Daniel Goldman

Archives for November 2017

A Flock of Black Swans

By Daniel Goldman Leave a Comment Nov 17

Black Swans do not seem like something we have to worry about, but they are incredibly dangerous, especially when there is a whole flock of them.

North Korea’s threat of war, Spain’s treatment of Catalonia, and its potential wider effects on the European Union, risk of whether or not key legislation is going to get passed, and Trump’s legal issues are all separate low probability events that when coupled represent significant overall risk to the markets.

Black Swans

Black swans are extremely rare events. But just because the probability of any specific black swan event occurring is low, does not mean that the probability of some black swan event occurring is low.

What we really want to know is the probability of at least one of these events occurring. Mathematically, the probability of at least one event, P(at least one), equals 1 – P(none). As we include more possible black swans, that second term gets smaller and smaller, and the probability of at least one black swan event occurring goes up.

We can get very specific by making some assumptions. Suppose that we have four different once in ten year events that would be bad for the market. It may seem like we do not have to worry about them very much for a while, but the probability of at least one of those events occurring in the next year is 33%.

Systemic Risk

But what makes the situation worse is that the market bubble (yes; stocks really are overvalued, even though the market can still go higher) is built on so much interconnected risk. I have written about some of this before. For instance, a lot of the increase in the the S&P 500 and other indices are due to rising profits in the banking industry, and bank profits are largely dependent on the market going higher.

ETFs

The influx of money into index funds like SPY have boosted more than just the sectors that are seeing growth, since you purchase all stocks in the S&P 500 index when you purchase SPY. This drives much of the market higher.

Margin

Another issue is that a lot of buying has been on margin. Every dip people are buying up stocks, and a lot of that purchase is debt based. This analysis of margin debt, while admitting that the peaks and troughs are not enough to use as a forward indicator, show high levels of margin debt when compared to historical levels. A sharp drop in the S&P 500 and other stocks would result in a sell off as margin calls are initiated.

Consumer Credit

But that is not the only debt that his propping up this bubble. The most November 2017 consumer credit report puts September’s provisional outstanding credit growth rate at 6.6% p.a. Total outstanding consumer credit is now $3.79T and it continues to grow at a rate far faster than the rate of inflation. That means that a lot of this recovery is dependent on debt, and it means that reduction in ability to pay debts would have a significant impact on bank profits, which again are largely responsible for market gains.

Volatility

Finally, XIV may be indirectly driving the market higher, or at least preventing it from dropping. The buy the dip extends to XIV because it has done so well as a profit making system. That in turn suppresses the VIX which bolsters the S&P 500. While it is unlikely, a large drop in XIV could result in it being shut down, and at that point, VIX would see a massive spike and the floor would fall out from under the S&P 500.

Summary

While the odds of any specific black swan event occurring is low, the more types of black swans there are flying around out there, and right now we have a lot, the more likely it is that at least one of these events will be triggered. Maybe North Korea will follow through on its threats. Maybe the Catalonian crisis will get out of hand. Perhaps tax reform will fail. Or maybe we will see legal action brought against Trump. Or perhaps something completely different will trigger a major stock sell off. Do not assume that just because a single event occurs with very low frequency that some major event is not right around the corner. Furthermore, we need to recognize that a major sell off can be far more devastating due to the increased systemic risk generated by ETFs, the co-dependence between the markets and the banking industry, and the recent way in which people are trading volatility as a real asset class. While none of these conditions implies that a meltdown is imminent, they do increase the probability of one occurring and increase the probability of it being extremely severe.

The post A Flock of Black Swans appeared first on Trading Politics.

Placebo as Medicine

By alcanthro Leave a Comment Nov 15

Vaccine Banner

Why do people view the placebo effect as if it’s “no effect?” Consider the following quote by Steven Novella, MD over at “Science Based Medicine.”

These placebo effects include: Regression to the mean – when symptoms flare, they are likely to return to baseline on their own. If you take any illness that fluctuates in severity, any treatment you take when your symptoms are at their peak is likely by chance alone to be followed by a period of less intense symptoms.

This is incorrect. The placebo effect is not an incorrect statistical analysis, or an incorrect assignment of natural variation to treatment. Placebo means that there is no pharmacological effect, but this does not mean that there is no effect.

A real placebo effect is a psychobiological phenomenon occurring in the patient’s brain after the administration of an inert substance, or of a sham physical treatment such as sham surgery, along with verbal suggestions (or any other cue) of clinical benefit (Price et al, 2008). Therefore, the effect that follows the administration of a placebo cannot be attributable to the inert substance alone, for saline solutions or sugar pills will never acquire therapeutic properties. (How Placebo’s Change the Patient’s Brain)

I think Novella is confusing apparent and actual placebo effects. A placebo group can appear to show results, as can an actual treatment group, due to statistical noise, methodological error, etc. But an apparent change between pre-outcome and post-outcome means is not the placebo effect. Only an actual change in initial and final condition within the plaebo group is an actual placebo effect. This effect is a measurable effect and induces a measurable change in brain activity, as shown in fMRIs. And quite frankly, in some ways it does not matter whether or not an improvement in health is due to the drug itself or the belief that the drug works.

If someone has a blood pressure reading of 180/110 and because they believe a sugar pill works, it goes down to 130/80, that’s a life saving shift. Obviously there is the question of whether or not the effect will continue to work. A placebo may wear off as the person’s belief changes, etc. However, this can also happen for a drug which has its own effect. That effect can be boosted by the placebo effect, which is why we do not say that a treatment has no effect, but rather no effect different from the placebo. In fact, going back to the example of blood pressure, a meta analysis of 23 trials for beta-blockers concluded that “the placebo response accounted for 34% of the drug response for sBP and 47% of the drug response for dBP (Effect of placebo groups on blood pressure in hypertension: a meta-analysis of beta-blocker trials).”

But maybe that effect is simply due to regression to mean or some kind of sampling error. To see if that is the case, a study comparing placebo treatment to no treatment can be performed. This has been done and a difference between placebo treatment and no treatment has been found. (Evaluation of the placebo effect and reproducibility of blood pressure measurement in hypertension) Admittedly, this study is weak, but i is also unnecessary.

The argument that results from the meta-analysis were due to sampling error, regression to mean caused by natural recovery, etc are all unlikely. People with hypertension do not tend to recover on their own. Hypertension is a chronic issue. Also, while there is some variability in blood pressure based on method of reading, time of day, etc, a large sample reduces these statistical anomalies from clouding data. In order for difference of means to be due to regression to mean or other sampling error, individual patients’ blood pressures would have to have varied wildly throughout the studies. Additionally, the meta analysis cited above uses a moderator analysis to compare factors like sample size and trial duration, and found that better quality trials resulted in stronger apparent changes in the placebo group. This is contrary to what one would expect if the apparent change in the placebo group was actually do to factors like sampling, regression to mean, or poor quality control.

Another way to test for the existence of an actual placebo effect is to try to look at cognitive signatures. At least one study has found a relationship between the placebo effect and mu opioid receptors (Chronic mu-opioid receptor stimulation alters cardiovascular regulation in humans: differential effects on muscle sympathetic and heart rate responses to arterial hypotension). Another study created a predictive model using the data from one trial and successfully predicted level of placebo in a second trial (Brain Connectivity Predicts Placebo Response across Chronic Pain Clinical Trials).

All together, we have multiple studies that look at the placebo effect in different ways. In addition to results from clinical trials on drug treatments, we also have a proposed mechanism and data consistent with that mechanism. The ability to create a model predicting strength of the placebo effect, the increase in strength of placebo effect as quality of the study increases, and a proposed mechanism all together make the theory that there is a real placebo effect robust.

Beyond the placebo effect, the nocebo effect could result in a normally effective drug becoming ineffective. View towards the treatment therefore needs to be taken into account and we need to make sure that the placebo component of the drug’s effect does not wane, or at least compensate for its waning, and we need to make sure that view towards treatment is not negatively effecting outcome.

Research Ideas

There are a few research ideas that arise from this discussion. First, if placebo and nocebo can have a considerable impact on certain treatments, we should know this. Skepticism towards standard medicine is increasing and that might have a negative impact on efficacy of certain treatments. To test this effect, we can perform a few clinical studies that measure how positive or negative the patient’s view is towards medicine in general and towards the treatment. If perception has a significant effect, then we would expect the placebo to result in greater positive results among those who positively score medical treatment and weaker, or maybe even negative effects, among those who negatively score medical treatment.

A few additional questions can also be asked, such as whether or not the patient believed he received an actual treatment or a placebo. In order to reduce the risk of how the question of skepticism influences results, some patients should be asked at the beginning of the test, some at the end, and some at both points. This variation will reduce noise caused by expectation generated by the question being asked. The sample size would have to be fairly large in order to make sure that enough data on each sub-sample is collected. While pain medication may show the most robust results, continuing with a less obvious condition like hypertension might be preferred. There are a number of high blood pressure medications which are considered relatively safe and therefore are reasonable for large scale clinical trials.

Because perception of efficacy is important, the patients should be blinded from seeing their blood pressure results.

The post Placebo as Medicine appeared first on The Spiritual Anthropologist.

A Rebuttal to “Is Religion Useful…” by Genetically Modified Skeptic

By alcanthro Leave a Comment Nov 12

Religion is useful, but Genetically Modified Skeptic misses the real point and fails to understand a lot about the scientific study of religion.

I might have to edit this rebuttal later, because I am writing it while a little ticked off at having lost the entire thing when I accidentally closed the tab I was writing in, but Genetically Modified Skeptic makes a number of incorrect claims about religion that really need to be addressed. There are three main ideas that I want to address for now. The first is the idea that something has no real merit if something else can provide the same or similar benefit. The second is the citation of a poorly conducted study on religiosity and altruism. The third is religiosity among scientists. I am not going to cite many scientific studies directly in this article, but my other articles that I cite do link to specific peer reviewed literature used to justify my positions.

The first one is simple. Maybe there are other institutions besides religion which provides benefits similar to the ones religion provides. I would say that any collectivist system provides many of the benefits that organized religion does. But religion does offer a lot of different benefits that might be achievable only through multiple other means. First, organized religion induces altruistic tendencies by connecting sacrifice and some kind of religious belief, such as that of an afterlife. Ancient Egypt, for instance, was highly redistributive society, and that was largely maintained by the idea that the Pharaoh was a god. Religion also tends to have some kind of artificial kin system. This can stem from a creation myth, or the use of familial terms in religious practices such as brother, sister, mother, father, etc. This artificial kin system piggybacks off of the existing psychology of kin altruism. A benefit which does seem to be specific to religion, or religion like beliefs is analgesic enhancement. Indeed, I specifically mention “An fMRI study measuring analgesia enhanced by religion as a belief system” in my description of what constitutes a religion. It may be that other beliefs have a similar effect, but it has not been shown.

GMS mentions Decety et. al. 2015, a study which looks at the relationship between altruism and religiosity. This study is highly flawed for a number of reasons. First, it uses religious self identification. Unless everyone agrees on what religion is, self identification does not actually measure true religiosity. The study also tends to conflate atheism with non-religion, but this is incorrect. Because of these two mistakes, the study defines China as being essentially non-religious, but religious self identification in China is dangerous, and even illegal for members of the communist party. Many Chinese believe in afterlives, ancestral spirits, and especially vital life force, which is one reason why traditional Chinese medicine is still so important in China. Therefor all we can ascertain from the study is that those who identify with specific known major religions tend to be less altruistic, not that religion and religiosity are negatively associated.

GMS then jumps to war. He seems to indicate a high degree of relationship between war and religion, but as I mention in “The Pervasive Nature of Religiophobia,” most war is not causd by religion. Also, people need to be aware of emic vs etic perspectives. The emic perspective is what those within a culture believe, while the etic perspective is the scientific perspective on the nature of cultural practices. For instance, within a culture, people might believe that a harvest festival ingratiates the people with the gods, while the etic perspective is that it helps unify the people for a successful harvest. I do not wish to go into politics too much on this site, but religion and war are political. It is argued that ISIS et. al. are the result of radical Islam, but in all honesty, that does not make sense. It does not explain why radical Islam exists where it does and why it emerged when it did. But as I explain in “Middle East Turmoil: Radical Islam or Reaction to Imperialism?” there is a parsimonious answer to the aforementioned questions: radical Islam is a direct response to and rally against western imperialism.

Regarding polytheism and religious war, it did not happen all that much. Polytheists tended to merge pantheons readily. While cities within a polytheistic culture might have had a patron deity that they were proud of, there was little forced conversion. The other polytheists accepted the other gods, they just did not worship them as much as heir own patron deity. It is also incorrect to assign religion to the cause of war campaigns in Rome, etc, which while brutal, were about gaining resources, not about religious conversion.

Finally, GMS mentions religiosity among scientists. First off, there have been many brilliant scientists who were religious, including Sir Isaac Newton. There still are many, including Freeman Dyson. There is nothing inherently anti-scientific about religion, though there are dogmatic religious elements which do contradict science. The real issue is two fold. One thing is that religiosity may be under reported, as Religious Rejectionism seems to be more common among the academics. Religious Rejectionism is a religion, as classified by the unified model of religion that I cited earlier. The belief that there are no gods does seem to be religioid, as identified by multiple fMRI studies. The belief is integrated with numerous cultural dimensions from Smart’s seven dimensions of religion. But there is another issue beyond failure to identify Religious Rejectionism. As I mentioned in my discussion of Religiophobia, academia itself rejects Christians. It discriminates against Christians and the stigma reduces the ability for Christian students to learn, as the ability for Christian scientists to be hired. Additionally, Christianity, and organized religion itself has more utility when one is of lower socioeconomic status. Therefore a person who is from a lower class is more likely to be Christian, but that same person is less likely to excel in academia and therefore less likely to become a scientist.

Overall, Genetically Modified Skeptic uses much of the same invalid reasoning that other New Atheist religiophobes use to attack religion. It is at best poor science and at worst dogmatic ignorance. While there are issues with highly dogmatic religions, and much of the same can be said about a lot of highly collectivist systems, the arguments that he presents are just bad. I am not arguing that we should all go out and become religious. For one thing, we cannot control our own beliefs; we can only make decisions which affect them. Personally, I cannot accept any position which does not have a scientific and mathematical justification, up to axiom, and choose axioms based on what seems like the only way to make decisions in life. I am not religious, and as long as my view on reality does not change, I never will be. But to each his or her own, so long as that world view is not forced upon me.

Further Reading

  • Infinite In All Directions (Amazon)

The post A Rebuttal to “Is Religion Useful…” by Genetically Modified Skeptic appeared first on The Spiritual Anthropologist.

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