At the Candidates' tournament

London is on the radar for chess players at the moment. The Candidates tournament for the world championship title is going on.

We live in London. We met through chess (yes, I'll probably have to write about who "we" is and how all of that happened one day). So we went.

Now, a cynical view could be that the very same commentary was available on the web, at the same time (maybe with a short delay to prevent cheating, but I haven't noticed that, I think it really is live, which it should not be). For free. And then we would be able to see the games displayed on a much clearer board than the horrendous graphics that the organisers, for some reasons, apparently chose. Plus, we would actually have had a better broadcast -the transmission kept failing in the hall.

So why will we be returning next Wednesday?

Well, one could argue that walking past some of the players just before or just after the game, adds to it. Or coming across the lovely press officer Anastasiya Karlovich, for the male spectators (a huge majority). But I don't think that they are major factors.

One reason may be -and that would of course be totally anathema to an economist- that while you attend, you stop yourself from doing anything else. Yes, you are in essence paying to get rid of other opportunities. And are thus totally immersed into it. This could seem paradoxical but was mentioned as a great thing by our friend Simon, who went with us. Theoretically, you could do it at home. But then you may look at the computer evaluation, you may read an email, you may lose track at some point... There, it's a total immersion, trying to find the moves yourself, which is nice when you actually do (I found that I often did find the moves in the two games I was mostly following, but in the case of Gelfand-Ivanchuk, while I did find them I had very little idea of who was better. So I would not have known how to answer a draw offer by either side. It ended in a very exciting draw by perpetual check).
It was nice to go as a group as well. Although one of us had some difficulties in keeping his comments to an inaudible whisper.

I must add that, from where we were sitting, Vassily Ivanchuk, who walks a lot between moves, tended to follow a path that led him to, apparently, look straight into my eyes before turning again. Just looking into those eyes, with this player who is notoriously removed from the present (oh, that's a guy who would like the title of this blog), with his tilted head and probably seeing something else than the few spectators that were actually in front of him, well, it felt oddly emotional.
He always tries to make things interesting and was coming off two consecutive losses. Then again he had been very creative and adventurous, and he appeared so human, so likeable, there was like an urge of jumping on the stage and giving him a hug. This is not something you'd feel in an internet broadcast.

We then all went home for dinner, which was followed by paired blitz games (one board, four players, both teams take turn playing the moves and are not allowed to confer, although banter is encouraged). Both our guests commented separately that it had been the best day they could remember in months if not more.
Yet it all came from paying to restrict our opportunities. Man is surely not a "rational" creature.

In a training for the week...

... normal life should (hopefully) resume shortly.

What happened to the scientific process?

David Greenlaw, James Hamilton, Peter Hooper, and Rick Mishkin (no, those names did not mean much to me either) have published an op-ed in the Wall Street Journal based on their recent paper on debts, deficits and borrowing interest rates.

Thus far, the sentence reveals nothing extraordinary. What they end up concluding (the most policy-absorbed might have surmised it from where their op-ed was published) was that there was a strong relationship between debt level and interest rates. There is a detailed takedown of the conclusions by Matt O'Brien, so I'll focus on something else. The data they based their conclusion on can be plotted on a graph easily enough, like that:

Wealth inequality in America

Mostly as a note to myself so I know where to find it, this video is doing the rounds at the moment.

What school will my sons know?

I am a great believer in caring for things that matter, whether or not they directly affect you.
But I would not be human if being the father of two young boys, one of them due to go to school in England as of next September, did not make it feel worse.

This is from George Monbiot - I'll just reproduce the first few lines, but you should read it on his site.

A Capitalist Command Economy

Forcing schools into the hands of unelected oligarchs is the latest contradiction of everything the market fetishists claim to stand for.

By George Monbiot, published in the Guardian 5th March 2013

So much for all those treasured Tory principles. Choice, freedom, competition, austerity: as soon as they conflict with the demands of the corporate elite, they drift into the blue yonder like thistledown.

This is a story about England’s schools, but it could just as well describe the razing of state provision throughout the world. In the name of freedom, public assets are being forcibly removed from popular control and handed to unelected oligarchs.
[...]

Scary. And, as usual with Monbiot, very well documented.

A heterodox proposal

I've been thinking about regulatory environments lately -finance, insurance, but also medical or IT.

Actually the last two will be relevant to the idea only as illustration. The proposal is about the financial world.

So, as you may or may not know, norms like Basel (2 or 3 at any rate) or Solvency 2 will require a lesser quantity of capital set aside if you have an internal process to evaluate counterparty risk. This process must be pretty thoroughly documented and will be subjected to audits.
As you also know, audit firms are paid by the company that they are auditing. Thus creating the mother of all conflicts of interest.

But how systematically relevant (aka too big to fail) institutions evaluate their risk should be of concern to all. Just like we need to make public (Ben Goldacre in Bad Pharma explains it better and more thoroughly than I could try to do, but the idea should be pretty clear anyway) all about how a pharmaceutical company conducted a trial in order that possible mistakes are detected quickly, and indeed regulation demands that this be the case.
Yes, I know, he also demonstrates vividly that the application of such regulation is appalling, and that's something that needs to be changed, but the principle stands.

You probably see where I'm going. Why not demand that institutions that adopt the internal process (in order to reduce their need for capital) disclose it fully?
They might kick and scream, but at least the enforcement would be easy: if you don't do it, your capital request is instantly doubled. Plus, it may actually reduce their costs in the long run -things will not have to be reinvented everywhere. And it would give academics the possibility to conduct large meta-studies that would help us have a much better idea of the likelihood of rare risks.

When trotting out the idea I was told that they (in that case they meant insurers -I was talking to an actuary) spend a lot in that and want to keep it a differentiating factor. Well, you may want to allow for some patenting of truly innovative practices if that's needed. Again, enforcement would be trivial since companies would have to fully disclose what they are doing (nobody, and I mean nobody, would have an internal process and not say it, since it would be a pure waste of money: you wouldn't get the reduction in required capital).

So, what do you think? It's systematically relevant to everyone. Should this data not be more than open-source code than the secret formula they currently are?

(and while you're at it, please enforce the full disclosure of pharmaceutical and agribusiness data).

Theoreticians or empiricists?

Martin Wolf and Simon Wren-Lewis have recently mentioned the distinction between engineers and theoreticians as a metaphor for how economics should be done. It is an important, and interesting, distinction, which got me thinking about my own field, and how wrongly the distinction is often perceived.

I delve into what is pompously known as Operational Excellence. Performance improvement, if you will, but not for a sportsman: for professional organisations.

In this field you frequently come across things called Lean and Six Sigma. I'm not going to explain in great detail here what they are, but if we accept a caricature, you could say that Six Sigma describes a project-based approach to situation where you first go through a data collection phase before isolating the problem, fixing it and sustaining the improvement, whereas Lean will give you a set of principles to apply in all situations and instruct to treat any deviation (aka problem) immediately.

This is crude, and anyway much of the use of experience in the field serves to know what of either approach to use when and how, but that will do for what I'll try to describe.

In applying for projects, or in training, I often get to describe how I would start by a diagnosis involving collecting data (which can be from a database, or by direct observations, or by collecting verbatims...), and then how the project will follow depending on what was identified. In short, a methodological framework.

Well, of course, you win some and lose some, actually I can't complain about my winning ratio so far. But when I've lost (and even sometimes despite having won), I've often been described as being seen as theoretical when the alternative felt more practical.

Now this has always baffled me. By training, I'm an engineer, a very practical trade. And I really don't believe I've ever had a clear idea of how something should work before studying it -on occasions I did not have any idea how it worked at all. But that's the point of having a framework to study things.
I believe that I am an empiricist -which is why I so need data to make up my mind. And this was confirmed when I was able to get a hint of what the alternative, the one deemed practical, had suggested.

Some thoughts about triangulation

Read in a comment on the European Tribune:

" To get elected, you want to collect everybody on your wing (left wing, if you're a Democrat), and as many nearer the center as possible. Your opponent does the opposite.
Each of you maximizes his electoral position by moving as close to the center as possible, to avoid losing a small percentage of centrist voters. So even if you are a flaming communist, or a full-fledged nazi, you will come to the center to try to get elected."

Several things there.

First, to the extent that it would be true, it would be a damning indictment against any two-parties system. If elections were to then be fought on totally spurious -and essentially identical- programs, bearing no resemblance to the actual agenda (that would be much less consensual), simply because you'd be trying to stop your opponent from winning the centre, then there would be no possibility of something approaching a reasonable democratic choice.
I'm not saying that there is a reasonable democratic choice at this stage, yet I get the impression that pretending to be centrist is not always the strategy on display.