tag:blogger.com,1999:blog-67937562699574878552024-02-06T19:07:08.066-08:00Odds and MeansA take on prediction and philosophy, cause and consequence.Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-6793756269957487855.post-26511294223475732062013-10-01T17:54:00.001-07:002013-10-01T17:54:03.683-07:00Washington Monument Syndrome (or, 10 Things the Shutdown Spared)<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6leBxGRU5WfWYWpljd2FDxx5Pwtf0VdjOKc4ejpneTLq7ZHbECap_UoxdYrjIX-1F_q42WnWkQA_uWltmsOBRafbYNrKxY3QpWrA2yru4IKy3MJk51_JYaiiQuhUpXLexXKLwmTA9fzk/s1600/politics.png" style="display: none;" />
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<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">It's official: The federal government of the United States has shut down. Well, sort of. </span><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;"><br /></span>
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">You see, despite the media outcry, the partisan banter - and, yes, the 800,000 federal workers who were furloughed today - the federal government largely goes marching forward without a hitch from the perspective of the vast majority of Americans. While the tactics of either political party are debatable, and a less myopic solution is preferable no matter your political persuasion, it's quite clear that the things that are cut when the government shuts down are fewer than one would expect, not to mention rather arbitrary.</span><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;"><br /></span>
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">Or perhaps, these things are not arbitrary. "Washington Monument Syndrome" is a term which describes a phenomenon whereby government agencies faced with cuts will tend to cut the most visible and desirable elements of their programs in attempt to cull public support for restoration of funding. As <a href="http://thelibertarianrepublic.com/government-preparing-spread-washington-monument-syndrome/">this article describes it</a>:</span><br />
<blockquote class="tr_bq">
<span style="font-family: Cambria; font-size: 110%;">"When threatened with even modest cuts, cutthroat administrators can shut down only their departments’ most visible services and then sit back in comfort while they wait for legislators to capitulate. The syndrome has played a crucial role in making our government what it is today: a bloated monstrosity that is physically incapable of consuming less than it did the day before."</span> </blockquote>
<a name='more'></a><span style="background-color: white; font-family: Cambria; font-size: 110%;">How else to explain the non-shutdown "shutdown" of some <a href="http://www.bea.gov/">government</a> <a href="http://www.usda.gov/fundinglapse.htm">websites</a>, which continue to operate (evidently on the same servers, at the same cost) for the purpose of denying would-be users access? How else to explain that <a href="http://www.washingtonpost.com/politics/veterans-benefits-will-be-disrupted-by-extended-shutdown/2013/09/30/7c944ad2-2a0e-11e3-97a3-ff2758228523_story.html">veterans' benefits are on the chopping block</a>, yet <a href="http://www.washingtonpost.com/blogs/federal-eye/wp/2013/10/01/shutdown-q-and-a-federal-retirement-benefits/">federal employee pensions remain untouched</a>? </span><br />
<span style="background-color: white; font-family: Cambria; font-size: 110%;"><br /></span>
<span style="background-color: white; font-family: Cambria; font-size: 110%;">Yet, while much emphasis has been placed on the visible elements which have been shut down, quietly the bulk of the federal government runs on auto-pilot. The following is a partial list of things the federal government was not prevented from doing today, despite supposedly lacking the basic funds to run web servers.</span><br />
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">1. <a href="http://thehill.com/blogs/hillicon-valley/technology/324857-government-shutdown-unlikely-to-curb-nsa-spying">Surveillance of American citizens</a>. "</span><span style="font-family: Cambria; font-size: 110%;">A government shutdown, set for Oct. 1 if lawmakers fail to strike a deal, would be unlikely to impede the National Security Agency's surveillance programs." </span><span style="background-color: white; font-family: Cambria; font-size: 110%;">(Yes, while the government </span><a href="http://news.research.stlouisfed.org/2013/10/some-fred-data-not-updated-due-to-us-federal-government-shutdown/" style="font-family: Cambria; font-size: 110%;">can't update vital economic data</a><span style="background-color: white; font-family: Cambria; font-size: 110%;"> to the St. Louis Fed's website, it can update certain other databases without issue.)</span><br />
<br />
<span style="font-family: Cambria; font-size: 110%;">2. <a href="http://www.justice.gov/jmd/publications/doj-contingency-plan.pdf">Continuing the drug war</a>: "All agents in </span><span style="font-family: Cambria; font-size: 110%;">DEA field organizations are excepted from furlough because they support active </span><span style="font-family: Cambria; font-size: 110%;">counternarcotics investigations."</span><br />
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<span style="font-family: Cambria; font-size: 110%;">3. <a href="http://www.usda.gov/documents/usda-fns-shutdown-plan.pdf">Sending out food stamps</a>: "</span><span style="font-family: Cambria; font-size: 110%;">The authority to make October </span><span style="font-family: Cambria; font-size: 110%;">benefit payments comes from the Recovery Act, through which Congress provided “such sums </span><span style="font-family: Cambria; font-size: 110%;">as are necessary” to finance the SNAP benefit provided for in the Recovery Act." Makes you wonder why they bother making appropriations when such a blanket statement is included that a program can be funded indefinitely, doesn't it?</span><br />
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<span style="font-family: Cambria; font-size: 110%;">4. <a href="http://www.epa.gov/lapse/resources/epa-contingency-plan-2013.pdf">Litigating violations of EPA requirements</a>: "</span><span style="font-family: Cambria; font-size: 110%;">Attorneys engaged in </span><span style="font-family: Cambria; font-size: 110%;">counseling, enforcement, administrative matters, or litigation will be excepted only for the time </span><br />
<span style="font-family: Cambria; font-size: 110%;">necessary to conduct an excepted activity" (Page 7).</span><br />
<span style="font-family: Cambria; font-size: 110%;"><br /></span>
<span style="font-family: Cambria; font-size: 110%;">5. <a href="http://www.fca.gov/home/operatingstatus.html">Financing farm mortgages</a>: "The Farm Credit Administration is the independent Federal agency responsible for regulating and examining the two agricultural Government-sponsored enterprises serving agriculture and rural America, namely the Farm Credit System and the Federal Agricultural Mortgage Corporation (Farmer Mac). </span><span style="font-family: Cambria; font-size: 110%;">FCA operates as a nonappropriated agency with a permanent, readily available, revolving fund. As such, FCA is not reliant on the passage of annual appropriation legislation for its operating expenses or ongoing operations."</span><br />
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<span style="font-family: Cambria; font-size: 110%;">6. <a href="http://www.ftc.gov/ftc/oed/130925ftcshutdownplan.pdf">Enforcing antitrust law</a>: "</span><span style="font-family: Cambria; font-size: 110%;">To the extent that the circumstances of a reported merger or acquisition </span><span style="font-family: Cambria; font-size: 110%;">indicate that a failure by the government to challenge the transaction before it is </span><span style="font-family: Cambria; font-size: 110%;">consummated will result in a substantial impairment of the government’s ability to secure </span><span style="font-family: Cambria; font-size: 110%;">effective relief at a later time, the Commission will continue HSR investigations during </span><span style="font-family: Cambria; font-size: 110%;">the pendency of a shutdown" (Page 5).<br /><br />7. <a href="http://www.treasury.gov/connect/blog/Documents/FY2014%20Shutdown%20Plan_Non-Filing--Final-093013%20Update.pdf">Enforcing IRS regulations</a>: "</span><span style="font-family: Cambria; font-size: 110%;">Category B: Necessary for the Safety of Human Life or Protection of Government Property ... EXAMPLES (Category B): Maintaining criminal law enforcement and undercover operations" (Page 6).</span><br />
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<span style="font-family: Cambria; font-size: 110%;">8. <a href="http://www.commerce.gov/sites/default/files/documents/2013/september/2013_doc_lapse_in_appropriations_plan_9_27.pdf">Forecasting the weather</a>: "In compliance with the restrictions of the Anti-Deficiency Act, the Department of Commerce will maintain the following services and activities </span><span style="font-family: Cambria; font-size: 110%;">during a lapse in FY14 appropriations: </span><span style="font-family: Cambria; font-size: 110%;">Weather, water, and climate observing, prediction, forecast, warning, and support."</span><br />
<span style="font-family: Cambria; font-size: 110%;"><br /></span>
<span style="font-family: Cambria; font-size: 110%;">9. Maintaining trademarks and patents (same link as #8).</span><br />
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<span style="font-family: Cambria; font-size: 110%;">10. <a href="http://www.bbg.gov/wp-content/media/2013/09/BBG-Shutdown-Guidance-Final-FY-2014.pdf">Broadcasting propaganda on four continents and Cuba</a>: "</span><span style="font-family: Cambria; font-size: 110%;">The BBG Office of General Counsel has issued a memorandum establishing that there is a </span><span style="font-family: Cambria; font-size: 110%;">sufficient legal basis for the Board’s determination that United States international broadcasting </span><span style="font-family: Cambria; font-size: 110%;">activities of the BBG qualify as “foreign relations essential to the national security” and are, </span><span style="font-family: Cambria; font-size: 110%;">therefore, excepted activities which may continue during the appropriations lapse. These </span><span style="font-family: Cambria; font-size: 110%;">excepted activities represent the minimum activities necessary to produce and distribute Voice of </span><span style="font-family: Cambria; font-size: 110%;">America (VOA) and Office of Cuba Broadcasting (OCB) programming and to distribute </span><span style="font-family: Cambria; font-size: 110%;">programming of the BBG."</span><br />
<span style="font-family: Cambria; font-size: 110%;">---</span><br />
<span style="font-family: Cambria; font-size: 110%;">With that said: <a href="http://www.whitehouse.gov/sites/default/files/omb/contingencyplans/2013/usoge_shutdown_plan_2013.pdf">All 63 employees</a> of the U.S. Office of Government Ethics were furloughed. Though, based on their track record, we can probably safely assume that these employees are "non-essential."</span></div>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-25109201129216000192013-09-28T10:04:00.003-07:002013-09-28T10:04:39.718-07:00Complex Problems: The Multiplication of Doubt<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-r7nvO9yyLhyM4bkFVzpmR-wXj7wsc8ZkbfZx13kj1qHHFb1kznqNzxhzFcztvXOcTWrryynd0i61LhNCO55pBruH3aTIKViyFoozZ-CVxqiEsjjxnO2bYlZiCfEDnVH9Gnbd1pkkQjg/s1600/philosophy.png" style="display: none;" />
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<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">In my last two posts which build the foundation of my epistemological framework, I have described <a href="http://oddsandmeans.blogspot.com/2013/09/orders-of-complexity.html">how the complexity of problems can be defined</a> through building a hierarchy of constructs and relationships in the order of their complexity. There, I briefly describe the most basic elements with a rudimentary explanation for its complexity ranking as a standalone element. To follow, <a href="http://oddsandmeans.blogspot.com/2013/09/existence-abstraction-and-doubt.html">I described the most basic element, existence</a>, and the general concept of <i>abstraction</i>, which allows us to discuss <i>doubt</i> as a concept which is the abstraction of certainty.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">Let us build on the previous discussion here of the <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-iii.html">nature of knowledge as being inherently probabilistic</a>. Let the certainty of the truth of any given proposition X be represented as Pr(X) in standard statistical notation. Suppose X is some basic proposition with the lowest level of complexity: "The spoon exists," for example, where a spoon is observed on a table in front of you. Having experienced the spoon in front of you, and indeed, currently experiencing it in front of you, you would have supreme confidence in the existence of the spoon. You could not provide a logical proof of the spoon's existence, but you could say that you are as close to absolute certainty in this proposition as one may be; in other words, the limit of Pr(X) approaches 1 in this case. For ease of demonstration, let's suppose Pr(X) = 0.9999.</span><br />
<span style="font-family: Cambria; font-size: 110%;"></span><br />
<a name='more'></a><br />
<span style="font-family: Cambria; font-size: 110%;">Now let us extend this to proposition Y: "The spoon is silver." Proposition Y contains Proposition X as an element (the spoon must exist; in order for it to <i>be silver</i>, it must necessarily <i>be</i>), and also introduces a categorization of the spoon as "silver". This categorization requires that the concept of "silver" is well defined as a category which may describe or contain the object in question. </span><span style="font-family: Cambria; font-size: 110%;">Thus, while Proposition Y does not seem like much of a leap from Proposition X, it entails a certain degree of greater complexity which must be accounted for.</span><br />
<span style="font-family: Cambria; font-size: 110%;"><br /></span>
<span style="font-family: Cambria; font-size: 110%;">Suppose that the concept "silver" is defined with the same strength as the spoon's existence; that is, if we were to define a proposition Z, "Silver exists", then we would have Pr(Z) = Pr(X) = 0.9999. Further, suppose that propositions X and Z are independent. Then Proposition Y, being the union of Proposition X and Proposition Z, would be well-defined statistically as: Pr(Y) = Pr(X </span><span style="font-family: Cambria; font-size: 110%;">∪ Z) = Pr(X) × Pr(Z) = 0.9999 × 0.9999 = 0.99980001.</span><br />
<span style="font-family: Cambria; font-size: 110%;"><br /></span>
<span style="font-family: Cambria; font-size: 110%;">The complexity introduced by incorporating multiple basic elements into Proposition Y, while seemingly insignificant, must necessarily introduce a greater degree of doubt: If each individual element has a certainty less than absolute (1), then any multiplication of two individual elements will result in a number less than either of the individual elements.</span><br />
<span style="font-family: Cambria; font-size: 110%;"><br /></span>
<span style="font-family: Cambria; font-size: 110%;">It should be noted that in this simple example, the basic propositions X and Z are likely much more certain in our minds for the purposes of any decisions we need to make - perhaps as much as 1 - (1 </span><span style="font-family: Cambria; font-size: 110%;">× </span><span style="font-family: Cambria; font-size: 110%;">10e-15) or more. Consider all of the elements that are around you, even in a very safe and controlled environment, that you must account for, which make up the mental framework of your reality. These doubts must multiply quite a bit in order to get to a problem that we find non-trivial in our daily lives; many multiplications of doubt must occur in order to approach even a 1% doubt. </span><br />
<span style="font-family: Cambria; font-size: 110%;"><br /></span>
<span style="font-family: Cambria; font-size: 110%;">Nevertheless, we can seem overwhelmed when information is in great supply, even if the answer to the problem at hand is quite easy. Consider a restaurant menu with 5 simple options, and contrast this with a "Chinese menu" with hundreds of options, each with customizable elements. Simply increasing the number of available options makes the problem inherently more complex, thus introducing a greater degree of uncertainty in our process. This is a clear representation of the multiplication of doubt caused by problem complexity.</span></div>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-4665118350718367782013-09-24T15:20:00.000-07:002013-09-24T15:21:06.093-07:00S*** My Future Fed Chair Said<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6leBxGRU5WfWYWpljd2FDxx5Pwtf0VdjOKc4ejpneTLq7ZHbECap_UoxdYrjIX-1F_q42WnWkQA_uWltmsOBRafbYNrKxY3QpWrA2yru4IKy3MJk51_JYaiiQuhUpXLexXKLwmTA9fzk/s1600/politics.png" style="display: none;" />
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<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">In honor of Janet Yellen, the former President of the San Francisco Federal Reserve, being recently elevated to "frontrunner" status for the chair of the Federal Reserve Board, I present a list of past quotations from Mrs. Yellen here. All <i>emphasis</i> is my own.</span><br />
<blockquote class="tr_bq">
<span style="background-color: white; font-family: Cambria; font-size: 110%;">"While a tightening of credit to the subprime sector and foreclosures on existing properties have the potential to deepen the housing downturn, <i>I do not consider it very likely that such developments will have a big effect on overall U.S. economic performance.</i>" - Speech to the Money Marketeers of New York University, April 26, 2007 (<a href="http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2007/april/the-u-s-economy-prospects-and-a-puzzle-revisited/">link</a>) </span></blockquote>
<span style="background-color: white; font-family: Cambria; font-size: 110%;">Of course, these events very much did have an impact on overall economic performance, and continue to do so today, some 6 years later.</span><br />
<a name='more'></a><br />
<blockquote class="tr_bq">
<span style="background-color: white; font-family: Cambria; font-size: 110%;">"</span><span style="font-family: Cambria; font-size: 110%;">A concern that is frequently expressed is that an easing of the stance of monetary policy could end up shielding investors who misjudged fundamentals or incorrectly assessed risks from losses and thereby lead them to take inappropriate risks in the future because they think the Fed will act to cushion the consequences of their decisions. I have two responses to this concern. <i>First, the Fed’s policy response will not prevent a repricing of risk from occurring and investors who misjudged risks will surely suffer losses even if monetary policy is successful in keeping the economy on track.</i> Second, I don’t believe that the Fed should stand aside as a financial shock threatens to derail the economy, because that would run the risk of many innocent people being hurt by the loss of jobs and economic well-being." - Speech to Town Hall, Los Angeles, October 9, 2007 (<a href="http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2007/october/recent-financial-developments-and-the-u-s-economic-outlook/">link</a>)</span></blockquote>
<span style="font-family: Cambria; font-size: 110%;">Within the next calendar year, many investment banks were deemed "too big to fail", bearing out the concerns of moral hazard and shielding them from substantial losses.</span><br />
<blockquote class="tr_bq">
<span style="font-family: Cambria; font-size: 110%;">"I suspect that the markets and the Committee have become more closely aligned, sharing the view that <i>growth in the U.S. is, and is likely to remain, healthy</i>. In further support of this view, stock market values have risen and implied volatilities have been flat or trended down, as we continue to get stronger news on overall economic growth." - Speech to the First Annual Conference of the Risk Management Institute Singapore, July 5, 2007 (<a href="http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2007/july/the-u-s-economy-and-monetary-policy-singapore/">link</a>)</span></blockquote>
<span style="font-family: Cambria; font-size: 110%;">Stock market values would not get much higher than where they were in July 2007, until more than 5 years later. Volatility, <a href="http://i104.photobucket.com/albums/m163/bl82/VIXwk10-20MAE011411.png">as measured by the VIX index</a>, has remained above where it was at the time of these statements through present.</span><br />
<blockquote class="tr_bq">
<span style="font-family: Cambria; font-size: 110%;">"Furthermore, fundamentals in commercial real estate markets continued to improve this year, increasing demand for commercial space from office parks to warehouses. ... <i>Going forward, even at a more moderate pace of economic expansion, private forecasters expect the positive trends in commercial real estate in both California and the nation to continue</i> but to moderate next year as capacity comes online." - Speech to California Independent Bankers 16th Annual Convention, October 9, 2006 (<a href="http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2006/october/prospects-for-the-u-s-economy-laguna-beach/">link</a>) </span></blockquote>
<span style="font-family: Cambria; font-size: 110%;">California was one of the hardest-hit locations for real estate in general; in the area where Mrs. Yellen was speaking on this occasion, <a href="http://www.loopnet.com/Laguna-Hills_California_Market-Trends">one would be hard pressed</a> to say that the "positive trends" continued.</span><br />
<blockquote class="tr_bq">
<span style="font-family: Cambria; font-size: 110%;">"In my view, it makes sense to organize one’s thinking [about a potential housing bubble] around three consecutive questions—three hurdles to jump before pulling the monetary policy trigger. <i>First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences?</i> Third, is monetary policy the best tool to use to deflate a house-price bubble? </span><span style="font-family: Cambria; font-size: 110%;">My answers to these questions in the shortest possible form are, “no,” “no,” and “no.”" - Presentation to the Fourth Annual Haas Gala, October 21, 2005 (<a href="http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2005/october/housing-bubbles-and-monetary-policy/">link</a>)</span></blockquote>
<span style="font-family: Cambria; font-size: 110%;">Clearly, the answers to the first two questions proved incorrect; the third, though still ambiguous, is a position which Mrs. Yellen took a 180-degree turn on once the financial crisis unfolded, as evidenced in <a href="http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2009/june/yellen-economic-crisis-federal-reserve-response/">this 2009 speech</a>.</span><br />
<blockquote class="tr_bq">
<span style="font-family: Cambria; font-size: 110%;">"<i>We should not view the current foreclosure trends as justification to abandon the goal of expanding access to credit among low-income households</i>, since access to credit, and the subsequent ability to buy a home, remains one of the most important mechanisms we have to help low-income families build wealth over the long term." - Remarks to the 2008 National Interagency Community Reinvestment Converence, March 31, 2008 (<a href="http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2008/march/yellen-opening-remarks-national-interagency-community-reinvestment-conference-2008/">link</a>)</span></blockquote>
<span style="font-family: Cambria; font-size: 110%;">Mrs. Yellen has not subsequently backed down from these statements, and has continued to maintain that the Community Reinvestment Act was effective and not causally related to the housing bubble.</span><br />
<blockquote class="tr_bq">
<span style="font-family: Cambria; font-size: 110%;">"For my own part, I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — <i>I didn’t see any of that coming until it happened.</i>" - Interview with the Financial Crisis Inquiry Commission, November 15, 2010 (<a href="http://www.nytimes.com/2013/08/14/business/economy/careers-of-2-fed-contenders-reveal-little-on-regulatory-approach.html?pagewanted=3">link</a>)</span></blockquote>
<span style="font-family: Cambria; font-size: 110%;">At least she's honest; but, don't we deserve someone who did?</span></div>
Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-60450611464412848612013-09-20T11:38:00.001-07:002013-09-20T11:38:46.020-07:00Existence, Abstraction, and Doubt<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-r7nvO9yyLhyM4bkFVzpmR-wXj7wsc8ZkbfZx13kj1qHHFb1kznqNzxhzFcztvXOcTWrryynd0i61LhNCO55pBruH3aTIKViyFoozZ-CVxqiEsjjxnO2bYlZiCfEDnVH9Gnbd1pkkQjg/s1600/philosophy.png" style="display: none;" />
<div style="margin-bottom: 0in;">
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">A proposition expressing existence takes the form "X is". This form of proposition is the most basic form and can serve as a building block from which other, more complex propositions can be constructed. Let us examine more closely the nature of existence and the implications for the use of existence as the lowest-order proposition.</span><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;"><br /></span>
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">Any animate being can be shown to demonstrate the awareness of existence. Animals, though they are not self-aware and thus may not be cognizant of the concept of existence, will nevertheless react to stimuli in a manner consistent with the awareness of this concept. A dog, for example, will not attempt to run through a wall; it recognizes the existence of the wall and can understand that its efforts would be in vain. It, perhaps, <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-iii.html">does not know this innately, but through experience</a> it becomes highly confident that the wall exists. Similarly, its eyes will follow an object that it is interested in, such as a ball or a morsel of food; this action directly represents the recognition of the existence of those objects.</span><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;"></span><br />
<a name='more'></a><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">It should be noted that, simultaneously in these previous examples, the dog does not simply react because of the mere existence of objects, but also some properties about them: the wall is hard and steadfast, the objects desirable (either due to entertainment or taste, or even some characteristic which cannot be so simply described). </span><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;"><br /></span>
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">Perhaps more directly, reaction to a basic stimulus such as light or motion isolates the existence of an object; the observer may not have enough information about such a thing to draw more detailed conclusions than to simply believe in the existence of it. Nevertheless, in order to categorize an object, that object must necessarily be thought to exist, though it need not actually exist (the belief of existence may be in error); thus, existence is a <i>necessary condition</i> for categorization. </span><br />
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<span style="font-family: Cambria; font-size: 110%;">Two tangential topics should be touched on to complete our discussion of existence: <i>absence</i>, which represents the negation of existence; and from this, the application of negation to knowledge, forming the concept of <i>doubt</i>.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">Continuing with the example of man's best friend: While it easily recognizes existence as the cornerstone of its world, does it understand <i>absence</i>, or the negation of existence? Consider a dog that suspects you are concealing food in your hand. It is confident in the existence of food. Yet, if you were to reveal to it an empty hand, would it see the <i>absence of food</i>, or only an empty hand? It seems likely that absence is a concept also available to some animals: A dog in this situation seems to express surprise, whether because the hand is absent food, or because the hand as a whole is not what was expected, and thus, the hand is absent some property. Dogs also generally demonstrate the recognition of absence when their owner is away.</span><br />
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<span style="font-family: Cambria; font-size: 110%;"><i>Absence </i>represents the logical negation of existence. <i>Negation </i>is a concept of logic which can be generalized to other concepts (but not to any tangible object). One may not negate a chair; one may negate "fear" (confidence) or "left" (right). The nature of negation as a logical construct is beyond the scope of this topic; it is merely mentioned here to note that negation of a concept represents a relationship between that concept and its negation, and thus, <a href="http://oddsandmeans.blogspot.com/2013/09/orders-of-complexity.html">introduces additional complexity into any proposition</a> where it is introduced, if only at the margin. Negation is an absolute abstraction away from a concept; the ability to negate concepts, or more generally, to abstract away from them by varying degrees, belongs to a higher state of consciousness than to simply recognize those concepts. It is less clear that an animal is able to negate concepts generally, although they may be able to for existence and absence.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">The negation of certainty is <i>doubt</i>: To be uncertain, one must recognize what it would be to be certain. If we believe that <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-iii.html">true knowledge is unobtainable</a>, then we have only more or less certainty; and, abstracting away from our certainty, we introduce various degrees of doubt. Thus all problems, in theory, are somewhat more complex than we give them credit for in practice. However, introducing practical doubt into our consideration of every proposition we encounter would leave us powerless to act on our well-founded, and rather certain, beliefs. We therefore act without considering our doubt, if the doubt is small enough; and, even where the doubt is quite large (and sometimes, larger than we give it credit for), we typically are able to act after only brief consideration.</span></div>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-19765365055519633592013-09-17T15:05:00.001-07:002013-09-17T15:05:02.271-07:00Incentive and Investment: The Future of Crowdfunding and Venture Capital<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFhGtU66JUZx76nMkhcLnanSA3fN9_KdtpaGaoktEgnOMcc8bK0zRkD3h6ZjIcpuOuLgtlJpnvVnXgS3iQ7eG2prllszQVzQsFfJ4CYEMblI40ZwNaDpehWBRzDHUBM6GreZJFgpkkQD4/s320/logo.png" style="display: none;" />
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<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">Over the course of the last year, <a href="http://www.kickstarter.com/">Kickstarter</a> has risen to prominence as one of the easiest and most effective ways to fund projects and ideas. By relying on the collective wisdom of crowds, Kickstarter tends to fund projects which are generally recognized by would-be investors as good ideas. The market forces at work here are generally no different than those which govern the more established, more institutional market for venture capital. It's no secret that financial incentive is a great motivator for producing discerning analysis and careful decision-making. </span><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;"><br /></span>
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">However, there are several variables that separate Kickstarter projects from venture capital investing. Most of these involve reducing the barriers to entry for small-time investors. An analogy to political fundraising is appropriate: large institutions may dominate funding in federal elections (particularly for the presidency), but it would be impractical for these institutions to devote time and resources supporting candidates for state and local offices. Nevertheless, funding is no less important for those candidates - and in fact, campaign dollars spent there have a much greater impact on the race.</span><br />
<a name='more'></a><br /><span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">As this analogy implies, one of the most important characteristics of Kickstarter is the <i>reduction of scale</i>. Kickstarter has a <a href="http://www.kickstarter.com/discover/small-projects">dedicated section</a> of their website to projects with goals of $1,000 or less. Such projects are easy to participate in: Even $5 makes substantial headway towards the overall goal. Those who pledge can stomach such a small amount without serious consideration of the implications if the project should fall through. The reduction of scale unlocks a large cross-section of people who otherwise wouldn't be an available source of funds for managers of small to mid-sized projects.</span><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;"><br /></span>
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">Another critical component - arguably the most important component - of Kickstarter's success is the reduction of risk for the investing party. Kickstarter relies on the concept of <a href="http://marginalrevolution.com/marginalrevolution/2005/05/assurance_contr.html">assurance contracts</a> to fund projects: contributions are contingent upon the project being fully funded. This effectively reduces the risk of investing for each individual, ensuring that their money will not be squandered by a project which is only partially funded. The expected value of a person's donation might be calculated as some function of the remaining amount necessary to fund the project and the remaining time available to do so.<span style="font-family: Cambria; font-size: 75%; vertical-align: super;">1</span> As such, the individual puts an expected value of less than their full pledge amount at risk: the full amount if the project is funded, but nothing otherwise.</span><br />
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<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">These factors (combined with a well-designed interface that allows for media, sharing, and inquiry) have led to <a href="http://www.kickstarter.com/help/stats">tremendous success</a> for Kickstarter, with over $650 million in successful project dollars to date since 2009. Various direct competitors exist, including <a href="http://www.indiegogo.com/">IndieGoGo</a>, which offers project managers the <a href="http://www.indiegogo.com/how-pricing-works-on-indiegogo">option to take unsuccessful project dollars</a> at a higher fee, making the economics a bit different. However, this still pales in comparison to the established venture capital market, which encompasses tens of billions of dollars annually:</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAPkv3qENt6QYwgW4jFGnLhaylEt2aTEFjYey9Ae1WGACBiF-zSOXXXjSMyuoYELXqyQnD9zRx5mG0z7IE0llgmHvAJqGbq4PxkRTiI-DobnPkeirxvvMDVk9hgQvvITChhUztueT3SU4/s1600/investments-Q22013.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="263" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAPkv3qENt6QYwgW4jFGnLhaylEt2aTEFjYey9Ae1WGACBiF-zSOXXXjSMyuoYELXqyQnD9zRx5mG0z7IE0llgmHvAJqGbq4PxkRTiI-DobnPkeirxvvMDVk9hgQvvITChhUztueT3SU4/s320/investments-Q22013.jpg" width="320" /></a></div>
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<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">Can Kickstarter (et al.) tap into the venture capital space? Generally speaking, the things that have made it effective have also largely precluded it from doing so. While assurance contracts play into the risk-averse nature of small investors, it does so at the expense of the upside that venture capital investors have come to expect. Institutions are drawn to different economics for much the same reason as they are drawn to presidential politics rather than the smaller races: They are attractive precisely <i>because </i>the stakes (and thus, the rewards) are high. Large-scale investors mitigate their risk by commanding large sources of capital and reducing their variance through diversification, thereby absorbing the large losses they might sustain on any single project.</span><br />
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<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">Competition for venture capital would require a combination of private equity economics (read: upside) with the lower barriers to entry and approachability of sites offering assurance contract funding. Legal barriers have historically been problematic in achieving this; however, the recent passage of the <a href="http://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups_Act">JOBS Act</a> appears to open the doors to direct startup equity investment to a significant degree. The SEC's implementation of the bill has been slow to date, but shows promise in opening up a <a href="http://www.forbes.com/sites/chancebarnett/2013/07/19/sec-finally-moves-on-equity-crowdfunding-phase-1/">potentially huge crowdfunding market</a>. Sites such as <a href="https://wefunder.com/">Wefunder</a> and <a href="http://www.crowdfunder.com/">Crowdfunder</a> have already begun promoting and attracting would-be investors, among others.</span><br />
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<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">What are the implications of this potential new environment for the existing venture capital and assurance contract crowdfunding markets? While it would be compelling to believe that an equity investment crowdfunding model could dwarf them and even render them nonexistent, a stratification likely will develop in which all can co-exist to a large extent. Institutional investors will have the capacity to fund large projects, the risk tolerance to handle higher risk / higher reward plays, and a decided advantage in the desirability of their participation, which can be leveraged to raise yet more money or to increase efficiency. Assurance contracts will provide a successful avenue through which to fund those projects with less upside - arts, niche products, etc. - with little risk for the many available investing parties.</span><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;"><br /></span>
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">And the direct crowdfunding model? Its success hinges on how well information is distributed, how accessible the founders of projects are, successful marketing, and the confidence inspired by the transparency of commercial fund managers in reporting results to investors. None of this is insurmountable, and seems only to be a question of which provider can best deliver. Venture capital investing may very well expand in the way that stock investment expanded in the wake of the internet. Which of course, is not to say that it will result in an efficient outcome; only, perhaps, a more exciting one.</span><br /><br />
<span style="font-family: Cambria; font-size: 75%; vertical-align: super;">1</span><span style="font-family: Cambria; font-size: 90%;"> - An interesting future topic might be an estimation for expected value of a Kickstarter donation; it would require longetudinal data on a large number of projects to estimate relative rates of success based on time-to-completion and percent-to-completion variables.</span></div>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-71282947014563581772013-09-13T06:38:00.000-07:002013-09-13T07:02:22.768-07:00Orders of Complexity<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-r7nvO9yyLhyM4bkFVzpmR-wXj7wsc8ZkbfZx13kj1qHHFb1kznqNzxhzFcztvXOcTWrryynd0i61LhNCO55pBruH3aTIKViyFoozZ-CVxqiEsjjxnO2bYlZiCfEDnVH9Gnbd1pkkQjg/s1600/philosophy.png" style="display: none;" />
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<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">If we assume that we, as humans, have no knowledge <i>a priori</i> from our creation, and that we instead are only <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-iii.html">more or less certain about any given proposition</a>, then we must start to examine the most basic propositions in our world. The goal, in so doing, is not to determine some empirical probability that we have for any specific proposition or type of proposition, on average. Nor should we be naive enough to believe that we might be able to order our confidence in any two specific propositions. Although confidence can be expressed on a continuum from 0 to 1, we resign our practical ability to fall short of precisely determining our internal confidence in any given proposition, much less a strict comparison between two propositions in which we have similar confidence.</span><br />
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;"><br /></span>
<span style="background-color: white; color: black; font-family: Cambria; font-size: 110%;">Rather, by examining some propositions, we can perhaps discover how our brains operate in practice, by producing a rough classification which distinguishes certain problems from others. Then, we might generally say that we are naturally inclined to be more confident in the truth of some propositions than others. </span><span style="background-color: white; font-family: Cambria; font-size: 110%;">Another way of stating our goal is that we might classify the <i>order of complexity</i> of a given proposition, based on the constituent elements of that proposition - much in the same way as a grammar teacher might be able to evaluate the complexity of a sentence based on the parts of speech, syntax, and vocabulary of which it is comprised.</span><br />
<a name='more'></a><br />
<span style="font-family: Cambria; font-size: 110%;">Such a classification system would certainly not be rigid; there are many gray areas which will plague any proposal for what causes complexity. However, one thing that we will want to avoid is to use observations of human behavior to determine whether or not a problem has been complex. <span style="color: #666666;">Much human behavior is predicated on an unconscious process</span>: recognition of patterns, reliance on heuristics, and ill-formed reaction might cause us to answer swiftly, even if we should be unsure of ourselves. Instead, we will want to produce orders of complexity which are defined and endogenous to the problem, rather than the problem-solver.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">The most basic form of proposition expresses only the <i>existence </i>of some object or concept (hereafter simply referred to as "objects"). We might express the existence of some thing X simply as "X is." Existence is the most basic proposition: Without objects, it is difficult to think of what any other proposition might look like. This is particularly true when considering that "nothing" may be used as a concept which can exist, as "X" may refer to a vacuum.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">Above existence, the following constructs are listed in order of increasing complexity. I will briefly describe each with explanation on why it should be more or less complex than its neighbors, where appropriate.</span><br />
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<span style="font-family: Cambria; font-size: 110%;"><i>Categorization </i>extends existence to describe some characteristic of an existential object X. For example, "X is red" implies not only that X exists, and that the concept "red" exists, but that X fits the definition of (can be categorized as) "red".</span><br />
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<span style="font-family: Cambria; font-size: 110%;"><i>Ownership</i> defines one existential object as dominant. For example, "X has a dollar" implies not only that X exists and that a dollar exists, but that the dollar belongs to (is owned by) X. Ownership introduces complexity above categorization, as it is not a necessary condition that X should have the dollar, and X may become dispossessed of the dollar without any effect on the inherent categorization of X as an object.</span><br />
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<span style="font-family: Cambria; font-size: 110%;"><i>Action </i>introduces time, space, and/or logic as an element of consideration. For example, "X moved" contemplates that X existed at one place at one time, and existed at a different place at a different time, without X having substantially changed otherwise, and with X positively being the same object in both instances.</span><br />
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<span style="font-family: Cambria; font-size: 110%;"><i>Association </i>also introduces time, space, and/or logic, but goes beyond the existence of X within that framework by providing a relationship between two existential objects, usually (but not necessarily) using a categorization. For example, "X is under Y" implies that X exists, Y exists, the concept "under" exists, and X can be categorized as "under" Y. Similarly, "X and Y are friends" implies that both X and Y exist, the concept of "friendship" exists, and that X and Y are related by friendship.</span><br />
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<span style="font-family: Cambria; font-size: 110%;"><i>Causal Relation </i>introduces causality which provided the basis for <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-ii.html">the discussion of determinism here</a>. The statement "X resulted in Y" consists of an action (or process) X and a post-event state of affairs Y. This goes beyond the concept of action by providing relationship between multiple objects or concepts; in other words, it is the difference between the simple action "X moved" and the more complex "X moved Y".</span><br />
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<span style="font-family: Cambria; font-size: 110%;">The list above may not be exhaustive, but can serve as a guide for thoughts of higher-order problems. Complexity may build rather quickly as we introduce many existential objects, associations, categorizations, and causal relations. For example, it might be said that the problem of projecting a country's GDP is dependent upon all actors which exist in the economy, their assets (ownership), their actions, and the resulting causal relations. This is a highly complex problem indeed!</span><br />
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<span style="font-family: Cambria; font-size: 110%;">The purpose of this thought experiment is not to provide an infallible framework for how complexity arises, but rather, as a way of thinking about the complexity of problems, and as a rough framework for comparing problems to one another. As a general rule, we should be more certain in propositions as their complexity is reduced: We are relatively more sure that the ball exists than that it is falling due to gravity (even if we are very highly confident in all of these things). A more detailed treatment of this framework will be necessary to provide boundaries and discussion on how we approach problems of science in practice.</span></div>
Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com1tag:blogger.com,1999:blog-6793756269957487855.post-77395554999371885122013-09-10T15:51:00.000-07:002013-09-10T15:59:56.543-07:00Universal Life Insurance: Imperfect Competition<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFhGtU66JUZx76nMkhcLnanSA3fN9_KdtpaGaoktEgnOMcc8bK0zRkD3h6ZjIcpuOuLgtlJpnvVnXgS3iQ7eG2prllszQVzQsFfJ4CYEMblI40ZwNaDpehWBRzDHUBM6GreZJFgpkkQD4/s320/logo.png" style="display: none;" />
<span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;">How do life insurance markets operate within the classic textbook framework? Is the market perfectly competitive, or do some frictions exist that cause macro-level inefficiencies? The answer depends on what type of insurance product you are looking at, as term insurance and universal life insurance markets have drastically different competitive elements.</span><span style="font-family: Cambria; font-size: 75%; vertical-align: super;">1</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Term life insurance is, all things considered, a very simple form of insurance which is consistent with other lines of insurance such as health or auto. Assuming, for example, that a 35 year old male will need coverage for 10 years, a fixed cost payable annually can cover that risk. When shopping competitively for rates, this individual has one primary element to consider: the amount of the premium. Because of the simplicity of the insurance, consumers can fairly easily compare rates to find the lowest cost policy. This is as close to a perfectly competitive market as exists in financial markets, on par with bonds and other "plain vanilla" assets.</span></span><br />
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<a name='more'></a><span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;">By contrast, universal life (UL) insurance contracts can be overwhelmingly complex. Being permanent contracts instead of fixed-term, UL insurance is generally used for estate planning or tax purposes; and, since there are myriad goals related to these broad topics, different policies may be advantageous depending on the specific ends sought. Indeed, UL insurance is marketed as a highly flexible and customizable product type which can be tailored to suit the needs of the consumer.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">However, unlike markets such as consumer electronics and others where products seem to be infinitely differentiable, the UL market has not approached perfect competition through the vast expansion of choices available. This comparison is not so abstract, considering that UL products have only been prominent investment vehicles for the past 30 years or so - a market still enduring growing pains, if no longer in its infancy. Consumers have little to no guidance in which product might truly be best for their needs, even if they have clearly identified what those needs are. The problem is severalfold:</span></span><br />
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<li><span style="background-color: white; font-family: Cambria; font-size: 110%;"><i>Principal-Agent Problem.</i> Life insurance agents are typically paid the first year of premium payments as commission. Agents therefore have incentive to promote overfunding of the policy in year 1. They may also have incentive to push products that have higher target premium. Alternately, they may be inclined to sell products which have lower initial costs or short-term guarantees without consideration of the risks beyond a certain time horizon, in order to convince the consumer that they have capacity for more insurance than they might need.</span></li>
<li><span style="background-color: white; font-family: Cambria; font-size: 110%;"><i>Asymmetric Information</i>. UL products are vastly more complex than term or even Whole Life products, which have fixed costs that do not change. A single UL product may have 10-20 optional riders which provide contingent benefits, optionality, or guarantees, and which may or may not incur costs on the base policy. Further, even the base policy costs are more opaque than in a term policy, with adjustments for marketing and administrative costs separated from the cost of insurance. As such, it can be very difficult for consumers to determine which products are financially cost-effective given only an illustration which presents one set of assumptions.</span></li>
<li><span style="background-color: white; font-family: Cambria; font-size: 110%;"><i>Inherent Uncertainty</i>. Unlike term policies on younger individuals, where the risk covered by the policy is very small, collecting on a UL policy is inevitable unless the coverage is no longer wanted. The collection time, and therefore future financial obligations, are uncertain, which adds to the complexity of the consumer's decision at policy issuance.</span></li>
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<span style="background-color: white;"><br /></span>
<span style="background-color: white; font-family: Cambria; font-size: 110%;">What must be done to close the gap? While the principal-agent problem may always exist, we can at least bring the market to the understanding that insurance agents are not aligned with consumers. Reducing the information gap requires a market for independent advisors dedicated to the asset class. Such advisors would presumably not suffer from the misalignment of incentives as life agents do; but nor would they necessarily compete with or otherwise harm the life insurance business. Part of the beauty of achieving a more efficient market is that it results in a more beneficial result for all parties involved, all while creating jobs and (indirectly) improving our general welfare. </span><br />
<span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;"><br /></span>
<span style="font-family: Cambria; font-size: 110%;">In short: There is a tremendous opportunity for a more detailed and specialized advisory of UL policies. </span></span><span style="background-color: white; font-family: Cambria; font-size: 18px;">These advisors would need to be fluent in the financial structure of policies, while also able to quantify and address the risks caused by uncertainty. </span><span style="background-color: white; font-family: Cambria; font-size: 110%;">Making this market more efficient could potentially save consumers billions of dollars each year, given the size of the underlying UL market. </span><br />
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<span style="font-family: Cambria; font-size: 75%; vertical-align: super;">1</span><span style="font-family: Cambria; font-size: 90%;"> - For a basic description of life insurance types (including term and universal insurance), click <a href="http://www.investopedia.com/university/insurance/insurance8.asp">here</a>.</span></span>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-25040562113916781352013-09-06T10:07:00.000-07:002013-09-07T07:05:58.610-07:00Determinism, Laplace's Demon, and the Statistical Divide<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-r7nvO9yyLhyM4bkFVzpmR-wXj7wsc8ZkbfZx13kj1qHHFb1kznqNzxhzFcztvXOcTWrryynd0i61LhNCO55pBruH3aTIKViyFoozZ-CVxqiEsjjxnO2bYlZiCfEDnVH9Gnbd1pkkQjg/s1600/philosophy.png" style="display: none;" />
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<span style="font-family: Cambria; font-size: 110%;">The concept of ex post determinism, which I have referred to here as <i>scientific determinism</i>, is not a new concept by any stretch. Various forms of determinism have been proposed and debated over the last several centuries, and while the boundaries I have laid out may differ, the idea that events are deterministic is well trodden ground.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">Perhaps one of the most extreme, or pure, forms of determinism is represented by Laplace's demon. "Laplace's demon" is the name given to the ideas posited in a passage late in Laplace's life on probability (available <a href="http://archive.org/stream/philosophicaless00lapliala#page/4/mode/2up">here</a>). In simple terms, Laplace expressed the idea of pure determinism: If the position and speed of all particles in the universe are known at a time t=0, then the state of the world at a later time t=1 can be perfectly calculated. Laplace, an early statistician, perhaps most clearly demonstrates the divide between frequentist (or probabilist) and Bayesian modes of thought: You may notice that Laplace's demon seems to have nothing at all to do with statistics as we know it today.</span><br />
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<a name='more'></a><span style="font-family: Cambria; font-size: 110%;">Generally speaking: A probabilist is concerned only with outcomes. The confidence with which he can make a scientific statement is derived from an analysis of the outcomes; the distribution of the outcomes greatly concerns him, as it is only what we have observed that we can predict, and observations in an imprecise world necessarily have variance. Probabilistic studies make no claim to the root cause of the process that they help describe, in and of themselves (after all, correlation does not imply causation). It is left to the researcher to interpret probabilistic results and to hypothesize as to their meanings and implications for the underlying process. </span><br />
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<span style="font-family: Cambria; font-size: 110%;">Bayesian thought, on the other hand, expressly prohibits true knowledge of the underlying process in any situation where probability exists. Unless the probability of a proposition being true is 1, Bayes' theorem always admits that there is some chance that the proposition is false. Further, any proposition which starts from an uncertain state cannot be made certain, unless evidence of a nature so strong to provide absolute certainty is presented such that all prior evidence on the matter is declared invalid. Put another way, the evidence would need to provide absolute certainty (probability of 1) that the proposition were true, and it would need to invalidate all prior evidence, so that prior evidence were given a weight of zero and the new evidence a weight of 1. This new evidence would constitute true knowledge - but, as we have seen, <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-iii.html">true knowledge is not something easy to come by</a>. More or less any data will lead the Bayesian to some level of confidence in the proposition he is interested in.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">Thus, both Bayesians and probabilists are concerned with confidence, and therefore with probability. Lest I seem as though I have repeated myself in the preceding two paragraphs, however, consider how a probabilist and a Bayesian might describe their findings. Once the data has been analyzed, it is common for researchers to boldly claim that they have a "statistically significant" conclusion - but still, if this conclusion is significant to a 95% confidence level, there remains not a 5% likelihood that the claim being tested ("X results in Y") is untrue, but rather, as much as 5% of <i>actual events</i> <i>which occurred</i> violated the claim. Can we, from this, claim that we have 95% confidence that X <i>results in</i> Y? </span><br />
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<span style="font-family: Cambria; font-size: 110%;">To the Bayesian, this depends on how you weigh the evidence. Equal weight may lead him to answer "yes"; however, the distribution of outcomes plays a large role. Additionally, our weighing of evidence does not occur in a lab; there may be long periods of time between old evidence and new, or we may have reason to believe that conditions have changed such that the new evidence is more relevant. In short, we cannot say that 95% confidence in a proposition is the same to a Bayesian as it is to a probabilist.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">More importantly, the difference can be reflected in the philosophy behind the two schools of statistical thought. Particularly irresponsibly probabilists - far too many of which take up tenure in positions of research - may not be overly concerned in a proposition at all: They may build distributions, or perform simulations, based on data without applying any scientific theory or thought to the data; or, worse yet, they may conclude something about the results without having had a proposition to test against in the first place. This may, in some instances, remove biases and allow the data to "speak for itself"; yet, it may also lead to dangerous conclusions which are not supported by the evidence that exists outside the dataset. Probabilists may also believe that processes are inherently random, and that the only practical solution is to estimate the amount of variation and to take it under consideration when assessing the likelihood of outcomes.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">By contrast, all evidence is necessarily applied to propositions in a purely Bayesian thought framework. Evidence will have very little weight towards some propositions, and a great deal towards others. But these propositions are the deterministic truths that Laplace's demon sought; without them, there is nothing to apply evidence towards. From the set of all possible propositions (an infinite set), some subset (also infinite) will prove to be true in retrospect. Laplace's demon is simply the concept that perfect information will necessarily lead to perfect foresight.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">Claims that Laplace's demon have been discredited always rest upon our limitations of knowledge. These arguments take the demon too literally. Our knowledge being inherently limited down to the most fundamental level, surely we will never be able to calculate the universe with certainty. The limitations of our mind, and subsequently, of the computing power constructed by humanity, may never provide for this. Does this, however, invalidate the concept of determinism itself? Have we not, time and again, underestimated what science we can rely upon, or what computing power we might achieve?</span><br />
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<span style="font-family: Cambria; font-size: 110%;">Laplace's demon, as a concept, stands as a sort of ultimate goal for <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-i-science.html">science</a>: something to strive for, if never to achieve. It also represents a great epistemological dilemma: Our Bayesian minds <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-iii.html">can never obtain true knowledge</a>, yet the universe is theoretically <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-ii.html">knowable with absolute certainty</a>. </span></div>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-41532697812377745462013-09-03T16:28:00.000-07:002013-09-08T17:02:43.724-07:00What Can Monopoly Teach Us About Economics?<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFhGtU66JUZx76nMkhcLnanSA3fN9_KdtpaGaoktEgnOMcc8bK0zRkD3h6ZjIcpuOuLgtlJpnvVnXgS3iQ7eG2prllszQVzQsFfJ4CYEMblI40ZwNaDpehWBRzDHUBM6GreZJFgpkkQD4/s320/logo.png" style="display: none;" />
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">Monopoly is a game made familiar to many of us as children; and, as a game of property and trade, it is natural to consider what economic lessons it might teach. It is fairly evident that the objective of the game - to own all property on the board by raising rents on captive, choiceless consumers - does not represent any sort of market economy. This has been <a href="http://www.tomwoods.com/blog/what-lesson-does-monopoly-teach/">well-documented elsewhere</a>, and for a <a href="http://www.investopedia.com/articles/basics/12/monopoly-terrible-finance-teacher.asp">more complete discussion</a> of the economic faults of the game, I would direct you to those sources. </span><br />
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<span style="font-family: Cambria; font-size: 110%;">However, this is not to say that there are no elements of the game that can teach us valid economic lessons, whether directly or indirectly. Economists should not disregard these lessons simply because the broader game economy is unrealistic or does not align with their views. Here are a few things Monopoly can teach us.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;"><b>1. Inflation, and its consequences</b>. The game uses a central bank which issues currency, and like the post Bretton Woods central banks, it may issue an unlimited supply of currency. Inflation is naturally introduced by the "Go!" space, which players receive $200 just for passing by. Free money, how nice of them!</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Like inflation in the actual economy, however, the return on investment for the new money tends to go towards the players with the most property (assets) at the time the new money is introduced. Inflation makes it easier for players to afford property development, which raises rents (prices) for other players. Naturally, this helps the players with properties to develop. Consider this quote from <a href="http://www.economist.com/blogs/buttonwood/2011/06/inflation-equality-and-debt-crisis">The Economist regarding recent British inflation</a>:</span></span><br />
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">"The richest only spend around half their income, so consumer inflation only affects that portion; they have more of their savings in equities and property, <i>asset classes that are better protected against inflation</i>, than on the cash deposits which middle-income savers might depend on for the bulk of their interest income." <i>(emphasis added)</i></span></blockquote>
<span style="background-color: white; font-family: Cambria; font-size: 110%;">Inflation is therefore one of the main drivers of the game's innocuous beginning stages towards the latter stages; it magnifies the luck that players receive early on in the game and tends to (on average) increase the wealth gap between players.</span><br />
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<span style="font-family: Cambria; font-size: 110%;"><b>2. First-mover advantage</b>. At the beginning of the game, the board is a blank slate - all properties are available for purchase by the first player to land on them. Might not the order in which the players take their turns affect the outcome of the game, then? According to <a href="http://datascopeanalytics.com/what-we-think/2010/01/13/first-mover-advantage">this analysis</a> of 1,000 simulations, the answer was yes:</span></span><br />
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<span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;">"This analysis clearly shows that the relative market share per player is directly influenced by their ordering during the game (Fig. 1). In fact, you can expect to lose 5% relative market share for every player between you and the first player to roll, regardless of the number of players in the game."</span> </span></blockquote>
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<span style="background-color: white; font-family: Cambria; font-size: 110%;"><b>3. Deadweight loss of taxation</b>. Unlike governments which claim to use tax revenue for investment, infrastructure, and so forth, Monopoly operates under no such pretense: tax revenue is returned to the bank and is effectively just taken out of circulation. Thus, in this simple case, all taxation represents a deadweight loss which can no longer be used to develop property, pay rents, or buy new property (insofar as you consider these things "productive", anyway).</span><br />
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<span style="font-family: Cambria; font-size: 110%;">This is not meant to imply about anything about taxation outside the game, but it is useful in conceptualizing a deadweight loss for other economic applications.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;"><b>4. Winner's curse of auction</b>. Perhaps you haven't often encountered auctions in your play of Monopoly, but the rules do allow for a player to commit a property to auction among all players, rather than purchasing it at the listed game price. Auctions are of interest in behavioral and experimental economics, which often have found that individuals do not act rationally in such situations, but rather are subject to cognitive biases.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">One complication is that players may reasonably value the property up for auction differently: A player with two orange properties may value the third much higher than the other players, which would substantially alter the optimal bid strategy for each player. Additionally, there are a seemingly endless combination of game states and properties that could be up for auction. However, this could be overcome with the use of simulations, to find the expected value of a property for each player under a given situation (by simulating outcomes before and after the auction assuming each player wins), then testing it against actual bids in that situation. Unfortunately, there seems to be no historical game data to test on; if such data does exist, I would be grateful to any reader who can point me towards it.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Perhaps there are others; this is surely not an exhaustive list. These are the elements of the game I found which most clearly demonstrate economic theory. Just don't ask Uncle Pennybags to draw supply and demand curves.</span></span>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-39731978980224295722013-08-30T11:41:00.000-07:002013-09-25T15:33:48.814-07:00Scientific Determinism, Part III: Knowledge and Certainty<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-r7nvO9yyLhyM4bkFVzpmR-wXj7wsc8ZkbfZx13kj1qHHFb1kznqNzxhzFcztvXOcTWrryynd0i61LhNCO55pBruH3aTIKViyFoozZ-CVxqiEsjjxnO2bYlZiCfEDnVH9Gnbd1pkkQjg/s1600/philosophy.png" style="display: none;" />
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<span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;">The assumption made about the limits of our knowledge is key to developing further theories on how we process information to come to an </span><span style="font-family: Cambria; font-size: 110%;">understanding of higher-order problems</span><span style="font-family: Cambria; font-size: 110%;">, as well as our construction of choice sets when faced with choices (whether </span><span style="font-family: Cambria; font-size: 110%;">ethical</span><span style="font-family: Cambria; font-size: 110%;"> or </span><span style="font-family: Cambria; font-size: 110%;">preferential</span><span style="font-family: Cambria; font-size: 110%;"> in nature). Here I will argue the skeptical view that we may know nothing infallibly. It is important to specify what constitutes knowledge, then subsequently to realize that we do not possess it. Finally, I will consider the implications of this - if we do not possess knowledge, what do we possess?</span></span><br />
<span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;"><br /></span><span style="font-family: Cambria; font-size: 110%;">To know a fact is to say that the fact cannot possibly be incorrect. Consider an object in front of you. If you were to close your eyes, you would expect that object to remain in front of you when you were to open them again. Nevertheless, it is conceivable that the object may no longer be there. There are myriad explanations for why this might have occurred - in fact, there are infinite possible explanations, just as <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-ii.html">we can conceive of infinite explanations for why an action did not cause a reaction</a>, as we have seen.</span></span><br />
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<span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;">We may construct these explanations in advance of opening our eyes, in a way, hypothesizing about the explanation of this future occurrence <i>assuming</i> that it takes place. In so doing, we are acknowledging the possibility (however small or implausible) that such a process could occur to result in this outcome. We may have no reason to believe that an extraterrestrial being has removed the object from in front of us - but, now, we have acknowledged it as something that might have happened, as we have conceived it, and we have no reason to <i>doubt</i> that it could <i>possibly</i> happen. </span><span style="font-family: Cambria; font-size: 110%;">All we have are our prior experiences</span><span style="font-family: Cambria; font-size: 110%;">, which lead us to conclude that this is highly unlikely.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Note that, in our conscious thought, we may reduce this formal structure of knowledge and possibility to shorthand vernacular. If asked, someone may say, "Of course it is impossible that an extraterrestrial could have taken the object." When pressed for reasoning, they might reasonably explain that no evidence has been produced of the existence of extraterrestrials; that, even if there were, there has been none produced of their existence on earth; and that there would be seemingly no reason for the fellow to take the object, if all of this failed to hold. But here again, we have acknowledged at each step that the previous explanation <i>might</i> not hold, by entertaining the possibility; we have not ruled out this possibility by any <i>a priori</i> knowledge, such that it could not <i>possibly</i> be correct, as the definition of knowledge requires.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Nor is our absence of knowledge limited to bodies external to us. Consider Wittgenstein's proposition that he has a brain:</span></span><br />
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">"So far no one has opened my skull in order to see whether there is a brain inside;<i> but everything speaks for, and nothing against, its being what they would find there.</i>" (emphasis mine)</span></blockquote>
<span style="background-color: white; font-family: Cambria; font-size: 110%;">What, then, are we describing when we say that "we know" something? The point of emphasis in the statement above bears it out: We mean that the overwhelming body of evidence points to the proposition being true, and that the contrary proposition has nothing in its favor. </span><br />
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<span style="font-family: Cambria; font-size: 110%;">But, did we emerge from the womb with this understanding that we had a brain, or what the color "blue" was? Or did we, over repeated experience as children, come to the understanding that this was so? I would argue the latter; these experiences are our evidence for believing any proposition. Perhaps the first time we were shown a blue-colored object, someone pointed to this object and said "blue"; and through repetition, we came to relate the concept of "blue" to this object. Similarly, as adults, perhaps we encounter a scientific problem and decide to perform an experiment. The result of the experiment does not yield the answer immediately, but repeated trial may embolden our convictions in some fact to the point that we are <i>certain </i>in it, enough to rely upon it as an empirical truth to add to our mental structure of the world.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Thus, while true knowledge is unobtainable, degrees of certainty can be established to </span><span style="font-family: Cambria; font-size: 110%;">the point where true knowledge is indistinguishable from our belief</span><span style="font-family: Cambria; font-size: 110%;">. This process is Bayesian mathematically: We use our initial experiences as evidence, and start from a more certain point when we encounter our next experiences. We may become quite certain in a proposition before encountering evidence to the contrary. Rather than defining a point at which we "know" infallibly, Bayesian thought always admits for the possibility that we are incorrect. But, by being <i>certain</i>, i.e., by having a tremendous amount of confidence in the proposition, we can use it to draw further conclusions, and thus, ultimately, to act.</span></span></div>
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<i style="background-color: white; color: black; font-family: Cambria;">Items in grey text above are topics of further consideration which will be linked back to this article (and this article updated to reflect the discussion of those topics as they are available here).</i>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com2tag:blogger.com,1999:blog-6793756269957487855.post-73811663837654643052013-08-27T14:56:00.000-07:002013-09-04T19:45:46.107-07:00Escheat Law: The Revenue Motive<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6leBxGRU5WfWYWpljd2FDxx5Pwtf0VdjOKc4ejpneTLq7ZHbECap_UoxdYrjIX-1F_q42WnWkQA_uWltmsOBRafbYNrKxY3QpWrA2yru4IKy3MJk51_JYaiiQuhUpXLexXKLwmTA9fzk/s1600/politics.png" style="display: none;" />
<span style="background-color: white; font-family: Cambria; font-size: 110%;">Modern escheat law is the process by which the state designates property held by one party but owned by another as "abandoned" and seizes it from the current holder. Most people have heard very little about modern escheat law, and for good reason: While states claim that the escheatment of unclaimed property is intended to look out for the rightful owners of the property, many would be surprised to know how much revenue is generated for state governments in the process.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">Aside from the obvious criticisms that can be made against the state being an effective protector of property rights (see: eminent domain, asset forfeiture, property taxation, etc.), I will argue here that the primary, and perhaps sole motivation for modern unclaimed property law is the revenue motive. The various points of evidence toward this conclusion are: (a) the low percentages of property reunited with owners once in the hands of state treasuries; (b) court opinions which have explicitly referred to these laws as revenue raisers; (c) the large percentage of property abrograted which goes to the state's general fund rather than a dedicated trust fund for claimants; and (d) recent moves by state governments to shorten the period of inactivity required to deem property as "abandoned."</span></span><br />
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">(a) Percentages of property reunited with owners after escheatment is much lower than one would expect, were the state's primary motivation to return the property to the owners. The state of New York, for example, has received over $10.5 billion since the implementation of their Abandoned Property Law in 1943, of which less than 20% has been claimed to date.<span style="font-family: Cambria; font-size: 75%; vertical-align: super;">1</span> In one of the most extreme examples, Delaware (which is the domicile for many corporations and corporate accounts) has returned less than 3% of the $1.7 billion it has seized since 2007<span style="font-family: Cambria; font-size: 75%; vertical-align: super;">2</span>, making escheated property the state's <a href="http://blogs.wsj.com/cfo/2013/06/18/delaware-shows-two-faces/">third largest source of revenue</a>. One would expect these percentages to be much higher if the state were taking custody of property with the intent of dedicating resources toward reuniting them with the owners. Indeed, <a href="http://www.bankrate.com/finance/investing/states-grab-unclaimed-property-1.aspx">horror stories abound</a> in which state governments seemingly made little effort to find the owners, and dragged their feet even when a claim was made.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">(b) In legal opinions on the constitutionality of these sorts of laws, courts have referred to them as revenue generators for the state, and in fact have upheld the laws primarily for this reason rather than the "safer custodian" argument. In life insurance, the Supreme Court held in <i><a href="http://supreme.justia.com/cases/federal/us/333/541/case.html">Connecticut Mutual Life Insurance v. Moore</a></i> that</span></span><br />
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">"It is naive beyond even requirements of the judicial office to assume that this lately manifest concern of the states over abandoned insurance proceeds reflects only solicitude for the unknown claimants. If it did, the states' claims might reconcile more easily. But escheat of these interests is a newly exploited, if not newly discovered, source of state revenue."</span></blockquote>
<span style="background-color: white; font-family: Cambria; font-size: 110%;">More recently, the Sixth Circuit Court of Appeals upheld a reduction of the inactivity period required for escheatment of travelers' checks in <i><a href="http://www.ca6.uscourts.gov/opinions.pdf/11a0113p-06.pdf">American Express Travel Related Services Company v. Kentucky</a></i>, primarily on the grounds of the revenue generated by escheat law in general.</span><br />
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">"American Express attempts to demonstrate that, despite this general proposition, revenue raising is an illegitimate legislative objective in the context of the 2008 amendment, which is an escheat law enacted pursuant to the General Assembly’s police powers. This argument must fail. . ."</span></blockquote>
<span style="background-color: white; font-family: Cambria; font-size: 110%;">It is clear that, at the very least, the courts recognize the revenue motive, even if their decisions may rest on other legal grounds.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">(c) In many states, a large majority of the revenue generated via unclaimed property laws is simply added to the general fund of the state. To continue the example of Delaware: All escheat revenue in Delaware is deposited into the State's general fund (<a href="http://delcode.delaware.gov/title12/c011/sc02/">12 Del. Code § 1131</a>). California keeps a mere $50,000 in a dedicated "Abandoned Property Account", moving any excess into the state's general fund each month (<a href="http://codes.lp.findlaw.com/cacode/CCP/3/3/10/7/5/s1564">CAL. CCP. CODE § 1564</a>). </span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">This would seem an odd thing for a purportedly altruistic state to do; one might expect them to place this revenue in a dedicated trust fund to ensure that any claimants can be paid promptly. It should be noted that not all states are so egregious here: Florida, for example, maintains an Unclaimed Property Trust Fund of $15 million, and moves the excess to the State School Fund as opposed to a general fund (<a href="http://www.flsenate.gov/Laws/Statutes/2012/Chapter717/All">§ 717.123, Fla. Stat.</a>).</span></span><br />
<span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;"><br /></span>
<span style="font-family: Cambria; font-size: 110%;">(d) Many states have consistently passed amendments to their unclaimed property laws to reduce the "dormancy periods", the duration of inactivity required for a property to be considered "abandoned." According to <a href="http://www.mofo.com/files/uploads/images/110222-dormancy-periods.pdf">this 2011 article</a>, dormancy periods have been drastically reduced from their original lengths.</span></span><br />
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<span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;">"Massachusetts has decreased its dormancy period tenfold for bank accounts from 30 years in 1907 to three years in 1992. Delaware reduced the dormancy period for property held by banking organizations from 25 years to seven years in 1985, and to five years in 1988.</span> </span></blockquote>
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">California has steadily reduced the dormancy periods for bank accounts from 20 years in 1913, to 15 years in 1959, seven years in 1977, five years in 1989, and finally three years in 1990. Even the legislative director of the California State Controller’s Office had acknowledged that the office is looking at lengthening the escheatment period: 'Three years appears quite low and we’re looking at what should be the appropriate period before property escheats.' In 2007 legislation was proposed in
California to increase the dormancy period from three to five years for most property; the legislation was not enacted."</span></blockquote>
<span style="background-color: white; font-family: Cambria; font-size: 110%;">In short: the body of evidence seems to overwhelmingly suggest state use of escheat law as a form of non-tax revenue for general budget use. In insurers, real estate managers, and financial institutions, states have a captive, steady supply of property which may fit the ever-widening abandonment criteria and thus seized by the state. This revenue is more politically palatable for elected officials as it does not necessitate changes in formal tax rates. More worrisome, however, is the seizure of property for revenue which does not adhere to due process. At some future date, I will look at further problems with the practice of escheatment in one field in particular: life insurance contracts.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">In very short: States want money. (You may also be surprised to learn that water is wet.)</span></span><br />
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<span style="font-family: Cambria; font-size: 75%; vertical-align: super;">1</span><span style="font-family: Cambria; font-size: 90%;"> - Hartley, Devin. "A Billion Dollar Problem: The Insurance Industry's Widespread Failure to Escheat Unclaimed Death Benefits to the States." Conn. Ins. LJ 19 (2012): 363-399.</span></span><br />
<span style="background-color: white;"><span style="font-family: Cambria; font-size: 75%; vertical-align: super;">2</span><span style="font-family: Cambria; font-size: 90%;"> - Gregory, Teagan J. "Unclaimed Property and Due Process: Justifying Revenue-Raising Modern Escheat." Mich. L. Rev. 110 (2011): 319.</span></span>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-49378889457271188352013-08-23T08:10:00.000-07:002013-09-25T15:32:47.709-07:00Scientific Determinism, Part II: Determinism, Defined<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-r7nvO9yyLhyM4bkFVzpmR-wXj7wsc8ZkbfZx13kj1qHHFb1kznqNzxhzFcztvXOcTWrryynd0i61LhNCO55pBruH3aTIKViyFoozZ-CVxqiEsjjxnO2bYlZiCfEDnVH9Gnbd1pkkQjg/s1600/philosophy.png" style="display: none;" />
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<span style="background-color: white; font-family: Cambria; font-size: 110%;"><a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-i-science.html">Having defined science</a>, I should revisit first a prerequisite to applying this definition of "science" to the construction of problems and their solutions. It is necessary to understand what is implied by ex-post "certainty", which may be more accurately described as <i>determinism</i>.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">Determinism simply describes the concept that a process (X) will lead to some outcome (Y). X may be concrete, such as in the case of an object striking another. X may also be abstract, such as the calculation of an arithmetic expression. In either of these cases, the result will be Y chosen from a range of all possible outcomes (the possibility set). Note that, insofar as it is a concept, Y may be "nothing" and still would constitute a valid outcome for X, as would the complete end of existence for all objects and concepts related to X. In short: Define a process X to be an event in time, space, or mental construct which <u>must</u> result in an outcome Y. We can assume that only one outcome Y can possibly occur, creating a one-to-one mapping from X to Y (more on this below).</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">The possibility set for Y may be finite, as in the case of a deck of cards, where Y is a single card chosen from the deck. Another example is the result of a fair die thrown at random. However, the possibility set for Y may be infinite as well. If, instead of throwing a six-sided die, we define the possibility set for Y to be any real number on the range (0.5, 6.5), we would have an infinite possibility set, the uniform distribution of which would result in the same arithmetic mean. It is not difficult to see that the vast majority of problems involve infinite possibility sets for y. In the simple case of a billiard ball striking another (X), for instance, we can think of countless possible (if improbable) outcomes (Y): perhaps one or the other ball will explode, or perhaps they are made of liquid and will merge together, or perhaps the collision will expel their adherence to gravity and they will begin to float away. We could conceivably continue in this manner infinitely - there is no finite list of possible outcomes. (Note that, conceivably, one could argue that my examples of finite possibility sets could in fact be infinite possibility sets: perhaps some unforeseen phenomena will cause an outcome that appears highly implausible but is nonetheless conceivable; I would not argue this point, as it has no bearing on further topics.)</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">I have mentioned above that only one outcome Y is possible, such that X to Y is a one-to-one mapping. If you doubt this to be the case, consider that sets of outcomes {Y<span style="font-family: Cambria; font-size: 75%; vertical-align: sub;">1</span>, Y<span style="font-family: Cambria; font-size: 75%; vertical-align: sub;">2</span>} can be contained in the possibility set. Then Y<span style="font-family: Cambria; font-size: 75%; vertical-align: sub;">1</span>, Y<span style="font-family: Cambria; font-size: 75%; vertical-align: sub;">2</span>, and the set {Y<span style="font-family: Cambria; font-size: 75%; vertical-align: sub;">1</span>, Y<span style="font-family: Cambria; font-size: 75%; vertical-align: sub;">2</span>} would all be in the possibility set for Y and would thus be valid outcomes. So long as Y<span style="font-family: Cambria; font-size: 75%; vertical-align: sub;">1</span> and Y<span style="font-family: Cambria; font-size: 75%; vertical-align: sub;">2</span> are not mutually exclusive, their joint occurrence does not preclude us from stating that "only one outcome has occurred."</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Determinism, then, is the idea that the single outcome Y <i>results from</i> X and comes from the possibility set for Y. This is subject to some interpretation because of the notion of causality. How can we know that Y <i>results from</i> X? For determinism to be useful as a concept to build upon, we should not require proof of causality between X and Y. Causality can be loosely inferred from the knowledge that X occurred and that the subsequent state of the objects and concepts related to X was Y. We cannot know with exactitude that Y resulted from X (in much the same way that we cannot know with exactitude X and Y themselves!), but we may take it as a hypothesis that this is so based on knowledge about X and Y and their ordering.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Taken in this way, if we are presented with a process X, we may use our knowledge of X to form expectations of some future state of related objects and concepts Y. </span><span style="font-family: Cambria; font-size: 110%;">Our confidence in forming these expectations depends on many things</span><span style="font-family: Cambria; font-size: 110%;">: our prior knowledge of the objects and concepts related to X, our experience with processes similar to X (including the observability of the results of those processes), the complexity of X, the consistency of the information related to X, the breadth of the possibility set for Y, and still other factors.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">It will be important to firm up my </span><span style="font-family: Cambria; font-size: 110%;"><a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-iii.html">definition of "knowledge"</a></span><span style="font-family: Cambria; font-size: 110%;"> at this point to complete the groundwork for further examination of the nature of problem solving. I have used it here to mean "believing with certainty". If the thing to be known cannot be proven, as many things cannot be, then we will need to take care to ensure that true knowledge of the thing is not implied before continuing on.</span></span><br />
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<i style="font-family: Cambria;">Items in grey text above are topics of further consideration which will be linked back to this article (and this article updated to reflect the discussion of those topics as they are available here).</i></span></div>
Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-85613296610294272252013-08-21T05:26:00.000-07:002013-09-04T19:46:17.160-07:00A-Rod: A Story of Unions, and the Sanctity of Contracts<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFhGtU66JUZx76nMkhcLnanSA3fN9_KdtpaGaoktEgnOMcc8bK0zRkD3h6ZjIcpuOuLgtlJpnvVnXgS3iQ7eG2prllszQVzQsFfJ4CYEMblI40ZwNaDpehWBRzDHUBM6GreZJFgpkkQD4/s320/logo.png" style="display: none;" />
<span style="background-color: white; font-family: Cambria; font-size: 110%;">Much has been written about MLB's investigation of the Biogenesis clinic, and the several players who have been banned pursuant to the investigation under the league's drug policy. Most that has been written has focused on the legacy of the sport itself, the ethics of the use of performance-enhancing drugs, and the appropriateness of the suspensions in light of what little is known of the evidence.</span><br />
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<span style="font-family: Cambria; font-size: 110%;">What is less talked about is the nature of baseball's employer-employee relationship and the contractual obligations of clubs to players after these suspensions have been handed down. The labor market for athletes has operated in much the same way as the market for film actors has for the last 30 years or so - which is to say, it has operated in a much different fashion than the labor markets you or I are familiar with. Individuals with such specialized skill sets, and employers which demand exactly those skill sets, would alone result in higher clearing rates in these professions. But these labor markets are also notable because of the relative stranglehold that unions have on the supply side. One cannot act in a major studio production without paying dues to the Screen Actors Guild<span style="font-family: Cambria; font-size: 75%; vertical-align: super;">1</span>, and one cannot play in the major leagues without membership in the <a href="http://www.mlbplayers.com/">MLB Players Association</a>. </span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Unions are a highly politicized issue in other industries. Even setting aside the recent controversies involving public unions in <a href="http://www.economist.com/blogs/democracyinamerica/2011/03/wisconsins_union_battle">Wisconsin</a> and elsewhere, private unions have been the subject of scrutiny from the right side of the political spectrum in the automotive industry (among many others). In key political battleground states, <a href="http://www.nytimes.com/2013/08/16/us/michigan-unions-lose-right-to-work-challenge.html?_r=0">right-to-work laws have become hot topics in recent elections</a>. Yet, in baseball and other sports, unions seem to have produced substantially higher wages for workers without compromising the business model of the business (team) owners. The MLBPA is a shining example of success for union backers to hold up. Right?</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">As with any political problem, this issue does not have such a clear answer. While it's true that player salaries have increased dramatically since the 1970s, this coincides with the labor unions' primary achievement: the advent of free agency, or as most of us would call it, "business as usual." The fact that players were contractually obligated to remain with one team, essentially for as long as the team desired the player, was more akin to indentured servitude than to a proper market. This arrangement prevailed due to the effective monopoly status of the league, and not because of any condition that can be extrapolated to unions in manufacturing, teaching, and the like.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">Once a market for labor was established - not only through free agency, but through ancillary benefits such as independent arbitration - salaries for players began to skyrocket. Yet, the unions, having achieved this goal, did not rest on its laurels. The balance of power in baseball continued to shift drastically towards the players through the 1980s and 1990s. One part of this shift is the guaranteed contract: unlike pretty much any line of work out there, including work as an athlete in most other professional sports leagues, players are guaranteed their contracts regardless of whether they play or not, regardless of whether the team wants them, and - here's the kicker - <u>regardless of whether or not they've followed the rules that they agreed to as members of the MLBPA</u>.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">This last point has been made evident in the recent case of Alex Rodriguez. Despite the allegations that A-Rod <a href="http://www.sbnation.com/mlb/2013/8/2/4584196/alex-rodriguez-biogenesis-suspension-evidence-mlb-steroids">wantonly violated the MLB's Joint Drug Agreement</a>, repeatedly lied to cover it up, <a href="http://www.nydailynews.com/sports/i-team/sources-a-rod-bought-biogenesis-documents-article-1.1315322">bought evidence to destroy in an attempt to cover it up</a>, and perhaps <a href="http://www.huffingtonpost.com/2013/08/16/arod-ryan-braun-leaked-documents-biogenesis_n_3767115.html">used the evidence he bought to out other players in an attempt to deflect attention from himself</a>, the New York Yankees remain on the hook for all future obligations under the contract. Further, the intent of taking these substances was to manufacture a level of performance above what otherwise could have been achieved. As a thought experiment, imagine what would happen to a financial professional who listed a professional designation on his resumé which he didn't have, then paid someone on the inside of the governing body for that designation to produce a phony certificate or to obstruct inquiries to that body about the authenticity of the designation. Not only would we expect this financial professional to be fired from the position he fraudulently obtained, we'd also expect him to be blackballed from the industry, sued by the company that hired him, and possibly investigated on criminal charges. The fact that the tens of millions of dollars left on A-Rod's contract are simply a foregone conclusion speaks to how far out of equilibrium baseball's employer/employee relationship has gone.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">And yet - I will not argue that the contract should be voided after the fact. Above all, the sanctity of contracts must remain in place for society to remain lawful and orderly under any system. While the terms of this contract seem outlandish, the onus lies on the owners to negotiate more equitable terms going forward. The last decade has seen power shift back towards the owners, with <a href="http://www.cbssports.com/mlb/eye-on-baseball/22859034/skip-schumaker-wants-lifetime-ban-for-first-offense-on-peds">more</a> and <a href="http://articles.baltimoresun.com/2013-08-05/sports/bal-orioles-nick-markakis-says-ped-users-need-stiffer-punishments-20130805_1_orioles-right-fielder-nick-markakis-biogenesis">more</a> <a href="http://www.huffingtonpost.com/2013/08/12/mike-trout-ped-users-out-of-game_n_3744358.html">players</a> favoring stiffer penalties for using banned substances.</span></span><br />
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<span style="font-family: Cambria; font-size: 110%;">In short: Unions are neither evil institutions which serve no purpose in a labor market, nor are they impervious to sins of their own. Collective bargaining can be useful, especially in the case of a supply-side monopoly, as was the case in the early days of the MLBPA. Ultimately, unions and ownership are responsible for their own negotiations, which should tend towards market equilibrium in the absence of external factors. Unfortunately, external factors nearly always exist in the form of legal protection or a complete lack of market alternatives. However, mistakes made in the past should not be recklessly corrected by extralegal means. Players and ownership both benefit from striving for a reasonable and fair labor market, both for salaries today and the long-term growth of the game.</span></span><br />
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<span style="font-family: Cambria; font-size: 75%; vertical-align: super;">1</span><span style="font-family: Cambria; font-size: 90%;"> - Recently merged into <a href="http://www.sagaftra.org/">SAG-AFTRA</a>, but I used the term most people are familiar with.</span></span>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0tag:blogger.com,1999:blog-6793756269957487855.post-74380474093416531082013-08-16T11:30:00.000-07:002013-09-04T19:46:57.957-07:00Scientific Determinism, Part I: Science, Defined<img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-r7nvO9yyLhyM4bkFVzpmR-wXj7wsc8ZkbfZx13kj1qHHFb1kznqNzxhzFcztvXOcTWrryynd0i61LhNCO55pBruH3aTIKViyFoozZ-CVxqiEsjjxnO2bYlZiCfEDnVH9Gnbd1pkkQjg/s1600/philosophy.png" style="display: none;" />
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<span style="background-color: white;"><span style="font-family: Cambria; font-size: 110%;">The study of epistemology attempts to separate what we know from what we merely believe. This distinction can take on various forms, but generally the things we "know" without equivocation are rather few and are not very interesting things, if anything at all. We know of existence - of ourselves, of others, of objects. But when it comes to relationships between things that exist - and specifically, interactions between things that exist through time and space - we find that there is very little that is definite. </span><span style="font-family: Cambria; font-size: 110%;"><a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-iii.html">How can we <i>know</i>, without a doubt, that the laws of gravity and the natural world will hold in the future, that the sun will rise tomorrow?</a></span><span style="font-family: Cambria; font-size: 110%;"> First, let us put aside the nature of knowledge itself to revisit later. It will be essential to fully define terms for use in later constructs.</span></span></div>
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">I prefer to make a clear distinction between science and (for lack of a better term) non-science. Here I use "science" to mean the study of any process in time, space, or mental construct which has a deterministic outcome - or, to be more precise with terms, the study of deterministic processes. This does not mean that the outcome was infallibly predictable at a time prior to the interaction. In fact, it does not mean that the outcome was even <i>observable </i>to us. It
simply means that the interaction resulted in an outcome <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-ii.html">which conceivably <i>could have been</i> predicted with certainty</a>. </span></div>
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">To elaborate on this definition: This encompasses all autonomous physical processes - for example, the classic example of one billiard ball striking
another, but also more elaborate processes such as volcanic eruptions, chemical reactions, weather patterns, the movement of
atomic particles, space matter, and so forth. These sorts of phenomenon are colloquially defined as science. But it is easy to see that we may not be able to predict the outcome with a high degree of certainty, or in fact any degree of certainty at all, depending on the complexity of the problem.</span></div>
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">This definition
of "science" <i>also</i> includes human interactions which lack the exertion of free will in the form of conscious decision-making. The top card in a deck is deterministically predictable, despite the apparent randomness generated by the shuffling of the deck. This shuffling is a human interaction, but there is not a conscious effort on the part of the dealer to affect the outcome (assuming he is not a cheat or a magician). Moreover, the outcome of the top card resulting in this process is the same - and thus, is equally predictable - whether the card faces up or down. Thus, the outcome in question need not be observable to be predictable with certainty (if a tree falls in the woods...).</span></div>
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">Note that this
definition of "science" is not meant to try to redefine the word for any purpose other than to build upon it as a foundation for
further thought. Having defined science in this way, we might use the term to demarcate matters of epistemology inherent to any sort of problem we encounter.</span></div>
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<span style="background-color: white; font-family: Cambria; font-size: 110%;">Some will take
issue with my choice of the word "certainty" in the definition. I must emphasize that "certainty" is not meant to convey our <a href="http://oddsandmeans.blogspot.com/2013/08/scientific-determinism-part-iii.html">knowledge</a> or predictive power, but rather the ex post result. The important thing is not that the outcome can be known beforehand, but simply that an outcome (which might conceivably have been predicted) will result.</span></div>
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<span style="font-family: Cambria; font-size: small;"><i style="background-color: white;">Items in grey text above are topics of further consideration which will be linked back to this article (and this article updated to reflect the
discussion of those topics as they are available here).</i></span>Anonymoushttp://www.blogger.com/profile/07815242385058770518noreply@blogger.com0