Since she’s now officially the Main Character on here today, I’m amazed at how perfect an avatar this lady is for Econ Brain. Between her Narcan paper and her Ban the Box (can’t screen out nonviolent criminals before job interview itself), it’s a very clear pattern.
Step 1: Someone complains about [current societal outcome] and proposes [intervention] to fix it. You like CSO (or dislike funding I), but since CSO is seen as bad by normal people, you can’t directly argue It’s Good, Actually, since you work somewhere more respectable than GMU.
Step 2: Say “Look, we ALL agree CSO is bad, we just disagree on how to best address the problem! Let’s study it and find out.” Now, take a $5mm grant from the Definitely Not Causing CSO At All Charitable Trust to study it in depth [ed: This is where you underpay your RAs]
Step 3: You’re a pretty smart person who got a B+ in real analysis and knows how to run a linear regression. You put out Paper A (huge effect size but tiny sample cohort study) or Paper B (intricate model with p<10^-27 but with a tiny effect size), dealer’s choice.
Step 4: The conclusion of A or B is the same: [Intervention] causes [externality], which negates its benefit. You fool! By doing a thing, you have made the problem worse! There are Complex Nonlinearities in this system! You’re just not as smart as An Economist Such as Me!
Step 5: If someone points out any of the obvious methodological errors, drag them into a Twitter fight about RDD. If they instead make a critique like “your proposed externality can just have another intervention target it”, block them instead for sophism/harassment.
Step 6: Popularize your finding! Weirdly, there’s never a shortage of rich and connected people who love to hear your TED talks about how making the world better actually always makes it worss. Plus, wonks will cite your paper frequently, boosting H-index and getting you tenure!
Step 7: Enjoy your cushy $250k/year tenured position at an R1 with $10mm in annual grants from the Center for Indoor Air Research and speaking fees to boot. Don’t ask tough questions and don’t say stupid shit on Twitter to draw attention and you can milk this grift for years.
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It's been a while since I've done one of these, but on paper many of you are following me (why?) because of quant finance tweets, so let me do a rambling stream-of-consciousness apologia for the most hated "model" in finance, the Black-Scholes model.
Specifically, the idea of IV. Like "imaginary numbers", it's an unfortunate misnomer, because it makes people think there must be *some* link between IV and historical vol. This is not the case. A better term might be something like "σ-price" vs. "$-price": it's a price.
Option prices trend in predictable ways: a near-term option will always be cheaper than a long-term one, simply because the long-term one includes the near term one. Similarly, ITM options are always more expensive than OTM options, because they contain the OTM option as well.
1. Quick THREAD on using the Kelly fraction to optimally size positions in your portfolio, just like Ed Thorpe did in the 1970's (1/N):
Don't do it, you colossal idiot. It's not the 1970's, and you're not Ed Thorpe. (N/N)
Since this joke got popular, the actual explanation: The style of trades Thorp specialized in, convert arbs, have an ex-ante quantifiable E[R] that is reasonably accurate, which means your Kelly estimates are ~ right. Other asset classes and strategies do not have this property.
GE was, without a doubt, the greatest single-name equity short of all time. A chronically mismanaged serial earnings manipulator with unlimited GC borrow, liquid entry/exit, zero squeeze or takeout risk, and 20+ years of 14% annualized underperformance w/o drawups? Incredible.
"Wow thanks for the idea to short a massive, inefficient conglomerate with cheap borrow, artificially smoothed numbers, and a halo effect from a famous CEO completely unjustified by recent performance 20 years too late Q, there's no way we can replicate that trade again"
🎶One of these things is not like the others/One of these things just doesn't belong/an you tell which thing is not like the others/By the time I finish my song?🎶
As a eminent Man Of The People, I am enjoying a fine draught of the working man’s drink, “beer”, as I do regularly. Will report further as events develop.
This tastes like a spoiled bottle of Chateau Musar 1997- I mean, I am of course enjoying this “barrel-aged sour with spices”?
I have beat a strategic retreat back to the arms of 2006 Dönnhoff Oberhäuser Brücke Riesling Auslese as my aperitif, pairing, and dessert wine all in one.