Bankruptcy

Hotel California

You can check out any time you like

But you can never leave!

Bankruptcy is the ultimate checking out of a game.  But some games don’t let you leave

Wealthy individuals and corporations hate paying for insurance,  and may self insure because  they assume that they can pay any costs that insurance might have paid out.  However they object only to the costs.  Rewards such as stock markets gains (stock markets formed as a way to insure the liquidity of investments) are popular, as are corporate bailouts.   So clearly the objection is financial not one of  principle.  As a last resort, if the consequences become too dire, some think that they can always declare bankruptcy.  Bankruptcy is the ultimate walking away from a game.  But you can't walk away from some games.  The third law of thermodynamics is sometimes facetious stated as "you can't get out of the game".   A more formal statement is "It is impossible by any procedure, no matter how idealized, to reduce the temperature of any closed system to zero temperature in a finite number of finite operations."

This may explain why the wealthy are against social security insurance, have gutted health insurance, and gutted the stockpiles need to insure against a rare occurrence like COVID-19. They assumed that they could always declare bankruptcy, that is take the ball and go home. But bankruptcy requires that there are creditors and they pay your costs. If there is no one to pay those costs, then you can’t declare bankruptcy, get out of the game. Societies can not get out of the game, can not declare bankruptcy, and still remain as viable societies.

In Defense of Science

The Emperor’s New Clothes

"A vain emperor hires two swindlers who promise to make him the finest suit of clothes made from fabric invisible to anyone who is "hopelessly stupid”. 

He marches in procession in those new clothes. The townsfolk play along with the pretense. 

Then a child in the crowd cries out that the Emperor is wearing nothing at all.
The cry is taken up by others. The Emperor cringes but holds his head high and continues the procession."

 

Right now we need that child to defend science.

Science is under attack. From the science of climate change, to evolution, to vaccination, to COVID‑19, etc., the attacks have become more vicious and more frequent.  The White House recently said "Science should not get in the way schools reopening” even though science is only offering an opinion as to what is safe.

Some of the more common lines of attack ( and their refutations) are:

It’s only a theory

This confuses the term theory in common language with theory as used in science.  A validated theory makes predictions.  The Theory of Relativity is credited to Einstein.  It makes predictions and those predictions continue to be tested.  The atomic bomb and the energy from the sum are both consequences of the theory of relativity.  A theory is more than just an opinion.  Science considers every theory, model, wrong, but some theories are useful.

It’s a fact.

Just because people say something doesn’t make it a fact. A fact is something that can be observed. If it can't be observed, as far as science is concerned there is no fact.  And to paraphrase the late Senator Daniel Patrick Moynihan, while people are entitled to their own opinions, they are not entitled to their own facts. You have to acknowledge all of the facts, not just the ones that you like. Science does not deal with alternate facts.

I have a right to my own opinion.

You certainly have a right to your own opinions.  But when you exercise that opinion, as when swinging your arm, your rights end where my nose begins, e.g those rights infringe on someone else’s rights. For example you have every right to contract the corona virus. However when you wear a mask you are preventing me from contracting your corona virus.

The Enemy of My Enemy Is NOT My Friend

You've Got A Friend In Me

When the road looks rough ahead 
And you're miles and miles from your nice warm bed
You just remember what your old pal said
Yeah you've got a friend in me

Having friends is nice.  But the enemy of my enemy is NOT  necessarily my friend.

The old saying, “The enemy of my enemy is my friend” is demonstrably  wrong.  This matters, because in the current election campaign, we are being asked to view a candidate’s opponent as an enemy.  That does not mean that the first candidate is therefore my friend.  This sounds good but can be completely disproven by mathematics. 

If a is me, b is one candidate, and c is the opponent of the first candidate, then  if <> is being an enemy and = is being a friend, then

a<>c and b<> c does not mean that a=b. 

As a non mathematical example, Stalin and Churchill shared a common enemy in Adolf Hitler during WWII.  But Churchill never thought that this made Stalin his friend.  You can make common cause with an enemy, but that does not make that enemy into your friend.  It is better to convince me that you are my friend, than to try to convince me that your opponent is my enemy.

Valuing Risk: Part 2

Let's Face the Music and Dance

Before they ask us to pay the bill     
And while we still have the chance 
Let's face the music and dance

The size of the bill, the consequences, will depend on how we view risk.

It is convenient to think of risk as the combination of likelihood  and consequences.  The recent reopening of Disney Springs and Disney World have provided a perfect example of how consequences affect the perception of risk, and how that risk affects our behavior.

During the COVID-19 crisis face masks are being required at both Disney Springs, the Disney World shopping district in Florida, and the Disney World Theme Parks.  Masks are required for entry to both the theme parks and the shopping district.  There is a difference between how long masks are worn after entry though.  Masks are being removed by some visitors to Disney Springs, but masks are not being removed by visitors to the Disney Theme parks.  The likelihood of contracting the corona virus is equal in both places.  If behavior is different, then visitors to both places must be calculating risk differently. 

The consequences of not continuing to wear a mask on the Disney Springs property is removal from the shopping district, but there was no cost for entry to this shopping district.  The consequence of not continuing to wear a mask at a Disney theme park is removal from the theme park, but there was an entrance fee of almost a hundred dollars to the theme parks.  Since the consequences are different, $0 and almost  $100, even though they have the same likelihood, they have a different risk.  The risk of not wearing a mask at a Disney Theme park is greater than the risk of not wearing a mask at the Disney shopping district.  Thus is it not surprising that continued mask wearing is greater at the theme parks than at the shopping district.  

Valuing Risk

Love and Marriage

Love and marriage, Love and marriage

Goes together like a horse and carriage

Something things just go together.  Risks can’t be understood unless you understand both likelihood AND  consequences.

Understanding and properly valuing risks has become very important during the corona virus crisis.  We are being asked to properly quantify risks.  Part of the reason is that people don’t understand both components of risk and part is because people are approaching risk from a framework that can best be understood by viewing a previous blog post. https://dbeagan.blogspot.com/2020/06/a-framework-for-human-behavior.html.

Risk is based on the likelihood of an event occurring and the consequences if that event does occur.  The response to COVID-19, the disease caused by the corona virus, include measures to reduce the likelihood and to minimize the consequences.  The likelihood of catching the corona virus is lower if the chances for contracting it are lowered. That is why people are urge to wear masks and social distancing have been promoted, because they lower the likelihood of contracting the corona virus.

The other component of risk are also best understood by actions taken during the pandemic.  The ultimate consequence is that one could die from COVID-19.  That consequence is lowered if ventilators and Intensive Care Unit beds are available at hospitals treating those with COVID‑19.

However both the likelihood and the consequences are not the same for those with a user optimal or a system optimal framework.  Those with a user optimal perspective (“what’s in it for me”) can agree that they lower their likelihood by visiting places where others socially distance and wear masks.  They do not lower their own likelihood appreciably by wearing masks themselves.  Those with a system optimal outlook ( “I do this not for myself, but for others”) wear masks to protect others, not because it lowers their own likelihood of contracting the coronavirus. Even if both user and system optimalists agree on the likelihood  of contracting the coronavirus if they social distance and visit only paces wear other wear masks,  they may not agree on the value of the reduction in  likelihood of their own wearing of a mask.

Similarly consequences are viewed differently by those with a user or system optimizing perspective.  Those with a user optimal perspective only value actions that reflect consequences to themselves.  Acquiring ICU Beds or Ventilators that they will not use will have no value to them.  Those with a system optimal perspective place value if anyone in the system uses them.

The inclusion of others in the system also takes on a perspective in likelihood and consequence.  There is no value in reducing the likelihood for members not included in one's definition of a system.  Similarly there is no value in lowering the consequences of those not included in one’s definition of a system.

Even when individuals properly value likelihood and consequences, which means they properly value the risk, they may arrive at completely different values for the risk depending on their own framework.  Just because likelihood and consequences  go together like a horse and carriage when valuing risk, individuals can arrive at different assessments of risk depending on their framework.

A Framework for Human Behavior

United We Stand

For united we stand. Divided we fall

And if our backs should ever be against the wall

We'll be together, Together, you and I

Man is a social animal. What does this mean for understanding our behavior?

Man is a social animal.  When Darwin wrote “On the Origin of Species” it gave rise to the “Survival of the Fittest” as a phase, but Darwin was applying it to species in the plural, even if it has been often applied to the behavior of individuals.  How humans approach winning is only one dimension of understanding behavior.  In many disciplines two dimensions are used to understand behavior: time and distance; exclusive and rival; likelihood and consequence, etc.  I would propose that two dimensions are useful in classifying human behavior.  The first dimension is how they define winning, optimization; and the second dimension is how they approach others, inclusion.

Games Theory proposes two basic approaches to winning: User Optimization and System Optimization.  I would propose that when applied to human behavior this is not a binary either/or choice but instead is a continuum, spectrum. 

Humans are wary of others.  That definition of others can also be inclusive or exclusive, but also as a continuum, not as an either/or choice.

The proposed framework of two dimension is:

Optimization can be a spectrum depending on the degree of shadow prices (e.g. customs, rules, regulations, laws) that are willing to be accepted.  Libertarians could be classified as favoring extreme user optimal solutions, while socialists would favor extreme system optimal solutions.  Shadow prices must be imposed and collected by society, i.e. government.  People who believe in small government, like Republicans tend to favor system optimal solutions, but limited government. Democrats also favor system optimal solutions favor, but they favor larger government.

While Socialists favor System Optimal solutions, there is a difference between Marxists and Nazis ( whose very name is a shortening of the German for National Socialism). That  dimension is the view of others included in those system solutions.  Marxists favor a very broad inclusive view, while Nazis and other nationalists favor a narrower definition of those included in the system being optimized. This inclusion can be on a continuum from individuals, families, ethnicity, language, religions, race, etc.

A distinction is made between “Do As I Say” versus “Do As I Do”.  Humans may adopt a public System Optimal solution in theory for others, but a private User Optimal solution for themselves.  E.g. Nazis in public as opposed to Nazi officials in practice.  However, nature has stood firmly on the side of System Optimal solutions, Species, rather than User Optimal solutions, individual organisms. 

While it is convenient to define human behavior in two dimensions, it is not extreme behavior in these dimensions  Humans are a balance of both social and xenophobic.  Moderation in these opposing tendencies may be the preferred behavior.

Risk and Business

Risky Business

I'm afraid we've gone and laid it on the line 
      It's a risky business

If the business of government is really business, then why can’t government be run more like a business?

The answer is in the perception of risk.  Risk has two components: likelihood and consequence.  If you get the risk wrong, and the likelihood was high, but it had minimal consequences, then that is no big deal.  If the consequence is dire, but the likelihood is low and it did not happen, then that also is no big deal.  If an event happens even though the likelihood was small, and the consequences are dire, and you did not properly consider the risk, then God help you.

That is why there are insurance actuaries. They set insurance rates by quantifying the likelihood of something bad happening and valuing the consequences of that event. And that is why insurance is purchased, not because you expect something bad to happen, but you want to mitigate the consequences if something bad happens.

Many businesses do not purchase insurance, instead they self insure.  They accept the consequence that they might go out of business if the if the worst happens.  The problem with going out of business, bankruptcy, is that it impacts the creditors and customers of that business as well. Society does not have the option of declaring bankruptcy, since the customers and the creditors are society.  Governments can declare bankruptcy only if the customers and creditors are another government, if those governments agree to take on the customers and costs of the old government.

If businesses or businessmen do value risk properly then, yes governments can be run as that business.  But a string of bankruptcies and business failures should be a warning sign that the business or businessman does not understand risk.  A child learns not to pick up a hot object by experience.  If it never learns because it assumes nothing it touches will burn, then they might be lucky, but have not learned this lesson.  You learn from mistakes. You do not  keep doing so many things in the hopes of finding something in which you will make no mistakes, incur no consequences.