[PREV - KNOWN_QUANTITIES]    [TOP]

WILD_LOTTERY

                                                   May 6, 2008

                                                   BLACK_SWAN

He favors the "Barbell Strategy" (p.205)        
splitting investments into extremely                         
safe and wildly speculative bets;                               
*many* wildly speculative bets:             
he claims that venture capital firms        
get into trouble if they favor a small                 
number of scenarios that "make sense"       Question: is it bad to attempt
to them.                                    to evaluate these speculative
                                            bets at all?  Do you risk
                                            being "blinded by the
                                            narrative fallacy" if you
                                            attempt to pick long shots
                                            that aren't quite so long?

                                            "In these businesses you are lucky
                                            if you don't know anything --
                                            particularly if others don't
                                            know anything either, but aren't
                                            aware of it." -- p. 207

                                                   It might seem a silly
     Exposing yourself to the                      question: but how do you
     positive side of                              know that these long
     uncertainty sounds nice.                      shots are really long
                                                   shots?  If you don't
     How do you know                               think about it at all,
     you're doing that?                            might you not be lulled
                                                   into chasing "wild ideas"
                                                   that aren't quite so
                                                   wild?

                                                   "... paying for the hyped-up
                                                   story, as people did with
                                                   the dot-com bubble, can make
                                                   any upside limited and
                                                   any downside huge." --p.207




                   (April 17, 2008)

    Telling someone to spread
    their investments across
    *multiple* insane longshots
    does indeed seem uncomfortably
    similar to recommending buying
    *lots* of lottery tickets.

       "Middlebrow thinkers sometimes make
       the analogy of such strategy with
       collecting 'lottery tickets.' It is
       plain wrong.  First, lottery
       tickets do not have a scalable
       payoff; there is a known upper           Buy lots of lottery tickets
       limit to what they can deliver. ..."     *only* if they won't tell you
               -- p. 207                        the size of the pot?

                                                Well, really: only if the size
                                                of the pot can't be determined
                                                by anyone.

    So, the reader will be
    unsurprised to learn
    that I am a "middlebrow
    thinker" who Karl             FALSE_KARL
    Popper would throw out
    of the class room.

    But the trouble with these
    insults is not that they're
    rude (why should you care              I don't think much of people
    if I feel insulted?), but              who wear ties either, but
    that they don't constitute             what is to be gained from
    an argument.                           harping on it so much?

                                               "Being on the receiving end
                                               of angry insults is not
                                               that bad; you can quickly
                                               get used to it and focus on
                                               what is _not_ said." -- p.279

                                               The tie-bound might keep
                                               that in mind.

--------
[NEXT - FALSE_KARL]