17 November 2016

Pareto Failure

Quants, whether finance, bio, or econ consider themselves amoral in their approach. Just crunch the numbers.

After Adam Smith, Wilfredo Pareto is likely the "quant" most likely familiar to those interested in econ. Well, more theory than stat, but still. He defined a sort of optimal equilbrium, in the macro sense. In sum, the optimal allocation has been reached when further shifting of resources amongst participants yields lower overall "satisfaction".

The failure of Pareto is illustrated by a classic example: if one has a group of three individuals and a pie of resources where two of the three have taken half of the pie each, then Pareto optimal has been reached. The rationale is that any part of the pie going to the third individual means the two (either alone or tandem) must relinquish some resource. It's not surprising that Mussolini liked Pareto: he provided a sort of "scientific" excuse for autocracy.

Whether he's heard of or read Pareto, Trump is taking the Mussolini tack. That didn't deter him from selling a bill of goods to the poorly educated white (formerly blue collar middle) class. And they bought it by the bushel. We already know, although they will most likely ignore the reality (esp. if they get their news through Facebook!) or consider The Donald's tweets truth, that The Donald has thrown them under the bus. He was recorded telling his rich steakhouse billionaire buddies that they're going to get that wonderful tax break.

Will they believe their own ears, or just the continuing dog whistles from Trump Tower?

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