coping with ecological suprise in a human dominated world
From Wikipedia, an image of global tropical cyclone tracks (8000 x 4000 pixels).
The map shows the tracks of all Tropical cyclones which formed worldwide from 1985 to 2005. The points show the locations of the storms at six-hourly intervals and colors the points based on the hurricane strength.
Nassim Nicholas Taleb writes in Financial Times that because financial economics focus on normal and marginal behaviour at the expense of shocks and market reorganizations it is a pseudo-science hurting markets:
I was a trader and risk manager for almost 20 years (before experiencing battle fatigue). There is no way my and my colleagues’ accumulated knowledge of market risks can be passed on to the next generation. Business schools block the transmission of our practical know-how and empirical tricks and the knowledge dies with us. We learn from crisis to crisis that MPT [modern portfolio theory] has the empirical and scientific validity of astrology (without the aesthetics), yet the lessons are ignored in what is taught to 150,000 business school students worldwide.
Academic economists are no more self-serving than other professions. You should blame those in the real world who give them the means to be taken seriously: those awarding that “Nobel” prize.
In 1990 William Sharpe and Harry Markowitz won the prize three years after the stock market crash of 1987, an event that, if anything, completely demolished the laureates’ ideas on portfolio construction. Further, the crash of 1987 was no exception: the great mathematical scientist Benoît Mandelbrot showed in the 1960s that these wild variations play a cumulative role in markets – they are “unexpected” only by the fools of economic theories.
Then, in 1997, the Royal Swedish Academy of Sciences awarded the prize to Robert Merton and Myron Scholes for their option pricing formula. I (and many traders) find the prize offensive: many, such as the mathematician and trader Ed Thorp, used a more realistic approach to the formula years before. What Mr Merton and Mr Scholes did was to make it compatible with financial economic theory, by “re-deriving” it assuming “dynamic hedging”, a method of continuous adjustment of portfolios by buying and selling securities in response to price variations.
Dynamic hedging assumes no jumps – it fails miserably in all markets and did so catastrophically in 1987 (failures textbooks do not like to mention).
Later, Robert Engle received the prize for “Arch”, a complicated method of prediction of volatility that does not predict better than simple rules – it was “successful” academically, even though it underperformed simple volatility forecasts that my colleagues and I used to make a living.
The environment in financial economics is reminiscent of medieval medicine, which refused to incorporate the observations and experiences of the plebeian barbers and surgeons. Medicine used to kill more patients than it saved – just as financial economics endangers the system by creating, not reducing, risk. But how did financial economics take on the appearance of a science? Not by experiments (perhaps the only true scientist who got the prize was Daniel Kahneman, who happens to be a psychologist, not an economist). It did so by drowning us in mathematics with abstract “theorems”. Prof Merton’s book Continuous Time Finance contains 339 mentions of the word “theorem” (or equivalent). An average physics book of the same length has 25 such mentions. Yet while economic models, it has been shown, work hardly better than random guesses or the intuition of cab drivers, physics can predict a wide range of phenomena with a tenth decimal precision.
via 3quarks daily.
For more see Taleb’s home page - Fooled by Randomness.
Declan Butler’s Nature News article Field trials aim to tackle poverty describes how development experiments are being used to test approaches to development. Others have taken a similar approach, Ricardo Godoy and his collaborators took an experimental approach to development anthropology in the Bolivian amazon. But it is encouraging to see adaptive management type approach being applied to development problems.
The Abdul Latif Jameel Poverty Action Lab (J-PAL) is pioneering the concept of randomized trials, more commonly associated with drug safety tests, to assess what works and what doesn’t in development and poverty interventions. The strategy has inspired the World Bank, which in December will choose winning proposals in a €10.4-million (US$14.9-million), 3-year programme that will use randomized trials to study the fight against poverty.
Based at the Massachusetts Institute of Technology in Cambridge, J-PAL was founded in 2003 and this year has more than 60 projects on the go in 21 countries. Esther Duflo, one of the lab’s founders, says she set it up to help rigorously test the many programmes that are meant to aid the poor. “Whereas one would not dream of putting a new drug on the market without a randomized trial,” she says, “such evaluations were, and to a certain extent still are, very rare for social programmes.”
Although young, J-PAL has already notched up some successes. One of its first studies, involving more than 30,000 youngsters in rural Kenya, found that deworming children reduced the number of days taken off school by 25% (E. Miguel and M. Kremer Econometrica 72, 159-217 ; 2004). Another study, in India, showed that hiring young local women to help at schools with underperforming students significantly increased test scores, and was six times cheaper than the computer-assisted learning already being tested (A. Banerjee et al . Q. J. Econ. 122, 1235-1264 ; 2007). “J-PAL’s results in education are solid and important,” says Nilima Gulrajani, an expert in aid management at the London School of Economics and Political Science.
… But Gulrajani urges against excessive enthusiasm for randomized trials in poverty research. She worries that policy-makers may jump on the findings as scientific too soon, and apply them too broadly — neglecting painstaking, but seemingly softer, classical social-science studies. At the same time, she praises J-PAL’s concept. “It’s the first attempt to approach poverty research in a scientific, controlled, experimental way,” she says. “You are going to see this being increasingly adopted. It is a fantastic idea.”
The Christian Science Monitor article California’s age of megafires describes how California’s fire risk has been increased by slow changes in fire suppression (but probably not in California), climate change, longer fire season, and house construction in the wildland-urban interface:
Megafires, also called “siege fires,” are the increasingly frequent blazes that burn 500,000 acres or more – 10 times the size of the average forest fire of 20 years ago. One of the current wildfires is the sixth biggest in California ever, in terms of acreage burned, according to state figures and news reports.The trend to more superhot fires, experts say, has been driven by a century-long policy of the US Forest Service to stop wildfires as quickly as possible. The unintentional consequence was to halt the natural eradication of underbrush, now the primary fuel for megafires.
Three other factors contribute to the trend, they add. First is climate change marked by a 1-degree F. rise in average yearly temperature across the West. Second is a fire season that on average is 78 days longer than in the late 1980s. Third is increased building of homes and other structures in wooded areas.
“We are increasingly building our homes … in fire-prone ecosystems,” says Dominik Kulakowski, adjunct professor of biology at Clark University Graduate School of Geography in Worcester, Mass. Doing that “in many of the forests of the Western US … is like building homes on the side of an active volcano.”
In California, where population growth has averaged more than 600,000 a year for at least a decade, housing has pushed into such areas.
“What once was open space is now residential homes providing fuel to make fires burn with greater intensity,” says Terry McHale of the California Department of Forestry firefighters union. “With so much dryness, so many communities to catch fire, so many fronts to fight, it becomes an almost incredible job.”
Jon Gertner writes in The Future Is Drying Up a New York Times Magazine about Water in the American West. The articles is discusses how increases in population and decreases in precipitation are reorganizing the US inland west. It includes some insightful comments from Roger Pulwarty, a climatologist at NOAA who looks at adaptive solutions to drought. He sounds a bit like Emory University ecological management scientist Lance Gunderson:
You don’t need to know all the numbers of the future exactly,” Pulwarty told me over lunch in a local Vietnamese restaurant. “You just need to know that we’re drying. And so the argument over whether it’s 15 percent drier or 20 percent drier? It’s irrelevant. Because in the long run, that decrease, accumulated over time, is going to dry out the system.” Pulwarty asked if I knew the projections for what it would take to refill Lake Powell, which is at about 50 percent of capacity. Twenty years of average flow on the Colorado River, he told me. “Good luck,” he said. “Even in normal conditions we don’t get 20 years of average flow. People are calling for more storage on the system, but if you can’t fill the reservoirs you have, I don’t know how more storage, or more dams, is going to help you. One has to ask if the normal strategies that we have are actually viable anymore.”
Pulwarty is convinced that the economic impacts could be profound. The worst outcome, he suggested, would be mass migrations out of the region, along with bitter interstate court battles over the dwindling water supplies. But well before that, if too much water is siphoned from agriculture, farm towns and ranch towns will wither. Meanwhile, Colorado’s largest industry, tourism, might collapse if river flows became a trickle during summertime. Already, warmer temperatures have brought on an outbreak of pine beetles that are destroying pine forests; Pulwarty wonders how many tourists will want to visit a state full of dead trees. “A crisis is an interesting thing,” he said. In his view, a crisis is a point in a story, a moment in a narrative, that presents an opportunity for characters to think their way through a problem. A catastrophe, on the other hand, is something different: it is one of several possible outcomes that follow from a crisis. “We’re at the point of crisis on the Colorado,” Pulwarty concluded. “And it’s at this point that we decide, O.K., which way are we going to go?”
For some photos see NASA, and a graph of the water levels in Lake Mead showing the longterm decline in water storage.
At Crooked Timber, Australian economist John Quiggin reflects on the recent Coral Reef Futures Forum, which was recently organized by Resilience Alliance member Terry Hughes group at the ARC Centre of Excellence for Coral Reefs Studies in Australia. The forum aimed to discus how global changes such as fishing, climate change, and ocean acidification are threatening coral reefs. John Quiggin writes:
I spent the last couple of days in Canberra at the Coral Reef Futures Forum, as part of my new Federation Fellowship is to look at economic approaches to management of the Great Barrier Reef. As one of the speakers said, a lot of the talks had people staring at their shoes in gloom, though the tone got a little more positive towards the end. …
The most hopeful view is that, if we can fix the local threats like overfishing and poor water quality, the resulting increase in resilience (part of my project is to develop a more rigorous understanding of this popular buzzword) will offset moderate global warming, so that if we can stabilise the climate (an increase of no more than 2 degrees) we might save at least some reef systems.
It will be interesting to see what type of resilience economics John Quiggin develops. Several other economists have been working on the economics of resilience, such as Wisconsin econmist Buz Brock, Charles Perrings at Arizona State U, as well as Anne Sophie Crepin and others at the Beijer Institute, but the there is a lot that needs to be done to create a broadly useful resilience economics.
The Christian Science Monitor has an Oct 12 article, Unserved by banks, poor Kenyans now just use a cellphone, about how Keynas are using cell phones to conduct banking. Cell phones allow Kenyans to transfer cash and conduct business across long distances. This trend is significant because mobile phone ownership is rapidly growing in Africa and today about 1/5 of Africa’s population has access to a mobile phone.
With a click of a cellphone key, Bernard Otieno makes the transfer – sending funds instantly from his residence in a sprawling Nairobi slum to his wife, who holds down their rural family farm some 250 miles away.
Mr. Otieno, a security guard who works the night shift, used to risk carrying cash on infrequent, slow trips to his hometown or pay high rates to send money through the post office.
Now, he’s one of a growing number of Kenyans tapping into a service called M-PESA – M for “mobile” and pesa for “cash” in Swahili. Launched this year, it’s one of the world’s first cellphone-to-cellphone cash-transfer services for people who lack access to conventional banks.
…
Indeed, the initial success of M-PESA has surprised even those who helped set it up. “We have now [the number of customers that] we thought we’d have in January,” says Gerald Rasugu, the manager for all M-PESA agents nationwide. M-PESA serves more than 450,000 customers, well over the target of 100,000 set at launch, says Michael Joseph, CEO of Safaricom, Kenya’s largest cellphone provider, which started M-PESA. He expects to have 1 million customers by January. “I wonder sometimes if people understand how big this can be,” he says.
The potential goes beyond M-PESA and Kenya. Once poor people have more access to financial products offered through trusted banking systems, investors soon follow, creating jobs, say economists.
“There’s a very clear correlation between a more developed financial sector and GDP growth,” says Thorsten Beck, a senior economist at the World Bank in Washington.
Privately owned forests in the US are being increasingly converted to housing for the wealthy as the demand for cultural ecosystem service, such as recreation and beauty, is out-competing demands for provisioning services such as timber and pulp. These changes are having extensive effects on conservation and forest management practices. They are also resulting in a loss of public access to private forests.
These changes are described in a Oct 13th NY Times article As Logging Fades, Rich Carve Up Open Land in West:
With the timber industry in steep decline, recreation is pushing aside logging as the biggest undertaking in the national forests and grasslands, making nearby private tracts more desirable — and valuable, in a sort of ratchet effect — to people who enjoy outdoor activities and ample elbow room and who have the means to take title to what they want. Some old-line logging companies, including Plum Creek Timber, the country’s largest private landowner, are cashing in, putting tens of thousands of wooded acres on the market from Montana to Oregon. Plum Creek, which owns about 1.2 million acres here in Montana alone, is getting up to $29,000 an acre for land that was worth perhaps $500 an acre for timber cutting.
Continue reading ‘Inequality and an ecosystem service transition’
Arctic sea ice has reached record low coverage in 2007.
From NASA EOS:
This image shows the Arctic as observed by the Advanced Microwave Scanning Radiometer for EOS (AMSR-E) aboard NASA’s Aqua satellite on September 16, 2007. In this image, blue indicates open water, white indicates high sea ice concentration, and turquoise indicates loosely packed sea ice. The black circle at the North Pole results from an absence of data as the satellite does not make observations that far north.
Three contour lines appear on this image. The red line is the 2007 minimum, as of September 15, and it almost exactly fits the sea ice observed by AMSR-E. Depending on the calculations, the minimum occurred on September 14 (one-day running average) or September 16 (five-day running average). The green line indicates the 2005 minimum, the previous record low. The yellow line indicates the median minimum from 1979 to 2000.
Map of international phone-call traffic in 2005, from Telegeography. The map shows the disproportionate centrality of the USA in international telephone traffic.
via Wired
