Posts Tagged ‘irrationality’

Unpredictably Rational

I don’t think humans are rational creatures but we do have an ability to make rational decisions. And perhaps an even greater ability to rationalize our (rational and irrational) behavior.  Just saying. – Ilene 

Unpredictably Rational

Muskrat :: Ondatra zibethicus

Courtesy of Tim at The Psy-Fi Blog 

Common Sense

As we go about our everyday lives we don’t spend a lot of time reflecting on the irrationality of the people around us. Certainly from time to time people do stupid things, but by and large most of us make it through most of our days without driving the wrong way up roads, roasting our dogs in microwaves or buying stocks in stupid companies. Even when we do odd things there’s usually some recognisably rational reason for us doing them.

This version of human rationality is virtually unknown to all brands of economics which largely insist on defining rationality in an irrational way and then sniggering at the human race when it fails to live up to the standards that some rather over-focused economists think it should. The problem for them is that we’re not the irrational ones, they are. The problem for us is that the people that matter listen to them, not us.

Maximal Utility

The definition of rationality that’s at the centre of modern economics is a strange conceit, based around the idea of maximising utility. Underlying this is an assumption that rationality means that we’re consistent in our choices: faced with the same situation we should always do the same thing. From this position economists have then spent a great deal of time trying to design experiments to show that this is what we do, which is just about possible when you remove all vestiges of reality from the situation (see, for instance, Be a Sceptical Economist).

Chimpanzees Take Control Of The Cameras For BBC Documentary

However, real-life isn’t like this. We rarely, if ever, face the same situation twice: life is a stream and we can’t stand in it twice. Mostly we must face each situation anew and make new choices each time. Obviously we rely on past experience to guide us in our decision making and, as we all have different experiences to guide us, we make different decisions. We even make different choices ourselves between very similar circumstances and most of us will see nothing wrong in this. It’s certainly not…
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Valentine’s Day Sexonomics

Valentine’s day revisited through the eyes of Eric and from an economic perspective.  The same principles that are used in choosing which stock to buy can be used in selecting a mate, or the other way around. – Ilene 

Valentine’s Day Sexonomics

Bottle of champagne by bouquet of flowers and box of chocolates

Courtesy of ERIC FALKENSTEIN

Steve Levitt’s Freakonomics bestseller highlighted that many quirky phenomenon can be analyzed using economic reasoning, or really, assuming individuals are self interested, and applying statistics and logic to that. Many people find this application of ‘economics’ much more interesting than applying such logic to widgets or muni bonds, so why not just get all those cost and indifference curves in price/quantity space out of economics textbooks, and replace with sexy pictures and fun sex trivia? One could then see economic lessons on Spike TV, right after Manswers. After all, sex is an object of exchange just like any other commodity, but a lot more fun for college-aged students to contemplate. 

For example, Charlotte Allen’s article on the New Dating Game, and Lori Gottlieb’s book on why women should settle rather than become spinsters, brought forth a lot of ‘Freakonomic’ issues around dating, sex and marriage, and generated considerable blog buzz (see Robin HansenSlateJezebel). Writing about these matters is always sure to get people excited, because these are issues people feel they understand pretty well, so people who disagree are way wrong! This got me thinking about the fun book, Mathematics and Sex, which is good nerd porn. Consider the application of economic models to the following issues:

Asset pricing: Choosing a young man for a long-term mate means evaluating his future value; you don’t want a young hottie who won’t age well. Hot Chippendale dancers with low intelligence aren’t good buys. But then, if you want to get the next billionaire, should you try to find the next Bill Gates or Warren Buffet? These are true nerds, and at 18 they weren’t attractive to most women (Buffet writes candidly about his social ineptness as a young man). So, should women glom on to nerds? Well, it could be that nerds have a higher top return, but lower average return, so this isn’t optimal even abstracting from their obviously lower current value. Fads based on conspicuous successes can alter the value of current young men. Perhaps your dad was a prior bubble (eg, he…
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Science, Stocks and Superstition

Science, Stocks and Superstition

Courtesy of Tim at The Psy-Fi Blog

biasesUnreliable Science

As we’ve seen – repeatedly – people aren’t particularly good at overcoming the behavioural biases built into our nature by evolution. There’s no real reason we should be – computing the statistical probability of an above average return on the stockmarket over a twenty year period wasn’t of much value for most of human history. This was partly because twenty years was more than the average lifespan of a proto-human but largely because no one had yet got around to inventing money or stockmarkets or stocks. Or ‘years’.

If these biases are inherent and cause us to do stupid things around finance we might expect that they’ll appear in other areas as well where humanity has only recently started to apply its higher cognitive functions. So it’s unsurprising that our basic intuitions about science are about as reliable as those we have about finance. To whit: not reliable at all.

Greek Geeks

Science has been around a lot longer than modern financial theory. The Ancient Greeks developed many concepts that aren’t out of place in the modern pantheon of university science faculties – atomic theory, planetary orbits and toga parties amongst them. Unfortunately they failed to marry their scientific insights to a stable economic system and much of their knowledge was lost for the best part of a millennium. The lesson being, presumably, that disenfranchising women and relying on slave labour is a poor way of building a stable society. Global corporations take note.

GreeksDuring that lost thousand years or so the only real legacy of Greek knowledge in the Western world was a smattering of Aristotle, who was a bloody good thinker but a bit weak on stuff like planetary motion and mathematics. Somewhere along the line Aristotle’s ideas got mixed up with Christianity and resulted in the odd position of the Catholic Church defining God’s word on the basis of the scientific writings of an atheistic Greek who died before Christ was born. We can blame Thomas Aquinas for that one.

The period known as the Renaissance – the rebirth – was marked by a remarkable rediscovery of Ancient Greek thought. Some of this came from the Muslim world, where many ideas and writings had been sustained through the European Dark Ages, and some of it from the


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Zero Hedge

California Troubled Utility Proposed $2 Billion Rate Hike To Fund "Wildfire Safety"

Courtesy of ZeroHedge. View original post here.

One month after the stock and bonds of troubled California Utility Pacific Gas & Electric cratered after the company hinted of a liquidity crisis as a result of mounting legal obligations following California's destructive Camp Fire, shocking and infuriating its investors...

...



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Phil's Favorites

May defiant, Macron contrite amid crises that threaten the EU's stability

 

Visit to hell by Mexican artist Mauricio García Vega.

May defiant, Macron contrite amid crises that threaten the EU's stability

Courtesy of Helen DrakeLoughborough University

By some freakish alignment of political firmaments, both Theresa May and Emmanuel Macron have lived the week from political hell. Both the British prime minister and French president face challenges to their very survival as national leader.

On the face of it, their winter woes are surprisingly similar. The political authority of both Macron and May is under ...



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Kimble Charting Solutions

Dow Theory Concerns? Transportation Stocks Make New Lows

Courtesy of Chris Kimble.

The bull market is experiencing its first real test since the 2014/2015 stock market correction. Volatility is high and key sectors are heading lower.

One such sector is the Transportation Sector(NYSEARCA: IYT) and select stocks.

The age-old Dow Theory call for the Industrials and Transports to lead the market (and confirm each others moves). Currently, both are struggling. But the Dow Transports are on the precipice of a major breakdown. Looking at the chart below, you can see that the Transportation Sector ETF (IYT) is attempting to break down below its 12-month trading range and 9-year rising support line.

If the market doesn’t reverse higher soon, this break down will send a negative message to investors about the economy… and the broader stock market.

A move lower wou...



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Digital Currencies

Crypto Bull Tom Lee: Bitcoin's 'Fair Value' Closer To $15,000, But He's Sick Of People Asking About It

Courtesy of ZeroHedge. View original post here.

Listening to the crypto bulls of yesteryear continue to defend their case for new new all-time highs, despite a growing mountain of evidence to suggest that last year's rally was spurred by the blind greed of gullible marginal buyers (not to mention outright manipulation), one can't help but feel a twinge of pity for Mike Novogratz and Wall Street's original crypto uber-bull, Fundstrat's Tom Lee.

Lee achieved rock star status thanks to ...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga.

  • Data on retail sales for November will be released at 8:30 a.m. ET.
  • Data on industrial production for November will be released at 9:15 a.m. ET.
  • The flash Composite Purchasing Managers' Index for December is schedule for release at 9:45 a.m. ET.
  • Data on business inventories for October will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the recent week is schedule for release at 1:00 p.m. ET.

Posted-In: Economic DataNews Economics ...



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Biotech

Those designer babies everyone is freaking out about - it's not likely to happen

Reminder: We're available to chat with Members, comments are found below each post.

 

Those designer babies everyone is freaking out about – it's not likely to happen

Babies to order. Andrew crotty/Shutterstock.com

Courtesy A Cecile JW Janssens, Emory University

When Adam Nash was still an embryo, living in a dish in the lab, scientists tested his DNA to make sure it was free of ...



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Members' Corner

Blue Wave with Cheri Jacobus (Q&A II, Updated)

By Ilene at Phil's Stock World

Cheri Jacobus is a widely known political consultant, pundit, writer and outspoken former Republican and frequent guest on CNN, MSNBC, FOX News, CBS.com, CNBC and C-Span. Cheri shares her thoughts on the political landscape with us in a follow up to our August interview.

Updated 12-10-18

Ilene: What do you think about Michael Cohen's claim that the Trump Organization's discussions with high-level Russian officials about a deal for Trump Tower Moscow continued into June 2016?

...

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Chart School

Weekly Market Recap Dec 09, 2018

Courtesy of Blain.

Bears are certainly showing the type of strength we haven’t seen in a long time.   A week ago at this time futures were surging on news of a “truce” for 90 days between China and the U.S. in their trade spat.  But the charts were still not saying lovely things despite a major rally the week prior.   And by Tuesday, darkness had descended back on the indexes, with another gut punch Friday.    A lot of emphasis was put on a long term Treasury yield dropping below a shorter term Treasury.

On Monday, the yield on five year government debt slid below the yield on three year debt, a phenomenon which has p...



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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



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ValueWalk

Vilas Fund Up 55% In Q3; 3Q18 Letter: A Bull Market In Bearish Forecasts

By Jacob Wolinsky. Originally published at ValueWalk.

The Vilas Fund, LP letter for the third quarter ended September 30, 2018; titled, “A Bull Market in Bearish Forecasts.”

Ever since the financial crisis, there has been a huge fascination with predictions of the next “big crash” right around the next corner. Whether it is Greece, Italy, Chinese debt, the “overvalued” stock market, the Shiller Ratio, Puerto Rico, underfunded pensions in Illinois and New Jersey, the Fed (both for QE a few years ago and now for removing QE), rising interest rates, Federal budget deficits, peaking profit margins, etc...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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