Better to be Lucky than Good?

The arXiv paper below looks at stochastic dynamical models that can transform initial (e.g., Gaussian) talent distributions into power law outcomes (e.g., observed wealth distributions in modern societies). While the models themselves may not be entirely realistic, they illustrate the potentially large role of luck relative to ability in real life outcomes. We’re used to …

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Theory, Money, and Learning

After 25+ years in theoretical physics research, the pattern has become familiar to me. Talented postdoc has difficulty finding a permanent position (professorship), and ends up leaving the field for finance or Silicon Valley. The final phase of the physics career entails study of entirely new subjects, such as finance theory or machine learning, and developing …

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Who’s on the other side of the trade?

A great conversation between Tyler Cowen and fund manager Cliff Asness, who has appeared many times on this blog. See, e.g., this 2004 post on his analysis of the well known Fed Model for equity valuation, also discussed in the interview. Hedge-fund manager Cliff Asness, one of the most influential—and outspoken—financial thinkers, will join Tyler Cowen …

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New kids on the blockchain

WSJ reports on institutional interest in blockchain technologies. WSJ: Nasdaq OMX Group Inc. is testing a new use of the technology that underpins the digital currency bitcoin, in a bid to transform the trading of shares in private companies. The experiment joins a slew of financial-industry forays into bitcoin-related technology. If the effort is deemed …

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CBO Against Piketty?

This report using CBO  (Congressional Budget Office) data claims that income inequality did not widen during the Great Recession (table above compares 2007 to 2011). After government transfer payments (taxes, entitlements, etc.) are taken into account, one finds that low income groups were cushioned, while high earners saw significant declines in income. … The CBO on …

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Perils of Prediction

Highly recommended podcast: Tim Harford (FT) at the LSE. Among the topics covered are Keynes’ and Irving Fisher’s performance as investors, and Philip Tetlock’s IARPA-sponsored Good Judgement Project, meant to evaluate expert prediction of complex events. Project researchers (psychologists) find that “actively open-minded thinkers” (those who are willing to learn from those that disagree with them) …

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Crypto-currencies, Bitcoin and Blockchain

Photos from two meetings I attended last week. Some general comments on crypto-currencies: 1. Bitcoin doesn’t really solve any payment problems, unless of course you are a paranoid libertarian who hates “fiat” currencies. But why should you trust the Bitcoin Foundation any more than you trust a central bank? (See Bitcoin dynamics.) 2. Most potential users …

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Financing the Green Economy

I must have missed the NPR and local press coverage of the inaugural UN Environment Assembly held last week in Nairobi, Kenya. The five day conference of more than 1,000 attendees representing 163 member states including 113 ministers was blacked out so that we could focus more on the World Cup, baseball, and other more …

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Measuring Wealth Inequality

  Recent increases in wealth inequality mainly due to top 0.01%, not top 1%? See this article (The Atlantic) and also here. The method used to obtain these results is not without uncertainties. From these slides by Saez and Zucman. (Using flows to estimate accumulations.) We develop a new technique to estimate the distribution of …

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