mundell

Reminders for myself that I don't mind sharing

One must not get lost in the system they've created or surrounded themselves with. Scientists and mathematicians often produce their most notable work when they are young and still new to their industry. This is because they haven't acclimated to their surroundings and are trying new things out.

Humans enjoy comfort rather than disruption. But disruption is what creates great things. Naval Ravikant has said “Your real resume is just a catalogue of your suffering” which seems to be true. At the end of your life you will look at the things which made you suffer in the short-term but you were grateful for in the long-term.

So the reason why great mathematicians and scientists produce their best work while they're young is because they don't want to ruin their reputations. Once they have become notable for something after throwing countless darts on the board they get comfortable with their position in the hierarchy. They get complacent and don't strive to achieve greatness. From their position of status they make it harder for beginners to overcome what they themselves have achieved. Why? Because if someone comes up with a better theory or workaround then the “great one” loses status and is no longer the cool kid.

But what way is there to prevent the system from being overtaken by those that don't want to lose power? The concepts to take from are survival of the fittest and equal opportunity. Those that are willing to work hard enough and smart enough to overtake those above them deserve a fair shot at it. They should not be cut down at the knees. But too many people who agree with that statement focus on the symptoms and not the root problem.

Which is exactly what it is all about. This is the chief problem with us as humans. We are too easily distracted from the root cause, we get lost in the systems we invent. Peter Thiel has previously said something along the lines of “So many people are focused on getting through a small doorway when there is a wide-open gate right around the corner”. Many peoples' favorite movies are those with a massive twist at the end. But consider what those movies have in common with systems we live and work in. Everyone watching is lost in the plot, trying to put together who the culprit might be, when it all it took to discover was to look at the character right in front of them.

It's why we must build from the fundamentals upwards. A house with a poor foundation can only reach so high before it comes tumbling down. Maybe we should consider how the foundation is built before jumping to the next level.

Building a society or a system is as simple as building a house but there is a pesky little thing called human nature getting in the way.

Systems are not set up correctly, at least most of the time. Humans are biased. People in charge of systems will set them up in a way that benefits them, while also helping others. But nobody sets up a system detrimental to themselves. Unfortunately it's just human nature. People are left behind, unable to fulfill their potentials.

The endogenous personality is someone who is inner motivated, highly intelligent, and highly creative. These people are indifferent to social norms, that's what makes them special. They are able to think outside of the box, creating innovative new things that benefit society.

The exogenous is the opposite. They are oriented towards the social environment and chase status. These people align their behaviors with group norms.

Where the problem arises is exogenous people by nature function in groups, while the endogenous person functions as an individual. Systems are created by groups, for groups. Bureaucracy runs these systems, notably academia. They are filled with exogenous personalities, with a few endogenous personalities sprinkled in.

Bureaucracy HR filled with exogenous personalities select for other exogenous personalities because those people are most similar to themselves. The bureaucracy does not want to be replaced by a potentially better system so it self-perpetuates by hiring more people who work well in bureaucracies. A school selects for students with the best grades. But the best grades don't necessarily mean the most intelligent students. They are the best at completing assignments and taking tests, but is that what really matters? But, real change comes from outside bureaucracies, from endogenous individuals who are the people the bureaucracy doesn't want to select.

When selecting members of your friend group do you choose those similar to yourself, with similar personalities, or those who are completely different? It's human nature to select those similar to yourself. But where we've gone wrong is ignoring the potential benefits those different from us can offer. The endogenous personality is powerful because it doesn't conform to social ideals. It looks at problems from a completely different prospective. The greatest inventors and scientists throughout history have been endogenous personalities. They are those making large changes to the society that selects against them.

A game or a simulation will never be an accurate representation of reality because of its creators. Its creators are biased, even if they try to be unbiased. So ultimately the best way to win the game is to play it the way the creators of the game think is the best way. But the method they've chosen as a winner has never been played against the outside world.

Google Search functions the same way. To be at the top of Google search results you need to figure out what Google selects for and do those things. But nobody considers that what parameters Google selects for aren't actually the most helpful and yield the best search results. Notice how when you search for help guides the top five results say roughly the same thing and provide little to no substance while the most informative guides are hidden many pages down.

But we must not lose hope, those nuggets of gold get found because of their quality. Word of mouth is more powerful than an easily manipulated search algorithm.

Paying attention is important. Unfortunately there is a lot of junk out there. We need to discern signal from noise. Noise is stuff that looks important but actually isn't. Signal may or may not look important but it is important. Social media and the news have surrounded us with constant noise. Little of what is said on a day-to-day basis actually matters. One's judgement as it relates to what they pay attention to can make the difference between a gold and fool's gold.

What is important to listen to and read are the things that don't change. This is the Lindy Effect. Focus on information that has remained relevant for thousands of years. Learn skills that have been relevant for thousands of years. Sales is a great example of a skill that will never go away. You're selling yourself whether you're in a job interview or trying to please a cute girl.

In this sense you're better off learning the fundamentals of the areas you operate in, rather than whatever the latest info is. The only exception to this may be tech since it's so new and things get outdated rapidly.

An easy way to test signal vs. noise is to watch the stock market. Each day the market will go up and down slightly, with variations in volatility. If you pay attention to it every day you will become emotional seeing the prices go up and down and you get focused in on the prices. But day-to-day prices don't mean anything. Look at it from a faraway point of view. What trends are effecting the market on a quarterly or yearly basis? What might be happening now or in the near future that will impact overall stock prices? Information like that is a signal, it has a concrete impact on prices.

To bring it back to books, don't read whatever is on the NYT bestseller. 99% of books on there are noise. They will be irrelevant in a year or two since what they talk about is only applicable to this time period. That is noise. What the ancients wrote 2000 years ago on human behavior is still relevant. That is signal.

Think back on your life. What are the greatest or worse memories you've had? Are they the day-to-day of regular life or some tragic event? The day-to-day represents noise, the outlier event represents signal. Chances are an outlier event has impacted you more than the noise.

Stay aware of what you're doing, what you're watching, and how you're living. Pay attention to signal instead of noise. Look at what truly matters.

Traditions outlive randomness. Time is ultimately the greatest factor in what stays relevant and what dies out. This is known as the “Lindy Effect” as coined by Nassim Nicholas Taleb. What the effect refers to is ideas or things that survive the test of time are therefore projected to survive even longer in the future. If they have already survived so much why would they die out now?

What these things are outliving is randomness. An earthquake, a tornado, a new regime, a new religion. If the way people operate remains the same throughout these factors, it is bound to remain the same long into the future. It's why many people, including myself, recommend reading old books that have stood the test of time. Books written nowadays are irrelevant within a few years. They are rehashing old information. You should read the primary source, books from hundreds, if not thousands of years ago.

Tradition is listening to your grandma's wisdom instead of a random journalist. Tradition is rooted in experience and longevity. If something worked for your great great grandfather, why wouldn't it work for you?

But that isn't to say that traditions don't subtly change. Communication could be regarded as a tradition. People throughout history have communicated with each other. There were carrier pigeons, horse delivery, postal services, and now email has taken over. I'm sure email will last long into the future until something else replaces its role as deliverer of messages.

So what we want to do is subject ourselves and our ideas to a lot of randomness. It doesn't necessarily have to be something extreme but it needs to be something you didn't initially think of. If you build a phone that can within stand a 5 foot drop, can it also withstand a completely unrelated event? What you, extensions of you, and your ideas need to be subjected to cannot be accounted for when developing yourself and your beliefs.

That ties in well with what I've already said about risk-taking. You never really know what you're up against or going into until you're actually doing it. Read all you want about travelling to China, but you'll never know what it's actually like until you go there.

Feels like this was all over the place but I hope you get the gist. Final point: Tradition exists for a reason. It works.

Imagine a world 100 years from now. I'm betting it will look something similar to Brave New World. Not in the literal sense but some aspects might look similar to our reality by then. The book is about a dystopian future where people are genetically predetermined in artificial wombs to be stuck in their social class for life. There is also mention of a drug called Soma, who's goal it is to keep the population happy and sedated.

I'm not some conspiracy person but I think there are important connections to be made to Brave New World. Soma as mentioned in the book is not actually some made-up drug. It's actually one of the oldest, known in the Rig Vedas (ancient Indian book, rumored 1500 BCE) also as Soma. In the Rig Vedas the drug is made up of a combination of poppy and cannabis, with some other small plants. I'm not very familiar with cannabis but a quick search says cannabis gives an increase in relaxation and increase in appetite. Cannabis legalization is a big political issue right now, could it be a different form of Soma?

But that isn't the main point. The main point is to think about the future and what innate human traits will last. Technology is going to replace thousands of jobs in the future. Computers can beat humans at chess and other man-made games. Most accounting-type roles will be replaced by automation. Manufacturing will continue to be replaced. Ultimately technology gives creators more leverage to obtain capital. Why would a founder want to deal with employees when he can control an army of robots instead?

So, I believe there will be a universal basic income and Soma-like drug to sedate the masses, otherwise there would be mass anxiety and loss of purpose. But it can be avoided if we focus on our innate traits. Specifically creativity and judgement.

Creativity cannot be replaced by robots. A robot may be able to throw paint on the wall or create something based off a Van Gogh but it will never create something truly original. I believe in a better future where everyone is able to pursue their creative interests, so that work feels like play instead of work. Creativity also includes teaching students or sales roles. Human touch cannot be replaced by robot touch.

The second factor is judgement. This comes back to technology and leverage. The future may be more about judgement in the sense of capital/resource deployment rather than the amount of time you work. If I am managing a million dollars worth of capital and I get can a 10% higher return than the next best guy, I will win and be paid out more. That is a benefit of good judgement. Judgement will be about interpreting data the computer spits out at you. Programs create reports, make dashboards, and output results but they cannot discern what is valuable from what is not. It is the humans job to take inputs and turn it into outputs. Robots are making it easier to obtain the inputs. They are also making the difference between inputs and outputs greater.

It used to be 1 hour of work (input) = 1 hour of pay. Now it is 1 hour of work (input) = 500 hours of pay, thanks to technology. Creativity is discovering new inputs. Judgement is taking inputs and finding the best output for them.

There is a disconnect between payoffs and probabilities. People don't understand the difference between the two and which one you should value more. A payoff is a return on an investment or bet. Probability is the likelihood of something happening.

What we are looking for is asymmetric payoff opportunities. This means that the potential payoff from being right outweighs the negative effects of being wrong. A simple example is preparing for a natural disaster, let's say a hurricane. Nobody knows exactly when a hurricane is going to occur, although they are more likely from June to November. But the potential benefits (payoff) from preparing for a hurricane are large. Ensuring you have extra rations, a generator, a safe location to stay, and a plan ahead of time can potentially save your life. The money spent on these items is trivial when compared to the value of your life or home.

We should live our lives thinking about the consequences of events, rather than the probabilities of them. Look at the potential return on investment behind a bet. Probability and payoffs need to be considered together since gambling your life savings on a 1 in 10,000 bet is practically guaranteed to lose although it offers a massive return. You want to find an arbitrage in investments. Does Option A give you 3x higher return than Option B for only 5% less risk? If yes, invest in Option A.

The common analogy is the “picking up pennies in front of a steamroller” vs bleeding a little bit each day on your bets in hopes for a large payoff. This is hard to do because it hurts more to lose money than it does to gain money. Not many can endure the emotional toil caused by losing some money everyday. Watch or read up on The Big Short. It's a story about the 2008 financial crisis. Michael Burry bet his entire firm that the housing market would collapse. Leading up to the collapse he was losing a lot of money each day and had to reassure investors and hold the course. When the market collapsed he and his firm received a massive return on the bet, although to an ordinary person the probability of the bet working was low (hint: it wasn't).

Some advice for your own life is this: suffer small losses each day, hoping for a big win instead of gaining a small amount each day but exposing yourself to blow-up risks. This can be easily done by spending time producing rather than consuming. Producing costs a small amount and gives you unlimited upside. Even if you fail you will be able to learn from your mistakes and try again. Consuming makes you feel good while you're doing it, but you're never actually improving.

The things we don’t know are more valuable than the things we do know. Ask yourself, “Do I know who I am and what the world around me is really like?” The answer is no. As we grow older, we learn new things about ourselves and about the world around us. We hold new viewpoints, gain new perspectives.

I’m fond of the idea of an anti-library, although I do feel it’s virtue signaling. An anti-library is having a home library filled primarily with books you haven’t read yet. This is meant to represent the knowledge you don’t know, which is inherently more valuable than the knowledge you do know. It is meant to serve as a reminder to try new things.

I think it’s amazing that world-changing ideas are waiting to be found. The combinations are available and we have what it takes to execute on these ideas, we just need to discover them first. We should experiment more since there is no other real way of discovering them. Before the wheel was invented a group of people didn’t form and say “Let’s create the wheel!” because they would have known what they were looking for, which would’ve meant the wheel already existed.

Innovation must come through random iterations. It's like the saying of how people create their own luck. By consistently taking small risks or engaging in experiments one can find new things and learn more about themselves. I felt similar when I went to college. In high school you are surrounded by the same people, many of which you’ve “known” for 10+ years. Yet when you get to college it’s like stepping into a new world where the quality of your friends drastically increases. You are surrounded by mature, like-minded adults.

How can we encourage risk-taking? By risk-taking I mean venturing into the unknown, whether it is in personal life (meeting new people) or business (starting a business) or something else entirely. We can help it by aligning incentives. Japanese culture regards failed businessmen as failures in society. If we look at failed entrepreneurs as heroes instead it may help spur new businesses. We can also align the incentives by ensuring no blow-up risk. Tell people “Who cares if you lost 25% of your savings chasing a wild idea? You can make it back and at least you didn’t go bankrupt.” That may be harder to get across but it would certainly help.

Something America does better than anyone else is glorify its entrepreneurs. Elon Musk is most notable. He is regarded as a hero, which I’m sure has encouraged people to start risky businesses.

The point I’m trying to get across is this, venture into the unknown because what have you got to lose? We all get one shot at life and there is no use staying within our comfort zone.

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