Gill Eapen's Blog, page 89

The cost of pessimism

It has been shown that those who are generally optimistic about the future tend to do better than those who are not. Based on this, it can be shown that being optimistic is rational and similarly being pessimistic is irrational. If the probability of being happy is higher for those who are optimistic and happiness is the objective function to maximize, then it is not rational to be pessimistic. Policies, that will increase optimism, are then dominant among the available choices.

The roots...

Taxes and societal costs

Modern societies have failed to devise systems that allow the full internalization of societal costs. For example, recently, a company that allowed millions of barrels of oil into the sea, optimized shareholder value by picking a modality and timing of implementing counter measures. In such a decision, the true costs to society are never considered as the system does not require a private entity to do so. This externalization of societal costs in private decisions ultimately lead to another p...

Upgrade, downgrade scandal

Analysts at the world renowned, bankrupt and bailed-out investment banks still appear to hold significant power. They upgrade and downgrade stocks, set price targets and in general prescribe the future for the rest of the world. They must be either too smart for their own good (as we have seen enough evidence that the God's smartest creatures may be no good) or there must be something else going on here. How can a stock take a nose dive, after being "downgraded" by somebody, who use publicly ...

Almost...

A recent publication in Science is likely a fundamental innovation that may have changed the landscape of the dark ages of low innovation, spanning many recent decades. The article describes the creation of a synthetic cell for the first time by man made DNA. This has been something that has eluded many. However, this innovation just gets us closer to the truth, but not the truth itself. In some sense, it is not a synthetic cell but a cell with synthetic DNA. Thus, its existence does not...

Business school case studies

Last few years have provided significant new material for business schools to teach students how NOT to run companies. For younger managers, it is useful to closely study the incompetence that adorn our large corporations. Some have misestimated spills and delayed correction measures, some have sold securities to their clients and then bet against them, some leveraged 1:35 and was surprised their companies went bankrupt when the market crashed, some acquired other companies every other year i...

Exception capitalism

The recent accident in the Gulf, appears to be preceded by certain "exceptions" granted to large and powerful companies by the regulators in the need for safety studies. This is hardly surprising. After all, we have had plenty of evidence of "exception capitalism" in the recent years. For example, certain finance companies, who claim to hoard most of the world's brain cells, were granted exceptions to leverage three times as much as mere mortals. Certain insurance companies were given...

Roger is back

Roger Waters, the iconic musician of this generation, is back with his music. Pink Floyd, with an astonishing history of over fifty years - starting with Syd Barrett - in the 60s, has produced music with such fundamental difference, it can only be compared to Quantum Mechanics in Physics and Options Pricing Theory in Economics. Mr. Waters moved the band to a level of understandability, as most geniuses fail to do, and in that process created something that remain, still, enigmatic to those...

Let there be power - solar power

From their inception, humans always craved for energy. Just as any other animal or plant, humans need energy to survive. But the energy needs of humans is much higher because of an expanded set of needs that go beyond food. All through history, humans have always been behind the energy curve, demand always exceeding supply. From the moment, fire was invented in the African Savannahs, humans have been on the wrong path searching for the sources of energy to satisfy their voracious appetite...

Computer mania

Unsettled by nearly a 1000 point drop in an utterly meaningless metric called the Dow, composed of inefficient and incompetent companies of the last century,  many have been crying "wolf."  Some blame the computers and many others (regardless of their association with antiquated exchanges), have been calling for the "re-introduction" of humans into the process. The thoroughly "unbiased" CEO of one of the exchanges ran by "specialists" took no time to point out the perils of computer trading. ...

Failed experiment

Recent turmoil in the EU has provided additional impetus to those who want to "regulate markets" to protect the public at large. Since the current regulations had failed to protect the commoners, it is unclear how new ones will do the job. In the EU crisis, the debate should really be about monetary and fiscal policies and how they should be designed to maximize societal utility. For nearly 50 years now, it has been clear that fine tuning monetary policies and enacting fiscal stimuli are not ...