03 June 2016

Quants Worst Nightmare

More than a few digits have banged keys in these endeavors on the topic, "data doesn't drive events, events drive data". While clearly obvious, sites such as r-bloggers continue to be dominated by hedge fund wannabes posting their executions of exercises from the likes of Ruppert. They imagine that home computers and cable modems have enough horsepower to out maneuver mainframes and server farms hard-wired to exchanges' machines. Or that they can game above the market rate of return. Bah.

As I've always said, they'd be better off with a subscription to the NYT, and develop a sense of where the world, or their sector of interest, is going. Algorithmic trading is useful if one is only interested in anticipating major moolah movements between sectors. But, of course, that approach works only if one has the moolah flow data before most of the other participants.

So, today we get this story about irrational man.
"The Undoing Project" explores the groundbreaking work of two psychologists, Daniel Kahneman and Amos Tversky, whose research into decision making and judgment has challenged fundamental beliefs about human nature. In study after study, they showed that when it comes to making decisions, humans are predisposed to irrationality. Their surprising findings have had profound implications for everything from behavioral economics and politics, to advanced medicine and sports.

I find the whole mess amusing, having spent a good deal of my adult life identified as economist/econometrician. Turns out, Homo Economicus is a fantasy. Told ya so.

Along similar lines is a major, if not ultimate, peeve with financial quant, be it financial engineering or economic analysis or the like. This is another in a continuing line of "analysis" which depends upon imputing the value of humans' (consumers) idle time.
But T.S.A. ledgers don't capture the cost of wasted time. Suppose, for example, that a passenger budgets an extra hour to make sure she catches her flight. The value of this hour surely exceeds the $6.50 she pays to the T.S.A. And for nearly anyone, it also exceeds $10. But you won't find such calculations in the agency's accounting.

No, idle time ain't worth a dime!!!! Most commuters are salarymen, so they don't get paid by the hour. Of those that do, a minuscule number can set their paid hours and rate of pay. Yes, waiting in line at the airport, or stuck in traffic on a commuter's interstate is a PITA, but it doesn't cost you any money. You're going to Grandma's house, for crying out loud. It don't matter a damn whether you're an hour late. If you're an hour early, should each passenger be required to pay the pilot his/her hourly imputed wage? Stop this nonsense. For what it's worth, my time comes to $200/hour. You can all send me a check for the two hours it took to build this text.
I am a worthy human being.
-- Stuart Smalley

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