Thorpe’s Two Questions

Ed Thorpe is in graduate school and has a professor who is ‘mailing it in’. In class Thorpe stands up to the instructor, demeans him, and is threatened with expulsion. Needing to stay in school, if only to avoid the Vietnam War draft, Thorpe crafts a careful apology:

“I explained that I’d come to realize his teaching methods were unique and that students, though they may not always appreciate it rarely encounter a professor of his caliber. What I said was true, but allowed more than one interpretation.”

It was an early lesson that was almost quite costly. In the future, Thorpe started to ask two questions: “None of this would have happened if I’d have asked myself beforehand, if you do this, what do you want to happen? And, if you do this, what do you think will happen?

Book: A Man for All Markets

Cruising mood

One of Tyler Cowen’s suggestions for thinking better is to avoid mood affiliation. From 2011:

“It seems to me that people are first choosing a mood or attitude, and then finding the disparate views which match to that mood and, to themselves, justifying those views by the mood.”

This is clear in politics when people judge ideas on whichever party is blaming/praising on whichever media. Rather than the easy pickins of politics though, let’s journey a sunnier path: cruising.

Cruise ships are awesome. Many miss this thanks to mood affiliation. It’s not their people. It’s not their food (buffets!). I don’t want someone to dictate where to be and when is the comment I hear the most. Some non-zero number of people look at a cruise vacation and decide they don’t like it and then come up with reasons for why.

But cruises balance flexibility with stability. The only rules are the times the ship arrives and leaves. That’s it. In that window people can do nearly whatever they want. Cruises are like Crocs, they can be as laid back or “attack mode” as the vacationer likes.

Food on cruise ships is good. The buffet is good, especially the vegetarian curry options because that is home-cooking for the international staff. Ships also offer a number of (revenue growth) fine dining options. The best of these are magnificent. It won’t be extraordinarily but how many people prioritize this on vacation?

On board are a variety of options like rock walls, FlowRiders, theaters, slides, escape rooms, and kids clubs. Off the ship are many interesting tours, excursions, and experiences. Private drivers are especially adaptable, this is another Tyler Cowen suggestion.

Look at that form!
Flowing

Cruising is not for everyone, but maybe not for the stated reasons. And Cowen, probably couldn’t stand cruising.

Konnikova’s Data

Park of poker’s appeal  is that people balance consequences and rewards. Thoughtfully in the best cases. But the lessons aren’t always obvious.

Nate Silver notes that live poker can be boring because participants don’t play that many hands. Yes, Maria Konnikova replied, that’s one way to look at it.

“There’s a perception that live poker can be boring because if you’re playing well you shouldn’t be playing that many hands. There is a lot of time you are just sitting there. But something I learned from Eric Seidel is that the times you are not in a hand are some of your most valuable opportunities to gather data.”

Konnikova recounts to Silver a time she was disposed as chip leader by an opponent who, after a day of play complimented her on her previous tournament. Why? It was televised. He picked up on her over aggressive style (something Konnikova notes in her book, I highly recommend The Biggest Bluff) in that tournament, and he used that against her in this one.

So rather than play as the thing-to-do, observe and learn are the things to do. Konnikova (and Seidel) reframed poker folds from something passive to something active. This is the same trick Annie Duke used for her poker clients. Duke reframed the action from playing hands to making good decisions.

Barry Ritholtz calls this the don’t just do something, sit there challenge. It’s hard to break the action-progress association. Yet there are situations, beyond poker, where not doing is more important that doing.

The basic level of learning a new thing is the advice to “just do it”. Just exercise/save/invest/read more. That’s difficult, especially without an anchor. A better way might be to substitute something of the same class. In the case of poker, Duke and Konnikova substituted one verb with another, and gave a reason for doing so.

I’m on a big pickleball kick right now and this advice, along with Winning Ugly from Brad Gilbert points in a clear direction: my game isn’t so much about hitting winners first but hitting winners second. A lot of my level is about setting up n+1 shots. Rather than beat an opponent down the line, with varying success, my aim should be to hit feet high down the line, move them, wait for a ‘green light ball’ and then hit winners. 

onward and upward

The Restricted Actions Section

Shane Parrish on Capital Allocators:

“Even during the pandemic, there are tons of public health guidelines out there where people are telling you what to think, how to think. You need to filter that and digest it. You can’t just rely on it. They came out and said that masks don’t matter and then said masks do matter—well there was no downside to wearing a mask. You might look like an idiot in the short-term but there’s no downside to it.”

Shane Parrish

One theme in Shane’s great conversation with Ted Seides was how much the cost of looking dumb restricts possible actions. About his podcast Shane said he’s just an idiot with a microphone.

But restricted compared to what? An idiot how?

Restrictions differ by scale and is much like the old political joke: I’m a libertarian at the national level but to my dog I’m a Marxist.

This idea surfaced in Bill Brewster’s podcast with Dan McMurtrie.

“I was somewhat bold enough to call out a transaction that some people have been burned on. But when I started to get inbounds from real mutual funds and managers and as I listened to why people weren’t buying I was like ‘Oh, I’m gonna fucking win on this because I don’t have the constraints.”

Dan is super good in the interview and together they address the four levels of constraints.

  • Macro culture (society). For instance, it’s taboo to talk about sex, or at least the dating market.
  • Micro culture (office). In another Seides podcast, he spoke with Ben Reiter about culture.
  • Position (job). Certain institutions have mandates about size, moral, or industry situations. ESG is a literal example.
  • Psychology (self). In the podcast Dan and Bill joke about investors who say “See’s Candy is my fav WEB investment”. That’s a psychology restriction.

So what? Why do constraints matter? Because they limit what a person can do. Dan again:

“I never want to compete against Stan Druckenmiller in timing the market. I never want to compete against David Einhorn in valuing a company. I never want to compete against Dan Loeb in writing an aggressive letter to a board. Where I might compete is where the environmental factors means that fighter is not able to perform at their best.”

It’s not more options that are better, but different options. Having good ideas (‘Go’) that also look good (‘Show’) is twice as difficult as just having a good idea. Or, can you look a bit like an idiot?

Correlated Decisions

“We use quantitative methods to put together diversified portfolios that don’t blow up over time. We have technical guys who are very sophisticated, one guy was the MIT chess champion. We need these guys to balance our portfolios, but they’re not picking stocks. I pick those guys because they have no idea how to pick stocks and I don’t want to know what they think about picking stocks, that’s for our researchers.”

– Joel Greenblatt, Capital Allocators.

The JTBD of diversity within an organization is uncorrelated decisions. If we’re all thinking the same way, the expression goes, nobody is thinking.

Early in the episode with Ted Seides, Greenblatt cautioned that there’s always more correlation in a portfolio than someone expects. This is consistent with the idea that most financial issues are liquidity issues.

If there are 3 ways to spend your day then we should be wary about the feed, the search, and the trends. For instance, the September 1 – December 1 BTC search trends. When Coinbase emailed me “Why Bitcoin is in the News.” I thought, this might be a good time to sell.

Google Trends for “bitcoin”.

Trends, searches, and feeds aren’t bad, but they are correlated.

The best solution to uncorrelated decision making is to use a bit of decision making advice from Rory Sutherland. When we select one at a time, we choose the average item. When we choose multiple things at a time, we choose a variety.

Rather than consider a best option then, we can consider a basket of options. With finite resources it’s hard (impossible?) not to prioritize but it does lead to new ideas.

It’s neat to hear that Greenblatt’s operation is like a newsroom: editorial and news, research and technical. Division is balance. The worst outcomes aren’t when something goes against us but when everything does.

How we decide

Our first boil, 2019

Moving to Florida in 2018 has been mostly positive. Y’all and ma’am are great and I use them each day. The weather is wonderful. We also make a boil.

A low-country boil (minus the pesky crawfish) is a holiday and weekend staple. Boil water with seasoning; add potatoes, corn, onions, sausage, shrimp, enjoy. The ratio of work to taste is very low. It’s a good deal.

But making it the first time was hard. We had friends over and I didn’t want to be the person who gave everyone food poisoning or served potatoes that tasted like dirt. The whole meal went great, if not a touch spicy, and each subsequent preparation has been slightly easier even for serving a crowd.

There’s a lot of other options we could do as well. We made a lot of chili when we lived in Ohio. We could order out, make sausage stuffed potatoes, or any number of things. But we don’t. We make a boil.

A boil is familiar. It’s easy. The opportunity cost is opaque. Will <other meal> be better? We don’t know. Let’s make a boil.

A lot of decisions are like this. Opportunity costs are hard to quantify.

During the late teens one bit of regular startup advice was that a product had to be 10x better than the existing option. While JTBD offers a slightly different approach, the idea is a good one. People do switch from one thing to another all the time but it’s often because the decision to do so is easy.

Making a boil in Ohio: hard.

Making a boil in Florida: easy.

Organizations then can consider how to dial the friction up or down. To keep serving people, make it easy for them to stay. To serve new people, make it easy for them to switch.

An easy way to change your mind.

This idea is related to Tyler Cowen’s idea of ‘meta-rationality’ which you read about in this pay-what-you want pdf.

Perhaps there’s no better time to see, sort, and participate in over reactions than week one of the NFL. Though I only watch a full game or two a year, there are a lot of lessons from the likes of Mike Lombardi, Bill Belichick, and questions like, should running backs run the forty-yard-dash? (Narrators: meh).

So, after week one of the NFL, how much should someone change their mind?

There were two comments from Wharton Moneyball related this this exact question.

First, the hosts wondered why the small but powerful vitamin D study wasn’t getting more attention. Their guess was a combination of things including excessive dosing, strong priors, sample size, and general application (the participants were already hospitalized but went to the ICU at a much lower rate with treatment).

While people may have strong beliefs about the efficacy of vitamin D it doesn’t hurt to go for more walks, while the weather holds at least. Whether or not someone believes in vitamin D, walking can’t hurt.

Late in the episode, Cade Massey and Josh Hermsmeyer noted the impressive week one play of Gardner Minshew. While both are rooting for his success, there’s no ‘go-for-a-walk’ equivalent for updating beliefs. Base rates suggest we stay closer to home until Mr. Minshew racks up some road wins.

Lastly is this study about teacher expectations. “(U)nbiased (i.e., accurate) beliefs can be counterproductive if there are positive returns to optimism or if there are socio-demographic gaps in the degree of teachers’ over-optimism, both of which we find evidence of.” Want better results from students? Have higher expectations than the data suggests.

The easiest way to change your mind is to make changing your mind inexpensive.

The hardest way to change your mind is to attach ideas to yourself. Jason Zweig calls this thinking “identity protective cognition,” and said, “If you are not judging the validity of ideas by long-term, objective, peer-reviewed evidence then you are just protecting your own identity and it’s foolish.” 

If vitamin doesn’t affect covid health, it still doesn’t hurt. If high expectations don’t affect student results, it still doesn’t hurt. If extrapolation from week one of the NFL doesn’t predict season success it does hurt.

Related: Make small poker bets.

Gambling with CoVid19

Bias warning, My wife and I can work from home, my kids kinda like homeschool (but really miss their friends) and I wiped down the groceries in the garage. 

It’s always helpful to ask, has someone faced my situation before? The answer is often yes. Rory Sutherland thrives at this.

On recent podcasts from Deep Dive (#249) and Wharton Moneyball (April 1, 2020) there were two very good steps to understanding anything with uncertainty.

Wharton Moneyball takes its name from Michael Lewis’s Moneyball. That book shed light on using advanced statistics to find other ways to win baseball games, that walking to first after a full count was actually better than hitting a single to first on the first pitched ball. Moneyball thinking has extended to new areas like basketball, movies, and Jeopardy.

On Wharton Moneyball, Adi Wyner spoke with Alan Salzberg who mentioned that he’s starting looking at CoVid19 deaths rather than cases. The former takes longer to materialize in number form but is better than the former which is mostly a product of testing. It’s trading a sampling error for a time lag.

“It was what we would generally call ‘garbage data’. A confirmed case  might me it was confirmed because someone came to the hospital and was already sick.” Alan Salzberg

Ok, good so far.

We need good data (walks instead of hits) but then Alan goes too far. The virus is mostly airborne and mostly won’t bother someone if it lands on a surface someone might touch and then finds a path into their body. That’s a lot of ifs. “Is that enough,” Salzberg wonders, “It stays for a little while, but in my mind I don’t think that should be a worry. I think you should wash your hands, and I’ve been doing that and I try not to touch my face a lot. But I think being ridiculously uptight about it is kind of crazy.”

Ok, that’s fine if we had better data.

But we don’t. Instead of six feet we might heed caution and stand at least twenty-seven feet apart. What’s the R0? How long is someone infected and asymptotic?

Ok, those are good questions.

There’s a lot of unknowns here and on Deep Dive, Matt (@PlusEVAnalytics) talked through what we can do when there are so many unknowns.

Think of Tom Brady’s 2020 over-under passing line of 4,256 passing yards, or 266 yards per game. His last four years totaled; 4057, 4355, 4577, and 3554. But with Tampa Bay he’s got better receivers. And he wants to prove to everyone that he’s still got it! And he wants to do it without Belichick!! Yeah!!!

But how much do those things count for? Like how much we know about CoVid19, we don’t know. Matt gives us a guide though. Do the things we don’t know make one outcome more likely? With age, ambiguity, competition, injury and so on, the unknown makes the under much more likely.

Matt credits much of this thinking to Taleb but the concept of sports and gambling make it clear. It seems like the unknown parts of the CoVid19 pandemic tilt the outcomes in favor of what’s much worse. Good data is a necessary start but ambiguity must be considered too.

Latest book: Idea Trails, 50 ideas from blogging the last four years.