According to Dr Sharon Moalem, in her book "Survival of the Sickest", every person is really a small ecosystem of thousands of species. Bacteria of all conceivable kind and other microorganisms evolve together with the host, competing and cooperating in a wild evolutionary dance.
The evolution in micro-organisms (and viruses for that matter) happen at a speed several orders of magnitude faster than in any mammal. How on earth is anybody still alive when these buggers can outrun (actually outbreed) any defences?
The answer must be that it is beneficial for most of these species that the host is alive providing the habitat. Those microorganisms that don't benefit from the host being alive and kicking and that actually would take the host down will not only have to immediately fight the immune system of the host but also have to face the other species of the habitat in a longer term evolutionary battle. So without E-coli and his friendly neighbors we would most likely already be extinct.
Saturday, April 18, 2009
Tuesday, April 7, 2009
Precisely wrong
The Black Swan by Nicholas Taleb is an impressive book, indeed. It has totally convinced me of being wrong. The main premise of the book is that very few processes are normally distributed and most of the randomness in real life comes from totally other distributions we can only guess (and why we shouldn't believe any forecast or risk measures built on the normal distribution).
We use the normal distribution because we know how to calculate with it. Mea culpa, I'm one of them. I never realized what I did when I wrote the ill boding words "assuming that the variable is normally distributed" in my Master's thesis of economics. In fact it simply means that the whole thesis is plainly wrong about currency hedging.
This is how he convinced me of the rareness of the normal distribution. The normal distribution is built up from discrete events, like coin flips. This binominal distribution, when the number of flips approach infinity, will form the bell curve.
Well, there are two assumptions behind this, none of which hold true for currency rates, or really any other real life event for that matter. Firstly the coin flips should have no memory, that is, a previous flip does not influence the next. We know that currency rates tend to overshoot. Bang - the first hole in the edifice. Secondly all outcomes should be of the same size, meaning that when you flip tails, it counts as only one tails, not 20 or 100. Clearly the up or down movements in currency rates are not of the same size every time. Bang, bang - the whole thing comes crashing down.
It was either to assume normal distribution or not to write anything about optimal hedging, I just did not know that then.
We use the normal distribution because we know how to calculate with it. Mea culpa, I'm one of them. I never realized what I did when I wrote the ill boding words "assuming that the variable is normally distributed" in my Master's thesis of economics. In fact it simply means that the whole thesis is plainly wrong about currency hedging.
This is how he convinced me of the rareness of the normal distribution. The normal distribution is built up from discrete events, like coin flips. This binominal distribution, when the number of flips approach infinity, will form the bell curve.
Well, there are two assumptions behind this, none of which hold true for currency rates, or really any other real life event for that matter. Firstly the coin flips should have no memory, that is, a previous flip does not influence the next. We know that currency rates tend to overshoot. Bang - the first hole in the edifice. Secondly all outcomes should be of the same size, meaning that when you flip tails, it counts as only one tails, not 20 or 100. Clearly the up or down movements in currency rates are not of the same size every time. Bang, bang - the whole thing comes crashing down.
It was either to assume normal distribution or not to write anything about optimal hedging, I just did not know that then.
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