(…) optionality is everywhere, and here is a place to discuss a version of cherry-picking that destroys the entire spirit of research and makes the abundance of data extremely harmful to knowledge. More data means more information, perhaps, but it also means more false information. We are discovering that fewer and fewer papers replicate—textbooks in, say, psychology need to be revised. As to economics, fughgetaboudit. You can hardly trust many statistically oriented sciences—especially when the researcher is under pressure to publish for his career. Yet the claim will be “to advance knowledge.”
Recall the notion of epiphenomenon as a distinction between real life and libraries. Someone looking at history from the vantage point of a library will necessarily find many more spurious relationships than one who sees matters in the making, in the usual sequences one observes in real life. he will be duped by more epiphenomena, one of which is the direct result of the excess of data as compared to real signals.
We discussed the rise of noise in Chapter 7. Here it becomes a worse problem, because there is an optionality on the part of the researcher, no different from that of a banker. The researcher gets the upside, truth gets the downside. The researcher’s free option is in his ability to pick whatever statistics can confirm his belief—or show a good result—and ditch the rest. He has the option to stop once he has the right result. But beyond that, he can find statistical relationships—the spurious rises to the surface. There is a certain property of data: ==in large data sets, large deviations are vastly more attributable to noise (or variance) than to information (or signal).*
- It is a property of sampling. In real life, if you are observing things in real time, then large deviations matter a lot. BUt when a researcher looks for them, then they are likely to be bogus—in real ice there is no cherry-picking, but on the researcher’s computer, there is.
Tell me if you understand the problem in its full simplicity: former regulators and public officials who were employed by the citizens to represent their best interests can use the expertise and contacts acquired on the job to benefit from glitches in the system upon joining private employment—law firms, etc.
Think about it a bit further: the more complex the regulation, the more bureaucratic the network, the more a regular who knows the loops and glitches would benefit from it later, as his regulator edge would be a convex function of his differential knowledge. This is a franchise, an asymmetry one has at the expense of others. (Note that this franchise is spread across the economy; the car company Toyota hired former U.S. regulators and used their “expertise” to handle investigations of its car defects.)
Another facet of the difference between abstract modernistic nation-states and local government. In an antique city-state, or a modern municipality, shame is the penalty for the violation of ethics—making things more symmetric. Banishment and exile, or, worse, ostracism were severe penalties—people did not move around voluntarily and considered uprooting a horrible calamity. In larger organisms like the mega holy nation-state, with a smaller role for face-to-face encounters, and social roots, shame ceases to fulfill its duty of disciplinarian. We need to reestablish it.
And aside from shame, there is friendship, socialization in a certain milieu, being part of a group of people that have diverging interests from the collective. Cleo, the hero of the Peloponnesian War, advocated the public denouncement of friends upon taking up public affairs—he paid for it with some revilement by historians.
A simple solution, but quite drastic: anyone who goes into public service should not be allowed to subsequently earn more from any commercial activity than the income of the highest paid civil servant. It is like a voluntary cap (it would prevent people from using public office as a credential-building temporary accommodation, then going to Wall Street to earn several million dollars). This would get priestly people into office.
Just as Cleon was reviled, in the modern world, there seems to be an inverse agency problem for those who do the right thing: you pay for your service to the public with smear campaigns and harassment. The activist and advocate Ralph Nader suffered numerous smear campaigns as the auto industry went after him.
For Metternich, humanity started at the rank of baron; for Aristotle, as well as, though in a separate form, the English up until the twentieth century, it started at the rank of idle freeman, unpreoccupied with work. It never meant not working; it just meant not deriving your personal and emotional identity from your work, and viewing work as something optional, more like a hobby. In a way your profession does not identify you so much as other attributes, here your birth (but it could be something else). The is the f*** you money that allowed Thales of Miletus to gauge his own sincerity. For the Spartans, it was all about courage. For Fat Tony, humanity started at the level of “self-ownership.”
Now self-ownership for our horizontal friend was vastly more democratic than for his thinking predecessors. It simply meant being the owner of your opinion. And it has nothing to do with wealth, birth, intelligence, looks, shoe size, rather with personal courage.
In other words, for Fat Tony, it was a very, very specific definition of a free person: someone who cannot be squeezed into doing something he would otherwise never do.
There is a phenomenon called the treadmill effect, similar to what we saw with neomania: you need to make more and more to stay in the same place. Greed is antifragile—though not its victims.
Back to the sucker problem in believing that wealth makes people more independent. We need no more evidence for it than what is taking place right now: recall that we have never been richer in the history of mankind. And we have never been more in debt (for the ancients, someone in debt was not free, he was in bondage). So much for “economic growth.”
At the local level, it looks like we get socialized in a certain milieu, hence exposed to a treadmill. You do better, move to Greenwich, Connecticut, then become a pauper next to a twenty-million-dollar mansion and million-dollar birthday parties. And you become more and more dependent on your job, particularly as your neighbours get big tax-sponsored Wall Street bonuses.
This class of persons is like Tantalus, who was subjected to an eternal punishment: he stood in a pool of water underneath a fruit tree and whenever he tried to grab the fruit it moved away and whenever he tried to drink, the water receded.
And such a permanently tantalized class is a modern condition. The Romans circumvented these social treadmill effects: much of social life took place between a patron and his less fortunate clients who benefited from his largesse and ate at his table—and relied on his assistance in times of trouble. There was no welfare at the time, and no church to distribute or recommend charity: everything was private. There was little exposure to the other wealthy biggies, just as mafia dons don’t socialize with other mafia dons but with their constituents. To a large extent, that’s how my grandfather and great-grandfather lived, as they were local landowners and politicians; power was accompanied by a coterie of dependents. Provincial landowners were required to maintain an occasional “open house,” with an open table for people to come help themselves to the fruits of the wealth. Court life, on the other hand, leads to corruption—the nobleman comes from the provinces, where is now brought down to size; he faces more flamboyant, wittier persons and feels pressure to prop up his self-esteem. People who would have lost their status in the cities conserve it in the provinces.
You cannot possibly trust someone on a treadmill.
We accept that people who boast are boastful and turn people off. How about companies? Why aren’t we turned off by companies that advertise how great they are? We have three layers of violation:
First layer, the mild violation: companies are shamelessly self-promotional and it only harms them.
Second layer, the more serious violation: companies trying to represent themselves in the most favourable light possible, hiding the defects of their products—still harmless, as we tend to expect it and rely on the opinion of users.
Third layer, the even more serious violation: companies trying to misrepresent the product they sell by playing with our cognitive biases, our unconscious associations, and that’s sneaky. The latter is done by, say, showing a poetic picture of a sunset with a cowboy smoking and forcing an association between great romantic moments and some given product that, logically, has no possible connection to it. You seek a romantic moment and what you get is cancer.
It seems that the corporate system pushes companies progressively into the third layer. At the core of the problem with capitalism—again, please do not invoke Adam Smith—lies the problem of units that are different from individuals.
A corporation does not have natural ethics; it just obeys the balance sheet. The problem is that its sole mission is the satisfaction of some metric imposed by security analysts, themselves (very) prone to charlatanism.
A (publicly listed) corporation does not feel shame. We humans are restrained by some physical, natural inhibition. A corporation does not feel pity. A corporation does not have a sense of honour—while, alas, marketing documents mention pride.
A corporation does not have generosity. Only self-serving actions are acceptable. Just imagine what would happen to a corporation that decided to unilaterally cancel its receivables—just to be nice. Yet societies function thanks to random acts of generosity between people, even sometimes strangers.
All of these defects are the result of the absence of skin in the game, cultural or biological—an asymmetry that harms others for their benefit.
Now, such systems should tend to implode. And they do. As they say, you can’t fool too many people for too long a period of time. But the problem of implosion is that it does not matter to the managers—because of the agency problem, their allegiance is to their own personal cash flow. They will not be harmed by subsequent failures; they will keep their bonuses, as there is currently no such thing as negative manager compensation.
In sum, corporations are so fragile, long-term, that they will eventually collapse under the weight of the agency problem, while managers milk them for bonuses and ditch the bones to taxpayers. They would collapse sooner if not for the lobby machines: they start hijacking the state to help them inject sugary drinks into your esophagus. In the United States large corporations control some members of Congress. All this does is delay the corporation’s funeral at our own expense.
Another attribute of the artisanal. There is no product that I particularly like that I have discovered through advertising and marketing: cheeses, wine, meats, eggs, tomatoes, basil leaves, apples, restaurants, barbers, art, books, hotels, shoes, shirts, eyeglasses, pants, olives, olive oil, etc. The same apples to cities, museums, art, novels, music, painting, sculpture (I had at some point an obsession with ancient artifacts and Roman heads). These may have been “marketed” in some sense, by making people aware of their existence, but this isn’t how I came to use them—word of mouth is a potent naturalistic filter. Actually, the only filter.
The mechanism of cheapest-to-deliver-for-a-given-specification pervades whatever you see on the shelves. Corporations, when they sell you what they call cheese, have an incentive to provide you with the cheapest-to-produce piece of rubber containing the appropriate ingredients that can still be called cheese—and do their homework by studying how to fool your taste buds. Actually, it is more than just an incentive: they are structurally designed and extrememely expert at delivering the cheapest possible product that meets their specifications. The same with say, business books: publishers and authors want to grab your attention and put in your hands the most perishable journalistic item available that still can be called a book. ==This is optimization at work, in maximizing (image and packaging) or minimizing (costs and efforts).
I said about marketing by soft drink companies that it is meant to maximally confuse the drinker. Anything one needs to market heavily is necessarily either an inferior product or an evil one. And it is highly unethical to portray something in a more favourable light than it actually is. one may make other aware of the existence of a product, say a new belly dancing belt, but I wonder why people don’t realize that, by definition, what is being marketed is necessarily inferior, otherwise it would not be advertised.
Marketing is bad manners—and I rely on my naturalistic and ecological instincts. Say you run into a person during a boat cruise. What would you do if he started boasting of his accomplishments, tellin you how great, rich, tall, impressive, skilled, famous, muscular, well educated, efficient, good in bed he is, plus other attributes? You would certainly run away (or put him in contact with another talkative bore to get rid of both of them). It is clearly much better if others (preferably someone other than his mother) are the ones saying good things about him, and it would be nice if he acted with some personal humility.
Actually this is not at all far-fetched. As I was writing this book, I overheard on a British Air flight a gentleman explain to the flight attendant less than two seconds into the conversation (meant to be about whether he liked cream and sugar in his coffee) that he won the Nobel Prize in Medicine “and Physiology” in addition to being the president of a famous monarchal academy. The flight attendant did not know what the Nobel was, but was polite, so kept retreating “the Nobel Prize” hoping that she would wake up from her ignorance. I turned around and recognized him, and the character suddenly deflated. As the saying goes, it is hardest to be a great man to one’s chambermaid. And marketing beyond conveying information is insecurity.
Have you noticed that while corporations sell you junk drinks, artisans sell you cheese and wine? And there is a transfer of antifragility from the small in favour of the large—until the large goes bust.
The problem of the commercial world is that it only works by addition (via positiva), not by subtraction (via negativia): pharmaceutical companies don’t gain if you avoid sugar; the manufacturer of health club machines doesn’t benefit from your deciding to lift stones and walk on rocks (without a cell phone); your stockbroker doesn’t gain from your decision to limit your investments to what you see with your own eyes, say your cousin’s restaurant or an apartment building in your neighbourhood; all these firms have to produce “growth in revenues” to satisfy the metric of some slow thinking or, at best, semi-slow thinking MBA analyst sitting in New York. Of course they will eventually self-destruct, but that’s another conversation.
Now consider companies like Coke or Pepsi, which I assume are, as the reader is poring over these lines, still in existence—which is unfortunate. What business are they in? Selling you sugary water or substitutes for sugar, putting into your body stuff that messes up your biological signalling system, causing diabetes and making diabetes vendors rich thanks to their compensatory drugs. Large corporations certainly can’t make money selling you tap water and cannot produce wine (wine seems to be the best argument in favour of the artisanal economy). But they dress their products up with a huge marketing apparatus, with images that fool the drinker and slogans such as “12.5 years of providing happiness” or some such. I fail to see why the arguments we’ve used against tobacco firms don’t apply—to some extent—to all other large companies that try to sell us things that may make us ill.
Many right-wingers-in-love-with-large-corporations keep citing Adam Smith, famous patron saint of “capitalism,” a word he never uttered, without reading him, using his ideas in a self-serving selective manner—ideas that he most certainly did not endorse in the form they are presented.
In Book IV of The Wealth of Nations, Smith was extremely chary of the idea of giving someone upside without downside and had doubts about the limited liability of joint-stock companies (the ancestor fo the modern limited liability corporation). He did not get the idea of transfer of antifragility, but he came close enough. And he dented—sort of—the problem that comes with managing other people’s business, the lack of a pilot on the plane:
The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own.
Further, Smith is even suspicious of their economic performance as he writes: “Joint-stock companies for foreign trade have seldom been able to maintain the competition against private adventurers.”
Let me make the point clearer: the version of “capitalism” or whatever economic system you need to have is with the minimum number of people in the left column of the Triad. Nobody realizes that the central problem of the Soviet system was that it put everyone in charge of economic life in that nasty fragilizing left column.
There is a class of people who escape bureaucrato-journalistic “tawk”: those who have more than their skin in the game. They have their soul in the game.
Consider prophets. Prophecy is a pledge of belief, little else. A prophet is not someone who first had an idea; he is the one to first believe in it—and take it to its conclusion.
Chapter 20 discussed prophecy, when done right, as subtraction, and detection of fragility. But if having skin in the game (and accepting downside) is what distinguishes the genuine thinker from ex post “tawk, there is one step beyond needed to reach the rank of prophet. It is a matter of commitment, or what philosophers called doxastic commitment, a type of belief-pledge that (…) translated into deeds. Doxa in Greek used to mean “belief,” but distinguished from “knowledge” (episteme); to see how it involves a commitment of sorts beyond just words, consider than in church Greek it took the meaning of glorification.
Incidentally, this notion also applies to all manner of ideas and theories: the main person behind a theory, the person to be called the originator, is someone who believed in it, in a doxastic way, with a costly commitment to take it to its natural conclusion; and not necessarily the first person to mention it over dessert wine or in a footnote.
Only he who has true beliefs will avoid eventually contradicting himself and falling in to the errors of postdicting.