Business Acumen Didn’t Help The Missing Link

Posted on by David Wright

First caveat, this research was all done before the dawn of the reproducibility movement, so take all of this with a grain of salt. Some day hopefully all discussion of science requires considering this. Anyway, onto the show.

There seems to be this common finding in psychology literature: people make accurate snap judgments about certain social qualities of others.

The term thin slice comes from a frequently cited article by Nalini Ambady and Robert Rosenthal, in which subjects evaluated thirty-second silent video clips of instructors teaching a class.’ Subsequent analysis found that these brief evaluations predicted the instructors’ end-of-semester student ratings. Their work built on earlier research that found a similar predictive power in job interviews,’ where the first impressions were critical for the eventual hiring decision.

You know, trust your gut and all that. Here’s some more of the same theme:

Judgments made after a 100-ms exposure correlated highly with judgments made in the absence of time constraints, suggesting that this exposure time was sufficient for participants to form an impression.

Great. So here’s my question: why the hell is it so hard to figure out whether a job candidate will be any good? Consider the findings of employment-related thin-slice research: it can predict whether the person is hired or not. It cannot predict if the person will be any good on the job. Here’s a quote from this paper:

DeGroot and Motowidlo (1999) found that actual performance ratings of managers in a news-publishing company were associated with naive raters’ judgments. Ratings of 10-second clips of interviews of 22 managers on liking, trust, competence, dominance, persuasiveness, influence and willingness to help the manager, when combined into a composite, were significantly positively correlated with job performance ratings by their supervisors.

In contrast, a study on the vocal characteristics of direct salespeople found a relation between certain microtraits and actual sales performance, but no relation between thin-slice trait judgments and actual sales performance (Peterson, Cannito & Brown, 1995). Twenty-one direct salespeople gave audiotaped, scripted sales-pitch introductions, which were five sentences and 64 words long. Speaking rate, average pause duration, loudness, variability and fundamental frequency (the vibration rate of the vocal folds in the throat) were measured and a sample of housewives who were representative of the target audience, rated the salespeople on questions related to the salespeople’s personality characteristics and rated their own receptivity toward the salespeople. The housewives were able to detect difference in speaking rates, but this was not related to differences in their perceptions of the salespeople. In addition, the housewives judgments of attitude and receptivity were not correlated with sales performance.

What can we learn from all this? Why don’t we have a basic intuition for business ability? It seems that business skills are simply not something that mattered in the evolutionary crucible. Idle speculation here but maybe things like social status and dominance are good things to snap judge because they help avoid costly conflict.

Business, though? Cro-Mangon man says: “Meh”.

Psychology Fights BS

Posted on by David Wright

I like the idea of psychology because it lets me anchor intuition about others in something more concrete. Perhaps unsurprisingly for a field so deeply susceptible to BS, psychology research is currently at the forefront of the reproducibility movement. Consider Ed Yong’s reporting work:

“Some people are concerned that this will damage psychology as a whole and the public will perceive an epidemic of fraud,” says Simonsohn. “I think that’s unfounded.” He notes that retractions are common in many fields, and cites the case of anaesthesiologist Yoshitaka Fujii, who was recently found to have fabricated data in at least 172 papers.

“We in psychology are actually trying to fix things,” he says. “It would be ironic if that led to the perception that we are less credible than other sciences are. My hope is that five years from now, other sciences will look to psychology as an example of proper reporting of scientific research.”

It’s important to realize that much of scientific research is BS. At least psychology, unlike economics, has real experiments to reproduce!

The Singularity Is Here

Posted on by David Wright

Singularity is a tongue-in-cheek, of course. Read this if you’re unfamiliar with the idea.

Ok now start here with Thiel vs Schmidt. I’ll just blockquote Alex Tabarrok with the meat of the debate and the deathblow from Thiel:

PETER THIEL: …Google is a great company.  It has 30,000 people, or 20,000, whatever the number is.  They have pretty safe jobs.  On the other hand, Google also has 30, 40, 50 billion in cash.  It has no idea how to invest that money in technology effectively.  So, it prefers getting zero percent interest from Mr. Bernanke, effectively the cash sort of gets burned away over time through inflation, because there are no ideas that Google has how to spend money.ERIC SCHMIDT: [talks about globalization]

The moderator repeats Thiel’s point:

ADAM LASHINSKY:  You have $50 billion at Google, why don’t you spend it on doing more in tech, or are you out of ideas?  And I think Google does more than most companies.  You’re trying to do things with self-driving cars and supposedly with asteroid mining, although maybe that’s just part of the propaganda ministry.  And you’re doing more than Microsoft, or Apple, or a lot of these other companies.  Amazon is the only one, in my mind, of the big tech companies that’s actually reinvesting all its money, that has enough of a vision of the future that they’re actually able to reinvest all their profits.

ERIC SCHMIDT:  They make less profit than Google does.

PETER THIEL:  But, if we’re living in an accelerating technological world, and you have zero percent interest rates in the background, you should be able to invest all of your money in things that will return it many times over, and the fact that you’re out of ideas, maybe it’s a political problem, the government has outlawed things.  But, it still is a problem.

ADAM LASHINSKY:  I’m going to go to the audience very soon, but I want you to have the opportunity to address your quality of investments, Eric.

ERIC SCHMIDT:  I think I’ll just let his statement stand.

ADAM LASHINSKY:  You don’t want to address the cash horde that your company does not have the creativity to spend, to invest?

ERIC SCHMIDT:  What you discover in running these companies is that there are limits that are not cash.  There are limits of recruiting, limits of real estate, regulatory limits as Peter points out.  There are many, many such limits.  And anything that we can do to reduce those limits is a good idea.

PETER THIEL:  But, then the intellectually honest thing to do would be to say that Google is no longer a technology company, that it’s basically ‑‑ it’s a search engine.  The search technology was developed a decade ago.  It’s a bet that there will be no one else who will come up with a better search technology.  So, you invest in Google, because you’re betting against technological innovation in search.  And it’s like a bank that generates enormous cash flows every year, but you can’t issue a dividend, because the day you take that $30 billion and send it back to people you’re admitting that you’re no longer a technology company.  That’s why Microsoft can’t return its money.  That’s why all these companies are building up hordes of cash, because they don’t know what to do with it, but they don’t want to admit they’re no longer tech companies.

ADAM LASHINSKY:  Briefly, and then we’re going to go to the audience.

ERIC SCHMIDT:  So, the brief rebuttal is, Chrome is now the number one browser in the world.

And now for Bryan Caplan:

Schmidt is pretty clearly stumped. Here’s what I would have said if I were in his shoes:

The reason we’re not investing more in new technology isn’t that we’re out of ideas. It’s that we’re out of ideas that we think will make money. Why are we out of ideas that make money? Because millions of people keep giving away incredible innovations to everyone for free!

Challenge for the audience: Think of something you want. Now use Google to locate whoever’s already providing it for free. I could do this all day.

Google’s “problem,” in short, is what I call consumption-biased technological change:

Sure, high-skilled workers’ incomes have risen a lot faster than other people’s over the last forty years. But iPods, Google, Twitter, and much of the Internet demand virtually zero workers of any skill level. From this perspective, “skill-biased technological change” is a major misnomer. A much more accurate description is consumption-biased technological change. Firms are figuring out ways for small numbers of workers to create tons of value – then give it away to consumers for pennies or less. And as far as I can tell, the CPI totally ignores these benefits.

CPI bias: Now worse than ever. Quality of life: Now better than ever.

Lightning

Posted on by David Wright

I find it weird that we don’t know what causes lightning.

There are two hypotheses noted by Wikipedia:

Cloud particle collision hypothesis

According to this cloud particle charging hypothesis, charges are separated when ice crystals rebound off graupel. Charge separation appears to require strong updrafts which carry water droplets upward,supercooling them to between -10 and -40 °C (14 and -40 °F). These water droplets collide with ice crystals to form a soft ice-water mixture called graupel. Collisions between ice crystals and graupel pellets usually results in positive charge being transferred to the ice crystals, and negative charge to the graupel.[14]

Updrafts drive the less heavy ice crystals upwards, causing the cloud top to accumulate increasing positive charge.Gravity causes the heavier negatively charged graupel to fall toward the middle and lower portions of the cloud, building up an increasing negative charge. Charge separation and accumulation continue until the electrical potential becomes sufficient to initiate a lightning discharge, which occurs when the distribution of positive and negative charges forms a sufficiently strong electric field.[14]

Polarization mechanism hypothesis

The mechanism by which charge separation happens is still the subject of research. Another hypothesis is the polarization mechanism, which has two components:[34]

  1. Falling droplets of ice and rain become electrically polarized as they fall through the earth’s magnetic field;
  2. Colliding/rebounding cloud particles become oppositely charged.

There are several hypotheses for the origin of charge separation.[35][36][37]

Here’s a cool video of lightning captured at 7,207 images per second. Light travels at something like 300,000,000 meters per second so it doesn’t break down the ‘big flash’, but it shows a lot.

Here’s another quote:

How does lightning form? Evidently we’re still trying to figure it out! It all starts in the clouds where both ice crystals and hail stones form:

Scientists believe that as these hail stones fall back through the rising ice crystals, millions of tiny collisions occur. These collisions build up an electric charge which is stored in the cloud like a battery. ”A cloud is very much like a battery, but a battery with a much higher voltage than your typical flashlight battery… not 1.5 volts but 100 million volts.”

But what scientists don’t know is exactly how this electric charge generates lightning. “What remains a major meteorological mystery is how it is that ice particle collisions result in the generation of lightning. We’re very much in the middle ages on that problem.”

From the Discovery Channel’s “Raging Planet” series.

From the Front Lines of Finance

Posted on by David Wright

In a post titled: would you give his small business a loan?

Once we dug deeper, however, we learned some things about the borrower that created problems. First of all, she was on payment plans with three government entities. This immediately knocked her out of the running for an S.B.A. loan — you have to be current on all of your taxes before you can benefit from an S.B.A. guarantee. We can sometimes solve this situation by paying off the back taxes with a six- or 12-month merchant cash advance loan before the borrower gets the S.B.A. loan. But in this case the back taxes were too large, more than she could borrow on this kind of loan.

The hairdresser’s second problem was that she had called her mortgage company a few months earlier and explained that she was having a tough time. She asked the company if she could make interest-only payments for a while. This was an honorable thing to do, but it is likely to give any potential new lender pause. And that was now an issue.

The hairdresser did have some options. For example, she might qualify for a “hard money” real estate loan — a bridge loan in which the lender takes five points upfront and then charges 12 to 14 percent interest for one year until the borrower can refinance through a more traditional source. While this might be her most appealing option, it would come with significant risk — the interest payments alone could destroy her business. As an alternative, she could sell the building, pay off the current note holder, and take the cash. If she took this approach, she would lose the tax advantages of owning her property, but at least she could focus on running her shop and generating cash flow.

Now consider the context of the Great Recession. If your bank is sitting on a stack of non-performing loans it simply cannot afford any more losses lest it need to realize the writedowns of its mortgage book.

Now imagine that because this hairdresser can’t get a loan her business closes. Those people are out of work. And now her suppliers are worse off. A bit a negative feedback loop develops and NGDP expectations are revised downward. Back to the banks and their new nancy-boy risk appetite who pull back even harder on the brake. And on it goes.

That’s a way a financial crisis might contribute to an overall economic downturn.

But remember that in order for a complex system to fail, many many underlying failures are necessary. This is not THE cause of the Great Recession, but it is A cause.

Patents Roundup

Posted on by David Wright

Here’s Posner, here’s the ruling on Samsung. Don’t even get me started on genetic patenting. That’s outrageous. I’m outraged.

There’s some great stuff by Posner:

There are a variety of measures that could be taken to alleviate the problems I’ve described. They include: reducing the patent term for inventors in industries that do not have the peculiar characteristics of pharmaceuticals that I described; instituting a system of compulsory licensing of patented inventions; eliminating court trials including jury trials in patent cases by expanding the authority and procedures of the Patent and Trademark Office to make it the trier of patent cases, subject to limited appellate review in the courts; forbidding patent trolling by requiring the patentee to produce the patented invention within a specified period, or lose the patent; and (what is beginning) provide special training for federal judges who volunteer to preside over patent litigation.

Patents are abused, notably by Apple, but don’t hate the player, hate the game. It’s silly that judges are the ones driving change.

Incidentally, though, it’s interesting that judges ARE a channel for real regulatory / legal change. I was really surprised at how Russ Roberts and Stiglitz mostly agreed with each other in this podcast, except that Stiglitz is optimistic of our ability to change society through the government and Roberts isn’t.

Will someone sue the Federal Reserve in court claiming that they aren’t fulfilling their dual mandate? Is that even possible?

What’s the Difference Between Chris Rock and Allen Iverson?

Posted on by David Wright

Chris Rock cares about practice. Iverson desn’t (commentary).

When beginning to work on a new show, Rock picks venues where he can experiment with new material in very rough fashion. In gearing up for his latest global tour, he made between forty and fifty appearances at a small comedy club, called Stress Factory, in New Brunswick, New Jersey, not far from where he lives. In front of audiences of, say, fifty people, he will show up unannounced, carrying a yellow legal note pad with ideas scribbled on it…

In sets that run around forty-five minutes, most of the jokes fall flat. His early performances can be painful to watch. Jokes will ramble, he’ll lose his train of thought and need to refer to his notes, and some audience members sit with their arms folded, noticeably unimpressed. The audience will laugh about his flops— laughing at him, not with him. Often Rock will pause and say, “This needs to be fleshed out more if it’s gonna make it,” before scribbling some notes. He may think he has come up with the best joke ever, but if it keeps missing with audiences, that becomes his reality. Other times, a joke he thought would be a dud will bring the house down…

For a full routine, Rock tries hundreds (if not thousands) of preliminary ideas, out of which only a handful will make the final cut… By the time Rock reaches a big show— say an HBO special or an appearance on David Letterman— his jokes, opening, transitions, and closing have all been tested and retested rigorously. Developing an hour-long act takes even top comedians from six months to a year. If comedians are serious about success, they get on stage every night they can, especially when developing new material. They typically do so at least five nights per week, sometimes up to seven, and sweat over every element and word. And the cycle repeats, day in, day out.

Big Data To Cure Cancer? Matter of Time

Posted on by David Wright

I almost can’t believe this is happening. Incredibly exciting. Get used to these kinds of projects.

In 2007, Ian Clements was given a year to live. He was diagnosed with terminal metastatic bladder cancer. Ian began charting, quantifying, and recording as much of his life as possible in an effort to learn which lifestyle behaviors have the greatest impact on his cancer.

Ian has fought his disease successfully for five years, and now he asks the Kaggle community to look at his data to see what significant correlations and connections we can find. We at Kaggle are humbled by his efforts and want to help Ian share his data with the wider world by hosting it on our website.

This is an exercise in collaborative data exploration rather than a standard Kaggle competition. The ideal result would be a model suggesting which lifestyle behaviors may have the greatest effect on Ian’s health, but any insights into his dataset are welcome. While we understand it may not be possible to extrapolate insights from this dataset to the overall population, it will nevertheless be very helpful for Ian in generating hypotheses and suggesting different behaviors. We hope that you will find it interesting to take a look and see what you can find.

Dear youths of the world: GET INTO THIS FIELD.

Left Wing And Right Wing. Why They Don’t Get Along.

Posted on by David Wright

Scott Sumner with an outstanding blog post. One of the best I’ve ever read.

Let’s assume Krugman was correct [about everything – DW].  Why wouldn’t the left gradually win the vigorous debate among intellectuals?  Why wouldn’t the gradual accumulation of facts tend to discredit one model and support the other?  Isn’t the intellectual debate in the blogosphere a sort of Darwinian struggle?

Krugman’s answer is that the right is dishonest.

Scott figures they’re both partly right.

…If I’m right that both sides are partly correct, then you’d expect the most successful countries on Earth to embody ideas from both sides of the spectrum, and they do.

Another point I’d make is that whereas left wing pundits are right about some issues, and right wing pundits are right about other issues, the markets are always right.  Now that’s a pretty bold assertion, so let me qualify it.  I don’t mean the market have perfect foresight, and can predict the future.  And I am restricting this claim to policies about efficiency, supply-side and demand-side policies, not egalitarian policies.  My claim is that the markets are left-wing on the need for adequate AD, and right-wing on the need for sound pro-growth supply-side policies.  The markets believe that each side of the ideological debate has a sort of blind spot—the left underestimates the importance of incentives, and the right underestimates the damage done by demand shortfalls.

Scott could easily have mentioned Robin Hanson and prediction markets. The problem here is that the left and right have a BIAS, which they are unable to break free from. Markets help to overcome this bias

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Interview With John Seo

Posted on by David Wright

One of the most impressive person in the Insurance Linked Securities market. One of the most impressive I’ve ever met, period. He’s more thoughtful, knowledgable and just plain nice than I think I ever have a chance of being.

Here’s an interesting comment:

Lehman publicly disclosed a minimum risk capital commitment of US$500 million via Lehman Re, but we had authority to go much further than that. That was the largest risk-taking ILS group in the late 1990’s that I am aware of.

The rest is here. Here’s a Michael Lewis profile of John. I didn’t really like it much.