statistics

On The Better Angels of our Nature

I recently finished reading The Better Angels of our Nature – Why Violence Has Declined – by Steven Pinker.

Below are excerpts from this book that I found particularly insightful:

This book is about what may be the most important thing that has ever happened in human history…No aspect of life is untouched by the retreat from violence. Daily existence is very different if you always have to worry about being abducted, raped, or killed, and it’s hard to develop sophisticated arts, learning, or commerce if the institutions that support them are looted and burned as quickly as they are built.

Systemic cruelty was far from unique to Europe. Hundreds of methods of torture, applied to millions of victims, have been documented in other civilizations, including the Assyrians, Persians, Seleucids, Romans, Chinese, Hindus, Polynesians, Aztecs, and many African kingdoms and Native American tribes. Brutal killings and punishments were also documented among the Israelites, Greeks, Arabs, and Ottoman Turks. Indeed, as we saw at the end of chapter 2, all of the first complex civilizations were absolutist theocracies which punished victimless crimes with torture and mutilation.

He then outlined his three conditions for perpetual peace. The first is that states should be democratic. Kant himself preferred the term republican, because he associated the word democracy with mob rule; what he had in mind was a government dedicated to freedom, equality, and the rule of law…Kant’s second condition for perpetual peace was that “the law of nations shall be founded on a Federation of Free States”—a “League of Nations,” as he also called it…The third condition for perpetual peace is “universal hospitality” or “world citizenship.”

An interesting question is what inflated the empathy circle. And a good candidate is the expansion of literacy.

The vulnerability to civil war of countries in which control of the government is a winner-take-all jackpot is multiplied when the government controls windfalls like oil, gold, diamonds, and strategic minerals. Far from being a blessing, these bonanzas create the so-called resource curse, also known as the paradox of plenty and fool’s gold. Countries with an abundance of nonrenewable, easily monopolized resources have slower economic growth, crappier governments, and more violence.

Why should the spread of ideas and people result in reforms that lower violence? There are several pathways. The most obvious is a debunking of ignorance and superstition…Another causal pathway is an increase in invitations to adopt the viewpoints of people unlike oneself.

Dangerous ideologies erupt when these faculties fall into toxic combinations. Someone theorizes that infinite good can be attained by eliminating a demonized or dehumanized group. A kernel of like-minded believers spreads the idea by punishing disbelievers. Clusters of people are swayed or intimidated into endorsing it. Skeptics are silenced or isolated. Self-serving rationalizations allow people to carry out the scheme against what should be their better judgment.

On a closing note:

Yet while this planet has gone cycling on according to the fixed law of gravity, that species has also found ways to bring the numbers down, and allow a greater and greater proportion of humanity to live in peace and die of natural causes. For all the tribulations in our lives, for all the troubles that remain in the world, the decline of violence is an accomplishment we can savor, and an impetus to cherish the forces of civilization and enlightenment that made it possible.

A highly recommended read in the areas of sociology and psychology.

On The China Study

I recently finished reading The China Study – Startling Implications For Diet, Weight Loss and Long-Term Health – by T. Colin Campbell, PhD and Thomas M. Campbell II.

Below are key insights from the book that I found to be insightful:

After a long career in research and policy making, 1 now understand why Americans are so confused. As a taxpayer who foots the bill for research and health policy in America, you deserve to know that many of the common notions you have been told about food, health and disease are wrong.

These findings demonstrate that a good diet is the most powerful weapon we have against disease and sickness. An understanding of this scientific evidence is not only important for improving health; it also has profound implications for our entire society. We must know why misinformation dominates our society and why we are grossly mistaken in how we investigate diet and disease, how we promote health and how we treat illness.

But just like seeds in the soil, the initial cancer cells will not grow and multiply unless the right conditions are met…Promotion is reversible, depending on whether the early cancer growth is given the right conditions in which to grow. This is where certain dietary factors become so important.

Yes, changing your lifestyle may seem impractical. It may seem impractical to give up meat and high-fat foods, but I wonder how practical it is to be 350 pounds and have Type 2 diabetes at the age of fifteen, like the girl mentioned at the start of this chapter. I wonder how practical it is to have a lifelong condition that can’t be cured by drugs or surgery; a condition that often leads to heart disease, stroke, blindness or amputation; a condition that might require you to inject insulin into your body every day for the rest of your life.

Nutrition represents the combined activities of countless food substances. The whole is greater than the sum of its parts…Vitamin supplements are not a panacea for good health…There are virtually no nutrients in animal-based foods that are not better provided by plants…Genes do not determine disease on their own. Genes function only by being activated, or expressed. and nutrition plays a critical role in determining which genes, good and bad, are expressed…Nutrition can substantially control the adverse effects of noxious chemicals…The same nutrition that prevents disease in its early stages (before diagnosis) can also halt or reverse disease in its later stages (after diagnosis)…Nutrition that is truly beneficial for one chronic disease will support health across the board…Good nutrition creates health in all areas of our existence. All parts are interconnected.

Perhaps worst of all industry corrupts scientific evidence even when its product has been linked to serious health problems. Our kids are often the most coveted targets of their marketing. The American government has passed legislation preventing cigarette and alcohol companies from marketing their products to children. Why have we ignored food? Even though it is accepted that food plays a major role in many chronic diseases, we allow food industries not only to market directly to children, but also to use our publicly-funded school systems to do it. The long-term burden of our short-sighted indiscretion is incalculable.

In terms of education, medical students and house officers, under the constant tutelage of industry representatives, learn to rely on the drugs and devices more than they probably should [my emphasis]. As the critics of medicine so often charge, young physicians learn that for every problem, there is a pill [my emphasis] (and a drug company representative to explain it). They also become accustomed to receiving gifts and favors from an industry that uses these courtesies to influence their continuing education. The academic medical centers, in allowing themselves to become research outposts for industry, contribute to the overemphasis on drugs and devices.”

On a closing note:

History can repeat itself. This time, however, instead of the message being forgotten and confined to library stacks, I believe that the world is finally ready to accept it. More than that, I believe the world is finally ready to change. We have reached a point in our history where our bad habits can no longer be tolerated. We, as a society, are on the edge of a great precipice we can fall to sickness, poverty and degradation, or we can embrace health, longevity and bounty. And all it takes is the courage to change. How will our grandchildren find themselves in 100 years? Only time will tell, but I hope that the history we are witnessing and the future that lies ahead will be to the benefit of us all.

A highly recommended read in the area of nutrition.

On How To Lie With Statistics

I recently finished reading How To Lie With Statistics by Darrel Huff. This book was one of seven from Bill Gates’ most recent reading list.

Below are key insights from this book:

So it is with much that you read and hear. Averages and relationships and trends and graphs are not always what they seem, There maybe more in them than meets the eye, and there may be a good deal less. The secret language of statistics, so appealing in a fact-minded culture, is employed to sensationalize, inflate, confuse, and oversimplify. Statistical methods and statistical terms are necessary in reporting the mass data of social and economic trends, business conditions, “opinion” polls, the census. But without writers who use the words with honesty and understanding and readers who know what they mean, the result can only be semantic nonsense.

The test of the random sample is this: Does every name or thing in the whole group have an equal chance to be in the sample! The purely random sample is the only land that can be examined with entire confidence by means of statistical theory, but there is one thing wrong with it. It is so difficult and expensive to obtain for many uses that sheer cost eliminates it. A more economical substitute, which is almost universally used in such fields as opinion polling and market research, is called stratified random sampling.

It is a trick commonly used, sometimes in innocence but often in guilt, by fellows wishing to influence public opinion or sell advertising space. When you are told that something is an average you still don’t know very much about it unless you can find out which of the common kinds of average it is—mean, median, or mode.

Not all semi-attached figures are products of intentional deception. Many statistics, including medical ones that are pretty important to everybody, are distorted by inconsistent reporting at the source. There are startlingly contradictory figures on such delicate matters as abortions, illegitimate births, and syphilis.

The fallacy is an ancient one that, however, has a powerful tendency to crop up in statistical material, where y one that says that if B follows A, then A has caused B.

Another thing to watch out for is a conclusion in which a correlation has been inferred to continue beyond the data with which it has been demonstrated. It is easy to show that the more it rains in an area, the taller the com grows or even the greater the crop. Rain, it seems, is a blessing. But a season of very heavy rainfall may damage or even ruin the crop. The positive correlation holds up to a point and then quickly becomes a negative one. Above so-many inches, the more it rains the less com you get.

Another fertile field for being fooled lies in the confusion between percentage and percentage points. If your profits should climb from three percent on investment one year to six percent the next, you can make it sound quite modest by calling it a rise of three percentage points. With equal validity you can describe it as a one hundred percent increase. For loose handling of this confusing pair watch particularly the public-opinion pollers.

Not all the statistical information that you may come upon can be tested with the sureness of chemical analysis or of what goes on in an assayer’s laboratory. But you can prod the stuff with five simple questions, and by finding the answers avoid learning a remarkable lot that isn’t so: 1) About the first thing to look for is bias—the laboratory with something to prove for the sake of a theory, a reputation, or a fee; the newspaper whose aim is a good story; labor or management with a wage level at stake…2) How does he know? 3) What’s missing: You won’t always be told how many cases. The absence of such a figure, particularly when the source is an interested one, is enough to throw suspicion on the whole thing. Similarly a correlation given without a measure of reliability (probable error, standard error) is not to be taken very seriously. 4) Did Somebody Change The Subject? when assaying a statistic, watch out for a switch somewhere between the raw figure and the conclusion. One thing is all too often reported as another. 5) Does It Make Sense? ‘Does it make sense?” will often cut a statistic down to size when the whole rigmarole is based on an unproved assumption. You may be familiar with the Rudolf Flesch readability formula. It purports to measure how easy a piece of prose is to read, by such simple and objective items as length of words and sentences. Like all devices for reducing the imponderable to a number and substituting arithmetic for judgment, it is an appealing idea. At least it has appealed to people who employ writers, such as newspaper publishers, even if not to many writers themselves. The assumption in the formula is that such things as word length determine readability. This, to be ornery about it, remains to be proved.

An enjoyable and very educative quick read. I highly recommend it.

Thinking Fast and Slow

This book, Thinking Fast and Slow by Daniel Kahneman, has been on my reading list for quite some time. It has been referenced countless times in earlier readings of mine around decision making, human behavior, thought process, intuition and reasoning. It is also on nearly every reading list of must-reads within its category. Despite the very high expectation I had of this book, it has delivered far beyond them both in terms of depth and breadth in addressing the topic of human thinking.

This is a book about cognitive biases:

When you are asked what you are thinking about, you can normally answer. You believe you know what goes on in your mind, which often consists of one conscious thought leading in an orderly way to another. But that is not the only way the mind works, nor indeed is that the typical way. Most impressions and thoughts arise in your conscious experience without your knowing how they got there. You cannot trace how you came to the belief that there is a lamp on the desk in front of you, or how you detected a hint of irritation in your spouse’s voice on the telephone, or how you managed to avoid a threat on the road before you became consciously aware of it. The mental work that produces impressions, intuitions, and many decisions goes on in silence in our mind…Much of the discussion in this book is about biases of intuition. However, the focus on error does not denigrate human intelligence, any more than the attention to diseases in medical texts denies good health. Most of us are healthy most of the time, and most of our judgments and actions are appropriate most of the time. As we navigate our lives, we normally allow ourselves to be guided by impressions and feelings, and the confidence we have in our intuitive beliefs and preferences is usually justified. But not always. We are often confident even when we are wrong, and an objective observer is more likely to detect our errors than we are.

Daniel goes on to explain how the research, both in terms of hypothesis and associated experiments, Amos and him were conducting was different:

Historians of science have often noted that at any given time scholars in a particular field tend to share basic assumptions about their subject. Social scientists are no exception; they rely on a view of human nature that provides the background of most discussions of specific behaviors but is rarely questioned. Social scientists in the 1970s broadly accepted two ideas about human nature. First, people are generally rational, and their thinking is normally sound. Second, emotions such as fear, affection, and hatred explain most of the occasions on which people depart from rationality. Our article challenged both assumptions without discussing them directly. We documented systematic errors in the thinking of normal people, and we traced these errors to the design of the machinery of cognition rather than to the corruption of thought by emotion…The use of demonstrations provided scholars from diverse disciplines notably philosophers and economists—an unusual opportunity to observe possible flaws in their own thinking. Having seen themselves fail, they became more likely to question the dogmatic assumption, prevalent at the time, that the human mind is rational and logical. The choice of method was crucial: if we had reported results of only conventional experiments, the article would have been less noteworthy and less memorable. Furthermore, skeptical readers would have distanced themselves from the results by attributing judgment errors to the familiar fecklessness of undergraduates, the typical participants in psychological studies. Of course, we did not choose demonstrations over standard experiments because we wanted to influence philosophers and economists. We preferred demonstrations because they were more fun, and we were lucky in our choice of method as well as in many other ways. A recurrent theme of this book is that luck plays a large role in every story of success; it is almost always easy to identify a small change in the story that would have turned a remarkable achievement into a mediocre outcome. Our story was no exception.

The author then goes on to summarize the structure of the book and the areas covered:

The book is divided into five parts. Part 1 presents the basic elements of a two-systems approach to judgment and choice. It elaborates the distinction between the automatic operations of System 1 and the controlled operations of System 2, and shows how associative memory, the core of System 1, continually constructs a coherent interpretation of what is going on in our world at any instant. I attempt to give a sense of the complexity and richness of the automatic and often unconscious processes that underlie intuitive thinking, and of how these automatic processes explain the heuristics of judgment. A goal is to introduce a language for thinking and talking about the mind. Part 2 updates the study of judgment heuristics and explores a major puzzle: Why is it so difficult for us to think statistically? We easily think associatively, we think metaphorically, we think causally, but statistics requires thinking about many things at once, which is something that System 1 is not designed to do. The difficulties of statistical thinking contribute to the main theme of Part 3, which describes a puzzling limitation of our mind: our excessive confidence in what we believe we know, and our apparent inability to acknowledge the full extent of our ignorance and the uncertainty of the world we live in. We are prone to overestimate how much we understand about the world and to underestimate the role of chance in events. The focus of part 4 is a conversation with the discipline of economics on the nature of decision-making and on the assumption that economic agents are rational. Part 5 describes recent research that has introduced a distinction between two selves, the experiencing self and the remembering self, which do not have the same interests.

Throughout the book, two systems of thinking that humans possess are referenced, so Daniel takes a moment to define each:

I adopt terms originally proposed by the psychologists Keith Stanovich and Richard West, and will refer to two systems in the mind, System 1 and System 2.

  • System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control.
  • System 2 allocates attention to the effortful mental activities that demand it, including complex computations. The operations of System 2 are often associated with the subjective experience of agency, choice, and concentration.

Below are selected lessons from the book that I found particularly perceptive: Noting that System 2 has a particular attribute when it comes to managing its capacity:

System 2 and the electrical circuits in your home both have limited capacity, but they respond differently to threatened overload. A breaker trips when the demand for current is excessive, causing all devices on that circuit to lose power at once. In contrast, the response to mental overloaded is selective and precise: System 2 protects the most important activity, so it receives the attention it needs; “spare capacity” is allocated second by second to other tasks. In our version of the gorilla experiment, we instructed the participants to assign priority to the digit task. We know that they followed that instruction, because the timing of the visual target had no effect on the main task. If the critical letter was presented at a time of high demand, the subjects simply did not see it. When the transformation task was less demanding, detection performance was better.

On one of the focal interplays between System 2 and System 1:

One of the main functions of System 2 is to monitor and control thoughts and actions “suggested” by System 1, allowing some to be expressed directly in behavior and suppressing or modifying others. Anything that makes it easier for the associative machine to run smoothly will also bias beliefs. A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Authoritarian institutions and marketers have always known this fact. But it was psychologists who discovered that you do not have to repeat the entire Statement of a fact or idea to make it appear true.

On cognitive ease:

These findings add to the growing evidence that good mood, intuition, creativity, gullibility, and increased reliance on System 1 form a cluster. At the other pole, sadness, vigilance, suspicion, an analytic approach, and increased effort also go together. A happy mood loosens the control of System 2 over performance: when in a good mood, people become more intuitive and more creative but also less vigilant and more prone to logical errors. Here again, as in the mere exposure effect, the connection makes biological sense. A good mood is a signal that things are generally going well, the environment is safe, and it is all right to let one’s guard down. A bad mood indicates that things are not going very well, there may be a threat, and vigilance is required. Cognitive ease is both a cause and a consequence of a pleasant feeling.

On seeing causes:

Experiments have shown that six-month-old infants see the sequence of events as a cause-effect scenario, and they indicate surprise when the sequence is altered. We are evidently ready from birth to have impressions of causality, which do not depend on reasoning about patterns of causation. They are products of System 1.

On the brain as a machine for jumping to conclusions:

Jumping to conclusions is efficient if the conclusions are likely to be correct and the costs of an occasional mistake acceptable, and if the jump saves much time and effort. Jumping to conclusions is risky when the situation is unfamiliar, the stakes are high, there is no time to collect more information. These are the circumstances in which intuitive errors are probable, which may be prevented by a deliberate intervention of System 2.

A summary of the characteristics of System 1:

  • generates impressions, feelings, and inclinations; when endorsed by System 2 these become beliefs, attitudes, and intentions

  • operates automatically and quickly, with little or no effort, and no sense of voluntary control

  • can be programmed by System 2 to mobilize attention when a particular pattern is detected (search)

  • executes skilled responses and generates skilled intuitions, after adequate training

  • creates a coherent pattern of activated ideas in associative memory

  • links a sense of cognitive ease to illusions of truth, pleasant feelings, and reduced vigilance

  • distinguishes the surprising from the normal

  • infers and invents causes and intentions

  • neglects ambiguity and suppresses doubt

  • is biased to believe and confirm

  • exaggerates emotional consistency (halo effect)

  • focuses on existing evidence and ignores absent evidence (WYSLATI)

  • generates a limited set of basic assessments

  • represents sets by norms and prototypes, does not integrate

  • matches intensities across scales (e.g., size to loudness)

  • computes more than intended (mental shotgun)

  • sometimes substitutes an easier question for a difficult one (heuristics)

  • is more sensitive to changes than to states (prospect theory)

  • overweights low probabilities

  • shows diminishing sensitivity to quantity (psychophysics)

  • responds more strongly to losses than to gains (loss aversion)

  • frames decision problems narrowly, in isolation from one another

On the law of small numbers:

  • The exaggerated faith in small samples is only one example of a more general illusion—we pay more attention to the content of messages than to information about their reliability, and as a result end up with a view of the world around us that is simpler and more coherent than the data justify. Jumping to conclusions is a safer sport in the world of our imagination than it is in reality.
  • Statistics produce many observations that appear to beg for causal explanations but do not lend themselves to such explanations. Many facts of the world are due to chance, including accidents of sampling. Causal explanations of chance events are inevitably wrong.

On anchoring:

Anchoring effects are threatening in a similar way. You are always aware of the anchor and even pay attention to it, but you do not know how it guides and constrains your thinking, because you cannot imagine how you would have thought if the anchor had been different ( absent). However, you should assume that any number that is on the table has had an anchoring effect on you, and if the stakes are high you should mobilize yourself (your System 2) to combat the effect.

On representativeness:

The combination of WYSIATI and associative coherence tends to make us believe in the stories we spin for ourselves. The essential keys to disciplined Bayesian reasoning can be simply summarized:

  • Anchor your judgment of the probability of an outcome on a plausible base rate.
  • Question the diagnosticity of your evidence.

On the challenges of our two-systems to incorporate the regression to mean view:

Extreme predictions and a willingness to predict rare events from weak evidence are both manifestations of System 1…Regression is also a problem for System 2. The very idea of regression to the mean is alien and difficult to communicate and comprehend. Galton had a hard time before he understood it. Many statistics teachers dread the class in which the topic comes up, and their students often end up with only a vague understanding of this crucial concept. This is a case where System 2 requires special training. Matching predictions to the evidence is not only something we do intuitively; it also seems a reasonable thing to do. We will not learn to understand regression from experience.

On the illusion of validity:

Subjective confidence in a judgment is not a reasoned evaluation of the probability that this judgment is correct. Confidence is a feeling, which reflects the coherence of the information and the cognitive ease of processing it. It is wise to take admissions of uncertainty seriously, but declarations of high confidence mainly tell you that an individual has constructed a coherent story in his mind, not necessarily that the story is true.

On when we can trust the opinion of experts:

  • an environment that is sufficiently regular to be predictable
  • an opportunity to learn these regularities through prolonged practice

On lessons learned from a failed project:

The first was immediately apparent: I had stumbled onto a distinction between two profoundly (labeled the inside view and the outside view). The second lesson was that our initial forecasts of about two years for the completion of the project exhibited a planning fallacy. Our estimates were closer to a best-case scenario than to a realistic assessment. I was slower to accept the third lesson, which I call irrational perseverance: the folly we displayed that day in failing to abandon the project. Facing a choice, we gave up rationality rather than give up the enterprise.

On the forecasting method that Flyvbjerg devised to overcome the tendency to neglect the base-rate:

1. Identify an appropriate reference class (kitchen renovations, large railway projects, etc.). 2. Obtain the statistics of the reference class (in terms of cost per mile of railway, or of the percentage by which expenditures exceeded budget). Use the statistics to generate a baseline prediction. 3. Use specific information about the case to adjust the baseline prediction, if there are particular reasons to expect the optimistic bias to be more or less pronounced in this project than in others of the same type.

On the premortem technique to improve our decision making:

Organizations may be better able to tame optimism and individuals than individuals are. The best idea for doing so was contributed by Gary Klein, my “adversarial collaborator” who generally defends intuitive decision making against claims of bias and is typically hostile to algorithms. He labels his proposal the premortem. The procedure is simple: when the organization has almost come to an important decision but has not formally committed itself, Klein proposes gathering for a brief session a group of individuals who are knowledgeable about the decision. The premise of the session is a short speech: “Imagine that we are a year into the future. We implemented the plan as it now exists. The outcome was a disaster. Please take 5 to 10 minutes to write a brief history of that disaster.”

On prospect theory:

  • In mixed gambles, where both a gain and a loss are possible, loss aversion causes extremely risk-averse choices.
  • In bad choices, where a sure loss is compared to a larger loss that is merely probable, diminishing sensitivity causes risk seeking.

On rare events:

  • People overestimate the probabilities of unlikely events.
  • People overweight unlikely events in their decisions.

On framing:

Skeptics about rationality are not surprised. They are trained to be sensitive to the power of inconsequential factors as determinants of preference—my hope is that readers of this book have acquired this sensitivity.

On the two selves:

The evidence presents a profound challenge to the idea that humans have consistent preferences and know how to maximize them, a cornerstone of the rational-agent model. An inconsistency is built into the design of our minds. We have strong preferences about the duration of our experiences of pain and pleasure. We want pain to be brief and pleasure to last. But our memory, a function of System 1, has dived to represent the most intense moment of an episode of pain or pleasure (the peak) and the feelings when the episode was at its end. A memory that it neglects duration will not serve our preference for long pleasure and short pains.

On the role of behavioral economists, and the sensitivity around individual freedom:

But life is more complex for behavioral economists than for true believers in human rationality. No behavioral economist favors a state that will force its citizens to eat a balanced diet and to watch only television programs that are good for the soul. For behavioral economists, however, freedom has a cost, which is borne by individuals who make bad choices, and by a society that feels obligated to help them. The decision of whether or not to protect individuals against their mistakes therefore presents a dilemma for behavioral economists. The economists of the Chicago school do not face that problem, because rational agents do not make mistakes. For adherents of this school, freedom is free of charge.

On a concluding note, three additional lessons I wanted to highlight:

  • The way to block errors that originate in System 1 is simple in principle: recognize the signs that you are in a cognitive minefield, slow down, and ask for reinforcement from System 2…Unfortunately this sensible procedure is least likely to be applied when it is needed most. We would all like to have a warning bell that rings loudly whenever we are about to make a serious error, but no such bell is available, and cognitive illusions are generally more difficult to recognize than perceptual illusions. The voice of reason may be much fainter than the loud and clear voice of an erroneous intuition, and questioning your intuitions is unpleasant when you face the stress of a big decision. More doubt is the last thing you want when you are in trouble. The upshot is that it is much easier to identify a minefield when you observe others wandering into it than when you are about to do so. Observers are less cognitively busy and more open to information than actors. That was my reason for writing a book that is oriented critics and gossipers rather than to decision makers.
  • Organizations are better than individuals when it comes to avoiding errors, because they naturally think more slowly and have the power to impose orderly procedures. Organizations can institute and enforce the application of Useful checklists, as well as more elaborate exercises, such as reference-class forecasting and the premortem. At least in part by providing a distinctive vocabulary, organizations can also encourage a culture in which people watch out for one another as they approach minefields.
  • Ultimately, a richer language is essential to the skill of constructive criticism. Much like medicine, the identification of judgment errors is a diagnostic task, which requires a precise vocabulary. The name of a disease is a hook to which all that is known about the disease is attached, including vulnerabilities, environmental factors, symptoms, prognosis, and care. Similarly, labels such as “anchoring effects,” “narrow framing,” or “excessive coherence” bring together in memory everything we know about a bias, its causes, its effects, and what can be done about it. There is a direct link from more precise gossip at the watercooler to better decisions. Decision makers are sometimes better able to imagine the voices of present gossipers and future critics than to hear the hesitant voice of their own doubts. They will make better choices when they trust their critics to be sophisticated and fair, and when they expect their decision to be judged by how it was made, not only by how it turned out.

An absolute must read, in the areas of thought, decision making, reasoning and behavioral economics. As Professor William Easterly best articulated it on the cover of the book: “[A] masterpiece…This is one of the greatest and most engaging insights into the human mind I have read.”

On Economic Facts and Fallacies

I recently finish reading Economic Facts and Fallacies by Thomas Sowell.

Below are key excerpts from this book that I found particularly insightful:

1- “Fallacies abound in economic policies affecting everything from housing to international trade. Where the unintended consequences of these policies take years to unfold, the effects may not be traced back to their causes by many people. Even when the bad consequences follow closely after a given policy, many people may not connect the dots, and advocates of policies that backfire often attribute these bad consequences to something else. Sometimes they claim that the bad situation would have been even worse if it had not been for the wonderful policies they advocated. There are many reasons why fallacies have staving power, even in the face of hard evidence against them. Elected officials, for example, cannot readily admit that some policy or program that they advocated, perhaps with great fanfare, has turned out badly, without risking their whole careers. Similarly for leaders of various causes and movements. Even intellectuals or academics with tenure stand to lose prestige and suffer embarrassment when their notions turn out to be counterproductive. Others who think of themselves as supporters of things that will help the less fortunate would find it painful to confront evidence that they have in fact made the less fortunate worse off than before. In other words, evidence is too dangerous— politically, financially and psychologically— for some people to allow it to become a threat to their interests or to their own sense of themselves.”

2- “There are far too many fallacies to list them all. However, we can sketch four widespread kinds of economic fallacies here and investigate more specific fallacies in detail in the chapters that follow. These four widespread kinds of fallacies may be called the zero-sum fallacy, the fallacy of composition, the chess-pieces fallacy, and the open-ended fallacy.”

3- “In other words, building more roadways to keep pace with the growth of traffic only works when you do it. So do most thing-s. Following the kind of reasoning used by those who say it is futile to build more roads to cope with traffic congestion, it would be possible to say that it is “futile” to deal with hunger by eating because people just get hungry again later on. One of the reasons so many are committed to the idea of the futility of building more streets and highways to cope with traffic congestion is that they prefer to rely on mass transit as part of a more sweeping program of centrally planned development or redevelopment. City planners. consultants and “experts” all have a vested interest in the idea that people cannot be left to live their lives as they see fit but must have their transportation and their housing patterns, among other things, controlled by city planners, consultants and “experts.” One of the reasons for a failure to ease traffic congestion is that many see this congestion as a way to “get people out of their cars” and into mass transit. The fixation on mass transit, as a substitute for high levels of automobile usage, cannot be justified by the actual track record of mass transit or by its underlying economics. While mass transit played a major role in the development of New York City, that is today the exception, rather than the rule.”

4- “The biggest economic fallacy about housing is that “affordable housing” requires government intervention in the housing market, perhaps with subsidies, rent control, or other devices to allow people with moderate or low incomes to be able to have a decent place to live, without paying ruinous prices for homes or apartments. Ruinous prices for housing are certainly a fact of life in some places, leaving people of moderate or low incomes with inadequate amounts of money for other things. The question is whether government programs offer a way out of such situations for most people. The idea that government intervention improves the situation is a notion which has been repeated innumerable times in many ways, but endless repetition is not a coherent argument, much less proof. When we turn from political rhetoric to hard facts, we find that those facts tell a story directly opposite to what is being said in politics and in much of the media. It is precisely government intervention in housing markets which has made previously affordable housing unaffordable. Both the history and the economics of housing show this.”

5- “The question here is not whether open space is desirable but whether an open-ended commitment to ever more open space— or anything else— is desirable. It is especially important to weigh costs against benefits when there is crusading zeal and heady rhetoric in favor of something that virtually everyone regards as desirable, because crusaders seldom pause to do cost-benefit analysis. A related claim, made not only in the United States but in other countries, is that agricultural land must be preserved. Such claims are common even in countries where agricultural surpluses have been chronic and costly problems for generations, such as the United States and countries of the European Union.”

6- “It is very doubtful if the effort to keep them out could succeed politically if presented starkly in terms of what is actually being done, rather than enveloped in a fog of lofty and idealistic-sounding rhetoric. Few votes would be likely to be won by saying that the government should devote billions of dollars’ worth of land to providing a vast buffer zone around a community of affluent and wealthy individuals, in order to keep out ordinary people and preserve the vistas of a relative handful of upscale people at other people’s expense. Instead, political rhetoric focuses on celebrating a particular way of life in that community or “saving” greenery or animal habitat, as if both were in grave danger of disappearing in a country where more than nine-tenths of the land is undeveloped. The benefits of a particular way of living are not at issue. The only issue is who should pay for those benefits. If those enjoying such benefits are unwilling to pay for them, why should the taxpayers or people seeking an affordable place to live be forced to subsidize those who are economically better off than themselves?”

7- “But in most of these jobs, especially most engineering jobs, there are fewer women than men. The most important reason why women earn less than men is not that they are paid less for doing the very same work but that they are distributed differently among jobs and have fewer hours and less continuity in the labor force.”

8- “Many have analogized the situation of women to that of low-income, explaining income disparities in both cases by employer discrimination and attempting through anti-discrimination laws and affirmative action policies to advance both groups economically. But there are fundamental differences between the circumstances of women and those of minorities which affect both analysis and policy…Women and minorities are different in a more fundamental historical sense. Low-income minorities are usually descendants of poorer and less educated people, so that they inherit both a cultural and an economic background that is less helpful to them in trying to rise economically and socially than are the backgrounds of other members of society.”

9- “Private academic institutions have endowments, whose dividends and interest can subsidize inefficiency, and state colleges and universities have the taxpayers to do the same. In either case, those whose money provides the subsidy are seldom in any position to monitor the efficiency with which that money is used. Moreover, such organizations as the American Association of University Professors and accrediting agencies protect existing practices from competition by condemning less expensive alternatives as educational quality deterioration.”

10- “Academic institutions often make the argument that their costs for educating a student are greater than the price they charge as tuition, which some take as a sign of the altruism of a non-profit institution. But, since teaching is one of the joint products of an academic institution, along with research and other ancillary activities, the meaning of such a statement is elusive.”

11- “Income statistics are classic examples of numbers that can be arranged differently to suggest, not merely different, but totally opposite. conclusions. Among the bountiful supply of fallacies about income and wealth are the following: 1. Except for the rich, the incomes of Americans have stagnated for years. 2. The American middle class is growing smaller. 3. Over the years, the poor have been getting poorer. 4. Corporate executives are overpaid, at the expense of both stockholders and consumers.”

12- ” New York Time – “Merit has replaced the old system of inherited privilege, in which parents to the manner born handed down the manor to their children. But merit, it turns out, is at least partly class-based. Parents with money, education and connections cultivate in their children the habits that the meritocracy rewards. When their children then succeed, their success is seen as earned.””

13- “Pay is not a retrospective reward for merit but a prospective incentive for contributing to production. Given the enormous range of things produced and the complex processes by which they are produced, it is virtually inconceivable that any given individual could be capable of assessing the relative value of the contributions of different people in different industries or sectors of the economy.”

14- “Despite the popularity of the phrase “income distribution,” most income is earned— not distributed.”

15- “”Discrimination” is one of those words that is often used and seldom defined. Bias, prejudice, and discrimination are often lumped together, as if they were pretty much the same thing. But bias and prejudice are attitudes— things inside people’s heads— while discrimination is an overt act taking place outside, in the real world. That is not a small distinction when analyzing economic differences, which are things visible in the real  world. Nor can we simply assume that more bias or prejudice translates automatically into more discrimination— or that discrimination would not exist in the absence of bias or prejudice- What is overlooked in such fallacious assumptions is the price that has to be paid by someone who turns his subjective feelings into an overt act.”

16- “This is not to sav that no discrimination ever takes place. For one thing, all economic transactions need not take place in competitive industries or in profit-seeking enterprises…Similarly, government enterprises around the world have tended to be more discriminatory, because their costs of discrimination are paid by the taxpayers, rather than by those who do the discriminating.”

17- “But the very question at issue is whether victimization is the explanation. As for blame, who can be blamed for inheriting a culture that existed before they were born? But. while nothing can be done about the past, much can be done in the present to prepare for the future. Whatever we wish to achieve in the future, it must begin by knowing where we are in the present— not where we wish we were, or where we wish others to think we are, but where we are in fact.”

18- “There is no need here to go into the detailed geography of Third World countries, much less to claim that geography is the sole determinant of their poverty. What is important is to understand that geography alone is enough to preclude any inherent economic sameness or equality among peoples or nations from being used as a benchmark or general presumption that would lead us to be shocked that there are differences and to look for mysterious or sinister reasons for those differences. There are also many other factors at work besides geography which influence the poverty or prosperity of nations. Because of other factors, some geographically very fortunate nations are nevertheless poverty-stricken and some much less geographically favored nations have prospered. We need to consider these other factors as well but, again, with no general presumption that peoples and notions around the world would have had the same economic outcomes except for some given factor.”

19- “Perhaps the biggest fallacy in discussions of Third World countries is the implicit assumption that there is something intellectually baffling or morally wrong about the fact that different nations have different per capita incomes. Given large differences in geography, demography, history and culture, it is hard to imagine how it could be otherwise. Humanitarian aid to enable countries to meet natural disasters beyond their capacity to foresee or avoid need not be based on any assumptions about the reasons for their incomes being what they are. But attempts to remake other countries show no track record comparable to the dramatic improvements that countries have achieved when they have decided to remake themselves.”

20- “Statistics are no better than the methods and definitions used in lout scrutinizing those methods and definitions, we cannot assume that comparable people are being compared, whether comparing the incomes of high school dropouts with college graduates, the incomes of members of different ethnic groups who have the “same” education, or the incomes of single women with married women, when “single” women includes women who were married for years before getting divorced. Nor can statistics about the amount of air pollution in populated areas versus open space tell us anything about whether letting people move to unpopulated areas will increase the total pollution over all, since it is people— not their locations— that generate pollution. Perhaps most dangerous of all is the practice of not subjecting fashionable beliefs to the test of facts, but instead accepting or rejecting beliefs according to how well they fit some pre-existing vision of the world. The idea that government intervention is needed to create “affordable housing” is an idea that ; makes sense only in the context of a preconceived notion, while mountains of hard evidence point in the exact opposite direction.”

21- “Among the many preconceptions that cannot be subjected to an; empirical tests, because they are so subjective, is the notion that third-party observers know better what is good for people than those people know themselves. This implicit assumption pervades discussions of urban and suburban housing, mass transit versus automobiles, and the imposition of international aid agencies’ pet theories on Third World countries. The most that can be done in these cases is to (1) make that implicit assumption explicit, (2) demand proof of that superior knowledge, and (3) point out how many disasters in countries around the world have followed in the wake of programs and policies based on that assumption.”

22- “The particular fallacies discussed in this book are only a small sample of a vastly larger number on a vastly wider variety of subjects. If seeing how these often plausible-sounding fallacies can collapse under the weight more analytically, then this book will have achieved its larger purpose.”

Regards,

Omar Halabieh

Economics Facts and Fallacies

On The Six Sigma Way

I recently finished reading The Six Sigma Way – How GE, Motorola, And Other Top Companies Are Honing Their Performance by Peter S. Pande, Robert P. Neuman, and Roland R. Cavanagh.

This book is THE reference on Six Sigma. The authors define it as “A comprehensive and flexible system for achieving, sustaining and maximizing business success. Six Sigma is uniquely driven by close understanding of customer needs, disciplined use of facts, data, and statistical analysis, and diligent attention to managing, improving, and reinventing business processes.”

This work is made up of three major sections. The first part provides an executive summary of this system. The second part focuses on the organizational aspects of adopting this system. The last part, focuses on the actual implementation of Six Sigma including the roadmap and tools. Also included in this book, are numerous appendices that provide further “practical support”.

What sets this book apart is both the breadth and depth in which the topic is discussed. Whether one is a novice or expert, looking to obtain a high level overview or a deep understanding of the subject matter, this book is for you. In addition, the interspersed case studies, examples and tools make it very practical and applicable. After reading this book – one cannot but concur with the authors’ closing remark: “We believe – and hope you agree – that there are enough essential, powerful, and valuable elements to make the Six Sigma system, in some way, part of every successful business. At the same time, we strongly encourage you to adapt the discipline and methods of Six Sigma to best impact your unique culture, industry, market position, people, and strategy. Our biggest fear is that people will “accept” or “reject” Six Sigma as it it were a thing (falling victim to the Tyranny of the Or) and not use it as a flexible system.”

Below are key excerpts from the book, that I found particularly insightful:

1) “The Benefits of Six Sigma: 1) Generates sustained success…2) Sets a performance goal for everyone…3) Enhances value to customers…4) Accelerates the rate of improvement…5) Promotes learning and “cross pollination”…6) Executes strategic change”

2) “Six Themes of Six Sigma: 1) Genuine Focus on the Customer…2) Data- and Fact-Driven Management…3) Process focus, Management, and Improvement…4) Proactive Management…5) Boundaryless Collaboration…6) Drive for Perfection; Tolerance for Failure”

3) “Six Sigma Improvement and Management Strategies: 1) Process Improvement: Finding Targeted Solutions…2) Process Design/Redesign: Building a Better Business…3) Process Management: The Infrastructure for Six Sigma Leadership”

4) “In the Six Sigma Way, we will use and refer to a five-phase improvement cycle that has become increasingly common in Six Sigma organizations: Define, Measure, Analyze, Improve, and Control – or DMAIC.”

5) “…The ideal roadmap for establishing the Six Sigma system and launching improvements…1) Identify core processes and key customers. 2) Define customer requirements. 3) Measure current performance. 4) Prioritize, analyze, and implement improvements. 5) Expand and integrate the Six Sigma system.”

6) “Five-step measurement implementation model: 1) Select what to measure 2) Develop operational definitions 3) Identify data sources 4) Prepare collection & sampling plan 5) Implement and refine measurement”

7) “We can offer an assessment model, however, based on two major conditions – both of which must be met if process design/redesign is going to work: 1) A major need, threat, or opportunity exists: a) Shifts in customer needs/requirements…b) Demand for greater flexibility…c) New technologies…d) New or changed rules and regulations…e) Competitors are changing…f) Old assumptions (or paradigms) are invalid…g) The current process is “a mess”…2) You’re ready and willing to take on the risk: a) Longer lead-time for change is acceptable…b) Resources and talent are available…c) Leaders, and the organization as a whole, will support the effort…d) The “Risk Profile” is acceptable.”

8) “Process Value Analysis: As processes get more complex, they tend to insulate people from the real reason that customers patronize a business. “Value Analysis” is a way of reemphasizing the key raison d’etre of a business or process by looking at work from the external customer’s point of view. In the analysis, we assign each process step to one of three categories: 1) Value Adding…2) Value Enabling…3) Non-Value-Adding”

9) “Twelve Keys To Success: 1) The Six Sigma Efforts to Business Strategy and Priorities 2) Position Six Sigma as an Improved Way to Manage for Today 3) Keep the Message Simple and Clear 4) Develop Your Own Path to Six Sigma 5) Focus on Short-Term Results 6) Focus on Long-Term Growth and Development 7) Publicize Results, Admit Setbacks, and Learn from Both 8) Make and Investment to Make It Happen 9) Use Six Sigma Tools Wisely 10) Link Customers, Process, Data, and Innovation to Build the Six Sigma System 11) Make Top Leaders Responsible and Accountable 12) Make Learning an Ongoing Activity”

Regards,

Omar Halabieh

The Six Sigma Way