Links

"[There are] misperceptions of the salesman as somebody who’s wearing a shiny suit selling somebody something that they don’t need. And so, we have a couple of responses to that. We have a specific response to that, which is actually the role of sales is...not to sell something you don’t need — it’s essentially to help somebody buy what they actually do need.... But even deeper than that, the thing I tell the engineers is, look, dealing with customers, it’s another systems problem. You are the master of solving a systems problem, which is how to get the computer to do what you want. People aren’t computers, they’re different, but there is a system for dealing people. You can engineer a system for dealing with people. And actually, when you work with top-end sales people, what you find is they have incredibly elaborate, very real systems. Like, very, very, very thoroughly thought-through kind of abstract systems of how they basically run a large-scale sales campaign and how they deal with the customer." --Marc Andreessen  (Source)

Warren Buffett describes Haven's plan to improve health care while controlling costs (video) (LINK)

Warren Buffett Is No Fan of Modern Monetary Theory (LINK)

Investing: Theory vs. Practice - by Massimo Fuggetta (LINK)

The Hidden Risk When You Own Stocks for the Long Run - by Jason Zweig ($) (LINK)

Understanding Brookfield and Oaktree’s US$500-billion colossus (LINK)

Stock Analysis: The Most Important Things (Plus, A Case Study) - by Vishal Khandelwal (LINK)

Why our fund managers would never own up to an error like Buffett did on Kraft Heinz (LINK)

Related book: The Courage to Be Disliked

Bill Gurley - Runnin' Down a Dream: How to Succeed and Thrive in a Career You Love [9/14/2018] (video) (LINK)

Decentralized Finance - by Fred Wilson (LINK)

Fives Steps Toward Fairness in College Admissions - by Rick Bookstaber (LINK)

a16z Podcast: For the Billions of Creatives Out There (LINK)

This special, almost-crossover episode of the a16z Podcast features Billions co-showrunner Brian Koppelman — who also co-wrote movies such as Rounders and Ocean’s 13 with his longtime creative partner David Levien — in conversation with Marc Andreessen (and Sonal Chokshi).

Recode Decode Podcast: European commissioner for competition Margrethe Vestager (LINK)

Yes, It’s All Your Fault: Active vs. Passive Mindsets (LINK)

FoundMyFitness Podcast: Dr. Matthew Walker on Sleep for Enhancing Learning, Creativity, Immunity, and Glymphatic System (LINK)

Related book: Why We Sleep

"The only thing each of us lives and loses is the present." --Marcus Aurelius 

Links

"Charlie and I don’t think about the market. And Ben [Graham] didn’t very much. I think he made a mistake to occasionally try and place a value on it. We look at individual businesses. And we don’t think of stocks as little items that wiggle around on the paper and that have charts attached to them. We think of them as parts of businesses.... I know of no one that has been successful at...[making] a lot of money predicting the actions of the market itself. I know a lot of people who have done well picking businesses and buying them at sensible prices. And that’s what we’re hoping to do." --Warren Buffett (1999)

What Exactly Happened to David Einhorn? (LINK)

The Hidden Risk of Passive and Index Hugging - by Rick Bookstaber (LINK)

Exponent Podcast: Platforms Versus Aggregators (LINK)

Eric Topol reviews Bad Blood, John Carreyrou's book on the Theranos saga (LINK)

Scott Adams talks to Naval Ravikant (video) (LINK)

How the Enlightenment Ends - by Henry A. Kissinger (LINK)

How Tom Wolfe Changed My Life - by Scott Kelly (LINK)

Related book: The Right Stuff

"Why — that’s the most important question of all. And it doesn’t apply just to investment. It applies to the whole human experience. If you want to get smart, the question you’ve got to keep asking is: Why? Why? Why? Why? And you have to relate the answers to a structure of deep theory. And you’ve got to know the main theories. And it’s mildly laborious, but it’s also a lot of fun." --Charlie Munger (1999)

Links

"One way to determine which is the good business and which is the bad one is to see which one is throwing management bloopers - pleasant, no-brainer decisions - time after time after time." --Charlie Munger

First Principles: The Building Blocks of True Knowledge (LINK)

An Art Leveraging A Science - by Morgan Housel (LINK)

Come easy, go easy: The Tech Takedown! - by Aswath Damodaran (LINK)

Passive Aggressive Investing and FAANG - by Rick Bookstaber (LINK)

Why the co-dependence between big tech and passive and algorithmic investing could cause far more pain than most anticipate (LINK)

Is College Worth the Cost? - by Ben Carlson (LINK)

Adventures in Finance Podcast -- Crude Awakening: The Yuan, the Dollar, and the Battle for Global Supremacy (LINK)

The full audio of Recode and MSNBC’s interview with Apple CEO Tim Cook (Recode Decode Podcast) (LINK)

Cities are the new Galapagos - by Matt Ridley (LINK)

Academia’s Consilience Crisis [H/T @mjmauboussin] (LINK)

Book of the day: Four Seasons: The Story of a Business Philosophy
[And for those especially interested in business biographies from the hotel industry, also see: 1) Be My Guest (Hilton); 2) Half Luck and Half Brains (Holiday Inn); and 3) Without Reservations (Marriott)]

Links

“People create their worlds with the tools they have directly at hand. Faulty tools produce faulty results. Repeated use of the same faulty tools produces the same faulty results. It is in this manner that those who fail to learn from the past doom themselves to repeat it. It’s partly fate. It’s partly inability. It’s partly… unwillingness to learn? Refusal to learn? Motivated refusal to learn?” -Jordan Peterson, 12 Rules for Life [H/T Taubes]

This circulated several years ago, but in case any readers have never seen it [H/T @FocusedCompound].... Notes from Joel Greenblatt’s Special Situation Class at Columbia Business School from 2002 through 2006

The New 2018–2019 Uber Cannibals - by Mohnish Pabrai (LINK)

How to Talk to People About Money - by Morgan Housel (LINK)

Domino’s Pizza Founder Tom Monaghan’s Five Priorities for Success - by Ian Cassel (LINK)

Friar Tuck Financial Services: A Classic Unbundle/Re-bundle Strategy - by Tren Griffin (LINK)

Facebook and the Awakening of Our Private Selves - by Rick Bookstaber (LINK)

Scott Galloway, Prof. NYU Stern School of Business – Keynote | OMR18 (video) (LINK)

The History of Singapore: The Miracle of Asia (Full Documentary) [H/T Tim Ferriss] (LINK)

Related book (which a mentor of mine once said was probably the most useful book ever written): From Third World to First: The Singapore Story - 1965-2000

Einstein’s Theory of Special Relativity (MetaLearn Podcast) (LINK)

Book of the day [H/T Josh Wolfe]: Immortality: The Quest to Live Forever and How It Drives Civilization – by Stephen Cave 

Links

"I have always thought that one man of tolerable abilities may work great changes, and accomplish great affairs among mankind if he first forms a good plan and, cutting off all amusements or other employments that would divert his attention, makes the execution of that same plan his sole study and business." - Ben Franklin

A Conversation with David Swensen [H/T @jasonzweigwsj] (LINK)

Related article: Yale's Swensen Sees Low Volatility as `Profoundly Troubling'

Lessons Learned from The Outsiders & How Intelligent Fanatics are Different (LINK)

Pension Actuaries: The Joke is On Us - by Rick Bookstaber (LINK)

Is the Business Cycle Dead, Or Just Hibernating? - by Frank Martin (LINK)

Why Sales Quotas Ruined Wells Fargo (LINK)

Will Amazon disrupt healthcare? (LINK)

Sebastian Junger: "Tribe: On Homecoming and Belonging" | Talks at Google (LINK)

Long-lost da Vinci painting fetches $450.3 million, an auction record for art (LINK)

How the Zombie Fungus Takes Over Ants’ Bodies to Control Their Minds - by Ed Yong (LINK)

Life Without Guts - by Ed Yong (LINK)

Book of the day [H/T @jasonzweigwsj]: The Quotable Darwin

"I have steadily endeavoured to keep my mind free so to give up any hypothesis, however much beloved (and I cannot resist forming one on every subject), as soon as facts are shown to be opposed to it. Indeed, I have had no choice but to act in this manner, for with the exception of the Coral Reefs, I cannot remember a single first-formed hypothesis which had not after a time to be given up or greatly modified. This has naturally led me to distrust greatly deductive reasoning in the mixed sciences. On the other hand, I am not very sceptical,–a frame of mind which I believe to be injurious to the progress of science. A good deal of scepticism in a scientific man is advisable to avoid much loss of time, but I have met with not a few men, who, I feel sure, have often thus been deterred from experiment or observations, which would have proved directly or indirectly serviceable." - Charles Darwin

Links

Asking the Right Questions (LINK)

The smaller the company and the more illiquid its currency, the more the investment process becomes an art and less of a science. Just like with any art form, whether it’s music, acting, painting, etc it just takes a lot of time and experience to do it well. The art of investing in small companies is evaluating management teams. If you don’t believe that management is important when investing in small companies like microcaps, just wait a little longer. You will.

The Generalized Specialist: How Shakespeare, Da Vinci, and Kepler Excelled (LINK)

The Rot That Lies Beneath Some Index Funds - by Jason Zweig (LINK)

Investors Playing ETF Rout Pushed Junk Bonds to Brink of Chaos [H/T Rick Bookstaber] (LINK)

Camouflage and dope in a Bull Market - by Sanjay Bakshi (LINK)

Kyle Bass predicts investors are getting ready to pour billions back into Greek economy (LINK)

Stitch Fix and the Senate - by Ben Thompson (LINK)

Robert Sapolsky Explains How Religious Beliefs Reduce Stress (article and video) (LINK)

Links

As earnings engineering escalates, are we at risk of a corporate credibility crisis? (LINK)

In his 1Q16 shareholder letter, Warren Buffett issued a stern warning about the proliferation of non-Generally Accepted Accounting Principles (GAAP) metrics in corporate earnings reports: “It has become common for managers to tell their owners to ignore certain expense items that are all too real.” According to FactSet, more than 90% of S&P 500 companies now use non-GAAP numbers, up from 58% 20 years ago. Meanwhile, the difference between GAAP earnings per share (EPS) and non-GAAP EPS has skyrocketed — non-GAAP EPS exceeded GAAP EPS by an average of 25% in 2015, compared with just 6% in 2013. 

Used judiciously, non-GAAP numbers — from EBIT and EBITDA to free cash flow and operating income — can provide valuable insight into a company’s present health and future prospects. However, as the practice snowballs, systemic risks become increasingly apparent. More and more, non-GAAP numbers are being cherry-picked to obscure weaknesses and exaggerate strengths. This not only compromises the ability of investors to diagnose winners and losers, but threatens to distort the U.S. equity market as a whole.

Two Sides of the Same Coin - by Frank Martin (LINK)

Our Low Risk (Low Volatility) World - by Rick Bookstaber (LINK)

FT Alphachat podcast: A sit down with Adair Turner (LINK)

From earlier this year... Josh Waitzkin on The Progression Project podcast (LINK)

Related previous post: Josh Waitzkin with Adam Robinson (video)

Exponent Podcast: Episode 130 — The 50,000 Foot View (LINK)

a16z Podcast: Putting AI in Medicine, in Practice (LINK)

The Economist asks: Richard Dawkins (podcast) (LINK)

Today's Audible Daily Deal ($2.95): Astrophysics for People in a Hurry - by Neil deGrasse Tyson

Book of the day (author mentioned by Susan Cain in her excellent chat with Shane Parrish): Me, Myself, and Us: The Science of Personality and the Art of Well-Being - by Brian Little

Links

"Examine the record of history, recollect what has happened within the circle of your own experience, consider with attention what has been the conduct of almost all the great unfortunate, either in private or public life, whom you may have either read of, or heard of, or remember; and you will find that the misfortunes of by far the greater part of them have arisen from their not knowing when they were well, when it was proper for them to sit still and be contented." - Adam Smith [H/T "Manias, Panics, and Crashes"]

As Credit Booms, Citi Says Synthetic CDOs May Reach $100 Billion [H/T Matt] (LINK)

Richard Bookstaber discussing his book The End of Theory (video) (LINK)

A Closer Look at Ray Dalio’s 1937 Scenario (LINK)

The Knowledge Project Podcast: Susan Cain: Leading the “Quiet Revolution” (LINK)

Related book: Quiet: The Power of Introverts in a World That Can't Stop Talking

The First Rule of Leadership - by Ben Horowitz (LINK)

Walmart’s late-mover advantage (LINK)

Alex Rubalcava talks to Meb Faber (podcast): “If You’re Going to Be an Angel Investor… You Have to Be Devoting Significant Time to It” (LINK)

Atul Gawande talks with Krista Tippett (LINK)

Related book: Being Mortal: Medicine and What Matters in the End 

Related links: 1) Atul Gawande: "Being Mortal: Medicine and What Matters in the End" | Talks at Google; 2) Dr Atul Gawande: The Future of Medicine (The Reith Lectures 2014)

The Reith Lectures: Michael Sandel on Bertrand Russell (podcast) (LINK)

The Reith Lectures: Brian Cox on Robert Oppenheimer (podcast) (LINK)

The Randomness of Language Evolution - by Ed Yong (LINK)

Forest Animals Are Living on the Edge - by Ed Yong (LINK)

Scientists Identify a Third Orangutan Species - by Ed Yong (LINK)

Links

"My perspective...is that we’re really not surprised nearly often enough, because one of the things that really happens, as soon as an event occurs, we have a story. That’s automatic, that System 1 generates stories. It looks for causes, it looks for stories, and it generates its tentative stories that, if endorsed by System 2, become beliefs and opinions. But the speed at which we find explanations for things that happened makes it difficult for us to learn the deep truth. And the deep truth is that the world is much more uncertain than we feel it is. We see a version of the world that is...a lot simpler and a lot more certain than the world really is." - Daniel Kahneman (Source)

How to Remember What You Read (LINK)

Our Biggest Economic, Social, and Political Issue The Two Economies: The Top 40% and the Bottom 60% - by Ray Dalio (LINK)

A Dozen Lessons from Megan Quinn about a Growth Mindset - by Tren Griffin (LINK)

Richard Bookstaber on WealthTrack (video) [H/T Will] (LINK)

Eddie Lampert and ESL's response to The Globe and Mail article about Sears Canada (LINK)

What Mongolian Nomads Teach Us About the Digital Future - by Kevin Kelly (LINK)

Why Facebook Shouldn't Be Allowed to Buy thb - by Ben Thompson (LINK)

Tim O’Reilly: ‘Generosity is the thing that is at the beginning of prosperity’ (LINK)

Related book: WTF?: What's the Future and Why It's Up to Us

EconTalk (podcast): Jennifer Burns on Ayn Rand and the Goddess of the Market (LINK)

Related book: Goddess of the Market: Ayn Rand and the American Right

Jonathan Haidt talks with Krista Tippett (LINK)

Jocko Willink guest hosts The Tim Ferriss Show, and discusses his book Discipline Equals Freedom: Field Manual (podcast) (LINK)

7 Lessons from the New Paleo (LINK)

Art De Vany's keynote and panel sessions at Paleo f(x) (LINK)

Robert Sapolsky’s Behave is a tour de force of science writing (LINK)

Links

"Forget everything else. Keep hold of this alone and remember it: Each one of us lives only now, this brief instant. The rest has been lived already, or is impossible to see." -Marcus Aurelius

Graham & Doddsville: Fall 2017 (LINK)

Opinions on Everything (LINK)

Goodbye Gatekeepers - by Ben Thompson (LINK)

Your Next Home Could Run on Batteries [H/T @morganhousel] (LINK)

Loss Leader or Value Creator? Deconstructing Amazon Prime - by Aswath Damodaran (LINK)

Can We have an ETF Meltdown? - by Rick Bookstaber (LINK)

Nassim Taleb on Black Monday, Fed, Market Lessons (video) (LINK)

Jim Chanos Shares 'Bizarre' Black Monday Experience (video) [H/T ValueWalk] (LINK)

"60 Minutes" on the opioid crisis (video) (LINK)

Whistleblower Joe Rannazzisi says drug distributors pumped opioids into U.S. communities -- knowing that people were dying -- and says industry lobbyists and Congress derailed the DEA's efforts to stop it

The Family Making Billions From The Opioids Crisis [H/T The Browser] (LINK)

"60 Minutes" talks with Danny Meyer [from last week] (video) (LINK)

Related books: 1) Setting the Table; 2) Shake Shack: Recipes & Stories

Tim Urban talks with Patrick O'Shaughnessy (podcast) (LINK)

What Facebook Did to American Democracy [H/T The Browser] (LINK)

Containers: An 8-part audio documentary (and podcast) about how global trade has transformed the economy and ourselves (LINK)

TED Talk -- Kristin Poinar: What's hidden under the Greenland ice sheet? (LINK)

How Domestication Ruined Dogs' Pack Instincts - by Ed Yong (LINK)

The Microbes That Supercharge Termite Guts - by Ed Yong (LINK)

Walter Isaacson talks to Charlie Rose about his latest biography, Leonardo da Vinci, which was released today (video) (LINK)

Ebook of the day (You can also read the posts that make up the ebook for free online, HERE.): The Elon Musk Blog Series: Wait But Why

Links

Ray Dalio on Charlie Rose discussing his book, Principles: Life and Work (video) (LINK)

Ray Dalio on CNBC (Video 1 [Bridgewater], Video 2 [economy], Video 3 [Bitcoin])

Risk Management in the Long Term - by Rick Bookstaber (LINK)

Andrew W. Lo: "Adaptive Markets: Financial Evolution At The Speed Of Thought" | Talks at Google (LINK)

The Investors Podcast: Small Cap Investing w/ Eric Cinnamond (LINK)

Invest Like the Best Podcast: Tech Investing Outside of Silicon Valley, w/ David Tisch (LINK)

Scientists Can Now Repaint Butterfly Wings - by Ed Yong (LINK)

Annual JPMorgan Energy Issue, Wednesday, June 14th, 2017 [Vaclav Smil helped in the preparation of the report.] (LINK)

Book of the day: Energy and Civilization: A History - by Vaclav Smil

Links

The Market Really Is Different This Time - by Jason Zweig (LINK)

The market has hit Dow 22000 not because of the individual investors Wall Street calls “the dumb money” but in spite of them. 

Over the past month, small investors have pulled $17 billion out of U.S. stock mutual funds and exchange-traded funds and added $29 billion to bond funds. That’s the latest leg of a long-term trend: Since the internet-stock bubble burst in 2000, investors have withdrawn half a trillion dollars from U.S. stock mutual funds.

Jeff Brotman Hit the Big Time With Costco (LINK)

“He was one of the smartest businessmen that has ever operated in America,” said Charles Munger, a Costco board member and vice chairman of Berkshire Hathaway Inc.

Rick Bookstaber is going to start blogging again (LINK)

More Bookstaber: The Four Horsemen of the Econopocalypse (LINK)

Related book: The End of Theory

Counting Boxes - by Eric Cinnamond (LINK)

A Dozen Lessons about Angel Investing from Jason Calacanis (Poker Edition) - by Tren Griffin (LINK)

Finding “Unicorns:” Questions to Ask Before You Invest in a Startup (LINK)

The Transformation of the ‘American Dream’ - by Robert Shiller (LINK)

Masters in Business podcast: Richard Clarida of Pimco on the New Neutral of Monetary Policy (LINK)

a16z Video: What is the S-curve? (LINK)

Have Smartphones Destroyed a Generation? [H/T @morganhousel] (LINK)

Links

"We live on a planet of inexperience, with an unknown future, forced to make decisions based only on the past, a past that may prove to be a limited guide to the future. On this planet we are drawn away from strict optimization and toward heuristics." -Richard Bookstaber (The End of Theory)

Buffett's Berkshire Hathaway Nears $18 Billion Deal for Oncor (LINK)

Berkshire Hathaway's Clayton Buys Oakwood Homes [H/T Linc] (LINK)

Central Banks’ Reversals Signal the End of One Era and the Beginning of Another - by Ray Dalio (LINK)

What I Believe Most - by Morgan Housel (LINK)

Normalizing Earnings and Real Rates - by Eric Cinnamond (LINK)

Forget an IPO, Coin Offerings Are New Road to Startup Riches ($) (LINK)

Two obscure companies with no sales raised nearly $400 million combined in recent days from outside investors. How did they do it? Via a new, unregulated fundraising method that has no connection to Wall Street and is based in the world of cryptocurrencies. 

These fundraisings, called “Initial Coin Offerings,” are exploding in value. So far this year, companies have raised more than $1 billion this way. That is 10 times the amount raised in 2016, according to Smith & Crown, a digital-currency research firm.

Revisionist History podcast: "The Foot Soldier of Birmingham" (LINK)

The Bipartisan Fight for Quieter Oceans - by Ed Yong (LINK)

Coarse rules and survivability...

As he did in his 2007 book, A Demon of Our Own Design, Richard Bookstaber returns to the story of the cockroach with his 2017 book, The End of Theory. The excerpt below really made me think, and as I read more of the book, I'm beginning to think just as his 2007 work was the antithesis to central banker comments along the lines of "At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained." (Bernanke, 2007); his 2017 work will go down an the antithesis to the confidence of today's central bankers, portrayed recently by Janet Yellen's comment about believing that another financial crisis is not likely to occur in our lifetimes.

Now, onto Bookstaber and the cockroach:

The Omniscient Planner and the Cockroach 

If you were omniscient, if you could pierce through these limits to knowledge, how would you design a creature to survive in a world with radical uncertainty? That is, suppose that you have an omniscient view of the future and you know all the types of risks that a species will face and you can give that creature rules in order to give it the best chance of survival, not just in the current environment but in the face of all that will cross its path over the course of time. But you have one critical constraint: your rules don’t allow communication of any information regarding the unknown future states or solutions to those things that the creature would not be able to perceive in its nonomniscient state. (This is a bit like Star Trek’s Prime Directive.) 

Before setting down the rules, you might want to do some background work and see what the species that have faced this sort of world have done that have allowed them to survive. Species that have existed for hundreds of millions of years can be considered, de facto, to have a better rule set than those that have been prolific in one epoch but became extinct as crises emerged. So it makes sense to start there. 

If you take this route, you can’t do much better than to look at the cockroach. The cockroach has survived through many unforeseeable (at least for it) changes: jungles turning to deserts, flatland giving way to urban habitat, predators of all types coming and going over the course of three hundred million years. This unloved critter owes its record of survival to a singularly basic and seemingly suboptimal mechanism: the cockroach simply scurries away when little hairs on its legs vibrate from puffs of air, puffs that might signal an approaching predator, like you. That is all it does. It doesn’t hear, it doesn’t see, it doesn’t smell. It ignores a wide set of information about the environment that you would think an optimal system would take into account. The cockroach would never win the “best designed bug” award in any particular environment, but it does “good enough” and makes it to the finish line in all of them. 

Other species with good track records of survivability also use escape strategies that involve coarse, simple rules that ignore information. The crayfish, another old branch in the evolutionary tree that has been around in one form or another for more than one hundred million years, uses a winner-take-all escape mechanism: a stimulus triggers a set of neurons, each dictating a pattern of action, and one variant of behavior then suppresses the circuits controlling the alternative actions. That is, although a number of different stimuli are received and processed, all but one of them are ignored. 

These sorts of coarse rules are far removed from our usual thinking on how to make decisions because they ignore information that is virtually free for the taking. Yet if we look around further we see that coarse rules are the norm. They are not only seen in escape mechanisms, where speed is critical. They are also used in other decisions that are critical to survival such as foraging and mate selection. The great tit is a bird that does not forage based on an optimization program that maximizes its nutritional intake; it will forage on plants and insects with a lower nutritional value than others that are readily available, and will even fly afield to do so. The salamander does not fully differentiate between small and large flies in its diet. It will forage on smaller flies even though the ratio of effort to nutrition makes such a choice suboptimal. This sort of foraging behavior, although not totally responsive to the current environment, enhances survivability if the nature of the food source unexpectedly changes. 

For mate selection, the peahen uses a take-the-best heuristic: she limits herself to looking at three or four males, and then picks the one with the most eyespots. She ignores both other males and other features. A red stag deer also has a take-the-best strategy, challenging another deer for his harem by running through a range of behavioral cues until he finds one that is decisive, and stops at that point. The first can be done at a nonthreatening distance: the challenger roars and the harem holder roars back. If the challenger fails on this test, it’s game over. Otherwise, the challenger approaches the alpha male more closely and the two deer walk back and forth to assess their relative physical stature. If this showdown does not solve matters, they move on to direct confrontation through the dangerous test of head butting. 

The heuristic is a simple one, winner-take-all, where the first cue that makes a difference is determinant, but in this case the cues occur sequentially, going from the one that requires the least information (it can be done at a distance without even having a clear view of the opponent) to the most direct and risky. The underlying heuristic remains one that is as coarse and simple as possible, where the first cue that can differentiate makes the decision. 

Foraging, escape, and reproduction are the key existential activities, and we see that heuristics are at their core. And we also see a movement toward coarse behavior for animals when the environment changes in unforeseeable ways. For example, animals placed for the first time in a laboratory setting often show a less than fine-tuned response to stimuli and follow a less discriminating diet than they do in the wild. In fact, in some experiments, dogs placed in a totally unfamiliar experimental environment would curl up and ignore all stimuli, a condition called experimental neurosis. 

The coarse response, although suboptimal for any one environment, is more than satisfactory for a wide range of unforeseeable ones. In contrast, an animal that has found a well-defined and unvarying niche may follow a specialized rule that depends critically on that animal’s narrow perception of its world. If the world continues as the animal perceives it, with the same predators, food sources, and landscape, then the animal will survive. If the world changes in ways beyond the animal’s experience, however, the animal will die off. So precision and focus in addressing the known comes at the cost of reduced ability to address the unknown. 

It is easier to discuss heuristics as a response to radical uncertainty when we are focused on less intelligent species. We are willing to concede that nature has surprises that are wholly unanticipated by cockroaches and our other nonhuman cohabitants. A disease that destroys a once-abundant food source and the eruption of a volcano in a formerly stable geological setting are examples of events that could not be anticipated by lower life forms even in probabilistic terms and therefore could not be explicitly considered in rules of behavior. But the thought experiment of the omniscient planner provides insight into what heuristics are doing in our decision making as well. It is not that we take on heuristics solely because of limits in our cognitive ability to solve the problem with the full force of optimization methods. It is because some problems simply cannot be solved by optimization methods even absent cognitive constraints. Absent our being omniscient, we cannot apply optimization methods to the real-world problem we face, and if we try to do so, we simply have to make things up.

Links

"How we look at the world, even how we understand what someone else is saying, depends on context, and context changes with our experience and with circumstance. In the day-to-day world, these changes usually move slowly—though they do change: what we want for our lives, what we strive for and sacrifice for, are different at ages fifteen and fifty. The changes that come slowly with life experience speed up during a crisis. And having lived through one crisis, we will be a different person and come to the next one differently." -Richard Bookstaber (The End of Theory)

Human Misjudgment and the American Revolution (LINK)

Lessons Learned After Almost a Year (of podcasting) - by Patrick O'Shaughnessy (LINK)

Grant’s Podcast: Big, dumb Japanese banks (LINK)

How the iPhone Built a City in China (LINK)

Learning from Ed Thorp (LINK)

Related book: A Man for All Markets

Is America Encouraging the Wrong Kind of Entrepreneurship? (LINK)

Arthritis is the price for our ancestors surviving the Ice Age, say scientists (LINK)

Why 2,000 Year-Old Roman Concrete Is So Much Better Than What We Produce Today (LINK)

How The Democratic Republic of Congo Beat Ebola In 42 Days - by Ed Yong (LINK)

Links

"It is a deeply held conviction within economics that our world can be reduced to models that are founded on the solid ground of axioms, plumbed by deductive logic into rigorous, universal mathematical structures. Economists think they have things figured out, but our economic behavior is so complex, our interactions are so profound that there is no mathematical shortcut for determining how they will evolve. The only way to know what the result of these interactions will be is to trace out their path over time: we essentially must live our lives to see where they will go. There is no formula that allows us to fast-forward to find out what the result will be. The world cannot be solved; it has to be lived." -Richard Bookstaber (The End of Theory)

Walter Isaacson talks with David Rubenstein about Leonardo da Vinci (video) (LINK) ["Smart people are a dime dozen. The people who matter are the creative people."]

Related book (to be released in October): Leonardo da Vinci – by Walter Isaacson

The Knowledge Project podcast: Marc Garneau on The Future of Transportation (LINK)

Masters in Business podcast: Chris Anderson and the Long Tail (LINK)

Related books: 1) The Long Tail; 2) Free; 3) Makers

Brent Beshore talks with Vishal Khandelwal (LINK)

Jim Chanos: U.S. Economy is Worse Than You Think [H/T @vitaliyk] (LINK)

Mutual Fund Observer, July 2017 (LINK)

The Absolute Return Letter, July 2017 (LINK)

A Dozen Things I’ve Learned About Startups from Hunter Walk - by Tren Griffin (LINK)

The Lost Art of Thinking - by Frank Martin (LINK)

Related book (back in print): The Art of Thinking – by Ernest Dimnet

The Alternative to Thinking All the Time (LINK)

When railroads were the disruptive technology...

From The End of Theory by Richard Bookstaber:

We can make a start in understanding the limitations in the current standard economic approach to financial crises, and what to do about them, by looking at the path Jevons took in mid-nineteenth-century England.  

This economic revolution was driven by a technical one. The railroad was the disruptive technology. It reached into every aspect of industry, commerce, and daily life, a complex network emanating from the center of the largest cities to the remotest countryside. Railroads led to, in Karl Marx’s words, “the annihilation of space by time” and the “transformation of the product into a commodity.” A product was no longer defined by where it was produced, but instead by the market to which the railroad transported it. The railroad cut through the natural terrain, with embankments, tunnels, and viaducts marking a course through the landscape that changed perceptions of nature. For passengers, the “railway journey” filled nineteenth-century novels as an event of adventure and social encounters.  

Railroads were also the source of repeated crises. Then as now, there was more capital chasing the dreams of the new technology than there were solid places to put it to work. And it was hard to find a deeper hole than the railroads. Many of the railroad schemes were imprudent, sometimes insane projects, the investments often disappearing without a trace. The term railway was to Victorian England what atomic or aerodynamic were to be after World War II, and network and virtual are today. When it came to investments, the romantic appeal of being a party to this technological revolution often dominated profit considerations. Baron Rothschild quipped that there are “three principal ways to lose your money: wine, women, and engineers. While the first two are more pleasant, the third is by far more certain.” Capital invested in the railway seemed to be the preferred course to the third. Those with capital to burn were encouraged by the engineers whose profits came from building the railroads, and who could walk away unconcerned about the bloated costs that later confronted those actually running the rail. A mile of line in England and Wales cost five times that in the United States. The run of investor profits during the manias of the cycle were lost in the slumps that unerringly followed.

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Starting Bookstaber's new book also reminded me of a short post he did back in 2014, which is interesting to review given recent developments around the company: Uber: What could possibly go wrong.