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Chance Wins

http://www.blog.sethrober…what-causes-it/

This bit by Seth Roberts reminds me all at once of Nassim Taleb’s work (Status quo, the fed turkey, works until it completely implodes), Seth Godin’s “This is Broken” idea, and the dinosaurs going extinct.

Who is flying this plane? Do they really know what they are doing? Does chance win over purpose?

Seth’s blog post is centered around the broken U.S. healthcare system — a system which suffers both from a burgeoning status quo as well as no means of introducing alternative solutions. In other words, it is entrenched.

And just like the dinos, when that entrenchment ultimately leads to social upheaval, the failure may be catastrophic.

A robust system must be dynamic.

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On Nassim Taleb’s Ten principles for a Black Swan-proof world

http://www.ft.com/cms/s/0…?nclick_check=1

Nassim Taleb‘s latest from the Financial Times titled Ten principles for a Black Swan-proof world provides a brief insight into what Taleb believes caused our current financial crisis and what might prevent a similar crisis going forward.

I’ve excerpted those principles below (pushing the fair-use envelope a bit, perhaps). All italics are NNT’s.

Before delving into Taleb’s ten, I’d like to suggest that NNT’s principles can be (and should be) boiled down to more simpler structural problems/observations. Taleb’s folksy expressions make for useful analogies, but they needlessly complicate some simpler realities:

  • Government-made negative externalities [1, 2, 7] — Legal constructs like corporations and limited liability companies are exploited to offload risk to the public. This subsidizes risks resulting in agents (CEOs, Managers, etc.) taking more and more chances with other people’s money. This is related to the principle-agent problem, which Taleb indicts in [4]. The Ponzi aspect of all of this is intrinsically tied to our leveraged financial system, which is inextricably tied to our centralized, fiat-“money” banking system. To me, this is the biggest point that I’ve yet to see Taleb make — centralized fiat currency is a fragile entity that is inherently leveraged (out of thin air) but can be used to build complex systems of finance. This won’t tend to break early (as we’ve seen). To kill the leverage you have to kill the source of it, which is our centralized non-robust banking system!
  • The Authority Complex [3, 4, 6, 9] — we need a great deal more skepticism in our system and we should not have such centralized power. The problem here is the authority complex — the so-called experts all pontificate to the “ignorant” masses. The masses are too busy or too confused by the magical words of the experts to deduce that the experts don’t know what they are talking about. And like any good con, the con-artistsexperts are able to trick the masses into giving them all the power. I would argue that NNT’s #9, which more or less argues that we should question authority and not trust experts, completely negates NNT’s #6, which suggest that we should be protected from ourselves. Well who is going to protect us when we can’t trust the would-be protectors? That is a problem.
  • Robust complex systems have simple base units that scale [5, 8, 10] — This is the biology angle that is exemplified by metabolic rate scaling over 27 orders of magnitude. A robust system requires simplicity at it’s base. Accounting is a good example of this. Accounting can get incredibly nuanced and complex but can always be brought back to debits and credits. The simplicity of this fundamental rule still enables incredibly complex book-keeping, but puts a governor on the system. You can’t make up assets without creating corresponding credits to the books.

    Compare this to our non-simple, non-robust banking system that holds as it’s core principle the notion of stability in prices and jobs while allowing for unlimited credit (money creation). Not simple.

    Simplicity lends itself to ease of understanding and puts a governor on shenanigans. It’s this fundamental simplicity that enables massive scalability and the emergence of complex systems that are robust.

I’m afraid I might have gotten overly complex in the above. I think what Taleb wants is an organic financial system, one that starts from real economic transactions between human beings and scales upwards from there. Thus, the solution is pretty simple. The base unit is the individual. Fictitious business entities that exist apart from owners are made illegal. No systemic credit structures, which fundamentally follows from the base unit being limited to the individual. This is because such a system would have decentralized banking that would evolve out of whatever needs such an organic economy would require.

This would be the (completely free) market solution, which incidentally most closely mimics biological systems. After all, where in biology do you see stuff created out of thin air (like Corporations or fiat currency)?

And life has been getting along fine for untold millions of years with a simple base units that are the molecules that make up DNA.

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. …

2. No socialisation of losses and privatisation of gains. …

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. …

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. …

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. …

6. Do not give children sticks of dynamite, even if they come with a warning . … Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. …

8. Do not give an addict more drugs if he has withdrawal pains. …

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. …

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. …

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

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Geoffrey West on Scaling Laws in Biology and Other Complex Systems

http://video.google.com/v…406426776765294

[video:google:7108406426776765294]

Randomly came across this video of a lecture given at Google by Geoffrey West on how biological “laws” scale. For example, flow through capillaries and metabolic rate scale from small to large organisms. What is mind-boggling is how metabolic rate scales “over 27 orders of magnitude.” The video is almost an hour long and is pretty dense, but the first 20 minutes or so explain the metabolic scaling, which is incredible. The last ten minutes apply the idea to social organizations (starting around 47 minutes in). Apparently, human organizations actually scale at 1.05 (versus 3/4).

The big takeaways for me: simply, for complex systems to work, they must scale. On a more complicated level, evolution is a blind process of trial and error that nonetheless created fantastically scalable, complex, decentralized systems that aren’t given to catastrophic failures. Therefore, it’s reasonable to postulate that, as opposed to using central, pointed, monopolistic planning (Think: few iterations) to design systems that scale without catastrophic loss, perhaps we should default to decentralized, immensely iterative trial and error as our basis for system design. The former is unnatural, the latter organic. The former is monarchistic, the latter anarchistic. The latter provably works whereas the former has failed over and over and over again.

Geoffrey West’s takeaway: “One, that inevitably [for biological systems] the bigger you are, the slower the pace of life—your heart rate decreases, your life span is longer and so on. In social organizations the bigger you are, cities in particular, the faster life is.”

Final note, I’m reminded of Gilbert’s super-replicator idea in Stumbling on Happiness.

The abstract on the video:

Life is very likely the most complex phenomenon in the Universe manifesting an extraordinary diversity of form and function over an enormous range. Yet, many of its most fundamental and complex attributes scale with size in a surprisingly simple fashion. For example, metabolic rate (the power required to sustain the system) scales as approximately the 3/4-power of mass over 27 orders of magnitude from molecular levels up to the largest multicellular organisms. Similarly, time-scales, such as lifespans and growth-rates, increase with exponents which are typically simple powers of 1/4. It will be shown how these universal quarter-power scaling laws follow from fundamental generic principles embedded in the dynamics and geometry of underlying networks, leading to a general quantitative theory that captures essential features of many diverse biological systems. Examples will include animal and plant vascular systems, growth, cancer, aging and mortality, sleep, DNA nucleotide substitution rates. These ideas will be extended to discuss social organisations such as cities and firms: to what extent, if at all, can we think of these as very large organisms and therefore as an extension of biology? Analogues to metabolic rate and behavioral times in cities scale counter to their behaviour in biology. Driven by innovation and the creation of wealth this has dramatic implications for their growth, development, sustainability and pace of life which, left unchecked, potentially sow the seeds for their collapse.

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Human Happiness, the Human Condition, and our Hunter-Gatherer Forebears

http://www.hedweb.com/bgcharlton/psychhuman.html

Bruce Charlton has made his a final proof of his 1999 book Psychiatry and the Human Condition available online in its entirety. The book book is described as, “an optimistic vision of a superior alternative approach to psychiatric illness and its treatment, drawing upon modern neuroscience and evolutionary theory.” From the parts of the book I’ve managed to read so far, this book could well be worth reading in full.

The part I’d like to focus on here is Charlton’s discussion of hunter-gatherers and their relative happiness. The subject of happiness and the human condition from a psychiatry/psychology perspective is of keen interest to me right now as I am just finishing up Daniel Gilbert’s Stumbling on Happiness (Also see recent discussion on Is Technology Making us Miserable?).

Charlton’s take is that H-G societies were “leisured and egalitarian” and H-Gs experienced a “Golden Age for humans.” Though I’ve yet to read it all, Charlton says that the “scanty” evidence available to support this statement is “consistent and unambiguous.” I believe part of the evidence is the apparent diminished health of agrarian societies combined with the greater stratification of class and status systems brought about by division of labor. That agrarian societies would migrate voluntarily to cities to partake in the industrial-mercantile society just furthers the argument.

I intuit that the hyper-specialization and -isolation experienced by modern human beings doesn’t fit with our evolutionary programming, even as it provides us with amazing new technology and toys. Having said that, I see no reason a balance can’t be struck between the perks of modern existence (technology) and the biological programming of functional/fulfilling community (family) and a more generalist approach to productive activities.

More on this later. And I have more reading to do. In the meantime, read the two bits from Charlton’s book below, which discuss in detail relative degrees of happiness and whether or not the human condition (which Charlton argues hasn’t been designed to be happy) can be improved.

From Chapter 1, Psychiatry and the human condition

Degrees of happiness

The lifestyle of nomadic foragers involve little forward economic planning beyond the communal decisions over when and where to move camp, and the logistics of hunting and gathering. This means that most problems of life related to the social realm – especially around the question of competition for mates – and this lay behind the power struggles, disagreement, discussions and violence. And the primacy of social life in hunter gatherer societies is what has been the decisive force in human evolutionary history – the main focus for natural selection is within-species, human versus human competition.

In summary, the ancestral hunter gatherers experienced a way of life that was – in world historical terms – leisured and egalitarian, and enjoyed health and life expectancy at a high level. Of the three kinds of society as described by Gellner: hunter-gatherer, agrarian, and mercantile, it is probable that hunter-gatherers had the best life, overall. Hunter gatherer societies are the happiest and peasant societies are the most miserable – while industrial-mercantile societies such as our own lie somewhere in between.

That, at any rate, is the conclusion of anthropologist Jerome Barkow – and his opinion is widely confirmed by the reports of many independent anthropologists who have experienced the alternatives of foraging, agrarian and industrial society. The ‘naturalness’ of nomadic foraging is also shown by differences in the harshness of child rearing practices in different types of society. Child rearing involves varying elements of forcible training that are necessary to prepare children for their social role. Peasant societies typically employ extremely repressive forms of socialization, extreme discipline, restriction, and the use of child labour. Industrial mercantile societies (such as our own) are much less tough on children – but still require many unnatural behaviors (eg. sitting in classrooms or examination halls for long periods of time without speaking or moving). But nomadic foragers are able and willing to give their children even more freedom than the most liberal ‘modern parent’ – and such a relaxed upbringing of unstructured interaction with peers apparently prepares the child properly for the adult life to come.

Another line of evidence is patterns of voluntary migration. When industrial mercantile societies develop, they are popular with the miserable peasantry of agrarian societies who flee the land and crowd the cities, if given the chance. Not so the happier hunter gatherers who typically must be coerced into joining industrial life. My great grandparents left their lives as rural peasants and converged from hundreds of miles and several countries to work the coal mines of Northumberland. They swapped the open sky, fields and trees for a life underground and inhabiting dingy rows of colliery houses. Being a miner in the early twentieth century must have been grim, but apparently it was not so bad as being an agricultural laborer.

From a psychiatric perspective, then, there are sharp differences between ancestral societies and modern societies. In terms of their general social situation modern humans are faced with a wide range of new problems – although we console ourselves that for the bulk of the population life is much better in an industrial mercantile society than in a warrior-dominated medieval peasantry. Nevertheless we now live in a mass society, full of strangers who there is no reason to trust since they are neither family nor friends. Although resources are vastly more abundant, resources are linked to status and there are massive inequalities in their distribution.

This means that there is a much higher proportion of intractably low status people in modern societies than in the societies in which humans evolved. Since status is the most important factor in determining a man’s sexual attractiveness, this is a major source of dissatisfaction. Men will devote enormous effort and take great risks in pursuit of the highest status, but for most people in delayed return economies the odds are stacked heavily against them succeeding.

Improving human happiness?

Even if, somehow, the impossible were achieved and humans returned to the kind of egalitarian, immediate return, foraging societies in which we spent much of our recent evolutionary history – then unhappiness would still be common and intractable. Humans did not evolve to be happy – natural selection rewards reproductive success, not happiness. Happiness is – from this perspective – merely the ‘carrot’ which compliments the ‘stick’ of pain – a lure to draw us onwards, to make us strive – but happiness is a reward that we can never permanently grasp nor enjoy at leisure.

So much for the bad news. Happiness drives us, it is not a permanent state. And this really is bad news because there is little we can do about it, short of changing human nature. The good news is that this might prove possible – at least to some extent. Just as human ingenuity has landed us in the predicament of a sub-optimal modern human life, so the same ingenuity has proved a range of technologies of gratification through which we can attain a variety of surrogate satisfactions. – something that will be discussed more towards the end of this book .

Essentially the broad shape of society and its possibilities for happiness are the way they are for reasons that are accidental, unplanned, and intractable. We inhabit a society that grants few satisfactions and offers limited possibilities of fulfillment. It is also a society in which psychiatric symptoms are endemic and a major cause of human misery. In our favour we have increasing knowledge of the causes of human misery, including the understanding of psychiatric illness, and increased power to alleviate that misery provided by the armamentarium of psychopharmacology. All this understanding and therapeutic potential has arisen within the past few decades, and we have hardly learned how to use it.

My point is that the human condition of Western man is intractable in its fundamentals, but amenable to improvement in important ways. Things are worse than they might be. One aim of this book is to explore some of these means of improvement, and to do this will require an evaluation of the extent and nature of psychiatric illness.

The purpose of this book is therefore to suggest how knowledge and technology might be deployed to ameliorate the human condition. We are not talking about utopia, but we are talking about the potential for significant and worthwhile improvements in well-being for substantial numbers of people. However, power can be used for many purposes. And potential agents for good are almost inevitably also potential agents for harm. The possibilities for benefit from psychopharmacology is, although not universal, nevertheless immense. Whether these benefits can be realized under prevailing social conditions is altogether a different matter.

(H/T Mangan’s via Patri)

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“Almost no one regrets having kids.”

http://econlog.econlib.or…ts_and_buy.html

Via a shared Google Reader item from Patri Friedman came this article on EconLog, Parents and Buyer’s Remorse: Lessons from the Lost Newsday Study. The referenced study was done in 1976 on a random sample of Americans “and found that 91% of parents did not have buyer’s remorse.”

Since I am expecting to be a dad in August, this kind of information is good to know. The EconLog post also references a study done in 2003 that indicates that fully 2/3 of non-parents wish they had kids!

This makes complete evolutionary sense—we are biologically programmed to want to reproduce. Beyond it being in our DNA, family is one of the more lasting wealths you can create.

Here’s the relevant data from the post:

What does the Newsday survey say?  First and foremost, the hearsay about the rarity of regret is accurate.  In fact, since some people didn’t answer this question, fully 93% of the actual responses were positive.  Other interesting results:

  • Women had more regret than men: 9% of women had buyer’s remorse, versus just 5% of men.  While many will say this result is obvious, remember that there is virtually no gender gap on “desired family size.”
  • Young (under 25) and old (65+) had the most regret: 15% and 13% respectively.
  • Blacks had much more regret: 19%, versus 6% for whites.
  • Regret sharply falls as income rises.  13% with income under $5000 (in
    1976 dollars) had buyer’s remorse, versus only 4% with incomes of $25k+.
  • Regret sharply falls as education rises.  12% of drop-outs admitted regret, versus 3% of college grads.

Other interesting results: The survey also asked people how many children they would have if they had a “do-over.”  If you read the table, it looks like there is a moderate tendency to want more: Respondents have 2.66 but want 2.84.

OK, so what’s the take-away?

First of all, even though child-free advocates continue to cite the famous Ann Landers survey, it was discredited over thirty years ago. Almost no one regrets having kids.

Second, you might dismiss the Newsday results as mere status quo bias – “Everyone thinks that whatever they did was for the best.” But you probably shouldn’t. The 2003 Gallup study finds that about two-thirds of childless people over 40 wish they had kids. Buyer’s remorse is rare; non-buyer’s remorse is common.

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Choosing Vegetarianism is Ignoring Human Biology

http://wholehealthsource….bout-human.html

I heartily enjoy eating meat. I consider animal products to be the ultimate human food where “ultimate” means that for me to recognize a food-pairing as a meal, it must contain meat.

My feelings on food are typical even as they are no doubt heavily-influenced by American culture. Nevertheless, I suspect that most humans feel similarly. It’s for this reason that most of us meat-eaters raise a brow, groan, or otherwise strike a perplexed pose when encountering friends, family members, or acquaintances who choose not to eat meat. We intuitively don’t get it. I believe this is because avoiding animal products fundamentally goes against our biologically-formed nature.

For sake of discussion, I lump all non-meat-eaters into the category vegetarians recognizing this fails to recognize any number of distinctive differences!

Though some meat-heads can be intolerant of vegetarians, for the most part us carnivorously-inclined humans simply resign to rolling our eyes and not asking too many questions. Live and let live, so to speak.

However, even as we can all be tolerant to differing viewpoints on nutrition and food, as we learn more about our evolutionary past, which is to say our own biological predisposition, certain conclusions become unavoidable. One of those conclusions is that human beings have been selected via evolution to eat animal products. How do we know this? Well, it merely takes looking at our evolutionary preceptors and acknowledging that if they were omnivorous or carnivorous, it’s highly probably that we should be, too.

What do we see in our past? The second closest ancestors to modern humans, the Neanderthals, managed to “stick around” (not die out) up until around 30,000 years ago — these were the now-extinct neanderthals. Did they eat only plants? No. Neanderthals “were basically carnivorous” (See Stephan’s in-depth write-up, partially quoted below). Furthermore, you have to go a very long ways back to find any preceptor to Homo Sapiens that came close to being a vegetarian — chimpanzees branched off from the Homo genus some five million years ago!

Whatever reason for choosing vegetarianism, it really doesn’t matter to the following conclusion: choosing vegetarianism requires ignoring or rejecting human biology. This doesn’t make it wrong to choose vegetarianism; it just doesn’t jive with our genetics. Avoiding animal products in your diet may put your health at risk.

The question vegetarians should ask themselves is: is it worth risking their health to maintain adherence to a life-paradigm or morality that is in direct conflict with their biological nature?

I believe we will achieve considerably more coherence within our chosen morality if that morality is built with a firm grasp of human nature. That we are intended* to eat animals is part of that nature.

If you look at the chart above, Homo rhodesiensis (typically considered a variant of Homo heidelbergensis) is our closest ancestor, and our point of divergence with neanderthals (Homo neanderthalensis). Some archaeologists believe H. heidelbergensis was the same species as modern Homo sapiens. I haven’t been able to find any direct evidence of the diet of H. heidelbergensis from bone isotope ratios, but the indirect evidence indicates that they were capable hunters who probably got a large proportion of their calories from meat. In Europe, they hunted now-extinct megafauna such as wooly rhinos. These things make modern cows look like chicken nuggets, and you can bet their fat was highly saturated.

H. heidelbergensis was a skilled hunter and very athletic. They were top predators in their ecosystems, judged by the fact that they took their time with carcasses, butchering them thoroughly and extracting marrow from bones. No predator or scavenger was capable of driving them away from a kill.

Our closest recent relative was Homo neanderthalensis, the neanderthal. They died out around 30,000 years ago. There have been several good studies on the isotope ratios of neanderthal bones, all indicating that neanderthals were basically carnivores. They relied both on land and marine animals, depending on what was available. Needless to say, neanderthals are much more closely related to humans than chimpanzees, having diverged from us less than 500,000 years ago. That’s less than one-tenth the time between humans and chimpanzees.

I don’t think this necessarily means humans are built to be carnivores, but it certainly blows away the argument that we’re built to be vegetarians. It also argues against the idea that we’re poorly adapted to eating animal fat. Historical human hunter-gatherers had very diverse diets, but on average were meat-heavy omnivores. This fits well with the apparent diet of our ancestor H. heidelbergensis, except that we’ve killed most of the megafauna so modern hunter-gatherers have to eat frogs, bugs and seeds.

*As much as a blind or natural process like evolution can “intend” anything.

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Nassim Nicholas Taleb: “Bankers Designed Banks to Blow Up”

http://www.bloomberg.com/…mMd4PSxEKeE.asf

Just watched a fifteen minute interview by Bloomberg of Nassim Nicholas Taleb (The Black Swan). In the interview Taleb discusses the current crisis, robust systems, nationalizing the banks and the fallacy of using narratives of history to guide present-day policy/response.

Below are some quotes from NNT, which I’ve organized into like-nuggets of wisdom:

  • Looking at biology, things that survive have redundancy . . . we have spare parts, which is the exact opposite of leverage. . . . We have diversity and nothing is too big. Things fail early. . . . Banking is organized in a completely opposite way. . . . Complex systems have properties that banks don’t have. And biological systems have survived.
  • [We have an] Illusion of stability and then blow-ups are larger. Imagine if half-country was fed by one restaurant it’d be okay except one day people would starve.
  • Bad news travels immediately . . . This environment won’t tolerate the smallest mistake . . . I don’t know the system can allow for too much leverage.
  • People can invest in real things – they don’t have to invest in paper. . . .
  • What we have is a system of deposit where people buy a company, they borrow against it, and buy another company. . . . If that disappears we have less growth but it would be a more robust economic system.
  • The government is neither nationalizing the banks nor letting them break.
  • [With regard to banking,] separate the payment system from the risk taking system.
  • It looks like we have no control. The government has no control over what the banks are doing. The banks aren’t in control of what they are doing.
  • The press reports everything except the important stuff. September 18th . . . we had the run on money market funds and the government had to step in.
  • The situation is not comparable to the Great Depression. The situation is very different.
  • This crisis is not so much a Black Swan to me. It’s like saying you’ve got a pilot who doesn’t know about storms. . . . The Black Swan for me would be to emerge out unscathed and go back to normalcy.
  • We should be very careful when we make a historical analogy like the Great Depression because the world is not like it was in the Great Depression.
  • Capitalism is you let what’s breakable break fast.

Bloomberg also ran an article on the interview with Taleb, but it is spartan as far as quotes or insights from the actual interview.

From what I can tell, it seems Taleb views bank nationalization as similar to taking out plane hijackers. It’s an interesting, more palatable way to look at nationalization in that it frames the situation as one where the public will be harmed unless someone (in this case the government) steps in and takes drastic action.

Having said that, I don’t get the impression that Taleb is a proponent of long-term nationalization. NNT would prefer banking be structured similarly to a biological system where there are redundancies and fragile things “break early.” This system wouldn’t foster as much leverage and therefore would slow growth, but it would be considerably more robust.

This is more or less what I believe, as well. A free market is an organic, naturally forming system that is decentralized and redundant. It’s robust because market actions failing apart at any micro level will not break the entire system.

How do we get there from here? Good question.

(H/T to Jesse)