Monthly Archives: November 2006

Macro Shares: Prediction Markets via Stock Exchanges?

Today the American Stock Exchange started trading the first pair of a new kind of security that works in roughly the way prediction markets could be designed if SEC regulation and a stock market style user interface turn out to be the best way to run prediction markets. They are based on Robert Shiller’s idea of macro securities, which he describes on pages 126-128 of his book The New Financial Order (and may describe more fully in his book Macro Markets, which I haven’t read).
This first pair of such securities created by Claymore MACROshares merely helps investors do through a stockbroker roughly what existing oil futures markets provide, but Claymore expects to add other securities that provide exposure to things that aren’t currently traded, and there are no obvious barriers to basing them on the ideas that prediction markets trade.
One drawback is that Claymore owns patents covering this approach.
While it seems unlikely that SEC regulation is what I would want for prediction markets, it is nice to see signs that such an option is available should CFTC regulations pose a bigger obstacle than I currently expect to prediction markets that resemble markets the CFTC regulates. Alas, it also increases the risk that stock exchanges will see prediction markets as competitors and lobby to create barriers.

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Thank you ma’am, may I have another?

We often see a women complaining about a men, to that man or to other women.  We less often see the gender-reversed scenario.  At least that is what I see, in friends, family, movies, and music.  Yes, men roll their eyes, and perhaps in general women talk more about people.   But women complain more, even taking these into account.  Why?

The politically correct theory is that women’s lives are worse, so they have more to complain about.

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Beware of Disagreeing with Lewis

David Lewis, my guess for the most important philosopher of the last half century, seems to reduce philosophers who disagree with him to saying "just because, that’s why."  Consider Peter van Inwagen and Phillip Bricker.

Peter van Inwagen’s 1992 paper "It Is Wrong, Everywhere, Always, and for Anyone, to Believe Anything upon Insufficient Evidence?" was the first in the modern series of philosophy papers on the rationality of disagreement.    He wrote "a polemic against what I perceive as a widespread double standard in writings about the relation of religious belief to evidence and argument":   

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In[]cautious defense of bias

I think it might be worthwhile to speculate on ways that bias might have beneficial effects, in the course of asking ourselves how committed we ought to be to its elimination. I can think of four effects that seem to be particularly interesting, and I’ve outlined them beneath the fold.

In summary, the possible benefits I’d like to kick around are as follows: (a) random error (“noise”) might permit truth to develop by an evolutionary process; (b) bias-originated views might break the hegemony of other bias-originated views; (c) some biases might generate beneficial self-fulfilling prophecies; and (d) bias-originated errors might help us exercise and develop our argumentative and educative capacities.. (Warning: this is a fairly long post.)

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Pascalian Meditations

The project of minimizing bias is in some ways structurally similar to consequentialist moral theories, and I suspect that enthusiasm for it positively correlates with sympathy for consequentialism (am I right?). There are certainly important differences between the two projects. Those who want to minimize bias rarely see this as an intrinsically valuable goal. And the goal of minimizing error is far more determinate than that of maximizing well-being or value. But some of the intuitive objections to such a project sound to me very similar to familiar objections to consequentialism.

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Are The Big Four Econ Errors Biases?

My colleague Bryan Caplan has devoted many years to uncovering how the beliefs of ordinary people differ from the beliefs of economists, even after correcting for economists’ differing incomes and ideologies.  In 2004, Caplan summarized his findings as the public having four big biases:  an anti-foreign bias, a make-work bias, an anti-market bias, and a pessimistic bias.    Arnold Kling quotes Caplan as saying:

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Surprisingly Friendly Suburbs

I’ve seen several news reports recently on a study by Jan K. Brueckner of UC Irvine finding some surprising results on neighborly friendliness as a function of population density. There’s a popular impression that people living in cities have good relationships with their neighbors, while those in suburbs live more isolated lives and have few neighborhood connections. In fact this is often argued as a reason why planners should encourage greater density communities and avoid suburban sprawl.

Brueckner examined this relationship using data from the Social Capital Benchmark Survey, which includes measures of neighborhood contact and friendships. Surprisingly, he found that the relationship went in the inverse direction from what had long been assumed. Suburbanites were more likely to have friendships and good relationships with their neighbors than city dwellers. This factor should therefore argue in favor of suburban sprawl and against concentrated development (of course other considerations are relevant as well).

While not a bias per se, assumptions which are widely held but which turn out to be wrong are an important source of error. We should be alert for news which gives us reason to reverse our opinions on factual matters.

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Beware Amateur Science History

In 1980 I took a cosmology class with Virginia Trimble at UC Irvine, and every time she would come to an effect that was named after someone, she would say "The X effect, because it was discovered earlier by Y," where X and Y were two different names.   Usually X was male and Y was female.   

When I studied history of science at the University of Chicago the following year I learned that Trimble was right; the usual histories of science by scientists, such as those found in the introduction of science articles, are usually only loosely tied to what historians find when they study things carefully.  They are like learning the history of cars from the Ford Motor Company, or the history of computers from Microsoft.   

Before a famous "discovery," often many others had "discovered" and tried to publicize very similar things.   Who became famous for the discovery was decide mostly by academic power, i.e., by who could make more people tell the story their way.

In July I came across a New Scientist opinion article (un-gated for now here) by Henry Nicholls where he gives more examples of persistent science myths, such as that Darwin thought of natural selection while visiting the Galapagos islands.   Oddly, Nicholls then concludes with this shoulder shrug:

Inaccurate histories of science are all around us. This leaves me with what may sound like a surprising question: does it matter? They persist because people are so keen to believe them, and because they fill a need for narrative. I doubt whether Harriet and Darwin will ever be separated, since the alternative version is not half as exciting and would have no chance of living on in the popular consciousness. Indeed, such myths might actually be something to encourage. Communicating a version of history is better than communicating no history at all.

Apparently one of the reasons we have so much false science history is that even science historians think that accurate history should take a back seat to encouraging public interest in science.

Addendum: When I ask my students for great innovators, they list Bill Gates, Henry Ford, and Thomas Jefferson instead of John McCarthy, Nicolaus Otto, and George Mason.  When I point out that these are mainly people with power associated with an innovation, they admit they are more interested in power than in the real innovators.   So here is another explanation.

More Addendum:  Apparently Stigler’s Conjecture is that credit goes to the second person to have discovered an idea. 

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…What’s a bias, again?

(Continued from previous post:  "Why truth?   And…")

A bias is a certain kind of obstacle to our goal of obtaining truth – its character as an "obstacle" stems from this goal of truth – but there are many obstacles that are not "biases".

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Why truth? And…

Some of the comments in this blog have touched on the question of why we ought to seek truth.  (Thankfully not many have questioned what truth is.)  Our shaping motivation for configuring our thoughts to rationality, which determines whether a given configuration is "good" or "bad", comes from whyever we wanted to find truth in the first place.

It is written:  "The first virtue is curiosity."  Curiosity is one reason to seek truth, and it may not be the only one, but it has a special and admirable purity.  If your motive is curiosity, you will assign priority to questions according to how the questions, themselves, tickle your personal aesthetic sense.  A trickier challenge, with a greater probability of failure, may be worth more effort than a simpler one, just because it is more fun.

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