Sunday, November 29, 2009

Risk and rationality

Moral: Wherein these two concepts play heavily in economics, and finance, in several ways. So, they are worthy of some attention.


First, let's look at a couple of recent media offerings. On the print side, today, McClatchy Newspapers provided some words about how gambling laws might help dampen the effects of the games related to derivatives. Earlier, on the tele, I glimpsed an ad for an investing class where the theme was a clever take on the differences in risk taking, that was observed, between male and female students. Now, this latter has been discussed in several forums, but Laura's take is worth a read.

So, we are reminded that 'casino capitalism' has been allowed to become the basis for the economy, for reasons that we'll be looking at in depth. Too, those who may see that near-zero is the reality are pushed aside for several reasons, of which gender is only one.

Both of these topics are extremely important to our future, risk and rationality. About 'risk' we can say a lot, especially that it is inherent in life, to wit, the monies paid by the big boys to manage it. That the idea has been pushed to the limits of rationality needs some discussion.

Somehow, we hear this inane spiel about the rewards going to those who take the risk. Ah, yes (gains go to the pocket; failures are bailed out and mitigated). That nonsense goes back to the argument that getting out of bed is risky. Well, staying in bed is risky, too. Risk, in this sense, ought not be the focus as risk always is there. Okay, perhaps, some notion about managing risk's effects is appropriate, yet, a real accounting of the types of pain is what needs our attention. It has never been done right.

Oh, things are great? Millions are out of work and without any meaningful life? The fat cats bask in their bonuses, even thinking that these are appropriate? And, those working buy junk from China, assuming that they have money? Extremest luxury for the smallest few is accountable as progress in what sense? (a small sampling of thousands of possible questions, by the way)

Economics, in the classical sense, stressed 'rationality' from its beginning. Well, we can, and will, go into the etiology of that notion. For now, just be aware that economics getting biological (to wit, neuroeconomics) portends that some fundamental changes are coming. Too, we are only at the start of the computational influence. There is a whole lot we'll learn, even to the point of getting an appreciation for innumeracy (is not idiocy!).

When one considers ourselves, what is a rational view founded upon? That is, do we really know which neurotransmitter mix is optimal? Is that why we stress the mental IQ and associated performance (hey, isn't that what's behind the best-and-brightest labeling?) measures?

Or, is rationality tied to mathematical prowess (some economists seem to think so)? Well, can that be done on other than a quasi-empirical basis (think borgs)? Oh, are mathematics and its ilk (er, practitioners) any less subject to influences of the neuropeptidergic nature of ourselves than the rest of humanity (think mole hills)?

Well, to be fair, the argument is usually couched in terms of rational self-interest. However, underdetermined-ness is an important concept to consider in this context that is not easily tossed aside.

So much to discuss.


12/06/2013 -- If only Ben would put a shot across the bow. He's helped the chimera unfold in unhealthy ways. He could, at least, say a mea culpa.

03/11/2012 -- We need to update this, especially with a nod to Alan M. Turing.

11/21/2010 -- Three years ago, it was said: Computational foci raise miraculous need. Still applies.

02/10/2010 -- We could probably use the auto (and recent events) as a way to characterize the concepts of the blog. Of course, we have the value versus quality mis-think as part of the problem. Business Week reports that Toyota was asking suppliers for a 10% cut. Well, such scrimping would have an effect, even if it was only in looks. However, cutting into the life of a system may appear smart but, actually, relies on the same unstable basis as does a lot of economic thinking.

12/01/2009 -- The consumer as focus.

11/30/2009 -- Neuropeptidergic limitations are only one consideration for our basis.

Modified: 12/06/2013

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