Similarities to Climate Change computer models are entirelyIf you read Taleb’s book on the Black Swans or whatever it was called, or if (like me) you refused to read it but are pretty sure you know what its basic thesis was, then you know that banks all have to compute something called VaR (Value at Risk). This is a number that supposed to represent something like: “you’re 99% sure this is the most you could lose in the next however-many days”...
And the one thing I can say with confidence about this number is that it is wrong.
Always wrong, every day. The one constant about this calculation – remember, a calculation that a global team of six-figure quants is charged with producing – is that if you dig into the calculations behind the number, truly dug deeply enough, you can always unfailingly find something wrong with it. It may not always be hugely wrong or materially wrong, or there will be various wrongs that kinda cancel each other out, but there will be something undeniably wrong. Whether it’s the inputs or the assumptions or the historical time-series or the way things are simulated or the way asset types are bucketed. Even if you correct some issue that you find today, another one will creep into the calculation tomorrow. And you won’t find all issues.
The point of this preface is that large calculations are hard and in particular large calculations are wrong.
It won’t have escaped your notice that these and more large calculations are all related to political questions to which the political left regularly claims to know The Answers. This is because the left is in thrall to the cult of Smart People. That is, the left is constitutionally unable to imagine a question which cannot be answered by getting together a sufficient number of Smart People and having them work on it. Just have Smart People do the calculation, tell us their answer, and that’s what we should do. And Smart People, at least some of them, do claim to know the answers to the above: the earth will definitely get warmer; we can’t win a war in Iraq or Afghanistan; Social Security is fine; we can lower health care costs using smart medicine; stimulus will increase the number of jobs. And when things go wrong or answers seem to fail – as in the financial crisis, or the oil leak – the left’s answer is always and inevitably: We needed more regulation and intervention. Not enough Smart People were in charge, not enough Smart ideas acted upon. This is why, for example, the fact that the “stimulus” didn’t create jobs will not ever cause them to disbelieve in “stimulus”. It will only strengthen their conviction that more “stimulus” was needed.The corollary, of course, is that the "Smart" people who make these computer models have a lot to lose. If, say, a climate model egregiously oversimplifies complex but important inputs and therefore gets lousy output, the "Smart" climate model developer would be shown to be not so smart. You might think that the climate modelers might refuse to release their source code, to keep people from seeing just how "smart" the modelers really are.
So why are lefties convinced that they're smarter than you and me? Because they hide their work, so that you can't show them that they're not so smart. Pretty "smart", right there.
This is the smartest thing I've read is quite some time.
Borepatch,
ReplyDeleteWhile I'm all the way in agreement with the details, I'm not so down with the broader brush strokes.
The calculations on lift for a wing are as tricky. Nuclear power (and weaponry) are also super-hairy calculations that work. Nasa/Rocketry stuff works that way as well.
So we need an additional explanation as well. Indeterministic, complex statistical calculations. It's not the same kind of thing.
So why are lefties convinced that they're smarter than you and me? Because they hide their work, so that you can't show them that they're not so smart.
ReplyDeleteNot exactly. "They hide their work" is the reason you can't convince modern lefties that they're wrong. Modern lefties are convinced they're smarter than you or me because they're the modern scions of a 160-year-old political movement that was founded by intellectuals, built entirely on the concept that Modern Man could think his way out of virtually any problem ... and helped in no small measure by the fact that they really were smarter than their competition, the old guard hereditary aristocrats.
Unfortunately, the academic left is stuck in the 1850s, just as the union bosses are stuck in the 1880s. Neither of them has any idea how to adjust to the world of 2010.
Aretae, what's interesting is that both of your examples are engineering, where there is rapid feedback as to efficacy. The plane flies, or it doesnt. If it doesn't, it's back to the drawing board.
ReplyDeleteModeling the economy, or the global climate system is another kettle of fish. What we see there is the opposite of engineering; results are suppressed, data is adjusted to fit (err, "value is added" to the data).
I'd go so far as to say that if you truly want to advance our understanding of the climate, the data and models should be Open Source. Over time, you'd find the least worthy parts of the code improved, and additions made for areas that are currently ignored. Yes, the calculations would be hairy, but that's exactly when you need a lot of scrutiny.
My master's thesis required that I form a predictive economic model that could explain the impact of market globalization on biomass of commercially-caught fish. My department head wanted something to sweeten the kool-aid, I think. I ended up spending 6 months in the UK along with 4 months all over the US to collect the raw data. When I was done, my model showed conclusively that the free market economy would be far more successful at conserving fish stocks over the long term than would a multi-layered multi-disciplined regime of enforcement and micro-regulation, so long as economic subsidies and territorial borders remained constant. Basically the KISS rule.
ReplyDeleteAnyhow, my department head went nuts. If he hadn't become a regional NOAA administrator shortly after out meeting, I would have been booted for suggesting that natural resources don't need massive regulation to be managed conservatively. Luckily, for him, anyhow, he went to NOAA, one of those untouchable groups that worship science and groupthink equally. Their philosophy of annually increasing their scale and scope without oversight is frightening. They're giving the IPCC a run for their money.
How did you deal with the problem of "the tragedy of the commons?" How was it resolved in your model?
ReplyDeleteWolfwalker, I'm not sure I follow your question. The models should predict (and retrodict) the climate pretty well if we're to take them at face value. They really don't, at least not very well (thus, all the "adjustments" to the data, the efforts to "hide the decline", and subversion of peer review).
ReplyDeleteTo be sure, the tragedy of the commons is one of the classic arguments for environmental regulations, but that's not really the issue. Rather, it's the argument from self-interest used to exaggerate claims.
Sorry, Borepatch, I should've made clear that my question was directed at Paul, not you. I just don't believe that an unfettered, uncontrolled free market can use a limited resource like fish wisely. We had an uncontrolled fishery once ... well, actually we had a lot of them, but the example that leaped to my mind was the golden age of deep-sea whaling, in which whales were wiped out as a commercially useful resource within about a century and a half. Some species were effectively exterminated; Bowhead and Northern Right whales, among others, will almost certainly never recover from the slaughter. They haven't been actively hunted in a hundred years, yet their populations are not increasing. They still hover on the ragged edge of viability.
ReplyDeleteOne can see similar boom-and-bust patterns in other fisheries -- cod, herring, tuna. Where catches are unregulated, the fishing fleets catch all they can, regardless of notions like sustainable harvests. And they always end by catching so many that what's left is no longer a commercially viable resource.
Wolfwalker, thanks for clarifying. Your example of whaling is good. I'd also propose a counter-example of Maine lobstering, which has a very strong property-rights aspect (fisherman have quasi-legal right to lobster a particular area).
ReplyDeleteThis works very well indeed in Maine, because the lobstermen jealously defend their turf. Combined with limits on size (not-too-small, not-too-large), the Maine lobster stocks are very healthy.
Of course, whales are migratory, which makes property rights difficult. But where it works, it seems it can work well.