Financial markets history is littered with stories of traders who bought an instrument and tried to reduce the risks by selling a “highly correlated one against it. only to discover that they doubled their risks. The trader after seeing on the screen the price of one of the two instruments go down (the one he is long, of course) and the other go up (the one he is short) will blame markets for not being well behaved.

A deeper analysis would show that, typically, some of the instruments that are easy to buy against easy-to-sell “correlated siblings” are invitations for trouble. They act as a trap that will attract many hedgers and arbitrage traders then force them into noisy liquidations. This effect can lead to disastrous results on gullible managers using such apparatus as the “value at risk.”

(more…)

To avoid that, you need a raw material inventory. But how large should it be? The principle to be applied here is that you should have enough to cover your consumption rate for the length of time it takes to replace your raw material.

A common rule we should always try to heed is to detect and fix any problem in a production process at the lowest-value stage possible.

The limiting step here should clearly be obtaining a conviction. The construction cost of a jail cell even today is only some $80k. This, plus the $10-$20k it costs to keep a person in kail for a year, is a small amount compared to the million dollars required to secure a conviction. Not to jail a criminal in whom society has invested over a million dollars for lack of an $80k jail cell clearly misuses society’s total investment in the criminal justice system. And this happens because we permit the wrong step (the availability of jail cells) to limit the overall process.

In fact, if indicators are put in place, the competitive spirit engendered frequently has an electrifying effect on the motivation each group brings to its work, along with a parallel improvement in performance.

(more…)

Instead, they would be compensated in proportion to the relative value units (RVUs) of the care they dispensed. RVUs are a measure of productivity used to determine medical billing.

Generalists like Dr. W. are assigned RVUs primarily according to the complexity of their exams and treatment plans, which are coded on a scale of levels 1 to 5. A simple level 2 visit may yield $60;  level 3, $120; level 4, $210; and so on. “What started to happen is lots of pinkeye was billed at a level 4,” he explained. There was a financial incentive: colleagues who were coding expansively could make twice as much – over $300,000 instead of $170,000.

—

Oncologists prospered buying chemotherapy drugs from manufacturers and infusing them in the office, generally with a hefty markup, a practice known as “buy and bill.”

As the wholesale price of the new drugs jumped again and again, doctors had little motivation to complain, because they were allowed a markup that was often a set percentage above cost. Doctors who used more expensive drugs earned far more. The practice of buy and bill increased dramatically in the late 1990s and into the new century.

With it, the median compensation for oncologists nearly doubled from 1995 to 2004, to $350,000. One study in 2013 attributed 65% of the revenue in a typical oncology practice to such payments. “Drugs and biologicals make up approximately 80% of all medical oncology charges submitted to Medicare each year.”
(more…)

The ultimate form of intrinsic motivation is when a habit becomes part of your identity. It’s one thing to say I’m the type of person who wants this. It’s something very different to say I’m the type of person who is this.

—

When situation X arises, I will perform response Y.

The punch line is clear: people who make a specific plan for when and where they will perform a new habit are more likely to follow through.

—

When your dreams are vague, it’s easy to rationalize little exceptions all day long and never get around to the specific things you need to do to succeed.

—

After [current habit], I will [new habit].

(more…)

If, as a result of reading this book you see that even a decision to consult a doctor is a serious and potentially risky one, that it requires some estimate of potential risks as well as potential benefits, you will have spent your time well.

…

Dr. Albert Szent-Gyorgyi:

As to ascorbic acid, right from the beginning I felt that the medical profession misled the public. If you don’t take ascorbic acid with your food you get scurvy, so the medical profession said that if you don’t get scurvy you are all right. I think that this is a very grave error. Scurvy is not the first sign of the deficiency but a premortal syndrome, and for full health, you need much more, very much more. I am taking, myself, about 1g a day. This does not mean that this is really the optimum dose because we not know what full health really means and how much ascorbic acid you need for it. What I can tell you is that one can take any amount of ascorbic acid without the least danger.

(more…)

Nevertheless, Congress loves these nonproductive redistributions of tax burden among taxpayers. Tax preferences – properly called “tax expenditures” by economists – are the vehicles for these dubious favors. It is easy to see why Congress loves tax preferences:

Suppose the Pentagon wanted to buy a new fighter plane. But instead of writing a $10 billion check to the manufacturer, the government just issued a $10 billion “weapons supply tax credit.” The plane would still get made. The company would get its money through the tax credit. And politicians would get to brag that they had cut taxes and reduced the size of government!

…

The virtue of the Milliman Index is that it includes out-of-pocket spending by families. The current debate on health reform typically focuses only on whether insurance premiums rise or fall, as if that were the proper metric for judging the affordability of health care. It is not. Total spending matters more.

…

Given the often clinically and morally compelling nature of health care as a commodity, one can think of a nation’s health system as just another tax system, operating side by side with the government’s tax system.

(more…)

The first pilot said, “I was given a thousand rules for flying my plane.” The pilot said, “I was only given three rules.” The first pilot gloated, thinking he was given many more options, until his friend says, “My instructor told me the three things I should never do. All else is up to me.” This story captures the idea that it is better to know the few things that are really against the rules than to focus on the many things you think you should do.

…..

There is strong evidence that the ratio between our individual successes and failures stays the same. Therefore, if you want more successes you’re going to have to be willing to live with more failures. Failure is the flip side of success, and you can’t have one without the other.

“Do you put symbolism in your writing?”

“Not if I can help it.”

…..

Or they say, “I could write a book about that.” I doubt it. Writing is hard work. A clear sentence is no accident. Very few sentences come out right the first time, or even the third time. Remember this in moments of despair. If you find that writing is hard, it’s because it is hard.

(more…)

There’s a saying in the military that if you see something below standard and do nothing, then you’ve set a new standard.

…..

He was fond of saying that most reps had a Wizard of Oz problem: they lacked either the courage, the brain, or the heart to be successful by themselves.

…..

(more…)

Why am I so suspicious of the newfound happiness or self-knowledge of this person about whom I claim to care? Am I truly committed to this person’s well-being, or do I miss the comfort of feeling unshakably superior? These are uncomfortable questions to ask yourself, so you might consider asking the machine instead.

…..

You already know what the machine will write on your arm That lie you’ve been telling yourself – you know what it is. That blind spot is not really a blind spot – you’re choosing to look away. Perhaps more to the point, you already know whether you want to see it. You already know whether you’re going to use the machine. So why are you still reading this?

(more…)