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Olduvai III: Catacylsm
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Five ways to ensure that models serve society: a manifesto

Five ways to ensure that models serve society: a manifesto

Pandemic politics highlight how predictions need to be transparent and humble to invite insight, not blame.
Cartoon of scientists and policymakers inspecting the inside of a black box that is outputting a policy document

Illustration by David Parkins

The COVID-19 pandemic illustrates perfectly how the operation of science changes when questions of urgency, stakes, values and uncertainty collide — in the ‘post-normal’ regime.

Well before the coronavirus pandemic, statisticians were debating how to prevent malpractice such as p-hacking, particularly when it could influence policy1. Now, computer modelling is in the limelight, with politicians presenting their policies as dictated by ‘science’2. Yet there is no substantial aspect of this pandemic for which any researcher can currently provide precise, reliable numbers. Known unknowns include the prevalence and fatality and reproduction rates of the virus in populations. There are few estimates of the number of asymptomatic infections, and they are highly variable. We know even less about the seasonality of infections and how immunity works, not to mention the impact of social-distancing interventions in diverse, complex societies.

Mathematical models produce highly uncertain numbers that predict future infections, hospitalizations and deaths under various scenarios. Rather than using models to inform their understanding, political rivals often brandish them to support predetermined agendas. To make sure predictions do not become adjuncts to a political cause, modellers, decision makers and citizens need to establish new social norms. Modellers must not be permitted to project more certainty than their models deserve; and politicians must not be allowed to offload accountability to models of their choosing2,3.

This is important because, when used appropriately, models serve society extremely well: perhaps the best known are those used in weather forecasting. These models have been honed by testing millions of forecasts against reality.

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Modern Finance: I’ll be gone, you’ll be gone

Modern Finance: I’ll be gone, you’ll be gone

In his book Other People’s Money: The Real Business of Finance, author John Kay quotes Lord Keynes’s idiom, “Madmen in authority, who hear voices in the air, are generally distilling their frenzy from some academic scribbler of a few years back.” The men and women with authority over monetary matters are indeed mad. Mad enough to see interest rates, not as pricing the present versus the future, after all, the idea that a dollar today is worth more than a dollar in the future is axiomatic.

No, the Fed’s crystal ball sees lenders paying for the privilege of going without the present use of their money so the largest debtor in history can continue to operate. In the just released “2016 Supervisory Scenarios for Annual Stress Tests Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule”  the Fed, in its Severe Adverse Scenario, foresees,

As a result of the severe decline in real activity and subdued inflation, short-term Treasury rates fall to negative ½ percent by mid-2016 and remain at that level through the end of the scenario. For the purposes of this scenario, it is assumed that the adjustment to negative short-term interest rates proceeds with no additional financial market disruptions. The 10-year Treasury yield drops to about ¼ percent in the first quarter of 2016…

Really, rates going negative would mean “no additional financial market disruptions?”  In a world with somewhere between $700 trillion and $1.2 quadrillion in derivatives exposure nothing out of the ordinary would happen?   Some will pooh pooh the big numbers because on a net basis the exposure isn’t even close to 1000 times 1.2 trillion. But, as Zero Hedge explains, “net immediately becomes gross when just one counterparty in the collateral chains fails – case in point, the Lehman and AIG failures and the resulting scramble to bailout the entire world which cost trillions in taxpayer funds.”

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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