Europe, the papacy was the key route up the social ladder. One of the ­surest routes to profit for the Medici Bank was the Vatican account. Trouble was that, according to the scriptures, lending was a sin. The older he became, the more ­exercised did Cosimo become at the fate that might meet him on death.

The pope was happy to absolve him of any financial impropriety. Yet Medici wanted to leave a tangible mark, funding churches, hospitals, monasteries and orphanages. He is now remembered almost exclusively for his munificence, rather than the route he took to attaining wealth: reputationmanagement par excellence.

In some societies, particularly Islamic ones, the wealthy bestow their largesse on religious foundations. It is said that Mansa Musa bestowed so much gold on his Hajj that the price remained depressed for a decade. On that pilgrimage to Mecca, he ordered a mosque built wherever his procession stopped en route. Centuries later, Suleiman the Magnificent funded religious schools. Present day rulers in the Gulf follow in that line. In the United States, many a wealthy individual will fund a church.

Education philanthropy is another sure route to respectability. Russians and ­Chinese are ­dispensing their largesse to British private boarding schools. Harvard is spoilt for choice for ­opportunities to name its buildings.

But most of the action is in art. Nothing beats a gallery opening for the wealthy to feel wanted. From John Paul Getty to Roman Abramovich to the Qatari royal family, they scour the auction houses to snap up any old master or contemporary work of note.

Once that is secured, they need to build their own galleries to house them. Status and reputation have always followed money.

In the complex psychology of the ­super rich, victimhood is a natural ­concomitant to entitlement. The more extravagant the individual, the angrier is their response to criticism. At the height of the protests by the Occupy movement, Tom Perkins, a Californian tech venture capitalist, described the treatment of the 1 per cent as akin to the Nazis' treatment of the Jews.

In 1774, one of Britain's wealthiest traders was summoned to parliament to account for profligacy and corruption. Frustrated by the MPs' persistent questioning, he told them: "I walked through vaults which were thrown open to me alone, piled on either hand with gold and jewels. Mr Chairman, at this moment I stand astonished at my own moderation."

Nearly two-and-a-half centuries later, another rich and confident man was equally affronted: "There was a period of remorse and apology for banks. I think that period needs to be over." Lord Clive of India and Bob Diamond of Barclays – who resigned in 2012 after the controversy over the manipulation of inter-bank lending rates – share many characteristics. They both claimed to be self-made – the truth was less romantic. They displayed skill, guile and tenacity to get to the top and they could not understand why anybody might resent their success.

Like the robber barons, billionaire philanthropists such as Warren Buffett and Bill Gates have come to believe that they are best placed to spend the money that might otherwise have gone into state budgets from taxation. These titans believe that the same brain power that produced technological invention can be transferred to solving some of the world's most intractable problems in health and poverty.

It is no coincidence that Buffett gave Gates the copy of a small book which, to the ­super rich, is the bible. The Gospel of Wealth helps explain why some great men become rich, and why most rich men become great. It was written in 1889, at the height of the Gilded Age, by Andrew Carnegie, who made his fortune carving up the steel mills, ­railroads and banks with the likes of John D. Rockefeller. Having made his money, Carnegie set his sights elsewhere, endowing libraries and other education institutions across the US and in his native Scotland.

Carnegie sets out the standard mantra for wealth creation of flexible labour markets, low taxation and soft regulation. So far, so predictable; what matters is what comes next. The richest man in America when he sold his company, to financier J.P. Morgan, Carnegie became a disciple of Herbert ­Spencer, an English thinker of the Darwin school who wrote copiously about man's drive for perfection.

There must, Carnegie believed, be a ­reason why he and his friends had become so rich, and there must be a purpose for their wealth. Carnegie's Gospel spelt out in detail the obligation of great men to perform ­philanthropic deeds.

Giving money away in your will is not good enough, it has to be ­dispensed with during your lifetime.

"The man who dies thus rich dies disgraced," Carnegie wrote. More than 150 years on, the super rich have adopted the mantra of ­creating wealth, but not of passing it on. ­Politicians and ­policymakers are thankful for whatever crumbs are flicked off the table.

isgrace is the last thing on the minds of Carnegie's successors.

he 1 per cent and the 0.1 to 0.01 per cent are now truly international. They can, and do, come from across the globe, but they end up in the same places. They converge on familiar haunts. They alight on London, Singapore and Zurich for the "no questions asked" ­philosophy of their governments and banks and the indulgent approach to tax. They buy properties in Paris and New York, and moor their yachts on the coastline between St Tropez and Portofino. They share ­mutually reinforcing lifestyles and values, they speak each other's language.

Do the examples of Mexico's Carlos Slim, Nigeria's cement billionaire Aliko Dangote and Li Ka-Shing in Hong Kong show that anyone, anywhere, can join the ranks of the super rich? In theory, yes, but in ­practice, the local environment counts for a considerable amount.

he Nobel laureate Herbert Simon ­estimated that social capital is responsible for at least 90 per cent of what people earn in wealthy societies such as those of the US and north-west Europe. By social capital, he meant natural resources, infrastructure, technology, the rule of law and good ­government. These are the foundations on which the rich can begin their work.

As early as 1995, Warren Buffett, the man on whom we can always rely on for a sage remark about wealth, pinpointed the crucial advantage he had enjoyed on his way to untold riches: "Society is responsible for a very significant percentage of what I've earned," he remarked. "If you stick me down in the middle of Bangladesh or Peru, you'll find out how much talent is going to produce in the wrong kind of soil."

The instinct to make and accumulate money goes to the core of human behaviour. That much is fixed. The variable in the ­equation is society's requirement to tax and regulate that activity. With the exception of the period between 1945 and 1979 or 1986 – the rise to power of Margaret Thatcher or the opening up of stockmarkets in the 1980s in the big bang – societies have indulged the super rich.

In earlier times, access to information or lack of it might have prevented a challenge, but the acquiescence of modern times is more curious. The most persuasive voice for change now emerged in 2013 with Pope Francis's encyclicals about poverty and "unbridled capitalism". In a message to the rich and powerful attending the 2014 World Economic Forum in Davos, he urged: "I ask you to ensure that humanity is served by wealth and not ruled by it."

His has become a powerful moral voice for change, but the more rational arguments for greater distribution of wealth fail to gain traction. Politicians have displayed little desire, or courage, to ask the important questions, even less so now as the West emerges tentatively out of recession.

The voting public, meanwhile, is ­confused about wealth. When is it excessive and when is it deserving?

And even where ­people can agree on deserving and undeserving routes to wealth, there appears little consensus on what ­constitutes excessive wealth. Or, to render this into a more tangible conundrum: at what point does taxation start to be punitive and a disincentive to ­genuine entrepreneurship? The lack of clarity on these questions ­reinforces the status quo.

It is therefore less to the wealthy, but more to ourselves that we should look for answers.

Why is it, amid all the talk of injustice, that voters cleave towards lowering or abolishing inheritance tax – the opposite of what Andrew Carnegie called for – while pressing their noses into the shop fronts of estate agents advertising multimillion-pound properties in London's swankiest neighbourhoods?

The desire to do well, or greed – two sides of the same coin, depending on one's point of view – is as entrenched now as it has ever been. The hegemony of low-tax and ­deregulated markets around the world, ­coupled with ever more ­sophisticated mobile technology, has enabled many to get in on the act. Only a tiny few will get there, by fair means or foul.

They will have pliant ­governments, parliaments, ­regulators and central banks to thank.

As they have always done.[[/quote]



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time."
- Dr John Hussman
 
joules mm1
post Posted: May 20 2014, 01:06 PM
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does anyone have a review of their own regarding
non-fiction
Australia's Secret War by Hal Colebatch ?

i got a promo email about the book and it's pretty eyebrow-raising ...if substantive

thanks, in advance, for your opinion smile.gif



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. . . . . . . . everything has an art
 
triage
post Posted: Dec 7 2013, 07:50 AM
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Regrets? I've had a few, but one which I intend to address in 2014 is the fall-off in the amount of general and recreational reading I do.

And here is a starting list probably as good and as broad as any to work from, from The Economist.

http://www.economist.com/news/books-and-ar...n-policy-Israel

(funnily titled link though...not sure why Israel gets a mention unsure.gif )

I've got a book about China's prospects by Michael Pettis and "The unfinished global revolution" by Mark Mallock-Brown idling on the runway for my Chrissie reading, and I still have to get to "The Quest" by Daniel Yergin which was recommended to me on this forum, and a couple of other China books (one about WWII and the other about its transition to a communist state). But I think I will try to focus more on fiction writing than I have in the recent past: the novel by that young kiwi, Eleanor Catton, appears to be top notch though at over 800 pages that would likely be a couple of months of bed-time reading for me.








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"The market can stay irrational longer than you can stay solvent." John Maynard Keynes

"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Rudiger Dornbush

"It is the mark of an educated mind to be able to entertain a thought without accepting it." Aristotle
 
nipper
post Posted: Mar 11 2013, 09:33 PM
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In Reply To: nipper's post @ Jan 19 2013, 03:50 PM

Gulag: a History Anne Applebaum 2004. Based on archives, interviews, new research and recently published memoirs, the book explains the role that the camps played in the Soviet political and economic system. It also describes daily life in the camps: how people lived, worked, ate, slept, fought, died and survived. .... All true, folks

Iron Curtain: The Crushing of Eastern Europe, 1944-56. By Anne Applebaum. Doubleday; 608 pages; Author picks through the rubble of eastern Europe’s most difficult decade and traces how, in the end, the Soviet empire’s ambitions there contained the seeds of its own destruction.

Stasiland Anna Funder 2002. Scary stuff.

Behind the Beautiful Forevers: Life, Death and Hope in a Mumbai Undercity. By Katherine Boo. Random House; 288 pages; A wonderful read; and the acuity is such that I started wondering about our own 'system'



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time."
- Dr John Hussman

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nipper
post Posted: Jan 19 2013, 03:50 PM
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In Reply To: nipper's post @ Jan 19 2013, 03:47 PM

The Signal and the Noise: The Art and Science of Prediction, by Nate Silver published by Allen Lane, 2012


The fashionable term now is “Big Data”. IBM estimates that we are generating 2.5 quintillion bytes of data each day, more than 90 per cent of which was created in the last two years.

This exponential growth in information is sometimes seen as a cure-all, as computers were in the 1970s. Chris Anderson, the editor of Wired magazine, wrote in 2008 that the sheer volume of data would obviate the need for theory, and even the scientific method.

This is an emphatically pro-science and pro-technology book, and I think of it as a very optimistic one. But it argues that these views are badly mistaken. The numbers have no way of speaking for themselves. We speak for them. We imbue them with meaning. Like Caesar, we may construe them in self-serving ways that are detached from their objective reality.

Data-driven predictions can succeed – and they can fail. It is when we deny our role in the process that the odds of failure rise. Before we demand more of our data, we need to demand more of ourselves.

This attitude might seem surprising if you know my background. I have a reputation for working with data and statistics and using them to make successful predictions. In 2003, bored at a consulting job, I designed a system called PECOTA, which sought to predict the statistics of Major League Baseball players. It contained a number of innovations – its forecasts were probabilistic, for instance, outlining a range of possible outcomes for each player – and we found that it outperformed competing systems when we compared their results. In 2008, I founded the website FiveThirtyEight, which sought to forecast the upcoming election. The FiveThirtyEight forecasts correctly predicted the winner of the presidential contest in 49 of 50 states as well as the winner of all 35 US Senate races.

After the election, I was approached by a number of publishers who wanted to capitalise on the success of books such as Moneyball and Freakonomics  that told the story of nerds conquering the world. My book was conceived of along those lines – as an investigation of data-driven predictions in fields ranging from baseball to finance to national security.

But in speaking with well more than 100 experts in more than a dozen fields over the course of four years, reading hundreds of journal articles and books, and travelling everywhere from Las Vegas to Copenhagen in pursuit of my investigation, I came to realise that prediction in the era of Big Data was not going very well. I had been lucky on a few levels: first, in having achieved success despite having made many of the mistakes that I will describe, and second, in having chosen my battles well.

Baseball, for instance, is an exceptional case. It happens to be an especially rich and revealing exception, and the book considers why this is so – why a decade after Moneyball, stat geeks and scouts are now working in harmony.

The book offers some other hopeful examples. Weather forecasting, which also involves a melding of human judgment and computer power, is one of them. Meteorologists have a bad reputation, but they have made remarkable progress, being able to forecast the landfall position of a hurricane three times more accurately than they were a quarter-century ago. Meanwhile, I met poker players and sports bettors who really were beating Las Vegas, and the computer programmers who built IBM’s Deep Blue and took down a world chess champion.

But these cases of progress in forecasting must be weighed against a series of failures.

If there is one thing that defines Americans – one thing that makes us exceptional – it is our belief in Cassius’s idea that we are in control of our own fates. Our country was founded at the dawn of the Industrial Revolution by religious rebels who had seen that the free flow of ideas had helped to spread not just their religious beliefs, but also those of science and commerce. Most of our strengths and weaknesses as a nation – our ingenuity and our industriousness, our arrogance and our impatience – stem from our unshakable belief in the idea that we choose our own course.

But the new millennium got off to a terrible start for Americans. We had not seen the September 11 attacks coming. The problem was not want of information. As had been the case in the Pearl Harbour attacks six decades earlier, all the signals were there. But we had not put them together. Lacking a theory for how terrorists might behave, we were blind to the data and the attacks were an “unknown unknown” to us.

There also were the widespread failures of prediction that accompanied the recent global financial crisis. Our naive trust in models, and our failure to realise how fragile they were to our choice of assumptions, yielded disastrous results. On a more routine basis, meanwhile, I discovered that we are unable to predict recessions more than a few months in advance, and not for lack of trying. While there has been considerable progress made in controlling inflation, our economic policymakers are otherwise flying blind.

The forecasting models published by political scientists in advance of the 2000 presidential election predicted a landslide 11-point victory for Al Gore. George W. Bush won instead. Rather than being an anomalous result, failures like these have been fairly common in political prediction. A long-term study by Philip Tetlock of the University of Pennsylvania found that when political scientists claimed that a political outcome had absolutely no chance of occurring, it nevertheless happened about 15 per cent of the time. (The political scientists are probably better than TV pundits, however.)

There has recently been, as in the 1970s, a revival of attempts to predict earthquakes, most of them using highly mathematical and data-driven techniques. But these predictions envisaged earthquakes that never happened and failed to prepare us for those that did. The Fukushima nuclear reactor had been designed to handle a magnitude 8.6 earthquake, in part because some seismologists concluded that anything larger was impossible. Then came Japan’s horrible magnitude 9.1 earthquake in March 2011.

There are entire disciplines in which predictions have been failing, often at great cost to society. Consider something like biomedical research. In 2005, an Athens-raised medical researcher named John Ioannidis published a controversial paper titled Why Most Published Research Findings Are False. The paper studied positive findings documented in peer-reviewed journals: descriptions of successful predictions of medical hypotheses carried out in lab experiments. It concluded that most of these findings were likely to fail when applied in the real world. Bayer Laboratories recently confirmed Ioannidis’s hypothesis. They could not replicate about two-thirds of the positive findings claimed in medical journals when they attempted the experiments themselves.

Big Data will produce progress – eventually. How quickly it does, and whether we regress in the meantime, will depend on us.



Fear of the future

Biologically, we are not very different from our ancestors. But some Stone Age strengths are now information-age weaknesses.

Human beings do not have very many natural defences. We are not all that fast, and we are not all that strong. We do not have claws or fangs or body armour. We cannot spit venom. We cannot camouflage ourselves. And we cannot fly. Instead, we survive by means of our wits. Our minds are quick. We are wired to detect patterns and respond to opportunities and threats without much hesitation.

“This need of finding patterns, humans have this more than other animals,” I was told by Tomaso Poggio, an MIT neuroscientist who studies how our brains process information. “Recognising objects in difficult situations means generalising. A newborn baby can recognise the basic pattern of a face. It has been learnt by evolution, not by the individual.”

The problem, Poggio says, is that these evolutionary instincts sometimes lead us to see patterns when there are none there. “People have been doing that all the time,” Poggio said. “Finding patterns in random noise.”

The human brain is quite remarkable; it can store perhaps three terabytes of information. And yet that is only about one one-millionth of the information that IBM says is now produced in the world each day. So we have to be terribly selective about the information we choose to remember.

Alvin Toffler, writing in the book Future Shock in 1970, predicted some of the consequences of what he called “information overload”. He thought our defence mechanism would be to simplify the world in ways that confirmed our biases, even as the world itself was growing more diverse and more complex.

Our biological instincts are not always very well adapted to the information-rich modern world. Unless we work actively to become aware of the biases we introduce, the returns to additional information may be minimal – or diminishing.

The information overload after the birth of the printing press produced greater sectarianism. Now those different religious ideas could be testified to with more information, more conviction, more “proof” – and less tolerance for dissenting opinion. The same phenomenon seems to be occurring today. Political partisanship began to increase very rapidly in the US at about the time that Toffler wrote Future Shock and it may be accelerating even faster with the advent of the internet.

These partisan beliefs can upset the equation in which more information will bring us closer to the truth. A recent study in Nature found that the more informed that strong political partisans were about global warming, the less they agreed with one another.

Meanwhile, if the quantity of information is increasing by 2.5 quintillion bytes per day, the amount of useful information almost certainly isn’t. Most of it is just noise, and the noise is increasing faster than the signal. There are so many hypotheses to test, so many data sets to mine – but a relatively constant amount of objective truth.

The printing press changed the way in which we made mistakes. Routine errors of transcription became less common. But when there was a mistake, it would be reproduced many times over, as in the case of the Wicked Bible.

Complex systems like the world wide web have this property. They may not fail as often as simpler ones, but when they fail they fail badly.

Capitalism and the internet, both of which are incredibly efficient at propagating information, create the potential for bad ideas as well as good ones to spread. The bad ideas may produce disproportionate effects. In advance of the financial crisis, the system was so highly levered that a single lax assumption in the credit ratings agencies’ models played a huge role in bringing down the whole global financial system.

Regulation is one approach to solving these problems. But I am suspicious that it is an excuse to avoid looking within ourselves for answers. We need to stop, and admit it: we have a prediction problem. We love to predict things – and we aren’t very good at it.






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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time."
- Dr John Hussman

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nipper
post Posted: Jan 19 2013, 03:47 PM
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In Reply To: nipper's post @ Jan 19 2013, 03:45 PM

The journey to this idea of antifragility was, if anything, nonlinear. I suddenly realised one day that fragility – which had been lacking a technical definition – could be expressed as what does not like volatility, and that what does not like volatility does not like randomness, uncertainty, disorder, errors, stressors etc. Think of anything fragile, say, objects in your living room such as the glass frame, the television set, or, even better, the china in the cupboards. If you label them “fragile”, then you necessarily want them to be left alone in peace, quiet, order, and predictability. A fragile object would not possibly benefit from an earthquake or the visit of your hyperactive nephew. Further, everything that does not like volatility does not like stressors, harm, chaos, events, disorder, “unforeseen” consequences, uncertainty, and, critically, time.

And antifragility flows – sort of – from this explicit definition of fragility. It likes volatility et al. It also likes time. And there is a powerful and helpful link to nonlinearity: everything nonlinear in response is either fragile or antifragile to a certain source of randomness.

The strangest thing is that this obvious property that anything fragile hates volatility, and vice versa, has been sitting completely outside the scientific and philosophical discourse. Completely. And the study of the sensitivity of things to volatility is the strange business specialty in which I spent most of my adult life, two decades – I know it is a strange specialty, I promise to explain later. My focus in that profession has been on identifying items that “love volatility” or “hate volatility”; so all I had to do was expand the ideas from the financial domain in which I had been focused to the broader notion of decision making under uncertainty across various fields, from political science to medicine to dinner plans.

And in that strange profession of people who work with volatility, there were two types. First category – academics, report writers, and commentators who study future events and write books and papers; and, second category, the practitioners who, instead of studying future events, try to understand how things react to volatility (but practitioners are usually too busy practitioning to write books, articles, papers, speeches, equations, theories and get honoured by Highly Constipated and Honorable Members of Academies). The difference between the two categories is central: as we saw, it is much easier to understand if something is harmed by volatility – hence fragile — than try to forecast harmful events, such as these oversized Black Swans. But only practitioners (or people who do things) tend to spontaneously get the point.

Nassim Nicholas Taleb is distinguished professor of risk engineering at New York University. He is the author of, most famously, The Black Swan, Random House, 2007, which is about unpredictable events and peoples’ retrospective explanations for them. He is a former financial markets trader. The above is an edited extract from Antifragile: How to live in a world we don’t understand, by Nassim Nicholas Taleb, published by Penguin.



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time."
- Dr John Hussman
 


nipper
post Posted: Jan 19 2013, 03:45 PM
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In Reply To: nipper's post @ Dec 9 2012, 01:25 PM

Thinking, Fast and Slow by Daniel Kahneman ; Farrar, Straus and Giroux 2011


Behavioralists, Kahneman included, have been cataloging people’s systematic mistakes and nonlogical patterns for years. A few of the examples he cites:

1. Framing. Test subjects are more likely to opt for surgery if told that the “survival” rate is 90 percent, rather than that the mortality rate is 10 percent.

2. The sunk-cost fallacy. People seek to avoid feelings of regret; thus, they invest more money and time in a project with dubious results rather than give it up and admit they were wrong.

3. Loss aversion. In experiments, most subjects would prefer to receive a sure $46 than have a 50 percent chance of making $100. A rational agent would take the bet. Remarkably, and for similar reasons, golfers putt better when missing would leave them a stroke behind.



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time."
- Dr John Hussman
 
nipper
post Posted: Dec 9 2012, 01:25 PM
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triage (and others who seem to care about such things), I have been reading Niall Ferguson's The Great Degeneration; How Institutions Decay and Economies Die 2012, based on 2012 BBC4 Reith lecture
text at http://www.bbc.co.uk/programmes/b01jmxqp or podcast http://www.bbc.co.uk/podcasts/series/reith

And also in the reading mix of late, following the Stalingrad theme of August posting

Life and Fate, by Vasiliy Grossman written 1960, suppressed (the book was arrested (!), made it to the West by 1980 - absolutely great, all 855 pp.)

Everything Flows by Vasiliy Grossman - more patchy, but full of powerful chapters. finished around his death in 1964, collectivisation, the Ukrainian famine, plus plus

and a collection of stories, articles etc (ranging from narrow polemicism to broad sweep of the human condition) The Road, Journalism & Essays by Vasiliy Grossman ed, by Robert Chandler 2010

Jerusalem; a Biography by Simon Sebag Montfiore 2011 was good overview of the place, through the centuries/ millenia

A Spectator's Guide to World Religions by John Dickson - outlines history and beliefs of the world's five major religions, Hinduism, Buddhism, Judaism, Christianity and Islam; & urges readers to confront the similarities and differences between the great faiths

and lastly, Young Mandela, The Revolutionary Years by David James Smith 2010 digs into newly discovered government documents and firsthand interviews prior to his incarceration. less saint, more human



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time."
- Dr John Hussman

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triage
post Posted: Dec 8 2012, 08:01 AM
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The Economist magazine has put out their list of books for 2012. Some business / finance stuff there but also lots of pointers for general reading as well, even one on our man Warnie...

http://www.economist.com/news/books-and-ar...ec/page_turners



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"The market can stay irrational longer than you can stay solvent." John Maynard Keynes

"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Rudiger Dornbush

"It is the mark of an educated mind to be able to entertain a thought without accepting it." Aristotle

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alonso
post Posted: Oct 28 2012, 10:13 AM
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Here's another one that might interest post-apocalyptic sci-fi fans:
http://archive.org/details/ACanticleForLiebowitz



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"The optimist proclaims that we live in the best of all possible worlds. The pessimist fears this is true"

"What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom." Adam Smith
 
 


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