StreetEYE Blog

Pokémon economics, secular stagnation, and cognitive dissonance

There are these two young fish swimming along, and they come across an older fish swimming the other way, who nods at them and says, “Morning, boys, how’s the water?”

And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?” – David Foster Wallace

A physicist, an engineer, and an economist are stranded on an island with nothing to eat. A can of beans washes ashore. The physicist says, “Let’s build a fire and heat the can, the pressure will make it pop open, and we can eat the beans.” The engineer says, “The can will explode and beans will go everywhere. Let’s smash the can open with a rock.” The economist says, “Lets assume that we have a can-opener…” – Original author unknown

Do economists really understand the essence of what’s going on in the economy, or are they like fish who don’t know what water is, assuming can openers to solve what ails it?

Vox had an article on what Pokémon Go says about capitalism.

The gist: all the money from the digital economy goes to a few people in large companies like Apple and Nintendo, and the rest of the world is in a brutal race to the bottom.

Now, that’s not 100% true…Pokémon Go creator Niantic is a startup, if an unusually well-heeled and well-financed startup.

But it feels essentially true.

The reason I started writing this long and digressive rant, is that I posted the Vox story about Pokémon Go in an economics forum, and it got banned for not contributing to the economic discussion. The notion that there could be secular stagnation, and it could have to do with income distribution, and there might be policy implications, was, to some folks, not even a proper subject for analysis and debate.

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A fun 3D visualization of the financial Twittersphere

Here’s a fun little update of that visualization of the financial Twittersphere I posted in May. This one is in 3D, you can zoom (with scroll wheel) and drag it around (with mouse, also see controls in top right).

It might take a minute to load up, not work too well on older computers/browsers. Just wait out/ignore any popups, warnings about script on page running slowly. If the iframe below is wonky, try this full-page version.
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Negative interest rates are an unnatural abomination

Mayor: What do you mean, “biblical”?
Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath of God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies! Rivers and seas boiling!
Dr. Egon Spengler: Forty years of darkness! Earthquakes, volcanoes…
Winston Zeddemore: The dead rising from the grave!
Dr. Peter Venkman: Human sacrifice, dogs and cats living together… mass hysteria!
Mayor: All right, all right! I get the point!
Ghostbusters (1984)

Happy 4th of July weekend! Some macro ‘blinding glimpse of the obvious’ blogging.
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A weekend Brexit reading list

This business will get out of control. It will get out of control and we’ll be lucky to live through it. – Admiral Josh Painter, The Hunt for Red October
Cly4cy0WYAAJHYq
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Hillary’s damn emails

The soldier who loses his rifle faces harsher punishment than the general who loses the war. — Anonymous soldier

So, I was reading this, by Kristy Culpepper. She’s smart, you should follow her. I agree with some of it but ultimately I think it’s off base from a tech / security / policy standpoint, like most of the furor on this issue.
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The Top 100 People To Follow To Discover Financial News On Twitter, May 2016


It’s been a year since we posted our last list of people to follow on Twitter for financial news. Time for an update!
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A possibly ill-conceived rant

There is no racial bigotry here. I do not look down on niggers, kikes, wops or greasers. Here, you are all equally worthless. – Gunnery Sergeant Francis Hartman

Against my better judgment, here’s a rant about race.
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Stories Are Powerful, But Check the Math

The first principle [of scientific inquiry] is that you must not fool yourself – and you are the easiest person to fool – Richard Feynman

In God we trust; all others must bring data. – attributed to W. Edwards Deming (ironically without any primary source backing up the attribution)

This Amy Cuddy TED talk was electrifying.

Video spoiler: If you adopt a “power pose” for 2 minutes, Amy Cuddy says it will not only change your posture, image, and attitude, but even your body chemistry, with more production of testosterone and anti-stress hormones.

It’s a great story, which is probably why it’s currently the second most-viewed TED talk.

Unfortunately, the published study study had only 42 participants. And other studies haven’t replicated the results on hormone production. Andrew Gelman even uses the opprobrious term p-hacking: data-mining to find a spectacular result.

The curse of dimensionality: the more things you measure, the more things will significantly deviate from the median.

The math can be counterintuitive.

Take a sample of apples. Grade each apple with a single number, like weight. For a contrived example, let’s say weight is uniformly distributed between 0 and 1.

What percentage of objects lie between 0.25 and 0.75 (the middle 50%?).

50% number line

Obviously, the blue line is 50% of the orange line.

Let’s grade apples along 2 dimensions, e.g. weight and redness.

What percentage of objects lie in the middle along both dimensions? Assuming weight and redness are uncorrelated, the answer is 50% squared, i.e. 25%.

How big a circle do we have to select to get to 50% of objects? We have to solve

    \[ \Pi r^2 = 0.5 \]

which gives r = 0.3989.

We see that we need a circle with almost 80% diameter to capture 50% of the square.

Number square

Let’s grade apples along 3 dimensions, e.g. weight, redness, and sweetness.

What range do we have to select to get to 50% of objects? We have to solve

    \[ \dfrac{4}{3} \Pi r^3 = 0.5 \]

which gives r = 0.492373.

We need a sphere with almost 100% diameter to capture 50% of the cube.

Sphere in cube

The point is, as you add more variables, the central 50% (or any x%) contains more and more extreme values. As you add dimensions, the outlying regions get bigger faster.

We can extend to higher dimensions which we can’t visualize, and chart the width of the 50% hypercube as we increase the dimension:

Capture

If you have 14 dimensions, the 50% hypercube is 95% of the length of the unit hypercube.

With enough features, anything or anybody is an outlier on some dimension.

Suppose you do an experiment measuring the variation of testosterone after assuming a power pose.

Suppose the power pose in fact has no effect on the level of testosterone (the ‘null hypothesis’).

If you observe a change due to chance variation, 95% of the time it will be statistically insignificant at the p > 0.05 level, and significant (p < 0.05) 5% of the time.

If testosterone and corticosteroids both exhibit no effect, the measured change in both will be statistically insignificant 0.95 * 0.95 = 90% of the time (assuming no correlation between them). As you measure more variables, the chance of one of them being significant goes up rapidly.

If you measure 14 insignificant variables, there’s a 50% chance one will be significant at the p < 0.05 level.

If you measure 50 insignificant variables, there’s a 92% chance one will be significant. 92% of that 50-dimensional ‘hypercube’ is in its outermost 5% region.

That’s how you get a prank paper to go viral showing chocolate helps people lose weight.

This sort of thing could be avoided if it was standard practice to hold back some test data, and do an out-of-sample test on any scientific finding. The methodology as practiced, to assume errors are unsystematic, and report p-values and significance on that basis, even on small samples tested for multiple relationships, seems weak and unscientific.

Returning to Amy Cuddy, you can interpret this a couple of different ways.

One interpretation: Statistics do not back up her story, that power poses raise hormone levels.

Another interpretation: Statistical methods are weak at finding complex stories, and you have to come up with a story to understand the world, and look for statistical confirmation where you can find it.

Acting with confidence and joy is contagious, to your own psyche and how others view you. That’s a story. Stories let humans understand and remember very complex phenomena.

For instance, attach a story related to their personal experience, and people solve tricky logic problems easily. Show them the same version as an abstract math problem, they fail miserably.

Feynman, quoted above about not fooling yourself, also said you must develop your intuition, thinking through examples and understanding the story of how things work as more than mathematical abstractions.

Stories are powerful. The more interesting things in the universe are complex interactions, like stories: evolution, the Big Bang, the French Revolution.

The curse of dimensionality means that as you absorb more features of the world, the possible states and explanations and oddities rise according to factorials and exponents. Things get curiouser and curiouser. There are complex interactions that can’t easily be explained. Stories are how humans make sense of a complex world.

Stories can mislead. A great story can be spurious, T. H. Huxley’s “great tragedy of science – the slaying of a beautiful hypothesis by an ugly fact.”

Stories are a powerful shortcut (Kahneman’s ‘thinking fast.’). But they are a shortcut that can lead you astray, so you also need to stop from time to time and make sure you know where you are going (Kahneman’s ‘thinking slow’).

So use your evolution-given power to understand complexity through narrative — but check the math.

Even if poses don’t elevate hormone levels, Superman and Wonder Woman were depicted that way for a reason. Don’t slouch through life due to lack of statistical evidence you shouldn’t!

(Mathematica notebook.)

iPhone Backdoors for the FBI, a blockchain approach for transparent due process, and why it’s a bad idea

So, the security complex is putting on the full court PR press for encryption back doors. See here and here.

Basically this is about giving someone a TSA lock to your phone and promising to keep it really really safe unless a legit law enforcement request is received. Of course, legitimacy is in the eye of the beholder.

One place where the real-world analogy breaks down is that any backdoor, in theory, enables industrial-scale exploitation. Potentially, it’s not just making it possible to open a car trunk that contains a body but more like requiring cars made out of material that’s transparent to the state. And then counting on due process to make it not infringe on the 4th Amendment and freedom from constant state surveillance.

The problem is, the folks at the NSA, CIA, DIA are in the deception business, and feel they have a moral imperative that demands deceiving the enemy, which in turn demands deceiving (lying to) the public.

I don’t even blame them, they have a job with a lot of risk, no real glory. Their job is to do what they can with the tools they’re given, and probably take the fall for ‘not connecting the dots’ even when they pretty much connected the dots.

Hillary talks about a Manhattan Project for cybersecurity…the truth is there is no way to create a magic bullet that can only be fired by the good guys, and there has been a $10b annual Manhattan project for years to enable the NSA to undermine and exploit the tech industry’s security.

So, I really thank Tim Cook for standing up to useful idiots who say Apple enables terrorists.

But with the current level of stupidity, there’s a very real possibility it’s a losing battle against that accusation, especially if there actually is a terrorist attack that hits an investigation roadblock due to iPhone encryption.

If you go down the backdoor road, there has to be maximum real-time transparency and due process. That’s kind of what the blockchain is: a secure, open public ledger of transactions. They can be money transactions, or transfer of ownership of other rights or responsibilities, or any bits, really.

So anyway, here is, as a thought experiment, how you can use the blockchain to enable transparency and due process in a key escrow scheme.

1) When Apple generates keys to encrypts your phone, they keep a copy. The copy is kept in such a way that the only way to release it is through due process.

  • Records of keys to be kept in one location, e.g. basement vault at Apple HQ.
  • They are kept only on physical media.
  • There is no network access to that storage
  • The location is electromagnetically shielded, physically secured per DoD standard for most secret information.
  • The keys are generated and conveyed to that storage securely, and any copy outside the room is destroyed. How to actually guarantee that is another giant bag of worms that is beyond my pay grade. But it has to be done per a checklist like generating nuclear launch codes, and the process audited regularly, and e.g. Tim Cook to certify annually under criminal penalty that the procedures were followed, and any shortcomings or attempts at circumvention publicly disclosed.

2) When law enforcement wants access to a phone for a criminal investigation, they post the request on public blockchain that is jointly maintained by all the interested parties, including watchdogs like the ACLU. The request records

  • requestor (state attorney general, US attorney, etc.)
  • target device
  • specific major felony accusation
  • specific individual or witness

3) Judge approves the request and posts approval on the blockchain.

4) There is a reasonable delay e.g. 72h to allow challenging/appealing the request.

5) Public signature by e.g. Tim Cook that he personally authorized access after finding it was legit and all necessary information was public on the blockchain, and appeals/challenges exhausted.

6) Keys transmitted to law enforcement by similar nuclear launch code checklist, e.g. all access to the physical location and media where it’s stored by two people who follow the checklist and record that it was followed, under criminal penalty for exfiltrating information inappropriately, or not documenting any attempt at circumvention. And again, procedures and logs subject to annual 3rd party audit, and management to certify that all procedures followed, any gaps or attempts at circumvention publicly disclosed.

The point of this exercise is that once you have a backdoor, you need real, public due process with teeth.

This process will satisfy no one. It’s a huge hassle for e.g. Apple. The security community wants something where they can ask for an inch and take a mile, and blame civil authority when they don’t find the threats. The civil liberties community will rightly suspect there is a hole in there somewhere, or that one will be created at the next ‘national security emergency,’ because that’s what the public raised on ’24’ and ‘Homeland’ expects.

And of course China and Russia will demand their own, much more leaky version of this, and Apple will end up in the Stasi-enabling business.

More and more, your whole life is on the phone. It leaks plenty of information semi-voluntarily about everywhere you go, everyone you spend time with, communicate with, what sites you browse, who you transact with. The security guys can do all kinds of other things to track you, GPS monitors, hack your phone, search your garbage.

Better to not go down this road of giving the surveillance state unfettered access to everything. And maybe it’s time to try to use technology for cryptographically secure transparency and due process.


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