Tuesday, March 31, 2009

Bad parser?

Today someone I've known for a long time -- a former physicist who develops software in Silicon Valley -- mentioned to me that he has trouble parsing human speech. That is, there are times in normal conversation when his brain fails to recognize the specific words the other person is saying, even when he has no trouble hearing the actual sounds. I'm not sure whether this should be characterized as a problem with parsing (which is how he refers to it) rather than something like speech recognition, but it's not something I've ever encountered. My friend claims this condition made dating very difficult, and also makes social interactions difficult. Even physics talks were hard to understand; equations on the board made much more sense than what the speaker said out loud. Note it's different from autism or Asperger's syndrome. My friend has plenty of insight into human psychology and a good sense of humor -- he just can't tell what other people are saying some of the time! (Actually he's a bit on the geeky side but not autistic ;-)

Do any readers have this problem, or know someone who does? It reminds me a bit of prosopagnosia, or face blindness. I suspect both speech and face recognition utilize special modules in the brain, which could be subject to mild dysfunction.

A reader writes:

Saw your blog, I have that problem too - it usually happens to me when 1) tired, like at the end of an observing night or 2) at a party or dinner with lots of conversation around me.

The experience for me is that I hear the words clearly, but they don't connect to a symbol in my brain - someone will say, "would you like a roll" and I literally cannot place an image of what the sound "roll" is - this may happen more often than I realize for I know I have developed protocols to deal with the environment (like say no to all requests or limit the field of view)

From the comments: the condition is known as Auditory Processing Disorder (APD).

Saturday, March 28, 2009

Freeman Dyson

The Times magazine has a long profile of Freeman Dyson this week. The article focuses mainly on his heretical stance on global warming, but there are some good tidbits about his childhood and main scientific contributions. For the latter, I suggest the book QED and the men who made it by S. Schweber. Dyson started as a mathematician, and obtained interesting results in number theory while a student and during the war. In a reference letter provided for his application to graduate school in physics he was characterized as the best mathematician in England at the time, though only 23 years of age.

Below is a sample of work produced by Dyson between the ages of 5 and 9.

The following is from a 2005 Dyson email; we later had an extended correspondence about whether the gravitational field need be quantized and whether black holes were the most efficient graviton detectors.

...Thank you very much for sending me your four papers. I read three of them and will soon read the fourth. All interesting. But to me the most interesting is the discrete Hilbert Space paper, especially your reference [2] proving that lengths cannot be measured with error smaller than the Planck length. I was unaware of this reference but I had reached the same conclusion independently.

From the Times profile:

NYTimes: ...During World War II, Dyson worked for the Royal Air Force at Bomber Command, calculating the most effective ways to deploy pilots, some of whom he knew would die. Dyson says he was “sickened” and “depressed” that many more planes were going down than needed to because military leadership relied on misguided institutional mythologies rather than statistical studies. Even more upsetting, Dyson writes in “Weapons and Hope,” he became an expert on “how to murder most economically another hundred thousand people.” This work, Dyson told the writer Kenneth Brower, created an “emptiness of the soul.”

Then came two blinding flashes of light. Dyson’s reaction to Hiroshima and Nagasaki was complicated. Like many physicists, Dyson has always loved explosions, and, of course, uncovering the secrets of nature is the first motivation of science. When he was interviewed for the 1980 documentary “The Day After Trinity,” Dyson addressed the seduction: “I felt it myself, the glitter of nuclear weapons. It is irresistible if you come to them as a scientist. To feel it’s there in your hands. To release the energy that fuels the stars. To let it do your bidding. And to perform these miracles, to lift a million tons of rock into the sky, it is something that gives people an illusion of illimitable power, and it is in some ways responsible for all our troubles, I would say, this what you might call ‘technical arrogance’ that overcomes people when they see what they can do with their minds.”

Eventually, Dyson would be sure nuclear weapons were the worst evil. But in 1945, drawn to these irreducible components of life, Dyson left mathematics and took up physics. Still, he did not want to be another dusty Englishman toiling alone in a dim Cambridge laboratory. Since childhood, some part of him had always known that the “Americans held the future in their hands and that the smart thing for me to do would be to join them.” That the United States was now the country of Einstein and Oppenheimer was reason enough to go, but Dyson’s sister Alice says that “he escaped to America so he could make his own life,” removed from the shadow of his now famous musical father. “I know how he felt,” says Oliver Sacks, who came to New York not long after medical school. “I was the fifth Dr. Sacks in my family. I felt it was time to get out and find a place of my own.”

In 1947, Dyson enrolled as a doctoral candidate at Cornell, studying with Hans Bethe, who had the reputation of being the greatest problem-solver in physics. Alice Dyson says that once in Ithaca, her brother “became so much more human,” and Dyson does not disagree. “I really felt it was quite amazing how accepted I was,” he says. “In 1963, I’d only been a U.S. citizen for about five years, and I was testifying to the Senate, representing the Federation of American Scientists in favor of the nuclear-test-ban treaty.”

After sizing him up over a few meals, Bethe gave Dyson a problem and told him to come back in six months. “You just sit down and do it,” Dyson told me. “It’s probably the hardest work you’ll do in your life. Without having done that, you’ve never understood what science is all about.” This smaller problem was part of a much larger one inherited from Einstein, among others, involving the need for a theory to describe the behavior of atoms and electrons emitting and absorbing light. Put another way, it was the question of how to move physics forward, creating agreement among the disparate laws of atomic structure, radiation, solid-state physics, plasma physics, maser and laser technology, optical and microwave spectroscopy, electronics and chemistry. Many were working on achieving this broad rapport, including Julian Schwinger at Harvard University; a Japanese physicist named Shinichiro Tomonaga, whose calculations arrived in America from war-depleted Kyoto on cheap brown paper; and Feynman, also at Cornell, a man so brilliant he did complex calculations in his head. Initially, Bethe asked Dyson to make some difficult measurements [calculations?] involving electrons. But soon enough Dyson went further.

The breakthrough came on summer trips Dyson made in 1948, traveling around America by Greyhound bus and also, for four days, in a car with Feynman. Feynman was driving to Albuquerque, and Dyson joined him just for the pleasure of riding alongside “a unique person who had such an amazing combination of gifts.” The irrepressible Feynman and the “quiet and dignified English fellow,” as Feynman described Dyson, picked up gypsy hitchhikers; took shelter from an Oklahoma flood in the only available hotel they could find, a brothel, where Feynman pretended to sleep and heard Dyson relieve himself in their room sink rather than risk the common bathroom in the hall; spoke of Feynman’s realization that he had enjoyed military work on the Manhattan Project too much and therefore could do it no more; and talked about Feynman’s ideas in a way that made Dyson forever understand what the nature of true genius is. Dyson wanted to unify one big theory; Feynman was out to unify all of physics. Inspired by this and by a mesmerizing sermon on nonviolence that Dyson happened to hear a traveling divinity student deliver in Berkeley, Dyson sat aboard his final Greyhound of the summer, heading East. He had no pencil or paper. He was thinking very hard. On a bumpy stretch of highway, long after dark, somewhere out in the middle of Nebraska, Dyson says, “Suddenly the physics problem became clear.” What Feynman, Schwinger and Tomonaga were doing was stylistically different, but it was all “fundamentally the same.”

Dyson is always effacing when discussing his work — he has variously called himself a tinkerer, a clean-up man and a bridge builder who merely supplied the cantilevers linking other men’s ideas. Bethe thought more highly of him. “He is the best I have ever had or observed,” Bethe wrote in a letter to Oppenheimer, who invited Dyson to the institute for an initial fellowship. There, with Einstein indifferent to him and the chain-smoking Oppenheimer openly doubting Dyson’s physics, Dyson wrote his renowned paper “The Radiation Theories of Tomonaga, Schwinger and Feynman.” Oppenheimer sent Dyson a note: “Nolo contendere — R.O.” If you could do that in a year, who needed a Ph.D.? The institute was perfect for him. He could work all morning and, as he wrote to his parents, in the afternoons go for walks in the woods to see “strange new birds, insects and plants.” It was, Dyson says, the happiest sustained moment in his life. It was also the last great discovery he would make in physics.

How China sees the world

I thought this was quite funny -- it's from the cover of the March 31 Economist (note the Foreclosure Sale sign; the version at the following link might be easier to read). From the article:

...Already a big idea has spread far beyond China: that geopolitics is now a bipolar affair, with America and China the only two that matter. Thus in London next month the real business will not be the G20 meeting but the “G2” summit between Presidents Barack Obama and Hu Jintao. This not only worries the Europeans, who, having got rid of George Bush’s unipolar politics, have no wish to see it replaced by a Pacific duopoly, and the Japanese, who have long been paranoid about their rivals in Asia. It also seems to be having an effect in Washington, where Congress’s fascination with America’s nearest rival risks acquiring a protectionist edge.

Thursday, March 26, 2009


Sorry for the lack of posts! I've been at Vanderbilt since leaving Fermilab. I was pretty busy giving two talks and meeting with a lot of physics faculty during my visit. As always I am amazed at the variety of things people are working on in a single department. Vanderbilt has a beautiful campus :-)

I've collaborated with two Vanderbilt theorists: Tom Kephart and Bob Scherrer, but this was my first visit to the university.

I had a brief window of time to meet with psychology professors Camilla Benbow and David Lubinski, who co-direct The Study of Mathematically Precocious Youth (SMPY). The data set they've been accumulating is unique and valuable.


The Study of Mathematically Precocious Youth (SMPY) was founded by Julian C. Stanley, on 1 September 1971, at Johns Hopkins University. Camilla P. Benbow and David Lubinski co-direct SMPY at Peabody College of Vanderbilt University. They are planning to complete a 50-year longitudinal study of five cohorts, consisting of over 5,000 intellectually talented individuals, identified over a 25-year period (1972-1997). The aim of this research is to develop a better understanding of the unique needs of intellectually precocious youth and the determinants of the contrasting developmental trajectories they display over the lifespan. The Study of Mathematically Precocious Youth is a bit of a misnomer, however, because verbally precocious youth have been included for longitudinal tracking, and participants are now all adults. Nevertheless, "SMPY" has been chosen to be retained to maintain consistency.

Four of SMPY's five cohorts were identified by talent searches by age 13. These cohorts vary in ability level ranging from the top 3% to the top .01% in quantitative or verbal reasoning ability. A fifth cohort of 714 participants, identified as first- or second-year graduate students attending top U.S. math/science programs in 1992, complements the first four cohorts of talent search participants by, among other things, affording an opportunity to assess the generalizability of the talent search model for identifying scientific potential. A 10-year follow-up of these math/science graduate students is now available (Lubinski et al., 2006). For the first three SMPY cohorts (identified in 1972-1974, 1976-1978, & 1980-1983, respectively), their 20-year follow-ups are available (Benbow et al., 2000; Lubinski et al., 2006). SMPY either has or is planning to follow-up all four cohorts of talent search participants at ages 18, 23, 33, 50 and 65. Cohort 5, the math-science graduate students, will be followed-up at ages 35 (complete) as well as 50 and 65. So far, seven books and over 300 articles have been based on SMPY; many recent articles are on PDF files on Benbow and Lubinski's individual web sites. For further and more detailed information on SMPY's history, the selection criteria for each cohort, and major longitudinal findings, a recent monograph has just appeared (Lubinski & Benbow, 2006).

Monday, March 23, 2009

Fermilab fun

Robert Rathbun Wilson (March 4, 1914 – January 16, 2000). American physicist who was a group leader of the Manhattan Project, a sculptor, and an architect of Fermi National Laboratory (Fermilab), where he was also the director from 1967–1978.

Wilson was born in Frontier, Wyoming, in 1914. In 1932 he arrived at Ernest O. Lawrence's Radiation Laboratory at the University of California, Berkeley, which was at that time blossoming into the top American site for both experimental and theoretical physics due to the efforts of Lawrence and J. Robert Oppenheimer.

...In 1967 he took a leave of absence from Cornell to assume directorship of the not-yet-created National Accelerator Laboratory which was to create the largest particle accelerator of its day at Batavia, Illinois. In 1969, Wilson was called to justify the multimillion-dollar machine to the Congressional Joint Committee on Atomic Energy. Bucking the trend of the day, Wilson emphasized it had nothing at all to do with national security, rather:

It has only to do with the respect with which we regard one another, the dignity of men, our love of culture. It has to do with: Are we good painters, good sculptors, great poets? I mean all the things we really venerate in our country and are patriotic about. It has nothing to do directly with defending our country except to make it worth defending.

Thanks to Wilson's leadership—in a full-steam ahead style very much adopted from Lawrence, despite his firings—the facility was completed on time and under budget. Originally named the National Accelerator Laboratory, it was renamed the Fermi National Accelerator Laboratory (Fermilab for short) in 1974, after famed Italian physicist Enrico Fermi; the facility centered around a four-mile circumference, 400 GeV accelerator. Unlike most government facilities, Fermilab was designed to be aesthetically pleasing. Wilson wanted Fermilab to be an appealing place to work, believing that external harmony would encourage internal harmony as well, and labored personally to keep it from looking like a stereotypical "government lab", playing a key role in its design and architecture. It had a restored prairie which served as a home to a herd of American Bisons, ponds, and a main building purposely reminiscent of a cathedral in Beauvais, France. Fermilab's Central Laboratory building was later named Robert Rathbun Wilson Hall in his honor.

Saturday, March 21, 2009

The New New Meme

The other day on Jay Leno, Obama said (video here ; @13 minutes in):

We need young people, instead of a smart kid coming out of school wanting to be an investment banker, we need them to decide they want to be an engineer, a scientist, a doctor or a teacher. If we are rewarding those kinds of things that actually contribute to making things and making peoples' lives better, that's going to put our economy on solid footing. We won't have this bubble and bust economy we've been caught up in in recent years.

I hope this meme takes off! I've made this kind of argument in the past, for example here in a 2006 post on financier pay, where I wrote

I'm anticipating reactions like "Well, of course they deserve it, their decisions have disproportionate impact on the economy, allocating massive resources. The market is efficient, after all!" All well and good if you can show that the 173,340 people (2006 BLS) working in investment banking really do produce better decisions than the people who would occupy those jobs in return for lower compensation. If not, there are some rents or inefficiencies hidden here :-)

Today in 2009 it should be abundantly clear that the market doesn't always know best :-(

Earlier related posts:

The best and brightest

Is the finance boom over?

A reallocation of human capital

A new class war

Some related comments from Brad DeLong below. I don't agree in detail with everything he writes, but you can see the same sentiment at work.

The engineers of Silicon Valley startups are significantly smarter and work a lot harder than do the traders of Wall Street. Some of the engineers of Silicon Valley make fortunes: they are compensated with relatively low salaries and large restricted equity stakes in the startup businesses they work for, and so if the businesses do well they do very well indeed--in the long run, in the five to ten years it takes to assess whether the business is in fact going to be a viable and profitable going concern. And the engineers of Silicon Valley have every incentive to use all their brains and all their hours to make their firm viable and successful: they get their cash only at the end of the process. They don't get big retention bonuses if they stick around until the end of a calendar year. They don't get big payouts if they report huge profits on a mark-to-market basis.

The traders of Wall Street, by contrast, get their money largely up front. If the mark-to-market position is good, they get paid--even though it is almost surely the case that nobody has tried to actually sell the entire position to somebody else. If the strategy produces short-run profits, they get paid--even though not nearly enough time has passed for anybody to be able to assess what the risks involved in the strategy truly are.

Thursday, March 19, 2009

Spring break travel

Instead of hitting the beach next week during spring break I'll be visiting Fermilab and Vanderbilt University to give the following talks. No fair peeking if you are from one of those institutions!

Fermilab Theoretical Astrophysics Group: Curved space, monsters and black hole entropy

Vanderbilt University physics colloquium: Black holes, information and entropy

And a bonus talk on the financial crisis.

Los Geeks de la Playa

Below is an old spring break photo from back in the day -- Cozumel when it was a sleepy little island. In the picture are 3 Caltech grads, 3 MIT PhDs (two in theoretical astrophysics, one in plasma physics), 1 former quant (now back in academia), a managing director still on the Street and a developer of fMRI imaging software. No, none of us are gay -- that's just spring break giddiness you're looking at :-) The guy on the far left ate the worm. The geekiest guy of all didn't show up -- he went to the APS meeting or something at the last minute, I can't recall exactly. I think we were listening to La Isla Bonita the whole time! (Recent covers.)

Sunday, March 15, 2009

AIG bailout: half trillion exposure for taxpayers

If I read this figure properly, US taxpayers could be on the hook for as much as $513 billion dollars of CDS insurance issued by its 377 person AIGFP (financial products) unit in London. Note also the compensation paid to the unit since 2001. Not bad! (Click for larger version; from NYTimes.)

Of course, half a trillion is a worst case scenario. So far, government bailout funds paid to AIG have been re-gifted as detailed below. Over $35 billion went to foreign banks. US taxpayers go the extra mile to save the financial system!

NYTimes: ...Financial companies that received multibillion-dollar payments owed by A.I.G. include Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).

Big foreign banks also received large sums from the rescue, including Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion; Barclays of Britain ($8.5 billion); and UBS of Switzerland ($5 billion).

AIGFP was headed by Joseph Cassano. See earlier post Clawbacks, fake alpha and tail risk for more details. So far I nominate Cassano as the king of fake alpha.

"It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.'' -- Joseph J. Cassano, a former A.I.G. executive, August 2007

Friday, March 13, 2009

The Best and Brightest

NYTimes writer Judith Warner objects to the characterization of Wall Street titans as the "best and brightest" :-) Of course, one interpretation is perfectly consistent with David Halberstam's original usage to describe JFK's team of whiz kids and their role in the tragic Vietnam war.

As usual the mainstream press gets it completely wrong and bemoans the reallocation of talent from law and medicine into finance, when in fact the real societal loss is from science, engineering, technology startups, etc.

Over the course of the past week or so, while I was interviewing child psychiatrists about the exciting new field of developmental neuroscience, the phrase “the best and the brightest” came up twice.

As in “I hope the brightest and the best kids will be doing this” — instead of going to work on Wall Street.

The first time I heard it, I didn’t say anything. I was laboring too intensely to keep up with phrases like “single nucleotide polymorphism.” But the second time, I was able to pause in note taking long enough to grouse, “I never had the impression that the best and brightest people went to Wall Street.”

“Maybe not in your day,” came the reply. “But in recent years they have.”

Let’s leave aside for a moment the concept that I could be old enough to have a “day” dating back to sometime in prehistory. And return to that phrase “the best and the brightest,” which got a great deal of airing last month when the Obama administration made the shocking decision to place limits on the compensation packages of executives whose banks received federal bailout funds.

A nice triple usage by Forbes.com columnist Susan Lee, in a piece on the proposed $500,000 compensation cap for top management, was typical: “This produced outraged shrieks from Wall Street that any pay cut would cause the best and brightest to head for the exits,” she wrote. “… But the big flaw here is that the best and brightest have nowhere to go … unless the best and the brightest want jobs as home-care attendants or third-grade teachers, there’s no place to jump.” ...

Two comments on the article (there are already over a hundred):

March 13, 2009
1:23 am

When I hear the term “best and brightest” associated with Wall Street, I don’t immediately think of the executives or the traders, but the mathematicians they employed. From what I’ve heard, over the past few years, there has been a significant drain of technical talent away from places like Silicon Valley and Boston, and to very well compensated careers creating new financial instruments.

I couldn’t care less where Gordon Gekko ends up, it’s the people who work for him that matter.

— Mike Douglas

31. March 13, 2009
1:29 am

Kudos for this piece. Having attended two colleges commonly thought as incubators of some of the “best and brightest” and graduating fairly recently (2005), I can attest that there was very little stigma attached to going to Wall Street. Even at Caltech, a powerhouse for future Nobel Prize winners in the sciences, more and more graduates were heading into finance — sometimes as “quants” and sometimes simply as traders and analysts. There was no sense of shame about wanting, purely and simply, to make piles of money.

It seems to me that something has gone awry in the system when even the “best and brightest” in the sciences and engineering — fields where job opportunities have not disappeared, where there purports to be high demand for innovation and intelligence — feel that there’s more reward on Wall Street than can be found in any labs. Finance hasn’t just siphoned away would-be doctors or lawyers; it’s siphoned off from would-be alternative-energy entrepreneurs, from innovators in many necessary fields.

Why? From the people I know who went into finance instead of science, most were drawn to the culture — the culture of supposedly being “the best and the brightest.” There’s tremendous ego involved in being smart enough to succeed at a place like Caltech (I wasn’t; I transferred), as well as tremendous ego destruction in realizing that the sciences are populated by some phenomenally brilliant people who are, on an IQ scale, truly and unquestionably “the best and the brightest.” Most of us can never compete with that, even those who spent their childhoods and teenage years being the smartest people in the room.

But send those scientists and engineers onto Wall Street and suddenly those egos are getting stroked! Suddenly they’re not nerds — they’ve got money to throw around, they feel more glamorous than their engineer friends, they get told that they’re the “best and the brightest” (even though they should know better), and, most importantly of all, they get to feel like the smartest person in the room again. It may sound like armchair psychology, but I’ve talked to a lot of people who have this attitude.

What’s the solution? Maybe we can make the sciences sexy again, as glamorous as they were during the space race — Obama seems to be on track, constantly referencing the centrality of science to his policy. There’d be a lot fewer MIT and Caltech alums on Wall Street if it were seen as a meeting ground of second-rate intellects.

— maria

Thursday, March 12, 2009

Black holes and decoherence

New paper! http://arxiv.org/abs/0903.2258

The black hole information problem (Wikipedia entry) is considered one of the deepest puzzles in theoretical physics. It is a "respectable" area of research with connections to string theory, quantum gravity and quantum information theory. In contrast, quantum foundations -- for example, the measurement problem (see, e.g., the Wikipedia or Stanford encyclopedia of philosophy entry) -- is considered a fringe activity by many working physicists. I've never understood this view; perhaps the only justification for it is that quantum foundations are somehow not testable experimentally and therefore more properly in the domain of philosophy. In our paper we argue that experiments relevant to black hole information are actually harder than those which address foundational questions in quantum mechanics. In fact, both types of experiments hinge on the ability to detect or manipulate macroscopic superpositions -- i.e., Schrodinger's Cat states. If the measurement problem and wavefunction collapse belong in the realm of philosophy, then so does the black hole information problem.

As John Bell said, "I am a Quantum Engineer, but on Sundays I have principles"! Bell famously hid his interest in quantum foundations for many years, afraid of the opprobrium of his colleagues at CERN and elsewhere. The first question he would ask of others who approached him about research on such topics was "Do you have a permanent job?" Bell's Theorem has been called "the most profound discovery of science."

For people interested in this subject, some recommended reading.

Against 'Measurement' by J.S. Bell. This paper originated from a lecture he gave in Erice at the summer school (Ettore Majorana) in 1989. I was a student there just the following year, so I narrowly missed meeting him in person, something I will always regret! Bell's discussion of measurement following that of K. Gottfried (pp. 35-38; when does the pure state become a mixture?) is closest to the formulation in our paper.

A nice biographical article on Bell.

A book of essays in honor of Bell: Quantum [Un]speakables, edited by R. Bertlmann and A. Zeilinger, which contains fascinating material about his intellectual development, the Bell inequalities, their theoretical origins and experimental tests.


Black holes, information and decoherence

Stephen D. H. Hsu, David Reeb

We investigate the experimental capabilities required to test whether black holes destroy information. We show that an experiment capable of illuminating the information puzzle must necessarily be able to detect or manipulate macroscopic superpositions (i.e., Everett branches). Hence, it could also address the fundamental question of decoherence versus wavefunction collapse.

Tuesday, March 10, 2009

Money geeks

The Times has a long piece on quants by Dennis Overbye. The usual suspects are interviewed, but Overbye doesn't really engage with the details of the financial crisis. No mention of CDOs, CDS or securitization; no mention of where quant careers are headed in the wake of the disaster. I agree with Andy Lo's sentiments at the end of the article, but it remains to be seen what portion of blame consensus will apportion to the geeks, and what degree of "math-risk-premia" will be assigned to complicated trading activities in the future.

They Tried to Outsmart Wall Street

...They are known as “quants” because they do quantitative finance. Seduced by a vision of mathematical elegance underlying some of the messiest of human activities, they apply skills they once hoped to use to untangle string theory or the nervous system to making money.

This flood seems to be continuing, unabated by the ongoing economic collapse in this country and abroad. Last fall students filled a giant classroom at M.I.T. to overflowing for an evening workshop called “So You Want to Be a Quant.” Some quants analyze the stock market. Others churn out the computer models that analyze otherwise unmeasurable risks and profits of arcane deals, or run their own hedge funds and sift through vast universes of data for the slight disparities that can give them an edge.

Still others have opened an academic front, using complexity theory or artificial intelligence to better understand the behavior of humans in markets. In December the physics Web site arXiv.org, where physicists post their papers, added a section for papers on finance. Submissions on subjects like “the superstatistics of labor productivity” and “stochastic volatility models” have been streaming in.

Quants occupy a revealing niche in modern capitalism. They make a lot of money but not as much as the traders who tease them and treat them like geeks. Until recently they rarely made partner at places like Goldman Sachs. In some quarters they get blamed for the current breakdown — “All I can say is, beware of geeks bearing formulas,” Warren Buffett said on “The Charlie Rose Show” last fall. Even the quants tend to agree that what they do is not quite science.

As Dr. Derman put it in his book “My Life as a Quant: Reflections on Physics and Finance,” “In physics there may one day be a Theory of Everything; in finance and the social sciences, you’re lucky if there is a useable theory of anything.”

...Physicists began to follow the jobs from academia to Wall Street in the late 1970s, when the post-Sputnik boom in science spending had tapered off and the college teaching ranks had been filled with graduates from the 1960s. The result, as Dr. Derman said, was a pipeline with no jobs at the end. Things got even worse after the cold war ended and Congress canceled the Superconducting Supercollider, which would have been the world’s biggest particle accelerator, in 1993.

...Dr. Derman said, “Nobody ever took these models as playing chess with God.”

Do some people take the models too seriously? “Not the smart people,” he said.

Quants say that they should not be blamed for the actions of traders. They say they have been in the forefront of pointing out the models’ shortcomings.

“I regard quants to be the good guys,” said Eric R. Weinstein, a mathematical physicist who helps run the Natron Group, a hedge fund in Manhattan. “We did try to warn people,” he said. “This is a crisis caused by business decisions. This isn’t the result of pointy-headed guys from fancy schools who didn’t understand volatility or correlation.”

...The recent debacle has only increased the hunger for scientists on Wall Street, according to Andrew Lo, an M.I.T. professor of financial engineering who organized the workshop there, with a panel of veteran quants.

The problem is not that there are too many physicists on Wall Street, he said, but that there are not enough. A graduate, he told the young recruits, can make $75,000 to $250,000 a year as a quant but can also be fired if things go sour. He said an investment banker had told him that Wall Street was not looking for Ph.D.’s, but what he called “P.S.D.s — poor, smart and a deep desire to get rich.”

He ended his presentation with a joke that has been told around M.I.T. for a long time, but seemed newly relevant; “What do you call a nerd in 10 years? Boss.”

Sunday, March 08, 2009

Les Bienveillantes ; The Kindly Ones

I haven't read it yet, but I probably will. I was underwhelmed by Grossman's Life and Fate but perhaps this is better. Already I am fascinated by the controversy surrounding the book and by the statements of the author, Jonathan Littell, a 40 something American who writes in French.

Littell spent 5 years actively researching and writing the book, but 20 years thinking about the subject after seeing a photograph of Russian partisan Zoya Kosmodemyanskaya while still at Yale. Even Shoah director Claude Lanzmann acknowledges his mastery of the historical detail (though Lanzmann despised the book). Littell worked for NGOs for almost a decade, and reportedly dealt with real killers in places like Rwanda, Bosnia and Chechnya. He also understands the connection with America's experience in Vietnam. If nothing else he is a serious thinker.

From an interview / profile in Haaretz (read the comments as well!):

"Les Bienveillantes," Littell's first serious book (in 1989 he published what he calls an "amateurish" science fiction novel), sparked an immediate furor. Published in France in the summer of 2006, it became nothing short of a social phenomenon. Some critics hailed it as the "first masterpiece of the 21st century," others decried it as "the great hoax of the 21st century."

...The French press did not hesitate to speculate that Littell was not the real author and that the narrator-protagonist was a real person. Littell was compared with Proust, Stendhal and Flaubert, and also with the Marquis de Sade and Jean Genet - writers drawn to the portrayal of evil. The fact that the book was on the shortlist for the six most important literary prizes in France and became only the second book to win the Prix Goncourt and the French Academy prize simultaneously only intensified the hoopla.

While Michiko Kakutani of the Times savaged the book (there is no shortage of such reviews), Michael Korda extolls it here (again, good comments).

Below are some excerpts from another good interview of Littell.

... I am particularly fond of Margaret Atwood’s comment: “Wanting to meet an author because you like his work is like wanting to meet a duck because you like pate.”

... You can be sure you’re writing “literature” but actually fall short, or be tormented by doubts although literature has long been present. A book by a crazy person can prove to be literature when that of a great writer is not, for ambiguous and hard to explain reasons. One is always full of doubt. One doesn’t know. I think Tolstoy and Vasily Grossman were also full of doubt. Definitely Grossman, anyway. His stated ambition was to write as well as Tolstoy, but I’m sure he said to himself as he finished his book that he wasn’t worth Tolstoy’s little finger.

...A book is an experience. A writer asks questions as he tries to make his way through the darkness. Not towards the light, but further into the darkness, to arrive at a darkness even darker than his starting place. It is most certainly not the creation of a preconceived object. Which is why I have to write in one go. Writing is a throw of the dice. You never know what’s going to happen when you write. You try to set everything up as well as possible, and then you start. Once you’re at the writing stage, you think in words, not with your brain. It comes from a different place. The writing progresses, until you arrive at a place you never anticipated. That is why I am quite willing to accept the criticism that I made mistakes with this novel, that I did false or unacceptable things. Because I didn’t know what I was doing. I thought I did, beforehand, but the final result is something else entirely.

...When I started, I expected to find in the perpetrators’ testimonies things I could use. Between these and all the killers I had met in my professional life—in Bosnia when I worked on the Serbian side, in Chechnya with the Russian army, in Afghanistan with the Taliban, in Africa with the Rwandans and Congolese—I thought I would have something. But the more I read the perpetrators’ texts, the more I realized they were empty. I would never get anywhere by sticking with classic fictional recreation, with the omniscient author, mediating as Tolstoy does between good and evil. The only option was to put myself in the perpetrators’ shoes. And I knew that place. I had hung out with killers. I started with what I knew, which is to say myself, with my own ways of thinking and seeing the world, and decided to put myself in the shoes of a Nazi.

...Max Aue is a roving X-ray, a scanner. He is not, indeed, a plausible character. I was aiming not for plausibility but for truth. You cannot create a novel if you insist solely on plausibility. Novelistic truth is a different thing from historic or sociological truth. The issue of the perpetrator is the main issue the historians of the Shoah have been exploring for the last 15 years. The only remaining question is the motivation of the killers. Having read the works of the great researchers, it seems to me that they have hit a brick wall. This is very clear with Christopher Browning. He has created a list of potential motivations and has no way of arbitrating between them. Some prioritize anti-Semitism, others ideology. But in the end, they don’t know. The reason is simple. The historian works from documents, and so from the words of the perpetrators, which are themselves an aporia. And where can one go from there?

...When Claude Lanzmann comments that my perpetrator is implausible, and also unsavory, he is right. Except that there would never have been a novel if I had chosen an “Eichmann” as narrator. Lanzmann’s fear is that people’s only access to the Shoah will be through my book. The opposite is true. Sales of books by Raul Hilberg and Claude Lanzmann have increased since the publication of The Kindly Ones. Lanzmann and I start from the same question to arrive at different, irreconcilable conclusions. Both are true. Our discussion is not yet over.

Update: I've now read large sections of the book; it is brilliant in places and utterly absorbing -- I had to force myself to put it away each time.

Here is another good review with comments on Littell's historical and theoretical mastery of his subject. Also here.

Friday, March 06, 2009

MIT Technology Review

My blog is now syndicated (is that the right word? aggregated?) by MIT Technology Review. For this I am paid a modest fee, which I promise won't compromise the integrity of my writing. Apologies to Caltech alumni all over the world, but money talks ;-)

Last time I was on the MIT campus I had a nice tour of the Stata Center, home of their Computer Science and Artificial Intelligence Laboratory (CSAIL). Call me Sisyphus.

Expert predictions: Jon Stewart edition

Jon Stewart notices that financial experts know nothing (very funny):

Thanks to a reader (Dartmouth professor) for the link ;-)

The Times notices the same thing (more politely) about academic economists. Not only can they not predict in advance, but they have trouble adjusting after their priors are harshly contradicted by reality. Must be tough to be in a field that selects for overconfidence in dealing with complex systems and messy data.

Ivory Tower Unswayed by Crashing Economy

...That was before last fall’s crash took the economics establishment by surprise. Since then the former Federal Reserve chairman Alan Greenspan has admitted that he was shocked to discover a flaw in the free market model and has even begun talking about temporarily nationalizing some banks.

...Yet prominent economics professors say their academic discipline isn’t shifting nearly as much as some people might think. Free market theory, mathematical models and hostility to government regulation still reign in most economics departments at colleges and universities around the country. True, some new approaches have been explored in recent years, particularly by behavioral economists who argue that human psychology is a crucial element in economic decision making. But the belief that people make rational economic decisions and the market automatically adjusts to respond to them still prevails.

The financial crash happened very quickly while “things in academia change very, very slowly,” said David Card, a leading labor economist at the University of California, Berkeley. During the 1960s, he recalled, nearly all economists believed in what was known as the Phillips curve, which posited that unemployment and inflation were like the two ends of a seesaw: as one went up, the other went down. Then in the 1970s stagflation — high unemployment and high inflation — hit. But it took 10 years before academia let go of the Phillips curve. ...

More (and better) from UC Davis economist Greg Clark in the Atlantic.

Here's something I wrote in 2005 about "expertise" in certain, ahem, soft subjects. See also here, or under the label expert prediction.

Tuesday, March 03, 2009

Best podcasts ever

As I mention in my talk on the financial crisis, the best journalism I've seen on the topic has come from the public radio show This American Life. Their latest is a crystal clear report on the current status of the banking crisis, focusing on bank balance sheets and the question of nationalization. At the end there is a shorter segment illustrating how hard it will be at ground level to deal with individual foreclosures and bad mortgages. This has my highest recommendation: Bad Bank.

Their earlier show on the mechanics of the out of control mortgage industry is: The Giant Pool of Money. (My comments here.)

Below is a graph mentioned in the Bad Bank podcast, displaying total US household debt relative to GDP over time.

Thanks to multiple readers who alerted me to the new podcast!

Monday, March 02, 2009

Manhattan blues

I just returned from NYC. The mood there is pretty bleak :-(

It looks like people are deserting the city in droves. Entire areas of finance and banking are gone and won't return for many years. I heard some very detailed estimates of the carrying cost of supporting a family in Manhattan (see Times analysis here):

$500k per year (pre tax) for minimal high end lifestyle (2 kids in private school, nanny, 2000 square feet of living space; not counting big vacations or Hamptons rental)

$150-200k per year (pre tax) for minimal non-Manhattan life: kids in public schools, long commute to and from the city.

The problem is that $500k is the compensation cap figure, and $150-200k is the base salary number, which is all most people are getting these days. The phrase I heard several times is "I'm effectively paying to work here -- no f#%king way!"

The cost of living in Manhattan is going to drop precipitously in a nasty 1-2 year equilibration.

I also heard serious apocalyptic predictions about US hyper-inflation starting in a year or two.

This is what the money men have to look forward to -- the post 1920s finance bust will probably repeat:

See earlier post Is the finance boom over?

Dark radiation and dark energy

New paper!


Dark radiation as a signature of dark energy

Sourish Dutta, Stephen D. H. Hsu, David Reeb, Robert J. Scherrer

We propose a simple dark energy model with the following properties: the model predicts a late-time dark radiation component that is not ruled out by current observational data, but which produces a distinctive time-dependent equation of state $w(z)$ for $z < 3$. The dark energy field can be coupled strongly enough to Standard Model particles to be detected in colliders, and the model requires only modest additional particle content and little or no fine-tuning other than a new energy scale of order milli-electron volts.

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