Timarr

“All I want to know is where I’m going to die, so I’ll never go there” - Charlie Munger Carl Gustav Jacob Jacobi was a nineteenth century mathematician famous for his work on elliptic functions, amongst other accomplishments.  Oddly he ends up being frequently quoted by Charlie Munger and Warren Buffett, despite having no known connection with the investment world. I Wouldn't Start From Here…

Christmas is coming, so it’s time for all right-thinking blogs to publish a random list of books in the hope of generating enough income to throw another log on the fire (or at least buy some more books).  These days it’s hard to actually see out of the thicket of new books on the topic behavioral finance, a deluge inversely proportional to the actual impact…

As we saw in Weird Markets it can be remarkably difficult to pin down the idea of a “market”.  Markets are what economists study, economists study markets; a perfectly circular relationship.  On the other hand, markets do seem to be a fine way of deciding how to allocate scarce resources: economics is built on this singular, empirical observation. Given this it’s not a huge jump…

Most economic theories make an assumption that humans are rational, but this definition is a peculiarly drawn one as it assumes that we all operate on the basis of Bayes’ Theorem, an idea which is freely bandied about but which very few people can actually describe.  There’s a good reason for this – it’s profoundly unintuitive, which makes you wonder if we do think the…

Behavioral bias occurs in all sorts of odd ways, but basically can be traced back through evolutionary history to when humanity’s survival depended on deep co-operation and the invention of sewing.  Our ability to cope with the huge changes in weather conditions experienced over our short history defines our species: we didn’t go extinct. It shouldn’t therefore be particularly surprising that we’re unconsciously affected by…

Confirmation bias is a nasty problem, but it's very difficult to overcome because it's programmed into the way we think. Both neoclassical economics and Prospect Theory assume that we make decisions by performing an exhaustive search of all of the option available to in order to "maximise our utility" - usually assumed to be "profits", although Prospect Theory makes the additional assumption of bounded rationality…

Hi Trent, Edward Interesting, no? I did some work last year with a large IT company running automated analyses of bulletin boards and other social media to get near-time feedback on marketing campaigns, and to adjust them in similar timescales. I've also heard reports that some lenders run analysis on LinkedIn to check customers' employment status ... our lives are not our own, although of…

Hi AndrewThanks for bringing this to my attention, I hadn’t spotted that Stockopedia had picked this up. As recorded on my website the economist behind the US market numbers has indicated that they’ve found an error in their numbers, and they’re reworking them. The results will be interesting, because if they indicate that companies aren’t fiddling their figures that will almost be more surprising :)Of…

Hi eeA bit late back to this, but a brief comment. It's fairly clear that many bank managements ignored warnings from their own risk managers, and that said managers were at risk themselves if they made too much noise. Paul Moore at HBOS was allegedly removed for just such reasons. Part of the reason bank executives didn't understand the problem was that they didn't want…

Hi eeIf I may say so, that is a bit simplistic. You may and it is, but technically it's correct: Andrew Haldane at the BoE has shown that the "improved performance" of the banks from the 90's onwards can be entirely explained by them taking on more leverage. Essentially the managements got incentivised for taking on more risk with our money.  It's an open question…