A Popular but
mistaken notion, is our tendency to mistake the map for the territory, to focus
on pure and well-defined "forms," whether objects, like triangles, or
social notions, like utopias (societies built according to some blueprint of
what "makes sense"), even nationalities. When these ideas and crisp
constructs inhabit our minds, we privilege them over other less elegant
objects, those with messier and less tractable structures. Models and
constructions, these intellectual maps of reality, are not always wrong; they
are wrong only in some specific applications. The difficulty is that a) you do
not know beforehand (only after the fact) where the map will be wrong, and b)
the mistakes can lead to severe consequences. These models are like potentially
helpful medicines that carry random but very severe side effects. And this
includes the wishful thinking that the world in which we live is more
understandable, more explainable, and therefore- more predictable than it
actually is. We already have presented this in our article last year about wishful thinking in politics.
Events present
themselves to us in a distorted way. Consider the nature of information: of the
millions, maybe even trillions, of small facts that prevail before an event
occurs, only a few will turn out to be relevant later to your understanding of
what happened. Because your memory is limited and filtered, you will be
inclined to remember those data that subsequently match the facts. And also, we
members of the human variety of primates, have a hunger for rules because we
need to reduce the dimension of matters so they can get into our heads. Or,
rather, sadly, so we can squeeze them into our heads. The more random
information is, the greater the dimensionality, and thus the more difficult to
summarize. The more you summarize, the more order you put in, the less
randomness. Hence the same condition that makes us simplify pushes us to think
that the world is less random than it actually is.
Thus the
problem of overcausation does not lie with the
journalist, but with the public. Nobody would pay one dollar to buy a series of
abstract statistics reminiscent of a boring college lecture. We want to be told
stories, and there is nothing wrong with that-except that we should check more
thoroughly whether the story provides consequential distortions of reality.
Just consider that the newspapers try to get impeccable facts, but weave
them into a narrative in such a way as to convey the impression of causality
(and knowledge). In fact academics in narrative disciplines do the same thing,
but dress it up in a formal language. Besides narrative and causality, journalists
and public intellectuals of the sound-bite variety do not make the world
simpler. Instead, they almost invariably make it look far more complicated than
it is. Now, if you think that science is an abstract subject free of
sensationalism and distortions, I have some sobering news. Empirical
researchers have found evidence that scientists too are vulnerable to
narratives, emphasizing titles and "sexy" attention-grabbing punch
lines over more substantive matters. They too are human and get their attention
from sensational matters. The way to remedy this is as we try to do on this
website with the selected subjects we cover, through meta-analyses of
scientific studies, trough which we peruse the entire
literature, which includes the less-advertised items. To give a few not
mentioned yet examples:
In a developed
country a newborn female is expected to die at around 79, according to
insurance tables. When she reaches her 79th birthday, her life expectancy,
assuming that she is in typical health, is another 10 years. At the age of 90,
she should have another 4.7 years to go. At the age of 100, 2.5 years. At the
age of 119, if she miraculously lives that long, she should have about nine
months left. As she lives beyond the expected date of death, the number of additional
years to go decreases. This illustrates the major property of random variables
related to the bell curve. The conditional expectation of additional life drops
as a person gets older.
With human projects
and ventures we have another story. These are often with scalable variables,
the ones from Extremistan, you will witness the exact
opposite effect. Let's say a project is expected to terminate in 79 days, the
same expectation in days as the newborn female has in years. On the 79th day,
if the project is no1 finished, it will be expected to take another 25 days to
complete. But on the 90th day, if the project is still not completed, it should
have about 58 days to go. On the 100th, it should have 89 days to go. On the
age of 119th, il should have an extra 149 days. On day 600, if the project is
not done, you will be expected to need an extra 1,590 days. As you see, the
longer you wait, the longer you will be expected to wait.
Let's say you are a
refugee waiting for the return to your homeland Each day that passes you are
getting farther from, not closer to, the day triumphal return. The same applies
to the completion date of your next opera house. If it was expected to take two
years, and three years later you are asking questions, do not expect the
project to be completed any time soon. If wars last on average six months, and
your conflict has been going on for two years, expect another few years of
problems. The Arab-Israeli conflict is sixty years old, and counting-yet it was
considered "a simple problem" sixty years ago. (Always remember that,
in a modern environment, wars last longer and kill more people than is
typically planned.) Another example: Say that you send your favorite author a
letter, knowing that he is busy and has a two-week turnaround. If three weeks
later your mailbox is still empty, do not expect the letter to come tomorrow-it
will take on average another three weeks. If three months later you still have
nothing, you will have to expect to wait another year. Each day will bring you
closer to your death but further from the receipt of the letter. This subtle
but extremely consequential property of scalable randomness is unusually
counterintuitive. We misunderstand the logic of large deviations from the norm.
Thus although in the
end we might just realize that we are quick to forget that just being alive is
an extraordinary piece of good luck, a remote event, a chance occurrence of
monstrous proportions, one can start with the following four.
1) First, make a
distinction between positive contingencies and negative ones. Learn to
distinguish between those human undertakings in which the lack of
predictability can be (or has been) extremely beneficial and those where the
failure to understand the future caused harm.
A negative- business
is one where the unexpected can hit hard and hurt severely. If you are in the
military, in catastrophe insurance, or in homeland security, you face only
downside. Likewise, if you are in banking and lending, surprise outcomes are
likely to be negative for you. You lend, but might not get your money back.
In these businesses
you are lucky if you don't know anything particularly if others don't know
anything either, but aren't aware of it. And you fare best if you know where
your ignorance lies if you are the only one looking at the unread books, so to
speak. Middlebrow thinkers sometimes make the analogy of strategy with that of
collecting" lottery tickets." It is plain Wrong. First, lottery
tickets do not have a scalable payoff; there is a kn
upper limit to what they can deliver. The ludic fallacy ap here-the scalability
of real-life payoffs compared to lottery makes the payoff unlimited or of
unknown limit. Secondly, the lottery tickets have known rules and
laboratory-style well-presented possibilities; here we do not know the rules
and can benefit from this additional uncertainty, since it cannot hurt you and
can only benefit you.
2) Don't look for the
precise and the local. Simply, do not be narrow minded. The great discoverer
Pasteur, who came up with the notion that chance favors the prepared,
understood that you do not look for something particular every morning but work
hard to let contingency enter your working life. Likewise, do not try to
predict precise trends to make you more vulnerable to the ones you did not
predict. My friends Remember that infinite vigilance is just not possible.
For example,
insurance companies are of two kinds: the regular diversifiable kind that
belongs to Mediocristan (say, life insurance) and the
more critical risks that are usually sold to reinsurers. According to the data,
reinsurers have lost money on underwriting over the past couple of decades,
but, unlike bankers, they are introspective enough to know that it actually
could have been far worse, because the past twenty years did not have a big
catastrophe, and all you need is one of those per century to kiss the business
good-bye. Many finance academics doing "valuation" on insurance seem
to have missed the point.
3) Seize any
opportunity, or anything that looks like opportunity. Many people do not
realize that they are getting a lucky break in life when they get it. If a big
publisher (or a big art dealer or a movie executive or a hotshot banker or a
big thinker) suggests an appointment, cancel anything you have planned: you may
never see such a window open up again. Diplomats understand that very well:
casual chance discussions at cocktail parties usually lead to big
breakthroughs-not dry correspondence or telephone conversations. Go to parties!
If you're a scientist, you will chance upon a remark that might spark new
research. And if you are autistic, send your associates to these events.
4) Beware of precise
plans by governments. Let governments predict (it makes officials feel better
about themselves and justifies their existence) but do not set much store by
what they say. Remember that the interest of these civil servants is to survive
and self-perpetuate-not to get to the truth. It does not mean that governments
are useless, only that you need to keep a vigilant eye on their side effects.
For instance, regulators in the banking business are prone to a severe expert
problem and they tend to condone reckless but (hidden) risk taking. Recall the
story of banks hiding explosive risks in their portfolios. It is not a good
idea to trust corporations with matters such as rare events because the
performance of these executives is not observable on a short-term basis, and
they will game the system by showing good performance so they can get their
yearly bonus. The Achilles' heel of capitalism is that if you make corporations
compete, it is sometimes the one that is most exposed to the negative-downturn
that will appear to be the most fit for survival. Also, markets are not good
predictors of wars. No one in particular is a good predictor of anything.
5) It is ineffective
to moan about unpredictability: people will continue to predict foolishly,
especially if they are f for it, and you cannot put an end to institutionalized
frauds. If you ever have to heed a forecast, keep in mind that its accuracy
grades rapidly as you extend it through time. If you hear a
"prominent" economist using the word equlibrium,
or normal distribution, do not argue with him; just ignore him, or try to put a
rat down his shirt.
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