How many financial districts does one city need?

We talk about “The City” in London like we do about “The Wall Street” in New York when we mean the financial districts of each place. But it’s a bit more complicated than that in London.

Yes, the City is the old and traditional centre of banking and insurance in the UK. And it’s still a major location for financial firms (interestingly, even within “the square mile” there are clear subdivisions: banks on this side, insurers on that side). Canary Wharf in the old docklands, since the 1980’s, has lots of banks too, especially American investment banks.

But if you want to find hedge funds and other boutique outfits, you best head west: Mayfair and other posh bits of the West End is where they have been congregating since the noughties or so. And finally, there’s the “Silicon Roundabout”, just north of the city, where the latest breed of “fintech” start-ups live.

So – all in all we have four separate financial. districts in one city. It could be considered just a bit excessive, couldn’t it?


Thoughts on finally reading Bad Pharma

I finally got round to reading Ben Goldacre’s book Bad Pharma. I’m not going to go into too much detail about the book, but if you have even a passing interest in medicine, public health and the costs of providing it, or your own health, I would highly recommend that you read it too. These are some of the random thoughts it raised in me.

First, you only had to know medical students at university, and see what freebies they got from drug companies, to know that something was up. And I’ve long been interested in publication bias. So I was already at least aware of most of the issues, but the book is still quite a catalogue of all kinds of rogue behaviours by many actors. Pharma companies misbehave of course, but so do drugs regulators around the world (I was probably most surprised by just how useless – and even worse – they are), professional bodies, journals and their editors, patient groups, doctors and academics. There is a lot of money going around, and therefore corruption both big and small, explicit and implicit. Nobody comes out too well in this story.

Second, since my backgroud is in banking, I couldn’t help making comparisons. Bankers misbehave too, no doubt about it. Both industries are heavily regulated, but the regulators have in both instances been fairly comprehensively captured by industry interests. In bankers’ defense, when they fiddle LIBOR rates, some other financial company may lose a few million dollars, but when drug developers intentionally hide adverse data about their products, thousands of people will die. So why is there so much less outcry about pharma? It is probably more complex to understand publication bias than lying about benchmark rates. And the deaths are isolated and hidden from view, whereas the financial crisis was very much visible on every high street.

And finally. In passing, Goldacre says something along the lines of “just because there are issues with medicine, it doesn’t mean that alternative medicine works”. Sure. But the opposite works as well: just because homeopathy doesn’t work, it doesn’t mean that (“traditional” or whatever you want to call it) medicine necessarily works any better. To be clear, I don’t think there’s any physical way that homeopathy works. But you can also be prescribed medicines by your GP that are not much better than placebo, if at all. So when a lazy skeptic rants about homeopathy and “the scientific method”, they should always be reminded that there is science and then there’s cargo cult science. Medicine is beginning to look more and more like a cargo cult than the real thing – there are journals, trials, complex statistics etc, but if it’s all based on smoke and mirrors then what do you really have that you can rely on? My attitude is to pay more attention to studies of how science is actually done: its history and sociology, and not just what scientists say in after-dinner speeches. The reality is always much more messy than “hypothesis, test, replication”.

A few bad apples or rotten to the core?

An article in Nature on the ethics of bankers has been widely reported. The researchers asked bankers and non-bankers to toss a coin in private, and then report the numbers of heads and tails – the higher the number of one of the two, the bigger the payout they received. This is a commonly used setting to study honesty. Even though the researchers will never know how honest each participant was individually, overall the amount of heads and tails should be 50/50 if everyone reports their results honestly. Any major deviation from the expected figures indicates some foul play. And on the whole, people tend to be remarkably honest in studies like this; definitely more honest (and therefore poorer as a result) than standard economic theory would predict.

An interesting twist in this particular study, however, was that half of the bankers were primed by asking them questions about their work before the coin tossing; in effect they were reminded what they did and where they worked. And that changed the results significantly. Without the priming, the bankers were as honest as everyone else. But with the nudge about their livelihood, they became much less honest. The effect was clearly significant (in all senses of the word) in the overall average cheating figures.

But what hasn’t been noted in the newspaper articles I’ve seen, was the change in the distribution of the results? Did all bankers become a bit more dishonest, or did some become a lot more crooked? Well, the original article shows the entire distributions for the control and treatment groups, and it seems to me that the answer is: a bit of both. The entire distribution of reported results shifts slightly, resulting in maybe 10% more in rewards than the participants should have received. But there is also a massive increase in the number of people who claim to have got nothing but heads (or tails, whichever gave them the reward).

In conclusion then, based on this study, most bankers in their natural habitat are probably a little bit naughty, but some of them are really quite seriously bad.