Beliefs, Severed Tetherballs, Adventures & Running For Your Hat

Hear this: rational venture capitalists do best in irrational markets. So what I write here, right now, is irrational and in my own worst interest. Like last week’s referenced bumper sticker, I should be praying for a bubble to provide irrational buyers that surf upon its surface, willing to pay irrational prices for my businesses. As I build my portfolio of startups, I should seek to be the store owner on Christmas Eve, filled with desirable inventory awaiting raucous media coverage and shoppers more rabid then scenes from Wal-Mart’s stampeding shoppers for $29 DVD players or Oprah’s audiences during car-giveaways. I should want to stand on stage and sell you a story and bring myself to tears and bring you to buy. I should want you to believe. And I should want you to prefer hope to truth. For the pursuit of truth might be noble social currency but it’s far harder to spend than the green paper or metal coin variety. I look upon a great deal of the cheery consensus and righteous rhetoric with a heaving not a helping of cynicism. Years from now you will look back, past the Web, past the Homes, past the Hedges, past the Oil Fields at much of the present day ‘Greenery’—and regret being a sucker.

My own paradox is this: I’m a techno-optimist and a free marketer. I believe in technology and I believe in markets—it’s human nature, in its beautiful behaviors and malignant motives, which troubles me so. As Richard Feynman said, Mother Nature can’t be fooled—but he forgot that people sure can.

Some claim that truth seeking is the highest calling. But here’s Harvard’s Steven Pinker on truth and beliefs: “The claim that truth is cognition’s proprietary virtue runs into an obvious empirical problem: many kinds of human beliefs are systematically false. Members of our species commonly believe, among other things, that objects are naturally at rest unless pushed, that a severed tetherball will fly off in a spiral trajectory, that a bright young activist is more likely to be a feminist bank-teller than a bank-teller, that they themselves are above average in every desirable trait, that they saw the Kennedy assassination on live television, that fortune and misfortune are caused by the intentions of bribable gods and spirits, and that powdered rhinoceros horn is an effective treatment for erectile dysfunction. The idea that our minds are designed for truth does not sit well with such facts.”

And on beliefs (even environmentalism) Pinker says this: “Beliefs have a social as well as an inferential function: they reflect commitments of loyalty and solidarity to ones coalition. People are embraced or condemned according to their beliefs, so one function of the mind may be to hold beliefs that bring the belief-holder the greatest number of allies, protectors, or disciples, rather than beliefs that are most likely to be true. Ideological beliefs are obvious examples.”

How and what you believe can affect your survival. Here’s Laurence Gonazales, of National Geographic—and a survival expert writing about essential survival skills: “Julian Rotter, a professor of psychology at the University of Connecticut, developed the concept of what he calls "locus of control." Some people, he says, view themselves as essentially in control of the good and bad things they experience—i.e., they have an internal locus of control. Others believe that things are done to them by outside forces or happen by chance: an external locus. These worldviews are not absolutes. Most people combine the two. But research shows that those with a strong internal locus are better off. In general, they’re less likely to find everyday activities distressing. They don’t often complain, whine, or blame. And they take compliments and criticism in stride. The importance of this mentality is evidenced by tornado statistics. In the past two decades Illinois has had about 50% more twisters than Alabama but far fewer fatalities. The discrepancy can be explained, in part, by a study in the journal Science, which found that Alabama residents believed their fate was controlled by God, not by them. The people of Illinois, meanwhile, were more inclined to have confidence in their own abilities and to take action. This doesn’t mean we should be overconfident. Rather, we should balance confidence with reasonable doubt, self-esteem with self-criticism. And we should do this each day. As Al Siebert put it in his book The Survivor Personality, "Your habitual way of reacting to everyday events influences your chances of being a survivor in a crisis."

Wise words indeed—yet the wisest words I’ve come across in some time were written 100 years ago by GK Chesterton. He said, “An adventure is only an inconvenience rightly considered. An inconvenience is only an adventure wrongly considered.” Whenever you find yourself discomfited with chagrin over daily disappointments, I advise reaching for a pint of perspective and chugging from Chesterton essay from 1908, “On Running After One’s Hat”

“….I feel an almost savage envy on hearing that London has been flooded in my absence, while I am in the mere country. My own Battersea has been, I understand, particularly favoured as a meeting of the waters. Battersea was already, as I need hardly say, the most beautiful of human localities. Now that it has the additional splendour of great sheets of water, there must be something quite incomparable in the landscape (or waterscape) of my own romantic town. Battersea must be a vision of Venice. The boat that brought the meat from the butcher’s must have shot along those lanes of rippling silver with the strange smoothness of the gondola. The greengrocer who brought cabbages to the corner of the Latchmere Road must have leant upon the oar with the unearthly grace of the gondolier. There is nothing so perfectly poetical as an island; and when a district is flooded it becomes an archipelago.

Some consider such romantic views of flood or fire slightly lacking in reality. But really this romantic view of such inconveniences is quite as practical as the other. The true optimist who sees in such things an opportunity for enjoyment is quite as logical and much more sensible than the ordinary “Indignant Ratepayer” who sees in them an opportunity for grumbling. Real pain, as in the case of being burnt atSmithfield or having a toothache, is a positive thing; it can be supported, but scarcely enjoyed. But, after all, our toothaches are the exception, and as for being burnt at Smithfield, it only happens to us at the very longest intervals. And most of the inconveniences that make men swear or women cry are really sentimental or imaginative inconveniences—things altogether of the mind. For instance, we often hear grown-up people complaining of having to hang about a railway station and wait for a train. Did you ever hear a small boy complain of having to hang about a railway station and wait for a train? No; for to him to be inside a railway station is to be inside a cavern of wonder and a palace of poetical pleasures. Because to him the red light and the green light on the signal are like a new sun and a new moon. Because to him when the wooden arm of the signal falls down suddenly, it is as if a great king had thrown down his staff as a signal and started a shrieking tournament of trains. I myself am of little boys’ habit in this matter. They also serve who only stand and wait for the two fifteen. Their meditations may be full of rich and fruitful things. Many of the most purple hours of my life have been passed at Clapham Junction, which is now, I suppose, under water. I have been there in many moods so fixed and mystical that the water might well have come up to my waist before I noticed it particularly. But in the case of all such annoyances, as I have said, everything depends upon the emotional point of view. You can safely apply the test to almost every one of the things that are currently talked of as the typical nuisance of daily life.

For instance, there is a current impression that it is unpleasant to have to run after one’s hat. Why should it be unpleasant to the well-ordered and pious mind? Not merely because it is running, and running exhausts one. The same people run much faster in games and sports. The same people run much more eagerly after an uninteresting, little leather ball than they will after a nice silk hat. There is an idea that it is humiliating to run after one’s hat; and when people say it is humiliating they mean that it is comic. It certainly is comic; but man is a very comic creature, and most of the things he does are comic—eating, for instance. And the most comic things of all are exactly the things that are most worth doing—such as making love. A man running after a hat is not half so ridiculous as a man running after a wife.

Now a man could, if he felt rightly in the matter, run after his hat with the manliest ardour and the most sacred joy. He might regard himself as a jolly huntsman pursuing a wild animal, for certainly no animal could be wilder. In fact, I am inclined to believe that hat-hunting on windy days will be the sport of the upper classes in the future. There will be a meet of ladies and gentlemen on some high ground on a gusty morning. They will be told that the professional attendants have started a hat in such-and-such a thicket, or whatever be the technical term. Notice that this employment will in the fullest degree combine sport with humanitarianism. The hunters would feel that they were not inflicting pain. Nay, they would feel that they were inflicting pleasure, rich, almost riotous pleasure, upon the people who were looking on. When last I saw an old gentleman running after his hat in Hyde Park, I told him that a heart so benevolent as his ought to be filled with peace and thanks at the thought of how much unaffected pleasure his every gesture and bodily attitude were at that moment giving to the crowd.

The same principle can be applied to every other typical domestic worry. A gentleman trying to get a fly out of the milk or a piece of cork out of his glass of wine often imagines himself to be irritated. Let him think for a moment of the patience of anglers sitting by dark pools, and let his soul be immediately irradiated with gratification and repose. Again, I have known some people of very modern views driven by their distress to the use of theological terms to which they attached no doctrinal significance, merely because a drawer was jammed tight and they could not pull it out. A friend of mine was particularly afflicted in this way. Every day his drawer was jammed, and every day in consequence it was something else that rhymes to it. But I pointed out to him that this sense of wrong was really subjective and relative; it rested entirely upon the assumption that the drawer could, should, and would come out easily. “But if,” I said, “you picture to yourself that you are pulling against some powerful and oppressive enemy, the struggle will become merely exciting and not exasperating. Imagine that you are tugging up a lifeboat out of the sea. Imagine that you are roping up a fellow-creature out of an Alpine crevass. Imagine even that you are a boy again and engaged in a tug-of-war between French and English.” Shortly after saying this I left him; but I have no doubt at all that my words bore the best possible fruit. I have no doubt that every day of his life he hangs on to the handle of that drawer with a flushed face and eyes bright with battle, uttering encouraging shouts to himself, and seeming to hear all round him the roar of an applauding ring.

So I do not think that it is altogether fanciful or incredible to suppose that even the floods in London may be accepted and enjoyed poetically. Nothing beyond inconvenience seems really to have been caused by them; and inconvenience, as I have said, is only one aspect, and that the most unimaginative and accidental aspect of a really romantic situation. An adventure is only an inconvenience rightly considered. An inconvenience is only an adventure wrongly considered. The water that girdled the houses and shops of London must, if anything, have only increased their previous witchery and wonder. For as the Roman Catholic priest in the story said: ‘Wine is good with everything except water,’ and on a similar principle, water is good with everything except wine.”

Blowing Bubbles, Clouds & Imaginary Returns

Next week I'll be writing a interesting column revealing a fascinating new theory about a phenomenon describing low probability events and something called the "adjacent possible". But clearly the most notable breaking news this week was captured in this article below. As a bumper sticker in the valley read after the dot-com disaster, "Please God, just one more bubble." Paraphrasing Lennon, you might say I'm a cynic—but I'm not the only one. HL Mencken noted that a cynic is a man who, when he smells flowers, looks around for a coffin—though prefer the late George Carlin's declaration that if scratch any cynic, you'll find a disappointed idealist.

From The Onion:
Recession-Plagued Nation Demands New Bubble To Invest In

Incrementalism & Cascading Snapshots

The one thing I know: ‘nobody knows nothing’. Consider this: eighteen point two: 18.2% that is. This is the difference in earnings estimates made in January and revised in July for how much second quarter earnings growth would be. New Year, new estimates, same biases and errors. And so on January 1st, forecasts of growth in earnings for the second quarter of this year were for 4.7% for S&P 500. Three months later, passing through the guesswork guillotine, it was -2.0%. And earlier this week, estimates emaciated to -13.5%. How can so many, be so wrong, about so much, so often?



One answer: anchoring and adjustment. Where we start matters where we finish. It’s also the fallacy of incrementalism, which I define as the accumulation of small changes for fear of committing a large error in lieu of accepting large changes and settling for small error. It’s the Inverse Armstrong (ie. Neil): One small step for…equity analysts, is one giant leap…off a cliff for those who follow their work.



Expectations matter. And you can be sure that coming out of this down cycle (I won’t gander a guess), analysts will underestimate earnings growth. Clustering or sticking with the herd is safe. Invoking Keynes, ‘it’s far better to fail conventionally than to succeed unconventionally.



Here’s another serious bias: not invented here aka NIH syndrome. I don’t mean ideas in big corporations--though that’s true, what I mean is much bigger.



What I mean is this: we attribute our own reactions to environments (which are often unstable) or situations outside our control. Meanwhile we attribute the reactions of other people to their disposition (presumed to be stable). Consider this: if a candidate for a job shows up late to an interview, we instinctively blame them for irresponsibility. If it were us in the same situation we might blame the excessive traffic or parade or whatever exogenous and unexpected circumstance impedes us.



So why is this? It’s obvious. We look outward because, well—we look outward. It’s true biologically that it’s easy to observe others and quite hard, without a mirror, to observe ourselves. It’s the same reason we find it easy to understand what we’re feeling but find it much harder to know what someone else is really feeling. We judge others by seeing, ourselves by feeling.



So what’s the lesson? More understanding means less conflict.



Recently, researchers at Princeton broke it down like this: there are positive illusions. We view ourselves more likely to get rich and less likely to get sick than others. Why? Because we know our own wants, not others’. When people negotiate, they see what you say and do, but they don’t really know or feel your motive—even if it’s actually in their best interest.



Another researcher offered a fascinating view that people are just successions of overlapping selves through times. I call it cascading snapshots. This implies people treat themselves as different people: past, present and future. I think of it like a call option or a put option on experience. You might spend money on present self instead of saving for future self (whose state you can envision but not experience)--the same with painful surgery--preferring to "put" it (off) to future you. You treat future you as a different person--whose feelings you can't feel.



Dan Gilbert of Harvard has shown temporal hyperbolic discounting--we choose pleasure today and defer pain to tomorrow. We hyperbolically discount a $1.00 today versus $1.50 tomorrow, but the opposite a year from now. When asked to drink a nasty concoction to benefit science (they were told the more they drank the better) they picked two tablespoons now, but when deciding how much to drink in the future, they picked a half cup--the same they prescribed now for a friend. It’s as if the future them is the same as a current non-them (a friend).



When we imagine ourselves in the future-most of us zoom out and imagine a movie of us acting external to us(like an out of body experience)



We view ourselves as objective and others as distorted by bias. We view ourselves on our good intentions and others on their bad behavior. This makes us angry, frustrated and apt to think others are unfair or unreasonable, which in turn leads to aggression, conflict, disagreement and misunderstanding.



The truth is this: mistakes and errors from others could be the result of unintended influences. The researchers advise remembering “there's a wide gulf between intention and action The whole passage, “This picture may sound dismal, but there is hope. Misunderstandings can be averted by those aware of the psychological processes involved in self and social perception. Those individuals can be mindful that it is not only their own behavior that is sensitive to the constraints of the situation, but others' as well. Perhaps this could prompt them to show more charity when others fail to meet expectations. Those individuals also can recognize that others' mistakes and errors may not be the result of conscious malice but rather of unintended influences that those others would themselves decry. And, those individuals might remind themselves that there often is a wide gulf between intention and action, but that it is only reasonable and fair to apply the same standard of judgment to others as to oneself. Following these guidelines would not just be socially charitable— it would also be scientifically informed.”



And I advise that one should act intelligently when confronted with (seemingly) unintelligent behavior.

Dependence, Independence, Outliers & Energy

It’s said that the pen is mightier than the sword (or “S” Words if you’re Sean Connery being mocked on Saturday Night Live), that words can be weapons and that words can make a deeper scar than silence can heal. Yet Mark Twain also said: the right word may be effective but no word was ever as effective as a rightly timed…pause.



And so I pause to share the power of words, put to music, that moved a private group last night to help fight poverty. Eddie Vedder of Pearl Jam led an exclusive 3-hour show put on by the Robin Hood Foundation that raised $3 million in one night. Every single dollar goes directly to benefit the portfolio of deeply-diligenced charities held to the highest standards of accountability—as all the costs are underwritten personally by the prominent board of Robin Hood.



Now as we go into the 4th, I trade my own independence for the dependence of the pen and words of others. First: Daniel Gross captures brilliantly the zeitgeist of the energy bubble. Then a blogger captures the essence of Macolm Gladwell’s forthcoming best-seller er, book. I predict he underestimates the amount of luck in life. And finally we end with words from Bill Kristol on Jefferson and the Declaration of Independence—remember no matter how bad life may seem today, in the fullness of history how incredibly lucky we are.



DANIEL GROSS: “All the talk about the bad oil bubble obscures the potentially good bubble still inflating in the realm of alternative energy. Wind turbine installations more than doubled last year. Ethanol production capacity will nearly double once all the plants under construction are completed. Investors have given SunPower, a solar panel spinoff from Cypress Semiconductor, a market value much larger than that of its former parent.



Such exuberance is characteristic of bubbles that periodically inflate. Some, like the one we’ve had in housing, end in losses and Congressional investigations. Others, like the dot-com boom, leave behind something useful.



During a bubble, investment is spurred by technological progress and new economic assumptions — in this case about the price of oil, climate change and the desire to curb carbon emissions. Government does its part by using subsidies and the tax code to encourage the new industry. Just as in the 19th century the federal government offered land grants to inspire a railroad boom, Congress today is pushing an alternative energy boom by mandating ethanol use and giving generous tax credits for solar and wind-based energy. The investment has already led to more efficient solar panels, wind turbines and storage batteries.



Many of the new alternative energy companies will fail. But that’s when the fun will begin. Think about what happened after the dot-com bust. The commercial infrastructure laid down in the 1990s — fiber-optic cables, servers, payment systems — was put to use by new companies like Google, YouTube and Facebook.



Bubbles also leave behind mental infrastructure. People didn’t stop buying books online or sending e-mail messages when pioneering Internet firms failed. Since concerns about global energy demand, emissions and climate change are likely to survive the oil bubble, the market for alternative energy won’t evaporate.



It’s hard to say what we’ll be left with after this bubble. But a few years from now, as ethanol companies linger in bankruptcy and the stocks of alternative energy firms wallow in the single digits, I’ll pick you up in my plug-in hybrid, which I’ve just recharged using the wind turbine in my driveway, and we can discuss it.



A BLOGGER: “Malcolm Gladwell’s new book is about success and the special characteristics of people who are successful. Speaking of success, Gladwell’s massive book sales appear to follow a simple formula. Step 1: Tell stories about special people with magic powers. Step 2: Explain how the magic powers can make you rich or popular or smart with almost no effort. I like to call it the “superheros and free lunch” strategy — just reach the tipping point or blink and your problems are solved. Gladwell’s first two books were brilliant examples of the appeal of free lunches, each with subtitles about getting something for nothing: “How Little Things Can Make A Big Difference” and “The Power of Thinking Without Thinking”. Outliers is more focused on superheros or “Why Some People Succeed and Some Don’t”. Tip to would-be authors: superheros + free lunches = book sales!!!



WILLIAM KRISTOL: With regret, the 83-year-old Jefferson wrote that his ill health compelled him to decline the invitation to travel to Washington for the celebration of the 50th anniversary of American independence. But then, perhaps knowing this would be his final word, Jefferson sets forth in stirring prose his faith in the universal significance of the Declaration of Independence:



“May it be to the world, what I believe it will be, (to some parts sooner, to others later, but finally to all,) the signal of arousing men to burst the chains, under which monkish ignorance and superstition had persuaded them to bind themselves, and to assume the blessings & security of self-government.”



Jefferson claims his faith is based on the progress of enlightenment. He is confident that “all eyes are opened, or opening, to the rights of man.” Indeed, “The general spread of the light of science has already laid open to every view, the palpable truth, that the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of god.”



Jefferson may have been overly sanguine that the spread of the light of science would necessarily strengthen the cause of human rights. But even the optimistic Jefferson was well aware that the enemies of liberty and equality could regroup and resist — certainly abroad, perhaps even at home.



That’s one reason he trusted that “the annual return of this day” would “forever refresh our recollections of these rights, and an undiminished devotion to them.” Our devotion — and the sacrifices inspired by that devotion — are needed to make effectual the palpable truth of human equality.



The fate of equality, Jefferson makes clear, also depends on those who see further than, and act first on behalf of, their fellow citizens. In the letter, Jefferson pays tribute to his fellow signers — “that host of worthies, who joined with us on that day, in the bold and doubtful election we were to make for our country, between submission or the sword.” He wishes he could meet with the few of that band who still survived “to have enjoyed with them the consolatory fact, that our fellow citizens, after half a century of experience and prosperity, continue to approve the choice we made.”



So the signers of the declaration made the bold and doubtful choice for independence. Their fellow citizens ratified the choice. But they might have been slow to act if the worthies had not moved first.



For, as the declaration itself notes, “all experience hath shown, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed.” The people are conservative. Liberty sometimes requires the bold leadership of a few individuals.