MANAGING INVESTING DATA WITH VERY SIMPLE QUANTITATIVE TOOLS

Niculae V. MIHAITA, PhD Cybernetics, Statistics and Economic Informatics Department, University of Economics at the Academy of Economic Studies in Bucharest, ROMANIA

ABSTRACT Starting with Clarke and Groves incentivecompatible mechanism for three Big Investors (State departments) involved in building an Amusing Park. The paper illustrate how combination of simple quantitative methods reveals hidden scenarios. The first part of this paper deals with true and false money assignments, the second part deals with small investors where the data they used are resulting from a payoff matrix proportional with the data of Big Investors investments (big monetary units, b.m.u.) in projects, in the third part it is shown what is happen if one Big Investor lies. The paper content also has results and comments of an original algorithm of factorial experiments and Informational Statistics combination, adding more information to find strong, weak, hidden, false or illusory relationships between true and false promises. Keywords Informational Statistics, Factorial Experiments 2^3, Preferences for public goods, Pure values, Potential relationships.

true and false money assignments. From different scenarios feed-back results an ethical question appear: it is good to lie? Because using only arithmetic calculus and knowing the rules some players could win more, as it is shown and exemplified. We are dealing with small investors where the data they used are resulting from a payoffs matrix identical (for the KISS principle, keep it simple simple) with the data of Big Investors investments in projects. The feed-before information for a small investor is that the sum of money he wanted to win after a certain period of time agreed by a contract to be ten monetary units (10 m.u.) no matter what project is made (risk avoiding). He compute the pure values, values that pay one m.u. in case of it is realized the project (state) for which it was created at the end of a determined period and zero if it is realized. The small investor wants to win no matter what project is made same sum of money so he buy all the states-projects. The sum of pure values is less than 1 so the differences are the gains. If one Big Investor lies, two situations happen: 1) Big Investors remain with more money, some hidden or even more if they lie (announcing less money to invest) even if they must pay penalties; 2) Small investors paying the same sum of money win and receive less and less and the risk is bigger if Big Investors lie (because small ones difficulties in identifying feedbefore money information). It is performing in the paper some old and new algorithms as minimizing risk by minimizing data

INTRODUCTION Three Big Investors (State departments) are involved in building an Amusing Park, Dracula Land, in Water facilities (W), Energy (E), Construction (C). Dracula Land could be at Bran, at Sighisoara or at Snagov. The combination of simple quantitative methods can reveals hidden scenarios. The three projects are discussed and in each is implied a different Big Investor but the projects needs money for all three to be realized. The first part of this paper deals with

variance or optimizing promised money covariance. Informational Statistics is used to determine Big Investors will to build their projects, information sometimes tricky for small investors when the changing minds happens in the case of Big ones. CLARKE-GROVES TAX FOR PUBLIC GOODS This is the mechanism by which even self-interested individuals are induced to reveal their true preferences [2]. In our case, three State departments (rows) wanted to invest in three locations for an Amusing Park (Dracula Land in Romania). We are using only arithmetic calculus and knowing the rules some players could win more, as it is shown and below exemplified, in the next tables. Table 1 initial discussion, big State investors Dracula Land Initial discussion Bran Sighisoara Snagov Big investors Water 50 20 10 Energy 10 60 20 Construction 40 10 55 90 85 Chosen 100

The Department of Water values option for three locations are 50, 20, 10. Without this department, the total value of remaining money for the three locations are 50, 70, 75 respectively. Thus option Snagov will be chosen. Since the Water intention changes the outcome from option Bran to Snagov, the Clarke-Groves tax will be 75-50=25. If Snagov is chosen, Water dept. gets a benefit of 10 monetary units. By revealing its preferences, Water sees that option Bran is chosen. Water dept. increase in benefit is 40. The net benefit after tax is 40-25 = 15. If Energy is out of business, its intention does not change the outcome and it pays no tax. Without C, the total values for options are 60, 80, 30. Thus, option Sighisoara will be chosen. Since C intention of retreat changes the outcome from location Bran to Sighisoara, C's tax is 80-60=20. The benefit to C from this retreat is 40-10=30. The net benefit after tax is 30-20=10. Small investors used data resulting from a winnings matrix identical of Big Investors investments in projects.. He compute the pure values, values that pay one u.m. in case of it is realized the project (state) for which it was created at the end of a determined period and zero if it is not realized. Calculation of pure values is presented in table 4 Table 4 Payoffs for 10 u.m. based on table 1 data
Bran 50 10 40 Matrix 3X3 2.26 0.18 -1.68 0.76 Sighisoara 20 60 10 Last line is = -0.73 1.72 0.22 1.21 Snagov 10 20 55 column sum -0.15 -0.66 2.04 1.23

Big investors are in Water facilities (W), Energy (E), Construction (C). If W is out of game, his net profit is 15 and Dracula Land could be at Snagov by association E with C.
Table 2 without W, E or C
Dracula Land E+C W+C W+E Bran 50 90 60 Sighisoara 70 30 80 Snagov 75 65 30

matrix inverse summed by column (suggesting)

If E is out of game, it is not punished and Dracula Land could be at Bran by association of C with W. If C is out of game, its net profit is 10 and Dracula Land could be at Sighisoara by W in association with E.
Table 3 penalty, savings and gains
on profit Water Energy Construction Penalty 25 0 20 Savings 40 30 gains 15 10

- and rows, giving pure values 0.138 0.124 0.058 0.321

7.2 times 8.1 times 17.1 times 3.1 times

The explanation is following here: initially the total attracted value is 100 for Bran Castle location.

To illustrate, MINV is10 times bigger. The Sum on column values suggest avoiding risk, same value to win if buying payoffs proportionally.

We present below (table 5, table 6, table 7, table 8) the same algorithm for the case: The white lie of Construction, not interested in Bran, less money for Bran (-30), Water Sighisoara (-10) Table 5 Construction, not interested in Bran Bran Sighisoara Snagov Big investors Water 50 10 10 Energy 10 60 20 Construction 10 10 55 70 80 Chosen 85

We present in table 9, table 10, table 11, table 12 the algorithm for the case: The big lie of Construction, no Dracula Land in Snagov (-35), but for Bran Castle, Yes. Table 9 Construction, not interested in Snagov Bran Sighisoara Snagov Big investors Water 50 10 10 Energy 10 61 19 Construction 40 10 20 80 Chosen 100 85

Table 6 without W, E or C, based on table 5 data

Dracula Land E+C W+C W+E Bran 20 60 60 Sighisoara 70 20 70 Snagov 75 65 30

Table 10 without W, E or C, based on table 9 data

Dracula Land E+C W+C W+E Bran 50 90 60 Sighisoara 71 30 81 Snagov 39 30 29

Table 7 penalty, savings and gains, C lie

on profit Water Energy Construction penalty 0 0 20 savings gains lie + 10 +30

Table 11 penalty, savings and gains, C lie (-35)

on profit Water Energy Construction penalty 21 0 20 savings 30 30 gains 9 9 lie

45

35 + 10

BRAN CASTEL NO, SNAGOV YES!

+ 40

NO SNAGOV BUT BRAN CASTLE AND A LOT OF MONEY! Calculation of pure values based on table 9 data is presented in table 12 Table 12 - Payoffs for 10 u.m. based on table 9 data
Bran 50 10 40 Matrix 3X3 2.62 1.42 -5.95 -1.91 Sighisoara 20 61 10 Last line is = -0.76 1.53 0.76 1.53 0.127 0.079 0.206 0.412 Snagov 10 19 20 column sum -0.59 -2.16 7.25 4.50

Calculation of pure values based on table 5 data is presented in table 8 Table 8 - Payoffs for 10 u.m. based on table 5 data
Bran 50 10 10 Matrix 3X3 Sighisoara 10 60 10 Last line is = Snagov 10 20 55 column sum

matrix inverse with columns summation and

2.12 -0.24 -1.34 1.54 -0.31 1.81 -0.27 1.23 -0.27 -0.61 1.98 1.09

matrix inverse with columns summation and

- rows summation, pure values 0.1544 0.096 0.137 0.387

6.5 times 10.5 times 7.3 times 2.6 times

- rows summation, pure values

7.9 times 12.7 times 4.9 times 2.4 times

We present below (table 13, table 14, table 15, table 16) algorithm for the case: The big lies of Water and Energy, less money for Bran (-20) and Sighisoara (-40) Table 13 Water and Energy, less money for Bran and Sighisoara Bran Sighisoara Snagov Big investors Water 30 20 10 Energy 10 20 20 Construction 40 10 55 80 50 Chosen 85 Table 14 without W, E or C, based on table 13 data
Dracula Land E+C W+C W+E Bran 50 70 40 Sighisoara 70 30 40 Snagov 75 65 30

We present in table 17, table 18, table 19, table 20 the algorithm for the case: The big lies of all of them, less money for Bran (-20), Sighisoara (-40), Snagov (-35) Table 17 Construction, not interested in Snagov Bran Sighisoara Snagov Big investors Water 30 10 10 Energy 20 20 10 Construction 10 20 20 40 Chosen 60 50

Table 18 without W, E or C, based on table 17 data

Dracula Land E+C W+C W+E Bran 30 50 40 Sighisoara 30 20 30 Snagov 40 30 30

Table 15 penalty, savings and gains, W, E lies

on profit Water Energy Construction penalty 0 5 savings 10 gains 5 lie + 20 = 5+40

Table 19 penalty, savings and gains, all lies

on profit Water Energy Construction penalty 30 0 0 savings 20 gains 10 lies + 30 + 40 + 55

Persuation on Bran 10 15 Persuation on Sighisoara 10 45

5 35

NO SIGHISOARA, BUT BRAN AND MONEY FOR CONSTRUCTION Calculation of pure values based on table 17 data is presented in table 20 Table 20 - Payoffs for 10 u.m. based on table 17
Bran 30 10 20 Matrix 3X3 4.00 4.00 -6.00 2.00 Sighisoara 10 20 10 Last line is = -2.00 8.00 -2.00 4.00 0.200 0.200 0.200 0.600 Snagov 10 20 20 column sum 0.00 -10.00 10.00 0.00

Calculation of pure values based on table 13 data is presented in table 16 Table 16 - Payoffs for 10 u.m. based on table 13
Bran 30 10 40 Matrix 3X3 3.60 1.00 -2.80 1.80 Sighisoara 20 20 10 Last line is = -4.00 5.00 2.00 3.00 0.040 0.400 0.080 0.520 Snagov 10 20 55 column sum 0.80 -2.00 1.60 0.40 25.0 times 2.5 times 12.5 times 1.9 times

matrix inverse with columns summation and

matrix inverse with columns summation and

- rows summation, pure values

- rows summation, pure values

5.0 times 5.0 times 5.0 times 1.7 times

Some conclusions: If W is out of game, the net

profit is 15 b.m.u and Dracula Land could be at Bran by association with C. If E is out of game, it is not punished and Dracula Land could be at Sighisoara by association with W. If C is out of game, the net profit is 10 b.m.u. and Dracula Land could be at Snagov by association with E. If they lie, the projects has less money to invest and may be poor quality. Analytically the generalization of the standard, timeless, microeconomics analysis under certainty to a multiperiod economy under uncertainty with securities markets is facilitated by the concept of pure security. A pure or primitive security is defined as a security that pays $1 at the end of the period if a given state occurs and nothing if any other state occurs. The concept of the pure security allows the logical decomposition of market securities into portfolios of pure securities. Thus every market security may be considered a combination of various pure securities [1]. Our small investor is one of risk-avoiding temperament and want invest 10 monetary units (m.u.) and win the same sum of money no matter what location finally will be chosen. Following our scenarios he could receive one m.u. if he pays initially 0,32 m.u. (see Table 4, two times more) but following the process, only 0,4 m.u., paying 0,6 m.u. for receiving one (see Table 20). If he is a risk-taking and chose Dracula Land as made nearby the Bran Castle at the end of an agreed period the payment will be 5 times more if the investment is for W facilities, two times for Sighisoara, payee, the same W and the investor receive the money back if the construction of Dracula Land is made in Snagov Park. If he wanted to know how much value is into one b.m.u. invested by W, his 10 m.u. contains 50 b.m.u multiplied by Bran pure value is o,138 + 20 b.m.u. multiplied by Sighisoara pure value, o,124 + 10 b.m.u. multiplied by Snagov pure value, o,058. If the investment is made for Energy facilities, the small investor could receive six times more if he invest in Sighisoara, two times for Snagov and receive money back if the Dracula Land is build at Bran Castel. It is a very attractive

wining matrix if the agreed period for repaying is short enough. Chances are ever better for investing in Construction facilities with two possibilities to win four times and 5,5 respectively. But our investor is risk avoiding so he prefers the same sum, quite small.
FACTORIAL EXPERIMENTS APPLICATION

The paper content also has an original algorithm of experimental simulation adding more information to factorial experiments application and find strong, weak, hidden, false or illusory relationships between true and false promises.
Table 21 - Investments based on table 1and table 9
A investors Dracula Land Sighisoara B Snagov Grand Total

Energy construction Total TRUE Energy construction Total C-lies Grand Total ITEM investors Dr Land Assertion investors investors Dr Land investors Energy Energy

6o 10 70 61 10 71 141

20 55 75 19 20 39 114

80 65 145 80 30 110 255

alternative Energy Sighisoara it is ok Dr Land Energy Sighisoara Assertion Energy cons lies Assertion Snagov it is ok Assertion Dracula Land it is ok Sighisoara cons lies Sighisoara

No matter of lies, the existing relationship shows Sighisoara as location. There is no relation between location and truth/lie assertions, but introducing the third variable, investors, it result that if C is a fair player the location could be Snagov. In conclusion it is shown how measuring informational gains of a triad of attributes by Informational Statistics we could find positive and negative interactions and the potential

informational change helping to build new scenarios.

Table 22 Informational Statistics results
Quantity of subtle information received A from C A from B A int BC 30,3% 80,2% 81,3% B from A B from C B int AC 96,1% 68,0% 96,3% C from A C from B C int AB 58,4% 52,8% 67,2%
INTERACTION investors FALSE,ILLUSIVE RELATION Assertion Same structure weak distorsion Dracula Land Sighisoara Snagov info.gain 0% 4%

in the jungle of semistructured Matrix, with only defining attributes as our flimsy snare.

weak distorsions
Assertion FALSE,ILLUSIVE RELATION investors same structure weak distorsion Dracula Land Sighisoara Snagov

POTENTIAL info.gain 0% 4% Dracula Land

In the first part of this paper it was shown how if one Big Investor lies, two situations happen: 1) Big Investors remain with more money, some hidden or even more if they lie announcing less money to invest) and quite if they must pay penalties and they are not constructing; 2) Small investors paying the same sum of money win and receive less and less and the risk is bigger if Big Investors lie (because small ones difficulties in identifying feed-before information). It is performing in the paper some old and new algorithms as minimizing risk by minimizing data variance or optimizing promised money covariance. Informational Statistics is used to determine Big Investors will to build their projects, information sometimes tricky for small investors when the changing minds happens in the case of Big ones. In the end of the paper content it shows results obtained by using an original Informational Statistics algorithm of experimental simulation adding more information to factorial experiments application and find strong, weak, hidden, false or illusory relationships between processes.

3% A= Informational adjusted =

no infogain 26%

RELATION RELATION

Investors
# 0,532 6%

powerful

ENERGY just a hint of information

The operative word in analyzing the DATA is relationship. The relationship concept, albeit simplicity itself, has tested any manner of perspicacity to which many authors may previously have laid claim. What, for example, is a relationship? Where is it found? How and When does it occur? And why? Finally, what purpose does the investigation of such a nebulous concept serve? Classifying relationships challenges the imagination and exhausts the challenger. Relationships are political, economic and social or literally, existing without number in the environment. On the other hand, they can be physical or metaphysical, predictable or unpredictable, good or bad, progressing or regressing, mundane or crucial, or just plain ornery. We will search for meaningful relationship

References [1] Copeland, E., Thomas, Weston, J., Fred, Financial Theory and Corporate Policy, page 113, Third Edition, Addison-Wesley Publishing Co., 1988, ISBN 0-201-10648-5. [2] Maddala, G. S, Miller Ellen, (1989). Microeconomics: theory and applications, Chapter 19, Externalities and Government Intervention, page 549, ISBN 0-07-039415-6. [3] Mihaita, Niculae (2003). Relations statistiques fortes, caches, fausses et illusoires: applications de la statistique informationelle, Editura ASE, ISBN 973-594-339, editura@net.ase.ro http://www.ase.ro/biblioteca/digitala, http://ase.academia.edu/NiculaeMihaita