Daters, scammers, and Zeckhauser

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”.

Day to day designs

There’s a lot of advantages to designing day-to-day decisions. It’s may seem unglamorous but changes add up. For instance, try to leave your phone out of reach.

But the internet is on there!

The heart of design is to change a situation so that something is more or less easy. The beauty of design is that the change is not always in proportion to the effect. And we need designs because as Byrne Hobart notes, we have a lot of muscle memory.

“There’s a lot of muscle memory typing ctrl-t Reddit dot com. It is really important to resist that stuff because it is a continuous tax on your ability to accomplish things. This is a good reason to buy physical books or magazines. If can force yourself to focus for awhile, you can get non-linear benefits from learning a whole lot about narrow topics and understanding new topics by using analogies from previous ones.” – Byrne Hobart, World of DaaS, August 2021

Here Hobart offers a couple of useful ideas in an interesting way. One is design but he also frames Reddit as a tax. This is clever.

Tax is normally associated with money and with being bad. Tax reframed here keeps the bad part but shifts the focus to time. That works with travel budgets too.

Personal productivity is another one of the Large N small p cases. It may not seem like we are ‘doing a lot’ but small changes add up each day.

Sunk cost straws

me and my straws

See these green things? They are reusable straws, purchased from Wawa.

A lot of times people say “sunk costs” like it’s a bad thing. Part of Poker’s Appeal is thinking conditionally, and one way to do that is to avoid sunk costs. Here’s Maria Konnikova talking with Annie Duke:

“The chips don’t remember they used to be in a stack this tall and there used to be more of them. All they know is they are chips. It’s hard mentally, but it’s really important to forget what happened and how much you had because bias is going to creep in: I need to make it back, I need to be more risk averse because I can’t lose the rest.” – Maria Konnikova, Alliance for Decision Education, July 2021

Bill Gates says it is “very important” to bring in outsiders in part to avoid sunk costs.

When we say (with hindsight!) ‘sunk costs yada yada’ what we mean is: ‘This person used unhelpful information to make their decision.’ Sometimes the mechanism with sunk costs is ego, admitting we were wrong is hard.

So I won’t admit it. I was right to buy the straws!

My reusable straws are not going to save the world. They are not going to make a marginal difference. But we will use them, and we will use them because of sunk costs. I paid for these darn things so I may as well use ’em. Here, the mental barnacle that usually afflicts decision making navigation can steer me in the pro-social direction. Like a person who commits to working out if only to use their gym membership I dutifully wash the straws after each milkshake, Frappuccino, and coke my kids consume.

How we even ended up with the straws is a testament to the Wawa ordering system. After ordering drinks, the whole screen filled with a picture and prompt offering the straws and I said yes. Only forty-nine cents! While my use is negligible, Wawa’s is not. Our family of four’s lifetime will probably use fewer straws cumulatively than one-week of lunch orders at a busy Wawa. And there’s the trick. It doesn’t make sense individually but it does collectively. It’s a case of Large N small p being used to change the world.

One of the best changes in my life has been to accept things as they are, rather than upset at the way they should be. Things should not be a way, things just are. Human psychology is like that. It’s not that humans have biases but that we have tendencies in how we understand the world. We have sunk costs because that approach works, conditionally.

To be the most right, and affect the most change, we must see the world as it is. That means noticing sunk costs as a tool, and using it as needed.

Eric Bradlow of Wharton talks a lot about Large N small p. He also wonders about the “effect size” and with-regard-to straws I have no idea.

Large N, small p (cancer, Netflix)

In addition to the first post, we can add two more ideas of small probability times a large number yielding a significant result.

In the first instance, our large N is t (time), and the small probability event is genetic mutations which lead to cancer. Jason Fung writes about mutations: “This small likelihood of success explains why cancer often takes decades to develop, and why cancer risk rises sharply in people over the age of forty-five.”

The second is an idea from Mario Cibelli about accumulating advantages. Cibelli told Patrick O’Shaughnessy that he visited a Netflix distribution center during their DVD heyday.

“I think what we saw essentially was an operation that was very, very hard to replicate. They had years and years of finding and bumping into bottlenecks and eliminating them, and getting more and more and more efficient. That would range from how labor was used, the lack of storage of DVDs. They actually didn’t store them anywhere, they always remained on the desks. The manager explained to us how the DVDs were always looking for a home. They weren’t trying to find the DVD that the home wanted, they would have the DVD in hand and say, “Hey, which home wants this?” To a bunch of machines that they bought that sorted the material that didn’t work, that destroyed a number of DVDs, and that they had to customize.”

Each obstacle was small, take many small improvements and you’ve got a business. Netflix’s small p large N effort was how they won the TiVo Race.

Large N Small p

Is it more likely for an infected football player to transmit a disease to their teammates or their competition? Adi Wyner:

"I would expect intrateam transmission by far. Not only huddle time, but the time on the bench, in the locker room, and while they travel. It’s a small chance of any given pairing but it’s lots of pairs. Anytime you multiply a large number by small odds you get a large number."

That’s via Wharton Moneyball and demonstrates the large N, small p principle. It’s the idea behind TikTok too. Ben Thompson said:

"What’s interesting thinking about Quibi and TikTok is that Quibi was such an arrogant idea, that professionally produced content is always going to be better. Are we sure about that? The vast majority of TikTok is garbage and that’s always the case with user generated content. But as it turns out, .1% of a massive, massive amount of content is super compelling. You find that one-percent not by being a picker, you find it by sourcing it."

Large N, small p is why something is always happening.