According to Wikipedia, cognitive biases are systematic patterns of deviation from norm and/or rationality in judgment. They are often studied in psychology and behavioral economics.
The Resolve Asset Management Riffs last Friday, June 11, 2021, had a interesting discussion with Annie Duke on Biases and Optimal Decision Making in Markets and Life.
About 18.56 minutes into the conversation Annie Duke mentions the Bat-and-Ball Problem included in Cognitive Reflection Tests (CRT).
A bat and ball together cost $1.10. The bat costs $1.00 more than the ball. How much does the ball cost?
A frequent wrong answer of $0.10, instead of $0.05…
Yesterday, Elon Musk admitted that expectations about autonomous vehicles are premature without a breakthrough in artificial intelligence.
This is positive development and not negative as some may think. Realizing the problem sets the stage for the next breakthrough. Not realizing the problem but instead trying to change the world to fit current autonomous car technology, as some companies are attempting, is the wrong approach.
If we decide to redesign cities and roads for autonomous cars to work based on current technology, we will have wasted resources when the next breakthrough in artificial intelligence occurs and it can match the…
Most enthusiasts in the crypto space perceive cryptocurrencies as a revolt against central bank policies that have created wide wealth inequality. There are both right and wrong but it is the latter that is more important.
Central banks have created inequality due to their policies designed to avert a deflation caused by transfer of virtually all manufacturing production to China in a short period of time and the financial crisis this violent economic paradigm change caused in 2008. Central bank quantitative easing benefited directly large corporations and equity investors and only indirectly the general population by increasing the probability they…
Not only physical cash should not be terminated but there should be enough around in case of an extreme event for hedging purposes. I explain below.
Lately there are signs of a push towards digital currencies mainly by the European Central Bank but also from some groups that believe these currencies free them from government control. If digital currency is issued and implemented, the next step will be termination of physical cash. There is also talk in USA and Fed has announced they are working on this area.
In my opinion it is weird the strongest argument against physical cash…
Quantopian will be remembered as an amazing effort by a small group of motivated and highly capable platform developers to crowd-source alpha in the quantitative trading space. A lot of hard work went into developing a platform where thousands of quant traders could code and test strategies hoping that they will receive an allocation and eventually profit. It did not work and in this article I present the reasons that caused this unexpected failure in my opinion.
The failure of Quantopian left me saddened not because I have used the free service and the software I have developed to search…
I am not a mathematician but I find it interesting that while some people are preparing to go to Mars, mathematics, the most basic science and the language used to model the world hasn’t made up its mind yet about the choice of mathematical functions for base 10 and natural logarithms.
“Well, it’s a matter of convention!” some will reply. Obviously, but the problem comes when someone changes the convention rules in the middle of the game.
Specifically, in Compendium of Mathematics, the function for base 10 algorithm is given as log x and for natural as ln x. …
Financial social media growth accelerated with the advent of microblogging and social networking. The biggest boost came in late 2000s with Twitter. By 2012, Twitter had more than 100 million users posting more than 340 million tweets a day. A fraction of those users were professionals in the finance sector, traders and investors.
Before the explosive growth in social media, anyone interested in market-related information had to use search engines to find a relevant website, or follow links in financial magazines and other publications. The flocking to social media initiated competitions for dissemination of information.
I joined Twitter in August…
There is an excellent paper by Spyros Makridakis, Evangelos Spiliotis and Vassilios Assimakopoulos you can download here that includes a detailed account of the philosophy and objectives of the M competitions since 1982 and the organization, implementation and results of the latest M5 competition that ended June 30, 2020. The paper also includes many useful references those interested in forecasting will find invaluable.
According to the organizers, there were more than 7,000 participants in M5 competition from 101 countries and more than 88,700 submissions. …
Some have argued mainly in social media that multiplicative processes have higher risks than additive. This is a misunderstanding: risk does not depend on the model of a phenomenon but on its impact on an observable quantity. In fact, some additive processes may have higher impact than multiplicative. After all, the relative impact depends on how things are multiplied versus how they are added. It can be shown that every additive process has an implicit multiplicative nature.
In another article I wrote why most deaths are multiplicative. The reason for that is as follows: the death of a person in…
Steven Pinker insisted in Twitter yesterday that
The two world wars were spikes, not harbingers of a trend. Since end of WWII, death rates have roller-coastered down.
Here is the tweet:
Nassim Nicholas Taleb offered a swift reply:
N. Taleb writes in Statistical Consequences of Fat Tails:
For fat-tailed variables, the mean is almost entirely determined by extremes. If you are uncertain about the tails, then you are uncertain about the mean.
Many traders and investors know the above but apparently a large population of social scientists who are otherwise good and enjoyable people fail to understand it.
Quant trader, blogger, trading book author and developer of DLPAL machine learning software. No investment advice. #trading #finance Website