Archive for November, 2009

Why exactly are we controlling pay for hedge fund managers?

Saturday, November 28th, 2009

Apparently the EU is making a ham-fisted attempt to interfere with the remuneration of fund managers, including hedge funds, which smells of populism to me. The entire point of hedge funds is that the only people who can invest in them are people who understand the risks they’re taking on, and investors are the only people who stand to lose money as a result. I’ve yet to see any explanation of how hedge fund activities contributed to the banking crisis; the mood in these straitened times is that if anyone has money, they must have stolen it.

More broadly, the moral charge being made against the institution of banking makes little sense to me. Certainly individual banks have shown themselves to be grossly incompetent, but there seems to have been very little knowing malfeasance. The banks concealed the risk unwittingly, and could only do so with the (equally unwitting) aid of politicians, the financial press and the general public, all of whom wanted to believe in the Emperor’s Clothes.

The idea that substantial numbers of people had foresight of the banking crisis seems to be a fiction, but let us suppose for a moment that such people existed. I may be naive, but I don’t see how the actions of the banks can have damaged these people. In financial trading, knowing something that your peers don’t (about the instability of the global financial system, say) is typically profitable. Such people could have made vast amounts of money betting against the consensus, or if they didn’t fancy the risk, kept their portfolio safe by avoiding exposure to riskier stocks and bonds and taking a larger position on gold.

Where the shrill charge against the banks is coming from those who base it only on hindsight, I have little sympathy. These people seem to want to have things both ways: asking no questions about the run-up in asset prices during the good times, and demanding compensation in the bad. Those who dislike the banks are free to opt out of their services, but the banks do not owe us a living.

What do you get if you cross Richard Stallman with Ayn Rand?

Wednesday, November 25th, 2009

“Quite simply, not enough schools perform like the best. In fact, results tend to hover around the national average.” — A UK government minister explains education

On of Richard Stallman’s points was that software producers need to stop competing with each other in order to ensure our output is the best that it can possibly be. Ayn Rand argued that we need to compete with each other constantly in order to ensure our output is the best that it can possibly be.

The wish to make more things brilliant and less of them mediocre drives a lot of people, from the greatest entrepreneurs and inventors to whichever hapless minister produced the quotation with which I began this article (I was unable to find any source on the web, and I’m forced to admit it may have been apocryphal.)

But the method by which we make the world a better place is a fiercely contentious question, and many of the people on the extremes will, when push comes to shove, put ideology ahead of results. Nothing wrong with that, but it leaves those of us in the middle lacking clear role models when it comes to pursuing a more consequentialist approach. This is particularly difficult to do when we identify strongly with their goals, if not their ideologies.

Book review: Head First Statistics vs. The Manga Guide to Statistics

Wednesday, November 25th, 2009

Front cover of the Manga Guide to StatisticsStatistics is a subject that most people have less understanding of than they ought to, not least because it’s usually such a dry topic. As Zed Shaw pointed out, the lack of understanding of statistics is something of a blind spot for programmers, who tend to think of themselves as numerically proficient but often dismiss statistics as unimportant “stamp collecting” for people who can’t do “real maths”.

When I came across two books recently that try to make the subject more fun and approachable, I was initially quite sceptical. In my opinion, the main problem with statistics is not that people don’t spend time trying to learn it, but rather that they don’t properly comprehend the underlying principles. Too often teachers seem to be trying to make it more approachable by leaving out the mathematics, leaving just a series of “black box” techniques into which the student plugs the numbers. The problem with this is that it’s easy to plug numbers into the wrong black box.

Head first statistics Front cover

The Manga Guide to Statistics tells the story of Rui, a young girl who takes a course on statistics in order to impress an attractive teacher. The reader learns through Rui’s eyes as we observe a series of lessons. Though Rui lacks interest in the topic, she seems intelligent and the teacher strikes a good tone that avoids ever being patronising. The characters make for an entertaining read, and unlike “Head First”, the jokes actually made me laugh.

Of course, all this is for naught if the book doesn’t teach the concepts of statistics. Thankfully (and somewhat surprisingly to me), the answer is that it teaches the topic rather well. The main downside to the manga style is that information density is very low, and plenty of technical details are sketched or glossed over entirely. One positive side to this is that omitting details makes the principles stand out more clearly. This certainly won’t be your only book on statistics, but as an introduction it’s an engaging and memorable one.

Engaging and memorable are two adjectives that ought to apply to “Head First” as well, but I’m less convinced by this one. It strikes a chatty, informal tone with plenty of simplified examples, diagrams and other visual aids. A key part of its approach is to express the same idea several times in different forms, the effect of which varies between useful and infuriating depending on whether you were having trouble with the concept. Unlike other Head First titles, I found the tone positively patronising at times.

One obvious difference from the Manga Guide is the sheer volume of information presented. It goes into a lot more depth on graphing, probability and combinatorics, among other things. The pages are somewhat more information-dense, but even so it runs to a massive 677 pages (roughly equivalent to Schneier’s Applied Cryptography, if that gives you any idea). In terms of topics covered you won’t be left wanting, though the format doesn’t make a good reference book.

If you’ve learned statistics before and just need a refresher, the Manga Guide makes a good change of pace even if (or perhaps especially if) you wouldn’t normally read manga. I could certainly recommend the Head First book if you have struggled with learning statistics in other books and want to take things slowly, and if you don’t like the idea of switching to a “real” textbook once you’ve finished with the introductory material.