Forensic psychology: struggling to become a science

Amazon link

I received a free copy of this to review through the Amazon Vine programme. It's a lengthy textbook and I won't be finished anytime soon. But reading the introduction and initial chapters is enough to discern a profession transitioning through intellectual crisis.

Here are my notes so far.

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"We do have a scientific paradigm for psychology. We know that genes and environment construct brains, brains produce behaviour. Individual differences in genome plus environmental divergences result in non-identical brains, differences which have a measurable effect on neuroanatomy .. and thence on behaviour.

From behavioural genetics we know that the heritability of psychological traits is generally more than 50%. Nurturing differences are often really the consequence of genetic correlations: disturbed parents tend to have disturbed children. Heritability in action. Non-shared environmental effects (eg not family) typically have random and transient effects on psychological traits such as personality and intelligence. Real abuse and damage always excepted.

Psychology sort of knows this and sort of doesn't. There are researchers who know what a GWAS is, who know their way round a brain scan. And then there is the long legacy of pure nurturism:  behaviourism, psychoanalysis, attachment theory, sociomoral reasoning, social information-processing theory and so on.

These one-sided plausible-sounding abstractions of commonplace observations have sadly produced neither real insight, reproducible results nor consistently-effective interventions. In many cases large scale experiments using twin studies and GWAS have shown that their conclusions are simply false. Perhaps though this will change, now we're beginning to really understand the etiology of normal and abnormal psychology. Robert Plomin's "Blueprint" is a readable review covering all these points.

All this has additional force in the case of forensic psychology. But who would wish to be in the position of the textbook editor in 2018, forced to straddle competing and incompatible paradigms while maintaining that forensic psychology is a mature discipline on firm foundations, whose professionals can be relied upon in the investigation process, in court and during the follow-on treatment of prisoners.

Forensic psychology has two main aspects: the legal aspect deals with evidence, witnesses and the courts while the criminological aspect deals with crime and criminals. Our textbook starts by reviewing theories addressing the causes of crime: why do criminals offend and what is the effect on their victims? As mentioned above there are many kinds of theory, and they tell very different kinds of story.

Here is an illustrative quote (p. 58, section 2.2.1 - LCPs are life-course persistent offenders).

“The main factors that encourage offending by the LCPs are cognitive deficits, an under-controlled temperament, hyperactivity, poor parenting, disrupted families, teenage parents, poverty and low socioeconomic status (SES).

Genetic and biological factors, such as a low heart rate, are also important (see Chapter 4).”

Of course all of the so-called main factors on the first list are strongly heritable, and therefore have substantial genetic causation which would be captured by a polygenic score (not mentioned in the copious index).

Amazing to read this in a 2018 textbook."

Full review here.

"Will China's economy collapse?" - Ann Lee

The fate of China will affect everyone. Its economy is now so large and intertwined with western economies that a growth stutter, or worse, a collapse, would have very serious global consequences.

China's great economic machine has political consequences too, creating power instabilities around its borders and farther afield. Future war is rehearsed in overheated-novels and think-tank reports alike.

So Ann Lee's book is extremely welcome, particularly if all you know about China is that it has a lot of highly-indebted State-Owned Enterprises (SOEs) and a virulent anti-corruption campaign.

Amazon link

At first sight, Professor Lee seems to be a typical member of the global financial elite. According to Wikipedia, she was educated at U.C. Berkeley, Princeton University and Harvard Business School (1995). After working for two investments banks, she became a hedge fund partner and a trader in credit derivatives. In 2007-2008 she was a visiting professor at Peking University.

So some might find it surprising that this book is in fact an unashamed polemic on behalf of the Chinese government.

What do we learn? China is on a trajectory from a purely centrally-planned economy (economically disastrous, as discussed in János Kornai's book, "The Socialist System: The Political Economy Of Communism") towards a mixed economy where the state still controls the commanding heights, the SOEs, and where almost all Chinese companies employing more than 100 people have an internal party cell-based control system.

After an initial export-led lift-off in the 1980s and 90s, the financial crisis of 2008 dramatically curtailed the global market for Chinese products. To avoid massive layoffs and social tensions, the Chinese leadership refocused production on domestic infrastructure, and later global infrastructure projects such as the Belt and Road initiative. This was principally funded by debt, leading to many of the debt-overhang issues identified by economists.

Domestic development was orchestrated by local government in such a vast country, but these institutions were prevented from raising capital directly or running deficits. Instead, they created their own companies, the Local Government Financing Vehicles which were capitalised by land grants or initial cash injections, but which were then able to raise additional funds from banks or the shadow sector.

Debt subsequently ballooned, much of it under the radar of official statistics. Meanwhile property prices were rising fast, showing signs of a bubble.

Professor Lee is sanguine about these risks. Government control of the economy, the existence of capital controls and the increasing global role of the renminbi all combine to afford the Chinese government many economic levers. She does not foresee a hard landing.

In the final part of the book, the author is at pains to identify some of the advantages of the Chinese economic system over that of America. The absence of a litigious culture, the extraordinary talents of the Chinese workforce, and the government's concerns to avoid social division.

China may not be formally democratic in the way of the States, but the party is highly sensitive to public opinion and concerned to prioritise policies which promote social cohesion, such as green development and poverty alleviation.

So that's the argument from the Chinese side of the fence. It's up to the reader, now better informed about the background, to decide which aspects of Professor Lee's arguments they find convincing.

János Kornai and Ann Lee's take on China

Amazon link

The Amazon Vine system seems to be running down. Fewer and fewer interesting items appear in my input queue. But Ann Lee's recent short book seems to be an exception.

Professor Lee is a somewhat-typical member of the global elite. She was educated at U.C. Berkeley, Princeton University and Harvard Business School (1995). After working for two investments banks, she became a hedge fund partner and a trader in credit derivatives. In 2007-2008 she was a visiting professor at Peking University.

BTW, whenever an article or book has a question in the title, the answer is always "No".

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I'm interested in the political and economic evolution of China. Part of that is the global significance thing, but the underlying dynamics are equally intriguing. We observe a centrally-planned economy belatedly - and apparently - transitioning to capitalism.

Is China even capitalist? Most economists would say yes, but Michael Roberts on his blog has been steadfastly contrarian.

It would help to have a conceptual framework to assess Ann Lee's thinking.

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Amazon link

I turn to János Kornai, the noted Hungarian economist who has written extensively on the experience of the bureaucratic-socialist states, both in their operational dysfunction and their subsequent collapse.

At the heart of Kornai's critique of socialist (centrally-planned) economies is the notion of soft budget constraints leading to what he calls the shortage economy. Has China found a way round these structural problems?

The Chinese leadership has watched the Eastern-European and Russian experiences with care and has plainly learned something from the outcomes. So Andrew Batson considers whether Kornai's account still holds true.

Update: Here's my Ann Lee review.

"The Volatility Smile" - a first impression

I always do this.

I'm casually scanning the Amazon Vine list, scrolling past beauty aids and iPhone covers when I come across "The Volatility Smile".

What kind of title is that? A detective story with a Japanese print on its front cover?

OK, it's got my attention. And then it gets worse:

"The Black–Scholes–Merton option model was the greatest innovation of 20th century finance, and remains the most widely applied theory in all of finance. Despite this success, the model is fundamentally at odds with the observed behavior of option markets: a graph of implied volatilities against strike will typically display a curve or skew, which practitioners refer to as the smile, and which the model cannot explain. Option valuation is not a solved problem, and the past forty years have witnessed an abundance of new models that try to reconcile theory with markets.

"The Volatility Smile presents a unified treatment of the Black–Scholes–Merton model and the more advanced models that have replaced it. It is also a book about the principles of financial valuation and how to apply them. Celebrated author and quant Emanuel Derman and Michael B. Miller explain not just the mathematics but the ideas behind the models."

I have only the haziest memory of understanding puts and calls once, but this sounds fascinating! A free book to review with some serious analysis.

As is the way with Amazon Vine, it arrives the very next day and I begin to appreciate the enormity of what I've done.

• Authors: theoretical physicist, mathematical economist, physicist
• The text, though billed as 'for traders', name-drops Hilbert spaces in the prologue
• We hit Black-Scholes really hard!

When faced with a book in a paradigm I'm barely familiar with, it's Wikipedia time. Derman and Miller's first throwaway formulae for stock volatility sends me scurrying off to random walks.

What really works though is the continuous version, the Wiener process which seems to underlie the Black-Scholes model. This, in its turn, seems to require something I hadn't heard of before, the Itô calculus.

Did I mention Martingales?

My problem is that I lack all orientation in this forest of technical virtuosity. Still, I even know where to go in these situations: YouTube.

Searching for a "conceptual overview of Black-Scholes" gets you a stack of introductory lectures. The Khan Academy (ten minute clip) was really simple and sketched the big picture: I'm to think of it as pricing call options.

I don't think those shouty traders know much about partial differential equations or their extension to stochastic processes. This book is quant territory - I'm not surprised that most senior money managers were all at sea back in 2008.

Still, I have the map of the territory now (I re-read the very clear Wikipedia article on call options) so it's time to get back to the book.

I'm looking forward to writing a semi-informed review .. at some point.

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Update (Saturday Feb 4th 17): I've now posted the review.

Go Geth Ethereum

Amazon link

I was enrolled into the Amazon Vine programme back in 2008 (Amazon post a list of stuff they want reviewed tailored to your interests, you choose an item, they send it to you for free, you review it). In the old days there was a monthly email but that, for some reason, got discontinued. I assumed the Vine scheme had lapsed.

Still, you continue to get personal kudos, even on reviews for products you paid good money for.

But Vine is not dead - you merely have to hunt a bit for the obscured product page. Most of my items there seemed bizarre: Mills and Boon style romances, children's books, iPhone covers .. but there was one which looked tolerably interesting and I selected it, half-thinking to test whether Vine was still working for me.

"The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology" by William Mougayar  (Author), Vitalik Buterin (Foreword), arrived yesterday afternoon.

Vitalik Buterin is a 22 year old wunderkind and a founder of Bitcoin and Ethereum.

Ethereum? I knew I had heard something about that recently. I vaguely recalled it was 'bitcoin on steroids', a blockchain with added scripting language which had been hacked! Since the code was meant to be authoritative, no-one knew what to do about that at the time.

Synchronicity. SSC pointed to this breathless tech-journalism and I was transported back to the land of Neal Stephenson: 'Snow Crash' and 'Cryptonomicon'.

"It’s 4am and I’m sitting in a hotel room in Shanghai, China. The second ever Ethereum developers conference is set to kick off in a few hours. The time-zone shift woke me up early, and I’m sitting in my bed playing with my newly modded phone. The Chinese government censors most large American mobile apps behind something colloquially referred to as “The Great Firewall” so you need to use all of these shoddily made, Chinese government approved, replacement apps instead.

"The preferred app for messaging is an app called WeChat, a bizarre Slack / Venmo / Tinder hybrid that 800 million people use to communicate every day. We have a group chatroom for the conference going, which I’m scrolling through when my phone buzzes. Someone posted a new message. “The Ethereum network is under attack”.

"Ethereum is this insane thing going on in the tech world right now. It’s a new cryptocurrency that is picking up the pieces of the fractured Bitcoin ecosystem and trying to succeed in accomplishing what Bitcoin has failed to do, deliver the first batch of successful consumer applications built on top of blockchain technology. You can think of Bitcoin a bit like a shared google doc spreadsheet that anyone in the world can send data to, one global ledger of accounts and balances. Ethereum builds on this idea by providing a mechanism for users to add custom formulas into the cells.

"Anyone who has done any kind of Microsoft Excel programming knows how powerful spreadsheets can become with just a few simple formulas. Ethereum is the first working implementation of programmable money, a simple concept that may one day bring the entire global financial system to it’s knees. And it draws brilliant people from all walks of life into its orbit.

The 4AM attack on the network is bizarre in that it’s not really a malicious hack, but more like comical mischief. Ethereum runs as a distributed system. At any given time, there will be thousands of separate computers (also called nodes) running the Ethereum protocol and keeping the network online. The actual software that the computers use to run the Ethereum protocol comes in many different flavors, the most popular one is an application called Geth, written in Google’s Go programming language. 85% of all Ethereum nodes are running Geth at the time.

"The attack pushes a piece of data onto the blockchain that exploits a bug in the Geth software causing the program to crash. Because every live node syncs the latest version of the blockchain in real-time, just like that 85% of the Ethereum network goes offline. Some developers are able to respond by switching over to the Parity Ethereum client, a new client written in the high-performant Rust Language that is currently gaining market share, but for others switching over to Parity is too risky without having time to run extensive testing. The Ethereum network is essentially frozen until an update can be pushed to Geth.

"The main developers of Geth are asleep in Shanghai. They might not even have their laptops with them, as it’s risky to take your work computer into mainland China if it contains any sensitive information. They’re also scheduled to go on stage and give a presentation in a couple hours. When they wake up, do they fix the bug and miss their talk or go onto the stage? Like I said, comical mischief."

And so it continues.

I can hardly wait. My review should be up in a week or so.

More.