Deus Ex Macchiato

There’s a provocative post on Econlog which raises an interesting question. Suppose someone has a good academic idea. How long does it take to be become part of the canon of accepted wisdom?

Clearly some ideas hit quickly: many of these are simple technical improvements which are obviously correct. Some never hit because, although correct, they are too boring and marginal to make a difference. Indeed some ideas enter the canon then leave it again as subject areas die: a great example here are many of the techniques used to speed tedious calculations from the days before digital computers.

As Kuhn pointed out, however, some ideas are so radical that they cannot be incorporated into the mainstream without effecting it: the paradigm must change. These ideas tend to take longer to be accepted.

I’m interested in mid-sized ideas: theories which are somewhat disruptive, but which are not big enough to qualify as paradigm changes. My suspicion is that these are slow to be accepted too, perhaps even slower than paradigm changing ideas because there is less payoff from including them, yet they still challenge the current academic hegemony. I’d love to see a careful sociological study on this. Could it be that the average time to acceptance of a such an idea is a significant fraction of a career?

Posted in: Authority, Organisational Culture by David /
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Very roughly, a short gamma trading strategy is one that profits from not much happening and loses a lot of money if there are big moves, whereas a long gamma strategy loses a little money every day there isn’t a big more, but makes a lot if there is.

Short gamma traders (in the widest sense) are trend followers or people who believe things will be normal. Long gamma traders want something unusual to happen.

Now here’s the thing. At the moment there is a lot of talk about a market crash being imminent. For instance, Calculated Risk is doing a good job of recording the woes of the US housing market, Nassim Taleb’s new book on long gamma has been getting a lot of publicity, and Anthony Bolton is predicting a crash. But if everyone is expecting a crash, surely this is the orthodoxy. And true long gamma traders pay to get a position that will profit if the orthodoxy does not prevail. So shouldn’t they go short gamma? And vice versa of course.

Posted in: Authority, Derivatives, Hedging and Convexity, Markets by David /
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The lyric Who do you trust? is going round in my head. I need to find the song. This is the kind of thing the internet is good for. Being slightly distrustful of google and its ubiquity, I fire up ask.com and try there. Then when that doesn’t work, I tried google, and MSN, and yahoo. The trouble is not too few hits, but too many. It’s not an Eminem song I am thinking of, nor Queensryche, nor Springsteen. But that nicely illustrates what I wanted to blog about: sources of authority and web 2.0

In the old days many facts could be found in the library. The library contained the Sources of Authority, or at least it did if it was a good one. OK, it might not have been very easy to search for song lyrics for half remembered popular songs, but for standard academic stuff, it worked pretty well, especially if you had research skills. Now we have a problem, Houston.

The problem is that there are too many canons, too many places to look. How do I know who to trust? Knowledge has fractured into too many pieces: sometimes they overlap, but often they don’t. And it is too easy to claim that your corner of the world is complete, and true, and consistent. If you want to talk about cooking asparagus or the best new bands or what the cool kids in Brooklyn are wearing then the cacophony of voices is fine, authentic even. But if I want to know about the harmonic language of Debussy or homology groups or the precise rules for deciding which companies go in the FTSE-100 index, I want to read something written by someone who knows what they are talking about. The investment in figuring out who that is, though, is a lot larger than in the old days, a distinct disadvantage to the much vaulted Web 2.0 paradigm. Authority can sometimes be useful after all.

Posted in: Authority by David /
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Two controversies are bubbling along at the moment which made me think about what science claims. The Evolution vs. Intelligent Design debate seems to be hotting up again, and there is controversy about climate change. Now I should immediately state that I think that Evolution is the best guess we have about how organisms developed, and that man-made factors are responsible for significant climate change that could, eventually, prove to be catastrophic. Those beliefs are supported by evidence, but that evidence is not incontrovertible.

It may be, for instance, that the Theory of Evolution will be modified and improved again. Certainly since Darwin we have seen some intriguing new ideas, such as
punctuated equilibria. So we claim too much if we say Evolution is correct. The best theory we have at the moment consistent with the evidence is more like it.

Things are even more troubling in the area of climate change. There we have rather little experimental evidence (building new planets to test climate change theories being somewhat impractical). So we just have direct measurements of the Earth’s climate, and (almost certainly correct) inferences based on things like differential oxygen isotope measurements. In addition, there are computer models of the climate, but these suffer from potential model error: they are build to calibrate correctly to known physics and known measurements, but there is enough uncertainty that their predictions about future climate may not hold, and moreover that uncertainty is difficult to quantify. That said, the overwhelming evidence both paleoclimatological and more recent is that there will be significant further global warming with catastrophic effects on mankind. But it is not certain in the same way that a prediction of Newtonian mechanics is.

In this mix, of course, we need to add significant vested interests, such as the deeply irresponsible Exxon-sponsored climate change denial, and the influence of the religious right on the abortion debate. But the best counter to this is not to overstate the claims of science. Politicians may not wish to hear carefully stated, potentially uncertain results but scientists do them, and us, a disservice if they claim a higher epistemological status than they deserve.

Finally, although scientists may wish to believe that their practice is objective, we cannot dismiss cultural factors. Kuhn’s changes of paradigm are usually accompanied by significant resistance from the scientific establishment because the figures in power have cultural capital invested in the old view. The lone scientific hero who defies the establishment to champion a correct theory is a horny old stereotype, but we should also not forget that there are many such figures who happened to be wrong. It is only eventually that we figure out who had the better guess.

Irritating and almost certainly wrong though the proponents of intelligent design and the climate change deniers are, therefore, we cannot say their ideas are absolutely incorrect. Non-scientific, politically and/or religious motivated, and unlikely to be true, certainly. Not the best guess given the evidence, undoubtedly. But not certainly wrong.

Posted in: Authority, Mathematics and Science by David /
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