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VictorTheSixth wrote:Sorry for a late reply, Sonoran; a combination of work, real life, and enjoying some gladiatorial combat in the Political forum.

Understandable...

It seems both have found their own unique solution to the same situation.

I will say this, if you combine both Taleb and Fisher's approaches, then you'd have one group of strategies that consistently lose small amounts of money, but make massive amounts of profit when all hell breaks loose, while you have another group of strategies that consistently make decent amounts of money, but suffer when all hell breaks loose.

I will have to really look into both approaches. I attempted to obtain the books you recommended, but they are all currently checked out of my university's library.

I agree. I think the fear most people have in regard to government run institutions is the idea that the government and government employees have different incentives than do those that work in the private sector.

As Nassim Taleb points out in Black Swan, never trust someone who has an incentive to cut corners . That said, the government operates just like a business does. It wants a fee (taxes) for goods and services (keeping you safe from marauding lunatics/criminals, proactively searching for lunatics/criminals trying to cause mass damage, giving us roads to drive on, making sure we have clean water, etc.). I sometimes question what would happen if people started running the government like a business instead of... well... a government

I could see some areas of conflict that may arise from running the government like a business. Such as how to handle goods/services that are non-excludable and/or non-rivalrous. They would have to keep a system of taxation in place as charging for personal use of such services could be a bit tricky if not almost impossible. Plus, I believe most people want services such as the police, fire fighters, and medical services to service anyone in need and not exclude them based on whether or not they paid or can pay for the service. If you charge people individually for such services, but mandate that anyone can make use of such service, you'll run into the problem of freeriders and the services will be underfunded. A more efficient solution would be to implement a tax to cover the costs of such services, or refuse to render services to those that haven't previously paid for the service or are unwilling/unable to pay for the services at the time they are to be rendered. Since I believe society as a whole would prefer to help out people needing emergency services regardless of whether or not they have paid or can pay for the service, I would say that a tax of some sort would be the preferred method.

That chimp experiment sounds interesting. Who knows, maybe the study of chimps will lead to a new school of economic thought: The Chimp School of Economics...

If you start this school, just remember to cite me!

Don't worry, we'll be sharing that Nobel Prize in Economics.

Math is a subject I need to increase my knowledge on. I plan on doing this over the next year or two.

Good luck. I don't know if I'll be able to offer you any help, but I'm always a PM away.

Thanks, I will keep that in mind.

I don't see a net benefit in the tornado situation. It appears to be a shift of demand from one group of businesses to another group of businesses.

Ah, but the destruction brings all manner of people, all manner of businesses, all manner of interests, etc. It also gives the local businesses the ability to cater to these new people and expand.

I agree that there will be business and industries that will benefit from disasters or wars, but I will have to agree with the more libertarian/Austrian School economists in that while some people may benefit, society as a whole doesn't because those that benefit are doing so at the expense of others or other industries.

I think I should have told a bit more of the full story with that. Basically, they had two economic strategists on. One Democrat, one Republican. The Republican one was all "slash and cut", the Democratic one was all "stimulus! More money!". Then the story about Michelle Obama came on, then the one about the tornadoes. I noted with irony that the green initiative would cause quite a bit of devastation with the farming industry and then I noted how the tornadoes helped the economies by shifting money being spent there and creating a new series of markets and opening up niches that needed to be filled.

Basically, I had a nice, nice laugh at how in the Economic World "good" things can have a completely and totally devastating effect on the economy, while "bad" things can have a wonderful effect. Something no one wants to comment on .

I can see the irony in the immediate view of the effects of disasters (something bad) as compared to events considered generally good. Where I find the two situations really come into light is when we look beyond the immediate effects.

I liken the story on Michelle Obama's gardening thing to creating a more efficient means of creating a good in terms that it will cost less money to obtain the good (food) through a private garden rather than purchasing it from farmers. I make this assumption because I don't see why people would grow their own gardens (outside of people who enjoy gardening) if gardening would cost the same or more than purchasing the same food from a farmer. If we assume that enough people start growing their own gardens that it decreases the demand for the farmers products, it would be devastating to the farmers. But the loss of jobs to farmers will be offset by the increase in jobs in other economic industries due to consumers having freed up more money (from their savings due to growing a garden) to spend on other goods. This would seem to increase aggregate demand and the wealth of the consumers. This is of course a rather simplistic view of the situation.

In the tornado story, certain businesses and industries of the economy are benefited in that there is an increase in demand for their goods and services. The consumer is hurt because instead of spending money on say a computer, they must replace what they have lost in the disaster. So while this helps the businesses that will be providing what the consumer lost it will be hurting the businesses that would have provided what the consumer could of spent their money on instead. There is no overall increase in aggregate demand or wealth for society as a whole in the tornado story as compared to the Michelle Obama one.

Do you mean that if the whole is considered, the winners in an economy will match the losers in terms of wealth?

In my humble opinion, yes.

One thing that they make mention in my new copy of Ascent of Money is that the new emerging theories are all about evolution and revolve around the idea that economy mirrors biology. I am inclined to agree entirely. One of those being that there's one massive resource (the planet) that ultimate is host to all manner of competing organisms with niches opening and closing at different intervals. I feel that everything, in the end, turns out to be equal with only redistribution. Just like in biology. I'm a firm believer in The Red Queen Hypothesis as well and feels it definitely applies to everything economic:

Warning: If you're archnaphobic take a deep breath before loading this page. There are red mites on a spider here
http://en.wikipedia.org/wiki/Red_Queen%27s_Hypothesis

Basically, to sum it up: Every species in the entire world, is in a constant arms race against one another. Every sub-species is in constant competition with one another. Every single organism is in competition with one another. Should anything slow down or lose its edge, it will die.

That is a very interesting view and one I will need to look more into. Economics and biology do seem to overlap wuite a bit when it comes to understanding and acknowledging competition's role. I am in the process of reading Matt Ridley's The Red Queen so maybe as I continue reading it I will look for parallels between the ideas expressed in his book and economics.

By the way Sonoran, I have never asked, what is your ultimate goal? If you're looking to get into Financial Modeling or Quantitative Analysis, I may be able to advise to a school that may be able to help you. One that actually has a good Financial Modeler/Quant program and is not a cash-maker. What do I mean by that? NYU, a very respected school, offers a Quantitative Analysis Masters Program that Nassim Taleb always crashes.

He literally sits in the class, tells the Professors that they are wrong about everything (for example, that Random Market Hypothesis is entirely wrong seeing as how it can be statistically shown that the first 15 minutes of the open are the high or low of the day about 20% of the time; if I wasn't under NDA I could comment more on this), and that they should do something useful with their lives instead of teaching this garbage. Whenever a professor tries to argue with him, Taleb points out he has millions in the bank, while said professor is living off a teacher's salary. The result of this is Taleb failing/withdrawing from the program repeatedly and a great deal of the students for this program leaving it because they realize it's a waste of time and money.

If you want to be a researcher/theorist, there's not much I can really do to help you or offer in the way of advice, I hate to say.

The financial industry has fascinated me for a few years, but I am rather new to financial modeling. I will read the materials you suggested, as well as others, and see if financial modeling and quantitative analysis really interests me.

It would be interesting to attend the NYU class that Taleb crashes. I would be most interested in the exchange between Taleb and the professor.

I do find research appealing and hope to get a good amount of experience researching in grad school. That way I'll know if it is something I would really enjoy doing for a career. I will be taking several computer science courses to get a better feel for programming and modeling (I do believe they do modeling in CS).

Thank you for your help. I have learned a lot and have become interested in financial modeling as a possible career...