Morning in America means class war and coffee

I thought this segment was pretty remarkable:



The odd thing about the position Brzezinski stakes out here is his avowed ignorance of the uses to which vast fortunes might be put. He can't really be ignorant of the fact that wealth is a form of power, can he? Surely not. Which I take to indicate that he has some agenda which he thinks is served by not acknowledging that fact. In most contexts I'd assume that the unspoken agenda is to preserve the privileges of the owning class, but that interpretation doesn't seem plausible here.

Adding: Perhaps Brzezinski's agenda has been revealed here:

...the left’s agenda goes considerably beyond a black helicopter-based global monetary system. The ultimate aim is to establish a Star Trek-style post-capitalist society in which there’s no currency whatsoever. |Yglesias|

A little bit of awesome

This makes me happy for a variety of reasons, but I'm posting it here to show that I really do believe that crowdsourcing can work, even after badmouthing Intrade the other day.

But what I find most interesting about InnoCentive is its success rate. A study of InnoCentive led by researchers at Harvard Business School found that nearly 33 percent of the problems posted on the website were solved within the specified time frame. In other words, a disparate network of strangers and amateurs managed to solve problems that companies like Eli Lilly, General Electric and Procter and Gamble - companies with thousands of scientists and huge research budgets - had been unable to solve internally. Sometimes, the problems were solved within days.

By studying which particular problems were solved, and by tracking the efforts of "solvers" as they worked together in online "problem rooms," the Harvard researchers could see what, exactly, made some problems more solvable than others. The key was intellectual diversity. If a molecular biology problem just attracted molecular biologists, then it tended to remain intractable. But if that same problem managed to attract a molecular biologist, a biophysicist, an organic chemist and a statistician then, chances are, the problem tended to get solved. Even more interesting, perhaps, is that problem solvers were most effective at the margins of their fields of expertise. Chemists didn't solve chemistry problems: they solved molecular biology problems.

In which I question the basis of everything

If you've read The Wisdom of Crowds, if you've read A New Kind of Science, if you run SETI @ home, or if you have ever had your mind expanded by any flavor of chaos theory, you, dear reader, are probably a sucker for the idea that new ways of looking at the word--and especially new ways of harnessing the awesome information-processing power that is all around us--is likely to yield spectacular predictive power. I know I am.

And you probably thought Intrade and it's ilk--which purport to predict all kinds of unrelated real-world results based on the mystic power of market forces--are a pretty nifty idea. I know I did.

But is there any evidence whatsoever that predictive markets actually predict future results better than any other kind of analysis? Every election cycle we hear about the predictive markets, but we never hear about the follow up. From the perspective of a media-watcher, this makes it the functional equivalent of some random town in some random state that has a 98 percent success rate of predicting the next president based on their local outcome. And, just like those stories, there is never any follow up.

So this year I've paid marginally (no market pun intended) more attention to the results of the predictive markets, and what have I seen is that the market has followed the trends rather than using the awesome aggregate intellect of their user base to anticipate any developments whatsoever. On Intrade, for example, this example sums it up for me:

Barack Obama’s chances of winning the Democratic nomination have risen sharply in the last four days, with Intrade on Monday giving him a 70 per cent probability of taking the prize against just 30 per cent for Hillary Clinton.

With the exception of a brief leap following his strong victory in the Iowa caucuses on 3 January, Mr Obama’s chances had been rated at substantially below 50 per cent all year.

If I weren't such a sucker, I could probably have predicted their prediction problem. You can follow the links from the wikiepd page for some more detailed and scientifically sound analysis of why predictive markets suck so very badly at what they are set up to do, but permit me oversimplify for rhetorical effect:

Predictive markets fail because, although they use the machinery of actual markets, they aren't actual markets in one crucial respect: There is nothing of actual value being bought or sold. It is simply a complex form of betting on outcomes (no wonder, given that Intrade was founded by Irish bookies). With the actual value of the underlying commodities and securities completely removed, the actual incentives for long-term, reasonable traders are likewise absent. What you are left with are day-traders and other nogoodniks whose activities, while more complex, are really no different than betting on a horse to show down at the track.

The same trouble is plaguing real markets, as well. We haven't managed to actually remove the underlying value of the commodities and companies being traded, but increasingly baroque financial packages have managed to obscure that value to such a degree that even very savvy financial institutions are being caught by surprise when they discover what is actually contained in many of their securities.

For markets to work well, at assigning value or predicting changes in value, there must be incentives for the long game, meaning that there must be real and transparent underlying value.

Not that I'm against gambling! But I do prefer straight up books to the hijinks at Intrade. I hear the odds on Obama are looking pretty good....

In which I reveal myself to be an idiot

It's hard for the miracle of compound interest to do it's job when you are compounding failure. Here's a 401k snapshot: