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Mind Matters Reporting on Natural and Artificial Intelligence

Gary Smith

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Businessman in ponzi scheme concept

Stocks Are Not a Ponzi Scheme and Here’s Why Not

When you mail a letter to someone in another country, you can enclose an international reply coupon (IRC) that can be exchanged for that country’s postage stamps and used to mail a letter back to you. It is like enclosing a self-addressed stamped envelope except that you do not need to figure out how to buy foreign postage stamps. It is the polite thing to do but also the source of the most famous swindle in history. In 1920, a Massachusetts man named Charles Ponzi (right, in 1920) promised to pay investors 50 percent interest every 45 days. Compounded eight times a year, the effective annual rate of return was 2,463 percent! He said that his profits would come from Read More ›

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The economic crisis of 2020 with the red arrows indicating the economic recession in 2020.

Inflation Is the Least of Our Worries!

Yet some fear that the inflation dragon is about to roar

The Federal Reserve (the Fed) can throw the economy into a recession whenever it feels that it is in our best interests to be unemployed — typically because the Fed is convinced that an unruly inflation needs to be tamed by the discipline of unemployment. For example, in 1979, as the rate of inflation peaked above 13 percent, the Fed moved to make borrowing prohibitively expensive. When Fed Chair Paul Volcker was asked if the Fed’s policies would cause a recession, he replied, “Yes, and the sooner the better.” Interest rates reached 18 percent on home mortgages and were even higher for most other bank loans. Households and businesses cut back on their borrowing and spending and the unemployment rate Read More ›

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Smart technologies in your smartphone, collection and analysis of big data

The Birds Aren’t Real. But Maybe the Spying Is.

A defense of our fundamental right to privacy

Technology frees us from drudgery but also enable surveillance that enslaves us. Then, far from computers becoming more like humans, we may become more like computers.

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economist table with report

What, Exactly, Do Economists Do?

Economist make the world a better place

Thanks to economists, during the economic crisis that began in 2007, the President, Congress, and Federal Reserve did not repeat the errors of the 1930s.

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Vitamin D gelcaps.

Vitamin D and COVID-19: Is It Data or Noise?

Because random clusters occur naturally in large numbers, only randomized, controlled trials can tell us

Random data shows geographic clusters. Thus some locations will inevitably have higher COVID-19 rates than others. As my example shows, associating these clusters with personal characteristics after the fact is not convincing scientific evidence. That’s where randomized, controlled trials are needed.

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cryptocurrency equipment mining

Data Mining: A Plague, Not a Cure

It is tempting to believe that patterns are unusual and their discovery meaningful; in large data sets, patterns are inevitable and generally meaningless

Findings patterns in data is easy. Finding meaningful patterns that have a logical basis and can be used to make accurate predictions is elusive. We can see this from 18th-century attempts to cure scurvy through 21st century claims about the stock market or history.

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Coronavirus, covid-19 news headlines on United States of America 100 dollar bills. Concept of financial impact, stock market decline and crash due to worldwide pandemic

The Stock Market: Gains, Pains, and Panics

A fear that, if prices fall, they will continue falling is not justified by history but by panic

A psychological quirk called loss aversion makes us fear losses far more than we value gains. The panic investors experience from sudden losses can blind them to the overall, long-term picture.  We can demonstrate this tendency with a simple thought experiment.

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Molecule model of Chloroquine, a medication used to treat malaria, maybe also able to calm the symptoms of Covid 19 virus. White is Hydrogen, black is Carbon, blue is Nitrgen, and green is Chlorine.

Is Chloroquine really a “Game Changer” for COVID-19?

Test it, but don’t bet on it

When a field is hot, there is a race to publish. With a large number of researchers trying a wide variety of treatments, it’s almost certain that that someone will find a coincidental pattern that is statistically significant but meaningless. The only solution, alas, is further testing.

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Stanford’s AI Index Report: How Much Is BS?

Some measurements of AI’s economic impact sound like the metrics that fueled the dot-com bubble

Stanford University’s AI index offers us fanciful measures of the triumph of AI, rivaling the far-fetched metrics of dot-com commerce. The reality has been the opposite. For decades, U.S. productivity grew by about 3% a year. Then, after 1970, it slowed to 1.5% a year, then 1%, now about 0.5%. Perhaps we are spending too much time on our smartphones.

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Scoring the winning points at a basketball game

Is “Hot Hands” Just a Basketball Myth?

Not so fast…

The paper that busted the myth of “hot hands” is justly famous. But statisticians are not prophets. Craig Hodges’ streak of 19 in a row in the 1991 contest is still too incredible to be explained by luck or cherry-picking. The numbers show that hot hands don’t happen every day, but they do happen.

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Polygonal art of Bullish vs Bearish

Ransacking Flawed Data For Hidden Treasures Seldom Ends Well

The Internet provides a firehose of data that financial market researchers can use to interpret human behavior—but cherry-picked patterns usually vanish

The explosion of data has vastly increased the number of coincidental patterns that can be discovered by tenacious researchers. If there are a relatively fixed number of useful patterns and the number of coincidental patterns is growing exponentially, then the ratio of useful patterns to useless patterns must necessarily be getting closer to zero every day.

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Photo by Amanda Jones

Bridge: Why Shuffle the Deck Seven Times?

For years, competitive bridge players complained that computer shuffling of cards produced goofy results. Statisticians sided with the computers

Bridge is one of the few games where computer algorithms have not yet demolished the best human players but, despite claims to the contrary, algorithms do a much better job of random shuffling of the deck.

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Big Data Technology for Business Finance Analytic Concept. Modern graphic interface shows massive information of business sale report, profit chart and stock market trends analysis on screen monitor.

Serious Investors Should Embrace the Stock Market Algos!

We can use computers’ inability to distinguish meaning from noise in data to our advantage

Computer algorithms are much, much better than humans at discovering statistical patterns but much, much worse than humans at discerning whether the patterns are meaningful. Wise investors can use the resulting blips to their advantage.

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Bitcoin Is a Classic Bubble Investment

In large data sets, correlations are easy to find. Useful relationships are more elusive

My main interest in cryptocurrencies like bitcoin is in whether they are sound investments. I’m a value investor—I even wrote a book about that—and the short answer is no.

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Digital numbers Marcus Spiske Unsplash 1526374870839-e155464bb9b2

Your Computer Is an Autistic Savant

It knows everything except what matters

Computers, like a friend of mine, are great at very narrowly defined tasks, like playing Go, retrieving facts, and calculating correlations. But they are utterly unreliable for anything requiring true understanding, wisdom, or common sense.

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Stock market Adobe Stock

Investor, AI Isn’t Your Big Fix

In investing and elsewhere, an AI label is often more effective for marketing than for performance

One company sought to leverage Watson, the AI Jeopardy champ, as a stock picker. But lightning-fast search and response don’t have much to do with predicting whether a stock goes up or down…

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Baseball fans and crowd cheering in stadium and watching the game in ballpark. Happy people enjoying a match and sport event in arena. Friends watching ballgame live.

The World Series: What the Luck?

Who will win the World Series? I don’t know, but I do know that baseball is the quintessential game of luck

Think about it. Line drives hit right at fielders, mis-hit balls dying in the infield. Fly balls barely caught and barely missed. Balls called strikes and strikes called balls. Even the best batters make twice as many outs as hits. Even the best teams lose more than a third of their games. This season, the Houston Astros had the highest win percentage (66.0%) in baseball, yet they lost two out of six games to Baltimore, which only won a third of their games—not because Baltimore was the better team, but because Baltimore was the luckier team in those two games. The Astros are one of the 10 best teams this season (along with the Yankees, Tampa Bay, Minnesota, Cleveland, Oakland, Read More ›

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Love Math and Computers? Whoops! Love Can Be Blind

The Great Recession shows why we can’t afford to take computers' output at face value

Professors at prestigious business schools and financial engineers with advanced degrees built mathematical models to assess the risks, but their models were deeply flawed.

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White polymer clay sheep gather around an electronic circuit on a blue background

Computers’ Stupidity Makes Them Dangerous

The real danger today is not that computers are smarter than us, but that we think computers are smarter than us

Many marketing decisions, medical diagnoses, and stock trades, loan and job applications, and election strategies are evaluated by computers. But, as my little experiment shows, the computer does not know whether a pattern is information or noise.

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