Any of my readers who have any interest in science fiction, horror, fantasy, or related fictional genre will soon find himself in love with this graphic.
And for those with an interest in mathematics, it ends up looking a bit like a Mandelbrot set!
The key plot of the meta-story is revealed in the legends along the top:
adventure dominant; science dominant; sociology dominant; form dominant; Star Wars dominant.
As even that much information conveys, we have a wild intermingling here of high and low brow.
But I'll say no more.
Showing posts with label Benoit Mandelbrot. Show all posts
Showing posts with label Benoit Mandelbrot. Show all posts
18 March 2011
28 November 2010
Reality is fractal
Mandelbrot was right. Reality is fractal. Just when you think you've discovered s straight line from A to B, you zoom in a bit and discover the zig-zags and the swirls.
Then you think, aha! within those swirls I've discovered a lower-level A and B, and between these two, anyway, there is a simple straight line. But when you make another zoom, you find it isn't so.
This truth pressed itself upon me recently when, for the sake of a quick paycheck, I agree to write a brief essay on "Accounting for Software Licenses." Can't be too complicated, right? So ... how does one account for software licenses?
Turns out there are swirls. First, do we want to talk about the accounting of the leesor or the lessee? From the point of view of the lessee, the payments it has to make on a regular basis (yearly? quarterly?) are treated, one might naturally suspect, as a liability on its balance sheet.
But maybe not. Is this a "capital lease" or an "operating lease"? If the former, then in general the lease is a liability for the borrower, and an asset for the lender. If it is an operating lease, though, it can be kept off-balance sheet which (many biz management types seem to think) is re-assuring to actual and potential investors. Are they right? Is it really re-assuring, or does the rational expectations theory rightly presume that the market sees through mere formalities?
Never mind all those squiggles and squirrels! What about the lessor's POV? Can't we at least achieve some clarity, some sort of straight line, there? No. Have I mentioned that reality is fractal?
In general, how a lessor treats a productive asset that it has lent out for the use of another will depend on whether the asset is classified as "direct financing" or as a "multiple-element arrangement." (There is a grey zone in between those two possibilities, and further swirls, but for my brief essay I ignored that zone.)
If a financing company buys software for me and lends it to me, and if that is the only thing it does -- if it doesn't promise any upgrades or trouble-shooting services, and it doesn't deliver same -- if in the words of one authority the lessor "has no involvement with the software that is inconsistent with being a lender" -- in that case, the lease is a loan, and my lease payments are a matter of paying off that loan. The accounting proceeds accordingly, with a "Lease Receivable" item on the vendor/lendor's balance sheet.
But if it does promise and deliver upgrades and the like, then this lease contract is a "mutliple-element arrangement," more akin to a sale than to a loan. It becomes necessary to distinguish and value the different elements of the deal. This is true, too, of the loan of tangible equipment (you might lease me a backhoe with servicing promises). But distinguishing the separate elements in a software contract is apparently especially tricky, and auditors will require vendor-specific objective evidence (VSOE) of the value of the different components.
Zoom in further, and try to grapple with what VSOE means, and what are the consequences when VSOE can't be produced, and you get yet further Mandelbrotian swirls within swirls.
And there is the additional complication that software often comes embedded in hardware -- the "appliance" model. So the question of distinguishing among the elements of the arrangement may include the complexity of distinguishing the valuing of the dance and the dancer.
Then you think, aha! within those swirls I've discovered a lower-level A and B, and between these two, anyway, there is a simple straight line. But when you make another zoom, you find it isn't so.
This truth pressed itself upon me recently when, for the sake of a quick paycheck, I agree to write a brief essay on "Accounting for Software Licenses." Can't be too complicated, right? So ... how does one account for software licenses?
Turns out there are swirls. First, do we want to talk about the accounting of the leesor or the lessee? From the point of view of the lessee, the payments it has to make on a regular basis (yearly? quarterly?) are treated, one might naturally suspect, as a liability on its balance sheet.
But maybe not. Is this a "capital lease" or an "operating lease"? If the former, then in general the lease is a liability for the borrower, and an asset for the lender. If it is an operating lease, though, it can be kept off-balance sheet which (many biz management types seem to think) is re-assuring to actual and potential investors. Are they right? Is it really re-assuring, or does the rational expectations theory rightly presume that the market sees through mere formalities?
Never mind all those squiggles and squirrels! What about the lessor's POV? Can't we at least achieve some clarity, some sort of straight line, there? No. Have I mentioned that reality is fractal?
In general, how a lessor treats a productive asset that it has lent out for the use of another will depend on whether the asset is classified as "direct financing" or as a "multiple-element arrangement." (There is a grey zone in between those two possibilities, and further swirls, but for my brief essay I ignored that zone.)
If a financing company buys software for me and lends it to me, and if that is the only thing it does -- if it doesn't promise any upgrades or trouble-shooting services, and it doesn't deliver same -- if in the words of one authority the lessor "has no involvement with the software that is inconsistent with being a lender" -- in that case, the lease is a loan, and my lease payments are a matter of paying off that loan. The accounting proceeds accordingly, with a "Lease Receivable" item on the vendor/lendor's balance sheet.
But if it does promise and deliver upgrades and the like, then this lease contract is a "mutliple-element arrangement," more akin to a sale than to a loan. It becomes necessary to distinguish and value the different elements of the deal. This is true, too, of the loan of tangible equipment (you might lease me a backhoe with servicing promises). But distinguishing the separate elements in a software contract is apparently especially tricky, and auditors will require vendor-specific objective evidence (VSOE) of the value of the different components.
Zoom in further, and try to grapple with what VSOE means, and what are the consequences when VSOE can't be produced, and you get yet further Mandelbrotian swirls within swirls.
And there is the additional complication that software often comes embedded in hardware -- the "appliance" model. So the question of distinguishing among the elements of the arrangement may include the complexity of distinguishing the valuing of the dance and the dancer.
30 October 2010
Comments on Mandelbrot
I won't repeat here my modest obit for Benoit Mandelbrot.
But I was struck by a fascinating discussion of Mandelbrot, and of his significance in or for the world of finance, catalyzed by Justin Fox. Fox, a guest blogger for Felix Salmon, said that once upon a time, Mandelbrot was part of the "random walk gang," and considered Eugene Fama to be a protégé.
But Mandelbrot moved away from the sort of efficieny capital markets theory associated with Fama. This drifting-away dates to the 1960s, before the Black-Scholes option pricing model, or the various developments and arguments that have arisen from same.
Mandelbrot became interested in the subject again after the 1987 crash, which came about in large part due to portfolio insurance. But, Fox says, he didn't make the impact one might expect by this comeback.
Congrats to Fox for the fine blog entry, but more especially congrats to his commenters for inciting some fascinating comments.
I think DaggaRoosta has a lot of value to say there, including this observatrion (which is quite Mandelbrotian): "I do suspect that quants have spent a little too much time learning complex models and not enough time understanding the fragile philosophy behind the methods."
But I was struck by a fascinating discussion of Mandelbrot, and of his significance in or for the world of finance, catalyzed by Justin Fox. Fox, a guest blogger for Felix Salmon, said that once upon a time, Mandelbrot was part of the "random walk gang," and considered Eugene Fama to be a protégé.
But Mandelbrot moved away from the sort of efficieny capital markets theory associated with Fama. This drifting-away dates to the 1960s, before the Black-Scholes option pricing model, or the various developments and arguments that have arisen from same.
Mandelbrot became interested in the subject again after the 1987 crash, which came about in large part due to portfolio insurance. But, Fox says, he didn't make the impact one might expect by this comeback.
Congrats to Fox for the fine blog entry, but more especially congrats to his commenters for inciting some fascinating comments.
I think DaggaRoosta has a lot of value to say there, including this observatrion (which is quite Mandelbrotian): "I do suspect that quants have spent a little too much time learning complex models and not enough time understanding the fragile philosophy behind the methods."
23 October 2010
R.I.P. Benoit Mandelbrot
Benoit Mandelbrot, pioneer of fractal geometry -- indeed, the man who coined the term "fractal" -- died of pancreatic cancer on October 14, 2010.
My heart goes out to his friends and family. They may take some comfort in the fact that he changed the way much of our species sees the world, an impact in depth of a sort that few can boast. The ubiquity of images like the one above these words is just a piece of it, fascinating and beautiful as such "Mandelbrot set" images can be.
I had the honor of reviewing one of his final books The (mis)Behavior of Markets in 2006.
In that book, Mandelbrot explains the nature of fractals from the beginning, for those of his readers who hadn't caught on yet even in 2006. He quotes Jonathan Swift in service of this cause. Swift wrote:
So, Nat'ralists observe, a Flea
Hath smaller Fleas that on him prey,
And these have smaller Fleas to bit 'em,
And so proceed ad infinitum.
Mandelbrot, at any rate, is now free of the world of fleas-biting-fleas. And he is no doubt explaining the geometry of clouds to Saint Peter.
You can find my review of Mandelbrot's 2006 work here.
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