Economic Diversity and Central Tendency.
Today is really hot. I took a walk like every day this morning from 10 to 11 in the morning. I saw only two people, probably a farther and his son, were riding bikes along the way I was working for the entire one hour. Wind was very slow. I could hold the umbrella against my left or right shoulders with one hand. I used another hand for holding a bottle of water. By the time I was back home. I was wet entirely. After taking a shower, now I am going to write down what I was thinking today or over the last few days.
There is a connection between individual instability and aggregated stability. The first example is the theory I learned about rivers. There is a relationship between the flow and the concentration of sediment in the flow. In it simplest form, the following equation represents this relationship.
C = K US / W
Where C is the concentration of sediment in flow, U is velocity of flow, S is the slope of the flow, W is the fall velocity of sediment in still water, and K is a constant.
This equation is very simple and used widely in predicting the sediment load in rivers. However, the errors between this predicted sediment loads and the actual measured ones are very large. The standard deviation for the errors can be as big as a few hundred percents relative to the mean estimates. Although the standard errors are big, the overall errors over an extended period time are quite reasonable. One example is the above equation can be used to determine the reservoir life (the time for the reservoir to be filled up with sediment) with quite good accuracy. This indicates that the central tendency of the relationship between flow and sediment is clearly explained by the equation.
Another example is related to the types and shapes of cars. At the beginning time of car manufacturing, there were many types of cars in many different shapes. Over the years, the types and shapes of cars are settled with limited numbers. The engines are standardized, the colors are standardized, the bodies are standardized, the tires are standardized, and the shapes of windshields are standardized. In my mind, each component is optimized over time by engineers at different manufacturers. All these components are standardized towards the central tendency.
The shopping experience has similar history. There were many small stores around each town in the United States. The types of stores owned by the diversities of people are gradually replaced by the standard stores built by Wal-Mart, Target, or Costco. One vivid experience of video store happened over a very short time period. There were many mom-&-pop video stores. After Blockbuster, all video rental stores are almost the same. This is another example of central tendency in shopping.
The civilized world seems moving toward certain central tendency with gradually reducing standard deviations. On one hand, the world is diversifying. On another hand, each diversified part is moving toward leanness.
The financial instruments should move in similar fashions. The financial instruments are generally divided into two categories: risky assets and risk-free assets. When looking at each class of risky assets, their volatility is great. Some can vary more than 50% around their means. However, the aggregated GDP (gross domestic products) usually vary only a few percents. Even the fast-changing China GDP is growing about 10% per year. If one can invest in the entire global economy with proper divisions among all asset classes, one could achieve the central tendency for optimal allocation of resources. This is one of the philosophical basis for our one-world fund.
There is a connection between individual instability and aggregated stability. The first example is the theory I learned about rivers. There is a relationship between the flow and the concentration of sediment in the flow. In it simplest form, the following equation represents this relationship.
C = K US / W
Where C is the concentration of sediment in flow, U is velocity of flow, S is the slope of the flow, W is the fall velocity of sediment in still water, and K is a constant.
This equation is very simple and used widely in predicting the sediment load in rivers. However, the errors between this predicted sediment loads and the actual measured ones are very large. The standard deviation for the errors can be as big as a few hundred percents relative to the mean estimates. Although the standard errors are big, the overall errors over an extended period time are quite reasonable. One example is the above equation can be used to determine the reservoir life (the time for the reservoir to be filled up with sediment) with quite good accuracy. This indicates that the central tendency of the relationship between flow and sediment is clearly explained by the equation.
Another example is related to the types and shapes of cars. At the beginning time of car manufacturing, there were many types of cars in many different shapes. Over the years, the types and shapes of cars are settled with limited numbers. The engines are standardized, the colors are standardized, the bodies are standardized, the tires are standardized, and the shapes of windshields are standardized. In my mind, each component is optimized over time by engineers at different manufacturers. All these components are standardized towards the central tendency.
The shopping experience has similar history. There were many small stores around each town in the United States. The types of stores owned by the diversities of people are gradually replaced by the standard stores built by Wal-Mart, Target, or Costco. One vivid experience of video store happened over a very short time period. There were many mom-&-pop video stores. After Blockbuster, all video rental stores are almost the same. This is another example of central tendency in shopping.
The civilized world seems moving toward certain central tendency with gradually reducing standard deviations. On one hand, the world is diversifying. On another hand, each diversified part is moving toward leanness.
The financial instruments should move in similar fashions. The financial instruments are generally divided into two categories: risky assets and risk-free assets. When looking at each class of risky assets, their volatility is great. Some can vary more than 50% around their means. However, the aggregated GDP (gross domestic products) usually vary only a few percents. Even the fast-changing China GDP is growing about 10% per year. If one can invest in the entire global economy with proper divisions among all asset classes, one could achieve the central tendency for optimal allocation of resources. This is one of the philosophical basis for our one-world fund.
posted by Unknown at 10:17 AM
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