Perspective on Risk - Nov. 23, 2022 (Happy Thanksgiving)
As God Is My Witness, I Thought Turkeys Could Fly; A Thanksgiving Tale - Alice’s Restaurant Massacre; Where We Are on Covid; ESG Risk; Things To Read
As God Is My Witness, I Thought Turkeys Could Fly
A Thanksgiving Tale - Alice’s Restaurant Massacre
Those of you who live up near Stockbridge MA may remember the event.
Where We Are on Covid
TL;DR
It sure looks like a good stretch ahead for the holiday season. And, of course, there are things you can do to maximize protection (like a bivalent booster and high quality masks).
Eric Tobol’s recent post The BQ.1.1 variant story provides a good summary of the current state.
We’ve been watching the rise of the BQ.1.1 variant for the past several weeks … BQ.1.1 demonstrates resistance to all available monoclonal antibodies. That certainly reinforces this variant’s immune escape properties.
Now in the United States BQ.1/BQ.1.1 have become dominant, accounting for more than half of the new cases.
However,
This is the first time in the pandemic that a variant with clearcut, marked immune evasion has not induced a major new wave. … Under pressure from prior infections, vaccinations, boosters and combinations of these, the virus is having a harder time finding new hosts
A population-level immunity wall has been built up over 3 years, with all the infections and vaccinations. Further, our T-cell immunity from these exposures, … is helping us defend against variants. The optimistic viewpoint is that there’s little more that the Omicron family can throw at us which will be much worse than what we’ve already seen.
[I]t sure looks like a good stretch ahead for the holiday season. And, of course, there are things you can do to maximize protection (like a bivalent booster and high quality masks).
ESG Risk
If you publicly state you follow a set of ESG ‘policies and procedures’ you better follow them or the SEC may come after you. SEC Charges Goldman Sachs Asset Management for Failing to Follow its Policies and Procedures Involving ESG Investments
The SEC’s order finds that, from April 2017 until February 2020, GSAM had several policies and procedures failures involving the ESG research its investment teams used to select and monitor securities. From April 2017 until June 2018, the company failed to have any written policies and procedures for ESG research in one product, and once policies and procedures were established, it failed to follow them consistently prior to February 2020.
GSAM consented to the entry of the SEC’s order finding that it violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. Without admitting or denying the SEC’s findings, GSAM agreed to a cease-and-desist order, a censure, and a $4 million penalty.
Things To Read
Probability, Cognitive Illusions, Equiprobability and Uniformity Belief
Paul Kedrosky pointed to an excellent essay by Steven Tijms: Monty Hall and “the Leibniz Illusion” (Chance)
In recent years, the Monty Hall problem has become the subject of extensive psychological research and has been hailed as a model example of a cognitive illusion. Cognitive illusions occur when our judgment is misled, just like optical illusions occur when our eyes are tricked. According to mainstream cognitive psychology, cognitive biases and illusions originate from the application of intuitive heuristics—a kind of built-in mental shortcut used by our intuition to quickly reach a judgment in situations of uncertainty.
In particular, many (most?) people wrongly conclude that, when offered a chance to change to a new door after one of the initial two doors is shown to be a loser, they should not change. They view the probability of having the winning door based on their initial selection to be 50%.
If you like probability, behavioral finance and/or the Monty Hall problem, you’ll really like this piece. It probes the nature of the ‘uniformity belief’ which says that
if only two alternative possibilities remain, they are equally probable.
It appears that the uniformity belief is a biased stochastic intuition. In cognitive psychology, it is also known as the equiprobability bias. … The uniformity belief is embedded in aleatory randomness; that is, randomness that is generated by fair randomizers.
[W]hen alternative possibilities are not labeled or somehow differentiated, humans can’t tell the difference between them. And when people can’t differentiate between two alternative possibilities, they tend to take them to be identical.
The illusion that two indiscernible alternative possibilities are identical can thus, with good reason, be called the Leibniz illusion.
I’ll leave it here; it really is a great treatment of the problem from a probability perspective as well as from a behavioral perspective.
Cultures Clash at Salomon Brothers
Another great Stories.Finance piece, this one by Rick Bookstaber titled Cultures Clash at Salomon Smith Barney. In it, he contrasts the culture at Salomon Brothers with that of Travelers/Smith Barney, and the difference between risk assessment and risk monitoring. A great read.
“On finance, physics, and the models we use to understand the world”
Emanuel Derman has written The Volatility Edition on the Why is this interesting? substack. Anything ED writes is worth reading. Among other things, he led the Quantitative Strategies group at Goldman, and is one of the authors of the Black-Derman-Toy interest rate model.