Fat Tails

If moods followed a distribution around a mean point of satisfaction, then applying for schools would arguably require a distribution with fat tails, or alternatively two polar points of “happy” and “gutted” miles apart, with a mean point that never statistically occurs. You see, this guy, ~N (0,1), the centre of all option theory and anything a stats guru throws your way, doesn’t happen in an inefficient market, and that is what your applications to school are.

Since sending off the applications to A, 2, and Z it is almost as though the mean point of being balanced never occurs, and is a statistical anomaly between elation and outright misery. Dornbusch’s overshooting model^ has become an ideal representation of my psyche. The MBA application is a market where there is very little information, and any signal affects my market somewhat akin to Bernanke speaking affects T-bill yields.

If every time Bernanke spoke he said either “boom” or “recession” about twenty times.

One thing that is definitely true about that the mood of waiting is that any MBA boom is undoubtedly followed by recession, or “correction” as seems to be the favoured expression right now. All that confidence fuelled a heightened, unsustainable level of optimism, especially with the silence carried out by the schools throughout the process. The problem is that the signals are very infrequent, and all evidence seems to indicate that there is no true way to judge their correlation with any indicators. The BW folks love to try and find out the stats of anyone who receives a signal event from a school. “Your GMAT?” seems to be the only thing anyone cares about, neglecting that someone may have bombed the GMAT because, y’know, signing a 6m licensing deal for their start-up was a bit more important at the time. It’s all noise, but there is a big herd trying to read it and it takes some real will power not to get involved. BW is a no-go zone for me, but some seem to love to get themselves into a frenzy about this all. Someone should really run the prisoners dilemma by those forums – but he admissions staff think that I know that they think that…

To try and balance my thought, I continually have to go back to rational thought analysis. The only true signals are the dates that each school publishes. By April, you will know whether you are to be admitted. For some schools, if you do not get asked to interview by a date, then all bets are off. If you do, you interview, you don’t know for longer and then you find out just the same. No amount of anything is going to make a damn difference.

For Chicago R2 applicants, that day is apparently today. For those with interviews, they can labour just the same for another month at least, with the added element of how their interview felt, and their abilities to pretend they could ever understand what a member of admissions staff, a student or alumni member was really thinking.

So for two months I will refine my art of patience through distracting my mind from idle thought of what might be. I will cycle more, and am looking forward to the weather easing to allow me to return to this – City public transport is one of the worst things to have to tolerate through a winter. I will even try to study Corporate Finance. But all this time I know I will be thinking about what is happening to a small file with my name on, in an office I may never see. If only they had Polaroid’s, it would be like Pop Idol, with the Dean as Simon Cowell. A big, big lottery that pays out very big. And that is an image which will not help my plan to balance my mood any.

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^ I can’t find a suitable link – wikipedia includes the ISLM model, something I will never allow myself to link to. I am sure I will write about how much I loathe this model at some point in the future

Postscript
Given the coverage that the fat tails gets in financial literature, I thought I would be able to get a good chart to show up here with minimal effort. However, a cursory search for “fat tail distribution” on google pictures gives us this chap.

Not quite what I had in mind, but it did briefly move me from my down frame of mind.