Tuesday, April 24, 2012

Does time series econometrics predict anything?

Does time series econometrics predict anything? Not much if you ask Nassim Nicholas Taleb. He is of the view that one should throw away the past five decades of probability based models. More from Taleb is reproduced below:

http://www.nytimes.com/roomfordebate/2012/04/01/how-to-teach-economics-after-the-financial-crisis/throw-out-the-old-economic-models


"Throw Out the Probability Models

Nassim Nicholas Taleb, a former derivatives trader, is a distinguished professor of risk engineering at Polytechnic Institute of New York University. He is the author of "The Black Swan: The Impact of the Highly Improbable."

After the events that started in 2007 and the subsequent reactions by economists, anyone who takes the current economics establishment seriously needs to spend time in a sanatorium.

We would have great jumps in knowledge if we avoided teaching these models, and replaced them with anything, even gardening classes.
This does not mean we should write off the entire body of knowledge. By now, we can see what works and what does not work. Simply, a certain class of consequential rare events, what I’ve called “black swans,” are not predictable and their probabilities unmeasurable, so anything that relies on a computation of the probability of these events should go out of the window. Now. Such models induce fragilities and bring harm. We're better off with no model than with a defective model, something people understand intuitively, but they tend to forget when they don’t have “skin in the game.” If you are a passenger on a plane and the pilot tells you he has a faulty map, you get off the plane; you don’t stay and say “well, there is nothing better.” But in economics, particularly finance, they keep teaching these models on grounds that “there is nothing better,” causing harmful risk-taking. Why? Because the professors don’t bear the harm of the models.

The good news is that those models that miss rare events also break down when one introduces a higher layer of uncertainty into them, called “parameter uncertainty”. This gives us a fault detection mechanism. What goes out of the window? The entire discipline of modern finance and portfolio theory (the theories named after Harry Markowitz, William Sharpe, Merton Miller), the model-based methods of Paul Samuelson, much of time series econometrics (which don’t appear to predict anything), along with papers and theories that are based on “optimization.” These bring fragility into the system. So, simply, we would have great jumps in knowledge if we avoided teaching these models, and replaced them with anything, even gardening classes.

But the broad principles of economics survive such expurgation. We should just ignore much of what has happened in the past half-century of trying to be too sophisticated with quantitative and probability-based models, ending up in dangerous pseudo-science."

UBC Sauder revamps MBA curriculum

Experiential learning comes full-force to UBC's Sauder school of Business. In a completely revamped curriculum, MBA students will engage in "hands-on learning, global immersion and integration of business disciplines for a “360-degree” management perspective." More on the revamped curriculum is available HERE.

Sunday, April 22, 2012

An MBA in urban management by TERI University

After hundreds of specializations ranging from finance to not profit, finally a University in India is launching an MBA in urban management. TERI University, with a long term interest in environmental management, has decided to launch an MBA in urban management. Read more HERE.

Tuesday, April 17, 2012

New York City’s Poverty Rate Reaches Highest Level Since 2005 - NYTimes.com

The number of New Yorkers classified as poor in 2010 increased by nearly 100,000 from the year before, raising the poverty rate by 1.3 percentage points to 21 percent — the highest level and the largest year-to-year increase since the city adopted a more detailed definition of poverty in 2005. 
New York City’s Poverty Rate Reaches Highest Level Since 2005 - NYTimes.com