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It involves complicated mathematics and thus raises a barrier to entry by non-mathematically trained scholars.
We used a Samuelson text at the air force Acdemy. The concepts were also in CFA studies. I imagine the concepts are useful in a general way.
The question is if economic theory is useful to those who do not understand economic theory. People can stop their cars smoothly without knowing Newtonian Physics.
Well, I like to complexify things. I'm especially liking inverted U-shaped curves. Put economic knowledge on the horizontal axis and usefulness on the vertical axis. The usefullness follows a bell curve.
The same curve is useful in many endeavors.
Also, as we have seen with the anchoring example, subjects’ estimates of the number of dentists in Manhattan are influenced by which random number they have just been presented with—the anchor.
THE GRUENESS OF EMERALD
Recall the turkey problem. You look at the past and derive some rule about the future. Well, the problems in projecting from the past can be even worse than what we have already learned, because the same past data can confirm a theory and also its exact opposite!
If you survive until tomorrow, it could mean that either a) you are more likely to be immortal or b) that you are closer to death. Both c...
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An acquaintance’s unctuous past behavior may indicate his genuine affection for me and his concern for my welfare; it may also confirm his mercenary and calculating desire to get my business one day.
single straight line from the past to the future. The linear model is unique. There is one and only one straight line that can project from a series of points.
This is what the philosopher Nelson Goodman called the riddle of induction: We project a straight line only because we have a linear model in our head—the fact that a number has risen for 1,000 days straight should make you more confident that it will rise in the future. But if you have a nonlinear model in your head, it might confirm that the number should decline on day 1,001.
Induction works if straight lines work. Specific to general Ducts are straight. That is unless they aren't. How about, in the beginning I used a theory to predict a future.
The riddle of induction is another version of the narrative fallacy—you face an infinity of “stories” that explain what you have seen.
The riddle of induction involves choosing the right graph that indicates the future.
GRUE FALLACY. The emerald will be green until it's not. That's my version of "A trend, once established, will remain a trend until it is broken."
THAT GREAT ANTICIPATION MACHINE
In a way, projecting allows us to cheat evolution: it now takes place in our head, as a series of projections and counterfactual scenarios.
Always remember that “R-square” is unfit for Extremistan; it is only good for academic promotion.
EPISTEMOCRACY, A DREAM
Now contemplate epistemic humility. Think of someone heavily introspective, tortured by the awareness of his own ignorance. He lacks the courage of the idiot, yet has the rare guts to say “I don’t know.” He does not mind looking like a fool or, worse, an ignoramus.
This does not necessarily mean that he lacks confidence, only that he holds his own knowledge to be suspect. I will call such a person an epistemocrat;
He was mainly interested in discovering things about himself, making us discover things about himself, and presenting matters that could be generalized—generalized to the entire human race.
Montaigne is quite refreshing to read after the strains of a modern education since he fully accepted human weaknesses and understood that no philosophy could be effective unless it took into account our deeply ingrained imperfections, the limitations of our rationality, the flaws that make us human.
I don't know is often the best answer.
He was a thinking, ruminating fellow, and his ideas did not spring up in his tranquil study, but while on horseback. He went on long rides and came back with ideas.
Going out and coming back with ideas is a common occurance.
Ideas come from analogies to our environment. Changing the environment will stimulate new analogies.
Epistemocracy
It would be a society governed from the basis of the awareness of ignorance, not knowledge.
Simply, people need to be blinded by knowledge—we are made to follow leaders who can gather people together because the advantages of being in groups trump the disadvantages of being alone. It
Once in a while you encounter members of the human species with so much intellectual superiority that they can change their minds effortlessly.
The only way you can imagine a future “similar” to the past is by assuming that it will be an exact projection of it, hence predictable.
There is a blind spot: when we think of tomorrow we do not frame it in terms of what we thought about yesterday on the day before yesterday.
When we think of tomorrow, we just project it as another yesterday.
Go to the primate section of the Bronx Zoo where you can see our close relatives in the happy primate family leading their own busy social lives.
We laugh at others and we don’t realize that someone will be just as justified in laughing at us on some not too remote day.
Autistic people cannot put themselves in the shoes of others, cannot view the world from their standpoint.
This new car will bring you to a permanently elevated plateau of contentment. People will think, Hey, he has a great car, every time they see you. Yet you forget that the last time you bought a car, you also had the same expectations.
We grossly overestimate the length of the effect of misfortune on our lives. You think that the loss of your fortune or current position will be devastating, but you are probably wrong.
Helenus, unlike other seers, was able to predict the past with great precision—without having been given any details of it. He predicted backward.
Our problem is not just that we do not know the future, we do not know much of the past either.
The first direction, from the ice cube to the puddle, is called the forward process. The second direction, the backward process, is much, much more complicated.
Think of prediction like a hourglass with the middle being the present. The past is bigger than the future.
The process from the butterfly to the hurricane is greatly simpler than the reverse process from the hurricane to the potential butterfly.
I will state the fundamental problem of practice as follows: while in theory randomness is an intrinsic property, in practice, randomness is incomplete information, what I called opacity in Chapter 1.
If I see a pregnant woman, the sex of her child is a purely random matter to me (a 50 percent chance for either sex)—but not to her doctor, who might have done an ultrasound. In practice, randomness is fundamentally incomplete information.
Randomness, in the end, is just unknowledge. The world is opaque and appearances fool us.
History is useful for the thrill of knowing the past, and for the narrative (indeed), provided it remains a harmless narrative.
The more we try to turn history into anything other than an enumeration of accounts to be enjoyed with minimal theorizing, the more we get into trouble. Are we so plagued with the narrative fallacy?†
Just as Popper attacked the historicists in their making claims about the future, I have just presented the weakness of the historical approach in knowing the past itself.
and it is not a good idea for us to derive a “cause” when our survival is conditioned on that cause.
ADVICE IS CHEAP, VERY CHEAP It is not a good habit to stuff one’s text with quotations from prominent thinkers, except to make fun of them or provide a historical reference. They “make sense,” but well-sounding maxims force themselves on our gullibility and do not always stand up to empirical tests.
We cannot teach people to withhold judgment; judgments are embedded in the way we view objects.
It took a while to discover that we do effectively think, but that we more readily narrate backward in order to give ourselves the illusion of understanding, and give a cover to our past actions.
Being a Fool in the Right Places
The lesson for the small is: be human! Accept that being human involves some amount of epistemic arrogance in running your affairs. Do not be ashamed of that. Do not try to always withhold judgment—opinions are the stuff of life. Do not try to avoid predicting—yes, after this diatribe about prediction I am not urging you to stop being a fool. Just be a fool in the right places.*
By all means, demand certainty for the next picnic; but avoid government social-security forecasts for the year 2040.
Know how to rank beliefs not according to their plausibility but by the harm they may cause.
THE IDEA OF POSITIVE ACCIDENT
