Happy Easter to everyone!

This post also marks the death of this blog, and the resurrection of it here.

While talking about the growth of VLTs, Nelson says the following:

I’m always fascinated when people get addicted to virtual things, which often times seem to boil down to a game that involves risk and intermittent reward — where does this tendency come from?

There is a large class of human behaviours which fall under this structure. Consider an action like checking e-mail throughout the day. There is a risk that your checking of e-mail will return nothing (except your disrupted focus), while there is an intermittent reward of getting an interesting or exciting e-mail. Finding food for many animals might be a similar sort of situation. I would guess that the tendency is probably rooted deeply in human (and other animals’) psychology, and serves very useful functions as well as not-so-useful ones.

(Also see this post.)

What is risk? In investment, the term is often used. “What is your risk tolerance?” is an example.

In reality, the chance of something occurring (as in a deterministic universe) might be 0 or 1. Typically, when people are talking about risk, they are talking about an estimation of the chance of something occurring. An estimate is a subjective evaluation - that is, it is based on the information the agent has about a system. Therefore, for practical purposes there is no ‘risk’ inherent in any investment strategy, only different risk evaluations based on subjective types or amounts of information different investment agents have.

Also, for different individuals, the objective riskiness of a given situation varies. For example, if you have never ridden a bicycle, the risk of hopping on one is fairly great. If you have learned how to ride a bicycle, the risk is fairly small. This is why extreme sports aren’t typically as risky as they seem. Similarly, in business, an entrepreneur may have systematically minimized the risks in various components of the enterprise, therefore making it much less risky than it may seem (or not, of course).

So, different individuals’ evaluations of risk (given a constant system) can differ (due to differences in information, simply put - obviously, it’s more than just ‘information’ but rather a relevantly adequate understanding of that system and its possible outcomes), and risk is relative to the individual interacting with the system in many cases.

Typical analyses of ‘risk’ in various investments involve some assumptions about the information levels available pertaining to possible outcomes. The idea that diversity of investment types reduces risk, for example, often relies upon the premise that information about possible outcomes in specific areas is of a low quality. If, on the other hand, you have relevantly important information about a specific type of investment, the risk of investing in just that type might be very low relative to the risk of diversifying your investments to areas where you have less relevant understanding of possible outcomes.

Most investors have very little information about a given investment system and the possible outcomes. They hire someone, who presumably has a better understanding of the various possible outcomes, and in some cases has a better ability at interacting with the investment system (as in buying and selling at key points), and can therefore minimize risks for them and increase their return. The question for most investors, then, is what sort of investment of their own time would be required to significantly increase their understanding of some possible investment system, such as to decrease the risk involved for them in investing in it?

My guess is that it would not be that hard to get to the point where you can have less investment risk by doing this than what you would have by using the experts who are offering their investment services, typically. Maybe a few months of dedicated study? Financial investment in many cases is basically recognizing potential growth and value in a company. Similarly, the value in trying to understand broad, abstract financial systems may be overrated.

In short, risk tolerance is usually posed against a backdrop of a notion of objective risk. In reality, subjective appraisals of risk (”subjective risk”) in these products can shift sharply, as a given agent’s understanding of the financial systems involved becomes better (or worse). Understanding of the risks involved in a diversified investment portfolio means multiplying the investment areas to understand (or having to understand ‘higher-level’ financial systems, which might be more difficult to understand than more contained financial systems), which can result in increasing the subjective risk. In other words, beware of financial maxims that involve very complex systems.

[Optimism] inhibits lucid thought, it shuts down core reasoning centers and seems to inflict terrible damage on memory. It is optimism that continually causes us to lose our respect for limits and to have unrealistic expectations of what we can achieve, which leads us to set ourselves up for failure and disaster by encouraging us to overreach and believe that we can find a solution to every problem.

Larison above is talking about optimism with respect to foreign policy, but I think much of the critique can be extended to optimism in general. On a personal level, I suggest that the appropriate response is to replace unqualified optimism with optimistic skepticism.

While optimism thinks that the best will happen, optimistic skepticism thinks the best probably won’t happen, and that therefore one can prepare for the various non-optimal scenarios that most likely will result. That is, because one is appropriately skeptical, one can create plans that will actually work.

With governmental policy, the optimist will think that this governmental program will work (even though most or all of the ones in the past aimed at fixing this problem have not or have made the problem worse). The optimistic skeptic will think that this governmental program will probably not work, and therefore one can plan and calculate based on that premise - which in itself can be quite useful.

On a personal level, it’s similar. This plan (for example, an exercise plan) probably will not work - unless there is an extreme level of effort, skill, time, external pressure, and so on, brought to it - much like project plans in business where you double (or triple or quadruple) the time to completion and half the features. At that point, your chances of having a realistic plan increase significantly, and therefore any plans you have that depend on this plan have a greater likelihood of also going to completion.

Here is a practical example. Tomorrow, the optimist in me thinks, I will get up at 6am, go to the gym, and then get in 4 hours of high-productivity work. “Right,” thinks the skeptic. The optimistic skeptic’s role is then to figure out a plan that will actually make that happen. “I will pay my neighbour $5 every day for a week to bang on my door at 6am until I answer it. I will then arrange to meet someone at 6:30am at the gym (with some sort of social cost if I don’t show up on time). Finally, I will meet a friend at Starbuck’s at 8 for a quick chat, and then work there until 12:30pm.” Now the chances of the plan completing are starting to go up. Repeat until you think you have just a silly amount of effort being brought to bear.

Now you probably have a plan that will work.

It seems that a lot of time and effort has been put into designing better jet engines for airplanes, for example, but relatively little has been put into designing better customer spaces within those airplanes. Perhaps some of this is itself by design (that is, airplane companies want to differentiate economy class from first class, and so intentionally make the economy class uncomfortable, barren, and so on).

Better jet engines can make a flight take less time (among other things), but better customer spaces can make a flight seem like it takes less time (because it is more comfortable, or there are things you can more easily do that will make time seem to pass more quickly), and from a customer’s perspective, the latter can be more important.

I was on an airplane recently that had a relatively simple design innovation - cup holders that folded out of the top of the seat-back in front of you. This was great, because it meant you could have a drink while not having the tray folded down and so interfering with the little space you have in front of you. This is a relatively trivial design modification that has made the “user-interface” of airplanes significantly better. (Often with user-interfaces, the best innovations are the simple ones.)

(Another obvious example of something that isn’t exactly a technology is customer service while on an airplane. I have started to disregard the cheapest air fares, and instead look to travel with companies that provide excellent customer service, because this can often add a large amount of value to a flight (if only in the conviviality of the other customers).)

Consider: if you’re paying $400 for a flight, and the flight takes 4 hours, that’s effectively $100 per hour. However, you now have 4 hours of potential value creation while on the flight. If you’re in an environment that is comfortable and so on (i.e., is conducive to you creating value), you might actually create more value than the cost of the flight. For example, if you’re able to engage in high-productivity work that will generate $400 for you, the flight becomes free. (I think this line of thought is how some people justify first-class airfares. On long flights, for example, what is a good sleep worth to you? Well, if you don’t get a good sleep how will that impact your next day? What is the potential value you could create the next day? And so on.)

Here are some simple questions that I’m sure have better answers than are currently embodied in plane design:

How do you make seats more comfortable without expanding their size (for example, changing the cushioning, changing the armrest materials, and so on)?

How do you make seats more comfortable for sleeping, or alternately can you provide things that help expedite sleep (a few examples of this are sleep guided meditation channels combined with earphones that better block the background sound of being on an airplane, and advances in head supports or head rests)?

How do you better utilize the back surface area of chairs for customer usage?

How do you increase the space available for customers (for example, can you make seats more thin by changing construction materials)?

My suspicion is that there is something irrational afoot in how airplanes are typically made vis a vis the R&D put into enhancing customer experience.

Why do people tip? I’ll restrict this to tipping related to eating.

Custom. It is difficult (i.e. impractical) to question many or most things about how things are done, so people just do what the custom is and don’t question whether it is beneficial to themselves or not.

Status. They believe tipping increases one’s status amongst people with whom they are eating (or perhaps even the servers or kitchen staff), and a sense of status is a basic human need.

Generosity. People like to give because it makes themselves feel better (a warm feeling of having done something good for someone else).

Fear. You might be afraid of angering the person who by custom would get a tip, and therefore receiving some sort of emotional cost on yourself by not tipping - so you tip.

Better service. By tipping, the customer believes the service staff will provide better service.

This last one deserves extra comment, because it is widely misconceived. If you are in a one-time situation (traveling for example), and you tip the server, you will not increase the quality of the service if you tip at the end of the meal. This only works if you are in a repeated situation and if the server will remember your previous tip and give higher quality service than otherwise the next time.

It is true that as a society the expectation that one will be tipped by a customer might cause better service on average. This societal cause and effect happens regardless of whether you tip, however, so isn’t a good reason for you to tip in a specific one-time situation.

One problem with many “conservative” critiques of media messages is that they grapple too much with the content of what is being sent. It is clear that most media messages utilizing sexual imagery, for example, exist simply to sell products, and once understood in this light the idea of trying to figure out whether this or that message is true or good for you becomes an exercise in silliness. It becomes clear that it is a waste of time to be receiving those messages in the first place. That is, it is typically much more useful to interpret a message in a “class ontogenic” sense - that is, to understand how it came about or why it is in your space in terms of its membership in a broader group of messages, and as a policy measure what simple action(s) to take to prevent or replace them in the future if an analysis of their origination makes it clear that they probably are not going to add to your long-term well-being.

In a commercial sense, most people have little of true value to offer.

Fumbled Mumblings has an interesting post on mutual funds. I know little about them, and have tried to focus investment on areas of which I have some relative understanding. (For example, I have avoided investing in real estate because I don’t understand the market forces affecting real estate prices, rental income, and so on. I will consider it as an investment in standard of living, and on that I have some idea of what would be a better “investment” for myself.) I’m in a relatively unique position of being able to invest in something I understand better than probably anyone else in the entire world, and so having a relatively good idea of whether it’s a good investment or not. Most people aren’t in that sort of position, but most people do have expertise in some area or another, that would probably allow them to better understand or read an industry and spot potential. When I was about 11 years old, I remember making a list of companies I would invest in if I had capital - because I was a relative expert in computers and so on. If a venture capitalist had invested in Anthony Holdings Corp. back then, he would have made a very good investment. The other thing to keep in mind is the concept of company “fundamentals” (associated with what I have called “real wealth”). If you think of markets as Mel Gibson-not-on-medication, you will avoid rapid oscillations of feeling good or bad about the fundamental processes occurring behind the scenes - if you in fact understand how those companies work, where their growth is going to come from, and so on.

I noticed that GMail has an Offline feature in their “Labs” (experimental features that may change or not be completed). If you use GMail, you can enable by logging into your GMail account, clicking Settings, Labs, and then select to Enable the Offline feature. You can then click the Offline link in your inbox to switch to the offline mode.

This must be one of the biggest disadvantages to “online” e-mail programs (such as GMail, Yahoo! Mail, and so on) for a large number of people. If GMail is able to seemlessly integrate offline and online modes, they should be able to significantly increase the competitiveness of their e-mail.

I’m now starting a 21 Day No-Complaint Experiment (go 21 days without complaining, start back at 0 if you notice you complain). In discussing his own 21 day experiment, Tim Ferriss offers the following definition:

I defined “complaining” for myself as follows: describing an event or person negatively without indicating next steps to fix the problem. I later added the usual 4-letter words and other common profanity as complaint qualifiers, which forced me to reword, thus forcing awareness and more precise thinking.

Taking something like a negative description and adding the “next steps to fix the problem” is a sort of process that can be generalized to any time you feel fear, frustration, or negative emotions. Negative emotions are (can be) useful, because they can tell you about important information in your environment. The key often is to turn them into a “How to …?” sort of question (next steps to fix the problem). For example, if you start feeling frustration at not accomplishing a task, if you immediately take that as a cue to ask “How could I do this more quickly and easily? What assumption am I making here that might not be true?” and so on, the frustration becomes useful instead of just “negative”.

(I find I have some resistance to “How to …” questions, because if I’m used to getting a certain result (usually maintained with a no-action question like “Why do I always get this result?!”) and then I move to a “How to …” question (like “How do I get a different result in this situation? What exactly could I do differently to get a different result?”), the possibility of getting a good answer stands as a certain kind of threat to things that have been less than optimal but in a way comfortable.)

After doing this for 4 months, Ferriss noted that his “lazier thinking evolved from counterproductive commiserating to reflexive systems thinking. Each description of a problem forced me to ask and answer: What policy can I create to avoid this in the future?”

Here we go … Day 0.