Monday, December 26, 2011

Irrelevant Reason (Non-Sequitur)

A cogent argument fulfills the three criteria of having acceptable premises which are relevant to the conclusion and sufficiently support it. The irrelevant reason fallacy violates the relevancy criteria.

Also referred to in formal logic as a non-sequitur the irrelevant reason is a fallacy in which the conclusion does not follow from the premises. The two conditions for identifying the fallacy are:

1. The arguer has put forth a premise as a reason for the conclusion.
2. The premise, considered in conjunction with the other premises, fails to satisfy the relevance requirement.

For example, Marc Lalonde, the one time Canadian Minister of Health, responded to the charge of permitting the sale of Kellogg's Corn Flakes which had little or no nutritional value by saying:

"As for the nutritional value of Corn Flakes, the milk you have with your Corn Flakes has great nutritional value."

The implication is that since (1) the milk you have with your cereal has great nutritional value, therefore (2) Kellogg's Corn Flakes has great nutritional value. Of course the two are separate food items and to determine the nutrient value of any food, one needs to measure the value of the food itself and not include the value of a companion food which may be consumed with it. As such,

Thursday, December 22, 2011

Zeb - The water & the sun

Makes me think of lying on the beach enoying a pina colada.

Tuesday, December 20, 2011

Framing Effect

Framing effect is a cognitive bias that describes how people tend to draw different conclusions from the same information, depending on how it is presented. One useful way to look at framing effect is to break it down into three different categories: Risky Choice Framing, Attribute Framing, and Goal Framing (1).


Risky Choice Framing
In risky choice framing, subjects are presented with a situation where they must choose between one of two options. The first option has a sure thing outcome and the second option is a gamble(the risky choice). When confronted with these sort of scenarios, research shows that subjects tend to be risk averse (choose the sure thing) when the problem is framed in terms of gains and are risk seeking (choose the gamble) when the problem is framed in terms of losses.


The The most famous example of framing effect was demonstrated by Tversky and Kahneman (1981)through a set of experiments known as the 'Asian disease problem'. The participants in the study were given the following situation:


Imagine that the US is preparing for the outbreak of an unusual Asian disease,which is expected to kill 600 people. Two alternative programmes to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programmes are as follows.


The first half of the participants were given the following options:
If Programme A is adopted, 200 people will be saved. If Programme B is adopted, there is one-third probability that 600 people will be saved and two-thirds probability that no people will be saved.  72% of the participants chose option A, whereas only 28% of participants chose option B


The second group of participants were given the following variation:
If Programme A is adopted, 400 people will die. If Programme B is adopted, there is a one-third probability that nobody will die and a two-thirds probability that 600 people will die.  In this variation only 22% chose option A, and 78% chose option B.


Of course, there is no difference between either of the A options or either of the B options. The only difference is in how they are presented.


Attribute Framing
In attribute framing a single attribute of an object or event is described in either equally positive or negative terms. The subjects are then required to provide some sort of evaluation. The findings in these cases was that an object or an event was evaluated more favorably when presented in a positive frame as opposed to being presented in a negative frame.


One study of attribute framing "was conducted by Levin and Gaeth (1988). They showed that perceptions of the quality of ground beef depend on whether the beef is labeled as “75% lean” or “25% fat.” They found that a sample of ground beef was rated as better tasting and less greasy when it was labeled in a positive light (75% lean) rather than in a negative light (25% fat). Notice that the information framed here is not the outcome of a risky choice but an attribute or characteristic of the ground beef that affects its evaluation."(1)


This of course is very familiar to us all via advertising and political media (whether we realize it or not).


Goal Framing
In goal framing, a subject is encouraged to engage in some activity using either a message which stresses the positive consequences of performing an action or the negative consequences of not performing an action. Findings suggest that typically subjects are more likely to engage in the activity when the consequences of not performing the action are used.   


One famous example involved evaluating the effects of positive vs negative messages in trying to encourage woman to perform breast self examinations (Meyerowitz and Chaiken (1987)).  "They showed that women were more apt to engage in breast self-examination (BSE) when presented with information stressing the negative consequences of not engaging in BSE than when presented with information stressing the positive consequences of engaging indo BSE have an increased chance of finding a tumor in the early, more treatable stages of the disease.” The negative complement is, “Research shows that women who do not do BSE have a decreased chance of finding a tumor in the early, more treatable stages of the disease.”(1)
 






(1) All Frames Are Not Created Equal: A Typology and Critical Analysis of Framing EffectsIrwin P. Levin, Sandra L. Schneider, Gary J. Gaethhttp://bcs.siuc.edu/facultypages/young/JDMStuff/LevinFraming.pdf


(2) The Framing of Decisions and the Psychology of Choice, Amos Tversky; Daniel Kahnemanhttp://psych.hanover.edu/classes/cognition/papers/tversky81.pdf



Monday, December 19, 2011

The McGurk Effect

An amazing perceptual illusion where what we hear can be changed by what we see.

Thursday, December 8, 2011

The Cognitive Science of Rationality

Read a great article on Less Wrong titled The Cognitive Science of Rationality. It is an excellent primer on the subject of rational thinking and in particular, on Dual Process theories. I was going to try and write a blog entry which summarized the various dual process (dual systems, type 1 type 2, etc)theories of thinking but this article is better than anything I could come up with.

Wednesday, December 7, 2011

Justice with Michael Sandel - Episode 1

Justice: What's The Right Thing To Do? Episode 01
Part 1

Thought Experiments
1. The Trolley Problem
A trolley is running out of control down a track. In its path are five workers. If you stay on the track it is assumed that all five of the workers will certainly die. Fortunately, you could turn a steering wheel, which will lead the trolley down a different track were there is only a single worker. It is again assumed that doing so will certainly result in the death of the single worker. Should turn the wheel or do nothing?

When polled, the vast majority in the audience would turn the wheel thus killing only the one worker.

2. The Trolley Problem Fat Man Variation
A runaway trolley car is running out of control down a track where it will kill five people. You are standing on a bridge above the track. Next to you, a fat man is standing on the very edge of the bridge. He would certainly block the trolley, although he would undoubtedly die from the impact. You could push him and he would fall right onto the track below. Should you push him?

When polled, the vast majority in the audience would not push the man.

3. Doctor Triage Problem
Six patients are brought to an emergency room where you are a doctor(they have been in a terrible trolley car accident). 5 have moderately severe injuries, 1 has extremely severe injuries. You could spend all day treating and saving the 1 extremely injured patient but the other 5 would die, or you could spend the day treating and saving the 5 moderately injured patients but the 1 severely injured one would die. Which set of patients do you treat?

When polled the vast majority would save the 5.

4. Doctor Transplant Problem
This time you are a brilliant surgeon. You are such a great surgeon that the organs you transplant always take. You have five patients who need organs. Two need one lung each, two need a kidney each, and the fifth needs a heart. If they do not get those organs today, they will all die. The time is almost up when a young man who has just come into your clinic for his yearly check-up has exactly the right blood-type, and is in excellent health. All you need do is transplant his organs to the five who need them. You ask for his permission but he says no. Would it be morally permissible for you to operate anyway?

When polled, all in the class voted it is not morally permissible to operate (except for the clever guy who comes up with a work around).

Moral/Ethical Theories
Consequentialist Moral Reasoning - Locates morality in the consequences of an act. Stated another way, it judges the rightness or wrongness of an action based on its consequences. When the majority of students in thought experiment 1 agreed that turning the wheel and killing one worker to avoid killing five was the moral thing to do, they where applying consequentialist moral reasoning. When the majority of students in thought experiment 3 agreed that it was right to try and save the five patients over the one, they were again utilizing consequentialist reasoning. A major type of consequentialism is Utilitarianism, a doctrine invented by Jeremy Bentham.

Categorical Moral Reasoning (deontological) - Locates morality in certain duties and rights. The most important philosopher of categorical moral reasoning is Emmanuel Kant. When the majority of students in thought experiment 2 voted that it would not be moral to push the fat man on the track to save the five workers, they were using categorical moral reasoning (some things you just don't do no matter what the consequences). The same thing applies when in thought experiment 4 the students voted it would not be moral to kill one healthy man to save the five sick patients.

Part 2
Picking up from the last class, Professor Sandel discusses one of the most influential forms of consequensialism, known as utilitarianism.

Utilitarianism
The 18th century English philosopher Jeremy Bentham gave the first clear systematic expression to the utilitarian moral theory. Bentham's central idea was that the right or just thing to do is the thing which maximizes utility. Utility refers to, on balance, the predominance of pleasure over pain, or happiness over suffering. In The Principles of Morals and Legislation, he wrote "Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do. On the one hand the standard of right and wrong, on the other the chain of causes and effects, are fastened to their throne. They govern us in all we do, in all we say, in all we think". Simply stated, humans like pleasure and dislike pain, and so the right thing to do, the moral thing to do, is to act in a way that maximize
the overall level of happiness. It has been summed up with the slogan "The greatest good for the greatest number of people".

The Queen vs Dudley and Stephens
A real life story with which to begin to test and examine the principles of utilitarianism. "A newspaper account of the time described the background. A sadder story of disaster at sea was never told than that of the survivors of the yacht Mignonette . The ship foundered in the South Atlantic, 1300 miles from the cape. There were four in the crew, Dudley was the captain, Stephens was the first mate, Brooks was a sailor, all men of excellent character, or so the newspaper account tells us. The fourth crew member was the cabin boy, Richard Parker, seventeen years old. He was an orphan. He had no family, and he was on his first long voyage at sea. He went, the news account tells us, rather against the advice of his friends; he went in the hopefulness of youthful ambition thinking the journey would make a man of him. Sadly it was not to be. The facts of the case were not in dispute. A wave hit the ship and the Mignonette went down. The four crew members escaped to a life boat. The only food they had were two cans of preserved turnips, no fresh water. For the first three days they ate nothing. On the fourth day they opened one of the cans of turnips and ate it. The next day they caught a turtle. Together with the other can of turnips, the turtle enabled them to subsist for the next few days, and then for eight days, they had nothing. No food, no water. Imagine yourself in a situation like that. What would you do? Here's what they did. By now, the cabin boy Parker is lying at the bottom of the lifeboat in the corner because he had drunk sea water against the advice of the others and he had become ill, and he appeared to be dying. So on the nineteenth day, Dudley the captain, suggested that they should all have a lottery. That they should draw lots to see who would die to save the rest. Brooks refused. He didn't like the lottery idea. We don't know whether this was because he didn't want to take the chance or because he believed in categorical moral principles. But in any case, no lots were drawn. The next day, there was still no ship in sight, so Dudley told Brooks to avert his gaze and he motioned to Stephens that the boy Parker had better be killed. Dudley offered a prayer, he told the boy his time had come, and he killed him with a pen knife, stabbing him in the jugular vein. Brooks emerged from his conscientious objection to share in the gruesome bounty. For four days, the three of them fed on the body and blood of the cabin boy. True story. And then they were rescued. Dudley describes their rescue in his diary with staggering euphemism, quote, "On the 24th day, as we were having our breakfast, a ship appeared at last. The three survivors were picked up by German ship, they were taken back to Falmouth in England where they were arrested and tried. Brooks turned states witness. Dudley and Stephens went to trial. They didn't dispute the facts. They claimed they had acted out of necessity. That was their defense. They argued, in effect, better that one should die so that three could survive. The prosecutor wasn't swayed by that argument. He said murder is murder, and so the case went to trial."

The class then discusses the morality of their actions. (As a side note Dudley and Stephens ultimately received 6 months in prison). At the end of the discussion the class is grouped into various camps: some believed their actions were morally permissible. Some thought that the problem was a lack of consent, either from the boy or to a lottery. If consent of some sort was given, this group would have agreed with the morality of the crew. Finally, some believed that their actions were wrong and that it could not be justified even with consent (it is just categorically wrong).


Thursday, December 1, 2011

The Best OWS Video.

Though I don't agree with everything Peter Schiff says I think this is a really good video. For one thing it is very long and as a result you get a good idea of the different mindsets and ideas of those in the OWS movement. Some of the arguers have good points but sadly many do not understand basic economics and can only rant about how rich people have their money.

Wednesday, November 30, 2011

The Marshmallow Test

In the late 1960's, Walter Mischel of Stanford University conducted experiments to study the mental processes of delayed gratification in children. These same experiments were later used to see if there was any connection to impulse control in children and success later in life. The experiments were simple. A number of 4 year olds were placed in a room, one at a time and given a treat such as a marshmallow. They were told that they could eat it now or if they could wait 15 minutes they would be given a second marshmallow. The results were that about a third of the children ate the treat immediately, a third waited the whole time and gained a second marshmallow and the rest tried to wait but gave up at some point before the 15 minutes were up. What Mischel later found is fascinating. Those children who were able to wait for the second marshmallow turned out to be significantly less likely to have behavioral problems, were more socially competent and academically successful. The children who immediately ate the marshmallow were more likely to experience behavior problems, self-esteem issues and struggled academically. The study has been replicated in various forms with similar results.








Links
http://www.newyorker.com/reporting/2009/05/18/090518fa_fact_lehrer

http://healthland.time.com/2011/09/06/the-secrets-of-self-control-the-marshmallow-test-40-years-later/

http://pages.uoregon.edu/harbaugh/Readings/UGBE/Mischel%201989%20Science,%20Delay%20of%20Gratification.pdf

http://bingschool.stanford.edu/pub/wmischel/115-Dev%20Psych%201990.pdf

Tuesday, November 22, 2011

Brain Teaser 5

Got this one from Braingle. This is an easy one but I thought it was fun so...

A man is trapped in a room. The room has only two possible exits: two doors. Through the first door there is a room constructed from magnifying glass. The blazing hot sun instantly fries anything or anyone that enters. Through the second door there is a fire-breathing dragon. How does the man escape?

Answer below.















Answer
He waits until night time and then goes through the first door

Flowchart

A flowchart is a type of diagram used to visually communicate the steps in a process. It utilizes various arrows and symbols to map out the order of processing steps and divergent paths determined by variable choices.

Though there are many flowchart symbols which can be used, the following are the most basic:


Some guidelines include:
-Flowcharts usually run from left to right or top to bottom.
-Only one flow line may come out of a process symbol.
-Two or sometimes three lines may come out of a Decision symbol.
-Avoid letting flow lines cross over each other.

The following is a simple flowchart on the process of determining whether or not to bring an umbrella:


In problem solving, flowcharts can be used when defining a problem & verifying root causes, especially when the problem involves a process. These flowcharts map out the current state of your processes. After you have identified root causes, flowcharts can be used in the solution development stage by drawing new charts which demonstrate how the solution(s) will be integrated into the existing process.

Monday, November 21, 2011

Leaving Iraq

Last month it was announced by the Obama administration that the United States will be leaving Iraq by the end of the year. This will come as a relief to many americans who are weary of almost nine years of news of americans dying in a war which was started on incorrect intelligence. But pulling out of Iraq also causes one to consider a bigger question. Why is it that the United States is so militarily involved in world affairs?

To drive home the point of my rhetorical question lets compare the military spending of the United States to that of the rest of the world. According to Global Issues, total world wide military spending in 2010 came to 1.62 trillion dollars of which the 43% was spent by the United States. Let me repeat that. The United States accounts for almost half of all the worlds military spending.



This hefty expense accounts for about 20% of the federal governments annual budget as depicted in the following graph from The Center on Budget Policy Priorities.
(click image to enlarge)


In addition, the United States has a military presense which spans the globe. The following graph comes from the wikipedia entry 'List of United States Military Bases'.
(click image to enlarge)


Now don't get me wrong, I do believe in having a strong military but maybe instead of spending six times more than China (our biggest competitor) we could only spend, say, 3 times as much. What do you think?

 But on a more serious note, there is really no reason for the United States to play police man for the world. It allows our allies to spend far, far less on their military since they know they can rely on the U.S. to help them if there is ever a need. Also, it has been a major contributor to our current economic woes and if not addressed, will likely help bring about our economic destruction within the next couple of decades.

Unfortunately, I am not optimistic about such reductions occuring anytime soon. There are powerful interest which benefit from the military industrial complex and as a result, changes are unlikely to happen until the money well runs dry.

Thursday, November 17, 2011

Telefon Tel Aviv / Fahrenheit Fair Enough

Title track from the 2001 album by Telefon Tel Aviv. Somewhat experimental, it is an interesting combination of soothing melodies with at times frantic electronica sounds. The result of this odd mixture is a very chill song which is able to immediately lower my blood pressure.

Sunday, November 13, 2011

New real estate law in Cuba

Just read this article in the New York Times regarding a new Cuban law which will allow the sale and purchase of Real Estate. I found it relevant considering that there seems to be a new interest in socialism via some of the Occupy Wall Street crowd. The article states that "For the first time in a half-century, Cubans will be allowed to buy and sell real estate openly, bequeath property to relatives without restriction and avoid forfeiting their homes if they abandon the country." Prior to the new law, Cubans were not allowed to sell their homes. According to this website, per Law 65 Cubans could only trade with another citizen thus making it impossible to use the homes equity and severely restricting their ability to relocate to another area. Apparantly there were similar restrictions on car sales as this article discusses. Just a little food for thought to counter some of the more radical notions which have been floating around.

Wednesday, November 9, 2011

Brain Teaser 4

Here is another brain teaser from Brain Bashers. Not too hard, solved it in about 20 minutes before bed.

At the recent web developer's bowling match, two games were played. Kev beat Stuart in both games, also Richard beat John in both games. The winner in game 1 came second in game 2. Richard won game 2 and John beat Stuart in game 1. No player got the same placing twice. Can you determine who finished where in each game?








Answer:
First Game:1.Kev, 2. Richard, 3. John, 4. Stuart
Second Game: 1. Richard, 2. Kev, 3. Stuart, 4. John

Tuesday, November 8, 2011

When lunch boxes attack!

Just watched this nanny of the month from Reason TV

With that kind of ego and desire to control the actions of other people, principal Carmona should really consider a career in politics. But maybe I have it all wrong. Perhaps the kids were studying Orwell's 1984 and Carmona just wanted to let them experience a little bit of it.

Friday, November 4, 2011

5 Whys

The 5 Whys is a simple tool which can help discover the cause and effect relationships underlying a problem. The method involves repeatedly asking 'why' until root causes have been determined. Though it is called the 5 Whys, you may have to ask fewer or more 'Whys'.

A simple example would be:
The vehicle will not start.
Why? - The battery is dead.
Why? - The alternator is not functioning.
Why? - The alternator belt has broken.
Why? - The alternator belt was well beyond its useful service life and not replaced.
Why? - The vehicle was not maintained according to the recommended service schedule. (root cause)

From the paper Change Resistance as the Crux of the Environmental Sustainability Problem by Jack Harich, 2010
"How do you know when to stop? A root cause has three identifying characteristics (compare to Rooney and Heuvel, 2004, who list 4 characteristics):
"1. It is clearly a (or the) major cause of the symptoms.
"2. It has no worthwhile deeper cause. This allows you to stop asking why at some appropriate point in root cause analysis. Otherwise you may find your-self digging to the other side of the planet.
"3. It can be resolved. Sometimes it’s useful to emphasize unchangeable root causes in your model for greater understanding and to avoid trying to resolve them without realizing it. These have only the first two characteristics.
"This definition allows numerous unproductive or pseudo root causes to be quickly eliminated.
"The important thing is to not stop at intermediate causes. These are plausible and easily found. Working on resolving what are in fact intermediate causes looks productive and feels productive. Intermediate cause solutions, more accurately called symptomatic solutions, may even work for awhile. But until the true root causes are resolved, powerful social agents will invariably find a way to delay, circumvent, block, weaken, or even rollback these solutions, because intermediate causes are symptoms of deeper causes. One must strike at the root."

Tuesday, November 1, 2011

5W2H

5W2H is simple technique which can be useful in problem solving and decision making. It is particularly helpful when trying to write a problem statement.

1. WHO - Who is associated with or affected by the problem?
2. WHAT - What are the symptoms of the problem?
3. WHEN - When did the problem start? Include all time related details.
4. WHERE - Where does problem occur. Location related details.
5. WHY - Why is this a problem?
6. HOW - How was the problem detected?
7. HOW MUCH - How big is the problem in quantifiable terms?

Thursday, October 27, 2011

Brain Teaser 3

Another puzzle from Brain Bashers.
This one is pretty easy but is nice if you only have a little bit of time and want to sneak in a few minutes of problem solving.

The International Women's Speed Skating championship was recently completed, however, the computer storing the results suffered from a power cut. Using the following information, can you determine who finished where, their ages (18, 21, 24 and 28) and the colour they wore? The youngest, who didn't wear blue, won the championship. Jessica was three years younger than the person who wore red. Katy performed well to finish in second place. Lauren wore green and Mary was the oldest competitor. The person who wore yellow was younger than Katy, whereas the person who came last was 21.









Answer:
Lauren Green 18 - first
Katy Red 24 - second
Mary Blue 28 - third
Jessica Yellow 21 - last

Monday, October 24, 2011

Hip to like Mao?

The other day I was watching a TED Talk featuring Bunker Roy, an Indian social activist. I wanted to find out more about him so I did a google search and read a few articles. The one thing that struck a nerve in me was his acknowledgement of being influenced by the philosophy of Mao Zedong. This is not the first time I have read about an intellectual being influenced by Mao but I find it odd that it is largely acceptable to publicly acknowledge it.

To make my point, lets take a look at some of the atrocities committed under the rulership of Mao. The majority of the following comes from here.

1949 - The People's Republic of China was established on October 1 under Mao Zedong.

1951- "Inside China the policies of moderation are replaced by a campaign against 'enemies of the state' that will affect millions. Foreigners and Christian missionaries are branded as spies. Landlords and wealthy peasants are stripped of their land. Intellectuals, scientists, professionals, artists and writers are forced into 'self-criticism' and public confessions of their failings in relation to communist ideals."

"Incompetent and politically unreliable public officials are purged. Corrupt businessmen and industrialists are removed from the system. The bourgeoisie are held in suspicion. Reports suggest that from one to three million are executed during the campaign." (1)

1958 - "Mao launches the 'Great Leap Forward' to accelerate the development of all sectors of the economy at once...It soon becomes apparent that the Great Leap Forward is an ill-considered failure. Rather than boosting production, the Great Leap Forward brings shortages of food and raw materials and the demoralisation and exhaustion of the workforce...Widespread famine results, especially in rural areas.

It is estimated that from 1958 to 1961, 14 to 20 million more people die of starvation than in similar years of poor harvests. The number of reported births is about 23 million less than under normal circumstances.

Other estimates place the number who die because of the famine at between 23 and 45 million

Mao refuses to recognise or deal with the reality of the situation, saying "When there is not enough to eat, people starve to death. It is better to let half of the people die so that the other half can eat their fill." (1)

1959 - "In April the fallout of the Great Leap Forward sees Mao resign as chairman of the People's Republic, although he remains chairman of the CCP." (1)

1962 - "Mao returns from the 'second line' of decision-making and begins a campaign to purify the party of 'capitalists' and 'counter-revolutionaries', using his enormous status to hold sway. His 'Socialist Education Movement' seeks to restore ideological purity and intensify the class struggle, calling on the population to to learn from the People's Liberation Army', which in turn is asked to promote 'Mao Tse-Tung Thought' as the guiding principle for a renewal of the revolution.

The school system is reorganised to accommodate the work schedule of communes and factories. Intellectuals and scholars are 'reeducated' to accept that their participation in manual labour is needed to remove 'bourgeois' influences. The education movement will become increasingly militant" (1)

1966 - (Cultural Revolution) "Schools, colleges and universities are closed. Virtually all engineers, managers, scientists, technicians, and other professionals are 'criticised,' demoted or 'sent down' to the countryside to 'participate in labour.' Many are jailed. Management of factories is placed in the hands of ill-equipped revolutionary committees. As a result, the country experiences a 14% decline in industrial production in 1967.

China's traditional respect for learning and the experience of age is turned on its head. Many cultural artefact's are damaged or destroyed. Cultural expression is severely curtailed. Religious practices are suppressed."(1)

The cultural revolution continues for ten years during which time millions are persecuted and suffered abuses such as torture, imprisonment, rape and seizure of property.(2)

This is by no means a complete summary, I'm just highlighting some of the major events.

Bottom line, Mao was a bad guy. If Bunker Roy said that he was influenced by the philosophies of Hitler no one would give him the time of day. How strange it is that Mao doesn't seem to produce the same illicit response.



(1)More or Less:Heroes and Killers
http://www.moreorless.au.com/killers/mao.html
(2)Wikipedia: Mao Zedong
http://en.wikipedia.org/wiki/Mao_Zedong

Thursday, October 20, 2011

The Wonder of it all: Pilobolus

And all I can do is make that dog head with my hand.


Begging the Question/Circular Reasoning

Begging the question is a fallacy in which the proposition or conclusion to an argument is found in one of its premises. Stated another way, it "begs" or assumes a conclusion in ones "question" or premise. Though technically different, I am going to lump circular reasoning in with begging the question.

The form of the argument can simply be: A is true because A is true. An example of this would be "Opium induces sleep because it has a soporific quality". Soporific means causing or tending to cause sleep. Restated this is like saying "Opium induces sleep because it tends to make one sleepy.

It may also take the form of: A is true because of B. B is true because of A (circular reasoning). An example would be: "I once overheard three brothers dividing two candy bars. The oldest one gave each of the two younger ones half of a candy bar, and kept a whole bar for himelf. When asked why he got more candy, he said he was the smartest. A few minutes later, one of the younger ones asked why he was the smartest, and in reply the oldest said 'Because I have more candy.'" Ernest J. Chave, Personality Development in Children (Univ. of Chicago, 1937), 151.

The most common example of circular reasoning is: Tom - "Do you believe in God"? Steve - "I do". Tom - "Why do you believe in God"? Steve - "Because it is written in the Bible that God exists". Tom - "Why do you believe what the bible says"? Steve -"Because it is the word of God".

Friday, October 14, 2011

The Cost Of Financial Ignorance

I just read here an article by Hernando de Soto in The Washington Post. De Soto is a Peruvian economist known for his work on the informal economy and the importance of a formal property rights system. I read his book The Mystery of Capital a number of years ago in which he argues that the reason capitalism thrives in developed countries is due to a well established, efficient system of property rights. It is this system of deeds, titles, incorporation, etc., which provides reliable information as to who owns what, how much was paid for it, a reliable estimate of how much it is worth and how to transfer ownership. Though developed countries take these formal property laws for granted, many poorer countries are completely lacking in an efficient, working system. For instance, in Peru De Soto estimated that to legally build a house takes 6 years and 11 months and requires 207 administrative steps in 52 government offices. To acquire title to the land requires an additional 728 administrative steps. He gives similar examples for countries such as Egypt, Philippines and Haiti. It is this lack of a working, accessible system which forces a large portion of population of these countries to form informal, extralegal systems.


In the Washington Post article, De Soto applies this same argument to the financial crisis we have been muddling through. He argues that complex modern financial instruments such as derivatives and non-traditional practices including off-balance sheet accounting, have undermined the system which has served us so well for so long. "To understand why there is no credit without truth, you need only walk down certain streets — the businesses that cannot get significant credit are those in the informal economy, where assets and transactions are not legally recorded and are therefore unknowable.

When property is poorly documented, markets don’t get the information needed to connect assets to finance, and governments don’t obtain the data required to detect which connections have gone awry and how to fix them. This became obvious in 2008, when a relatively small number of sub prime homeowners’ inability to meet their mortgage payments ultimately triggered a global financial crisis. The world was surprised, and terrified, because no one seemed to see the connection."

Anyway, I thought it was a good article and worth reading.

Thursday, October 13, 2011

Another Brain Teaser

Got this from Brain Bashers

There are 5 houses in 5 different colours. In each house lives a person of a different nationality. The 5 owners drink a certain type of beverage, smoke a certain brand of cigar, and keep a certain pet. Using the clues below can you determine who owns the fish?

The Brit lives in a red house.
The Swede keeps dogs as pets.
The Dane drinks tea.
The green house is on the immediate left of the white house.
The green house owner drinks coffee.
The person who smokes Pall Mall rears birds.
The owner of the yellow house smokes Dunhill.
The man living in the house right in the middle drinks milk.
The Norwegian lives in the first house.
The man who smokes Blend lives next door to the one who keeps cats.
The man who keeps horses lives next door to the man who smokes Dunhill.
The owner who smokes Blue Master drinks beer.
The German smokes Prince.
The Norwegian lives next to the blue house.
The man who smokes Blend has a neighbour who drinks water.





Took my about two hours to get it, so don't start it unless you are willing to put some time into it (or maybe I am just slow).
Answer: This puzzle is usually attributed to Einstein, who may or may not have written it. The German owns the fish and the table below details the full answer:

Nationality: Norweg Dane Brit German Swede
Colour : Yellow Blue Red Green White
Beverage : water tea milk coffee beer
Smokes : Dunhill Blend Pall Mall Prince Blue Master
Pet : cats horses birds fish dogs

Monday, October 10, 2011

Riddle Me This

I was reading a psychology paper this past weekend and came across this fun little brain teaser.

Jack is looking at Anne, but Anne is looking at George. Jack is married, but George is not. Is a married person looking at an unmarried person?


A) Yes

B) No

C) Cannot be determined







Hope you were able to make a selection first without your eyes floating down to the answer. Most people choose C. But the correct answer is A. Here is how to think it through logically: Anne is the only person whose marital status is unknown. You need to consider both possibilities, either married or unmarried, to determine whether you have enough information to draw a conclusion. If Anne is married, the answer is A: she would be the married person who is looking at an unmarried person (George). If Anne is not married, the answer is still A: in this case, Jack is the married person, and he is looking at Anne, the unmarried person. This thought process is called fully disjunctive reasoning—reasoning that considers all possibilities. The fact that the problem does not reveal whether Anne is or is not married suggests to people that they do not have enough information, and they make the easiest inference (C) without thinking through all the possibilities

Thursday, October 6, 2011

Capital Gains, Capital Losses

I was listening to a debate on the radio today regarding the need to raise the capital gains rates. Of course it was pointed out that Warren Buffet ones suggested the need to do this since his secretary ends up paying a higher rate than he does. Anyway, I started thinking, why is it that there is so much discussion regarding capital gains but capital losses are never brought into the debate? Just to summarize the issue, capital gains are the tax paid on investment appreciation when it is sold. So for instance you buy a stock or mutual fund for $10,000 and three years from now you sell it when it is worth $15,000, you would pay capital gains tax on the $5,000 gain. For most people this gain would be taxed at 15% by the federal government. Many argue that this is not fair since ordinary income rates, the rates on your wages and self employment income, are progressively more (for 2011 they are 10%, 15%, 25%, 28%, 33%, 35%). The argument is that wealthier people have much more income from capital gains than middle class and poor families.

There has been a lot of debate for and against the lower capital gains rates but I don't see anything mentioned regarding capital losses. As can be inferred, capital losses would be the recognized losses on investment depreciation. So using our example above, if you buy the stock for $10,000 and three years from now you sell it when it is only worth $5,000, you have a capital loss of $5,000. Now this is where it gets interesting (or not). Capital losses offset (lower) any capital gains you have for the year but if you end up with more losses than gains, only $3,000 of the capital loss can offset ordinary income per year. Any amount over $3,000 has to be carried forward to future years. So going back to our example, only $3,000 of the $5,000 loss would be used this year to lower, say, our employment income. The remaining $2,000 is carried forward to next year where it will first lower any capital gains we may have, and then our ordinary income.

So how is this relevant to the discussion on capital gain rates? Well, lets say you invest heavily in the stock market but make some really bad decisions. Your investments go south and you end up losing $150,000. You sell everything, take your loses and vow never to participate in the stock market again. Since you can only take $3,000 a year in capital losses against your other income, it will take you 50 years to use up the losses on your tax returns. So if your in your 50's and 60's, chances are you would never use them up. I know an individual who went through this sort of thing but his losses were actually quite a bit more.

My point is simple, though capital gains rates are lower than ordinary income rates, there are major restrictions on using capital losses. Any debate on raising the capital gains rates need to take this into consideration.

Monday, September 26, 2011

Confirmation Bias and Positive Test Strategy

Confirmation bias is a cognitive bias in which one tends to search for, interpret, favor or remember information which confirms one's preconceived beliefs, while undervaluing or ignoring information which contradicts those beliefs.

The term was originally coined by English psychologist Peter Wason. He conducted a study which he believed demonstrated confirmation bias. Later researchers would argue that Wason did not demonstrate confirmation bias but instead showed a tendency toward "positive test strategy" (See below).

The seminal confirmation bias study was conducted at Stanford University in the late 1970's. The researchers used two groups of subjects; those that supported the death penalty and those that opposed it. The two groups both then read two studies, one seemingly supporting and the other seemingly opposing capital punishment. As predicted by the researchers, the subjects rated the study which confirmed their pre-existing beliefs as superior. In actuality, both studies were fictitious.


Positive Test Strategy
Wason's original study involved asking the subjects in the experiment to discover the rule which applied to triples of numbers. From the beginning the subjects were told that 2-4-6 fit the rule. The subjects could then give their own set of three numbers and the experimenter would tell them whether or not they confirmormed to the rule. The results showed that most people tended to first form a hypothesis (often that the rule was a sequence of ascending even numbers) and then tried to positively test it by proposing additional sequences which fit the hypothesis (such as 4-6-8 or 12-14-16). Each time the experimenter would answer positively and after a number of confirmaitons the subjects felt confident and proposed their answer (a sequence of ascending even numbers). Most often the subjects were wrong for the actual rule was simply any ascending sequence. The results showed that most people only tried to test their hypothesis by asking a set of three numbers which would prove it to be true. Very few proposed a sequence of numbers which would actually disprove their hypothesis (using the example above, simply proposing the sequence 11-13-15 would have proven the ascending even number hypothesis false). Though Wason believed this was a result of confirmation bias, later reserchers such as Joshua Klayman and Young-Won Ha would argue that it was actually a tendency to use what they called Positive Test Strategy. In their view, this tendency is simply a preference to use test which seek to verify a hypothesis as opposed to disprove it. "Klayman and Ha (1987) argued that a major problem in testing hypothesis is deciding whether, on average, conducting +Htest or -Htest will be most informative. They suggested that people tend to use a simple approach: Select the strategy that is likely to have the greatest impact on your belief in the current hypothesis"(2)

I think the best way to avoid confirmation bias is to periodically perform a self diagnostic test where one introspectively questions ones attachments to a particular ideology, pattern of thinking, etc. I think that sometimes we hold onto old ways of thinking simply because we do not want to be proven wrong. Other times, the problem seems much deeper, perhaps the way we see the world rest upon a conceptual framework which if proven wrong would cause us anxiety and make us feel uncertain. Perhaps this is not just limited to how we see the world but also includes aspects of self identity. Consciously or unconsciously we no doubt want to confirm evidence that supports our sense of who we our or at least how we see ourselves and downplay contradictory information. Regardless of the reasons periodic introspective questioning is important. Also, as positive test strategy suggest, the methods we go about finding the truth should include both positive and negative hypothesis testing.



Wikipedia: Confirmation Bias
The Psychology of Bias: Understanding and Eliminating Bias in Investigations

http://www.michaelshermer.com/2002/09/smart-people-believe-weird-things/

https://www.verywell.com/what-is-a-confirmation-bias-2795024

Thursday, September 22, 2011

Conception and Reality

As we perceive the world through our sensory organs our minds form concepts about our environment. It is both amazing and startling how our conceptions influence how we view the world around us.

Tuesday, September 20, 2011

Kentucky Unemployment Tax

On June 15th, Kentucky Gov. Steve Beshear signed House Bill 5, which in 2012, will increases the taxable wage base for unemployment from $8,000 to $9,000, and then by $300 each year to 2022 (not to exceed $12,000). This is in response to the state's unemployment trust fund being exhausted in 2009 forcing the government to borrow money from the federal government.

Unemployment is an employer paid tax which is paid on the employees wages up to the maximum taxable wage base. In a nutshell, this simply means that Kentucky employers will have to fork out additional tax starting in 2012. Of course higher taxes mean that companies have less money to hire employees. Kind of ironic that employers having to pay more for unemployment may help contribute to further unemployment.

Tuesday, September 13, 2011

Benjamin Franklin's 13 Virtues

Before the days of mindless reality TV and raunchy pop music, men and women would contemplate these things they referred to as 'virtues'. Though it might cause me to miss out on an episode of Jersey Shore I thought I might take a moment to reflect on one man's list of virtues, that man being Benjamin Franklin.

Taken from his autobiography the 13 virtues are:

1. Temperance: Eat not to Dullness. Drink not to Elevation.
2. Silence: Speak not but what may benefit others or yourself. Avoid trifling Conversation.
3. Order: Let all your Things have their Places. Let each Part of your Business have its Time.
4. Resolution: Resolve to perform what you ought. Perform without fail what you resolve.
5. Frugality: Make no Expense but to do good to others or yourself; i.e. Waste nothing.
6. Industry: Lose no Time. Be always employed in something useful. Cut off all unnecessary Actions.
7. Sincerity: Use no hurtful Deceit. Think innocently and justly; and, if you speak, speak accordingly.
8. Justice: Wrong none, by doing Injuries or omitting the Benefits that are your Duty.
9. Moderation: Avoid Extremes. Forbear resenting Injuries so much as you think they deserve.
10. Cleanliness: Tolerate no Uncleanness in Body, Clothes or Habitation.
11. Tranquility: Be not disturbed at Trifles, or at Accidents common or unavoidable.
12. Chastity: Rarely use Venery but for Health or Offspring; Never to Dullness, Weakness, or the Injury of your own or another's Peace or Reputation.
13. Humility: Imitate Jesus and Socrates.

Sunday, September 11, 2011

Inflation Calculator

Inflation calculators are a nice way to get a real feel for the effects of inflation that looking at a graph with percentages just doesn't give you. This one from the Bureau of Labor Statistics lets you see how much the cash under your mattress is worth today vs the date you originally put it under there. For instance, if you put $1,000in a safe in 2000, you would need $1,311.97 today to have the same buying power that the $1,000 had. Put another way 311.97/$1,000=31.20% loss in purchasing power. Thats a pretty significant change for 11 years. Remember in 1980 when you were wearing your parachute pants and Ray-Ban sunglasses. If you put $1,000 into a safe back then you would need $2,741.77 today to have the same purchasing power. Food for thought.

Friday, September 9, 2011

Max Melvin: Orange Trust

Love the way it builds. The quality of this youtube version doesn't do it justice.

Thursday, September 1, 2011

Anchoring

Anchoring is a cognitive tendency to focus too much on a particular reference point when making decesions. From this initial reference point, incremental adjustments are made to reach an estimate or decision. The end decision is heavily influenced by the initial starting point, thus different starting points result in different decisions. "The initial value, or starting point, may be suggested by the formulation of the problem, or it may be the result of a partial computation".(1) Also, since many decisions are made in an area of uncertainty, the initial starting point may be an unconscious attachment to a completely irrelevant point.

Anchoring was first theorized by Amos Tversky and Daniel Kahneman. In one of their early experiments, a wheel marked with the numbers 1 to 100 was spun. Subjects were then asked if the percentage of African nations which were members of the United Nations was more or less than the number on the wheel. Then the subjects were asked to give an actual estimate. The results were that the random initial reference point from the wheel had a significant effect on the answer the subjects gave. For example, when the wheel landed on 10, subjects gave an average estimate of 25%. When the wheel landed on 65, subjects gave an average estimate of 45%.(1)

Another experiment was conducted by profesor Dan Ariely and his collegues where he had a group of MBA students participate in an auction. They were shown various items then given a sheet with each product listed. Next they were instructed to write the last two digits of their social security number next to each item and asked if they would be willing to pay that amount for the products. Finally they were asked to write the maximum amount they would be willing to pay with the top bidder winning the item. The results of the experiment showed that the impact of social security numbers significantly influenced the amount each student was willing to pay. The students with above median social security numbers bid 57 to 107 percent higher than those with below median numbers.(2)


(1) http://www.hss.caltech.edu/~camerer/Ec101/JudgementUncertainty.pdf

(2) http://web.mit.edu/ariely/www/MIT/Chapters/CA.pdf

Tuesday, August 30, 2011

The Wonder of it all: Skin Gun and 3D Printer

Amazing technology.


Could this be the first generation star trek replicator?

Monday, August 22, 2011

Red Herring

A red herring is an argument which is used to distract from the original issue by introducing some irrelevant issue or topic. This seems to be thought of as both a logical fallacy and a debating tactic. I guess it is a rhetorical tool when used consciously but is always a fallacy. Its basic structure is; 1) A is the topic of discussion, 2) B is introduced as a distraction from topic A, 3) A is abandoned. Supposedly, the etymology of this fallacy came from the training of dogs in the sport of fox hunting. The dog trainer would drag a cured red herring across the trail of a fox to confuse the dogs. Eventually the dogs would be able to follow the scent of the fox rather than the scent of the herring.

An example might be; "This new computer program is too slow for me to be able to get my work done on time and it is missing some of the necessary features the old program used to have." Steve replies "What you have failed to understand is that the new software cost half as much as the other program and is much easier to learn." With this example Steve's argument does not in anyway address the original topic which is that the program is too slow and missing necessary features. Instead he introduces an irrelevant argument regarding costs and learning time which distracts from the original issue. This is not to say that Steve's argument is irrelevant to some other issues but it does not in anyway address the original issue.

Thursday, August 18, 2011

Behold

Makes me feel as if I am leaving my corporeal body and moving on to an ethereal plain.

Friday, August 12, 2011

Over regulation

Though I tend to be somewhat libertarian minded, I do believe that a minimal degree of smart regulation is beneficial. Unfortunately the words minimal, smart and regulation don't seem to go together in the United States. Our government seems to find red tape aesthetically pleasing and wants to wrap every business in it.

An example of the ever growing nature of government regulation can be understood with this 2009 report from the Mercatus Center which tracks the budgets and staff of federal regulatory agencies. Figure 1 from the report shows budgetary cost of federal regulatory agencies in inflation adjusted dollars.




Figure 3 from the report shows the number of employees working for these regulatory agencies.



It is plain to see that in terms of cost and staffing, regulatory agencies are getting bigger. So what might be the end result of all this regulation and government control? Though history provides us with many examples, India is the first that comes to mind. After World War II, many industries were effectively nationalized while others were subject to harsh regulation and licensing requirements. Though the objectives of these measures were to pool technical and managerial manpower, prevent a concentration of wealth, and the steady expansion of gainful employment, the results were corruption among government regulators and an economy limping along for decades. Finally during the 1990's a policy shift toward deregulation allowed the country to gradually become one of the fasted growing developing nations. The following clip from the documentary Commanding Heights is an excellent summary.







Now I am not suggesting that we have the same level of government control that India had, but I do believe that government regulation has reached a level where it is negatively affecting the economy. If we don't get off this path of ever increasing government control we will become less competitive globally and our standard of living will drop dramatically.

Tuesday, August 9, 2011

Warren Buffett And Inflation

Inflation? Deflation? In these perplexing economic times it is hard to predict what might happen next. I certainly don't know. There are so many opposing forces pushing against each other it is hard to say which ones are strongest.

From the perspective of Warren Buffett, inflation is going to be the economic right cross to hit us next. According to this article on seeking alpha, Buffett has been banging the inflation drum for a few years. His reasoning is simple and not at all uncommon. He says that there are three ways for the government to deal with it's debt issues: 1) It can default, 2)It can raise taxes/reduce spending, 3)It can inflate its way out. Since the government's debt is in US currency, he doesn't see default as a viable option since the U.S. can simple print more money. He doesn't see the politicians raising taxes/cutting spending since these actions are unpopular and thus will damage their chances of re-election. With only one option left, he believes politicians will take the easy way out and resort to inflationary measures.

Back in February, I wrote this paper/blog entry considering the same three possible methods of dealing with the debt but came to the conclusion that it was more likely that the government would raise taxes/reduce spending rather than pursue inflationary measures. My reasoning was that the negative effects this sort of policy (rolled over outstanding debts and all future debts would have to be financed at higher rates to compensate investors for inflation)would be enough to persuade politicians to pursue the tax and cut option. Though I still feel this will be the predominant measure taken, I am a little less sure after witnessing the debt ceiling debacle we just went through. As Buffett predicted, during the debt ceiling debates neither side wanted to do what they thought would be politically harmful. Republicans did not want to increase taxes and democrats did not want to cut spending. I'm not trying to make a point here regarding the right amount of taxes vs. spending cuts, only that a great deal of political fighting resulted in very little action.

Since the passing of the debt ceiling bill, nothing has really changed. We still have a massive debt problem which could explode tomorrow or 30 years from now. So what are we going to do about it?

Thursday, August 4, 2011

The Wonder of it all1

Though it is easy to get bogged down by the nuts and bolts of our daily lives, I think it is important to step back and reflect upon all the beautiful and amazing things this world has to offer. I believe that doing so helps to free us from our monotonous routines and allows us to cultivate a sense of wonder. So to help facilitate that cultivation, I am going to start a series of post sharing some of the various things I have come across which leave me feeling a sense of wonder.

I saw this on TED talks and found it to be amazing:



And this beautiful cyr wheel performance

Thursday, July 28, 2011

I'm afraid its a downgrade

There's no more wishes in the well
No more dreams to sell
No time in the hourglass
There's no more lies for you to tell
Your heaven is your hell
Your future dying in the past
-Evergreen by Echo & The Bunnymen


I borrowed the format from Mind & Market since I felt the lyrics were a perfect fit for our current economic situation.

Recently, the top three nationally recognized credit rating agencies have been threatening to lower the United States' credit rating if there is even a temporary delay in interest payments due to the debt ceiling not being raised on time. But there are actually ten of these credit rating agencies recognized by the securities and exchange commission. On July 16, one of these agencies, Egan-Jones, actually downgraded the U.S. from a AAA to a AA+ rating.

Here is an interview on CNBC where they announced the downgrade





It is not surprising that Egan-Jones would be the first NRSRO to make a move. Unlike most of the other nationally recognized rating agencies which are paid by issuers (the companies they are supposed to rate) they are paid by investors (those that need unbiased information). As a result, they were able to foresee problems with Enron and companies involved in the credit crisis that the other major rating agencies missed. Its important to note that Egan-Jones decided to downgrade the U.S. because of structural problems and the country's rising debt-to-GDP rather than a delay in raising the debt ceiling.

Higher interest rates here we come.

Thursday, July 21, 2011

False Dichotomy

Also known as the false dilemma, either-or fallacy and black and white thinking . The argument is presented in such a way to as to suggest that there are only two possible options. The arguer then presents their evidence against the disfavored option and so it is then reasoned that the favored option must be accepted. It takes the form of: Either X or Y is true. X is false so Y must be true. This sort of reasoning is fine as long as there are truly only two possibilities, but if other alternatives exist then it is possible that both X and Y are false.

The false dichotomy may be used intentionally by an arguer to influence a debate or to force a course of action. An example would be: "Ann, I need you to donate $15 to the starving children of the world fund, unless you don't care about starving children." The two options presented are that Ann gives $15 and cares for starving children or she doesn't care for starving children. Of course a third possibility is that Ann cares for starving children but cant or doesn't want to give $15.

The false dichotomy can also arise unintentionally simply by not considering additional possible options. For instance "Silvia Brown can either talk with the dead or she is a con woman. She passed the lie detector test I gave her so she can talk with the dead." Of course another possibility is that she cannot talk with the dead but truly believes she can.

I see this kind of thinking all the time in political discussions. This is probably due to the fact that we only have two major parties, which I think tends to have a polarizing effect on our thinking (Regulation is good or regulation is bad, welfare is good or welfare is bad).

Other examples would include: "If we don't raise taxes, our government will collapse", or "you are either with us or against us" or "Which would you rather have, better schools or lower taxes".

Thursday, July 14, 2011

Regulation: Its for your own good

Government regulation is a provocative topic. Many people seem to hold one of what they perceive to be only two possible opinions, either 'regulation is good' or 'regulation is bad'. Depending on which of these two opinions they may hold, the natural next step is 'more regulation would be good' or 'more regulation would be bad'.

Of course the real world is not quite as simple as our dualistic natures would like it to be. Things are messy and costs and benefits are not always easy to quantify. There is a lot of grey in between the black and white. Having said that, there is also a lot of what I would consider to be obviously silly and damaging government regulation. In particular, some of the state licensing of pretty benign professions is distressing.

For example, here is an article from USA today which reports on a law in Louisiana which requires florist to pass a test and get a license to arrange and sell flowers. Really? You need a license to arrange flowers? Or this article about the Arizona Board of Cosmetology requiring 'threaders' (people who use a piece of thread to remove eyebrow hair) to acquire an aesthetician license. To obtain the license requires schooling (which doesn't teach you how to thread) which can cost over $10,000. Or this article regarding Utah's requirement to obtain a cosmetology license in order to braid hair, a process which requires about 2000 hours of classwork at a cost of something between $9,000 to $19,000. Or this hilarious video from Reason TV regarding the licensing requirements of interior designers (at least watch the first 3 minutes for some comedy).







So is it really necessary for governments to institute licensing laws on these kind of low risk professions? Is the reason behind it really to promote public health and safety? Well I can't see the potential harm done by a florist arranging flowers. But I do see the harm to the economy this sort of regulation causes. First, it creates a barrier to entry making it more difficult to enter these professions, especially for low income workers. This suppresses competition allowing for those already in the industry to demand higher prices upon consumers. This is why trade organizations and professional associations often lobby for such regulation. Of course the obvious benefit to the states is the increased revenue they receive from licensing fees and penalties imposed upon those who are in violation of such laws.

Thursday, June 30, 2011

Baby Boomers vs Generation X

Sometimes it seems like saving for retirement is an impossible mission. We are constantly being hit with bad economic/investment news such as " social security to run out by 2037" or "stocks take a nosedive as unemployment rises" or "still no recovery in housing". This got me wondering, how different (if at all) saving for retirement has been for generation X than it has been for the baby boomers?

Though dates seem to differ from website to website, generally baby boomers were born from 1946 to 1965 and generation Xers from 1966 to 1982.

Since the stock market is typically a large part of a retirement portfolio, I first looked at the performance of the S&P 500 from 1965 to the present.


If we make the assumption that most people do not really start saving for retirement until they are at least 25 then the youngest boomer doesn't start saving till 1971 and the oldest until 1990. During this time period stocks were mostly flat from 1971 to 1981 then more than doubled from 1981 to 1990. Also, this is a period of little volatility. Of course there are small rises and dips but for the most part things are fairly calm.

Using the same assumption above, the first gen-Xer doesn't start saving until 1991 and the last one until 2007. In contrast to the period where the boomers were entering the market, here we see great volatility, as the S&P sharply increases and sharply decreases. It really does look like a roller coaster ride.

So far, the boomers have really made out a lot better than the Xers, especially the older ones. The older boomers who started investing in the 1970's had over two decades to buy stocks at consistently lower prices between 100 to 450. In contrast, the first Xers began saving for retirement in 1991. From 1991 to 2000 the S&P moved from about 340 to just over 1500. This sounds good but remember that Xers are just starting to save for retirement during this period so each time they make a contribution to their retirement accounts, they are buying at higher prices. In 2000 the tech bubble burst and the S&P drops like a lead balloon for two years down to almost 800. This two year period was of course a good time to buy but the psychological effect of the sharp prolonged drop caused many people to temporarily stop contributing to their retirement accounts (Dalbar QAIB 2004). In 2003 the S&P again began a steep five year climb reaching over 1500 only to have it nosedive down to below 800 over the next two years due to the housing crisis. We are once again making another climb back up with the index currently at 1330.

To sum it up many boomers were able to build up their portfolios in their early years due to a long period of market stability with stocks at relatively low prices. Xers started contributing during a long period of volatility, often buying at highs and pulling back on retirement contributions during declines (loss aversion).

For better or worse, another major part of many retirement portfolios is our homes. To analyze this I used the Case-Shiller index.



I got the graph here

According to this article, first time home buyers are on average 33 years old. Perhaps boomers bought their first house at a younger age so lets just use 30 years old to keep it simple. Using the same analysis as above we find that the first boomers start buying houses around 1976 when the case-shiller was at about 108. For the next twenty years the index moves up and down moderately somewhere between 108 to 125 before it starts a very steep climb around 1996.


1996 is also the year that the youngest members of generation X begin buying homes.

Again, it looks to me as if the boomers have made out much better that the Xers. Most boomers bought their first homes some time during a twenty year period when prices where relatively low and they have had a great deal of time to pay down or off their mortgages. In contrast, over half the genXers bought their first homes during the housing boom between 1996 and 2006. This means that many of them were entering the market when prices were incredibly high. Since during the early years of a 30 year mortgage most of your payment is going toward interest, these genXers had very little equity in their homes when the housing bubble burst in 2006. This left many of them in a situation where they owed more on their homes than they were worth. Of course the oldest genXers that are just now entering the market should fair much better as many believe we are at or near the bottom.

In summary, most boomers were able to buy low and then enjoyed good economic times where they were able to build up equity while a majority of Xers bought high and now have little to no home equity.

On top of the difficulties discussed above is the fact that social security doesn't look so secure for us, but that is a topic I have already delved into with my federal debt entries. So the future isn't looking too bright for genX. What do you think, is it time to panic yet?

Tuesday, June 28, 2011

Argument From Ignorance

The argument from ignorance (also known as ad ignorantium or appeal to ignorance) is the argument that a proposition is true because it has not yet been proven false or that it is false because it has not yet been proven true. The basic form of the argument is either:

P1. Statement A is not known (proved) to be true
C. Therefore it is false

or

P1. Statement A is not know (proved) to be false
C. Therefore it is true

For example:

 "We do not know that there is life in the universe outside of that found on earth. Therefore, it does not exist."

This example can be seen as a fallacy of irrelevance in that the premise refers to our lack of knowledge which does not provide support for the substantive conclusion that there is no life outside of earth. The fact that we do not know one thing is not a relevant reason for believing another.

Yet there are occasions when a failure to find evidence can be seen as significant evidence in itself. For instance, if you were to search carefully in a small park for a bulldozer and fail to find one, you could argue:

 "There is no evidence that there is a bulldozer in the park, therefore there is no bulldozer in the park."

The difference between the life outside of earth example and the bulldozer example has to do with what is sometimes called negative evidence. Negative evidence (or evidence of absence) is evidence that can be used to infer the non-existence or non-presence of something. The difference between the fallacious use of arguments from ignorance (an absence of evidence) and negative evidence (evidence of absence) can be nuanced and at times difficult to establish but in general it has to do with whether or not a careful, thorough search has been made. A bulldozer is a conspicuous object you'd expect to easily detect in a small city park if you conducted a search. The negative evidence of having conducted the search and not finding the bulldozer would be considered strong evidence that it is not there.




A Practical Study of Argument
Wikipedia: Evidence of absence
The Appeal to Ignorance or Argument Ad Ignorantiam


Wednesday, June 22, 2011

The Unemployment Problem


I re-read a NY Times article I came across sometime ago regarding Denmark Shrinking its Unemployment Benefits. Denmark lowered it's unemployment benefits period from four years down to two years after studies indicated that many people will wait until just before benefits run out before getting a job. The green line on the graph on the left shows that during the four year period from 2005 - 2007, some people got jobs within the first few months of being unemployed but then the percentage drops and stays flat for the next few years. Then just before and just after the fourth year, when benefits run out, there is a huge spike in the number of people finding jobs. The red line shows a similar pattern from a study back in 1998 when Denmark's unemployment benefits period was five years. This seems to confirm what anecdotally I have observed of the behavior of friends and acquaintances that were on unemployment. Some of them found jobs shortly after being laid off but the ones that didn't tended to only find jobs either just before their benefits expired or just afterwards.

I can think of a number of possible reasons why this pattern exists. First, many people on unemployment tend to procrastinate. Some of these people use the time as a long paid vacation. Some are mentally tired of trying to find a job and become discouraged. Others take a real hit to their self-esteem and spiral into a state of depressed non-action.

I suspect another reason is that people do not want to take jobs which they perceive is be below them. It might be a position which they feel is beneath them, a job which they foresee will be dissatisfying, or a wage which is lower than what they made in their prior job. The incentive, especially in the earlier part of the benefit period, would be to pass up these jobs, holding out for something better. Only when the benefits are about to expire do they accept the less than ideal jobs.

So how long should the unemployment benefits period be? How should the program be structured to get people back to work as quickly as possible? I really dont have any answers and only brought it up because I find it to be an interesting puzzle. What do you think?

Tuesday, June 14, 2011

Reason tv's Nanny of the month

I love vacations. It is the one time during the year I feel that I can truly relax. Cancun is beautiful as always. Frolicking on the beach, laying out by the pool, shopping, eating, catamaran, catching up on my reading, and hanging out with my girl. Doesn't get much better than this. Since the hotel has an Internet connection in the lobby, it is also a chance for me to do a little blogging. So with Jennifer sleeping upstairs and my trusty iPad in hand, here we go.

Being somewhat libertarian minded, I really enjoy reason tv. They do a short piece they call "Nanny of the month" where they showcase various government officials proposing silly things to keep you from being able to make you own decisions. Below are a few that I pulled from YouTube which I thought were pretty entertaining:

Harry Reid vs Prostitution

Super nanny Carl Kruger’s hatred of iPods

Loser control freaks on city council vs live entertainment?

Idiot police chief vs flags which could be used as deadly weapons?

San Francisco food cops

Veggie haters

Commissioner of human rights vs ladies nights

Major moron NY State Representative proposes BAN on Salt

Thursday, June 9, 2011

Financial Crisis...1789

I was listening to a history audio book the other day which was discussing the conditions in France which preceded the French Revolution. Some of the major points included political conflicts, antagonism between the aristocracy and the rising bourgeoisie, and the spread of enlightenment philosophies. But the one I found most interesting was the economic situation. Due to the lavish spending habits of the monarchy and a series of wars ending with the seven years war and the American revolution, the french economy was in terrible shape. To fund it's wasteful spending, the French accumulated massive amounts of debt, most of it borrowed from noblemen at high interest rates. By 1785, France teetered on the verge of bankruptcy as they found neither noblemen nor other nations would lend them any further amounts. To make matters worse, the government was already taxing its people to the max. (When I say people, I should point out that I am referring to the peasants, middle class and upper middle class. The wealthiest part of French society, the nobility and clergy, were legally exempt from paying tax.) By 1789 the country was effectively bankrupt, leading to the meeting of the Estates General and then, revolution.

I think there are some interesting parallels between the situation preceding the French Revolution and the United States today. Record high levels of debt and a series of wars have left us in a fragile economic situation. If history has taught us anything it is that economic chaos can lead to radical responses by the populace. And these radical responses often turn out quite badly.

Tuesday, June 7, 2011

Guilt by Association as an Ad Hominem

Just saw this one used on facebook. Guilt by Association is type of ad hominem which attacks a person's argument by comparing it's similarity to the views of other (generally disfavored) people or groups. The intention of the person using this fallacy is to have the argument rejected due to this association instead of facing the actual argument.

The basic format can be seen as; Person A argues for position 1. Unsavory person (or group)B also argues for position 1. Therefore position 1 must be wrong. Here is a silly example which makes the fallacy easy to grasp: Steve says "I believe a vegetarian diet is the healthiest diet". John replies "Vegetarianism is wrong, you know that Hitler was a vegetarian". Another example: "Stalin was an athiest. Stallin killed millions of people. Therefore athiest are evil".

This is a powerful and persuasive argument in that people do not want to be associated with those they do not like. The more disreputable the person being compared to is, the more psychologically powerful the argument. For this reason, it is important to be able to identify its use in order to avoid its influence.

Thursday, June 2, 2011

Idiocracy



I came across this clip from the movie Idiocracy. I had seen bits and pieces of it on cable but had missed the intro. The movie is essentially a satire about how the stupid people of the world are outbreading the intelligent ones, leading to an eventual future earth populated entirely by morons. Though the clip is hillarious, it is also scary proposition. Though I admit I have considered this possibility in the past, I haven't done any research to see if it truly has any merits. Perhaps someone can point me in the direction of any legitimate research on the topic. Anyway, I just wanted to throw it out.

Friday, May 20, 2011

Post-hoc

The post-hoc or more formally the post-hoc ergo propter hoc, is a logical fallacy where one event precedes another event and is thus found to be the cause of the second event. The basic format can be expressed as:

P1. A came before B,
C. therefore A caused B.

A silly example would be "Roosters crow before the sun rises, therefore roosters crowing cause the sun to rise". A more common example would be "Bob installed some new software on his computer. The next time he turned on the computer it crashed. Bob concluded that the new software caused the computer to crash". Now it is entirely possible that the new software did cause the computer to crash, but it is also possible that a computer virus or possibly a power spike caused it to crash. The point is that a positive correlation alone is generally not sufficient evidence to prove causation. Post-hoc arguments are often even shakier than an incorrect inference from correlation to causation in that there is typically only one anecdote or event in which the inference is being made from.


Tuesday, May 17, 2011

The Price of Education

Here is some interesting data from collegeboard.org on the ever increasing cost of college tuition. The data is in constant dollars, so the increases from year to year are in real dollar terms (adjusted for inflation). It's really amazing that the cost of tuition has almost tripled from 1980 to 2010. I feel sad for young people having to make the decision to incur large student loans, without fully realizing how it will effect them down the road. Most high school grads just haven't had enough life experience to understand the implications of their decisions in this area. That being said, one still has to wonder at what point does it become cost prohibitive to pursue a college education? (please forgive the formatting, I was having major problems making it presentable).


TABLE 4: Average Published Tuition and Fees in Constant 2010 Dollars, 1980-81 to 2010-11 (Enrollment-Weighted)

Academic---Private
Year----------Noprofit----------Public-------------Public
----------------4Year--------------4Year-------------2 Year
2010-11---$27,293--3.2%---$7,605--6.6%---$2,713--4.8%
2009-10---$26,452--6.0%---$7,137--9.3%---$2,590--10.2%
2008-09---$24,953--0.4%---$6,532--0.8%---$2,351--2.1%
2007-08---$24,852--4.0%---$6,480--4.2%---$2,401--1.1%
2006-07---$23,899--2.1%---$6,218--1.5%---$2,428--0.3%
2005-06---$23,408--1.5%---$6,128--3.9%---$2,434--1.7%
2004-05---$23,073--2.7%---$5,900--7.2%---$2,393--5.7%
2003-04---$22,465--2.8%---$5,507--11.0%---$2,263--11.7%
2002-03---$21,862--2.4%---$4,961--7.2%---$2,026--2.6%
2001-02---$21,343--5.3%---$4,626--4.5%---$1,975--4.7%
2000-01---$20,277--0.1%---$4,426--.7%---$2,072--3.9%
1999-00---$20,295--3.3%---$4,397--1.4%---$2,157--3.9%
1998-99---$19,649--4.9%---$4,338--2.6%---$2,076--2.5%
1997-98---$18,724--3.8%---$4,226--2.3%---$2,128--4.6%
1996-97---$18,044--3.3%---$4,131--2.8%---$2,034--7.0%
1995-96---$17,464--1.4%---$4,019--1.1%---$1,901--1.2%
1994-95---$17,216--3.6%---$3,974--3.8%---$1,924--2.4%
1993-94---$16,618--2.5%---$3,827--5.7%---$1,880--8.5%
1992-93---$16,212--3.2%---$3,622--7.4%---$1,732 --7.6%
1991-92---$15,706--0.6%---$3,373--5.7%---$1,874--23.7%
1990-91---$15,615-- 2.9%---$3,190--7.3%---$1,515--2.8%
1989-90---$15,182--3.1%---$2,972--2.4%---$1,474--0.3%
1988-89---$14,725--9.1%---$2,903--2.0%---$1,470--3.8%
1987-88---$13,502--1.9%---$2,845--1.1%---$1,416--7.7%
1986-87---$13,256--7.1%---$2,815--5.6%---$1,314--1.4%
1985-86---$12,379--6.4%---$2,665--3.6%---$1,296--6.0%
1984-85---$11,636--4.7%---$2,572--2.7%---$1,223--6.1%
1983-84---$11,114--7.1%---$2,505--8.7%---$1,152--8.9%
1982-83---$10,373--6.0%---$2,305--6.6%---$1,058--2.4%
1981-82---$9,789--2.7%---$2,163--2.1%---$1,033--0.2%
1980-81---$9,535----------$2,119----------$1,031

Sources: 1987-88 and after: Annual Survey of Colleges, the College Board, weighted by full-time undergraduate enrollment; 1986-87 and prior: Integrated Postsecondary Education Data System (IPEDS), U.S. Department of Education, National Center for Education Statistics, weighted by full-time equivalent enrollment.
This table was prepared in October 2010.