Michael C. Jensen, RIP

by  Tyler Cowen in

Not only was he a major figure in both financial economics and industrial organization, but he did things too:

First, early on Mike decided that the Journal of Finance needed competition to drag it into the era of scientific research. Despite a chockful personal research agenda, Mike started the Journal of Financial Economics that he edited for 20+ years. After its 1974 debut, the JFE quickly became the top journal in finance, and it had the desired effect of upping the game of the JF.

Second, Mike’s foresight was unmatched. With the arrival of the internet, he predicted it would become the conduit for the distribution of new research. He launched SSRN (Social Science Research Network), supported it financially, and guided it for many years, never doubting it would succeed. His unfailing faith was eventually vindicated.

Here is the full tribute from Gene Fama.

Economist Jonathan Levin is the new president of Stanford

by  Tyler Cowen in

Stanford alum, business school dean Jonathan Levin named Stanford president

Thursday more assorted links

by  Tyler Cowen

1. Percentage of women in C-Suite jobs is now declining in the U.S.

2. Short piece by my colleague Dan Klein on misinformation (WSJ).

3. A thread on new minimum wage results, noting that Dube has a response in there as well.  Paper here.

4. Can GPT-4 talk people out of conspiracy theories?  Maybe.

5. Mobile money for bitcoin, for Africa, and not requiring internet connections.

6. Peter Singer Substack.

7. Suno playlist on Spotify.

LLMs vs. ARMA-GARCH

by  Tyler Cowen in

The LLMs basically win:

This paper presents a novel study on harnessing Large Language Models’ (LLMs) outstanding knowledge and reasoning abilities for explainable financial time series forecasting. The application of machine learning models to financial time series comes with several challenges, including the difficulty in cross-sequence reasoning and inference, the hurdle of incorporating multi-modal signals from historical news, financial knowledge graphs, etc., and the issue of interpreting and explaining the model results. In this paper, we focus on NASDAQ-100 stocks, making use of publicly accessible historical stock price data, company metadata, and historical economic/financial news. We conduct experiments to illustrate the potential of LLMs in offering a unified solution to the aforementioned challenges. Our experiments include trying zero-shot/fewshot inference with GPT-4 and instruction-based fine-tuning with a public LLM model Open LLaMA. We demonstrate our approach outperforms a few baselines, including the widely applied classic ARMA-GARCH model and a gradient-boosting tree model. Through the performance comparison results and a few examples, we find LLMs can make a well-thought decision by reasoning over information from both textual news and price time series and extracting insights, leveraging cross-sequence information, and utilizing the inherent knowledge embedded within the LLM. Additionally, we show that a publicly available LLM such as Open-LLaMA, after fine-tuning, can comprehend the instruction to generate explainable forecasts and achieve reasonable performance, albeit relatively inferior in comparison to GPT-4.

This kind of work is in its infancy of course.  Nonetheless these are intriguing results, here is the paper.  Via an MR reader.

My contentious Conversation with Jonathan Haidt

by  Tyler Cowen in

Here is the transcript, audio, and video.  Here is the episode summary:

But might technological advances and good old human resilience allow kids to adapt more easily than he thinks?

Jonathan joined Tyler to discuss this question and more, including whether left-wingers or right-wingers make for better parents, the wisest person Jonathan has interacted with, psychological traits as a source of identitarianism, whether AI will solve the screen time problem, why school closures didn’t seem to affect the well-being of young people, whether the mood shift since 2012 is not just about social media use, the benefits of the broader internet vs. social media, the four norms to solve the biggest collective action problems with smartphone use, the feasibility of age-gating social media, and more.

It is a very different tone than most CWTs, most of all when we get to social media.  Here is one excerpt:

COWEN: There are two pieces of evidence — when I look at them, they don’t seem to support your story out of sample.

HAIDT: Okay, great. Let’s have it.

COWEN: First, across countries, it’s mostly the Anglosphere and the Nordic countries, which are more or less part of the Anglosphere. Most of the world is immune to this, and smartphones for them seem fine. Why isn’t it just that a negative mood came upon the Anglosphere for reasons we mostly don’t understand, and it didn’t come upon most of the rest of the world? If we’re differentiating my hypothesis from yours, doesn’t that favor my view?

HAIDT: Well, once you look into the connections and the timing, I would say no. I think I see what you’re saying now, but I think your view would say, “Just for some reason we don’t know, things changed around 2012.” Whereas I’m going to say, “Okay, things changed around 2012 in all these countries. We see it in the mental illness rates, especially of the girls.” I’m going to say it’s not just some mood thing. It’s like (a), why is it especially the girls? (b) —

COWEN: They’re more mimetic, right?

HAIDT: Yes, that’s true.

COWEN: Girls are more mimetic in general.

HAIDT: That’s right. That’s part of it. You’re right, that’s part of it. They’re just much more open to connection. They’re more influenced. They’re more subject to contagion. That is a big part of it, you’re right. What Zach Rausch and I have found — he’s my lead researcher at the After Babel Substack. I hope people will sign up. It’s free. We’ve been putting out tons of research. Zach has really tracked down what happened internationally, and I can lay it out.

Now I know the answer. I didn’t know it two months ago. The answer is, within countries, as I said, it’s the people who are conservative and religious who are protected, and the others, the kids get washed out to sea. Psychologically, they feel their life has no meaning. They get more depressed. Zach has looked across countries, and what you find in Europe is that, overall, the kids are getting a little worse off psychologically.

But that hides the fact that in Eastern Europe, which is getting more religious, the kids are actually healthier now than they were 10 years ago, 15 years ago. Whereas in Catholic Europe, they’re a little worse, and in Protestant Europe, they’re much worse.

It doesn’t seem to me like, oh, New Zealand and Iceland were talking to each other, and the kids were sharing memes. It’s rather, everyone in the developed world, even in Eastern Europe, everyone — their kids are on phones, but the penetration, the intensity, was faster in the richest countries, the Anglos and the Scandinavians. That’s where people had the most independence and individualism, which was pretty conducive to happiness before the smartphone. But it now meant that these are the kids who get washed away when you get that rapid conversion to the phone-based childhood around 2012. What’s wrong with that explanation?

COWEN: Old Americans also seem grumpier to me. Maybe that’s cable TV, but it’s not that they’re on their phones all the time. And you know all these studies. If you try to assess what percentage of the variation in happiness of young people is caused by smartphone usage — Sabine Hossenfelder had a recent video on this — those numbers are very, very, very small. That’s another measurement that seems to discriminate in favor of my theory, exogenous mood shifts, rather than your theory. Why not?

Very interesting throughout, recommended.  And do not forget that Jon’s argument is outlined in detail in his new book, titled The Anxious Generation: How the Great Rewiring of Childhood is Causing an Epidemic of Mental Illness.

Thursday assorted links

by  Tyler Cowen

1. Interview with Michael Elowitz on synthetic biology.  Asimov Press again.

2. The brothers who collected Star Trek memorabilia (NYT).  A weird story, believe it or not.

3. The importance of foreign workers for national security.

4. What makes home building so expensive? (cost issues, not NIMBY issues)

5. The growing rate of NBA twins.

6. At what age should you be taught Algebra 2?

Why aren’t Canada and other Anglo nations turning against immigration more?

by  Tyler Cowen in

That is the topic of my latest Bloomberg column.  I cover several points, here is one of them, based on the economic idea of intertemporal substitution:

In this sense, Canada is ahead of much of the rest of the world in seeing the importance of these factors and turning it into actionable policy. It is willing to give up some of its present cultural identity to achieve a brighter cultural and political future.

This trade-off is much better than it looks at first. For one thing, birth rates for native-born citizens may fall further than they have already. If a country wants to preserve its national culture, it may be better off allowing more migration now, when there is still a critical mass of native-born citizens to ease assimilation.

To put the point more generally: Whatever costs there might be to immigration, successful nations will have to deal with them sooner or later. And the sooner they do, the better off they will be. The choice is not so much between more immigration and less immigration, but rather a lot of immigration now or a lot later. This choice will become all the more pressing as the need to fund national retirement programs requires more tax-paying citizens.

And on real estate prices:

One of the most common criticisms of immigrants is that they push up real estate prices. Yet there is a home-grown explanation: Stringent regulations on building make it difficult for the supply of housing to respond when demand increases.

In fact, there is a way immigration can help address this problem. First, immigrants may themselves induce their adopted country to free up its real estate markets. So immigration might increase real estate costs in the short run, but help reduce them in the longer run. Second, immigrants can help lower-tier cities move to the fore. The suburbs of Toronto, for example, have seen much of their growth driven by Asian in-migration, and longer term that will give Canadians more residential (and commercial) options.

These points aside, note that higher real estate prices, to the extent they result from immigrant demands, largely translate into capital gains for homeowners — most of whom are native-born. To be sure, the higher home prices may be bad for many younger Canadians, who may be locked out of housing markets, but eventually many of them will inherit high-valued homes from their parents.

Rrecommended.

Emergent Ventures, 33rd cohort

by  Tyler Cowen in

Alex Bartik and Arpit Gupta, Chicago and NYU, to work on zoning codes, machine learning, and LLMs.

Sasha Przyblski, 16, Ontario, building more durable batteries.

Egzona Marina, Kosovo and MIT, to promote science and neuroscience education in Kovoso.

Aldrich Heinz Alvarez, Manila, travel grant to San Francisco and Singapore, wearables that harness multi-modal AI.

Molly Cantillon, Stanford, for a hacker house at Stanford.

Ayush Tambde, Dublin (Mumbai), physics and wormholes, and to finance a trip to San Francisco.

Candela Francisco, 17, Buenos Aires, to become the world’s greatest woman chess player.

Aabhas Senapati, Harvey Mudd, from Ahmedabad, general career support, and for work on ecosystems.

Erick Li, Mexicali, to visit a social science conference at Harvard.

Lorcan Geraghty, Country Wicklow, Dublin, EirSpace, aerospace for Ireland.

Regan Arntz-Gray, Brooklyn, writing on feminism.

Steven Gong, Waterloo, to make videos on topics related to physics and math.

Dominic Sobhani, Midwest, Columbia University and now Tokyo, Progress Studies-related meet-ups and also personal travel.

Tomas Markey, 17, Ballineen, Cork area, Direct Air Capture Engineering.

Alexander Koch, Germany, Bay Area, robotics and robot learning.

Dylan Iskandar, Stanford, computer science, music, general career support.

Vesuvius Project, Bay Area.

Mark Koyama and Desiree Desierto, for British economic and political history, including in the 17th century.

Grant Getzelman, Bay area, computational wetware.

Naina Kumar, McLean, Virginia, 16, surgery + AR.

Ukraine:

Yanchuk Dmytro, Kyiv, repairing electric station short circuits.

And here is Nabeel’s AI-driven directory of previous EV winners.

The law and economics of permitting

by  Tyler Cowen in

Here is an important new paper by Zachary D. Liscow:

Given the benefits to economic growth and the need to transition to green energy, getting infrastructure built is an urgent issue. I describe what to consider in designing a system of permitting infrastructure. I then review the evidence: in the US, permitting is slow, infrastructure is expensive, and environmental outcomes are not particularly good. I propose a framework for reform with two dimensions: the power of the executive branch to decide and its capacity to plan. After considering reform possibilities, I propose that reforming both dimensions could lead to a possible “green bargain” that benefits efficiency, the environment, and democracy.

Via Heidi Williams.

Incentives matter

by  Tyler Cowen in

(To be clear, I do take the Havana Syndrome allegations seriously, but the broader equilibrium is worth pondering too.)

Tuesday assorted links

by  Tyler Cowen

1. New Zealand’s building boom.

2. Thread on new research on why people hate inflation, by Stefanie Stantcheva.

3. NFTs as part of the art world doing better than many people think.

4. ‘I’m 28. And I’m Scheduled to Die in May.’

5. List of biotech-themed questions.

6. “Headline results: we estimate raising Dogger Bank would cost £97.5bn, but would bring present value benefits of £622bn. Under the government’s standard method of cost-benefit analysis, this project would get a go-ahead, with a cost-benefit ratio of 6.2.”  Link here.

7. Ezra Klein and Ethan Mollick, self-recommending (NYT).

8. AI Mathematical Olympiad Progress Prize.

Cuba Libre

by  Alex Tabarrok

Martin Gurri has a very good, deep-dive on the current situation in Cuba.

The wreckage of the Cuban economy really can’t be exaggerated. The perpetual blackouts are an apt symbol of a country that is headed for the dark ages. For the first time since the revolution, Cuba is begging the United Nations for food aid. Nearly half a million persons have fled the island in despair during the last two years—that’s 4% of the population, the equivalent of more than 12 million Americans. Yet the failure cascade is moving faster than the capacity to emigrate. People feel trapped and hopeless. The volcano is growling. Despite the words we use, national economies never actually implode—but the regimes that exploit and mismanage them often do.

At the same time, the Cuban public has found its voice. That is the second radical transformation of Cuban society. Despite the blackouts and the poor connectivity, large numbers of Cubans are venting online. I have no idea how this happens, but the web in Cuba has turned into an immense chorus of anger and disgust.

Most moving are the expressions of little-known individuals trapped in the catastrophe of a failed utopia, trying to make sense of the nightmare of everyday life. Those unable to flee Cuba today escape to the web. They post on Facebook and X, they exchange links and opinions on WhatsApp, they complain of the dark and the heat and the mosquitos at night, they mock the regime, they pray to God for consolation. “How lucky we Cubans are that we can go to the web!” reads a Facebook post. “That’s the end of the state monopoly over information!” During a blackout, one poster asks, “Where can we protest?” Another answers: “Right here.”

…Amid a volley of emojis, one wag claimed on Facebook that the words of the communist anthem, the “Internationale,” had been written about Cubans: “Arise, wretched of the earth, stand up you slaves without bread …”

Once the jokes and the defiance stop, we are confronted with the awful spectacle of human existence in a state of pure desperation. “Of course I’m unwell with blackouts of 15 hours one day and eight hours the next. I feel dissociated, I’m not well. I think I’m entering into insanity,” a woman wrote. A poster warned: “This can’t continue indefinitely.”

I’ve always said that a simple theory of when communist regimes collapse is when the true believers die and the people at the top are no longer willing or able to kill for ideals. Raul Castro is now 92. It won’t be long.

Gurri has much more on corruption within the regime and how the regime mafiosos are moving foreign currency, which could be used to buy necessary food and supplies, out of the country as quickly as possible.