Charlie Gibbons - Bookmarks

Susan Haack provides a nice way to think about how we should approach knowledge production in the social sciences. She equates knowledge to a crossword puzzle. A single word, all alone in the grid, is not well-supported (especially if, as most scientific questions likely are, it is a Saturday NY Times). If 35-down is a seven-letter word for "Oceanographers' references," SEAMAPS fits, but we might not be all that confident it is right. But then we look at 46-across, which starts on the M, and we think that MATED could be the right answer for "Like shoes and socks;" we become a bit more sure that SEAMAPS is right. And our faith in MATED grows when we realize that 47-down, which starts on the D, is probably "DOSE," since the clue is "Recommended intake." So DOSE provides warrant for MATED, which in turn warrants SEAMAPS. Once the whole puzzle is filled, we're pretty sure we're right. We could be completely wrong--I've certainly erased entire quadrants of a crossword puzzle before--but the odds are low.
I attended a conference several years ago in which one of the speakers said that if we added up every paper that said "factor x is responsible for y% of the crime drop in the 1990s," we would see that we've explained about 250% of the crime decline. Everyone laughed but thought little of it. But this is a huge problem: the words in the crossword puzzle are not crossing properly. Something, somewhere, is wrong, but by taking a corpuscular view of empirical evidence, we miss it.
but by thinking in terms of refutation, we provide the wrong results in our papers. In an inductionist world, p-values and t-statistics mean very little. What matters are confidence intervals, and these are almost never repoted.

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Greg Mankiw Gets Technical, Arnold Kling | EconLog | Library of Economics and Liberty

Tags: macro, econometrics on 2009-03-09 -All Annotations (1) -About

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Why I Am Not a Conservative by F. A. Hayek

Tags: political, philosophy on 2009-02-08 -All Annotations (16) -About

more fromwww.lewrockwell.com

Conservatism
proper is a legitimate, probably necessary, and certainly widespread
attitude of opposition to drastic change.
Let me now
state what seems to me the decisive objection to any conservatism
which deserves to be called such. It is that by its very nature
it cannot offer an alternative to the direction in which we are
moving. It may succeed by its resistance to current tendencies in
slowing down undesirable developments, but, since it does not indicate
another direction, it cannot prevent their continuance. It has,
for this reason, invariably been the fate of conservatism to be
dragged along a path not of its own choosing. The tug of war between
conservatives and progressives can only affect the speed, not the
direction, of contemporary developments. But, though there is a
need for a "brake on the vehicle of progress,"
There has never been a time when liberal
ideals were fully realized and when liberalism did not look forward
to further improvement of institutions.
In looking forward, they lack the faith
in the spontaneous forces of adjustment which makes the liberal
accept changes without apprehension, even though he does not know
how the necessary adaptations will be brought about.
This fear
of trusting uncontrolled social forces is closely related to two
other characteristics of conservatism: its fondness for authority
and its lack of understanding of economic forces. Since it distrusts
both abstract theories and general principles,[6]
it neither understands those spontaneous forces on which a policy
of freedom relies nor possesses a basis for formulating principles
of policy.
In general, it can probably be
said that the conservative does not object to coercion or arbitrary
power so long as it is used for what he regards as the right purposes.
Since he is
essentially opportunist and lacks principles, his main hope must
be that the wise and the good will rule – not merely by example,
as we all must wish, but by authority given to them and enforced
by them.
What I mean is that
he has no political principles which enable him to work with people
whose moral values differ from his own for a political order in
which both can obey their convictions.
It is for
this reason that to the liberal neither moral nor religious ideals
are proper objects of coercion, while both conservatives and socialists
recognize no such limits. I sometimes feel that the most conspicuous
attribute of liberalism that distinguishes it as much from conservatism
as from socialism is the view that moral beliefs concerning matters
of conduct which do not directly interfere with the protected sphere
of other persons do not justify coercion.
the conservative position rests on the belief that in any
society there are recognizably superior persons whose inherited
standards and values and position ought to be protected and who
should have a greater influence on public affairs than others. The
liberal, of course, does not deny that there are some superior people
– he is not an egalitarian – but he denies that anyone
has authority to decide who these superior people are.
I do not regard majority rule
as an end but merely as a means, or perhaps even as the least evil
of those forms of government from which we have to choose.
Unlike liberalism,
with its fundamental belief in the long-range power of ideas, conservatism
is bound by the stock of ideas inherited at a given time. And since
it does not really believe in the power of argument, its last resort
is generally a claim to superior wisdom, based on some self-arrogated
superior quality.
Though the liberal certainly
does not regard all change as progress, he does regard the advance
of knowledge as one of the chief aims of human effort and expects
from it the gradual solution of such problems and difficulties as
we can hope to solve.
Personally,
I find that the most objectionable feature of the conservative attitude
is its propensity to reject well-substantiated new knowledge because
it dislikes some of the consequences which seem to follow from it
– or, to put it bluntly, its obscurantism. I will not deny
that scientists as much as others are given to fads and fashions
and that we have much reason to be cautious in accepting the conclusions
that they draw from their latest theories. But the reasons for our
reluctance must themselves be rational and must be kept separate
from our regret that the new theories upset our cherished beliefs.
Though quieta
non movere may at times be a wise maxim for the statesman it
cannot satisfy the political philosopher. He may wish policy to
proceed gingerly and not before public opinion is prepared to support
it, but he cannot accept arrangements merely because current opinion
sanctions them. In a world where the chief need is once more, as
it was at the beginning of the nineteenth century, to free the process
of spontaneous growth from the obstacles and encumbrances that human
folly has erected
I doubt
whether there can be such a thing as a conservative political philosophy.
Conservatism may often be a useful practical maxim, but it does
not give us any guiding principles which can influence long-range
developments.

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Trends In Economics: A Calculus of Risk: Scientific American

Tags: finance on 2009-02-08 and saved by 2 people -All Annotations (3) -About

more fromwww.sciam.com

Options represent the right (but not the obligation) to buy or sell stock or some other asset at a given price on or before a certain date. Another major class of derivatives, called forwards and futures, obligates the buyer to purchase an asset at a set price and time. Swaps, yet another type of derivative, allow companies to exchange cash flows—floating-interest- rate for fixed-rate payments, for instance.
Black and Scholes, with Merton’s help, came up with their option-pricing formula by constructing a hypothetical portfolio in which a change of price in a stock was canceled by an offsetting change in the value of options on the stock—a strategy called hedging. Here is a simplified example: A put option would give the owner the right to sell a share of a stock in three months if the stock price is at or below $100. The value of the option might increase by 50 cents when the stock goes down $1 (because the condition under which the option can be used has grown more likely) and decrease by 50 cents when the stock goes up by $1.

To hedge against risks in changes in share price, the investor can buy two options for every share he or she owns; the profit then will counter the loss. Hedging creates a risk-free portfolio, one whose return is the same as that of a treasury bill. As the share price changes over time, the investor must alter the composition of the portfolio—the ratio of the number of shares of stocks to the number of options—to ensure that the holdings remain without risk.
Investors who buy options are basically purchasing volatility—either to speculate on or to protect against market turbulence. The more ups and downs in the market, the more the option is worth. An investor who speculates with a call—an option to buy a stock—can lose only the cost of purchase, called a premium, if the stock fails to reach the price at which the buyer can exercise the right to purchase it. In contrast, if the stock shoots above the exercise price, the potential for profit is unlimited. Similarly, the investor who hedges with options also anticipates rough times ahead and so may buy protection against a drop in the market.