Wealth destroyers

Black boxes, Artificial Intelligence and FinTech - likely a deadly combination that is going to destroy a lot of wealth. We have seen this before - fresh graduates from business schools coupled with mathematicians and physicists, descending on Wall Street to make the world go around in the opposite direction. As they appear on TV after hours - mad and fast - to confuse and pillage small money, ascertaining where every stock is going and even the market, there are 20 million fat fingers across the world chasing the illusion. 

The theory underlying financial markets has been robust in spite of the recent confusion about "behavioral economics." New information moves markets and unless one has insider information, it is impossible to create alpha from fundamental or technical analyses. A lot of careers are made and destroyed on this false idea.  For some of us, theory still matters and it can be shown without any empirical uncertainty that alpha is a white elephant. If an adviser is demonstrating consistent alpha, one has to wonder where the information is coming from. The SEC has gotten a lot more sophisticated lately but a simple heuristic of alpha consistency will tell you that there is something wrong.

Business schools need to rethink their focus. Some even have classes in "trading," and that idea is utterly inconsistent with everything we know. In the presence of uncertainty, it is easy to make returns and lose them quickly. In spite of all the academic literature behind this, not many involved in "money management," really talk about alpha (only returns). Granted, a single factor model is woefully inadequate to measure risk but not considering risk in your returns, like the TV moguls do, is a prescription for disaster. The fact that conventional finance education and even the high-end certifications do not prepare the professionals adequately is symptomatic of education chasing trends and not sticking with what is known.

The financial industry appears to be dominated by engineers and accountants, the former unaware of economics and the later unaware of the fact that we have computers now to count money. Adding mathematicians and physicists on top of this already deadly combination can only result in tears. 

Oumuamua

Recent transit of cigar shaped Oumuamua that raised hopes of galactic panspermia (1) is a double edged sword. Hitching rides on stable objects over millennia appears plausible for robust life but the implications of such transference could be catastrophic for the blue planet. It is not the green men and women we have to worry about but deadly single cell organisms from another galaxy. If the space agency ever stops taking shots at everything near in an effort to prove life exists elsewhere, they may have enough resources to explore the extra-solar bodies that seem to frequent this quiet corner of the Milky way. There they may indeed find life but possibly of a different kind. The half a dozen plausible building blocks including Carbon and Silicon narrow the shape of life and that should allow profitable exploration.

Science may need to borrow from philosophy as it attempts to prove extra-terrestrial life. The fundamental question remains to be what qualifies as life. Even in the narrow context of Earth, we find entities that show dual properties of life and non-life, as we define it. It appears to indicate that life is a spectrum with entities spanning the full scope. The closer to non-life, the more robust they appear, possibly pointing to efficient panspermia of materials that are close to life but have not yet crossed the threshold. So, near life materials could be freeze-dried and transported over time and space and they could show biological activity with conditions that allow such transformation. The heuristics used by the agency to find life, such as the presence of water, are archaic and it is time to step out of the rooms without windows, surrounded by steel and electronics, and think clearly. It is likely that the most dominant life form in the universe is something that can easily transcend the life/non-life threshold at will and that provides infinite possibilities for spreading themselves. The ability of an organism to freeze-dry itself should be considered dominant for transference and the environment in the blue planet is not conducive to enhancing robustness.

A sitting duck in the meteor shooting gallery, the Earth should be counting down to the unavoidable catastrophic event. If that happens, it does not look like there is anything that could hitch a long ride to the next spot.


(1) http://www.sciencemag.org/news/2018/10/cometlike-objects-could-be-spreading-life-star-star-throughout-milky-way

The value of breadth

As the present regime shifts to one controlled by uncertainty and accelerating technology, the premium on breadth of knowledge compared to depth, continues to increase. Innovation appears to happen at the intersection of fields and not in secluded domains and that is an important issue that educational institutions need to consider as they design futuristic curriculums.

It is also highly problematic. As an example, business graduates tend to be broad and shallow and if the stated hypothesis holds true, they should do well in the future. However, it is more complex than that. As the value of the individual is intricately correlated with how she can improve the economics of societies, it is not just the breadth of knowledge that gets into the objective function but also applications of it. Here, shallow and broad knowledge suffers from interactions with institutional constraints. The politicians in Washington are certainly shallow and not necessarily broad. Without deep knowledge of technology, policy-makers are ill-equipped to do anything good for future generations, let alone for themselves. They could be well advised to go deeper, perhaps a few inches below the ground they walk.

A bifurcation is in the cards. There is an optimum shape - breadth over depth - that optimizes societal progress. The pride of the country, the graduate schools, are without a clue, chasing after the latest "trends," to optimize localized economics. They need and want to make money by selling the latest wares and they are beginning to resemble a used car sales tent. It is unfortunate. Those who want to advance knowledge and improve societies, need to get out of the artificial and rigid constraints placed on them - academic, political and economic - and attempt to shape thinking beyond their career horizons. That is a tough ask even for those who already secured tenure, but still counting the number of incremental papers they published in marginal journals.

The value of breadth is increasing but not for those who do not have any depth.

Right brained Artificial Intelligence

As Artificial Intelligence becomes more commonplace through hype and reality, it may be useful to characterize the plethora of methodologies and technologies that are part of the thoroughly confusing medley. Conventional AI appears to be largely driven by the left brain as engineers, data scientists, and technologists flock to the dream, ably assisted by capital, seeking returns somewhere. Generally speaking, that is a prescription for disaster as technology, data and mathematics do not typically solve any problem of importance to enterprises. Granted, game playing is interesting and faking human voices and interactions equally compelling but none of these are going to change anything in the lives of ordinary people. And, they add little value to the economy or even companies.

The search giant recently proclaimed that AI gets more aggressive as they get better. This observation is not substantially different from the twitter girl created by another giant, that turned nasty. What these companies seem to be missing is that building AI bottoms up from historical data will simply reflect existing information content. More generally, these AI agents should reflect society and such observations add no value to the emerging arena, except talking points. And as the hardware company found out down South recently, transforming an organization requires a bit more than a "pizza-sized box," albeit it has solved most of the world's problems already.

It is about economics, stupid!. And that requires the silent right brain. AI has enormous potential but only if they are developed with a right brain dominance. It is a tough task as the normally shy right brain prefers to work from the background and simply muffles out the noise created by the left hemisphere. The old-fashioned concept of, "seeing the big picture," is still very important before diving into the details. Education systems tend to churn out left only brains in great numbers and this is problematic for the emerging regime. Scientists, whether real or of the data kind, cannot solve the problems facing humanity, let alone companies.

As the singularity enthusiasts revise the date of arrival of the discontinuity, it is important to remember that civilizations did not advance by tactics in the past and it is unlikely in the future.

The fragmentation of knowledge

Philosophers of yesteryear have argued that knowledge emanates from integration and not fragmentation. Even the early scientific disciplines, such as religion, attempted to integrate and simplify information into a set of holistic heuristics. That has been a highly successful process for most of human history. But in the modern world, largely dominated by contemporary scientific disciplines, fragmentation reigns supreme. This is problematic.

Information does not unambiguously lead to knowledge. Diving deep into silos with impenetrable walls has been the defining characteristic of modern education. As one gets deeper and deeper into highly structured information, the chance of creating knowledge largely disappears. This is because of conventional academic metrics favoring the known rather than the less certain and lack of integration across disciplines, aides tunnel vision. Here, the publishing gurus who make trivial incremental improvements to the known, win and those who seek the periphery, perish. Here, the managers of businesses driven by measurable tactics, win and those with stars in their eyes, lose predictably. Here, politicians who can appeal to emotions, win and those who make cogent arguments that could advance humanity, lose. Here artists who produce conventionally expected work, win and those who explore emerging areas, lose. Here, musicians who can scream and babble win, and those who integrate lyrics with beauty, lose. Here, those who want to make the world better lose, and those who want to dominate it, win.

Knowledge is not trivial and few achieve it.

Gut feel

A recent finding (1) that shows that the gut uses a variety of communication channels to rapidly communicate with the brain has implications for the prevention and treatment of many diseases, including obesity and the metabolic syndrome spectrum. Many had this intuition but now hard data is showing that humans are driven largely by their gut with the brain playing the role of a computer, merely calculating and shuttling instructions. This is not surprising. For over half a million years, they sought food for survival and the gut and its occupants, the constituents of the microbiome, have been reigning supreme. The overgrown appendage, the brain, serves little purpose in the grand scheme of things.

The recent reversal of roles has the brain scrambling to divide itself into two halves - the tactical and the strategic. Enormous excess capacity allows it to process ancient rules and instructions without breaking a sweat. The ensuing boredom has led it to seek utility from abstract ideas such as art, music, and literature. With science and technology in the background, not requiring significant processing power, the brain can float above triviality and the routine.

This is problematic. An organ, largely intended as a conventional computing resource, is wasting itself, getting involved in thought experiments, at least from the perspective of the gut. A bifurcating human architecture, still fundamentally managed by the microbiome in the gut, coupled with a confusing potpourri of capabilities upstairs, could portend disaster. The toys they have invented are now growing into entities without guts and that will certainly pose a challenge to the declining species.

The decline of the advanced entity is predictable but that has implications for the most successful species for nearly 5 billion years. A world controlled by silicon and light will be bad news for the microbiome. It is unlikely that the species that dominates the universe will let that happen.


(1) http://www.sciencemag.org/news/2018/09/your-gut-directly-connected-your-brain-newly-discovered-neuron-circuit

The value of time

Humans, with apparently hard constraints on affordable time, appear to sub-optimize the shape of their objective functions in every conceivable fashion. Some run without destinations, others stay put without ambitions, some rely on unprovable heuristics, others create theories without the need for proof, some ignore inconvenient data, others create convenient data, some travel, others remain absolutely still, some cry, others laugh but none of these maximize utility within such harsh limitations.

Mathematically, an entity that optimizes within inextensible time, will cherish the approaching moment, live in the present, learn from the past and understand that the future may never arrive. It is a depressing construct handed down to the present crop, over half a million years. The philosophers understood the idea but not the scientists and technologists, as the modern bandwagon gained speed, down the steep slope and then lost control. And now, as we approach the cliff of a knowledge discontinuity, yet again, we find a world of disparity and most sub-optimize on the premise that time is infinite.

Time is limited and that makes it valuable. Don't waste it.

The game is rigged

A recent study (1) shows that kinship and fellowship were held in equal regard in the households of medieval times and cultural appropriations were common among closely related individuals then, is in contrast to what is becoming of modern humans. Recent leaders have advocated cultural purity and ethnic cleansing and close to a quarter of the world population now believe in these ideas. Culturally and socially, it is possible that medieval times were better than the present. It is unfortunate.

Ignorance is costly - especially in leaders who are supposed to lead humanity to better places. As technology advances and opens up a chasm between those in the know and others, the rich and the poor and the connected and disconnected, we are fast approaching a social discontinuity. If we had knowledgeable leaders who presided over this unique time in history, we could have surpassed it. Ironically, as humanity reaches a technology and social discontinuity, they are "led," by kids, crooks and religious fanatics. This appears to be systemic as there is some evidence that incompetence rises to the top exactly at the point of hyper advancement in knowledge. Perhaps this is programmed into the human psyche and it acts as a break against achieving a more advanced state of society.

If humans are simulated in a random fashion, historically consistent observations in this vein will be impossible. So, we have to conclude that there is something programmatic in the game we play that acts as a natural brake against progress. The error function is dominant at points of discontinuity. This disallows humans to break out of a level 0 society. They could certainly imagine the next level but it is impossible to attain as they get close enough to it, disaster strikes - in the form of ignorance, ego or incentives that aid localized and tactical optimization.

The game is rigged...


(1) http://advances.sciencemag.org/content/4/9/eaao1262

Time to wake up and face technology

A recent article (1) that notes that advancing technology initiated productive scientific regimes, speculates that Artificial Intelligence could be the next engineering innovation that speeds up biological and chemical advancements. It makes sense but life sciences, an old and traditional industry, has been lagging in the application of technology. As high energy physics, economics and even business, embrace rapidly advancing AI, life sciences and healthcare have been reluctant.

Historical friction resulting from blind alleys followed by scientists based on prescriptive mathematics is one reason. Biology remains to be the last frontier where uncertainty and non-linear interactions have kept technologists from making measurable progress. Half a million years of trial and error could not be replicated easily in Silicon and this has been a late realization. Unchanging regulatory frameworks are the other reason why healthcare has not been able to take advantage of available technology. It is time that regulators realized that the failure and success of a pharmaceutical product have nothing to do with the p-value emanating from clinical trials data. Even manufacturing companies have moved away from this century old and incorrect notion.

Life sciences and healthcare have to (finally) embrace personalized medicine. Cross-sectional statistics of population data is misleading and damaging for the health of humans. It is not the health of the population that healthcare needs to worry about, but rather the health of the individual. Mass manufacturing of single-dose drugs is as archaic as TV dinners and static thresholds on blood pressure, sugar, cholesterol, and other such measurements are as obsolete as slide rules.

Healthcare, the most ancient of all industries, has been progressing slowly. If we are unable to break out of a constraining regulatory architecture and choking traditionalism, we will put the entire "population," at risk and the share of the GDP commanded by healthcare will continue to climb.

It is time for life sciences and healthcare to wake up and face technology.


(1) http://science.sciencemag.org/content/361/6405/864

Phoenix

Senator McCain's decision to invite presidents Barack Obama and George W. Bush to eulogize him gives us the last glimpses of civility in politics. A country that stands on the shoulders of great men and women, who passed before us and laid the foundations for a great democracy that attracted the best from around the world, still remains to be the last hope for those who struggle. As they separate kids from their parents based on the color of their skin, as they rob healthcare from the weak and the weary, as they appoint supreme court judges who could arrest the progress toward equality between the sexes, we still have to believe there is a better tomorrow, yet to arrive.

And it will, for America never surrenders, never compromises and never fails. We have demonstrated freedom to be the most important thing to cherish and free markets, free trade and free ideas to be superior to anything that is prescriptive. America remains to be the unfailing idea for those who want to go further, for those who are never satisfied by the present, for those who respect knowledge and a determination to achieve the same, for those who consider the world to be the scope of optimization, for those who know luck and initial conditions largely determine outcomes, for those who stand up against racism, ignorance, and sexism and for those who want to sing, cry and be amazed at humanity.

There was a chamber of a hundred men and women, more intelligent and capable than the rest, who make policies that could make a difference. But now, there is an emptiness as those who made it work are disappearing and as darkness descends in the city of corrupt politicians, we can only hope for somebody who could make a difference again. The callous hearts who assert failure to be a weakness should know that we have a country built on the sacrifices of many.

We will fight for everyone, we will leave nobody behind, we will strive to be free - in thoughts, markets, trade, and humanity. And, we will always remember those who created a country and a path to success for those who followed.

Policy inefficiencies

It has been shown that good intentions are not sufficient to make good policy decisions. Humans have generally been incompetent in making optimum policy in the presence of uncertainty and interconnectivity. A recent article (1) gives a powerful example of this phenomenon. The article demonstrates the futility of subsidies and massive investments into improving irrigation efficiencies on the premise that freshwater is a valuable resource. The blue planet has abundant water - but the species that apparently dominates it has not figured out how to harvest it. More importantly, it also shows how policymakers and politicians, in general, do not have the capabilities to optimize the system.

As the tumbling blue planet skirts disaster in an active shooting gallery in space, we have a system that allows incompetence to rise to the top. Knowledge and meritocracy do not matter, money and the ability to tweet garbage, do. As the "free market capitalists," raise tariffs and the socialists stand ready to dole out subsidies without thinking, it is clear that we are entering a regime of governance that will not be attractive for the rising millennials. A generation seems to have wasted time and space, adorned with ego and irrational ideas such as religion and prestige. Such is the disastrous state of affairs for the 8 billion that even scientists, who claim to think rationally and religious leaders, who claim to perpetuate good, have become numb.

If humans are observed from above by an entity that understands the non-linear effects of arbitrary actions on a complex and virtually unpredictable system, she will be sad. As the space agency makes plans to perpetuate the human species to Mars and beyond, there is a more important question it has to answer, first. Why? Will the universe lose knowledge and compassion if humans were to vanish as the Earth gets scorched under the expanding Sun? Will the universe lose information if humans were to vanish in a catastrophic impact from outer space. Will the universe care about a species that shows no positive slope in conceptual knowledge?

Likely not.


(1) The paradox of irrigation efficiency.  http://science.sciencemag.org/content/361/6404/748

R. Q. Grafton1,2,

J. Williams1,

C. J. Perry3,

F. Molle4,

C. Ringler5,

P. Steduto6,

B. Udall7,

S. A. Wheeler8,

Y. Wang9,

D. Garrick10,

R. G. Allen11

See all authors and affiliations

The end of "Machine Learning."

Machine learning, an obnoxious term, that simply means statistical modeling, has the potential to lead many budding data scientists and universities clamoring to create programs that support it, down blind alleys. Machines do not learn and apparently, those immersed in this concept do not either. In the coming decade, "Machine learning," could create a significant drag on the economy as the hype is pumped up by "reputable," academic institutions, software companies and even politicians.

Regression was the "original," machine learning. The statistical modeling platforms have added all sorts of ancient mathematics in neat little packages, they sometimes even call, Artificial Intelligence. But calling Arithmetic better names, does not improve anything, let alone intelligence. What is most disappointing is the fact that universities have created entire programs around this "fake news," as they have seen favorable economics and the possibility of their graduates skating to the C suite on the back of degrees. Academic integrity used to be important and as the crop of professors who loved to advance knowledge, vanish behind time, we are approaching a regime that will devalue education. We have education rendering casinos, with all the adornments that surpass the real thing and the bricks in the wall they manufacture are going to be incompetent to face the future.

Hype has a negative value. Academic institutions should understand this. If they do not, the only competitive advantage we possess, graduate education, could be at risk. Perhaps it is time we shut down the .ai domain names and academic courses designed to appeal to pure hype.

Artificial Intelligence: Long way to go

A recent observation that seems to provide additional structure on how the bots may be learning (1) is interesting. The Artificial General Intelligence enthusiasts, who have been making a lot of noise by observing that they can train a machine from pixels on the screen, may want to take note. Training a machine to play games is a lot easier than getting Silicon to "think." The computer scientists appear to be getting a bit ahead of themselves (even those with a Neuroscience degree). God does have a  sense of humor and She will lead many astray in the coming decades.

Engineering and Computer Science are easy. Medicine and Economics are less so. It is difficult to reduce complex questions to deterministic equations with binary outcomes. And, AI is squarely in the latter, for intelligence emanates from understanding uncertainty and how it affects outcomes. Equations do not work in this realm and experiments that create, "big noise," do not either. We are now creating a crop of computer scientists, locked onto the keyboard, hunting Python and drinking Java, as if there is nothing beyond it. This is problematic. If they continue in that vein, they could reduce themselves to the guy, who tweets garbage every day.

Humans have an ego - and that is going to keep them constrained from progress. The ones who make noise, are endowed with ignorance and the ones in the know, may keep quiet.


(1) http://www.sciencemag.org/news/2018/08/why-does-ai-stink-certain-video-games-researchers-made-one-play-ms-pac-man-find-out