Mindfulness at 3:00 AM: Cultivate Compassion

So there I was at 3:00AM last night -- suddenly fully awake and quite angry about my dreadful weight gain, and the failure to lose any significant weight despite all attempts over at least a year. I was frustrated and ruminating about that @##$$ Zyprexa -- not a proper mood for quickly dropping back into restorative sleep and facing the next workday.

I briefly considered taking a "hypnotic" drug (otherwise known as a sleeping pill), but then I decided instead to practice converting the turbulent waves of anger into a serene surface of compassion a la Zen mindfulness.

Instead of continuing to feel outraged about my present state, I redirected my thoughts towards a transforming learning experience -- to feel more outward understanding and compassion for all those other overweight folks who are suffering and unkindly discriminated against.

It took and time some practice, but I was able to accomplish compassion, dissipate the ruminations, and doze off. So that's my new mission -- to convert any obsessive feelings of anger into compassion whenever I can.

Here's an article from the web for those that also may want to cultivate compassion.

Compassion: An Antidote to Anger?

by Elisha Goldstein, Ph.D.

Mindfulness teacher and author Thich Nhat Hanh writes:

The nectar of compassion is so wonderful. If you are committed to keeping it alive, then you are protected. What the other person says will not touch off the anger and irritation in you, because compassion is the real antidote for anger.

There’s often misinterpretation between the words anger and aggression. Anger by itself is not an issue. It is important to be able to notice when we are getting angry, frustrated, irritated, or annoyed because it is often a signal that something is amiss. With that awareness we have the ability to choose what we want to do with it. It is the behavior of aggression and hostility that put people on the defense and cause problems.

When we cultivate compassion, we begin to soften the reactivity of aggression and hostility that often stems from anger.

What is compassion?

Compassion is a quality of awareness that combines identifying with another’s feelings (i.e., empathy) while understanding the position the other is in.

Inherent in the definition of mindfulness is non-judgment and another quality of it is “kind attention.” So as we cultivate a practice of nonjudgmentally placing kind attention on our own experience, we naturally begin to elicit feelings of self-compassion which then begins to flow outwards to others.

To cultivate compassion for another, try this: Allow yourself to imagine the sorrows and pains that the other person holds. During this life they have certainly had disappointments, failures, losses and wounds so deep they may not feel safe to share. Imagine them as your own child, feeling frightened and in pain, and how you may want to comfort them.

Sometimes, through practice, we come to understand that compassion may very well be the greatest antidote to the reactivity that can stem from anger and a pathway toward constructive-anger.

No Do-Over: A Medication I Wished I'd Refused -- Zyprexa

From the Alliance For Human Research Protection website:

http://www.ahrp.org/cms/content/view/513/56/

A Web Review/Commentary on Rolling Stone - "Marketing a Phony 'Miracle' Drug"     
Sunday, 15 February 2009 

Read it and weep, now on order from eBay.

“Bitter Pill” by Ben Wallace-Wells in the current issue of Rolling Stone is an excellent, informative, in-depth article providing an overview into the pharmaceutical industry’s immensely successful—albeit illegal—aggressive marketing tactics, for selling a particularly unsafe, dangerous class of drugs—the antipsychotics, Zyprexa in particular.


The article is long, it covers a sizable territory: early enthusiasm for the promise the new antipsychotic drugs held, against the (by then) acknowledged intolerable effects of existing neuroleptic / antipsychotic drugs; the failure of science to this day, to answer basic questions about schizophrenia; Eli Lilly’s frantic effort to replace Prozac (which was going off patent); the aggressive sales pitch of Lilly’s reps; growing disillusion about the drugs among prominent psychiatrists at Yale and Harvard; the TMAP algorithm scam and Allen Jones, the whistleblower whose testimony led two public officials to lose their jobs—Steven Fiorello, Pennsylvania pharmacist who was convicted of a felony, and Dr. Steven Shon, medical director of the Texas Mental Health department who was forced to resign; Lilly’s aggressive off-label marketing campaign; the erosion of FDA power under the Bush administration, and Eli Lilly’s ties to the Bush family; the lawsuits which are absorbed as the cost of doing business; finally, the inescapable contrast between how much better people with schizophrenia fare in the developing world—with minimal access to drugs—compared with patients in the West whose treatment is centered on the drugs.

For almost a decade only “a few figures on the fringe of the medical profession” noted the dichotomy between the claimed efficacy of Zyprexa, and the demonstrable harm produced in patients.

Now mainstream professors at Yale and Harvard are acknowledging the marketing success of antipsychotics are not justified by the evidence. None of the drugs used to treat schizophrenia work very well—and they all produce debilitating irreversible physical and neurological damage. The drugs’ failure is related to the lack of understanding about schizophrenia. Scientists acknowledge, “We actually have a profound ignorance of the specific molecular mechanism of schizophrenia.”

“We tend to think of drugs as solving discrete problems — penicillin to eliminate bacteria, insulin to modify diabetes — but the antipsychotics are shooting at an invisible target. With schizophrenia,” says Dr. William Eaton, chairman of Johns Hopkins, Department of Mental Health, "we don't know what the hell is going on."

It is well to remember that effective drugs, such as antibiotics, don’t need multi-million marketing campaigns.

Wells sought to understand how, Zyprexa, a drug created to treat schizophrenia—in a very tiny population mostly inhabiting county jails and state prisons—wound up being used on depressed moms and misbehaving kids—and how Eli Lilly turned a flawed and dangerous drug into a $16 billion a year bonanza.

The development of Zyprexa and the other antipsychotics in its class (‘atypical’) affords a window into the interaction of key institutions--academic psychiatry, professional organizations, consumer advocates, the FDA, and the media—which came under the influence of the pharmaceutical industry.

Wells writes: “The most vivid models we have of corporate deception come from the tobacco industry, where scientists working in company labs, behind sealed walls, conducted misleading experiments out of public view and then told the wider world they had found things they hadn't.

But the pharmaceutical industry is immune to this kind of conspiracy. The size of clinical trials and the federal regulations that govern them mean that a company can never develop and study a molecule in-house; it relies on a platoon of contracted researchers, specialists at academic institutions, who test the molecules and then publish their findings in academic journals.”

But when those who conduct the trials sell their professional integrity, signing secret confidentiality agreements which prevent them from publishing the actual research findings; and when influential academics pen their name to industry-sponsored ghostwritten reports in those journals; and when prominent physicians are recruited to promote the drugs as “safe and effective” for unapproved uses -- thereby broadening the number of patients exposed to the drugs’ harmful effects; the result is even worse than the deception by the tobacco industry. After all, smokers were not urged to “ask your doctor” if smoking is right for you… Prominent doctors with impressive academic credentials did not serve as paid consultants helping tobacco companies to promote smoking.

To accomplish the extraordinary marketing feat and generating “irrational exuberance” among clinicians, drug manufacturers took control of the drug testing process—including data analysis, authorship (penned by prominent academic psychiatrists), publication placement in key journals—and key academic psychiatrists were recruited for their professional influence to persuade clinicians and public policy officials that a class of drugs—the new ‘atypical’ antipsychotics—were better and safer than the old drugs, despite evidence contradicting such claims. FDA’s impotence vis-à-vis this powerful industry was accomplished after the Reagan administration made it a policy to gut the FDA: “Simply put, the FDA was no longer in a position to independently evaluate the effectiveness — and risks — of a drug like Zyprexa.”

It is understandable that well-meaning psychiatrists who treated patients with schizophrenia, sought better treatment without the debilitating side effects of the older drugs which they by then recognized as so painful that patients simply stopped taking them, were excited by the promise of an alternative. However, the marketing hype did not make sense from the very beginning: a top Lilly executive announced that its new schizophrenia drug, Zyprexa, has "the potential to be a billion-dollar-a-year drug." Dr. William Wirshing, a psychiatrist at UCLA, is quoted saying: "I almost pulled off the road and crashed into the side rail." At the time, the entire market for atypical antipsychotics was only $170 million. "How the hell do you make $1 billion? I mean, who are we gonna give it to? It's not like we're making any more schizophrenic brains."

And then there were the early red flags about dangerous adverse effects: “Wirshing saw very quickly, however, that Lilly had a problem: Many of his patients taking Zyprexa were gaining a startling amount of weight. The pattern was as sudden as it was consistent. For the first few days they were on the drug, you weren't aware of any palpable difference. But by the end of the week, you could see the weight gain, almost in real time. Bellies and thighs started spreading, faces started puffing out. By the end of a year, the results were stunning. Some of his patients had gained more than 125 pounds.”

When Dr. Wirshing brought his concerns about Zyprexa to executives at the company, they tried to dismiss the evidence. “First they told him that it was just the skinny schizophrenics who were getting fat. Wirshing re-examined his data; it wasn't true. Then they told him that it was the schizophrenia itself that was causing the weight gain, rather than the drug. Wirshing was apoplectic: "If schizophrenia causes that much weight gain, how come I've been working with schizophrenics for 20 years and didn't know that?"

But how did the FDA fail to notice the obvious dangers? “In 1995, as the company was preparing to submit Zyprexa for approval to the Food and Drug Administration, Lilly convened a panel of experts to review the results of its largest study. The specialists concluded that Zyprexa produced an average weight gain of 24 pounds in a single year. One in six patients, clinical trials later revealed, gained more than 66 pounds. Such a staggering side effect, doctors knew, could elevate a patient's blood-sugar levels — an indication that the drug could cause diabetes.”

“The data Lilly submitted in its application to the FDA that same year led the agency to draw a far less alarming picture of the drug. Relying on a database of 51 separate and conflicting studies provided by the company, the FDA concluded that patients taking Zyprexa for one year would have an average weight gain of only 11 pounds. "It's akin to the guys from the cigarette companies going, 'Well, it doesn't cause cancer,'” Wirshing says. "It's just plain not true."

It would be nine years before a comprehensive government study (CATIE) would reverse many of the claims that surrounded Zyprexa and other atypical antipsychotics, and raise disturbing questions about their risks. And nine years, in the pharmaceutical industry, is a lifetime.

The pharmaceutical industry and the federal government have always had an unusually intimate relationship — the government is industry's biggest customer and ostensibly its watchdog.

The FDA regulates the development of a drug and, at least in theory, the marketing that follows its release. However, the FDA, the National Institute of Health, and the IRS receive hundreds of millions of dollars in user fees, grants, and taxes. Because Medicaid and Medicare buy such a large portion of drugs — particularly in the case of the antipsychotics, since virtually no schizophrenics can afford private insurance — the companies lobby those agencies, and their state subsidiaries, to try to win preferences for their own medications.”

To ensure that their more expensive antipsychotics and antidepressants were the recommended treatment of choice for which the government will pay for, drug companies initiated and paid-for the TMAP Algorithm formulary, signed off by a “consensus” panel of “expert” academic psychiatrists. TMAP is the most lucrative scam in medicine.

An influential player missing from the Rolling Stones article, is Steven Hyman MD PhD, the Director of the National Institutes of Mental Health, a leading neuroscientist, and a Harvard Professor whose enthusiastic endorsement of both the SSRI antidepressants and atypical antipsychotics, was expressed in widely publicized 1998 letter to the Director of the Center for Medicaid State Operations at HCFA, in which he expressed concern that the high cost of the atypical antipsychotics might constrain their use:

‘In some parts of the country, we understand that health care systems will not routinely allow new patients to be started on atypical antipsychotic medications until they have failed a course of the standard (less expensive generic) antipsychotic medications. We see no scientific justification for such a practice and consider it particularly ill advised. . . This is a situation in which HCFA and the NIH institutes working in concert can have a substantial beneficial effect on the health care of the American people.”
But in 2002, Allen Jones, an investigator in the Pennsylvania inspector general's office, became convinced that government officials had been enrolled in marketing the drugs.

Jones uncovered evidence showing that TMAP promoters included not only prominent psychiatrists, but government officials who set state mental health policies. These officials served as paid “experts” declaring the new antipsychotics “superior.” Though contradicted by the scientific evidence, their opinions had the mantle of government authority, thus ensuring a market and a continuing flow of sales.

TMAP is an epic fraudulent scheme not unlike Bernard Madoff’s $50 billion Ponzi scheme, which SEC investigators failed to detect for over a decade. Harry Markopolos, a financial expert recognized that Maddoff’s claimed investment return rates were implausible in 1999.

They were, therefore, fraudulent. He recently testified at a Congressional hearing how Maddoff relied on 14 “feeder” funds that funneled investor funds to Madoff for a commission. 

Allen Jones recognized “a big red flag” when he observed that TMAP promoters claimed Zyprexa and the other new antipsychotics were better than the old drugs. But they relied on biased research by industry-paid doctors, “a practice so commonplace that for most medical professionals, it barely registers — it's just part of the background noise.”

However, “independent science, minus the drug-industry money, had come to a different conclusion." Underscoring the scope and magnitude of the TMAP fraud, 18 states adopted TMAP or TMAP versions. What's amazing is how well and for how long both of these fraudulent schemes worked.

Those involved in crafting and promoting TMAP, and those who helped Eli Lilly promote the expansive marketing of Zyprexa were not only collaborators in fraud—they were instrumental in causing severe harm to tens (if not hundreds) of thousands of people—including children and the elderly—some of whom have been killed by the drug.

“Indeed, internal documents show that Lilly's own experts were criticizing the company for covering up the link between Zyprexa and diabetes: "I do believe they made a very strong point that unless we come clean on this, it could get much more serious than we might anticipate," one Lilly executive warned in an internal e-mail in October 2000.

But in hospitals and doctor's offices, the company's sales force continued to push Zyprexa as a wonder drug. In a common industry practice, Lilly persuaded leading psychiatric experts to endorse the drug and then paid them to tout it to doctors, who had little expertise when it came to antipsychotics.”

Former Lilly Zyprexa sales rep, Ahari was struck by how perfectly the strategy worked: Most doctors, pressed for time, did not "approach the education they were getting from the industry with any skepticism at all."

The visible physical harm produced by Zyprexa, confirmed by internal company documents, could not have gone unnoticed by treating clinicians: “The weight gain was visible and striking. "You'd see it from one visit to the next," says Dr. John Abramson, a clinical instructor at Harvard Medical School who has studied the atypicals. "They'd come back, and they'd look like a different person. It looked like someone stuck an inflation needle in them and pumped them full of air." There were other effects, too. Patients got dizzy; they got tired; some saw their blood-sugar and cholesterol levels spike.”

“Between 2000 and 2004, the deaths of 45 children were linked to the atypicals. Some were strikingly young. An eight-year-old boy died of cardiac arrest. A four-year-old boy died of complications from diabetes. Perhaps most vivid of all was the case of a 15-year-old boy in South Florida referred to by social workers as a "runner," a kid who kept fleeing his exasperated foster parents to return to his birth mother.

Admitted to a psychiatric hospital by a judge, the boy was tethered to a chair and pumped full of atypical antipsychotics, presumably to calm him. When his lawyer came to visit him, she found the boy not only sedated, but suffering from another acknowledged side effect of the atypicals: His breasts had become engorged and started to leak milk. The boy was lactating.”

“Visiting the most celebrated mental-health centers in the United States, it is hard to conclude that, even after the innovation of the atypicals, the drugs make a decisive difference in care.” It is difficult, therefore, to brush off the profession’s failure to recognize the disparity between clinical evidence and marketing hype as “overbright enthusiasm” or “irrational exuberance” or to accept the excuse offered by prominent psychiatrists such as, Dr. Peter Tyrer, Imperial College in London: “Almost the whole scientific community was conned into thinking — as a consequence of good marketing — that this was a different and better set of drugs. The evidence, as it's all added up, has shown this to be untrue."

If the whole scientific community was “conned,” they should hand in their license as they do not merit the status of “learned intermediaries.” Furthermore, leading psychiatrists who concealed their significant conflicts of interest, serving as industry’s consultants and promoters, who conducted rigged clinical trials and penned their name to fraudulent reports—reports that have polluted the scientific literature—continue to hold sway as prominent leaders within the profession. Shame on the psychiatric establishment for its failure to say, enough of the lies, enough corruption!

The devastating consequences of deregulation--which gave free rein to predatory profit seekers—is demonstrated in both, the economic meltdown and the transformation of medicine from its therapeutic mission into an accomplice for Big Pharma. The dire consequences of predatory market manipulation are borne by American consumers and taxpayers.

Time magazine has named 25 People to Blame for the Financial Crisis (24 men and one woman). Who will name the names in the medical community who are to blame for the drug-induced mental health crisis?

William J. Bernstein "Money" Interview : The Worst Retirement Investing Mistake

If you've looked at my obssesive reading list ,you know I'm a fan of William J. Bernstein's investing books. Here's a new Money interview with Mr. Bernstein.

by George Mannes | Money – Tue, Sep 4, 2012

William Bernstein has a gift not only for grasping the complex but for helping the rest of us get it too.

He spent the first chunk of his career as a neurologist practicing on the coast of Oregon but cut back on his work hours in 1990. A few years later he focused on a new fascination: investing.

He launched an online journal (a sort of proto-blog) called efficientfrontier.com and wrote "The Intelligent Asset Allocator," the first of several books. (He has also written for MONEY.)

Now he's an investment adviser for a handful of high-net-worth clients. Bernstein's writing often explores academic financial theory, but he manages to turn it into practical, plain-English advice.

His latest obsession, resulting in the short e-book "The Ages of the Investor," is what economists call the life-cycle theory, which dictates that your asset allocation should be tied to your earnings power throughout your career.

Bernstein, 64, spoke with senior editor George Mannes; their conversation was edited.

There's a debate going on now among economists about how much exposure people should have to stocks. What made you weigh in?

It's almost like a political issue. There's a "right wing" of very smart, authoritative people who think that savers and retirees should be investing conservatively because stocks are so risky. And then there's a "left wing" of equally smart and authoritative people who believe the opposite.
I was trying to reconcile the two views. Plus, I wanted to deal with what happened in the 2008 financial crisis, which changed how people, myself included, think about risk.

How so?

A lot of people had won the game before the crisis happened: They had pretty much saved enough for retirement, and they were continuing to take risk by investing in equities.

Afterward, many of them sold either at or near the bottom and never bought back into it. And those people have irretrievably damaged themselves.

I began to understand this point 10 or 15 years ago, but now I'm convinced: When you've won the game, why keep playing it?

How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren't as risky as they seem. For the middle-aged, they're pretty risky. And for a retired person, they can be nuclear-level toxic.

But at retirement you could be investing for several more decades. Don't you have time to make up for short-term losses?

At the end of your career, you have no more earnings capacity left beyond Social Security or a pension. You have less of what life-cycle theory calls "human capital."

So if you have a long series of bad returns, plus you're withdrawing 4% or 5% of your portfolio to live on it, then in 10 to 12 years, you may not have anything left. Withdrawals during the distribution phase combined with a bad bear market can completely destroy a retirement.

So how should I be investing near and after retirement?

You want to end up with a portfolio that matches your liabilities, meaning the amount you'll need to spend in retirement. The rule of thumb I came up with, based on annuity payouts and spending patterns late in life, is that you should save 20 to 25 times your residual living expenses -- that is, the yearly shortfall you have to make up after Social Security and any pension.

This portfolio should be in safe assets: Treasury Inflation-Protected Securities, annuities, or even short-term bonds.

Anything above that, you can invest in risky assets. That's your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn't do well, at least you're not pushing a shopping cart under an overpass.

What if you are nearing retirement age and you don't have that 20 to 25 years saved?

You should be working until you get that number. If you're 65 and you've only got half of your living expenses saved, you can retire and you may skate through.

You may die early, or you may have a good market. But there's a significant chance you're going to be eating Alpo when you're 85. That's the risk you're taking. The other choice you have is to work a few more years and reduce expenses.

One thing that we point out to our readers is that if you don't have stocks in your portfolio, you expose yourself to inflation risk.

That's true. By owning stocks you do mitigate inflation risk, but of course, you're exposing yourself to equity risk to do it. It's sort of like all these people who are now buying dividend-yielding stocks because Treasury bonds don't have any yield; they're exchanging a riskless asset for a risky asset.

But there's another asset class that people really don't think about when they think about inflation protection, which is short, high-quality bonds with a maturity of less than three years. If we ever do get an inflationary shock, investors will demand a high real short-term rate of return. It's what happened during the late '70s and early '80s.

Even though interest rates are terrible right now, if inflation recurs -- as I think it probably will -- short-term bonds are a fine place to be, as are individual Treasuries or certificates of deposit.

Since they mature soon, you can replace them quickly with newer, higher-interest bonds.
Interest rates usually more than keep up with inflation. It's true that real yields right now are historically low, but as a student of financial history I have to believe that's not going to last forever.

Okay, so stocks are risky at retirement. What about when I'm young?

For the average person, you'll want a very high stock allocation. Let's imagine you start working at age 25, and let's say for the sake of argument you have 35 years worth of human capital -- that is, 35 years of salary left in you. That's an asset that you own. What you've saved in one year for retirement is still minuscule compared to that 34 years of earning and saving that you have left.

So even if your investment capital when you're 26 years old falls by one-half, your total worth has fallen by only a couple of percent because you still have that 34 years of human capital left. Your ability to earn and save dwarfs the loss in your portfolio.

And what about when I'm in the middle of my career?

That's the key phase. You need to start bailing out of risky assets as you get closer to achieving that liability-matching portfolio? When you can "win the game" without taking so much risk.

Instead of cutting your stock allocation one percentage point a year -- the standard formula -- in a year with absolutely spectacular returns, you might want to take 4% or 5% off the table. In a series of years when stock returns have been poor, you don't take anything off the table. And over time you start laying down a floor of safe assets with the proceeds from the stocks you've sold.

When exactly am I doing this?

Getting close to hitting your number is usually going to happen during a bull market, so the psychology of doing this right is tricky. It's hard to cut back on risk and accept lower returns when your neighbors are getting rich.

If you're very lucky and very frugal, hitting your number might happen when you're 45. In the worst-case scenario, you do everything right and still come up short at 65, so you wind up working longer or greatly paring back your expectations.

It sounds like retirement success depends on when you were born.

Yeah, that is certainly true. Young people should get down on their knees and pray for a brutal bear market at the beginning of their savings career, because that's going to enable them to buy a large number of shares cheaply. Having a sequence of bad returns first, followed by strong returns, is the best-case scenario.

I did a little thought experiment in which I calculated how many years it took people starting work in different years to make their number. I realized that the cohort that started working during the worst of economic times is the one that did the best.
The last cohort that actually was able to make their number started their careers in 1980, and they made their number in 19 years. And the graph ends in 1980, because no cohort that started work after 1980 actually made the number.

Ouch. Can the average person overcome that using the investing strategy you lay out?

I've flown airplanes, and as a doctor, I've taken care of kids who can't walk. Investing for retirement is probably harder than either of those first two activities, yet we expect people to be able to do it on their own.

An alternative would be to have a pension system such as in Singapore, where the government forces people to put money into a dedicated investment pool that it manages at minimal expense. And when people get to be of retirement age, they are forced to annuitize some of those savings, which turns into safe income.

The political chances for a plan like that in the U.S. seem low.

Yeah, I'm definitely in tune with the times.

What about target-date mutual funds, which gradually take on less risk as you age?

They're better than what 95% of people are going to do, particularly if they're run with low
expenses. If you're not capable of doing what I suggest, then a target-date fund is not a bad solution.

What if you want an adviser to help you? How do you find a good one?

Interview one and say, "Look, this is my portfolio now," and you show him or her a simple, cheap index-fund portfolio.

And if he says, "You know, this is really good, you've got the right idea, I think we can diversify you a little more by using some more cheap index funds," that's the answer you want to hear.

You've probably found an honest adviser. And someone who adheres to an index-fund portfolio will probably be more likely to adhere to the policy because you've got someone who has some humility and realizes he doesn't know how to time the market.

Risk vs. Uncertainty

Risk
From Wikipedia, the free encyclopedia

Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome). The notion implies that a choice having an influence on the outcome exists (or existed). Potential losses themselves may also be called "risks". Almost any human endeavor carries some risk, but some are much more risky than others.

Risk versus uncertainty:

In his seminal work Risk, Uncertainty, and Profit, Frank Knight established the distinction between risk and uncertainty.

“Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. The term "risk," as loosely used in everyday speech and in economic discussion, really covers two things which, functionally at least, in their causal relations to the phenomena of economic organization, are categorically different. The essential fact is that "risk" means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomenon depending on which of the two is really present and operating. It will appear that a measurable uncertainty, or "risk" proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. We accordingly restrict the term "uncertainty" to cases of the non-quantitive type.”


Thus, Knightian uncertainty is immeasurable, not possible to calculate, while in the Knightian sense risk is measurable.

Another distinction between risk and uncertainty is proposed in How to Measure Anything: Finding the Value of Intangibles in Business and The Failure of Risk Management: Why It's Broken and How to Fix It by Doug Hubbard:

Uncertainty: The lack of complete certainty, that is, the existence of more than one possibility. The "true" outcome/state/result/value is not known.

Measurement of uncertainty: A set of probabilities assigned to a set of possibilities. Example: "There is a 60% chance this market will double in five years"

Risk: A state of uncertainty where some of the possibilities involve a loss, catastrophe, or other undesirable outcome.
Measurement of risk: A set of possibilities each with quantified probabilities and quantified losses.
Example: "There is a 40% chance the proposed oil well will be dry with a loss of $12 million in exploratory drilling costs".

In this sense, Hubbard uses the terms so that one may have uncertainty without risk but not risk without uncertainty. We can be uncertain about the winner of a contest, but unless we have some personal stake in it, we have no risk. If we bet money on the outcome of the contest, then we have a risk. In both cases there are more than one outcome. The measure of uncertainty refers only to the probabilities assigned to outcomes, while the measure of risk requires both probabilities for outcomes and losses quantified for outcomes.

Risk attitude, appetite and tolerance:

The terms attitude, appetite and tolerance are often used similarly to describe an organization's or individual's attitude towards risk taking. Risk averse, risk neutral and risk seeking are examples of the terms that may be used to describe a risk attitude. Risk tolerance looks at acceptable/unacceptable deviations from what is expected. Risk appetite looks at how much risk one is willing to accept. There can still be deviations that are within a risk appetite.

Gambling is a risk-increasing investment, wherein money on hand is risked for a possible large return, but with the possibility of losing it all. Purchasing a lottery ticket is a very risky investment with a high chance of no return and a small chance of a very high return. In contrast, putting money in a bank at a defined rate of interest is a risk-averse action that gives a guaranteed return of a small gain and precludes other investments with possibly higher gain. The possibility of getting no return on an investment is also known as the Rate of Ruin.

Jeff Bell's Six Trapdoors of OCD/Anxiety

From Jeff Bell's outstanding OCD book, When in Doubt Make Belief, six trap-doors on the false path to escaping doubt. I've fallen through all of them, one time or another, except for #5, fixing.

1. Checking: physically searching for verification that some feared consequences did not, or will not, happen.

2. Reassurance-seeking: asking for the assurances of others that some feared consequences did not, or will not happen.

3. Ruminating: mentally replaying events, conversations, and other sequences in search of verification that some feared consequence did not, or will not, happen.

4. Protecting: performing rituals (such as repeating patterns) and acting in unproductive ways for the sole purpose of warding off feared consequences.

5. Fixing: performing rituals (often relating to symmetry) for the sole purpose of making things "feel" right

6. Avoiding: deliberately avoiding events that trigger anxiety; this can be thought of as the ultimate compulsion.

The Insatiable Desire to Understand Risk

Although uncertainty and doubt are often discussed in OCD studies, I have found that there is also a wealth of material in business and science books. Here are three good 'uns.

The Nature of Risk by Justin Mamis

"Sometimes the biggest risk of all is taking one, and the need to be sure you are making the right choice actually increases the risk. The market is not efficient and hedging doesn't work. To rely on charts to understand the market is Mamis' way. The author is an excellent market technician who offers sound financial guidance and insights into the prepared mind. He gets your thinking going with a comfortable investment philosphy that will often go against convention. There are enough anecdotes, war stories, and charts to make for sound advise. The path to market freedom is technique, and you don't have to be one of the best traders to succeed with experience. It seems to me that the entire 1990s have confirmed the ambiguities of market language and how to operate in such a world. You will know how to keep risk at bay which most of us find not to be an easy task."

Complexity, Risk, and Financial Markets by Edgar E. Peters

"A groundbreaking look at complexity theory and its implications in the world of finance

Complexity theory tells us that processes with a large number of seemingly independent agents-such as free markets-can spontaneously organize themselves into a coherent system. In this fascinating book, Edgar Peters brings together scientific theory, the artistic process, and economics to show how the randomness and uncertainty of complexity theory can be applied to financial markets. Written in an engaging and accessible style, this is a thoughtful, conceptual look at the way free markets are, by their nature, continually evolving complex systems. Expanding on previous explorations of chaos theory, Peters draws on real-life examples ranging from the Asian crisis to America's love of conspiracy to show that complexity and randomness are necessary for the free markets to operate in a competitive manner."

When in Doubt, Make Belief: An OCD-Inspired Approach to Living with Uncertainty by Jeff Bell 

"When in doubt, make belief . For author and news anchor Jeff Bell, these are words to live by. Literally. As someone who has spent much of his life battling severe obsessive compulsive disorder (OCD), Bell has had to overcome crippling uncertainty few people can imagine. In this powerful follow-up to his critically acclaimed memoir, Rewind, Replay, Repeat , Bell expounds on the principles of applied belief that allowed him to make such a remarkable recovery from this “doubting disease” and the lessons he’s learned while traveling the country talking about doubt. With the help of more than a dozen leading experts, Bell offers readers practical techniques for pushing through the discomfort of uncertainty — whether it stems from OCD or just everyday worries — and demonstrates how a shift from decisions based on fear and doubt to ones based on purpose and service can transform any life."

Market Missteps: Two Eye-Openers

After the financial crisis of 2008, which happened to coincide with my vacation to visit my folks in Alaska that late summer, I realized I knew less than nothing about business history, theory, or money management, and so I emersed myself in business readings in order to get a clue. I would estimate that I have read well over 100 financial/science/history books since then. A lot of the selections I made were attempts to figure out how such a meltdown could possibly have happened. These tomes were two insightful Behavioral Ecomomics books about our compromised capital market logic and myths.

How Markets Fail: The Logic of Economic Calamities by John Cassidy

"Behind the alarming headlines about job losses, bank bailouts, and corporate greed is a little-known story of bad ideas. For fifty years or more, economists have been busy developing elegant theories of how markets work—how they facilitate innovation, wealth creation, and an efficient allocation of society’s resources. But what about when markets don’t work? What about when they lead to stock market bubbles, glaring inequality, polluted rivers, real estate crashes, and credit crunches?

In How Markets Fail, John Cassidy describes the rising influence of what he calls utopian economics—thinking that is blind to how real people act and that denies the many ways an unregulated free market can produce disastrous unintended consequences. He then looks to the leading edge of economic theory, including behavioral economics, to offer a new understanding of the economy—one that casts aside the old assumption that people and firms make decisions purely on the basis of rational self-interest. Taking the global financial crisis and current recession as his starting point, Cassidy explores a world in which everybody is connected and social contagion is the norm. In such an environment, he shows, individual behavioral biases and kinks—overconfidence, envy, copycat behavior, and myopia—often give rise to troubling macroeconomic phenomena, such as oil price spikes, CEO greed cycles, and boom-and-bust waves in the housing market. These are the inevitable outcomes of what Cassidy refers to as “rational irrationality”—self-serving behavior in a modern market setting.

Combining on-the-ground reporting, clear explanations of esoteric economic theories, and even a little crystal-ball gazing, Cassidy warns that in today’s economic crisis, conforming to antiquated orthodoxies isn’t just misguided—it’s downright dangerous. How Markets Fail offers a new, enlightening way to understand the force of the irrational in our volatile global economy."


The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

"The financial crisis of 2008 and subsequent Great Recession demolished many cherished beliefs—most significantly, the theory that financial markets always get things right. Justin Fox's The Myth of the Rational Market explains where that idea came from, and where it went wrong. As much an intellectual whodunit as a cultural history of the perils and possibilities of risk, it also brings to life the people and ideas that forged modern finance and investing—from the formative days of Wall Street through the Great Depression and into the financial calamities of today. It's a tale featuring professors who made and lost fortunes, battled fiercely over ideas, beat the house at blackjack, wrote bestselling books, and played major roles on the world stage. It's also a story of free-market capitalism's war with itself.

At the core of the current financial crisis has been the widely held assumption that markets behave rationally. Fox, Time magazine editor-at-large, isn't the first to bring scrutiny—or censure—to the conceit, but his analysis is singularly compelling, and the rare business history that reads like a thriller.

Fox leads us on a chronological journey of modern economic theory, featuring the cast of scholars who constructed the 20th- and 21st-century financial landscape, from Irving Fisher to such post-WWII figures as Milton Friedman, Harry Markowitz, Franco Modigliani and Merton Miller, Jack Treynor and William Sharpe. Fox offers a behind-the-scenes glimpse at academia's finest, complete with amusing anecdotes about the players and their theories, and illustrates how our economic behaviors and markets have been shaped by a gradually refined theory holding that the stock market prices are both random and perfectly rational. A must-read for anyone interested in the markets, our economy or government, this dense but spellbinding work brings modern finance and economics to life."

Survey Says: Statistics and Networks

Super Crunchers: Why Thinking-By-Numbers is the New Way To Be Smart by Ian Ayres

"An international sensation—and still the talk of the relevant blogosphere—this Wall Street Journal and New York Times business bestseller examines the “power” in numbers. Today more than ever, number crunching affects your life in ways you might not even imagine. Intuition and experience are no longer enough to make the grade. In order to succeed—even survive—in our data-based world, you need to become statistically literate.

Cutting-edge organizations are already crunching increasingly larger databases to find the unseen connections among seemingly unconnected things to predict human behavior with staggeringly accurate results. From Internet sites like Google and Amazon that use filters to keep track of your tastes and your purchasing history, to insurance companies and government agencies that every day make decisions affecting your life, the brave new world of the super crunchers is happening right now. No one who wants to stay ahead of the curve should make another keystroke without reading Ian Ayres’s engrossing and enlightening book."

The Lady Tasting Tea: How Statistics Revolutionized Science in the Twentieth Century by David Salsburg

"An insightful, revealing history of the magical mathematics that transformed our world.
At a summer tea party in Cambridge, England, a guest states that tea poured into milk tastes different from milk poured into tea. Her notion is shouted down by the scientific minds of the group. But one man, Ronald Fisher, proposes to scientifically test the hypothesis. There is no better person to conduct such an experiment, for Fisher is a pioneer in the field of statistics.

The Lady Tasting Tea spotlights not only Fisher's theories but also the revolutionary ideas of dozens of men and women which affect our modern everyday lives. Writing with verve and wit, David Salsburg traces breakthroughs ranging from the rise and fall of Karl Pearson's theories to the methods of quality control that rebuilt postwar Japan's economy, including a pivotal early study on the capacity of a small beer cask at the Guinness brewing factory. Brimming with intriguing tidbits and colorful characters, The Lady Tasting Tea salutes the spirit of those who dared to look at the world in a new way."

Linked: How Everything Is Connected to Everything Else and What It Means by Albert-Laszlo Barabasi

"A cocktail party? A terrorist cell? Ancient bacteria? An international conglomerate?

All are networks, and all are a part of a surprising scientific revolution. Albert-László Barabási, the nation’s foremost expert in the new science of networks, takes us on an intellectual adventure to prove that social networks, corporations, and living organisms are more similar than previously thought. Grasping a full understanding of network science will someday allow us to design blue-chip businesses, stop the outbreak of deadly diseases, and influence the exchange of ideas and information. Just as James Gleick brought the discovery of chaos theory to the general public, Linked tells the story of the true science of the future."

The Great Risk Shift

Here's a 2006 book that really opened my eyes to economic risk in modern America. Risk is an OCD topic that is always compelling.

"America's leaders say the economy is strong and getting stronger. But ordinary Americans aren't buying it. They see what the rosy statistics hide: We are all struggling under the weight of terrifying economic instability. No matter how well educated and hard working we are, we know that the bottom can fall out at any moment. Meanwhile, the safety net that once protected us is fast unraveling. With retirement plans in growing jeopardy while health coverage erodes, more and more economic risk is shifting from government and business onto the fragile shoulders of the American family.

In The Great Risk Shift, Jacob S. Hacker lays bare this unsettling new economic climate, showing how it has come about, what it is doing to our families, and how we can fight back. Behind this shift, he contends, is the Personal Responsibility Crusade, eagerly embraced by corporate leaders and Republican politicians who speak of a nirvana of economic empowerment, an "ownership society" in which Americans are free to choose.

But as Hacker reveals, the result has been quite different: a harsh new world of economic insecurity, in which far too many Americans are free to lose. The book documents how two great pillars of economic security -- the family and the workplace -- guarantee far less financial stability than they once did. The final leg of economic support -- the public and private benefits that workers and families get when economic disaster strikes -- has dangerously eroded as political leaders and corporations increasingly cut back protections of our health care, our income security, and our retirement pensions.

Hacker concludes by advocating an "insurance and opportunity society" that would safeguard economic security and expand economic opportunity, ensuring that all Americans have the basic financial security they need to reach for and achieve the American Dream. Jacob Hacker brings into focus as never before the pressures that the Great Risk Shift exerts on our pocketbooks and on our lives. Blending powerful human stories, big-picture analysis, and compelling ideas for reform, this remarkable volume will hit a nerve, serving as a rallying point in the vital struggle for economic security in an increasingly uncertain world."

Favorite Science Writers: William Poundstone

Here are two of my faves by William Poundstone that I read years ago. Both are first-rate.

Labyrinths of Reason: Paradox, Puzzles, and the Frailty of Knowledge

We conceive of and describe the world in ways that usually work just fine, but in the far corners of the labyrinth of reason, our best intentions fold back on themselves, and we end up trapped in an intractable loop or tumbling down a chute of infinite regress. Labyrinths of Reason is a collection of classic philosophical thought experiments and other imponderables that push reason and language to their logical limits. Beyond just idle brainteasers, William Poundstone shows that these mental exercises have profound implications for such fields as cryptography, decision theory, subatomic physics, and computer programming. But most of all, they're good, clean philosophical fun.

Prisoner's Dilemma

When it flourished in the 1950s, game theory, the construct of Hungarian-born mathematician John von Neumann (1903-1957), was the dominant metaphor for nuclear war debates. Game theorists today operate on more modest economic and organizational models but this reevaluation of game theory's development is nevertheless interesting. Poundstone's three-dimensional outline of the mathematics of game theory sketches von Neumann's life and offers game theory scenarios of Cold War history. The "prisoner's dilemma" is the classic model of conflict situations in which strategies leading to either individual gain or the common good are examined. Featuring much of the think tank/parlor game quality that makes game theory so seductive, Poundstone wisely restricts his discussion of von Neumann to that which serves his theme. The West's Cold War policy was formed around the structure of game theory at the RAND Corporation and other think tanks; Poundstone makes essential connections among the theory, von Newmann's politics and historical forces.

The Game is On: Sherlock: Season One DCD (2010)

Here's an updated version of Sherlock Holmes that I enjoyed tremendously. Check it out if you haven't already seen it.

"A contemporary take on the classic Arthur Conan Doyle stories, Sherlock is a thrilling, funny, fast-paced adventure series set in present-day London. Co-created by Steven Moffat (Doctor Who, Coupling) and Mark Gatiss, Sherlock stars BAFTA-nominee Benedict Cumberbatch (Hawking, Amazing Grace) as the new Sherlock Holmes and Martin Freeman (The Office, Love Actually), as his loyal friend, Doctor John Watson. Rupert Graves plays Inspector Lestrade. The iconic details from Conan Doyle's original books remain -- they live at the same address, have the same names and, somewhere out there, Moriarty is waiting for them. And so across three thrilling, scary, action-packed and highly modern-day adventures, Sherlock and John navigate a maze of cryptic clues and lethal killers to get at the truth."

Should I Stay or Should I Go?: The Impulse Factor

Thanks to the success of Malcolm Gladwell, there are now scores and scorces of popular psycholgy science books that are fun to read and easy to understand. I'm blazing through this one now. Sometimes I will read two or three of these titles, jumping from one to another if I get bored.

From the ever-popular Amazon, "In his work as research and development director at cutting-edge think tank TalentSmart, Nick Tasler realized that the recent discovery by scientists of a potential-seeking gene could have a remarkable impact on how we understand decision making. Those who have this gene – about one quarter of the population – are endowed with impulsive tendencies that can lead to fast and decisive action or to foolish choices. The cautious majority that Tasler calls risk managers can make carefully considered decisions or become hopelessly lost in the fog of details. Now The Impulse Factor offers a unique online opportunity to analyze their own decision-making style and harness it to improve their everyday lives. With examples from business, psychology, and Tasler’s own research at TalentSmart, the book also vividly illustrates how susceptible we are to the events around us and how our reactions often run contrary to our best interests. By combining his research with real-world examples of extreme decision making, Tasler teaches listeners how to thrive when faced with difficult choices."
.