Tag: review

In the book Scarcity: Why having too little means so much (Amazon,) authors Sendhil Mullainathan and Eldar Shafir show how scarcity impairs judgment, and decision making.

The book lays out how scarcity – of time, money and attention – ends up creating tunnel vision that trades short-term hacks to longer-term solutions. However, the book is short on solutions and long on anecdotes. It is almost reads like a teaser to Nudge. The book is also a strong endorsement for having a bit of slack in our lives.

Toward the end of the book, I couldn’t help but conclude that the only way not to fall into the scarcity trap is to automate an increasing amount decisions that we make. Everything from buying toothpaste to scheduling appointments can be handled by bots so that we can take longer naps.

Recommendation: worth a read.

In Why Nations Fail: The Origins of Power, Prosperity and Poverty (Amazon,) authors Daron Acemoglu and James A. Robinson compress over 15 years of research on what drives the growth of nations.

Some hard-hitting excerpts:

• Poor countries are poor because those who have power make choices that create poverty. They get it wrong not by mistake or ignorance but on purpose.
• Growth moves forward only if not blocked by the economic losers who anticipate that their economic privileges will be lost and by the political losers who fear that their political power will be eroded.
• Many of the micro-market failures that are apparently easy to fix may be illusory: the institutional structure that creates market failures will also prevent implementation of interventions to improve incentives at the micro level.

India is a bit like the hapless victim in the old Ajit joke, immersed in a vat of liquid oxygen. The liquid will not let it live and the oxygen will not let it die.

Recommendation: must read!

In the book, The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics (Amazon,) authors Bruce Bueno de Mesquita and Alastair Smith systematically present the idea that whether it be an autocracy, a democracy or something in between, leaders do whatever keeps them in power, regardless of the national interest.

From the book:
Our starting point is the realization that any leader worth her salt wants as much power as she can get, and to keep it for as long as possible.

Paying supporters, not good governance or representing the general will, is the essence of ruling.

In politics, coming to power is never about doing the right thing. It is always about doing what is expedient.

Having competent ministers, or competent corporate board members, can be a dangerous mistake. Competent people, after all, are potential (and potentially competent) rivals.

The three most important characteristics of a coalition are: (1) Loyalty; (2) Loyalty; (3) Loyalty. Successful leaders surround themselves with trusted friends and family, and rid themselves of any ambitious supporters.

Recommendation: Worth a read. Or, you could just watch this video instead:

In the book The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It (Amazon,) Scott Patterson provides a peek into the world of quantitative finance with the meltdown of 2007/2008 as a backdrop.

The book is gripping. It almost reads like a whodunit. It is like a modern-day update to Schwager’s Market Wizards series. However, I am not sure I agree with the book’s narrative that quantitative models caused and made volatility worse. In reality, an unwind of any crowded trade can trigger a doom loop of volatility. And in a margin call, the most liquid assets are the first to go. Secondly, for a book that covers statistical arbitrage, long/short value and momentum strategies and capital structure arbitrage using credit default swaps, missing Bridgewater and their risk-parity model is a big one.

Recommendation: Worth a read.

In The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (Amazon,) Bethany McLean and Peter Elkind chronicle the rise and fall of Enron.

Before the sub-prime crisis and Lehman Brothers bankruptcy, Enron was the poster child of greed gone wild. No other company had ever committed such a massive accounting fraud. Enron’s published financial statements were completely divorced from its underlying business economics. And the system of checks and balances that were supposed to prevent such frauds were corrupted by conflicts of interest within the gatekeepers. Wall Street analysts did not dig too deep because Enron was a massive source of investment banking revenue, its auditor signed off on everything because accounting was a loss-leader for their much more lucrative consulting practice and neither Enron’s board of directors nor the rating agencies that rated its debt cared to peek under the hood.

The following passage from the book captures Enron’s mindset:

The after-the-fact rationalizations were strikingly similar to the mind-set that produced the Enron disaster in the first place. The arguments were narrow and rules-based, legalistic in the hairsplitting sense of the word. Some were even arguably true—in the way that Enron itself defined truth. The larger message was that the wealth and power enjoyed by those at the top of the heap in corporate America demand no sense of broader responsibility. To accept those arguments is to embrace the notion that ethical behavior requires nothing more than avoiding the explicitly illegal, that refusing to see the bad things happening in front of you makes you innocent, and that telling the truth is the same thing as making sure that no one can prove you lied.

Recommendation: worth a read.