Spring 2026 Computer Science 4580. 2/4/2026

Logical Problem of the Day

Survey quiz results:

Question 1. You are given a choice: (a) get $900 for certain, or (b) 90% chance to win $1,000 and 10% chance for nothing. What do you choose? [88%, 12%]
Question 2. You are given a choice: (a) lose $900 for certain, or (b) 90% chance to lose $1,000 and 10% chance of losing nothing. What do you choose? [9%, 91%]
Question 3. Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. The respondents are asked to rank in order of likelihood various scenarios: Linda is (1) an elementary school teacher, (2) active in the feminist movement, (3) a bank teller, (4) an insurance salesperson, or (5) a bank teller also active in the feminist movement. [26%, 42%, 2%, 2%, 28%]
Question 4. An individual has been described by a neighbor as follows: “Steve is very shy and withdrawn, invariably helpful but with very little interest in people or in the world of reality. A meek and tidy soul, he has a need for order and structure, and a passion for detail.” Is Steve more likely to be a librarian or a farmer? [67%, 33%]
Question 5. Participants were asked to choose between two treatments for 600 people affected by a deadly disease. Treatment A was predicted to result in 400 deaths, whereas treatment B had a 33% chance that no one would die but a 66% chance that everyone would die. This choice was then presented to participants either with positive framing, i.e. how many people would live, or with negative framing, i.e. how many people would die.
Choice one: Either saves 200 lives, or a 33% chance of saving all 600 people, 66% possibility of saving no one. [80%]
Choice two: 400 people will die or a 33% chance that no people will die, and 66% probability that all 600 will die. [20%]
Question 6. Write down the last 2 digits of your Social Security number. Now consider whether you would pay this number of dollars for items whose value you do not know, such as wine, chocolate and computer equipment. Finally, how much are you willing to pay? (Enter two numbers) [(12, 12), (13, 15), (67, 25), (69, 19), (74, 74), (54, 54), (99, 99), (49, 49), (13, 20), (92, 40), (12, 50), (96, 30), (35, 15), (12, 20), (78, 28), (44, 30)] Anchoring average: [211/8=26.3 vs 369/8=46.125] See question6.txt.
No polleverywhere question today.

Canvas Quiz of the Day (need daily password)

Most days, there will be a simple canvas quiz related to the lecture. You need a password to activate the quiz, which I will provide in class. These quizzes will count toward your class participation grade. The quiz is available only during class.

Click for today's quiz.

Announcements

Let us know if you have an upcoming event you would like to share with the class.

Yale Information Society Project Free lunch. This week.

Next Wednesday, we have a guest speaker, Joanne Lipman, wiki, Yale Lecturer, Journalist (Wall Street Journal, USA Today, CNBC). We will go out for dinner at Mory's. If you want to attend, enter your name in Discussions. We will have a lottery on Monday

Monday's guest speaker was John Niccolai from Citadel. That lecture was not recorded, as it was off the record. Please enter your comments about the talk in Discussions. Here are some terms John mentioned with which you might not be familiar:

Asset classes.

Equities: stock. Partial ownership in the company. US equities, Japan equities, EM equities, China equities, Europe equities.
Fixed income: bonds (interest, principle, maturity), emerging debt, IG (investment grade) credit, high yield (nee, junk bonds), DM (developed market) gov debt, cash.
Commodities: gold, oil, natural gas, pork bellies.
Real estate: REITs.
Infrastructure: airports, roads, ports, rail.
Alternatives: hedge funds, private capital, venture capital.
Blackrock Asset Class Return Heat Map Play with the buttons.

On-the-run and off-the-run securities. US Treasuries.

John talked about volatility. Volatility is a measure of risk in investments. This is a fundamental tenet of modern portfolio theory. The VIX is the volatility index published by the Chicago Board Options Exchange. A rule of thumb is if the VIX is below 14, things are calm. Above 14, fasten your seatbelts.

Liquidity. Spectrum from cash, to stock, to hedge funds. See liquidity spectrum.

John talk about options, which are a type of derivative - a financial instrument whose price is derived from another financial instrument. Vanilla options are calls and puts on stocks.

spreads are relative value trades, where typically you are forecasting a reversion to the mean, as with on-the-run and off-the-run securities.

Interest rate swap IRS. Swaps were invented by the late David Swensen, who used to speak to this class. Swensen wrote a book about the Yale investment paradigm: Pioneering Portfolio Management. Before Swensen, endowments were 60% equity and 40% bonds. Individuals save for a house, college, or retirement. Endowments have a longer time horizon, namely, perpetuity. Yale is forever. Swensen diversified to alternatives, and other illiquid asset classes. He also wrote a book for individual investing: Unconventional Success: Fundamental Approach to Personal Investing.

Sharpe Ratio - the risk-adjusted return.

Recommended readings to learn finance: The Wall Street Journal.

Modern Portfolio Theory and Investment Analysis written by our upcoming speaker, William Goetzmann, and three of my former NYU colleagues.

Emanuel Derman has a couple of relevant books: My Life as a Quant, and after the great financial crisis (GFC): Models Behaving Badly. At Goldman, he worked with Fischer Black, who invented the Black-Scholes option pricing model. Black got his Ph.D. from Harvard (barely) in Applied Math, though he did his research in AI at MIT with Marvin Minsky. Unlike Scholes, he did not win the Nobel Prize in 1997, along with Robert Merton, as Black had died in 1995. Yale Finance professor Roger Ibbotson was Scholes' graduate student at Chicago and tested the model at the Chicago Board of Trade - CBOT.

Sell side (e.g., Merrill Lynch, Morgan Stanley, Goldman Sachs) vs buy side (e.g., Citadel, hedge funds, mutual funds, pension funds).

Sell side firms hire security analysts to evaluate (handicap) companies - both stocks and bonds. In hw2, you are creating a security analyst. These analysts often write research reports that are available to their clients. I have posted a number of Merrill Lynch equity reports to Canvas in the Files tab. They include a recent Apple research report, a primer to their collection of research portfolios, performance review, Income portfolio, Income and Growth Portfolio, Equity (Growth) portfolio.

Security analysts face conflicts of interest. See Wall St. and the Nursery School: A New York Story (2002). This episode inspired a Woody Allen story in the New Yorker: The Rejection.

Easy to understand investment advice from Howard Marks, Founder of Oaktree Capital Management (bigger than Citadel): Whad'Ya Know. Question: what is source of this doc? Hint: check out the URL. I was searching for David Swensen.

Test your Financial Knowledge: New York Times quiz (FYI, I did terribly.)

Lecture

I have office hours Mondays and Wednesdays from 2:30-3:30pm pm, on zoom, id 459 434 2854.

Assignments

You can begin work on hw 2 We will discuss yfinance and friends.

The Realm of Decisions

We shall explore Langer's mindlessness / mindfulness dichotomy for decision making. For the next class and the coming weeks: Give an example of an explanation you thought interesting because it was especially good or bad. It can be personal or from the news. Use the Discussions section of canvas (not Ed Discussion). You earn a quiz point by posting to Discussions. Try to analyze it along the mindless / mindful spectrum.

Truth is more complicated that the logicians would have you believe. Quotes about Truth

The VOTE program is available on the zoo. There is also a github repository of the Common LISP code for VOTE.

Behavioral Economics

PIMCO Behavioral Science

What is a correct decision? See A Realistic Model of Rationality. This short paper provides a high-level introduction to the topics we will discuss in this course: goals, plans, resources, relationships, goal adoption, explanations, subjective decisions, emotions, advice, and persuasion. We contrast it with the standard economic decision theory. We want to develop a theory that can be implemented in a computer program.

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