‘One of the smartest books of all time’: Aptly said. I am reading this book and m completely in love with it. I m gonna write about it at length. But got hazaar work now. Probably later..
So i am back and let me use my Xmas holls to some use. As promissed, here is my understanding from book by Nassim Nicholas Taleb. This book discussed fundas on neoeconomics & normative economics and brings the concept of behaviorial economics in witty and concise format. Pretty much easy to understand, Not like other gyaan books. Ya, but surely need to concentrate than just cursory look. I am putting down some snippets just to remember the style and fundas written by him. I just loved it and completely able to relate to many of it.
Some favourite snippets from the book:
ON THE NONLINEARITIES OF LIFE
The twist: Life is unfair in a nonlinear way. How a small advantage in life can translate into a highly disproportionate payoff, or, more viciously how no advantage at all, but a very, very small help from randomness can lead to bonanza.
WHEN IT RAINS, IT POURS
As I am writing these lines, i am suddenly realizing that the world’s bipolarity is hitting me very hard. Either one succeeds wildly, by attracting all the cash, or fails to draw a single penny. Likewise with books. Either everyone wants to publish it, or nobody is interested in returning telephone calls (in the latter case my discipline is to delete the name from my address book). I am also realizing the nonlinear effect behind success in anything: It is better to have a handful of enthusiastic advocates than hordes of people who appreciate your work- better to be loved by a dozen than liked by the hundreds. This applies to the sales of books, the spread of ideas, and success in general and runs counter to conventional logic. The information age is worsening this effect. This is making me, with my profound and antiquated Mediterranean sense of metron (measure), extremely uncomfortable, even queasy. Too much success in the enemy (think of the punishment meted out on the rich and famous); too much failure is demoralizing. I would like the option of having neither. FOOLED BY NUMBERS I have often been faced with questions of the sort: “Who do you think you are to tell me that I might have been plain lucky in my life?” Well, no body really believes that he or she was lucky.
THE SANDPILE EFFECT
Nonlinear effect resulting from a linear force exerted on an object. A very small additional input caused a disproportionate result. Popular wisdom has integrated many such phenomena, as witnessed by such expression as “the straw that broke the camel’s back” or “the drop that caused water to spill”. These nonlinear dynamics have a bookstore name, “chaos theory”, which is a misnomer because it has nothing to do with chaos.
RANDOMNESS AND OUR MIND: WE ARE PROBABILITY BLIND
For a long time we had the wrong product specifications when we thought of ourselves. We humans have been under the belief that we were endowed with a beautiful machine for thinking and understanding things. However, among the factory specifications for us is the lack of awareness of the true factory specifications (why complicate things?). The problem with thinking is that it causes you to develop illusions. And thinking may be such a waste of energy! Who needs it!
Accordingly, rules have their value. We just follow them not because they are the best but because they are useful and they save time and effort. It is a fact that out brains would not be able to operate without such shortcuts. Some XYZ idea is that if we were to optimize at ever step in life, then it would cost us an infinite amount of time and energy. Accordingly, there has to be in us an approximation process that stops somewhere. You stop when you get a near-satisfactory solution. Otherwise it may take you an eternity to reach the smallest conclusion or perform the smallest act. We are therefore rational, but in a limited way: “boundedly rational.”
Few started figuring out rules in humans that did not make them rational- but things went beyond the shortcut. For them, these rules, which are called heurisitcs, were not merely a simplifications of rational models, but were different in methodology and category. They called them “quick & dirty” heurisitics. There is a dirty part: These shortcuts came with side effects, these effects being the biases such as inability to accept anything abstract as risk.
TWO SYSTEMS OF REASONING
There are two possible ways for us to reason, the heurisics being part of one – rationality being part of the other.
Another branch of research, called evolutionary psychology, developed a completely different approach to the same problem. They believe that the reason lies in the way things are presented to us in the current environment. The statement “Our brains are made for fitness not for truth” by scientific intellectual Steven Pinker, summarizes it all. Our brains are not made for understanding things but think that they are not biased because we do not use them in their real habitat.
I HAVE NO CONCLUSION
1) We do not think probabilistic when making choices but use heurisitcs; 2) We make serious probabilisitc mistakes in today’s world- whatever the true reasons.
