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Venture Capital, Catastrophism, & The Redemption of Immanuel Velikovsky
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Venture Capital, Catastrophism, & The Redemption of Immanuel Velikovsky

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Musings on venture capital, catastrophism, the Central Limit Theorem, and Tiger Woods' swing.

Musings on venture capital, catastrophism, the Central Limit Theorem, and Tiger Woods' swing.

Published in Business , Economy & Finance
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  • Here are rough speaking notes for the presentation ....

    1) Title
    2) Spirit of this presentation
    3) Embed the discussion in current events. The current San Diego wildfires are a wildly anomalous event, a scant four years after equally anomalous events. Is the problem with our models, our knowledge, our history?
    3)- 5) Pictures from the fires
    6) A strange new thing is the first thing to happen in disasters: All the major related websites go down. In San Diego's case, the sosd.com site was up and down constantly for the first thirty hours.
    7) Screen shot of borked site.
    8) Local paper relocated to a blog
    9) Monitoring police/fire/CHP via web feed
    10) A fire wiki from SDSU
    11) Mashup of traffic data with road closures
    12) Twitter feed with continuous headlines
    13) Mashup of fire perimeters, refuge stations, and animal boarding sites
    14) User-driven weather stations gave better and faster data on changing wind conditions
    15) But step up a level. Why did this happen? Our inability to forecast extreme events, whether epochal wildfires, or traffic to sites during disasters?
    16) Part of the trouble is the nature of natural processes, and of infrequent events. Often tough to collect additional data without simply waiting.
    17)At the same time, some of the trouble is in dueling paradigms: catastrophism vs. uniformitarianism. The latter holds sway, and yet there is increasing evidence for the former. Catatastrophes matter more than we like to think.
    18) Consider the hedge fund meltdown this past August. A 16-sigma event shouldn't have happened, not enough time since the earth cooled, and yet it did. Is the problem with the world, or with our models?
    19) In some sense, the trouble is that in far more cases than we like to think, we don't know what normal is. We operate in cosmologically brief and quiescent periods, and extrapolate serenely in every direction.
    20) We lie to ourselves about the past. In case the wildfires, we convinced ourselves that current catalyclysms aren't historically unusually, that they happened through history. There is growing evidence that the historical record is a fraud, or at least prone to wild exaggeration.
    21) All of this would give great comfort to Immanuel Velikovsky. The Austrian psychologist's catastrophism theories, most known through his wildly controversial 'Worlds in Collision', were driven by Zionism and some ill-judged ideas about scientific acceptability, but they are provocative, ringing more true now than ever given recent events in cosmology, markets, and fire ecology.
    22) You can see something similar in capital markets, especially in private equity and venture capital. These are very young industries, with sorely inadequate data. We kid ourselves when we say we think we know what 'normal' is: we have no idea.
    23) And, worse yet, there are few funds that matter, so the data problem is worse than mere history dredging would suggest.
    24) Further, we are losing funds at a frantic pace right now, so the data set is getting smaller yet.
    25) And the result is we have no idea if these are good returns, bad, or just a fluke.
    26) There is ample reason to expect that financial markets are constrained by some of the same limits to human performance that constrain us in sports and elsewhere.
    27) Tiger Woods' historical accuracy/distance data.
    28) Pace Gould, the disappearance of the .400 hitter has to do with improving ability all around, not the disappearance of the Ted Williamses of yesteryear.
    29) The result is immense cognitive and performance blind spots, problems that lead to big misses.
    30) The fire regime in SoCal is fairly patterned, until recently, and then it goes through a jump change. Relying on historical data to predict current events would have led you to vastly underestimate the likelihood and location of the fires of 2003 and 2007 in San Diego County.
    31) The perhaps apocryphal story of Lancaster bombers in WWII and their armor plating.
    32) The lovely thing about errors and broken models. Strangely enough, us being badly wrong recently makes me wildly optimistic about the future.<br /><br/>
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Transcript

  • 1. Venture Capital , Catastrophism , & the Redemption of Immanuel Velikovsky Paul Kedrosky Oct. 24/2007
  • 2. Far better an approximate answer to the right question , which is often vague , than an exact answer to the wrong question , which can always be made precise . J. Tukey (1962), Annals of Mathematics and Statistics 33:1-67
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  • 6. First things first
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  • 15. Why?
  • 16. If I am interested in, say, the distribution of the intensities of hurricanes, I cannot just “collect data more frequently”: I will just have to wait for the next hurricane to arrive. Source: R. Rebonatto, Plight of the Fortune-Tellers (2007)
  • 17. Catastrophism vs. Uniformitarianism
  • 18. With correlations growing across all strategies, alt asset firms are in a social network ... they just didn’t know it .
  • 19. The trouble with normal
  • 20. A putative 100 mile long by 10 mile wide (160 × 16 km) wildfire reported in 1889 was reconstructed to an area of chaparral 40 times smaller … Source: Goforth and Minnich, 1996, Ecological Applications , p. 779-790
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  • 26. Tiger Woods & .400 hitters
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  • 30. Blind spots , predictability and the right wall of human performance
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  • 33. Errors of Nature , Sports and Monsters correct our understanding in regard to ordinary things, and reveal general forms . Francis Bacon, Novum Organum