Category: Food for thought

Well, for starters, the goat is gone. But this Economic Times article by Amit Kapoor & Chirag Yadav sheds a bit more light on why there’s a disconnect between stock market and the economy.

The behavioural aspect of the trend has been recently outlined by Robert Shiller based on his work on how narratives shape economic outcomes. Shiller argues that the initial market resilience in US until mid-February was the lack of familiarity of investors with pandemics as the event had no historical precedent. Moreover, investors had not anticipated the global spread of the disease and the halting of economic activity in response to it at the scale in which we have seen. The following dip was driven by the stories emerging from China and Italy of hospitals having to choose patients and stores running out of essentials. But eventually, when the government swept into action to provide aggressive stimulus, investors found themselves in familiar territory of previous economic crises. The state-led actions reinforced investor belief to return to the markets, which have staged a prompt and promising recovery.

It is later in the article the authors explain the disconnect between capital and real markets over the long run.

The macroeconomic explanation provides a more generalised contextualisation. A prominent change over the last decade has been the excessive liquidity infusion in the global markets driven by the quantitative easing in the developed world, especially US, where interest rates have reached near zero levels. Most of this money has found its way into capital markets for easy returns instead of materialising as real investments. A lot of the money has also flown into the capital markets of developing countries like India. Investors also know that the central banks and government will back their capital with taxpayer money in case of market failure. Thus, capital markets have begun to provide faster and more secure returns than real investments.

I always thought any generated energy can be stored only in batteries.

The most efficient energy storage technology may be as close as the nearest hill, according to former Energy Secretary Steven Chu, and almost as old.

“It turns out the most efficient energy storage is you take that electricity and you pump water up a hill,” Chu said Tuesday at the Stanford University Global Energy Forum.

When electricity is needed, you let the water flow down, spinning generators along the way. Pumped hydro can meet demand for seasonal storage instead of the four hours typical of lithium-ion batteries.

Steven Chu: Long-Term Energy Storage Solution Has Been Here All Along

So, you can have a hydro power plant generate electricity with water flowing down and use any excess electricity to pump water back up the reservoir to store the excess energy. Neat!

I knew we could create disposable email address on Gmail by appending + to username and adding random characters after that, but didn’t know we could add expiration date to them.

Let’s say your temporary email address is amit@gmail.com. A website form requires your email address so you can put amit+mmdd@gmail.com in the sign-up field where mmdd is the month and date till when that disposable email will stay valid.

For instance, if you specify the email address as amit+0623@gmail.com – that alias will be valid until June 23 and any emails sent to that alias after that date are ignored else they are forwarded to your main Gmail address. You can only specify the year in your temporary email amit+12312020@gmail.com in mmddyyyy format.

How to Create a Disposable Email Address with Gmail

Never noticed it, but Cooper Black is actually everywhere. Even my daughter’s alphabet letter set is in Cooper Black!

Considering the raging COVID-19 pandemic, job losses and all around negativity, why are the markets going up? Well, the goat is gone.

In a certain village, there is a very large and poor family who are living in a cramped room. One day, the head of the family goes to a wise old grandmother of the village and asks for some advice. “There are 12 of us in this tiny room,” he says. “It’s so dirty and cramped, everyone is always fighting, the children are crying, and there is no place for anyone to even lie down. What should I do?”

The wise old woman says, “Keep your goat also in the room.” The man says, “Are you mad? The goat will make things worse.”

“Just do it”, says the old woman. The man comes back a few days later and tells her that now, life is absolute hell. “The goat is smelly and there are droppings all over and it kicks everyone and bleats loudly all the time.” The old woman says “OK, fine, if it’s so bad then keep the goat outside”. Now the man comes back after a few days, looking pleased and happy. “It’s wonderful, he says. It’s just the 12 of us and we have the whole room to ourselves! No goat!”

The goat is gone

First-order thinking is fast and easy. It happens when we look for something that only solves the immediate problem without considering the consequences. For example, you can think of this as I’m hungry so let’s eat a chocolate bar.

Second-order thinking is more deliberate. It is thinking in terms of interactions and time, understanding that despite our intentions our interventions often cause harm. Second order thinkers ask themselves the question “And then what?” This means thinking about the consequences of repeatedly eating a chocolate bar when you are hungry and using that to inform your decision. If you do this you’re more likely to eat something healthy.

First-level thinking looks similar. Everyone reaches the same conclusions. This is where things get interesting. The road to out-thinking people can’t come from first-order thinking. It must come from second-order thinking. Extraordinary performance comes from seeing things that other people can’t see.

Second-Order Thinking: What Smart People Use to Outperform

A more succinct version by the same author.

Second-order thinking is the practice of not just considering the consequences of our decisions but also the consequences of those consequences. Everyone can manage first-order thinking, which is just considering the immediate anticipated result of an action. It’s simple and quick, usually requiring little effort. By comparison, second-order thinking is more complex and time-consuming. The fact that it is difficult and unusual is what makes the ability to do it such a powerful advantage.

Chesterton’s Fence: A Lesson in Second Order Thinking

Considering the current COVID-19 pandemic, one of the best things I have read on why we failed to get a grasp on this.

Part of the problem may simply be that we get our cues from others. In a famous experiment conducted in the late 1960s, the psychologists Bibb Latané and John Darley pumped smoke into a room in which their subjects were filling in a questionnaire. When the subject was sitting alone, he or she tended to note the smoke and calmly leave to report it. When subjects were in a group of three, they were much less likely to react: each person remained passive, reassured by the passivity of the others.

As the new coronavirus spread, social cues influenced our behaviour in a similar way. Harrowing reports from China made little impact, even when it became clear that the virus had gone global. We could see the metaphorical smoke pouring out of the ventilation shaft, and yet we could also see our fellow citizens acting as though nothing was wrong: no stockpiling, no self-distancing, no Wuhan-shake greetings. Then, when the social cues finally came, we all changed our behaviour at once. At that moment, not a roll of toilet paper was to be found.

Why we fail to prepare for disasters

But at the end it gets scary, really scary.

Because Covid-19 has spread much faster than HIV and is more dangerous than the flu, it is easy to imagine that this is as bad as it is possible to get. It isn’t. Perhaps this pandemic, like the financial crisis, is a challenge that should make us think laterally, applying the lessons we learn to other dangers, from bioterrorism to climate change. Or perhaps the threat really is a perfectly predictable surprise: another virus, just like this one, but worse. Imagine an illness as contagious as measles and as virulent as Ebola, a disease that disproportionately kills children rather than the elderly.

What if we’re thinking about this the wrong way? What if instead of seeing Sars as the warning for Covid-19, we should see Covid-19 itself as the warning?

Next time, will we be better prepared?

Why we fail to prepare for disasters

If COVID-19 is a warning, then what will the actual disaster look like?

You must never ever ever confuse, on the one hand, the need for absolute, unwavering faith that you can prevail despite those constraints with, on the other hand, the need for the discipline to begin by confronting the brutal facts, whatever they are.

The Stockdale Paradox

You’re in a room with two large urns.

The urns are covered so you can’t see inside them. But you know the urn on the left contains 50 white marbles and 50 black marbles. The urn on the right also contains 100 marbles, but the ratio of white to black marbles is unknown, with every ratio as likely as any other.

[…]

What Ellsberg found is that people overwhelmingly choose to draw the ball from the urn with a known set of probabilities, rather than take a chance on the urn with an unknown ratio.

This is despite the fact that the second urn could have better odds of drawing black marbles, like 99 to 1 or even 100 to no white marbles. Of course, the ratio in the unknown urn could also be tilted in the other direction. There’s no way of knowing.

The fact is, the probability of drawing a black marble from either urn is identical.

To verify this for yourself, just simplify the example.

Instead of 100 marbles, imagine there are only 2. In the known urn, there is 1 black and 1 white. In the unknown urn, one-third of the time you’d be picking out of an urn with 2 black marbles. Another third of the time, 2 white marbles. And another third of the time, the urn has 1 of each.

When you sum these probabilities up, you see that the chance of picking a black marble in the second urn is identical to picking one from the first urn: 50%.

[…]

The takeaway? People exhibit strong aversion to ambiguity and uncertainty, meaning they have an inherent preference for the known over the unknown.

The Ellsberg Paradox: Why You Don’t Take Risks and Settle for the Mediocre

Thanks to Finshots for dropping this one in my inbox.