How many have you worked in a finance world?

[EternityMech]

this goes out to the theoretical physicists out there. have you thought about it or is too degrading and "beneath" you to do so?

 

[DrChinese]

this goes out to the finance wizards out there. have you thought about a career in theoretical physics or is too degrading and "beneath" you to do so?

 

[Fra]

I personally think it's good to distinguisha between your own personal ambitions and standards from an intellectual point of view and whatever you do for a living. Otherwise life would be very hard if I thought that anything that wasn't about the deepest fundamental questions (that is so far open questions) are beneath me.

Then large part of everyday life would be beneath me. Like eat, sleep, crap, talk to friends (goto work included)

I have not worked in finance in the way twofish-quant but my work contains business thinking. Instead I consider some elements of work fresh and inspiring constrasts. I found that creative thinking needs different perspectives, fresh input. Even if you really focus 100% on your pet questions, beeing locked up in a university basement for 50 years is I think not "creative". I do appreciate a lot of the non-physics work I do as well, sometimes those things can give you new ideas. Sometimes just the opportunity to travel around the world is refreshing.

/Fredrik

 

[BadBrain]

I have.

I'm a Geophizz, not a Theophizz, but I worked as a bank trust and estate tax officer.

As I'm also a lawyer, I can't say I found the work demeaning, as there's much to know in that field as well.

But it's a very easy job to get stale in, as opposed to physics, in which yesterday's hot theory is today's laughingstock.

Then again, fiduciary taxation isn't quite the contact sport that physics is, either.

And, no, I've never entertained the idea of becoming a high school or junior high school physics teacher, as I really don't like kids.

 

[BadBrain]

this goes out to the finance wizards out there. have you thought about a career in theoretical physics or is too degrading and "beneath" you to do so?

Come on!

What's money next to the sun, the moon, the stars, and the elements, and quantum theory?

 

[hadsed]

This dream about being Richard Feynman or Einstein is kind of like a similar dream that all young soccer players have with Cristiano Ronaldo, or basketball players with Lebron James. It's not a crime to think maybe you could get there with some luck and a ton of hard work, but making huge decisions based on the idea that you have a significant enough chance... it's shocking to realize just how many adults still hold on to these child-like dreams.

To me, a problem is a problem, and I like fixing problems. Having to use my brain in different ways is very exciting. Physics just happens to have some very fun kind of problems, but there are other problems very similar to them.

It's all like a really bizarre psychological game with yourself. There are equally weird people on both sides with weird perspectives who are amusing to observe.

 

[twofish-quant]

this goes out to the theoretical physicists out there. have you thought about it or is too degrading and "beneath" you to do so?

Yes, I'm working in finance. Moving to industry was surprisingly difficult psychologically, but after you've done it for a few years, you really wonder what the problem was.

 

[twofish-quant]

Otherwise life would be very hard if I thought that anything that wasn't about the deepest fundamental questions (that is so far open questions) are beneath me.

But one thing about finance is that you do think constantly about the deepest and most fundamental questions about the world. How should we structure human society? Who gets what and why? Am I really doing something useful for the world, or is this banking stuff all just nonsense that we would be better off without?

Right now, one of the biggest problems in the world is to figure out what is wrong with the world economy and what we can and should do to fix it. If that isn't a deep and fundamental question then I don't know what is.

 

[twofish-quant]

What's money next to the sun, the moon, the stars, and the elements, and quantum theory?

I got a lot more interested in money once I realized that without money, you aren't going to figure out anything about the sun, the moon, the stars, the elements, and quantum theory.

My career goal has always been to be a starship captain. OK. Maybe I was born too early to pilot the Enterprise, and maybe the laws of physics prevent that, but if you look at 2001: A Space Odyssey, while the predictions for AI might be fundamentally wrong for scientific reasons, the main reason we aren't building moon bases and sending manned probes to Jupiter aren't technological, they are financial and political.

Once I figured that out, then I figured out that in order to get spaceships to Jupiter then I'd better learn a lot about finance and politics.

 

[OmCheeto]

I got a lot more interested in money once I realized that without money, you aren't going to figure out anything about the sun, the moon, the stars, the elements, and quantum theory.

My career goal has always been to be a starship captain. OK. Maybe I was born too early to pilot the Enterprise, and maybe the laws of physics prevent that, but if you look at 2001: A Space Odyssey, while the predictions for AI might be fundamentally wrong for scientific reasons, the main reason we aren't building moon bases and sending manned probes to Jupiter aren't technological, they are financial and political.

Once I figured that out, then I figured out that in order to get spaceships to Jupiter then I'd better learn a lot about finance and politics.

Are you available for adoption?

 

[Fra]

But one thing about finance is that you do think constantly about the deepest and most fundamental questions about the world. How should we structure human society? Who gets what and why? Am I really doing something useful for the world, or is this banking stuff all just nonsense that we would be better off without?

Right now, one of the biggest problems in the world is to figure out what is wrong with the world economy and what we can and should do to fix it. If that isn't a deep and fundamental question then I don't know what is.

You're right, I fully agree.

One quite interesting questions that borderline to politics is, what measure we should optimize. Normally in a free market, everyone maximizes their own beneifts. OTOH, if you are try to maximize in some sense "everybodys" benefit, then one is approaching some of the ideals or Karl Marx I guess, and the standard critique of communism applies: how to ensure that the individual stays motivated.

Or maybe even the way of asking the questions "what measure to we optimise" is the wrong way to ask the question? And in finance, who actually takes responsibility for raising these questions, when everyone are busy maximizing their Own benefits? or your companieis benefits? or your own countries benefit?

Interestingly, this has touching points also with the open foundational issues in physics.

/Fredrik

 

[turbo]

I hate working in sales, and I hate working in business/economics. I built a great business writing and selling applications software for small-business accounting, and I made more money that I'd ever hoped evaluating, presenting, and selling antiques in the field of militaria and firearms. Those were not jobs I had ever aspired to.

I can't imagine working in finance, but the way my head works, it would probably work out just fine.

Anyway, to echo Fra, what do we optimize? We can optimize the profits of a few vs many, but how do we make sure that everybody manages to get a piece of the pie? Shared benefits would not only be beneficial in some respects, but stabilizing. In contrast, I got paid the most when I got the most profit for my clients, which is a pretty stark difference to the view that balance and fairness (however you define those) is beneficial to the society as a whole.

 

[twofish-quant]

One quite interesting questions that borderline to politics is, what measure we should optimize.

Or to put it back into something that is more mathematical, are we dealing with a situation in which you *can* describe as an optimization problem. Let me give an example. Should I be a physicist or an engineer. If you conclude that being a physicist is "better" than everyone should become a physicist, but then if everyone becomes a physicist, then salaries plummet so then it becomes "better" to be an engineer, but if everyone becomes an engineer then...

So in this situation, you really *can't* express things in terms of an optimization problem, now describing when you can decide to make a situation an optimization problem and when you can't, is something that's close to a physics/math problem.

And then there is gaming and anti-gaming. If people know that you are going to do X, then they will act in ways that take advantage of you doing X, which makes it a bad idea to do X. If you have a deterministic algorithm that ends up saying buy stock X and time Y, someone else can come up with a counter algorithm, that insures that they can take advantage of you when you buy stock X and time Y.

Normally in a free market, everyone maximizes their own beneifts.

I don't think free markets exist except as a mathematical abstraction. There are some situations in which you can describe using the mathematics of free markets (i.e. assume a spherical cow), but you have to be careful to realize that you are dealing with a mathematical abstraction that might or might not be related to reality.

Also define benefit.

Suppose I give pay you a dollar. There is one chance in 100 that you will pay me $100 and 99% that you pay me nothing. Is it beneficial for me to take the bet? Now you will pay me $100 in three weeks. How does that change things? OK, now you don't pay me, but you pay the megacorporation that employs me. How does that change things?

OTOH, if you are try to maximize in some sense "everybodys" benefit, then one is approaching some of the ideals or Karl Marx I guess, and the standard critique of communism applies: how to ensure that the individual stays motivated.

But then you have another problem. Suppose I have the ability to make a bet. Heads I win $X. Tails I lose $X. What is the optimum amount for me to bet. If X=$100,000, then it's a bad bet. If I win, I make a moderate amount of money, but if I lose, then I'm busted. However, if X=$1 billion, then it becomes a tremendously good bet. If I win, then I'm filthy rich, and if I lose, well it doesn't make any difference to me if I lose $100,000 or $1 billion, any besides if I lose $1 billion, you can squeeze all you want, you can't get a $1 billion from me so someone else is going to take the loss.

So what do you do in that situation?

 

[chiro]

But then you have another problem. Suppose I have the ability to make a bet. Heads I win $X. Tails I lose $X. What is the optimum amount for me to bet. If X=$100,000, then it's a bad bet. If I win, I make a moderate amount of money, but if I lose, then I'm busted. However, if X=$1 billion, then it becomes a tremendously good bet. If I win, then I'm filthy rich, and if I lose, well it doesn't make any difference to me if I lose $100,000 or $1 billion, any besides if I lose $1 billion, you can squeeze all you want, you can't get a $1 billion from me so someone else is going to take the loss.

So what do you do in that situation?

That looks like a martingale strategy, and personally I think is a very dangerous idea especially when it comes to something integral like money.

Even though you mentioned in a prior post that people's deposits are guaranteed by law, the fact that the martingale approaches are discussed in finance worries me a little.

 

[Fra]

Or to put it back into something that is more mathematical, are we dealing with a situation in which you *can* describe as an optimization problem.

No I don't think so, but to be more specific I think we do not have a situation where we can find an objective (=observer/gamer independent) optimation problem.

I think the problem is rather best abstraced as an evolving theory of rational actions and expectations, which by itself classifices as a rational expectaion in a theory space (which also evolves).

Anything inferrable are always subjective, this includes odds as well as rules of the game.

My analogy here is that "one player" = one observer. Observer need not be a human, it's generally a physical system interacting with (observing) it's environment.

What would be presumably beneficial to the system is anything that stabilizes or makes it grown and take control of it's own environment. So a system that are successful (or lucky!) in predicting it's own environment, can exploit it and increase it's own confidence(mass).

A CONJECTURE is that a gamer that fails to be rational, are less likely to survive and persist, becauase it will fail to learn from mistakes, and will be eated by it's environment. This is analogous to failure to negotiate with your environment. Yet this does not ban, irrational players, on the contrary is the existence of irrationality critical to evolution and learning. But the irrationality is constrained to small amplitude (just like variation and mutation in biology).The path to rationality is not rational.

Thus an expectation of a equilibrium is that only players that are rational exist. But this doesn't mean that one inside player can measure the rationality of other players or find some way to transform rationalit measures from one player to another one. Instead, even this entire "theory of expectations" is nothing by an expectation in itself, that has to live within other players. At equilibrium many players will "agree" upon the rules. Far from equilibrium there simply may not not even be agreeable rules for agreeing upong disagreement.

I think this is very similar case to physics, where the analogy would be that there is no "fundamental timeless fixed" observer independent law that can be INFERRED by an inside observer. Instead each observer only infers glimpes of this meta theory, which in turns rules their actions.

This is why I think that the most accurate and honest way of think of any economic theory and even physical theory, IS as an "interaction tools" for an observer (or group of observers; read human science). But in general this theory always evolves in unpredictable ways.

In this theory of expectations, then there is power in kwnowing things that your competitor does not. This is the best way to win. And given that knowledge is not static, it becomes an issues of effiency of learning. You need to learn faster and acquire information faster than your environment, or you will get destabilized.

And to undertand howto learn, is exactly IMO what the idea of evolving theory is about. It's a mistake to look for a fundamental theory and fundamental DOF's. I think this holds for both physics and economy.

But so far the implications of such a model in terms of predictions is still open.

The core insight of this is IMO first of all, that we should stop thinking of theories as "descriptions of nature" or as "descriptions of games" when it's not (except in limiting cases of limited validity), it's more proper to think of if as an interacting tool. Thus the description of the game, evolves WITH the game itself. There is no way out of this.

/Fredrik

 

[Fra]

But then you have another problem. Suppose I have the ability to make a bet. Heads I win $X. Tails I lose $X. What is the optimum amount for me to bet. If X=$100,000, then it's a bad bet. If I win, I make a moderate amount of money, but if I lose, then I'm busted. However, if X=$1 billion, then it becomes a tremendously good bet. If I win, then I'm filthy rich, and if I lose, well it doesn't make any difference to me if I lose $100,000 or $1 billion, any besides if I lose $1 billion, you can squeeze all you want, you can't get a $1 billion from me so someone else is going to take the loss.

So what do you do in that situation?

I think those who get to pay should loose their confidence in player in question, and revise their actions so as to make this less likely to happen again.

Of course the damage is already made, but there is no safe games.

One problem is that the public are not aware of the risks involved. You put your money in the bank and think they are safe (you even expect them to grow). Otoh, there are risks of everything. I think we may need to accept that sometimes things don't always go up. As long as we don't get knocked, we will learn.

Another problem is the laws that _allows_ speculation (ie allows high profites by high risk actions) but WHEN luck changes, the tax payers should pay. That just isn't right. I think this will change, thanks to the problems. If we don't get it sooner, maybe it takes a financial crisist to align our heads.

/Fredrik

 

[twofish-quant]

I think the problem is rather best abstraced as an evolving theory of rational actions and expectations, which by itself classifices as a rational expectaion in a theory space (which also evolves).

One thing that has tended to happened to be is that I try to avoid abstracting the situation. Instead of coming up with a general theory of finance, what I end up doing is to be very concrete. We have a game that's played by N people, one of whom is named Fred.

A CONJECTURE is that a gamer that fails to be rational, are less likely to survive and persist, becauase it will fail to learn from mistakes, and will be eated by it's environment.

That really depends on the specific environment. There are a lot of specific situations in which it is rational to be irrational. Also equilibrium is not a good assumption.

This is why I think that the most accurate and honest way of think of any economic theory and even physical theory, IS as an "interaction tools" for an observer (or group of observers; read human science). But in general this theory always evolves in unpredictable ways.

I actually don't think so. One of the things that I like about my job is that I have very strong pressures to avoid vague and abstract theories that don't make money (of course vague and abstract theories that do make money are quite welcome).

The reason I distrust the idea of a "vague general theory that evolves in unpredictable ways" is that it just complicates things with no real benefit. As a practical matter, I don't think that a general theory of finance or economics exists, which is to say that if one did exist that it would be useless for doing anything useful with.

In this theory of expectations, then there is power in knowing things that your competitor does not. This is the best way to win. And given that knowledge is not static, it becomes an issues of effiency of learning. You need to learn faster and acquire information faster than your environment, or you will get destabilized.

Or maybe not. Sometimes dumb strategies work pretty damn well. You actually end up doing pretty good in the stock market if you just tape a newspaper to a blackboard and through darts at it. One of the funny things is that when people ask me for stock advice, what I generally tell people is to go buy an index fund, and don't watch the news since for most small investors watching the financial news is worse than useless. It turns out that for small investors (i.e. anyone with less than $500,000), what kills you is transaction costs, so the value in being in touch with the markets is outweighed by the money and stress you go at thinking about what is going on.

Curiously enough there are some equations that assume randomness in the markets because if you could figure out the markets by thinking about it, those equations wouldn't work.

 

[twofish-quant]

I think those who get to pay should loose their confidence in player in question, and revise their actions so as to make this less likely to happen again.

The problem here is that the people that are paying aren't sure who to blame.

One problem is that the public are not aware of the risks involved. You put your money in the bank and think they are safe (you even expect them to grow).

Personally, I'm not sure that that in some situations the public can be or should be aware of the risks involved. If you make writing a check a crap shoot, then it becomes difficult/impossible to conduct even routine financial transactions.

Also, you put your money in an FDIC bank and it is safe. If the bank goes under, then the Federal government will pay, and if it doesn't then you can join your fellows in the ensuing riot.

Otoh, there are risks of everything. I think we may need to accept that sometimes things don't always go up. As long as we don't get knocked, we will learn.

It's not "not going up" that's the problem. I find that people have naive ideas of what happens in banks. People sort of assume that there is this back room and safe with gold bars or green slips of paper, and that's where their money is. It turns out that that's not how it works, and thinking that it works this way gives people a wildly false sense of security. You look at your banks statement, see some numbers, and people assume that when they put their ATM card into the ATM machine that some truck roles up with numbers that correspond to the bank statement. So people think that no matter what happens, you still have trucks full of cash or gold whatever happens.

But money is an social illusion. Have the wrong thing happen, and all those numbers in the bank statement mean nothing. One reason I'm not too supportive of "tough love" measures is that people that advocate "tough love" tend to assume that other people are going to get hosed.

"What is money?" is one of those deceptively easy questions like "what is time?" or "what is gravity?" Personally, I'm more confused about what money is than most people, just like I'm more confused about what time and gravity are than most people.

And then there are innocent third parties. In this other thread you have physics Ph.D.'s that can't find jobs because the economy stinks. What do they learn? What's the lesson here? Don't do a Ph.D. because the world financial system might collapse?

Another problem is the laws that _allows_ speculation (ie allows high profites by high risk actions) but WHEN luck changes, the tax payers should pay. That just isn't right. I think this will change, thanks to the problems.

It's actually much more complicated because you are dealing with multiple laws in multiple countries, with plenty of different ways of moving things between countries, and a lot of incentives not to change things except under extreme examples.

It's the "Las Vegas" effect. If you have laws that forbid gambling, the one place that doesn't makes a ton of money. Ever wonder why credit card companies are located in South Dakota?

And things get even messier when you talk about legal interactions.

One of my favorite fun law examples is that Great Britain very heavily regulated buying of securities, but you can sell anything you want. Germany, very heavily regulated selling of securities, but you can buy anything that you want. So someone got the bright idea of having an company in London sell stuff to the Germans.

And then there are other factors. People have really short attention spans. Do you know anyone that has spent the last several months going to every committee hearing and studying every draft proposal on banking that comes out? I do, but it's people that are in the industry.

If you are not financially affected by legal rules, then you aren't going to put in the time and effort to understand what is going on, and "moral outrage" quickly gets pointed at the next train wreck.

 

[Fra]

One of the things that I like about my job is that I have very strong pressures to avoid vague and abstract theories that don't make money (of course vague and abstract theories that do make money are quite welcome).

That's fair enough.

What I meant was in the context of comparing foundational questions in social and economical systems and it's connections to foundational physics, in particular how you understand what a theory is, as an intellectual quest.

Everyday business will continue as usual, and I supposed I'm fortunate to be able to allow myself mental masturbation at times :)

/Fredrik

 

[twofish-quant]

That looks like a martingale strategy, and personally I think is a very dangerous idea especially when it comes to something integral like money.

It's different from a martingale strategy. It's one consequence of a limited liability corporation, that you can't go below zero. The problem is that the rational thing to do is to flip the coin. Also it gets worse when you have a lot of anonymous people that have access to the coin.

Even though you mentioned in a prior post that people's deposits are guaranteed by law, the fact that the martingale approaches are discussed in finance worries me a little.

It should worry you a lot. Also people mention this because it's the "moral hazard" problem, and people think about a lot because it's a bad thing, and there is a lot of thinking about how to stop it from happening.

 

[Fra]

The problem here is that the people that are paying aren't sure who to blame.

Except for instances of illegal stuff, I don't think we can blame individual players on moral grounds for playing by the rules. It's just part of the current game. So I think it's the game itself that we loose confidence in.

Blame the game? Well anyone is free to try to impact the global game :) We are all co-responsible.

Personally I have no ambitions whatsoever to try to make a difference in that field. My ambitions lie elsewhere. I choose where to place my risks too.

Personally, I'm not sure that that in some situations the public can be or should be aware of the risks involved. If you make writing a check a crap shoot, then it becomes difficult/impossible to conduct even routine financial transactions.

I disagree. I don't mind taking crap shoots as long as they are rational. Going to work everything is a crap shot, but staying home is a WORSE crap shot.

To play safe, would mean to stop living. Life itself is a crap shot!

Life is full of risk taking. Nothing wrong with taking risks it as long as you are aware of it. The problem is when people endorse speculative systems and not understand it. I think educating the public is the way to go, then let's see how the laws changes.

And things get even messier when you talk about legal interactions.

Legal interactions are all part of the game as well. Politics and economy couples by social theory too. The laws that constrain the economy are the result of social and political interactions.

/Fredrik

 

[twofish-quant]

Except for instances of illegal stuff, I don't think we can blame individual players on moral grounds for playing by the rules. It's just part of the current game.

Part of the game is dividing responsibility so that no one gets in serious trouble. Going back to the heads I win a billion dollars, tails the world blows up game. What will happen is if you ask most people whether they will play that game or not, the answer is no, because they will feel guilty for doing it and they certainly don't want to appear greedy. But there are ways of diffusing responsibility so that you get the cash without the guilt.

Blame the game? Well anyone is free to try to impact the global game :)

What's scary is if you get into finance, you very quickly find yourself in situations where you clearly have more impact than most people.

One reason I got into finance and politics was that I was tired of "pseudo-choices." That's when someone tells you that you are "free to do X" when in fact you really don't have the power to do X. Go ahead, run for Congress or start your own university, and it's said with a condescending grin that shows that the person talking to you is pretty sure that he just wants you to go away.

I got sick of that, so I wanted to get myself in a place where I could actually have a real chance of doing something "real." "Pseudo-choices" and "pseudo-consent" is a great way of getting rid of guilt. If you take money from widows and orphans, you might feel guilty, but one strategy for dealing with that is to have said widow or orphan sign a twenty page contract in which they sign their life away. But that's OK because they "consented" to do that.

We are all co-responsible.

We aren't. Since I work in the industry, I have more responsibility to make sure that world financial system works than you do. To state otherwise creates power without responsibility which is not a good combination.

I disagree. I don't mind taking crap shoots as long as they are rational. Going to work everything is a crap shot, but staying home is a WORSE crap shot.

But there are things in finance that *shouldn't* be risky or else the system falls apart. You should be reasonably sure that a dollar tomorrow is worth more or less the same as a dollar today or else you go into the world of hyperinflation. If the banks fail, then you lose your savings and your employer can't pay you.

There are historical cases where you have had major financial system collapses. Mexico in 1982, and Russia in 1991. In those situations, people's savings get wiped out, and then people react by (quite rationally) deciding never to save again, and once that happens you are looking at low/zero economic growth for decades.

Life is full of risk taking. Nothing wrong with taking risks it as long as you are aware of it.

The problem is that there are some inherent risks that someone else should worry about. When you deposit money into your checking account, you should not worry that that money is going to disappear. That means that someone else has to worry about that.

And it's impossible to be fully aware of all of the risks.

The problem is when people endorse speculative systems and not understand it. I think educating the public is the way to go, then let's see how the laws changes.

I don't think that public education is going to work because:

1) nobody really understands the financial system. Anyone that thinks that they do is dangerous.

2) people that "teach" have their own interests. If you have group X try to tell the public what the situation is, they will craft the message to benefit group X. For example, newspapers exist to sell advertising so they are going to be more likely to have the public talk about who is dating who than sit through 5 hours of committee meetings.

3) most people just do not have the patience to be full time lobbyists or lawyers. There has been a ton of work in rewriting the laws and regulations over the last two years, but most people don't care. I care because the regulatory structure directly impacts my paycheck, but if you start talking to me about farm policy, that I'm going to lose interest.

In any case, you can have Congress do a major regulatory overhaul about once a decade or two. That was done last year, and the legislative part is finished. Right now, people are going through the implementing regulations, and that will likely be done by the end of the year. Once that gets done, then there are unlikely to be any major regulatory changes for the next few years.

I do think it it a good thing for people to get more politically involved, but political activism is a lot like physics is that there is a ****huge**** amount of grunt work, and once people realize that it isn't like the movies (at least most of the time), most people lose interest.

The good news is that with the internet it's becoming easier to be a self-taught lobbyist. If you really want to spend all of your spare time learning about financial regulatory structure, I think that's great, but most people have other things to do with their lives.

 

[twofish-quant]

What I meant was in the context of comparing foundational questions in social and economical systems and it's connections to foundational physics, in particular how you understand what a theory is, as an intellectual quest.

One reason I like industry more than academia is that people in industry have very little patience for things that are pure intellectual quests. This is a good thing because it makes me focus on "getting stuff done."

For example, you can spend decades trying to come up with a "general theory of society" and get nowhere, but the boss wants something this afternoon at 5 p.m. and that forces you to quickly figure out what you have and make powerpoints.

If you have any ideas about how to form a better regulatory system, then you have about three or four months to get them into the Dodd-Frank implementing regulations else that train has left the station. If you have reason to believe that the Basel III requirements will destabilize the financial system, then you'd better start writing papers *NOW* because it won't matter next year.

Everyday business will continue as usual, and I supposed I'm fortunate to be able to allow myself mental masturbation at times :)

The thing I like about physics is that you find that "everyday business" really isn't everyday. A lot of my job involves convincing people that studying X will make them money, and sometimes X happens to be something that seems esoteric.

The other thing about finance is that is useful is that its more obvious than in other places when you are just wrong about how the world works. For example, it appears that the universe is 13.6 billion years old, but if it were 6000 years old it wouldn't be immediately obvious. I could go through a day, maybe a lifetime, and there wouldn't be anything that is obviously broken.

On the other hand, if I think that there is $100,000 in my checking account when there is only $100, then it becomes very obvious, very quickly that I'm wrong.

 

[Fra]

when someone tells you that you are "free to do X" when in fact you really don't have the power to do X
...
We aren't. Since I work in the industry, I have more responsibility to make sure that world financial system works than you do. To state otherwise creates power without responsibility which is not a good combination.
...
The problem is that there are some inherent risks that someone else should worry about.
...
And it's impossible to be fully aware of all of the risks.
...
I don't think that public education is going to work because:
...
1) nobody really understands the financial system. Anyone that thinks that they do is dangerous.
...
2) people that "teach" have their own interests. If you have group X try to tell the public what the situation is, they will craft the message to benefit group X. For example, newspapers exist to sell advertising so they are going to be more likely to have the public talk about who is dating who than sit through 5 hours of committee meetings.
...
most people have other things to do with their lives.

It's true that no one can alone rule the world, and we all seem to have better things to do (me included) than to dedicate our entire small lives into changing the big world.

It's also true that risks are subjective, and no matter how much distinguishable risks you account for, you still won't predict the future. But this is no excuse for ignore thing konwn risks.

Still I think it's a desirable attitude that every human on Earth understands that they are co-responsible for how the world develops. In fact, if you resign your ambitions to make a difference, that's also a choice you are free to do and many people do. But then each one should be aware that then you have endorsed others to make the choices for you, including bad choices.

Just because you leave decisions to others, does not mean you have no responsibility.

It's also true that it's unrealistic to think that every human on Earth would understand everything in every field. But then I think all I aks for is the attitude to at least try; just be aware that everyone has a responsibility, to either make your own choices, or the choice to give your choice away.

I think the world would be better overall if people see that even if they are just one small element in the equation, they have a responsibility. You can't not even try, and then blame others for the bad choics you endoresed others to make.

That doesn't mean everyone should be become politiians, but if everyone just become a little more aware it would help alot.

/Fredrik

 

[turbo]

Still I think it's a desirable attitude that every human on Earth understands that they are co-responsible for how the world develops. In fact, if you resign your ambitions to make a difference, that's also a choice you are free to do and many people do. But then each one should be aware that then you have endorsed others to make the choices for you, including bad choices.

Just because you leave decisions to others, does not mean you have no responsibility.

This should be a sticky, Fra. It is easy for people to resign in disgust from participation in society, politics, etc. That is exactly what the extremists hope to accomplish. I live in a state with a small population. When you go to the polls, you are vetted by poll-watchers of both parties who are likely members of the League of Women Voters, and who are likely to have known you, your parents, and your grand-parents for many years. Extremists want you to divorce yourself from public discourse, since they have carried mud-slinging to a high art. I am glad that Maine has retained its town-meeting form of government so that people can come together and discuss the issues that impact them all without having to appeal to higher authorities.

 

[Fra]

For example, you can spend decades trying to come up with a "general theory of society" and get nowhere, but the boss wants something this afternoon at 5 p.m. and that forces you to quickly figure out what you have and make powerpoints.

Yes true. This is why solutions to some hard questions to intellectual quests are unlikely to come from profit organisations. The time scale of revenue are simply too long, and people want return of investments faster, thus that endavour is not profitable.

I have no problem with commercial things, it's what makes the world spin, but from an intellectual point of few I like to separate them for the above reason. I have some quests that I'll more or less dedicate my spare time on, and for me it's important to not let commericial aspects interfere with the creative process. I would never accept to work on these things under profit constraints, this is why I made the choice to keep this work non-professional. It's even why I long time ago decided to not pursue research as a profession (which was my original plan) because I realized that even withing academia there are too many constrints and it disturbs me strongly. I just won't accept it. So my reward is intellectual satisfaction, not money.

At work, my tasks does not directly interfere with my main private quest so I there is no conflict.

/Fredrik

 

[twofish-quant]

Still I think it's a desirable attitude that every human on Earth understands that they are co-responsible for how the world develops. In fact, if you resign your ambitions to make a difference, that's also a choice you are free to do and many people do. But then each one should be aware that then you have endorsed others to make the choices for you, including bad choices.

The thing that you have to be aware of is that in a lot of situations people have already made the choices for you, and there is not a damned thing that you can do about it. What ends up happening is that in order to keep you happy you are given the *illusion* that what you do or say matters, but the game is already rigged.

There is a pretty standard bureaucratic trick in placing the responsibility in people that have no power so that you remove responsibility from people that do.

Think about this the next time you call customer service. You are likely going to get mad at the person that is talking to you, whereas that person really has no power, and they exist primarily so that you waste your time talking to someone that can't change anything.

Just because you leave decisions to others, does not mean you have no responsibility.

It's not a matter of leaving decisions to others. It's a matter of realizing when others have made the decisions and what you do doesn't make a difference. Part of realizing when what you do *doesn't* make a difference is so that you can focus your energy on things that *do* make a difference.

It's also true that it's unrealistic to think that every human on Earth would understand everything in every field. But then I think all I ask for is the attitude to at least try.

I think that is an attitude that will leave you vulnerable. While you are busy on issue A, someone is going to take advantage of you with issue B. Also, another standard bureaucratic trick is to have you spend enormous amount of energy so that you just get exhausted and give up.

I think the world would be better overall if people see that even if they are just one small element in the equation, they have a responsibility. You can't not even try, and then blame others for the bad choics you endoresed others to make.

I think that the world would be better off if people realized that sometimes (in fact most of the time) the game is rigged. In a lot of situations, the decisions have already been made, and the goal is not to involve you in the decision making, but to get you to shut up. If you make someone think that they have influence or responsibility when in fact they don't, that's a good way of shutting them up so that you can ignore them.

If you figure out the places where nothing you do can make a damn bit of difference, then you can focus on things where you can make a difference.

That doesn't mean everyone should be become politiians, but if everyone just become a little more aware it would help alot.

It might not. The classic question that Lu Xun posed was that you are in a burning building and it's obvious that there is no way to put out the fire. Would you rather wake everyone up or is it better if you let them burn to death in their sleep?

 

[twofish-quant]

Yes true. This is why solutions to some hard questions to intellectual quests are unlikely to come from profit organisations.

On the other hand universities have their own pathologies. One problem is that at what point do you figure out that you are on the wrong path and try something else? This gets into the Stephen Hawking syndrome.

It's cool for a 16 year old to read about people that are trying to figure out the beginning of the universe, but it becomes a lot less impressive when you are 41 and you realize that in the last 25 years, there has been no progress at all. On the other hand, you look at cell phones today and cell phones 25 years ago (or even 2 years ago), and you feel that you are doing something useful.

Also, one thing that sort of shocks me is is when some economists say things that are utterly out of touch with reality. One problem with trying to be out of touch with reality is that well... you end up out of touch with reality.

And then you sometimes have to ask the question of what is "really going on." You make a ton of money, but you feel guilty about making a ton of money, and other people are saying nasty things about you. So you end up effectively hiring economists and philosophers to come up with philosophical justifications for your making a ton of money so that you don't have to feel guilty about it, and you can ignore the people that don't like you making your money.

The time scale of revenue are simply too long, and people want return of investments faster, thus that endavour is not profitable.

But you can be clever and figure out a business case to make it profitable. In any case, it's pretty cheap. You pay someone some amounts of money, have them develop a general theory of the financial system, and then check back with them every few years if they've come up with something.

Also in big-money science the division between profit and non-profit is rarely clear outside of tax status.

I have some quests that I'll more or less dedicate my spare time on, and for me it's important to not let commericial aspects interfere with the creative process.

I've found being commercial helps a lot in enhancing creativity. How do you convince someone to pay you to study neutrino diffusion processes? That involves a lot of creativity.

So my reward is intellectual satisfaction, not money.

I use money mostly as score keeping. The problem with intellectual satisfaction as a goal is that 1) how do you know if you are right? 2) sometimes the truth is deeply unsatisfying.

 

[Fra]

I'm not sure what to conclude from your suggestions.

Maybe I misunderstand you but it seems to me that your reasoning encourage people to not try to even understand the world game? Sounds almost like like an advice from someone that wants to preseve the game? ;)

I'm all for transparency, I think the public deserves to KNOW in order to at least have a fair shot at making rational decisions. Wether they are capable of COMPREHENDING everything is a difference story. I do not share the concept that a lot of things should be kept secret from those that endorse the power. That is to me almost fraud.

I mean, on one hand I fully agree since it's obvious that like I mentioned, no man can control the world alone. Indeed decisions of others _serverly_ constrains my options. But this is of course how the game works, but this does not mean that you should resign responsibility and possibilities. I never suggested that everyone has equal chance of making arbitrary changes. But since the decisions are collective and negotiated (although those in power always try to bias feedback to the public and thus introduces an extra inertia) it's still essential that we see that the world is built up by the sum of the parts, each part matters. That's not to say we should get big heads and think we are initiating a world revolution tomorrow.

Also when it comes to social rules and laws, these are always subject to renegotiation. In society you can break rules, and this is also part of the game. If people don't like the rules, and it's hard to renegotiate, they will consider break them, and when everyone breaks the rules then the rules will be revised.

In despite of this, I would never want to be a politician or something similar, I don't have the right mindset for that. I indeed have better places of investing my energy, but I am certainly aware of that I endorse by leaving choices to others, or by not objecting.

/Fredrik

 

[Fra]

The thing that you have to be aware of is that in a lot of situations people have already made the choices for you, and there is not a damned thing that you can do about it. What ends up happening is that in order to keep you happy you are given the *illusion* that what you do or say matters, but the game is already rigged.

This is how it sometimes works yes, bu do you really think this is a tenable situation? No I am sure it's not.

Lack of transparancey, just look at wikileaks. There are a world movement that really thinks that it's wrong to keep facts hidden from those that endorse the power. It is dangerous and leads to a development that is endorsed by the public due to misinformation and fraud.

I'm talking about attitude, that will instead at least try to cause a better development in the world. Just because some people in the top always try to bias the feedback and manipulate public (yes, sure they Do!) does not mean its' acceptable, and that we should allow this game to go on.

/Fredrik

 

[Fra]

But you can be clever and figure out a business case to make it profitable.

This is true, but this requires the development to reach a critical stage. Before this stage, there is not enough hard evidence to convince the average funder. And rightfully so. I would not fund fuzzy research either if I had the money to speculate with. Not to mention the more important thing: just the fact that you get funding, creates a dependence and indirectly a constraints, that I simply wouldn't accept.

If someone wants to "give me money" fine, but I would not accept a deal where they expect sometthing at all in return as that would disturb the creative process. I think this process works best when freely floating. Money just screws this up.

Once the development is far enough, yes I see opportunities for my own stuff as well, but I'd probably be better of USING it myself, rather than selling out. But that surely isn't the driving force. I have a good life and have nothing to complain about.

The problem with intellectual satisfaction as a goal is that 1) how do you know if you are right? 2) sometimes the truth is deeply unsatisfying.

1) I'm right when my models increase my predictive power and I learn faster than those that are unaware of my model. This is testable.

2) That's certainly a potential loss I can live with ;) That's nothing compare to the potential gain.

/Fredrik

 

[Locrian]

I don't really see where the term "finance world" is defined in the thread; it certainly isn't a commonly used phrase. I moved from physics to a financial institution (insurance) and have been treated well. I find the work interesting and appreciate the value I add to the company.

The idea that the work would be "demeaning" seems silly to me. I'm paid and treated better than I ever was in physics (private sector or university). But there could be other jobs out there that are less engaging than mine.

 

[autre]

@twofish-quant

(Sorry if this is a little off-topic)

What kind of undergrad courses do employers look at, if any, for the more technical jobs? Or is hiring of undergrads rare? How well-regarded is the MFE degree?

 

[twofish-quant]

Maybe I misunderstand you but it seems to me that your reasoning encourage people to not try to even understand the world game? Sounds almost like like an advice from someone that wants to preseve the game? ;)

It's a good thing to try to understand something, but just realize that the more you understand then the more you understand that the less you understand.

Also, sometimes if you understand something, you figure out something unpleasant, like the fact that you are doomed.

Getting back to the burning bed situation. If I were about to die in a burning fire, I'd prefer to be awake. On the other hand, other people end up with different answers.

I'm all for transparency, I think the public deserves to KNOW in order to at least have a fair shot at making rational decisions. Wether they are capable of COMPREHENDING everything is a difference story. I do not share the concept that a lot of things should be kept secret from those that endorse the power. That is to me almost fraud.

One way of hiding information is to provide *too much* information. For example, one reason that no one is going to jail, is that you can't accuse the major banks of hiding the fact that they were taking major financial risks. It's all there in the corporate reports. Now the corporate reports are 200 pages long and you need a degree in finance to figure out that something is odd, but it's there.

So one thing that is curious is that you have a situation in which transparency *decreases* comprehension. If I wanted to hide something, I wouldn't try to avoid releasing the information since doing that draws attention to it. What I'd do (and what people do do) is to bury it in gigabytes of data. The beauty of this is that it shuts people up. What are you complaining about? I gave you the data. It's not my fault that you don't understand it.

Also some things should be kept secret. I wouldn't want to do business with a bank that puts my credit card numbers and bank accounts statements online for everyone to see.

The other thing is that you end up with "secrecy through boredom."

Finally, one reason I post as much as I do is that I'm trying to give some context for how I see the world working.

But this is of course how the game works, but this does not mean that you should resign responsibility and possibilities.

It's a matter of figuring out what your responsibility is. For most people, their responsibility to their families outweighs a lot of stuff. I really can't change what my CEO thinks, but I can have a huge impact on what my kids think.

That's not to say we should get big heads and think we are initiating a world revolution tomorrow.

The trouble with revolutions is that you end up with people that are worse than the people that you are trying to get rid of. Part of understanding a system is to figure out what parts you don't want to change.

In despite of this, I would never want to be a politician or something similar, I don't have the right mindset for that.

Something that I've found is to survive in business and academia, you have to develop pretty good political skills.

I'm willing to do whatever needs to be done to keep my family fed, and if it means getting the right mindset to do politics, well I'll learn.

Unlike most people, I do have a lot of respect for politicians. It's a really tough job.

 

[twofish-quant]

This is how it sometimes works yes, bu do you really think this is a tenable situation? No I am sure it's not.

I think it is. "Bread and circuses" has worked since Roman times.

Lack of transparancey, just look at wikileaks. There are a world movement that really thinks that it's wrong to keep facts hidden from those that endorse the power.

1) The leader of wikileaks is under house arrest. A

2) It's a lot of interesting gossip, but can you point to *one* example in which wikileaks really changed anything. For that matter, can you point to *one* example in which wikileaks revealed something that someone reasonably intelligent couldn't have figured out beforehand.

Bread and circuses. Bread and circuses.

It is dangerous and leads to a development that is endorsed by the public due to misinformation and fraud.

I don't think that you are cynical enough.

One trick is to consume people's energy at things that really are small potatoes so that people don't think deeply about what really is going on. While people are thinking a lot about wikileaks, they don't think that much about the fact that your news goes through a relatively small numbers of large corporations, and that newspaper editors end up to be the real power brokers.

Also, the attitude that people in power are fundamentally evil actually keeps people from political participation. If you are going to have an impact you have to in some sense "buy in" to the system.

Just because some people in the top always try to bias the feedback and manipulate public (yes, sure they Do!) does not mean its' acceptable, and that we should allow this game to go on.

Political games are part of human nature. I don't think that it is *possible* to have a large industrial society in which you don't have people at the top who manipulate public opinion. The question is who is at the top, and are they doing anything really, really bad.

I really don't see any better alternatives. You can change who is at the top. You can make sure that the people at the top are responsive to public input. But I don't think it's possible to have a classless society, and efforts to do that have usually ended up is something worse than what it replaced.

In fact that there are some good parts about it. One thing that makes the US better than China is that US politicians are so much better at manipulating public opinion that they don't have any need to toss people in jail. In the US, either you end up in the street corner, in which case you can be ignored, or you "buy in" into the political system, and in that way become part of the power structure.