Kuiper Q-Q plot: are these the same?

The question "Is this thing, which I think is special, really different from this normal thing?" is the generic hypothesis test. It is relevant all the time. In this article, we learn how to answer the question with a very handy tool I made.

Full article (12–30 minute read): Kuiper Q-Q plot: are these the same?

Flashcard of the week

A World of Chance explores gambling through written history. The authors (Brenner, Brenner, and Brown) are generally a pro-gambling bunch, citing evidence that it has been about as harmful to society as alcohol and the beauty industry. In other words, their position is that it's fine if you want to argue that gambling must be made criminal, but then you should also argue that alcohol and the beauty industry must be made criminal.

I say "has been" because the book was written before modern mobile phone pocket casinos, which I believe are a type of gambling humans are not ready for. It's one thing for it to be legal to go to a gambling establishment and do gambling there under relatively controlled circumstances. It's another that people can stay in bed and ruin themselves without any sort of commitment device.

Anyway, what I like about the authors is that they take a more realistic and nuanced view of gambling than common depictions. The word "gambling" brings a certain type of vice to mind, but any time we're acting under uncertainty we're gambling. In times when gambling was illegal, it was hard to take out insurance – something most people agree is a good idea – because insurance is waging that something bad will happen. (The way it was solved in practice was with loopholes like repurchase agreements or pretending the insurer invested in the insured thing, with the potential of losing their investment.)

One thing the authors like to do is puncture misconceptions around a famous historic financial/gambling bubble: in the 1600s, the Dutch got crazy about tulip bulbs. This week's flashcard asks,

Which two separate parts made up what people think of as tulipmania?

The popular account of tulipmania is that for some reason, people started to be willing to pay exorbitant amount for regular tulip bulbs. Since there was no real shortage of bulbs, reality eventually caught up and the prices crashed, bringing people deep into poverty and debt.

Brenner, Brenner, and Brown argue the situation was not quite that simple. In particular, the popular telling of tulipmania conflates two different processes:

Profitable trade in rare breeds, and futures contracts on common bulbs.

The tulips that commanded exorbitant prices were rare breeds – individuals affected by viruses that gave them unusual characteristics, like colours and patterns. Those were status symbols for the rich, because they were truly rare, and thus expensive. They continued to be rare and expensive status symbols even after the crash.

However, in the 1600s, common people also got into the tulip trade, but trading normal bulbs for normal prices. Well, actually, they weren't trading bulbs; rather, they were trading futures contracts on normal bulbs. Common people never really wanted to take delivery on bulbs, but the futures contracts – the slips of paper saying they had secured a future delivery of bulbs – carried some of the value of those future bulbs.

That way, commoners in the Netherlands accidentally invented a new form of money! Someone who had a futures contract on tulips could trade that in for a beer; the barkeeper could then trade the same contract in for bread; the baker could trade it for wheat; etc. Tulip contracts were tulip-backed money.

Money is a loose concept, and there is nothing particularly bad about using tulip futures as money, except one thing: it was a form of money outside the control of the Dutch government. They didn't like that, so they stepped in and declared tulip futures contracts practically unenforceable. That caused the value of regular tulip futures contracts to plummet, naturally, and people had to go back to using regular Dutch guilders.

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