Shared by JohnH

Recent additions to NNT’s Notes page. HatTip to Dave Lull.

           
120-
Climate
Change and “Too Big” Polluters

I  have been asked frequently on how to deal with climate
change in connection with the Black Swan idea and my work on
decision-making under opacity. The position I suggest should be based
on both ignorance and the delegation to the wisdom of Mother Nature
since it is older than us, hence wiser than us, and proven much
smarter than scientists. We do not understand enough about Mother
Nature to mess with her  –and I do not trust the models used to
forecast climate change. Simply, we are facing nonlinearities and
magnifications of errors coming from the so-called "butterfly
effects" we saw in Chapter 11, actually discovered by Lorenz
using weather forecasting models. Small changes in input, coming from
measurement error, can lead to massively divergent projections –and
that, very generously, assumes that we have the right equations.

We have polluted for years, causing much damage to the
environment, while the scientists currently making these complicated
forecasting models were not sticking their necks out and trying to
stop us from building these risks (they resemble those “risk
experts” in the economic domain who fight the previous war)
–these are the ones now trying to impose the solutions on us. But
the skepticism about models that I propose does not lead to the same
conclusions as the ones endorsed by anti-environmentalists,
pro-market fundamentalists, quite the contrary: we need to be
hyper-conservationists ecologically, super-Green, since we do not
know what we are harming with now. That’s the sound policy under
ignorance and epistemic opacity. To those who say “we have no
proof that we are harming nature”, a sound response is “we
have no proof that we are not harming nature either” –the
burden of the proof is not on the ecological conservationist, but on
someone disrupting an old system. Furthermore we should not “try
to correct” the harm done as we may be creating another problem
we do not know much about currently.

One practical solution I came up with, based on the
nonlinearitities in the damage (under the assumption that harm
increases disproportionally with the quantities released), and using
the same mathematical reasoning as the one that led to my opposing
the “too big” concept, is to spread the damage across
pollutants –should we need to pollute, of course. Let us carry a
thought experiment.

Case 1: you give the patient a dose of cyanide, hemlock, or
some poisonous substance, assuming they are equally harmful.

Case 2: you give the patient a tenth of a dose of ten such
substances, for the same total amount of poison.

Clearly we can see that Case 2, by spreading the poison ingested
across substances, is at the worst equally harmful (if all the
poisonous substances act in the same way), and at the best close to
harmless to the patient.

             
119-
Huet & the Separation from the Vulgar, the Transactional, &
the Common

Quiconque,
dit Horace, sera regardé en naissant par les muses d’un oeil
favorable, il méprisera les Couronnes des Jeux Olympiques des Grecs,
& des triomphes des Romains,  & leur préférera les
délices d’une retraite studieuse, & d’une savante solitude.
Il faut de plus un grand courage pour résister aux accidents de la
vie, capable d’interrompre les douceurs de son étude, aux
nécessitez publiques, aux guerres (…), aux persécutions des
envieux, (..) et leur vie retirez les expose plus que les autres.
Quant un homme de cette terre sera consacrez aux Lettres, qu’il ne
cherche la récompense que dans les Lettres mêmes, & (…) du
haut de cette sainte montagne, oú la vraie érudition a placé sa
demeure, il regarde le reste du monde avec compassion, & avec un
grand mépris des erreurs et des vaines occupations du vulgaire.

[I translate liberally: Horace saw that he who is
well treated by the muses (…) will despise the honors, the Olympic
Medals, the rewards of a common life. He will have to resist the
persecutions of the envious (…) to which his retirement &
solitude will expose him more than others. From this Holy Mountain
where true erudition placed his residence, he observes the rest of
the world with compassion and with a profound disdain of the
transactions & activities of the vulgar.]

Huet despised Montaigne –whom he called Montagne.

Claim to be an expert: it makes people’s brains hurt. In a remarkable new study, Jan Engelmann and colleagues used fMRI to observe the brains of people who received expert advice during a financial simulation. They found that subjects thought differently about their decisions when they received the advice— even if it was bad advice— than when they worked on their own. As the researchers put it, “one effect of expert advice is to ‘offload’ the calculation of value of decision options from the individual’s brain.” Put another way, “the advice made the brain switch off (at least to a great extent) processes required for financial decision-making.”

No expertise, no problem. It’ll actually make your work more accurate if you claim to be an expert— if you’re certain that you’re an expert— but you actually aren’t.

Sounds counterintuitive, right? (Ed.: This is how you know I’m a successful futurist. I said what you didn’t expect. Now I’ll quote some Science to make my point.) In fact, as J. Scott Armstrong has shown over the last twenty or so years, advanced degrees and deep knowledge don’t make you a better forecaster or expert. Statistically, experts are hardly better at predicting the future than chimps throwing darts at a board. As Louis Menand put it, “The accuracy of an expert’s predictions actually has an inverse relationship to his or her self-confidence, renown, and, beyond a certain point, depth of knowledge.”

And it’s perfectly natural to suffer from what Nassim Taleb calls “epistemic arrogance.” In all sorts of areas, we routinely overestimate our own certainty and breadth of knowledge, and underestimate what we don’t know. If you do that, you’re just like everyone else.

So knowing you’re not an expert should make you more confident in your work. And confidence is everything.

The punchline is that Niederhoffer blew up (for the second time, thereby fulfilling his own definition of a hoodoo):

Last fall, Niederhoffer sold a large number of options, betting that the markets would be quiet, and they were, until out of nowhere two planes crashed into the World Trade Center. “I was exposed. It was nip and tuck.” Niederhoffer shook his head, because there was no way to have anticipated September 11th. “That was a totally unexpected event.”

I’m not going to recapitulate Gladwell’s article here, but it’s well worth reading in its entirety. As an aside, Niederhoffer’s The Education of a Speculator is also an excellent read. It is interesting to compare Niederhoffer’s exhortation to “test everything that can be tested” against Taleb’s “naive empiricist,” but I’ll leave that for another day. For me, one of the most interesting aspects of Taleb’s philosophy is his attack on “epistemic arrogance” and its application to value investment. As I have said before, I believe there are several problems with the received wisdom on value investment, and this is one worthy of further exposition.