Enough of Steroids

December 19, 2007 03:51 PM

I have about had it on steroids. As many users sought to heal injuries or stave off aging as prime users sought to further their performance. I have seen a lot of pictures of beefed up players where the beef was attributed to steroids. As if that were the only way to beef up. One of these days I will dig out my picture in the LA Times when I signed with the Hollywood Stars. The scout rolled my sleeve up so the picture would show the muscles of my arm. At only 17, it was quite a bit of muscle, but it had nothing to do with steroids.

The best picture to determine steroid use is of the testicles because, as I have shown in previous posts, steroids diminish their volume by reducing follicle stimulating and leutinizing hormones. Hypogonadism would have been quite evident in the shower room of any MLB clubhouse. The "special parts" of a player are subject to much scrutiny and comment in the shower and locker room. A big time user would have been laughed out of the clubhouse. So far, I have heard nothing about this. I doubt that Barry's jock strap is any smaller and wouldn't want to ask him anyway.

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Terrorism, Education and Poverty

December 17, 2007 12:56 PM

Here is the abstract and the link to a paper in Peace Economics, Peace Science and Public Policy
Vol. 13 (2007) / Issue 1 / Research Papers

The subject is the link between education, poverty and terrorism among Palestinians, a topic much discussed these days. Most commenters in the media claim poverty is the root of terrorism. Perhaps it is the other way around; societies where terrorism breeds are made poor by the corruption of public trust and misplacing blame on others. In the one presidential debate I have seen the moderator made this now standard assertion as the preface to her question to the Republican candidates.

As we know from the Saudis on those flights on 9/11, they were from middle class to slightly affluent families. And, they were educated as well. This study finds a similar pattern among Palestinian terrorists.

Evidence about the Link Between Education, Poverty and Terrorism among Palestinians. (If you go to the link below the abstract, you can obtain the full paper.)

Claude Berrebi, RAND Corporation

Abstract

This paper investigates the ways in which terrorism is linked to education and poverty using data newly culled from Hamas and Palestinian Islamic Jihad (PIJ) documentary sources. The paper presents a statistical analysis of the determinants of participation in terrorist activities by members of the Hamas and PIJ between the late 1980s and May 2002. The resulting evidence suggests that both higher education and standard of living are positively associated with participation in Hamas or PIJ and with becoming a suicide bomber, while being married significantly reduces the probability of participation in terrorist activities.

Berrebi, Claude (2007) "Evidence about the Link Between Education, Poverty and Terrorism among Palestinians," Peace Economics, Peace Science and Public Policy: Vol. 13 : Iss. 1, Article 2.
Available at: http://www.bepress.com/peps/vol13/iss1/2

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Death by Exercise

December 8, 2007 11:25 AM

Thanks to an alert reader of the blog in Toronto we have a well-researched article on exercise-related deaths from Men's Heatlh.

It adds new statistics and explanations for the benefits and risks of exercise. As with nearly everything in human physiology, there is an increasing, but concave, benefits curve; the benefits of exercise rise, reach a peak, and then decline. There is an optimum or a range of optima; to be below or above the optimum range is harmful. Exercise beyond the optimal region is destructive and dangerous. 6 METS is a good upper limit for continuing activity. One can hit 8 or even 12 METS briefly in weight training. The hormesis concept tells us that these very brief stresses make us more able to tolerate the real stresses that life brings.

Weight lifting shines for its benefits and low risk. Running can be truly dangeous. Other aerobic endurance activities share the risks of excessive running.

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Proof of Concept

December 7, 2007 09:58 AM

One of the many interesting people I have met as a result of this blog is a distinguished physician/psychiatrist who treats people who have metabolic problems and are overweight or obese. He argues that I am a proof of concept for my Evolutionary Fitness Way. That is to say, I am an exemplar who represents an outcome of following the EF system, an existence proof of the efficacy of Evolutionary Fitness. Everything I say here is also true of Wonder Woman who celebrates her 70th birthday today.

In that spirit, I wanted to compare my body mass, strength, lipid and hormone profile to the 28 year old experienced weight trainers studied in the NJM article I discussed earlier this week. I want to show that the conventional wisdom that aging causes a decline in muscle mass, increased obesity, a fall in testosterone, and an unfavorable alteration of blood lipids is not true. So, what are the relevant facts?

The experimental subjects were from 23 to 32 years old, with an average age of 28. As you know, I am 70.

The tallest group was 181.0 cm tall and weighed 85.5 kg. Their body mass index was 26.2. I am 192.8 cm tall and weigh 90.49 kg (199 pounds). So, my body mass index is 26.43. Thus, there is no difference in body mass between us, evidence that I have retained my lean muscle mass (of course it could be fat, but it isn't as I think you know).

Thus the loss of lean muscle mass with aging need not occur.

LIpid profile. The subjects had HDL readings between 36 and 42 (group averages). Mine is 92. Their triglycerides were between 125 and 155. Mine are 40. Their LDL was from 113 to 133. Mine is 98. My readings are superior in every respect according to the research and what your personal physician will tell you.

Thus the unfavorable alteration of lipids with aging need not occur.

Hormone profile. Their total testosterone, without injections, ranged between 431 and 667 (after exercise with no injections). Mine was 660 in my last test. This is right in the upper range for these weight lifting 28 year olds.

Thus the unfavorable decline in hormone status with aging need not occur.

After 10 weeks of training, the highest average bench press and squat are 119 kg and 151 kg. I don't do bench presses, as I have shoulder injuries from motocross racing and don't like the look it produces or the risk to the rotator cuff, but with a few weeks of work I could readily do that weight. I don't do much squatting anymore either, but could readily do 151 kg. As evidence, I can easily leg press the max weight on the Cybex or other leg press machines in the gym, even on the last set of a hierarchical set and then lower it seveal times with one leg.

Thus the loss of strength usually attributed to aging need not occur.

My conclusion is that aging research is flawed; it is not the aging process but the poor eating and lack of exercise that is responsible for the general decline we often see with aging.

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Cascades of Ideas and Beliefs

December 5, 2007 10:07 AM

Having worked out some of the dynamic belief and information processes in the movies, I have seen how powerful learning from others can be. I can't resist: 1. trying to feed ideas and opinions into the cascade on global warming to try to move it onto a better dynamics and to reduce the relative frequency of bad ideas to good, 2. pointing out this insightful analysis of the global warming-we have to do something belief dynamic from The OpinionJournal of the WSJ.

The role of journalism, as I have seen it from my perspective as someone who is now and then asked to comment, seems to be promoting consensus through Kahneman's availability heuristic. The more an idea is "out there" and available, the more plausible it becomes. Not true, but that is how our minds work.

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Non-punitive environmentalism

November 27, 2007 08:39 PM

We are all environmentalists. It is just that those who call themselves environmentalists have made the role unrealistic. Too many of them have turned into a bunch of anti-growth, statists whose aim seems to be to control others. It is a worthy cause to keep the planet clean and healthy. It is equally worthy to promote growth, freedom and property rights that foster a care for the environment. Too many, self-styled, Environmentalists (with a big E) are anti-growth (the main contributor to rising health and well-being). They are against freedom and property rights and appear primarily to seek a positive self-image, no matter what the cost. They want to be enlisted in a noble cause, but care little if your rights or the welfare of the third world suffers in the promotion of that cause.

William Nordhaus and his co-author have a new book on this subject. The review published in Opinion Journal is right on the mark. I met Nordhaus at a conference long ago and he is a serious and highly competent scholar. His argument is one that real environmentalists will embrace. It will disgrace the disservice to the environment and to humanity that is practiced under the flag of environmentalism. On the other hand, they may really be misanthropes who are effectively pursuing their agenda under whatever banner they can co-opt.

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Contingency

November 18, 2007 09:12 AM

As I think I show in my book, Hollywood Economics, Hollywood has long been a leader in developing payment schemes that are contingent on outcomes. The "nobody knows" principle implies the contingency principle: if you don't know what a movie will earn, then you pay when you do know. That is to say, you base the pay of participants on the outcome through a contingent compensation contract.

The present Screen Writers strike is all about the inability of a platform-based form of compensation to reflect the value of the outcomes from movies and TV shows. As technology introduces new platforms or media through which to consume movies, the old platform based formulas cannot be stretched to reflect the value created in the new medium. So, there is the uncertainty of the outcome of a movie and the uncertainty of new platforms coming along to generate more revenue streams and higher-valued outcomes.

Daniel Mitchell, a professor of business at UCLA, has a brief piece about these sources of uncertainty and the writer's strike, from which I quote an excerpt below. There is a broader point in Dan's article however and that is to take the contingency principle over to government budgeting. Instead of funding programs at fixed levels over future years when the budget is not known, it is superior to fund them on a contingent basis. Bonds are bad because they lock the state into fixed payments which may become difficult to meet when revenues fall. State government revenues do fluctuate, enormously so in fact, so "nobody knows" what they will be in the future. The contingency principle says that you pay when you do know. Therefore, state programs should be funded on a contingent basis as a share of revenue rather than at a fixed level. This applies at the federal level too.

What is good for Hollywood is good for government since they both live in an uncertain world. The excerpt from Dan's article follows.

Read More »

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Death Penalty for victims

November 2, 2007 10:14 AM

I don't like the death penalty, but I am in favor of it because it saves innocent lives. John Lott discusses the evidence and the stay placed by Supreme Court as it considers lethal injections.

The innocent lives that are saved by executions are, unfortunately, not visible and there is no one to demonstrate in their favor. Until it is too late and they are murdered by some savage.

I conjecture that the preventive effect of executions is understated even in the most sophisticated research. And the deterrence effect may also be larger than is found in most studies. There are several reasons for this.

1. Killers claim multiple victims. If they are executed the chain is ended. If they are put in prison, they may be paroled and strike again. This requires a longitudinal study that is difficult to do and most studies seem to take a more or less cross-sectional approach because that is how the data are assembled. While in prison, killers do kill other prisoners, they injure or kill guards, and they may direct or encourage murder by their fellow criminals who remain outside prison in retribution for being put away. This case by case, time series evidence is far more powerful than the aggregative statistics can show, but often fails to get the proper weight because it cannot usually be put to the common statistical tests.

2. The incentive to kill is dramatically altered by the possibility of execution. This is shown by the attempts of killers to enlist others to do the killing. Gangs will recruit underage children who can kill without the fear of execution. Mobsters hire professional killers. So do aggrieved wives and husbands and business partners. Convicted killers go to great lengths to avoid execution.

3. The deterrence effect of armed potential victims is the dual of the death penalty. Killers are far more likely to kill unarmed victims than armed ones, showing that the fear of death or injury looms large in their decision. The same fear of being killed by a potential victim is present if the killer is instead facing the possibility of execution. They are two sides of the same coin.

4. Murder is a rare and horrendous event. The usual regression analyses and risk analyses are smoothed and averaged and made all too normal. Murder requires a statistical model that is either distribution-free or uses a more exotic extreme value or fractal distribution to more accurately reflect the probabilities.

The lives of the victims saved have to somehow be weighed against the life of the killer. I don't see that in the arguments of the advocates of ending the death penalty. We know there is a decision bias we all tend to have that underweights the prospect of multiple deaths of unknown victims against the execution of a known individual. Kahneman and Tversky showed this long ago, though their examples are somewhat different from this frightening calculation. We must make it however and overcome our bias if we are to clearly understand the issue and save innocent lives.

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Michael Yon and mainstream media

October 23, 2007 09:41 AM

You may not know that nearly all of my receipts from this web site for chapter sales went to Michael Yon to support his fine reporting. The rest went to families of soldiers killed or injured in Iraq and Afghanistan. Here is Michael at his finest Resistance is Futile showing the gap between mainstream reporting and what is going on in Iraq.

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A Nobel in Economics I can agree with

October 20, 2007 11:42 AM

Hurwicz, Maskin and Myerson do deserve the Nobel. Still, there is a good deal lacking in mechanism design: it is a stylized form of decentralization, too rooted in equilibrium, and does not allow arbitrage against inefficient incentive-based behavior. The "lemons" theory is not so strongly borne out by the evidence (see John Lott's Freeomnomics for many tests that show the theory fails because of the incentives that are created to solve the inefficiencies).

And, the agents are imbedded in a far more complex environment than the model permits. Still, by putting incentives and information at the center of economic (and human) activity, it advances economic analysis. In the old days at UCLA with Armen Alchian and Jack Hirshleifer, and a proper skepticism, as our guides we knew this, even though it did not have a name then.

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Quants Get it Wrong too

A nice article from Technology Review showing that the quant models also fail. Imagine they didn't expect the variation to be as large as it turned out to be.

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A nice summary of complexity and self-organization

This is one of the more readable and thorough explanations of self-organization Complexity and Self-Organization

The ideas are highly relevant to fitness and health, and life, as I have tried to show.

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Cherry Garcia: Peter Huber's Thoughts on Socialized Medicine

October 15, 2007 01:02 PM

Peter Huber is one of my favorite writers and thinkers. I know him only from a few conversations and several of his books, Galileo's Revenge, and Hard Green. He is always fresh and analytical, being an MIT engineer and head of his own law firm.

In this Cherry Garcia and the End of Socialized Medicine he shows how complex modern "disease" is and how a one-size-fits-all socialized medical system of the kind being proposed by various politicians, would fail. Politicians are not thinkers, nor should we let them be social engineers. They see the world in an odd way. Better, they see an odd world that bears little resemblance to the world we live in.

How can socialized medicine cure people when it is individual biochemistry driven by a personal mixture of genes, diet, activity and disastrous living habits?

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Numb3rs

September 28, 2007 11:16 AM

I was exploring the Mathematica documentation center this morning and found this fascinating show Numb3rs beginning its fourth season tonight on CBS. I am a pretty heavy user of Mathematica and feel that it is one of the most powerful tools of this century. Finally, a TV show one can learn from and with real depth. How did I miss it for so long? I will have to buy the DVDs of previous shows. Exploring the math behind this season's premiere show was fascinating. Be sure to click on THE MATH behind NUMB3RS to the right on the show's page.

WW and I prefer to see shows on DVD; we have all the Seinfeld and House episodes now and plan to add a few more shows.

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In Nature's Casino

August 27, 2007 07:48 PM

A friend sent me this link In Nature's Casino (subscription required) to an article by Michael Lewis, author of Moneyball and a good writer who gets the details right or close.

The problem with the title and at least some of the book's foundation is that Nature is far wilder than any casino. Nassim Taleb has pointed this out in his book The Black Swan and an even elementary analysis of the probabilities of a card game or a roulette wheel makes it clear that there are no extremums of the magnitude that occur in Nature or even any aspect of real life. Barry Bonds could never exist if the odds were those of a casino. Nor could Hurricane Andrew, or the Pinatuba eruption, or Vesuvis. Using a casino model to think about real life misleads. You never expect the really big moves or events to happen. But, they happen often enough and are of such magnitude that nothing else really matters.

To Lewis' main point, it is really not that hard to define instruments that cover extremal events, I did it with the Extremal Security (patent pending).

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Bioidentical Hormones?

August 15, 2007 09:35 AM

I read this interesting article in this week's eSkeptic issue.

This is a "therapy" I would not do myself. And how many times do you see the claim that Big Pharma is blocking this or that alternative treatment? It reminds me of the old claims that the Big Automakers were blocking a carburator that would deliver 50 miles per gallon. Just yesterday I received a magazine that claimed the FDA was blocking known cancer therapies. I have no love for the FDA, but the level of cynicism and destructiveness required for it to act this way are unthinkable. It is time the personal testimonies of stars count for less than the science. Harriet Hall's article is a worthy debunking of the genre.

In this week’s eSkeptic we present Dr. Harriet Hall’s most recent column in Skeptic magazine (vol 13. no. 2) on bioidentical hormone treatment which has been touted by Suzanne Somers on Larry King Live but looked at skeptically by the mainstream medical community. In this column Dr. Hall, Skeptic’s resident expert on all matters medical, examines the evidence carefully.

Bioidentical Hormones
Estrogen is Good. No, It’s Bad. No, It’s Good
by Harriet Hall, M.D. (a.k.a. The SkepDoc)

Menopausal women used to have no escape from the sufferings of the dreaded “Change.” In the mid-20th century, they were offered a reprieve. They could take a pill to replace their missing hormones, and feel back to normal. That was good in itself, but then they found that replacing estrogens could prevent osteoporosis and hip fractures. We knew there were some risks, but we thought the benefits outweighed the risks. Some doctors recommended all menopausal women take estrogens to “stay young.” Then there was more good news: evidence seemed to show that hormone replacement therapy (HRT) could reduce the risk of heart attack, stroke, and cancer in postmenopausal women.

The optimism came to a screeching halt in 2002, when the Women’s Health Initiative (WHI) study said, “OOPS! It looks like hormones do more harm than good.” Thousands of women were scared into going off their hormones. Sales of Premarin dropped from $2 billion to $880 million. Some of these women tried other remedies and then went back to Premarin because it was the only thing that worked for them. Doctors learned to prescribe more selectively, and sales are rising again.

Now all of a sudden hormones are being touted as a miracle cure for whatever ails you. Suzanne Somers has a new book, Ageless: The Naked Truth about Bioidentical Hormones, recommending everyone take supplemental hormones, even men. My local newspaper has been advertising seminars by an MD on hormones for menopause, weight control, and romance: “Skinny Hormones, Happy Hormones, Youthful Hormones and Sexy Hormones.” Anti-aging clinics and longevity doctors are promoting bioidentical estrogen and progesterone along with testosterone, thyroid, and human growth hormone to prevent aging. What’s going on?

The claim is that Premarin and Provera, the drugs studied in the WHI study, are artificial and harmful, while bioidentical hormones are natural and harmless. Some also claim that bioidenticals prevent aging and the diseases associated with aging and make people feel better than they ever did before. What is the evidence behind these claims?
First we need to understand what the WHI study really said. It has been misrepresented and misinterpreted. Media reports gave the impression that HRT was killing women. Not so. Over 10,000 person-years, women on estrogen plus progestin had 7 more coronary events, 8 more strokes, 8 more pulmonary emboli, and 8 more invasive breast cancers than women who didn’t take hormones; but they also had 6 fewer colorectal cancers and 5 fewer hip fractures, and the same number of deaths overall.

So women weren’t dying because of HRT, but they were increasing their risk of some diseases while reducing their risk of others. Overall the risks exceeded the benefits. Current recommendations are to use HRT for a limited time only to control menopausal symptoms, and not to use it for disease prevention. Most of us think these recommendations will be altered in the future as we learn more about risk factors and genetic susceptibility. Meanwhile, we try to individualize advice: your doctor is more likely to recommend HRT if you are at very low risk of cardiovascular disease and at high risk of osteoporosis or colorectal cancer.

Evil Big Pharma Plot?

The bioidentical folks tell us that Premarin and Provera are unnatural and harmful substances cynically foisted on us by Big Pharma to make profits. They don’t seem to realize that all doctors are either women, married to women, or sons of women, who presumably are more concerned about women’s health than about Big Pharma profits, and that doctors have read all the same information they have. They recommend estrogens and progesterone from natural plant sources. Premarin comes from pregnant mare’s urine: that seems more natural to me, since we’re much more closely related to a horse, another mammal, than we are to a plant. And the plant isn’t used in a natural form; it’s used as the basis of laboratory synthesis. And there is a reason that we started giving women progestins like Provera instead of natural progesterone: natural progesterone is not absorbed well. Progestins were reliably absorbed and dosage easily controlled.

“Bioidentical” is not standard medical terminology. It’s their way of saying it is the same exact chemical compound found in the human body. But there are lots of different estrogenic compounds found in the body, including estriol, estradiol and estrone. Nothing we do is likely to replace all the estrogenic compounds in exactly the way they occur in the body. There are around 30 different estrogens in Premarin. One, equilin, is present in horses but not in women. Curiously, that “unnatural” element appears to be neuroprotective and is being studied as a possible treatment for Alzheimer’s disease. There’s no solid evidence that any supplemental mixture of hormones is ideal. Anything that has hormonal effects may have hormonal side effects, and for all we know good old Premarin and Provera may be less harmful than some other mixtures.

Compounding pharmacists make up the bioidentical remedies, often in the form of a cream. Advocates themselves recognize that there is inconsistency between pharmacies, and they may have tried two or three different compounders before they hit on one that seems to work consistently for them. In one survey, about a third of the compounded samples tested had substandard amounts of drugs. The FDA is concerned about the growing popularity of compounding and the need for better regulation.

There are hypothetical reasons to think “bioidentical” hormones should be superior to Premarin and Provera. But there are also hypothetical reasons to think that they may be no more effective and no safer. The only way to know for sure is to test them in a properly designed placebo-controlled trial. Until this is done, most of us feel more comfortable with the devil we know than the devil we don’t know.

What other options are there for hot flashes? Several other prescription drugs have been tried, including antidepressants, but they don’t work as well as estrogen and they all have side effects. A number of alternative natural remedies have been tried, from chasteberry to wild yam. According to The Natural Medicines Database there is insufficient evidence to support any of these but black cohosh, soy, and flaxseed; and these are only rated “possibly effective” and “possibly safe.” Black cohosh was the most promising — until a recent well-designed study found black cohosh no better than placebo.

Bioidentical Insanity

Suzanne Somers and others keep harping about “balancing” your hormones. I have difficulty understanding this concept. Hormones are complicated. There are lots of different estrogens; estrogen levels are higher early in the monthly cycle and progesterone peaks later in the cycle: if you graph them, you see that each follows a curve, and the ratio between estrogens and progesterone is constantly changing from day to day and hour to hour. So what can the bioidentical advocates mean when they say they are “balancing” your hormones?

I finally realized that they don’t have any idea what they’re “balancing.” When they do lab tests, they use salivary levels, which they think are more reliable (most endocrinologists disagree). Since they know the test only reflects one instant in time, they feel free to disregard it except as a rough starting point. Instead, they have the patient report any symptoms such as insomnia, dry skin, or lack of energy, interpret those symptoms as signs of unbalanced hormones, and adjust the dosage.

It would be bad enough if they stuck to menopause, but Somers recommends hormone regimens for every age group, including adolescents, and for both men and women.
This creates a scenario where wishful thinking and testimonials take precedence over science, where quackery can go hog wild. Patients get to obsess about every little ache and sniffle, doctors get to tweak their prescriptions, and if patients don’t improve, they just say the balance isn’t quite right yet and they try again. Lots of personal attention and caring. Certainty that they have the answer to all their problems. Enthusiasm over a new method. Oh, and they combine the hormone therapy with all sorts of diet and exercise advice, and with handfuls of supplement pills, detoxifications, homeopathic remedies, and of course the FaceMaster machine that Suzanne sells and uses regularly for electrical facelifts. If you’re still not feeling perfect, you can try going to sleep at 9 PM. And sleeping in total darkness. Or add some testosterone just for the heck of it. There’s always something more to try; there’s always a satisfying explanation for everything.

The doctors who support these true believers are creating an elite following of self-absorbed, self-deluded, obsessive-compulsive health nuts. I suppose it’s nice for these people to have a hobby.

Can Hormones Prevent Aging?

Women produce estrogen until menopause, then they get old. Men produce less testosterone as they age. Maybe a lack of estrogen and testosterone is what makes them age. Maybe if we give them estrogen and testosterone, they will stay young. Maybe not.
Children drink milk and they are young. Adults don’t drink much milk, and they get old. Maybe a lack of milk is what makes them age. Maybe if we give them milk, they will stay young. Maybe not.

The adult body is not the same as a child’s body. Milk gives some adults bloating and diarrhea because their body no longer makes the lactase it did in childhood. A 70-year old body is not the same as a 30-year old body: maybe hormones good for the 30-year old body are not so good for the 70-year old body.

In 1889, Brown Sequard injected himself with the crushed testicles of young dogs and guinea pigs. Early 20th century doctors transplanted goat glands. Patients in both treatments got wonderful results … which were later shown to be placebo effects. Anti-aging medicine remains a will o’ the wisp. I wish Suzanne Somers were right. I wish hormones were the answer. But the evidence just isn’t there.

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More on the US temperature data problem: it is all over the world

August 12, 2007 12:31 PM

Steve McIntyre has responded to comments on climate blogs regarding the errors in Y2K and station "corrections" and what this means for US and global temperatures here. It is a thorough and reasoned discussion of the issue. More transparency in data and data corrections and less of saying "it doesn't matter" would be a healthy response in the climate research community.

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Climate Audit Finds a Big Error in Temperature Data

August 11, 2007 12:36 PM

I have followed Steve McIntyre's Climate Audit site for some time. I referred readers to an earlier post by Steve showing the bizarre locations of some temperature gauges that record data for NASA and others.

Steve has recently been working on the NASA temperature data and finds that when they are corrected for a Y2K glitch (there is more to it than that) the record hottest years change. 1934 rather than 1998 goes into the lead and there are other changes as well. Here is Steve's post on the old ranking and the corrected on The Historical Temperature Rankings.

DailyTech already has an article detailing the Y2K bug and how it was detected in the NASA series by Steve.

This is a developing topic that is not likely to receive much media attention. Slowly, climate modelers are being forced to make the data publically available, as has been the practice in economics for some time.

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Physics versus Hype

July 27, 2007 11:31 AM

I have been looking over at the Climate Audit site run by Steve McIntyre (one of the guys who showed the famous Hockey Stick global warming graph and its underlying calculations were wrong) and was not suprised to see that many of the sensors that collect temperature data are in odd places. They are close to antennas, microwave relays, and many are close to air conditioners. Trying to correct the "urban heat zone" out of the "global" temperature (there is none because the atmosphere is not uniform) may be hopeless. And, until now, I don't think anybody really understood how poorly selected some of these sensor locations are.

I was also struck by the reasonableness and serious physics in this article Physics Trumps Hysteria. The worm may be turning, but I do not discount the uncertainty of our knowledge and of the need to take all reasonable steps to clean up the atmosphere.

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Climate Forecasting, no better than economic forecasting

July 13, 2007 09:44 AM

I have seen a lot of forecasting models over my career; every government agency seems to have one and there once were a host of economic forecasting models that were sold to corporations and government agencies. I began to become a skeptic when I found that one of the most famous regional forecasting models, which had been developed for the state of Hawaii, was a stack of cards in the basement of the government agency it was built for. No one knew how to run it and the only forecasts ever done with it were done by the author for his publications. Graduate students in regional economics all over the world were required to read these publications, but the model was never used by the agency it was built for. From that point foreward, every new project for the state began with a new forecasting model so there was never any validation of the prior model and there was no incremental learning or skill development in the staff. Consultants came and went and the models just piled up, never tested or used beyond the study they were built for (a good thing probably, because they were just trend equations).

Then I reviewed a host of forecasting models for air traffic. It was a nightmare. The FAA's model had failed to anticipate the explosive growth of air travel and Congress got angry at the agency. From that point on, every FAA forecast became optimistic and, still, equally inaccurate. Regional forecasting was even worse. In reviewing airport by airport forecasts, usually done by a consulting firm for the local airport authority, I found that every one of them forecast that the local airport would experience a rising share of the national market. This is an impossibility. So, there was no consistency at all. It was all local boosterism. I solved this problem by modeling the air travel system as a network. So, I was the only economist who had seen that the hub and spoke system of air travel would emerge. But that is another story.

Then I had a look at motion picture forecasting and things really got ugly. It essentially took opinion and mathematized it. It was never "wrong" there was always something wrong with the trailer, or the release pattern, or something else. So, no one ever learned anything. But, still they forecast, institutionalizing group think in the form of Excell spreadsheets.

With this experience, I was not suprised to read this fine review of climate forecasting. They have no clue. Nobody knows anything. Most "expert opinion" is just opinion. The experts are usually worse than Joe the Bartender or you or me in forecasting because they are wedded to a certain view. The dominant forecast for just about any complex process is that tomorrow will be like today. The best forecast of a stock price tomorrow is its value today.

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Deep Cores, Climate Variation, and Weight Loss

July 10, 2007 09:49 AM

I have made the point several times that natural climate variation is so large that the climate models, forecasts, and conclusions about climate change have little foundation. Variation is too large to draw any conclusions and they are left completely out of forecasts. You never hear about the topic of variation from the press on climate, stock market movement, home runs, or any topic. Of course, any complex system, of which all these are examples, have a lot of variation. So, have a look at this article on Deep Cores and contemplate and relish the variation that is in all natural things.

As in climate variation and in the variation in our lives, the same point is true. We are here at this point and there are many paths before us. And, we have no control over the climate or any other natural process. We have some influence on the likelihood of moving along an ensemble of paths, but no control. The choices we make influence the probabilities of the paths on which our evolving lives will move. But, that is all.

To close on the problem of weight control, I find that many people who embark on a weight loss program expect to have far more control of the process than is possible. If you weigh yourself every day or even every week and want some kind of uniform or dramatic change, you are setting yourself up for failure. You have to just live the new way and let it happen. It will happen. But, excessively monitoring your progress or perceived lack of progress is a prescription for failure. It is the Heisenberg uncertainty principle: if you obsessively measure your weight, you will perturb the natural process. You will be fooled by the random variation and draw pessimistic conclusions that are not valid. Focus instead on what you do or eat and let it happen. It took many years to wreck your metabolism. Evolutionary Fitness will transform your metabolic health. If you want to measure your progress then focus on how you feel and your insulin level. If you feel better and your insulin declines, you are moving along a good path.

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Zen Again

July 7, 2007 04:40 PM

I happened to see Al Gore being interviewed (very briefly) and he mentioned Zen. So, I thought it was time to put my thoughts on Zen up one more time. All You Need to Know About Zen.

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Justice Thomas Brief in Bong HIts 4 Jesus

June 28, 2007 11:36 AM

I read quickly through the Supreme Court's June 25 decision on this case. It is a fascinating tour through the changing state of schools in our country.

Justice Thomas concurring decision, in particular, reviews the traditional forms of discipline and student conduct in the schools. It begins around page 19 of Morse ET AL. v. Frederick. He argues that the Constitution does not protect student speech in public schools. Historically, judiciary was reluctant to interfere in school administration until Tinker opened the door.

The Tinker decision expanded students' speech rights by ruling that, unless a student's speech would disrupt the educational process, students had a fundamental right to speak their mind. Justice Black in dissenting to Tinker mad the telling point: "subjecting all the public schools in the country to the whims and caprices of their loudest-mouthed, but maybe not their brightest, students."

Justice Black argued that Tinker "surrendered control of the American public shool system to the public school students." I have to agree and if I had children in school now I would home school them or send them to private schools.

Whether you agree with Justice Thomas' decision or not, and I do, it is a fascinating history of the dumbing down of schools. The least bright and the noisiest students now are as likely to shape discussion in the schools as the brightest. And the teachers.

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A Study of Mulitculuralism

June 27, 2007 12:12 PM

Multiculturalism is a failed experiment. I saw it failing when I was teaching at the university. Diversity promoted the creation of tribal groups who were recognized as separate from the student body as a whole and given entitlements. As a result they were drawn more closely into enclaves where hurts and beliefs were magnified and enforced.

I sat through an Academic Senate meeting as it was invaded by a few inarticulate and illogical students demanding an Asian Studies Program as though it were an entitlement. Other groups had such programs, it was said, so why not we? Now my old university is besieged with demands from, the latest aggrevied group, muslims. In trying to cope with the demands of the various tribes it has created through its promotion of "diversity" it recently established a Multicultural Center. Eventually, the Center will become a distribution center for rewards and a focus of poliltically correct positions to be taken by faculty on topics in courses. I can't tell you how glad I am not to be in that environment any more.

By creating entitlements and rewarding objectionable and sometimes outrageous actions and demands, the university is fanning the fires of tribalism and separatism. The evidence is pretty clear as Tom Schelling showed a long time ago about black and white separation in neighborhoods. Complex systems studies have shown that even slight differences in preferences to affiliate can create highly segregated communities, particularly when there are many of them and none is dominant in population. By creating small groups that are identified and rewarded for nothing other than their "differences" from others, multicultural programs strengthen the preferences of small groups to separate from the whole. The result is a kind of balkanization of the student body into groups with their own identity and agenda. The student body has been separated into tribes of Gays, Blacks, Muslims, Asians, Females, Hispanics and other groups each vying for attention and recognition of their demands and shared grievances. This is Multiculturalism.

Professor Putnam has done the research, which you can see lucidly discussed in this post by Dr. Sanity on Multiculturalism.

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Solar Cycles and Cosmic Ray Amplification

June 21, 2007 11:14 AM

There is little doubt that the solar cycle drives climate variation, on the Earth and on the other planets in our solar system. There has been doubt that the solar variations were sufficient to drive the temperature changes that follow the solar variation. Now the puzzle has been solved and the effect of cosmic rays is known to amplify the effects of solar variation. Here is a systematic explanation and discussion of new data by a solid scientist working on sedimentary deposits in Canadian fiords Solar Cycles.

I had been considering a move to a colder climate during the summer; it is too hot here to suit me at this time of the year. But, by 2020, some of our ski areas may be so cold and over-laden with snow that it may be difficult to live there. Summers should still be OK and how much will I care 13 or 15 years from now? A lot, I hope.

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The New Skepticism on Global Warming

May 16, 2007 08:30 PM

Now the skeptical scientists are having their say about global warming.

Its about time. Mercury and Neptune are warming too. But, you already know that. Even more, no climate scientist is able to assess the risks and costs involved and ought not to be prescribing policy. Chicken Little has had his run. Now the science must take over and skepticism is in order. The modest warming will soon pass according to the solar energy hypothesis and it is not that difficult to clean up some of the mess caused by incomplete property rights. Adding some green to cities would easily offset the modest warming that has occured and would make all our cities more liveable.

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Silver Mines under the Receding Alpine Glaciers

May 6, 2007 11:13 AM

Reid Bryson, one of the most distinguished climatologists, is interviewed here.

They have found a silver mine emerging from one of the receding glaciers in the Alps, the tools stacked neatly as though they would return next spring to continue their work. Bryson stresses climate variation, as any one with a historical sense and appreciation for the natural variation that complex systems display (and require to operate).

At 86 years old and still working and this witty? Amazing. I would still be at it, though retired, were not economics so boring compared to what I am doing now. Well, maybe I am still at it, but on a different range of topics.

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An Odd Thing

I was in Las Vegas last week to get my Rover serviced and I saw an odd thing. A large white van was parked in a strip mall and it had a big caved in section up front from an accident. On the side of the van it read Fortune Telling. Shouldn't the driver have known?

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Germs

May 1, 2007 09:07 AM

Peter Huber is an exeptional writer and thinker. I know him from his work in spectrum and his book Gallileo's Revenge, which showed how junk science had entered the court room. He is a lawyer practicing in intellectual property and a Ph.D. in engineering. His book Hard Green is shows a way to clean the environment.

Now he turns his eye to germs. This is a deep and utterly chilling look at the new environment of public health that germs will exploit to our peril. Germs and the City.

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Alternate Realities

April 28, 2007 10:57 AM

Things are not always the way they seem to be. Our press and politicians create an alternate reality by selecting data and arguing from these partial and incomplete facts to construct their own reality. We all do this, but in the end we pay the price if our model of reality is wrong. Because our national discussion is framed by the press and our politicians (are there two more unreliable sources of information and strategy than they?) it is difficult to reframe our own dialogues in a way that let's us test different models against the real data. Few of us ever have access to data that would allow a test of the alternate models of Iraqi reality.

This piece from the Strategy Page says a lot about what is going on in Iraq.

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Nassim Taleb's Black Swan

April 24, 2007 11:13 AM

A review of Nassim's new book, The Black Swan in Opinion Journal.

I particularly enjoyed his version of Skepticism, which he calls Academic Libertarianism. An academic libertarian (from his glossary) considers that knowledge is subjected to strict rules but not institutional authority. He is a frequent reader of the blog and says he has been drawn to my views. I am a libertarian in all things, though I do not accept the view of libertarianism posited by Libertarians. There is no institutional authority on libertarianism.

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Gun Bans and Black Swans

John Lott gives what is essentially my answer to comments on my post on guns on campus. Mike's fine comment fills it out and brings out the "streaky" nature of these tragic events. MInger's comments are on point too, with an emphasis (as I tend to have) on individual rights that we all have and ought to be free to use.

The other side of the coin on this problem is the law regarding seriously disturbed individuals. They can only be reported in most states when the individual poses an "imminent" danger to themselves or others. The behavior of disturbed individuals is so uncertain that there seldom is a correspondence between what you see and what you get. There will seldom be a sign of their future actions in their behavior; they are unpredictable.

All one sees of these individuals is irratic behavior that follows a probability distribution so diffuse that inference is almost impossible. In other words, "nobody knows anything."

In trying to say when their behavior signals imminent danger you are trying to predict rare, but disastrous events in their world of actions. It cannot be done and the law errs on the side of their rights over the rights of the potential victims.

These mass shootings are surely what Nassim Taleb calls "black swans", low probability, high consequence events. His book, Black Swan, has just been published. I read the earlier, unpublished, version and enjoyed and learned from it. Read it. It is a Black Swan among books, a rare, high consequence book.

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Dieters Gain Weight

Have I said this before? Dieting will, in the long run, compromise your metabolism and make you fatter. It takes a while, but that is the result overwhelmingly documented in studies long enough for the new equilibrium to emerge.

Here is another bit of evidence on this hypothesis from my old Alma Mater UCLA diet study.

So, what do you do?

1. Increase your insulin sensitivity and muscle mass through exercise, intermittent fasting of brief duration, avoiding fructose and glucose-laden and starchy foods (rice, beans, potatos, pasta, etc), eating only fresh vegetables and fruits, nuts, and seafood, chicken, and lean meats.

2. Brief, intermittent activities that are challenging and fun along with a bit of intense (for you) muscle building exercise are all the excercise you need. Forget dull and damaging aerobics, but exercise at a high enough pace to gain aerobic fitness. Most of all play at exercise; don't do these serious, highly repetitive things like golf (I find it is hard to "play" at golf) or jogging.

3. The more fun you have outdoors, the leaner you will be. And, get some sunlight every day, just a bit.

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Students and Guns

April 16, 2007 03:52 PM

The Virginia Tech tragedy reminds me, sadly, of what John Lott said in his article that I posted a few days ago. He said students were sitting ducks because of college gun laws. If only one student had been carrying a gun, and guys in Blacksburg know how to handle guns, it might have been very different.

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Women Protecting Themselves

April 11, 2007 08:10 AM

The police can't do it and restraining orders don't deter. A woman has to have the ability to protect herself. A gun is better protection than a delayed police response that makes a restraining order ineffective. A determined stalker can kill anyone if they can't protect them self.

John Lott, in Flawed Laws, makes the argument and supports it with research he published with an old friend of mine, Bill Landes of the University of Chicago Law School.

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A Real Scientist on Global Warming

April 9, 2007 10:41 AM

Why do people believe that what exists now is either the natural state or the best state? It is a Panglossian impulse and resistance to and recognition of natural variation in all things is a human impulse, particularly among those innocent in understanding the pervasiveness of variation in nature and human affairs.

Richard Lindzen, a distinguished climate scientist at MIT, dismantles the bad science and self-serving politics of global warming in this Newsweek article.

It is foolish to believe that our current climate has a privileged place amongst the huge range of climates that have existed or are possible. And a vast over reach to think we have much effect on it at a global level. Relax, enjoy life, things are getting better. The world is getting richer all the time and that will make everything better.

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Spectrum Freedom

One of the paradoxes that I noted in my ``Implementing a Market-Based Spectrum Policy'' (The Journal of Law and Economics, Vol. XLI (2) (Pt. 2) (October 1998)) celebrating Coase's proposal for market allocation of the electromagnetic spectrum is that spectrum is not a public good because it is wasted and allocated into broad regions for inefficient uses. Because the system for managing spectrum use is so wasteful, the abundance that technology could permit is prevented because the technology itself must be frozen in order to make the centralized and inefficient system work. Thus, even though Congress declared that the spectrum is a public good, the system they put in place made the spectrum anything but a public good. It made the spectrum scarce and available only to a privileged few (many of whom were members of Congress).

Consequently, new technologies that could so vastly expand the availability or effective supply of spectrum as to make it a public good cannot come forth in an administered system that relies of rationing, inflexible allocation, and frozen technology to manage interference. Thus, the paradox: if spectrum were made a private good, it would become so abundant that it would become a public good. More flexibility and better technology can only come forth if the spectrum becomes a private resource. And, when that happens, the capacity of spectrum to carry information will expand so vastly, that spectrum would become an essentially public good, available to all at virtually no cost.

Slowly, this is happening as this scheme described in the NYT article to exploit computer controlled, real time allocation of spectrum will "sniff out" available spectrum on the fly and match communicators in real time. So much spectrum sits idle at any point in time that the new technologies will effortlessly expand spectrum use with no intrusion on existing users or messages.

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Indiscriminateness

March 28, 2007 03:23 PM

Evan Sayet, a comedian, gave a smart talk at the Heritage Foundation. Actually, it is quite brilliant. He builds on Alan Blume's book, The Closing of the American Mind, to present a funny and thoughtful analysis of the inability to think a problem through that I found in so many of the last generation of students that convinced me to leave university teaching. See it on YouTube. Evan Sayet's How Modern Liberals Think.

The themes are reminiscent of Karl Popper's, The Open Society and its Enemies.

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Things are getting better all the time

There is a nice jazz song with almost that title.

They are; almost every recent study from crime (see John Lott's article from an earlier post) to starvation (Lumborg's Skeptical Environmentalist), and just about any statistic you can find on quality of life or hazards in life, thing are getting better.

Two articles that are worth a close read are these: from the Reason Magazine Now for the good news and from Steven Pinker on the Edge web page A history of violence.

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Prius versus Hummer

I learned how dirty electric and hybrid cars were some time ago when a colleague was doing research on electric vehicles. If you can imagine, proponents of electric vehicles were not taking into account the environmental impact of producing the electricity to power the cars. Presumably because the generation was assumed to take place somewhere else, or because they thought they might get away with it. And, the batteries turned out to be a monster problem. Including their manufacture and disposal, along with the rare crash in which the contents spill or set off an explosion, made them damaging and dangerous.

Natural gas is about as clean as you can get for a fuel to run a car or truck and it is 130 octane. You could run very high compression ratios and really get the power and mileage up.

I was asked for the site that compares the Hummer and the Prius in full measure (over a lifetime cycle of use) and Feel good is not always good. I also do agree that cleaning or preventing the pollution of the waterways and air is a good thing. But, and I said this before, the way to do it is to improve property definitions and market institutions, not through general, centralized prohibitions. I don't like it when governments "create" markets because to do that they have to restrict a right in order to make it valuable. This is something that will happen quite naturally when waterways and the atmosphere is no longer a commons.

My friends and I showed how to create a property right in the electromagnetic spectrum and markets do exist for these rights and are more flexibly allocating spectrum use. It is not all that hard to do likewise with water and air.

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What Were We Thinking? Fashionable Thought

March 27, 2007 05:19 AM

Thoughts and beliefs are as fashionable as clothing. They change a bit more slowly, but the same kind of social dynamics are at play. Social learning is a kind of imitation of what we observe and hear. Our own thoughts and knowledge are only part of what we believe. The thoughts and actions of others are also influences. If a group of people stop to look up into the sky, people passing by will do the same thing. If everyone you see walks past a fallen person, you will tend to do likewise.

The global warming debate is similar. Right now a lot of people are looking up at something and many of us are stopping to have a look too. But, when the looking is over, what do we see?

Read More »

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Crime Statistics

March 26, 2007 06:22 PM

John Lott nails the Police Executive Research Forum and the NYT on their analysis of crime statistics. See his The Crime-Statistics Con Job

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The Push Back Begins

March 4, 2007 02:07 PM

More evidence against the greenhouse effect as the driver of climate change. This time in the form of a documentary Global Warming Lies.

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Climate Police

February 25, 2007 08:35 PM

This website will take the place of my posts on climate change Climate Police. There is much scientific research here to show that there is no consensus on the topic and that natural variation is large, so large that current models (which assume damped variation and only derive their variation by altering model assumptions rather than incorporating the stochastic processes themselves) are off by a wide mark.

I remind you that this is not a political issue, but a scientific one. Those of you who think you know my politics are missing the point, and also wrong. I scarcely have a politics and happen to despise politics and most politicians. I value freedom and truth and skepticism.

The Earth is an open complex system operating far from equilibrium, just as humans are. The order comes from the dynamics. No model captures this chaotic form of order. The variation is part of the organizing process. If you look at any of the data (and I have modeled some of these series) you will see that they are fractal processes with a natural variation that is typical of a self-organized and complex process. These are the same principles you will find at the heart of Evolutionary Fitness and that are lacking in the monotonous and over-managed approaches you may have come to see as inappropriate to a complex human organism.

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Gored

February 23, 2007 10:01 AM

My idea of hell would be to be locked in a room and forced to listen to Al Gore speeches over and over again. The upcoming Academy Awards look to be a Gore fest and I will pass on watching them. The best part is Joan Rivers cutting up attendees anyway and that precedes the ceremony.

It is striking how some pictures of him speaking look like Hitler; veins popping, mouth in a full scream, and fists clenched. He is a fascist sort of character, bent on his own truth and brooking no criticism. He is green on the outside and red on the inside as his agenda for leveraging environmental concerns and promoting fear is aimed directly at centralized government control of the US economy and subservience to a world government.

Watch as Congress jumps on this wagon to pass or threaten laws that will fill their reelection campaign coffers with funds. Long-lasting incumbency is one of the most pernicious aspects of our government. Civil service protections are also deleterious because the bureaucrats run most of the real show beneath these protections. Presidents have almost no power over them. They can sabotage policy.

There is a nice summary of the errors in Gore's movie at this Wrong, but Red.

Be sure to read Dr. Spencer's questions for Gore. Note also, as I have often said, the natural variation in CO2 in the Hawaii data is so large that any changes that can be measured are dominated by the variation. When the variations are on the order of 50% of the average, the average conveys almost no information.

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A Real Journalist's Skepticism on Global Warming

February 15, 2007 05:02 PM

Maybe the consensus is breaking a bit, or maybe not. Journalists are buying UN propaganda without the skepticism they would ordinarily show over an eye witness to a crime or other event. It is an agenda, not news. Many of our journalists are of the 1960's era. It happens that this is one of the most uneducated cohorts to live in the United States. This is true for two reasons: one this generation attended college at a lesser rate than any cohorts before or since for many decades (this fact was noted by Chairmen of the Council of Economic Advisors Ed Lazeer in his recent discussion of the Report of the Council) and two, what education they did receive was watered down and instilled with antiwar and revolutionary content. (I was at a university in the latter part of this time frame where faculty meetings were interrupted by communist sympathizing students and antiwar protesters).

Finally, here is a journalist who puts some of this global warming hype by the press in context Reporters Who Lack Skepticism.

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Independent Assessment of the IPCC Summary

February 14, 2007 05:18 PM

We can wrap up this topic for a while as the independent assessment of the IPCC Summary for Policy Makers is now available at this link. I was one of the reviewers and thought the report was a good representation of the science, even though, in my opinion, it did not reveal the real extent of uncertainty of the estimates. It might also have shown even more how different are the estimates of the various and over-many models of the Earth's environment and its place in the cosmos (did you ever think how ridiculous the aims of these models are?).

My own opinion on this issue? Scientific consensus is meaningless; only the facts matter at this stage and they are completely inconclusive. Nobody adequately deals with the complexity of these natural processes. The models surely do not and they will be gone if someone pulls the plug on the socialist agenda of the UN. No funding ought to go to schemes that fail to address the commons problem I alluded to before.

Create more secure property regimes and market incentives to permit flexibility and incentives for good solutions to the environmental commons problem (nobody owns any of the mediums through which pollution occurs). The UN schemes and of the socialist planners will make an East Germany of our entire planet. This is by far the greater danger.

Clean up the world with secure property systems that are more inclusive of environmental dimensions, private incentives, and market systems. The contribution of man to global warming is minute at best and uncertain. If we clean up the planet, even that questionable contribution will be diminished to inconsequential.

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The Glaciers are Melting (NOT)

February 13, 2007 12:47 PM

Three scientists discuss the glaciers of India

They haven't really changed and are very different, being on high ground, from others. Natural variation is present and relatively high, so persistent loss or gain is difficult to detect over short time periods.

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Environmentalism as Central Planning

Claudia Rossett picked up the same interview I read yesterday with the Czech president Vaclav Klaus comparing the UN-promotion of global warming to a drive to central planning. See her comments and then UN promoting planning.

Klaus is smart and biting in his comments and he is right, far more could be done to improve the environment through reforms in property rights. Not just property rights in the land, but in property rights in air and water. Both are now commons under implicit government ownership, so there is no owner. The result is these resources are over used as disposal sites for a large range of pollutants, an environmental version of the tragedy of the commons.

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Cosmic Rays

February 12, 2007 08:35 AM

A bit more evidence and an elaboration of the sun's effect on cloud formation.

Solar Effects on Clouds

I find it very interesting that the publication of the original research was delayed for years (something I have experienced when I showed the the Herfindahl Index on which game theoretic models of "concentrated" industries does not exist when you recognize the volatility of market shares). Similarly, McKitrick and Patrick's refutation of the Hockey Stick was years in the journal pipelines before it was published and later confirmed by many other studies.

There are a lot of open questions and missing feedbacks in these super-sized, who knows what is really going on, climate models. Economics may have lost a generation of modelers and econometricians during its infatuation with huge models of the economy. It seems to me that a similar episode of unexplored new ideas are being left on the table in the rush to garner grant dollars for climate research under the greenhouse impetus.

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My Expert Can Beat Up Your Expert

February 7, 2007 10:00 PM

The debate among persons taking one position or the other on global warming/climate change/government action/and what have you often takes the form of "My expert is smarter or more distinguished than your expert."

So, we line up the experts and see which side has more clout. I have been in many litigation trials where that was the main argument or other cases where one lawyer was "smarter" or from a more prestigious firm than yours.

It doesn't matter. When the science is incomplete, there are no decisive experts. And when few of the models account for natural variation, or rely on dumb tests of statistical significance (an artifact of earlier statistics that fails to account for the social significance of events) then no body really knows much.

It is clear that the IPCC summary of the fourth assessment is both a scientific and a political entity and the summary recently released glosses over uncertainties that are in the full report by the scientists, to be released later. It is also clear, if you care about who is on whose payroll, that the UN staff are paid by one of the most corrupt and wholly unaccountable organizations in the world. And, most of the climate scientists depend on government grants. So, there are few disinterested individuals in this discussion on either side. And there are many sides to the discussion, not just for or against massive government involvement in our lives.

The governor of Oregon wants to fire or change the name of the Oregon Climate Scientist because he thinks the debate is unsettled because it fails to account for the natural variation in the climate. This is close to my position. The Earth is warming, but not unusually so and wholly within natural variations revealed in the historical data. The governor thinks that the paid scientist should reflect the position of the government of Oregon.

So, it is of little use to line up your experts against someone else's. Let's continue the debate without drawing conclusions. There is no rush, but many economic interests are at stake and you can see them by the way politicians and corporations are lining up behind ethanol and alternative energy sources, none of which compare to natural gas and oil in efficiency.

By the time the evidence is settled (if ever), we may see large scale cooling if the solar cycles hypothesis is true. Kyoto will not make any contribution to reducing emissions, but it does give Russia, India, and China a free hand and pushes the burden onto others.

There are lot of other problems more serious than climate change, but the money isn't there and the political power is not there. So, genocide, aids, sanitation, free trade and promoting freedom fall by the wayside while we are stuck in this unproductive and completely unsettled debate. It seems to be more about establishing your own sense of morality to many; I believe in global warming and am therefore more virtuous than you. Or something like that.

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Mark Steyn on "Global Warming"

February 5, 2007 06:47 AM

This topic is so interesting that I can't resist putting Mark's comment on the global warming science and the crowd pushing it. Some Like it Hot.

I estimated the distribution of rain fall from ice core data for my own interest. I found it is a fractal distribution with an infinite variance and an infinite mean. That means there isn't even a 100 year flood plain, as our experts claim and our mortgage companies worry about. And it is known that 40% of the erosion damage in a decade is caused by a single rain storm. Moreover, in my Economics of Extreme Events course at UCI, students verified the large natural variation of tornadoes, hurricanes, and earthquakes. All this implies that the natural variation in the "climate" is very large and that few if any conclusions regarding "change" can be supported by the statistics.

Steyn is right to pinpoint how the hypothesis mutates from "cooling", to "warming" and then the safer "change", which is harder to falsify. But, remember, change in the statistical sense is a deviation far out in the tail of deviations. To test that, you need to know the natural deviation and it is so large and unaccounted for that few if any of the studies have documented change, which in this case must a series of deviations so large and sustained they signal a shift in the underlying distribution.

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Climate Change

January 30, 2007 07:41 PM

There will be a host of news items on climate change when the UN group releases its fourth assessment.

I will later post a critical review of the report and the state of the science. But, for now let me note that Lorenz discovered chaos when he typed in a rounded off intitial condition into his computer program for simulating the weather. After he went for coffee he came back to find that the weather had evolved to a completely new phase, far different from his earlier simulation. He found that the slight rounding of his input to the initial conditions made a very large change in the weather pattern that was simulated, so large as to be "strange". That was one of the initial phases in the discovery of chaos and strange attractors.

The computer models of the climate simulate the weather for centuries. How close do you think they come to the real thing? Not very close at all. It is not possible. Period. None of these models is to be trusted.

The evidence of climate change is growing. There are changes, as there always are. But, as to the effect of humans, the evidence is completely inconclusive.

I recently reviewed an excellent compilation of the science and of the Fourth Assessment. I will post parts when it is released for general consumption.

In the conclusion of my assessment I pointed out the similarities of current climate models to the large scale economic models of the past, the Penn model, the Social Science Research Council model, the Data Resources model and so on. Not one of these models is believed or in operation today in any real sense. The DRI model was a commercial venture by a group of Harvard economists. Initially, it was purchased and its forecasts were subscribed to by a large number of corporations and government agencies.

It did not survive the commercial test of making better forecasts and is gone. So, too will be the fate of the climate models. They reflect primarily the assumptions and the predilections of the model builders (as the Penn model did of Lawrence Klein and his tinkering with the model). They are completely non-scientific enterprises. In the case of the commercial product, they did not survive the market place.

The UN and government sponsored models face no similar market test. They survive on funding by the same groups, the UN and other government agencies, who stand to gain if the dire forecasts are believed by the public. Funds will flow. The media have little interest one way or the other. What ever will sell stories. And scary stories sell.

The UN is among the least credible entities and yet it is the agency that draws these scientists and computer modelers together to publish these assessments. It reminds one of the Club of Rome group that did the same sort of attention-grabbing junk science years ago. Nobody believes them any more.

Consensus science is not science. I have been there on top level committees such as the National Academy of Sciences. Getting scientist to agree on statements is hard and usually wrong or highly compromised. The truth is always with one of the positions or something not yet thought of, not somewhere in between.

The bureaucrats of the UN ultimately are the ones who approve the final language of the summary assessment. Look for it to be as scary as they can make it. The Executive Summary will over-state the science. Ignore it and make your own assessment. Man is puny as a source of climate change globally. The sun's energy, vulcanism, natural variation (which is hugely under-rated in all this) and chaos dwarf anything we humans can do or are doing to affect the climate.

Off for some trail riding on my new KTM 525 EXC. Some posts on muscle coming up and a work out for Evolutionary Fitness beginners soon.

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And Stay Away From Sugar this Thanksgiving

November 23, 2006 09:17 AM

I found this on Dr. Mecola's site. I am a bit skeptical of these dietary surveys and correlations with disease. But, this one has some physiology to back it up: increased insulin secretion promotes pancreatic cancer because it creates a proliferative response in pancreatic cells, particularly the islets. Read the article from AJCN.

And, in case you say "I will binge just this one day," note that the high insulin spike from a meal full of stuffing, mashed potatoes, gravy, and other starches and simple carbs will amount to a massive assault on your insulin sensitivity. The footprint of that meal will be there for a long time. You will be curiously vulnerable to carb temptations for some time after because your sensitivity is diminished and your circulating insulin will remain elevated. Bat Girl is going through that right now after a trip back east to see her Very Italian family.

The huge insulin spike will also send a signal to reroute blood to your stomach and make you feel sleepy. It will also release serotonin to further increase your drowsiness. Take a walk before you settle down to watch the football games after your nice dinner. And make sure the meal is a time to enjoy your friends and family and count your blessings. The food is secondary.

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A Heavy Tale

One of the things to be thankful for today is to be freer of the risk of AIDS than in most other countries. But, even here, politics has interfered with science and prevented the knowledge we all require to protect ourselves and others from the risk of AIDS. I saw one of my best friends die of AIDS because of transfusions of untested blood. Ironically, he wrote a book on the subject and criticized then current policies of failing to test donors and failing further to test inventories of blood stocks for HIV/AIDS. I know my HIV/AIDS status (negative) because I donated blood often for his transfusions. But, I was not always around and he had several surgeries because his joints were damaged from his haemophillia. The failure to test killed him and many others. And it continues to be the weak link in the containment of the AIDS epidemic in Africa.

Here is an update and personal view by someone deeply involved in the battle against ignorance and political correctness, as true in Africa as here and among the charities, governments, and other NGOs, that even now hampers the battle against this fierce disease. From the Kenya Times.

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My Harvard talk on extreme statistics in the movies and pharmaceuticals

November 16, 2006 08:01 AM

The figure is a log log plot of the probability density of motion picture revenues; the log of probability density is shown on the Y axis and the log of motion picture revenue is shown on the X axis. This is a stable distribution with a tail weight of 1.33 and an infinite variance. Note the long tail to the right, where the blockbusters are located. These are low probability events of large magnitude that are so far out on the tail they could never occur in a Gaussian world (Titanic was about 20 standard deviations above the mean). They can and do occur in the Levy Stable world of the movies.

Pharmaceutical firms look for blockbusters, just as movie studios do. The Technology Management group at Harvard Business School noted this similarity and invited me to speak on modeling the wild statistics of the movies and what that might mean for the behavior and organization of the pharmaceutical industry. I gave a similar, but less lengthly and detailed talk at UCLA on the same topic. The slides for the talk are available as a PDF file. Unfortunately, it lacks many of the tables and graphics on the movies. But, it does have some fascinating statistical properties of pharmaceuticals that show dramatic similarity to the movies.

Looking through the slides you will find one that shows the growth (and decay) rate of pharma companies is Levy Stable distributed; the distribution is leptokurtotic and has infinite variance. It is known that the growth rate of pharma companies depends primarily on a blockbuster in their portfolio. This is true of the movies as well; a single movie can change the market share of a distributor dramatically. The downside of this blockbuster effect is that a firm's sales can plummet with the withdrawal of a single drug such as we have seen with Vioxx and Bextra.

Click here for the talk Hollywood Economics: Dealing with `Wild' Uncertainty in the Movies and Pharmaceuticals.

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Complexity in Physiology and Medicine

October 24, 2006 04:09 PM

You may know by now that complexity is part of Evolutionary Fitness. It is a blend of the Stone Age with High Tech. The old part is our genes and how they were shaped by evolutionary forces. The new part is the science of complexity. These topics fuse naturally because our ancestors were adaptive and lived in an uncertain world; thus we were made by evolutionary forces to live in a complex and challenging world. Virtually all deep research in physiology relies on complexity.

I have argued often here that averages and thinking based on averages distorts medical decisions. Virtually all distributions of physiological variables that are used to assess health or illness are non-normal distributions and fall into the stable Paretian class.

Now there is a new book on Complexity in Medicine that develops that vision. This is the second prong of a new kind of medicine, one that combines Evolutionary Medicine with Complexity Medicine.

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Deja Vu All Over and Over and Over and ... Over Again

September 24, 2006 07:15 PM

Yogi Berra may have been far smarter than he is given credit for. His has been credited or blamed for the famous statment; "It's deja vu, all over again."

To some the statement is repetitive for deja vu is to see an event that one has experienced before as experienced again. But, give him some credit for one can have a deja vu experience on many levels since life is a fractal experience and the brain has limited capacity to detect and represent patterns. Thus, it is possible to experience deja vu moments on many levels.

One can experience the experience of deja vu, in effect saying "I have felt a moment like this before and am likely to do so again." This is second order deja vu; recognizing previous such experiences. A still higher order of deja vu is in seeing a pattern of higher order in deja vu recurrence. And so on. Because life is a fractal there will be events and complex moments that are similar to one another on many scales. Thus, a deja vu moment on a low dimensional scale (sweaty and kissing in the drive-in as a teen ager) may recur on a higher dimensional scale (devotion to your wife) and on yet higher temporal orders (discovering a new love at a late stage of life). Or they may recur from lower to higher dimension --- physical love, love, sharing, and devotion, or rediscovering love that one has lost. And so on.

Because life is fractal there are many scales on which it looks similar --- self-similarity all over again. Small events look similar to bigger ones and these events recur on a scale of decades and these patterns recur on the larger canvas of a lifetime.

It cannot be otherwise because life is a fractal so if we have the ability to see higher orders of order we must experience similarity of experiences; deja vu on many levels. We should not make too much of this because, fractal life aside, the brain is limited in its recognition and representation of experiences. Deja vu moments have no deep meaning. They represent little more than the limits of the brain to detect and represent complexity in real events. Because there is limited neural substrate and real patterns are of unlimited complexity, many experiences must recur on different scales. So, representational limits in the brain make deja vu inevitable because a finite brain can only support a finite number of representations of experiences. If similar events call forth the same or similar representation in neural substrate, a deja vu moment occurs.

This is easy to show. Suppose the brain can allocate 20 neurons to an event. If an event is complex it may require a description of the state in 200 dimensions. Thus, a lower order representation is one of 20 to the 200th power number of states. A higher order processor must pick a state or subset of states from this huge number of possible combinations. 20^200 possible states cannot be enumerated in a lifetime or many lifetimes.

The problem has to be reduced in dimension because there are not enough neurons and there is not enough time to function with state representations that are of dimension 200. Increasing the number of neurons devoted to an event is not a solution because doing so expands the demands on the next level of cognition, the pattern recognizers. So, the state representation must be reduced in dimension, from 200 perhaps to 10 or even 3 or 4. Doing so frees neurons from simple representation to higher orders of pattern recognition, a likely avenue of brain evolution. It also reduces the computational burden of the higher order neuronal circuits and this holds true farther up the line all the way to the neocortex.

So, I think the brain must be organized to operate with low dimensional states; that is to say, that complex events will be represented in the brain as finite and rather low dimensional events, say, on the order of 3 or 4 up to 7 dimensions. This spares the requirements for neurons from the lowest to the highest levels. The cost is that the finite number of states make deja vu inevitable. The down side is that once an experience is brain-encoded in the sex, food, danger dimensions a lot of the other dimensions can't carry much weight.

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Moving the Stakes: Changing Risk Bearing and Reward in Film Finance

September 12, 2006 08:26 AM

This is a summary of my upcoming talk at the Strategic Research Institute organized Film Finance Conference in Los Angeles on November 27th.

Moving the Stakes: Changing Risk Bearing and Reward in Film Finance

Dr. De Vany's talk will begin with an exposition of risk and return in the movie business, demonstrating that it lies on the boundary between quantifiable risk and uncertainty (unquantifiable risk). This is a durable feature of the business over time periods, cultures, genre, budget and virtually every aspect of the movie business. He will show how the stable Paretian model, a non-normal, high-kurtosis probability distribution, captures these features and is the key to understanding the structure, uncertainty, and returns in the movie business. He will also show that many other innovation industries, such as patents, pharmaceuticals, and real estate share these properties.

The second part of his talk will focus more closely on the distribution of risk and reward in the movies to demonstrate that stars are not "bankable" and that they bear too little risk relative to the returns they bring and are paid too much for their contribution to box office revenue. Risk takers receive too little for the large risks they bear. As more sophisticated outside investors enter the business they will move the stakes and reallocate risk and returns. The compensation of stars will change and there may be more Tom Cruise-like firings.

The third part of his talk will show the pitfalls for hedge funds and investors and what they must do to guard against failures to correctly understand the implications of the stable Paretian probabilities they are up against. Common errors are 1. a belief that there is a model that can predict box office or other sources of revenue, 2. a belief that a large portfolio offers protection (they do not because the law of large numbers does not hold in the stable Paretian model), 3. believing that the average return is a good predictor of the mean return, 4. a false belief in the precision of forecasts.

In the fourth part of his talk, Dr. De Vany will show how Extremal Securities are designed for motion pictures and other innovation industries where returns have a non-normal stable Paretian probability distribution.

Dr. De Vany will describe this new class of assets and show their three broad areas of application:

Principal funding --- film finance, oil field exploration, pharmaceuticals
Securitization --- real estate appreciation, artist contingent contracts, stock options
Forward selling --- professionals selling a conditional interest in future earnings

He will discuss how banks, insurance companies, hedge funds, investors and principals will package ES and ES portfolios in each of these market models. The differences between these models will also be described.

Extremal Securities are an instrument for repackaging risk and reward in the film and other innovation industries so that the market can bear the risk.

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Extremal Securities ®

July 15, 2006 08:30 AM

Now that I have trade marked Extremal Security ®, Extremal Security Exchange ®, and Extremal Security Portfolio ® I will do a series of posts explaining their advantages. The actual design work in creating an extremal security involves a variety of tests and mathematical/statistical analyses to characterize the structure of the outcome space and the required attributes of the extremal security and extremal portfolio. Optimization of the attributes of the extremal security and extremal portfolio then are done to achieve the desired gain/reward exposure from the frontier of efficient outcomes. These methods are part of the new financial technology embodied in the concept of extremal security (patent pending).

It turns out that a number of funds are working in the movie business creating extremal security portfolios without acknowledging it as my invention and even claiming the extremal security portfolio as their own idea. Now that I have learned this, I'll have to look into it a bit. Sounds like intellectual theft to me.

Of course, they are playing with small potatoes. Extremal securities could transform finance and financial markets.

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Financing Movies, Part 3

July 13, 2006 10:59 PM

This post is about Extremal Securities ®. I designed these securities in my book, Hollywood Economics (2004). I am seeking a patent on the design because, though it is grounded on contingent claim theory, it is novel and of great use in innovation industries, of which motion pictures are only one. Extremal Security ® and Extremal Security Exchange ® are my trade marks. The extremal security and a portfolio of extremal securities is my invention. Both inventions are available for licensing.

I built these extremal securities from the Arrow-Debreu idea of state-contingent claims, that is a distribution of claims on revenues over probabilistic states of the world. An old idea I put together with the stable Paretian distribution to create an instrument Hollywood and other innovation dependent industries need. I have lectured about this idea for several years, most recently at Harvard and UCLA and to the Orange County Intellectual Property Bar.

I showed that other industries with stable-distributed outcomes, such as pharmaceuticals, patents, and books could be financed and even reorganized through the use of extremal securities. Aleck Grishkevich is licensing the invention and service mark from me to set up an extremal security exchange where contingent revenue claims may be listed by anyone who has a verifiable contract, patent, innovation, or new venture to finance.

So, here is the text from the Epilogue of my Hollywood Economics, pages 271 and 272, where I laid out the general design. The details of the design are subtle if the security is to offer some degree of central area pooling and capture the massive, lower-probability outcomes in the Paretian tail of the stable distribution. Other features of the design provide access to extreme tail outcomes while decreasing the variance. The design works for stable distributions, Paretian tail of stable distributions, extreme value statistics. The log-normal distribution can also be carved into tail events readily because, 1. it is in the stable class, and 2. for this distribution one can use conventional options pricing models.

"Studios are really banks that have a distribution arm for leasing movies to theaters. They finance movies based on what they think they will cost and how much they expect they will make. All the risk is borne by the studio unless they grant points to artists in exchange for a lower fee. To shed some risk they might pre-sell one or another revenue stream. This turns risk into cash. A film has many such streams and a studio can choose which ones to sell for cash and which ones to keep. Turning these unknown streams into cash may seem comforting, but the studio may regret taking cash upfront instead of retaining some part of the uncertain gain. If the movie is wildly successful, they will have sold the stream for a pittance, transferring to the buyer all the uncertain, but potentially very large gains. Remember, the rewards lie in the far upper tail of the probability distribution. The heavy tails tell us that a studio should always retain some part of the upper tail of any revenue stream they pre-sell because that is where the really big gains are.

There are better ways to finance movies. We know that we should take portfolios of projects and that there are extreme statistics to deal with. So, investors in motion pictures must manage their risk through the use of portfolios; these can be created by packaging projects together into one investment package. Or, the projects can be securitized in some manner so that an investor can manage risk by diversiying securities.

Except for the odd portfolio offering, such as the Silver Screen limited partnerships (where the junior partner typically does not fare well), few movies are financed by packaging them as part of a portfolio. Studios implicitly build portfolios of from four to fifteen films in their annual productions, but they do not use portfolio analysis in picking movies because they greenlight them individually.

So, is there a better way? We can design securities to solve many of the problems in film finance. How should such a security be designed? Design must be grounded in the specifics of motion pictures. What is to be securitized is the revenue or profit of the revenue streams that flow from a movie for the whole of its economic life. It is desirable to securitize a stream that can be monitored by the investor and verified by a court. Revenues, as reported by any of the independent sources of box office revenues, is an ideal variable on which to condition payoffs. Profits are more controversial and are difficult to allocate over a portofolio (this leads to what has been called the studio accounting problem). Conditioning security payouts on revenue is more likely to draw investor support because studios or producers have less room to influence revenue than profit and independent sources publish information on revenue. By reducing moral hazard, revenue-based securities are more likely to support a market. The importance of a market is that it would bring greater liquidity to motion picture securities and, thereby, increase their value.

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Motion Picture Finance, Part 2

July 11, 2006 08:31 AM

This is a picture of the distribution of estimated motion picture profit. The Stable distribution is compared with the data and with the Normal distribution. The Stable distribution is a superior fit over the visible range of the variables. What you cannot see is the vastly superior fit of the Stable distribution in the far left and far right hand tails where the Normal distribution has essentially zero probabilty for movie outcomes that actually occured. Note that the distribution is not symmetrical either; it has a heavier tail to the right (positive profits) than to the left (losses). This is because losses are limited by what you spend, but profits have no upper limit.

Now have a look at the variance of profit over time. It has the ragged shape of a fractal or mountain range where the variance takes leaps and falls of every size with no typical value. That is the nature of risk on one hand but of return potential on the other hand. For it is in the variance that opportunities for huge profit occur. These low probability, massive events dominate profit in Hollywood. The Stable disribution is the key to this pattern as well.

These pictures give some hint of the wildness of outcomes in the movie business. It is a business where the extraordinary is ordinary and where the small probability, massive events dominate everything. I could show similar pictures of wild statistics on the revenue side as well. The Paretian Stable probability model (and the models of the dynamics that produce this distribution) captures the very essence of the movie business. Among the many properties it implies is Goldman's famous "nobody knows" principle.

Nobody knows what a movie will gross in US theaters, in the world theatrical market, in DVDs, and other revenue windows. If they knew, the business would be easy and few films would ever lose money. But, many or even most films do lose money (it is hard to do the accounting, but many estimates show this).

My research and that of many others now has shown that the nobody knows principle is true. But, there are highly stable patterns as well, if you know where to look for them. I develop them at length in my book (A. De Vany, Hollywood Economics, 2004). Thus, even though motion picture revenue streams are statistically ``wild'', with non-stationary averages and infinite variance, there is a deeper pattern to the underlying probability distributions. With a knowledge of these deeper, universal patterns (I show that they hold for all time periods and countries and for many different variables), it is possible to design effective instruments to gain some pooling among outcomes near the mean while retaining a claim on the huge returns that come from rare events in the upper probability tails when they occur. You can almost "have your cake and eat it too" with the right mixture of contingent claims on parts of the revenue streams a movie throws off.

Revenue streams are sums of random variables, aggregated over theaters, DVDs and other venues and they converge to the stable class of probability distributions. The Normal or Gaussian distribution is a member of this class, but it is the only one with a finite variance. The Normal or log-Normal (as assumed in the options pricing models) do not fit the movies. In fact they are so far off that movies like Titanic or Harry Potter should never occur. Only the stable probability distribution captures the "wild" behavior of the movies. It fits the movies like a glove and it reveals deep patterns that some try to ignore at their peril.

The stable Paretian distribution is the attractor of movie revenue streams and is independent of initial conditions. The dynamics have the stability property and, thus, are also self-similar. The basin of attraction of the process is determined wholly by the tail weights of the distribution. The distribution has ``heavy'' tails and completely non-Gaussian probabilities in the upper tails, where the main revenue generators lie. These remarkable features explain a great deal about the movie business and provide the basis for new ways to finance movies.

It is not hard to see the non-Gaussian nature of the movies: Forrest Gump earned US theatrical revenues 10 standard deviations above the mean; Titanic earned revenues 20 standard deviations above the mean. These events would not occur in billions of reruns of the Earth's history if events were Normally distributed. But, events occur on all scales, with no typical outcome in the movies. The mean is dominated by events of massive scale ("blockbusters") and so is the sample average. The sample variance increases in the sample size and the theoretical variance is infinite. There is also a time-dependency in the statistics, partly because of the influence of extreme events. These and other properties are confirmation of Goldman's proposition. The business is wildly uncertain and, for that reason, it offers unusual investment opportunities.

There are at least two reasons for these opportunities. First, the studios and producers know they face great risk and find many ways to lay it off through their deals. But, they only have so many ways to do this in today's financial markets. Primarily, they adjust their risk exposure by overspending on stars and in the way they release movies on many screens with large advertising expenses. Research shows these are not effective and may lead to a rapid playoff before the film can get its ``legs''.

The second way they adjust their risk exposure is through contingent contracting or what are called participation contracts. If no one knows how much a film will make, then it makes sense to condition pay or pricing on outcomes. This is the option principle of delaying the pay or pricing decision until more information becomes available. Thus, many contracts are written conditional on the revenue streams a film realizes over its various runs through its venues. Director fees, star pay, distribution fees, rental charges, and a variety of other pricing and revenue variables are determined after the film plays in its venues and streams of revenue come in. The long history of the industry in structuring deals this way lays a foundation for the new financial instruments we will bring to the industry.

Studio models focus on forecasting expected values and virtually ignore the variance. And the forecasting is seldom sophisticated and usually wrong (how could it be otherwise given the nature of the statistics?). The sample average is a poor forecaster of the mean in this business. The sample average is highly non-stationary (it even is stable distributed) and a poor estimator of the mean. It is dominated by a few rare events. The mode is well below the mean outcome and the mean is up around the 75th percentile. The distribution is highly kurtotic; excess kurtosis is 15. If these expected value models underlie studio decision making, then they will undervalue the upper tail events which are the heart of the business.

Thus, at one time studios pre-sold the foreign distribution rights to their movies for a flat fee, independent of foreign revenue. The cash advance enabled the studio to finance the movie, but at the cost of giving away the upper tail events that dominated revenues. Eventually, the pre-sold foreign distribution fee was made contingent on US theatrical revenues. But, this brings the money in too late from the point of view of the studio who needs the money well before foreign or domestic distribution in order to finance the production. And it is one factor in the narrower release windows we are beginning to see.

Another factor that distorts studio decisions is that, in this business, the variance is the key to high returns. The Sharpe ratio, variance over mean, that determines a lot of financial decision-making is infinite in the movie business. So, perhaps a lot of hedge funds stay away from the business. But, this is an error. The heavy tails make for the infinite variance and the higher than Gaussian probabilities of large events in these tails drive the mean. Heavier tails, more variance, larger outcomes, higher mean. It is not a Gaussian world and that property can be used to give investors a piece of these hugely profitable upper tail events. In a world where arbitrage has driven prices to low Sharpe ratios, an industry like the movies offers one of the best opportunities to gain higher returns.

The risk associated with these huge potential returns can, in turn, be managed by the way tail events are linked to investor returns. We can structure things so that investors can buy tail events. They never lose more than what they pay for owning a contingent outcome that could pay thousands of times the price of the instrument. I call these instruments extremal securities. But, they are rather like call options on uncertain revenue streams. Each stream in every venue can be colateralized by creating conditional claims on a share of revenue at respective tail events.

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Motion Picture Finance

July 10, 2006 07:12 AM

I have a series of posts coming this week on financing movies and paying stars. It will develop the issues in a way that lays the foundation for a new market that my partner Aleck Grishkevich and I are setting up.

Our market will let investors share in the high kurtosis of motion picture revenues, but at low risk. It will offer a means for compensating stars that sharply reduces the risk for producers, but lets stars share in the large returns that a few movies realize. It will offer a mechanism for pooling returns among generations of new actors and reduce the uncertainty individual actors face. It can become a primary means for financing training and the early stages of an actor's career.

Banks, funds, and institutional investors will find in this market a tool for capturing the high returns that can be generated in the movie business while taking little risk. Few other industries offer the dazzling variance in returns that has been driven from a picked-over stock market where investors try to minimize variance for expected return. In the movies and other heavy tailed businesses, the expected return is dominated by the high variance, large scale events. Running away from variance sharply reduces expected returns and this is not in the conventional risk avoidance fashion of the CAP model. Expected return rises with variance because it is the primary feature of the distribution of motion picture revenue outcomes in which the expected return is dominated by the large scale, low probability events.

We have solved the puzzle of how to participate in this extreme variance market with little risk. We have designed contingent claims on revenue streams, following the theory and evidence in my book Hollywood Economics, that sharply reduce investor risk while allowing parts of the extreme returns that come to those 5 to 10% of movies that earn 90% of profits in Hollywood.

The market will bring liquidity to what is now a very thin and underdeveloped mechanism for paying actors and financing movies. With liquidity comes higher value for the parties on both sides of the deal and lower pricing risk. A market of the kind we are creating has the potential to revolutionize how movies are financed and open the way to more creative productions. Book publishing, patents, and pharmaceuticals---all heavy tailed, high kurtosis industries---could also benefit from a market of the form that we first will establish for motion pictures and actors. More coming...

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Another Death

July 6, 2006 07:12 AM

Ken Lay's death is almost being celebrated by some. Enron employees are particularly angry at Mr. Lay. But, they are blaming him for their own greed. No one in their right mind would hold all of their retirement assets in one stock. Yet, that is what most of them did. They loved the returns the stock price rise gave them while ignoring the most basic considerations concerning the risk they were embracing. Tom Kirkendall lucidly discusses the Lay trial carried on by the press and the verdict so many have passed on him without trial.

Ken Lay's vision of Enron as a natural gas market-maker, trader, and integrator of pipeline transmission was innovative and solid. I document, with my friend and colleague David Walls, the evolution of the natural gas market beginning around 1980 through the late 1990's in our book The Emerging New Order in Natural Gas. I won't go into that here, the book is available under my Research link in PDF form now that it is no longer published. In spite of all the off-book ventures created by others, the essential Lay vision for Enron was to bring markets to a long regulated and extremely inefficient market. That has essentially come to be and much of this is owed to Lay's role in placing Enron in the lead as a sophisticated energy trader.

This was a harder problem than many realize given the archaic and balkanized structure of the natural gas pipeline network under Federal and State regulation...

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Our Willingness to Believe

June 29, 2006 07:54 AM

Midnight Shyamalan has another exploitative movie out. What he uses is the strange willingness to believe in hidden causes and creatures that we humans must have inherited from ancestors. They lived in a more dangerous and strange world than we, but we are still guided by those intincts that, perhaps, helped to keep them alive. The Da Vinci Code is another of these movies. So is the belief that steroids are the magic stuff. I don't like our kids reading all this Harry Potter stuff either; there is too much of this belief in magic and hidden causes (including conspiracy). You should see some of the emails I get about my steroids and home run paper--strange.

Michael Shermer played at cold readings and reaching the dead as an experiment. See how it went in this The Willingness to Believe. This is one of Linda Seeback's cool, rational columns for the Rock Mountain News.

Len Milodinow's upcoming article in the July 2, LA Times Magazine reveals similarly odd and unfalsifiable beliefs among Hollywood film makers. They, perhaps, are more easily forgiven because they live in a world almost as dangerous (to their careers, not their lives) as our ancestors.

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Around the Bases, One More Time

March 21, 2006 08:25 AM

I was once an expert witness in a case where the plaintiff made the same argument many proponents of steroids make. Their expert claimed that they had been damaged and it was plain to see that the damage was large because the company spent so much money trying to prevent the damage.

This is completely circular, as are so many of the steroid arguments. The conclusion, the damage, is already in the premise. To make this more clear I said this is like saying there are a lot of ghosts in my house because why else would I spend so much money on ghost detection devices and ghost prevention services. I never saw a judge laugh so hard. End of case.

To make the same claim for steroids is equally silly. Because some athletes take them they must work. Look these guys are not rocket scientists and neither are the people who may be advising them. What Joseph rightly did was to say look at the evidence over all steroid and non-steroid hitters, or a sample of them. This is how a scientist would test the proposition. And, he pointed to the large number of steroid users who failed to accomplish anything.

Too many people fall for this Michael Jordan effect; I'll go buy his shoes and play like him. New shoes will not give you a vertical leap of 40 inches. And a few steroid shots won't give you the skill and quickness to hit home runs.

Just because it is chemistry and not simply shoes, some people may fall for the Michael Jordan effect. And there is slightly more to it in this instance. But, there is no talent in that juice, just a testosterone derivative that will change many things in your body, not just your muscle. Your testes will begin to shut down because there is a feedback between their output and what is in your blood. Excess testosterone will aromatize (body fat is the big factor here) into estrogen, so you will find your feminine side. You may find that big breasts get in the way and slow your bat speed. There is almost no experimental evidence on this issue because there are so many risks of trying to do an real scientific test. The one I could find from 1996 showed negligible effects of steroids in a controlled experiment.

For all the fears of steroids, there are no reported cases of baseball players dying of cancer or showing any health problems. There is likely to be a higher level of steroid use on your local high school football team than on a professional baseball team. And these insecure young males who lack the knowledge and balance to deal with challenges are the most likely users who then go on to become abusers.

And let's let poor Lyle Alzhedo rest in peace. He has been made the poster boy of steroid abuse. Abuse is far different from sensible use. There is no evidence that steroid use promotes brain cancer. More Boston Marathon runners (4 that I know of so far and there are doubtless more) have died of brain cancer than football players who were known steroid users. And, in the case of marathoning, the chemical messengers and mechanisms are known (see my Top Ten Reasons Not to Run Marathons).

I repeat: there is not a shred of evidence that steroids improves home run hitting. How I looked at the issue...

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Steroids and Home Runs: The Attempt to Deny Bonds his Greatness

March 18, 2006 09:46 AM

One of the things I am proudest of about my site is my smart readers. I could name many of you and a look through the comments will show the good sense and intelligence of many of them. There are many others who do not comment directly, but email me directly now and then.

I want to share with you, with his permission, a letter that Joseph (I withold his last name) sent to the San Francisco Chronicle regarding their poor and unbalanced treatment of Barry Bonds, one of the great gifts to baseball fans who know the sport.

Editor,

The "illustration" on page 64 of your March 17-23 issue shows" Barry Bonds, Major League Baseball Record Book and other fairy tales" without any follow up. Obviously the illustrator, and your paper are suggesting to your readers that Bond's records are tainted or are not to be accorded credit because of the allegations that Bonds Home Run Records are tied to his alleged use of steroids. In addition to the upcoming "tell all book" by two S.F. Chronicle staff writers, the papers, nation wide, and politicians hungry for free exposure, are on the attack against Bonds.

Because I believe these attacks are a combination of ignorance, sloppy journalism, or possible racial prejudice (see the total lack of articles regarding alleged steroid use by Mark McGuire), I have challenged Bruce Jenkins of the S.F. Chronicle and Jon Sarecono of USA Today, two of the "accusers", to do their job and research the issue of whether or not steroid use contributes in any measurable way towards hand/eye coordination; ability to judge, in say 2-3 seconds, whether or not one should swing at a ball thrown from 60 feet, 6 inches away at 90 miles per hour and to decide that said ball is in the strike zone. They also were requested to demonstrate and how much more distance, if any, a ball will travel if hit by a MLB player using steroids.

I sent to Mr. Jenkins and Mr. Saraceno an article written by Arthur De Vany, Professor Emeritus, Institute For Mathematical Sciences, University of California, Irvine, CA. (attached) that, in my opinion, totally refutes a connection between "use of steroids" and the ability to hit home runs. For some reason, (probably because they were caught with "their pants down" or laziness or apathy), Jenkins and Saraceno never responded to me or made any reference to Professor De Vany's presentation in any of their columns. Their failure to "explain" and cite scientific proof and/or statistical evidence to support their judgment that Bond's alleged use of steroids is directly related to his home run production, after being provided with Professor De Vany's detailed, statistical, refutation of their allegations, is not only telling but also demonstrates that they are cowards and lazy ,and that they choose to hide behind their one sided, subjective, positions rather than seek out and report ALL THE FACTS!

The San Francisco Business Times, having published the "illustration" that implies that Bonds' home records are "fairy tales", owes it readers and subscribers a balanced report on this issue that is constantly in the news. You also owe Bonds, a significant contributor to the economic well being of San Francisco, an objective report that gives both sides of the issue.

Please "step up to the plate" and give your readers and subscribers an in depth look at all the factors involving steroid use and it's ability or non-ability to enhance the performance of a major league baseball player. You might want to start with the records of those major and minor league ball players who tested positive for steroid use and never hit more than 20 home runs in any one major league baseball season!!!

Sincerely,

Joseph

Joseph's last point is a killer. For those of you have have not read my paper "Steroids, Home Runs and the Universal Law of Genius" you can find it under the Research link at the top of the web page.

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Work

November 25, 2005 07:50 AM

De Solla Price found that half the work done in scientific publishing is done by the square root of the number of scientists. Try that in your own organization doing other kinds of work; according to the law half the work in an organization of 100 people is done by 10 workers.

Pope John Paul had his own version of the law. When asked how many people worked at the Vatican, he replied "About half."

And producer Robert Evans had his own version for the movie business. He said that at any time most of the people in Hollywood are not working.

Now a guy named Jim has come up with a version of the law for the United States. It goes like this;

"The population of this country is 237 million. 104 million are retired. That leaves 133 million to do the work. There are 85 million in school, which leaves 48 million to do the work. Of this there are 29 million employed by the federal government, leaving 19 million to do the work. 2.8 million are in the Armed Forces, which leaves 16.2 million to do the work. Take from the total the 14,800,000 people who work for State and City Governments and that leaves 1.4 million to do the work. At any given time there are 188,000 people in hospitals, leaving 1,212,000 to do the work. Now, there are 1,211,998 people in prisons. That leaves just two people to do the work. You and me.

And you're sitting at your computer reading jokes."

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There is a Finite Supply of Fools

November 18, 2005 08:09 PM

As usual, Richard Miniter's reporting is far ahead of the pack. In this article, he puts together a picture of the loss of Al Qaeda in Iraq's ranks in the past few weeks: Zarqawi May be Running out of Fools.

Only a few people will kill themselves to kill others. Al Qaeda has much experience with this and uses:

1. bribes, saying the family of the bomber will be cared for just as Saddam spent his country's resources in the Intifada.

2. coercion, chaining bombers to vehicles and threatening their family.

3. commitment, filming a bomber before the act so they lose face if they back out.

4. misleading the young and mentally disabled.

5. peer pressure, using friends and mentors to develop a bomber over time through small, irreversible commitments and loss of face of those who turn back at an earlier stage.

6. glorification, using conspicuous banners and memorials to show the living that the dead bombers gain some kind of perverse status.

7. dehumanizing the victims.

8. teaching hate in the schools and mosques.

9. deliberately placing individuals at risk so that if they are killed family members will want to "retaliate" (against whom? they ought to retaliate against those who put them in harm's way deliberately).

10. it wouldn't work without lots of media attention and the "press" is a willing participant.

But, it is hitting diminishing returns as Miniter's article suggests. It has to, there are only so many fools and the costs are rising while the gains (if such there be in some fool's mind) are limited.

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Life is Not Chronological

October 29, 2005 09:31 AM

A great insight in this quote from E.M. Forster that I found in a fine paper by Jon Kleinberg titled "Bursty and Hierarchical Structure in Streams."

". . . there seems something else in life besides time, something which may conveniently be called “value,” something which is measured not by minutes or hours but by intensity, so that when we look at our past it does not stretch back evenly but piles up into a few notable pinnacles, and when we look at the future it seems sometimes a wall, sometimes a cloud, sometimes a sun, but never a chronological chart." E.M. Forster, Aspects of the Novel (1927).

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The Law of Home Runs

October 1, 2005 10:19 AM

I have been hard at work on my home run hitting paper. It was fun really, but I had to put in the hours.

The paper will appear here next week.

I was surprised to find that no one has worked out the statistical law of home runs, so I did it. It turns out that my law of home runs applies to other areas of elite human accomplishment and generalizes the Lotka/de Solla Price/Pareto/Murray statistical laws of accomplishment. My law of home runs also corrects and generalizes Moore's Law of processing speed and Hotelling's law of records. Maybe I should call it De Vany's Law of Everything, but that is for others to decide.

With six bills in Congress to "clean up" professional baseball and other sports and new hearings being planned, it is a timely topic.

With that done, I am back to getting those chapters of Evolutionary Fitness out.

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The Forecasting Follies

September 15, 2005 11:05 AM

Nearly every day an article appears in the financial press "explaining" that such and such a stock fell in price because its earnings did not meet the forecasts of analysts. What nonsense.

What would you say about someone who forecasts the winners of NFL games who got it wrong almost all the time? And why are people so fascinated with forecasts anyway? Election coverage is little more than breathless repetition of polls and long-winded discussions of what they mean for the candidates. Who is going to win the election is a question everyone seems to want to know. But, that knowledge is of little value and no one can predict it unless it is obvious to nearly anyone.

Back to the financial analysts. What the news says when it is announced that earnings are less or more than forecasts is that the analysts got it wrong. It doesn't mean anything about the company whose stock is involved. And the report that the price fell because of the difference between realized earnings and forecasts is just a story. No one knows why the price fell, or even if it did relative to the market portfolio.

There is no reason that one quarter's earnings relative to a forecast should change a company's value significantly. It should make the stock price of the analyst fall, not the company's. Nobody can forecast quarterly earnings reliably. They are random, after all. So they will seldom equal any expectation. The forecasts are also point forecasts of a single value. So any realized earnings will nearly always fail to fall on that single point.

As I said in my Edge Annual Question Center law...

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Second Guessing Katrina

September 3, 2005 10:01 AM

Katrina was a hurricane, but the damage in New Orleans was from the flood when the levees were breached. The city is below sea level and there is no place for the flood to drain. The power was shut down to the pumps. So, it will be a long time before the water is pumped back into the sea.

Floods are harder than most natural disasters to deal with because there is little access to the flooded areas.

These factors would have made a pre-positioning of troops counterproductive, in spite of what the "pundits" are now telling us about the lack of response. The pre-positioned troops and their equipment would have been flooded too had they been in the city. Unlike the Tsunami where the waters swept back out to sea, there is no place for the water to go until the pumps come back up and the levees are sealed.

It is an enormous challenge, but the pace of the response is too slow and uncoordinated. It is how government bureacracies and divided responsibilities among city, state and federal agencies operate. We can't depend on them to protect us. The pace and nature of the response is typical of centralized, monolithic agencies. It would be far better to delegate local areas to local agents who can plan their responses to contingencies and have the resources required to implement them. This could be done by bringing quick response private contractors into the process and assigning them to sectors, infrastructure or medical tasks. Local knowledge and resources are responsive to local information. Higher levels pools of resources can be created for these local responses to draw from. And then there can be regional pools for deeper needs. It must be hierarchical, the best known structure for dealing with complexity.

As for the Army Corps of Engineers, we would do best to disband this legacy of early Progressive politics. I wrote a book on this agency and the management of our waterways some time ago; they build canals where they ought not to and canalize rivers and waterways so that they do not bleed off their energy. The result is they gain height as they fill and pick up enormous speed and force. Then, when they do go over the levees they are devastating.

You never have flood protection, all you can do is to mitigate smaller ones and then bear the awful ones that result from the mythical storm of the century. And the damage is increased because more buildings are put in harm's way on the false premise that they are protected.

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Katrina Aid

September 2, 2005 08:24 PM

After much deliberation I have chosen to donate to the families of soldiers who have been damaged by Katrina and its aftermath.

I am giving ten percent of my chapter sales proceeds to Operation AC for as many months as I see necessary.

I have been a Soldier's Angel (I know, I am no Angel and I don't like the name) for some time to a young man while he served in Iraq and who has now returned to New York to join the police force. Operation AC is affiliated with Soldiers' Angels and I feel comfortable sending my money to them. When I sent money to the Red Cross for September 11 aid I was disappointed to find how much went to other uses and to general fund raising. So, no more.

I do prefer to make directed donations to people who do things I like and feel are worthy. I do not like to give to people who are "victims" and who perpetuate this attitude and status from generation to generation. I am appalled at the third world status of the citizens of New Orleans and of the looting and crime. We are seeing the underclass of American society. No one interviewed seems capable of speaking English in a coherent manner and all they do on the televised broadcasts is complain that aid isn't up to what they are used to or demand. It is likely that TV broadcasts seek out these individuals to heighten the sense of tragedy. But, I don't see tragedy here of the kind we saw in, say, Beslan. I see a perpetual and uneducated class expressing the same kind of victimhood that class warfare politicians use. If these people are not the contituency of racial politicians, they are the victims that are required to press their agenda.

What this episode and my reading of No Excuses has caused me to conclude is that the present generation of denizens of New Orleans we are seeing on the news is basically lost. Uneducated, sick, violent, complaining victims. I am putting my hope on the next generation and will use a large portion of my book proceeds to fund scholarships (vouchers) for poor black students who are trapped in dysfunctional schools.

I have some hope that public vouchers will eventually come to pass (preferably over the corpse of the NEA). But, there are so many obstacles in the way and so much time that we cannot waste. So, I will try to find young blacks who aspire to a better education and help fund their escape from their local, dysfunctional schools (from what I see, most of New Orleans' public sector is dysfunctional) to go to a demanding and inspiring private school.

Rather than wait for public vouchers, we can all endow private vouchers to try to narrow the racial education divide that is separating this country and is so graphically exposed in the coverage of Katrina. So, twenty percent of my book sales will go to this venture.

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Katrina, New Orleans and the Limits of Knowledge

September 1, 2005 09:39 AM

For New Orleans, Katrina is the storm of the century. Or is it?

It turns out there is no storm of the century in the statistical sense. Looking back, one can see what the biggest storm was over the past. But, in forecasting storms one never knows what the biggest event will be or how probable it is.

The 100 year flood plain that many of you will know of because of home purchases, does not exist. That's right, the 100 year flood plain that represents an attempt to forecast what area will flood from the biggest storm likely to occur in the next century is impossible to calculate. But, it is done all the time and has taken hold as the way to quantify flood risk.

It does not exist because the rain fall time series in a location does not have a mean. How can it not have a mean? It has an average, which is just a calculation looking back at past rain falls and taking the average as the sum of the rain falls divided by the number. But, even though the series has an average (called the sample average) it does not have a mean. It turns out the average is dominated by extreme events; forty percent of the total erosion in a decade is done by a single storm. And, of all the storms we have seen we can never know what the future will hold. Larger ones are probable.

The mean is a parameter of the underlying true probability distribution of rain falls. But, it need not exist and does not exist for rain fall. Why should it? Nature doesn't do means as often as people like to think, given their exposure to averages in every thing they read. In order for there to be a mean the probabilities of large events have to fall off quickly enough for the integral of the size of the event, x, with the probability density of the event, f(x), to converge.

It turns out that it doesn't for rain fall and for a lot of other natural phenomena. In other cases, the mean exists but the variance does not. This is true of hurricanes and tornadoes for example. And the movies.

Why this is so is not so hard to understand. It says that there is a lot out there we haven't seen yet. Nature has more in store for us than we have experienced or can know. Our knowledge is limited and our experience is finite in a world where Nature is open and infinite. A hurricane draws in energy and mass from an area far larger than itself and the Earth's atmosphere is so full of stuff that the hurricane is essentially an open system that is driven far from equilibrium drawing mass from far. It is almost unlimited in what it can pull in if the energy driving it is high enough.

As for the global warming explanations; they reveal the ignorance and political agenda of the proponents. And the flood control "protection" built around our rivers and cities, these end up raising the damage because people build in these areas with the false belief that they are protected.

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Troop Levels, Enlistments, and Reenlistments

August 27, 2005 09:45 AM

There is concern that our Armed Forces are not meeting recruiting goals. This USA Today story is indicative of the issues.

The problem is that a lot of these stories have the logic wrong. They tend to see a low enlistment rate as a serious problem without seeing that the high reenlistment rate is part of the explanation. And they portray the changes in bonuses and other benefits as indicative of the problem; they are not. They reflect the flexibility the armed forces now have to fine-tune enlistments and retentions and of the responsiveness of an all volunteer armed forces to uncertainty.

Recruiting goals for new enlistments are set in advance of the recruiting and retention process. The goals, therefore, do not reflect the actual results over the year. If, for example, reenlistments are higher than expected, then the requirements for new enlistees declines. The objective over each year of a multi-year horizon is to maintain a stipulated force level (total number and some composition of the number over areas and specialties). Congress basically sets the overall force level in the budgetary process, with input from the DoD. All of the flows, in and out, are stochastic and so a more real time process is in operation in response to experience through the recruiting year.

So, as Tom Saving and I showed in our 1982 Review of Economics and Statistics paper (the research was done years before, beginning with my simple model for the Air Force in 1977), the enlistment, retention and force level variables are like a bath tub. The flow in is enlistments, and the flow out is the inverse of the retentions, the level in the tub is the inventory of personnel. If you reduce the outflow, the force level rises with a constant enlistment rate. But then you go over the mandated force level. So, you have to turn down the enlistment rate. Similarly, if enlistments rise, then the force level will rise too unless the reenlistment rate declines. And it is all uncertain, except for the mandated force level.

So, it is a balancing of enlistments and retentions that controls the force level. If, because of high training costs of existing personnel, you want to retain more of them, then you have to lower new enlistments lest you go over the mandated force level. This is often confused, as you see in so many news stories. The number of new enlistees is not just the flow of those willing to join the service; it is this flow limited by the number that the services are able to take without exceeding the mandated force level.

Paradoxically, the enlistment flow reflects both demand and supply. The demand for new enlistees depends on retentions, so force level and retentions constrain how many volunteers can be taken. This turned out to be a Big Deal when I explained it in 1977, as the debate on a volunteer armed forces was very active, to the Air Force Human Resources Laboratory for whom I did the original study that Tom and I extended in a large research effort from that point forward. The critics of the all volunteer armed forces claimed that the elasticity of supply of volunteers was so low that paying more to secure enlistees would not be adequate inducement to secure the supply required to maintain the force level. Big Error. They failed to realize that the inflow was determined not only by supply, but by demand as well. The success of the current All Volunteer Armed Forces shows the errors of these critics in a convincing way.

Tom and I went on to show that the true supply, corrected for the force level constraint and requirement to curtail enlistees based on the retention rate, was more than enough to have an all volunteer armed force. What the military had been doing in order to not exceed the mandated force level was skimming new recruits for testing scores and other qualitative measures. The result was that the quality of the new inductees varied with the retention and force level: high retention led to higher quality screening of new inductees. And the converse during low retention. It was necessary to avoid going over or under the mandated force level and to deal with the inherent uncertainty of the inflows and outflows.

The military, now being all voluntary, is able to "tune" the rates of retention and accessions through bonuses, pay, retirement and other benefits. This has enabled them to maintain a uniformly high level of enlistee quality, and it shows in our military. They are extremely able, well-trained, and effective.

Michael Yon, to whose work I donate ten percent of my book sales, has breathtaking coverage of Our Warriors in Action. Disciplined, generous and kind, dedicated to one another, and very very lethal.

We could not have this quality of soldier with a draft. There is no sound reason for a military draft. The draft is not "cheaper" because it does not take the inductee's opportunity cost into account. The social costs of a draft are far higher than the budget that Congress approves to pay volunteers.

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Major Surgery and the Brain

August 26, 2005 04:50 PM

I had long thought my mother's decline in brain function was a result of the trauma of her hip surgeries. She had two, having twisted a femor on one side and broken the femur higher up on the other side. She was never the same again, even after the first one. Personally, I think had she let it heal or died she would have been better off. But, that is now, not then when the decisions had to be made.

Now comes this study, whose results I don't doubt, that bypass surgery is injurious to the brain and may lead to Alzheimer's. The mechanisms are likely similar in both hip and bypass surgery: major trauma, blood loss, reperfusion injury, and inadequate antioxidant protection to prevent the damage of momentary ischemia, followed by reperfusion injury when blood flow returns.

It is an issue we all need to consider at some stage of our lives; a major intervention with adverse effects on the brain later. Go to Surgery and Brains

My choice: forget the surgery. Keep your brain first. If you die sooner, not likely given the odds of these interventions, you are better off. Of course, these are my choices only. Not my advice to you.

Interesting, why is this disclaimer necessary? Because the medical profession has perfected its control of medical advice. Only a licensed doctor can give medical advice.

I would love it if this were true of financial advice. The law would require that you make no investment unless you have a prescription from an economist. If only licensed Ph.D.s in economics could write investment prescriptions it would be a boon. Then, the next step would be to make it harder to get a Ph.D. now that I have one. Let me point out, because I seem often to be misunderstood, that I am being facetious. I dislike intensely the current state of the medical industry. Without this heavy government involvement, we would take more responsibilty for our own health and a diversity of views would be heard. The system is predicated on the belief that we are too dumb to take our health into our own hands.

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The VIOXX Trial

August 20, 2005 09:34 AM

By now you have heard about the damages awarded by the Texas jury in the death of Robert Ernst, a 59 year old produce manager at WalMart. The amount totaled $253.4 million for loss of income, mental anguish and loss of companionship to his widow, with $229 million in punitive damages.

A juror said "It could have been prevented" implying that had Ernst not taken VIOXX he would not have died. This is clearly wrong. The probabilities are shifted by all the factors in the case. There is nothing that can be done, ever, to turn a probability down to zero. It is looking for guarantees, which juries often do, when there are none

Mr. Ernst was a marathoner and an aerobics instructor in addition to his work. And he had clogged arteries. No information is given regarding his body weight, heart rate complexity, or his marathon participation and training. Nor of his aerobics activities as an instructor. No biomarkers are reported either, such as those you have seen from my post Top Ten Reasons not to Run Marathons are elevated or depressed in marathoners: tHCL, BIL, ALP, HDL and LDL, neutrophils, S100beta, CK, TNF-alpha and so on.

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The Media, John Lott, and the BTK Killer

August 18, 2005 04:33 PM

Simple facts and honesty go a long way with me. But, what isn't said or reported is just as important as what is. The selective reporting of events and facts is like a fog that doesn't let you see what is further off in the dim light.

False reporting is worse. Deliberate omission of information is an extreme form of bias. Factually incorrect reporting, knowingly, is plainly dishonest. But seeing causes where there are none is often just a naive error of someone who hopes to do good.

I see so little reporting that does not suffer these errors that I scarcely read the news any more. I go for factual reporting, even knowing that many facts are not reported and they might affect my opinion. Our only defense is many sources, and the blogs have been a big help in that regard.

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Depth of the Energy Landscape

July 13, 2005 06:19 AM

If you think about your activities and their variation as a landscape that is very rugged, with peaks and valleys of all sizes, you have a good model of the kind of variation that I advocate. Think of a Paleo ancestor who would have had to engage in very intense activity in his/her fight or flight response, or even just in a week of treking, hunting, butchering, building shelter by hand, and so on. And, in contrast, his/her hours of leisure would have been many and the rhythm of work tied to the natural variation of the day and season. Our ancestors also would have a depth of sleep and rest quite unlike we are able to achieve.

Their low blood pressure, as shown by all primitive groups, was surely a result of the variation of active and deeply restful periods. The depth of their sleep, even though watchful and quickly alert if needed, would drop their blood pressure. Their biorhthyms are tuned to a natural world.

So, I often evaluate my day in energy terms; by how far did my hardest exertion exceed my deepest rest. This depth should vary and be all over the map, but it must have real depth. Day light is a time for peaks and evening and night are a time for valleys in the energy landscape. Without the depth there is no signal to the internal environment and we lose touch.

Our hormonal systems must have strong patterns to synchronize with one another. In many ways, the way we live puts our hormones at odds with one another and the loss of coordination begins the aging cascade.

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Spam

July 7, 2005 08:28 PM

Well all web sites have it and now a spammer has come to this one.

I have set all kinds of filters for trackbacks and spam email and some of it still gets through.

But, you know what? I trust my readers and, aside from refining the filters to cut the junk, I'm not going to do more. I have a book to write that is more important.

I have confidence that you will ignore those spam mails that get through. It isn't worth my time trying to protect you when you have already shown your sophistication by visiting this site. [Nice line and I really do think it is true. But, my compliment is to you, not me.]

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Free Spectrum

July 6, 2005 05:08 PM

Back in 1969 with several coauthors (a lawyer, an engineer, and two fellow economists) I published a paper in the Stanford Law Review showing how a market would allocate the electromagnetic spectrum. Our most difficult task was to show how you could define and enforce property rights in the spectrum. This is the bandwidth on which radio, microwave, satellites and many other communications technologies rely to transmit information. In this paper, we were following up on a suggestion by Ronald Coase (Nobel laureate in economics).

We were almost laughed at by critics who said it was technologically impossible and politically naive, but we got the last laugh. A lot of the criticisms came from people whose jobs depended on the system as it was then. And many Congressional fortunes depended on the allocation system (including Lyndon Johnson's fortune).

None of those criticisms held up and they didn't deter us from doing our article because I never thought you should restrict science or policy considerations to things that seem doable in the political arena. Ideas are far more powerful than current opinion or what is politically doable.

Spectrum auctions have come to the US, New Zealand and other countries and it has brought in billions to governments. By now the FCC license is tradeable and resembles an enforceable property right. In instances where property in spectrum were created in other countries, they pretty much use our definition.

So, in an edition celebrating the "let-the-market-do-it" research in spectrum allocation, the Journal of Law and Economics asked me to say where we are and where we need to be in a market for spectrum. No need to go into that here, but one of the things I did stress was to let the unused spectrum be used temporarily and without interference to its resident licensee by others. Roaming computers would "sniff out" unused spectrum, of which there is plenty, and essentially find free bandwidth for others to use.

Well now it is happening.

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Immortality

June 28, 2005 05:16 PM

Only the information in your genes is immortal, all the rest of you is mortal.

That makes life precious.

Your genes are millions of years old and will live far beyond your life.

That makes life mysterious.

Another kind of information lives long after you die. That is the influence you have on others.

That makes life meaningful.

We are information and all we leave behind is information.

After death, there is no neural substrate to sustain a mind, which is the only form of sentience.

That is fine with me. It makes life precious, mysterious, and meaningful.

It makes me want to treat my body and mind well for they are physical stuff that makes this wonderous thing called life.

I don't need any more answers than those.

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A Real Iraqi Rambo

This isn't from a Rambo movie, but it sure looks like an Iraqi Rambo. Perched in this way, he is a perfect target, but what a Hollywood Moment.

The photo is from LINK · Uncertainty · Comments (0)

An Iraqi Rambo

This isn't from a Rambo movie, but it sure looks like an Iraqi Rambo. Perched in this way, he is a perfect target, but what a Hollywood Moment. I love it anyway.

The photo is from Michael Yon's Online Magazine. He is doing some of the best reporting on the war in Iraq.

The picture is of a member of the Iraqi Security Forces as they respond to a carjacking and murder of the seven occupants.

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Fights in Movies

They are almost always bad.

I read a long article years ago by a doctor who analyzed movie fights and killing. His main point was that humans are extremely difficult to kill and that the movies dramatically cheapen human life by making it appear that humans die easily. They don't and an evolutionary perspective would make you understand how hard it is to kill a human. Those who went easily didn't leave their genes behind.

People who are on PCP are almost super human; they can tolerate great pain and injury and still exert enormous force and power. They are extremely lethal.

The legendary Berserkers, the wild killers of the Viking invaders, were on some form of drug rather like PCP according to scientists who have studied them. They were also a semi-secret, cult-like group who practiced hypnotic rituals before their attacks. They didn't wear armor, just fur covers, unlike the other Vikings.

I suppose they were sold some kind of Valhalla story, rather like the fundamentalists of our day. Another instance of someone forecasting your future for you to their benefit, not yours. Of course, there is no Valhalla on the other side as there is no other side. The mind dies when the brain dies and so do any thoughts or sentience that reside there. The cheapening of the present, the only place where you live, relative to the future is a common trick of those who want to manipulate you. The future is completely unpredictable. And you are only alive now.

Interestingly, body builders are not good fighters, at least if you judge by their movies. Steve Reeves was awful; he lunged and posed more than he fought. Reg Park too. Arnold isn't at all convincing. You action movie fans could name others I am sure. Harrison Ford is a more convincing fighter than any major star, but his victims drop far too easily. If they didn't, the movie would be one long fight. And, no story (come to think of it, there is no story anyway.)

It would actually be an awful movie to see just one victim die in a realistic way for it would take most of the movie.

The fighters in Troy who were said to be bashing each other pretty hard were the Bulgarian weight lifters, probably Olympic lifters rather than body builders, though I don't know and I didn't see the movie.

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Chance

June 9, 2005 09:54 AM

My dear friend Vela Velupillai was invited to Paul Samuelson's 90th birthday celebration at MIT this past May. The great man himself had this to say about his illustrious career, quoting from Vela's letter:

"The celebration to mark the 90th birthday was a glittering affair with many of the luminaries of 20th century American economics present. Samuelson himself gave a charming and almost humbling talk at the end of the long and lovely day of celebrations. The title he gave for his talk was: ‘Serendipities’ – playing down his own genius in the life choices he made and emphasizing the role of fortuitous chance in guiding him to success and happiness, professionally and personally."

Vela is the John Cairnes Professor of Economics at the National University of Ireland; he is doing a long review essay on my Hollywood Economcs for the European Journal of Political Economy.

Nassim Taleb has written of chance in literature and I in movie careers. Now, Paul Samuelson is pointing to chance in his scientific career. Curiously, given the extensive literature on scientific accomplishment and citations by De Sola Price and recently by Charles Murray in his Human Accomplishment, there is yet little recognition of the role of chance or luck in scientific careers. Le Fanu has a nice description of the role of chance in medical discoveries in his The Rise and Fall of Modern Medicine. The discovery of penicillin was almost pure luck, though its subsequent development was pure hard work.

But, the larger issue is how scientific careers branch onto different paths and how the non-linear citation count process gets under way. Such a process has been described and it is basically a citation-culling process, but it hasn't been taken seriously and investigated throughly. I have shown that a coin flip process generates the lower part of the distribution of movie director accomplishment; only in the upper tail does the odds ratio move away from pure chance.

There is probably something on this issue out there that I don't know about. If you know of some research on this, please let me know.

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Publishing

May 24, 2005 02:34 PM

Keith pointed out the changes his publisher forced on Loren Cordain's Paleo Diet book.

You would think the editors know something, but they don't. They are at least as bad as studio executives who pick movies; they don't know anything. Nassim Taleb has written a nice paper showing how literature can be modeled as luck. It is available as a pdf file on his web site Taleb. Look over this interesting page and then click on "The Roots of Unfairness: the Black Swan in Arts and Literature."

Yours truly is cited in the paper and Nassim and I have had many phone and email exchanges. We shall meet when he comes out to Las Vegas to interview me for his new book. I used Nassim's Fooled by Randomness as a kind of text for my Economics of Extreme Events course at UCI. We are supposedly writing a paper together on how to use financial instruments to reduce the huge uncertainty actors face.

His work is wonderfully out of the box and deep. His Empirica hedge fund may have the most sophisticated approach to arbitrage of any. Many funds work on leverage more than on the underlying prices and probability distributions (if we even know them). This was clearly shown in the collapse of Long Term Capital Management nicely documented in Lowenstein's, When Genius Failed: The Rise and Fall of Long Term Capital Management. One of our readers, Mark, tells me that most hedge funds use the Sharpe Ratio, which is problematic because the probability distribution of stock returns has a volatile and possibly non-existent variance and the ratio fails to detect skew in returns. Since about 80% of returns are in about 5% of trading periods, owing to large moves in the stocks, the Sharpe Ratio, in its ignorance of skew, fails as a decision criterion.

Nassim tells me there are only three of us doing this sort of thing: Mandelbrot, Taleb his ownself (as Dan Jenkins would say), and me.

Black Swan is the name Taleb gives to kurtosis, the large impact of improbable events. In literature, the outliers are taken there by chance and non-linear dynamics. I have shown this in detail for the movies. A combination of chance and an expansive non-linear feedback where audience growth relates positively to size takes movies to extreme outcomes. In this dynamic, the statistical attractor is approached through bifurcations onto hit and bomb paths and the Stable-Levy distribution is the attractor. This results in a winner take all outcome, something we see in the internet, the movies, and in so much of life. The distribution also has an infinite variance, so anything can happen.

Fractals and scaling...

Read More »

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Oh Oh, Sun is Good for You. Never Mind...

May 23, 2005 07:46 PM

Gildna Radner used to go into this terrific rant on Saturday Night Live. Then, someone would make an obvious correction to show she was completely confused and she would say "Never Mind."

Now the medical community looks like Gilda (who, unfortunately, died of cancer). We have had that discussion already, and I also warned of the frailty of epidemiological studies. Now we have the Never Mind correction.

Check this link to a Harvard researcher's latest findings (by the way, I wouldn't go there for economics or political findings; the place smells these days of PC and other frailties). Sunshine and Cancer: Never Mind.

I don't make it a practice to reference other sites (who reference others who reference them; the curious blog circle) as I don't want to stay up with the news or point you to places that you can find yourself. I am not trying to build links to this site by linking to others who link to me, the Google Paradox: link or die. Besides, you may have other interests. But, this one was too good to pass up.

Vitamin D is so essential, as I argued before, that the body finds multiple ways to make and deliver it to itself.

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John Lott on Levitt...

May 19, 2005 08:48 PM

John Lott, whose honesty and scholarship I respect a lot, tells me that Levitt (Freakonomics) is not all that hot. He does like the questions he asks, but has problems with his statistics, plain truthfulness, and non-liberal (in the classic libertarian concept of liberalism. Modern liberals are not liberal, they are authoritarian) point of view.

I take this seriously because no one's research but John's has been subject to so much vitriole and erroneous criticism. Maybe I can convince John to do a review of Levitt's book.

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Review of Freakonomics

I am posting Michael Shermer's book review of Freakonmics: What the Numbers Can Reveal, by Levitt and Dubner.

A couple of comments first. What is freakonomics? A badly chosen word or neologism I would say to characterize something that is important. Freak events are really events that are unusual and they have large consequences. They are far out on the probability tail or what I call extreme events. This is a neglected area in economics and most social science, not because it has to be though. I taught a course during my last two years at UCI called The Economics of Extreme Events that focused on some of the same kinds of issues Levitt handles so skillfully. In fact, my analysis of the movie industry is pretty much a showing of how events far out into the probability tails determine what goes on and what you see in the averages and other more recognizable statistics that everyone seems to focus on.

These extreme events tell us far more than averages or other simple statistics and they occur in areas where variance increases with sample size and may not exist. These tend to be areas of human performance where incentives, technique, and wonkish specialization combine with ability to push performance beyond past levels. Or, maybe there is some cheating going on as well as Levitt shows for teachers and student scores.

I plan to read the book soon.

Here is the text of Shermer's review:

"In a quarter-century of serious cycling I have heard all the rumors about performance enhancing drugs, from stimulants in the 1970s, to steroids in the 1980s, to blood boosters like Erythropoietin (EPO) in the 1990s. A friend who knows my penchant for exposing fraud suggested I track the winners’ speeds from the Tour de France to note the increase after 1991, the year he says EPO was introduced. Since my friend won the Tour three times, I figured it was worth checking.

From 1949–1962, the Tour winner’s average was 34.7 kilometers per hour.

From 1963–1976, the winner’s average increased to 35.4 kph, a 2% difference.

From 1977–1990, the winner’s average increased another 2% to 36.2 kph.

From 1991–2004, the winner’s average speed jumped to 39.5 kph, a 9% increase.

Something happened in the 1990s to trigger such a leap in speed.
EPO? Maybe. But there are other factors. Composite materials led to lighter and stronger bikes. Clothing was more aerodynamic. Nutrition and training were more scientific. The racing field grew in size, from an average of about 120 in the 50s, to about 190 in the 90s (more riders accentuates drafting and increases speeds on the numerous flat stages). The race was shortened by almost a thousand kilometers over the past half century. And with sizable increases in prize monies, sponsorships, and endorsements that came with the Tour’s elevated international fame (especially in America) in the 1980s (when my friend, who helped to instigate these changes, was racing), the selection pool of elite bicycle racers deepened, thereby elevating the average quality (and thus speed) of the Tour as a whole.

Are these factors enough to account for the statistical spike in the 90s? Additional tests could resolve the matter, such as comparing the split times on crucial mountain stages between top riders and average riders, pre- and post-1991, under the presumption that the top riders would be employing the best performance enhancing drugs under the direction of the most knowledgeable sports physicians. A significant difference between top riders but not between average riders, pre- and post-1991, would be compelling evidence of artificial performance enhancement.

My model and inspiration for this exercise in data comparison came from Steven Levitt, an economist at the University of Chicago who is shaking up his profession by employing standard methods from the social sciences to very nonstandard questions from the real world. A 2003 article in the New York Times Magazine about Levitt by journalist Stephen Dubner led to their collaboration on a book with the improbable title Freakonomics (so named for the freaky subjects they explore). An expanded version of that essay, Freakonomics was primarily written by Dubner and is a hodge-podge of Levitts polymathic interests. Although the authors eschew any central theme, I took from it two messages:

Science can answer the broadest range of questions (even freakish ones) about human behavior.

Incentives and motivations are intimately linked in driving human behavior.
For example, Levitt devised a clever algorithm to analyze data from Chicago public schools to reveal that some teachers were helping their students cheat on state exams by filling in answers to later harder questions in a very predictable fashion (always the same block of correct answers). Further, there was a spike in the scores one year, followed by a decline to earlier performance levels. Retests on these same students proved that they did not know the answers to those harder questions. The teachers were fired.

In a related computation, Levitt discovered that Sumo wrestlers were fixing some of their matches. In order to rise in rank and earn more money, a wrestler must finish a tournament of 15 matches with a winning record. Levitt found a pattern of cheating whenever a 7-7 wrestler (with a lot to gain) was pitted against an 8-6 wrestler (with little to lose) on the final bout of a tournament. A 7-7 wrestler’s predicted win percentage against an 8-6 opponent is 48.7%, whereas the actual win percentage was 79.6%. The next time these two wrestlers met when there was nothing at stake, however, the 7-7 wrestlers won only 40 percent of the rematches. “The most logical explanation,” Levitt concludes, “is that the wrestlers made a quid pro quo agreement: you let me win today, when I really need the victory, and Ill let you win the next time.”

Levitt has also exposed real estate agents who sell their own homes for much higher prices than the homes of their clients; and he discovered that although top echelon drug dealers are wealthy, the vast majority live with their mothers because the pay works out to only seven bucks an hour.

Levitt’s most controversial computation to date involves the dramatic drop in crime rates in the 1990s. The reason, he says, was not tougher gun control laws, capital punishment, decreasing unemployment, or a stronger economy. The cause was Roe v. Wade. Research shows that children born into impoverished and adverse environments are more likely to grow up to become criminals. After Roe v. Wade, millions of poor, single, teenage women had abortions instead of future potential criminals; 20 years later the pool of potential criminals had shrunk, along with the crime rate. Levitt’s syllogistic logic is as follows: “Unwantedness leads to high crime; abortion leads to less unwantedness; abortion leads to less crime.” Of course, Levitt is quick to add that the solution is not more abortions, but “providing better environments for those children at greatest risk for future crime.”

Correlation does not always mean causation, and explaining crime is an extremely complex and multivariate problem. Nevertheless, Levitt shows that the five states that legalized abortion two years before Roe v. Wade witnessed a crime fall earlier than the other 48 states. Further, those states with the highest abortion rates in the 1970s experienced the greatest fall in crime in the 1990s, and the entire decline in crime was among the post-Roe younger age group, not among older groups.

More generally, and as an further test of his hypothesis, Levitt demonstrates that shrinking the pool of criminals decreases the rate of crime through three additional factors: increased rates of imprisonment accounts for a third of the drop in crime (compared to capital punishment, which accounts for only 1/25th of the decrease), increased number of police (who remove criminals from the system) accounts for 10% of the crime drop, and the bursting of the crack cocaine bubble caused profits to collapse along with the incentive to sell it (and thus the accompanying violence declined), accounting for another 15% of the crime plunge.

The kind of statistical tools that Levitt employs are simple yet elegant. He cuts to the core of a question, and he picks problems that are damn interesting, even if some of them seem trivial. All social scientists should read this book and ask themselves if the problems they are working on are as interesting or important as those in this superb work, and if they are using the best available methods for understanding them."

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Hits on this site

April 30, 2005 03:31 PM

I put this entry under uncertainty because I had no idea how many people might come to my site as it got under way. I can tell you that I am amazed; we have over 30,000 hits this first month of operation and the month is not quite over.

Thanks to all of you for your readership and for your comments.

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Handbook of the Economics of Art and Culture

April 21, 2005 04:28 PM

This is the introduction of my chapter on the movies for the upcoming Handbook of the Economics of Art and Culture. The Handbook series is edited by Ken Arrow and Mike Intrilligator (one of my old professors) and has developed a good reputation for authorative statements on the state of the art in economic research in various fields.

Arthur De Vany, "The Movies," in Victor Ginsburgh and David Throsby, eds. Handbook of the Economics of Art and Culture, North-Holland (forthcoming).

Abstract

This chapter is an overview of a new kind of economics of the movies; it also is my attempt to lay a new foundation of the economics of art and culture. The essence of cultural goods is that the are creative goods that have no natural limit on their consumption or dissemination; they are information goods. And they are wildly uncertain. I show how this vision may be implemented in a rigorous and insightful way in the study of the movies. A centerpiece of the analysis is the stable Paretian hypothesis and its usefulness as a model of motion picture revenues, costs, and returns. The industry’s organization, contracts, pricing, and compensation deals are also seen as rational adaptations to the uncertainty captured by the stable Paretian probability model.

The essence of the stable Paretian model is that the probabilities of motion picture outcomes are far from Normal. The tails of the stable Paretian distribution are “heavy” and large scale events are far more probable in a Paretian than in a Gaussian world. The large events far out on the probability tails dominate sample statistics. The variance is infinite and, for some variables, even the mean does not exist. Movie box office revenues, therefore, have no natural size or scale and there is no typical or average movie; each is unique unto itself. Revenue and cost dynamics are complex and expectations of cost or revenue at level X are proportional to X.

Read More »

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