I’ve always been a fan of Xiaxue. There, I said it. I think she’s a genius, and not just because she scored 269 for her PSLE and qualified for Mensa. For one, she’s figured out how to make a living doing what she loves. Have you? Think about that for a while…
(way smarter than you think she is.)
In this post I want to discuss her post on Trust, which I think is startlingly intelligent.
If you have a preconceived notion of her as some sort of stupid bimbo airhead, it might seem like a rambling rant- but if you pay careful attention and read it with an open mind, you may notice a remarkable consistency of thought and certain philosophical insights.
I trust that Mike will never choose a banana over an orange. Because he hates bananas and these things don’t change. I’m willing to put a $1,000 bet on it. But probably not my whole fortune.
This might seem a little random and silly, and Wendy does have a knack for using funny analogies, but it’s incredibly wise, and the central premise on which Nassim Taleb’s The Black Swan (the best-selling book about uncertainty and unpredictability, not the Natalie Portman movie) is founded on. What is he smoking, you may be thinking, and can I have some?
Here me out- first of all, there is a distressing similarity between the blind trust that Wendy is talking about and the blind trust that the world has had in its financial systems that led to the global financial crisis. Consider what the Chairman of the Federal Reserve had to say when asked about an impending financial crisis before it happened:
“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – Federal Reserve Chairman Ben Bernanke
Can you believe it? Nation-wide house prices have never fallen, so they never will. My husband has always been faithful, so he’ll never cheat on me. I haven’t died so far, so I will never die. It might seem silly when the basic reasoning is put out in the open, but most of us are guilty of such assumptions and forecasts.
Consider the parable of the turkey, courtesy of one of the most badass philosophers ever, Bertrand Russell:
“A young turkey was brought into a farm and was fed regularly every morning at the same time with a fresh supply of grass. Like any other being interested in the future, he wanted to convincingly predict the future and not use the first few days of his life as an indicator of things to come. Having an erudite lineage, he figured he should not commit the fallacy of jumping the gun to reach a conclusion and instead would gather a large data set for his observation.
After 364 days, drawing from the specific instances, he concluded the obvious generalization – he would be well fed every morning until he grew old and died. Unfortunately, the very next day was Thanksgiving and the turkey was slaughtered and became the star meal of the day at the farmer’s house.”
Everybody is a forecaster. If you asked someone how a big company was doing, they would probably look up the stock prices or financial records and assume that if things have been going well for the last few quarters, it must be doing well. Well, what about Enron? And do we even doubt whether the next Indiana Jones movie is going to be a big time box office hit? After all the last three movies were awesome, so there can’t be any question of failure, can there?
And that’s the basic point, all future forecasting involves looking at past instances and mashing up a bunch of events to explain what’s going to happen next. The “smarter” the person you hire to answer the question, the better the explanations and larger the field of variables that go into creating a model for predicting the future. But the fact is, as Wendy wisely notes, that the future is inherently unpredictable.
“People change, circumstances change, (don’t trust blindly when) consequences are bigger, prevention is better than cure. ” – Xiaxue
That’s seriously some of the best advice you can give anybody! If you’re a turkey, you’re better off getting rid of your farmer’s knife than trusting that he will always feed you because he’s fed you so far- which is Wendy’s essential insight with regards to blind trust in a marriage.
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). – Nassim Taleb
How much can we truly estimate risks? We tend to determine future risks based on past experience. Amusingly, history is littered with the bloated corpses of people and organizations who made assumptions about the future based on past experience. Isn’t it strange how we still haven’t learnt that we never learn?
It is the exposure (or payoff) that creates the complexity —and the opportunities and dangers— not so much the knowledge ( i.e., statistical distribution, model representation, etc.). In some situations, you can be extremely wrong and be fine, in others you can be slightly wrong and explode. If you are leveraged, errors blow you up; if you are not, you can enjoy life.
So knowledge (i.e., if some statement is “true” or “false”) matters little, very little in many situations. In the real world, there are very few situations where what you do and your belief if some statement is true or false naively map into each other. Some decisions require vastly more caution than others—or highly more drastic confidence intervals. 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.
So Wendy and Nassim both have the same fundamental idea! It’s okay to depend on things like the reliability of your Blackberry or the taste of your chicken rice, but it’s not a good idea to take the fidelity of your husband or your the financial system that manages your life savings for granted. Don’t be a sucker.
It is an hypothesis that the sun will rise tomorrow: and this means that we do not know whether it will rise. -Ludwig Wittgenstein
Interesting and relevant reads:
Also, this may offend you- in fact, it is most likely true if you’re offended- but Wendy Cheng is probably smarter than you are. If she were the Federal Reserve Chairman, she may have very well averted economic disaster and saved the world US$17 trillion dollars.