June 13, 2012 archive

On This Day In History June 13

Cross posted from The Stars Hollow Gazette

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

June 13 is the 164th day of the year (165th in leap years) in the Gregorian calendar. There are 201 days remaining until the end of the year.

On this day in 1966, The Miranda rights are established.

The Supreme Court hands down its decision in Miranda v. Arizona, establishing the principle that all criminal suspects must be advised of their rights before interrogation. Now considered standard police procedure, “You have the right to remain silent. Anything you say can, and will, be used against you in court of law. You have the right to an attorney. If you cannot afford one, one will be appointed to you,” has been heard so many times in television and film dramas that it has become almost cliche.

Miranda v. Arizona 384 U.S. 436 (1966), was a landmark 5-4 decision of the United States Supreme Court. The Court held that both inculpatory and exculpatory statements made in response to interrogation by a defendant in police custody will be admissible at trial only if the prosecution can show that the defendant was informed of the right to consult with an attorney before and during questioning and of the right against self-incrimination prior to questioning by police, and that the defendant not only understood these rights, but voluntarily waived them. This had a significant impact on law enforcement in the United States, by making what became known as the Miranda rights part of routine police procedure to ensure that suspects were informed of their rights. The Supreme Court decided Miranda with three other consolidated cases: Westover v. United States, Vignera v. New York, and California v. Stewart.

The Miranda warning (often abbreviated to “Miranda”) is the name of the formal warning that is required to be given by police in the United States to criminal suspects in police custody (or in a custodial situation) before they are interrogated, in accordance with the Miranda ruling. Its purpose is to ensure the accused is aware of, and reminded of, these rights under the U.S. Constitution, and that they know they can invoke them at any time during the interview.

As of the U.S. Supreme Court decision Berghuis v. Thompkins(June 1, 2010), criminal suspects who are aware of their right to silence and to an attorney, but choose not to “unambiguously” invoke them, may find any subsequent voluntary statements treated as an implied waiver of their rights, and which may be used in evidence.

Cartnoon

On Topic – Technology – Mobile Devices 2:55

Bad Gamblers

Not only are the Masters of the Universe simply gamblers, they’re bad gamblers who pursue sucker strategies that are doomed to fail.

You can see it when they, uhh… gamble.

On May 8th, 9th, and 10th, Michael Geismar (co-founder and President of the $4.6 Billion Quantative Investment Management hedge fund) went to the SkyBridge Altermantives Conference at the Bellagio in Las Vegas.

In one of those improbable success stories they use to delude the high rollers he won about 700K and the notoriety of the incident drew it to the attention of Felix Salmon who used it as a cautionary tale of risk-taking attitude.

This is why SALT will always be in Vegas, and why Vegas will always welcome SALT with open arms. I’m sure the casinos made very good money on SALT even after accounting for Geismar’s winnings, and they’ll probably make money from Geismar too, on net, over time. If nobody ever won big money, no one would gamble at all. But in the end, the house always wins – and all of these hedge-fund managers are smart enough to know that. And still, left to their own devices, what they do is gamble, and they even layer on silly “risk management” techniques which don’t reduce risk at all – in this case, after a losing hand, Geismar would bet a little less, reckoning that somehow “laws of averages” would help him as a result.

I’ll point out Michael Geismar is a hedge fund manager and is not connected with JPMorgan in any way I’m aware of.  More interesting is this description of the precise money management decisions which led to this 7,100% return.

Michael Geismar’s $710,000 blackjack breakfast

Lawrence Delevingne, Absolute Return + Alpha

May 24, 2012

After a stretch of good cards, Geismar had doubled his money to about $20,000. He then started to bet larger amounts with every winning hand, first $1,000, then $2,000 or $3000. He also scaled down his bets after one losing hand, using laws of averages but not card counting. That basic scaling strategy worked well, and Geismar got to about $200,000 early Wednesday morning. By that point he was up so much he bet $10,000 for every hand win or lose. And he kept winning.



As the other players started beating the dealer, Geismar began backing them up. Backing up is the blackjack term for betting on another person’s hand. Bellagio casino rules impose a $10,000 limit on an individual player’s own hand, but players are allowed to bet on each other’s hands, meaning one player could place $9,000 of his money on top of anther player’s $1,000 bet. In this way Geismar was able to bet the hands of several players, though his total bets could not exceed $30,000 per round. Geismar’s bets were usually much larger than those he was backing. He often used $5,000 chips on each of the other 4 player’s hands, and he often went right to the limit during a run of good cards, using his up-and-down scaling bet strategy. He was also betting $10,000 on each of his hands during the good streaks.

You see, this is in fact worse than no strategy at all.  Indeed, it’s a strategy to suffer catastrophic losses.

Guest post: Michael Geismar’s blackjack strategy

By Felix Salmon, Reuters

June 5, 2012

(M)athematician and blackjack expert Jonathan Adler

The idea that after seeing a bunch of one side of the coin on past flips you are more likely to see the other on future flips is called the gambler’s fallacy. The fallacy comes from the confusion between the long run outcome (with a large enough sample size, I expect half of my coin flips to be heads and half to be tails) and the outcome on any one flip (since I have seen a bunch of heads before, I need to start getting tails to balance things out in the long run).



(O)nce the player sees their hand and the dealer’s card there is generally a single best action for them to maximize their potential payout. This set of best actions is called “Basic Strategy” and is well known. The player really doesn’t have much choice in terms of what they do on a single round; any decent player will just take the optimal move based on what’s showing. Assuming the player always takes the best possible action, for every dollar they bet in a round they should lose around half a cent.



There are two main ways to legally attempt to overcome the fact that each hand on average loses you a bit of money. You can either change the odds to be in your favor, or you can try and change your bet amounts to make it less likely you will lose. Only one of these methods actually works.

By changing the structure of the game, you can make it that your average hand has a positive return. This was famously done by a group of MIT students using a method called card counting. The students exploited the fact that unlike our coin tosses from earlier, hands of blackjack aren’t truly independent events. That’s because each round of blackjack comes from the same shoe of cards, so if you keep track of what cards have been played in earlier rounds, you will have a small amount of knowledge on what cards you are likely to see in future hands. When there are mostly face cards and aces remaining in shoe then the player is actually at a slight advantage to the dealer. If you only place bets when the deck is to your advantage then you can make yourself money. The MIT students counted the number of face cards that had been seen already to estimate what proportion of remaining cards were face cards. When there were a high proportion of face cards left in the shoe they would make large bets.



Another way to try and overcome the expected loss on each hand by having the casino change the rules for you. If you’re a high enough roller, sometimes casinos will entice you to play by giving you discounts on your losses. When they offer these discounts on losses, they attempt to run the math to ensure that you should still be expected to lose money on your trip, however as described in the article it’s not clear they always get it right.

Most people don’t have the skill and manpower to count cards, they don’t have enough money to warrant a discount, nor do they have any other way to get the odds on each hand in their favor. So to try and overcome the house edge, they will try to cleverly alter the amount they are betting on each hand. A betting strategy, or a martingale, is a set of rules to determine how much a player should bet on each hand to try and compensate for previous wins or loses. This is different from counting cards because it doesn’t take into account what cards are left in the shoe; it only uses how many times the player has won or lost.

For example, let’s say you and your spouse go to a blackjack table with $1,024 $1,023 and hope to win an additional dollar. Your spouse suggests you just play one hand and if you lose then walk away, but you have a better idea in mind. On your first hand you bet a single dollar. If you win you do walk away, but if you lose you bet two dollars. If you lose twice in a row you bet four dollars, if you lose three times in a row you bet eight dollars, and you continue to double your bet until you get a win. Any time you win a hand you will wipe out all of your previous losses and you’ll get a dollar in winnings. The only way not make of money is to lose 10 straight hands in a row, and since losing 10 straight hands in a row is extremely unlikely, you expect to almost always make the dollar you were hoping for. Or in terms of the coins from before, instead of betting a dollar that a coin will flip heads, you bet $1,024 that out of ten flipped coins at least one will be heads. If you win you get an extra dollar, otherwise you lose all of your $1,024 $1,023.

If you followed your spouse’s advice, you would have slightly less than a 50% chance of winning a dollar, and slightly greater than 50% chance of losing a dollar. By not following their advice, you have around a 99.9% chance of winning the dollar, and a 0.01% chance of losing all the money you walked in with. In fact because the amount you would lose when you get ten bad hands in a row is so catastrophically high, the expected amount you win overall is still negative. Your clever betting strategy didn’t actually change the house’s advantage over you; all it did was push the risk out so that you lose very rarely and when you lose you lose big. You can mathematically prove that any betting strategy you use, no matter how hard you try and optimize it, will fail to change the fact that the house has an advantage – you’ll still lose money by playing.



Once the bank has increased their leverage, this becomes similar to the betting strategy in blackjack. Most of the time, the bank’s pair of investments will yield a decent return. Every once in a while, Microsoft will decrease in value while Google increases, and the bank will lose much more money than if they hadn’t hedged at all. Just like the person using a betting strategy, they have pushed their risk to the tail events: only when the market moves in a particular way will they lose money, but when it does, they’ll lose big.

As Wall Street has created more and more complicated financial products, it has become nearly impossible for a buyer to determine how much of the product’s return is due to shifting risk to the tails. In terms of blackjack, consider a person who tells you they can get an average return of five cents for every dollar you give them to play, but doesn’t tell you how they do it. Unless you watch them play, there is really no way for you to know if they are actually changing the game like the MIT students, or if they are just employing a betting strategy and at some point will lose all of your money.



The lesson here is that whether on Wall Street or the strip in Las Vegas, it’s easy to confuse increasing the chances of winning with shifting risk. Increasing the chances of winning improves the amount you should expect as payout. Shifting the risk makes it so that most of the time you get a good payout, but every once and a while you lose catastrophically. As a culture, we should be trying to ensure that the people making financial decisions are looking to do more of the former and less of the latter, especially given the systemic consequences of recent catastrophic market collapses.

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Kiazi’s children, their faces wet

Late Night Karaoke

NN12: Schneiderman Keynote A Snoozer

Cross posted from The Stars Hollow Gazette

The much anticipated keynote address on the opening night at Netroots Nation 12 in Providence, RI was, I dare say, over two hours of my life I will never get back. While I understand the need for levity, thus the comedic interludes by emcee Baratunde Thurston, the number of speakers was just too many and they were unfortunately long winded, even for politicians. I wasn’t alone in that assessment. After nearly two hours Schneiderman had not reach the stage, so I decided to “stretch my legs” before I embarrassed my self by dozing off and falling out of my seat, although, it might have more entertaining for some than Mr. Thurston. I wasn’t alone. In the lobby outside the ballroom, I ran into an Obama supporter who found that she and I had something in common, this was booooooooring. I missed the New York Attorney General’s address and opted for the hotel restaurant for some food and libation. So here is the entire opening keynote with Schneiderman coming in at the last fifteen minutes.

Here is more agreement about the anesthesia effects of the evening from FDL blogger masachio

Schneiderman chose the pander speech. He started by explaining that real change comes from the grassroots, leaders emerge from struggles over real problems. That’s us, the Netroots! We are the leaders of the future!

He continues: We are in a transitional era now, just like the early 30s. We democrats stand for the rule of law applicable to everyone equally just like President Obama. Someone from the audience suggests loudly that locking up banksters would be a good start, and Schneiderman says he’ll get to that. Which he does a few minutes later saying that he can’t comment on the investigation he is doing. Everyone is really nice about this bit of foolery, and it was at this point I realized I would prefer to be drinking. I mutter at my tablemates that banksters and pot smokers do not face the same application of the rule of law, but no one hears me because they are stunned into dopiness.

The somnolence continues. [..]

After the speech, Schneiderman told a Talking Points Memo reporter that “nothing was off the table.” So if that’s true, when do the prosecutions start? Oh, wait, the “special unit” still has no office or telephone number after six months.

SCOTUS Blesses Indefinite Detention

Cross posted from The Stars Hollow Gazette

Another right further diminished by the Supreme Court.

Supreme Court Denies 7 Detainee Cases, Leaving Crippling Limits On Detainee Rights In Place

One day before the fourth anniversary of Boumediene v. Bush, which held that detainees being held indefinitely at Guantanamo Bay have the right to challenge their confinement in federal court, the Supreme Court denied review (pdf) of seven detainee cases that were pending before the court. The decision not to review any of the cases essentially makes the U.S. Court of Appeals for the D.C. Circuit the last stop for detainees seeking habeas corpus. While many detainees won their habeas corpus cases at the trial court level, no detainees have been released from Guantanamo due to these decisions because the DC Circuit has a perfect record of reversing these decisions.

Although today’s action does not have any precedential force, it undercuts the extent to which detainees can seriously challenge their detention by leaving the D.C. Circuit’s pro-detention decisions in place [..]

Marcy Wheeler @ emptywheel explains what the Supreme Court has just blessed:

   

  • Holding a person indefinitely for being in the wrong place at the wrong time-including a school, a road, and a guest house-where suspect people are.
  •    

  • Holding a person indefinitely based on an admittedly error-ridden report the government wrote up itself.
  •    

  • Holding a person indefinitely based on pattern analysis.
  •    

  • Completely upending the role of District Court judges in the fact-finding process.
  • The Justices have abdicated their responsibility  to an ever more powerful Executive branch:

    Especially deserving of review was a petition by Adnan Latif, a Yemeni who was captured near the border between Afghanistan and Pakistan in December 2001. Latif said he had traveled to Pakistan to seek medical treatment; the U.S. government insisted that he was a fleeing Taliban fighter.

    A federal district judge ruled in Latif’s favor, concluding that, because of possible transcription and other errors, a government report of an interview with him was “not sufficiently reliable to support a finding by a preponderance of the evidence that Latif was recruited by an Al Qaeda member or trained and fought with the Taliban.” Overturning that finding, the D.C. Circuit ruled that the government’s evidence was entitled to “a presumption of regularity” and that lower court judges should require that a detainee’s “self-serving account must be credible – not just plausible.” In her opinion, Circuit Judge Janice Rogers Brown (a former California Supreme Court justice) approvingly cited dissents in the Boumediene case and referred snidely to its impracticality and “airy suppositions.” [..]

    Dissenting in the Latif case, Judge David Tatel described the decision as an “assault on Boumediene.” At the very least, the ruling called for a full-fledged review by the Supreme Court. Instead, the justices have abdicated their authority and devalued their own achievement.

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