I’m sure politicians were once bright eyed…

A thought came to me just now as to why politicians are so lame.

Pretty scathing, but it is true. For so long we’ve had politicians that promise change and then end up being the same as the last.

I mean, the modern day Tory Party is basically New Labour.

Why do they seem to converge to the middle?

They play a game is the simple answer.

You’re always going to have your lifelong voters, but to win at politics, you need those swing voters.

I could be talking absolute nonsense here, but at least it gives something to think about…

Image result for two bell curves overlapping

This is what I imagine occurs.

Consider B as being the swing voter area – I think most people if they could would rather vote for themselves, but there’s relative bipartisanship when it comes to voting outcomes these days, more so in the US.

Then consider the individual standard distributions when the party is in power.

There is the acquisition side of politics, and then there’s the retentive side – the tails towards the middle on the individual curves have to cater to those who are only supporting on a ‘lesser of two evils’ basis.

Whoever wins B wins the election. Just that little area wins it for either the left or the right.

The problem? Policies have to appease these people who are politically indifferent.

This means that policies are always going to reverting towards the mean, or in other words, they’re never really going to be that different from what occurred before.

Generally… I’m not sure I’d apply the same logic to John McDonnell…

This was just an example that I thought of but there are many more.

In trading, many algorithms are based on price reverting to the mean whereby you take a sample of price data and apply buy or sell orders on 1/2 standard deviations from the R^2 of the sample or another benchmark that measures deviation from the mean such as velocity or maybe even volume changes relative to the rest of the sample.

In sales, if you have a big sample, it’s unlikely that you will consistently go long periods of making no sales without a statistical correction happening, as long as you are using the same methods as previously – yes there are external variables but generally there shouldn’t be long term deviation of a massive magnitude (unless the market really changes).

In terms of politics, I guess a change in political party in power shows an example of tail risk, since those at the outer edges of the left and right bell curves are those affecting the change more drastically.

In portfolio management, that’s when a movement of more than 3 standard deviations occurs, which is pretty rare, but has HUGE implications (and which is occurring more and more often).

 

I guess it depends on what the distribution of swing voters are relative to the effect that they can cause is, or in other words, how disenfranchised they are with the current political climate.

Can the Trump and Brexit votes be explained this way?

I think possibly if we consider the elements that go towards creating the desire to want change – in other words, how tail risk is created.

To avoid this tail risk, politicians avoid the outer edges and win by appeasing the majority, reflected in the bell curve distribution… but tail risk in the current environment is always underpriced it seems since multi-standard deviation moves shouldn’t be occurring as much as they are of recent times

 

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