Re: [FRIAM] Blinded By Science - When models FAIL taking all the humans

[glen e. p. ropella]

Thus spake peter circa 10/18/2008 07:26 PM:
> glen e. p. ropella wrote:
>> Peter?  Did you ever get a chance to dig up some names of these
>> "complexity science geniuses"?
>>   
> 
> Lets see how accurate these names are and when they get their subpoenas
> 
> Rothman / Kearns / Goldberg / Cushing  /  Jessop / Mouicci

Excellent!  Thanks.

-- 
glen e. p. ropella, 971-219-3846, http://tempusdictum.com



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Meets Fridays 9a-11:30 at cafe at St. John's College
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Re: [FRIAM] Blinded By Science - When models FAIL taking all the humans

[peter]

Peter Baston

*IDEAS*

/www.ideapete.com/ 








glen e. p. ropella wrote:

Thus spake peggy miller circa 10/17/2008 09:32 AM:
  

Translation -- statistics and common sense verified that the larger the
operation becomes, with noticeably poorer decisions happening at the size of
business over $1 billion in profits, matched by replacement of
ownership/manager with non-owner managers, judgment fails. Caring appears to
be a part of ownership. Somethings counter this problem, like profit sharing
-- giving workers part of profits -- but ownership of business and smaller
size seems to be almost irreplaceable. Small banks and credit unions, owned
locally, rarely fail. The owner's name, reputation and thus decisions are on
the line.



Why is it that we are (and continue to be) so myopic to the flaws to
such large-scale abstraction (aggregation and accumulation)?

It seems (to me) that we should have learned this lesson thoroughly when
we demonstrated that many contexts call for distributed as opposed to
centralized solutions.  We had to learn that lesson over and over in
various disciplines.  Why hasn't that knowledge translated to corporate
governance?  (Or government even?)

Centralization, abstraction, aggregation, and accumulation seem to be
the dominant tendency.

My undefended conjecture is that such abstraction is the only way an
individual can _both_ multiply their money _and_ keep the consequences
at arm's length.  I.e. it's the only way one can both make butt-loads of
money and retain a clear conscience.  (Gee, do I sound like a socialist?
or what? ;-)

But it's also quite possible that the only way to maintain a "survival
by growth" method is to engage in such accumulation.  For corporations,
it's obvious.  For the federal government, it's less so because it's
reasonable to assume that the management of 3.5 million square miles and
350 million people requires a centralized solution.

  

How many names of the managers of these large failed institutions do we
know? a couple? and they get paid handsomely either way ..



This reminds me of:

Thus spake peter circa 10/01/2008 09:50 AM:
  

Sure I will dig out some names ...
[...]

glen e. p. ropella wrote:


But can you help me reduce my ignorance?  Which "complexity science
geniuses" created these credit models?  And which ones do you think
might go to jail?
  


Peter?  Did you ever get a chance to dig up some names of these
"complexity science geniuses"?
  


Lets see how accurate these names are and when they get their subpoenas

Rothman / Kearns / Goldberg / Cushing  /  Jessop / Mouicci



FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

Re: [FRIAM] Blinded By Science - When models FAIL taking all the humans

[Phil Henshaw]

I sold enough for my own and my son's security for a time last Nov for
what it's worth.  I chose not to sell out to see how it felt to only 'cover
my ass' and not act like leading the kind of 'flight to safety' that would
bring whole systems down if copied.  That did develop, of course, a few
weeks ago.   As I saw the wave building and crashing it constantly felt like
I really should have sold more, and was glad I had not.

Phil

> -Original Message-
> From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On
> Behalf Of Pamela McCorduck
> Sent: Friday, October 17, 2008 4:03 PM
> To: The Friday Morning Applied Complexity Coffee Group
> Subject: Re: [FRIAM] Blinded By Science - When models FAIL taking all
> the humans
> 
> I found that Nature article disingenuous.  It  just so happened I sat
> down to dinner with a couple of bigtime modelers on Tuesday night--one
> models mathematically, one heuristically. They hadn't ever talked about
> it with each other, but they found out they'd done the same thing:
> they'd done the arithmetic, saw that whatever was happening in the
> markets was a bubble, and closed most of their positions within the
> last eighteen months. Is Nature asking us to feel sorry for people who
> couldn't do arithmetic?
> 
> 
> 
> 
> On Oct 17, 2008, at 12:32 PM, peggy miller wrote:
> 
> > Models don't replace ownership and smaller sized business
> > responsibility...unless can figure out a model for Caring.
> >
> > When I was doing bank work in D.C. for Consumer Federation, I ended
> up
> > with the position, due both to intuition, as well as hard facts from
> > studies that were performed by Harvard and other fairly reputable
> > places-- showing that good banking judgement becomes reduced (like
> > with any management) as ownership is eliminated replaced by ever
> > larger scale operations managed by non-ownership managers.
> >
> > Translation -- statistics and common sense verified that the larger
> > the operation becomes, with noticeably poorer decisions happening at
> > the size of business over $1 billion in profits, matched by
> > replacement of ownership/manager with non-owner managers, judgment
> > fails. Caring appears to be a part of ownership. Somethings counter
> > this problem, like profit sharing -- giving workers part of profits -
> -
> > but ownership of business and smaller size seems to be almost
> > irreplaceable. Small banks and credit unions, owned locally, rarely
> > fail. The owner's name, reputation and thus decisions are on the
> line.
> >
> > How many names of the managers of these large failed institutions do
> > we know? a couple? and they get paid handsomely either way ..
> >
> > There was discussion of linking pay of all managers more directly to
> > following of safety standards .. but I don't think that happened.
> Also
> > .. just fyi .. when we went to have a hearing on this before Senate
> > Banking Committee .. with the studies showing that size of
> > institutions relates to poor management  -- when you get over $1
> > billion, management quality noticeable deteriorates -- suddenly the
> > group of professors and academics who performed the studies said they
> > could not testify (they were silenced somehow.)
> >
> >
> >
> > Have a great day!
> > Peggy Miller
> >  
> > FRIAM Applied Complexity Group listserv
> > Meets Fridays 9a-11:30 at cafe at St. John's College
> > lectures, archives, unsubscribe, maps at http://www.friam.org
> 
> "But this I know: the writer who possesses the creative gift owns
> something of which he is not always master--something that, at times,
> strangely wills and works for itself."
> 
>   Charlotte Bronte
> 
> 
> 
> FRIAM Applied Complexity Group listserv
> Meets Fridays 9a-11:30 at cafe at St. John's College
> lectures, archives, unsubscribe, maps at http://www.friam.org




FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
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Re: [FRIAM] Blinded By Science - When models FAIL taking all the humans

[Phil Henshaw]

Glen says,  " > It seems (to me) that we should have learned this lesson
thoroughly
> when> we demonstrated that many contexts call for distributed as opposed
to
> centralized solutions.  

Yes, very much so, but I also agree with Peggy's sense that there's
something about ownership that is different from being indifferent about
following someone else's rules.  If both principles are to apply... then a
distributed system of individual owners, of their own part of a larger whole
system is needed.  To me that means everyone being curious about what can go
wrong.   I see that kind of risk avoidance as one of the clear
distinguishing characteristics of distributed systems functioning as
advanced learning processes, as all organisms seem to in their own domains.
Some learning processes can't learn, like thermostats.  Some can only
explore for self-expansion, like fire.  Others can be risk averse and
seeking out only resources that are free of conflict.  The question isn't
'how' so much, as identifying what we can clearly observe occurring, and
we're trying to explain.

I think that's one of the things a conscious and logical mind can perceive,
that there is a wide assortment of successful learning systems that notice
when the progression of problems being solved is leading to unsolvable
problems, the universal warning sign.  

You can call it "sensing increasingly complex risks with fat tailed
distributions" as Taleb would, or "approaching diminishing returns" as I or
Tainter would, or crossing lines of potential conflict, the name in common
language any animal watches closely in going about their daily business.  I
just don't seem to know how to prove that staying with an ever riskier
course is the cause of the calamity it naturally becomes.   Proving that you
can have foresight seems to  require foresight, relying on reading beyond
one's data every time...

Phil 

> -Original Message-
> From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On
> Behalf Of glen e. p. ropella
> Sent: Friday, October 17, 2008 1:27 PM
> To: The Friday Morning Applied Complexity Coffee Group
> Subject: Re: [FRIAM] Blinded By Science - When models FAIL taking all
> the humans
> 
> Thus spake peggy miller circa 10/17/2008 09:32 AM:
> > Translation -- statistics and common sense verified that the larger
> the
> > operation becomes, with noticeably poorer decisions happening at the
> size of
> > business over $1 billion in profits, matched by replacement of
> > ownership/manager with non-owner managers, judgment fails. Caring
> appears to
> > be a part of ownership. Somethings counter this problem, like profit
> sharing
> > -- giving workers part of profits -- but ownership of business and
> smaller
> > size seems to be almost irreplaceable. Small banks and credit unions,
> owned
> > locally, rarely fail. The owner's name, reputation and thus decisions
> are on
> > the line.
> 
> Why is it that we are (and continue to be) so myopic to the flaws to
> such large-scale abstraction (aggregation and accumulation)?
> 
> It seems (to me) that we should have learned this lesson thoroughly
> when
> we demonstrated that many contexts call for distributed as opposed to
> centralized solutions.  We had to learn that lesson over and over in
> various disciplines.  Why hasn't that knowledge translated to corporate
> governance?  (Or government even?)
> 
> Centralization, abstraction, aggregation, and accumulation seem to be
> the dominant tendency.
> 
> My undefended conjecture is that such abstraction is the only way an
> individual can _both_ multiply their money _and_ keep the consequences
> at arm's length.  I.e. it's the only way one can both make butt-loads
> of
> money and retain a clear conscience.  (Gee, do I sound like a
> socialist?
> or what? ;-)
> 
> But it's also quite possible that the only way to maintain a "survival
> by growth" method is to engage in such accumulation.  For corporations,
> it's obvious.  For the federal government, it's less so because it's
> reasonable to assume that the management of 3.5 million square miles
> and
> 350 million people requires a centralized solution.
> 
> > How many names of the managers of these large failed institutions do
> we
> > know? a couple? and they get paid handsomely either way ..
> 
> This reminds me of:
> 
> Thus spake peter circa 10/01/2008 09:50 AM:
> > Sure I will dig out some names ...
> > [...]
> >
> > glen e. p. ropella wrote:
> >> But can you help me reduce my ignorance?  Which "complexity science
> >> geniuses" created these credit models?  And which ones do you th

Re: [FRIAM] Blinded By Science - When models FAIL taking all the humans

[Pamela McCorduck]

I found that Nature article disingenuous.  It  just so happened I sat 
down to dinner with a couple of bigtime modelers on Tuesday night--one 
models mathematically, one heuristically. They hadn't ever talked about 
it with each other, but they found out they'd done the same thing: 
they'd done the arithmetic, saw that whatever was happening in the 
markets was a bubble, and closed most of their positions within the 
last eighteen months. Is Nature asking us to feel sorry for people who 
couldn't do arithmetic?





On Oct 17, 2008, at 12:32 PM, peggy miller wrote:

Models don't replace ownership and smaller sized business 
responsibility...unless can figure out a model for Caring.

 
When I was doing bank work in D.C. for Consumer Federation, I ended up 
with the position, due both to intuition, as well as hard facts from 
studies that were performed by Harvard and other fairly reputable 
places-- showing that good banking judgement becomes reduced (like 
with any management) as ownership is eliminated replaced by ever 
larger scale operations managed by non-ownership managers.

 
Translation -- statistics and common sense verified that the larger 
the operation becomes, with noticeably poorer decisions happening at 
the size of business over $1 billion in profits, matched by 
replacement of ownership/manager with non-owner managers, judgment 
fails. Caring appears to be a part of ownership. Somethings counter 
this problem, like profit sharing -- giving workers part of profits -- 
but ownership of business and smaller size seems to be almost 
irreplaceable. Small banks and credit unions, owned locally, rarely 
fail. The owner's name, reputation and thus decisions are on the line.

 
How many names of the managers of these large failed institutions do 
we know? a couple? and they get paid handsomely either way ..

 
There was discussion of linking pay of all managers more directly to 
following of safety standards .. but I don't think that happened. Also 
.. just fyi .. when we went to have a hearing on this before Senate 
Banking Committee .. with the studies showing that size of 
institutions relates to poor management  -- when you get over $1 
billion, management quality noticeable deteriorates -- suddenly the 
group of professors and academics who performed the studies said they 
could not testify (they were silenced somehow.)

 
 
 
Have a great day!
Peggy Miller
 
FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org


"But this I know: the writer who possesses the creative gift owns 
something of which he is not always master--something that, at times, 
strangely wills and works for itself."


Charlotte Bronte



FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

Re: [FRIAM] Blinded By Science - When models FAIL taking all the humans

[Russ Abbott]

Peggy,

Sounds like interesting and important results. Do you have citations?

-- Russ Abbott
_
Professor, Computer Science
California State University, Los Angeles
o Check out my blog at http://russabbott.blogspot.com/


On Fri, Oct 17, 2008 at 10:27 AM, glen e. p. ropella
<[EMAIL PROTECTED]>wrote:

> Thus spake peggy miller circa 10/17/2008 09:32 AM:
> > Translation -- statistics and common sense verified that the larger the
> > operation becomes, with noticeably poorer decisions happening at the size
> of
> > business over $1 billion in profits, matched by replacement of
> > ownership/manager with non-owner managers, judgment fails. Caring appears
> to
> > be a part of ownership. Somethings counter this problem, like profit
> sharing
> > -- giving workers part of profits -- but ownership of business and
> smaller
> > size seems to be almost irreplaceable. Small banks and credit unions,
> owned
> > locally, rarely fail. The owner's name, reputation and thus decisions are
> on
> > the line.
>
> Why is it that we are (and continue to be) so myopic to the flaws to
> such large-scale abstraction (aggregation and accumulation)?
>
> It seems (to me) that we should have learned this lesson thoroughly when
> we demonstrated that many contexts call for distributed as opposed to
> centralized solutions.  We had to learn that lesson over and over in
> various disciplines.  Why hasn't that knowledge translated to corporate
> governance?  (Or government even?)
>
> Centralization, abstraction, aggregation, and accumulation seem to be
> the dominant tendency.
>
> My undefended conjecture is that such abstraction is the only way an
> individual can _both_ multiply their money _and_ keep the consequences
> at arm's length.  I.e. it's the only way one can both make butt-loads of
> money and retain a clear conscience.  (Gee, do I sound like a socialist?
> or what? ;-)
>
> But it's also quite possible that the only way to maintain a "survival
> by growth" method is to engage in such accumulation.  For corporations,
> it's obvious.  For the federal government, it's less so because it's
> reasonable to assume that the management of 3.5 million square miles and
> 350 million people requires a centralized solution.
>
> > How many names of the managers of these large failed institutions do we
> > know? a couple? and they get paid handsomely either way ..
>
> This reminds me of:
>
> Thus spake peter circa 10/01/2008 09:50 AM:
> > Sure I will dig out some names ...
> > [...]
> >
> > glen e. p. ropella wrote:
> >> But can you help me reduce my ignorance?  Which "complexity science
> >> geniuses" created these credit models?  And which ones do you think
> >> might go to jail?
>
> Peter?  Did you ever get a chance to dig up some names of these
> "complexity science geniuses"?
>
> --
> glen e. p. ropella, 971-219-3846, http://tempusdictum.com
>
>
> 
> FRIAM Applied Complexity Group listserv
> Meets Fridays 9a-11:30 at cafe at St. John's College
> lectures, archives, unsubscribe, maps at http://www.friam.org
>

FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

Re: [FRIAM] Blinded By Science - When models FAIL taking all the humans

[glen e. p. ropella]

Thus spake peggy miller circa 10/17/2008 09:32 AM:
> Translation -- statistics and common sense verified that the larger the
> operation becomes, with noticeably poorer decisions happening at the size of
> business over $1 billion in profits, matched by replacement of
> ownership/manager with non-owner managers, judgment fails. Caring appears to
> be a part of ownership. Somethings counter this problem, like profit sharing
> -- giving workers part of profits -- but ownership of business and smaller
> size seems to be almost irreplaceable. Small banks and credit unions, owned
> locally, rarely fail. The owner's name, reputation and thus decisions are on
> the line.

Why is it that we are (and continue to be) so myopic to the flaws to
such large-scale abstraction (aggregation and accumulation)?

It seems (to me) that we should have learned this lesson thoroughly when
we demonstrated that many contexts call for distributed as opposed to
centralized solutions.  We had to learn that lesson over and over in
various disciplines.  Why hasn't that knowledge translated to corporate
governance?  (Or government even?)

Centralization, abstraction, aggregation, and accumulation seem to be
the dominant tendency.

My undefended conjecture is that such abstraction is the only way an
individual can _both_ multiply their money _and_ keep the consequences
at arm's length.  I.e. it's the only way one can both make butt-loads of
money and retain a clear conscience.  (Gee, do I sound like a socialist?
or what? ;-)

But it's also quite possible that the only way to maintain a "survival
by growth" method is to engage in such accumulation.  For corporations,
it's obvious.  For the federal government, it's less so because it's
reasonable to assume that the management of 3.5 million square miles and
350 million people requires a centralized solution.

> How many names of the managers of these large failed institutions do we
> know? a couple? and they get paid handsomely either way ..

This reminds me of:

Thus spake peter circa 10/01/2008 09:50 AM:
> Sure I will dig out some names ...
> [...]
>
> glen e. p. ropella wrote:
>> But can you help me reduce my ignorance?  Which "complexity science
>> geniuses" created these credit models?  And which ones do you think
>> might go to jail?

Peter?  Did you ever get a chance to dig up some names of these
"complexity science geniuses"?

-- 
glen e. p. ropella, 971-219-3846, http://tempusdictum.com



FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

[FRIAM] Blinded By Science - When models FAIL taking all the humans

[peggy miller]

Models don't replace ownership and smaller sized business
responsibility...unless can figure out a model for Caring.

When I was doing bank work in D.C. for Consumer Federation, I ended up with
the position, due both to intuition, as well as hard facts from studies that
were performed by Harvard and other fairly reputable places-- showing that
good banking judgement becomes reduced (like with any management) as
ownership is eliminated replaced by ever larger scale operations managed by
non-ownership managers.

Translation -- statistics and common sense verified that the larger the
operation becomes, with noticeably poorer decisions happening at the size of
business over $1 billion in profits, matched by replacement of
ownership/manager with non-owner managers, judgment fails. Caring appears to
be a part of ownership. Somethings counter this problem, like profit sharing
-- giving workers part of profits -- but ownership of business and smaller
size seems to be almost irreplaceable. Small banks and credit unions, owned
locally, rarely fail. The owner's name, reputation and thus decisions are on
the line.

How many names of the managers of these large failed institutions do we
know? a couple? and they get paid handsomely either way ..

There was discussion of linking pay of all managers more directly to
following of safety standards .. but I don't think that happened. Also ..
just fyi .. when we went to have a hearing on this before Senate Banking
Committee .. with the studies showing that size of institutions relates to
poor management  -- when you get over $1 billion, management quality
noticeable deteriorates -- suddenly the group of professors and academics
who performed the studies said they could not testify (they were silenced
somehow.)



Have a great day!
Peggy Miller

FRIAM Applied Complexity Group listserv
Meets Fridays 9a-11:30 at cafe at St. John's College
lectures, archives, unsubscribe, maps at http://www.friam.org

[FRIAM] Blinded By Science - When models FAIL taking all the humans with them

[peter]

 The
best piece in this entire article ( Posted in full because its
subscribers only ) is "
How
could so many smart people have got it so wrong? One reason is that
their faith in their models' predictive powers led them to ignore what
was happening in the real world."

What does that say about our entire approach to modeling especially
when our clients believe in the model, thinking it reflects the real
world as most of these poor ( pun ) bankers and financial geniuses did

Ill post the master text from the main article " The
Blunders that lead to the catastrophe " - How the
brightest and the best mathematical modelers fail at their task of
keeping disaster at bay in the next post   To be fair the main
quant defense is we didn't have enough related data but when the result
is a financial loss to the financial world equal to all the sums made
in the systems lifetime that excuse frankly sucks

( :: ( : pete

Peter
Baston

IDEAS

www.ideapete.com

Editorial: When the numbers don't add up
Blinded by science - Financial regulators have allowed
themselves to be bamboozled
( Ably assisted by quants and techies
on huge bonuses - my insert ( : ( : pete ) 


   24 September 2008
  
   From New Scientist Print Edition. Subscribe
and get 4 free issues. 







ONE
of the most alarming things about the crisis in the global financial
system is that the warning signs have been out there for some time, yet
no one heeded them. Exactly 10 years ago a hedge fund called Long-Term Capital Management
failed to convince investors that it could repay its debts, thereby
bringing the world to the brink of a similar "liquidity crisis" to the
one we now see. Disaster was averted then only because regulators
managed to put together a multibillion-dollar bailout package.
LTCM's
collapse was particularly notable because its founders had set great
store by their use of statistical models designed to keep tabs on the
risks inherent in their investments. Its fall should have been a
wake-up call to banks and their regulatory supervisors that the models
were not working as well as hoped - in particular that they were
ignoring the risks of extreme events and the connections that send such
events reverberating around the financial system. Instead, they carried
on using them.
Now
that disaster has struck again, some financial risk modellers - the
"quants" who have wielded so much influence over modern banking - are
saying they know where the gaps in their knowledge are and are
promising to fill them (see
"How the risk models failed the world's banks"). Should we trust
them?
Their
track record does not inspire confidence. Statistical models have
proved almost useless at predicting the killer risks for individual
banks, and worse than useless when it comes to risks to the financial
system as a whole. The models encouraged bankers to think they were
playing a high-stakes card game, when what they were actually doing was
more akin to lining up a row of dominoes.
How
could so many smart people have got it so wrong? One reason is that
their faith in their models' predictive powers led them to ignore what
was happening in the real world. Finance offers enormous scope for
dissembling: almost any failure can be explained away by a judicious
choice of language and data. When investors don't behave like the
self-interested Homo economicus that economists suppose them to
be, they are described as being "irrationally exuberant" or blinded by
panic. An alternative view - that investors are reacting logically in
the face of uncertainty - is rarely considered. Similarly, extreme
events are described as happening only "once in a century" - even
though there is insufficient data on which to base such an assessment.
“Bankers' faith in their
models' predictive powers led them to ignore what was happening in the
real world”
The
quants' models might successfully predict the movement of markets most
of the time, but the bankers who rely on them have failed to realise
that the occasions on which the markets deviate from normality are much
more important than those when they comply. The events of the past year
have driven this home in spectacular fashion: by some estimates, the
banking industry has lost more money in the current crisis than it has
made in its entire history.
Can modellers do better? There are alternatives to the standard
approach: models based on people's real-world behaviour (New
Scientist, 30 August, p 16) and on "virtual agents" (New
Scientist, 19 July, p 32)
have shown promise, though these are still fringe fields in economics.
Most quants, while acknowledging the shortcomings of their models, tend
to argue that approximations are necessary, given the difficulty of
modelling extreme events, which are in any case rare.
That
may be true, but it is dangerous to assume that the approximations are
sound. Sometimes even small modelling deficiencies can have huge
consequences. Nassim Taleb,
an expert on chance and co-director of the Decision Rese