Scott Adams' Blog

My Bias against Certainty

Posted August 13th, 2011 @ 1:45pm in #General Nonsense

Advocates - for anything - generally present their arguments as absolutes, in the form of “This is 100% right and the alternative is 100% wrong.” That might make sense for some topics, but does it ever make sense for a complicated issue, such as economics?

Economist Paul Krugman is a good example. He’s smarter than I am, about economics in particular and probably most other things as well. But I get suspicious of his certainty when, for example, he advocates for increasing government spending in the short term as a way to boost employment now and reign in the deficit later.

I understand the argument, but is it 100% likely to be the best approach, or is it more of a 75% situation? He presents his case with a certainty that feels like 100%. And perhaps it is. I’m not qualified to judge it.

Whether he believes his proposed economic path to be 100% better than the practical alternatives, or 75%, our culture somewhat demands that it be presented as 100%. That’s what advocacy is all about. If you believe one path has the best odds, you’re somewhat ethically required to make the strongest argument you can.

Full stop: I don’t want to discuss the best economic policy here. No one reading this blog will change his or her opinion on that topic. I’m more interested in what sort of argument is most persuasive. Would you be more persuaded by an argument that said one economic approach is 100% likely to be better or an argument that the odds are more like 75%?

Personally, I find lower odds more credible and therefore more persuasive. When I see economic plans presented as certainties, it feels like a political position as opposed to something closer to common sense or science.

I have a personal bias that only idiots have certainty about complicated issues. (The exception would be skeptics who don’t believe in magic, religious or otherwise. I give them a pass for being 100% certain.) So when Krugman, who is brilliant, displays certainty on the economy - with his Nobel Prize and all - my brain automatically conflates him with idiots, and it weakens his argument.

So I wonder if it’s just me. When you hear an argument about a complex issue presented as a certainty, do you reflexively downgrade its value? Or does the certainty mixed with a credible source make it more persuasive to you?

Today’s Life and Death Question

Posted August 12th, 2011 @ 9:07am in #General Nonsense

If I ask you to tell me the likelihood of a particular major league batter getting a hit in a particular at-bat next week, against a pitcher who has yet to be named, you’d probably say the odds are 25-35%. And you would be about right.

If I asked you how well a particular investor is likely to perform compared to the market averages, long term, if he actively manages his own money, you’d say “worse than the average,” and you’d probably be right.

It’s important to know the odds for things. We make most of our major decisions based on probability. And that’s why I find it so interesting that we (the general public) don’t know the odds for science. Put another way, how often is a peer-reviewed scientific study later discovered to be wrong? How often is a hypothesis by a credible scientist proved right? And how often does a major theory get revised or even discarded? If the general public doesn’t know the answers to those questions, how screwed are we?

I started thinking about this when I saw a news story (that is now behind a pay wall) about the scary number of peer-reviewed articles in scientific journals that turned out to be fraudulent or simply wrong. I say “scary” because the news left out the probability. Was it 1% of the studies that were bad or 50%? I don’t know. And that makes a big difference for how much trust I put in the next peer-reviewed study. If scientists someday claim they have studies showing that eating carrots will double my life expectancy, do I buy a bushel and start gnawing on them or do I shrug?

What about a typical hypothesis? I assume a typical hypothesis formulated by a credible scientist is shown to be wrong most of the time. But are we talking about 55% of the time or 99%? Or am I wrong that it’s wrong most of the time? It matters to me because I might want to start eating carrots before the studies are done, based on the hypothesis alone, just in case.

And how about a typical theory? How often are theories wrong, or at least wrongish?

I pause here to remind readers that the word “theory” is often used in casual conversation to mean something like an educated guess. But in the scientific context, it means something closer to “proven true by experiments.” The technical definition is unwieldy (sorry, bearded taint who is angrily reading this) and would be a distraction from my point today.

The great thing about science is that it allows today’s truth to be revised to a new and better truth if new information says so. But how often does that happen for something as well-tested as a major theory? Not often, I assume. But does not often mean 1% of theories, or does it mean 20% if you wait a few generations? Beats me.

Judging scientific probability is a question of life and death. Consider climate change science. If a reasonable person judged the likelihood of climate change science being correct, using nothing but a lifetime of observing science stories in the media, he would probably conclude that the claimed risk is overblown or non-existent. The media concentrates on new and speculative stories about science, and stories about frauds and mistakes, so one can easily get the impression that science has a batting average on par with astrology. You don’t see many stories about theories that are rock solid. That isn’t news, so our sense of the track record for science is skewed.

I use climate change as my example because it fits the question so well. Personally, I’m spring-loaded to agree with the vast majority of scientists who say it’s a huge problem and that humans are a big part of it. On the other hand, the climate models remind me of economic models because of the many variables, and we know how accurate those are. For me, the tie-breaker would be some useful information about the track record of scientists when a complicated model is involved.

So my questions for today are these:

1.      How often is a peer reviewed study wrong?

2.      How often is a credible scientist’s hypothesis wrong?

3.      How often is a scientific theory later proven wrong?

4.      How often does a complicated scientific model make correct predictions?

If you don’t know the answers to those questions, your opinions on our most important science questions are worthless at best, and deadly at worst. And I’m right there with you.

Engineer’s Stock Fund

Posted August 11th, 2011 @ 8:19am in #General Nonsense

The tough part about investing in stocks is that public information is often inaccurate or worthless, and professional fund managers generally won’t perform better than the proverbial monkey with the dartboard.

But suppose you started an investment group comprised of engineers who evaluate vendor proposals for their day jobs. That group normally has insight that the public doesn’t yet have. If not, why bother evaluating anything? And yet the opinions the engineers generate would not be insider information because the products they evaluate belong to other companies. [Someone please correct me if I’m wrong about that.]

My hypothesis is that the technology folks who are routinely reviewing vendor proposals have better and more current knowledge about other technology companies than even the CEOs of the companies being evaluated. A CEO only knows what his staff tells him. And we all know how weasel-skewed that can be.

Technology magazine/website reviews of products are generally worthless too, in part because magazines accept ads from the companies they review, and partly because products change faster than the magazine/website can keep up.

In my old corporate life I worked in a technology lab at the local phone company. The engineers were continuously evaluating the products of other companies to see what worked best with the network. I remember asking one of the top engineers which company he would recommend if I wanted to buy stock. He said there was just one: Cisco. It was the early nineties and the first time I ever heard the name of the company. Had I taken his advice, I would have made a 500% gain on my money, assuming I got out at the top of the bubble.

So I wonder if you could form a sort of secret investment society of engineers whose work brings them near the gears of civilization.  The idea would be to capture the ever-changing opinions of perhaps a thousand engineers, software professionals and other tech experts working in the trenches and funnel that knowledge into an investment fund. Let’s say the engineers get to participate in the fund without a management fee that other investors pay, typically in the 1% per year range, which is probably enough incentive. The fund’s management would work to find patterns in the opinions of its pool of technology experts, sort out the good predictors from the bad, avoid insider trading, and translate the knowledge into stock purchases.

[Update: To clarify, the engineers would only provide information on which companies have the best products at any given moment. They wouldn’t be picking stocks or evaluating cash flow or anything else.]

Would the fund beat the monkey with a dartboard?

Folksy Economic Wisdom

Posted August 9th, 2011 @ 8:58am in #General Nonsense

Warren Buffett has a humorous way of cutting through all the economic clutter with his folksy summaries of events. He said this recently about the U.S. debt: “Think about it. The U.S., to my knowledge owes no money in currency other than the U.S. dollar, which it can print at will. Now if you’re talking about inflation, that’s a different question.”

I know just enough about economics to be stupid at a slightly more dangerous level than the general public. But Buffett’s summary sounds right. In other words, we never had a default risk, just an inflation risk.

Now if you want to hedge against inflation, what do you invest in? Answer: Anything that inflates. That’s real estate and stocks. Ouch, ouch. And don’t forget gold, canned goods, and ammunition. (And also don’t forget to ignore the financial advice of cartoonists.)

On a related topic, some of your comments to my blog yesterday had me worried. A number of you pointed out that our economy can never go anywhere but down so long as we buy more foreign goods than we sell. Hmm. Is that true?

It sounds true on the surface. If you imagine an island nation where everyone is a lawyer and all they do is sue each other for a living, the system won’t last. Someone has to make something.

On the other hand, is it really that simple? If I ask Warren Buffett, would he say, “We’re doomed unless we sell more than we buy, and that will never happen”?

On the plus side, I recently had a conversation with a small business owner who was buying some robots to compete with Chinese manufacturers. His observation is that the Chinese pay the same amount for robots, and have higher shipping costs, so American companies can actually beat the prices of Chinese goods for stuff made mostly by robots.

And robots are the future. Suck that, China.

Two-Step Plan to Fix the Economy

Posted August 7th, 2011 @ 11:19am in #General Nonsense

What if the biggest problem with the U.S. budget fiasco is a failure of imagination?

Sometimes I wonder if we’re like an audience at a magic show. The magicians in Washington D.C. are making us focus on budget cuts and tax hikes as if those are the only alternatives. Hypothetically, if a creative budget alternative exists, it would be effectively invisible because no one is looking for it. You wouldn’t bother looking for something that you can’t imagine.

I’m going to describe a third alternative just to help you imagine that such a thing might be possible. It’s a simple, two-step plan that costs nothing and doesn’t involve the government in any way. I think you’ll agree that’s a big advantage. The plan starts with a question:

1.      How much would the rich need to voluntarily increase spending on products and services in the United States, including business spending and investment, to stimulate the economy enough to balance the budget over time without a tax increase or crippling budget cuts? I’m looking for a simple and dirty percentage. Is it 10%? 30%?

2.      Once we have that estimate from a credible source, such as a respected economist, I’ll blog about it in a way that is interesting enough for the media to pick up on the idea. That part is easy because the media is running out of newsworthy angles for the budget story. A creative idea that isn’t ridiculous would spread quickly.

That’s the whole plan. It’s deceptively simple to describe. The complicated part is explaining why a plan that is so simple would work. You probably see a dozen potential problems with it. Let’s discuss the obvious ones.

First, why would the rich volunteer to spend more? The quick answer is that it’s in their self-interest to keep the economy humming along. But there are two good reasons why the rich don’t jump in right now and save the economy with extra spending:

1.      The target is unclear. The rich don’t know how much they would need to increase spending in order to stimulate the economy enough to balance the budget.

2.      Each rich individual knows that one person’s spending can’t influence the entire economy, and there’s no reason to think other rich people would join the cause.

Our hypothetical economist could solve the first problem by giving the rich a clear spending target. Let’s say the number is something like 10% extra spending per rich person. One problem is that rich wouldn’t know with any precision whether or not they were reaching their personal spending target. There would be a lot of guessing involved. We can deal with that imprecision by revising the target up or down after a quarter or two to get the right approximate effect.

A related problem is that an economist’s estimate of how much the rich have to spend to stimulate the economy and balance the budget is likely to be very wrong. That’s exactly the sort of thing no one can accurately predict. But in some cases - and this is probably one of them - you don’t need accurate information to influence the change you want. You just need a target that moves people in the right general direction. Economies need direction, not precision.

The next problem is the Prisoner’s Dilemma. Any individual rich person is best served by choosing not to spend any more than he normally would. That way, if no one else spends extra, he is no worse off. And if everyone else does spend more, he still gains from the rising economy. He’s a free rider.

But here’s where the media and peer pressure comes in. By analogy, I don’t know a single household that doesn’t bother to recycle, even though it’s a pain in the ass, and even though one household’s effort makes no real difference to the planet. The secret is that people WANT to help the planet. It’s in our nature. We enjoy feeling as if we are making a difference in something important. It literally feels good.

The media could encourage the rich to get with the plan just by doing lots of human interest stories about millionaires patriotically spending extra money in unexpected ways. And I would expect lots of peer pressure on millionaires to boost spending. Psychology matters. At the moment, being rich feels like being an unscrupulous douche bag. I think most rich people would happily pay extra to instead feel like patriot engines of the economy.

Another incentive for the rich to voluntarily increase spending is that it might ease the helpless feeling they get from watching Congress furiously working on a plan to destroy civilization. Personally, I’d pay a lot to make that feeling go away. And if the side benefit is a healthier economy, I’d stand a good chance of making back my money and more.

Another problem with the plan is that not all spending is equal in terms of economic stimulus. How can we be sure the rich will spend the right way? We can’t. But we also can’t predict the long term impact of tax increases or budget cuts. No plan has the luxury of being predictable.

The key to making this voluntary spending plan work is keeping government out of it. The last thing you want is President Obama encouraging rich people to spend more. That makes it a Democrat plan and dead on arrival. The same is true if the Republicans back it. The idea only works if no notable politician embraces it. Luckily, I think we can depend on our elected officials to ignore any plan that has a chance of working.

You’d also have the problem of pundits conflating this plan with President Bush’s suggestion after 9/11 that people should keep shopping so the terrorists don’t win. (You’ll probably see that snarky comparison in the comments to this blog.) But I don’t see that as a deal-breaker.

Part of the reason this idea has been hiding in plain sight is that, as I mentioned, our so-called leaders are making us focus on the binary choice of higher taxes or draconian budget cuts. And the ability to organize something of this nature without government involvement is fairly new, thanks to the Internet. It caught Egypt by surprise earlier this year.

Keep in mind that economies turn on expectations. All we need is a plan that looks somewhat credible. Once we have that, even the non-rich will start spending more. We wouldn’t necessarily need a high voluntary participation rate by rich people as long as the rest of the country believes the effort is going to build some momentum in the right direction. Optimism would do the rest. 

I think the United States has an imagination problem, not a spending or tax problem. Let’s start by imagining citizens can solve the budget problem without the help of our government. If someone credible can tell the rich how much more they need to spend on their own families and their own businesses to save civilization, I can imagine people rising to the challenge. I’ve lost all hope in government, but citizens are still reasonably awesome.

The Benefits of Boredom

Posted August 7th, 2011 @ 11:14am in #General Nonsense

You might be interested in my article in the Wall Street Journal on the connection between boredom and creativity. It grew from an idea I blogged about here.

How’s it Done?

Posted August 5th, 2011 @ 9:38am in #General Nonsense

See if you can figure out how this classic con works.

One day you get an unsolicited email from someone who claims to have a secret algorithm for picking stocks. To prove his claim, he gives you one free tip of a stock that will beat the average for the next month. You ignore it, but you remember it.

A month later, the follow-up email says the recommended stock indeed beat the market average. You check, and it’s true. The email goes on to recommend a second stock for the coming month. That too beats the average. The same thing is repeated for a third stock.

A fourth email, in the fourth month, asks $1,000 for the next stock tip. Three average-beating winners in a row are unlikely to be chance, so you figure you can make up that $1,000 quickly with the next stock. You pay it. The next stock is a dud. You’re out $1,000.

How did the scammer do it? Remember, all three recommended stocks beat the averages. Had the victim purchased any of those stocks he would have made real money.

Trivial yet Awesome

Posted August 3rd, 2011 @ 9:15am in #General Nonsense

L-to-E ratio

Posted August 1st, 2011 @ 9:20am in #General Nonsense

Congress allegedly agreed on a budget plan last night. The great thing about this plan is that both sides can blame the other when the economy continues its long march into the crapper. Conservatives will say we didn’t cut the budget enough. Liberals will say the decrease in government spending will choke off growth and make things worse. Who’s right?

Democrats like to point to the Clinton era as proof that the economy can flourish even as taxes are increased. But how would things have fared in the Clinton years without the Dotcom bubble? Beats me. You don’t know either.

Economies usually find their direction from large, unpredictable events, such as wars and other disasters, moving from communism to capitalism, huge demographic shifts, and irrationality that leads to economic bubbles. For any given ten-year period, luck is the biggest driver of a nation’s economy. But what single factor is most predictive of, say, a nation’s fifty-year economic direction? I think it’s the L-to-E ratio (lawyers-to-engineers).

My hypothesis is that the best indicator of long term economic health is the number of engineers a country produces relative to the number of lawyers. A country that is cranking out more engineers than lawyers will trend up. A country that is moving toward a lawyer-heavy economy will grind to a stop.

This idea is nothing more than a wordy way of saying, “To a man who only has a hammer, everything looks like a nail.” Engineers build stuff and lawyers sue people. If we assume both professions like to stay busy all the time, you need more engineers than lawyers to create net growth. And I think you’d agree that the countries with the best engineers also win wars and survive disasters the best.

I tried and failed to Google some statistics to back up my hypothesis. Anecdotally, the idea seems about right. I can’t think of a country with a strong economy that isn’t also known for its engineering prowess.

Some of you will argue that education in general is the biggest predictor of success. But I think you’d agree that if everyone started majoring in English, we’d all starve to death with impeccable grammar.

My take on the budget compromise is that any budget that doesn’t kill us right away will be good enough. Our economic fate is primarily in the hands of engineers.  And when our collective cynicism reverts back to its baseline, maybe we’ll be lucky enough to have another economic bubble. I hope so. I enjoy those while they last.

Feeling Smarter

Posted July 29th, 2011 @ 8:22am in #General Nonsense

One way to feel smart is to pursue a lifetime of learning. But that’s a lot of work. An easier method is to make the people around you appear dumber. I’ll share with you some tricks for making your friends, coworkers, family members, and spouses (your victims) look and feel like morons.

1.      When your victim makes any statement of fact or opinion, look at him as if he’s wearing a turd for a hat. Repeat what he said, but slowly, as if you’re prompting him to see how stupid he is on his own.

2.      After your victim utters a statement of any kind, slowly shake your head in the “no” direction and make a dismissive sound such as “pffft.” When challenged to explain your reaction, insist there is no problem, but do so unconvincingly.

3.      Pounce on your victim’s every mispronunciation, misspelling, and poor choice of words like a hobo on a ham sandwich. Make sure you dwell long enough on your GOTCHA moment that it creates a lasting memory. (If people try the same trick on you, dismiss them as pedantic.)

4.      When confronted with a new but minor task, such as opening an unfamiliar container, most people require a few seconds of thinking and perhaps a failed attempt or two before they work out a solution. If you see someone in this state, grab the object out your victim’s hand and try whatever solutions have not yet been tried, thus making you the successful container opener and your victim the failed container opener.

5.      Continuously instruct your victim to do whatever you think he or she is likely to do on his own anyway, e.g. “Don’t step in that puddle.” If you do it often enough it creates the illusion that the victim can’t navigate the simplest obstacles in life without adult supervision.

6.      Ask your victim to remember details that no normal human could be expected to recall, such as the exact wording of a conversation that happened a month ago. This method can also be used to frame your victim as a liar.

7.      Ask your victim to remind you to do a future task. Pick a time for your request when the victim is distracted or can’t write a note to himself, such as when he or she is driving or swimming. Later, after you remember on your own to do the task, remind your victim of his forgetfulness.

8.      Give your victim vague and unintelligible instructions such as “Can you go find the thing I put in the (mumble)?” When your victim fails to find the object, go directly to the correct drawer, produce the object you want, hold it high like Excalibur, and give a victory TA-DA!

9.      Steer conversations away from topics you know little about and toward topics your victim knows little about. If the victim tries the same trick on you, excuse yourself to make a phone call.

10.   Ask your victim to do a minor task for you. After he or she agrees, add a layer of complexity that will guarantee failure. The initial request might be something simple such as “pick up something from the store.” The extra layer of complexity is that the item doesn’t exist in this dimension.

That’s a starter list. You might have some tips of your own to add.