Rebane's Ruminations

The Value of Testing

George Rebane

Trigger warning: The contents of this commentary may not be accessible to the innumerate reader.

As explained in ‘Testing, testing, …’, the value of testing comes to the fore when you have a sufficiently reliable test that can be administered on a regular and scientific basis over a suspect population.  In that case, it could be used to identify concentrations of infections that can be used for a more satisficing allocation of limited healthcare resources.  In an update to the referenced commentary, I illustrated how to determine the reliability of test results given the reliability parameters of the test administered to a walk-in member of a suspect population (country, state, county, city, region, …).

In this piece I will answer the questions many reasonable people have about testing – ‘why test if the tests are unreliable?  Why test if the test only provides a snapshot assessment which may change within the next hour?’  We start by recalling the advice from our federal and state medicos.  Given the limited availability of tests and processing labs, we are only supposed to request a test if we are symptomatic – fever, cough, headache, … .  Don’t burden the system if you are asymptomatic.

To read the remainder of this analytical commentary full of some algebra and all kinds of numbers, please download this PDF - Download The Value of Testing

Should Our Kids Learn to Code?

George Rebane

[This is the transcript of my regular KVMR commentary broadcast on 4 March 2020.]

As more and more young people finish their education today with unemployable skill sets, while employers are looking for people who can think on their feet and solve problems, the question of whether and how to teach high schoolers the elements of programming comes up.  Given that our world is now almost entirely software driven, and will become even more so tomorrow, you would think that programming or learning to code should become one of an educated citizen’s basic skills such as reading, writing, and arithmetic which reached those expectations over a hundred years ago.

But there is a curious mix of people who argue against teaching such a skill to students in our public schools.  Some see acquiring coding skills to be equivalent to vocational training, against which many have argued for decades.  It’s hard to believe that there were educators against teaching high schoolers skills with which to earn a living after graduation, especially when so few students went on to college.  Stanford professor of computer science Robert Sedgewick points out that coding “is not vocational training any more than English is vocational training for journalists or economics is vocational training for business executives.” 

In the early part of the 20^th century more than 90% of students entered the workforce without college degrees.  But our schools did teach them skills beyond literacy and arithmetic that were needed in the workplace.  Yet academics like former Stanford education professor Dr Larry Cuban continue to argue that coding is the same as teaching vocational skills such as machine shop and home economics.  Such courses for them have been a wrong-headed “imposition of those requirements (that) for years served to undermine the broader cultural goals of public schools—such as social mobility, individual development and civic engagement.”  Yet everyone today knows that all of those broader cultural goals are only possible for those who can be gainfully employed.

In response, Dr Sedgewick points out that “teaching students to code introduces them to logical thinking, as well as fostering creativity and problem-solving skills. It encourages experimentation, develops persistence and promotes collaboration. Learning to think as a coder gives one a valuable set of strategies for understanding a variety of situations that one will encounter later in life—particularly those who are working outside of tech.” (more here and here)

In my own teaching experience, I have confirmed that learning to code is also a painless introduction to critical thinking.  The experience provides a gender-free sense of empowerment, as the students make machines and data sing at the touch of their finger.  Coding and algorithmics – devising stepwise procedures for efficiently solving problems - are fields connected at the hip.  Immersive coding is a ‘flow experience’, almost like being in another universe that contains its own resources and rules for new and powerful tools.  Tools which you control and with which you can assemble wondrous machines.  For young people anticipating college or a job after high school, having mastered the elements of coding is tremendously empowering as they experience the opening of new worlds of possibilities and understanding.

But today we also have an emerging dark side of coding and computer science, one more political enterprise that is seeking a foothold in secondary education.  It is called ‘culturally responsive computing’, and is devised by the politically correct mavens of identity politics.  The proposed curriculum is primarily directed at minorities, and claims to educate students through the implementation of “computing-culture connections” that inject such arcane concepts as “African mathematics”.  The entire enterprise is a massive diversion from teaching kids substantive skills valuable for work and further studies.  Fundamentally, it is one more area of ethnic-gender education that would join the other useless but feel-good subjects which already displace substantive learning in our public schools.  Look for it at a school district near you. (more here)

In the meantime, I strongly recommend that you support the advent and expansion of STEM subjects that include computer science and coding in your local high schools.  Our young people need every bit of it that they can handle in a world where they will spend the rest of their lives.

My name is Rebane, and I also expand on this and related themes on Rebane’s Ruminations where the transcript of this commentary is posted with relevant links, and where such issues are debated extensively.  However, my views are not necessarily shared by KVMR.  Thank you for listening.

Ruminations – 10jan20 (updated 13jan20)

George Rebane

The Dems’ Chorus of Cacophony is now shrieking at Trump for taking out Soleimani the terrorist as a prophylactic for imminent acts of terror, exactly the same thing they blamed and still blame Bush2 for NOT taking out Bin Laden in order to prevent 9/11.  We recall it was Bill Clinton who declined to take out Bin Laden when he was actually in our cross-hairs.

More liberal worthies are also blaming Trump for Iran’s downing of the Ukrainian airliner, claiming that our president caused the deaths of the innocent passengers.  No doubt all subsequent atrocities committed by the rump ISIS contingents will now be blamed on our president since he also took out ISIS leader al-Baghdadi.  Such accusations are a daily testament to the anti-American propaganda of our progressives who promote the longevity of every leftwing tyrant across the globe.

Our voting teenagers should make US foreign policy a “higher priority” argues a learned 17-year-old in the 10jan20 edition of The Union (here).  The young man appears to have been successfully inculcated in our public schools to embrace TDS as the proper political support for voting decisions (he likes Buttigieg), while ignoring the capacities of his much less knowledgeable and more malleable peers.  His point would be better made were our schools really a forum for open discussion of ideas instead of founts of mind-melding progressive propaganda.

'Tax the robots' is the new cry arising across the land as a way to slow down automation and save the jobs of the un- and less-skilled.  This, along with universal basic income (q.v.), appears to be the half-way solution to the advent of systemic unemployment.  Other deep thinkers are of the mind that smart machines will be like all other past innovations, they’ll create more new jobs as they change and take away old jobs.  No one yet knows how to tax this latest advance in what used to be called automation.  And you can be sure that nothing promising about all this will come out of our polarized legislatures.  The real problem of systemic income was outlined in these pages some years back (here, here, and here).

[12jan20 update] The winds of woke.  Oh it’s hard to be a progressive without getting daily instructions from PC Central.  For years they taught us about the benefits of adopting cross-cultural artifacts, arts, and affectations into our supposedly banal and racist western culture - inclusivity and globalism and all that.  Now suddenly it has become ‘misappropriation’ to do any of that - a definite no-no for all the woke folks.  The latest is that white women should no longer wear hoop earrings which were originally connected with African women’s adornments.  Gotta stay current.

"The ongoing turmoil in U.S. politics is part of a larger political crisis that is shattering old alignments of left and right in North America and Western Europe. On both sides of the Atlantic, embattled establishments are besieged by populist insurgents. The rebellion takes different forms in different countries—the election of Donald Trump in the U.S., Brexit in the U.K., the revolt of the yellow vests in France. But the underlying dynamic is the same: the revolt of alienated, mostly but not exclusively native and white working-class voters against post-national metropolitan elites."  So argues University of Texas Prof Michael Lind in a major 11jan20 WSJ essay (here).  New insights, definitely worth a read for those paying attention.

[13jan20 update]  ‘Stack & Pack’, an important objective of Agenda21 (now Agenda2030), takes a huge step forward in California under SB50 which Gov Newsom will sign into law.  Here’s the headline – “Senate Bill 50 tramples over local control to push densification”.  Our leftwingers will again sing the A21 conspiracy song.  And again I reply that with Sacramento’s one-party system of governance, there is no conspiracy needed to promote collectivist central planning and control.  (H/T to reader)  Oh, and did I mention AB5?

Scattershots – 2jan20 (updated 4jan20)

George Rebane

Google’s AI does breast cancer diagnoses.  “Google’s health research unit said it has developed an artificial-intelligence system that can match or outperform radiologists at detecting breast cancer, according to new research. But doctors still beat the machines in some cases. … The AI system outperformed the average radiologist in determining whether the women would develop breast cancer.”, as reported in the 2jan20 WSJ (here).  The AI’s performance stats are impressive, and then comes the insane part.  Due to bureaucratic and regulatory concerns which essentially make ‘perfect’ be the enemy of the ‘good’, the AI “isn’t yet ready for clinical use”.  The correct answer is that it is more than ready for clinical use, because there is no reasonable downside to its use in tandem with practicing radiologists.  Since the algo already outperforms humans, it can be introduced in phases with various practitioners all over the country while research continues toward the elusive perfect.  Here is another problem for which we should always look to government as being its probable first cause, and government’s stand-down as being the most obvious first approach to a solution.

Does “Japanification” loom in America’s future?  The answer may well be YES.  In addition to some bad fiscal and monetary policies over the last 30 years, it’s Japan’s aging demographics that have put a stifling curse on its economy.  We have some disturbing similarities – “Developed economies that are maturing that have demographic headwinds are going to face many of the same things Japan has been facing over decades. … Like Japan, the U.S. has an aging population and a concentration of industry among a small number of giant businesses. In 2019, U.S. interest rates fell sharply, sparking serious discussion in markets, perhaps for the first time, of whether long-term rates could fall to zero or even turn negative. That already has happened in Japan and in much of Europe.” (more here)  Yes, Europe with its heavily socialistic governments have even more concentration of their industries (c.f. corporatism) and are already suffering the early stages of Japanification.   Progressive governments’ hip-level response to such economic headwinds is to turn the screws on for more central planning and control with disastrous results as have occurred recently in Chile (see below).  Our Democratic leftists have that and more in store for us should they increase their control of the levers of power. 

Risk Analysis with Subjective EMAB Distributions

George Rebane

A few years back I introduced to our more technically oriented readers a new approach to capture and work with subjective random variables.  In ‘Predicting with Expressed Beliefs – a formal approach’ the Mode Augmented Boxcar (MAB) probability distribution was made available in a report which described its derivation and various useful applications.  Among the advantages of EMAB is its compatibility with Bayesian analysis.  In this piece I share with readers the Expanded MAB (EMAB), present its formal derivation (TR1908-1), and provide two tools that further explicate and support its uses.  You can download all three files here –

Download TR1908-1_EMABderivation

Download EMABworksheet

Download ProposalRiskAnalysis2

The following scenario illustrates but one of the many uses of EMAB, and assumes that the reader is generally familiar with the MAB distribution.

Suppose you head up an engineering company contemplating responding to an RFP, and want to know the financial risk in doing the job were you to win the contract.  The work will be done and billed on a ‘cost plus’ (cost plus fixed fee) basis.  There will be four separate deliverables D1, D2, D3, D4 that are to be produced in sequence – each succeeding deliverable must be tested with those previously completed.  Due to job particulars, the fee percentages F_i on related costs C_i of each Di (i = 1, … ,4) will be negotiated individually.  The customer also states that the entire project must be completed within a time interval T_C = 60 weeks of contract start date, and that 1% of the total contract price will be subtracted for every week late of all deliverables.

Consciousness and uploading your mind

George Rebane

[This is the addended transcript of my regular KVMR commentary broadcast on 4 December 2019.]

OK, let’s try something different this week.  This being the Christmas season and all, it’s time to think about our souls and eternal life.  Well, on second thought, maybe we should back off on all that divisive spiritual stuff, and just take the secular humanist look at immortality which, since the sci-fi novels of the 1950s, has focused on ‘uploading’ the contents of your brain into some super-computer, or a phantasmagorical robot, or cyborg which then in principle can live forever.

On Smaller Governments and Corporations

"The skill of making and maintaining Commonwealths, consisteth in certain rules as doth Arithmetic and Geometry",  John Hobbes in the Leviathan.

George Rebane

Time to review some important tenets of my credo as they impact Rebane Doctrine’s prescriptions for the size and complexity of good governments, good businesses, and good organizations in general.  I do this so that I can reference it for the intelligent reader when the inevitable questions of governance and corporatism come up in these pages.  For the longtime reader of RR, there is really nothing new revealed in the sequel by this retired systems scientist and registered professional engineer in control systems.  However, it is the correct way of looking at the realworld, one that really works and has provided us the QoL we all enjoy.

I make this attempt at pedagogy to both educate and illustrate our unfortunate uneducables, many of whom are in positions of power.  Since RR is a socio-political blog, we shall see here the tragic error that underlies and makes dysfunctional all collectivist ideologies, especially in their approaches to governance.  We will then see the spectrum of responses that illustrate this.

The above diagram is a summary of how closed-loop, controlled systems work.  Stay with me.  The system to be controlled in a desired way is called the ‘Plant’, and the subsystem that wants the Plant to work in a certain way is called the ‘Controller’.  The Plant can be anything from a rocket heading for Mars to a Medicare for All program.  The purpose of building/developing the Plant is so that it can beneficially impact certain aspects of the ‘environment’ in which it is to operate – interplanetary space, a population requiring healthcare, a temperature regulated house.  The environment, of course, in return impacts the Plant, its operation, and sometimes even its structure.

To read the rest of this little missive, please Download Smaller Governments and Corporations

Toward our transhuman future

George Rebane

Elon ‘I’ll try anything new’ Musk just announced a new development in brain-computer communications that was made at Neuralink, his recent investment in man-machine symbiosis.  Yes, it will take a while before we can command Alexa or Siri with our thoughts and have the results delivered as directly perceived knowledge/data.  But Neuralink’s approach (shown below) is the first that will connect 1000+ wire threads directly to neurons in your brainbone and record the time-series signal of their activity (i.e. firings).  Algos will be developed to decode those firing patterns into something understandable, and a computer connected to anything from prosthetics to the Internet will do the rest. (more here and here)

A handful of other companies are working on similar interface technologies, and Musk blowing his trumpet is guaranteed to have the others put their pedals to the metal.  In these pre-Singularity years it is the significant baby steps like this that tend to set off an avalanche of development.  For years we have talked about the Singularity and the requirement for H. Sapiens to climb aboard once that event occurs (as shown in the figure).  That climbing aboard the transhuman express will be made much more facile if we have some of the required tools developed and already in use.  Congratulations to the Neuralink team and Elon Musk.

Berkeley SETI Research Center visit

‘Any sufficiently advanced civilization will have capabilities that seem like magic to us.’ A.C. Clarke.

‘Where are they?’  Enrico Fermi

George Rebane

“The Breakthrough Listen Initiative is a ten-year program that represents humanity’s most significant effort to date to quantify the distribution of advanced life in the Universe.  Listen uses the world’s most powerful observing facilities (including the Green Bank Telescope – the largest steerable radio telescope in the world) to search for signatures of technology.  Additional Listen facilities include the 64-meter Parkes dish in Australia, and the Automated Planet Finder telescope in California. …”

Launched with $100M budget from a private donor, Breakthrough Listen (BL) at the UC Berkeley’s SETI Research Center (BSRC) has become the new “800-pound gorilla” in the community of organizations searching for extra-terrestrial intelligence.  The program is directed by Dr Andrew Siemion, and the center is ensconced in the university’s School of Astronomy (Campbell Hall).  BL is staffed by about twelve post-doc researchers and engineers, and doubles its staff with student interns and paid associates from all over the country.  The community’s former lead organization is the SETI Institute located in San Jose that operates the Hat Creek Radio Telescope (described elsewhere on RR).  Other SETI research organizations are located at UCLA and around the globe.  All of them vie for time on the growing number of huge radio telescopes in various countries.

RR readers are familiar with my lifelong interest in cosmology, AI, Singularity, and the evolution of intelligence.  The discovery of ETI will shake our human civilization to its roots, and contact with such an advanced civilization will definitely set the course for our future or terminate it.  So you can see the importance of answering Fermi’s plaintive query.  Most of us students of ETI ‘know’ they are out there or already among us.  My own focus in this research was summarized in ‘A copernican answers Fermi’.  (However, there are still some significant doubters like Nick Bostrom of Oxford University’s Future of Humanity Institute who explains here his hope that SETI will find nothing.)

I explain my own cosmology in the referenced copernican answer.  It dovetails somewhat with the school that holds ETI to be highly probable, however, I have some differences - specifically, that a specie’s bio-intelligence is the initial yet brief phase in the evolution of its civilization.  This dictates that such civilizations have a unique constraint imposed on their detectable electro-magnetic (EM) transmissions – these EM transmissions will last at most two or three of our centuries and then ‘blink out’.  This is a crucial argument which, when analyzed quantitatively with the latest data on exoplanets, produces a remarkable conclusion.  Intelligent life in our galaxy (hence in the Universe) is abundant, yet very hard to detect with searches of the sky for EM ‘techno signatures’.  Therefore, I foster alternative approaches be attempted to discover and contact ETI.

So I sent a copy of ‘A copernican answers Fermi’ to Dr Siemion at the BSRC, and much to my surprise I received an answer within a couple of hours inviting me to visit him, have a tour of the research center, and have lunch to further discuss my ideas.  He also sent me a copy of ‘Area Coverage of Expanding ET Signals in the Galaxy: SETI and Drake’s N’ by Claudio Grimaldi, et al – a group of Swiss and American astronomers that includes the well-known Frank Drake.  Coincidentally, the paper was published about the same time last year as my own research along the same lines.

The interesting difference between my paper and Grimaldi’s is that his analysis indicates that Earth should now be bathed by EM transmissions from millions of ETIs in our galaxy, and my analysis shows why we are most likely NOT able to see any such transmissions from the same millions of intelligent civilizations living in the Milky Way.  In short, I answered Fermi, and Grimaldi instead increased the conundrum to a new level – why then are we not able to see the millions of ETI transmissions washing over Earth?  (BTW, consider the above 'Mercator projection' graphic showing the galactic plane and exoplanet locations, and an archive of over 4,000 recently discovered exoplanets that NASA just released – here.)

When will the bull run end?

George Rebane

We are now in the longest bull run in the history of America’s security markets. The nearby figure filched from the 15jun19 WSJ provides some perspective.

The question on everyone’s lips is when will this bull run end. As readers know, I’m a semi-retired successful entrepreneur and capitalist who has managed his own securities portfolio for decades, has recently focused on financial engineering, and still enjoys inventing and coming up with new squigglies in that field. One of my recent contributions has been the extension of Gott’s theory that probabilistically treats the future termination of minimally known processes. This extension was described here in – ‘…, and this too shall pass’ - on 10 November 2014.

Well, it turns out that stock market bull runs are exactly the kinds of minimally known processes that succumb to the expanded R-G theory – all we reliably know about the bull market is its current age. So we can now ask more interesting questions such as, ‘What is the probability that the bull market will end in any future quarter (three-month period) starting now?’

The answer to that question is shown below for the next couple of years.  The blue dots/line indicate the diminishing probabilities that the bull will end in the quarter starting then, and the red dots/line indicate the growing probability that the bull will end sometime between now and the date shown.  (click on figure to enlarge)

Should there be more astute investors reading this, a natural extension of the above question is ‘How can we update such a probability when later we get some new information that bears on the markets?’ The good news is that this question can also be answered by using a form of the Bayes formula in which the then computed R-G probability serves as the ‘Bayesian prior’ from which to calculate the new (posterior) probability of the process about which we now know more than its age. The Bayes formula (described here) should be used thereafter as more pieces of relevant information are obtained. Fun stuff if you’re a bettin’ man (or woman).

Is Nevada County’s Broadband Leadership AWOL?

Russ Steele

How embarrassing to have a nationally known industry observers conclude that political leadership in your community is an allusive mirage when it comes to building out critical broadband infrastructure.  And, then publishing the details in a well-received book. 

First, these leaders do not seem to grasp the economics of having robust broadband (BB). They do not consider high-speed Internet as one of the essential infrastructure utilities such as water, power, sewer, and transportation. Broadband has gone from nice to have to must-have status. Local leaders still think broadband is nice to have-not critical economic infrastructure. 

Yes, Nevada County’s Supervisors and City Council Members supported Spiral at the CPUC meetings, but only after a significant bit of cajoling by local BB entrepreneur John Paul and some encouragement from SEDCorp's Brent Smith.  As reported here previously, Susan Crawford, an independent observer, did not find much evidence of strong community leadership:

"Laissez-faire is not working for rural America, particularly in areas like Nevada City/Grass Valley where the local authorities are uninterested in intervening to ensure that their people have communications capacity."

". . .one of the key reasons that both Greensboro and Grass Valley/Nevada City are making such slow progress toward any flavor of publicly oriented Fiber is that there is no prominent public leader willing to stand behind it."

Nevada County, the Black Hole of Broadband (updated 9jun19)

George Rebane

[This is the addended transcript of my regular KVMR commentary broadcast on 29 May 2019.  A slightly edited version of this piece was published in The Union's 1jun19 print edition and also online here.]

Broadband connectivity to the internet is fundamental to the economic growth of every community in America.  And it is doubly critical for the economic development, if not survival, of small rural communities off the beaten path like Nevada County.  However, that truth has yet to be embraced by our local governments.  In fact, there are many of us who adamantly oppose the availability of broadband in these foothills for the simple reason that they are opposed to everything that promotes growth in our county, be it in housing, new or expanding businesses, or anything that invites more working families to locate here.

Scattershots – 6may19 (updated 9may19)

It is the ultimate fantasy that we can live our lives, or at any rate live them in peace and contentment with each other, without ever having to share a common reality. - James Bowman

George Rebane

An example of fake news.  Apple News is a very comprehensive news website for Mac, iPad, and iPhone users, one that allows you to customize with your interests, and then augments the format with your viewing history – in short, it snoops in your user sessions.  Recently it included a piece from the National Geographic reporting on the military marine mammal programs of Russia and US (here).  I was a bit astounded that almost everything they reported on the US program was either false or grossly misleading.  Full disclosure – I and my company spent years supporting the US Navy’s marine mammal (and other animal) R&D programs as their analytical support team doing the heavy lifting in the math, data analysis, and systems design work.

The 6may19 Union’s op-ed has two pieces from our favorite leftwing columnists, Dr Milan Vodicka (search RR) and, of course, Mr George Boardman.  Dr Vodicka delivered one of his trademark muddled sermons on the joys of socialism (not posted yet).  There he attempted to augment Bertand Russell’s three factors motivating human behavior with a fractured taxonomy that makes absolutely no sense to the careful reader, and then went on to celebrate the free nationalized healthcare systems found in EU countries.  In the latter, he drinks the kool-aid by the gallon, and evinces no understanding of the realities that obtain.  Mr Boardman presents a good critique of the Republican California Senate candidates Assemblymen Dahle and Kiley, and then blows a tire describing the Democrat Audrey Denny attempting unseat Congressman LaMalfa (here).  Without so much as a smidgen of qualification or sourcing, he tells the reader that the Green New Deal is “a sweeping national plan to zero-out emissions and provide clean energy and infrastructure jobs to millions.”  Apparently, our columnist continues to have trouble distinguishing between objectives and plans, and reports the GND as actually being a plan.  Regardless, objectives or plans, It has a snowball’s chance in hell of accomplishing anything touted.

[7may19 update]  Spying v. Surveillance.  I don’t know why this is so difficult for the media talking heads to resolve (those on FN, not the lamestream whose agenda is known).  A nation’s law enforcement agency does surveillance (on an individual, group, organization) when the target of such intelligence gathering involves a domestic issue/parties that does NOT involve the presumed culpability of a foreign government.  That same agency conducts a spying operation when it seeks to gather intelligence on a matter that does involve a foreign government.  To infiltrate a domestic gang, you send in an 'undercover agent'; to surveil or infiltrate foreign government operations, you employ/send in 'spies'. That is the way we have successfully defined spying v. surveillance for generations.  Since Obama’s FBI et al were convinced from the gitgo that Team Trump was in cahoots with Russia, their surreptitious intelligence gathering efforts were clearly spying.

[8may19 update]  Upcoming tariffs increase on Chinese goods this Friday (10may19) is supposed to be in retaliation for the Chinese reneging on parts of the two countries’ established trade agreements and/or the progress made in the current negotiations.  And there’s a big debate on whether President Trump is doing the right thing with this retaliation.  The debate would be moot if the administration just published the details of China’s renege.  I don’t know why the big secret in not putting it out for all to see and judge for themselves as to the relative magnitudes of the offense vs the response.  Everyone involved in such negotiations around the world already knows what has gone down; the only ones ignorant who will be affected by it all are the people of China and America.  I can understand the communists keeping their people in the dark (it’s their nature), but I can’t see why our government also keeps us in the dark.

AG Barr will be held in contempt of a Democrat House, and that is again denigrating the intelligence of their own constituents – why?  Simply because they can.  They know that in the aggregate, Democrat voters have little or no idea how our government works or what the laws are, and they overwhelmingly consume media outlets that cynically keep them in the dark.  The rest of us know that AG Barr is under no legal imperative to release any of the Mueller report to anyone, or to even reveal its main contents/conclusions – why?  Because the special prosecutor came up with nothing with which to prosecute anyone.  (He diddled away the people’s money on a self-serving sideshow nailing individuals on process crimes, people who had nothing to do with his commissioned charter, and then wrote the best anti-Trump political blueprint that he could.)  Now scumbag Nadler is going to up it a notch and hold Barr in contempt for not releasing information that is against the law for him to release - please reread this.  And none of it has anything to do with Congress’ oversight function for legislative purposes.  Moreover, the whole thing is a total bag of bullcrap that Democrats are dealing out to their know-nothings as part and parcel of the Big Lie – i.e. anything it will take to defeat Trump in 2020.

[9may19 update] Well boys and girls, your humble host has now visited a genuine, legal pot shop.  A good friend (known to you all) with whom I often take lunch, took me on a tour of the Elevation 2477 cannabis dispensary in Nevada City.  The experience was quite remarkable.  We entered into an immaculate reception area at the end of which sat a uniformed security officer behind (bulletproof?) glass.  The room contained a nice couch and an abstract painting presumably abstracting some visions customers may enjoy after imbibing of the establishment’s offerings.  We were invited to the window to place our driver’s licenses against the glass to be scanned, and I being a newbie, was instructed to fill in a store “membership application”, studying the store’s rules, and then putting my John Hancock declaring that I understood everything.  My friend was already a member, so my joining up allowed us both to be ushered into the inner sanctum housing the stash.

The store itself was immaculately laid out with neat glass-cased counters displaying all the desiderata in various forms and at various concentrations of THC and CBD.  For the cognoscenti, this was no doubt a very inviting display as evinced by the palaver carried on between other customers and clerks, all of whom were very knowledgeable of both their products and the applicable legalese.  After getting some answers to my questions, my friend made a very modest purchase of probably their most benign SKU, and we made our way to the exit.  Then I noticed that the store’s walls each had a magnificent abstract painting cum mural on it, replicating their foyer and no doubt reinforcing visually the promises made by the cleverly named substances and concoctions.  As we left the premises, it occurred to me that I am now marked for life.

The American AI Initiative & herding cats

George Rebane

[This is the addended transcript of my regular KVMR commentary broadcast on 13 February 2019.]

The entire field of artificial or machine intelligence (AI) seems to be more misunderstood by the day, and not only on Main Street, but also in the highest levels of government.  President Trump recently signed an executive order to launch the American AI Initiative.  The purpose of this whatever it is, is to “focus federal government resources to develop AI” in order to “increase our prosperity, enhance our national and economic security, and improve quality of life for the American people.”

Deciding with Minimally Known Processes

George Rebane

[Trigger warning - this post is primarily for our technically oriented readers.]

We encounter ongoing minimally known processes (MKPs) continually in our daily round, and we often need to make decisions based on the likelihood of their terminating during a specific future time interval, or surviving it.  Yet few are aware of this perspective of the daily round, and fewer yet know how to obtain quantitative information from such processes, information that is important for decisions in such fields as finance, medicine, environmental risk, and other areas of science and technology.

The ongoing MKPs considered here are 1) a process about which we know only its age, or when the process started (label these MKPA); and 2) a process about which we know only its lifetime, or the length of time before such a process terminates (label these MKPL).  Both kinds of such observed and observable processes are of interest in that we want to know the probability the process will end during or survive through a specified future time interval.  A simple example of a MKPA is, say, a spring which started flowing five years ago, and today we want to know how likely it is stop sometime during the next nine months (or its complement, how likely is it to continue through the next nine months).  An example of a MKPL query is, given that such an ongoing process is known to last ten days, what is the probability that it will end or continue through the next 90 minutes.

The answers to such and even more complex questions can be calculated quickly through the use of formulas whose development is based on an ingenious application of the Copernican Principle first demonstrated on an MKPA problem by physicist J Richard Gott in 1993.  For reasons unknown, his work was discussed briefly and then quietly laid to rest.  My own involvement began with its serendipitous discover while researching approaches to solving another problem.  Since then, I have reformulated Gott’s work to expand and obviate its applicability, and expanded it to the class of MKPLs.  An interesting use of MKPLs is in allocating resources in the observation of periodic processes about which we only know their periodicity.

I have found these results useful in my own analysis of securities’ performance, and in making of healthcare decisions.  A little thinking on what processes qualify with the Copernican approach to minimally known (understood) processes continues to yield new uses.  As an important footnote to the application of this theory is in Bayesian decision making that require a reasonable prior probability to kick off the calculations as new evidence comes in.

We looked at MKPAs in a previous RR post here.  To update the elements of this theory and its resultant formulas, I have written a short technical note which you can download here - Download TN1902-1_lifetimeMKP , the progenitor of which you can download here - Download TN0708-1_GottExtensionConfirmation190120A .

Scoping Your Rifle

George Rebane

OK boys and girls, time to take a break from our usual work of solving the world’s socio-political problems.  Today we’re going to look at a new and, hopefully, better method for scoping your rifle.  I am a lifelong shooter and also a military and NRA trained range safety officer (RSO).  As a longtime member of our local Sportsmen shooting club (rifle, pistol, trap, archery), I do my required club work hours serving several times a year as the rifle/pistol RSO on Sunday afternoons when the club opens its outdoor range to the public.

You shooters can imagine the stories I have stored up over the years helping (the mostly inexperienced) shooters and keeping them from accidentally killing someone.  Well, one of the tasks I’m frequently asked to help with is scoping the rifle of a guest or member who is not quite clear on the concept.  To scope a rifle means to align the scope with the rifle’s barrel so that a shotgroup’s centroid is close to the center of the bullseye at a given range (say, 100 yds) when shot with the scope’s crosshairs, or point of aim (POA), centered on the bullseye.

Calling Global Warming a Hoax can be Confusing!

[Russ Steele is a regular contributor and commenter in these pages.  He hosts Sierra Foothills Commentary, a blog that focuses on the ongoing debate about the science behind the highly politicized ‘climate change’ issue.  RR invites submitted bylines from various viewpoints on a wide spectrum of issues.  gjr]

By Russ Steele

Let’s be clear, climate change is not a hoax, the climate on this planet has demonstrated a wide range of variability over millions of years and continues to vary year to year, as the oceans warm and cool, orbits around the sun change, and the sun’s output varies.  No hoax, it is real.

So why would President Trump call global warming a hoax?  Perhaps, because there was a hoax played on the American people by a group of climate scientists as to the cause of current climate variations, claiming it was human generated CO2.

Red Pill America has the hoax story, in Episode 7, a podcast by Patrick Courrielche who has done an excellent job of telling the story in a way that all can understand. Even global warmers can follow and understand the story, and the basis for the hoax label. That is if they listen.

Listen to the Podcast HERE.  The Transcript is HERE.

As a friend of Anthony Watts and close follower of Steve McIntyre, I was an observer to the events described in this podcast. It was Steve McIntyre who got me started learning the R programming language, as I studied his Hockey Stick analysis software. I later used some of his R code in my temperature plotting programs. I am now using Python.

Listen to the biggest science heist in history and you will understand the hoax.

Scattershots – 22nov18 (updated 26nov18)

George Rebane

Forcible female mutilation is again legal in America.  “A federal judge on Tuesday ruled that the U.S. law banning female genital mutilation was unconstitutional and dismissed charges against several doctors in Michigan who carried out the procedure on underage girls as part Muslim sect’s religious practice. … U.S. District Judge Bernard Friedman ruled that Congress had no authority to enact a law that criminalizes female genital mutilation (FGM). “As despicable as [FGM] may be… [Congress] overstepped its bounds” by banning the procedure, the judge said.” (more here)

Two things – imagine, if let stand, the precedence this ruling sets for all kinds of primitive practices if they are claimed in the name of this or that religious practice (and focus on the ‘forcible’ part); also, did anyone notice that it was FN that broke this news, while it was totally eschewed by the likes of lamestream’s MSNBC, CNN, ABC, CBS, NBC, … .  Begrudgingly, 24 hrs late, leftwing outlets such the NYT started reporting on it.  But the news doesn’t fit the Left’s pro-Muslim narrative even though they should all be enraged at the anti-woman implications of this barbarous practice.  It’s tough making such choices when you have a dysfunctional ideology that you must then promote with an incoherent narrative.

Women in world class chess are not very prominent.  Today the unequal and asymmetric roles of women are much in the news and an entire politically correct protocol has emerged about how we should think about women viz men, and how we should speak about such things.  The ongoing world chess championship match between reigning champion Magnus Carlsen and challenger Fabiano Caruana (here) is renewing interest in the questions of ‘where are the women, and why aren’t they represented in such matches?’  Well, there are all kinds of answers.  An interesting one is presented by Alisha Mathewson-Grand who argues (here) that women’s chess needs more coverage than current interest warrants, and that they are not as good as men because an insufficient number of them play the game to create enough right-tail outliers in the game’s skill distribution (admittedly tech talk).  My view is that instead of creating some artificial demand for women chess players, women should just play the men in normal tournaments and beat them to generate broader female interest in the game.  Overall, I think this gender stuff in chess is a non-issue, a nothing-burger if you will.  (I wonder how a transgender woman champion will be viewed by the politically correct population.)

Man vs Machine.  My real interest in human championship chess actually resides in a new class of interests for me.  How should we humans think of continuing to compete in activities in which our abilities are clearly outclassed by machines.  Ever since Kasparov was beaten by IBM’s Deep Blue in 1997, the best chess players on this planet are no longer humans.  Continuing matches like the current Carlsen/Carauna contest are strictly Junior Varsity.  No human chess master today would take the time and make the effort to be publicly humiliated by a better chess-playing machine.  The same dethronement happened recently in the even more complex game of Go.  It all reminds us again of the lore of John Henry, the steel-drivin’ man (here and here), that introduced America to the notion early in the industrial age that bit by piece man would be bettered by machines as time went on.  Is our (waning?) interest in human world chess championships a harbinger of how pre-Singularity humans will continue to compliment themselves in various endeavors in which they have been bettered?  And will they persist in these self-adulatory activities as the daily advance of technology outdoes them in skill after skill that require advanced cognition, sensing, dexterity, speed, and strength?  Can we also start augmenting our own bodies in these pre-Singularity years (jumping the gun in becoming trans-humans) with advanced embedded processing, memory, connectivity, prosthetics for sensing, mobility, and manipulanda, …?

Border security and judicial bias political?  That's what the media claims that President Trump brought up politics in his Thanksgiving calls to our troops.  First, I don't think so.  Border security is a non-partisan issue that the anti-American Left has made political in its opposition.  Judicial bias in the US is blatant and unabashed, and it has been so deemed by all sides in their turn.  Chief Justice Roberts spoke out of the wrong end when he created the latest batch of fake news by bloviating that America's judges, once empaneled, are hardworking, unbiased jurists.  Nothing could be further from the truth, else neither side would so readily sacrifice honesty and honor in opposing the other side's picks.  The president was on the mark and correct in pointing these out during his calls; and BTW, he's their CIC and gets to do that all day long if he wants to.  The last thing he should be guided by is the hate-Trump sentiments of his political enemies.

[26nov18 update]  Why Nevada County indeed?  Russ Steele, NC native and RR contributor, writes a letter to The Union in today’s edition that nails the particulars behind that question.  Here it is in its entirety –

Erika Kosina wrote in Digital disruption: Tech, entrepreneurial ecosystem paves way for growth, "All we need to do is connect the dots."

Yes, let's connect the dots, all the dots.

Dot #1: Lack of affordable housing for young families fleeing urban blight. According to Joel Kotkin, millennials with family are looking for single family homes with a safe yard for their children.

Dot #2: Young families with children are looking for communities with quality schools. Nevada County has the Ghidotti Early College High School with a small number of students, but the recent Common Core testing indicates many Nevada County Schools would not make the competitive cut.

Dot #3: The work-at-home population needs to have high-speed internet access, and broadband in Nevada County has some severe limitations.

Dot #4: The target populations are prolific smartphone users and expect robust cell phone coverage, which can be a challenge in Nevada County.

Given the lack of affordable single-family homes with a yard, a high-speed broadband connection, with robust cell phone service, all near top-rated schools, why would a young family choose to move to Nevada County, when there are more competitive options in other states?

Yellowstone Supervolcano about to blow?

George Rebane

[This little interlude will most likely interest very few RR readers, but it has provided me a respite from the political struggles through my continuing love-affair with pushing squigglies.  Truth be told, I do this kind of stuff quite often, and who knows, there's always the off-chance that some reader may show interest.]

As we sat last Saturday morning waiting for the history making Senate confirmation vote on Judge Kavanaugh, I meandered across yet another article on the supervolcano that rumbles under Yellowstone National Park.  Geologists tell us that the volcano has erupted every 600K – 800K years or so with a devastating effect that we in recent decades have come to call a ‘nuclear winter’.  The last one occurred about 640K years ago.  When that magma dome blows again it will put so much dust, dirt, and ash into the earth’s atmosphere as to change the earth’s climate for several years starting with a two- or three-year winter that will kill much of the planet’s vegetation and critters, make agriculture near impossible, and therefore cause the wholesale death of most of us who live here – at least that’s what NASA and a covey of paleo-geologists tell us.

It turns out that modern technology today can provide a very beneficial prophylactic to prevent such an event, and in the process generate a considerable amount of clean geothermal electricity.  Scientists at NASA tell us that it would be possible to cool the molten magma bubble by drilling laterally into its sides, pumping down cold water, and harvesting super-heated steam for electricity generating powerplants on the surface.

The cost of drilling such 10km deep holes comes to almost $3.5B, add another few billion dollars to the budget to put up a powerplant or two, and you could see doing the whole thing for about $10B while lowering or completely eliminating the risk of a big blow-up.  The cost of the electricity generated in this manner comes to about $0.10/kWh – cheap at twice the price.  So why aren’t utilities rushing in there to do just that? (more here and here)

Well, the best anyone can tell is the high business risk of such an undertaking in a national park that is surrounded by high walls of environmental regulations manned by legions of super-zealous, lawyer-ladened, eco-nazis with a paucity of critical thinking skills.  Now this is where government should step in and play the crucial role of paving the way to implement such a humanity-saving insurance policy with a clean energy solution to boot.  But so far no one on either end of Pennsylvania Avenue has made a peep about this.  It can’t be the cost, because the feds lose more than $10B a day with what they drop off their loading docks.  So, for an answer, let’s look at the risk side of this potential earth-shaking catastrophe.

To quantify the downside risk we techies first appeal to what is called probability rate theory that is a well-known tool in areas like search and detection using radars and sonars.  The best estimate of Yellowstone’s catastrophe rate is once every 700K years.  That’s about the average frequency at which the big magma bubble gets close enough to the surface for its outward pressure to blow its top.

The real question we have to answer today is something like ‘what is the probability that Yellowstone blows again in the next 100 years?’  Clearly, if that probability, let’s label it P100, is sufficiently high, we should get busy tout de suite on the drilling and powerplant project described by NASA.  I have no idea what is ‘sufficiently high’ for the congress critters to get something going.  Most certainly if P100 = 0.5, then things in Washington would start happening.  But if P100 = 0.01, then I think we would continue to sleep on it a bit more.  So what is the real value of P100?

Lucky for you dear reader, mom sent me to school to learn how to answer such questions.  So I’ll save you the trouble of reading my brilliant analysis before calculating the answer, and give it to you right off the bat – P100 = 0.000246.  That’s a pretty low number for the next supervolcano eruption to take place sometime in the coming 100 years, and it pretty much explains why people aren’t getting too excited about it in the government or in the energy industry.

Now that doesn’t mean we won’t have one of those smaller eruptions that occur every few 10K years, these will not be civilization enders, but they might screw up our agriculture on the Great Plains for a few years.  Maybe later, if there’s available data, I’ll do some noodling on the chance that a ‘minor’ eruption will happen in the next century.  So the question remains, why are the NASA people getting excited about Yellowstone’s civilization ending volcano?

fMRI in your pocket

George Rebane

A longtime friend, RR reader, and former colleague just made me aware of this latest reason to celebrate capitalism.  The name of the new start-up is Openwater that has invented and is now productizing a whole new medical imaging technology that uses light and sound.  Its introduction into the healthcare markets here and abroad promises to totally revolutionize the ability to deliver timely, continuous, and low-cost healthcare to literally billions around the world, especially those who have never been able to afford or get close to today’s massive imaging equipments such as fMRI and CT scanners.

The technology was invented by the active and successful entrepreneur Dr Mary Lou Jepsen and her team.  Here is the link to more information and to the TED talk on her technology that Dr Jepsen recently gave in Vancouver.  Wow!

Fair Division 101B

George Rebane

In ‘Fair Division 101’ I introduced readers to the field of fair division algorithms and presented a powerful and easy-to-use two-party algorithm derived from the literature which I named FD01.  At the conclusion of that dissertation I offered a method for extending FD01 for use by more than two parties.  The method works but is a bit clunky to apply.  Since then I have developed a slick multi-party version dubbed FD02 which retains the correctness, format, and all the simplicity of FD01.  FD02 is suitable for online implementation, and can be used in adjudicating wills, dissolving partnerships, mergers & acquisitions, and private occasions requiring the fair division of an identified set of assets.  You can download the short paper ( Download TN1808-1_FD02) describing it and the MS Excel™ spreadsheet ( Download FairDivisionAlgo_FD02) that is fun to play with, demonstrates its implementation, and can be modified or used as is in the realworld.  Enjoy.

Sapir-Whorf on the Art of Coding and the Communications Conundrum

George Rebane

In his ‘Code to Joy’ essay (featured in the Jun-Jul 2018 issue of 1843, the Economist’s bi-monthly features magazine), science writer and author Andrew Smith almost discovers Sapir-Whorf.  But not quite, and therein lies a tale.  The man had been writing about computer technology and its impact on our lives for most of his career before he realized that he really didn’t know exactly how software worked, and it was the software that enabled all those wonderful things that most of us now take for granted in our daily round.

So he asked, “Is learning to code in middle age a fool’s errand or a committed act of digital citizenship?”, and started his quest for a programming language which he could learn well enough to code up a simple task.  On his travels through the programming world he interviews important personages and finds a well-known mentor to help him as he inevitably hits the ‘dark night of the soul’ when all gleaned progress and understanding fades into a hopeless morass of imminent defeat.  But with a mini-epiphany here and there along the way, he perseveres and finally celebrates his finished and fully functional Python code snippet.

What Smith’s trail of tears illustrates is another confirmation of the Sapir-Whorf hypothesis cum dictum that a person’s language(s) bound their capacity for thought.  We have visited the ramifications of S-W in these pages before (e.g. here) in the context of languages such as English and mathematics.  The bottom line of it all is that every human being is not capable of thinking all human thoughts; they are limited by the languages they have mastered.  And Smith’s essay is a clear illustration of this, even though he is not able to connect it with S-W.  (He is not alone, almost none of our ‘educators’ have this understanding as they mangle our schools’ curricula and/or teach in our classrooms.)

The ramifications of S-W necessarily extend beyond thought to communications and understanding.  What you cannot think, you cannot communicate, and what is beyond your lexicon, you cannot understand what someone else is trying to tell you.  Cultures with such language deficits have a difficult time making progress since it is hard for them to come together to solve problems and make more complex plans for productive cooperative enterprises.  It has been the expansion of language that has always provided the bases for the advancement of cultures in the sense of securing more resources, insuring their survival, and increasing their quality of life.

Think of what your life would be if you had no concept of nor ability to communicate ‘before/after’,  'future/past', ‘more/less’, ‘harder/easier’, ‘if/then’, numbering/counting things in your environment, expressing the subjunctive, considering counterfactuals (“A counterfactual thought occurs when a person modifies a factual prior event and then assesses the consequences of that change.”), quantifying risk (the notions of likelihood/probability), … .

In the same manner, Smith and others not familiar with the art of coding have no concept of the kinds of primitives that are both necessary and possible in various programming languages.  And therefore, given a problem to solve that involves the manipulation of specific types of data or implementing a user task, they simply have no place to start thinking about how to approach and structure a solution (i.e. to algorize).  Smith runs into this problem without appreciating it when he initially considers which one of the current 1,700+ programming languages he should first learn.  His mentor takes him through such considerations, but without connecting to the larger linguistic landscape of thought and communications taught by Sapir-Whorf.

Today much (almost all?) of our discussion of social issues is also hampered by the various boundaries that exist in the (partially) shared language people use domestically, which, of course, is immensely amplified when translation is required between languages with widely different roots and current capacities for understanding and expressing thought.  The comment streams of blogs (e.g. RR’s) along with countless letters-to-the-editor attest to the so far insurmountable difficulties Americans have in communicating with each other, no matter how sincere are their efforts.

Ruminations – 22may18

George Rebane

America’s students are still struggling as they compete for leadership in the high tech job markets of today and tomorrow with other students arount the world.  A correspondent from the east coast emailed me the following – “The 2015 Program for International Student Assessment tests 15-year old students around the world.. It's administered by the Organization for Economic Cooperation and Development.  The United States placed 24th out of 71 countries in science. It did worse in math, ranking 38th.  The U.S. scored at 470 in math, below the OECD average of 490. That's well below the scores of the top five, all of which are Asian: Singapore at 565, Hong Kong at 548, Macao at 544, Taiwan at 542, and Japan at 532.  China was not included, since only four provinces participated.  In science, the United States scored at 496, above the OECD average of 493. The top five highest scoring countries were Singapore at 556, Japan at 538, Estonia at 534, Taiwan at 532, and Finland at 531.”

Fellow blogger and RR reader Russ Steele has a new blog – Rural Economy and Technology - that focuses on the introduction of technologies into rural economies.  It’s worth reading, especially as it treats the slow introduction of broadband to communities like Nevada County.  (more here)

Still on travel.  Apologies for sparse postings and responses to comments.

Criminal Uses of Drones & AI

George Rebane

It didn’t take long for criminals and terrorists to start using affordable, commercially available drones for surveillance and even weaponized munitions delivery platforms on the battlefield.  Terrorists routinely launch their own eyes in the sky when being attacked by the militaries of countries seeking to destroy them.  In the US drones have already been used by prepared criminals to actively harass the FBI during a hostage situation.  And there’s more to come.

With affordable face recognition AI, authorities are anxious about the launch of assassination drones in built-up areas to search out and then kill a designated human target either with a firearm or explosive.  Drug smugglers are using ever more sophisticated drone platforms to monitor and catalog border security procedures and process so as to pick the proper times and places to bring in the drug payloads.  Smaller deliveries of high value narcotics are already handled by drones from Mexico.

Our military and law enforcement are playing catch up with counter-systems and delays caused first by the usual calcified bureaucratic assessments of ‘oh, they’ll never be able to do that’ to R&D and procurement red tape that doesn’t allow the good guys to invent and test as fast as can the terrorists and criminals.  Of course, all that government can field against the bad guys is the same stuff that they can field against law abiding citizens to keep the rest of us on our mandated straight and ever-narrowing paths.  As someone once said, ‘There is no free lunch.’  And that goes double for advanced technology.  Stand by for ram.  (more here and here)

 

‘Quants’, Kelly, and the RK formula

George Rebane – 19 May 2010 (V5apr18)

[I originally posted this little blurb on some work I had done on the Kelly formula prior to 2010.  Well, after some more noodling and squiggly pushing I found that there was a conflict in the way odds and expected gain/loss were defined which required me to revise what is now the RK formula.  As a result, I took down the 19may10 version and am now replacing it, appropriately edited and modified where required, with the current corrected version which still reflects its original publishing date.]

Contrary to the rumors you’ve been hearing for the last year plus, GeorgeW didn’t cause the Great Recession.  This fiasco had three main progenitors - government idiots, corporate greedies, and some very clever, but not clever enough, Wall Street traders practicing the arcane art and some of the more dubious science of financial engineering.

Scott Patterson has been reporting on things financial for the WSJ, and recently wrote The Quants – How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It (2010) which immediately shot up to the top of the charts and is still there.  I finished Quants before going on travel and was just going to add it to my collection of finance and economic history books.  But then I thought that there might be some little gems of broader interest there.

Patterson goes back to the beginnings of financial engineering in the 1960s, and takes us right up to the fall of 2009, the Great Recession and all.  In fact, the whole purpose of the book is to explicate the role of the quants in fostering the recession.  What’s a quant?  A quant is a person trained in many of the mathematical ideas and toolsets of the system sciences.  A bunch of them came from research universities like MIT, Caltech, UC, … .  They are generally at the PhD level, so they have a demonstrated ability to think out of the box and extend human knowledge.

Now these young graduates were snapped up by various ‘Wall Street investment houses’ and hedge funds.  Their job was to examine the price behavior of all kinds of securities around the world, and then apply their math wizardry to develop automated trading programs to lickety-split execute profitable arbitrage transactions that their algorithms discovered in the massive daily dataflows of the finance and securities industry.  Since I have some knowledge of these high-jinks (actually, I also claim to be a financial engineer), this kind of historical background fascinates me.  And doubly so since the political reverberations of this recession will be with us for a long time to come.

Financial engineering actually began with Modern Portfolio Theory credited mainly to Harry Markowitz and William Sharpe.  They both became Nobelists for their work.  MPT is used to allocate funds among a short list of competing investments like stocks.  Sharpe’s contribution was the Capital Asset Pricing Model or CAPM which introduced the notorious alpha and beta numbers to a stock.  Brilliant and elegant modeling of an investment world that turned out not to exist – well, not to exist quite like their equations required.

Today MPT and CAPM are used primarily by professionals for CYA purposes to manage other people’s money.  If the client’s portfolio blows up, you can always point to the Nobel prizes and claim you did the prudent thing.  And thereby hangs a tale, or should I say ‘tail’?.

Most of the applied financial phrenology is still based on the view that security prices move up and down sort of like a drunkard’s (or random) walk.  If you assume this, you can fit nifty bell curves to the magnitude of price movements, and off you go into the land of stochastics.  Stochastics is a fancy word for random processes that depend on other random processes.  The problem with the random walk model is that it doesn’t predict big catastrophic price swings very well – practically not at all.

(To continue reading, please Download Quants2_2018)