Book Reviews

Evidence-Based Technical Analysis

Posted by Peter on April 17, 2009
Posted in: Book Reviews, Investing. Tagged: .

Book review: Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals, by David Aronson.

This is by far the best book I’ve seen that is written for professional stock market traders. That says more about the wishful thinking that went into other books that attempt to analyze trading rules than it does about this author’s brilliance. There are probably books about general data mining that would provide more rigorous descriptions of the relevant ideas, but they would require more effort to find the ideas that matter most to traders.

There hasn’t been much demand for rigorous analysis of trading systems because people who understand how hard it is to do it well typically pick a different career, leaving the field populated with people who overestimate their ability to develop trading systems. That means many traders won’t like the message this book sends because it doesn’t come close to fitting their preconceptions about how to make money. It is mostly devoted to explaining how to avoid popular and tempting mistakes.

Although the book only talks specifically about technical analysis, the ideas in it can be applied with little change to a wide variety of financial and political forecasting problems.

He is occasionally careless. For example: “All other things being equal, a TA rule that is successful 52 percent of the time is less valuable than one that works 70 percent of the time.” There might be a way of interpreting this that is true, but it’s easy for people to mistake this for a useful metric, when it has little correlation with good returns on investment. It’s quite common for a system’s returns to be dominated by a few large gains or losses rather than the frequency of success.

The book manages to spell Occam three different ways!

Hollywood Economics

Posted by Peter on April 8, 2009
Posted in: Book Reviews, Economics. Tagged: , .

Book review: Hollywood Economics: How extreme uncertainty shapes the film industry, by Arthur De Vany.

This rather dense and scholarly book that contains some good insights into how markets for information differ from markets for physical goods. But few people will want to read the whole book. Much of the book was originally published as papers in economics journals. It’s better organized than that suggests, but the style is mostly oriented toward professional economists.

Much of the book can be summed up by the conclusion that nobody knows anything about how successful a movie will be. The typical film loses money, and the expected returns are heavily dominated by rare films that are huge successes.

He says through much of the book that returns on investment in movies have infinite variance, and only at the very end admits that that’s not literaly true, and then provides a more credible description of the variance as unstable and generally increasing over time.

His argument that Hollywood makes too many R-rated films takes a good deal of effort to follow. Table 5.3 is confusing, because it shows a mean return on R-rated films as much higher for the returns on PG13 films. This sounds like the opposite of his conclusion. It took 13 more pages before I figured out that that was due to some high rates of return on low budget R-rated films that had little effect on aggregate profits. It appears that his conclusion ought to have been that Hollywood makes too many high-budget R-rated films, and too few low-budget R-rated films.

His description of the antitrust cases that transformed the movie industry provides convincing evidence that the courts were confused and didn’t help the independent exhibitors that the lawsuits were allegedly designed to help. The arguments about how they affected consumers are less clear.

The 10,000 Year Explosion

Posted by Peter on March 15, 2009
Posted in: Book Reviews, The Human Mind. Tagged: , , .

Book review: The 10,000 Year Explosion: How Civilization Accelerated Human Evolution by Gregory Cochran and Henry Harpending.

This provocative book describes many recent genetic changes in humans, primarily those resulting from the switch from hunter-gatherer lifestyles to agricultural lifestyles. Large changes in diets and disease are the simplest causes of change, but the book also describes subtler influences that alter human minds as well.

I had believed that large populations rarely evolve very fast due to the time required for a mutation to spread. This is true for mutations which provide negligible selective advantage, but the book shows that it’s plausible that a number of mutations have recently gained a large enough selective advantage that the rate at which they become widespread is only modestly dependent on population size. Also, the book makes a surprising but plausible claim that the larger supply of mutations in large populations can mean large populations evolve faster than small populations.

The book is occasionally not as rigorous as I would like. For instance, the claim that Ashkenazi “must have been exposed to very similar diseases” as their neighbors is false if the diseases were sexually transmitted.

Most of their claims convince me that conventional wisdom underestimates how important human genetic differences compared to cultural differences, but leave plenty of room for doubt about the magnitude of that underestimation.

They provide an interesting counterargument to the claim that differences within human populations are larger than the differences between populations. Their belief that differences between populations are more important seems to rest on little more than gut feelings, but they convince me that the conventional wisdom they’re disputing is poorly thought out.

They convinced me to take more seriously the possibility that some Neanderthal genes have had significant effects on human genes, although I still put the odds on that at less than 50 percent.

Stroke of Insight

Posted by Peter on March 4, 2009
Posted in: Book Reviews, The Human Mind. Tagged: , , .

Book review: My Stroke of Insight: A Brain Scientist’s Personal Journey by Jill Bolte Taylor.

This book provides a unique description of the differences between the left and right sides of the brain, because she experienced about as big a decrease in the functioning of her left hemisphere as anyone who has recovered enough to write about it. It’s a very quick read, but didn’t have as much information as I’d hoped.

She makes plausible claims (with minimal mysticism) that her stroke helped her experience nirvana and continues to help her choose to have the best parts of her brain dominate her personality. It makes me wish there were something better than the Wada test that would enable the rest of us to more safely experiment with such experiences.

It helps me understand what I’m not accomplishing when I try (with little success) to meditate, but it appears that her advice for how to do better only works for people who are starting with a mind that is less strongly dominated by the left brain than mine.

It’s important to remember that the parts of her brain that are reporting the benefits of her experience are the ones that survived. We have little information about how the parts of her brain that died would have evaluated the experience.

Influence

Posted by Peter on February 26, 2009
Posted in: Book Reviews, The Human Mind. Tagged: .

Book review: Influence: The Psychology of Persuasion by Robert B. Cialdini.

This book gives clear descriptions of six strategies that salesmen use to influence customers, and provides advice on how we can somewhat reduce our vulnerability to being exploited by them. It is one of the best books for laymen about heuristics and biases.

It shows why the simplest quick fixes would produce more problems than they solve, by showing that there are good reasons why we use heuristics that create opportunities for people to exploit us.

The author’s willingness to admit that he has been exploited by these strategies makes it harder for readers to dismiss the risks as something only fools fall for.

The Spriggan Mirror

Posted by Peter on February 6, 2009
Posted in: Book Reviews.

Book review: The Spriggan Mirror by Lawrence Watt-Evans.
I normally don’t review fiction, but this has enough intellectual value to be more than just entertainment (although it is primarily entertainment).

This novel does an unusually good job of portraying scientific approaches to analyzing magic (better than the two other Lawrence Watt-Evans novels I’ve read).So in a sense it ought to be treated as science fiction about a world whose laws of physics happen to resemble those of many fantasies.
It provides a good example of how humans ought to treat a species of beings who are less intelligent than humans but capable of understanding a good deal of human language.
It also raises some unusual questions about personal identity.

You should read With a Single Spell and possibly others in the Ethshar series before reading this.

Honest Signals

Posted by Peter on January 21, 2009
Posted in: Book Reviews, The Human Mind. Tagged: .

Book review: Honest Signals: How They Shape Our World by Alex (Sandy) Pentland.
This book makes it clear that verbal communication is a recent evolutionary development in humans which has only replaced a modest amount of the communication that our pre-linguistic ancestors used. The fact that we are much more aware of our verbal communication than our other forms of communication shouldn’t cause us to underestimate those other forms.
A good deal of the studies mentioned in the book consist of measures of nonverbal communication in, say, speed dating can predict results about as reliably as I’d expect from analyzing the words. These could be criticized for not ruling out the possibility that the nonverbal signals were merely responses to information communicated by words. But at least one study avoids this – entrepreneurs pitching business plans to VCs showed nonverbal signals that were excellent predictors of whether the VCs would accept the business plans, before getting any verbal feedback from the VCs. Even more surprising, investments made by VCs with nonverbal information about the entrepreneurs did better than those evaluated on written-only presentations.
The sociometers used to measure these nonverbal signals have potential to be used in helping group decision making by automatically detecting the beginnings of groupthink or polarization, which should in principle allow leaders to stop those trends before they do much harm. But it’s not obvious whether many people will want to admit that analyzing the words of a conversation has as little importance as this research implies.
One of the more interesting methods of communication is for people to mimic each others body language. This is surprisingly effective at creating mutual interest and agreement.
The sociometer data can be of some value for information aggregators by helping to distinguish independent pieces of information from redundant information by detecting which people are likely to have correlated ideas and which are likely to have independent ideas.
I wish this book were mistaken, and that most of human interaction could be analyzed the way we analyze language. But it seems clear that unconscious parts of our minds contain a good deal of our intelligence.

A Different Kind of Boy

Posted by Peter on January 7, 2009
Posted in: Book Reviews, The Human Mind. Tagged: .

Book review: A Different Kind of Boy: A Father’s Memoir on Raising a Gifted Child With Autism by Daniel Mont.
This book provides a clear and moving story of what it’s like to have a fairly autistic child. It reinforces my belief that autism (or at least some of the personalities classified as autistic) is one extreme of a range of human personalities. I was surprised at the extent to which Alex’s personality is an extreme version of the personality I had as a child.
The author demonstrates an unusual ability to treat his son as an equal for some purposes (such as logical reasoning) while simultaneously being aware that Alex finds it extremely hard to learn concepts most of us take for granted (e.g. the difference between lying and pretending).
Many of the problems people have interacting with Alex closely resemble the problems AI researchers discover when they try to translate an “obvious” concept into unambiguous language. But just when I thought the AI analogy provides a reliable guide, I noticed an exception – Alex finds long division harder than economic theory.

This Is Burning Man

Posted by Peter on December 29, 2008
Posted in: Book Reviews. Tagged: .

Book review: This Is Burning Man by Brian Doherty.
This book gives a description and history of Burning Man that is mostly consistent with what I know of it. I particularly like how he calls it “a social revolutionary movement that is not about fighting authority but is dedicated to working with it”.
He glosses over the inconsistent beliefs in the culture over property rights. He has one brief mention of bicycle theft without much indication of how big a problem it is or how it affects the culture. He occasionally implies it’s considered ok to destroy someone else’s possessions, but doesn’t provide a clear enough description of how much of a cultural difference that is.
He describes some of the disagreements over the what Burning Man should be, including some early disputes over whether it was ok for it to become an art festival, and whether attempts to introduce political advertising fits well with the anti-commercial rules. He suggests that control of the culture is sufficiently decentralized that no small group can decide the answers to those disputes.
The main hint he provides for those hoping to create similar events elsewhere is beyond some minimum level of safety and logistics planning, the success or failure is largely in the hands of participants rather than leaders, and the leaders of Burning Man don’t have a clear idea of how they succeeded.
He suggests that a sense of crisis, mostly due to the hostile environment, helps create a sense of bonding. I think he wildly exaggerates the effects of the physical environment (whose main value is minimizing political objections to Burning Man).

The Indian Clerk

Posted by Peter on December 4, 2008
Posted in: Book Reviews.

Book review: The Indian Clerk: A Novel by David Leavitt.
This book portrays the characters of mathematicians and related society in England circa WWI, although it doesn’t provide much help at understanding the math.
It does a good job of capturing the eccentricities of people who are obsessed with math. One quote that seemed particularly apt: “It’s as if each of the integers is one of his personal friends”, which reminds me of the analysis in Keith Devlin’s book The Math Gene. But this realism means that the characters aren’t sufficiently likable or exciting for me to want such a lengthy story about them.
One aspect of the book which puzzles me is when he suggests Ramanujan died of lead poisoning. He cites A. B. Young as a source of information on Ramanujan’s illness, in a way that suggests that Young supports that diagnosis. So I was surprised when I checked and saw that Young concludes he died of a liver parasite.