Knowledge for my Children

Forty Seven Million?

2007-11-08T21:14:00.001-05:00

In response to an article in the NY Times by N. Gregory Mankiw that was published on November 4, 2007.

A key issue in this blog is the deceit of numbers foisted on the public as facts, especially numbers that have been ensconced in the public conscience as 'truth.' One of these figures is '47 million Americans are not insured.' Gregory Mankiw, a highly respected economist, weighs in on this issue - and once again it is clear that the numbers dumped on the public are not 'truth,' and in many cases are outright falsehoods.

How can we cope with this lack of facts? Perseverance is the only answer. Very few people have the time or the training to pursue each and every truism that crosses their doorstep. That is why the public votes based on their worldview - picking which party, not which candidate, best reflects their worldview. Lack of time drives simplification. The only way to get to the truth behind these numbers is to honestly doubt them and track them consistently over time until the truth is outed. This is one of the main benefits of being a reader of the NY Times, or other respected papers. It may take years and consistent readership, but the truth is out there.

Anyway, to Mr. Mankiw's article ---

"With the health care system at the center of the political debate, a lot of scary claims are being thrown around. The dangerous ones are not those that are false; watchdogs in the news media are quick to debunk them. Rather, the dangerous ones are those that are true but don’t mean what people think they mean. Here is an example (ed).

Some 47 million Americans do not have health insurance.....

To start with, the 47 million includes about 10 million residents who are not American citizens. Many are illegal immigrants. Even if we had national health insurance, they would probably not be covered.

The number also fails to take full account of Medicaid, the government’s health program for the poor. For instance, it counts millions of the poor who are eligible for Medicaid but have not yet applied. These individuals, who are healthier, on average, than those who are enrolled, could always apply if they ever needed significant medical care. They are uninsured in name only.

The 47 million also includes many who could buy insurance but haven’t. The Census Bureau reports that 18 million of the uninsured have annual household income of more than $50,000, which puts them in the top half of the income distribution. About a quarter of the uninsured have been offered employer-provided insurance but declined coverage.

Of course, millions of Americans have trouble getting health insurance. But they number far less than 47 million, and they make up only a few percent of the population of 300 million."

Unbelievable. The truth.... it is out there.

Normal caveat. Does this mean we should NOT have universal health insurance? Of course not. Should we do something to make sure as many as possible are insured? Of course. A mean-spirited debate about health care is not helpful. True facts, a spirited debate based on facts, and the result will be forthcoming.

Thank you Mr. Mankiw.

Deceit in Darfur

2007-08-15T21:14:00.000-04:00

In response to an article in the NYT entitled "An Atrocity That Needs No Exaggeration" by Sam Dealy and published on August 12, 2007.

This posting is a continuing one - focused on the easy deceit of numbers posted in public places. The old saw is certainly true on the Internet or in the media - the first victim of war is truth. The essence of this aphorism is simple - people lie to get their way. Outraged moralists will inflate the number of dead in Darfur to stick another knife into the Bush aristocracy. Evil dictators will deflate the number of dead in Darfur to deflect the inevitable comeuppance as long as possible.

Neither is right, of course, and that is the lesson. ANY time a political statement is being made (and powerful people are prone to political pandering) that involves a number - the number dead - the number lost - the cost of repair - you can bet your bottom dollar the truth has not been told. More important, however, is your responsibility as a reader of this rubbish. You must make a mental note to follow this argument to its conclusion - and in many cases the truth will not out for years. Darfur is a good example.

Let me introduce Mr. Dealy's subject matter:

Britain’s Advertising Standards Authority has just ruled against the Save Darfur Coalition stating that the high death tolls Save Darfur cites in its advertisements breached standards of truthfulness.

Mr. Dealy continues:

While the coalition has done an admirable job of raising awareness, it has also hampered aid-delivery groups, discredited American policy makers and diplomats and harmed efforts to respond to future humanitarian crises...The trouble began last fall when, in ads placed throughout the United States and Britain, Save Darfur denounced the Sudanese government’s scorched-earth campaign against insurgents. After three years, 400,000 innocent men, women and children have been killed, the ads said.

Serious estimates of the number of dead in Darfur are far lower than 400,000. Last November, the American Government Accountability Office convened a panel of 12 experts to assess the credibility of six prominent mortality estimates for Darfur. Three of these came from the American State Department, the World Health Organization and the W.H.O.-affiliated Center for Research on the Epidemiology of Disasters. The other three were independent efforts by activists — including one by John Hagan, a sociologist at Northwestern University, for the defunct Coalition for International Justice. Dr. Hagan’s was the highest estimate and the one on which Save Darfur based its claim. In category after category, the experts overwhelmingly found Dr. Hagan’s estimate of 400,000 deficient. Nine of the experts said that his source data was unsound and that he failed to disclose his study’s limitations. Ten found his assumptions unreasonable, and 11 called his extrapolations inappropriate. In all, 11 experts held low or very low confidence in the study.

Did you know about this? The 400,000 figure is now part of the collective being, I am afraid. Touted by every college sophomore in the U.S. and passed on as absolute truth by thousands of politicians, bloggers, journalists, and talking heads. The figure, however, is just not correct.

Mr. Dealy answers:
So how many are dead in Darfur? As the G.A.O. study notes, reliable numbers are hard to come by. But the estimate that garnered the highest confidence was the one from the Center for Research on the Epidemiology of Disasters. From September 2003 until June 2005, the center estimated, there were 158,000 deaths in Darfur. Of those, 131,000 were deemed “excess” — more than normally would occur.

So, where is the harm? Doesn't Darfur deserve intervention whether 200,000 or 400,000 are dead? Of course. But the consequences go deeper - into the social network we all live in - based on trust. Trust of fair dealing and fair accounting of monies used and allocated. It is a hard truth, but money is finite and disasters are infinite. Politicians and bureaucrats must allocate resources, and they must do it responsibly. Concerned citizens must allocate their funds and their other finite resources (caring, time, donations) based on actual facts. Concerned citizens, finding themselves deceived, will be a little less concerned next time there is a tragedy where they can make a difference.

Here is Mr. Dealy's take:

Inaccurate data can also lead to prescriptive blunders. During the worst period of violence, for example, the Center for Research on the Epidemiology of Disaster estimated that nearly 70 percent of Darfur’s excess deaths were due not to violence but to disease and malnutrition. This suggests that policy makers should look for ways to bolster and protect relief groups by continuing to demand that the Sudanese government not hamper the delivery of aid, to be sure, but also by putting vigorous public pressure, so far lacking, on the dozen rebel groups that routinely raid convoys.

Exaggerated death tolls also make it difficult for relief organizations to deliver their services. Khartoum considers the inflated numbers to be evidence that all groups that deliver aid to Darfur are actually adjuncts of the activist groups that the regime considers its enemies, and thus finds justification for delaying visas, refusing to allow shipments of supplies and otherwise putting obstacles in the way of aid delivery.

Lastly, mortality one-upmanship by advocacy groups threatens to inure the public to both current and future catastrophes. If 400,000 becomes the de facto benchmark for action, other bloody conflicts around the globe in Sri Lanka, Colombia, Somalia seem to pale in comparison. Ultimately, the inflated claims fuel a death race in which aid and action are based not on facts but on which advocacy group yells the loudest.

What is our responsibility as citizens? Should we sit on the sidelines wringing our collective fingers until the truth is known? No, we must be diligent. As painful and prissy as it sounds, we must understand the truism quoted above about war. We must doubt our providers of information, and we must track the truth until it becomes apparent - though it take five years.

Then we decide, as thinking and compassionate beings - What can I do to help Darfur? I know the numbers quoted are wrong - from whatever political spectrum you read from - but there is a number. Caring does not require a number, just an event. Protect your caring psyche from burdens by qualifying to the best of your ability actual needs - and then do something.

On my honor

2006-08-21T22:22:00.000-04:00

In response to "Honor: A History" by James Bowman.

Mr. Bowman brings a stunning hypothesis to the war on terror. In my view, it explodes many of the other so-called theories on why terrorists kill innocents - they are poor...Israel is the cause....America is the cause... It has been one of my main quests in this blog to properly explain this horrific phenomenon. If you read below you will see that I ascribe to a few different contributing factors - the culture of blame-making and the leaders that take advantage - and the group dynamics and the corrupt leaders that foment it as proposed by Freud. Mr. Bowman fills in the gaps.

As the title of his book intimates - honor is a powerful explanatory device for the terrorist actions in Iraq and around the world. Mr. Bowman tracks honor and its many iterations around the globe and shows that it is a far better explanation of terror than Islam all by itself. A key point - honor societies - and we ALL were honor societies in our past - predate Islam and even Christianity. Its warped sense of shame and 'face' can easily be seen in the publications of terrorist leaders like Osama Bin Laden and Hassan Nasrallah. Their diatribes are full of words like 'pride,' 'manhood,' and 'shame.' All point clearly to a non-Islamic explanation. Their public posturings are much more easily and simply explained by their followers being duped by an honor society code that is millenniums old - and violent and retrograde. Here are some quotes from his book:

""in the cultures where honor killings are common, the point is not that the killers think the victim consented, ….. the idea of "consent" or lack of it is to them an irrelevance. The taint upon the woman's honor remains the same either way. Our individualistic, post-honor sensibility reaches out to the notion of "consent" in order to explain what otherwise seems incomprehensible. But in honor cultures, a woman's honor normally belongs to her husband or father, and the dishonor of any sexual contact outside marriage, whether consensual or otherwise, falls upon him exactly alike, since it shows him up before the world as a man incapable of either controlling or protecting her. Dishonor is more like a fatal disease than a moral failing. It requires constant vigilance and even then can strike anyone at any time. And its only end can be death."

"we … readily believe the Islamic honor culture to have been produced by religion. But this is not the case. The honor culture of the Islamic world predates its conversion to Islam in the seventh century. Throughout the Islamic world, the local honor cultures tend to resemble those of non-Islamic and non-Christian cultures nearby, as the Pakistani one does that of its subcontinental neighbors in India - where honor killings are also frequent, if not common."

"It is natural enough in a culture like ours, informed by the psychotherapeutic revolution, to think even of geopolitics in terms of psychology and emotions, but these are irrelevant in an honor culture. Not that the terrorists don't feel hatred or anger. Some of them probably do. With or without emotion, however, the aggressive acts of the terrorists arise from the demands of a traditional honor culture to strike at those whom they see, often for reasons invisible to those outside that culture, as having humiliated them. The disappearance of the Western honor culture for reasons that I shall explain in subsequent chapters has left us ill prepared to understand those different "value systems" we tend to attribute to poverty, ignorance, colonial oppression or some combination of the three."

"Even after the terrorist attacks, many in the West still clung desperately, as if for reassurance, to the idea that they had been caused either by ourselves for having offended the attackers in some way - or in some way other than by our mere existence as liberally minded Westerners-or because the perpetrators were poor and they hated the rich West. Or, since they themselves were mostly college-educated from middle-class backgrounds, and not the product of religious indoctrination, the cause was sometimes said to lie in the poverty of the people on whose behalf the terrorists claimed to fight......Yet if you look very closely into what the jihadists, or the various radical groups who support them, have to say about what they do, you will rarely see any reference to poverty. Even religion as such seems of less interest to them than the idea of Arab or Islamic "honor" and "manhood," with which honor is always intimately related. Honor may seek a religious validation, whether Islamic or Christian - the ideal of Christian chivalry in Western history is an example of its receiving one - but its exaggerated demands for respect and a strict code of vengeance for the slightest insults or injuries remain its own and are not founded in the scriptures or the customs and practices of either religion. That is why the most belligerent statements of the terrorists mention "honor" or "manhood" much more often than they do any distinctively religious concept. "We believe that we are men, Muslim men who must have the honor of defending Mecca" says Osama bin Laden, contrasting his own forces with "the weakness, feebleness, and cowardliness of the US soldier" as demonstrated to his satisfaction by the Clinton administration's withdrawal from Somalia."

"This is a culture in which shame and honor closely define the roles of men and women and all transactions between them, validating and dramatizing them unforgettably - and at all times. Honor for the male lies in fulfilling traditional masculine virtues, from being a "warrior" to fathering children, sons above all. Honor for the female consists in modesty and faithfulness, the bearing of children, sons once again above all. Immodesty or unfaithfulness forfeits her honor and shames the men in the family in whose keeping this honor is vested, Men must put the lapse right at all costs, if need be killing the dishonored woman."

"Such obligations of honor may vary somewhat within the Islamosphere because they are not religiously derived, but everywhere they include the obligation to maintain the appearance, at least, of power and control. "An Arab considers it an affront to his honor to suffer loss of face," writes time Egyptian scholar Mansour Khalid. This 'tyranny of 'the face' leads an Arab to do everything possible not to show his troubles to those close to him, let alone his enemies." In the same vein, David Pryce-Jones writes that "lying and cheating in the Arab world is not really a moral matter but a method of safe-guarding honor and status, avoiding shame, and at all times exploiting possibilities, for those with the wits for it, deftly amid expeditiously to convert shame into honor on their own account, and vice versa for their opponents. It honor so demands, lies and cheating may become absolute imperatives.""

"Honour and shame are the constant preoccupation of individuals in small scale, exclusive societies where face to face personal, as opposed to anonymous, relations are of paramount importance…"

"...those outside the honor group will be treated as putting us under few or no prima facie obligations - or even as being, in extreme cases, not quite human. It was in such an honor culture that someone excluded from the honor group like Mukhtaran Bibi could be sentenced to be raped. It is also in such an honor culture that Muslim young men seek distinction within their honor group by daring each other to commit atrocities…"

"… think it more honourable to revenge, than to forgive an injury; who make no scruple of telling a lie, but would put any man to death that accuses them of it...""

Wait for it..

2006-07-24T21:42:00.000-04:00

In response to a fine report by Dawn Kopecki titled "When Outsourcing Turns Outrageous” in Business Week online.

This article helps to settle in two very important points in this blog. One - proper analysis of news takes time. Sometimes years. Pontificating over 'breaking' news is usually just that. Real truth takes time. Two - it is hard for humans to measure something that does not happen. Like the fraud account below...KBR committed fraud, no doubt. But what about all the other times KBR was not in the picture - in other words - what if the Pentagon took over that role. Turns out there is MORE corruption, historically, in Pentagon contracts than in KBR contracts. If the Pentagon took on the role that KBR did when the fraud was committed, it would have probably lost more money to fraud! Humans do not easily glom to this kind of statistic though - because it is hard to measure against something that did not happen, even if it is statistically relevant. Read on:

"The U.S. Military has lost billions to fraud and mismanagement by private contractors in Iraq who do everything from cooking soldiers' meals to building hospitals to providing security. That raises a question: Does Pentagon outsourcing make sense?...... "The presumption is that it is cheaper," says Jerrold T. Lundquist, director of the defense and aerospace practice at the consulting firm McKinsey & Co......A recent study by the nonpartisan Congressional Budget Office concluded that in 2004 the U.S. reduced its costs by one-third for feeding and housing troops by paying one contractor to do the work -- a savings of nearly $3 billion. Such findings point to the conclusion that even with a lot of fraud and waste, outsourcing may still pay off.....some experts on the topic aren't convinced. Because no one has an authoritative overall estimate of how much has been lost in Iraq to contractor deceit and incompetence, and many investigations are just getting under way, the financial harm could in the end outstrip any savings."

"The Government Accountability Office, the investigative arm of Congress, reported earlier this month that the Defense Dept. has recovered about $2 billion since 2001 from all outside contractors and government procurement officials accused of dishonesty or mismanagement, but the GAO didn't isolate those working in Iraq."

"All told, the Defense Dept. has spent more than $365 billion on the Iraq war and the global fight against terror since late 2002. Roughly $60 billion, or 16%, of the total has been paid to contractors for services, according to the Congressional Research Service."

"The Pentagon, which has paid KBR $15 billion since 2001, plans to divide the work among four contractors, with KBR permitted to bid for a portion of it. Earlier, Defense Dept. auditors had labeled $1.2 billion in KBR charges as "excessive," "duplicative," or otherwise questionable. KBR officials say its costs were reasonable considering that the work was done under "extraordinarily hostile conditions." KBR also says it has resolved most of the audit disputes with the Army. KBR's contentions received implicit support from a CBO study issued in October, 2005. The Capitol Hill budget agency examined KBR's work in Iraq during a 12-month period ending in mid-2004. To perform the tasks KBR completed, the U.S. Army would have had to recruit 41,000 additional troops and spend $8.2 billion, or $2.8 billion more than KBR's costs, the CBO found. Over time, the Pentagon would save billions more by employing KBR, the study projected."

Accusations of fraud sell newspapers, gets people to watch Fox, and gives congressmen something to talk about. The full story, however, takes time. Turns out maybe KBR did not do as badly as it seemed. Probably still wasted and misused money, but at least not at the same rate as good-ole Pentagon bureaucrats - who waste and misuse money the old fashion way - without getting caught.

Fresh statistics are bad for you

2006-07-21T23:56:00.000-04:00

In response to an article in the NYT titled "Left Behind Economics" by Paul Krugman that was published on July 14, 2006.

One of the staples of the talking heads on television and talking typists in the blogsphere is reporting on so-called facts. The problem... many of these so-called facts are nothing of the sort... they are the first shot at measuring a very complex problem. That does not stop these guys and gals, however. They launch off half-cocked at any so-called factoid. One of the chief misusers of these factoids is the New York Times. They are proud of their columnists and their usage of statistics, but they continually use statistics that are neither mature nor proven over time. This usage sells papers and puts blood in the water for the true believers on both sides, but does not further the fact gathering process. In fact it inhibits it.

I have written a few other blog entries on this issue - mostly titled under the misuse of statistics. Here, however, is a take on it by Paul Krugman - one of the worst abusers. He should know better.

"Many observers, even if they acknowledge the growing concentration of income in the hands of the few, find it hard to believe that this concentration could be proceeding so rapidly as to deny most Americans any gains from economic growth. Yet newly available data show that that’s exactly what happened in 2004. (Here is the key part - ed) Why talk about 2004, rather than more recent experience? Unfortunately, data on the distribution of income arrive with a substantial lag; the full story of what happened in 2004 has only just become available, and we won’t be able to tell the full story of what’s happening right now until the last year of the Bush administration."

This observation does not seem to stop Mr. Krugman or the thousands of others that grab on factoids as a reason to blather on about their pet topic. This type of caveat should be placed prominently in just about any column or opinion piece that uses (mis-uses) statistics. This same assertion about distribution of income also applies to many complex economic measurements that people use as blunt objects.

The key - blatant attacks on whichever side based on the statistic of the moment are untenable. You must use judgment, and in most cases judgment takes time. This obviates the talking heads and the righteous indignation on both sides of the American political spectrum - thus it will not happen. Still a good goal, however.

It's all about the Washington's

2006-07-13T22:11:00.000-04:00

In response to an article in the NYT titled "Even in Iraq, All Politics Is Local" by Rory Stewart that was published on July 13, 2006.

Mr. Stewart highlights a very key item in governance - poor choices. As a matter of fact, in many cases there is not a set of poor choices, there are only two choices....one unrealistic and one poor. This IS governance in a very hostile world full of very bad people. I explain this poor choice conundrum to my children by invoking George Washington. My story line is this - when making deals with hostile, corrupt, and venal countries (portions of Iraq, Syria, Iran) you must treat them as neighbors. In other words, you cannot get rid of them. You must live with them. They are a fact of life, as is their bad behavior. Further, you cannot control their personal behavior. If they leave garbage piled up on the street (or in Beirut) there is little you can do but gnash your teeth and complain. The only real choice you have is supporting one government or leader or trying to usurp that same government or leader hoping for a better one.

An adjunct to this little story is where the founder of our country comes up. Do we support this leader (garbage strewn streets), or try to usurp him, to replace him with another, maybe more promising leader (less garbage on the streets)? The problem? There are no George Washington’s out there sitting around cooling their heels in these poor excuses for a country. He does not exist. The alternative to the current leadership is almost always just as venal, almost as corrupt, and almost as hostile to the US. So what do we do as a nation?

Well, Mr. Stewart helps out a bit here. Here is some text from the article: "A great many of the failures in Afghanistan and Iraq arise from a single problem: the American-led coalitions’ lack of trust in local politicians. Repeatedly the Western powers, irritated by a lack of progress, have overruled local leaders, rejected compromises and tried to force through their own strategies. But the Westerners’ capacity is limited: they have little understanding of Afghan or Iraqi politics and rely too heavily on troops and money to solve what are fundamentally political and religious problems......Iraqi and Afghan national and regional leaders have a far better understanding of the limits and possibilities of the local political scenes; they are more flexible and creative in finding compromises; and unlike the coalition officials, they are elected. They must be given real power and authority. This may seem an obvious prescription — but in fact the coalitions are not allowing it to happen....

National leaders in Iraq and Afghanistan have moved toward accommodating local power-holders and finding compromises. President Hamid Karzai of Afghanistan, unable to defeat former Taliban guerrilla leaders intent on re-starting civil war, appointed some 50 regional strongmen as police chiefs last month. Likewise, leaders in Iraq have tolerated the Shiite militias in the south for years, and President Nuri al-Maliki is now pressing for negotiations with the insurgents and amnesty for many of them....

Here is the key point - "But the American, British and other coalition officials have a barely concealed distaste for such local political forces, and view any accommodation with them as weakness and appeasement. ..... But the Westerners’ political strategies are too often based more on moral ideals than real information....Many have too much faith in their ability to create a society in their own image and a mistaken belief that they can find clean, technocratic, powerful and liberal alternatives to these local leaders. They prefer to rely on constitutions and abstract economic theories than to engage with local personalities. As a result, their actions create powerful enemies whom they fail to either defeat or replace, leaving power vacuums and provoking further insurgency. For example, Mr. Sadr’s group took three times as many votes as the next party in the 2005 provincial elections in Maysan, runs the provincial government and unsurprisingly refuses to cooperate with the coalition. In Afghanistan, no adequate replacement has been found for Ismail Khan in Herat, and the city is now less secure and prosperous than it was under his rule."

He continues - "Yet, rather than adopting the Machiavellian compromises suggested by the national leaders, the coalitions continue to pour more resources into the old confrontational strategy....these actions are far more likely to fracture existing power structures, further weaken state authority and provoke more insurgency.""

In most cases the President of the United States is faced with a bi-polar decision - either support venal leader number one or support his replacement - venal leader number two. No George Washington’s hanging out in the bush.

Mr. Stewart is on very comfortable ground with his analysis. Look at Haiti... numerous leaders trumpeted as being less corrupt, more democratic, and better able to govern. None were true. Hope lies eternal with those with a world view that excoriates the President's attempts at governance in a hostile world, but reality is far different. The President has poor choices, two actually. Both have remarkable downsides. Who do YOU pick?

It is SO easy to criticize these "Machiavellian compromises" in print, from a podium, or around the dinner table. But could you do better? Remember - only two choices and neither is George Washington.

Freud explains Iraq v2

2006-07-09T22:03:00.000-04:00

In response to an article in the NYT entitled "When the Personality Disorder Wears Camouflage" by Benedict Carey that was published on July 9, 2006.

Mr. Carey's intent, no doubt, was not to add to my explanation of terrorism in Iraq and of terrorism generally, but he clarified a key point with a totally different viewpoint and goal in mind. In my mind that validates this particular point I am trying to make. Notice how cleanly Mr. Carey's observations of psychopaths aligns with Freud's analysis of a leadership style that empowers terrorism by offering "individuals .. a new, psychological dispensation?" Here is some of the text of the article:

"These are hallmark traits of what some experts call psychopathy, a potent blend of antisocial instincts and grandiosity....

"...when you have a psychopathic offender, quite often he will manipulate others, he can be a puppet-master type," he said. "Others are attracted to his sense of certainty, his sense of power, to the fact that he can do things others have trouble doing." A person with psychopathic tendencies may appear to others as clearheaded as an elite soldier when under fire, or when on the attack. But the internal psychological reality is much different, research suggests."

This so closely aligns with the earlier Freud article, it could not go un-announced.

Lastly, a very pithy quote that applies to this same issue from David Brooks, a columnist for the NYT - "(These) assaults ... are ginned up by ideological masseurs who salve their followers' psychic wounds by arousing their rage at objects of mutual hate."

Doesn't Mr. Brooks' statement go right to the point of the Freud article and the article on psychopaths in the military? It helps to clearly identify the motivations and methodology of the leaders of the terrorism movement and all their ilk.

Statistical ignorance are statistical stubbornness?

2006-07-09T00:12:00.000-04:00

In response to an article in the NYT entitled "Impressive Science Meets Unimpressed Patient (Hi, Mom!)" by Dr. Abigail Zuger that was published on February 21, 2006.

This blog is intended to expose human foibles that impact decision-making. This article humanizes the issue a bit, and also exposes another side of the argument... the provider of the statistics. Is the provider too stubborn in his adherence to arcane statistics to actually make sure the recipient understands the issue - the whole point of any communication? It may be helpful to read a prior entry in this blog on the 'roulette wheel' diagram, and how it provides a breakthrough in understanding arcane statistics. Here is some of the text of the article:

"It is medicine's eternal quest, these days, to sell impressive science to unimpressed patients, and it is hard to think of a group less equipped to do it than doctors. Doctors are specifically trained not to think like normal people, not to see what others see or to reason as others reason. They — er, we — come to operate in an atmosphere so thin, so heady and attenuated with the power of statistical analysis, that one might wonder whether we are really on the same planet as the patients we try to convince of our truths.

"Exercise helps the elderly." The doctor sees, from a perch suspended somewhere up in the sky, a large football field filled with the elderly. There are thousands of them down there, all dressed in sweats and sneakers, dumbbells at their feet. Half of them are using the dumbbells, or are down on their backs, doing leg lifts. The others just stand around.

Over the years, of course, the ranks thin. The doctor watches, counts. It begins to look as if there are more exercisers left. After decades, there are definitely more exercisers. Of course, there are still a few sloths standing around (and one of them looks suspiciously like my mother). But by and large, the exercisers come to rule the field.

That is the view from on high. Down on the field, of course, the view is quite different. You are standing in a thick crowd, minding your own business, living your life, but you cannot help noting that the man over there threw his back out with all that exercise, and the woman next to you, grunting to lift her dumbbell, had a heart attack. You cannot see to the other end of the field and have no idea what is happening there. But watching all the sweating and grunting and seeing some of those exercisers disappear anyway, you decide to opt out....

Up in the sky, it is impossible to distinguish one individual from another. The subjects are identified by sex, race, age, weight, coexisting illnesses, but of course, those variables have little to do with who these people are and what they value, how they prefer to spend their time, what they know about their own bodies.

Down on the field, no one sees anything but the people who happen to be nearby. No big picture there: you know what's going on around you, and nothing else. And if you happen to be in a crowd of exercisers who happen to get no benefit from it, then that is your reality."

Dr. Zuger gets right to it, doesn't she?

1. "Up in the sky (statistically - ed), it is impossible to distinguish one individual from another."

2. 'Down on the field (statistically - or in this case - anecdotally - ed), no one sees anything but the people who happen to be nearby."

Could it be any clearer? The truth is in the statistics, with the VERY important caveat (also mentioned in this article) that it a statistical truth...there are exceptions. However, in a world view where personal experience dominates, those exceptions become the truth. The anecdote is wrong (statistically), but correct in one VERY PARTICULAR incident.

Bridging that gap is key. And, thus the purpose of this blog.

Group Polarization Bias

2006-07-08T23:58:00.000-04:00

In response to an article in the NYT entitled "Why Righties Can't Teach" by John Tierney published on October 15, 2005.

Mr. Tierney is trying to explain why college professorships for conservatives are so hard to come by. He dismisses outright bias in the article, but continues to explain why colleges are dominated by liberals:

"One reason is the structure of academia, where decisions about hiring are made by small independent groups of scholars. They're subject to the law of group polarization, derived from studies of juries and other groups.

"If people are engaged in deliberation with like-minded others, they end up more confident, more homogenous and more extreme in their beliefs," said Cass Sunstein, a law professor at the University of Chicago. "If you have an English or history department that leans left, their interactions will push them further left."

Once liberals dominate a department, they can increase their majority by voting to award tenure to like-minded scholars. As liberals dominate a field, conservatives' work comes to be seen as fringe scholarship. "The filtering out of conservatives in the job pipeline rarely works by outright blackballing," said Mark Bauerlein, a conservative who is an English professor at Emory. "It doesn't have to. The intellectual focus of the disciplines does that by itself.""

Again, the purpose of this blog is to identify and root out human foibles that keep us from the truth, within ourselves and without. Only when an event is seen in its proper context can a positive and productive decision be made on it.

Survivorship Bias

2006-07-08T23:36:00.000-04:00

In response to an article in the NYT titled "Worried About Noisy Children, and Hedge Funds, Too" by Ben Stein, published on April 23, 2006.

Mr. Stein, who I respect very much, makes mention of a key to understanding statistics, especially as they appear in the mass media. In short - only the winners that survive are able to report their results. If you are a losing fund - you quietly disappear into the sunset and your losing statistics are not reported generally nor specifically. An example: The average of all funds return in the last ten years was (x)%. These types of figures - no doubt - do not include funds which no longer exist due to failure. Thus, the average quoted is not the true average. If your fund has a positive result, the results are plastered everywhere. And which do we, as non-quantitative, non-rational consumers mis-remember? The positive results, of course. Here is a portion of Mr. Stein's column:

"...commentators, including my pal and colleague, Phil DeMuth, say that even these results overstate hedge fund results. For one thing, there is survivorship bias — always a problem in the back alleys of finance — because only the hedge funds that survive report at all. If you take into account the ones that fail, the results would be worse."

This blurb is not about hedge funds, but I cannot resist this paragraph from the same article. It shows us a bit more about the shady world of investing:

"Dr. Malkiel and Dr. Saha calculated that even if hedge funds earned almost 50 percent more than market returns, the higher taxes and fees that hedge funds pay would whittle away their net return to investors to 20 percent less than index funds." The focus of the original article by Mr. Stein was on the lack of performance of hedge funds.

To take full advantage of the human condition, we must acknowledge our foibles. Then, and only then, can we overcome them and maybe even profit from them. Either way, we can certainly see and understand the world much more clearly.

Why? Because God says so.

2006-07-07T22:29:00.000-04:00

One of the biggest frustrations in my life was my religious upbringing. Lots of positives - do not get me wrong. Five hundred good things, thirty bad things. The conservative end of Christianity that I grew up in quoted the bible a lot, and they quoted its many aphorisms many times over. God says do not hate. Why? Because God says so. God says pray for your enemies. Why? Because God says so. Although this is good toddler theology, eventually you need more. Which brings me to this blog.

You see, I am trying to teach my children what I never learned until very late in life. I have learned, very painfully, that knowledge is always good, but if you can master certain concepts early in life BEFORE they do damage to you (by omission or commission) it is definitely a better thing.

So, back to toddler Christianity. I feel that young people will be more drawn to Christianity if they understood why God, the ultimate rational being, created His set of rules. Like you are not supposed to hate and you are supposed to love your enemy.

One of the reasons I write in this blog is to expose human fallibility. Like storytelling, and decision-making flaws. All point to a very un-rational human experience, where rationality must be forced on an individual, by that individual, unwillingly. That is where hate comes in. God says do not hate others, even your enemies, because the hating process is never-ending. With the human default of story-telling and excuse-making, there is ALWAYS a never-ending wave of excuses to hate, and to act on that hate. The default behavior in humans is to excuse our foibles, and to make ourselves look good by putting various facts together into a comprehensive story that puts us in a good light. A terrible skill for a person who is not honest with himself and especially for one who is susceptible to hatred or being prompted to hatred by corrupt leaders. Thus, the aphorism about knowing thyself.

You see, the hateful ALWAYS have a reason to hate. It takes zero effort to hate the other - it is a human default to be suspicious of others. Take the mid-east terrorist bunch. Ten years ago their excuse for hatred and killing was Palestine. The next year it is the Caliphate. The year later it is the Gaza incursion (how come the Gaza excursion did not produce the opposite?) There is ALWAYS a reason to hate. ALWAYS. Take a long look - and by that I mean research historically - the reasons Osama touts for why he murders innocents. They are drastically different over time. They constantly build, morph and change due to trends, world activities, and a robust and sick imagination.

THAT is why God says not to hate. It is never-ending. You can always find a reason to be unhappy, to hate the other, or to punish someone else for your lot in life. It takes ZERO effort. It is the default. God knew this, as did the ancients. That is why they always exhorted us to examine OURSELVES. They understood the default... and if hate is added to the mix - the killing will be endless.

Freud explains Iraq

2006-07-04T00:20:00.000-04:00

In response to an article in the NYT Magazine titled Freud and the Fundamentalist Urge by Mark Edmundson. It was published on April 30, 2006.

Mr. Edmundson has helped us to explain the why and wherefore in Iraq. My take on his article is that Sigmund Freud helps us to understand ANY totalitarian regime, whether in the former Soviet Union, in Iraq, or in Somalia. The dynamics of a corrupt and manipulative leader is the same. For those new to this blog... the premise is simple. The people are not all to blame for the violence. Although they perpetrate the violence and support the violence, both which are unacceptable, they perform these acts because of long-term manipulation of their world view by corrupt leaders. These leaders know (viscerally - they are NOT scholars) what 'the people' need and want.. and give it to them in spades. In return for this 'favor' they extract a horrific penalty - a broken society. Think Iraq. Think Somalia. Think Zimbabwe. What changed? Are the people suddenly more violent and depraved.. or have their leaders corrupted their very world-view to maximize the leader's benefits?

Here is what the article says - "Freud brought forward striking ideas about the inner dynamics of political life in general and of tyranny in particular.....In books like "Group Psychology and the Analysis of the Ego" and "Totem and Taboo," Freud predicted Hitler and his descendants almost perfectly. Now, in an age threatened by fundamentalisms of many sorts, Freud's thinking may be more usefully illuminating than ever before."

"At the center of Freud's work lies a fundamental perception: human beings are not generally unified creatures. Our psyches are not whole, but divided into parts, and those parts are usually in conflict with one another....Humanity, Freud says, has come up with many different solutions to the problem of internal conflict and the pain it inevitably brings. Most of these solutions, Freud thinks, are best described as forms of intoxication. What the intoxicants in question generally do is to revise the superego to make it more bearable. We like to have one glass of wine, then two, Freud suggests, because for some reason - he's not quite sure what it is in scientific terms - alcohol relaxes the demands of the over-I. Falling in love, Freud (and a thousand or so years of Western poetry) attests, has a similar effect. Love - romantic love, the full-out passionate variety - allows the ego to be dominated by the wishes and judgment of the beloved, not by the wishes of the demanding over-I. The beloved supplants the over-I, at least for a while, and, if all is going well, sheds glorious approval on the beloved and so creates a feeling of almost magical well-being. Take a drink (or two), take a lover, and suddenly the internal conflict in the psyche calms down. A divided being becomes a whole, united and (temporarily) happier one."

"Freud had no compunction in calling the relationship that crowds forge with an absolute leader an erotic one.....What he offers to individuals is a new, psychological dispensation. Where the individual superego is inconsistent and often inaccessible because it is unconscious, the collective superego, the leader, is clear and absolute in his values. By promulgating one code - one fundamental way of being - he wipes away the differences between different people, with different codes and different values, which are a source of anxiety to the psyche. Now we all love the fatherland, believe in the folk, blame the Jews, have a grand imperial destiny."

"To Freud, crowds on their own can be dangerous, but they only constitute a long-term brutal threat when a certain sort of figure takes over the superego slot in ways that are both prohibitive and permissive."

Did you catch that? Think Osama. Think Hitler. Think any puny warlord in that desolate country called Somalia. Doesn't Freud explain this well?

The article continues - and clarifies the point - "In his last days, Freud became increasingly concerned about our longing for inner peace - our longing, in particular, to replace our old, inconsistent and often inscrutable over-I with something clearer, simpler and ultimately more permissive. We want a strong man with a simple doctrine that accounts for our sufferings, identifies our enemies, focuses our energies and gives us, more enduringly than wine or even love, a sense of being whole. This man, as Freud says in his great book on politics, "Group Psychology and the Analysis of the Ego," must appear completely masterful. He must seem to have perfect confidence, to need no one and to be entirely sufficient unto himself. Sometimes this man will evoke a god as his source of authority, sometimes not. But in whatever form he comes - whether he is called Hitler, Stalin, Mao - he will promise to deliver people from their confusion and to dispense unity and purpose where before there were only fracture and incessant anxiety. But, of course, the price is likely to be high, because the simplifications the great man offers will almost inevitably involve hatred and violence."

An amazing article. Thank you Mr. Edmundson.

You can ALWAYS find someone or something to blame

2006-07-01T23:12:00.000-04:00

As intellectuals and journalists try to explain the WHY of Iraq, a singular issue continually comes up. The theory states that Iraqi youth are disaffected and the solution to keep them from killing Americans and hating America is to somehow help them...bring their standard of living up, give them a job.. something. It is not proven. Further, the evidence that I observe proves it is wrong.

Why? Human beings can ALWAYS find someone or something to blame (besides themselves). Always. Ever had a teenager living in your house? Than you know of what I speak. YOU are to blame...no matter what. Are they unhappy? Somehow, you are to blame. You are not loving enough. You did not supply ample monetary resources. You had a bad streak where you cracked down hard on his or hers misdeeds. It really does not matter. They will think of something... somewhere... somehow... to blame their unhappiness on.

Remember a previous post about how the brain is the ultimate explanatory machine? Here is some text from that post -

"Humans are hard-wired to see order, pattern, and meaning in the world, and we find randomness, chaos, and meaninglessness less than satisfying. As a consequence, we tend to see order where there is none and we can spot meaningful patterns of order only when the vagaries of chance are operating in our favor (Gilovich). One of the tools in this mis-perception is ad-hoc reasoning. Humans have this awesome power to put two and two together, even when they do not belong together. We are hard wired to do so. A dramatic illustration of this comes from research on split-brain patients. In essence, the patients are shown two different pictures, then directed to explain them. When the subjects are forced to explain pictures in a way that requires communication between the two hemispheres of the brain, they make things up. In spades. The subject examines the relevant facts (as she is capable of seeing them) and invents a story to account for it. This 'explanation' module can quickly and easily make sense of even the most bizarre patterns of information (Gilovich). Clearly, people cling to their beliefs very tenaciously even in the face of hostile evidence."

Even when faced with an ultimate reality the brain will come up with some explanation, now matter how far-fetched. Even if the facts fly in the actual face of reality, it makes no difference. The brain is looking for a salve.... and you are it. Who else could be to blame?

I am not through with this point, however. Why? It is very difficult to convince the American public of a negative premise (that disaffected youth DO NOT cause terror). The premise spoken of above... disaffected youth...caused by poverty and horrible US foreign policy somehow makes Iraqi's terrorists? Except for:

The negative part of this equation. Again... disaffected youth..not fully though out US foreign policy... Iraqi terrorism. What is missing? The REMAINDER of the experimental results. What about those who ARE NOT IRAQI who suffer from disaffected youth..horrible US foreign policy..etc. How come they are not terrorists? How come they are not actively fighting and killing Americans? There are a multitude of countries with poorer youth, unhappier youth, disenchanted youth. How come they are not bombing civilians? Because there is much more to the cause of terrorism than just disaffected youth.

Here is some text from the previous post - "There is a very strong tendency in humans to filter out bad or failed outcomes and to focus on the good and successful. Some of this lack of probity is caused by a 'lack' of negative information to balance out the 'positive' information. Like in investment scams. All you hear about is the successes. The losers tend to be quiet and are certainly not trumpeted by the seller of the scam. The winners, of course, are touted by the seller as examples of the acuity of the program. The missing data - the losers. It is practically impossible to capture that data - and even harder to explain it to an unschooled populace used to easy to grasp factoids and one-liners. The 'other' facts slowly fade away and only the 'winners' are counted."

This must be answered. The premise put forth by the talking heads of Fox and MSNBC is unproven anectdotal story-telling portrayed as analysis. A real, defensible proposition on the Iraqi quagmire MUST involve a scientific experiment that attempts to compare a wide variety of disaffected youth and countries that suffer from a horrible US foreign policy. Then, and only then, will this be a defensible premise.

Until then, it is pseudo analysis. Many factors are at work, including horrifically corrupt leaders (morally and financially), a two-generation old worldview (fostered by these same corrupt leaders) that blames the US for their lot in life.

Another thought to help seal this point... viewing this 'experiment' over time. Ever take the time to read Osama's tired litany of excuses on why he kills innocents? It is a good read. It changes. It morphs. He is not above using the incident of the day, or the issue of the day to justify his worldview and to motivate his minions. One day it is the Russians and communism with nary a mention of Palestine. Two years later it is the Arab nation and the Caliphate. Next year it is Palestine. Did he hold these opinions already? Maybe, but a more accurate portrayal would brand him what he is - an opportunist. Find someone to blame.. he needs the money.. he needs to the followers. A messiah without a cause or without notoriety or without followers is NOT a messiah.

Osama is a teenager. No more. No less.

Roulette diagram enables better decision-making

2006-06-20T21:01:00.000-04:00

In response to NYT article titled In Medicine, Acceptable Risk Is in the Eye of the Beholder by Nicholas Bakalar Published: June 20, 2006

This demonstration, although ponderous, is vital to understanding this issue. Please play it through the end. It is worth it.

"Researchers from the University of California Los Angeles have developed a tool that they hope will help ease the burden of making difficult treatment decisions. It's a roulette wheel that allows patients to visualize the probable outcomes associated with different treatment options for different diseases. The roulette wheel can be adapted to represent any current clinical question and is based on "best current evidence," according to its developers, Dr. Jerome R. Hoffman and colleagues.

For illustration purposes, Hoffman and colleagues describe in the journal PLoS Medicine how a healthy 65-year-old man might use the roulette wheel to decide whether or not to be screened for prostate cancer with a standard PSA blood test. By spinning the roulette wheel, the man sees that his chances of developing symptoms of prostate cancer in his lifetime are very small, regardless of whether he has the PSA test or not.

But he also learns that if he undergoes the PSA test and cancer is found, treating the cancer results in a 50-percent reduction in the chances of dying from prostate cancer. However, the roulette wheel also shows him that he has a 58 percent chance of developing erectile dysfunction or incontinence because of treatment for prostate cancer."

Dr. Hoffman states - Many of us have trouble understanding numbers, particularly in the context of risk and probability," write Hoffman and colleagues. "It is hard for anyone to comprehend the difference between a 7 percent chance and an 8 percent chance - is there a meaningful difference? - and this is exacerbated when we try to deal in more extreme probabilities, such as 3 in 10,000."

I can see endless possibilities here, because the challenge here is human, not medical. How can we help the recipient of information we are providing visualize the information so that its impact is the most powerful it can be. This visualization technique is powerful across the board, in business, in health, and even in the family. It deserves to be used widely.

Choices made by how you present them

2006-06-20T20:44:00.000-04:00

In response to Free and Easy Riders by John Tierney - Published: June 17, 2006 in NYT.

Mr. Tierney is discussing Ben Roethlisberger's choice of whether to wear a helmet or not. He extrapolates to make his point - humans are capable of making rational decisions, but usually do not. He proposes helping humans make the proper choices by alternating presentation of choices. A consistent theme in this blog. Enjoy.

".... If Roethlisberger had done a sober cost-benefit analysis, he never would have gotten on a motorcycle. Even a minor accident — a spill that shattered his elbow — could have ended his career and cost him tens of millions of dollars...... Because they're making decisions the way most humans do — haphazardly. We're guided more by one recent horror story than by reams of statistics. Unless pressed, we tend to avoid thinking about unlikely events, like traffic accidents, or problems in the distant future, like how we'll finance our retirement. We'll choose something simply because we think it's what most other people would do. Our decision often hinges not on the facts but on how the facts are presented: if told there's a 10 percent chance of dying from a medical procedure, we're less likely to go ahead with it than if we're told there's a 90 percent chance of living.

Given all these foibles, Sunstein and Thaler argue, it's naïve to assume that people are making fully informed choices. Since people's choices often depend on how the options are presented, authorities should practice a mild form of paternalism: point people toward what experts think is best for them, but don't force them to go there. This might mean simply providing the public with information and advice. Or it could mean changing the options available, as was done in experiments with 401(k) plans. Instead of giving workers the traditional option to enroll in the plans, employers automatically enrolled everyone and gave them the option to withdraw. As a result, far more workers set aside money for retirement.

Sunstein and Thaler like the idea of encouraging cyclists to wear helmets by changing the options they face. Instead of telling them that a helmet is optional — the default situation in most states — tell them a standard license comes with the requirement to wear a helmet. If a libertarian cyclist objected, he could apply for a special license to ride without a helmet (along with a decal for the motorcycle so the police wouldn't stop him). He'd have to provide proof that he carried enough insurance to cover the costs of an accident so that taxpayers wouldn't get stuck with the bill. And he'd have to learn about the risks, perhaps by attending a short class or watching a video of it on his home computer."

Stunning. Unlike other fear-mongering and hate mongering columnists - this guy targets a problem and proposes a fair-minded solution. Wish there were more of him.

Video Games are Life Lesson

2006-06-06T23:51:00.000-04:00

In response to an article in Play Magazine (NYT) titled The Home Screen Advantage.

It has been a given for a while that video games are a vigorous means to visualizing reality, especially for the younger generations. I thought this particular mention in this article was extremely powerful. The story is where a coach for Penn State uses Madden N.F.L. to train his players. He programs his plays into Madden N.F.L. and then turns them loose to his players. Here is the quote...

Jay Paterno, the quarterbacks coach at Penn State, uses the game to train his new players. He records virtual versions of his plays onto a memory card and has his guys rehearse them over and over again on their own PlayStations back at the dorm. "The kids are so much more visual now," Paterno says. "You hand them a playbook with a bunch of X's and O's, and they might stare at it. But if you do it on Madden, it clicks. They go, 'Oh yeah, I've done this before.'" In essence, the visual vocabulary of games — with their zooming, "Matrix"-like graphics — is the language of a new generation of sportsmen. John Madden once told me that he often encounters N.F.L. rookies who say their first experience of football wasn't on TV but in a video game.

The results, I will bet, are stunning. The players get to visualize the plays - what older people like me used to do only in our imaginations - and also get to run them over and over again, reaping the benefit of seeing the realistic responses of opponents and teammates.

There is more! Some NASCAR drivers are using the game NASCAR Thunder to familiarize themselves with certain tracks. "

Many NASCAR drivers in particular have been won over. They've discovered that one way to prepare for an unfamiliar track is to race it virtually, committing each curve and angle to memory before they drive them physically. Because the tracks are static and unchanging, today's video games — Electronic Arts' NASCAR Thunder, for example — can reproduce them with photorealistic precision. The driver Carl Edwards, who racked up four Nextel Cup victories last year, is a video-game fiend who swears by games as a training tool. "Racing is probably 80 percent mental, or more," Edwards told me, and a video game "helps you get the rhythm down — helps you find a place where speed is made up and speed is lost." Whenever he has to drive a track he regularly has trouble with — like Martinsville in Virginia or Bristol in Tennessee — he'll spend a couple hours in his trailer with the game. "It's the same motor inputs going in and the same timing.""

What could be more powerful?

Statistics are generalized, little specific help

2006-06-06T23:38:00.000-04:00

Prompted by column in the NYT by Daniel Gross on June 4, 2006 titled When Sweet Statistics Clash With a Sour Mood.

Another in my series on statistics. One of my favorite authors, Daniel Gross expands on the premise that statistics are - in most part - deceptive and general. When it comes to how you are going to do against a specific pitcher on a specific day - they count for little. The key.. time.

Here are some quotes:

"Aggregates — big-picture figures like the unemployment rate, productivity and growth in the gross domestic product — are highly useful to economists. But to most people, they're abstractions. You can't use a low unemployment rate to pay a mortgage. As a result, large aggregates "are something that people may hear about in the news, but don't have a direct impact on how people feel," said Lynn Franco, director of the Consumer Research. Aside from being abstract, many of the most popular aggregates are simply misleading. Dean Baker, a director of the Center for Economic and Policy Research in Washington, puts the Consumer Price Index — the main gauge of inflation — at the top of the list.

"It has no direct relationship to what people perceive as inflation," he said. Mr. Baker notes that the index doesn't take account of rapidly rising co-payments and higher insurance deductibles when it calculates health and medical costs. And to gauge inflation in housing, the index approximates a measure of rent instead of looking at home purchase prices. "We've had a huge run-up in the price of housing, and that doesn't show up in the C.P.I.," he said. So while the index shows that inflation is elevated but still under control — up 3.5 percent from April 2005 to April 2006 — many Americans find themselves paying sharply higher prices for essential goods and services.""

" The data ... cited were averages, or means, and that can be misleading. "The average wage is a useful indicator if you want to know what's happening to the tax base, but it might not tell you what's going on for the individual worker," said Alan B. Krueger, an economics professor at Princeton and a former chief economist at the Labor Department. Consider a hypothetical country with 300 million workers. Say the chief executive of an investment bank gets a $300 million raise this year, while the other 299,999,999 workers don't get a raise. In the aggregate, the average per-capita salary has risen by $1, but only one person has more money in his pocket. To see how typical workers are doing, it's better to look at median wages and incomes — the midpoint that separates the top 50 percent from the lower 50 percent. And median income, which was stagnant during President Bush's first term, is struggling to keep pace with inflation. "Median household income has gone nowhere since the turn of the decade," said Mark Zandi, chief economist at Moody's.com. Mr. Zandi puts the problem with averages another way. "If you put one foot in a tub of hot water and the other in a tub of cold water and take the average, everything is fine.""

""THIS dichotomy accurately describes the economy. From 2001 to 2004, the average net worth of an American family rose 6.3 percent, according to the Federal Reserve's Survey of Consumer Finances. But not everybody grew richer. For the bottom 40 percent of families by income, the median net worth fell. "It just doesn't resonate with people when the Treasury secretary says everything is fine," Mr. Zandi said. "It's fine for half the population, and it's clearly not for the other half." There's a final reason that the aggregates may not accurately capture the public mood. Aggregates shed light on the performance of the economy in the last month, or in the last quarter. By contrast, measures of sentiments and polls gauge feelings about the present and expectations for the future."

In my words.. statistics provide a vision of impressive intelligence.. but you MUST look beyond. Reread the last paragraph again... two different messages usually lumped together. Further, the statistics quoted are incomplete.. they do not include some health care costs? What is that all about? How many other examples can you come up with that show this dichotomy?

Statistics are not definitive, no matter what Fox says

2006-03-31T22:09:00.000-05:00

In response to The Cost of Invading Iraq: Imponderables Meet Uncertainties - by Alan Krueger; Published: March 30, 2006 in the NY Times.

This article is why I love to read the NYT. It is the best newspaper in the US if you have a desire to learn the basics of what our leaders must deal with when they make decisions. The short answer - it is hard. My thoughts go back to the biblical imperative - pray for your leaders.

Take the cost of the war in Iraq. Think you know how much it costs? Think again. And, by the way, neither do the talking heads at Fox or MSNBC, and certainly not the 'entertainers' like Rush or Lou. The point of this article is straightforward - you can measure the MANY factors involved in accounting for the cost of a war - in many different ways. Honest people (economists in this case) can disagree - but they cannot dismiss their colleagues - they too have a case.

Once again - another reason for tolerance and kindness in the political debate - and why I love this article. I will bet large amounts of money (if I had any) that you DID NOT know all the factors mentioned in this article. I certainly did not. Things like opportunity costs - or how to measure success - or how to measure ancillary benefits like keeping Iran in your gun sights from a short distance away. All are legitimate discussion points and lend themselves to only one conclusion - you and I know little of the truth and are struggling to understand a very complex situation, as is the President of the United States. This complexity obviates histrionics, name-calling, and expletives. Instead, it calls for honest people making decisions without resorting to name-calling. The President deserves better.

Disagree all you want, but what our fathers told us years ago is true - the more you know the more you realize what you don't know. Point fingers with care - there are three others pointing back at you. Do you REALLY understand the situation you are pontificating about?

Here are a couple of excerpts to get the point across:

"cost-benefit comparisons of such weighty issues are more art than science. One problem is that the counterfactual situation — meaning the outcomes that would have occurred had another policy been pursued — cannot be known for sure. In addition, it is often unclear how to value the outcomes of the policy that is pursued."

"Consider what the cost of containment would have been had the United States not gone to war. The University of Chicago study now says it is in "the range of $350 billion to $700 billion." ....While containing Iraq was a central focus, these troops also served many other purposes. They conducted rescue operations in Somalia; performed humanitarian missions in Nigeria, Ethiopia, Eritrea and Jordan; responded to terrorist bombings in Nairobi and Tanzania; and were responsible for military activities in the five Central Asian republics of the former Soviet Union."

"the number of Iraqi fatalities since the invasion is probably no greater than would have been the case under Mr. Hussein."

"When it comes to judging whether war is worth it, however, cost-benefit analysis is little more than educated guessing by other means. But at least it provides a framework for where to put the guesses."

Hypocrisy in Arabia

2006-02-10T20:11:00.000-05:00

In reference to the current outrage on the political cartoons published in a Danish newspaper.....

The hypocrisy of Arab secular and religious despots knows no bounds.... really. It is time for the American public to fully understand the political dynamic that has driven very similar acts by despots in countries as varied as Yemen and ancient Rome.

The issue - these despots (I refuse to call them leaders) cannot provide for their followers. In the modern case (ancient Rome had a slightly different dynamic, but not by much) the global media has presented to even backward Arabia and Africa a very pleasant image - lots of big cars, lots of food, big houses, and pretty wives - to a populace that has NOT EVEN THE HOPE of achieving such riches. And their favorite local despot knows it. Why? Because he sees the same TV broadcasts and browses the same internet sites. The difference between despot and despised? The despot can dig deep into the pockets of the despised to achieve these riches - for himself and his tribe. The despised cannot.

Is this situation not BOUND to cause unrest? Of course. And to keep that unrest targeted at its 'proper' area (in no case whatsoever is it to be aimed at the despot) the despot MUST come up with distractions. Like the gladiator circus of ancient Rome. Or the public chest-beating (literally) over the Danish cartoons. Hundreds more examples are available, but will only lengthen a very depressing list.

These distractions are nothing more than diversionary tactics. Despised people (despised by their despots) must be kept occupied. Small wars. Tribal conflicts. Religious outrage. Nationalism. Anti-semitism. Whatever it takes - just keep them occupied on SOMETHING besides the fact that the despot has created such a backward country that it cannot even hope to catch up with the rest of the civilized world for generations. A truly sad state of affairs.

I have a negative example that may help to bring this issue into focus. No negative proof can ever prove a point, but it can certainly open up the thought passages. Here goes...

Why - with an outright civil war on its hands - has the Shiite majority in Iraq not risen up to defend itself and condemn the slaughter of its priests and people? Compare the outrage and violence and hyperbole created by a little newspaper in a little fly spot of a country thousands of miles away with the amount of outrage and violence targeted at the Sunni insurgency. Why the disparity? Hundreds of Shiites, including priests, have died. Heck, they even blow up mosques... Yet, no violence. Why? Where is the proportionate response compared to the Danish protests? The answer is simple. Ayatollah Sistani. Ayatollah Sistani alone holds the line against violence. He is a forward thinking man (at least by Arab standards) who understands that a violent uprising will not engender a peaceful and profitable modern state. So his statements encourage moderation and peaceful outlets of energy - like voting. He is truly an unbelievable leader in today's Iraq. America could not do ANYTHING without his moderating force for good and peace.

See the point? Leaders can lead and drive behaviors toward ill or towards good. It is too bad that Arab leaders are too busy distracting their disposessed people to govern them well.

Sistani deserves the Nobel Peace Prize.

Time waits for no man

2006-02-07T20:38:00.000-05:00

Boy, is THIS a problem in my life. Although Dr. Zauberman leaves out procrastinators, it seems to me that this is the key to this new study. I have a VERY organized list of things that I must accomplish. I also have a mental image of how important each is, and a boss that keeps me focused on the items that are most important to him. Yet..... inevitably...... the list sits.... unacted upon. Why? I certainly do not like to do some of the tasks. They are repetitious and boring. This article helps explain it a bit more. Seems, if I can possibly put it off - mentally and physically - I can justify it in my brain. Why? Because I think I will have more time next week or next month. Will I? Of course not. Yet I continue.

Once again - human beings do their level best at creating, establishing, and vocalizing their competency - facts be damned. Many lessons here for managers - of others and themselves.

"Dr. Gal Zauberman of the University of North Carolina and Dr. John Lynch of Duke, professors of marketing, have found that future expenditures of time are always psychologically discounted - that is, a future disbursement of time seems to be worth less than an outlay of time in the present. This makes it easier for people to volunteer for time-consuming tasks if they are told they do not have to do it right away. Even though they know, rationally, that an hour today is just as long as an hour a month from today, and even though there is no reason to believe that they will have any more spare time next month, time discounting makes taking on the new task easier. And when, as inevitably happens, that future day turns out to be just as busy as today, people seem to learn little from the experience.....People concentrate on different aspects of a task when it is far away in time, Dr. Lynch said. "When we think about a task in the distant future," he said, "we focus on the benefits - the good stuff. When we think about doing a task today, we think about the mundane and less interesting details.""

This article was prompted by: Future Shock Concept Gets a Personal Twist; By Nicholas Bakalar - NY Times - February 22, 2005

Lies and damned lies

2006-01-16T20:41:00.000-05:00

Statistics are becoming more and more the staple of our scientifically based modern society. It is clear, however, that statistics can both illuminate and darken a particular point. This happens for three very separate reasons.

Number one - the user of the statistic quotes only certain points within the argument, and almost always these statistical points favor the author's particular viewpoint. This can be called lying - and it is wrong on its face.

Number two - the user of the statistic does not take into account other levers that may also impact his interpretation of this particular statistic - including updates of the statistics you are currently looking at. In almost every single case - a single statistic, or even a small set of statistics does a great disservice to the reader. By only quoting one or very few statistics, the picture painted is incomplete, at best, and wrong on its face, at worst. I cannot bring myself to call this lying, but if I truly understood the intent of the user, it may be clearly so. In my view - this usage is the vast majority of misuse of statistics.

My favorite example of number two? Baseball statistics. Can you really capture the greatness of Alex Rodriguez with a batting average? Most would say no. You need to know where he bats in the lineup (that impacts his RBI totals). You need to know his on base percentage (does he walk a lot)? There are hundreds more examples in baseball - and these types of discussions are the basis for the so-called 'Money Ball." Money Ball is nothing more than a sophisticated use of statistics to gain a competitive advantage over your opponent (the other team) by searching out the important performance parameters that most impact winning. Knowledge of this allows the users to obtain these players for less money. At least until the rest of the league catches on - which it has.

Number three is a bit more interesting. It is the public's misunderstanding of statistics. The reason I drew out Mr. Krugman's statistical quote below is because it illuminates a very common misunderstanding of life expectancy. A good example - life expectancy a hundred years ago in the United States - where the 'average' life was about twenty years shorter than today. But, is that a complete picture? Hardly. A proper understanding of the statistical quote about life expectancy (see number two above) would aid this understanding. Turns out, if the average 19th century man made it past his teen years, he had a pretty good chance to make it to seventy or so. Not the bleak picture usually painted, but still pretty grim. But here is the key - no one is proffering this understanding to the common man - and the common man is not asking. Thus - great misunderstanding of an incredibly precise tool. Here is the blurb from Mr. Krugman's column:

"...Mr. Bush's remarks on African-Americans perpetuate a crude misunderstanding about what life expectancy means. It's true that the current life expectancy for black males at birth is only 68.8 years -- but that doesn't mean that a black man who has worked all his life can expect to die after collecting only a few years' worth of Social Security benefits. Blacks' low life expectancy is largely due to high death rates in childhood and young adulthood. African-American men who make it to age 65 can expect to live, and collect benefits, for an additional 14.6 years -- not that far short of the 16.6-year figure for white men."

Here is some text from an article by Anna Bernasek that may add a little clarity to my item number two:

"Remember the economy's so-called soft patch? That's a term that Alan Greenspan, the Federal Reserve chairman, used earlier this year (2005) to describe unexpected weakness in the economy..... At that time, the Commerce Department's Bureau of Economic Analysis reported that the economy grew in the first quarter at an annual rate of 3.1 percent, much lower than many economists had forecast. But two months later, the G.D.P. number was revised substantially higher. It was recalculated to be 3.8 percent, annualized, greater than the growth rate in the previous quarter and 22 percent higher than initially thought. So the evidence that the economy was in a soft patch has pretty much disappeared. In fact, Mr. Greenspan made it clear in Congressional testimony this month that he no longer described the economy in those terms.

....The problem isn't that the data is shifting; it's that it is often treated as solid fact.....As J. Steven Landefeld, the director of the Bureau of Economic Analysis, put it: ''Our job is to get the general snapshot of the economy about right. .... He maintains that, on average, the revision for quarterly G.D.P. is typically of the magnitude of one percentage point, up or down. In other words, if G.D.P. is first reported as 3.1 percent, it probably will turn out to be somewhere in the band from 2.1 percent to 4.1 percent....Mr. Landefeld says that one-third of the 1,500 or so data points used to construct the quarterly advance number are estimates -- in essence, place holders -- that will have to do until the actual numbers come in, sometimes months or years later."

Notice the text? 1500 data points? Place holders? This is not to infer any lack of responsibility, just to foment the proper conclusion that ANY data should impose. These types of statistics MUST be followed up on - they are projections. There are new data points, better data points, updated data points, and changing and improving measurements. All must be taken into consideration before the 'truth' is known. Math is a dull sword unless wielded by knowledgeable users and enjoyed by those with a true understanding of its intricacies.

In response to: Little Black Lies; Paul Krugman; Published: January 28, 2005 and A Number That's Meant to Be Second-Guessed; Anna Bernasek; NY Times July 31, 2005

Bird flu or Bird doo doo?

2006-01-15T22:17:00.000-05:00

One of the main premises of this blog is to uncover human frailties that allow us to believe things that are wrong. We remember wrong things, we prioritize the least likely things, and we mis-remember our history to maximize our competency. This is another entry in that very long list.

It seems that humans have this very fascinating ability to worry about things that matter little (statistically) and ignore those more messy and more likely problems (like diabetes - a scourge on US society for many years to come). This issue is especially important in this time of information overload. If you want to read about the bird flu 24/7 - there are places where you can. That, however, does not make it a very likely event in your life. Get the point? With the preponderance of publishing opportunities - large, gaudy, newsmaking events take FAR MORE than their share of an average reader's mindshare. This contributes greatly to very poor political decisions based on the over-sensitivity of our politicians to public panic (bird flu; assault weapons)

Here is the text:

"A disease like diabetes gallops practically out of control, with estimates that 21 million Americans have it and 45 million more could develop it. Yet relatively few people worry about it or alter their behavior to postpone or possibly prevent its onset. On the other hand, just the mention of flesh-eating disease, a staph infection that affects maybe 1,500 Americans each year, is enough to make many people anxious. And a news report on avian flu, which has yet to affect anyone in the United States, generates calls to personal physicians from patients eager to stock up on anti-flu drugs.

Americans, it seems, are always worrying about the wrong illnesses. "The risks that hurt people and the risks that upset people are almost completely unconnected," said Peter M. Sandman, a risk-communications consultant based in Princeton, N.J. The likelihood of being affected by a disease is not the major factor influencing whether a person feels "outrage," as Dr. Sandman calls it. Instead, factors like control and familiarity (or lack of both) and whether the disease invokes dread or disgust are much stronger influences. Flesh-eating disease, for example, is an exotic illness that can quickly kill. News reports tend to focus on its gruesome aspects. And it often occurs in hospitals. "You're never less in control of your own life than when you're in the hospital," Dr. Sandman said. "You're wearing PJ's open at the back. You're at the beck and call of orderlies and other people who in your regular life you wouldn't take orders from."......

A chronic illness like diabetes, on the other hand, which may be dealt with in part through diet and exercise, offers people some sense of being in control. "It's not whether I actually bother to control it," Dr. Sandman said. "It's whether I feel I can." .... Familiarity can also moderate the sense of dread, said Paul Slovic, a psychologist with Decision Research, a nonprofit research institution in Eugene, Ore. Car accidents, he noted, are as horrific as cancer, yet "we don't have the same sense of dread around cars that we do around carcinogens" because we drive all the time.

Another important factor is prevalence. "Prevalent events are seen as less serious than rare events," Dr. Leventhal said in an e-mail message. The logic is simple, he said: if lots of people have a disease but are not hospitalized or dying, it must be relatively benign; if it is rare, it might have serious, unknown consequences. For example, Dr. Leventhal said, bird flu is so far known in the United States only through news reports. This allows the threat to loom larger and more menacingly than it should at this point. Unfamiliarity makes the mind wander, and perhaps imagine the worst.... "We respond at an emotional level and at a more cerebral or cognitive level," said George Loewenstein, a professor in the department of social and decision sciences at Carnegie Mellon University."

My approach and my answer - information. We may not be able to prevent this, but by wide dissemination of these failings we will make a dent. At least that is what I hope.

In response to: On Not Wanting to Know What Hurts You; By Henry Fountain; NY Times January 15, 2006

There but by the grace of God

2006-01-15T20:44:00.001-05:00

I endeavor every single day to become a better leader, a better human, and a better friend. To do this requires self examination, a painful but very useful process. One thing I have learned (or - to be more exact - am in the process of learning and executing in my life - I am NOT there yet) is that when I see aberrations - poor results, boorish actions, hubris - I think to myself - there but by the grace of God go I. Why? Because I have the exact same weakness, and if I was put in that situation, I would - no doubt - react exactly the same.

That is why this excerpt from a column by David Brooks caught my eye. It showed, a little more clearly, what it is like to be a leader. This is also a very prominent theme in Meditations by Marcus Aurelius, a favorite bedside book of mine. Marcus, a Caesar, understood the hubris that goes along with his job and actively fought it. I will bet US Senators do the same. Here is some of the text from the article:

"There is no environment more perilous for that genuine self than the United States Senate. Consider how senators live every day. They are surrounded by clouds of deferential, ear-whispering aides whose own attitudes towards their bosses are a mixture of fervent love and Oedipal contempt. They are buffeted by swarms of reporters who are obsequious in person and then condescending in print.

They are puffed by endless praise and bruised by endless criticism. They begin their day before dawn, with every minute scheduled by their worker bee helpers. They go to offices with power walls adorned with plaques, prizes, football helmets and other offerings that have been left to them in the way ritual sacrifices were once left on the altar of a tribal god or chieftain.

Wide-eyed home state folks click their pictures with disposable cameras. Lobbyists stop by with their superior suits and their beneficent causes. At midmorning the senator will be driven to a think tank to address an audience of wonks who know his subject a hundred times better than he does. Then he will drop by a committee hearing where photographers will take pictures of him listening portentously. Then he will be whisked to the floor to make a statement, pausing only to share flattery with an esteemed colleague. It's no wonder some senators turn into bloated Hindenburg versions of themselves."

In response to: In Praise of Joe Biden by David Brook; NY Times January 15, 2006

Selective Perception

2005-01-30T19:14:00.000-05:00

From Dr. Scott Plous' "The Psychology of Judgment and Decision Making"

There is no such thing as context-free decision making....

In a famous experiment Bruner and Postman presented people with a series of five playing cards, varying the exposure time from ten milliseconds to one second. One of the series of cards was not a 'real' card; it was a black three of hearts. Bruner and Postman found that it took people more than four times as long to recognize the trick card as it did to recognize a 'normal' card. Even those that recognized the trick card, however, reacted to the 'trick' card in differing manners.

The first was a dominance reaction. Faced with a black three of hearts, the subjects in this case were very sure that the card was a 'normal' three of hearts or a 'normal' three of spades. 96% of the subjects showed dominance reactions at some point.

Others used a compromised reaction. For instance, some of the subjects reported the black three of hearts was a 'grayish' three of spades. When a red 'trick' card was used (a red six of spades) the subjects reported it as a purple six of spades or a purple six of hearts. Half of the subjects showed these compromised reactions.

A third way subjects reacted to the incongruity of a trick card was a disruptive reaction. In one case the subject denied the trick card was even a playing card. In another, the subject doubted he even knew what a spade looked like any more!! This type of reaction was rare, however.

Bruner and Postman state that perceptions are powerfully determined by expectations. "When people have enough experience with a particular situation, they often see what they expect to see."

There are other examples...

In another well-known study, based on a very competitive football game between Princeton and Dartmouth, researchers concluded that "the game actually was many different games...It is inaccurate and misleading to say that different people have different attitudes concerning the same things. For the 'thing' is NOT the same for different people, whether the 'thing' is a football game, communism, or spinach.

Here is the rundown of the experiment. After this particularly violent game, Social Psychology Professor Albert Hastorfwere was inspired to quiz the students at both colleges about their perceptions of the game. He asked 163 Dartmouth students and 161 Princeton students the following question, among others: "From what you saw in the game or in the movie (those who were not present at the game were shown a movie of the game), or from what you have read, which team do you feel started the rough play?" Dartmouth students were evenly divided on who started the rough play, but the Princeton students were definitive; 86 percent thought Dartmouth started it. In the case of the students who were not at the game, but watched it afterwards in the Social Psychology Department, the professor asked them to record the number of infractions initiated by both teams. Again, the Dartmouth students split the results evenly (4.3 incidents by Dartmouth vs. 4.4 incidents by Princeton). The Princeton students were not as kind. Again, even after the fact, the Princeton team recorded 9.8 incidents initiated by Dartmouth vs. only 4.4 for Princeton. Interesting.

My last example of selective perception is known as the hostile media effect. Here, three professors speculated that selective perception would also slant political partisans' views of how the media depicts their side of the political playground. In one study the professors asked voters, three days before a presidential election, to indicate whether the media coverage of their candidate had been biased, and if so, in what direction. In roughly 90% of the cases respondents felt that the media had been biased against the candidate that they supported in the actual election.

In another, similar case, the professors asked 68 pro-Israeli students, 27 pro-Arab students, and 49 neutral students to evaluate the news coverage surrounding the Beirut massacre (1982). The news segments were drawn from six different US news programs over a ten day period. In support of the hostile media effect, each side saw the news coverage as biased in favor of those on the other side of this particular disagreement.

Perceptions are selective. We live in our own self-created world where how we address an issue or a conflict has been proven to be based a great deal on many other cognitive factors besides the facts of the matter. If we are to succeed in life, we must understand this weakness, and adapt to it.

Make a list, check it...

2005-01-24T22:03:00.000-05:00

Do you know all the facts? Take the case of collaborators in Eastern Europe during the Cold War. Could any group of humans be more despicable? Spying on neighbors? Tearing families and communities apart? Don't be so sure. There are always more facts than you know.

Tina Rosenberg observed in the January 24, 2005 NYT that Poland is currently suffering from a backlash due to the exposure of lists of collaborators to researchers. She bravely takes the stance that the names should not be published willy nilly. Her reasoning?

1. There must be fairness for the accused as well as the abused.
2. The lists do not state actual guilt, but are listings of contacts, etc. Vaclav Havel, imprisoned for decades due to his heroic stance against communism, was listed in his country as a collaborator.
3. There are shades of collaboration. Did the collaborator receive pay? Did she sign a written agreement to inform?
4. Was he being blackmailed? Was he enticed (say, to end a long prison sentence) to collaborate? These types of collaboration are at least understandable and deserve sympathy, not additional punishment.
5. Were the collaborators placed on the list due to quota pressures? It was common in totalitarian regimes to place secret police on quotas. The more 'collaborators' - the better the pay. Ms. Rosenberg states "They had great incentive to take information from one agent and put it into the mouths of four." One interrogation is recast as four to satisfy their taskmasters.
6. Some agents would pocket the money they were supposed to pay 'collaborators.' What names are on the list to cover this thievery?
7. Many became collaborators to survive in a very nasty environment. They, however, provided zero information of value, in some cases falsifying data to fool the agents. In other cases groups of collaborators (employer, employee) would put a false story together to satisfy their keepers. Was the collaborator one of these, or maybe a victim of one of these 'made up' stories?
8. Is there a 'clear conscience" version of collaboration? Poet Anna Akhmatova wrote an ode to Stalin to free her son from prison. Meanwhile, she had already written, memorized, and burned her anti-Stalin masterpiece. Should she be punished?

These are but a few examples of why we should not judge collaborators hastily, or in a public manner that is doomed to raise the fervor of the masses. I write this also, to condemn all who rant and rave over lists (the Illuminati, the McCarthy era) that impugn guilt just by the names published on it. Is it right to judge in such a manner?

I am here to help

2005-01-20T14:21:00.000-05:00

It is generally understood that aid to third-world nations in crisis has not lived up to its potential. There are many reasons for this - corrupt governments, little or no governance, poorly thought out aid programs, etc. I would like to address one particular part of these aid programs - direct food aid. The way it is currently done is hurting more than it helps. Why?

Reason 1 - Most famines are regional. VERY regional. A key to this understanding is that the vast majority of residents in these countries are subsistence farmers. They are used to lean years. When you add, however, poor or no governance, brutal inter-tribal wars, and vast corruption - the typical becomes atypical. Lean years become starvation opportunities. Feet on the ground, however, clearly state that these areas of starvation are very regional. You can literally have people starving in one county (to use a US analogy) and thriving in the next. Again, it is NOT just the weather, but the misgovernance, the wars, and the corruption that exacerbate the situation. And the effects are limited to certain regions.

Reason 2 - These shortages are temporary. Going back to the previous argument - the vast majority of these people are subsistence farmers. They have had a few bad years and are struggling to keep food in their family's stewpot. Regional wars / corruption / feuds exacerbate these problems. But again, these subsistence farmers are used to these shortages and have lived through them before. Sadly, (x) percent die - then the next harvest kicks in, or they move to another area of the country, or their relatives from the US send money, etc. The issue you and I are facing in this tome is - are MORE dying because of our good-hearted, well-intentioned intervention?

Reason 3 - Corruption. Okay, we now have a crisis. People ARE starving. Pictures are splashed all over the television. And American's hearts hurt (mine, too). And we want to help. So what do we do? We send money and food to help.

Reason 3a - Money. Who do we send it to? The starving? Nope. They have no checking accounts, heck they don't even have a wallet. No, we send it to the government (see corruption above) and to aid agencies. We must remember that these are not governments made for the people and by the people. They are mostly thug dictatorships. Any money sent to their coffers STAYS in their coffers. Or, if spent on this REGIONAL problem, is filtered through the greedy hands of relatives and acolytes. They pocket their share, and perform the same function to their relatives and acolytes in the actual area in question. Very little cash actually benefits the starving masses.

Reason 3b - Food. Now, here is a tough one. How do we respond? They ARE starving, no matter that it is regional or temporary. So what do we do? We send out millions of tons of grain to the region. The problem with that? Again, of course, corruption. We must remember that these are not governments made for the people and by the people. They are mostly thug dictatorships. Any food sent to their coffers STAYS in their coffers - grain turns into money very quickly. Or, if the grain is actually shipped to the region where the problem exists, it is filtered through the greedy hands of relatives and acolytes - who of course turn it into money. All pocket their share, and perform the same function for their relatives and acolytes farther down the line. Only a limited percentage of grain gets to the starving masses. The rest is bought and sold on the open market. And thus the dilemma.

Did you get that last part? The grain is sold in the open market. Who sells it? The corrupt leaders. How much do they sell it for? Remember, they got it for free. So, of course, they sell it for cheap. To the starving in that region, but also to subsistence farmers all around the country. Heck, it is a money-making opportunity. But what does this do to the starving masses? It ruins the marketplace for THEIR goods. Remember, they are subsistence farmers. They scrape the ground for food for themselves and sell the excess to local markets in exchange for other foodstuffs. What happens to this marketplace, now overwhelmed with cheap, high-quality, imported grain? It goes to hell, that is what. How can a subsistence farmer compete? All a potential customer has to do is show up at one of the local marketplaces and buy a ready-made bag of American, high-quality wheat for half of what the local guy will sell it to you for. We actually ruin these starving peoples' ability to earn a living! Think about it. Say we in America were short on DVD players and the world sent us every single one we needed, for free. Would your local Circuit City still carry your locally-made DVD players at double the price? Of course not. The problem - food is no luxury item for them, it is both how they eat and how they make a living.

Reason 3c - Food distribution. Again, now we have millions of tons of wheat (or rice, or millet) available on the market for cheap. We also still have millions of tons that actually get to the region where the starvation exists. The question then - How to distribute it? Remember the previous scenario. These people are subsistence farmers spread out around a vast and dusty county. In past times of shortage they relied on moving to a better farming area, relying on relatives until the crisis passes, or getting money from relatives in the US. These still apply, but the heavy hand of free food distribution skews the process. Why? The aid agencies are not going to deliver the free food to each and every family spread out around the county. Too much money, too much time, too much waste. No, they set up refugee camps - and people stream to them by the thousands - instead of going to relatives' house for a while or staying on the farm and toughing it out. These refugee camps actually REMOVE these people from their homesteads. Remember also, their homesteads are NOT around the block and they do not have a car or public transportation. If they move to a refugee camp, they are stuck there. Certainly no farming is done on their local farm. What happens to the food for next year?

Secondly - remember again, this is a regional phenomenon, but the whole country is destitute and full of other subsistence farmers. Further, these same subsistence farmers who are NOT suffering in the drought ARE SUFFERING from a marketplace gone badly wrong. They can't sell their products because the aid agencies are giving it away just down the block. And don't forget the local warlords are also selling their ill-gotten share at half-price. Added to all of this is the simple greed of the local populace. Heck, if those darn Americans are giving away grain, I am going to get MY share. And they do. These refugee camps are way stations for greed. Whole families register many times over for grain handouts. I mean, how can you count them? They can't read, they cannot write, and they are certainly not registered to vote. So the aid agencies just keep handing out food, five or six times over. And this does not only work for the starving in the region, but also the other farmers from the surrounding counties. They want in on the gravy train too. So they send their kids, their wives, and their uncles and aunts. All, of course, register many times. And they get free grain too.

But what about next years' harvest? It gets short-shrift. Everyone is in on the gravy train at the refugee camp. Getting in while the getting is good. No one to farm the land (What are you - stupid? Why work when the Americans will give it to you?). So the devastated area and all the areas surrounding the devastated areas lie fallow - for years to come.

Do I have an answer? Nope. I want one - however. And I feel that once these facts are known, different methodologies can be used to solve these situations. A true moral conundrum.

Anchors aweigh

2005-01-20T13:06:00.000-05:00

Quotes from JP Morgan: Introduction to Behavorial Finance.

Anchoring is a mental tunnel that causes people to underreact to a particular set of facts. Anchoring defined: A tool the brain uses to solve complex problems by selecting an initial reference point and slowly adjusting to the correct answer as it receives additional information. Piattelli-Palmarini writes, that our brain "remains anchored to the first product we obtain. We seem never to stray far from that -- or never far enough. It is as though we were unable to forget our first estimate." The implications of this are deep, even disturbing. It points to the human mind's possible inability to take in external sensory data in a balanced and complete way, and evaluate it fairly. Instead, our minds latch on to information - and never let go.

Bargaining is a good example of how anchoring works. A well-trained car salesman negotiates with potential customers by starting at a high price and slowly reducing the price over time. His goal is to anchor the customer to the high price (regardless of the actual value of the car) and let the customer feel he negotiated a good deal by getting a lower price.

An example from David Gardner of the Motley Fool: It has been very difficult for the Depression era generation to move its money into stocks. Our grandparents are "anchored" in the belief that the market is risky and might crash again at any time. An entire generation was anchored to expectations like that from the stock market, undermining confidence in the business world at large. That's the natural result that came of psychological anchors established during one's adolescence or early adulthood (those impressionable years) in the Depression.

A corollary consideration: Should OUR GENERATION be as excited to be invested in the stock market as we are? Are we are anchored to the notion that the stock market is a good and strong thing, that stocks go up more often than not and make their investors rich, that business and technology are more productive than government?

My personal example - Amazon.com. I was never an purchaser of their stock, but I STILL (four years later) compare its stock price to its high-flying days in the triple-digits. I know that price was wrong then and I understand even more clearly - now - why it was wrong then AND wrong now, but I cannot shake that cool triple digit stock price. Odd, to say the least. And a warning to us all. Do you still judge something by what happened years ago? My bet is yes. Time to recalibrate.

Framing - part II

2005-01-19T20:20:00.000-05:00

One of the benefits of writing a blog targeted at learning is that you are constantly scanning for new inferences, new examples, and new ways to explain concepts. I found a great example of framing that strays a bit from my previous article on framing. In my previous article I use storytelling as the hook to explain framing. Here is a more scientific example - thanks to David Gardner of the Motley Fool.

The idea that David Gardner is trying to get at is that framing SETS the reference point. Gardner's source - Piattelli-Palmarini - writes, "Our problem here is that we do not compute final 'assets' but only DEPARTURES from a baseline." His example lays out an actual case study taken from the field of medicine. Two different groups of doctors are presented with the same situation: a serious disease has a new form of treatment, an operation. Doctor Group A is told (factually) that there is a 7% mortality rate within five years of the operation, and we see from actual clinical data how many recommend it. Doctor Group B, on the other hand, is told (factually) that there is a 93% survival rate within five years of the operation... and we see how many of them recommend it. You may not be surprised to find out -- and this is a real story, real clinical data, real recommendations -- that Doctor Group A hesitated to make favorable recommendations, while Doctor Group B was inclined to recommend the treatment. All this, despite no actual difference in disease or treatment -- two answers, for one reality.

Doctor Group A is presented a frame that encourages them to think about a departure from the baseline (7% mortality rate), while Doctor Group B is presented a frame that encourages them to think about a proximity to the baseline (93% survival rate -- continued health). Human nature focuses us on how far we're DEPARTING from a given state or starting point -- not on the reality, the actual assets. "In the world of perception," Piattelli-Palmarini writes, "an [optical] illusion is to reality what a fallacy is to reasoning: an argument that is not true but has the appearance of being so. There is always some truth in any illusion; there is always some persuasion in a fallacy. Our business is to distinguish between angels and devils."

Change paralysis

2005-01-14T17:51:00.000-05:00

Again, from "Why Smart People Make Big Money Mistakes." The premise of this observation is based on a resistance to change. Nothing terribly new here, but the examples may set you on your way to appreciating the lack of rationality available to the human creature.

In a two-part study, Samuelson and Zeckhauser presented this scenario to the participants: In the first study the participants were to inherit a large sum of money. They were then given a choice of four different options in which to invest that money. The options differed, basically, by risk. As would be expected, the participants chose where to invest their money based on their willingness to take risk. The interesting part comes from the second group. The second group was given the same exact scenario except for one detail - their money was already invested in one of the four choices. The participants could chose any of the four choices, but the money already resided in one of the four. The result? No matter which investment choice was presented as the status quo (already chosen for the participants) - it was always the favorite choice. For instance, 47% of the people who were already invested in choice number three chose to stay in that investment, vs. only 32% in the first group. Interesting!

The endowment effect is another aspect of this issue. Richard Thaler demonstrated this effect with a famous experiment. In a study at Cornell he gave half the students in a group a Cornell mug emblazoned with a Cornell logo. The mug usually sold for $6 in the bookstore. Then Dr. Thaler allowed the entire group to examine the mug and conducted an auction to see how much money the owners of the mug would sell it for and how much money those without mugs would purchase one for. The median price under which the mug owners would not sell their mugs was $5.25. The median price above which those without mugs were willing to pay was only $2.75. The only way to explain this discrepancy is the endowment effect. The mere fact of ownership was enough to make the mug owners value a commodity at almost twice what members of the same group were willing to pay for it.

Many businesses understand this, and try desperately to get their products in your hands. Just look around you in the next couple of months. Free trials everywhere! Money back guarantees galore! All things being equal, the value of that stereo (or a Dux bed, or a Bose Wave Radio) to you and yours will increase dramatically after it sits in your den for a couple of weeks. There is a positive side, of course. One that Gilovich likes (and I have mentioned before) is investing in a 401k program. If given a choice among, only a certain percentage will chose to save in this manner. Make it the default, however, and a very large percentage will stay with the status quo.

Decision paralysis

2005-01-14T17:15:00.000-05:00

From Gilovich's "Why Smart People Make Big Money Mistakes." The premise of this tome is that when forced to make a decision, how many choices you have and how the choices are framed make a large difference in the outcome. Read on.

Tversky and Shafir presented participants in a study with two scenarios. The first scenario was a choice between a $99 Sony CD player (considered a good deal at the time) or to defer the purchase entirely (to walk away without any purchase). Given this first scenario, the overwhelming majority chose to purchase the Sony and only a third chose to walk away without making a purchase. The second scenario added one other CD player, a high-quality Aiwa at a very good price of $159. In the second scenario only 27% chose the Sony, and a like amount chose the Aiwa. 47%, however, chose not to purchase anything. The additional choice offered by the second CD player actually decreased the amount of participants willing to make a purchase!

In another version of this experiment, by the way, other factors were introduced. Instead of a second CD player that was considered as high quality as the Sony, a noticeably less appealing CD player was added. In this case only 25% (vs. 47%) chose to defer their purchase. It seems that a lower quality CD player was not considered a legitimate choice.

In another study conducted at a high-end deli, customers were presented with two sets of jams available for tasting, a 20-selection set and a 6-selection set. In both cases, after the tasting the customers were presented with a coupon that gave them a discount on a purchase of one of the jams they tasted. Customers who were presented with 20 choices and then given the coupon purchased jam in only 3% of the cases. Customers who were presented with 6 choices and then given the coupon purchased jam 30% of the time. Interestingly, the 20 selection set drew far more participants (145 to 104). It seems customers were dazzled by the display, but so dazzled they could not make up their mind.

In another aspect of this same behavior Tversky and Shafir presented three groups with a survey to complete. To motivate them to finish each group was offered $5 to complete the study and return it. The difference between the groups was the time allotted to finish the survey. The first group was given five days, the second group was given 21 days, and the third group was given no deadline at all. The result: 65% of the first group returned the study, 40% of the second group, and 25% of the third group. Time is also a choice. Given more time and thus choices on what to do with their time, output goes down.

It seems that we may think we want innumerable choices of TV's, stereos, and cable channels, but our actions speak more loudly. It seems that the amount of choices raises the level of angst involved in a purchase and to avoid this psychic pain many just chose not to act.

Write on

2005-01-13T19:53:00.000-05:00

There are a lot of reasons I started this blog. I really do want to capture some thoughts for my children and grandchildren that will provide them with an advantage in life. I hope they read it. I would love to turn it into a book - sort of a little red book by grandad. There is another reason, however. Writing down the synthesis of an idea allows that idea to gel in your brain. Same with teaching. The old saying goes that if you really want to learn a subject, teach it. Writing works the same way, especially in this case. Most of the reading I do tends to be done by economists or mathematicians or scientists or philosophers. These guys, however, do not write clearly and concisely for an uneducated (comparatively) public. Half the stuff they do is strictly internal stuff intended to document a thought process or new premise. All of this does not lend itself to understanding. That is why writing a synthesis helps. If you kind of understand these issues (like me) than mulling them over, keeping a watch out for story-like examples and vivid methaphors allows you to grow into the idea. Then, with a little skill and a little luck you can synthesize a complex thought into a couple of lucid paragraphs. I think I have accomplished that. And the learning - by me and my progeny - well that is bonus.

False positives

2005-01-13T13:48:00.000-05:00

I was shocked by this. The ramifications for 'negative' tests (AIDS, lie-detectors, drug tests) are stupendous. All from Innumeracy by John Paulos.

The idea is this - If you take a test with 98% accuracy, that means that two out of one hundred tests will be wrong. The problem with that? The vast majority of 'wrong' readings will be false positives (you have AIDS when you don't), not false negative readings (you do not have AIDS when you do). Here is the math. This theory is known as Bayes theorem in the trade.

Assume there is a test for cancer (AIDS, lies, steroids) which is 98% accurate; i.e. if someone HAS cancer the test will be positive 98% of the time and if the person does NOT HAVE cancer the test will be negative 98% of the time. To prove this let's assume that in the group of 10,000 people we are testing 50 actually have cancer (.5%). In this scenario let's imagine that YOU have taken the test and have tested positive for cancer (AIDS, lies, steroids). Should you be concerned? Read on.

In these 10,000 tests - how many are positive? Remember, in this group 50 actually have cancer. The test will catch 98% of these, so we will have 49 positives. The test will miss one person who actually has cancer - a false negative. Here comes the scary part. Of the 9950 people who DO NOT have cancer, two percent will test positive for cancer. That is 199 people who have tested positive for cancer (AIDS, lies, steroids) who DO NOT have cancer. Of the 'positive' readings only about 20% are real!

Remember, many tests are much less than 98% accurate. PAP tests have been known to be 75% accurate. Lie detectors are notoriously inaccurate. Subjecting INNOCENT people to false positives for tests that have a negative stigma (AIDS, lie-detectors, drug tests) is downright scary.

Missing data - filtering

2005-01-13T13:17:00.000-05:00

This continues the previous argument about 'missing data.' My intent here is to broaden the missing data premise to other aspects of this problem - like numerology. Again, examples are from Innumeracy by John Paulos.

There is a very strong tendency in humans to filter out bad or failed outcomes and to focus on the good and successful. Some of this lack of probity is caused by a 'lack' of negative information to balance out the 'positive' information. Like in investment scams. All you hear about is the successes. The losers tend to be quiet and are certainly not trumpeted by the seller of the scam. The winners, of course, are touted by the seller as examples of the acuity of the program. The missing data - the losers. It is practically impossible to capture them. They just fade away and only the 'winners' are counted. Beware.

Another example is filtering by adding overwhelmingly positive information to the already discussed lack of negative information. Casinos are a good example. They make sure you (and everyone around you) know that a slot machine has paid out. Flashing lights, gongs, tinkling coins, and of course the excited shrieks of glee from your neighboring gambler among the closely packed machines. Seeing all the lights and hearing all these positive outcomes (from dozens of people - remember) it is hard not to get the impression that everyone is winning. Losses and failures are dead silent.

Numerology is a great example. All you hear about are the samples that match. The pope's title printed on his crown equals 666. Scary. Of course, no one bothered to do that same numerical check to, let's say, the Italian city of Rome's phone book. HUNDREDS of matches would come up under that same system that you matched the pope's title to. And, by the way, who chose the pope's name? You could have easily chosen one of hundreds of titles, or just about any of the thousands of 'names' closely related to the pope - until you found a match. Certainly ONE of these 'names' would match your theory, wouldn't it? Of course. If not, you just keep looking.Who chose that name in the first place? How many other names did NOT match up? Did they compare their theory to chance, by say matching it up to the Roman phone book? Of course not. That is MISSING DATA. And it is the basis for numerology or any one of thousands of conspiracy theories out there. Beware.

Another neat example. Filtering by sample size. Along almost any dimension, the AVERAGE value of a small sample is relatively close to the AVERAGE value of a large sample. For example, the average water level in a given river over a twenty five year period of time will be approximately the same as the average water level over a one year period of time. The challenge? The extremes of these two measurements will be far different. The extremes of the one year sample will be relatively narrow, with not too much variation (no great drought, no great flood). The twenty five year sample, however, will inevitably have a much larger variation, with LARGE swings in extremes (a great drought ten years ago, a great flood last year). So what, you say?

People, remember, focus on the winners and filter out the losers. Another way of saying this is that they focus on the EXTREMES and filter out everyday occuarances. We all remember Michael Jordan, and compare him inevitably to the hundreds of everyday players we see, well, everyday. MJ is the extreme. Another example; bad news. Given the large play in our society given to extremes (floods, tsunamis, 9/11) it is inevitable that we will focus on them and give little or no attention to the daily bland life we all live. What that does, however, is provide us with a false idea of the reality surrounding us. By focusing on the extremes we forget that - day to day - we are doing just fine. The world is NOT falling apart. Basketball players are not worse than they USED TO BE, and the news is NOT ALWAYS BAD. It just seems that way because we are overwhelmed by the extremes that we see reported daily and filter out the missing data - the everyday occurances of normal weather, good news, and your favorite basketball player.

Good money after bad

2005-01-11T23:36:00.000-05:00

Technically called the 'sunk cost fallacy,' it infers that very often our decisions about a future event are weighed down by the actions of the past (Gilovich). We finish a bad book because we are already halfway through it; we sit through a boring movie because we already bought the ticket; we spend too much money on car repairs (in comparison to the worth of the car) because we have already spent so much on the car.

Imagine you have a ten-year old minivan that needs a new transmission. The sunk cost fallacy states that you are more likely to plunk down the money for a new transmission if you have already sunk hundreds or thousands on the repair of your clunker. Another way to look at it: imagine you were given the van as a gift just the week before. Would you still spend thousands to fix the transmission? Of course not. Now, answer this. What is the difference (Gilovich)?

There are lots of examples of this - government spending is a big one. Say some senator has porked up a nuclear power plant for your area. Once that fatback program has started, it is hard to stop. Why? Sunk cost. We already spent $2B and we can't let that go to waste, can we? Of course, government contractors understand this psychological crutch, and use it often.

The key lesson. The money is already gone. A little inversion, Munger-style, helps a lot in this case. Pretend you started clean yesterday. Would you still do the deed?

Integrated expenses

2005-01-11T22:47:00.000-05:00

I have done this so many times I HAD to write about it. Integrated losses are a 'mental accounting' method (Gilovich) in which you attempt to 'integrate' a smaller expense into another, larger expense that you have already committed to. Doing this lessens the psychic pain involved in the secondary purchase compared to purchasing the same item separately. For example - if you wanted to purchase a better car stereo for your beater, but the cost of the stereo ($500) was too much to bear, you would delay the purchase. Later, when the beater breaks down and you have to buy a new car for say $15,000 - an additional $500 for the upgraded stereo system you were looking at is a lot easier to bear. Earlier, a $500 stereo was deemed too extravagent. Now, bundled with a larger purchase and with payments spread out over time - the stereo is eminently affordable (Gilovich).

I have done this so many times I could kick myself. I am pretty good at putting off expensive purchases until I can afford them, but provide me with an excuse to spend a large amount of money (television broke down, car broke down) and I will invariably wander the mall to purchase, say, that MP3 player I have been lusting after. Corporations understand this mental accounting model also, which is why they have a list of options to add to any purchase. You are already in the hole as far as your 'mental accounting' model is concerned, so what are another couple of options in the grand scheme of things? So you add the insurance policy, or you add the rider for your young children, or you add the fancy dancy paint coating that the dealer has slopped on to your beautiful new car. The margins on these add-ons are invariably higher than the margin on the base item, which of course fattens the seller's bottom line.

This is all part of the mental accounting model championed by Richard Thaler. More to come.

Storytelling

2005-01-10T22:42:00.000-05:00

Bear with me as I pursue an extremely powerful tool with only a layman's understanding.

Robert McKee states that "Storytelling is the creative demonstration of truth. A story is the living proof of an idea, the conversion of idea to action." People love stories. They have been telling them for thousands of years. Think of your grandmother and the stories of her childhood. Or stories of Abraham Lincoln. George Washington and the cherry tree. There are too many to count. But the key, the secret is that they tell a tale in the classical sense. Of one person fighting with himself (Washington) or with his environment (Abe Lincoln), incredible pressures bring out the best (or worst) in him, overcoming at some point, and a classical ending that ties the story up in a nice tight bow.

Why do I bring this up? Because it is an under-used tool in business and in our personal life. The basis of a classical tale, with conflicts, conclusions, sub-conflicts building up to bigger conflicts, etc. are wonderful tools for explaining the world (or your world) to others. I think this is one of the reasons why IPOs are so popular. They resonate with a tale of good vs. evil (Google vs. Microsoft, Novell vs. Microsoft, Apple vs. IBM) with all the conflicts, personalities and scenery changes that go along with a good tale. People love to hear about a company that is defying the odds, and they sit entranced by the tellers of the tale (the founders). It is just like Grandma used to tell, only it involves billions of dollars!

The premise is the same, in my opinion, for metaphors and similes. Same issue - people understand stories that involve conflicts, characters that are larger than life or events that are larger than life. They live them too. That is one of the reasons that I have tried to explain all these concepts that I have researched with examples. I just love it when baseball provides a story to illustrate a point. Like the story of pulling or not pulling Pedro. We all saw this in real life - on live TV. Now it illustrates a point that can be extrapolated into our entire lives. Just like George and the cherry tree.

So, the lesson is clear. Use a story to tell your product, or convince your grandson to be honest. Tell him about how Michael Jordan was a JV basketball player his Junior year in high school. Tell your stockholders a passion play about your company and its future. Use word pictures (metaphor and simile) and stories (complete series of events with conflicts, antagonists, and conclusions) to benefit your cause. Asking for more money - craft a story. Need to expand to another continent - craft a story. Need your teenager to be more diligent at home - craft a story.

I really like this one - and am trying to focus my corporate trained brain on it. Hard to do, but I think there are benefits to all.

Second-hand = second-rate

2005-01-07T13:12:00.000-05:00

In one of the most interesting segments of this ongoing tome, Gilovich states the reasons why you should doubt second-hand information. I found it fascinating, as it explains a little more clearly the human need to communicate and the human foibles that surround that need to communicate. The first aspect we must understand is that there is a contract between a teller of information and a listener of that information. By social contract (implied, but firm) each must fill a part. These implications, however, cloud the facts that need to be transmitted.

First, the information to be delivered must be justified. It cannot be a waste of the listener’s time. It must also be understandable. Then comes sharpening and leveling. The best example of this is the old game of ‘postman’ that we played as children. In this game the first player makes a statement to the next player, that player then passes that statement on to the next, etc. At the end of this chain there is usually great delight in how much the message has changed. Why? Gilovich posits that it is because of sharpening and leveling the message. You see, humans wish to be entertaining and understand that the attention span of the listener is finite. He, thus, tends to sharpen the message by what HE CONSIDERS the ‘gist’ of the message. Secondly, leveling occurs when the teller of the message de-emphasizes certain details. The key is, again, what the teller considers to be extraneous details. These two are bound to change the message as it was intended to be delivered.

An interesting aspect of this is how we hear about others that we have not met personally. Invariably we hear the sharpened and leveled version of that person. When we finally meet this person we find that he is not the demon or the saint portrayed by others. This is a great example of leveling and sharpening. Tellers of information want to get to the essence of that person they are describing, so they choose the most impactful parts of that person to pass on. What is missed is important, however. The context (was it a party, was it at church, was the person depressed?) matters greatly in these types of cases. My favorite example of this is President Bill Clinton. He was a magic persona. Put him in front of a Baptist convention and he was the next coming of Martin Luther. Put him in front of a Democratic Leadership Council meeting, and he was a VERY pragmatic politician. Which group did you hear about the President from?

Another human need is for the teller to be ‘entertaining.’ Boring facts make poor conversation. Third-hand twice-removed information is boring. To entice the listener you must be entertaining, and to convince her, it helps to be close to the perpetrator. Thus we tend to inject facts and proximity into our discussions. No longer is the person ‘my uncle’s cousin,’ he is now ‘my uncle.’ Think hard, haven’t you done this yourself? I certainly have.

Another aspect of this need to entertain our conversational partner is ‘distortion.’ To be entertaining we must also be informative, and sometimes that requires that we distort the picture to make sure the listener gets the point. The movie ‘Reefer Madness’ is a good example here. It is not entertaining enough to talk about the intricacies of pot usage. It is far more entertaining to exaggerate the point, showing useless hunks of human flesh – all caused by pot. Same with driver’s education classes. Remember those gory films? Same premise. Teens need to be entertained, and showing a true depiction of the statistical chances of a head on collision will have little impact. So we massage the message a bit to make it more ‘informative’ and entertaining. This same type of distortion happens in the media. “They” know that AIDS is a major factor in your lifestyle so they present distorted or one-sided statistics to present this information to an unmotivated listener. This implies that the reader must be entertained and to entertain them they must massage the message.

Inaccuracies are part and parcel of second-hand information. If you rely on second-hand information you may be relying on leveled facts or sharpened facts. You may also be subject to the teller’s need to be entertaining, and thus the facts may be distorted or certain facts may be left out. A key factor – the teller decides what to level and what to leave out. Remember, however, this is an implied contract. You, as a listener are part of the deal. To get proper information (and you cannot get all or even a significant amount of the information you need first hand) you must be aware of these dynamics and factor them in to your discussions and fact gathering initiatives.

Tragedy of the commons

2005-01-06T17:36:00.000-05:00

In a common pasture open to all, each herdsman will try to keep as many cattle as possible on the commonly held land. As a rational being each herdsman seeks to maximize his gain. He asks, "What are the costs and benefits of me of adding one more animal to my herd?" The benefit to the herdsman is he has one more animal to sell. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1. The cost to the common pasture is the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular herdsman is only a fraction of -1. Adding these together, the only sensible course for the herdsman is to add another animal to his herd. And another; and another.... But, and here is the catch; this is also the conclusion reached by each and every herdsman – and thus the tragedy.

Recent examples: Cattlemen leasing national land constantly pressure federal authorities to increase head count to the point where overgrazing produces erosion and weed dominance. Likewise, fisherman overuse the “inexhaustible” resources of the oceans, bringing species after species of fish and whales closer to extinction. The National Parks are another. Most parks are open to all, yet they are a fragile and finite resource. The value visitors seek is steadily eroded. There are solutions in place that work on the premise of ownership and licensing. Lobstermen in Maine must purchase the right to drop baskets for lobster and they receive only a finite space in which to lobster. This makes them cognizant of this fragile, but renewable resource, and they lobster accordingly.

You the man

2005-01-06T16:39:00.000-05:00

Humans tend to overestimate their value in the marketplace. We tend to make very optimistic assessments of our own abilities, traits, and prospects for future success. One of the most documented findings in psychology is that the average person believes very flattering things about themselves - beliefs that do not stand up to objective analysis. This is the point of this tome.

A large majority of the population thinks they are more intelligent, fair-minded; less prejudiced, and better drivers than the average person. This phenomenon is so reliable it has come to be known as the Lake Wobegon effect. Other statistics: 70% of high school seniors thought they were above average in leadership. In terms of ability to get along with others ALL thought they were above average. In another study of university professors 94% thought they were better at their jobs than their peers.

Some explanations of this phenomenon add credibility to this effect. One is that we tend to personalize victories and externalize defeats. In other words, when we win, it is all about us. When we lose, it is all about the referees. Another factor (already discussed above) is confirmation bias. We tend to not question our internal beliefs (we are right, after all), but tend to look very hard and very deeply at data that does not conform to our prior beliefs. Thus, if we 'fail' at something, we look long and hard at the macro environment, looking for excuses. Seldom do we look within, and when we do, we only look cursorily.

There is hope for us poor humans, however. As with multi-faceted expectations (previous article) many of the articles of belief we hold to be true are VERY ambiguous. When we rate ourselves highly for sensitivity and idealism - I mean, what do these things mean? Who knows? Further testing in this area shows a more balanced view of ourselves when we are asked questions that have a more objective bent - like math skills, or being well-read.

There is a great deal of dispute on WHY all of this is the case, and I will not attempt to delve in to it. The message is clear, however. When the rubber meets the road, you think you are better than the next guy. Chances are good, however, that you are not. Keep this in mind when you have lots on the line.

Explanations vs. truth

2005-01-04T17:42:00.000-05:00

Scientists utilize a formal set of procedures to guard against bias and errors. One - they use statistics to understand if what they are measuring can be explained by randomness. Second they utilize control groups and random sampling to achieve a breadth of data. Third, they use blind observation to test their hypothesis so that no personal bias creeps in. Fourth, they publish, which exposes them to the entire world of scientific thought where, inevitably, someone will duplicate their experiment.

Gilovich thinks the most important methodology, however, may be the requirement that the meaning of various outcomes be outlined well in advance. Experimental outputs MUST, like the input of a computer, fall in to certain pre-specified slots or they are not processed at all. You see, as previously discussed, we human beings are expert at explaining things. We are relatively deficient, however, at examining these ideas once they are formed. If we do not precisely specify the results we are looking for, we run the risk of 'detecting' too much data that confirms our preconceived positions. He provides various examples of how NOT doing this will cause problems.

One is multiple endpoints. A good example is a psychic who posits that 'a great politician' will die in the next year. The problem is, how do you define a politician? Gilovich uses the example of Armand Hammer, an industrialist. He was, however, once an ambassador. Does that count? How about if the President of the United States gets shot, but is not killed. Does that count? The list can go on and on, which is why there is still a psychic in every strip mall in America.

Another is variable windows. One belief is that things happen in threes. The problem is that the THIRD event defines the period. Could be a week, could be a year, and could be a decade. Who knows? If three planes crash in a month, the period is a month. If it takes three months, the period is three months. Gilovich states that by allowing the window of opportunity to be flexible, such beliefs can ONLY be confirmed, it is only a matter of time.

Multi-faceted expectations is another aspect of this flaw. This analysis flaw comes from a preponderance of data points. One or two of them are bound to match up. Consider babies. Invariably observers of babies will say they look like one or the other parent, even if the baby is adopted (and the observer did not know it). Why? Too many variables. A nose has millions of data points, as do sparkling eyes. Someone is bound to find something similar about some feature. Same with dream interpretation and psychics (once again). Keep the data points a vague as possible and as generic as possible, and everyone is happy.

Two-sided events vs. one-sided events can also be a determinant of HOW we remember things. Two-sided events are events that happen, in time, with a definite conclusion. Like a horse race. Both events, the win and the loss are bound to be remembered. One-sided events, however, only register if they turn out one way. Some people say that the phone always rings why they are in the shower. And what do they remember?... the one time it does. It does not matter (or register) that they have showered twenty times when the phone did NOT ring. The only event that registers is the confirmation of the theory - which the phone always rings while I am in the shower.

These kinds of issues, if understood and watched out for, can provide us with great benefits in the marketplace of human ideas. Learning about them is the first step. Getting them into your brain... oh well.

Preconceptions

2005-01-04T17:21:00.000-05:00

Human beings have an established tendency to make sure our expectations, preconceptions, and prior beliefs are factored in to any new information we receive. Nothing particularly new here, but Gilovich shows us that the methodology for doing this is not as it first appears. In short - we do not dismiss new ideas that distract or deter us from our prior beliefs; we actually examine them very closely. By doing this (and not examining our prior beliefs as closely) we strongly filter the results through our prior belief system. Even if the data does not agree, it is likely that we will massage it until it does.

Some of the stories Gilovich uses are interesting. His example of a football bettor is typical. In the experiment bettors were asked to document their losses and wins every week. Their documentation was then analyzed for these types of filters. Surprisingly, the time spent on analyzing losses was greater than the time spent on wins. This is surprising because the 'folk' tale about preconceptions is that we rapidly dismiss negatives, remembering only the positives. The bettors, however, still managed to dismiss their losses by subjecting their losses to extensive filters - such as 'the quarterback got hurt' or some other fluke element.

In another study a group was given two studies; one showed the deterrent efficacy of capital punishment and the other provided evidence against. Half the group received a study based on a same-state comparison that showed efficacy and a study based on different states (probably less valid) that showed it did not work. The second half of the group received the SAME studies but with their conclusions reversed. Thus, for both groups, half had their expectations supported by one type of study and opposed by the other, and the other half were exposed to the opposite pattern of data. Both groups discounted the study they received that opposed their beliefs and supported the study that supported their beliefs. Both groups found numerous flaws in the research that contradicted their initial beliefs. The net effect of the two results was that the participants became more convinced of the fundamental soundness of their beliefs (Gilovich).

Humans filter heavily information that does not agree with their initial beliefs. In many cases (cold fusion, perpetual motion) this is a good and useful thing. We do not, however, process our initial set of beliefs anywhere near as heavily. This opens up the door for prejudice and error, and needs to be actively fought. Once again, wisdom in a multitude of counsel is a wise choice. Darwin always immediately documented any negative thought that came to his head as he was working on a particular thesis. Why? Because he understood the human tendency to discount it, and he had to capture it quickly before his human brain worked against what may have been an integral point.

Missing data

2005-01-03T21:17:00.000-05:00

People make thousands of decisions every day. In most cases, these decisions are based upon the data at hand (the fire is hot, draw hand away). In many cases, however, we are provided with incomplete or unrepresentative data from which we draw conclusions. We must recognize this lack of data and make adjustments for them or surely we will believe things that are just not so.

Two examples will hopefully clarify this matter. Consider a baseball manager. He is constantly bombarded with lists of prospects and players and asked to differentiate between them. He has a finite amount of money and a finite amount of playing time. He must, then, choose. Choose wisely, you win. Choose poorly, you lose. That is NOT the whole story, however. You see, the manager also gets to confront his WRONG choices in a clear and decisive manner. Most of the rest of us don't (next example). If he chooses to pass on a particular prospect and that prospect turns into the next Alex Rodriguez, he is confronted with this fact daily, and it surely is included in his next round of decision-making. That is, of course, a great thing. He has all the data, failures and successes, to base his next set of decisions on.

Another example is the correlation between SAT scores and success in college. The data is hard to acquire. Why? Because people with high SAT's tend to go to Harvard and those with low SAT's tend to go to local colleges. When both get A's (a surprisingly common occurrence) it is judged that SAT's are not valid predictors. Is this the case, however? Certainly the data does not seem to add up. Two students, two widely different educational environments. It can be argued that an A at Harvard is not the equivalent of an A at the local community college. If that is the case, how do you measure - accurately - whether SAT's are proper predictors of performance? Well, you can certainly do better by assessing success at open-enrollment colleges. They provide a broader base of data where the 'failures' are included as well as the 'winners.' You need BOTH SETS to assess the data properly. Sadly, admissions officers (or employers, or grant reviewers) seldom receive challenges to their assessments. Their 'failures' disappear off the screen, never to be heard from (or compared to the "winners") again. Can you see the difference between this example and the baseball manager?

Alert humans must assess whether they are getting all the data, or just the data about their winning efforts, not their losers.

Confirmation bias

2005-01-03T19:47:00.000-05:00

It seems to be a human weakness in decision-making that when we search for evidence to decide a matter, we tend to look much more closely (and harder) at information that confirms the question being asked. Asked to assess the similarity of two entities, people pay more attention to the ways in which they are similar to the ways in which they differ. Asked to assess the dissimilarity, they become more concerned with differences than with similarities.

A really cool example: One group of participants was asked which to countries were more similar to one another, East Germany and West Germany, or Sri Lanka and Nepal. Most said that the Germanies were the most similar. A second group, however, were asked which two countries are more different. The majority said the Germanies were most different. The accepted interpretation of this experiment is that when a group is asked to focus on similarities, they prefer to decide based on those similarities (confirming the question). When asked to focus on differences, they prefer to focus on differences between the two (confirming the question). Both, of course, draw drastically different conclusions (Gilovich). It seems it is easier, in both cases, to think of confirming facts when the question is presented that way than to go through the psychic effort to confirm a negative (something did not happen).

You see, non-confirmatory information can be harder to deal with because it is usually framed as a negative, and humans sometimes have problems visualizing negative assertions (Gilovich). It is much easier to comprehend the statement "All Greeks are mortals" than "All non-mortals are non-Greeks." This may also explain the grammatical rule about the same issue - double negative statements. Just too hard to understand. Another aspect of this tome, of course, is the scientific method. This method forces experimenters to proclaim their bias and hypothesis beforehand, and then to experiment afterwards. This, of course, in a well set up experiment, overcomes confirmation bias. Another interest of note - those ubiquitous surveys that propound to tell us what WE think. Could these questions be subtlely tweaked to favor a confirmation bias?

Other studies have shown another interesting part of these experiments. It is not necessarily the case that we seek out information consistent with a (positive) hypothesis because of some desire to be correct. In many different experiments the people surely could not care what the outcome was (playing cards, guessing games, etc), yet they consistently sought out information consistent with their hypothesis - simply because it seemed to be the most relevant to the issue at hand.

Regression to mean

2004-12-31T19:31:00.000-05:00

Another key issue in understanding human behavior is regression to the mean. This term simply means that given a certain level of performance, on average, the next performance will be closer to the mean score of all previous performances. Thus, if a pitcher has a shutout two-hitter in a baseball game the odds say that he will have a poorer performance (on average) than his previous outing. Same holds for inferior performances.

Other examples by Gilovich: if a student scores 800 on an SAT, she is, on average, going to score lower the next time. Same in reverse, if he scores very low on the SAT, chances are he will score higher the next time. Another interesting aspect is the so-called "Sports Illustrated Jinx." Same premise holds. Usually you end up being on the cover of Sports Illustrated because of an amazing performance. Statistics show that your next performance will most likely be poorer than your previous outing, which of course was worthy of an SI cover.

One of the most interesting examples by Gilovich was in the area of child rearing. He states that, statistically, positive reinforcement has been proven to be more effective as a means to an end than punishment. However, anecdotal evidence shows the opposite. Or does it? Seems that when put to a scientific test where a student was directed (before the event) to show up late, early, or on time the teacher (another subject) used positive reinforcement when the student was early and negative reinforcement when the student was late. The problem was - the time the student showed up had zero correlation to the discipline, by design. The 'teacher,' however, stated that negative reinforcement worked better. Why? Because of regression to the mean. In almost all cases where negative discipline was used (the student was late) regression to the mean pretty much guaranteed that he would be earlier next time. So, from the teacher's perspective, negative reinforcement worked! The opposite was the case for positive reinforcement. When the student was early, postive reinforcement was given. Yet, by regression, that student was very likely to show up later than the previous incident. The teacher, of course, noticed this, and stated that positive reinforcement did not work.

See the problem? Regression almost guarantees that a negative incident will be followed by more positive incident, regardless of the discipline! And a positive incident is almost guaranteed to be followed by a less positive incident the next time, again, regardless of the discipline. So, when 'normal' discipline is used (negative for negative, positive for positive) the anecdotal evidence shows a lack of efficacy. Weird!

Per Gilovich: The inescapable conclusion is that our difficulty in accurately recognizing random arrangements can lead us to believe things that are not true - to believe that something is systematic, ordered and real when it is really random, chaotic, and illusory.

You are seeing things

2004-12-31T13:49:00.000-05:00

Humans are hard-wired to see order, pattern, and meaning in the world, and we find randomness, chaos, and meaninglessness less than satisfying. As a consequence, we tend to see order where there is none and we can spot meaningful patterns of order only when the vagaries of chance are operating in our favor (Gilovich).

The tendency to impute order to ambiguous stimuli is simply built into the cognitive machinery that we use to understand the world. Humans can profit from ordered phenomena in ways that they cannot on those that are random. The problem? This tendency is so strong and so automatic that we sometimes detect patterns of order when they do not exist (Gilovich).

One of the tools in this mis-perception is ad-hoc reasoning. Humans have this awesome power to put two and two together, even when they do not belong together. We are hard wired to do so. A dramatic illustration of this comes from research on split-brain patients. In essence, the patients are shown two different pictures, then directed to explain them. When the subjects are forced to explain pictures in a way that requires communication between the two hemispheres of the brain, they make things up. In spades. The subject examines the relevant facts (as she is capable of seeing them) and invents a story to account for it. This 'explanation' module can quickly and easily make sense of even the most bizarre patterns of information (Gilovich). Clearly, people cling to their beliefs very tenaciously even in the face of hostile evidence.

Why does this matter? Per Gilovich: The inescapable conclusion is that our difficulty in accurately recognizing random arrangements can lead us to believe things that are not true - to believe that something is systematic, ordered and real when it is really random, chaotic, and illusory.

We must be aware of our failings as a cognitive machine. This does not mean we can catch all mistakes, but it puts into perspective the long-running successes of western society, like the separation of powers, a free press, and safety in a multitude of counsel. All are tools that allow us to overcome our cognitive limitations.

Framing

2004-12-30T14:10:00.000-05:00

Framing is a linguistic tool to craft a more meaningful message. Dr. George Lakoff has written a book on it - Don't Think of an Elephant.

In a classic example, Dr. Lakoff tells his students not to think of an elephant, and he has yet to find one who has managed it. Thinking about elephants is the frame, and negating it simply reinforces it. This was the problem with Richard Nixon's famous declaration "I am not a crook."

Dr. Lakoff goes on (in a NYT opinion piece by Adam Cohen) - Democrats see campaigns as product launches, believing that if they roll out a candidate with the best features or positions on issues, voters will support you. Republicans understand that people vote their identity, not their self-interest - that they seek out candidates whose values seem to match their own. He is impressed by President Bush's turn of the phrase that we do not need a "permission slip to defend America." It reframed multilateralism, once a widely accepted foreign policy principle, as weakness and national infantilization.

Dr. Lakoff continues - "People do not necessarily vote in their self-interest. They vote their identity. They vote their values. They vote for who they identify with. They may identify with their self-interest. That can happen. It is not that people never care about their self-interest. But they vote their identity. And if their identity fits their self-interest, they will vote for that. It is important to understand this point. It is a serious mistake to assume that people are simply always voting in their self-interest.”

“There’s a way you can tell when you lack the right frames. There’s a phenomenon you have probably noticed. A conservative on TV uses two words, like tax relief. And the progressive has to go into a paragraph-long discussion of his own view. The conservative can appeal to an established frame, that taxation is an affliction or burden, which allows for the two-word phrase tax relief. But there is no established frame on the other side. You can talk about it, but it takes some doing because there is no established frame, no fixed idea already out there.”

This resonates with another topic I am working on - story telling as a way to sway audiences. In this highly technical age where we are very proud of our products and their features, it seems to me that this tool will amplify our impact on the marketplace.

There is always more

2004-12-29T21:02:00.000-05:00

In my current career as an analyst I have had to evaluate many different projects. A key learning - there is always more information than you currently have, and ten-to-one, one of the variables you know nothing of (yet) is a significant factor in the success or failure of your initiative. Two examples.

One - monetary policy. I have heard for over twenty years how the economy will blow up because the dollar is strong, the dollar is weak, the Fed is non-invasive, the Fed is invasive, Americans owe too much, Americans owe too little (okay, I made that last one up). You get the point. The issue, however, is much more complex. I have tried to systematically track all of the variables (and there are hundreds) and to ferret out the ten or so most significant. I cannot list them here, but the point is, more turn up every month or so. One economist says this is significant. Another states that this is significant. I am not talking, by the way, about new ways of looking at the same data, but new data itself. For instance - with national indebtedness and the trade deficit. One economist (finally) stated that a significant amount of that trade deficit is owed to subsidiaries of American companies. This may not settle the matter, but it shows the principle. What else is out there? Be aware. Always ask why. Never be satisfied with the pat answer. There is more out there, and within that data is a competitive advantage.

Second example - ISDN vs. DSL. When DSL first came out over ten years ago one of the main discussions among my peers was - will it succeed and how fast? This is important for companies like AT&T because the ramp of success will demand different levels of investment. ISDN was generally considered a gigantic failure, but common knowledge did not understand why. When DSL came along - all parties said - what else is new?' - we already have broadband (ISDN) and no one is buying. What is the big deal?

It took me two years of digging to come up with the answer. The main answer - ISDN required the telcos to revamp their gigantic 4E and 5E switches. This is a gut wrenching process because these switches control billions of phone calls and they cannot go down. ISDN was installed right over the top of these switches, and it was painful and very tedious. DSL was different. The DSL box set outside of the switch and fed the switch in its native format (ATM or TDM). No new software, inexpensive hardware. Vastly different amounts of success. Further, when ISDN was going forward there was no internet. Now, of course, DSL and the internet are one in the same thing, practically.

I found another example just today (a few weeks later than the original post) that I thought merited mention. Biotech foods. In all the arguments for and against genetic manipulation I have never heard of anything but the old Mendellian type of cross-breeding. Compare that mental picture to gene-spliced foods and you can see how some were freaked out. Turns out, however, that researchers have been manipulating plants for over a century by bombarding plants with radiation to achieve random changes in taste, appearance, etc. The issue? This bombardment also introduced thousands of other undocumented mutations that have long been introduced into the food chain. Not much honesty here, it seems, or maybe just ignorance. Either way, one of the main arguments against biotech foods was the unintended introduction of bad genes into the food chain. Turns out - we have been doing it for years.

Always look for more data. Always look for advantageous data that others (not so diligent) have not seen. It is a competitive differentiator.

The first casualty of war

2004-12-28T21:15:00.000-05:00

As the old saying goes, truth takes a powder during war. I have found this to be a very valid and useful statement for many other instances. In general, however, the rule states that whatever you hear during times of war - is without doubt wrong or at the very least, incomplete.

In most cases people (countries, corporations, anyone with something to gain via your belief) will not outright lie to you. Human beings are always looking for advantage. That is the basis of a lie. Downtrodden minorities in Iraq will quadruple death or rape figures given to the press to make their case for.... well for whatever. Interestingly, closer looks at these types of issues show that this information is at best a wild-ass guess and at worse - unknowable. I recall that for the first twenty four hours after the World Trade Center attack the death toll was stated numerous times as over ten thousand souls. It eventually (days later) settled close to the actual figure. The actual, accurate figure was not known for many weeks as the missing, dead, and liars were sorted out. Yes, I said liars. There were many cases of people using fictitious names, names of unlocatable loved ones, etc - to get in on the gravy train of pain and suffering that ended with a payoff of millions to the bereaved. If this dissembling can exist in this very civilized and well-documented country of ours - can you imagine what lies can be told in Bali or Iraq?

Anyway. The issue is lying. People do it all the time and entities with much to gain or lose (dominant minorities, downtrodden minorities, losing sides of battles, winning sides of battles) will lie because they know that by the time the truth comes out - the true figures, the true facts, the complete facts - they will not be on the front pages any longer. I have seldom seen this truism defeated.

Time to kill

2004-12-25T13:11:00.000-05:00

One of the most drastic differences between today's society and those in the past (let's say twenty-five years or so) is the ubiquitous news program. And it has created reams of problems. The main one - how does a broadcaster fill all that time?

I consider this one of the major impediments to garnering knowledge in today's society. News organizations must fill their time (the first rule of any broadcast medium - no dead air) or quash their source of income. Further, this need hyper-activates the competitive juices of media executives. Now, if you have dead air, or less-than-exciting air, the consumer of your product can change to a different channel in a millisecond. There are few second chances. Today's media customer is attuned to HIS needs, and his needs are to be entertained, even if the news is hard news. Not bloody enough? Change to Fox. Not ranting enough? Change to Rush. Not one-sided enough? Well, the choices are too vast to even list.

Compare this to even twenty-five years ago and you can see the difference. No changing channels in milliseconds (you had to get up off the couch - talk about primitive!). Further, you only had ten or so choices - total (not just ten news channels, ten total channels), not hundreds. Secondly, due to these constraints the choice for obtaining in-depth news coverage was limited to newspapers. And they had at least a day and ample print room to digest a story and come up with a defendable attempt at reason.

This, by the way, is not a rant on television executives. It is the nature of the beast. Were you there, you would do the same thing. It is how you make a living. It is to be left to greater minds on how to solve this conundrum, but as for me, I read the New York Times and the Economist. Together I get the least biased view I can obtain among a group of relatively poor choices. Once again opportunity costs light up the sky. If you have one hour a day for news gathering, where will you spend the hour?

Loss aversion

2004-12-23T16:35:00.000-05:00

Loss aversion explains people's reluctance to bet on a fair coin for equal stakes. The attractiveness of the possible gain is not sufficient to compensate for the possibility of a loss. For example, most respondents in a sample of undergraduates refused to stake ten dollars on the flip of a coin if they stood to win less than thirty dollars (Kahneman, Tversky). Some studies suggest that losses are as much as twice as psychologically powerful than gains.

A key part of loss aversion is - how is the question framed? Would you rather get a 5% discount, or avoid a 5% surcharge? The same change in price framed differently has a significant effect on consumer behavior. A problem is positively framed when the options at hand generally have a perceived probability to result in a positive outcome. Negative framing occurs when the perceived probability weighs over into a negative outcome scenario.

Loss aversion rears its ugly head quite often in the investment sphere. Terrance Odean states: Investors cling to losers because they simply don't want to admit their mistakes. They go into denial or "regret avoidance." By not unloading lousy stocks, a investor avoids the obvious pain associated with selling at a loss as well as the potential pain of seeing a poorly performing stock that he's dumped turn around. In essence the pain of a loss has far greater psychic weight than the exhilaration from an equivalent gain.

Exacerbating the effects of loss aversion is the Disposition Effect. In psychological terms the Disposition Effect is a subject's (investor) tendency to sell profitable stocks instead of unprofitable ones. Consider an investor making a speculative trade. She sells one stock and buys another because she thinks the stock she is buying will outperform the one she’s selling. To break even on this trade, the new stock doesn’t need to merely beat the old one. It needs to do so by enough to cover trading costs. Unfortunately for most investors, the stocks they buy subsequently underperform the stocks they sell. In studies, the average shortfall over a one-year horizon is more than two percent. If you add in the costs of trading—bid-ask spreads, commissions, and taxes—the shortfall more than doubles.

Walk a mile

2004-12-23T13:42:00.000-05:00

The purpose of this article is to flush out the 'walk a mile in his shoes' metaphor of biblical origin. My take on this is twofold. One, you CANNOT replicate experience by booklearning. Secondly, the wants, desires, and drives that you have may prove less than satisfying once you have walked a mile with them. I have had this happen to me dozens of times. One of my most basic wants was a vertical opening notepad like the old journalists or police detectives used to own. I looked high and low for one and spent an unbelievable amount of time wishing and wanting an planning on how I would succeed if I had one. Then I found one. Got it home, and after the first flush of usage found that I did not like having it in my pocket and I certainly did not like having to carry a pen with it. No doubt it was tremendously useful. But my style of work did not favor it. It now occupies a prestigious location in my desk drawer. Another great idea that did not work once it hit the road.

I have seen this same metaphor in the corporate world. One of the faults of an entrenched bureaucracy is that new initiatives call for new thoughts, new ideas and new patterns of work. How can you inject such things into a hide-bound bureaucracy? The answer is, you either upset the bureaucracy by injecting new thoughts (or personnel) into it (with dangers of upsetting the status quo or drowning the new life) or move someone over who shows ability. Guess which one most companies choose? That's right. Move Joannie over. She is kind of technical, and doesn't she use that Blackberry thingy all the time? She would be perfect! And she's a team player!

The problem, Joannie knows nothing (or very little) of how this new initiative moves about in real life. Who are the players? What are the prime movers? What is the key value proposition for differing sets of customers? Guess what? She learns, all right. After two years of bloody battles, losing money, time, and marketplace initiative the whole time. How could it be anything but? Too much too learn, too much to absorb, too much to pass on to others who are not immersed in these lessons as Joannie is.

Another favorite story of mine. I was building a deck. My next door neighbor, a union carpenter, came over to help. He could not do any work (a very lucky break for me), but he could offer pointers. Which he did. Ever heard of a cats' paw? Me neither. Now I cannot live without one in my tool box. Know how to straighten a sixteen foot board with only a hammer and a chisel? I do. Now. Know how to tell if a corner is square without using a rule? I do. Never would have known, and my deck would be less straight and less strong if I did not. You CANNOT learn these types of things from books (and this from me, the ultimate bookworm).

Walking a mile in someone else's shoes (or another initiatives' footsteps) cuts both ways. You are punished if you have the temerity to ignore the fact that you, as a newcomer, know next to nothing of this business and will take two years to get up to speed. This costs you time and opportunity costs. You pay dearly for this mistake. It also cuts neatly the other way. Want to excel at something you know nothing about? Get advice! Start working in the field with customers who do this kind of work. Find the experts and walk around with them. Just being around experts will save you hundreds of little mistakes. Now that is something a bookworm can appreciate!

Bureaucracy = longevity

2004-12-23T13:11:00.000-05:00

Definition of Bureaucracy: a type of administration characterized by specialization, professionalism, and security of tenure. Some of the most impactful creations of all time are based on bureaucracy. The Catholic Church. The national government. Any government. Corporations. The Chinese Civil Service. Unions. Academia. All are based upon specialization, professionalism, and tenure. By success I mean - can they exist profitably for the long term?

It may be best to understand these issues from their inverse - entities that do not enjoy tenure, professionalism, and specialization. The subsistence farmer. The entrepreneur. The local unaffiliated church. Family businesses. All are directly impacted by their LACK of professionalism, tenure, and specialization. By success I mean - can they exist profitably for the long term?

The answer in the vast majority of cases is no. And it ties quite clearly in to why these organizations have such an impact on our society and on our lives individually. To capture these magic enablers is to capture long life for your family, your business, and your financial impact upon others you care about.

Let me provide one good example that means a great deal to me. When I was in school, and a bit more foolish than I am today, I started a protest to change the schedule of college classes around a typical working college student's hours. I quickly had a fine following and was eventually allowed to speak to the Provost on this matter. He was polite, frank, and business-like. And he used every psychological advantage he could to get me out of there quickly. As I sat there I realized that from HIS point of view, I was a flash in the pan. He had to reckon with me at this point, but soon I would be long gone, forgotten, and engaged in another pursuit. He, on the other hand, would still be there, pulling a salary, and doing what he was paid to do. What a power differential!

Do you see the lesson? If you wish to truly succeed, you must build a bureaucracy that will outlive you and foment your ideas for years to come. Think Jesus. Think Paul. Think Constantine. Think Aristotle. All understood that if their ideas were to live beyond their life and their local environs, they would have to set up a system that enabled them to live on without the founders' physical presence.

Much to be learned here.

Goals define the task

2004-12-22T19:55:00.000-05:00

You cannot give proper advice, nor can you understand another's life until you understand the stated goals at hand. I have seen (and done myself) far too many people pipe up at improper times with suggestions and ideas that are way off the mark because they did not understand the goals at hand. Let's get to some examples.

One of my favorite hobbies is taking pictures. I enjoy the preparation, the editing, and the showing them off. I immediately run into conflicts with my family, however, when I try to share this passion with them. Why? Their goals for photography are far different. Take my wife. To her, volume is key. She wants each and every picture that passed through that lens to be represented somewhere. She wants a travelogue version. No detail is too poor. No light is too dim. Me, on the other hand - I want quality pictures. I go out with the goal of taking hundreds of well thought out pictures and then editing them to keep the best five or six. Do I miss some stuff? Of course. That does not trouble me. I want my best work on any page that someone sees. See the difference? My wife's goals are different and my advice to her for camera purchasing, camera maintenance, and photography hints must all revolve around her definition of photographic excellence. Mine will be far different.

Another photographic example. My son just won a new camera and the first thing I wanted to do was show him the 'proper' way to take a high-quality picture. Although he was pleasant and polite, I missed a vital piece of the equation. What does he want to accomplish with the camera? Does he just want to have fun and keep a few pics for mementos? Or does he want some tutorial on framing to better capture his girlfriend's beauty? I don't know, so how can I provide proper advice?

This same principle applies in the boardroom of every major corporation in America. Want to know what advice to give? You might want to start with Jesus' advice to walk a mile in their shoes. If that does not clue you in to the proper goals at hand, check out mission statements, press releases, and strategic documents. Know where they are going and how they are planning on executing on that plan and you can be awesomely helpful in their task. Ignore the goal - ignorance is the result.

Equations are not reality

2004-12-22T17:29:00.000-05:00

I admit to being over my head in this area, but bear with me. I cannot dispute this issue based on facts, as the facts are beyond all but a few thousand people in the entire world. I can, however, dispute this item based on the power of thought and analogy. This is the issue - just because you can formulate an equation and make it work mathematically (string theory, neutrino theory, big bang theory) does not mean that these equations perfectly represent reality. Heisenberg, of course, predates me on many of these issues in the quantum sphere. His premise was that you cannot measure anything smaller than a certain size, as it was unknowable due to quantum physics.

I am in good company with this doubt. Stephen Wolfram has recently published a book that posits that the quantum world is better understood as a computer program than as a set of equations. You see, all these equations provide an intellectually consistent theory that enables physicists to do pretty mathematics. It is easy to see its seductiveness to people with large mathematical gifts. They just do not tie properly to reality.

This is not, goes my standard caveat, to discount the incredible advances accomplished by the equation method. Only to throw doubt on the 'reality' of its observations. A healthy analog to understand this issue is astrophysics and astronomy. Seldom can you pick up an atronomy or astrophysics-oriented publication where a leading scientist does not reflect on a new discovery and posit that this new learning changes long-held premises. I think I am safe in saying that this same scenario happens just as often in quantum physics.

The issue, in many cases, is not reading deeply enough into the texts that are reported in the regular press. Scientists are trained to respect facts and to phrase conclusions based on a limited set of hypotheses (this only applies to... this does not seem to apply to...). Scientists, however, are human, and when prompted by a poorly trained journalist, will extrapolate on the positives of his experiment, prompting the journalist to posit these same proofs as proof of reality.

Nothing can be further from the truth. A rigorous reading of the leaders in any scientific field will easily reflect wonder, doubt, and long-running disputes among leading scientists in their little piece of reality. Electricity is a perfect example. Although we can control this mighty force in unbelievable ways, few seem to realize that at its core, we still poorly understand this awesome reality. Notice, of course, that does not keep scientists from manipulating the facts as we understand them for the benefit of society.

Why does this matter? Because in many cases (evolution, quantum theory, astrophysics) many are denounced by true believers (on both sides of the spectrum) who pronounce ignorance on those who do not believe in their particular brand of truth. Don't believe in evolution? You are an idiot. Have doubts about dark matter? You are an uneducated fool. Few realize or read widely enough to realize that these exact issues are still in dispute by the wisest scientific minds. Just read Stephen Hawking's latest lecture on Goedel's theorem. There is enough doubt and conscience in there for any thinking man.

Scientists have used equations to manipulate matter in incredible ways that will continue to benefit mankind for centuries. These equations, however, are flawed and based on hypotheses that are not totally proven. The constant learning of scientists (an incredible strength) shows this premise clearly. You cannot advance if you were not wrong before.

Opportunity costs

2004-12-22T16:28:00.000-05:00

Opportunity costs can best be understood as a 'zero-sum equation.' A zero-sum equation is: where the amount of "winnable goods" is fixed. Whatever is gained by one actor, is therefore lost by the other actor: the sum of gained (positive) and lost (negative) is zero. This corresponds to a situation of pure competition.

This concept is of ultimate importance in regards to time and to investments, especially with youth. Time is the ultimate zero-sum equation. It cannot be re-used, re-captured, or re-oriented. Once it is gone, it is gone. My concern is based on goals. If, and only if, it is within your goals to maximize your benefits as a human being - you are very time constrained. All the great men and women of the world have pondered this issue. There is NEVER enough time to accomplish all the tasks needed to fulfill the human equation. Especially today. Too many books to read. Too many web sites to peruse for facts. To many news events to fully understand. To accomplish great things you must apportion your time wisely.

Time spent in unproductive pursuits is time taken away from productive pursuits. Let me be clear, however. It is a vital part of the human equation to have down time. Recreation (re - creation) is a necessity. Going back to my goal statement, you cannot be a whole person without time for recreation and rest. That is what sleep is about. And the sabbath rest. And the natural instinct to play. But once those are taken care of, the hard facts of opportunity costs rear their ugly head.

Want to be successful in your chosen profession? Daily REPLACE on hour of television-watching with one hour of reading. The results will show themselves quickly. Of course, you may not watch television. How about replacing one hour of carousing with your friends with one hour studying history at your local library? The choices are endless. This tome is NOT intended to be a stick-in-the-mud rant on the evils of modern society. Heck, modern society GAVE us this leisure time and the means to fill it. Our forefathers had nowhere near the opportunities (time available) to excel (resources available). What a blessing modern society has given us! Now, however, we must maximize the benefit.

I want to introduce the fiscal end of this zero-sum equation also. Especially with our youth, one thousand dollars spent on a knick-knack is one thousand dollars less put into the pool of money that provides you with the magic of CHOICE. You see, financial independence is not about money, it is about choices. And if you choose to take money out of that pool, especially at an early age where the magic of compound interest really takes hold, you are robbing yourself and your children of choices.

Again, the disclaimer. No one wants you to die an old coot with a million dollars in his bank account. We love to read the accounts of these old-folks who live like paupers but actually have millions. That defeats the purpose of our original goal. But financial goals as I have stated are reasonable and doable, especially when started at an early age.

Your friends lie

2004-12-22T15:32:00.000-05:00

One of the most oft-quoted sayings I hear from my friends is "I would tell you...," inferring that the truth, if it were available, would be passed on to you. I find little proof that this is true in the vast majority of cases. The why is much more complicated, but in short - people lie, even your friends lie - for many different reasons. Maybe they care about your ego too much (no, that does NOT make you look fat), maybe they just don't want to get into a lengthy discussion on the matter (yeah, all republicans are pinheads, aren't they?) Maybe they are just tired, distracted, or unsure of a proper response (what is a dot-head anyway?) I can easily come up with dozens more, but I think the picture is becoming more clear.

Behavorial psychology weighs in on this issue by stating a couple of other instances. One of the main ones is - Manners. Manners can be considered a codification of society's norms and call reveal a great deal about how people are expected to behave. Miss Manners tells her readers 'you cannot go around correcting others.' Emily Post states 'the tactful person keeps his prejudices to himself.' These, and other studies show us that we are unlikely to have our misguided beliefs reined in by others. Other examples: People are very reluctant to act in a way that provokes disagreement. Disharmony oftens spoils social encounters and it is understandable that people will feign agreement to head off conflict (Gilovich).

One saying that comes to mind whenever this happens to me is "The lady doth protest too much, methinks." Again, the issue is NOT the intent nor the morals of the person who is doing the lying. He could be just saving you from a terrible ego-related crash. Sometimes the truth is just too darned difficult to deal with at a particular time. The issue is - prove all things in a multitude of counsel. Sooner or later someone will tell you the truth. Now, discerning which of these counselors is telling the truth... well, that is beyond my pale.

Your brain lies

2004-12-22T14:39:00.000-05:00

Humans have powerful intellectual tools for processing vast amounts of information with accuracy and dispatch, and questionable beliefs derive primarily from the misapplication or over utilization of generally valid and effective strategies for knowing (Gilovich). It is “rational” for people to adopt rules of thumb (guesses) that save them finite time and finite brainpower. In many cases, however, these guesses are wrong. Some guidelines:

*Individuals develop general principles based on personal experience.

*Individuals rely on ‘rules of thumb’ to draw inferences from the information at their disposal.

*People are susceptible to particular errors because the methodology they use is imperfect, biased, or incomplete. (R.W. Parks/L.F. Davis 2004)

The human-to-world interface is a limited tool in the pursuit of truth. Eyesight is the most common example. The hundreds (if not thousands) of examples of optical illusions point to a very simple fact - the eye takes in far more data than the brain can handle. The eye - brain interface is the limiting factor. It sorts, it guesses, and it categorizes. Then it sends the data onward to the rest of the brain for analysis. Many other world-human interfaces are just as limited in function and must be counteracted with knowledge and rationality. You see, the world does not play fair. It presents us with messy data that are random, incomplete, unpalatable, and secondhand. It is our attempt to cope with these difficulties that produce facts that are not so (Gilovich).

Another very interesting aspect of this issue is the ability of the brain to explain away obvious facts. A dramatic illustration of this comes from research on split-brain patients. In essence, the patients are shown two different pictures, then directed to explain them. When the subjects are forced to explain pictures in a way that requires communication between the two hemispheres of the brain, they make things up. In spades. The subject examines the relevant facts (as she is capable of seeing them) and invents a story to account for it. This 'explanation' module can quickly and easily make sense of even the most bizarre patterns of information (Gilovich).

These are not to be interpreted as moral failings, but instead as a human's limited ability to ascertain actual facts from the hodge-podge of inputs provided by the senses. My take - Human beings are capable of rational thinking, but it is not the default. It must be forced upon a sometimes unwilling psyche.

Long running disputes

2004-12-22T13:50:00.000-05:00

There is usually a very good reason for long-running disputes (the nature of God, the valuation of stocks). I have found the main reason is that the facts in play are clearly in dispute. This is usually because of poor writing and inconsistent labeling. The nature of God is a very good example. The dispute has been going on for centuries and little has been accomplished except a great deal of name-callling. The Bible was written in a time when rigorous editing was not feasible. Thus, you have poorly defined terms (the MANY names of GOD), poorly crafted phrases, and of course, idealized editing (most of the stuff in the Bible was written LONG after the events took place). Further, much of the Bible (especially Paul's writings) are based on exhortations, not the most ideal format to clearly define a set of doctrines. It is also clear that in this particular case that the facts may be unknowable.

There are a couple of proof points available, but the most meaningful is the example of the ancient philosophers. Having read their tomes you will find a couple very drastic differences between their writing and the Bible's (to follow my previous example). One - they define terms - vigorously. Two - their goal is different. They are attempting to set up a doctrinal backdrop for their many musings. In most cases the vast majority of a book written by philosophers focuses on this doctrinal backdrop. The musings come later. This style of writing was not available to the more ancient texts, such as the Bible.

Let me make clear, however, this posting is based on Long-running disputes, not the Nature of God. That is only one very good example that I have agonized over for many years. The lesson is clear for many other objects of dispute. Examples - valuation of stock. Ever read the HUNDREDS of tomes and discourses about the proper way to value stocks? Confusing, to say the least. Notice also, that unlike the nature of God conundrum (unknowable) this long-running dispute is based on execution, and execution, by definition, is future-oriented. Measurements can be made o'plenty, but how those facts are acted upon is unknowable. And then, of course, comes the dishonesty of the published facts these guys base their valuations on... but that is another tome.

Statistics - start points

2004-12-22T13:23:00.000-05:00

Statistics are one of the most powerful tools available to mankind. And one of the most devious. Users of statistics can make their statistics appear more favorable or less favorable by varying the starting point of their measurements. Let's take stock portfolio valuation as an example. During any year the Dow varies by hundreds if not thousands of points. Further, over many years the same is more true. A vendor (let's say a Mutual Fund company) will CHOOSE which year to start her measurements and also CHOOSE within that particular year when to start her measurements for her greatest benefit. Thus, if she wishes to show the greatest amount of growth for her mutual fund she is flogging, she will maximize it by picking the lowest year and the lowest point within that year as her starting point. Measured over many years this will add many percentage points of perceived growth to her mutual fund. Her customers, of course, do not have this benefit. They must buy in the present, not knowing the future.

In case you have not caught on - the inverse is also true. This mythical mutual fund gal can also manipulate reported results by massaging end points. Both are tools that are used to exaggerate the actual success of their funds over time.