Descartes' Error: Emotion, Reason, and the Human Brain
The Emotional Brain: The Mysterious Underpinnings of Emotional Life
We think of stories as a wildly creative art form but within that creativity and that diversity there is a lot of conformity. Stories are very predictable. No matter where you go in the world, no matter how different people seem, no matter how hard their lives are, people tell stories, universally, and universally the stories are more or less like ours: the same basic human obsessions, and the same basic structure. The structure comes down to: stories have a character, the character has a predicament or a problem—they're always problem-focused—and the character tries to solve the problem. In its most basic terms, that's what a story is—a problem solution narrative.
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The key point is this: after an extended and extreme compression of risk premiums, we’re now observing increasing divergences across a variety of market internals and security types (e.g. breadth, leadership, momentum stocks, small caps, junk bonds). We’ve come to avoid pointed warnings in this market, because speculative conditions have extended much longer than in other cycles. Indeed, we’ve had a few deteriorations in recent years that reversed fairly quickly as investors shifted back to risk-seeking, particularly after fresh initiatives or assurances about monetary easing (though further initiatives may not be forthcoming in this instance). So we're open to a favorable shift on these measures, and if that was to occur following a somewhat greater retreat in valuations, it could even open up some amount of constructive opportunity. Meanwhile, despite our view of stocks as severely overvalued, our response is to remain defensive without taking a stance that greatly relies on immediate market weakness.
An awareness of divergence and uniformity is the bread-and-butter of signal extraction – inferring true information signals from the sea of random noise. We take the present breakdown of market internals seriously. Whatever the crowd wishes to do about it, historically-minded investors should think carefully about whether a strenuously overvalued market with deteriorating market internals is a desirable environment for risk taking. For our part, the answer is a resounding “No.”
The 8-year-old juggling a soccer ball and the 48-year-old jogging by, with Japanese lessons ringing from her earbuds, have something fundamental in common: At some level, both are wondering whether their investment of time and effort is worth it.
How good can I get? How much time will it take? Is it possible I’m a natural at this (for once)? What’s the percentage in this, exactly?
Scientists have long argued over the relative contributions of practice and native talent to the development of elite performance. This debate swings back and forth every century, it seems, but a paper in the current issue of the journal Psychological Science illustrates where the discussion now stands and hints — more tantalizingly, for people who just want to do their best — at where the research will go next.
The value-of-practice debate has reached a stalemate. In a landmark 1993 study of musicians, a research team led by K. Anders Ericsson, a psychologist now at Florida State University, found that practice time explained almost all the difference (about 80 percent) between elite performers and committed amateurs. The finding rippled quickly through the popular culture, perhaps most visibly as the apparent inspiration for the “10,000-hour rule” in Malcolm Gladwell’s best-selling “Outliers” — a rough average of the amount of practice time required for expert performance.
The new paper, the most comprehensive review of relevant research to date, comes to a different conclusion. Compiling results from 88 studies across a wide range of skills, it estimates that practice time explains about 20 percent to 25 percent of the difference in performance in music, sports and games like chess. In academics, the number is much lower — 4 percent — in part because it’s hard to assess the effect of previous knowledge, the authors wrote.
“We found that, yes, practice is important, and of course it’s absolutely necessary to achieve expertise,” said Zach Hambrick, a psychologist at Michigan State University and a co-author of the paper, with Brooke Macnamara, now at Case Western Reserve University, and Frederick Oswald of Rice University. “But it’s not as important as many people have been saying” compared to inborn gifts.
One of those people, Dr. Ericsson, had by last week already written his critique of the new review. He points out that the paper uses a definition of practice that includes a variety of related activities, including playing music or sports for fun or playing in a group.
But his own studies focused on what he calls deliberate practice: one-on-one lessons in which an instructor pushes a student continually, gives immediate feedback and focuses on weak spots.
“If you throw all these kinds of practice into one big soup, of course you are going to reduce the effect of deliberate practice,” he said in a telephone interview.
What I’ve been thinking might actually be going on is that adolescence is something unavoidable that emerges not because it’s so cool and adaptive, but because the adaptive thing is wait a long, long time before you have fully wired up your frontal cortex. Why might that be the case? Alright, so we’re born with our genome, the combination of your mother and father’s genes, that wind up in that first fertilized egg and that’s it. That’s your genetic legacy. Every cell in your body is destined to have that exact same genome. That turns out not to be true in all sorts of interesting ways, but what that also means is that when you’re thinking about what genes have to do with the brain behavior, by definition critically, if the frontal cortex is the last part of the brain to develop it’s the part of the brain least shaped by genes, and most sculpted by the environment and experience. And I think basically the only way you can have a species that is as complex and socially resilient and socially context dependent and all those amazing things we do, the only way you can pull that off is to have a frontal cortex whose development just bears the imprint of everything you experienced along the way—in effect, that’s been freed from whatever extent the genes are deterministic, which is not very. I think ironically what the evolution of the frontal cortex has been about is genetic evolution to free it as much as possible from the straight jacket of genes.
Daron Acemoglu interviewed on the Bryan Callen podcast (LINK)If you haven't watched Mauboussin's Google Talk on his book The Success Equation, I highly recommend it. In the talk, he also recommended the books The Storytelling Animal as well as The Halo Effect.
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"Stonetrust is a wonderful business with an exceptional management team led by Tim Dietrich. I am excited that Dhandho's first acquisition is Stonetrust," said Mohnish Pabrai, Dhandho's managing partner. Pabrai, a private fund manager with over $850 million in assets under management, has raised over $150 million for the Stonetrust acquisition and the future acquisitions of other companies. Pabrai expects to take Dhandho public within a year.
Even among central bankers, there is sharp divergence of opinion about their responsibility for asset prices. Unfortunately, experience does not seem to be illuminating the discussion.