Mathematical Sweet Spot of the Wave? Right Inside…

Well, I guess we just figured out who won the lottery for the coolest postdoctoral work in existence…from Scripps Institution of Oceanography:

For surfers, finding the “sweet spot,” the most powerful part of the wave, is part of the thrill and the challenge.

Nick Pizzo, a Scripps Institution of Oceanography at the University of California postdoctoral researcher, has found the exact location on the wave where a surfer gains the greatest speed to get the best ride.

In a study published this month online in the Journal of Fluid Mechanics, Pizzo applied principles of physics at the ocean’s surface—where air and water meet—to study how energy is transferred from the underlying wave to a particle on the surface, in this case, a surfer.

“Based upon the speed and geometry of the wave, you can determine the conditions to surf a wave and also where on the wave the maximum acceleration, or ‘sweet spot,’ will be located,” said Pizzo, the author of the National Science Foundation and Office of Naval Research-funded paper and an avid surfer.

Pizzo and fellow researchers in the Air-Sea Interaction Laboratory at the Scripps Marine Physical Laboratory and Climate, Atmospheric Sciences, and Physical Oceanography division are studying the mass, momentum, and energy exchanged between the atmosphere and ocean due to breaking waves, to help improve our understanding of weather and climate.

As a wave breaks at the ocean surface, currents are generated and water droplets in the form of sea spray are ejected from the ocean into the atmosphere. These small-scale processes are critical pieces of information to improve weather and climate models to better forecast major storm events and the future climate.


If you really want to be inspired, this work was made possible by grants. Specifically, the Collaborative Research: A Lagrangian Description of Breaking Ocean Surface Waves from Laboratory Measurements and Stochastic Parameterizations. From the abstract:

The goal of this collaborative research is to build a stochastic Lagrangian parameterization of surface wave breaking that can subsequently be applied to wave and ocean modeling. The students and postdoctoral researchers employed in this project will gain experience in the disciplines of science, technology, engineering and mathematics (STEM). The data and breaking parameterization developed here will subsequently find direct application in atmosphere and ocean modeling.

 The following articles were the output of this research:

Deike, L., Popinet, S. & Melville,W.K.. “Capillary effects on wave breaking,” Journal of Fluid Mechanics, v.769, 2015, p. 541.

Deike, L., Melville, W.K. & Popinet, S.. “Air entrainment and bubble statistics in three dimensional breaking waves,” Journal of fluid mechanics, v.801, 2015, p. 91.

N. Pizzo, L. Deike and W.K. Melville. “Current generation by deep-water breaking waves.,” Journal of Fluid Mechanics, v.803, 2016, p. 275.

See also a post on this subject from the U-Cal site.

The Distinctive Skill Set of a Leader

What could you learn (or benefit) from a Harvard Business Review article from nearly twenty years ago? Quite a bit. Emotion Intelligence, according to its great champion Daniel Goleman is remarkable in terms of impact among effective leaders:

To create some of the competency models, psychologists asked senior managers at the companies to identify the capabilities that typified the organization’s most outstanding leaders…When I analyzed all this data, I found dramatic results. To be sure, intellect was a driver of outstanding performance. Cognitive skills such as big-picture thinking and long-term vision were particularly important. But when I calculated the ratio of technical skills, IQ, and emotional intelligence as ingredients of excellent performance, emotional intelligence proved to be twice as important as the others for jobs at all levels. (From Goleman, What Makes a Leader? in The Harvard Business Review, 1998).

EI is arguably the skill set above many, if not all others that distinguish a leader who is able to move things forward because she or he is good with others, being first and foremost, at ease with themselves, mature, experienced and in command of themselves. Goleman identified five distinctive elements that identify leaders who possess emotional intelligence in action, shown in the table below:

Goleman Emotional Intelligence Five Characteristics

See an overview below from the HBR blog and re-issue of the 1998 article, What Makes a Leader.

 

 

 

20th Anniversary of One of the Most Iconic Expressions in Finance: Irrational Exuberance

Irrational exuberance has been one of the most iconic and recognizable phrases in the financial markets for the last twenty years – to the day. I remember this like it was yesterday, being a recent graduate and shortly after, working in the capital market. This really was the advent of an era where there has been no looking back: a tenuous and ambivalent relationship with the Fed and every nuance uttered by the Chair. Here is the full quote in its context:

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.

Read the full speech from the minutes here.

Interestingly enough, here is some commentary in our present time declaring, “rationally exuberant,” (caveat emptor on long positions if you ask me):

Not everyone is convinced of this view to be sure:

In recent years the Fed has only doubled down on these policies by directly pursuing a “wealth effect.” Rather than give a boost to the broad economy, however, these central bankers have only accomplished an even greater and more pervasive financial asset perversion. Stocks, bonds and real estate have all become as overvalued as we have ever seen any one of them individually in this country. The end result of all of this money printing and interest rate manipulation is the worst economic expansion since the Great Depression and the greatest wealth inequality since that period, as well.

See the full post here.

Apps for Economics

I found this excellent site in the Journal of Economic Education as I was researching another topic. In that article, the following overview describes the useful content cataloged on the site:

As the digitization of teaching resources becomes increasingly available, instructors can adapt by making course pedagogy more mobile through incorporating “bring your own device” into the course design. The number of available apps can be overwhelming. We identify many of the best apps with user rankings on a 5-point qualitative scale from Awful (1) to Excellent (5).

Why should we use apps in economics? Strategic selection of an app engages students. This selection offers understanding throughout a range of cognitive domains while providing connections to learning styles that link to individual strengths. Apps provide a hands-on study of economics that can intrigue and satisfy. When students have fun engaging economic apps, their learning and retention increases. Our Web site arranges the apps into seven categories: Study Aids, Calculators, Data, Events, Feedback, Quizzes, and Simulations. Study Aids provide resources for better understanding principles of economics. Calculators identify spreadsheets as well as financial, mortgage, and currency calculators. Data apps profile domestic and international macroeconomic data sources. Events allow class members to keep abreast of current events. Feedback offers instructors a variety of mechanisms to gather classroom responses. Quizzes afford students tools for selftesting of economic concepts. Simulations generate a virtual world to put economics into practice. (Cochran, Velikova, Childs & Simmons, 2015).

 The site is authored by an excellent team of innovators, researchers and educators who have a “passion for technology.” This site is an excellent resource and I hope it continues to be updated.

 

Reference:

Cochran, H. H., Velikova, M. V., Childs, B. D., & Simmons, L. L. (2015). Apps for Economics. Journal Of Economic Education, 46(2), 231. doi:10.1080/00220485.2015.1006745

In a Knowledge Worker Economy – Risk OVER the Status Quo?

Nearly thirty years ago, Peter Drucker saw the need for and wrote of the imperative of change management within an information based, highly educated, “knowledge worker” economy and workforce:

To be sure, the fundamental task of management remains the same: to make people capable of joint performance through common goals, common values, the right structure, and the training and development they need to perform and to respond to change. But the very meaning of this task has changed, if only because the performance of management has converted the workforce from one composed largely of unskilled laborers to one of highly educated knowledge workers.

We live in a world obsessed with safety, and mitigation of risk. Inherently, there is nothing wrong with either of these elements, except for the fact that no matter how hard we try, we cannot guarantee either absolute safety or the absence of risk.

In an excellent post in the Harvard Business Review, as summarized in this morning’s Management Tip of the Day, the whole concept of risk versus safety is put to a challenge:

Most of us consider ourselves to be risk averse, but what we consider “safe” behavior often contains much more uncertainty than we suspect…The challenge is that there are very few environments that remain static. “Safe” investments like gold can lose value. You could be fired from your “safe” job. And yet we behave as if the current state will persist in perpetuity. While no one can predict the future, there are a few tactics you can use to get better at evaluating risk. Before you make a decision, do your research on all of the potential avenues of action. Ask credible experts to weigh in. And don’t forget to evaluate the inherent risk of doing nothing. Sometimes the status quo is actually riskier than taking a leap into the unknown.

Excellent advice, see the full post here. Of course, as noted above, risk must be carefully researched and thought out. To use an old word, to exercise prudence, which the Oxford English Dictionary defines as the, “ability to recognize and follow the most suitable or sensible course of action; good sense in practical or financial affairs; discretion, circumspection, caution.” In short, to exercise judgement when making a decision about the future. But too much caution, or worse, being restrained by fear amounts to the idea that we are actually in more control than we are, and that is little more than self-deception.

The Disciplines of Success for Leaders

What is required to succeed at a rigorous challenge requiring a long-term commitment? While recently participating in an exercise to answer to this question, I thought of a number of ways I could address this. Many of which are true in the perspective they convey. We certainly need inspiration. We need a sense of realistic hope. We also need the right application of building habits that will see us through the long haul. But when it comes to completing a long-term goal that occupies a great deal of willpower, much of our success comes down to discipline. The rigors required to attain a significant goal require what Peter Drucker described as the Effective Executive: first managing ourselves. Here are three core components of the disciplines of success: focus, perseverance and persistence.

Focus. The first of these disciplines is the ability to and application of focus. It is a self-obviating understatement to say we live in a world of extreme distraction. And we can thank the remarkable world technology (of which I am very thankful for) for this. We have always had to battle distraction, but never at the amplified and accelerated pace that we now contend with. The higher the aspiration of leadership, the greater the need for the discipline of single-minded focus.

This involves two points, the first is the actual skill set of focus, next is the development of habits in order to successfully apply this skill set. To develop the necessary skill set to sharpen our focus, we need to perform an honest assessment of our strengths and weaknesses. This is simply part of self-awareness and the continuous improvement process. Where we are already strong (possible interests, etc.), we may need only modify our habits to capitalize on those strengths. But where we need improvement we need to take deliberate action to ratchet up our deficiencies. From here, we need to take deliberate actions to develop habits that will enable us to apply the skill set of focus.

Perseverance. The act of perseverance sounds a lot like persistence, and at some point, perseverance certainly means exercising persistence as well. But the distinction between the two is the origin of the needed resistance. Successful completion of a goal requires perseverance regarding any number of life events that originate internally as well as externally. External challenges such as managing time, home, family and work may require foregoing discretionary personal time. Internal challenges will involve fatigue and emotions. Both sets of challenges require perseverance and only those who persevere at a long-term challenge will complete it.

Persistence. Closely related to perseverance is persistence. As mentioned before, both are related but distinct. Perseverance requires resistance to internal and external challenges. But persistence requires mental and physical output of energy not only to resist the forces of challenges, but overcome obstacles that would prevent a successful work product. There is much that can be said about willpower, the instinct of it, and that we generally quit too easily. Those with unusual, pre-determined persistence will be successful and see long-term challenges through to completion. This is the willpower of leadership.

Planning for the Coming Year: Confidence Through Perspective

It’s easy to look back at a previous year and focus on what could have gone better, how different decisions may have affected outcomes to the good, or even how we may feel stuck in one way or another. As with many, I share the view that a new year is an excellent time to make or update goals, modify plans or start a strategic course of action for the upcoming year. This could be as simple as a reading list, a habit change, or a significant life changing decision. Either way, I think outlook and perspective can be a key driver in making this a positive exercise, whether reflecting or planning.

One of the benefits of experience is long-term perspective. I used to have promotional poster from a brokerage firm that read, “confidence through perspective.” Within the poster there was a montage of pictures, dates, graphic measurements and major event annotations. The idea being, when you look at current events with too much granularity, you may lose focus on an overall perspective on how things may turn out, given a certain trajectory, determination, diligence, planning, hard work, and a little more time. But at the same time, if we fail to look carefully, and with the proper focus, we may miss some of the obvious details right in front of us. For reflection purposes, consider the words from Henry David Thoreau’s Journal, June 10, 1853, titled, Looking through a Spy-Glass:

Source: http://www.concordmuseum.org/spyglass.php

I amused myself yesterday afternoon with looking from my window, through a spy-glass, at the tops of the woods in the horizon. It was pleasant to bring them so near and individualize the trees, to examine in detail the tree-tops which before you had beheld only in the mass as the woods in the horizon. It was an exceedingly rich border, seen thus against, and the imperfections in a particular tree-top more than two miles off were quite apparent. I could easily have seen a hawk sailing over the top of the wood, and possibly his nest in some higher tree. Thus to contemplate, from my attic in the village, the hawks circling about their nests above some dense forest or swamp miles away, almost as if they were flies on my own premises! I actually distinguished a taller white pine with which I am well acquainted, with a double top rising high above the surrounding woods, between two and three miles distant, which, with the naked eye, I had confounded with the nearer woods.

All of that from the view from an attic window, because the author took the time to look, focus and reflect. When you consider the outlook for this year and take time to think and plan, hear the words of my great hero, C. S. Lewis, “Mere change is not growth. Growth is the synthesis of change and continuity, and where there is no continuity there is no growth.”

Image Source: http://www.concordmuseum.org/spyglass.php

An Aging Nation: U.S. Census Interactive Graphic

Last year, the U.S. Census issued an excellent report, An Aging Nation: The Older Population in
the United States - Population Estimates and Projections and as you might guess, the findings are nothing short of alarming. Why? Because the findings in the report have a number of significant implications connected with aging in general and all its added responsibilities such as health care and social security. What’s more, the very large baby boom cohort (the report uses the traditional timespan of those born from 1946-1964) has for some time represented such a significant part of the work force, but now its rotation out of the workforce is adding to the weight of what the report labels, “older population” (defined as those above 65 years of age). Combine this with the extrapolation of the older Generation X cohort in the next few decades, plus overall mortality projections showing increased life expectancies and you have a mind boggling number of people not only meeting the definition of older, but in excess of 85 years of age.

Historical Look Using an Interactive Graphic

Below is an interactive graphic from the Census Bureau that can be used in two ways. Slide the year along the bottom for a view of the population breakdown by age at a given point in time in the last ten to fifteen years. Going back fifteen years to the year 2000, you see a very large cohort in their thirties to early fifties. As you slide the year to the right (toward the present), you see the rising age, which is somewhat self-obviating given the starting point. But then as you reach the near present, you see a surprising trend of a new cohort, now in their early twenties to early thirties, representing a significant part of the population.

Implications of the Elderly

According to the projections in the Census report:

Between 2012 and 2050, the U.S. population is projected to grow from 314 million in 2012 to 400 million in 2050, an increase of 27 percent…By 2030, more than 20 percent of U.S. residents are projected to be aged 65 and over, compared with 13 percent in 2010 and 9.8 percent in 1970.

The report identifies mortality rates as the driver of trends:

The size and composition of the older population in 2050 will be largely determined by two factors: the size and composition of the population 27 years and over in 2012 and the future course of mortality for that population. While past fertility rates were the main driver shaping the size of these cohorts to date, mortality will influence the pace at which that population declines at the older ages.

…The mortality assumptions for these population projections are guided by past trends and current levels of mortality observed in the United States and in other developed nations. Trends in health-related conditions such as smoking and obesity were also assessed.

Survivorship rates have shown improvement for many decades. In the United States, life expectancy at age 65 was 15.2 years in 1972 and rose to 19.1 years in 2010—a net gain of 3.9 years. The survival gains for those turning 85 have also been impressive. In 1972, the average time to live for someone turning 85 was 5.5 years. By 2010, this had risen to 6.5 years—a net gain of 1 year. Similar trends have been observed in almost all developed nations. For example, life expectancy at age 65 in Sweden increased from 15.7 years in 1972 to 19.8 years in 2010. Life expectancy at age 85 in Sweden increased from 4.9 years in 1972 to 6.2 years in 2010.8

There is a little bit of irony in these trends. On the one hand, you have things like the reduction of smoking that is practically guaranteed to reduce health risks and increase life span in most people. But on the other:

The incidence of obesity increased dramatically between 1980 and 2008, doubling for adults and tripling for children (National Center for Chronic Disease Prevention and Health Promotion, 2011)…The direct effect of obesity on survival is less than that for smoking, and there is evidence that the trend is leveling off. The longer-term implications are yet unknown, but could dampen continued improvements in survivorship in future years.

These trends may simply point to the advancements of medicine and technology, but as the above quote points out, the long-term implications of this fairly recent trend are yet unknown. Where is this all leading? As mentioned previously, there are significant implications for Social Security and Medicare, but these are only two examples (although the largest by far) as there are many pension and health care systems throughout the different states and regions of the U.S. There is also the continuous discussion of potential growth in the overall economy. The idea that traditional growth of 4% is not currently realistic (or possible) given the number of workers from the boomer cohort reducing labor participation rates and thus reducing spending, is a common assumption. On the other hand, the very large cohort representing a younger population as well as those in their prime working ages cannot be ignored. While it’s true that availability of workers does not produce jobs, if a number of fundamentals change in the next few years, there could be expansion that we have not seen in years. How might this match off against the implications of an aging population? One thing is certain, in the traditional sense of employment, we have not yet figured out (cumulatively) how to best utilize this large, younger cohort. And we have still not yet adjusted to a post industrial era.

Public Libraries Disrupting the Likes of Amazon

When you think of the modern iteration of your local public library, a couple things might spring to mind, such as the perverts sitting at the computers offending everyone around them in the name of free speech. But another might be the question, how long can this model of an institution last? Well chalk one up for another blow to the hard and fast rule of disruption. I have observed the growing catalogue in recent years of digital material available for check out, including audio as well as e-books. But in the age of streaming versus download, the for-profit sector has started rolling out its own version of subscription based reading, and they face headwinds of an unlikely competitor, as noted in the Wall Street Journal, Why the Public Library Beats Amazon—for Now:

A growing stack of companies would like you to pay a monthly fee to read e-books, just like you subscribe to Netflix to binge on movies and TV shows. Don’t bother. Go sign up for a public library card instead. Really, the public library? Amazon.com recently launched Kindle Unlimited, a $10-per-month service offering loans of 600,000 e-books. Startups called Oyster and Scribd offer something similar. It isn’t very often that a musty old institution can hold its own against tech disrupters. But it turns out librarians haven’t just been sitting around shushing people while the Internet drove them into irrelevance. More than 90% of American public libraries have amassed e-book collections you can read on your iPad, and often even on a Kindle. You don’t have to walk into a branch or risk an overdue fine. And they’re totally free. Though you still have to deal with due dates, hold lists and occasionally clumsy software, libraries, at least for now, have one killer feature that the others don’t: e-books you actually want to read.

E-books you want to read? That’s right. So instead of an all-you-can-read list of digital titles with the equivalent of Smokey and the Bandit III, you have access to many of the titles from Amazon’s top 20 Kindle best-sellers of 2013 list with the following impressive results:

Percentage of Top 20 Kindle Titles of 2013

See the full grid from the WSJ article here. The article goes on to explain an interesting history of this windfall for local libraries:

How did library e-book collections get such a leg up? Amazon is locked in a hate-hate relationship with many publishers, so none of the five largest will sell their whole collection to Amazon for its subscription service…Over at the library, the situation is different. All of the big five publishers sell their e-book collections for loans, usually on the same day they’re available for consumers to purchase. They haven’t always been so friendly with libraries, and still charge them a lot for e-books. Some library e-books are only allowed a set number of loans before “expiring.”

There are obvious limitations to free services, such as availability, wait lists and time span for checked out materials. But for now, this is a terrific example of a public institution in the local community showing itself able to respond to disruptive forces, and provide viable resources to a wider audience with limited resources. It is also an excellent example of how a business model can benefit from adapting to a model that helps a local community as “publishers have come to see libraries not only as a source of income, but also as a marketing vehicle…since the Internet has killed off so many bookstores, libraries have become de facto showrooms for discovering books.” See brief overview here:

A Rough Assessment of Greenspan’s Career

Barry Ritholtz has written an assessment of Greenspan’s career which spanned multiple decades and used it as somewhat of a chopping block pointing out both inconsistencies, enigmas and outright head scratcher anecdotes from his career. I will never forget reading Greenspan and Kennedy’s paper, Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences (written a good deal before the crash) where the authors discuss regular mortgage debt outstanding (RMDO) from the Federal Reserve Board’s flow of funds accounts where couple of things really stand out, of course, now through the filter of hindsight. Specifically, how “extractions” of home equity were to be paid back. The methods outlined were, “those resulting from refinancings, cancellation of debt by home sellers (separated into foreclosure sales and all other sales), unscheduled mortgage repayments, and scheduled amortization.” The first two mentioned should have been a warning of alarmist portions, namely, the idea that extractions were simply going to be paid back by papering over them with more debt, and certainly this happen for a while. But also, the assumption that there was always going to be someone who came along behind you and got into more debt than you did. The data from this paper spans through 2004, two years after the following activity pointed out by Ritholtz in, Celebrating Greenspan’s Legacy of Failure:

Amid the 2001 recession, and immediately following the Sept. 11 attacks, the FOMC brought rates down to new lows. Rates were under two percent for three years, and at one percent for a full year. This was simply unprecedented, and the impact was severe. Everything priced in dollars ramped higher. Inflation expanded rapidly, Gold began a decade-long bull market, and oil increased from about $20 to almost $150. The housing market took off, and rose faster and higher than ever before, setting up the inevitable denouement.

The result was clearly illustrated in the tables of Greenspan’s working paper from 2005, asset inflation:

Home Values 1991-2004

But this was not seen as a cause for alarm, as reflected in the Chairman’s words from a year earlier,

In evaluating household debt burdens, one must remember that debt-to-income ratios have been rising for at least a half century. With household assets rising as well, the ratio of net worth to income is currently somewhat higher than its long-run average. So long as financial intermediation continues to expand, both household debt and assets are likely to rise faster than income. Without an examination of what is happening to both assets and liabilities, it is difficult to ascertain the true burden of debt service. Overall, the household sector seems to be in good shape, and much of the apparent increase in the household sector’s debt ratios over the past decade reflects factors that do not suggest increasing household financial stress. And, in fact, during the past two years, debt service ratios have been stable.

As pointed out by Ritholtz, in the end, “Greenspan ultimately conceded there was a “flaw” in his market ideology. Easy Al, as traders had taken to calling him, recognized that allowing radical deregulation of credit markets was a mistake, as was opposing rules on derivatives and ignoring the subprime and non-bank lenders at the heart of the financial crisis.” In light of this, it’s no wonder at all that there is continued discussion of the complexities caused by headwinds five years after the official end of economic recession.

Leadership and Developing Cooperative Participants

Team building is about leadership and discernment. Different strengths are needed at different times in a given context. This is why fit, among other qualifications is so important. But within any type of organization, there is the need for leadership who does not simply lead or direct, but develops cooperative participants. It is well established (and pretty much common sense) that a leader is going to build a team by outlining and inspiring vision, direction, and a cumulative goal. But what tools are effective for constructing and leading such a team, and what are the positive outcomes?  Many a strong personality can cajole people into action, with dictatorial command from behind, or at the other extreme, running roughshod over people so far in front that team members are discouraged from participating. This of course is not team building at all. And the real loss is missing out on all the distinctive strengths and perspectives that each member of a creative and critical thinking team can produce together.

One author has suggested three skills to correct this error where the contributions of team members are not being taken advantage of: inviting genuine critical assessment and input without fear of retribution, receiving input while suspending judgment of it, and acting in a responsive manner to questions. Pretty simple, but requiring a great deal of confidence to implement. Leaders who do this though, will draw out ideas and creativity that people may not realize they had and find that motivation becomes less of an issue to try and generate and more of one to steer in the right direction.

How Optimism Bias Changes Long-Term Projections

Weekend reading: IMF Working Paper, Growth: Now and Forever? by Giang Ho and Paolo Mauro. Those who do not follow the global market in general and the BRICs in particular (or other emerging economies), may not see a correlation to the U.S. market. In reviewing the paper, I would focus more on the psychological behavior of investors and the capital markets, rather than the particulars of emerging markets, their fundamentals, or the drivers in these markets, many of which are quite different from any of the G7. The premise is clearly stated in the abstract,

Forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth. Using long-term forecasts of economic growth from the IMF/World Bank staff Debt Sustainability Analyses for a panel of countries, we show that the baseline forecasts are more optimistic than warranted by past international growth experience. Further, by comparing the IMF’s World Economic Outlook forecasts with actual growth outcomes, we show that optimism bias is greater the longer the forecast horizon.

Just what do the authors mean by optimism bias? It’s frankly, little more than wish fulfillment. In the authors’ opinions, it is adding more weight to recent occurrences, then extrapolating those positive outcomes across the spectrum of events, where “forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth.” Again, this does not have a direct correlation to recent events in the U.S., as this economy has experienced forward yet modest growth in the last five years. But could this say anything about the continued expansion in the capital markets, which have little relation to economic events as they tend to affect the average person, employment and a service driven economy? In other words, although the markets seem to be pushing forward at dizzying heights, most would say there is nothing to indicate any kind of an eminent correction. Is the same bias at work in our capital markets? You decide. But the paper makes for an interesting case for why, in spite of argumentation for why global growth may in fact be slow in the coming years, forecasters continue to project strong growth, where predicting “economic growth into the medium term and beyond is notoriously difficult.” It would seem there are lessons to be learned here about bias from any perspective and how this bias has a tendency to affect the view of the future.