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Regret? Why Take A Chance
Submitted by Ben Hunt via Salient Partners' Episoln Theory blog,
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Vinny Forlano: |
He won't talk. Stone is a good kid. Stand-up guy, just like his old man. That's the way I see it. |
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Vincent Borelli: |
I agree. He's solid. An effin' Marine. |
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Americo Capelli: |
He's okay. He always was. Remo, what do you think? |
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Remo Gaggi: |
Look... why take a chance? At least, that's the way I feel about it. |

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Ace Rothstein: |
Four reels, sevens across on three $15,000 jackpots. Do you have any idea what the odds are? |
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Don Ward: |
Shoot, it's gotta be in the millions, maybe more. |
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Ace Rothstein: |
Three effin' jackpots in 20 minutes? Why didn't you pull the machines? Why didn't you call me? |
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Don Ward: |
Well, it happened so quick, 3 guys won; I didn't have a chance ... |
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Ace Rothstein: |
[interrupts] You didn't see the scam? You didn't see what was going on? |
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Don Ward: |
Well, there's no way to determine that ... |
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Ace Rothstein: |
Yes there is! An infallible way, they won! |

There’s only one question that matters in the Golden Age of the Central Banker: why isn’t QE working? Why hasn’t the largest monetary stimulus in the history of man – trillions of dollars of liquidity with trillions more euros and yen to come – sparked a self-sustaining recovery in the global economy?
If you’re a true-believer in modern economic orthodoxy or a central bank apparatchik the answer is simple: something must be getting in the way of our elegant theories of Zero Interest Rate Policy (ZIRP) and Large Scale Asset Purchases (LSAP), so if $4 trillion isn’t enough to break through to the Promised Land we better do $4 trillion more.
If you see the world through the lens of behavioral economics, however, you come to a very different conclusion. Something IS blocking the effectiveness of QE, but that something is human nature. Behavioral economics suggests that a little QE can change human behavior at the margins, but no amount of QE is enough to change human nature at its core.
The High Priests of the IMF, the Fed, and the ECB are blind to this because all of modern economic theory – ALL of it – is based on a single bedrock assumption: humans are economic maximizers. If something is good, then more is better and “MOAR!” is best. And if that assumption holds true, then QE works. You will indeed force productive risk-taking in the real world economy (more loans to small businesses, more growth-oriented investments in people and equipment, etc.) by making it increasingly difficult for investors to play it safe in capital markets (negative 10-year Swiss bonds, anyone?). But if that assumption is flawed, then you get exactly what we’re seeing: pervasive non-productive risk-taking in the real world economy (stock buy-backs, for example) and massive wealth transfers from savers to speculators in the capital markets.
Yes, we are maximizers of reward. But we are also minimizers of regret. That’s not because we are irrational or stupid, but because most of us draw on our portfolios for real world needs. Our investment portfolios are a means to an end, not an end in themselves. We understand that a) periodic losses are inevitable in a risky investment portfolio, no matter how well it maximizes long-term gains, and b) if we’re unlucky and suffer losses such that our portfolios decline below a certain level, then we are faced with real world risks and tough real world decisions that overshadow whatever investment logic the Fed would prefer us to have.
Regret minimization is not just for financial investors. It holds true for investors of all sorts, from a CEO deciding how to allocate cash flows to a general deciding how to allocate troops to a farmer deciding how to allocate land. For all of these decision makers, it doesn’t matter how meager the reward of playing it safe might be if an unlucky roll of the investing dice would create existential risk. In the immortal words of “Casino” mob boss Remo Gaggi as he tacitly ordered a hit on a trusted lieutenant, “Look … why take a chance?”
To be sure, some investors are paralyzed by the unreasonable fear of rolling snake-eyes 500 times in a row. Still others, as we saw with the Swiss National Bank debacle, have no idea of the risks they’re taking when they intend to play it safe. Human behavior may be governed by concerns of risk and regret, but neither concept comes easily to us. All of us, no matter how comfortable we might be swimming in the ocean of randomness that surrounds us, occasionally channel our inner Don Ward, the hapless casino employee who thinks that it’s possible that three separate slot machine jackpots could trigger within minutes of each other simply by chance.
Fortunately, a branch of game theory called “Minimax Regret” can help apply analytical rigor to both our human nature and our human failings. As the name implies, the goal of Minimax Regret is to minimize the maximum regret you might experience from a decision choice. Developed in 1951 by Leonard “Jimmie” Savage – a colleague of John von Neumann and Milton Friedman, and in general one of the most brilliant American mathematicians of the 20th century – the Minimax Regret criterion is widely used in fields as diverse as military strategy and climate science … any situation requiring a choice between extremely costly options and where the results of your decision will not become apparent for years. Are you listening, Mr. Draghi?
Unfortunately, I’m certain that neither Mr. Draghi nor the other High Priests of monetary policy are listening at all. We seem destined to learn the hard way … once again … that you can’t change human nature by government fiat. But individual investors and allocators can listen and learn from these old good ideas, and that’s how you survive the Golden Age of the Central Banker.
I wrote an introductory note about Minimax Regret strategies in October 2013 (“The Koan of Donald Rumsfeld”), and – seeing as how Central Bankers outside the US are doubling down on the QE bet – it’s time for me to dust off this line of analysis. I think that Minimax Regret is the right micro toolbox to go along with the macro toolbox of political analysis (see “Finest Worksong” and “Now There’s Something You Don’t See Every Day, Chauncey” for recent notes on this thread), and together they create the Adaptive Investing framework that’s at the heart of a practical Epsilon Theory perspective. I’ll be putting some Minimax Regret resources on the website over the next few weeks, along with some brief email and Twitter distributions to guide the effort. If you’re not already an email subscriber or Twitter follower, now would be a good time to sign up.
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"No, I regret nothing" - Edith Piaf
Edith Piaf:
https://www.youtube.com/watch?v=FKSPOUEuqAE
"It's just bidness." - Tony 'God's Work' Soprano
this article is flawed on the basis of the authors understanding of QE itself. you see, the purpose of QE wasnt to stimulate the economy. no, rather, it was to save banks balance sheets and keep the power consolidated to a fortunate few.
to imply that QE isnt working because of inate human emotions, would imply that the average person has a grasp of what QE is in the first place. it would also suggest that consumers have the ability to borrow money- which they dont. and lastly, algorythims and bank-to-bank debt swaps dont really play on the human psyche.
QE doesn't work because the public reaction to the governments money printing measure is: "Oh my gawd, the economy is faltering therefore I'm witholding spending."
It works very well for the bankers. NIRP and QE allowed banks of all stripes to hold assets worth 5% of their 2007 price until they were reflated. This deprived savers the chance to grab bargain-basement-priced assets at what would have been forced sales. They got to hold on for 6 long years at savers' cost.
Nicky Santoro: Get this through your head you Jew motherfucker, you. You only exist out here because of me. That's the only reason. Without me, you, personally, every fuckin' wise guy skell around'll take a piece of your fuckin' Jew ass. Then where you gonna go? You're fuckin' warned. Don't ever go over my fuckin' head again. You motherfucker, you.
said the USA citizen to the federal reserve
Indeed. What a deceptive article, the author is a fool or a knave. QE IS WORKING! Just not for peasants. It never was intended to work for the peasants. QE is intended to pave the way for a neo-feudal world by ruining everyone but the bankster oligarchs. But the peasants might revolt if this was openly admitted. So therefore all the LIES about how QE is not working.
It is a magnificent experiment to test the 'trickle down' theory. It never worked and never will when those at the top are avaricious psychopath Zionist banksters.
Agreed. QE is to buy time for implementation of control of the healthcare system, regulate availability of information via the Internet (happening today in fact) disenfranchise the "people" house by making congress irrelevant, diluting the population with people already acclimated to being ruled by a central authority, a QE program in regulation to make everyone a criminal if a nudge needs to be a shove. If only we could disarm those bitter clingers we might be able to pull this off without firing a shot. If you object well you're just a racist homophobic environment destroying hater.
Here's the solution to 'Minimax Regret' & other such clever obfuscations.
SNAP OUT OF IT
It doesn't work because pushing the price of financial assets to the moon accomplishes nothing useful.
In any case, pumping financial assets is never more successful than pumping tulip bulbs, south seas stock or chicken manure. Very soon, it all smells the same.
The “Golden Age of the Central Banker” is over.
too kind, too naive
Do you think God (the fed) knew what He was doing when He created woman (QE)? Huh? No shit. I really wanna know. Or do you think it was another one of His minor mistakes like tidal waves, earthquakes, FLOODS? You think women (QE) are like that? S'matter? You don't think God (the fed) makes mistakes? Of course He does. We ALL make mistakes. Of course, when WE make mistakes they call it evil. When GOD (the fed) makes mistakes, they call it... nature (economics). So whaddya think? Women (QE)... a mistake... or DID HE DO IT TO US ON PURPOSE? [/Daryl Van Horne, The Witches of Eastwick]
Thanks Buzz.
One of Updike's lesser masterpieces, and yet full of wisdom and art.
"No bullets" - John McClane, Die Hard.
There's always Roy Rogers
Call someone who gives a fuck - Your Mom.
Do NOT show these histories to the people ... they MIGHT get their heads out into the light!
http://www.showrealhist.com/yTRIAL.html
http://www.showrealhist.com/
If everything was on the up and up the Feds would close and lock up any company that runs all wins for 1500 days.
Much less 20 days.
If everything was on the up and up the Feds would close and lock up any company that runs all wins for 1500 days.
Much less 20 days.
This whole QE is a scam!
Trying to rationalize it is just making a service to the scammers.
Ben Hunt is a quintessential fascist. He tries to portray himself as an unimpeachable intellectual but the mention of Milton Friedman exposes himself as a fraud.
The government's $700 B swindle created INTENTIONALLY, in Oct, 2007, as a parting gift from none other than GW Bush & Co. destroyed any faith by 'the US public' in what these M. Friedman neocon-ic Disaster Capitalist have chosen to participate in. Paulson, Geithner, Bernanke, Cox, Baird, Cash Kerri, Barfly...the huge list of willing government participants to continue over the last 7 years is nothing short of nauseating, when we consider the depths these neocons insist upon.
I won't leave Barack Hussein Obama & E. Holder Esq. out of that mix, as they have plowed the bottom of the ditch day after day, intentionally fulfilling their neocon-ic station, cloaked (as all neocons are cloaked), with out right broken promises, lies, obfuscation, warmongering, etc. INTENTIONALLY removing important domestic actions completely off the table, while breaking all sorts of law to exacerbate the rein of death.
The crony US Congress & US Supreme Court have done everything to support further economic destruction, loss of life, liberty, and guided lower courts & general industry to follow their M. Friedman style examples.
The two major political parties INTENTIONALLY spread this neocon-ic tripe thru-out the union with whacked out state & local leadership involved up to their eyeballs, often there is at least spectacular municipal bond quagmire in every locale, from the school board on up. And then there is taxes, and the codes thereof...The 'new normal' is staunchly entrenched.
And all I can say is, I don't regret creating any additional businesses during this last 11 years. As a matter of fact, I INTENTIONALLY refuse to risk my reputation to enter their rigged casino, and what they stand for. Those in power this day, have no honour, and what business that does exist this day, must play their deadly game, usually with a minimum cover charge of 33% of everything you produce.
Bill Clinton & Co. brought in the NAFTA, & subsequent volumes of cutthroat tripe which support their World Trade Organization, old days of 33% cover charge (tax) shall become 50-60% (tax) and these neocons expect you to do all the work & compete with 3rd world slave labor rates while your at it.
It is self-evident the risk involved in creating a new business, in this corrupt environment is simply not worth it. No matter what their US Government scam-of-the-day may promise, all too often right here at ZH and elsewhere, it is proven how deadly this neocon-ic, NWO, den of thieves routinely corrupt any chance of doing an honest days work.
Sadly it wasn't enough to conduct major South America, yah international economic experiments during the 70's-80's-90's thru the millinium to this very day, these M. Friedman disciples INTENTIONALLY have set about wrecking the whole of the world.
I know the cloaked neocons have used the 'minimax regret', which is just a neocon-ic way of saying: no integrity.
wwxx
I think there is more to miss out on (regret) from not staking on the potential future monetary system (bitcoin, or something related) than from not betting on some tax-paying, banker and government dependent, centralized, central bank inflated, confiscatable and corzineable company stock.