Can a market beat the market?
Marketocracy is a game where investors are given $1 million in virtual money to build a mutual fund, much like fantasy baseball. Currently some 55,000 players manage 65,000 fantasy mutual funds. But at Marketocracy fantasy becomes reality (I ought to be paid for that line) because the sponsoring firm monitors and ranks the performance of all the traders using an algorithm incorporating short and long-term analysis, market sector, risk and so forth. The stock picks of the top 100 portfolios are then used to create a real portfolio of stocks, the M100 (MOFQX). In addition to fame, the players have an incentive to trade carefully because top managers are paid a percentage of the assets in the fund!
Efficient markets theory says that the idea shouldn’t work but it also says that if transactions costs are low (the fund does have relatively low costs) then it shouldn’t hurt either. In fact, the M100 mutual fund has beaten the S&P 500 over the past several years and it has done so at lower risk.
Addendum: My friend Dan Klein recommended this mutual fund to me when it first appeared. I demurred based on efficient market theory and bought Webvan instead. Ugh.
Diogenes
The APA (American Philosophical Association) is looking for stories about how valuable philosophical training has been to people other than professional, full-time philosophers.
Here is the full story. And here is an excerpt from an accompanying letter:
We might also use some of these names later in a fund drive we are now planning.
Good luck is all I can say. If you can think of anyone since Alcibidiades and Alexander the Great, let them know. Queen Christina did study with Rene Descartes, and John Stuart Mill sat in Parliament, but no U.S. example comes to mind. Might philosophy be best suited to advising an autocrat?
Addendum: Astute reader Brock Sides offers the following link to famous philosophy majors. The list includes Woody Allen, Iris Murdoch, David Foster Wallace, Bill Clinton, the Pope, Harrison Ford, Bruce Lee, and Mike Schmidt.
Markets in everything, part II
You can now buy a personalized romance novel, featuring you and your sweetheart:
To get their names in print, customers decide on a book – most companies offer several stories to choose from – then fill out a questionnaire with details such as their love’s hair color and nickname. The information is inserted into the context of pre-fab story and presto, a personalized romance.
Don Fox of Port Saint Lucie, Fla., bought the novel “Treasure Seekers” for his wife last Valentine’s Day and included details such as the type of car he drives and his wife Josephine’s favorite radio station in the text.
“It’s something my wife and I will have forever. It’s unique,” said Fox, 43. “If you get a box of chocolates, it looks just like the box you got before that one. Then you eat it and it’s gone.”
The novels come in “mild” and “wild” versions and the plots take place in various standard romance novel locales such as a dude ranch and the white sand beaches of Tahiti (search). While their text won’t win any Pulitzer Prizes, they offer a quick read and, at $55.95, the books won’t break the bank.
Some people actually like this idea:
“It was an addictive read because it makes you the star,” said Pete Hart, 34, who received a pre-fan novel called “Vampire Kisses” from his girlfriend. “I was referred to as Pedro in the book, which is my nickname. I found that quite charming.”
Another fellow noted:
“It read more like a novel or novelette and less like a typical romance novel,” he said. “I enjoyed reading it. Besides, I was in it.”
So what is next? How about DVD movies with your face superimposed upon that of Tom Cruise?
But our world is not always taking steps forward. Ebay has been moving to take down sales of imaginary girlfriends.
If you are curious, here is part one of “Markets in everything.”
What is the world’s longest direct commercial flight?
The new Los Angeles to Singapore route, eighteen hours, forty minutes, courtesy of Singapore airlines.
Next, not surprisingly, is Singapore to Los Angeles, although it is a full two hours, forty minutes shorter, because of air currents. Then comes New York to Hong Kong, sixteen hours.
Here is an article on how people stand it. Some sleep, some drink, and some argue politics with their seatmates. Airlines are now taking a hand in shaping on-board community. Virgin will be installing in-flight instant messaging on some of its longer flights, to encourage the formation of small discussion groups on the plane.
How about me?: I view any flight (that’s the flight, not the waiting) under six hours as a benefit, not a cost. It is a chance to do sustained reading and thinking without interruption. A ten hour flight remains tolerable if I have enough leg room. I need a stack of good books, some chocolate, and an assortment of cheeses. After ten hours my reading starts to veg out. But even then I would prefer in-flight institutions that tax people who try to communicate with me.
Addendum: Air genius Gary Leff informs me that a forthcoming NY-Singapore route, Singapore Air, will soon become the world’s longest direct flight.
Is “mindsight” a sixth sense?
Some people may be aware that a scene they are looking at has changed without being able to identify what that change is. This could be a newly discovered mode of conscious visual perception, according to the psychologist who discovered it. He has dubbed the phenomenon “mindsight”.
Ronald Rensink, based at the University of British Columbia in Canada, showed 40 people a series of photographic images flickering on a computer screen. Each image was shown for around a quarter of a second and followed by a brief blank grey screen. Sometimes the image would remain the same throughout the trial; in other trials, after a time the initial image would be alternated with a subtly different one.
n trials where the researchers manipulated the image, around a third of the people tested reported feeling that the image had changed before they could identify what the change was. In control trials, the same people were confident that no change had occurred. The response to a change in image and control trials was reliably different.
Our visual system can produce a strong gut feeling that something has changed, Rensink says, even if we cannot visualise that change in our minds and cannot say what was altered or where the alteration occurred.
Here is the full story. The bottom line? Maybe somebody really is following you, and subtly changing small items in your environment.
Is the breast offense a good defense?
A Tennesse woman has sued Janet Jackson, Justin Timberlake, CBS, MTV and Viacom because viewers of the Superbowl half-time show suffered “outrage, anger, embarrassment and serious injury” when they saw Janet Jackson’s right breast. Naturally, this is a class action suit on “behalf of all Americans.” I dunno, I kinda enjoyed it.
Here is another class action that I was dragged into.
Milton Friedman opposes drug reimportation
Read this TCS interview. He also blames the whole mess on the FDA, whose regulations have raised the costs of drug development to about $800 million per drug.
Buddha Brots
I find these Buddha Brots, images based upon the mathematics of Julia sets and reminiscent of an ethereal Buddha, eerily beautiful. Enough perhaps to make one a Platonist. Hat tip to Kottke.
An economist in Baghdad
Chris Foote an economist at the Boston Fed worked in Baghdad last year. His report makes for interesting reading. This was not your usual job for an economist.
Early on, I visit Iraq’s Central Bank, which was also destroyed by looters. Our mission is to check on the Treasure of Nimrud, a collection of ancient Assyrian jewelry that was stored in the bank’s vault for safekeeping in the early 1990s. The bank’s basement was flooded with sewage water during the looting and has only recently been drained. Our group trudges down the unlit, still slimy stairs, careful not to slip. When we reach the bottom, I see that the corner of one of the vault doors has been peeled away, as if by a giant can opener. I am told that during the postwar chaos, someone tried to open this door with a rocket- propelled grenade, incinerating himself in the process. (The lock in the door held.) The deputy head of the Central Bank jiggles a number of keys and opens another door nearby. We are happy to learn that the treasures are intact.
Most of the time, however, he is working 8 am to 11 pm trying to solve economic problems. As economic theory would predict, but many economists would deny, it’s the basic economics that has the most value added.
In many ways, the job is similar to the one I held at the Council of Economic Advisers (CEA) before coming to Iraq. There the economic questions changed from day to day, sometimes from hour to hour. Baghdad is the same. What is the best way to fix Iraq’s currency? How could foreign investment help Iraq? What tariff regime should we recommend? The questions are all over the map, so I draw more from my experience teaching macroeconomics to undergraduates, and less from my own specialized research.
If you could only learn five things…
Yana, who is fourteen, was complaining last night about her math homework, and about calculus in particular. Without much thinking, I responded that if you could only learn five things from schooling, calculus should be one of them. First came an “Ugh.” Then came a question:
“What are the other four?”
Without much thinking, here was my list, in no particular order:
1. Calculus
2. Statistics
3. Programming
4. Shakespeare
5. The Bible
Another Ugh, directed mostly at the first three items. Writing would have been a natural sixth pick, and would not have drawn an ugh either.
Addendum: I’ve already received several emails asking why I chose the Bible rather than microeconomics. I didn’t mean anything sectarian in my choice of the Bible, rather it is a critical foundation of Western civilization and of Western literature. Plato would be next in line. As for microeconomics, knowing it brings huge social benefits but the private benefits are less clear. I love life as an economist, but it is not for everyone.
Protectionism hurts fine dining
My biggest personal complaint with U.S. trade policy concerns non-pasteurized cheese. Read Fred Foldvary:
Few Americans know what really good cheese tastes like, because the U.S. government bans tasty handmade cheese made from untreated milk. The U.S. Food and Drug Administration prohibits the sale of cheese made with raw milk, which has not been aged for 60 days. If the raw-milk cheese is from France, voila, its sale is prohibited in the USA no matter how long it has been aged.
The danger of eating raw-milk cheese is similar to that of eating raw oysters, yet the latter is legal in the US. Those with higher risk of infection, such as pregnant women, should not eat raw-milk cheese, raw oysters and steak, and other foods that can harbor microbes that cause diseases. But Europeans have been eating raw-milk cheeses since ancient times, evidently with little ill effect. European cheese makers are generally careful to keep the milk uncontaminated, which minimizes the risk.
Now I have a new grudge: the ban on Szechuan peppercorns.
Since 1968, the federal government has banned the import of Sichuan peppercorns, which are the dried berries of the prickly ash shrub. The Agriculture Department did not really enforce the ban until two years ago, and its effort is expected to dry up supplies soon. Some chefs and retailers say that they are unable to find the peppercorns, which are often an ingredient of five-spice powder, a common Chinese seasoning. Others say they are selling what was stockpiled before the enforcement effort began.
The details are a bit complicated, but if you can believe the NYT, there is no good reason for the ban other than excessively broad bureaucratic classifications (a related item endangers citrus crops).
You can’t cook Sichuan food without huajiao,” said Wang Dinggeng, the chef at Grand Sichuan International on Second Avenue. “You can’t get that special ma la flavor,” he said of the peppercorns’ numbing (ma) and burning (la) effects.
Tragic, I say, tragic. By the way, if you ever visit my university, make sure you eat at the Szechuan restaurant China Star, in Fairfax, on Rt.236. Get the house specials, before it is too late.
Googling the Great Books
Google is scanning everything pre-1923 in the Stanford Library into its system, read Will Wilkinson. Here’s to hoping that Congress does not extend the term of copyright protection once again.
Are classical recordings disappearing?
Norman Lebrecht recently predicted that the year 2004 would be the last for the classical recording industry. To be sure, the number of new releases is declining and major orchestras are losing their recording contracts, read this New York Times story.
David Hurwitz offers some good points in response. Naxos of course is thriving. Classical music is cheaper than ever before and many of the recordings are excellent. Try my favorite version of the Scriabin piano sonatas, by Bernd Glemser.
Furthermore classical indepedent labels continue to bring innovative new releases to the market:
Over the past decade, and thanks to labels like Naxos, BIS, Hyperion, Ondine, CPO, Harmonia Mundi, Chandos and others, music lovers have learned that the quality of music making today is generally so high that excellence may be found well beyond the cloistered catalogs of the major labels. Their classical divisions are dying because they are no longer necessary: the myth of their uniqueness and monopoly on great performances has been exploded forever. That’s the reality of the classical music recording industry at present. It’s also reason for optimism, not despair, because while the majors may or may not survive depending on their adaptability, excellent music making will continue to thrive and reach the public via the classical recording industry, whatever its actual form.
I’ve found the last year to be wonderful for new releases of Elliott Carter, Helmut Lachenmann, Pierre Boulez, and John Cage. Minority tastes, to be sure, but the slow sellers are usually the first to go if the sector is truly dying.
Here are some off the cuff predictions for the future of the music industry:
1. The lines between classical and other genres, most of all world music, will blur increasingly.
2. The next generation of classical composers will come from Asia, where classical music remains a living art.
3. World music will continue to grow in importance. These artists learned how to live without copyright protection long ago.
4. Given the commercial prominence of the DVD, we can expect soundtrack music to grow in importance and quality.
5. Classical CDs will be custom-made to order, rather than “released,” see the NYT article for more detail.
In sum: The new musical world won’t look much like the old, but I have yet to see convincing reasons for pessimism. I don’t buy so many classical CDs any more, in part because I already have a dozen or more copies of each Beethoven piano sonata, and three copies of Messiaen’s major works for organ. Let’s not confuse “good for the suits” with “good for the consumer.”
More common sense on outsourcing
Computer programmers are a highly paid lot in the United States. Both the U.S. and India would be better off if lower-wage Indians did more of the programming and the U.S. did more innovating. Read here about tech executive Marc Andreesen, who is willing to come out and offer three cheers for outsourcing. Here is my previous post on outsourcing.
Did sexual selection make humans brainy and artistic?
Birds sing to attract mates, so what about humans? Are our jokes, stories, guitar strumming just part of an elaborately programmed mating strategy? We all know how much young girls fall for rock stars. Here are three reviews of Geoffrey Miller’s The Mating Mind. Click here for a good summary and short critique, here for an outright critique, and here for an account of why Miller’s views are not always so popular. Thanks to www.politicaltheory.info for the links.