Why Blogs (Still) Aren't Dead.......

Why Blogs (Still) Aren't Dead.......No Matter What You 've Heard

A very good article on the state of blogosphere and also how one can lie with empirical research based on statistics.

سچی خوشی

ہماری زندگیوں میں جو باتیں اہم ہیں وہ ہیں ایک دوسرے کےساتھ وقت گزرانا، قریبی دوستوں کے ساتھ گپ شپ اور خوبصورت کتابیں پڑھنا اور ہم خوش قسمت ہیں کہ ہمارے پاس رہنے کے لیے جگہ ہے اور ارد گرد اتنی ثقافتی سرگرمیاں جاری رہتی ہیں جو ہمیں متحرک رکھتی ہیں۔ اس سب کچھ کے بعد آپ کیا کسی اور چیز کا مطالبہ کریں گے۔

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یہ ہیں خیالات متوسط طبقے سے تعلق رکھنے والے ایک برطانوی نوجوان ٹوبی اورد کے جنہوں نے اپنی زندگی بھر کی کمائی ان لوگوں کے لیے

وقف کر دی ہے جن کے پاس ان کی ضرورت سے کم ہے۔

اکتیس سالہ اورد نےجو آکسفورڈ یونیورسٹی میں محقق ہیں اپنی زندگی میں دس لاکھ پاؤنڈ ضرورت مند افراد کو دینے کا عہد کیا ہے۔ اس مشن کی تکمیل کے لیے اورد نے فیصلہ کیا ہے کہ وہ سالانہ بیس ہزار پاؤنڈ سے زیادہ جتنا کمائیں گے ضرورت مندوں میں تقسیم کر دیں گے اور ان کی اہلیہ ڈاکٹر بیرنادیت ینگ نے اپنے لیے پچیس ہزار ہاؤنڈ کا ہدف رکھا ہے۔

وہ کرائے کے ایک کمرے کے خوبصورت فلیٹ میں رہتے ہیں جس میں صرف ضرورت کی بنیادی چیزیں رکھی ہیں۔ ان کے پاس ٹی وی نہیں لیکن اس کی وجہ پیسے کی کمی نہیں بلکہ ان کی خواہش ہے۔ وہ دو ہفتے میں ایک بار باہر کھانا کھاتے ہیں، ہفتے میں ایک بار کافی پیتے ہیں۔

اورد نے بی بی سی سے بات کرتے ہوئے کہا کہ جب وہ طالب علم تھے اور سالانہ چودہ ہزار پاؤنڈ کماتے تھے اس وقت وہ دنیا کے امیر ترین چار فیصد لوگوں میں سے ایک تھے۔ 'میں نے سوچا کہ اگر میں اس آمدن کا دس فیصد کسی کودے دوں تو میں پھر بھی دنیا کے امیرترین پانچ فیصد لوگوں میں شامل ہوںگا۔'

اب اورد تنہا نہیں۔ ان کی دیکھا دیکھی چونسٹھ لوگ ان کی تحریک

'Giving What We Can'(اپنی حیثیت کے مطابق دے دینا) میں شامل ہو چکے ہیں۔

Fallacies of Research

Researchers tend to generalize theories based on their observations and experiments. Sometimes these generalisations are too general, seeing things from the very high and assuming a dream world to be of any help in solving the real world phenomena and sometimes these generalisations are based on limited data that make these research meaningless in our day to day life. Take the case of Capital Structure theories in Finance, there is no link to real world and interaction of human beings who are not so rational and the markets are not so efficient.

Behavioural Finance has come to rectify this anomaly. But it also have its limitations. Here is an excerpt from an article that shows what these are

The behavioural revolution in economics and psychology has successfully identified and named close to three dozen biases (my favourite behavioural folk song defines them in verse).  I had thought that these biases transcended issues of culture.  Indeed, both neoclassical and behavioural economists were united in a belief that cultural variables were of secondary importance when it came to the deep drivers of behaviour.  But a series of experiments now has me thinking that the underlying heuristics are less universal.

The article, “The Weirdest People in the World” (ungated working paper), has the startling thesis that social scientists in trying to investigate basic psychology may have erred by oversampling outlier populations.  The “Weirdest People” of the title are Western, Educated, Industrialized, Rich, and Democratic.  (The cuteness of the title is not one of the article’s strengths.)  But the idea that “we” are the exotics usefully jars one from complacency.

The heart of the review is a catalogue of experiments where the results differ markedly across different societies.

Take, for example, the Müller-Lyer illusion, which I would have bet dollars to doughnuts would be a universal trick of the eye:

Turns out not only that different societies display different degrees of illusion bias, but the U.S. subjects (represented here by subjects in Evanston, Illinois) are outliers when researchers tested for the prevalence of the illusion across more than a dozen societies throughout the world.  The WEIRD subjects, as expected, require “segment a” to be on average 20 percent longer than “segment b” before they subjectively assess the two to be the same length.  But other cultures exhibit markedly less bias.  Indeed, the “San foragers of the Kalahari seem to be virtually unaffected by the illusion”:

MM Theorem and Reality

MM proposition 1 says that value of a firm is independent from its financial structure. If this is the case then the ideal financial structure is 100% debt.
But fortunately this is not the case otherwise everything on the earth might be held by banks as collateral. The reasons for the current scenario is different than advocated by MM are
1. Arbitrage mechanism has its limits.
2. Interest rate on personal debt is different from corporate debt because of underlying collateral, size of debt and remaining borrowing capacity.
3. Borrowing capacity of corporations as well as its shareholders is limited because there is a real cost of bankruptcy.
4. Capital markets are not perfect, there is asymmetry of information between corporations and its capital providers.
5. Interest rate varies with the leverage because of risk of default.
6. There is no “equivalent return” class because the underlying risk is different from firm to firm, which is accumulation of numbers of factors.
7. Firms within the same industry post very different operating income because of difference in strategy pursued.
8. Securities of all firms in the world are not traded on capital markets.

Sure Win Turnaround Formula

One of the reason for a turnaround of Ford Motors is slashing of debt and reducing interest cost. This is another evidence that debt exert unbearable pressure on companies and bring them down. Here is an excerpt from an article from Economist

That turnaround is impressive (see chart 1). Despite the sluggish recovery in the North American market, in the third quarter Ford’s automotive businesses made an operating profit of $2.1 billion, twice as much as a year before and the fifth quarterly surplus in a row, on revenue of $29 billion. Its net income was a quarterly record of $1.7 billion. Analysts at Morgan Stanley, an investment bank, expect the company to make a profit of $10.5 billion in 2010. In 2009 it made one third of that. Ford has also slashed $12.8 billion off the automotive debt of $33 billion it had at the start of the year. By late November the company reckoned it had lowered its annualised interest costs by nearly $1 billion.

Markets can be manipulated

Here is an excerpt from an article which throws some light on the causes of bubbles in finance. Clever people take advantage of human brain flaw and succeed in creating bubbles and bubble are destined to burst, which is as sure as daylight.

Why are bubbles such a persistent feature of financial history? Economists argue that these speculative frenzies are caused in part by market failures like too much liquidity or lax regulation. Cognitive psychologists, meanwhile, see bubbles as a case of pattern recognition gone awry, as people extrapolate the past into the future. In recent years, neuroscientists also have become interested in bubbles, if only because the financial manias seem to take advantage of deep-seated human flaws; the market fails only because the brain fails first. Read Montague, at Baylor College of Medicine, has spent the last few years trying to decipher the bits of brain behind our irrational exuberance. It’s microeconomics at its most microscopic.

At first, Montague’s data confirmed the obvious: our brains crave reward. He watched as a cluster of neurons acted like greedy information processors, firing rapidly as the subjects tried to maximize their profits during the early phases of the bubble. When share prices kept going up, these brain cells poured dopamine into the caudate nucleus, which increased the subjects’ excitement and led them to pour more money into the market. The bubble was building.

But then Montague discovered something strange. As the market continued to rise, these same neurons significantly reduced their rate of firing. “It’s as if the cells were getting anxious,” Montague says. “They knew something wasn’t right.” And then, just before the bubble burst, these neurons typically stopped firing altogether. In many respects, these dopamine neurons seem to be acting like an internal thermostat, shutting off when the market starts to overheat. Unfortunately, the rest of the brain is too captivated by the profits to care: instead of heeding the warning, the brain obeys the urges of so-called higher regions, like the prefrontal cortex, which are busy coming up with all sorts of reasons that the market will never decline. In other words, our primal emotions are acting rationally, while those rational circuits are contributing to the mass irrationality.

Unfortunately this tendency is exacerbated by other people. Montague has also found, for instance, that subjects in the investment game are extremely vulnerable to what he calls “the country-club effect,” which occurs when we try to make more money than someone else. “This is what happens when you’re sitting around with your friends at the country club or watching cable TV, and everybody is talking about their huge profits,” he says. “Those conversations are going to change the way you think about risk.” Men seem especially vulnerable to this foible: When they competed against strangers, they were much more likely to get swept away by the financial speculation.

Efficient Market Hypothesis

Efficient Market Hypothesis (EMH) - An hypothesis which states that the price of a security is a reflection of all available information about it and thus represents its true value. It states also that the current price of a security is the most appropriate measure of future returns. 


But in real world there is no such thing. Investment bankers, brokers, vested interests all use all the weapons including academia to ensure that people believe in the EMH. Here is an excerpt from an article that makes the point clear.


" We already know that Lehman and other firms used fake accounting to hide liabilities and inflate assets; that lenders and securitizers frequently knew that the loans they sold and packaged were fraudulent or defective; and, of course, we also now know that Goldman Sachs and other investment banks sold securities they knew to be defective (they were often sold to pension funds for low-paid government employees, by the way) -- and that they designed many of these securities so that they could profit by betting against them after they were sold."