Something's changed? ๐ค Yes, yes! After more than five years, I've rebuilt the place, from scratch ๐ฅ But you know, with great power comes great responsibility, so please, before you proceed read the manual ๐ Otherwise, be safe, and enjoy ๐

# ๐ Fooled By Randomness

Remember that nobody accepts randomness in his own success, only his failure.

Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance.

It is a mistake to use, as journalists and some economists do, statistics without logic, but the reverse does not hold: it is not a mistake to use logic without statistics.

Our brain sometimes gets the arrow of causality backward. Assume that good qualities cause success; based on that assumption, even though it seems intuitively correct to think so, the fact that every intelligent, hardworking, persevering person becomes successful does not imply that every successful person is necessarily an intelligent, hardworking, persevering person.

Causality can be very complex. It is very difficult to isolate a single cause when there are plenty around. This is called multivariate analysis.

This problem has a more worrying extension; we are not made ย to view things as independent from each other. When viewing two events A and B, it is hard not to assume that A causes B, B causes A, or both cause each other.

Sometimes, we also fall into Post hoc ergo propter hoc (it is the consequence because it came after). Say hospital A delivered 52% boys and hospital B delivered the same year only 48%; would you try to give the explanation that you had a boy because it was delivered in hospital A?

Which came with the help of luck could be taken away by luck. The flip-side, which deserves to be considered as well, is that things that come with little help from luck are more resistant to randomness.

Mild success can be explainable by skills and labor. Wild success is attributable to variance.

Risk-conscious hard work and discipline can lead someone to achieve a comfortable life with a very high probability. Beyond that, it is all randomness: either by taking enormous (and unconscious) risks, or by being extraordinarily lucky...

Nero dixit...

• The only dark side of being a trader is the sight of money being showered on unprepared people who are suddenly taught that Vivaldi's Four Seasons is "refined" music.
• Intellectual contempt does not control personal envy. That house across the street kept getting bigger, with addition after additionโand Nero's discomfort kept apace.
• He tried to soothe his discomfort by recalling the behavior of Swann, the character in Proust's In Search of Lost Time, a refined art dealer and man of leisure who was at ease with such men as his personal friend the then Prince of Wales, but acted like he had to prove something in the presence of the middle class.

### Alternative histories

The possible worlds, or how we dismiss the events that don't end up happening.

For Leibniz, God's mind included an infinity of possible worlds, of which he selected just one. These non-selected worlds are worlds of possibilities, and the one in which I am breathing and writing these lines is just one of them that happened to have been executed.

๐ The dentist and the entrepreneur

If you were to relive a set of events 1000 times, what would the range of outcomes be? If there is very little variance in your alternative histories (i.e. you chose to become a dentist and you will probably make more or less the same amount of money and live a similar lifestyle all 1000 times), then you are in a relatively non-random situation. Meanwhile, if there is a very wide range of normal results when considering 1000 variations (entrepreneurs, traders, etc.), then it is a very random situation.

• Certainty is something that is likely to take place across the highest number of different alternative histories.
• Uncertainty concerns events that should take place in the lowest number of them.

๐ฒ \$10 million earned through Russian roulette does not have the same value as \$10 million earned through the diligent and artful practice of dentistry. They are the same, can buy the same goods, except that one's dependence on randomness is greater than the other.

๐ In other words, it all is more random than we think, but not all is random. Chance favors preparedness, but it is not caused by preparedness โ and the same goes for hard work, skills...

๐ Process vs. result (or CEO's empty suits)

Consider the difference between judging on process and judging on results. Lower-ranking persons in the enterprise are judged on both process and results โ in fact, owing to the repetitive aspect of their efforts, their process converges rapidly to results. But top management is only paid on result โ no matter the process. There seems to be no such thing as a foolish decision if it results in profits.

CEOs take a small number of large decisions, more like the person walking into the casino with a single million-dollar bet. External factors, such as the environment, play a considerably larger role than with the dentist. The link between the skill of the CEO and the results of the company are tenuous. By some argument, the boss of the company may be unskilled labor but one who presents the necessary attributes of charisma and the package that makes for good MBA talk.

He may be subjected to the monkey-on-the-typewriter problem. There are so many companies doing all kinds of things that some of them are bound to make โthe right decision.โ

๐ฒ If a 25 year-old played Russian roulette, say, once a year, there would be a very slim possibility of his surviving until his fiftieth birthday โ but, if there are enough players, say thousands of 25 year-old players, we can expect to see a handful of (extremely rich) survivors (and a very large cemetery).

CEOs are not entrepreneurs. As a matter a fact, they are often empty suits. In the โquantโ world, the designation empty suit applies to the category of persons who are good at looking the part but nothing more. More appropriately, what they have is skill in getting promoted within a company rather than pure skills in making optimal decisions โ we call that โcorporate political skill.โ These are people mostly trained at using PowerPoint presentations.

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 โ or how many are conscious of the difference between process and result.

One cannot judge a performance in any given field (war, politics, medicine, investments) by the results, but by the costs of the alternative (i.e. if history played out in a different way). Clearly, the quality of a decision cannot be solely judged based on its outcome, but such a point seems to be voiced only by people who fail.

Reality is far more vicious than Russian roulette:

1. It delivers the fatal bullet rather infrequently, like a revolver that would have hundreds, even thousands, of chambers instead of sixโฆ It is also related to a problem called denigration of history, as gamblers, investors, and decision-makers feel that the sorts of things that happen to others would not necessarily happen to themโฆ
2. Unlike a well-defined, precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality.

### (Over)simplifying complex ideas

Arguments should be simplified to their maximum potential; but people often confuse complex ideas that cannot be simplified into a media-friendly statement as symptomatic of a confused mind.

We overvalue the things that trigger an emotional response and undervalue the things that aren't as emotional.

It is a fact that our brain tends to go for superficial clues when it comes to risk and probability, these clues being largely determined by:

• What emotions they elicit
• The ease with which they come to mind โ related to the availability heuristic from Thinking Fast And Slow
• Both risk detection and risk avoidance are not mediated in the "thinking" part of the brain but largely in the emotional one

This means that rational thinking has little, very little, to do with risk avoidance. Much of what rational thinking seems to do is rationalize one's actions by fitting some logic to them.

Ask a profitable investor to explain the reasons for his success; he will offer some deep and convincing interpretation of the results. Frequently, these delusions are intentional and deserve to bear the name "charlatanism."

๐ฒ The market movements in the 18 months after September 11 were far smaller than the ones in the 18 months prior โ but somehow in the minds of investors they were very volatile. Discussions in the media of the "terrorist threats" magnified the effect of the market moves in people's heads.

Journalism is just about entertainment, particularly when it comes to radio and television.

Put wax in your ears and ignore the news.

Conventional wisdom favors things that can be explained instantly and in a nutshell. Most poetic sounding adages are plain wrong.

๐ Related to Aaron Swartz masterpiece: Hate The News

For an idea, age is beauty.

It's better to value old, distilled thoughts than "new thinking" because for an idea to last so long it must be good. That is, old ideas have had to stand the test of time. New ideas have not. Some new ideas will end up lasting, but most will not.

๐ Related to James Clear's idea of reasoning from first principles: the ratio of undistilled information to distilled is rising. You want more distilled information (concepts that stand the test of time and rigorous analysis) and less undistilled information (the news, reactionary opinions, and "cutting edge" research).

Common sense is nothing but a collection of misconceptions acquired by age eighteen.

-- Albert Einstein

In that sense the mental probabilistic map in one's mind is so geared toward the sensational that one would realize informational gains by dispensing with the newsโฆ This is one of the many reasons that journalism may be the greatest plague we face today โ as the world becomes more and more complicated and our minds are trained for more and more simplification.

๐ Related to Thinking Fast And Slow and the idea that sometimes "an algorithm that is constructed in the back of an envelope is often good enough to compete with an optimally weighted formula, and certainly good enough to outdo expert judgement".

๐ฒ People fail to learn that their emotional reactions to past experiences (positive or negative) were short-lived โ yet they continuously retain the bias of thinking that the purchase of an object will bring long-lasting, possibly permanent, happiness or that a setback will cause severe and prolonged distress (when in the past similar setbacks did not affect them for very long and the joy of the purchase was short-lived).

๐ Related to Stumbling On Happiness and the idea that "we compare with the past instead of with the available".

The opportunity cost of missing a "new new thing" like the airplane and the automobile is minuscule compared to the toxicity of all the garbage one has to go through to get to these jewels (assuming these have brought some improvement to our lives, which I frequently doubt)

It takes a huge investment in introspection to learn that the thirty or more hours spent "studying" the news last month neither had any predictive ability during your activities of that month nor did it impact your current knowledge of the world. This problem is similar to the weaknesses in our ability to correct for past errors: people often think that it will surely be the next batch of news that will really make a difference to their understanding of things.

### Mathematics and Monte Carlo

Mathematics is principally a tool to meditate, rather than to compute.

It is a fact that "true" mathematicians do not like Monte Carlo methods. They believe that they rob us of the finesse and elegance of mathematics. They call it "brute force."

I am not a "native" mathematician, that is, I am someone who does not speak mathematics as a native language, but someone who speaks it with a trace of a foreign accent.

Mathematically, progress means that some new information is better than past information, not that the average of new information will supplant past information, which means that it is optimal for someone, when in doubt, to systematically reject the new idea, information, or method. Clearly and shockingly, always.

Minor stalemates in life can often be solved by choosing randomly. In many cases it doesn't really matter so long as you choose something and move forward.

๐ Hindsight Bias and how a mistake is not something to be determined after the fact, but in the light of the information until that point.

When you look at the past, the past will always be deterministic, since only one single observation took place. Yet a mistake is not something to be determined after the fact, but in the light of the information until that point.

Our minds are not quite designed to understand how the world works, but, rather, to get out of trouble rapidly and have progeny.

A more vicious effect of such hindsight bias is that those who are very good at predicting the past will think of themselves as good at predicting the future, and feel confident about their ability to do so.

๐ฒ Consider the situation where the dentist examines his portfolio only upon receiving the monthly account from the brokerage house. As 67% of his months will be positive, he incurs only four pangs of pain per annum and eight uplifting experiences. Now consider the dentist looking at his performance only every year. Over the next 20 years that he is expected to live, he will experience 19 pleasant surprises for every unpleasant one!

We tend to think that traders were successful because they are good. Perhaps we have turned the causality on its head; we consider them good just because they make money. One can make money in the financial markets totally out of randomness.

At a given time in the market, the most successful traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists because these professions are more immune to randomness.

๐ Evolution and reproductive fitness

We will ignore the basic misuse of Darwinian ideas in the fact that organizations do not reproduce like living members of nature โ Darwinian ideas are about reproductive fitness, not about survival.

Darwinian fitness applies to species developing over a very long time, not observed over a short term โ time aggregation eliminates much of the effects of randomness; things (I read noise) balance out over the long run, as people say.

Evolution does not mean that an animal is at the maximum fitness for the conditions of its time. On average, animals will be fit, but not every single one of them, and not at all times. Just as an animal could have survived because its sample path was lucky, the "bestโ operators in a given business can come from a subset of operators who survived because of over-fitness to a sample path โ a sample path that was free of the evolutionary rare event.

There are some strategies that work well for any given cycle (an extreme fad diet). More importantly, the strategies that work for a given cycle in the short term may not be the best for long run. They are sub optimal strategies winning over a randomly beneficial short term cycle.

๐ Median != Mean

• Median is the value separating the higher half from the lower half of a data sample.
• Mean (or average) is the sum of a sample of numbers divided by the count of numbers in the sample.

Whenever there is asymmetry in outcomes (a skewed distribution), the average survival has nothing to do with the median survival.

๐ Odds and outcomes

Things in life don't move continuously at all.

• Asymmetric odds means that probabilities are not 50% for each event, but that the probability on one side is higher than the probability on the other. A coin toss, for example, has symmetric odds.
• Asymmetric outcomes mean that the payoffs are not equal. This is that each "odd" has different value.

The frequency or probability of the loss (the odds), in and by itself, is totally irrelevant; it needs to be judged in connection with the magnitude of the outcome.

Probability != Expectation (probability x payoff (or odds x outcomes))

It is not how likely an event is to happen that matters, it is how much is made when it happens that should be the consideration. How frequent the profit is irrelevant; it is the magnitude of the outcome that counts.

People usually miss this point because their schooling comes from examples in symmetric environments, like a coin toss, where such a difference does not matter. In fact, the so-called bell curve that seems to have found universal use in society is entirely symmetric.

๐ Skewed bets

Rare events, events that do not tend to repeat themselves frequently, but, accordingly, present a large payoff when they occur. I try to make money infrequently, as infrequently as possible, simply because I believe that rare events are not fairly valued, and that the rarer the event, the more undervalued it will be in price.

Why are these events poorly valued? Because of a psychological bias; people who surrounded me in my career were too focused on memorizing section 2 of The Wall Street Journal during their train ride to reflect properly on the attributes of random events. Or perhaps they watched too many gurus on television. Or perhaps they spent too much time upgrading their PalmPilot.

I aim at profiting from the rare event, with my asymmetric bets.

In most disciplines, such asymmetry does not matter. In an academic pass/fail environment, where the cumulative grade does not matter, only frequency matters.

You can't just look at the odds of something happening, but also the payoff you receive if it works (and the cost of it failing). A bet on something very unlikely can be smart if the payoff is large and you have rules to limit the many small losses that are likely. Yet people tend to be sensitive to the presence or absence of a given stimulus, rather than its magnitude. The agent would prefer the number of losses to be low and the number of gains to be high, rather than optimizing the total performance.

Markets (and life) are not simple win/lose types of situations, as the cost of the losses can be markedly different from that of the wins. Maximizing the probability of winning does not lead to maximizing the expectation from the game when one's strategy may include skewness, because a small chance of large loss and a large chance of a small win.

Stay away from people of a competitive nature, as they have a tendency to commoditize and reduce the world to categories, like how many papers they publish in a given year, or how they rank in the league tables.

The problem is that we read too much into shallow recent history, with statements like "this has never happened before," but not from history in general (things that never happened before in one area tend eventually to happen).

History teaches us that things that never happened before do happen. It can teach us a lot outside of the narrowly defined time series; the broader the look, the better the lesson.

### Induction

There are only two types of theories:

1. Theories that are known to be wrong, as they were tested and adequately rejected (he calls them falsified).
2. Theories that have not yet been known to be wrong, not falsified yet, but are exposed to be proved wrong.

A theory that falls outside of these two categories is not a theory. A theory that does not present a set of conditions under which it would be considered wrong would be termed charlatanism, it would be impossible to reject otherwise.

Indeed the difference between Newtonian physics, which was falsified by Einstein's relativity, and astrology lies in the following irony. Newtonian physics is scientific because it allowed us to falsify it, as we know that it is wrong, while astrology is not because it does not offer conditions under which we could reject it.

No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion.

I can use data to disprove a proposition, never to prove one. I can use history to refute a conjecture, never to affirm it. In other words: there is a big difference between "this has never happened" and "this will ever happen." You can say the first, but never truly confirm the second. It just takes one counter example to prove all previous observations wrong. We never know things for sure, only with varying degrees of certainty.

Karl Popper refused to blindly accept the notion that knowledge can always increase with incremental information โ which is the foundation of statistical inference. It may in some instances, but we do not know which ones. Many insightful people, such as John Maynard Keynes, independently reached the same conclusions.

When combining skewed distributions and the problem of induction, why do we consider the worst case that took place in our own past as the worst possible case?

If the past, by bringing surprises, did not resemble the past previous to it (what I call the past's past), then why should our future resemble our current past?

Popper's falsificationism is intimately connected to the notion of an open society. An open society is one in which no permanent truth is held to exist; this would allow counter-ideas to emerge.

The simple notion of a good model for society that cannot be left open for falsification is totalitarian.

๐ Causality, induction, and the best of both worlds

Unlike induction (which is going from plenty of particulars to the general), causality is easier to commit to memory. Our brain would have less work to do in order to retain the information. The size is smaller. It is very handy, as the general takes much less room in one's memory than a collection of particulars. The effect of such compression is the reduction in the degree of detected randomness.

I will use statistics and inductive methods to make aggressive bets, but I will not use them to manage my risks and exposure.

Recreate a low-information, more deterministic ancient time, say in the nineteenth century, all the while benefiting from some of the technical gains (such as the Monte Carlo engine), all of the medical breakthroughs, and all the gains of social justice of our age. I would then have the best of everything. This is called evolution.

### Monkeys and typewriters

If one puts an infinite number of monkeys in front of (strongly built) typewriters, and lets them clap away, there is a certainty that one of them would come out with an exact version of the Iliad.

The interesting question relating to the monkeys: how much can past performance (here the typing of the Iliad) be relevant in forecasting future performance?

There are two factors at play here:

1. The randomness of the content (remember the dentist vs. entrepreneur)
2. The number of "monkeys" in the operation (if there are five monkeys in the game, one would suspect him to be a reincarnation of the ancient poet, if there are a billions of them, one would be less impressed)

๐ (again) Survivorship bias

The same applies to the business world: the greater the number of businessmen, the greater the likelihood of one of them performing in a stellar manner just by luck. I have rarely seen anyone count "the monkeys" in the business world. In real life one sees only the winners, the other monkeys are not countable, let alone visible. They are hidden away as it is natural for those who failed to vanish completely.

We only see the survivors: the highest performing realization will be the most visible. Why? Because the losers do not show up.

Another counterintuitive point is that the expectation of the maximum of track records, with which we are concerned, depends more on the size of the initial sample than on the individual odds per manager. In other words, the number of managers with great track records in a given market depends far more on the number of people who started in the investment business (in place of going to dental school), rather than on their ability to produce profits.

๐ Hedonic adaptation and comparing with others

Most people prefer to make \$70,000 when others around them are making \$60,000 than to make \$80,000 when others around them are making \$90,000.

If we choose to live among the people who have been successful, we are implicitly excluding failure from the sample. Those who have failed do not show up in the sample, thus making us feel as if we were not doing well at all. By living on Park Avenue, one does not have exposure to the losers, one only sees the winners.

As we are cut to live in very small communities, it is difficult to assess our situation outside of the narrowly defined geographic confines of our habitat.

This might also lead to a never-ending loop: you get rich, move to rich neighborhoods, then become poor again. And to that, add the psychological treadmill effect: you get used to wealth and revert to a set point of satisfaction.

๐ The world is not that small at all

If you meet someone randomly, there is a one in 365.25 chance of your sharing their birthday. In a room with 23 people, the chance of there being 2 people with the same birthday is about 50%. For we are not specifying which people need to share a birthday; any pair works.

"It's a small world!" is often uttered with surprise. The world is much larger than we think. It is just that we are not truly testing for the odds of having an encounter with one specific person, in a specific location at a specific time. Rather, we are simply testing for any encounter, with any person we have ever met in the past, and in any place we will visit during the period concerned.

๐ Deviation from the mean

The larger the deviation from the norm, the larger the probability of it coming from luck rather than skills.

Real randomness does not look random.

๐ Linearity and the compounding effects of consistency

People think that if, say, two variables are causally linked, then a steady input in one variable should always yield a result in the other one. Our emotional apparatus is designed for linear causality. For instance, you study every day and learn something in proportion to your studies. If you do not feel that you are going anywhere, your emotions will cause you to become demoralized.

Reality does not give us the privilege of a satisfying linear positive progression: you may study for a year and learn nothing, then, unless you are disheartened by the empty results and give up, something will come to you in a flash.

Most people give up before the rewards.

People cannot comprehend the nonlinear nature of the rare event. There are routes to success that are nonrandom, but very few people have the mental stamina to follow them. Those who go the extra mile are rewarded.

๐ Related to 1000 True Fans โ it is better to have a handful of enthusiastic advocates than hordes of people who appreciate your workโbetter to be loved by a dozen than liked by the hundreds. This applies to the sales of books, the spread of ideas, and success in general and runs counter to conventional logic. The information age is worsening this effect.

### Emotions and decisions

๐ The hesitant donkey

Imagine a donkey equally hungry and thirsty, standing exactly between sources of food and water. He would die of both thirst and hunger, unable to decide which to get first.

Now inject some randomness by randomly nudging the donkey closer to one source, no matter which. The impasse is broken, and our happy donkey will be both fed and hydrated.

In other words โ "flipping a coin" breaks some of the minor stalemates in life where one lets randomness help with the decision process.

Herbert A. Simon had this idea that if we were to optimize at every step in life, then it would cost us an infinite amount of time and energy. Accordingly, there has to be in us an approximation process that stops somewhere. Clearly he got his intuitions from computer science. "Satisficingโ was his idea (the melding together of satisfy and suffice): you stop when you get a near-satisfactory solution. Otherwise it may take you an eternity to reach the smallest conclusion or perform the smallest act.

Applied to a "real-life" scenario, a slightly random schedule and a little bit of uncertainty prevents us from optimizing and being exceedingly efficient in the wrong things. It helps you be a satisfacer instead of maximizer.

Daniel Kahneman and Amos Tversky went in a completely different direction than Simon and started figuring out rules in humans that did not make them rational โ but things went beyond the shortcut. For them, these rules, which are called heuristics, were not merely a simplification of rational models, but were different in methodology and category. They called them "quick and dirtyโ heuristics.

๐ Emotions and decisions

• Normative science (i.e. Economics): offers prescriptive teachings; it studies how things 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 "optimalโ).
• Positive science (i.e. Physics): based on how people actually are observed to behave.

Normative economics is like religion without the aesthetics.

The absence of a central processing system makes us engage in decisions that can be in conflict with each other. But back to Herbert A. Simon's idea around the "optimization sweet spot" โ an experiment reported that the purely unemotional man was incapable of making the simplest decision. He could not get out of bed in the morning, and frittered away his days fruitlessly weighing decisions.

One cannot make a decision without emotion.

Now, mathematics gives the same answer: if one were to perform an optimizing operation across a large collection of variables, even with a brain as large as ours, it would take a very long time to decide on the simplest of tasks.

It seems that the emotions are the ones doing the job. Psychologists call them โlubricants of reason.โ We actually need to feel things to make decisions.

### Biases

• "I'm as good as my last trade" or Prospect Theory: looking at differences, not absolutes, and resetting to a specific reference point.
• "Sound-bite effect" or Affect heuristic: people react to concrete and visible risks, not abstract ones.
• "It was so obvious" or Hindsight Bias: things appear to be more predictable after the fact.
• "You were wrong" or Inductive fallacies: jumping to general conclusions too quickly.

Biases do not disappear when there are incentives.

Your brain reacts differently to the same situation depending on which chapter you open to.

The fact that your mind cannot retain and use everything you know at once is the cause of such biases. One central aspect of a heuristic is that it is blind to reasoning. That's why this needs to exist.

We seem to focus too much on "local" changes, not global ones. That is, we care too much about the latest change rather than the overall trend ๐

You do not have everything you know in your mind at all times, so you retrieve the knowledge in a piecemeal fashion, which puts these retrieved knowledge chunks in their local context. You have an arbitrary reference point and react to differences from that point, forgetting that you are only looking at the differences from that particular perspective of the local context, not the absolutes.

๐ An idea also seen at Stumbling On Happiness โ it is easier for your brain to detect differences rather than absolutes, hence rich or poor will be (above the minimum level) in relation to something else.

Yet there is a difference between a wealth level reached from above and a wealth reached from below. The road from 16 million to 1 million is not as pleasant as the one from 0 to 1 million.

Wealth does not make people happy, but positive increases in wealth may, especially if they come as โsteadyโ increases.

๐ And also seen in Thinking Fast And Slow โย when something is in relation to something else, that something else can be manipulated. Psychologists call this effect of comparing to a given reference anchoring.

Even if you know about randomness and cognitive biases, you are still just as likely to fall victim to them.

๐ (again) on journalists, causality and experts

Journalists most commonly get mixed up between absence of evidence and evidence of absence.

When news says "Dow up 1.3 on lower interest rates", it's less than a 0.01% move, which requires no explanation, nothing to explain, no reasons to adduce. But journalists being paid to provide explanations will gladly provide them.

Unless something moves by more than its usual daily percentage, it's noise. A 2% move is 4-10 times more significant than a 1% move. A 7% move can be several billion times more relevant than a 1% move.

Too many people read explanations. We cannot instinctively understand the nonlinear aspect of probability.

Unless the source of a statement has extremely high qualifications, the statement will be more revealing of the author than the information judged.

This mechanism I also call Wittgensteinโs ruler: unless you have confidence in the rulerโs reliability, if you use a ruler to measure a table you may also be using the table to measure the ruler.

### Stoics, skepticism, and changing your mind

Monsieur de Norpois was not lying. He had just forgotten. One forgets rather quickly what one has not thought about with depth, what has been dictated to you by imitation, by the passions surrounding you.

Don't go around spending energy defending your (failed) past ideas, instead make a buck with what you have learned from it.

What characterizes real speculators like Soros from the rest is that their activities are devoid of path dependence. They are totally free from their past actions. Every day is a clean slate.

There is nothing wrong and undignified with emotions โ we are cut to have them. What is wrong is not following the heroic or, at least, the dignified path. That is what stoicism truly means. It is the attempt by man to get even with probability.

The skeptics' main teaching was that nothing could be accepted with certainty, conclusions of various degrees of probability could be formed, and these supplied a guide to conduct.

๐ Escalation of commitment โ do not hold stubbornly to an opinion for the mere fact that he had voiced it in the past.

๐ฒ Say you own a painting you bought for \$20k, and is now worth \$40k. If you owned no painting, would you buy it at the current price? If not, then you are said to be married to your position. There is no rational reason to keep a painting you would not buy at its current market rate - only emotional investment. Many people get married to their ideas all the way to the grave. Beliefs are said to be path-dependent if the sequence of ideas is such that the first one dominates.

๐ Personal elegance

Start stressing personal elegance at your next misfortune. Exhibit sapere vivere (โknow how to liveโ) in all circumstances. Dress at your best on your execution day (shave carefully); try to leave a good impression on the death squad by standing erect and proud. Try not to play victim when diagnosed with cancer. Try not to blame others for your fate, even if they deserve blame. Never exhibit any self-pity. Do not complain. The only article Lady Fortuna has no control over is your behavior. Good luck.

### Randomness and happiness

The illustration of Buridanโs donkey shows that randomness is not always unwelcome. To some extent, unpredictability (or lack of knowledge) can be beneficial to our defective species. Randomness (correctly applied) prevents us from optimizing and being exceedingly efficient in the wrong things.

Research on happiness shows that those who live under a self-imposed pressure to be optimal in their enjoyment of things suffer a measure of distress. In some areas, we should aim to be a satisficer instead of a maximizer.

We know that people of a happy disposition tend to be of the satisficing kind, with a set idea of what they want in life and an ability to stop upon gaining satisfaction. On top of that, "what they want" is usually of intrinsic value by itself, rather than material pleasure.

Yet causality is not clear:

• Are optimizers are unhappy because they are constantly seeking a better deal?
• Or is just unhappy people tend to optimize out of their misery?

Getting rich results in his seeing flaws in the goods and services he buys.

People who get promoted to important positions usually suffer from tightness of schedules: everything has an allotted time. At the limit, you can decide whether to be (relatively) poor, but free of your time, or rich but as dependent as a slave.

### Hidden gems

I respect people with scientific minds who feel compelled to spend their nights reading wholesale on a subject matter, trying to figure out what was done on the subject by others before emitting an opinion โ would the reader listen to the opinion of a doctor who does not read medical papers?

We are designed by mother nature to have an extremely skewed physical workout: hunter-gatherers had idle moments followed by bursts of intense energy expenditure.

George Soros knew how to handle randomness by keeping a critical open mind and changing his opinions with minimal shame.

Too much success is the enemy (think of the punishment meted out on the rich and famous); too much failure is demoralizing. I would like the option of having neither.

Cool experiment about how we make serious probabilistic mistakes in today's world ๐

A test of a disease presents a rate of 5% false positives.
The disease strikes 1/1000 of the population.
People are tested at random, regardless of whether they are suspected of having the disease.
A patient's test is positive.
What is the probability of the patient having the disease?
---
Most doctors say 95%! True answer is 1/50. (2%).

Most of us know pretty much how we should behave. It is the execution that is the problem, not the absence of knowledge. I am tired of the moralizing slow-thinkers who pound me with platitudes like I should floss daily, eat my regular apple, and visit the gym outside of the New Yearโs resolution.

In a few decades will we look upon the Nobel economics committee with the same smirk as when we look at the respected โscientificโ establishments of the Middle Ages that promoted (against all observational evidence) the idea that the heart ย was a center of heat? We have been getting things wrong in the past and we laugh at our past institutions; it is time to figure out that we should avoid enshrining the present ones.

Say you always have the same threshold of reactions. 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. Such predictability will allow people to take advantage of you up to that well-known trigger point and stop there. 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.

Published on March 17, 2019