Volume 1, Number 4

November 11, 1998

Special Year End Mega-Issue

By Jake Shannon

    Improved decision making is always a good thing, especially in today’s market.  Risk analysis, optimization and satisficing models, and heuristics all can be implemented to increase net revenues with varying results.  However, when dealing with financial markets and the price system, the quantities of variables involved are so immense that even computers struggle to integrate it all.  A new programming language has developed called K to handle such a task. The Bank of Switzerland has recently agreed to fund the Palo Alto based Kx Systems and the K language.  "Our senior management has followed the development of the K programming environment for some time," says Thomas Messmore, Managing Director at Zurich Centre Group. "We believe that K-based solutions are ideally suited for creating complex, high performance computing applications. With K, we find that we can aggregate, analyze and control large amounts of data with speed and efficiency in ways we never thought possible. K's facility with massive amounts of data gives us a technological advantage that can provide us with new dimensions of business opportunities."
    Another amazing technology with financial applications is WebMind™, and it’s creator, Dr. Ben Goertzel  plans to improve decision making and perhaps to take decision making out of human hands all together.  According to Dr. Goertzel, "'...there are certain abstract mathematical equations that capture the essence of intelligent thought and explain how intelligent structures emerge from information-rich, complex systems."  What he hopes to accomplish is the creation of a truly conscious computer.  Using Java and the internet like the mind uses neurons and synapses, Goertzel is shooting for a paradigm shift in the world of artificial intelligence (or AI for short).  From the Intellegenesis web site, "[i]n early testing, the results are nothing short of extraordinary. Using a trading model for 30-year bond futures that produced an annual return of 22.5% and drawdowns of 35%, the addition of a textual indicator generated by WebMind™ Analytics resulted in dramatically improved performance: The annual return jumped to 61.5% while the drawdown plunged to 8.5%."
    These technologies have been successful in reaching their places within their field due, in large part, to the strategic thinking of the business executives involved.  Hopefully the impact of the release of such technology upon the world will be what this market needs to get back on course.  AI pioneer Herbert Simon’s idea of bounded rationality, for which he received the Nobel prize in economics, seems to take on a new meaning in light of these new technologies.  I will let you draw your own conclusions;

Bounded rationality- A theory of decision-making which takes into account the capacities of the human mind and has become a central theme of behavioral economics.  It asserts that the rational choice of a decision-maker is subject to cognitive limits as human beings lack knowledge and have only a limited ability to forecast the future.

    When I enter the room, at say a party, what is to guarantee my safety or to insure the other individuals inside safety from me? What stops me from pursuing my instincts to kill anyone who threatens me, to ravish any woman whom arouses my interest, to steal any property that belongs to someone else, or to drink as much wine as I please? What prevents me from becoming a total degenerate? Self-interested expectations. That is to say, the expected results caused by my possible course of action dictates what action I actually do eventually take. Since I think about my actions before performing them, then I know that if I attack another man that he will fight back and if there are others present who find it in their interest to defend him (i.e., the profit gained by defending the man outweighs the costs incurred in offending me), and I am not a fighter of Mike Tyson’s caliber, then it is not wise for me to attack him. Actions have consequences.

    When I walk into the party there are three possibilities. First, everyone in the party could be weaker than me. By this I mean a general inability to apply physical force. The second possibility is that everyone could be stronger than me. By this I mean a general ability to apply physical force (the utility of which decreases marginally with the addition of successive units of time). The strongest person would have immediate, direct physical force at their command. I am speaking, for example, of a gun owner, someone with bodyguards present, a street or professional fighter, a cop, etc. The next level down would be those with access to instruments of force indirectly at their command. These would be lawyers (who would be the strongest of this group followed by those with friends and family in government and/or organized crime) and all other individuals without immediate access to force. The third possibility is that there is a mixture of both.

    If I know before I enter that everyone inside the party is weaker than me, then sure I will enter without hesitation, with no strings attached. I have nothing to lose and everything to gain. However, what if everyone is stronger than me? Why would I want to go inside? Why would I risk the possibility of harm or enslavement.?² Now, it is most likely that the third possibility will be situation I find if I do enter the party, a mixture of those stronger and weaker than me. It only seems to make sense to me that I would prefer to be free from the aggressive actions of the stronger individuals. Assuming that life is generally objectively preferred to death, I can assume all of the individuals present prefer life to death and pleasure to pain. Likewise it seems to me that generally the members of the party that are weaker than me would like to be free from the threat posed by me and by those stronger than me. It makes sense then for everyone in the party to be free from the threat of violence, no matter how weak or strong (I include the strong here because it should be remembered that they are not free from the threat of mob violence).

    The price of me being free from the strong or the mob is that I must let those weaker than me be free too. This is an agreement that I make if I want to live peacefully among others. What if I do not want to be peaceful and I choose to initiate a forceful action? Then I should be dealt a justly forceful reaction. Why? Because as soon as I loosen that one restraint (the abdication of the initiation of force) then it is in everyone else’s self-interest to loosen their restraint in regard to me, too. Rights (to life, liberty, and property) seem to me to be the best way of organizing a group of individuals fairly since I believe individuals to be volitional and self-interested. Ultimately, I support the idea of rights because I am self-interested and volitional. I am willing to enter into an agreement (tacit or otherwise) not to coerce others in exchange for freedom from coercion from others.

2 Is enslavement a bad thing? Of course it is. Why? Because it is forced labor. Each individual owns their self and to the extent that they are forced by threat of physical violence from other individuals to pursue a course of action that they would not otherwise consent to, to that extent they are slaves. Would you enter into the party if you were going to be forced to do things against your will? Insofar as you would you would be consenting (much like a submissive sado-masochist consents to the will of a dominatrix) and that is not slavery, that is more like a weekend at Marv Albert's house.

Since I have no guarantee of the moral virtue of the party members and I am a self-interested being, I would only enter if I felt safe. Now of course, I would have to judge the "safeness" of the party by all the information available to me. (Is this a safe neighborhood? Will I pack a pistol? Do I know anyone there? What is the nature of this party? Is it being held at a peculiar time? How will I leave if I have to? Will contact with the individuals present lead to my prosperity or to my detriment? Are there any profits or costs to be garnered by my decision to go?) For me, it is the "weighing" involved that is the prerequisite for an action to be considered ethical or not. It must be determined whether or not an action is volitional. The profit of entering the party would have to outweigh the cost. If it does, then I would choose to enter.

    Now the only way that I can enjoy those profits is if I still exist and am free to use the profits as I see fit. If I am going to be beat up or enslaved what good are profits to me then? Before I enter the room I am going to do one or two things. First, I will carry a gun or some other form of peacemaker defend myself. And/or, second, I would enter into a contract with members of the party to insure my safety enforced by either exogenous or endogenous agents. Why these agents must have monopoly license on the use of force (like the police or military) is beyond me. In fact, what’s to stop government from abusing their monopoly status?

    The only thing I can think of is competition form other agents of force. That is a function performed by the Madisonian distribution of power between the legislative, judicial, and executive branches. Do federal and state law enforcement go to war (as many opponents of anarcho-capitalism maintain would happen in a competitive police market.) when there is a dispute over jurisdiction? Very rarely. It is, in my opinion, not because there is one controlling legal authority, but because it would be completely inefficient for them to go to war. It is possible for different factions of a governmental department to have an endogenous violent conflict. The Mexico City Police Department is one example. There have been several highly publicized gun battles there between corrupt police officer gangs over the reigns of power. The reason these battles do not occur more often in other countries is not because the police there are more moral, or even because they are subject to one authority but because it is inefficient for them to do so. Now I am not in any way saying that competitive police forces would automatically be virtuous. No, what I am saying though is that the more virtuous ones would survive in a competitive market. Tangentially, the heuristic by which this could be achieved is by slowly turning protective services to the market in the same way that Fed Ex and UPS have been allowed entry into the postal market, but I digress.

or

Racists, Damn Racists, and Charles Murray

by Jake Shannon

"This book is about differences in intellectual capacity among people and groups and what those differences mean for America’s future". Here it is, the entire scope of analysis as it is intended by the authors of The Bell Curve. This benign looking sentence is a Trojan horse bursting with collectivism.

The danger of this sentence is that it correct right up until the first coordinating conjunction. It is absolutely true that intellectual capacity differs among individuals. Thomas Sowell’s intellectual capacity is very different from say, Pauly Shore’s intellectual capacity. This much is obvious. What is not so obvious is the word sandwiched between "and"s. The word "groups" makes Murray and Herrnstein’s premise guilty of the fallacy of composition. Is it true that if intellectual capacity among individuals varies, then intellectual capacity among groups of individuals must vary too? Of course not, it is not necessarily true that if something is true of the parts, then it is also true of the whole. (Dustin Hoffman and Warren Beatty are both good actors but did that make Ishtar a good movie?) Ask yourself, "How are these groups determined? What is the differentia in defining who belongs to which group?" Shoe size? Skin color? Baldness? There is no biological, genetic link between any of these criteria and a predisposition toward excelling on standardized tests. In other words, there is no proof.

Are the East Asians superior to Europeans cognitively? Murray and Herrnstein say, "[t]he universality of the contrast in nonverbal and verbal skills between East Asians and Europeans whites suggests, without quite proving, genetic roots." What business do they have to make such a claim without proof? None, such a preposterous assertion withers in the face of reality, of proof. Does admitting to one’s deceit make it true? No, it just shows that they have no qualms about parading the arbitrary as real.

Sure, individuals differ cognitively, but do groups? No, a race cannot think, and if it cannot cognate how can it differ cognitively from other races? Murray and Herrnstein go so far as to rank races anyway with the help of their psychometricians. According to them, ethnically the order from highest to lowest is Ashkenazi Jews, East Asians, Europeans, and African Americans. Female philosopher/novelist Ayn Rand said it best. "The question of whether one alleges the superiority or the inferiority of any given race is irrelevant; racism has only one psychological root: the racist’s sense of his own inferiority."