What goes up, must come down

That, in a nutshell, is the definition of a bubble.

And the world has seen several bubbles. Even recent memory brings the telecom bubble and the dotcom bubble and of course the freshly collapsed property bubble to mind.

The Economist has an interesting article this week about the possible benefits of bubbles.

The basis thesis is that even as bubbles lead to wild speculation, fly-by-night operations and monumental crashes down the road, they often leave something useful behind. Something which could not have been achieved in such a quick time-frame without the mad flow and reallocation of wealth that a bubble brings with it.

It is a view that I find appealing. At least in the case of the dotcom boom I witnessed this first hand. While the bulk of the companies ran thru their venture capital in record time, the crop of this boom was also a massive acceleration in web technology and a huge crop of trained and experienced people who understood this new technology. Web 2.0 could not have happened without Bubble 1.0 - at least not so soon.

Much as we like to think that the world moves in a well orchestrated way under some grand master plan, the fact is that some of the most interesting turns of events in history are accidental and fueled by bubbles.

Business is business

There was an old TV serial on PTV in which a character would repeat the refrain: "Business is business and a cup of tea is a cup of tea".

I have to admit that I've largely forgotten the context of the refrain or indeed the plot of the serial, but I do think I remember the implied meaning; which was that business is a purely business matter, and has nothing to do with the pleasantries of a cup of tea or more generally with any other larger issues. Both can go on simultaneously and separately.

And so it is. If any proof is needed of this, the change in business fortunes of the Turkish shoe company that claims to have manufactured the shoe in the Bush shoe-flinging incident certainly appears to be reaping the windfall from the publicity.

As the New Yourk Times reports

QUOTE

A new run of 15,000 pairs, destined for Iraq, went into production on Thursday, he said. A British distributor has asked to become the Baydan Shoe Company’s European sales representative, with a first order of 95,000 pairs, and an American company has placed an order for 18,000 pairs. Four distributors are competing to represent the company in Iraq, where Baydan sold 19,000 pairs of this model for about $40 each last year.

UNQUOTE

So whatever the political or legal implications of the incident might be, businesspeople from around the world are certainly treating is as a business-event.

After all, business is business and a shoe is a shoe.

Complexity and Randomness

If you're into coding, you'll know that generating random numbers is not a trivial thing to do with a computer.

If you are into statistics, you might know that statisticians used to use random number tables to get random numbers for their work.

In both cases however, the numbers are not really random at all. They are generated by mathematical formulae and algorithms which are designed to produce a sequence of numbers that appear to be random. In other words, any one looking at these number will think them random. More importantly, the numbers will pass the tests of statistical randomness by following the kind of frequency distributions expected of randomness.

If you knew the algorithm, you could pretty much predict what the random numbers coming out of such systems will be. But the algorithms tend to be sufficiently computationally complex that the numbers appear totally random to the observer.

This is a crucial point - this link between complexity and randomness.

Whenever a thing is sufficiently complex, an observer will declare its behavior as unpredictable or random. But the behavior is only unpredictable because we do not understand the factors that are causing it. If we could know them, we could predict the behavior.

Consider a (somewhat simplified) example. If you are standing on a roadside watching cars drive past on a busy intersection in a location you have never been before, the flow will appear totally random to you. Sometimes you get a whole lot of traffic, and sometimes the road becomes nearly empty. At some hours the road appears to have more of smaller cars, and at others it seems to have more large sedans.

You stand there for a while, and conclude that there is no pattern here, no predictability. Cars just appear at random.

But then you start to find out a little about the area. Oh, so there is school around the corner and it breaks at noon - that's why there were so many smaller cars going past at that time. And is that a large office complex 10 blocks away ? That would explain the many large cars in the morning. And is it nearing the time for the local festival ? Oh, so that's why there are so many foreign looking cars, these must be tourists.

Armed with this knowledge, you can now proceed to forecast much more accurately what kinds of and how many cars to expect at what times. But if you are joined at the roadside by another new arrival to town, he might remark:"the traffic in this town is totally random". To him the situation is still complex, and hence random.

Complexity, and randomness, like beauty, also only appear to be in the eye (and mind) of the beholder.

Let's go a step further. Armed with your new found local knowledge, you are now predicting traffic patterns with good accuracy, but you can still not be 100% sure. The movement of individual cars is still unpredictable. "Oh sure", you say, "I know the main traffic trends, but the actual individual cars that show up at any point in time are still random, some cars come early, some late - that's just the way it is".

Well, actually, even this is not really random. If you knew the driver of each car, and the state of mind he was in that morning (in a hurry, relaxed, etc) and the condition of his car, and the amount of fuel he was carrying, and so on, you would be able to tell precisely when each car will show up. But the data needed to make this kind of prediction is getting astronomical, and even if you had it, the computations needed to process that data would be huge, and difficult - and complex.

And so, we face complexity again at a new level of detail - and with it comes randomness. Since we cannot discover all this data and cannot even dream of processing it even approximately, the situation starts to appear random again at this level of detail.

Is it safe to say then, that there is no such thing as randomness ? only unresolved complexity ?

I really couldn't say, but I've found that it is useful to think of these two together in many situations. Because complexity still leaves you hope: you can gather more data, run more tests and get closer to the truth. Randomness is the equivalent of throwing up your hands walking away.

Newton's Law of........fatness ?!

I remember the Newton's Law of Gravitation from highschool days. It went something like this:

Every body in the universe attracts every other body towards itself with a force that is directly proportional to the product of their masses and inversely proportional to the square of the distance between their centers.

Translated roughly, it means that the force with which any object pulls other objects towards itself depend on its weight - and on the weight of the object it is trying to pull. The heavier the two are, the more will be pull between them.

(It also depends on how far the two are, but lets hold that constant for now. For a given distance the only other factor is the weight)

So, for instance, the earth is huge - and is therefore able to pull us all towards itself - that's what we call gravity.

Taking a little poetic license, this should mean that heavier people should be more attractive - since their greater weight lets them attract others towards them with greater force.

Q.E.D. !


PS: This is supposed to be funny, no offense intended to people of any weight.