Card games, real life??

February 23, 2008 at 7:29 pm | In Free time, Thinking Out Loud | Leave a Comment

Last weekend we went hiking/snow shoeing/sledding in the Austrian Alps.  There were 8 of us so there was always someone to talk to and someone doing something silly or interesting.  Aside from spraining my ankle sledding back down the mountain (which should be really fun with my 5 week trip to India fast approaching) it was awesome, absolutely perfect weather.  We stayed at a “Huette”, basically and youth hostel way up in the mountains that sometimes have no electricity.  This one didn’t have warm water but was comparatively nice, they ran lights off PV and battery packs in the basement, the rooms were warmed by wood stoves and they had warm food (many don’t) which was cooked on this big old style wood oven. 

At night the 8 of us played a card game called “president and asshole”.  It is a fun game played with the high cards out of 4-5 decks of cards.  It requires a little bit of strategy and the objective is to be the first (or at least not the last) to get rid of all of your cards.  One aspect is that the person who did was last in the previous hand has to give their best card to the person who won, the person who won then gives them any card they want to.

I did fairly well in the game and when I gave the person a high card in return people thought I was crazy, why give away a high card.  Yes, normally high cards are a good thing, but with my hand it would have been like having a poker hand with four 7’s and getting rid of 2 because there were low cards.  Most of the people played “obvious moves” in other words they played just high cards one at time, not using just a little strategy to play groups of 3, 4, or 5 cards at a time.    It was just for fun and not competitive, but at the same time it was interesting that people thought I “just didn’t understand” an never looked for the bigger picture of how to gain control of the round and play out most of their cards.  (Yes, I won  =)

I wonder how much this simple game reflects life in general, where we generally don’t think about larger picture or interconnected systems, only what is directly in front of us…

Financial Systems

November 7, 2007 at 10:04 pm | In Thinking Out Loud | Leave a Comment

I recently read an article in the MIT Technology Review called “The Blow-up” about the financial blow-up this summer and it brought up a few interesting points.

Are the linkages in our financial system really unforeseen and unpredictable??? While the article suggests that no one could have predicted that two financial products with no know “correlation” could so strongly affect each other, I think it should have clear it could and would happen.  I am not saying that I knew it was coming or that anyone could have known thing would happen in this way, I am saying that any time you look at something in a vacuum and don’t think about interactions, you are asking for trouble.

We have an intricate financial system and in even simple systems small changes can have major side effects and side effects of those side effects, in diverse and sometimes seemingly unconnected places.  Whenever people try to “game” the market, or depending on your point of view, enhance the efficiency of the markets by a strictly numbers (historical data and algorithms) approach, you should expect unexpected results, and when those same people (algorithms) are large enough to move the markets on their own then the “unpredicted results” are magnified.

Our financial market and not pure markets.  Yes, vast amounts of the capital movement is controlled by fast computers making, assumingly, logical decisions based on facts (number based data), but that is only part of the story.  If the system consisted only of computers executing algorithms based on logical yes/no decisions then the system would be predictable, logical and would continue to function, its not.

This is only the top layer and only part of the top layer at that.  The system is also people, and we know from experience that no matter how “rational” people may be, we are not always rational when it comes to money and our hopes and fears influence out decisions in ways numbers can’t predict.  Secondly, there may be strong correlations (or negative correlations) between financial instruments that you can predict in many cases, but these instruments are based on the success of companies run by, sometimes illogical people, who supply products to people who based their buying decisions on all sorts of irrational factors.

In addition, it cannot take into consideration factors that change the markets.  I would be very curious to know if any of the models had predicted the booming renewable energy/clean tech market 3-4 years ago and can account for the difference between the Chinese, German and American stocks in this industry. 

With statistical analysis provides key information for decision making, I worry where we as humans outsource thinking and decision making responsibility to computers that cannot understand non-quantifiable relationships, and the decisions based on imagination, creativity greed, fear and hope.

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