Author: Naveen

Consider two very large prehuman populations, the Geniuses and the Butterflies. Suppose the Geniuses will devise an invention once in 10 lifetimes. The Butterflies are much dumber, only devising the same invention once in 1000 lifetimes. So, this means that the Geniuses are 100 times smarter than the Butterflies. However, the Geniuses are not very social and have only 1 friend they can learn from. The Butterflies have 10 friends, making them 10 times more social.

Now, everyone in both populations tries to obtain an invention, both by figuring it out for themselves and by learning from friends. Suppose learning from friends is difficult: if a friend has it, a learner only learns it half the time. After everyone has done their own individual learning and tried to learn from their friends, do you think the innovation will be more common among the Geniuses or the Butterflies?

Well, among the Geniuses a bit fewer than 1 out of 5 individuals (18%) will end up with the invention. Half of those Geniuses will have figured it out all by themselves. Meanwhile, 99.9% of Butterflies will have the innovation, but only 0.1% will have figured it out by themselves.

Being Smart is Not Enough (The quote is from the book The Secret of Our Success: How Culture Is Driving Human Evolution, Domesticating Our Species, and Making Us Smarter)

The author goes on to illustrate why you need both Geniuses and Butterflies in your team.

TL;DR

The bigger and powerful get money first, and the small and weak get money last.

Now coming to the long version.

His basic theory was that who benefits when the state prints a bunch of money is based on the institutional setup of that state. In the 18th century, this meant that the closer you were to the king and the wealthy, the more you benefitted, and the further away you were, the more you were harmed.

Money, in other words, is not neutral. This general observation, that money printing has distributional consequences that operate through the price system, is known as the “Cantillon Effect.”

…

This theory doesn’t imply that money creation is always biased towards the powerful, only that how money travels matter. There is no inherent money neutrality; such neutrality must be constructed by institutional arrangements.

The Cantillon Effect: Why Wall Street Gets a Bailout and You Don’t

And the dumbed-down version for people like me.

A fun article on Wait But Why explaining the big and small by making it small and big, respectively. Fun fact – our Milky Way is in Virgo Supercluster.

A wonderful analysis on why good people do bad things.

Tenbrunsel told us about a recent experiment that illustrates the problem. She got together two groups of people and told one to think about a business decision. The other group was instructed to think about an ethical decision. Those asked to consider a business decision generated one mental checklist; those asked to think of an ethical decision generated a different mental checklist.

Tenbrunsel next had her subjects do an unrelated task to distract them. Then she presented them with an opportunity to cheat. 

Those cognitively primed to think about business behaved radically different from those who were not — no matter who they were, or what their moral upbringing had been.

“If you’re thinking about a business decision, you are significantly more likely to lie than if you were thinking from an ethical frame,” Tenbrunsel says.

According to Tenbrunsel, the business frame cognitively activates one set of goals — to be competent, to be successful; the ethics frame triggers other goals. And once you’re in, say, a business frame, you become really focused on meeting those goals, and other goals can completely fade from view.

Psychology Of Fraud: Why Good People Do Bad Things

Another excellent example later in the article.

Emissions testers are supposed to test whether or not your car is too polluting to stay on the road. If it is, they’re supposed to fail you. But in many cases, emissions testers lie.

“Somewhere between 20 percent and 50 percent of cars that should fail are passed — are illicitly passed,” Pierce says.

Financial incentives can explain some of that cheating. But Pierce and psychologist Francesca Gino of Harvard Business School say that doesn’t fully capture it.

They collected hundreds of thousands of records and were actually able to track the patterns of individual inspectors, carefully monitoring those they approved and those they denied. And here is what they found:

If you pull up in a fancy car — say, a BMW or Ferrari — and your car is polluting the air, you are likely to fail. But pull up in a Honda Civic, and you have a much better chance of passing.

Why?

“We know from a lot of research that when we feel empathy towards others, we want to help them out,” says Gino.

Emissions testers — who make a modest salary — see a Civic and identify, they feel empathetic.

Essentially, Gino and Pierce are arguing that these testers commit fraud not because they are greedy, but because they are nice.

“And most people don’t see the harm in this,” says Pierce. “That is the problem.”

Pierce argues that cognitively, emissions testers can’t appreciate the consequences of their fraud, the costs of the decision that they are making in the moment. The cost is abstract: the global environment. They are literally being asked to weigh the costs to the global environment against the benefits of passing someone who is right there who needs help. We are not cognitively designed to do that.

Psychology Of Fraud: Why Good People Do Bad Things

A wonderful article on Finshots explaining what options is in stock trading.

For instance, imagine you see shares of your favourite tech company trading at Rs. 80 today. Now you believe this stock will rally and reach Rs. 120 anytime soon. The only problem — if you wanted to buy 1,000 shares right now, you’d have to cough up Rs. 80,000 — a rather steep amount. But what if you could change the nature of this bet a tiny bit? What if you could find someone who’s willing to hear a different proposition? More importantly, what if you could make him an offer he couldn’t refuse?

So you set the agenda. You ask him what he thinks about your favourite tech stock? He tells you he isn’t very optimistic. He makes it explicitly clear that the upside is fairly limited. He mocks your optimism and offers you his unabashed opinion.  “It won’t cross Rs. 90 in the next 6 months. I’ll give it to you in writing”, he says. You are overjoyed. This is exactly what you wanted to hear. So you ask him to give it in writing — a contract of sorts.

Softbank and the NASDAQ Whale

A wonderful article by Sarah Perry on why our public and private preferences are different. It is from 2015 but I feel it will always be relevant. A long read, but worth it.

Preference falsification is an information theory term for the tendency for people to express a public preference that is different from their private, interior preference. For various reasons, certain preferences may not be publicly acceptable to express; they may be punished by execution, or labor camps, or exile, or social exclusion, or at the very least suspicion and a risk of some of these things. When people do not express their true preferences, they are deprived of the opportunity to coordinate with each other to create a more preferable outcome for both. Preference falsification is not just a political phenomenon, but a product of our dual nature, experiencing ourselves on the one hand from the privileged first-person perspective, and on the other hand from the imagined perspective of others. Pretending to have different preferences than one really does may be necessary to maintain a sense of safety, social belonging, and status.

People’s expressed, public preferences are a function of both their interior preferences and the perceived acceptability of revealing them; other people’s expressed preferences serve as a guide for measuring acceptability. So people’s expressed preferences are in part a function of other people’s expressed preferences. Under certain circumstances, when the distribution of preferences is right, a domino effect may be begun by a single dissenter, toppling the status quo of preference falsification. One dissenter may embolden others, and then together with them give the impression that it is acceptable for others to express their true preferences. On the other hand, people whose preferences are satisfied by the status quo may find it wise to begin to falsify their preferences when a revolution begins to look imminent.

Weaponized Sacredness

An interesting analogy by Tim Harford on how our minds store memories.

Last spring, I returned from the holiday of a lifetime in Japan, and reflected on the richness of the memories it had generated. Time flew by while I was there, but in hindsight 10 days somewhere vividly new had produced more memories than 10 weeks back home.

I likened the effect to the compression of a film. Instead of storing each frame separately, video compression algorithms will start with the first frame of a scene and then store a series of “diffs” — changes from one frame to the next. A slow, contemplative movie with long scenes and fixed cameras can be compressed more than a fast-moving action flick.

Similarly, a week full of new experiences will seem longer in retrospect. A month of repeating the same routine might seem endless, but will be barely a blip in the memory: the “diffs” are not significant enough for the brain to bother with.

Later in the article, the author goes on to emphasise the importance of “place” in building new memories.

I’ve come to realise with renewed force the value of a pre-Covid habit: seeking out new places in which to read and to write, even something as simple as a new café or a new library. Fresher ideas and clearer memories come when one works somewhere different: in a new place, the mind is more alert.

This may be why, when we ask people to recall pivotal moments in history such as the fall of the Berlin Wall or the 9/11 terror attacks in Manhattan, we ask “where were you when you heard?”

Covid-19 may be as significant an episode as any, but it will not trigger the same sharp memories. Where were you during the pandemic? At home. For months. And without a physical change of scene, even new experiences all start to seem the same.