Y Safle

I bought Thomas Kida’s book, “Don’t believe everything you think (The 6 basic mistakes we make in thinking)”, in part because the title was similar to my occasional “Mistakes we Make in Thinking” series.

There is some good stuff in the book. But there is also a rather worrying example of exactly the kind of sloppy thinking Kida is supposed to be warning us against. He spends considerable space on the gambler’s fallacy, and then launches into a discussion of the unpredictability of the Stock Market, and how research has shown that there is no evidence that highly paid fund managers add any value to an investment fund, and that over the long haul, no funds significantly beat the index.

All this may well be right, but Kida’s error lies in what he does with these data:

Oftentimes investors move their money into a fund that has experienced good recent performance. However, statistcs tell us that we have regression to the mean. That is, if a fund is currently outperforming the market, its performance is likely to drop in the future to bring it back to average. And so, if we buy into a fund right after it has posted recent gains, we’re likely to be in for a fall. In effect, going after strong past performance often means we take money out of funds that are likely to rebound, and put it into funds that are ready to drop.

Kida has misunderstood regression towards the mean, and has committed an error known as the gambler’s fallacy (which he had already discussed in an earlier chapter).

Let us suppose that fund manager’s are indeed irrelevent, and that a fund has a 50/50 chance of underperforming or overperforming the market each year. If this assumption is indeed correct – and this is indeed Kida’s argument, then whether the fund will outperform or underperform the market this year is entirely unconnected with whether the fund outperformed or underperfomed the market last year.

If Kida is correct, then it makes no difference in the long run whether we leave the money where it is or move it (except for dealing charges incurred of course), because all funds will eventually do equally well.

If we buy into a fund right after it has posted gains then it is wrong to expect that we are in for a big fall. We are just as likely to do well (or badly) as if we buy into a fund that recently posted very poor gains.

But what is regression towards the mean then?

If we take the whole “population” of funds, and we measure all their respective gains each year, we come up with a mean (average) gain for all funds. Now, suppose we choose the 100 best performing funds and measure their gains – because these are the best perfroming funds, their mean gain will, of course, be higher than the mean for all funds.

Let us suppose that their mean gain was twice that of all funds.

Now next year we measure these means again. The mean gain for all funds and the mean for what were last year’s 100 best funds. What we find is that the mean for the 100 best funds of last year is now much closer to the mean of all funds. If fund performance is entirely random then that mean may be less than the mean for all funds, or more – but it will almost certainly be less than twice that of all funds.

Why does this happen? Because there was nothing special about the 100 best funds, and there is no guarantee that the funds that did well last year will do well this year. Thus their average should approach the population average.

But any individual fund could still be in the top 100 – and we would expect that to be the case. Regression towards the mean is only concerned with averages.

Still not convinced?

By Kida’s principle – moving money into an outperforming fund sets you up for a fall. Thus it would follow that moving money into an underperforming fund will set you up for a gain. Therefore, one should put money into the underperforming funds as the best strategy for success.

But it doesn’t work. Because Kida is wrong.

If the performance of a fund is random, the best strategy for success is to buy the fund with the lowest charges and leave your money where it is (or better still – just buy the shares that all the funds hold, and hold the shares).

In a recent sermon at our Church, Professor Sir John Houghton – former co chair of the Intergovernmental Panel on Climate Change (IPCC) spoke on how he believed it was a Christian duty to be involved in protection of our environment.

Now this is something I have held to be true for a long time, but it makes for a better article if I can point out that a scientist and Christian of the distinction of Houghton is making this point, and not some faceless blogger. Or maybe it is just fun to name-drop.

But to judge by some conversations I have had in the past, you would think that some Christians believed virtually the opposite to be true, so here is why I think Christians should be concerned about the global warming issue:

Reason 1.

Way back in the 1970s a man called E.F. Schumacher wrote a book called “Small is Beautiful”. This book is wonderful in its breadth of insight. Schumacher points to the problems with foreign aid that does not address the roots of the problems that cause the aid to be necessary, although he argues very much for an increase in foreign aid that builds communities of appropriate sizes (thus the book’s title). His commitment to the poor is profound and exemplary.

But it is Schumacher’s clear sighted recognition of a major problem of our energy policy that is important here. Schumacher realises that oil is limited (not as limited as he thought perhaps, but still clearly limited). He argues that the world is merrily squandering this energy as though it would be available forever, whereas he points out that the oil economies will be short lived.

In economic terms we are spending capital as though it were revenue.

The purpose of capital expenditure should be the building of a sustainable infrastructure. Schumacher does not say we should not use oil, but that when we use it, we should do so to build a sustainable future.

This kind of prudent attitude fully accords with a Christian viewpoint, that would see the availability of oil as a gift of God given to us. In the parable of the talents, it is those who take the talents (whatever they are afforded) and use these wisely who are rewarded. To squander our oil reserves for no gain is poor stewardship fed by crass greed.

Reason 2.

In Romans 12:1-2, We are told that we should present our bodies (all of our lives) as a living sacrifice to God as an act of worship. We should not follow the ways ofthis world, but should live our lives as an act of homage to God.

Paul tells us to be a follower of himself as he is a follower of Christ. Christ (and the apostles) lived lives of beautiful simplicity. They did not accrue things to themselves. They did not value one another by what they had. Our spiritual act of worship should follow that of Christ.

The Christian life should be one of ascetisism. We need not all go live in monastries with vows of poverty – that is not what I mean. But a Christian life that sees consumption as a good thing, simply because it is possible, seems to me to be quite errant.

Reason 3.

People are going to die from climate change. Not so much those who cause global warming, but those who are powerless – the poor of this world. We don’t know exactly what will happen yet, but we know there will be desertification, flooding, worse storms and scuh like. Pacific islanders are already beginning to lose their homelands, and we could see many of these people becoming refugees. Extinctions will cause some economies to collapse (for instance in Northern Canada when the polar bears die out).

Global warming will kill people. Christians are quick enough to worry about issues such as abortion, where unseen people are killed by thoughtless actions. How is this different? If Christians are complicit in an agenda that sees more people being killed by the effects of global warming, then we are responsible for it too.

Sir John Houghton is right. The Christian duty is to protect and steward our environment – just as we were commanded by God to do.

In his cloudsoup blog, someone called David writes about yet another storm over the Da Vinci code (this time it is about the film release). Now if you have not had the misfortune of reading this book, then please – don’t bother. I had failed to bother until quite recently when someone persuaded me that it was intelligent and thought provoking, and right up my street. Thanks so much S____, but I would rather have the time back!

But we don’t need to rehash the endless arguments about how wrong a book can be. David’s beef is with Opus Dei (a group much maligned by the book) wanting a disclaimer put on the film saying that it is a work of fiction. (Well yes, we know this, but apparently not everyone does… remember the person who recommended the book to me?)

I know next to nothing about Opus Dei, (although I can translate the name ). Still, with my lack of knowledge of their organisation, I can understand their anxiety that people who can believe the rest of Brown’s rubbish, might be taken in and think ill of their organisation. At least if they removed the frontispiece from the book that is meant to imply that there is truth in parts of the plot, that would be a start.

But David has no such sympathies. He simply writes:

Hardly believable from an organisation that deliberately promulgates what most of its priests and theologians know full well is a largely fictional account of the pre-literate religion of desert folk.

David is a frequent critic of Christianity, judging by his other blog posts, but this post is just plain loopy. He seems to be buying into the same mythical world that Dan Brown has inhabited, and has set out his stall next to Brown. David wants us to think that there is some kind of conspiracy amongst the Christian theologians and priests whereby they are concealing a truth from their congregations, and that none of them believe what they profess to believe!

No doubt we can name some notable ordained atheists, who believe the Bible is nearly entirely fictional. Donald Cupit and David Spong spring to mind. But there is no conspiracy here. Christians believe the Bible to contain just what it claims to contain. Loads of teaching, much history, some parables and allegory.

Some will disagree about certain parts of the Bible. David is fixated on the first chapter of Genesis, about which the debate over its historical literacy has been raging for about two thousand years or more. But no one seriously doubts the historicity of Jesus or the young church for instance.

Would you get on an aeroplane if the pilot told you there was a 5% or a 1% probability that you wouldn’t reach your destination?
Chris Rapley

James Lovelock argues in his new book: “The Revenge of Gaia”, that the effects of global climate change will be severe and are all but inevitable. He paints a grim picture of water shortages, disruptions to the oceans and life therein, mass migrations and such like. This near apocalyptic vision has been criticised for being too severe, but in an interview for Radio 4, we hear Chris Rapley, director of the British Antarctic Survey, argue that Professor Lovelock’s choice was fully justified.

“The fact that you’ve been taking higher-end, pessimistic predictions of the IPCC is something that shouldn’t be dismissed,” he said, “even if there’s only a 5% or even a 1% probability that they might be real.

“Would you get on an aeroplane if the pilot told you there was a 5% or a 1% probability that you wouldn’t reach your destination? No of course you wouldn’t; you have to take even very low-probability scenarios very seriously.”

In America the one percent doctrine is being applied to terrorism, but ignored for climate change. Climate change is happening now, and we, the people, need to wake up to the threat and ignore the politicised flim flam before it is too late.

Scientists have noted that there has been a 20% drop in see temperatures brought by the North Atlantic Drift (the Gulf Stream) to European shores. The ocean current that keeps Europe’s climate so mild is being disrupted, almost certainly by meltwater from the Greenland ice sheet. Europe is heading for another mini ice age (not for the first time). Climate change is the problem, and it is real.

Don’t live in Europe? Well Eastern North America is also headed for violent climate change too. This is a problem that must be addressed. Climate change will happen. Wed can hope that Lovelock is wrong about the extent (although he is well within accepted ranges for the data). Even if he is wrong, we need to do something now.

Precautionary principle? Certainly in part. But blast the right wing American oil industry funded politicians who tell us that all will be well. Let them play Russian Roulette when they next board a plane. For the rest of us, precautions are exactly what we need to take.

More on the BBC interview regarding Lovelock’s book is here:

http://news.bbc.co.uk/1/hi/sci/tech/5150816.stm