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"Geometry is not true, it is advantageous"
—Henri
Poincare
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Hey there,
Not much to update this week so let's get straight to it.
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A classic book on design. I am not a designer but my appreciation for the importance of good design has grown a lot over the last ten years and as I am thinking through some design work right now decided to finally pick this up and loved it.
The key point that the book emphasizes is that a lot of what gets attributed to "human error" is, in fact, poor design. This can have devastating consequences.
I was called upon to help analyze the American nuclear power plant accident at Three Mile Island (the island name comes from the fact that it is located on a river, three miles south of Middle-town in the state of
Pennsylvania). In this incident, a rather simple mechanical failure was misdiagnosed. This led to several days of difficulties and confusion, total destruction of the reactor, and a very close call to a severe radiation release, all of which brought the American nuclear power industry to a complete halt.
The operators were blamed for these failures: "human error" was the immediate analysis. But the committee I was on discovered that the plant’s control rooms were so poorly designed that error was inevitable: design was at fault, not the operators. The moral was simple: we were designing things for people, so we needed to understand both technology and people.
Bad design will eventually catch up to you and that’s just as applicable to how your business runs internally as externally. When designing internal standard operating procedures, I spend a lot of time making sure they are well-designed. Proper formatting, breaking things up by headings, and making them easy to edit are all small design tweaks that substantially improve outcomes.
This book gives lots of good examples including for both designing physical objects (you will never look at doors the same way again) and digital experiences.
It also includes various models
and frameworks for approaching design in a better way. Would recommend it for just about anyone as the lessons are broadly applicable across disciplines from operations to marketing to product design.
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Party at the Moontower
Broadly, this piece looks at the role of and importance of hedging as part of an investment strategy.
A specific point it makes which I find to be poorly understood by most investors is that a seemingly 'single' investment decision is almost always better thought of as a bundle of bets.
If you buy a giant corporation like
[Exxon], you are also making oblique bets on GDP, the price of oil, interest rates, management skill, politics, transportation, the list goes on. Hedging allows you to fine-tune your bets by offsetting some of the exposures you don’t have a view on. If your view was strictly on the price of oil you could trade [oil] futures or [an oil ETF] instead. If your view had nothing to do with the price of oil, but something highly idiosyncratic about [Exxon], you could even short oil against the stock position.
If nothing else, thinking about an investment as a bundle of bets is helpful because it forces you to decompose your
thinking in a specific way. If you think an asset is going to go up and down, what are the drivers of that and can you isolate them more specifically?
One particular example most people can relate to is housing.
Whether you are conscious of it or
not, owning a home is a bundle of bets. Your home’s value depends on interest rates, the local job market, state policy. But also on some pretty specific events. Your house value depends on "not having a flood". Insurance is a specific hedge for a specific risk.
If you're considering buying an investment property, are you making a bet on local labor markets? policy? interest rates? something else? How could the other factors impact that investment and how can you manage that? These are all important questions!
The Expert’s Trilemma [Twitter Thread]
Venkatesh Rao
I linked to this piece from the quote section last week but I’m putting it in the body for this week because I thought it was a very nice encapsulation of some of the issues around "expertise" and the crisis of legitimacy around traditional forms of experts.
The expert’s Trilemma is this:
Express doubt
you feel and get lynched now.
Express
certainty you don’t feel, turn out wrong, get lynched later.
Express
certainty you don’t feel, turn out to be right, get celebrated, be expected to be right forever about everything on pain of lynching.
In my experience, this is uncomfortably accurate. Ultimately, the market for people who want to know
the future is bigger than the market for people that realize the future is unknowable.
So market forces mean that the most popular "experts" tend to be the ones that express certainty even when there is no basis for doing so.
A layperson is
an idiot who expects to sustain supreme confidence about everything forever without ever learning anything new, by rewarding or punishing others for being right or wrong.
Expertise *is*
the capacity for cultivating systematic doubt about an area of knowledge and responding skillfully to it. Trafficking in certainties is mostly a game for children. For adults there are no certainties, only bets of varying risks.
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The Interesting Times is a short note to help you better invest your time and money in an uncertain world as well as a digest of the
most interesting things I find on the internet, centered around antifragility, complex systems, investing, technology, and decision making. Past editions are available here.
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Here are a few more things you
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Newsletter Past Editions: Read past editions of The interesting Times Newsletter.
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productive.
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