How Certain Should You Be About That?
LIFE Presentation, Oct 16, 2019
Mike Wrzinski and Bill Kirby
Description:
People easily fool themselves into believing they know more than they actually do. And they are often fooled by others into believing things that are more untrue than true. We'll cover the first condition by reviewing the major points brought out by N. N. Taleb's Book, "The Black Swan, The Impact of the Highly Improbable", and the second condition by examples from "How to Lie With Statistics" by Darrell Huff. 98.7% of the people who attend this class will come away satisfied. You can trust us!
(photoshopped or no?)1
1 Not! - https://www.rainforestresort.com/spruce-tree.htm
How Certain Should You Be About That? - LIFE, Oct 16, 2019 1/26
How Certain Should You Be About That?
The Books 2 3
2 TBS - 2nd edition, 2010! - https://www.amazon.com/Black-Swan-Improbable-Robustness-
Fragility/dp/081297381X 3 HTL - Reissue Editon, - https://www.amazon.com/How-Lie-Statistics-Darrell-Huff/dp/0393310728
How Certain Should You Be About That? - LIFE, Oct 16, 2019 2/26
TBS - The Black Swan
Overview4
1. Sold close to 3 million copies.
2. Published in 32 languages.
3. 36 weeks on NYT Bestseller list.
4. Described by The Sunday Times, UK, as one of the
twelve most infuential books since WW II.
5. 2nd book in Taleb's INCERTO series. The other 4 -
a) Fooled by Randomness: The Hidden Role of
Chance in Life and in the Markets. Deals with the fallibility of human knowledge.
b) The Bed of Procrustes: Philosophical and Practical Aphorisms.
c) Antifragile: Things That Gain from Disorder. Builds on previous
books.
d) Skin in the Game: Hidden Asymmetries in Daily Life. " having a
measurable risk when taking a major decision -- is necessary for fairness, commercial efficiency, and risk management, as well as being necessary to understand the world."5 Stubborn minority example.
4 wiki has links to original sources, -
https://en.wikipedia.org/wiki/The_Black_Swan:_The_Impact_of_the_Highly_Improbable 5 https://en.wikipedia.org/wiki/Skin_in_the_Game_(book)
How Certain Should You Be About That? - LIFE, Oct 16, 2019 3/26
TBS - The Black Swan
STOP! What's a Black Swan?6 1. Story of black swans.
2. Black Swan Event, BSE, capitalized. Def. pg xxii
a) "..lies outside the realm of regular expectations, because
nothing in the past can convincingly point to its possibility."
b) "it carries an extreme impact"
c) "..after the fact, human nature makes us concot explanations
for its occurance, making it explainable and predictable
3. Uncertainty7, and randomness is key.
4. BSE's are subjective, in that some may see them before they
happen.
5. What we don't know is far more relevant than what we do know.
6 Source - Spotted in ScotlandMay 21, 2019 - https://www.bbc.co.uk/newsround/48338856 7 Central idea is "focus on consequences, not probability" p211
How Certain Should You Be About That? - LIFE, Oct 16, 2019 4/26
!!Snap Quiz!!
Relax. It won't be on the final.
1. If A=B, and B=C, then A=C8
a) true
b) false
c) could never happen
2. 10 + 10 = 209
a) true
b) false
c) stop asking tricky questions
Bonus - What's the rule?
2, 4, 8
Solve by giving me a 3-number sequence demonstrating the rule - I'll say 'yes' or 'no'.10 If yes, what's the rule?
8 in the abstract, a). In the real world, c) find me an A and a B that are equal. differ in at least position in space 9 a) for number systems base 3 and above. 10 + 10 = 100 in binary arithmetic Careful! We opererate under unconscious assumptions 10 From Veritasium, 'Can You Solve This? - https://www.youtube.com/watch?v=vKA4w2O61Xo especially 1:35
How Certain Should You Be About That? - LIFE, Oct 16, 2019 5/26
TBS - The Black Swan
Nassim Nicholas Taleb 11
(Borrowed from wiki...)
Born 1960, Lebanon
essayist, scholar, statistician, and former trader and risk analyst (21 years)
work concerns problems of randomness, probability, and uncertainty.
bachelor and master of science degrees from the University of Paris.
MBA from the Wharton School
PhD in Management Science from the University of Paris - dissertation focused on the mathematics of derivatives pricing
Taleb considers himself less a businessman than an epistemologist of randomness. 11 wiki - https://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb#Incerto
How Certain Should You Be About That? - LIFE, Oct 16, 2019 6/26
Nassim Nicholas Taleb
Twitter How Certain Should You Be About That? - LIFE, Oct 16, 2019 7/26
Nassim Nicholas Taleb
Youtube12 12 Intransitivity of correlation - https://www.youtube.com/watch?v=hgXda891uNw (watch for 3
minutes - TBS is NOT math oriented and is quite approachable.... Massive Open Online Course Another, (I prefer)Tom over Harry, Harry over John, but John over Tom. Attributes!
How Certain Should You Be About That? - LIFE, Oct 16, 2019 8/26
Nassim Nicholas Taleb
My Observations on N.N.Taleb
1. Doesn't suffer 'fools' lightly. Fool means pretentious, non-skin in
game, loose with definitions, etc.
2. Writes in very readable text for laymen, but does serious mathematical
work to back up.
3. Very direct in his statements and criticisms. In many cases it's
justified. But it can feel harsh if you take it personnaly.
4. Unique insights into real life, especially it's uncertainity.
5. Wants knowledge to be applicable to the real world.
6. Would not be effective in real-time debates. How do you debate
mathematics? How Certain Should You Be About That? - LIFE, Oct 16, 2019 9/26
True / Trustworthy?
General
How do you judge when an idea that's new to you, is true and valid, and can be trusted?
1. An inner nudge?
2. An authority figure says it is?
3. Supports what you already believe?
4. Accurate in describing new events, and predicting?
5. Maybe, when "The lights just went on?" Happened to me during
preparation. Thank You!
6. How do you know that you are seeing the whole of an elephant and
not just a part? (We may have a LIFE class next semester. Bill?)
For me, in the last 10 years, or so, I try to get to the very heart of it. The epistemology.
1. Then, if that's true, and the rest logically follows, all's good.
Until proven otherwise by later information, of course.
2. Sometimes, the ideas' discovery process is critical. How Certain Should You Be About That? - LIFE, Oct 16, 2019 10/26
True / Trustworthy?
Specifics for This Book
1. I'm attracted to persons who speak truth to power.
2. Economics - “Ultimate Foundation of Economic Science” - LIFE class, Oct. 18, 2013, (Contact me if interested in a copy)
3. Ludwig von Mises, “Humans Act, Objects React”(my words)
4. Frederich Hayek, Nobel Prize in Economics, 1974
5. Vilfredo Pareto - "80/20, Normal Curve and Other Math of Interest
Today", LIFE class, April 23, 2018 (Contact me if interested in a copy)
6. Luck - Why does fate favor one person over another?
a) "Karma: If It's Not Real, It Should Be", LIFE Class, October 2,
2015.
b) What do we know and how do we know it?
c) Accuracy of Communications
7. The Silver Rule - Do not treat others the way you would not like
them to treat you. (symmetry, "Skin In The Game", introduction, idea of non-interference) How Certain Should You Be About That? - LIFE, Oct 16, 2019 11/26
Ludwig von Mises
The Ultimate Foundation of Economic Science, Ludwig von Mises, 158 pages
First published in 1962 This is the 2006 edition. Print, PDF, EPUB, HTML versions available here - http://mises.org/document/120/Ultimate- Foundation-of-Economic-Science-The
Mises was 81 years old when he wrote this book.
"There are two senses in which this book is indeed ultimate: it deals with the very core of economics as a science, and it is the last book that he wrote." (above website)
Epistemological Problems of Economics Free pdf, epub, html,
https://mises.org/library/epistemological-problems-economics
If you can contact N.N. Taleb, ask why he seems to ignore Mises. Is it the problem of Induction? How Certain Should You Be About That? - LIFE, Oct 16, 2019 12/26
Frederich Hayek
Noble Prize in Economics, 1974.13 Most famous for "The Road to Serfdom"14. Video based on Look Magazine, Feb. 194515,text16.
Banquet speech highlights - 17 "It is that the Nobel Prize confers on an individual an authority which in economics no man ought to possess. This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence." The Prize Lecture, The Pretence of Knowledge, 18
"The theory which has been guiding monetary and financial policy during the last thirty years (1944!), a.....”
13http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-facts.html 14http://en.wikipedia.org/wiki/The_Road_to_Serfdom 15http://www.youtube.com/watch?v=mkz9AQhQFNY Hayek's 'The Road to Serfdom' in Five Minutes 16http://mises.org/books/TRTS/ 17http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-speech.html 18http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-lecture.html
How Certain Should You Be About That? - LIFE, Oct 16, 2019 13/26
Frederich Hayek - Taleb Connection
1. Forecasting - Prediction
2. Methods used in physics versus social
sciences
3. Taleb says natural sciences are far more
complicated (due to uncertainty) and Hayek shouldn't have been so trusting of them.19
4. Taleb calls this nerd knowledge, or
Platonicity. Hayek called it scientism. Platonicity, pg xxix, mistake map for territory,focus on pure/well defined forms.
Taleb -
“Prediction requires knowing about technologies that will be discovered in the future. But that very knowledge would almost automatically allow us to start developing those technologies right away. Ergo, we do not know what we will know” pg 173
19 TBS - Page 181 Chapter, "How to Look For Bird Poop", section "They still ignore Hayek" Bird Poop - pg 168 '1965 Bell Labs, discovered cosmic background microwave radiation'
How Certain Should You Be About That? - LIFE, Oct 16, 2019 14/26
Vilfredo Pareto 1. 80% land owned by 20% population, Italy 1896, 80%
peas produced by 20% pods.
2. Power Laws apply to distribution of income, TBS,
Pg 219
3. 80/20 is 50/01 rule, reapplied. In chapter, "The
Bell Curve, That Great Intellectual Fraud, section, Extremistan and the 80/20 rule.
4. 97% of book sales by 20% of authors. TBS, pg 235.
5. literary non-fiction, just 20 books out of 8000
represent half the sales. TBS, pg 235
6. Extremistan vs. mediocristan How Certain Should You Be About That? - LIFE, Oct 16, 2019 15/26
Two stories
“You need a story to displace a story.” pg. xxxi
1. How to Learn From the Turkey, pg 40 (problem of inductive
knowledge)20 2. The Ludic Fallacy, or, The Uncertainty of the
Nerd, Coin flip - Fat Tony vs Dr. John, pg 124 2122 20 Source - http://mentalfloss.com/article/71086/15-facts-about-turkeys-youll-gobble-right 21 Source - https://twitter.com/fattestfattony 22 Source - http://www.theaccountant-online.com/comments/youth-in-accountancy-series-robert-a-smith-5895275
How Certain Should You Be About That? - LIFE, Oct 16, 2019 16/26
Extremistan vs. Mediocristan
Table 1, pg 36
Attributes of the two broad categories of event space.
Mediocristan Extremistan (Comments)
1 Nonscalable Scalable dentist vs
author pg 27 evolution (DNA) is scalable pg 30
2 Mild or type 1 randomness Wild (even
superwild) or type 2 randomness 3 The most typical member is
mediocre
The most "typical" is either giant of dwarf, i.e., there is no typical member pg 29
IQ = 100 vs authors of J.K. Rowling fame.
How Certain Should You Be About That? - LIFE, Oct 16, 2019 17/26
4 Winners get a small segment
of the total pie
plumber vs politician?
5 Example: audience of an opera singer before the gramophone
Today's audience for an artist
larger audience, more rewards, but more risk.
Globalization = largest audience, most chance of BSE. 6 More likely to be found in
our ancestral environment
More likely to be found in our modern environment 7 Impervious to the Black Swan Vulnerable to
the Black Swan
Casino with only slot machines vs open-stakes blackjack
How Certain Should You Be About That? - LIFE, Oct 16, 2019 18/26
Winner-takes- almost-all effects
8 Subject to gravity There are no
physical constraints on what a number can be
MONEY in modern world, MMT. This is the 'AHA!' moment I mentioned earlier 9 Corresponds (generally) to physical quantities, i.e., height
Corresponds to numbers, say, wealth
Human accumulations
10 As close to utopian equality as reality can spontaneously deliver
Dominated by extreme winner- take-all inequality 11 Total is not determined by a
single instance or observation
Total will be determined by a small number of extreme events23
stock market pg 275 "In the last fifty years, the ten most extreme days in the financial markets represent half the returns. Ten days in fifty years."
23 Not Taleb's figures, but illustrative. https://www.businessinsider.com/cost-of-missing-10-
How Certain Should You Be About That? - LIFE, Oct 16, 2019 19/26
It 12 When you observe for a while
takes a long you can get to know what's
time to know going on
what's going on 13 Tyranny of the collective Tyranny of the
accidental
Can't lose a lot of weight in one day 14 Easy to predict from what
you see and extend to what you do not see
Hard to predict from past information 15 History crawls History makes
jumps 16 Events are distributed according to the "bell curve" (the GIF) or its variations
The distribution is Mandelbrotian "gray" Swans (tractable scientifically) or totally intractable Black Swans
best-days-in-sp-500-2014-3
How Certain Should You Be About That? - LIFE, Oct 16, 2019 20/26
Two Ways to Approach Randomness, pg 284
The Platonic Approach
Skeptical Empiricism and the a-Platonic School
(Comments)
1 Focuses on the
inside of the Platonic fold
Interested in what lies outside the Platonic fold. 2 "You keep
criticizing these models. These models are all we have"
Respect for those who have the guts to say "I don't know"
mistake the map for the territory.
3 Dr. John Fat Tony Derived by
theory vs experience 4 Thinks of ordinary
fluctuations as a dominant sorce of randomness, with jumps as an afterthought
Thinks of Black Swans as a dominant source of randomness
5 Top-down Bottum-up
How Certain Should You Be About That? - LIFE, Oct 16, 2019 21/26
Would 6 Wears dark suits,
ordinarily not wear white shirts;
suits (except to speaks in a boring
funerals) tone 7 Precisely wrong Prefers to be broadly
right 8 Everything needs to
fit some grand, general socieoeconomic model and "the rigor of economic theory"; frowns on the "descriptive"
Minimal theory, considers theorizing as a disease to resist
Theory is more important than practice.
9 Built their entire
apparatus on the assumptions that we can compute probabilities
Does not believe that we can easily compute probabilities
10 Model: Laplacian
mechanics, the world and the economy like a clock
Model: Sextus Empiricus and the school of evidence-based, minimum- theory empirical medicine
Is medical practice returning to this? 24
24 wiki - Evidence-based medicine https://en.wikipedia.org/wiki/Evidence-based_medicine
How Certain Should You Be About That? - LIFE, Oct 16, 2019 22/26
Develops 11 Relies on
intuitions from scientific papers,
practice, goes from goes from books to
observations to books practice 12 Inspired by
physics, relies on abstract mathematics
Not inspired by any science, uses messy mathematics and computational methods 13 Ideas based on
beliefs, on what they think they know
Ideas based on skepticism, on the unread books in the library
"Everyone is ignorant of almost everything" (me) 14 Assumes
Mediocristan as a starting point
Assumes Extremistan as a starting point
15 Poor science Sophisticated craft 16 Seeks to be
perfectly right in a narrow model, under precise assumptions
Seeks to be approximately right across a broad set of eventualities
How Certain Should You Be About That? - LIFE, Oct 16, 2019 23/26
The Narrative Fallacy
(Optional)
“Prediction, not narration, is the real test of our understanding of the world.” Pg 133
“Prediction, not narration, is the real test of our understanding of the world.” Pg 133
“Elders are repositories of complicated inductive learning that includes information about rare events...a paper in Science showed that elephant matriarchs play the role of superadvisors on rare events.” Pg 78 How Certain Should You Be About That? - LIFE, Oct 16, 2019 24/26
How To Get Even With the Black Swan, pg 295-298
Simple List
1. Be “skeptical of confirmation-though only when errors are
costly-not disconfirmation.”
2. Likes the “randomness that produces the texture of life, the
positive accidents..”
3. “I try to worry about matters I can do something
about”.
4. “I am no-nonsense and practical in academic
matters, and intellectual when it comes to practice.”
5. “Missing a train is only painful if you run after it!”
6. “You stand above the rat race and the pecking order, not outside
of it, if you do so by choice.”
7. Defense mechanism, Aesop's fable - ..”consider that the grapes we cannot (or did not) reach are sour)
8. “It is more difficult to be a loser in a game you set up
yourself.”
9. Finish by reading the 3-paragraph section, THE END, pg 297. How Certain Should You Be About That? - LIFE, Oct 16, 2019 25/26
THANK YOU! for your time, attention, and patience
25 picture source - https://forex.eu.com/black-swan/
How Certain Should You Be About That? - LIFE, Oct 16, 2019 26/26
