Further reflections on non-transitive folk probability
Continuing my thoughts about zero-one probability from here, I come to the recent decision of Standard & Poor’s to lower their rating of US treasury debt. There are plenty of reasons to doubt their judgement, both because they’ve been absurdly wrong in the past (subprime mortgage backed securities were AAA, but treasury bills are risky?), because they can’t read budget estimates or can’t do basic arithmetic, because they are trying to project political trends, which they surely know even less about than about arithmetic, or because the people who work there are generally known to be pretty dim. But from a probabilist’s point of view what’s strange is the timing. Whatever you may think of the recent deal to avoid the US defaulting on its debt, it did avoid defaulting on its debt. Surely the likelihood of a default went down after the deal was passed. So why is the credit rating lower this week than it was last week? Now, this is all perfectly consistent with the view that S&P is not actually making a prediction of future default probability, but simply seeking the best opportunity to promote its wares. Certainly, the way they operate is not the like someone trying to give what will be perceived as neutral advice; they act more like central bankers, timing their announcements to try to move markets and (above all) seem relevant. They’re reminiscent of the folktale of the rooster who threatens to withhold his crowing, which inevitably will forestall the sun rise. The other animals plead with him to relent, but it’s a threat that only works as long as the rooster is modest enough to recognise that he can’t hold out forever. In the case of the US treasury bonds, S&P held out, and still the sun rose.
But there is something about their approach that seems to make sense to intelligent people, and not purely idiosyncratic. I’m reminded of Tversky’s famous conjunction fallacy, with studies seeming to show that people’s everyday probability intuitions don’t necessary satisfy the apparently inevitable law of conjunction: The probability of A or B must be bigger than the probability of A and the probability of B. Here we see intuitions of probability that don’t seem to satisfy the law of total expectation: If are possible future states of the world, and is the probability of event A conditional on happening, then the probability of event A now must be some kind of average of these conditional probabilities.
The well-known history of enclosure riots in 16th and 17th century England fascinates above all for their orderliness. Describing one riot in early Jacobean Bedfordshire, V. Magagna writes “The assembly that plotted the riot met in the church[…] The leader of the riot was the village constable.”
I thought of this when I read the following on the BBC web site, on the third day of riots and looting throughout London:
“Full scale looting going on at Clarence convenience store right by the burning car on clarence road. “One by one” shouts one man as people crowd round to get into the shop, whose entrance has been smashed in. Women calling: can you get me a magazine? Other people asking for alcohol.”
One by one. That’s British looting for you. They’ll pillage, and they’ll rampage, and they’ll kill, but they’ll queue up in an orderly fashion to do it… particularly if they have hopes of being rewarded with alcohol.
“Petitioning implies a belief in a natural order of society protecting the interests of rich and poor alike, which the authorities can be expected to enforce once the misdeeds of individuals are brought to their notice. Even riot can be seen in this light, for the intention was usually to compell authority to maintain a traditional order, rather than to overturn it.” Underdown, 1985, p. 118
It’s starting to look like we’re all going to be entertained this summer watching the monetary reality show, Euro Survivor: Who can be the last country left in the Euro? Greece has already been voted off the island, even if it hasn’t left yet. Ireland and the Iberians are looking decidedly unpopular, and Italy seems headed downhill as well. (I never understood why Italy was not on financial deathwatch. Is such a massive default just too horrible to contemplate? Or perhaps people just assumed Italy couldn’t possibly print lire until Berlusconi has arranged adequate shell companies to siphon the printing contracts discretely into his own syndicate.) My money is on Luxembourg. It seems fair that they should get to keep the Euro for themselves, since I can’t remember what their currency was called before the Euro. Belgium may end up with two new currencies. (But what’s the first prize? Maybe they get the rump European Central Bank, and a free set of dominoes.)
Continue reading “Playing Euro Survivor”
Are banks crazy or a cartel?
When a government (let us say, in Athens) could possibly renege on promises made to banks who loaned them money or bought their bonds, which that government is unable to fulfill without draconian cuts to public services, all right-thinking people attack the feckless politicians and threaten a collapse of confidence and the world economy. This is a DEFAULT! Other governments and the IMF might jump in to pour money into the state coffers, on the condition that they flow out the other end into the investors’ pockets.
But when a government (could be in Athens, or in London, or for that matter Madison, Wisconsin) has made promises of pensions to government employees, but has failed to fund them adequately, it is short-sighted and greedy for these civil servants to insist on these promises being honoured.
Why is a default such a terrible thing? Because, they say, if the country defaults on its debts it will be shut out of the credit markets. Hmmm. Let’s suppose it is true. Why? Suppose you own a bank, and your thinking of lending to one of two countries, let’s call one of them Piigsia and the other Sameria. Both are heavily indebted. Piigsia introduces crushing austerity measures, while Sameria repudiates its sovereign debt. Which of those countries would you rather loan your bank’s money to? The one that’s shown a great willingness to pay off its debts but is financially crushed, or the one who may be more likely to try to weasel out of its debts, but is eminently capable of paying. Solvency is not merely (or even primarily) a state of mind. I mean, what good is it to have the current government express a willingness to pay off its debts, knowing that it’s likely to be punished by voters for these “good” intentions? Maybe they just don’t want to be serial defaulters, so having avoided defaulting this time will encourage them to default on the next batch of loans.
As for Sameria, it sucks for the other banks that have lost their money, but why should I give up a chance to make a good profit for the sake of punishing Sameria for hosing my competitors? In fact, in a competitive market, why shouldn’t I be happy that my competitors have made a loss, and just try to get better conditions for my loan?
Continue reading “Credit and Credibility”
A Press Release from the Ministry for Calendars, Clocks, and the Underclass
Deputy minister for Temporal Affairs Nigel Thwart (Lib-Dem) is releasing today guidelines for the coalition’s plan to save £120 billion by cancelling the new year. ‘We found that 1983 was still in excellent condition. Military chronologists have refurbished the year and put it into place to be serving us again starting shortly after 23:59 GMT on 31/12/2010. The year has functioned flawlessly in intensive testing, and we are confident that it will meet all the nation’s chronological needs through December, if not longer. We do recommend early bedtimes, though, to avoid overstressing the slightly threadbare post-midnight hours.”We reject claims of some malcontents that the Liberal Democrats have violated the pledge famously signed in blood* by Nick Clegg and other party leaders to “move the country into the future”. This is a coalition government, and we cannot expect to govern as we would like to had we a majority. We are most proud of our party’s influence to moderate the initial Conservative Party plan to return to 1940, which is currently owned by the Smithsonian Institute in Washington. While this year would have been substantially cheaper, the Liberal Democrats maintain that such a regressive move would blatantly contradict our election manifesto pledge.’The year will be sold to a consortium of private investors, and leased back by the Crown, leaving the taxpayers with substantial savings.’We are confident that it will still be possible to modify the year to introduce a referendum on election reform.’
* Mr Clegg’s spokescaitiff has emphasised that it was not the Deputy Prime Minister’s own blood on the signature.
(by DS and JB)
One really peculiar thing that immigrants from republican lands need to adjust to in the UK, is that they actually take this monarch thing seriously. Not in the sense that people regularly drink toasts to the Queen, or speculate about fine points of the order of succession, but that people genuinely think it a reasonable constitution order that the head of state should be selected on the basis that her father held a similar position many decades ago, and that her son (and grandson) should be presumed to take on the job after her demise. Having always lived in republics (except for a brief stint in the Netherlands) kings and queens seemed to me figures from fairy tales and history. I knew that there are people called kings and queens existing in the modern world, but that always seemed an unreal and somewhat ridiculous anachronism, like the toga party in Animal House, or hobby jousters. But when the most recent elections descended into chaos, the experts were clear that it would be the Queen’s prerogative (after consultation with her advisors) to decide which politician should be “invited” to form a government. Again and again the Prince of Wales makes scandals by interfering in London city planning, among other functions of government. They fuss and fume about the prince overstepping his constitutional bounds, but no one would think of telling the prince to just go fuck himself, and treat his “black spider letters” with the same consideration they would give to the letters of any citizen — is he even a citizen?
Which leads to my proposal, which I hope will be taken seriously, given the depth of the current financial crisis in Britain: A lottery for the right to be the next monarch. I suspect that very many people would be willing to stump up a few pounds for a shot, and quite a few might pay several millions for a really substantial chance. The winner of the lottery has exactly the same chance of having the personal qualities required of the head of state as the monarch selected by the genetic lottery currently in force. We might have to eliminate certain requirements of the job, like weekly meetings with the prime minister, to make it more attractive. They could keep the post until death, and then it would revert to the state for a future lottery.
Now, this may seem like a huge constitutional change, but when I read about the British Constitution, the only argument that ever seems to be presented for the hereditary principle is that it saves the British the nuisance of having to vote for their head of state, or of having some washed up old politician appointed head of state by his old confederates. I think it should be clear that my scheme also avoids these problems, as well as complying with all EU directives.
I’m sure the professionals can work out some good advertising slogans (“Paris is worth a mass, but London is worth a pound”; “The new Magna Carta” — stamped on a mock-up lottery ticket; “It’s never too late to have a royal birth”?), maybe a jingle or two, and a legal and constitutional framework.
All British institutions have submitted to the exigencies of finance, except the monarchy. It’s about time the Queen gets with the program and moves to the City.
Disquisition on medical statistics in The Guardian
A recent front-page article in The Guardian claimed to show that small NHS hospitals are killing people. “Huge disparity in NHS death rates revealed” was one headline. “Patients less likely to die in bigger hospitals“. “Safety in numbers for hospital patients” is another headline. The article makes no secret of its political agenda: “The results strongly suggest that smaller units should close. This presents a major challenge to the health secretary, Andrew Lansley, who has stopped all hospital reorganisation.” Online, Polly Toynbee decries “Hospital populism”, saying “Local hospitals may be loved, but they can kill.” Wow. That’s pretty bad. Here’s the schematic of the story: Smart and selfless experts want to save lives. Dumb public clings to habit (in the form of community hospitals). Evil politicians pander to dumb public, clings to campaign promises. “The health secretary, Andrew Lansley, has now put the project on hold, in line with his election promise to halt hospital closures, to the dismay of experts who believe that lives will continue to be lost.”
Continue reading “Will small hospitals kill you?”
I find the difference in perspective on immigration between North America and Europe all the more striking, because on the standard left-right axis the European consensus — typically to the left of the U.S. on issues like healthcare, private enterprise, and invading other countries and torturing captives — is so far to the right on the U.S. and Canadian political spectra that it’s hardly to found at all. This was made clear in the recent controversy over the Arizona law that would have police checking papers when they have “reasonable suspicion” that someone is illegally in the country. This was treated as such an obvious affront to decency that even most of the right wing didn’t want anything to do with it. In most European countries, there would be nothing controversial about permitting police to stop anyone to ask for identification. (The U.K. is a slight exception here, as the irrational hatred of foreigners has to contend with an irrational hatred of identity cards. Utility bills are considered a superior form of identification.) In Germany (which, despite the popular association in the anglophone media with police-state tactics, is fairly casual about immigrants) I needed to show proof of immigration status in order to get a library card. And whereas even the farthest right in the U.S. distanced themselves from Republican representative Duncan Hunter’s proposal that the children of illegal immigrants be deported (presumably after having their citizenship revoked), I don’t know of any country other than the U.S. and Canada that automatically grants citizenship even to the children of legal immigrants. For instance, my daughter born here is not a U.K. citizen, even though her mother, as an E.U. citizen, has the right to live and work here. (The usually even-tempered journalist Joan Walsh has called Hunter’s proposal “crazy“, and says “I’m not sure Hunter has a soul.” I don’t think it’s a good idea, but it’s obviously not an absurdity, even if it does involve the procedural hurdle in the U.S. of requiring a constitutional amendment. There’s clearly a problem of having minor U.S. children whose parents can be (and are) deported.)
In the U.K. context, it’s barely controversial to bash legal immigrants, much less illegal immigrants. In the most recent prime ministerial debate, the one thing David Cameron and Gordon Brown agreed on was that the Liberal Democrats’ proposal of an amnesty for long-term illegal residents was simply insane and indefensible. They didn’t even have to respond to his counter-arguments, pretend that they had an alternative solution for the problem. It’s the putatively left-wing party in power for the past 13 years in the U.K. that can’t think of enough new ways to attack foreigners, that they have to invent bizarrely creative ways to attack foreigners, like the law banning foreigners from marrying without Home Office approval, or instituting new proposals that immigrants need to perform “volunteer” work to earn citizenship.
What I find amazing is how clear the consensus in the U. S. and Canada in favour of (legal) immigration is, and that the very idea of basing citizenship primarily on parentage rather than on birth in the country is treated as an absurdity by right-thinking people.