Benoit Mandelbrot

I’m currently sitting in a lecture by Benoit Mandelbrot. The father of ?fractals? is at Microsoft ostensibly to promote his book, ?The Misbehavior of Markets?. He hasn’t actually touched on markets yet, though. He is reviewing his life work and explaining how it all fits together. He calls his overarching passion, ?the science of roughness?, and titles the presentation ?the rough and the smooth?.

Much of this you may have read elsewhere. He has lots of interesting pictures. He was initially interested in turbulence. Explaining how most of the natural world is ?rough?, but geometry and mathematics initially arose from the ?smooth?. Demonstration that self-similarity is a feature of roughness, and reflected in many man-made things throughout history. Showing Hokusai Fuji pics.

Now discussing the discovery that outer bounds of brownian motion forms a cluster with dimension 1.33. Discussing the way that the proof forthis was developed.

Now showing pictures of the first computer printouts of the Mandelbrot set. Explaining how he might not have even noticed it if not for a mistake. Same low resolution, striped dot-matrix output of my first Mandelbrot pictures.

Describing some cases of fractal patterns in nature.

Now talking about financial markets (however, he will not discuss ?politics, sex, religion, or portfolio?). First became interested in the sixties, understanding the fluctuation of cotton prices. The theory at the time was that prices for commodoties follow gaussian fluctuation. Cotton prices were different than gaussian white noise, though; sometimes rise or fall violently. Showing several price history charts, amplitude of price changes varies. Ten sigma to hundred sigma variations ?happen every day?. Explaining how people tried spectral analysis.

Goal became to ?describe it? without necessarily ?explaining it?. Goal not to be a Newton; Marx and Freud tried to be Newton. Explaining how tempting it is to use averaging, fixpoints, spans; but ?you have to wait the whole of human history to see if it ever averages?. Showing how to approximate near identical level of randomness using a very simple fractal.

Arguing that his model is the only model that attempts to describe movement of financial markets. There are many other models around, but they all have the caveat that they are only valid in the ?long run? with ?large numbers?, etc. Quotes Keynes, ?in the long run we shall all be dead?.

Q & A.

Q. If Gaussian does not represent reality, does that invalidate Black-Scholes?

A. Nobody uses Black-Scholes anyway. Everyone fudges volatility to get what they want. I used to be more polite about this, but everyone knows it is wrong.

Q. Some black-box companies claim to outperform the market. Do they use fractal investing?

A. Many claim to, but when I talk to them I have no evidence that they even understand the concepts. Not very reputable. Some large institutions understand.

Disabled Musicians

The competition is going on right now; you can listen to several disabled musicians and vote for your favorite. The winner gets a cash prize. It’s not a recording contract, but it begs the question of why the larger ?Idol? style contests do not have more disabled representation. Is appears that the primary disability for contestants is blindness, and musicians like Ray Charles and Stevie Wonder have already shown us that blindness is not really an impediment to musical talent, but this is a good idea. I really think that people with Aspergers, and especially people with Williams, could contribute some great musical entries too.


Here is a story about a family who wants to change Catholic doctrine so that their daughter can qualify for communion. It’s a touching story, but unfortunately this is not how it works. If faith is negotiable, it’s not really faith, is it? The argument seems to center around the use of wheat vs. rice in the communion wafers. Since people have been burned at the stake for daring to suggest that the wafer does not actually transform into the body of Christ, the very debate over wheat vs. rice (it’s neither) seems bordering on heretical. Denial of transubstantiation is probably the most common cause of public burning at stake throughout Catholic history. It’s also one of the more important things separating Catholics from Protestants — a Catholic who wants to deny transubstantiation might just be a Protestant. The rice vs. wheat is an interesting angle, though. One wonders if Berengarius would have bene treated better if he had pleaded ?food allergy? instead.


Does ?bottling up? your feelings really make things worse? Is a pressure cooker really a good way to think about negative emotions? Grade school teachers, Reader’s Digest, news media ?experts?, and Oprah all told me that catharsis (letting off some steam) is necessary and healthy. However, I had never seen scientifically documentedevidence of this.

Interestingly, this study shows that catharsis is actually counterproductive. The study set out to see if catharsis was effective simply due to the power of suggestion (Oprah says it is effective, so you convince yourself it works). However, it found that catharsis was not effective at all, even in people who had the expectation that it would work. In fact, catharsis just makes you more aggressive and prolongs the negative feelings.

Now, this is just one study, and it only deals with one class of negative feelings, but it makes a certain amount of sense. And it serves to illustrate my recurring theme about media complicity in ?superstitious? science.


Sometimes it seems that political ads are crude throwbacks to the days before modern advertising science. Hackish play on emotion and raw demagogeury are par for the course.

However, a new Kerry ad makes me think that the political campaignsare at the forefront in pushing the science of influence. The ?you will lose? ad is using a hypnotic technique which I think is artful and could be quite effective.

Now, to understand why this ad is so clever, you have to understand that this is an incredibly close election. Voter turnout in key states could easily influence this election, and although much is made of ?get out the vote? drives, anything that suppresses one opponent’s vote by discouraging him to arrive at the polls is just as effective as getting one of your own supporters to the polls on voting day. One way to effectively suppress voter turnout is to convince people that their candidate has no chance of winning. We had a very visible demonstration of this on election night of 2000, when the major networks declared a Gore victory before polls had closed in Florida. This pronouncement caused large statistical dropoffs in Republicans going to the polls, both in Florida, and in other places where the polls were still open, because many figured there was no point.

Next, take the context of the ad. When John Kerry delivered this line during his acceptance speech, I knew that it had been specifically crafted for use in ads (and specifically ads directed at opponents). Ostensibly in reference to terrorists, Kerry said, ?You will lose, and we will win; the future does not belong to fear, it belongs to freedom!?. This line stood out, because it did not fit the rest of the speech. He specifically started with ?You will lose?, not with ?we will win?. He specifically directed at a lonely ?you?, opposed to a ?we?, with the ?you? excluded. This is the only place in the speech which uses that construction. In fact, the ?you vs. everyone else? construction is uncharacteristic for practically any political speech, because it is so jarring to the listener. It is direct, in-your-face, andsuggests exclusion and separation. If the statement were meant only to be played to the democratic convention, it never would have been worded this way, because the embedded suggestion is not something you want to amplify within your supporters.

However, the strategy is to run this ad on conservative channels in battleground states. The overtly stated reason is to show that ?Kerry is tough on terrorism?. The conscious mind will pick up the realization that ?this ad is about America vs. terrorists?, but the message that will go like a laser beam to the unconscious mind is ?YOU WILL LOSE; YOU CANNOT HAVE THIS; MOVE ALONG, THERE IS NOTHING TO GAIN BY VOTING?. To the extent that people feel in their hearts that their candidate will lose anyway, they will be more likely to stay away from the polls. Using an embedded command to create this feeling and thereby suppressvotesis truly novel.

I don’t think Kerry came up with this on his own. I would like to meet the person who did this.

Scoble BBQ

Dave took some pictures at Scoble’s BBQin his honor. You know a party is a success when my daughter says, ?we should come back every day!?. I’m not sure if it was Maryam’s desserts or Jeff Sandquist’s dog that got her attention, but she was impressed.

I spent some time talking with Dave about uses of RSS; something he’s been discussing with others at Microsoft this week. The interest in RSS at Microsoft is definitely deep and wide, as Dave says. On the other hand, it is something I don’t discuss in detail much. First, details are often NDA for competitive reasons. But just as importantly, my experience ofMicrosoft is thatit’s best not to get my (or other people’s) hopes up before a product actually ships. Details, schedules, and plans can change.

Dave also talked in some potential doomsday security scenarios and what Microsoft can do about them. I tend to agree that the potential for problems is quite large, and the scenarios he describes are not at all far-fetched. However, mitigation is really tough. Better sandboxing will help, but ultimately I think the problem of computer security is similar to the problem of terrorism. It’sa systemicproblem, and will take systemic changes to adjust the profit equation that currently attracts hackers(who are very professional these days). It will take coordination of governments and law enforcement around the world, along with cooperation at all layers of the technology stack to start to make these crimes unattractive.

Scoble reports that he was forced to clean floors and toilets in order to prepare for the BBQ. This is why I never host parties, quite honestly. I rented the equipment and cleaned and waxed all the floors a few weeks ago, and the toilets are always clean, but the overall situation is hopeless. The last time the place was clean enough to have people over was when Dare and Doug visited more than two years ago. We’ve even discussed getting professional help, but the professional cleaning agencies require a certain level of stability before they take on the chores. So we just entertain outside our home. Dim Sum tomorrow should be fun.

Sex and Cash

Dare is discussing the ?Sex and Cash? theory over on his blog. Basically, the idea is that you always have a tension or duality between ?paying the bills? and doing the ?sexy? work that really interests you. The thesis is that people who say, ?do what you love, and the money will follow?, are overly naive.

In essence, this theory is agreeing with Maslow’s ?hierarchy of needs?; first you take care of your security, then you can focus on ?self-realization?. I agree that ?paying the bills? is not always the same as ?self-realization?, but I tend to think that ?self-realization? is a rather vain fancy anyway.

If you ask a random sampling of people, ?what would you do if you had all of the money you could ever want??, none of them would say ?pursue self-realization?, and the ones that said anything remotely like that would be lying. If you stuck a wire into their hypothalmus that could stimulate the pleasure centers of the brain, and then told them ?you can feel this good every day for the rest of your life?, Maslow (and the money) would go out the window. The only reason that people don’t smoke opium all day is because they can see beyond the immediate present, and despite our best efforts to fool ourselves, the most universal and omnipresent consideration is the desire to live as long as possible.

And once you admit that your only real concern is long-term survival, it’s easy to see how arbitrary the rest of it is. People get ?passionate? about all sorts of bizzarre things; like jumping out of airplanes, climbing on the sides of rock cliffs, fly fishing, and so on. These passions that people have are choices; they are not pretedermined by fate or genetics. Collecting baseball cards is not an innate part of someone’s personality. Watching NASCAR is not a reflection of someone’s deeply realized ?self?. These are all vanities. If someone can be passionate about NASCAR, why on earth can they not be passionate about their day job? Being passionate about one is no more or less arbitrary than being passionate about the other.

To be clear, I am not recommending that someone seek ?self-realization? from their day job. I am simplypointing out that to seek self-realization from other activities is equally absurd and arbitrary.

Willing but not Eager

Why do some people hide information, others give out information willingly, and others spew their information to anyone who will listen (or read)? I recently discovered an interesting experiment which attempts to shed light on the latter two types of people. The experiment attempts to understand if there are fundamental differences between people which could explain the differences between people eager to share information versus those simply willing.

From the study:

  • Willingness is defined as: the extent to which an individual is prepared to grant other group members
    access to their individual intellectual capital.
  • Eagerness, on the other hand, is defined as: the extent to which an individual has a strong internal drive to communicate their individual intellectual capital to other group members.

I was particularly interested in this study because it was attempting to explain the difference in these two attitudes as a result of ideocentric vs. allocentric orientation. I was surprised, however, to see that the authors of the study began with a hypothesis which is completely opposite of what I would have postulated. They postulated that people with allocentric (collectivist, ?service to others?) orientation would be more ?willing?, while people with ideocentric (selfish) orientation would be more ?eager?.

Only a most naive understanding of human nature would lead to such a hypothesis, and thankfully the experiment was conducted with enough discipline to prove their hypothesis wrong. On the other hand, the experiment did not exactly prove my hypothesis correct, either.

In my opinion, the failure of the experiment to show a strong correlation between allocentrism and eagerness to share information (my hypothesis) is caused by the fact that ideocentric/allocentric distinction is not useful for explaining motivations.Using the allocentric/ideocentric distinction to explain differences in norms and expectations is fairly common in social science and is good practice, IMO. However, ?eager? and ?willing? are both fundamentally a question of motivation, rather than a question of norms and expectations. And when it comes to motivations, the distinctions are much less useful. For example, many people in collectivist societies have a strong allocentric bias in behavior and norms, but are not necessarily motivated by allocentric beliefs — fear of being put in a prison camp is a strong ideocentric motive for adopting allocentric behaviors. To show a correlation between allocentrism and ?eagerness?, I believe you would have to select for people who are actually behaving out of an allocentric motivation rather than simply hewing to allocentric norms.

The Village

Our team went to see Shyamalan’s ?The Village? today. Some reviews have already discussed the obviousmetaphors in the movie.

One set of allusions which seem to have missed the critics, but which seemed fairly obvious to me, were the allusions to Lucifer/Prometheus stories. The two protagonists’ names, ?Lucius? and ?Ivy? should be a strong clue. The story of an omnipotent ?father? who creates a ?garden? for his children to be sheltered in, the elder’s comments about ?we kept our innocence?, the character named Lucius who doesn’t buy the warnings of danger and wants to ?help the people?, the elders making apologies about how ?it will all be OK? when they talk of removing the protection and having the children go out into the cold world, and the list goes on and on. Even in the original story of the garden, the elders speak in plural as ?we?, and the ?deception? used to stop the children from tasting of the forbidden is as much to protect the elders as to protect the children. The name Lucius also evokes the thought of ?Lucius Trust?, an organization founded by Alice Bailey, a Luciferian who often spoke of purple auras.

Running with these allusions makes the movie all the more interesting. For example, did Lucius actually recover? Or, what is the movie saying about the expulsion from the garden? At one point the elders believe that innocence has been lost, but it turns out that the ?deception? and therefore the innocence, is protected in the end and the residency in the garden is retained. This in itself is a very interesting twist.