Markets are typically said to be the best way to distribute our resources. In general, I don't dispute this: I think that some necessities need to be distributed differently, to prevent poor people being priced out of the market, or to ensure coverage, but luxuries and items with plenty of substitutes suit markets well.
However, I do take issue with any suggestion that markets approach perfection, which is often assumed as axiomatic to economic theory. Markets cannot approach perfection. Perfect markets can approach perfection, but that's a tautology: we never deal with perfect markets.
This post is about the efficient market hypothesis, which I was reading about a couple of days ago during remedial GCSE maths (financial reporting work).
Weak efficiency is when prices can no longer be predicted from past movements. If they can be, then people are not acting on that possibility, which means that the price does not accurately reflect information. Prices should follow a 'random walk', in which each future movement is a new event.
Semi-strong efficiency is when prices incorporate all publicly available information.
Strong efficiency is when prices incorporate all information.
If markets are semi-strong efficient, inside information is required to beat the market.
If markets are semi-strong efficient or better, then someone with incomplete knowledge (i.e a human) should trust the market price instead of his own estimate of the price. The problem with this is that the market price is accurate precisely because it is an average of everyone's estimates, and therefore incorporates the information these people know. If one person free-rides on this accuracy, nothing changes, but when it becomes widely accepted that the market is right, information is removed from the estimate, which also becomes much more chaotic as everyone clusters around believing that the 'true' value is very close to the quoted market price, ensuring that small actions can have big effects. This is a double effect of the clustering of people's estimates and the removal of information. It will no doubt be exacerbated by the tendency of those with estimates furthest from the market price to doubt their information the most. Humans have an inbuilt fallacy called 'anchoring' which contributes to this.
Hence, if semi-strong or strong efficiency is accepted, it is rapidly lost by the free-rider problem of people taking advantage of the supposed information conveyed by the price. I have been told that this will be corrected by people who do know what is right taking the opportunity to make a profit, but this assumes that there is one person who knows accurately what the value is: the precise lack of which led to us creating the market in the first place. It also assumes that the market will self-correct. If there is a self-sustaining chaos, or movement away from the 'true' value, then any attempt to use knowledge will fail, being subject to chaos just like random bets.
Given this tendency of markets to degenerate to self-referential prices, there are two ways to beat the market: to use insider information in a semi-strong market, or to be lucky. In fact, if the market becomes self-referential, one can either invest in complex algorithms that predict human behaviour, in an attempt to understand how such self-referential human systems behave, or one can realise that the purpose of the market is no longer being served, and withdraw from it to start again.
Our big banks have, of course, gone for the complicated algorithm option.
So, why do we have hordes of speculators?
The solution would be to prevent the system being self-referential. We want a market that accumulates estimates and averages them, without these being biased by knowing the final result. We need to cut the feedback loop: the contributors to a market need to be blind to the price. That's a problem when the point of a market is to allow them to get a sensible and consistent price.
How else can we avoid the feedback loop that removes information? We can cut it through time, by delaying transactions until after bids, but delays come at a cost, and the next round in a continuous market will be affected by the last round no matter the timing.
In fact, we must tackle speculation itself: the ability to feed round the loop many times. We can't cut the loop perfectly, but if we make transactions cost, then following the loop round will incur a cost that will deter people who are not interested in what the market is for. This cost will hit legitimate users as well. We could also limit derivatives; these specifically refer to market price, and are therefore part of the self-referentiality of the market. Some are necessary, in order to deal with risk, but the freedom to overpower the market with them can disrupt the proper functioning of the market.
I would love to do a cost-benefit analysis of the liquidity added to the market for legitimate use weighed against the cost of greater market imperfection through self-reference. But sadly I don't know enough economics or maths.
Wednesday, 18 April 2012
Monday, 9 April 2012
Children are special
We're a bit crazy when it comes to children. As a society, our usual morals and concerns are cast aside, along with rationality. I can understand that if we base morality on empathy, and we all care for our children to an extreme extent (because it's a biological imperative), we will decide that children are special.
But I think that's an awful basis for morality, and it leads to some shocking conclusions.
Firstly, if children are special because we empathise with their parents, are orphans not special? Secondly, a person remains the child of his parents after becoming an adult. Should that adult remain special until his parents die, at which point he too loses moral value?
Do we value children because of their innocence? An innocence that has been proven to be a relatively recent societal myth, and can be disproven by talking to any child who was ever bullied at school, who will happily inform you (or unhappily, if the memories are vivid) that children are evil and vicious and need to be taught to behave themselves. I could return to the theme of perceived innocence being more valuable than attained goodness and wax lyrical about that too (just think of all those news stories about converts to a cause whose past actions have been dug up and found not to match the cause: a basic ad hominem argument), but I won't.
We clearly do value children. When presented with theoretical situations involving saving some lives but not others, people aspire to save the children in preference to adults; it's a standard statement to acknowledge the importance of children. And yet why would we value them more? Do we value potential, as we do for the potentiality of a foetus or a sperm? Do we value what is really there: the marriages, the decades of powerful friendships, the network of dependency, including possible other children? We don't even consider the investment made in an adult: the years of love, affection, education, food and energy. No, we ignore everything and value the child.
What about the right to have a child? Do we consider the cost to the world of supporting yet another mouth to feed when the human demand is already greater than it can bear? Do we care about the cost to the taxpayer of more education, healthcare and benefits? The burden on infrastructure that a larger population will create? No, because it is everyone's inalienable right to help destroy the planet. I know that having children is a biological imperative, but come on people! It's an instinct for me to compete to be alpha male and fight with everyone who annoys me or gets in my way, but you know what? This thing called a brain allows me to choose to be civilised.
It doesn't matter if having children is your life's dream, and that the parent-child bond is a special thing. There are plenty of people out there who dream of eating a full meal every day, or earning enough money to buy medical treatment, or, in this country, being fantastically wealthy and famous. There are people who dream of enjoying the 'sacred' bond of a fantastic relationship but are never fulfilled.
Should we declare it an inalienable right to be fantastically wealthy and have a relationship with Keira Knightley? Obviously having children is a bit easier (as every religious extremist who hates abortions laments, wishing people would try abstinence). But it's a strange new moral principle that says that easier things are more moral. It's easy to give in to temptation.
We make much of children as people of worth, and yet at the same time we treat them as pets. I can see a case for either position, but not both together. Parents coddle their children, forbidding them from going out alone, driving them everywhere, doing all the housework and buying them endless gifts. Children are treated like pets: as things to be looked after and spoilt, not taught or brought up. I've chosen those words carefully: spoilt really does contrast with bringing up. Adolescence is an invented part of life that did not exist 150 years ago. Children grew up to be adults, sadly mostly at that time through necessity. We do need to educate people for longer nowadays, but that shouldn't fool us into thinking that children should or must remain childish.
I knew a girl who swore that if she ever had a child she'd make a huge fuss of it, buy it lots of toys and so on. I was shocked (especially as at the time we were seeing each other, and these could well have been my children she was thinking of ruining). Children need to be treated like humans as much as possible, and the essential aspect of human dignity, in my opinion, is to have one's will and independence acknowledged. Given the prevalence of stories of rebellious teenagers asserting their own individuality, I might not be the only one. Thankfully I was spared that need for such teenage antics by having a wise mother who always encouraged independence (although occasionally wished she were able to do otherwise).
It's a strange ideal to have: to love another human and yet to ignore and deny their basic humanity. If I were to talk to any but the most pathetic, romantic woman, none would want to pamper a husband in the same way, despite being encouraged by some parts of our culture to do so. And yet the bond between two (only ever two) partners, despite being regarded as the height of human fulfillment, is very different from the supposedly great and wonderful bond between parent and child.
Even religions agree with me. God, in His wisdom, gives humans the freedom to make their own mistakes and choose their own actions, because human dignity (as I describe it: He probably wouldn't limit it to humans) is a greater gift than anything else. If God is setting the example with His children, surely we might think to try to imitate Him with ours?
I don't think that children deserve special status at all. In so far as they are human, they are of precisely equal moral worth as the rest of us (barring crime). God made us all equal. We are all sentient (I like to think: sometimes I doubt it). But if we don't think that children are responsible individuals; if we think that they get worth as pets and objects of affection of their parents, then they are of less worth than a sentient, free-willed being. They are then comparable with property.
I'd prefer to go for the 'children are independent humans' route as much as possible. But if we want to make children special, then that only serves to denigrate the value of people the world over who I think deserve lives and rights as much.
But I think that's an awful basis for morality, and it leads to some shocking conclusions.
Firstly, if children are special because we empathise with their parents, are orphans not special? Secondly, a person remains the child of his parents after becoming an adult. Should that adult remain special until his parents die, at which point he too loses moral value?
Do we value children because of their innocence? An innocence that has been proven to be a relatively recent societal myth, and can be disproven by talking to any child who was ever bullied at school, who will happily inform you (or unhappily, if the memories are vivid) that children are evil and vicious and need to be taught to behave themselves. I could return to the theme of perceived innocence being more valuable than attained goodness and wax lyrical about that too (just think of all those news stories about converts to a cause whose past actions have been dug up and found not to match the cause: a basic ad hominem argument), but I won't.
We clearly do value children. When presented with theoretical situations involving saving some lives but not others, people aspire to save the children in preference to adults; it's a standard statement to acknowledge the importance of children. And yet why would we value them more? Do we value potential, as we do for the potentiality of a foetus or a sperm? Do we value what is really there: the marriages, the decades of powerful friendships, the network of dependency, including possible other children? We don't even consider the investment made in an adult: the years of love, affection, education, food and energy. No, we ignore everything and value the child.
What about the right to have a child? Do we consider the cost to the world of supporting yet another mouth to feed when the human demand is already greater than it can bear? Do we care about the cost to the taxpayer of more education, healthcare and benefits? The burden on infrastructure that a larger population will create? No, because it is everyone's inalienable right to help destroy the planet. I know that having children is a biological imperative, but come on people! It's an instinct for me to compete to be alpha male and fight with everyone who annoys me or gets in my way, but you know what? This thing called a brain allows me to choose to be civilised.
It doesn't matter if having children is your life's dream, and that the parent-child bond is a special thing. There are plenty of people out there who dream of eating a full meal every day, or earning enough money to buy medical treatment, or, in this country, being fantastically wealthy and famous. There are people who dream of enjoying the 'sacred' bond of a fantastic relationship but are never fulfilled.
Should we declare it an inalienable right to be fantastically wealthy and have a relationship with Keira Knightley? Obviously having children is a bit easier (as every religious extremist who hates abortions laments, wishing people would try abstinence). But it's a strange new moral principle that says that easier things are more moral. It's easy to give in to temptation.
We make much of children as people of worth, and yet at the same time we treat them as pets. I can see a case for either position, but not both together. Parents coddle their children, forbidding them from going out alone, driving them everywhere, doing all the housework and buying them endless gifts. Children are treated like pets: as things to be looked after and spoilt, not taught or brought up. I've chosen those words carefully: spoilt really does contrast with bringing up. Adolescence is an invented part of life that did not exist 150 years ago. Children grew up to be adults, sadly mostly at that time through necessity. We do need to educate people for longer nowadays, but that shouldn't fool us into thinking that children should or must remain childish.
I knew a girl who swore that if she ever had a child she'd make a huge fuss of it, buy it lots of toys and so on. I was shocked (especially as at the time we were seeing each other, and these could well have been my children she was thinking of ruining). Children need to be treated like humans as much as possible, and the essential aspect of human dignity, in my opinion, is to have one's will and independence acknowledged. Given the prevalence of stories of rebellious teenagers asserting their own individuality, I might not be the only one. Thankfully I was spared that need for such teenage antics by having a wise mother who always encouraged independence (although occasionally wished she were able to do otherwise).
It's a strange ideal to have: to love another human and yet to ignore and deny their basic humanity. If I were to talk to any but the most pathetic, romantic woman, none would want to pamper a husband in the same way, despite being encouraged by some parts of our culture to do so. And yet the bond between two (only ever two) partners, despite being regarded as the height of human fulfillment, is very different from the supposedly great and wonderful bond between parent and child.
Even religions agree with me. God, in His wisdom, gives humans the freedom to make their own mistakes and choose their own actions, because human dignity (as I describe it: He probably wouldn't limit it to humans) is a greater gift than anything else. If God is setting the example with His children, surely we might think to try to imitate Him with ours?
I don't think that children deserve special status at all. In so far as they are human, they are of precisely equal moral worth as the rest of us (barring crime). God made us all equal. We are all sentient (I like to think: sometimes I doubt it). But if we don't think that children are responsible individuals; if we think that they get worth as pets and objects of affection of their parents, then they are of less worth than a sentient, free-willed being. They are then comparable with property.
I'd prefer to go for the 'children are independent humans' route as much as possible. But if we want to make children special, then that only serves to denigrate the value of people the world over who I think deserve lives and rights as much.
The joy of Easter
We all know the importance of sleep; it's important for cancer prevention, staying a healthy weight, avoiding depression, ageing more slowly, resisting colds and bugs and thinking clearly.
So it was with some frustration that I have found myself not sleeping so well over the bank holiday weekend and in the previous week. For the preceding week I had been either staying in my little room back in university, or else my flat 'near' work. My little room is lovely, but I need to wake early to get to work, since it's a long journey, and despite the children being off school the traffic was terrible. So I slept badly there because I had to wake early, and because when I know I already haven't a full night to sleep I can't relax as easily: I'm already anticipating the day of struggle ahead.
My other place is a dingy dive, and I am allergic to it. Maybe it's mould, but I snuffle, sneeze and wheeze when spending nights there. Breathing tends to be a good thing as far as relaxing nights of sleep go. But not only is it such a hovel that my body rejects being there, but it is also overlooking a main road, ensuring that the rumble of traffic disturbs me even once I've managed to ignore it enough to get to sleep. The final nail in my coffin is that the window is set to open only a tiny amount. I struggle to understand why you would build a window that can open, but then limit it to open an insufficient amount to let any breeze through.
When it came to the long weekend, then, I was ready to relax in my little room and sleep soundly. The first night I stayed up late and then woke earlyish simply because of habit (and the sunlight pouring round my blind). But on Saturday or Sunday nights I woke part-way through the night to find myself crying. I knew why: I'd been dreaming that my mother was dead. It's a standard nightmare I've had for a long time, but it was hard to get back to sleep because of course now it's also true.
Well, when something nasty like that happens you just live with it. I managed to sleep some more and had other vivid dreams and looked forward to the next night's sleep. So imagine my frustration when I woke early on Tuesday morning after dreaming that my mother and I had decided to do some pottery in the evenings together. I think the sadness when I woke up was even worse than the previous nightmare. It's tough waking up after such a happy thought of chatting to my mother and agreeing to do something fun only to realise that I can never have such moments again.
Easter weekend was tough. I was looking forward to a weekend off work, relaxing and seeing friends. But everyone was away visiting parents; it seems that big holiday periods are the perfect time for a family trip. For those of us lacking that option, the quietness is a subtle but continuous reminder of the sadness that we carry.
So it was with some frustration that I have found myself not sleeping so well over the bank holiday weekend and in the previous week. For the preceding week I had been either staying in my little room back in university, or else my flat 'near' work. My little room is lovely, but I need to wake early to get to work, since it's a long journey, and despite the children being off school the traffic was terrible. So I slept badly there because I had to wake early, and because when I know I already haven't a full night to sleep I can't relax as easily: I'm already anticipating the day of struggle ahead.
My other place is a dingy dive, and I am allergic to it. Maybe it's mould, but I snuffle, sneeze and wheeze when spending nights there. Breathing tends to be a good thing as far as relaxing nights of sleep go. But not only is it such a hovel that my body rejects being there, but it is also overlooking a main road, ensuring that the rumble of traffic disturbs me even once I've managed to ignore it enough to get to sleep. The final nail in my coffin is that the window is set to open only a tiny amount. I struggle to understand why you would build a window that can open, but then limit it to open an insufficient amount to let any breeze through.
When it came to the long weekend, then, I was ready to relax in my little room and sleep soundly. The first night I stayed up late and then woke earlyish simply because of habit (and the sunlight pouring round my blind). But on Saturday or Sunday nights I woke part-way through the night to find myself crying. I knew why: I'd been dreaming that my mother was dead. It's a standard nightmare I've had for a long time, but it was hard to get back to sleep because of course now it's also true.
Well, when something nasty like that happens you just live with it. I managed to sleep some more and had other vivid dreams and looked forward to the next night's sleep. So imagine my frustration when I woke early on Tuesday morning after dreaming that my mother and I had decided to do some pottery in the evenings together. I think the sadness when I woke up was even worse than the previous nightmare. It's tough waking up after such a happy thought of chatting to my mother and agreeing to do something fun only to realise that I can never have such moments again.
Easter weekend was tough. I was looking forward to a weekend off work, relaxing and seeing friends. But everyone was away visiting parents; it seems that big holiday periods are the perfect time for a family trip. For those of us lacking that option, the quietness is a subtle but continuous reminder of the sadness that we carry.
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