High-end real estate will be the first to fall.
How to be Rational about Rationality
So when we look at religion and, to some extent ancestral superstitions, we should consider what purpose they serve, rather than focusing on the notion of “belief”, epistemic belief in its strict scientific definition. In science, belief is literal belief; it is right or wrong, never metaphorical. In real life, belief is an instrument to do things, not the end product. This is similar to vision: the purpose of your eyes is to orient you in the best possible way, and get you out of trouble when needed, or help you find a prey at distance. Your eyes are not sensors aimed at getting the electromagnetic spectrum of reality. Their job description is not to produce the most accurate scientific representation of reality; rather the most useful one for survival.
The Fourth Quadrant: A Map of the Limits of Statistics: Nassim Nicholas Taleb
Statistical and applied probabilistic knowledge is the core of knowledge; statistics is what tells you if something is true, false, or merely anecdotal; it is the “logic of science”; it is the instrument of risk-taking; it is the applied tools of epistemology; you can’t be a modern intellectual and not think probabilistically—but… let’s not be suckers. The problem is much more complicated than it seems to the casual, mechanistic user who picked it up in graduate school. Statistics can fool you. In fact it is fooling your government right now. It can even bankrupt the system (let’s face it: use of probabilistic methods for the estimation of risks did just blow up the banking system).
.. After 1998, when a “Nobel-crowned” collection of people (and the crème de la crème of the financial economics establishment) blew up Long Term Capital Management, a hedge fund, because the “scientific” methods they used misestimated the role of the rare event, such methodologies and such claims on understanding risks of rare events should have been discredited.
.. While most human thought (particularly since the enlightenment) has focused us on how to turn knowledge into decisions, my new mission is to build methods to turn lack of information, lack of understanding, and lack of “knowledge” into decisions—how, as we will see, not to be a “turkey”.
.. certain class of relationships that “look good” in research papers almost never replicate in real life (in spite of the papers making some claims with a “p” close to infallible)
.. For instance you do not “need evidence” that the water is poisonous to not drink from it. You do not need “evidence” that a gun is loaded to avoid playing Russian roulette, or evidence that a thief a on the lookout to lock your door. You need evidence of safety—not evidence of lack of safety— a central asymmetry that affects us with rare events. This asymmetry in skepticism makes it easy to draw a map of danger spots.
.. My classical metaphor: A Turkey is fed for a 1000 days—every days confirms to its statistical department that the human race cares about its welfare “with increased statistical significance”. On the 1001st day, the turkey has a surprise.
.. And one Professor Ben Bernanke pronounced right before the blowup that we live in an era of stability and “great moderation”
.. I have nothing against economists: you should let them entertain each others with their theories and elegant mathematics, and help keep college students inside buildings. But beware: they can be plain wrong, yet frame things in a way to make you feel stupid arguing with them. So make sure you do not give any of them risk-management responsibilities.)
.. In Mediocristan, exceptions occur but don’t carry large consequences. Add the heaviest person on the planet to a sample of 1000. The total weight would barely change. In Extremistan, exceptions can be everything (they will eventually, in time, represent everything). Add Bill Gates to your sample: the wealth will jump by a factor of >100,000. So, in Mediocristan, large deviations occur but they are not consequential—unlike Extremistan.
.. Fourth Quadrant: Complex decisions in Extremistan: Welcome to the Black Swan domain. Here is where your limits are. Do not base your decisions on statistically based claims. Or, alternatively, try to move your exposure type to make it third-quadrant style (“clipping tails”).
Surgeons Should Not Look Like Surgeons
Say you had the choice between two surgeons of similar rank in the same department in some hospital. The first is highly refined in appearance; he wears silver-rimmed glasses, has a thin built, delicate hands, a measured speech, and elegant gestures. His hair is silver and well combed. He is the person you would put in a movie if you needed to impersonate a surgeon. His office prominently boasts an Ivy League diploma, both for his undergraduate and medical schools.
The second one looks like a butcher; he is overweight, with large hands, uncouth speech and an unkempt appearance. His shirt is dangling from the back. No known tailor in the East Coast of the U.S. is capable of making his shirt button at the neck. He speaks unapologetically with a strong New Yawk accent, as if he wasn’t aware of it. He even has a gold tooth showing when he opens his mouth. The absence of diploma on the wall hints at the lack of pride in his education: he perhaps went to some local college. In a movie, you would expect him to impersonate a retired bodyguard for a junior congressman, or a third-generation cook in a New Jersey cafeteria.
Now if I had to pick, I would overcome my suckerproneness and take the butcher any minute.
.. having had some success in spite of not looking the part is potent, even crucial, information.
.. An expert rule is in my business never hire a well-dressed trader.
.. a business plan is a useful narrative for those who want to convince a sucker. It works because firms in the entrepreneurship business make most of their money packaging companies and selling them; it is not easy to sell without some strong narrative. But for a real business, something that should survive on its own, rather than a fund-raising scheme, business plans and funding work backwards.
.. When he entered Gordium, he found an old wagon, its yoke tied with a multitude of knots, all so tightly entangled that it was impossible to figure out how they were fastened. An oracle had declared that he who would untie the knot would rule all of what was then called “Asia”, that is Asia minor, the Levant, and the Middle East.
After wrestling with the knot, the Megalos drew back from the lump of gnarled ropes, then made a proclamation that it didn’t matter for the prophecy how the tangle was to be unraveled. He then drew his sword and, with a single stroke, cut the knot in half.
No “successful” academic would ever follow such policy.
.. Richard Dawkins (…) argues that “He behaves as if he had solved a set of differential equations in predicting the trajectory of the ball. At some subconscious level, something functionally equivalent to the mathematical calculations is going on”.
(…) Instead, experiments have shown that players rely on several heuristics. The gaze heuristic is the simplest one and works if the ball is already high up in the air: Fix your gaze on the ball, start running, and adjust your running speed so that the angle of gaze remains constant .
This error by the science entertainer Richard Dawkins error generalizes to, simply, overintellectualizing humans in their responses to all manner of natural phenomena
.. Likewise religious “beliefs” are simply mental heuristics that solve a collection of problems –without the agent really knowing how –and lead to human activity
.. consider that close to eighty or eighty five percent of the cost of a tomato will be attributed to transportation, storage, waste (from the rotting of unsold inventories), rather than the cost at the farmer level.
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Now the mere fact than an evaluation causes you to be judged, not by the end results, but by some intermediary metric that invites you to look sophisticated, bring that distortion.