Daters, scammers, and Zeckhauser

MIKE1 Comment

Maxim Five: low probability events

When a low probability event occurs (say an underdog wins a sports championship), we tend to come up with reasons why we might have expected it. This phenomenon is often referred to as hindsight bias, a tendency to perceive past events as having been more predictable than they actually were. But if we consider that many events occur in a year, we should expect at least some to be low-probability events. For example, there are many championships in a given year, so we should not be surprised that every year there is a championship outcome in some sport (say tennis, golf, football, etc.) that no one expected.Dan Levy, Maxims for Thinking

Something is always happening because with enough parts, something happens. The odds that one low-probability event, a 100:1 long shot wins an event, occurs is low. But the odds that any low probability event occurs is fair. Tonight many people will go to many bars. To bet that Your Friend will meet their spouse is ridiculous. To bet that Anyone’s Friend will meet their spouse is a no-brainer.

The bar points out the mechanism we use everyday: a filter. Not everyone at the bar will be there to meet a spouse and those that are there for that will very likely leave without doing so, but being at-the-bar is the filtering mechanism. It’s the same mechanism the Nigerian Prince uses.

It’s well noted that scamming emails contain misspellings, outlandish claims, and hard-to-swallow facts as a filter. A scammer, like a dater, only wants to draw from an eligible pool. And the scammer and the dater both have the same reason: resources. A scam email has minimal costs. A visit to the bar has minimal costs. These filters have to exist because the follow up is expensive.

Something is always happening, but we often don’t want ‘something’. We want ‘this thing’. One tool is to increase the probability (p) it occurs. Go to the coffee bar. Send the email with mistakes. Another tool is to increase the number (N). Will Michigan ever lose again as a thirty-point favorite? Maybe. Will a division one football team lose as a thirty point favorite? Probably. Will any football team lose as a thirty point favorite? Definitely.

Low probability events will always occur and the mechanism of a large Number or rising probability influence how often. Maxim 5 is “the world is much more uncertain than you think.” Levy, writing about Richard Zeckhauser notes, “so the next time you find yourself thinking that some event will happen for sure or that some other event has no chance of happening, pause to remind yourself of this maxim.”

–
Thanks to Eric Bradlow on the Wharton Moneyball podcast for articulating the idea “large N small p”.

Does the bundle explain it?

MIKE4 Comments

Defaults are a design tool to frame thinking. One designed-default is mean reversion. For most situations, said Cade Massey, “Try regression to the mean on for size and see if that can explain it.” Another is to start with the base rate: what typically happens in situations like this? During the Summer of 2021 there were many comparisons of vaccinated and unvaccinated Covid infection rates. This was a case of base rate neglect.

Mean reversion and base rates are good starting ideas because they prevent our Narrative Spin Drives from jumping into high-output mode. For instance, there’s an annual NFL video game known as Madden NFL. There’s also a Madden curse. If someone appears on the cover they have a terrible season after. It’s happened to eighty-two percent of the athletes!

Or it is base rates and mean reversion. To earn the cover rights, a player must have an excellent season, and their “success equation” benefited from a few lucky bounces. That happens. But bad luck happens too.

To add to the value of starting with base rates and mean reversion we can add “The Bundle”: the idea that a JTBD is a collection of things.

Marc Andreessen talked about the bundle of education: a dating scene, knowledge, social interactions, signaling, potential professional connections, cheap financing, and so on. Part-of-the-reason education innovation hasn’t gained distribution is that online only addresses parts of the bundle. It’s hard to date or build friendships on a video call.

Another bundle is the meal. Every meal is a combo meal: social interactions, nutrients, calories, taste, and so on. We can see bundles further yet. Food is more than the sum of its vitamins and nutrients. Eating an orange is more than theVitamin C, fiber, and sugar.

Work is a bundle too. Economist Tyler Cowen often notes that part-of-the-problem with Universal Basic Income is that it doesn’t address The Bundle. From NPR:

“Companies, like those in the tech industry such as Google and Apple, built enormous offices and put them all right next to each other in Silicon Valley and the office expanded what it was in people’s lives. They became like a second home. They had fancy food, concerts, dry cleaning, free meals.” – Stacey Vanek Smith, Planet Money, August 2021

Okay, a confession. I love Ted Lasso. It’s my favorite show since Parks and Rec. What I admire about Lasso is that he sets a tone (assuming for a moment it’s a real football club but this ethos may exist in the real production). Players begin the day and “Believe”. That’s what starting with base rates, mean reversion, and the bundle does too. Starting with those prompts prevents the Narrative Spin Drive from generating primarily palatable explanations.

–
One thing I’ve changed my mind on is reading fiction. Fiction, like Ted Lasso, appeals to us because it is a fake premise sharing a human truth.
Also, the idea of online education needing distribution is from Alex Rampell, a colleague of Andreessen, who asks: Will disruptors gain innovation before innovators gain disruption? This is the “TiVo Problem.”

…

April 2022 update. Taylor Pearson highlights Kris Abdelmessih’s post.

The person in your network you might not get along with…

MIKE

Purchases are admissions of value. The buyer values the item more than the seller. For minor purchases we mostly go with ease (see Peloton). For larger purchases we quantify earnings per share or dollar per square foot or miles per gallon. In these big areas, the largest gains come with the largest differences in value, and all value is perceived value.

But not just value between the seller and the buyer, but between the seller and all the buyers, the market.

“This is why you talk about the importance of a network. The person in your network that you might not get along with is probably the best person you want to be aggregating your opinions with. We just recorded another podcast this morning and George and I had the same picks on all but one of the games. We had been talking about the games for five months. We had whittled down our differences and come to a consensus, which can be great, but in life you need people who disagree with you.” – Eric Eager, Deep Dive, September 2021

Technology changed what is your network. Investors trade ideas on Twitter. Gamblers text group chats. Discords and Reddits and on and on. Organizations create accurate forecasts when leadership creates a culture to argue well.

Eager’s comments come in the context of gambling, a nice field for the success equation. One way that a gambler may evaluate their skill/luck split is to look at closing line value. That is, does the market think more or less like them? Another way is to talk to their network.

Envy, the least fun mistake

MIKE

Maxim 17 from Richard Zeckhauser is “Strive hard not to be envious – see your friend’s success as your gain”. Envy is an obstacle to be recognized early in the decision making process warned Charlie Munger in his Psychology of Human Misjudgment speech.

A 2021 Sports Illustrated profile of Pete Sampras addressed his envy, or lack of. When Roger Federer broke his record of fourteen major wins. A friend recalled this conversation:

‘“I said, ‘It’s getting close. What do you think?’ ” recalls (Paul)Annacone.
“It’s pretty amazing!” Sampras replied.
“What do you mean?” pressed Annacone who, ironically, would go on to coach Federer.
“Well,” said Sampras, “I just know how hard it was for me. If anyone else can do it, that’s just too good. That’s amazing!”

Zeckhauser, Munger, and Sampras all express an idea seen every weekend at the local 5k race. There’s little envy because every runner is running their own race. The couch to 5k crowd is happy to finish and the elite runners are happy to see them finish too. Toward the front of the pack the attitude is that each person competes against the clock.

If envy is uninvited should it, like spam emails, be blocked and never surface in the mental inbox? Maybe not. Denise Shull advises her clients to accept and understand their emotions because emotions are information. But what kind of information? Shull said:

“Put your feelings into buckets. Which feelings are childhood repetition? Which ones are because the other guy is doing better? Which one is your market recognition? Which one is your intuition? People can learn this, but most men have been told to put all that stuff aside.”

When Hank Aaron was asked if he was going to give Barry Bonds the home run record, Aaron replied that he wasn’t giving anything, that records were made to be broken.

There’s this snarky idea that if you’re one in a million there’s still 8,000 people like you in the world. That’s true. But it only takes thirty-three binary variables to get to 8 billion unique answers. Do you like licorice? Y/N. Have you seen Star Wars? Y/N. And so on.

In that sense everyone is running their own race and envy is irrelevant. I think Shull is right about envy as information, the winning move is to play it like Munger, Aaron, and Sampras.

Machiavellian framing

MIKE

“The thing that makes The Prince such a timeless and scandalous work,” explained Stacy Vanek Smith, “is the same exact thing, Machiavelli removes morality from the situation.”

Smith is out to talk about her book, Machiavelli for Women and the book’s seed came about when Smith was stuck on her salary. Rather, her salary disparity. In her first job out of college, Smith and two classmates both ended up at the same organization in roughly the same jobs. But, not with the same pay. Rather than plead her case, pound the table, and present data, “I was in an emotional spiral of unjustness and upset and I never asked for a raise.” Smith needed some unemotional advice.

“What Machiavelli does is remove all that. He would probably look at (the salary disparity) as great information to use. Now what’s the best way to go about getting a raise? What’s the best way to ask? What do I do now? That’s why it is timeless, because it’s so smart.” – Stacy Vanek Smith, September 2021

Good framing is a design choice that affects behavior. We can frame self talk by having multiple ‘jobs’. We can frame vaccines as better than being bulletproof. We can frame decisions by asking, would I want this even if it were free? Each prompt changes the reference point and possibly the behavior.

As needed then, maybe some people should be Machiavelli Bayesians. Be slightly more princely, if that works do it again until it doesn’t.

–

Just a monkey with a fasting app

MIKE4 Comments

The Matrix (1999):
Kung Fu

This came to mind when a friend asked my advice on fasting. I told her what worked for me, what I thought were best practices, and suggested the Zero fasting app.

The app has 330,000+ ratings. It’s in the top 100 Heath and Fitness apps. Which is kind of crazy because, it’s a timer.

Designs matter a lot in our actions. Using the app I make probably 90% of my fasting goals. Days without the app and the number is probably 25%.

One design theory is to consider appropriate information. If fasting is new to someone they need baby steps: an app that shows how much time has elapsed, guides to the ‘right’ fast, and advice, tips, community, etc.

Appropriate information feels like a weird concept until we see it. It’s like, oh, this other way of describing the world exists too Huh. Temperature is one of these areas. What’s the best way to convey information about thermal energy: Celsius, Fahrenheit , or Kelvin? It depends! What’s the gap between the individual and the information? Celsius and Kelvin work great for science and scientists because the information-individual gap has been narrowed by years of education. For the consumer though, Fahrenheit rules the day as the most legible.

Another is how to classify an avalanche. What’s the gap between an individual and the information? The US and Canada, for instance, use different systems. In the States avalanches have five levels according to “the path”: sluff, small, medium, large, major.

“These categories are in relation to path size, so a size or class number is not so meaningful without information on, or familiarity with, the path.” – Avalanche Institute

Locals have a small information-individual gap because they know the area. Compare the American system to the Canadian system, which also has five categories: relatively harmless, could bury or kill a person, could destroy a small building, could destroy a rail car, and largest known. There’s no information-individual gap when the warning is largest known.

It makes sense then that “just a timer” works for so many people. It’s not just a timer. It’s a tool to close the information-individual gap. Oh, I get it now. And even though the gap seems small (Siri set a sixteen hour timer), it’s large enough to matter.

–
per avalanche-center.org there’s also an international classification system.

the “just a monkey with a…” idea comes from Erik Jorgenson’s Navalmanack curation.

No bad habits, no gold stars

MIKE1 Comment

We know nothing about venture capital!

“Correct, we have no bad habits. We were total outsiders. And, we weren’t kids that went to ivy league schools and worked at Goldman Sachs, so we weren’t accustomed to getting gold stars for painting in the lines. We were accustomed to doing things creatively outside the lines.” – David Fialkow, September 2021

People enter situations with a culture which can influence how they act. In society, and wearing a mask. In conversation, as debate structure. In politics, or anytime there is leadership.

People enter situations with incentives which can influence how they act. In music, ship platinum, receive gold. In football, three star recruits. In startups, what OKR? In horse racing, to race or to sell?

One of the tricky parts of life that covid revealed is the heterogeneity in life. Like, A LOT of variation. This same effect exists in the more mundane world of organizations. There’s no set of incentives or culture that always works. But there is a culture and there are incentives and each matter.

–
Have a nice day.

Show the way or in the way

MIKE1 Comment

One common mistake in our understanding of “how the world works” is to think that lack of action is due to a lack of information. If people just knew how important X was they would definitely do it.

One form is seen in the social media question: What would you add to the high school curriculum? Answers tend to hover around statistics instead of calculus, personal finance, or decision making.

Those are well intentioned suggestions, and on net, students would be better off if we could download a stats module in place of the first derivative. But information is not action.

Orlando Marriott hand washing sign

Geez. We’ve looked at hand washing (twice!) and there’s probably a well designed study that notes signs like that, in bathrooms such as this, change a proxy for health in some-such-way.

But, there’s a better example. It’s a real life example. It’s been tested on thousands. It’s also in Orlando. Arrange hand sanitizers to be avoided. To hijack Ryan Holiday: the obstacle is the way. But after two days people watching in the theme parks it’s very clear, this works.

And the reason for signs showing the way and not sanitizer stations in the way is incentives.

Back to Twitter. Some schools offer personal finance. From Kris’s nephew.

“I have this assignment for school where I have to invest $1,000 into a company’s stock. And I know you’re a stocks person so I was wondering if you know a good company i should invest in. Because the winner gets a prize of who makes the most money.”

Just give every twelfth grader $200. But there’s no action in that. There’s no standards or benchmarks or assessments about net learning in the second quarter of the school year. So in a way, Kris’s nephew is getting exactly what the system incentivized.

This is the system. In education it’s hard to measure “financial literacy”. In public health it’s hard to measure “healthy place”. In these systems optics are rewarded. Theme parks are in the optics business too, but for them results like: Person Gets Sick at World Famous Theme Park matter more. It’s important to know the rules if we want to play the game.

–
In finance there’s paper returns and there’s “moolah in the coola”, that’s another analogy. Paper returns are optics. Money in the pocket is an outcome.

The day the *hobbies* died. Bye, bye thanks-to-America-Online…. (To the tune of American Pie)

MIKE3 Comments

One way to notice change is to notice the words people use to talk about changes. The online shopping of the 90s became just shopping. The online banking of the 00s became just banking. The online dating of the 10s became just dating. The online communities of the 20s, well you see where it’s going.

“The Internet has just killed hobbies. They’re dead. They’re gone. The concept doesn’t exist. The concept of ‘having a hobby’ died at the exact same time as the concept of ‘going online’. This was a phrase you heard constantly from 1994 to 2005. You get home and you ‘go online’. The big company was AOL, America ‘online’. Around the mid-2000s people stopped ‘going online’. Why? Because we were online all the time. The idea of not being online is now the weird thing.” – Marc Andreessen, CSPI podcast, August 2021

I remember this! You got home from school and you signed into instant messenger and entered the Yahoo euchre room. Good times good times.

Having a modifier doesn’t mean something will become the new thing, but it does mean it’s different and may be worth our attention. A few others: autonomous driving, crypto currency, digital wallet, online learning, distance education, internet friend, gig economy.

This time is different happens with technology changes and the descriptions offer a cutting edge hint.

–

Being (even more) Bayesian

MIKE6 Comments

Bayesianism has become my favorite math-idea-that-doesn’t-involve-math. It’s three simple steps. Step 1: have an idea about a thing. Step 2: observe the thing. Step 3: have a new idea based on the observation. (repeat)

There are two tricks to make this work for you. The first is how much to update. Being Bayesian means changing your mind in proportion to the change. Try the expression, “I’m slightly more sympathetic to X,” for example. Saying this acknowledges the new information and massages the ego.

The second trick is where to start (Step one), and we have to start somewhere.

“By not taking advantage of the accumulated knowledge that we have as a scientific community, we are artificially leveling the playing field. We are giving theories with no basis in scientific fact too great of a chance to prove themselves through the data.” – Aubry Clayton, The Conversation, August 2021

Clayton’s context is Covid19, but he touches on a larger point too. How much coordination and decentralized command a system allows.

A decentralized command iterates quickly. From the front lines of fast food to fashion to fights. If an organization wants to move fast, the decentralized command structure works better than coordination.

But while individual agents may be fast, the whole may be slow. Why? No coordination. The scientists in a medical research lab will do more experiments with no oversight or collaboration but they may not make more progress.

Coordination and decentralized command apply to both knowledge and people. Having accurate base rates and priors means coordinating our existing knowledge with the accumulated.

–
Bayesians even frame things beautifully. It’s not “changing your mind” bur rather it is “updating your beliefs”.