Flying a “Foil in the Flow” above the “Walled Gardens”
Post #9 out of 9: Annotated References
Preamble for New Substack Readers
This ninth post closes a series of nine weekly posts that add up to a final CTRI Notebook. Each post covers a section from this final Notebook titled “From Rational Investors, Inc. to the Curve, Triangle & Rectangle Institute, a 25-year Story of Change in a Hard-to-Change Industry, and What May Come Next”. This Notebook summarizes the author’s “Perspective” on the history of retirement planning (“advisor-tech”) over the last 25 years, and projects its future over the next 25 years.
This ninth post marks the last step in the dissolution of CTRI, and the placement of its IP in the Public Domain. The placement of CTRI’s IP, the “Constructive Skepticism” Curriculum, in the Public Domain makes available to any and all, and thus matches its “Meaning” and “Purpose” to help financial clients, advisors, and executives improve their individual, business, and investment decision-making by evolving the basis for their “Predictions” from “Trust Them”, to “Show Me”, and to “See for Yourself”.
Reading papers about Health, Wealth, and Statistics on behalf of CTRI’s members from 2017 to 2024 revealed that the average outcome of an ensemble does not match the typical outcome of an individual life trajectory. Such differences offer new models to support best practices that improve the accuracy of individual “Predictions” for wellness, financial and retirement planning. The “Rational” optimizations and simulations of the Logic & Statistics Program present ensemble outcomes, the Heuristics & Bias Program blames the individual for divergences, and “Terrain Theories” such as the Household Balance Sheet for retirement planning, Ergodicity Economics for investment management, and the “Fast & Frugal” Heuristics Program for decision-making present typical individual outcomes.
The “Constructive Skepticism” curriculum introduces readers to such models and best practices. CTRI’s founders hope that placing this curriculum in the public domain will continue to help readers “Fly in the Flow” by answering questions such as:
- What is your current “Manner of Living” in your individual, business, and investment ecosystems?
- How does your current “Manner of Living” as a “Decision-Maker” differs from the Science of the “Disinterested Observers”?
- What new ideas will inject themselves into the culture of your ecosystems?
- How will these new ideas change the nature of the “Ideal Client”?
- What do you need to know about such ideas to remain a “Productive Host”?
- Keeping “Models all the Way Down” in mind, what can you do now, or did not do earlier, that will shape your future?
- Where did you find the flows of kinship and energy that sustained growth?
- Where will you find new flows of kinship and energy when growth stops?
Post #9 out of 9: Annotated References
This final section provides selected annotated references as well as traditional references to books, and papers mentioned in this Final Notebook. These references should help readers improve their “Predictions” from “Trust Them”, to “Show Me”, and to “See Yourself” in a world of “Models All the Way Down”. Mental maps, and “Models” provided in books and papers grow like trees in a forest. Some stand tall, and references help us move from tall tree to tall tree without having to slug it through the thick underbrush of “Spinach” – the non-reproducible or non-replicable mental maps and “Models” that come from “Willful Ignorance, Error, and Deceit”.
Finally, reading brings out the voice of long-gone authors into the present, and in a way that makes it possible to relate to them as friends that converse with us as we walk into the future. This path into the future starts with the annotated references to CTRI’s Top-10 list of readings, and continues with traditional references to authors mentioned in this Notebook.
At this point, the co-founders of CTRI have complete the final step in the dissolution of the institute, and the placement of its “Constructive Skepticism” curriculum in the public domain. This curriculum is no longer CTRI’s, it is yours, and I look forward to making new friends by reading, or listening to what you have done with it.
The Top 10 readings in CTRI’s “Constructive Skepticism” Curriculum as it applies to Retirement Planning, include:
Arendt, Hannah (1971), Thinking and Moral Considerations, Social Research, 38:3 (1971: Autumn). P417
[Boyd, John] Osinga, Frans P.B. (2007), Science, Strategy and War, The strategic theory of John Boyd, Routeledge
Carse, James P. (1980), Death and Existence, A Conceptual History of Mortality, John Wiley & Sons
Cipolla, Carlo M. (2019) with a foreword by Nassim Nicholas Taleb, The Basic Laws of Human Stupidity, Doubleday
Csikszentmihalyi, Mihaly (1997), Finding Flow: The Psychology of Engagement with Everyday Life, Basic Books
Gigerenzer, Gerd (2023) The Intelligence of Intuition, Cambridge University Press
Llinás, Rodolfo R. (2001), “I of the Vortex: From Neuron to Self”, MIT Press
Mastrolia, Stacy, Zielonka, Piotr & McGoun, Elton (2014), Conjuring Reality: The Magic of the Practice of Accounting”, MBA-CE, Volume 22, Number 3, pages 3-17
Peters, Ole (2018), Course Notes, London Mathematical Laboratory
Zwecher, Michael J. (2010), Retirement Portfolios, Theory, Construction, and Management, Wiley
Arendt, Hannah (1971), Thinking and Moral Considerations, Social Research, 38:3 (1971: Autumn). P417
Perspective: Conscience from Self-Reflection
The personal experience of repeated beginnings forced by the violent malevolence that groups can impose on individuals, the self-consciousness of standing outside-looking-in as a “Pariah”, and a formal education in a wide range of literary & philosophical topics gave Arendt a unique & independent perspective about thinking as an individual instead of belonging to one, or another ideology.
Historical Context: Germany (1906-1933), France (1933-1941) & the United States (1941-1975)
Born in Linden, Germany in 1906, Arendt grew up as a gifted student focused on the conscious formation of mind, body & spirit, She developed a deep knowledge of classic Greek, French, and German literature, Jewish & Christian theology, as well as existentialist philosophy & progressive political ideologies. Fleeing Germany in 1933 after an arrest by the Gestapo, Arendt lived in France in exile, and without papers, while working for a number of Jewish charities helping refugees. Once again, in 1941, she had to flee without papers, this time through Spain and Portugal on the way to the United States where she settled in New York to read, write, and teach at several universities until her death in 1975.
Purpose: Independent Thinking to Avoid Moral Catastrophes
Arendt’s work comes to terms with the violence of that groups inflict on individuals by observing the continuous birth of new generations of individuals, capable of self-reflective, “Two-in-One-Mind” thinking. These new individuals become the source of enduring freedom, and moral behavior that cannot be extinguished by the obedient, and group conformity.
Methodology Choices: Literate Civic Engagement
Arendt developed her perspective through the analysis of abstract opposites, based on extensive reading, and writing across religions, cultures, and schools of thought, enhanced and informed by a life-long active engagement in the “Large World” issues of her days, such as the Eichmann’s trial in 1961. However, she left it to the reader to make concrete syntheses of her analyses of abstract opposites across the wide range of individual, social, and political topics she covered.
[Boyd, John] Osinga, Frans P.B. (2007), Science, Strategy and War, The strategic theory of John Boyd, Routeledge
Perspective: A Purposeful, Self-reflective “Foil in the Flow”
Boyd built his own mind-map to navigate the territory of a fighter pilot engaged in combat. Navigating this territory required a deep mathematical knowledge of Physics, as well as an explicit, self-reflective “Two in One Mind” awareness of such knowledge to improve “our ability to shape and adapt to unfolding circumstances… such that we … can survive on our own terms” [John Boyd briefing: “the Strategic Game of ? and ?”, p. 15 (v.1987)].
Historical Context: From the F-86 to the F-16
Drafted in the US Army in 1946 at age 19, and served in the Army Air Corps. Attended USAF pilot training at Williams AFB, AZ in 1952. Flew 22 combat sorties on F-86 Sabre for the 51st Fighter Interceptor Wing in the last year of the Korean War (1950-1953). Attended the Fighter Weapons School Instructor Course in 1954 and served as an instructor at the school (Nellis AFB, NV). Started the development of the concept of “Energy Maneuverability” [E-M Theory (1963-1964)] in 1962. This concept drove the development of the F-15 and F-16 fighters. Retired from active duty in 1975, but continued to work as a civilian in the Office of the Secretary of Defense (OSD). Developed his presentations from 1976 (“Destruction and Creation”) to 1995 (“The Essence of Winning and Losing (The Big Squeeze)”).
Boyd’s Purpose: Shape the Decision-Space of Decision-Makers
Flying airplanes under the structural uncertainty of combat, and with limited time to make decisions Boyd saw the existential value of developing a continuous “Motion” management “Process” between the external “Large World”, and one’s own internal emulation of it (“Brains”) in order to control the engagement’s tempo as interactions with friends & foes move from the past to the future (“Predictions”).
Methodology Choices: Observational & Synthetical
Boyd developed the “OODA-Loop” as a continuous process of observation, and self-reflection an open-system capable of making connections, and seeing analogies across diverse disciplines in order to: (i) Enhance one’s ability to change direction in the flow of energy in order to maintain unpredictability in the eye of competitors, and (ii) Use this unpredictability to turn competitors from open-systems capable of learning to closed-systems stuck in the past.
Quantitative Methods & Foundational Assumption: The Mathematics of Control & Guidance Systems with “Motion” as the Core Metaphor
Boyd started with the objective mathematics of “Motion” in order to predict the future given the clinical ambiguity of a specific, empirical individual situation. However, instead of relying exclusively on “Small Worlds” statistics to estimate, and prescribe a population parameter from a sample group average, Boyd developed subjective “Processes” & heuristics, based on what Gerd Gigerenzer calls “Ecological Rationality”, to solve the lethal “Puzzles, Paradoxes & Anomalies” associated with flying jets in combat. In high variance situations, “Ensemble Averages” provide biased benchmarks for making good (i.e. survivable) decisions, and individuals need “Processes” & heuristics to find their own “Time Average”.
Carse, James P. (1980), Death and Existence, A Conceptual History of Mortality, John Wiley & Sons
Perspective: Pragmatic Theology
James Carse makes the abstract concrete with narratives focused on the individual.
Historical Context: NFL Football Player, Professor of Religious Studies, & Visual Artist
Born in Mansfield, Ohio in 1932. Undergraduate studies at Ohio Wesleyan university. Drafted by the Baltimore Colts to play NFL football. Knee injury leads to completing a Master of Divinity at Yale. Continues with a Ph.D. at Drew University. Life-long faculty at New York University: Director of Religious Studies in 1963, and retired in 1995 as Professor Emeritus. Carse lived a busy retirement in the Berkshires that included dinner discussions with food from his own garden.
Purpose: Understanding the Individuality of Being Human
Developing, and teaching a Philosopher’s approach to Religion, during an irreligious age.
Methodology Choices: A Focus on “Process”, and Individuality
His focus on individuality shines through as one holds all of his books together. Each book shows individuality to the point of not seeming to belong to the same author. How can you bring back to the same author (i) a book of logic that applies Game Theory to Religion [Finite and Infinite Games], with (ii) a sacred book that writes a new Gospel [The Gospel of the Beloved Disciple], (iii) a rational book that seems to negate its premise [The Religious Case Against Belief], and (iv) an end-of-life book that entertains with a secular murder mystery [PhDeath]?
Quantitative Methods: Individual Clinical Ambiguity instead of Statistical Averages
A storyteller, not a statistician, Carse tells the story of the “Finite & Infinite Games” that lurks behind the quantifications of Game Theory, using the writing style of Ludwig Wittgenstein’s 1918 “Tractatus Logico-Philosophicus”: “What can be said at all can be said clearly, and what we cannot talk about, we must pass over in silence.”
Foundational assumptions: Individual Responsibility
The centrality of the individual, and the gravitas of making decisions at the scale of the individual.
Cipolla, Carlo M. (2019) with a foreword by Nassim Nicholas Taleb, The Basic Laws of Human Stupidity, Doubleday
Perspective: Economic Historian of Pre-industrial Europe
Intellectually curious economic historian of the pre-industrial age of European expansion (1000 – 1700) who wrote 21 books, some of which translated in as many as 13 languages.
Historical Context: Post WWII Recovery
Born in Pavia, Italy, where he studied through university. In 1949, he became a full professor of Economic History in Catania, Sicily at the age of 27. He also taught at universities around Europe, and in 1959 started to teach at the University of California, Berkeley where he remained, spending Spring and Summer in Italy, up to his retirement.
Purpose: Concrete Understanding of Economic History
Cipolla looked at economic history across many dimensions, including the social and cultural aspects, seeking to understand concretely how men & women experienced their life during their time in history.
Methodology Choices: Chronicles
Written documentation of a wide range of interests from macro-historic to micro-economics, demography, public health, education, and technology.
Quantitative Methods: Economics
Standard economics analysis.
Foundational assumptions: Humanism
A preference for the wholistic, wide-ranging scholarship of a Humanist.
Cipolla’s original chart from his essay on the “Laws of Human Stupidity”, presented in Volume 1 – Part I: Sections #11 & #12, and shown below, models two agents interacting in ways that create payoffs based on gains and losses. The chart maps Benefit or Damage to self (Agent 1), and Benefit of Damage to others (Agent 2) into four quadrants, and identifies the nature of the agents in each quadrant: The “Intelligent” & the “Stupid”, the “Bandits” & the “Helpless”.
Csikszentmihalyi, Mihaly (1997), Finding Flow: The Psychology of Engagement with Everyday Life, Basic Books
Perspective: Positive Psychology
Csikszentmihalyi co-founded the discipline of Positive Psychology with Martin Seligman, and Jeanne Nakamura, thus refocusing Psychology on positive use cases instead of the pathological.
Historical Context: Rebuilding after WWII
Born in 1934 in Fiume, he witnessed the senseless and confusing brutality of WWII in his teen years. To paraphrase from the introduction to his 2014 book “Flow and the Foundations of Positive Psychology”: In1944, among several family members killed in the war, his older half-brother died trying to hold up a Russian armored division, and his brother Moricz disappeared in a gulag. In 1948, his father, a career diplomat, resigned his position as the Hungarian ambassador to the Italian Government after the installation of a Communist government. The family became stateless refugees. He emigrated to the United States in 1956. Earned a Ph.D. at the University of Chicago in 1965, started to teach at Lake Forest College, Illinois, moved back to the University of Chicago in 1969, and then to Claremont University in 1999, until his death in 2021.
Purpose: Seeing Beyond the Consensus Behavior
His experience of both the war’s senseless brutality and confusion, as well as the post-war consensus behavior of “Willful Ignorance” led him to seek positive solutions to what he feared were systemic flaws in the human condition by looking beyond the prevalent post-war attitude of seeing WWII as an unfortunate event based on unique conditions unlikely to happen again in order to sweep sorrow away, and to resume life as usual.
Methodology Choices: The Measurement of Attention
Reading Csikszentmihalyi’s papers curated in his 2014 book of collected works highlights several words, including: Freedom, Happiness, Motivation, Attention, Intrinsic Reward, Creativity, Optimal Experience, and Flow. Once could say that he formalized the thermodynamics of “Attention” as a source of energy to improve the human condition.
Quantitative Methods: Experience Sampling Method (ESM)
Starting in the 1970s, he developed a quantitative sampling method for attention and experience by using pagers and programmable watches to accurately record the real-life experiences of thousands of individuals instead of the small samples, and confounded observations from artificial laboratory experiences (See Augustine Brannigan’s 2021 book).
Gigerenzer, Gerd (2023) The Intelligence of Intuition, Cambridge University Press
Perspective: The “Ecological Rationality” of “Embodied Intelligence”
German psychologist whose work and theories created a bridge between the “Rational” perspective of the “Predictive Statistician” working with new abstract models, and the “Intuitive” perspective of the “Descriptive Clinician” working with “Heuristics” from embodied experience.
Historical Context: Bridges the End of 20th Century with the Beginning of the 21st Century
Born in Wallersdorf, Germany, Gigerenzer studied at the University of Munich where he received a Master degree in Psychology in 1974, a Dr. Phil in Psychology in 1977, and completed his Habilitation in Psychology in 1982. His career took him from the University of Konstanz in 1984, to the University of Salzburg in 1990, to the University of Chicago in 1992. He joined the Max Planck Institute in 1995, and the Harding Center for Risk Literacy in 2009.
Purpose: “Ecological Rationality”
Writing a combination of academic and popular books, Gigerenzer improves his readers’ ability to make decisions with: (i) Improved statistical numeracy to recognize signal from noise, and (ii) Algorithmic processes based in “Ecological Rationality” [The matching of a specific “Decision-Maker” with a specific “Task Environment”.]
Methodology: Formalize Heuristics with Algorithms
Methodological steps include: (i) A catalog of human core capabilities such as Memory (for recognition), Monitoring (for frequency), and Imitation (other people), (ii) An overarching theory of “Heuristics” with organizing principles linked to core capabilities, and in the form of computational models and calculable algorithms, (iii) Formalized building-blocks for “Heuristics” that include Search, Stopping, and Decision rules,, and (iv) Formalized dimensions for “Task Environments” that include Uncertainty [Benchmark for accuracy], Redundancy [Cue correlations], Sample Size [Observations to cues], and variability of Cue Weights [“Precision”]. Gigerenzer’s “Methods” include classification models of heuristics that include “Recognition”, “Take the Best”, and “Fast & Frugal” decision trees.
Foundational assumptions: Evolutionary Adaptation
Assuming the inherent fitness of evolutionary adaptation in human decision-making, and understanding the limiting “Axioms, Assumptions & Hypotheses” of prescriptive, “Rational” optimization, Gigerenzer moved decision theory from the “Good Story” narratives of Behavioral Economics to the “Real Story” algorithms of the “Fast & Frugal” Heuristics Program. Beginners use the “Tools, Checklists & Processes” of the Logic & Statistics Program to make up for a lack of experience. Reasoning is what we do in the absence of “Embodied Intelligence” from long experience. Fast, flowing, and intuitive decision-making, based on “Heuristics”, is what we do in the presence of long experience.
This foundational difference based on human experience explains the non-reproducibility of many Behavioral Economics studies. Study subjects sampled from college & graduate student populations create confounding variables related to their lack of life experience. Thus, Behavioral Economics over-samples the “Economy of Inexperience”, and over-states the presence & importance of the “Rational” decision-making of individual or institutional beginners.
Llinás, Rodolfo R. (2001), “I of the Vortex: From Neuron to Self”, MIT Press
Perspective: Brains Exist to Manage “Motions” through “Predictions”
Brains evolved as emulators of reality in order to manage “Motions” in the “Large World” by making “Predictions”. Llinás’ 2001 book, titled “i of the Vortex”, starts with the example of the “Sea Squirt”, a living creature that eats its own brain when, in the unique course of its life-cycle, it transitions from a mobile, animal-like creature to a sessile, plant-like creature:
- “The lesson here is quite clear: the evolutionary development of a nervous system is an exclusive property of actively moving creatures.”, and
- “The nervous system has evolved to provide a plan, one composed of goal-oriented, mostly short-lived predictions verified by moment-to-moment sensory input.”
“Brains” support the development of internal, mind-maps of the external environment in order to navigage it. “Motions” justify the evolutionary expense that comes with the development of a “Brain” that makes “Predictions”.
Historical Context: Relating Cognitive Events to Electrical Events
Born in Bogota, Columbia, Llinás became a medical doctor in 1959. He earned his first Ph.D. on the circuit analysis of the visual system using multivalued logic in 1965, from the Australian National University. His second Ph.D. focused on the physiology of the cerebellar cortex. Starting in 1976, he became the Chairman of the Department of Physiology and Neuroscience at the School of Medicine of New York University. His autobiography shows the development of a step by step understanding of what “Brains” do. This begins with the electrophysiology of single neurons in the 1960s, moving up to the behavior of groups of neurons in the 1980s, and culminating with the functional architecture of the “Brain” based on experiments based on magnetoencephalography in the 1990s.
Purpose: Understand the Biological Basis of Building Mind-Maps of Reality
Llinás showed that the ability to make “Predictions” starts at the level of individual neurons with differences in slow vs. fast responses to stimulation, and that our brain does not work as a continuous processor because the computational overhead would overcome its capacity. Instead, the brain makes “Predictions” across several, nested mind-maps with different scales of sampling time, and motor output. Thus, he sees the mind as a self-referential, closed-system emulator of reality with built-in ancestral pre-sets. “Mindness” & “Brains” evolved to manage “Motions” between moving individuals & their “Task Environment”. Consciousness appears intrinsic to shared evolution, and memory appears to come from individual adaptation. Our “Sense of Self” develops in the measure of the centralization of “Predictions” in the “Brain”.
This led to his description of the functional architecture of the “Brain” as follows:
- Sensory “Perceptions”,
- Amplification of “Perceptions” (Emotions provide context for “Predictions”),
- Goal-oriented “Predictions” (Short-lived, transient decisions), and
- Guided “Motions”.
Methodology Choices: Empirical Laboratory Experiments
- Empirical, structural study of the electric potentials of neurons, leading to the discovery of internal & continuous frequency oscillations that enabled the mapping and the interpretation of the functional architecture of the “Brain”.
Quantitative Methods: Measurements of Electric Potentials
Electrical engineering with mathematical models of biological oscillations & resonance.
Foundational assumptions: The “Brain” Can Understand Itself
Llinás sees “Brains” as capable & understandable rather than complex & mysterious.
Mastrolia, Stacy, Zielonka, Piotr & McGoun, Elton (2014), Conjuring Reality: The Magic of the Practice of Accounting”, MBA-CE, Volume 22, Number 3, pages 3-17
Perspective: Finance Lives in Mathematical Abstraction Instead of Real-life
Elton McGoun’s background in accounting led him to see how finance lives in a mathematical, video-game version of reality, a conjuring of economic reality based on choices about what to categorize, how to name the categories, and what observations fit in such categories.
Historical Context: Outside-Looking-In
Born in the United States in 1950s, McGoun came to studying finance as an outsider with a fresh perspective, and a good sense of humor. As he writes in an academic bio for Iowa State University about deciding to get a Ph.D. in International Finance, “… imagining myself stepping out of the pages of GQ into the finest hotels and restaurants in the financial capitals of the world. Instead, I live across from a cornfield, and drive a pick-up truck. Go figure”. This combination made it possible for him to imagine alternatives to the standard conjuring of financial reality that lies deep into its mathematics, and accounting practices.
Purpose: Finding the Trackable Values Behind the Conjuring of Abstract Reality
McGoun’s work asks a foundational question: Do the clients of, and participants in, the financial industry budget expenses and spend money, or do they make prudent exchanges of risks for something worth tracking as an asset on a balance sheet? In other words, what is worth naming?
Methodology Choices: The Mathematics of Finance
Similarly to Gerd Gigerenzer’s, McGoun’s inquiries started with the examination of the “Meaning” of Probabilities”. He started to see the conjuring of reality at the core of the mathematics of Finance by classifying probabilities in five classes that include:
- P(4): Non-quantitative, behavioral level of “Belief”
- P(3): Subjective, quantitative level of “Belief”
- P(2): “Rational”, homogeneous, and logical quantitative “Beliefs”
- P(1): Relative Frequencies, and
- P(0): The structure of Activity (Classical Probabilities from Games of Chance).
He then asked himself: What happens when we translate concrete goals from a given observation language (e.g. English) to an abstract model language (e.g. Probabilities), and back again for empirical testing?
Foundational Assumptions: Conjuring Reality with “Axioms, Assumptions & Hypotheses”
McGoun focused his work on understanding the “Axioms, Assumptions & Hypotheses” of Finance, looking for what may become worth tracking as we move beyond them. These “Axioms, Assumptions & Hypotheses” include:
- Cause-effect mechanisms exist in Finance, and can be computed for purposes of prediction, control, problem-solving, and explanation.
- Free-will of individual investors and other participants in the financial industry can be ignored, and individual human behavior can be inferred from population statistics.
- Complex situations can be modeled from simple mathematical formalizations.
- The shared rationality of participants in the financial industry as well as their clients’ comes from wealth maximization as the human behavior that supports its economic “Models, Theories & Laws”.
Peters, Ole (2018), Course Notes, London Mathematical Laboratory
Perspective: Decision-Making Under Uncertainty based in Physical Operations
Ole Peters applies insights from Physics to decision-making theory,
Historical Context: From Physics to Decision-Making
In 2001, Peters earned his B.Sc. in Physics from the Imperial College London, followed by a Ph.D., also in Physics, in 2004. His career took him to the Santa Fe Institute as well as UCLA before he became the intellectual founder of the Ergodicity Economics program (EE) in 2012, and its organizational leader, in 2018, at the London Mathematical Laboratory (LML). His first paper on EE goes back to 2009. The first EE conference, in an on-going series of conference, took place in 2021.
Purpose: Fixing Foundational Errors
EE resolves many “Puzzles, Paradoxes, & Anomalies” in Financial Economics by fixing the “Feet of Clay” of foundational “Assumptions & Hypotheses” in rational theories of decision-making in general, and “Expected Utility” Theory in particular.
Methodology Choices: Ergodically Consistent Closed-From Equations
EE develops equations with explicit ergodic consistency, starting with growth dynamics, and following up with matching growth formulas, and ergodic transformation functions.
Quantitative Methods: Modeling Rates of Growth Over Time
Using the mathematics of theoretical & applied Physics to model individual behavior based on specific growth dynamics of the “Task Environment”. In the case of Financial Economics, modeling the stochastic processes that governs the growth of wealth enables the description of individual as well as population behaviors to reveal emergent behaviors such as “Winners-take-all” trajectories, the value of cooperation, justifications for taxation, minimum holding periods to discover regularities in the price trajectories of traded, risky assets, optimal leverage (strategic asset allocation) across types of financial assets, and the development of a theory of noisy stock prices that resolves many “Puzzles, Paradoxes & Anomalies” such as the Equity Premium Puzzle.
Foundational “Axioms, Assumptions & Hypotheses”: Life Seeks to Maximize Rates of Change Over Time
Decision-making has a structure that maps into mathematical models with physical interpretations. Past theoretical & empirical research suggests that most real-life situations have decision-making circumstances with non-ergodic observables. In the few situations that have decision-making circumstances with ergodic observables, the expected value, the “Ensemble average” provides a relevant summary of the situation for individual decision-making. Current theoretical & empirical research shows that individuals may sense ergodicity-breaking circumstances where the “Time Average”, instead of the “Ensemble Average”, provides the relevant summary of the situation for individual decision-making. Life seeks to maximize rates of change over time.
Zwecher, Michael J. (2010), Retirement Portfolios, Theory, Construction, and Management, Wiley
Perspective: The Retiring Household
Zwecher combines an academic background and experience with a business career in order to solve the problem of retirement from the “Perspective” of an individual household.
Historical Context: Academic Turned Businessman
His academic background includes a Ph.D. and an M.S. in finance, as well as an M.S. in economics from the University of Wisconsin, Madison, as well as an M.A. in economics from Tufts University. His business career includes the management of risk at Deutsche Bank, Merrill Lynch/Bank of America, and Deloitte Touche.
Purpose: Make Retirement Planning Work for the Individual
In 2010, Zwecher published a book titled “Retirement portfolios: theory, construction, and management”. In this book, he recognized the need to manage a variety of risks in retirement, and he presented various solutions.
Methodology: Start with 60/30/10
His reasoning started with an examination of the retirement “Meaning” of the 30% bond allocation in the standard 60/30/10 investment asset allocation recommendation. He started this examination with the example an old “Ideal Client” that would be able to generate their annual retirement income requirement from the interest earned on this investment management bond allocation. Additionally, he extended this thinking, and developed solutions for other client types that would require more than the typical bond allocation to generate the necessary retirement income.
Quantitative Methods: The Household Balane Sheet
In order to describe these new “Ideal Clients”, he incorporated RIIA’s household balance sheet analysis in his book, as shown in the book’s table of contents. The household balance sheet defines the boundaries of what is structurally possible as opposed to what may be hoped for.
Foundational “Axioms, Assumptions & Hypotheses”: RIIA’s Gestalt
Zwecher backed into the Risk Management Techniques Allocations by way of the “Floor” portfolio as he wrote his book in parallel with this author’s writing of RIIA’s second edition of the RMA curriculum, as illustrated by Zwecher’s extensive list of acknowledgements that includes RIIA members such as John Carl, Francois Gadenne. Rick Miller. Steve Mitchell, David Musto, Keith Piken, Bob Powell, and Bruce Wolfe, as well as academic advisors that include Professors Zvi Bodie, Larry Kotlikoff, and Moshe Milevsky. Both Zwecher (2010) and RIIA (2008 – 2017) focused on individual household clients, and the development of advisor best-practices.
References for Concepts and Authors mentioned in this Final Notebook include:
Arendt, Hannah (1971), Thinking and Moral Considerations, Social Research, 38:3 (1971: Autumn) p.417
[Arendt Hannah] Villa, Dana (editor) (2000), The Cambridge Companion to Hannah Arendt, Cambridge University PressCarse, Jame P. (1980) Death and Existence, A Conceptual History of Human Mortality, Wiley
Brannigan, Augustine (2021), The Use and Misuse of the Experimental Method in Social Psychology, A Critical Examination of Classical Research, Routledge
Carse, James P. (1986), Finite and Infinite Games, A Vision of Life as Play and Possibility, The Free Press
Carse, James P. (1994), Breakfast at the Victory, The Mysticism of Ordinary Experience, Harper Collins
Carse, James P. (1997), The Gospel of the Beloved Disciple, Harper San Francisco
Carse, James P. (2008), The Religious Case Against Belief, The Penguin Press
Carse, James P. (2017), PhDeath: The Puzzler Murders, Opus
Cipolla, Carlo M. (2019) with a foreword by Nassim Nicholas Taleb, The Basic Laws of Human Stupidity, Doubleday
Cipolla, Carlo M. Bio/Bibliography for the 1995 Balzan Prize for Economic History, Fondazione Internazionale Premio Balzan
Cipolla, Carlo, 13 Sep 2000 Press Release/Obituary from UC Berkeley – Campus News/Media Relations
Collins, Patrick & Gadenne, Francois (2017) The Shapes of Retirement Planning: Are you Curve, a Triangle, or a Rectangle? Investment & Wealth Monitor July/August 2017
Csikszentmihalyi, Mihaly (2014), Flow and the Foundations of Positive Psychology, The Collected Works of Mihaly Csikszentmihalyi, Springer
Csikszentmihalyi, Mihaly (1997), Finding Flow, The Psychology of Engagement with Everyday Life, Basic Books
Peter, Laurence J. & Hull, Raymond (1969), The Peter Principle, William Morrow & Company, Inc. New York
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