I reckon the 'debate' about pay at the banks could take a turn for the unpleasant if the banks themselves don't start behaving a bit more sensibly. This week we learnt that Goldmans (which is one of the US banks taking a helping hand from the taxpayer) is going to pay out about £7bn in bonuses, a move that even the Daily Mail decried.
It's not as straightforward as some of the populist commentary suggests. I bet a lot of this is contractual, so it's not easy for the banks to get out of making the awards without the agreement of the individuals concerned. And A LOT is owed. That said, it's amazing that there isn't a little bit of restraint on the part of bankers, purely out of self-interest.
The gossip from the RBS clearout was that Goodwin actually argued for a pay-off, even as the Government was tying up the part-nationalisation. What the hell was he thinking? Next in the departure lounge is most of the HBOS board. It will be interesting to see if they try and negotiate any kind of pay-off (the chair and chief exec have already said they won't I believe).
It's a dangerous time for banks not to demonstrate a bit of sense about pay. Surveys that have been done looking at who the public thinks is to blame for the current crisis repeatedly put banks top of the list. The dominant view seems to be that bankers have mucked things up for the rest of us, and paid themselves handsomely in doing so. Further examples that seem to confirm this impression are only going to inflame the situation.
PS. The ABI is floating the idea of clawback provisions. It might not be a bad idea for the future.
Friday, 31 October 2008
Wednesday, 29 October 2008
Mutual funds backed bank pay
Another plug for the ace FundVotes.com website. It's just published this report (PDF) on mutual fund voting on say-on-pay resolutions at the banks that the Government has taken stakes in. No surprise (to me anyway) to see that a number of the big houses (Putnam, Fidelity, Vanguard) didn't back any of the resolutions.
It's not a smoking gun. Voting decisions don't tell us too much about the interaction between between companies and there shareholders. But it does suggest that only a few months ago the big mutual funds apparently did not see any serious issues with pay at the banks.
It's not a smoking gun. Voting decisions don't tell us too much about the interaction between between companies and there shareholders. But it does suggest that only a few months ago the big mutual funds apparently did not see any serious issues with pay at the banks.
The risk of rising shares
This is a rather graphic demonstration of the risk that investors run when they are shorting. When you go long you can lose up to 100% of what you have invested, but when you go short the amount you can lose is basically unlimited (because the shares may keep on rising). It demonstrates that one is not the mirror of the other, in addition to showing that shorters are not necessarily better informed (or more rational) than long-only investors (as implied by the argument that shorting can prevent the emergence of bubbles).
UPDATE: Nick says I'm talking ballax (see comments). I might be! A bit.
UPDATE: Nick says I'm talking ballax (see comments). I might be! A bit.
Tuesday, 28 October 2008
Every time I learn something new it pushes some old stuff out of my brain
So says Homer in one episode of The Simpsons. But maybe Homer actually "misunderestimated" (Copyright G W Bush) himself by falling for the metaphor of the mind as a container. It's a very tempting metaphor, because it seems to get across the way that we access and 'store' new information. Here's a thumbnail sketch of the idea from the essay 'Is there a problem in explaining cognitive progress?' by Aaron Ben-Ze'ev in Rethinking Knowledge: Reflections Across the Disciplines.
"In this view, the mind is an internal container, and cognitive progress is a quantitative increase in the amount of internal representations. In such a mechanistic paradigm, the cognitive system remains more or less stable, the only difference being that its empty shelves are gradually filled with more information. Cognitive progress is attained by adding a certain part to an existing system. When this mechanistic picture is applied to to the realm of scientific knowledge, science is conceived of as essentially taking pictures of the external world; the more pictures science has, the more adequate the science is. Hence there is always linear progression. Both the individual person and science as a whole are constantly marching toward a better understanding of their surroundings."
But is this really how our minds work? In the essay he suggests adopting a different approach - the schema paradigm. In this view the mind is made up of capacities and states. In the container metaphor, when you want to recall information presumably you send the little bloke in your head off into the information warehouse to retrieve what is required. In the schema paradigm, however, the container metaphor doesn't work because key elements - capacities and states - are retained rather than stored.
"The capacity to play the piano and the state of being beautiful are retained but not stored. Similarly, capabilities are not brought out of storage but are realised or actualised. The state of a car in motion is not stored in its engine when the car is stationary; rather the car has the capacity to repeat its state of being motion. And by the same token, when a squeaky toy does not actually squeak, it retains (rather than stores) its capacity to squeak."
This, he argues, also explains something about the organisation of the brain:
"In a storehouse, it makes very little difference how the items are disposed or organised. Something may be stored at the right or left side of the storehouse without being affected. However, in the schema paradigm, organisation is an essentia property, not a later addition. The importance of organisation and relations in memory can, for instance, explain that it is much harder to recall the months of the year in alphabetical order than in their chronologial sequence. A junkyard or tapre recorder model of memory is feasible and even natural in the container paradigm, whereas the schema paradigm stresses the importance of the relations and organisation among the carious items. Many phenomena indicating the sensitivity of memory to organisation attest to the greater suitability of the schema than the container paradigm for memory."
Notably George Lakoff (yes, him again) has been here already, and has identified the container metaphor as one the most prevalent. You can also see that it crops in other areas - what about set theory in maths for example? But as a way of understanding how we learn, perhaps it simply doesn't work. Sorry Homer.
"In this view, the mind is an internal container, and cognitive progress is a quantitative increase in the amount of internal representations. In such a mechanistic paradigm, the cognitive system remains more or less stable, the only difference being that its empty shelves are gradually filled with more information. Cognitive progress is attained by adding a certain part to an existing system. When this mechanistic picture is applied to to the realm of scientific knowledge, science is conceived of as essentially taking pictures of the external world; the more pictures science has, the more adequate the science is. Hence there is always linear progression. Both the individual person and science as a whole are constantly marching toward a better understanding of their surroundings."
But is this really how our minds work? In the essay he suggests adopting a different approach - the schema paradigm. In this view the mind is made up of capacities and states. In the container metaphor, when you want to recall information presumably you send the little bloke in your head off into the information warehouse to retrieve what is required. In the schema paradigm, however, the container metaphor doesn't work because key elements - capacities and states - are retained rather than stored.
"The capacity to play the piano and the state of being beautiful are retained but not stored. Similarly, capabilities are not brought out of storage but are realised or actualised. The state of a car in motion is not stored in its engine when the car is stationary; rather the car has the capacity to repeat its state of being motion. And by the same token, when a squeaky toy does not actually squeak, it retains (rather than stores) its capacity to squeak."
This, he argues, also explains something about the organisation of the brain:
"In a storehouse, it makes very little difference how the items are disposed or organised. Something may be stored at the right or left side of the storehouse without being affected. However, in the schema paradigm, organisation is an essentia property, not a later addition. The importance of organisation and relations in memory can, for instance, explain that it is much harder to recall the months of the year in alphabetical order than in their chronologial sequence. A junkyard or tapre recorder model of memory is feasible and even natural in the container paradigm, whereas the schema paradigm stresses the importance of the relations and organisation among the carious items. Many phenomena indicating the sensitivity of memory to organisation attest to the greater suitability of the schema than the container paradigm for memory."
Notably George Lakoff (yes, him again) has been here already, and has identified the container metaphor as one the most prevalent. You can also see that it crops in other areas - what about set theory in maths for example? But as a way of understanding how we learn, perhaps it simply doesn't work. Sorry Homer.
Monday, 27 October 2008
Fairness, blokeyness and selfish gits
I'm at home feeling ill today, so trying to fit in a bit of reading. I thought I'd have a flick through another book on behavioural economics that I took a punt on recently which is Advances In Behavioural Economics, edited by Colin Camerer, George Loewenstein and Matthew Rabin. The paper I've been reading is Fairness and Retaliation: The Economics of Reciprocity by Ernst Fehr and Simon Gachter, which is all about... err... reciprocity. The influence of reciprocity is pretty well-established and comes in two forms - positive and negative. In the former case we respond co-operatively to friendly actions, in the latter we seek to punish hostile actions, often in quite a brutal way.
In a well-known experiment, two participants are given a prize, say £100, to divide between themselves. The way it works is that participant A gets to make the offer of how the money will split, and participant B gets to decide whether to accept it or not. The important points are that the offer can only be made once, and if participant B doesn't accept it then neither participant receive any money.
Now, if we were only driven by maximising self-interest, and not 'fairness', participant B should accept any offer, even if it is £1 for him/her and £99 for participant A. But actually, in the hundreds of times the experiement has been run, it turns out that many (in fact probably most) of us would rather reject an 'unfair' offer. In practice an offer where participant B will get 30% or less of the total is very likely to be rejected. Importantly this holds up even when the amounts of money involved are significant.
Notably further work has been done looking at male behaviour in these experiment and testosterone levels and there's a correlation. Males who reject 'unfair' offers have higher testosterone levels than those who accept them. I don't find this that surprising, as it seems like the expression of the desire not to be ripped off. That may undermine the cartoony views of some Righties that a desire for fairness is the whiney voice of the weak and feeble (it may also suggest that lefties have hairy backs).
It's worth noting in these types of experiments that we don't all act the same. While a majority of us exhibit reciprocal behaviour, both positive and negative, a large minority - 20% to 30% - behave completely selfishly. So actually behavioural economics provides some confirmation for typical Left and Right views of human nature. Most of us do want to reciprocate, but don't base your policies on that assumption, because one in three of us is a selfish git who will muck things up for you.
In a well-known experiment, two participants are given a prize, say £100, to divide between themselves. The way it works is that participant A gets to make the offer of how the money will split, and participant B gets to decide whether to accept it or not. The important points are that the offer can only be made once, and if participant B doesn't accept it then neither participant receive any money.
Now, if we were only driven by maximising self-interest, and not 'fairness', participant B should accept any offer, even if it is £1 for him/her and £99 for participant A. But actually, in the hundreds of times the experiement has been run, it turns out that many (in fact probably most) of us would rather reject an 'unfair' offer. In practice an offer where participant B will get 30% or less of the total is very likely to be rejected. Importantly this holds up even when the amounts of money involved are significant.
Notably further work has been done looking at male behaviour in these experiment and testosterone levels and there's a correlation. Males who reject 'unfair' offers have higher testosterone levels than those who accept them. I don't find this that surprising, as it seems like the expression of the desire not to be ripped off. That may undermine the cartoony views of some Righties that a desire for fairness is the whiney voice of the weak and feeble (it may also suggest that lefties have hairy backs).
It's worth noting in these types of experiments that we don't all act the same. While a majority of us exhibit reciprocal behaviour, both positive and negative, a large minority - 20% to 30% - behave completely selfishly. So actually behavioural economics provides some confirmation for typical Left and Right views of human nature. Most of us do want to reciprocate, but don't base your policies on that assumption, because one in three of us is a selfish git who will muck things up for you.
Sunday, 26 October 2008
Strange stats in The Observer
There's a freebie magazine with The Observer today all about sex and attitudes to it. In the survey section there are odd results when people have been asked about the threat to children from paedophiles. Here they are -
Do you believe that children are more at risk from paedophiles than they were 10 years ago?
Yes: 80%
No: 20%
Twenty years ago?
Yes: 72%
No: 28%
Fifty years ago?
Yes: 66%
No: 34%
If I'm reading this right, doesn't this mean that people think that the past was riskier?
If you answer the question 'no' then surely you must think that in the period specificed the risk was the same s now, or perhaps even greater. So if we say the risk today is 'high' then just 20% of people think the risk 10 years ago was also 'high' (or greater), but 28% think the risk 20 years ago was at least the same, and if you look back 50 years a third of us think the risk was at least the same as today. So that suggests that people answering these questions think that the threat from paedophiles had been dropping since the war until a spike in the last decade (coinciding with the 'election' of the ZaNuLieBore junta!).
I say it's odd because I suspect people didn't think they were answering the questions in a way that gave that impression, they probably wanted to express their view that things had got riskier recently. Would be interesting to find out what order the questions were askd in to see if this made a difference, but more broadly I guess it demonatrates what a waste of space these types of surveys are.
Do you believe that children are more at risk from paedophiles than they were 10 years ago?
Yes: 80%
No: 20%
Twenty years ago?
Yes: 72%
No: 28%
Fifty years ago?
Yes: 66%
No: 34%
If I'm reading this right, doesn't this mean that people think that the past was riskier?
If you answer the question 'no' then surely you must think that in the period specificed the risk was the same s now, or perhaps even greater. So if we say the risk today is 'high' then just 20% of people think the risk 10 years ago was also 'high' (or greater), but 28% think the risk 20 years ago was at least the same, and if you look back 50 years a third of us think the risk was at least the same as today. So that suggests that people answering these questions think that the threat from paedophiles had been dropping since the war until a spike in the last decade (coinciding with the 'election' of the ZaNuLieBore junta!).
I say it's odd because I suspect people didn't think they were answering the questions in a way that gave that impression, they probably wanted to express their view that things had got riskier recently. Would be interesting to find out what order the questions were askd in to see if this made a difference, but more broadly I guess it demonatrates what a waste of space these types of surveys are.
Saturday, 25 October 2008
Brace yourself, cos this goes deep
Googling around for info on the legitimation of ideas, I came across a paper on the Challenger shuttle disaster which looks like it might be an interesting read. Here's a chunk of text from the paper about how ideas come to be accepted -
"Analogy in combination with the social mechanisms identified here—professional legitimacy, conversation, technologies, time, networks, social support—seem to be ingredients fundamental to the diffusion of expert knowledge. Scholars interested in the production of knowledge and the diffusion of ideas have tended to approached the problem one of two ways: reputation or content fit (Camic 1992; McLaughlin 1998). The reputational perspective accounts for the rise and fall of ideas based on historical and cultural context, geography and national traditions, institutional, organizational, and network arrangements, or individual characteristics of the author and scholarly life. This case affirms the reputational model’s findings about institutional arrangements and networks, adding to it by emphasizing the actor-network association (Latour 1987, 1988) and by suggesting that technologies of dissemination might be usefully incorporated into the study of knowledge production, regardless of type of knowledge or historic period. The second approach has explained the acceptance or failure of an idea by its content. Camic, discussing the role of the content-fit model in a theorist’s selection of intellectual predecessors, implicitly suggests analogy: “The relationship exists chiefly because of the fit between the arguments, concepts, themes, materials, orientations, or methods of certain earlier figures and some aspect(s) of the work of the thinker under study” (1992, p. 423). The fit with the content of an idea is affirmed by the empirical analogies that enabled the theory of the Challenger accident to travel to the Columbia tragedy. These analogies and the structural equivalences between the two problems suggest that the form of an idea or theory in relation to its application to other empirical situations may also be significant in the legitimation of ideas, their acceptance or rejection and dissemination."
The paper is NASA Revisited: Theory, Analogy, and Public Sociology by Diane Vaughan.
Title hat-tip: Mike Skinner
"Analogy in combination with the social mechanisms identified here—professional legitimacy, conversation, technologies, time, networks, social support—seem to be ingredients fundamental to the diffusion of expert knowledge. Scholars interested in the production of knowledge and the diffusion of ideas have tended to approached the problem one of two ways: reputation or content fit (Camic 1992; McLaughlin 1998). The reputational perspective accounts for the rise and fall of ideas based on historical and cultural context, geography and national traditions, institutional, organizational, and network arrangements, or individual characteristics of the author and scholarly life. This case affirms the reputational model’s findings about institutional arrangements and networks, adding to it by emphasizing the actor-network association (Latour 1987, 1988) and by suggesting that technologies of dissemination might be usefully incorporated into the study of knowledge production, regardless of type of knowledge or historic period. The second approach has explained the acceptance or failure of an idea by its content. Camic, discussing the role of the content-fit model in a theorist’s selection of intellectual predecessors, implicitly suggests analogy: “The relationship exists chiefly because of the fit between the arguments, concepts, themes, materials, orientations, or methods of certain earlier figures and some aspect(s) of the work of the thinker under study” (1992, p. 423). The fit with the content of an idea is affirmed by the empirical analogies that enabled the theory of the Challenger accident to travel to the Columbia tragedy. These analogies and the structural equivalences between the two problems suggest that the form of an idea or theory in relation to its application to other empirical situations may also be significant in the legitimation of ideas, their acceptance or rejection and dissemination."
The paper is NASA Revisited: Theory, Analogy, and Public Sociology by Diane Vaughan.
Title hat-tip: Mike Skinner
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