How reserves, slack and simple rules of thumb help us deal with radical uncertainty. Why the next financial crisis is unlikely to be like the last one.
Like many of you, I took a high school physics class that included an exercise in plotting the course of the earth around the sun using Kepler’s laws of planetary motion. It was one of the few instances I recall using math in high school to solve something useful.
What my physics teacher neglected to mention was that while a student can plot the course of one planet around the sun and determine where it is at any point in time, once two or more planets are added, even the greatest scientists in history, such as Isaac Newton, were unable to determine where three planets would be in the future based on their current position and velocity.
In his book, “The End of Theory: Financial Crisis, the Failure of Economics and the Sweep of Human Interaction,” Richard Bookstaber writes, “The three-body problem illustrates how easy it is to run into computational irreducibility…It seems it cannot be solved analytically. There is no apparent shortcut, no mathematical equation that can tell you the trajectory. In general, if you want to know where the planets will end up down the road, you have to ride along with them as they trace their paths, either in practice or simulation.”
What is amazing about that is there isn’t any randomness when it comes to planetary motion. The relevant variables are the planets’ masses, the distance between them and their velocity.
Yet, scientists have only discovered sixteen special cases, most of them using supercomputers, where the planets’ motion fits a pattern that allows for their future positioning to be accurately predicted.
Most of the time as Bookstaber points outs, “If you start the three planets on a course, they will follow complex and apparently random trajectories that finally end with one of the planets escaping the gravitational pull of the others.”
William Stanley Jevons, an English economist and logician, was one of the first academics in the mid nineteenth century to apply mathematical shortcuts to understand the economy.
Despite his efforts, he also recognized there was a problem in using math when it came to the human interactions that drive the economy.
He wrote, “If we are to apply scientific method to morals, we must have a calculus of moral effects, a kind of physical astronomy investigating mutual perturbations of individuals. But as astronomers have not fully solved the problem of three gravitating bodies, where shall we have a solution of the problem of three moral bodies?”
Humans are changeable. They learn, grow and make decisions based on emotion and context—how they feel given what is going on in their lives at any given moment.
Economic models are based on logic and require humans to act in consistent ways from one person to the next and from one time period to the next because that is what is required for the mathematics to work.
Bookstaber writes, “It is a deeply held conviction within economics that our world can be reduced to models that are founded on the solid ground of axioms, plumbed by deductive logic into rigorous, universal mathematical structures.”
“Economists think they have things figured out, but our economic behavior is so complex, our interactions are so profound that there is no mathematical shortcut for determining how they will evolve.”
“The only way to know what the results of these interactions will be is to trace out the path over time: we essentially must live out our lives to see where they will go. There is no formula that allows us to fast-forward to find out what the result will be. The world cannot be solved; it has to be lived.”
When it comes to the economy, financial markets and our own lives, there is no way to know or accurately predict what is going to happen one, three or five years from now.
Bookstaber writes, “Fundamentally, we don’t know where we are going, and we don’t know who we will be when we get there…If we change with our experiences, and if we cannot anticipate those experiences or how they will change us, if we must live out life in order to know it, then a central underpinning of economics is ripped away.”
Bookstaber describes this unknowing as radical uncertainty. The world is full of surprises; outcomes and events that we didn’t anticipate.
That means having some emergency savings and cash. It means not becoming too illiquid or overly aggressive in our investing.
Bookstaber writes, “During a crisis what matters is not relative value, the subtleties of relative expected earnings or constrictions in the supply chain. What matters is liquidity and risk. People dump risky and illiquid assets, and there is a flight to quality (toward assets that are liquid and less risky).”
Holding cash and perhaps even some long-term bonds provides a margin of safety to both protect against crisis and to be in the position to take advantage of opportunities that arise.
Quite recently, big names like Google, Facebook and Experian were forced into the unenviable position of admitting data breaches that possibly compromised the accounts of their clientele. Add on the fact that there were thousands of data breaches last year and it quickly becomes evident that people everywhere should be proactive by setting up their accounts in preparation for being hacked.
The most vital step to this is in creating stronger passwords. Passwords that can be easily guessed, use the name, birthdays, or wedding anniversary of the user are certainly worthless.
Nor should a single password be used for logging into everything under the sun. If remembering lots of different passwords is hard, it might be best to make use of a top-flight password manager.
The next step involves thoroughly checking personal bank statements and credit reports for things that are out of order. If anything seen hints at the fraudulent activity, contact your bank or creditor at the speed of light.
Next, it is recommended to freeze credit reports at any of the 3 chief credit bureaus in existence: Experian, Equifax and Transunion. That way, no one can get a credit report on your account without your approval. Unfreezing these is easy, as you will be issued a unique PIN or password beforehand.
If there are accounts that feature two-factor authentication, this provision must be turned on, as it provides an extra layer of security. As well, beware of calls, emails and texts from people who claim to be staffs of the brokerage, bank, etc whose services you enjoy. These fellas might be armed with such personal information as your Social Security Number, sound all professional and inform you that your PIN or password needs changing. This is however invariably a scam, a well-worn one that you should not fall for.
If you actually get a text that requires action, call the bank concerned and speak to the actual staff. Should you get a call, hang up and call the bank back, no matter what. More, if you were to get calls from someone claiming to be from a governmental agency such as the IRS and threatening you with fines and jail times for some infraction, ignore it, as the objective is to panic, scam and fleece you.
Moreover, keep in mind that personal information such as Social Security Numbers is not to be disclosed to every Tom, Dick and Harry who asks for it. If such personal information is required and you feel unsure of the necessity, in the absence of a proven need do not provide it.
Last but not least, set reminders to ensure that you check your credit reports quarterly from now on. It might also be worth it to subscribe to a credit monitoring service.
Overall, be sure to act as if your service or account will be hacked sooner or later. To lessen the risks of this, make use of strong passwords, give your personal information only to those truly deserving of it, and set up two-factor authentication in accounts that permit it. As well, keep a sharp lookout on third-party sites like top bingo sites that require your financial data.
The above information is brought to you by one of the top bingo sites which houses a fantastic collection of slot games with amazing graphics and themes that can be played anytime and anywhere.
Even though a determination, revised determination, decision, or revised decision has become final, it may be reopened and revised by the Social Security field office, reviewing office, ALJ, or Appeals Council within certain time limitations and under certain conditions. See §2016.
We may decide to reopen a determination or decision on our own or as the result of receiving a written request from a claimant, eligible spouse, or representative payee. The decision to reopen or not to reopen is not an initial determination and is not subject to appeal.
After such 12-month period but within two years from the date of notice of the initial determination if there is "good cause" for reopening it. "Good cause" may exist when:
Note: "Good cause" does not exist where the only basis for reopening the determination or decision is a change of legal interpretation or administrative ruling on which the determination or decision was based.
At any time if it was obtained by fraud, or an unintentional act that results in fraud, by the claimant or some other person.
Since 12th November, I had started to say sell Natural gas… Look my last article: click here [Post Unlocked]
Natural gas now at the very crucial position. We will see buying pressure in short time. But before start uptrend, it should touch 178.5 level.
Soon crude palm oil will start downside rally. But it’s risky that’s why I do not recommend starting selling from this Monday.