{"id":2816,"date":"2020-09-29T10:22:44","date_gmt":"2020-09-29T06:22:44","guid":{"rendered":"https:\/\/arak29.org\/?p=2816"},"modified":"2020-09-29T10:22:44","modified_gmt":"2020-09-29T06:22:44","slug":"%d5%ba%d5%a1%d5%bf%d5%a1%d5%b0%d5%a1%d5%af%d5%a1%d5%b6%d5%b8%d6%82%d5%a9%d5%b5%d5%a1%d5%b4%d5%a2-%d5%b4%d5%b8%d5%ac%d5%b8%d6%80%d5%a5%d6%81%d5%be%d5%a1%d5%ae%d5%b6%d5%a5%d6%80%d5%a8-%d6%83%d5%b8","status":"publish","type":"post","link":"https:\/\/arak29.org\/hy\/%d5%ba%d5%a1%d5%bf%d5%a1%d5%b0%d5%a1%d5%af%d5%a1%d5%b6%d5%b8%d6%82%d5%a9%d5%b5%d5%a1%d5%b4%d5%a2-%d5%b4%d5%b8%d5%ac%d5%b8%d6%80%d5%a5%d6%81%d5%be%d5%a1%d5%ae%d5%b6%d5%a5%d6%80%d5%a8-%d6%83%d5%b8\/","title":{"rendered":"\u054a\u0561\u057f\u0561\u0570\u0561\u056f\u0561\u0576\u0578\u0582\u0569\u0575\u0561\u0574\u0562 \u0574\u0578\u056c\u0578\u0580\u0565\u0581\u057e\u0561\u056e\u0576\u0565\u0580\u0568. \u0553\u0578\u0583\u0578\u056d\u0578\u0582\u0569\u0575\u0561\u0576 \u056e\u0561\u056e\u0578\u0582\u056f \u0564\u0565\u0580\u056b \u0574\u0561\u057d\u056b\u0576 \u056f\u0575\u0561\u0576\u0584\u0578\u0582\u0574 \u0587 \u0562\u056b\u0566\u0576\u0565\u057d\u0578\u0582\u0574 – \u0561\u0576\u0563\u056c."},"content":{"rendered":"

Taleb, Nassim Nicholas,\u00a0 Fooled by Randomness: The Hidden Role of Change in Life and Markets (NY: Random House, 2004), 2nd<\/sup> edition.<\/p>\n

This book is about luck disguised and perceived as nonluck (that is, skills) and, more generally, randomness disguised and perceived as non-randomness (that is, determinism).\u00a0\u00a0 It manifests itself in the shape of the lucky fool<\/em>, defined as a person who benefited from a disproportionate share of luck but attributes his success to some other, generllay very precise, reason.<\/p>\n

Table of Confusion<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
General<\/em><\/td>\n<\/tr>\n
Luck<\/td>\nSkills<\/td>\n<\/tr>\n
Randomness<\/td>\nDeterminism<\/td>\n<\/tr>\n
Probability<\/td>\nCertainty<\/td>\n<\/tr>\n
Belief, conjecture<\/td>\nKnowledge, certitude<\/td>\n<\/tr>\n
Theory<\/td>\nReality<\/td>\n<\/tr>\n
Theory<\/td>\nReality<\/td>\n<\/tr>\n
Anecdote, coincidence<\/td>\nCausality, law<\/td>\n<\/tr>\n
Forecast<\/td>\nProphecy<\/td>\n<\/tr>\n
Lucky idiot<\/td>\nSkilled investor<\/td>\n<\/tr>\n
Survivorship bias<\/td>\nDeterministic variable<\/td>\n<\/tr>\n
Noise<\/td>\nSignal<\/td>\n<\/tr>\n
Epistemic probability<\/td>\nPhysical probability<\/td>\n<\/tr>\n
Induction<\/td>\nDeduction<\/td>\n<\/tr>\n
Synthetic proposition<\/td>\nAnalytic proposition<\/td>\n<\/tr>\n
Contingent<\/td>\nNecessary<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

xivii<\/p>\n

Replicable performance<\/p>\n

falsifiable hypotheses<\/p>\n

If there is one cause for this confusion between the left and the right sides of our table, it is our inability to think critically \u2013 we may enjoy presenting conjecgtures as truth.\u00a0 It is our nature.\u00a0\u00a0 Our mind is not equipped with the adequate machinery to handle probabilities; such infirmity even strikes the expert, sometimes just the expert.<\/p>\n

The nineteenth-century cartoon character, pot-bellied bourgeois Monseuir Prudhomme, carried around a large sward with a double intnet:\u00a0 primarily to defent the Republic against its enemies, and secondarily to attack it should it stray from its course.\u00a0\u00a0\u00a0 In the same manner, this book has two purposes: to defend scienc (as a light beam across the noise of randomness), and to attach eht scientist when he strays from his course (most disasters come from the fact that individual scientists do not have an innate understnading of stnadard error or a clue about critical thinking, and likewise have proved both incapable of dealing with probabilities in the social sicences and incapable of accepting such fact).<\/p>\n

On the one had there is your local college English professor; your great-aun Irma, who never married and liberally deliers sermons, your how-to-reach-happiness-in-twenty-steps and how \u2013to-become-a-better-person-in-a-week book writer.\u00a0 It is called the Utopian Vision, associated with Rousseau, Godwin, Condorcet, Thomas Paine and conventional normative economists (of the kind to ask you to make rational choices because that is what is deemed good for you), etc. They believe in reason and rationality\u2014that we should overcome cultural impediments on our way to becoming a better human race\u2014thinking we can control our nature at will and transform it by mere edict in order to attain, among other things, happiness and rationality.\u00a0 Basically this category would include those who think that the cure for obesity is to inform people that they should be healthy.<\/p>\n

On the other hand there is the Tragic Vision of humankind that believes in the existence of inherent limitations and flaws in the way we think and act and requires an acknowledgement of this fact as a basis for any individual and collective action.\u00a0 This categoriy of people includes Karl Popper (falsification and distruct of intellectual “answers,” actually of anyone who is confident that he knows anything with certainty), Friedrich Hayek and Milton Friedman (suspicion of governments), Adam Smith (intention of man), Herbert Simon (bounded rationality), Amos Tversky and Daniel Kahneman (heuristics and biases), the speculator George Soros, etc.\u00a0\u00a0 The most neglected one is the misunderstood philosophy Charles Sanders Pierce, who was born a hundred years too early (he coined the term scientific “fallibilism” in opposition to Papal infallibility).\u00a0\u00a0 Needless to say that the ideas of this book fall squarely into the Tragic category:\u00a0 We are faulty and there is no need to bother trying to correct our flaws.\u00a0\u00a0 We are so defective and so mismatched to our environment that we can just work around these flaws.\u00a0\u00a0 . . . Perhaps ridding ourselves of our humanity is not in the works; we need wily tricks, not some gradiose moralizing help.\u00a0\u00a0 As an empiricist (actually a skeptical empiricist) I despise the moralizers beyong anything on this planet:\u00a0 I still wonder why they blindly believe in ineffectual methods.\u00a0 Delivering advice assumes that our cognitive apparatus rather than our emotional machinery exerts some meaningful control over our actions.\u00a0\u00a0 We will see how modern behavioral science show this to be completely untrue.<\/p>\n

p. 3 Solon \u2013 Croesus, irate, asked him point-blank if he was not to be considered the happiest man of all. Solon answered:\u00a0 “The observation of the numerous misfortunes that attend all conditions forbids us to grow insolent upon our present enjoyments, or to admire a man’s happiness that may yet, in course of time, suffer change.\u00a0 For the uncertain future has yet to come, with all variety of future; and him only to whom the divinity has [guaranteed] continued happiness until the end we may call happy.”<\/p>\n

It ain’t over until it’s over.\u00a0 it’s ain’t over until the fat lady sings.<\/p>\n

p.p. 23-25 \u2013 Russian roulette.<\/p>\n

p.p. 52-54 \u2013 the stove is hot<\/p>\n

p.p. 56-58 \u2013 My Solon<\/p>\n

I have another reason to be obsessed with Solon’s warning.\u00a0 I hark back to the very same strip of land in the Eastern Mediterranean where the story took place.\u00a0 My ancestors experienced bouts of extreme opulence and embarrasing penury over the course of a single generation, with abrupt regressions that people around me who have the memory of steady and linear betterment do not think feasible (at least not at the time of writing).\u00a0\u00a0 Those around me either have (so far) had few family setbacks (except for the Great Depression) or, more generally, are not suffused with enough sense of history to reflect backward.\u00a0\u00a0 For people of my background, Eastern Mediterranean Greek Orthodox and invaded Eastern Roman citizens, it was as if our souls had been wired with the remembrance of that sad spring day, circa 500 years ago when Constantinople, under the invading Turks, fell out of history, leaving us the lost subjects of a dead empire, very properous minorities in an Islamic world \u2013 but with an extremely fragile wealth.\u00a0\u00a0 Moreover, I vividly remember the image of my own dignified grandfather, a former deputy prime minister and son of a deputy prime minister (whom I never saw without a suit), residing in a nondescript apartment in Athens, his estate having been blown up during the Lebanese civil war.\u00a0 Incidentally, I find undignified impoverishment far harsher than physical danger (somehow dying in full dignity appears to me far perferable to living a janitorial life, which is one of the reasons I dislike financial risks far more than physical ones).\u00a0\u00a0 I am certain that Croesus worried more about the loss of his Kingdom than the perils to his life.<\/p>\n

p. 59 . Distilled Thinking on your Palmpilot \u2013 Breaking News<\/p>\n

The journalist, my bete noire, entered this book with George Will dealing with random outcomes.\u00a0 In the next step I will show how my Monte Carlo toy taught me to favor distilled thinking, by which I mean the thing based on information around us that is stripped of meaningless but diverting clutter.\u00a0 For the difference between noise and information, the topic of this book (noise has more randomness) has an analog: that between joyrnalism and history.\u00a0\u00a0 To be competent, a journalist should view matters like a historian, and play down the value of the information is it providing, such as by saying:\u00a0 “Today the market went up, but this informaiton is not too relevant as it emantes mostly from noise.”<\/p>\n

p. 64 Curiously, life insurers in renaissance Italy reached the same conflusion, by charging the same insurance for a man in his twenties as they did for a man in his fifties, a sign that they had the same life expectancy; once a man cross the forty-year mark, he had shown that very few ailments could harm him.<\/p>\n

The wise man listens to meaning; the fool only gets the noise.\u00a0 The modern Greek poet C. P. Cavafy wrote a piece in 1915 after Pilostratus’ adage “For the gods perceive things in the futuer, ordinary people things in the present, but the wise perceive things about to happen.” Cavafy wrote:<\/p>\n

In their intense meditation the hidden sound of things approaching reaches them and they listen reverently while in the street outside the people hear nothing at all.<\/p>\n

p.p. 72-78 Reverse Turing Test<\/p>\n

p. 76 Now, regardless of whether the poetry was obtained by a Monte Carlo engine or sung by a blind man in Asia Minor, language is potent in bringing pleasure and solar. Testing its intellectual validity by translating it into simple logical arguments would rob it of a varying degree of its potency, sometimes excessively; nothing can be more bland than translated poetry.\u00a0 A convincing argument of the role of language is the existence of surviving holy languages, uncorrupted by the no-nonsense tests of daily use.\u00a0 Semitic religions, that is Judaism, Islam, and original Christianity understood the point:\u00a0\u00a0 Keep a language away from the rationalization of daily use and avoid the corruption of the vernacular.\u00a0 Four decades ago, the Catholic church translated the services and liturgies from Latin to the local vernaculars’ one may wonder if this cause a drop in religious beliefs.\u00a0\u00a0 Suddenly religion subjected itself to being judged by the intellectual and scientific, without the aesthetic, standards.\u00a0 The Greek Orthodox church made the lucky mistake, upon translating some of its prayers from Church Greek into the Semitic-based vernacular spoken by Grecosyrians of the Antioch region (southern Turkey and northern Syria), of choising classical Arabic, an entirely dead language.\u00a0 My folks are thus lucky to prya in a mixture of dead Koin\u00e9 (Church Greek) and no less dead Koranic Arabic.<\/p>\n

What does this point have to do with a book on randomness?\u00a0 Our human nature dictates a need for p\u00e9ch\u00e9 mignon.\u00a0\u00a0 Even the economists, who usually find completely abstruse ways to escape reality, are starting to understand that what makes us tick is not necessarily the calculating accountant in us.\u00a0\u00a0 We do not need to be rational and scientific when it comes ot the details of our daily life \u2013 only in those that can harm us and threaten our survival.\u00a0\u00a0 Modern life seems to invite us to do the exact opposite; become extremely realistic and intellectual when it comes to such matters as religion and personal behavior, yet as irrational as possible when it comes to matters ruled by randomness (say portfolio or real estate investments).\u00a0\u00a0 . . .\u00a0 The Vienna Circle, in their dumping on Hegel-style verbiage-based philosophy, explained that, from a scientific standpoint, it was plain garbage, and, from an artistic point of view, it was inferior to music.<\/p>\n

p. 91 – big losers that cause blow ups: they share the traits of the acute successful randomness fool who, in addition, operates in the most random of environments.\u00a0\u00a0 What is more worrisome is that their bosses and employers shared the same trait.\u00a0 They, too, are permanently out of the market.<\/p>\n

An overestimation of the accuracy of their beliefs in some meausre, either economic or statististical.<\/p>\n

The US dollar was overpriced (i.e., foreign currencies were undervalued) in the early 1980s.<\/p>\n

A tendency to get married to positions.\u00a0\u00a0 Loyalty to ideas is not a good thing for traders, scientists\u2014or anyone.<\/p>\n

The tendency to change their story.\u00a0\u00a0 They became investors “for the long haul” when they are losing money switching back and forth between traders and investors to fit recent reversals of fortune.<\/p>\n

No precise game plan ahead of time as to what to do in the event of losses.<\/p>\n

Absence of critical thinking expressed in absence of revision of their stance with “stop losses.”<\/p>\n

Denial \u2013 “this is the result of distress sales”<\/p>\n

p.p. 116-132 \u2013 The Problem of Induction \u2013 entire chapter<\/p>\n

p. 131 \u2013 Accordingly, we need to accept the assymetry in knowledge; there are situations in which using statistics and econometrics can be useful. But I do not want my life to depend upon it. . .. If the sicence of statistics can benefit me in anything, I will use it.\u00a0 If it poses a threat, then I will not.\u00a0 I want to take the best of what the past can give me without its dangers.\u00a0 Accordingly, I will use statistics and inductive methods to make aggressive bets, but I will not use them to manage my risks and exposure.\u00a0\u00a0 Surprisingly, all the surviving traders I know seem to have done the same.\u00a0 They trade on ideas based on some observation (that includes past history) but, like the Popperian scientists, they make sure that the costs of being wrong are limited (and their probability is not derived from past data).\u00a0\u00a0 Unlike (reckless traders), they know before getting involved in the trading strategy which events would prove their conjecture wrong and allow for it (recall that [the reckless traders] used past history both to make their bets and measure their risk).\u00a0\u00a0 They would then terminate their trade.\u00a0 This is called a stop loss, a predetermined exit point, a protection from the black swan.\u00a0\u00a0 I find it rarely practiced.<\/p>\n

p. 156 \u2013 Ergodicity \u2013 I have to say that people believe that they can figure out the properties of the distribution from the sample they are witnessing. When it comes to matters that depend on the maximum, it is altogether another distribution that is being inferred, that of the best performers. This interesting part is that several years later I can hardly find any of them still trading (ergoditicy).\u00a0\u00a0 Survivorship bias depends on the size of the initial population.<\/p>\n

p. 170- The problem is that a finding of absence and an absence of findings get mixed together. There may be great information in the fact that nothing took place.\u00a0\u00a0 As Sherlock Holmes noted in the Silver Blaze case \u2013 the curious thing was that the dog did not bark.\u00a0\u00a0 More problematic, there are plenty of sicentific results that are left out of pbulications because they are not statistically significant, but nevertheless provide information.<\/p>\n

p.p. 179-80 \u2013<\/p>\n

p. 173 \u2013 Life is unfair in a nonlinear way. This chapter is about how a small advantage in life can translate into highly disproportionate payoff, or, more viciously, how no advantage at all, but a very, very small help from randomness, can lead to a bonanza.<\/p>\n

The Sandpile effect<\/p>\n

First we define nonlinearity.\u00a0\u00a0 There are many ways to present it, but one of the most popular ones in science is what is called the sandpile effect, which I can illustrate as follows.\u00a0\u00a0 Last grain of sand causes the sandcastle to topple.\u00a0\u00a0 nonlinear effect resulting from linear force exerted on an object.\u00a0\u00a0 “the straw that broke the camel’s back” or “the drop that caused the water to spill.”<\/p>\n

p. 175 \u2013 path dependent outcome, QWERTY keyboard not optimal, but sticky. thwarts many mathematical attempts at modeling behavior.<\/p>\n

p. 176 \u2013 chance events coupled with positive feedback rather than technological superiority will determine economic superiority.<\/p>\n

p. 177 – What has gone wrong with the development of eocnomics as a science? Answer:\u00a0 There was a bunch of intelligent people who felt compelled to use mathematics just to tell themselves that they were rigorous in their thinking, that theirs was a science.\u00a0 Someone in a great rush decided to introduce mathematical modeling techniques (culprits:\u00a0 Leon Walras, Gerard Debreu, Paul Samuelson) without considering the fact that either the class of mathematics they were using was too restrictive for the class of problems they were dealing with, or that perhaps they should be aware that the precision of the language of mathetmatics could lead people to believe that they had solutions when in fact they had none (recall Popper and the costs of taking science to seriously).\u00a0 Indeed the mathematics they dealt with did not work in the real world, possible because we needed richer classes of processes \u2013 and they refused to accept the fact that no mathematics at all was probably better.<\/p>\n

The so-called complexity theorists<\/em> came to the rescue. \u00a0Much excitement was generated by the works of scientists who specialized in nonlinear quantitative methods \u2013 the mecca of those being the [178] Santa Fe Institute near Santa Fe, New Mexico.\u00a0\u00a0 Clearly these scientists are trying hard, and providing us with wonderful solutions in the physical sciences and better models in the social siblings (though nothing satisfactory there yet).\u00a0\u00a0 And if they utlimately do not succeed, it will simply be because mathematics may be of only secondary help in our real world.\u00a0\u00a0 Note another advantage of Monte Carlo simulations is that we can get results where mathematics fails us and can be of no help.\u00a0 In freeing us from equations it frees us from the traps of inferior mathematics.\u00a0\u00a0 As I said in Chapter 3, mathemetics is merely a way of thinking and meditating, little more, in our world of randomness.<\/p>\n

p. 179-80 Buridan’s donkey \u2013 50-50 eat-drink \u2013 ends up dying. But inject some randomness into the picture, by randomly nudging the donkey, causing him to get closer to one source, no matter which, and according away from the other.\u00a0 The impasse would be instantly broken and our happy donkey will be either in turn well fed then well hydrated, or well hydrated then well fed.<\/p>\n

p. 181 \u2013 better to have a handful of enthusiastic advocates than hordes of people who appreciate your work \u2013 better to be loved by a dozen than liked by the hundres. This applies to the sales of books, the spread of ideas, and success in general and runs counter to conventional logic. The information is worsening this effect.\u00a0\u00a0 This is making me, with my profound and antiquated Mediterranean sense of metron (measure), extremely uncomfortable, even queasy.\u00a0\u00a0 Too much success is the enemy (think of the punishment meted out on the rich and famous); too much failure is demoralizing.\u00a0\u00a0 I would like the option of having neither.<\/p>\n

p. 185 \u2013 Beware the Philosophy Bureaucrat \u2013<\/p>\n

For a long time we had the wrong product specifications when we thought of ourselves.\u00a0\u00a0 We humans have been under the belief that we were endowed with a beautfiul machine for thinking and understanding things.\u00a0\u00a0 However, among the factory specifications for us is the lack of awareness of the true factory specifications (why complicate things?).\u00a0 The problem with thinking is that it causes you to develop illusions.\u00a0\u00a0 And thinking may be such a waste of energy!\u00a0 Who needs it!<\/p>\n

Consider that you are standing in front of a government clerk in a heavily socialist country where being a bureaucrat is held to be what respectable people do for a living.\u00a0 You are there to get your papers stamped by him so you can export some of their lovely chocolate candies to the New Jersey area, where you think the local population would have a great taste for them.\u00a0\u00a0 What do you think his function is?\u00a0\u00a0 Do you think for a minute that he cares about the general economic theory behind the transaction?\u00a0 His job is just to verify that you have the twelve or so signatures from the right departments, true\/false; then stamp your papers and let you go.\u00a0 General considerations of economic growth or balance of trade ar enone of his interests.\u00a0 In fact you are lucky that he doesn’t spend any time meditating about these things:\u00a0 Consider how long the procedure would take if he had to solve balance of trade equations.\u00a0\u00a0 He just has a rulebook and, over a career spanning forty to forty-five years, he will just stamp documents, be mildly rude, and go home to drink nonpasteurized beer and watch soccer games.\u00a0 If you gave him Paul Krugman’s book on international economics he would either sell it in the black market or give it to his nephew.<\/p>\n

Accordingly, the rules have their value.\u00a0 We just follow them no because they are the best, but because they are useful and save time and effort.\u00a0\u00a0 Consider that those who started theorizing upon seeing a tiger on whether the tiger was of this or that taxonomic variety, and the degree of danger it represented, ended up being eaten by it.\u00a0 Otherws who just ran away at the smallest presumption and were not slowed down by the smallest amount of thinking ended up either outchasing the tiger or outchasing their cousin who ended up being eaten by it.<\/p>\n

 <\/p>\n

Satisficing<\/p>\n

It is a fact that our brains would not be able to operate without such shortcuts.\u00a0\u00a0 This first thinker who figured it out was Herbert Simon, an interesting fellow in intellectual history.\u00a0\u00a0 . . .\u00a0 His idea is that if we were to optimize at every step in life, then it would cost us an infinite amount of time and energy.\u00a0 Accordingly, there has to be in us an approximation process that stops somehwere.\u00a0\u00a0 Satisficing was his idea (the melding of satisfy and suffice):\u00a0 You stop when you get a near-satisfactory solution.\u00a0\u00a0 Otherwise, it may take you an eternity to reach the smallest conclusion or perform the smallest act.\u00a0 We are therefore rational, but in a limited way:\u00a0 “boundedly rational.”\u00a0 He believed that our brains were a large optimizing machine that had built-in rules to stop somehwere.<\/p>\n

 <\/p>\n

Flawed, not just imperfect \u2013 Kahneman and Tversky<\/p>\n

p. 188 behavior economics. not just shortcuts bue rules, which are called heuristics, were not merely a simplification of rational models, but were different in methodology and catery.\u00a0\u00a0 They called them “quick and dirty” heuristics.\u00a0\u00a0 There is a dirty part:\u00a0 These shortcuts come with side effects, these effect being the biases, most of which I discussed previously throughout the text (such as the inability to accpet anything abstract as risk).\u00a0\u00a0 This started an empirical research tradition caled the “heuristics and biases” tradition that attempted to catalogue them \u2013 it is impressive because of its empiricism and the experimental aspect of the methods used.<\/p>\n

It is an open contradiction with the orthodox so-called neo-classical economics taught in business schools and economics departments under the normative names of efficient markets, rational expectations, and other such concepts.\u00a0\u00a0 It is worth stopping, at this juncture, and discussing the distinction between normative and positive sciences.\u00a0\u00a0 A normative science (clearly a self-contraditory concept) offers prescriptive teachings; it studies how things should <\/em>be.\u00a0 Some economists, for example those of the efficient-market religion, believe that our studies should be based on the hypothesis that humans are rational and act rationally because it is the best thing for them to do (it is mathematically “optimal”).\u00a0\u00a0 The opposite is a positive science, which is based on how people actually are observed to behave.\u00a0\u00a0 In spite of economists’ envy of physicists, physics is an inherently positive science while economics, particularly microeconomics and financial economics, is predominantly a normative one.\u00a0 Normative economics is like religion without the aesthetics.<\/p>\n

. . .\u00a0 Economists were not at the time very interested in hearing these stories of irrationality:\u00a0 Homo economicus<\/em> as we said is a normative concept.\u00a0\u00a0\u00a0 Kahneman and Tverksy shown that these biases do not disappear when there are incentives, which means that they are not necessarily cost saving.\u00a0\u00a0 They were a different form of reasoning, and one where the probabilistic reasoning was weak.<\/p>\n

p. 190 Where is Napolean when we Need him?<\/p>\n

If your mind operates by a series of different disconneted rules, these may not be necessarily consistent with each other, and if they may still do the job locally<\/em>, they will not necessarily do so globally<\/em>.\u00a0 Consider them stored as a rule book of sorts.\u00a0\u00a0 Your reaction will depend on which page of the book you open to at any point in time.\u00a0\u00a0 I will illustrate it with another socialist example.<\/p>\n

After the collapse of the Soviet Union, Western businesspeople involved in what became Russia discovered an annoying (or entertaining) fact about the legal system:\u00a0 It had conflicting and contradictory laws.\u00a0\u00a0 It just depended on which chapter you looked up.\u00a0\u00a0 I don’t know whether the Russians wanted it as a prank (after all, they lived long, humorless years of oppression) but the confusion led to situations where someone had to violate a law to comply with another.\u00a0 I have to say that laywers are quite dull people to talk to; talking to a dul lawyer who speaks borken English with a strong accent and vodka breath can be quite straining \u2013 so you give up.\u00a0 This spaghetter legal system came from the piecewise development of the rules:\u00a0 You add a law here and there and the situation is too complicated as there is no central system that is consulted everytime to ensure compatibility of all the parts together.\u00a0\u00a0 Napoleon faced a similar situation in France and remedied it by setting up a top-down code of law that aimed to dictate a full logical consistency. \u00a0The problem with us humans is not so much that no Napoleon has showed up so far to dynamite the old structure then reengineer our minds like a big central program; it is that [191] our minds are far more complicated than just a system of laws, and the requirement for efficiency is far greater.<\/p>\n

Consider that your brain reacts differently to the same situation depending on which chapter you open to.\u00a0 The absence of a central processing system makes us engage in decisions that be in conflict with each other.\u00a0 You may prefer apples to oranges, organes to pears, but pears to apples — it depends on how the choice are presented to you.\u00a0 The fact that your mind cannot retain and use everything you know at once is the cause of such biases.\u00a0 Once central aspect of a heuristic is that it is blind reasoning.<\/p>\n

    \n
  1. \u00a0I’m a good as my last trade, Monday morning quarterback anchoring and the affect heuristic.\u00a0\u00a0 loss of perspective\u00a0 –<\/li>\n
  2. anchoring \u2013 ask how long to airport \u2013 40 min?\u00a0\u00a0 no 35.\u00a0\u00a0 Ask another \u2013 20? no about 25.<\/li>\n<\/ol>\n

    p. 196 \u2013 two systems of thinking -= System 1 \u2013 effortless, automatic, associative, rapid, paralle process, opaque (we are not aware of using it), emotional, concrete, specific, social and personalized.<\/p>\n

    Systme 2 is effortful, controlled deductive, slow, serial, self-aware, netural, abstract, sets, asocial, and depersonalized.<\/p>\n

    p. 197 \u2013 Our brains are made for fitness not for truth.<\/p>\n

    p. 198 \u2013 (1) we do not think when making choices, but use heuristics, (2) We make serious probabilistic mistakes in today’s world \u2013 whatever the true reason.<\/p>\n

    p. 199 What is our natural habitat \u2013 African savannah. \u2013 then last 3000 years \u2013 travel difficult \u2013 highly predictable \u2013 number of people you meet is limited. guilty easy to determine \u2013 few suspects.\u00a0\u00a0 Your life would be simple, hence your space of probabilities would be narrow.<\/p>\n

    p. 200 \u2013 fast and frugal brainwork \u2013 hardwired for optimizing probabalistic behavior in situations like mate selection (how many people of the opposite sex do you need to meet before pulling the trigger?), or choosing a meal, but we are also wired for stock selection. We do not understand probability \u2013 too abstract, but we react rather well to frequencies (less abstract).<\/p>\n

    p. 201 \u2013 more like a Swiss Army knife than a central processing system \u2013 domain specific adaptation.<\/p>\n

    p.p. 203-206 \u2013 Kafka in a Courtroom, An Absurd World.<\/p>\n

    p.p. 223-224 \u2013 eye of the beholder \u2013 Wittgenstein’s rule \u2013<\/p>\n

    p.p. 239-240 \u2013 Path Dependence of Beliefs \u2013<\/p>\n

    p. 254 First Thought: The Inverse Skills Problem \u2013 The higher up the corporate ladder, the higher the compensation to the individual. This might be justified, as it imake plenty of sense to pay individuals according to their contributions.\u00a0 However, and in general (provided we excluded risk-bearing entrepreneurs), the higher<\/em> up the corporate ladder, the lower <\/em>the evidence of such contribution.\u00a0\u00a0 I call this the inverse rule<\/em>.<\/p>\n

    skills that are visible (like a dentist) and those that are randomness \u2013 hard to detemine the skills.\u00a0\u00a0 The cook at the company headquarters or facgtory worker will exhibit their direct abilities with minimal uncertainty.\u00a0\u00a0 These contributions may be modest but they are clearly definable.\u00a0\u00a0\u00a0 Reptitiveness is key for the revelation of skills because of what I called ergodicity \u2013 the detection of long-term properties, particularly when these exist.\u00a0\u00a0 Win $1 mil in one bet \u2013 different from winning in one million bets of 1 dollar each.\u00a0\u00a0 “law of large numbers.”<\/p>\n

    p. 255 judging on process and judging on results. Lower-ranking persons in the enterprise are judged on both process and results.\u00a0\u00a0 Top management is only paid on results \u2013 no matter the process.\u00a0 \u00a0External factors play a considerably larger role than with the cook.\u00a0\u00a0\u00a0\u00a0 CEO could be Monkey at the Typewrite \u2013 so many companies doing all kinds of things that some of them are bound to make “the right decision.”<\/p>\n

    winner takes all in law.<\/p>\n

    p. 256 \u2013 The problem is as old as leaderhip. Our attribution of heroism to those who took crazy decisions but were lucky enough to win shows the aberration \u2013 we continue to worship those who won battles and despise those who lost, no matter the reason. I wonder how many historians use luck in their interpretation of success \u2013 or how many are conscious of the difference between process and result.<\/p>\n

    The situation is not much better in a bureaucratic economy.\u00a0\u00a0 Oustide the capitalistic system, presumed talent flows to the governmental positions, where the currency is prestige, power and social rank.\u00a0\u00a0 There, too, it is distributed disproportionately.\u00a0\u00a0 The contributions of civil servants might be even more difficult to judge than those of executives of a corporation \u2013 and the scrutiny is smaller.\u00a0\u00a0 The central banker lowers interest rates, a recovery ensues, but we do not know whether he caused it or if he slowed it down.\u00a0\u00a0 We can’t even know that he didn’t destabilize the economy by increasing the risk of future inflaction.\u00a0\u00a0 He can always fit a theoretical explanation, but economics is a narrative discipline, and explainations are easy to fit retrospectively.\u00a0\u00a0 The problem mmay not be incurable.\u00a0 It is just that we need to drill into the heads of those who measure the contribution of executives that what they see is not necessary what is there.\u00a0\u00a0 Shareholders, in the end, are the ones who are fooled by randomness.<\/p>\n

    Second Thought:\u00a0 On some Additional Benefits of Randomness<\/p>\n

    Uncertainty and Happiness<\/p>\n

    p.p. 257-262<\/p>\n

    Some degree of unpredictability can be beneficial to our defective species.\u00a0\u00a0 A slightly random schedule prevents us from optimizing and being exceedingly efficient, particularly in the wrong things.\u00a0\u00a0 This little bit of uncertainty might make the diner relax and forget the time pressures.\u00a0\u00a0 He would be forced to act as a satisficer instead of a maximizer \u2013 research on happiness shows that thow who live under a self-imposed pressure to be optimal in their enjoyment of things suffer a measure of distress.<\/p>\n

    The difference between satisficers and optimizers raises a few questions.\u00a0\u00a0 We know that people of a happy disposition tend ot be of the satisficing kind, with a set idea of what they want in life and an ability to stop upon gaining satisfaction.\u00a0 Their goals and desires do not move along with the experiences.\u00a0 They do not tend to experience [259] the internal treadmill effects of constantly trying to improve on their consumption of goods by seeking higher and higher levels of sophistication.\u00a0\u00a0 In other words, they are neither avaricious nor insatiable.\u00a0\u00a0 An optimizer, by comparison, is the kind of person who will . . .<\/p>\n

    Causality is not clear:\u00a0 the question remains whether the optimizers are unhappy because they are constantly seeking a better deal or if unhappy people tend to optimize out of their misery.\u00a0\u00a0 In any case, randomness seems to operate either as a cure or as Novocain!<\/p>\n

    I am convinced that we are not made for clear-cut, well-delineated schedules.\u00a0 We are made to live like firemen, with downtime for lounging and meditating between calls, under the protection of protective uncertainty.\u00a0\u00a0 Regrettably, some people might be involuntarily turned into optimizers, like a suburban child having his weekend minutes squeezed between karate, guitar lessons, and religious educations.\u00a0\u00a0 . . .<\/p>\n

    It took me a while to figure out that we are not designed for schedules.\u00a0 The realization came when I recognized the difference between writing a paper and writing a book.\u00a0 Books are fun to write, papers are painful.\u00a0\u00a0 I tend to find the activity of writing greatly entertaining, given that I do it without any external constraint.<\/p>\n

    Another way to see the beastly aspect of schedles and rigid projections is to think in limit situations.\u00a0 Would you like to know with great precision the date of your death?\u00a0\u00a0\u00a0 . . .<\/p>\n

    The Scrambling of Messages<\/p>\n

    Besides its effect on well-being, uncertainty present tangible informational benefits, particularly with the scrambling of potentially damaging, and self-fulfilling messages.\u00a0 Consider a currency pegged by its central bank to a fixed rate \u2013 any dip is taken to be a sign of devaluation\u00a0\u00a0 -= But not if there is some noise \u2013 an official bank.<\/p>\n

    This point has applications in evolutionary biology, evolutionary game theory, and conflict situations.\u00a0\u00a0 A mild degree of unpredictability in your behavior can help you to protect yourself in situations of conflict.\u00a0 Say you always have the same threshold of reactions.\u00a0 You take a set level of abuse, say seventeen insulting remarks per week, before getting into a rage and punching the eighteenth offender in the nose.\u00a0 Such predictability will allow people to take advantage of you up to that well-known trigger point and stop there.\u00a0\u00a0 But if you randomize your trigger point, sometimes overreacting at the slightest joke, people will not know in advance how far they can push you.\u00a0 The same applies to governments in conflicts:\u00a0 They need to convience their adversaries that they are crazy enough to sometimes overreact to a small peccadillo.\u00a0 Even the magnitude of their reaction should be hard to foretell.\u00a0 Unpredictability is a strong deterrent.<\/p>\n

    Third thought: Standing on one leg.<\/p>\n

    We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract.\u00a0 Everything good (aesthetics, ethics) and wrong (Fooled by Randomness) with us seems to flow from it.<\/p>\n

     <\/p>\n

    Empirica<\/p>\n

    Sowell, Thomas.\u00a0 A Conflict of Visions: Ideological Origins of Political Struggles (NY: Morrow, 1987)<\/p>\n

    Pinker, Steven.\u00a0 The Blank Slate: The Modern Denial of Human Nature.\u00a0 (NY: Viking, 2002).<\/p>\n

    Pierce on fallibility “Nothing can be more completely contrary to philosophy, the fruit of a scientific life, than infallibilism, whether arrayed in the old ecclesiastical trappings, or under its recent ‘scientific’ disguise.”<\/p>\n

    Brent, Joseph.\u00a0 Charles Sanders Pierce: A Life, (Bloomington: IU Press, 1993).<\/p>\n

    Damasio, Antonio. Looking for Spinoza:\u00a0 Joy, Sorrow and the Feeling Brain (NY: Harcourt, 2003)\u00a0 “One of the many reasons why people become leaders and others follwers, why so many comman respect, has little to do with knowledge or skills and a lot to do with how some physical traits and the manner of a given individual promote certain emotional responses in others.”<\/p>\n

    Wilson, Timothy D.\u00a0 Strangers to Ourselves: Discovering the Adaptive Unconscious (Harvard, 2002).<\/p>\n

    Cover, T.M. & J.A. Thomas (1991) Elements of Information Theory, New York: Wiley.\u00a0 (entropy in language.<\/p>\n

    E.O. Wilson (2002) The Future of Life.\u00a0\u00a0 “The human brain evidently evolved to commit itself emotionally only to a smal piece of geography, a limited band of kinsmen, and two or three generations into the future.\u00a0 To llok neither far ahead nor far afiled is elemental in a Darwinian sence.\u00a0 We are innately inclined to ignore any distant possibility not yet requiring exaimnation.\u00a0 It is, people say, just good commen sence.\u00a0 Why to their think in this shortsighed way? The reason is simple,\u00a0\u00a0 It is hardpwired part of our Paleolithic heritage.\u00a0 For hundreds of millennia, those who worked for the shrt-term gain within a small circle of relatives and friends lived longer and left more offspring \u2013 even when their collective striving caused their chiefdoms and empires to crumble around them. \u00a0\u00a0The long view that might have saved their distant descendantes required a vision and extended altruism instinctively difficult to marshal.”<\/p>\n

    Becker, Lawrence C. 1998 A New Stoicism.\u00a0 Princeton.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Taleb, Nassim Nicholas,\u00a0 Fooled by Randomness: The Hidden Role of Change in Life and Markets (NY: Random House, 2004), 2nd edition. This book is about luck disguised and perceived as nonluck (that is, skills) and, more generally, randomness disguised and perceived as non-randomness (that is, determinism).\u00a0\u00a0 It manifests itself in the shape of the lucky […]<\/p>\n","protected":false},"author":1,"featured_media":2817,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[263],"tags":[],"class_list":["post-2816","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-263"],"_links":{"self":[{"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/posts\/2816","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/comments?post=2816"}],"version-history":[{"count":1,"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/posts\/2816\/revisions"}],"predecessor-version":[{"id":2818,"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/posts\/2816\/revisions\/2818"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/media\/2817"}],"wp:attachment":[{"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/media?parent=2816"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/categories?post=2816"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/arak29.org\/hy\/wp-json\/wp\/v2\/tags?post=2816"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}