Tuesday, November 12, 2019

Losses, Gains and Possessions

You have a tendency to worry more about losses than you care about the gains. This is one form of an excessive self-regard. Even though you worry more about losses, you have a tendency to be optimistic about having less possible risks than others. You believe that other people suffer more from unemployment, bad break-ups, and bad illnesses. Availability of possible risks changes the way you see them. You do not have suffer from these incidents yourself. You just have to see them happening to someone else. If you lose something, your risk level rises to get it back. Overreaction to these incidents is normal human trait. It protected your ancestors from irreversible harm. Today´s world is different.

The ratio of hurting more from losses than enjoy gains is about two to one. 200$ gain feels as good as 100$ losses feel bad. This fact leads to many irrational decisions. It can have bad effects on the outcomes of your life. This does not mean you should always choose the option of getting larger gains than avoid losses. You can do this when losses do not cause you any bad damage. For example, it is smart not to bet your last 1000$ if you can win 1500$ and chances are 50%. But you can bet your 1000$ to win 1500$ when chances are the same if you have a significant amount of extra money. In the long run, you have to use these possibilities into your advantage if you want to have a life you deserve. Constant choices of avoiding losses is not the best way to live your life.

Losses and gains produce some other irrationalities in your life. One thing that makes the difference is the total amount of your gains and losses. This applies not only to the sums of money but to how many times you lose or gain something. It s more painful for you to lose 100$ twice than losing 200$ once. When this happens to you in the sum of gains, winning 100$ twice feels better than winning 200$ once. There are limits to the effects of gains and losses. Losses feel less painful after a certain point. For example, if you have 1000$ and you lose 100$, it feels less painful than if you have 500$ and you lose 100$. Same applies to gains. For example, gaining 100$ when you have 1000$ feels less good than having 500$ and winning 100$. This applies to your wellbeing too. After a certain point, your wellbeing doesn´t increase when you get more money than you felt before.

Possessions

Anything you own is more valuable to you than before you owned it. If you pay 100$ for an item, its value to you increases. This applies not only to your possessions but the effort you put to get them. IKEAs furnitures are good examples of this effect. When you buy something from the store, you have to assemble it. Putting screws, using hammer and other effort to put pieces together increase the value of the items. When you put these two things together, your items become much more valuable than you paid for them. Your emotional attachment to your possessions grows when the time goes by. The more you use them or the more available they are to you, the more valuable they become as their availability in your mind grows. Riots and revolutions usually happen after something is taken away from people. They do not happen when people never had anything. Even small possessions that are taken away destroy governments.

Framing losses and gains differently

Framing losses and gains differently can help you get what you want. Frame all the undesirable things in a way that they feel like losses. For example, risks with negative expected value can be framed to feel like losses. For example, frame lottery tickets as losses of the money you pay for them, not to the opportunities to gain millions. Risks with positive expected value can be framed in ways that not doing them feels like losses. For example, not accepting a coin toss to win 1500$ and lose 1000 will be a loss of 250$ of expected value. There is a certain way to make gains feel better and losses feel less bad. Always bundle your losses and separate your gains. Separating gains and losses is a bad idea when the gains are bigger. Talk about investments, not losses.

Valuing possessions

Avoid most pay later to get something now deals. You will feel like an owner before you have paid anything. These possession may feel more valuable than they really are. Do not underestimate the value of the ownership. If you cannot afford something, do not even try it. Be realistic about your possessions. Most of them are not so valueable to others than they are to you. Do not overprice things you own if you have to sell them. Ask experts about their real value. Most and for all, understand the value of your currency. Dollar is a dollar and pound is a pound, no matter how much effort you have put to your possessions and how available they are in your mind.

-TT

Tuesday, October 29, 2019

Do you update or calibrate your beliefs?

One of the forms of excessive self regard is that you overrate your beliefs about the world, people, and ideologies, etc. Beliefs are good when they are right. You could not get anything done without them. Reality proves that most of your beliefs are right. Therefore, doing choices based on your beliefs make your life better. Unfortunately, you have to update or calibrate your beliefs in the modern world or you will lose the grasp of reality. To certain extent, this happens to all of us. It has happened to me, at least.

Belief formation is a simple process

You form your beliefs with a simple process. First, you hear or see something. Second, you choose to believe it. Of course, sometimes you choose to ignore it. Lets keep things simple and focus on things you have approved in your mind. Most of your beliefs have common sources. When you are young, some kind of authority figures are the first sources of your beliefs. Your parents, other family members, and teachers tell you what to believe. Sometimes your friends are your sources. No matter who the sources are, your ability to questionize them is poor. When you get older, the number of your sources grows. At some point, the number of sources starts to diminish.

Beliefs and reinforcing feedback loops

The longer you live, the higher the odds that you do not calibrate or update your beliefs. Your beliefs are hard to change because you process new data in a way that strengthens your existing beliefs. The validity of your beliefs are hard to questionize because your brain seeks the data that confirms your beliefs and ignore the data that questionize them. This process is a self-reinforcing feedback loopfeedback loop that keeps strengthening, until you disrupt it. The same reinforcing loop is at play when parents transfer their beliefs to their kids. This loop can continue centuries.

One of the misunderstandings about one´s beliefs is that the smarter you are, the better you are in changing your existing beliefs. The fact is a complete opposite. Even though smart people are better in processing data, they are also better in corrupting the data. They are better in finding people, research, and facts that support their point-of-view. They also have stronger beliefs because they can better explain themselves why their beliefs are the right. Therefore, they discard the evidence that contradict their beliefs even when it is right. If the data is in form of numbers, the better you are in twisting them to support your beliefs. Majority of the people who are less smart, have higher odds of changing their beliefs. Intuitively, this makes no sense to you at all. The smarter you are, the more useful it is to you to find other people who disconfirm your beliefs.

How to calibrate and update your beliefs

Most scientific facts have been proven wrong. In the course of history, things that have been certain in people´s mind, like earth being a centre of the universe, have changed to other facts. You have to be prepared to update your facts and beliefs when new facts contradict them. It is not a sin to change your beliefs. The biggest sin is to cling on your false beliefs after you have learned new data about them. Unfortunately, the complete opposite have higher odds of happening. When you get disconfirming data about your beliefs, your brain often clings on your beliefs even harder.

Sometimes facts do not change completely. Then, you have to calibrate and/or update your beliefs. If you want to do that, you have to first acknowledge the fact that most of your beliefs are not certain. Nothing in life is 100% sure or 100% wrong. Therefore, you have to define odds to everything. You have to think about how confident you are about anything. For example, you can be 99,999% confident that gravity exists or you can be be only 75% confident that you are qualified enough to do your job. You can also use a range of possibilities and put odds to the range. For example, you are 80% sure that your income will be something between 50,000$ and 75,000$ in five years.

One way to see if your beliefs or facts need updates and calibration is to check their long-term track records. For example, if you believe in socialism, find out how well it has worked in the history of mankind. After you have done your due process, ask yourself whether you have found proofs that it has worked before somewhere. If you have ways to measure the effects of your beliefs and facts on you, do it for a long time. Then think again if you have to update them or not. For example, if you have had a diet for a year, one way to see if it has worked is to measure your weight and/or the length of your waistline at least twice a year. Adjust your beliefs about your diet if you have to. You can also find out expert opinion about your beliefs or ask their critics to give you feedback about them.

This is all for now,

-TT

Tuesday, October 15, 2019

Two system archetypes and feedback loops

To understand this text, you should first read about feedback loops if you are not familiar with them.

Systems have same principles and share common characteristics. Systems that have enough common characteristics can be described as archetypes. Systems that belong to the same archetype have similar structure, goal or purpose and their behavior is similar over time. Similar feedback loop behavior is the main common denominator in system archetypes. Reinforcing feedback loops produce archetypes more often than balanced ones. Reinforcing loops usually produce behavior that is too much for the balancing loops. It is a rare occasion when balancings loops produce archetypes.

Limits to success archetype

Sometimes success is too hard to handle. Most people are not prepared to handle it. Limits to success archetype usually have a self-reinforcing feedback loop and a balancing loop that keeps reinforcing loop stable. When the balancing feedback loop cannot handle the acceleration in the self-reinforcing loop, problems will start to occur. After a while, reinforcing loop cannot produce growth and your balancing loop becomes the dominant one. Then your success starts to deteriorate.

For example, when you become suddenly famous and successful and you are not prepared to have balancing feedback loop that is strong enough to handle your success. The demands for your success will increase. Your growth can be in danger, because later some limiting factor that was not a problem before like time appears. This growth becomes less sustainable because maintaining of the growth demands more of your time. Suddenly, growth disappears because the balancing loop begins to dominate the system and your time and other resources are tied to the wrong places.

You have to make changes to solve the problem, but you have to figure out the main cause for it. Did your priorities change? Did the problem of saying no to less important things become a real problem to you? What you have to do is to find the right limits for these activities that weren´t your problem before? When you have found them and you cannot limit the time used for them yourself, you might need to hire somebody else to manage your time and say no to less important things so that you can focus your efforts to the most important things.

Escalation archetype

Competition is usually a good thing. But it can go too far and produce some unwanted consequences and escalate into full-blown war between two or more competing entities. Usually escalation archetype is consisted of a limited stock, competitors, and balancing loops. Escalation is more or less a zero-sum game. If two competitors have limited shares of goods, one of them cannot have more than 100%. This means that these two can have a combined share of 100% of the goods. Usually, competitors fight from a slowly growing amount of goods. And this fight usually is pretty stable because of those balancing loops. When some variables in balancing loops change as things escalate, self-reinforcing loops inside the balancing loops are shaped. These loops create problems.

Before escalation the shares of goods are almost or completely stable between the competitors. All their efforts go to maintain this balance in the shares of goods. Escalation begins when one competitor changes its behavior and another sees that behavior as a threat to their position. What happens is that the competitor who were interested in maintaining balance has to react to the first mover´s behavior. For example, this can result as a price war escalation . The first mover reduces the price of their goods and the other competitor has to follow. This can change into self-reinforcing pricing war with several rounds of price reductions. It usually ends when both competitors are not able to reduce their prices or one/all competitors are destroyed.

Competition is good for society and actors in it. Even escalation can be a good thing. Positive goals are good. There are many escalating competitions that can produce good results for societies. For example, competition in developing new medicines can produce better ways to cure diseases. If this competition escalates, it helps others. It can even help companies if they develop faster processes to develop medicines. The best way to reduce the problems of this archetype is to avoid it. Collaboration is often the best way to manage things. It should be your first choice.

There are many other system archetypes and most of them usually are about feedback loops and their mismanagement. Changes in the variables in feedback loops can produce unintended effects and these can change system behavior into completely different direction. Sometimes it is about changing goals or dominant interconnections that produce addictions.

There are many good books about systems and you can find more information about different archetypes from them.

Source:


Until next time,

TT


Tuesday, October 1, 2019

Systems Thinking

This text is about introducing you to systems thinking. It continues from what you have learned about systems, feedback loops, and interconnections. Please check the previous links if you are not familiar with these themes before reading this text. This text gives you the rude basics of systems thinking.

You live in a complex world with lots of interactions between systems and their elements. It is hard to understand the world without systems thinking. It can be described as a typical mindset. It is used to get a big picture of your systems and how their elements produce different cause-effect relationships. Systems thinking does not work in a way that you focus on one element and forget its effects on others. This latter way of seeing things produces severe misunderstandings about the world. And systems thinking reduces the amount of misunderstandings.

The world is full of systems within systems

Your skin is a system within your body which is a system too. You cannot understand your skin without understanding the interconnections between your body and your skin. When you do something to your skin, your brain reacts to your action. If you burn your finger on a stove, your brain sends a signal to remove your finger from the stove. For this to happen, your skin is a receptor of the heat which sends the signal to your brain that it has detected something that is too warm for keeping your finger on it. Without these interconnections, the skin in your finger would burn for a long time on a stove.

Systems thinking helps you to figure out the longer term effects of the effects of your actions. It does not focus only on here and now effects of your actions. When you do something without thinking about the longer term effects, you can have many unintended consequences which you could prepare for, if you had used systems thinking. With systems thinking, you can have higher odds of understanding the future than without it. It also helps you to remove your focus from the causes you cannot change to causes you have power to change. This saves you lots of time and effort without having many negative effects. Systems thinking helps also you to make sense about the structure of your systems. It deepens your understanding about them. You can see how different elements in your system interact. When one element changes, others react to this change. Then the whole system behavior will change, at least a bit.

A process with many questions

To understand how your system works, you have to ask many questions. You have to figure out which effects are related to which causes. You cannot understand and/or improve your system without understanding what happens and why. You can also solve problems related to your system with this process. Many of the questions you ask are not related to any special system. They are the same questions, no matter what system is concerned. Problem-solving and system improvement process has three steps:

First, when you start figuring out the effects of one element, you create wider views about the element and the timeframe you focus on. You ask questions about the interactions of many elements and what the future of the system will look like. Questions, like ”How will system elements interact in the future?”, ”If I change one element, how will the other elements behave in the future?”,

Second, you start figuring out how does the system behavior arise and change. You ask questions like, ”What are the key circumstances and how fast do they change?”, ”In what directions do the key interconnections move?”, ”Do the feedback loops in a system balance or reinforce the interactions of the system?”

Third and final step is all about improving the system. These questions focus on the simple truth that systems are almost always improvable. You can ask questions like: ”Is this system as simple as possible, but not simpler?”, ”Do I need all these elements to get what I want from the system?” or ”Can these elements be improved in somehow? The question about the last step is: Does the system improvement produce better results than the time and effort you will put on it? If not, you have to focus on other things.

Next time I will introduce some common archetypes of feedback loops.

-TT

Tuesday, September 17, 2019

Paradox of options

If you go to your local supermarket, you will find too many shelves with too many options. I am almost sure that you have never seen all the products they have in their collection. If you start looking for all the options you have, it is almost impossible to make the optimal choice. Then you will either choose the brand you are familiar with or the product you have always chosen. The odds are in favor of the latter option. During the day, you will have tens of this kinds of decisions to make.

Some freedom is a good thing

Most people think that increasing the amount of options is mostly a good thing. World has changed from the life with limited options to unlimited options. This change has a cost. You have a limited bandwith in use in your brains. You will get problems with too many options faster than you think. Your decisions will have three different bad outcomes if you have too many options. They reduce the amount of decisions you make, they lower the quality of decisions, and the satisfaction you get from them.

Complexity increases all the when you increase the amount of options. Some complexity is good, but too many different options brings you analysis paralysis. Each added option multiplies the amount of work and time you use for making a decision. You cannot make any decision after a certain amount of options. What happens is that you use lots of time to make a decision that never materializes. And this time is away from other tasks or decisions. Sometimes not making a decision is a good thing. There are decisions you should not make. If the outcome of not doing the decision is better than the cost of lost time, your outcome becomes better and indecision is a blessing.

Too many options create another unwanted consequence. The quality of your decision becomes lower. Too many options can create a situation where you make a decision that is based on less important parameters. Mating is one of these situations. You might encounter many approachable possible partners in a nightclub. The odds of a decision based on the outer appearance grow higher. And the outcome will have less quality. If you are trying to find a partner, you can probably increase your odds by going to a party with smaller amount of possible partners and make a better decision.

Too many options bring less satisfaction. This is maybe the weirdest negative outcome. Why doesn´t it bring you more satisfaction because you have put more effort on making a decision? One reason for this is that you can imagine that many of your options could have been better than the option you chose. You are more interested in what you could have lost than what you did gain from your decisions. The attractive parameters of other options are more represented in your brains than the attractive parameters of your choice. You will start regretting immediately after the choice you made. These are some of the reasons why less options after a certain point means higher satisfaction.

Sweet spot

Any decision you make has its own sweet spot in which there is an optimal amount of options available. In this spot, the quantity of decisions, quality of them, and the satisfaction you get from is optimal. When you have a single option, you feel disregard about the decision. After you have added enough options, you will arrive to your sweet spot of options. If you will add more options after your sweet spot, each of them is bad for the quality of your decision. You can add options forever, but the result is that the odds of having a good outcome becomes smaller.

Sweet spots differ from decision to decision and from person to person. This makes them hard to find. The process of trial and error will help you find them. This requires situations that repeat each other. The problem with this process is that it consumes time. And your time is limited. You have to make decisions about considering your options. These decisions can be more important than your last choice.

More information about the topic you can find from Barry Schwartz´s book Paradox of choice or his interviews in Youtube.

Until next time,

-TT

Tuesday, September 3, 2019

Conscious and Unconscious actions

Consciousness is not a simple thing. If you say it is, you probably don´t understand it well. I will not go into details about consciousness. Before you start reading this text, think about consciousness yourself. Do you think you are always conscious of what you do? Have you ever noticed that you did something without acknowledging it in the moment you did it? Think about more questions about consciousness yourself. Conscious and unconscious actions can be separated into five groups:

  1. Always conscious actions
  2. Actions that can be done either way
  3. Skills that are practiced with conscious actions and become unconscious
  4. Actions that can be made conscious but are normally unconscious
  5. Actions that are always unconscious

First group means that you cannot function without conscious thinking. For example, you have forgotten something and you know it. Then you have to put conscious effort to remember what you have forgotten. This is the most uncommon group of these actions, but people think it is the most common one. Belief in human rationality lies in this misunderstanding.

Second group of actions are skills that can be done either way after once they are well learned. This group of actions do not usually require precise timing or fast execution. Driving is one of these skills. For example, you can take a similar journey from home to work every day without thinking it consciously during the journey. Sometimes you have to consciously change your journey because of a traffic jam or to stop to buy some groceries either in a way back home or to work.

Third group of actions are skilled and initially learned with conscious effort. Usually this means lots of conscious repetitions. These actions move gradually from conscious to unconscious. The harder these actions get, the more conscious effort you need. Finally this group of actions become automated. After the automatization of the action, conscious actions can result in failure. For example, if you had watched sports, you might have encountered professional athletes failing in easy situations where they had too much time to perform an easy action. Concscious actions are not as effective in those situations than unconscious actions.

Fourth group of actions is normally unconscious. These actions change into conscious by getting some feedback of their effects. This feedback is usually biological and aims for controlling bodily functions. For example, you can have a sports clock that measures your heartbeats and you can consciously aim for getting your heartbeat higher or lower depending on your needs. You might acknowledge the changes in your bodily functions, but details of how you do it remain unconscious.

Fifth group is consisted of actions that are always unconscious and mostly spinal reflexes. You cannot intentionally grow your hair or change your blood sugar level. The latter happens at least when you are not consciously eating or you are sleeping. These actions are unconscious. And some survival reflexes are unconscious, too. For example, avoiding a surprising flying object that comes toward you. These actions keep you alive. Therefore, they are necessary. Without these spinal reflexes, mankind wouldn´t exist.

Some actions are performed better with your unconscious mind and some of them are performed better when you put conscious effort. Speed is one variable that separates the need for unconscious mind and the use of consciousness. As you have noticed, most skilled actions do not require consciousness. When you look at the experts performing their skilled actions, they seem effortless. This is the result of thousands of repetitions done with conscious thought. Expertise is not the most usual way of performing unconscious actions. Habits are the most usual unconscious actions. The quality of your habits is the most useful indicator to see if you will be successful. What this means is that the outcomes of your good habits must be better than the outcomes of your bad habits.

You cannot only perform unconscious actions in life. Big decisions with lots of variables require conscious thought. They require more time. Therefore, if you have no time, you have to rely on your unconscious mind. It is more prone to errors. Separating unconscious and conscious mind and decisions is not a perfect model. Without unconscious mind you wouldn´t make any decisions. You would think about irrelevant things for hours without making any conclusions without it.Therefore, both are very much needed in every decision.

Until next time,

TT

Tuesday, August 20, 2019

How to predict better?

Everybody makes predictions. Most predictions are irrelevant in the big picture, but everyone makes them. For example, you can predict tomorrow´s weather. Most of the times, it doesn´t matter whether you are right or wrong. But sometimes you have to be outside for the whole tomorrow and then it matters. You make these predictions without systematic process. You need to have a systematic process to make better predictions. This text is about making them.

Commit to the truth

The first step for making better predictions is to commit to the truth. You have to recognize the influence of your beliefs, and psychological tendencies and you have to question them. You cannot make predictions that confirm your way of seeing the truth when the evidence do not confirm your beliefs or assumptions. You have to be willing to update your beliefs and assumptions when the objective facts tell you different stories than you would like to see. Your beliefs and assumptions have power to modify your predictions into wrong directions, unless you commit to find the truth no matter what that is. Your goal is to make the best prediction you can make with the facts you can gather. If you think you do not have enough facts, you have to commit for finding them. If you have too many facts, you have to commit for separating the relevant facts from noise.

The process of making good predictions

Most people have three different answers to predictions: ”Yes”, ”No”, and ”Maybe.” People who make good predictions live in the uncertain world. In this world, ”Maybe” is the only right answer. This means that you have to make predictions with probability estimates. Your prediction could look like this: ”There is a 70% chance of raining tomorrow.” You also have to second-guess all the people who make vague predictions like ”It may rain tomorrow” or ”The unemployment rate may be less than 5% in the next two years.” You cannot know whether these people have made the right predictions because their predictions can mean anything. If you want to make better predictions, you have to commit for making probability estimations.

The starting point for making a probability estimation is to find a base rate for the thing you are predicting. For example, if you have to predict what is the probability that your football team will win the next home game, you have to start by looking how many wins they have won in their home games this season. Your sample size should be enough. If the season has just started, you have to look for last season´s statistics, too. Let´s say they won 7 out of their last 10 home games, then the base rate is 70%. This is your starting point. Then you have to use other data to adjust your probability estimate. Why should you start with a base rate? Because your first estimation is just your hunch and the probability of it being right is smaller than using the base rate. The figure you find first will be the most available for your brains. It will be your anchor during your prediction process. Do not forget to define the time frame for your prediction if necessary.

After you have figured out the base rate, you can start forming your own view. Break your question to smaller questions like ”What would have to be true for this not to happen?”, ”What kind of information helps me to answer this question?” or ”What I do not know about this question?” You have to figure out what you don´t know and what you do know. After many questions, you should make your own probability estimate and write it down and the reasons behind it.

Then, it is time to find out some outsider view about the same question. Consult people who have made predictions about the same question. Find out what the experts think and their reasons. Focus on the differences in reasons between your own view and other people. Consult prediction markets, like stock markets, or betting offices that give odds to a thing you predict. You can use polls if you predict about the elections, etc. After you have found out the base rate, made your own probability estimate and found out about the outside views, you have to synthesize and make another probability estimate.

Let the time pass and then you can scrutinize your own prediction and make another estimation. You can do it by assuming your first estimate is wrong. Consider why it is wrong and write down the second estimate and reasons for it. And then find out about other outside views again. Then, synthesize again and update your prediction when new important information arrives. This process ends when the time frame closes. This process can feel frustrating. If you want to predict better, you have to update your estimates often and make gradual adjustments to your predictions.

Prepare to be wrong. Even the best predicting professionals are occasionally wrong. Do not mix up the outcome of the prediction and the quality of the process. When you have 80/20 predictions, you are rt only 4 out of 5 predictions when your probability estimates have good accuracy. No matter whether you are right or wrong, have a postmortem. Think about the process and the reasons behind your estimate. Did your process have high quality? Did you find out the right base rate? Did you update your estimate often enough? Did you find out the outside views of the best professionals and prediction markets? How many times you synthesized these views? All these questions help you to predict better next time.

Sources:


-TT