Economic Parasites

A Question of Intelligence

A question that’s oft-perplexed economists is why some countries are so much less successful, economically, than others. Huge reams of research have been generated developing a wide range of theories until eventually someone came up with the obvious answer. Poor countries are poor because their people are stupid.

Fortunately what’s the obvious answer to one set of researchers is the departure point for another group. It turns out that while the simple and straightforward answer has an element of truth about it, it’s only a small part of the story.

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Regression to the Mean: Of Nazis and Investment Analysis

Francis Galton, The Measuring Man

Francis Galton, cousin of Charles Darwin, was utterly uninterested in the both the workings of investment analysts and Hitler’s future plans for world domination. To be fair he died before both really got going. However, he has the dubious distinction of being at least partially to blame for some of the madder excesses of both.

What Galton was interested in was measuring things: mainly people, although he’d turn his hand to anything in the absence of a likely suspect or two. In so doing he uncovered a statistical phenomenon known as Regression to the Mean which lies behind many of the theories which still dominate stockmarket analysis and valuation techniques today and which many people misunderstand totally.

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