Economics #8: Cost Disease

In economics, there is a simple idea called the Cobb-Douglas production function that tries to explain the relationship between labor (the total number of person-hours worked), capital (the real value of all machinery, equipment, and buildings), total factor productivity (the ability to produce more output with less input), and the total output of an economy. The idea is that since labor and capital are relatively fixed, economies grow by increasing their productivity, which technology is the main driver of.

Programming #10: AI Sudoku

Sudoku is one of those NP-Complete problems that brute force solutions have a problem with. Consider a board with a single blank space, we would have to work through 9 possibilities to find the right answer. For two blank spaces, we would work through 9 possibilities for the first space, and then for each of those possibilities, 9 for the second.

This simplifies to a time complexity of O(n^m) where n is the number of possibilities for each square (9 in normal Sudoku) and m is the number of blank spaces. A hard Sudoku problem with 50 blank spaces would take about 5.15 * 1047 computations, which would take longer than the age of the universe to solve with a decent computer.

This is where artificial intelligence (AI) comes into play. Think of AI less as a Skynet robot and more as a set of hacks to solve exponential problems like Sudoku. Code for this post can be found here.
Continue reading “Programming #10: AI Sudoku”

Investment Theory #21: Klarman’s 1999 Letter

I’ve been awol while studying for the CFA. With level 3 hopefully behind me, I’m going to get back into the habit of writing. Let’s jump back into our series on the 1990’s with Seth Klarman’s letters as our guide to the period.

Klarman is a well-respected value investor who founded the Baupost Group in 1982. Since then he has generated an average annual return of 19%. Klarman’s investing philosophy can be summed up by the title of his book Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.

This series of posts will reflect on Klarman’s activity during the period 1995 to 2001. Links to past posts: 1995, 1996, 1997, 1998