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It's Complicated

by

Ross M. Miller

Miller Risk Advisors

www.millerrisk.com

June 13, 2011

This commentary was going to be about teaching finance, but that's
complicated and so will have to wait until later in the summer at a
minimum.

My hard drive now a directory with 388MB of PDFs that are the manuals
for the various things I own that require a manual and for which the
manual is readily available in PDF form. This collection does not include
several important manuals, such as the one for my car, nor for most of the
software that I use because those manuals live elsewhere on my main hard
drive. I do not remember anything coming with a manual in my youth (except
for the Cub Scout Manual). My first notable manual was that for the Harman
Kardon 230A stereo receiver that I purchased in 1973. The manual for that
receiver is in my PDF collection even though I destroyed the receiver
itself in 1981 by inadvertently covering its top air vent, something the
manual did not adequately warn me not to do. (The physical manual itself
could be somewhere in my attic if it did not succumb to one of my periodic
toss-everything-out sprees; I know that I keep it for quite a while for
the sentimental value.) The receiver was reincarnated two years ago in my
house as the Harmon Kardon 3490, which is probably the cheapest receiver
available with any chance of driving Magneplanar speakers adequately.
(Mini review: Lots of power, horrible tuner section, pathetic Chinese
build quality, does the job, has not broken yet.)

I may have all of these manuals, but I clearly don't know most of what
is in them. I have been driving the same car for four-and-a-half years,
but I only recently discovered that I could switch quickly between the FM
and XM radio using two dashboard buttons and without leaving with the
navigation system display. Supposedly I can talk to my car and get it to
do all sorts of things, but then I'd have to learn exact what to say to it
to get it to do things. I have a variety of Bluetooth headsets, but I have
no idea how to initiate a phone call with any of them. Even simple things
like the iPod Touch and iPad have all sorts of quirky specific ways in
which one must interact with them to use them.

Fortunately for me, my brain is still here and working, possibly not as
well as it was in my twenties, but it is going strong nonetheless. I just
have better things to do than read manuals and memorize what a certain
pattern of flashing lights means. If I ever need to know anything, I know
where to find the manuals and how to use Google.

Nonetheless, there is something out there that it much more difficult
to deal with than all my electronic stuff combined and that is Mathematica.
I have been with Mathematica from Day One-I have an article in the premier
issue of the* Mathematica Journal* about doing the Black-Scholes
model in Mathematica (this was before unfortunate revisionist thinking
added Merton to the mix, more on him when I start going senile). All of my
market mechanisms and robots are coded in Mathematica and this summer I am
turning my attention back to Mathematica in the hopes of coding some more.

Mathematica has grown considerably in the over twenty years that it has
been around. It used to have a 1500-page book that served as its manual,
but now its total documentation, which is not available in book form,
exceeds 10,000 pages. Moreover, that documentation is massively
incomplete. Much of Mathematica can only be figured out by trail-and-error
combined with attempt to think like a physicist who was a child prodigy.
Unlike LISP and APL, languages close to my heart from which it evolved,
Mathematica lacks a solid logical foundation. While LISP is based on a
mathematically elegant concept of recursive evaluation, Mathematica is
about "simplifying" expression rather than evaluating them. One
can write LISP-like code in Mathematica, I certainly have, but that misses
the point. This summer I am trying to get more in the swing of Mathematica
to create things that leverage its capabilities much more than I have in
the past by channeling my inner physics prodigy. Right.

I began the summer ambitiously thinking that I could convert my entire
existence to Mathematica, including how I teach finance. I was going to
create nifty Mathematica notebooks with all the big concepts of finance
there, including direct access to its financial databases, a new feature
in Version 8. The problem is that while Mathematica has "player"
software that does not require the user to know Mathematica, that software
is highly limited in how it can retrieve financial data. Really useful
notebooks require the use of Mathematica itself and not some extremely
limited subset of the language.

Of course, any software with over 10,000 pages of documentation has a
learning curve as steep as Everest. Things that are simple in Excel, like
printing a WYSIWYG copy of what is on your screen, are mind-bogglingly
difficult in Mathematica. (By default, Mathematica printouts look nothing
like what is on the screen and use microscopic fonts to save paper.) There
is also no way to get around the fact that working with Mathematica
involves doing real computer programming in a language that has nearly as
many square brackets as LISP has parentheses. Without a crack team of
teaching assistants to field student questions, using Mathematica in an
introductory finance course is an invitation to an endless stream of
anxious student e-mails. (With teaching assistants, it may just be an
invitation to endless teaching assistant e-mails.) Also, some of the
cutesy stuff in Mathematica that use sliders can be done in Excel with
only a minimum of programming.

Ironically, even with its massive complexity, Mathematica is trivial
compared with finance. My collection of finance-related PDFs now exceeds
1GB and that excludes virtually everything that I have in book form.
Furthermore, Mathematica is a well, if somewhat poorly, defined man-made
system. Finance, on the other hand, is a hybrid system that defies
definition. Introductory finance courses (other than mine) act like it all
works nicely and is easily understood, when nothing could be further from
the truth. This summer my research will grapple with the importance of all
this complexity; my commentaries will stay more down to earth. Next time,
I finally get to a topic that I mean to write about earlier this year and
explore Tucson and Kashmir.