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I'm currently enrolled in a MSc program with a thesis on portfolio optimization using statistical learning. It might even lead to a publication! But now, the qu

I'm currently enrolled in a MSc program with a thesis on portfolio optimization using statistical learning. It might even lead to a publication! But now, the question is, should I go onto a PhD in stats or CS or just settle with it. I know I probably have the chops to complete it, it's just that 4 or 5 five more years in school is somewhat risky. Sometimes it's hard to assert your worth on such a competitive market. On a side note: omg janestreet is such my dream job. Writing functional code, working on immensely interesting problems (what is the market distribution?) and being paid for it.

hackuser 11y ago
I'm not sure I understand these jobs in an economic sense and I still am not sure of the value they provide to society. Does solving liquidity or arbitrage issues a few microseconds, or even seconds, faster than someone else improve productivity? Or when it doesn't depend on speed but on seeing some tiny market inefficiency, how much does that help the world? (And I'm sure I'm overlooking other economic activities in these firms - what are they?) There's the economic question of why the market rewards them so well (not that, in the real world, the reward is usually proportional to the value, but it's something to think about). Is it essentially the equivalent of rent-seeking - that is, they get their hands on the resource first and then sell it to others? Or perhaps it's simply the free market, but working on a timescale of microseconds, where efficieny does't really benefit a society of humans that live on timescales orders of magnitude larger. Finally, there's the concentration of wealth that results from these activities, which is a serious concern. (I'm not saying everything everyone does must contribute to society, or that I'm a saint who lives on nuts and berries and tends to lepers, but it's a consideration.)
- tryitnow 11y ago
  This is the crux of the matter. No, there's no evidence that these activities produce economic value of a magnitude that justifies their compensation. A certain number of "speculators" are needed to provide liquidity to capital markets. It's unclear what that number is, but it is most likely nowhere near the level we currently see. In essence, it is gambling. These funds are supported on an ongoing basis by asset management fees. This provides a nice living for the fund managers and employees. They are structured so that the players experience all upside and no downside. If they lose millions of dollars it's not like the employees and managers are responsible for making it up (although sometimes there are clawback provisions, but not nearly as often as you would want). But if they make millions they take a cut of their gains. This most likely leads to unnecessary risk-taking. (unnecessary in the sense that there's no net economic benefit from it). So if this is largely a zero-sum game, who are the losers and why don't they do anything about it? Good question. Most directly it is the institutions and wealthy individuals who invest with hedge funds. These institutions/individuals do it because as a species we have a flawed reasoning capacity and overestimate our ability to exercise good judgment.
  - hackuser 11y ago
    > there's no evidence that these activities produce economic value of a magnitude that justifies their compensation To be fair, that describes many, many jobs. Consider that a backup offensive lineman for your local NFL team probably makes more money than the General in charge of US forces in the Mideast.
    - vasilipupkin 11y ago
      I think it's the wrong way to think about things. The evidence that they produce something of value is their compensation. If you don't agree with this, then the ball is in your court to show some evidence that in fact they do not produce economic value. The value could be hard to understand for a lay person, but that doesn't mean it's zero
      - platz 11y ago
        > they produce something of value is their compensation Your argument 'I produce something of value to society' means 'I am fairly compensated' is a very odd one.
        gjm11 11y ago
        I think you have misunderstood; what s/he said was "the evidence" that they produce something of value is their compensation". In other words: if what they were doing were useless, no one would pay them all that money to do it. I think this is wrong, though, at least when the question is value to society. Their compensation is very good evidence that they are doing something of value to someone, but that may be counterbalanced by negative consequences for other people. For instance, suppose I happen to be a very skilled thief, and some acquisitive billionaire pays me to steal great artworks from museums so that he can hang them in his living room. This is a very valuable service for the billionaire, because the museums probably wouldn't sell them to him at all, and if they did they'd be incredibly expensive; so paying me $1M for each theft is a big win for him. And he really, really loves art, and loves knowing that he owns precious things* even more, and he has money to burn, so getting those artworks is easily worth the $1M/item to him. In this scenario, I am providing plenty of value (as measured in dollars) to my employer, and my compensation reflects that. But am I doing something of value to society? Hell, no. Perhaps our hypothetical billionaire gets more satisfaction from looking at the Mona Lisa than most of those schlubs at the Louvre, but surely nowhere near enough more to make it better for it to hang in his house than in the museum.
- fanzhang 11y ago
  Here's an interesting question, even though I myself don't know the societal welfare impacts of trading. Suppose for a moment the value traders create is real. Like the trader making $X a year also creates $X of value (like a farmer that works hard/smart to plant 10 times the number of potatoes as his neighbor). How would that make you feel? Would we accept that that was even possible?
KMag 11y ago
If you're optimizing for total career income, talk to recruiters and headhunters, but remember that they're all trying to sell you something and are optimizing over a shorter term horizon than you are. They have a window into the income distributions for different education levels.

hackuser 11y ago

I'm not sure I understand these jobs in an economic sense and I still am not sure of the value they provide to society. Does solving liquidity or arbitrage issues a few microseconds, or even seconds, faster than someone else improve productivity? Or when it doesn't depend on speed but on seeing some tiny market inefficiency, how much does that help the world? (And I'm sure I'm overlooking other economic activities in these firms - what are they?) There's the economic question of why the market rewards them so well (not that, in the real world, the reward is usually proportional to the value, but it's something to think about). Is it essentially the equivalent of rent-seeking - that is, they get their hands on the resource first and then sell it to others? Or perhaps it's simply the free market, but working on a timescale of microseconds, where efficieny does't really benefit a society of humans that live on timescales orders of magnitude larger. Finally, there's the concentration of wealth that results from these activities, which is a serious concern. (I'm not saying everything everyone does must contribute to society, or that I'm a saint who lives on nuts and berries and tends to lepers, but it's a consideration.)

tryitnow 11y ago
This is the crux of the matter. No, there's no evidence that these activities produce economic value of a magnitude that justifies their compensation. A certain number of "speculators" are needed to provide liquidity to capital markets. It's unclear what that number is, but it is most likely nowhere near the level we currently see. In essence, it is gambling. These funds are supported on an ongoing basis by asset management fees. This provides a nice living for the fund managers and employees. They are structured so that the players experience all upside and no downside. If they lose millions of dollars it's not like the employees and managers are responsible for making it up (although sometimes there are clawback provisions, but not nearly as often as you would want). But if they make millions they take a cut of their gains. This most likely leads to unnecessary risk-taking. (unnecessary in the sense that there's no net economic benefit from it). So if this is largely a zero-sum game, who are the losers and why don't they do anything about it? Good question. Most directly it is the institutions and wealthy individuals who invest with hedge funds. These institutions/individuals do it because as a species we have a flawed reasoning capacity and overestimate our ability to exercise good judgment.
- hackuser 11y ago
  > there's no evidence that these activities produce economic value of a magnitude that justifies their compensation To be fair, that describes many, many jobs. Consider that a backup offensive lineman for your local NFL team probably makes more money than the General in charge of US forces in the Mideast.
  - vasilipupkin 11y ago
    I think it's the wrong way to think about things. The evidence that they produce something of value is their compensation. If you don't agree with this, then the ball is in your court to show some evidence that in fact they do not produce economic value. The value could be hard to understand for a lay person, but that doesn't mean it's zero
    - platz 11y ago
      > they produce something of value is their compensation Your argument 'I produce something of value to society' means 'I am fairly compensated' is a very odd one.
      - gjm11 11y ago
        I think you have misunderstood; what s/he said was "the evidence" that they produce something of value is their compensation". In other words: if what they were doing were useless, no one would pay them all that money to do it. I think this is wrong, though, at least when the question is value to society. Their compensation is very good evidence that they are doing something of value to someone, but that may be counterbalanced by negative consequences for other people. For instance, suppose I happen to be a very skilled thief, and some acquisitive billionaire pays me to steal great artworks from museums so that he can hang them in his living room. This is a very valuable service for the billionaire, because the museums probably wouldn't sell them to him at all, and if they did they'd be incredibly expensive; so paying me $1M for each theft is a big win for him. And he really, really loves art, and loves knowing that he owns precious things* even more, and he has money to burn, so getting those artworks is easily worth the $1M/item to him. In this scenario, I am providing plenty of value (as measured in dollars) to my employer, and my compensation reflects that. But am I doing something of value to society? Hell, no. Perhaps our hypothetical billionaire gets more satisfaction from looking at the Mona Lisa than most of those schlubs at the Louvre, but surely nowhere near enough more to make it better for it to hang in his house than in the museum.
fanzhang 11y ago
Here's an interesting question, even though I myself don't know the societal welfare impacts of trading. Suppose for a moment the value traders create is real. Like the trader making $X a year also creates $X of value (like a farmer that works hard/smart to plant 10 times the number of potatoes as his neighbor). How would that make you feel? Would we accept that that was even possible?

KMag 11y ago

If you're optimizing for total career income, talk to recruiters and headhunters, but remember that they're all trying to sell you something and are optimizing over a shorter term horizon than you are. They have a window into the income distributions for different education levels.