The value of time

A recent study from the Mayo clinic that shows extremely high mortality in patients who are over 75 years old who have elected to undergo dialysis is sobering. With over 40% of the sample population passing within six months and a high percentage unable to return home, one has to wonder if decision-making could be improved. This is indeed a difficult question, one that may not have a clear answer, but it is worthwhile to think about it.

If human life cannot be infinitely sustained, then, there is an optimal decision point to extinguish it. If the objective function is a combination of individual and societal utility, maximization of value would require a mutual decision. If human life is standardizable, allowing high substitutability, life would appear to be a wasting asset. In such a situation, life will unambiguously lose value with time and the option held by the individual and society mutually to terminate would be optimally exercised earlier than what current norms allow. Thus, modern societies need to postulate better exits for its members.

On the other hand, if science and technology slopes indicate a step-function change to improve the life span of humans by orders of magnitude, then, exercising the option to exit early is suboptimal – both for the individual and possibly for society. In a world of declining aggregate number of humans, such an exit is extremely expensive. Assuming substitutability, the value of a human life, then, is a function of stock and flow of humans as well as the forecasted lifespan of an individual.

Thus, the value of remaining time for an individual can be reliably forecasted using a few attributes such as total population, net rate of growth and the probability of extension of human lifespan in the near future.

Intelligent evolution

A recent article published in the journal of PLOS pathogens show data indicating that evolvability is an important characteristic of selection. This is a finding that points to the importance of optimal control in a multi-stage game of evolution. Random mutation and single stage selection always sounded too simplistic to many. Now, it appears that evolution is not necessarily that straight forward.

Ridiculing each others’ position has taken much of the air time for debating evolution. There is no theory (let alone hypothesis) that could NOT be modified with new data and insights. Those bowing to the super creators of religion fight endless wars with the super scientists, who have figured it all out. Well, in physics about 4%, in biology less and in economics lesser. Flexibility of mind is much more valuable than conventional belief systems. As much of the world turn around predictable axes, the rest have to attempt to move thoughts forward.

If evolution, indeed, is a multi-stage game and selection shows optimal control, then, one has to question contemporary ideas. If evolution is intelligent, what may not be?

Horizontal innovation

Recent research from MIT shows structural and mechanical guidance from snails and clams improve the designs of robots. This is in a favorable direction of the application of Mathematics, informed by optimal designs from Biology. Vertical specialization has been substantially dampening breakthrough innovation in both engineering and medicine. Synergistic cooperation between mathematicians and biologists could steepen the innovation trajectory in both.

Engineers have been utilizing data in creative ways for centuries. This is a discipline that has invented and utilized much of the analytics, currently rediscovered by scientists. The basic notion that biological systems are too complex to be systematically analyzed using data, kept the discipline back for decades. Now, human genome and big data seem to have broken the shackles.

However, one has to be careful jumping into “big noise,” with presumed success. There will be setbacks and some may declare victory prematurely at the first sign of success. There is significant potential here but it would require professionals with limited horizontal view to trade their egos for a chance of higher success.

Involuntary terraforming

News that a new species of bacteria was found in two category 4 clean room facilities used for assembling payloads for space in two different parts of the World illustrate the difficulties of executing sterilized exploration. This coupled with the fact that earthly organisms were found on Mars probes indicate that the first inhabitants of the planet continue to fool their somewhat more evolved cousins. This is concerning, as humans have a forgettable history of negatively influencing areas they have explored in the past.

Physical exploration of space appears too archaic in the presence of improving technologies for remote viewing. More importantly, the fascination to physically explore the Solar system, apparently to find life, may have to be tempered based on the recent hypothesis that there are at least 8 billion Earth like planets orbiting Sun like stars in the Milky Way alone. Human exploration of the Solar system for extraterrestrial life is a bit like riding a bicycle around the house in an effort to find Lions or some other majestic animals. It is unlikely.

It is time we rethought micro space exploration. The expected information gain from such exploits is close to zero.

Maximum MOM

India’s successful launch of the Mars Orbiter Mission (MOM) is good news. After a few weeks in the Earth’s orbit, the orbiter will be heading out to the famed red planet. The journey, however, is fraught with danger with only the ESA making it in the first attempt.

Ref: NewScientist

A larger question is why India (and before that Japan, China and the ESA) attempted to develop their own technology for the Mars mission. After the US and Russia have already demonstrated viable technologies to reach the orbit and then land on Mars, it is unclear why reinventing such technologies is an economically good decision.

The utility a country derives from developing its own Mars mission may have four parts.

Public Pride (PuP) = Pride from achieving something for humanity

Private Pride (PrP) = Pride from showcasing the country’s accomplishments

Public Data (PuD) = Data and information that will be disseminated publicly

Private Data (PrD) = Data and information that will be held confidential

V = PuP + PrP + PuD + PrD

If the total cost of the mission is C, the the return to the country is (V-C)/C. However, since the true economic value of pride is close to zero, the country’s real return from such missions is low. It can, however, boost this return by acquiring such technologies from countries that have already demonstrated viability.

For example, in India’s case, if it is able to swallow the less valuable pride, then it could buy the technology (from the US or Russia) for just PrD. By doing so, it loses PrP but the selling country will likely subsidize PuP and PuD. In this case, its return from the mission is (PuP+PuD)/PrD. This is likely substantially higher than developing the technology on its own. At the very least, the cost will likely be an order of magnitude less.

More generally, society can maximize return on space investments if follower countries (after a single country has accomplished the goal) simply buys the technology from the leader to execute missions.

Behavioral flexibility

A recent study in The American Naturalist suggests that animals show an equal level of behavioral unpredictability as humans. Observations of adult male mosquitofish over a period of time also seem to indicate that some individuals are more unpredictable compared to others. The authors hypothesize that such unpredictability represents behavioral flexibility that facilitates learning or creates confusion for predators.

These observations have implications for modern organizations also. Large enterprises implement organizational constraints to reduce behavioral volatility of its employees – in how they work, execute tasks, get trained and deliver products and services. They also measure time and effort at detailed task level and they generally view volatility in such metrics as undesirable. These actions by companies may be decreasing the ability of their employees to experiment and learn. The long term impact of this could include declining innovation rate, lack of job satisfaction and stagnant productivity.

Unpredictability and behavioral flexibility may have a positive impact on the viability and growth of organizations.

Ref: Flexibility : Flexible Companies for the Uncertain World.

http://www.crcpress.com/product/isbn/9781439816325

NIFting LIFE

Recent news that the National Ignition Facility (NIF) has surpassed a critical benchmark – obtaining more energy than provided in a fusion experiment is a significant milestone toward free energy, an outcome that will help solve two tactical problems faced by the Earth, environmental degradation and colliding asteroid vaporization. No cost energy production has become a critical need in a system, wobbling toward extinction, either by the actions of its inhabitants or by space debris that envelop it like fruit flies around a rotten apple.

Lasers focused on a target container for hydrogen fusion – a mini Sun

Ref: BBC News

NIF, plagued by technical difficulties, has been behind on its own goals. But it seems to have accomplished what it set out to do a full year before. If the results are verified and replicated, they successfully demonstrate the concept of sustainable hot fusion with energy accretion. This should boost efforts to scale up fusion into practical power generation.

Ref: LIFE at LLNL

The aptly named, Laser Internal Fusion Energy (LIFE) at Lawrence Livermore National Laboratory (LLNL) has been making conceptual power plant designs based on NIF experiments and it appears that we are moving ever closer to reality. Although the goal is to deliver fusion based commercial energy by 2020, recent advancements may allow an accelerated deployment.

Fusion, the only known source for clean energy, may ultimately help humans sneak out of disaster, just in time.

Music to the inventors

Research from Michigan State University shows a high positive correlation between involvement in arts and crafts in childhood (<14 years) to innovation (measured by patents) and business creation later in life. Training and early participation in music, creative writing, photography and other such artistic areas appear to positively influence out-of-the-box thinking, a critical attribute of innovation and new business creation.

It has long been argued that the superiority of the US in innovation is related to its flexible education system that focuses more on whole brain development. Although US may not top other countries in test scores in hard sciences, it does produce a high level of creativity per capita, far in excess of any other country. There is a clear trade off between early specialization in sciences and later creativity. Well known technical institutes around the world, understandably proud of their ability to create a large number of engineers and doctors at will, may be missing a trick. The world may need less human robots in the future, highly efficient in applying what they are taught and it may need more creative individuals who can innovate and create new businesses. An education system focused on creating employees is significantly less valuable than one nourishing inventors and entrepreneurs.

Arts and crafts – that propelled the human psyche out of a dreadful life focused on food and sex – may ultimately give a more substantial makeover for humans.

Option value of organs

A recent study in the Clinical Journal of the American Society of Nephrology argues that assigning a benefit, say $10,000, to a kidney donor could increase available organs for kidney transplantation by 5%. Although the price elasticity of kidneys is unclear, it seems logical to assume a normal market equilibrium. Ethical issues aside, the owner of an organ may be sub optimizing decisions by not exercising the put option optimally.

Organs are wasting assets, the market value of which are declining over time. The utility one gains from her organs is a function of remaining lifetime – with the asset lost in a catastrophic end. The net value of the asset is the difference between the two, that may show a U shaped curve. The put option held by the owner on her organs has an optimal exercise horizon prior to death. This is especially true if the organ is not essential to life, or acceptable backups exist as in the case of donating one out of the two functioning kidneys.

Tangible economic incentives, if applied correctly, can induce optimal exercise, with beneficial societal impacts.

Lonely baby

Recent discovery of a lonely planet without a star, a mere 80 light years away from the Earth is interesting from many angles. The newborn, just 12 million years old, may indicate a failed star at six times the size of Jupiter. Although ejection theories are abound, this could be a case of star formation in zones not considered active. With this unexpected finding, the frenzy of extra solar planet discovery continues to increase.

However, we now know that planets are out there in large quantities and in every size, age and composition. One has to wonder if further exploration of these somewhat uninteresting objects is a good use of limited resources. It is unclear why so much passion exists in the identification and cataloging of planets. Is it the need to verify the already known structure of the universe or perhaps a desire to find life elsewhere. If it is the former, there is enough data to confirm that planetary systems are replicated across the universe. But if it is the later, then, it is advisable to look closer.

With limited understanding of all the life on planet Earth and possible life in close proximity in the solar system, it does not make sense to seek it elsewhere. If this is driving a good part of the thought processes of budding knowledge seekers, this has the potential for destroying further advances.

Efficient Chicago

The idea was simple but the implications are huge. It is clear to those who understand frameworks but less so to others. The notion that information is quickly reflected in the prices of traded assets, standardized and liquid, in markets that implement clear rules of engagement and property rights, is elegantly obvious. It is, however, singularly confusing to active investors, individuals and institutions, a sizable chunk of the US economy.

The dominance of the Chicago school in shaping economic thinking continues. Recently minted Nobel Laureates – Fama and Hansen, seem to complement wonderfully in the grand tradition of theorization and empirical support. Their work has direct practical consequences for investment decisions and asset pricing models. More importantly, they also provide guidance on resource allocation across the economy.

For example, efficient markets mean passive investing dominates, a conclusion that is robustly supported by empirical observations. Even though risk adjusted excess returns (alpha) is shown to be zero (after management and transaction costs) across investment managers (a direct conclusion of Fama’s Efficient Market Hypothesis), significant resources – money, people and time – are wasted across the world by actively managing liquid investments. One has to wonder why the venerable investment banks and financial institutions, filled to the brim with the brightest, engage in activities that add no value either to themselves or to the economy. To make matters worse, there are over eight million active traders in the US alone, ably assisted by the brokerage houses, pushing buttons and pulling levers arranged on multiple screens in such complexity that they rival the cockpit of the space shuttle. As the markets close every day, some rise like vampires – mad, fast and crazy - aiding and abetting the following day’s trades and newly emerging traders. This is a massive misallocation of capital across the entire economy. This is indeed a systemic issue for the economy where agents are engaged in value destroying activities for a large cohort of the economy, presumably because of monopoly rent and hidden options yielded from asymmetric information between the adviser and the client. Such a market failure, if corrected by appropriate policy actions, could significantly improve global productivity.

Hansen’s method of moments help mere mortals make reasonable models for complex macro phenomena. His focus on incorporating the agent’s thoughts, beliefs, doubts and learnings into modeling her actions and the systematic consideration of uncertainty that is evolving stochastically, is refreshing. Determinism has been the bane of theoretical finance for long and the incorporation of uncertainty in accepted models may help measure risk better – both locally and globally. Policy makers will benefit if they understand that flexibility embedded in policy decisions are valuable in the presence of uncertainty.

Chicago has had an unbelievable run – primarily because of its commitment to embracing unconventional ideas early and nourishing them over long periods of time. However, there are indications that the school is becoming more conventional and it is less inclined to accept emerging ideas. If it deviates from a formula that has been successful for nearly a century, it can quickly mean revert to mediocrity, ably demonstrated by its peers today.

Fusion, fusion everywhere but not here

Recent news that NASA may be making progress toward fusion rockets for inter-planetary travel is encouraging. Given the level of knowledge humans appear to posses, it is embarrassing to be in a situation that limits available energy. Everywhere we look, energy is free and it comes from fusion. The inability of humans to master this universal trick is puzzling, especially because zero cost energy would have set them free – with unlimited food, water and automatically cleaned and stabilized environment for ever.

Digging toxic materials out of the ground and burning them in their unstable green house for energy seem to reveal a level of societal stupidity that is incomprehensible. The tree huggers and hipsters, perhaps with better intentions but with equally stupid notions of energy creation have been clamoring for wind, photovoltaic cells and nuclear fission. Is this because of lack of understanding or is it driven by localized incentives that simply will not allow societally optimal solutions?

Energy creation has to stick to a few simple constraints. The process cannot create waste that needs to use energy and time to process, it cannot affect habitats and the environment and more importantly, it cannot consume more than it produces. What is left?

Connected brilliance

A recent article in the journal of Brain hypothesizes that the unusual level of high connectivity between the left and right hemispheres of Einstein's brain may have contributed to his brilliance. If true, this has implications for many areas including childhood brain exercising and education in general.

Typical designs of the human brain seem to promote hemispherical specialization. This may be an unintentional effect of evolution that may have afforded an advantage to being good in one activity or another. If the objective functions of the individual and society are relatively simple, optimal brain design may be dominated by specialization. After all, it is possible to create an efficient hunting group by assembling spotting, throwing and carrying skills in separate individuals. This seem to have continued in the modern world even in the presence of somewhat more complicated needs.

Education systems that stress focus may create highly specialized individuals, akin to robots that possess a limited, albeit being efficient, skill set. As the information and knowledge needs of society increase, there is a natural push toward specialization. However, education systems that cater to this trend are trading off creating individuals with the ability to transform the world to those who can efficiently work in it.

Education systems providing whole brain content may be able to provide a desirable software connectivity overlay to ordinary brains. It is not realistic to expect another Einstein but perhaps universities can devise ways to incrementally improve what they are provided with.

Simulated colonies

A recent article in the Journal of Proceedings of the National Academy of Sciences shows that a simple mathematical simulation explains the formation and progression of human populations between 1500 BCE and 1500 CE. The authors appear proud that their models explain reasonably well how large scale societies formed. However, it also indicates that “intelligently designed” humans resemble ants and bees than something more substantial.

For most of the history of humans – a few parameters that describe the interactions of ecology and geography were enough to explain and forecast their behavior. Sporting fairly simple objective functions that include food, sex and power, human societies flourished with less flexibility and depth shown by ants and bees. They have been understandably proud of the accomplishments of the last few centuries in which they devised faster and more destructive ways to perpetuate the same goals.  Now, simple mathematics prove societal behavior can be easily modeled.

As they dream of perpetuating their genes across the solar system and beyond, humans may benefit from some introspection – what they have done thus far and why they may not do anything different in the future.

Downward mobility

A recent article in Sociology Mind, demonstrating that check cashing outlets strategically target high crime neighborhoods, is an indication that analytics and targeted marketing are kicking into top-gear. Demand for goods and services will be met with supply at prices that will clear the market. The providers of services will maximize profits by selecting the most desirable locations, consumers, products and prices. This is true for crime, guns, prostitution, check-cashing and other such entities. From a policy perspective, however, this has societal implications.

If the reduction of crime has a net economic value to society, then regulating agents that aid crime may be optimal. However, this is an analytical (and empirical) question as regulation adds costs to society by introducing artificial constraints to market clearing mechanisms, resulting in dead-weight losses. The positive spill-over and long-term beneficial effects of crime reduction has to be evaluated against the likely cost of regulations. Both the benefits and costs are uncertain and thus, policies that are staged, introducing flexibility to future course corrections are optimal. Since crime almost always has a perpetrator and a victim, the question is how to shut down access to resources for those who commit the crimes. This is not unlike cutting the blood supply to certain types of cancers. This is, however, a complicated problem as the victims rely on the same mechanisms to live.

Policies have to have a temporal dimension – possibly starting with a severe action (such as government controlled access) with a well laid out plan to move toward a full market based mechanism. The most beneficial policy is not a stagnant one but rather a system with clear and well-articulated transition from necessary regulation to solve the issue at hand to market based mechanisms.