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Don't Eat With Your Mouth Full

Where can we live but days?

steepholm steepholm
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Of Chance and Chimpanzees
Give a million chimpanzees typewriters, and one of them may end up writing a sonnet by coincidence, they say. Even so, no one will think that chimp is a poet.

Equally, give a million entrepreneurs a start-up loan, and they will make various business and investment decisions. Some will pay off, many will crash and burn; but perhaps at the end of it all, one of that million will be a billionaire. That billionaire will not be treated like the lucky chimp, though. On the contrary, they will be interviewed by Forbes magazine about their business philosophy, and in general will be treated as if their wealth were entirely the result of their savviness and cunning, rather than the likely result of a million coin tosses. Since human beings are inclined to narrativise history (especially their own) they will likely come to believe this themselves, seeing purposefulness and connection between events that were in large measure unpredictable and serendipitous.

The cases are of course not exactly alike. Diligence, intelligence and imagination will indeed give some entrepreneurs a better shot at success than others; but theirs is a trade where chance is far more responsible for success than it is generally given credit for. I feel similarly about generalship, and indeed any profession so at the mercy of an environment full of unpredictable “noise”. “Pang Juan will Die under this Tree” is a great story, but I don’t believe it’s history. Similarly, whenever I see the latest business guru’s book of ideas, I read it as if were entitled Shakesepeare – My Way, by Bono the Bonobo.

Bono the Bonobo would have written a bonk buster.

Kahneman talks about this as well in Thinking Fast and Slow.

I've read that book, so maybe what I've written above is just garbled memory!

I don't think he mentions Trump (which is of course what I think of reading your post), but he does say Google and Amazon lucked out -- that in hindsight the decisions they made turned out to be right, but that they're the survivors of a random pachinko fall.

There used to be a scam -- in the UK I believe -- where some group claimed they could predict the outcomes of horse races or your money back. They would rotate through all the horses in a race as people paid for predictions, guaranteeing the first and 9th and 17th, etc. client that horse 1 would win, guaranteeing the 2nd and 10th and 18th.... client that horse 2 would win, etc. Naturally they refunded seven out of eight punters on average (not really because some horses were rightly favored, but that's not important to the principle) and kept the fees the winners. I think they even allowed your first prediction free, the better to charge the 1/8 who won on the first a lot for the second.

I was partly thinking of Trump, of course - the secret identity of Bono the Bonobo unmasked! - but in a way he's not the ideal example, having been given such an advantage in the form of inheritance and general social privilege. A real chimp, or a random stock market investment program, might be a better way to make the point.

After that, the things that are interesting to me are a) the ways in which people persuade themselves that their success was foreseeable, predictable, etc., and b) trying to understand which human activities are the most 'noisy', and which the least.

Fund managers have been known to do something similar in the UK. Open 8 funds investing in different things. Half of them fall the first year, half of the remaining 4 fall in the second, and one of the remaining two falls in the third year. That leaves one fund which has been successfully growing for three years, beating the market.

They then advertise that fund's amazing results, and people invest in it, expecting that the fund managers are staggeringly competent.

That exactly coincides with my mental picture of what fund managers do.