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Plus The Fall Of History & Simple Heuristics That Make Us Smart
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"We see not what is, but who we are."
Immanuel Kant

Hey there,

Not much to update this week so we'll get straight to it!

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The Best of What I've Been Consuming


On Bullshit in Investing
Benn Eifert

Financing is a pretty useful thing. If you have an idea for an app but can't afford to build it then you get financings, build the app, sell it and use the money you make to 'pay back' the financing. The economy grows and everyone makes money

An important point: Investment yield has to come from somewhere. In the case of an app, it has to sell subscriptions or versions or whatever. If you can’t understand where yield comes from, then the yield is likely not sustainable.

Some useful guidelines for spotting bad investments:

The lines between over-optimism, deception, and fraud are not always bright, and investment schemes can move slowly between those categories over time. Common red flags include:
    • Projected returns far above historical equity returns
    • Claims of returns significantly exceeding bond yields with little or no risk
    • Extrapolation of recent extreme investment performance into the future
    • Overly complex investments with non-transparent sources of return
    • Perverse incentives for the people selling the investment.

The best line of the piece for me:

Burn the principle into your brain that financial markets are large and competitive and have a lot of smart people in them.

Living in New York and running a hedge fund are humbling experiences because you get to meet very smart people. Whenever I think I have some great trade idea, I always have to ask "What do I know that these people don't." 99% of the time the answer is nothing.


The share of history majors at colleges since the 1970s has gone down. A lot.


Why? The author outlines a few different theories.

One is that college has gotten a lot more expensive and so people expect a financial return. There’s a much clearer path to making money from, say, chemical engineering, than a history degree.

Another is that it has to do with signaling. It used to be that just having a college degree was a positive signal but now that is too common so your major is a signal of how intelligent you are and so you should pick a major that makes you look smart.

One rough way to test this hypothesis would be to look at whether the decline in history majors across the United States is also seen at elite institutions.

If 1) degrees are primarily a social signal, 2) the value of that signal is declining as a larger percentage of the population goes to college, and 3) employers have thus shifted to selecting on majors to separate wheat from chaff, it follows that students attending selective Ivy League institutions will feel less pressure to choose majors that signal their intelligence and discipline. University attendance may no longer be a mark of exclusivity; Harvard attendance certainly still is.

Behold: approximately one in ten Harvard undergraduates major in history. Between 6% and 7% of the undergraduates at Yale and Princeton do the same—approximately the same percentage as the national rates in the 1970s.

The final hypothesis is that there is a sort of boundedness that has arisen in the study of history that didn’t exist previously. Basically, people don't study history because it seems to broad, too general, too universal.

Americans once believed, *earnestly believed*, that by studying the words of Milton and Dante, or by examining the history of republican Rome or 16th century England, one could learn important, even eternal, truths about human nature and human polities. Art, literature, and history were a privileged source of insight into human affairs. In consequence, those well versed in history and the other humanistic disciplines had immense authority in the public eye. The man of vaulting ambition studied the humanities.

There was an appreciation for the illegible that has given way to two different schools of thoughts categorized as the modelers and the intersectionalists.

One of the most important intellectual developments of the 21st century—something that I hope to highlight in my own book on this era—is the growing prestige and public authority of two modes of thought. I struggle to label the first group with one word—I waffle between "the modelers," "the data heads," and "the social scientists." This group is comprised of psychologists, cognitive scientists, computer scientists, data scientists, statisticians, economists, quantitative sociologists, geographers, anybody who uses the word "computational" in front of their job description, and anybody whose main method of public engagement is a dynamic data visualization. Data is the watchword of these folks, empiricism their vocation, science their title.

Rising to meet the modelers are the intersectionalists. The two approaches have more in common than is initially apparent. Both modes idealize the counterintuitive insight. Practitioners of each believe that the masses are content to live in a world of surface realities; both groups secure their public standing by tearing away the truisms of everyday life to expose the true workings of the world.

The result of these schools of thought is that the study of history broadly has fallen by the wayside as you see more "X Studies" degrees focused on narrower field.



Gerd Gigerenzer, Peter Todd and the ABC Research Group's Simple Heuristics That Make Us Smart
Jason Collins blog

A summary of the work of Gerd Gigerenzer who has pushed back (persuasively in my view) on the behavioral economics movement of the last decade kicked off by Kahneman and Tversky.

Gigerenzer argues pursuing rationality of this nature as an ideal is misguided, as many of our forms of reasoning are powerful and accurate despite not being logically coherent. The function of heuristics, Gigerenzer’s field of stud, is not to be coherent. Their function is to make reasonable adaptive inference with limited time and knowledge.

A really useful example is the 37% rule which acts as a good heuristic for how long you should search for a new hire or a new house.

The basic idea is that you have a series of candidates you are interviewing for the role of secretary (this conception of the problem spread in the 1950s). You view each candidate one by one and must decide on the spot if you will stop your search there and hire the candidate in front of you. If you move to the next candidate, the past candidate is gone forever.

To maximise your probability of finding the best secretary, you should view 37% of the candidates without making any choice, and then accept the next candidate who is better than all you have seen to date. This rule gives (coincidentally) a 37% chance of ending up with the best mate.

What if, like most people, you have a degree of risk aversion - particularly if you are applying the rule to serious questions such as mate choice. Suppose there are 100 candidates and you want someone out of the top 10%. In that case you only want to look at the first 14% of candidates and choose the next candidate who is better than all previous candidates. That gives you an 83% chance of a top 10% candidate. If you will settle for the top 25%, you only need look at the first 7% for a 92% chance of getting someone in the top quartile.

In larger populations, you need to look at even less. With 1000 people, you need only look at only 3% of the candidates to maximise chance of top 10% at 97% probability. For a top 25% mate, you should only check out 1 to 2%.

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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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