Thursday, August 29, 2013

The Man Who Invented Modern Probability - Issue 4: The Unlikely - Nautilus

The Man Who Invented Modern Probability - Issue 4: The Unlikely - Nautilus: "Kolmogorov drew analogies between probability and measure, resulting in five axioms, now usually formulated in six statements, that made probability a respectable part of mathematical analysis. The most basic notion of Kolmogorov’s theory was the “elementary event,” the outcome of a single experiment, like tossing a coin. All elementary events formed a “sample space,” the set of all possible outcomes. For lightning strikes in Massachusetts, for example, the sample space would consist of all the points in the state where lightning could hit. A random event was defined as a “measurable set” in a sample space, and the probability of a random event as the “measure” of this set. For example, the probability that lightning would hit Boston would depend only on the area (“measure”) of this city. Two events occurring simultaneously could be represented by the intersection of their measures; conditional probabilities by dividing measures; and the probability that one of two incompatible events would occur by adding measures (that is, the probability that either Boston or Cambridge would be hit by lightning equals the sum of their areas)."

'via Blog this'

Knowledge, uncertainty and Bayesian priors

A fantastic journey from a discussion of job insecurity through the basis of knowledge and back to how to estimate the probability of being sacked.  Not Quite Noahpinion: Perceiving Job Insecurity:

"Keynes was one of many to critique this principle. His views on probability and uncertainty remain controversial, as does the Principle of Insufficient Reason. There is actually quite a large body of literature in statistics concerning "noninformative priors" that continues to study the fascinating and controversial issue of how to represent ignorance. There are also subfields of behavioral economics that study how people treat probability, particularly when it comes to low-probability events (like job loss, usually)."

Excellent links provided.

'via Blog this'

Sunday, August 11, 2013

Noahpinion: A healthy side effect of High Frequency Trading?

Lovely overview of HFT,

Noahpinion: A healthy side effect of High Frequency Trading?: "High Frequency Trading is nearly universally reviled. The Tournament Externality is just too obvious; it yields no social value to bring a piece of information to the market 1 millisecond before it would otherwise have arrived, but people are apparently spending lots of money in an effort to do so. It can't be efficient to commit our best and brightest minds to beating each other to the punch by 1 millisecond. Because of this, many have suggested a small Tobin Tax to curb HFT. Others have suggested"

'via Blog this'

Tuesday, August 06, 2013


Interesting case. Does the demise of Nintendo suggest that the previous success was just luck.  They had two good products:  Nintendo DS and wii?   The alternative is changing clans.  It would add the gamecube and say that it had an era and some fundamental change allowed Microsoft to take over.

"Iwata expects sales of 3DS and Wii U hardware to increase, and promises return to "Nintendo-like profits"; lines up new Nintendo Direct web session to reveal fresh game details"


Monday, August 05, 2013

Calendar-based Sector Strategy | Systematic Investor

EMH in action.

Calendar-based Sector Strategy | Systematic Investor: "I recently came across the Kaeppel’s Sector Seasonality Strategy which is described in Kaeppel’s Corner: Sector Seasonality and updated in Kaeppel’s Corner: Get Me Back, Clarence."

It depends on the interpretation. This is how I interpret it.

Productivity and inequality

At some point the gap between inequality and productivity must make people move between the two spaces to reduce the gap.  How does that not happen?

There are barriers, such as the social capital of being from a different class, though these can be overcome after a certain point and return reach an extreme level; there is ignorance of the ability or requirements that are necessary to move; there are other barriers such as legal and educational constraints.

What determines this gap?  It is clearly larger in the US than in Germany or some Scandinavian countries.  Do these constraints have other effects?

'via Blog this'

Michael Lewis: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer? | Vanity Fair

Michael Lewis: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer?
A month after ace programmer Sergey Aleynikov left Goldman Sachs, he was arrested. Exactly what he’d done neither the F.B.I., which interrogated him, nor the jury, which convicted him a year later, seemed to understand. But Goldman had accused him of stealing computer code, and the 41-year-old father of three was sentenced to eight years in federal prison. Investigating Aleynikov’s case, Michael Lewis holds a second trial."

'via Blog this'


An idea for an assignment in finance.  Look for a project on Kickstarter.  Investigate the potential returns and risk.  Make an assessment of the sort of funding that you would be prepared to make and the additional information that you would like.  This can begin as a sort of Dragon's private equity financing but can be expanded to a discussion of different options and the relative merits of these options.

Friday, August 02, 2013

Smith and Speculation

In the middle of a debate about Smith, Brad DeLong quotes the Theory of Moral Sentiments:

"Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connexion with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general."

It seems to suggest speculation.  What is the effect of this on trade?  Buy spice and silk, sell whiskey and shortbread.