January 24, 2016

Mindware tools for smart thinking by Richard E Nisbett

Mindware tools for smart thinking by Richard E Nisbett

“Without a profound simplification the world around us would be an infinite, undefined tangle that would defy our ability to orient ourselves and decide upon our actions…We are compelled to reduce the knowable to a schema.” (Primo Levi, The Drowned and the Saved)

A serious problem with our reliance on schemas and stereotypes is that they can get triggered by incidental facts that are irrelevant or misleading. Any stimulus we encounter will trigger spreading activation to related mental concepts.

Want to someone you are just about to meet to find you to be warm and cuddly? Hand them a cup of coffee to hold. And don’t by any means make that an iced coffee.

Want to persuade someone to believe something by giving them an editorial read? Make sure the font type is clear and attractive. Messy looking messages are much less persuasive.

A book by Adam Alter called Drunk Tank Pink is a good compendium of many of the effects we know about to date. The most obvious implication of all the evidence about the importance of incidental stimuli is that you want to rig environments of those stimuli that will make you or your product of your policy goals attractive. It is obvious when stated that way. Less obvious are two facts:

1. The effect of incidental stimuli can be huge
2. You want to know as much as you possibly can about what kinds of stimuli produce what kinds of effects.

Abraham Lincoln once said, “I don’t like that man. I must get to know him better”.

A less obvious implication of our susceptibility to ‘incidental’ stimuli is the importance of encountering objects - and esp. people - in a number of different settings if a judgment about them is to be of any consequence. Vary the circumstances of the encounters as much as possible.

Consider the Trappist monks in two stories. Monk 1 asked his abbot whether it would be all right to smoke while he prayed. Scandalized, the abbot said, “Of course not; that borders on sacrilege”. Monk 2 asked his abbot whether it would be all right to pray while he smoked. “Of course,” said the abbot, “God wants to hear from us at any time”.

Our construal of objects and events is influenced not just by the schemas that are activated in particular contexts, but by the framing of judgments we have to make.

We often arrive at judgments or solve problems by use of heuristics - rules of thumb that suggest a solution to a problem. Several important heuristics were identified by the Israeli cognitive psychologists Amos Tversky & Daniel Kahneman. The most important of their heuristics is the ‘representativeness heuristic”. This rule of thumb learns heavily on judgments of similarity.

  • Remember that all perception, judgments and beliefs are inferences and not direct readouts of reality

  • Be aware that our schemas affect our construal

  • Remember that incidental, irrelevant perceptions and cognitions can affect our judgment and behavior

  • Be alert to the possible role of heuristics in producing judgments

The following injunctions can become part of the mental equipment you use to understand the world.

  • The failure to recognize the importance of contexts and situations and the consequent overestimation of the role of personal dispositions is, I believe, the most pervasive and consequential inferential mistake we make.

  • Pay more attention to context. This will improve the odds that you will correctly identify situational factors that are influencing your behavior and that of others.

  • Realize that situational factors usually influence your behavior and that of others more than they seem to, whereas dispositional factors are usually less influential than they seem.

  • Realize that other people think their behavior is more responsive to situational factors than you are inclined to think and they are more likely to be right than you are.

  • Recognize that people can change.

Westerners identify the attributes of an object, assign the object to a category, and apply rules that govern that category of objects. The underlying purpose is often to establish a causal model of the object so that it can be manipulated for one’s own goals. The Eastern approach is to attend more broadly to the object in its context, toe the relationship among objects, and to the relations between object and context.

There are many implications for how we should function in daily life. Here are a few of the most important:

Don’t assume that you know why you think what you think or do what you do.

Don’t assume that other people’s accounts of their reasons or motives are any more likely to be right than are your accounts of your own reasons or motives.

You have to help the unconscious help you.

If you are not making progress on a problem, drop it and turn to something else.

Macroeconomists are not agreed on just how it is that people make decisions or how they should make them.

The more important and complicated the decision, the more important it is to do such an analysis

Even an obviously flawed cost-benefit analysis can sometimes show in high relief what the decision must be.

There is no fully adequate metric for costs and benefits, but it’s usually necessary to compare them anyway.

Calculations of the value of a human life are repellent and sometimes grossly misused, but they are often necessary nonetheless in order to make sensible policy decisions.

Tragedies of the commons where my gain creates negative externalities for you, typically require binding and enforceable intervention.

Extended resources that can’t be retrieved should not be allowed to influence a decision about whether to consume something that those resources were used to obtain.

You should avoid engaging in an activity that has lower net benefit than some other action you could take now or in the future.

Falling into the sunk cost trap always entails paying unnecessary opportunity costs.

Attention to costs and benefits, including sunken cost and opportunity cost traps, pays.

Loss considerations tend to loom too large relative to gain considerations.

We are overly susceptible to the endowment effect - valuing a thing more than we should simply because it’s ours.

We are a lazy species: we hang on the status quo for no other reason than that it is the way things are.

Choice is way overrated: too many choices can confuse and make decisions worse or prevent needed decisions from being made.

When we try to influence the behavior of others, we are too ready to think in terms of conventional incentives - carrots & sticks.

Observations of objects or events should often be thought of as samples of a population.

The fundamental attribution error is primarily due to our tendency to ignore situational factors, but this is compounded by our failure to recognize that a brief exposure to a person constitutes a small sample of a person’s behavior.

Increasing sample size reduces errors only if the sample is unbiased.

The standard deviation is a handily measure of the dispersion of a continuous variable around the mean.

If we know that an observation of a particular kind of variable comes from the extreme end of the distribution that variable, then it is likely that additional observation are going to be less extreme.

Accurate assessment of relationship can be remarkably difficult.

When we try to assess correlations for which we have no anticipation, as when we try to estimate the correlation between meaningless or arbitrarily paired events, the correlation must be very high for us to be sure of detecting it.

We are susceptible to illusory correlations.

The representativeness heuristic underlies many of our prior assumptions about correlation. If A is similar to B in some respect, we are likely to see a relationship between them.

Correlation does not establish causation, but it there is a plausible reason why A might cause B, we readily assume that correlation does indeed establish causation.

Reliability refers to the degree to which a case gets the same score on two occasions or when measured by different means.

The more codable events are, the more likely it is that our assessments of correlation will be correct.

Caution and humility are called for when we try to predict future trait-related behavior from past trait-related behavior unless our sample of behavior is large and obtained in a variety of situations.

Multiple regression analysis (MRA) examines the association between an independent variable and a dependent variable, controlling for the association between the independent variable and other variables, as well as the association of those other variables with the dependent variable.

Verbal reports are susceptible to a huge range of distortions and errors.

Answers to question about attitudes are frequently based on tacit comparison with some reference group.

Action speaks louder than words.

Conduct experiments on yourself.

Logic divests arguments of any reference to the real world so that the formal structure of an argument can be laid bare without any interference from prior beliefs.

The truth of a conclusion and the validity of a conclusion are entirely separate things.

Venn diagrams embody syllogistic reasoning and can be helpful or even necessary for solving some categorization problems.

Errors in deductive reasoning are sometimes made because they map onto argument forms that are inductively valid.

Pragmatic reasoning schemas are abstract rules of reasoning that underlies much of thought.

Some of the fundamental principle underlying Western and Eastern thought are different.

Western thought encourages separation of form from content in order to assess validity of arguments.

Eastern thought produces more accurate beliefs about some aspects of the world and the causes of human behavior than Western thought.

Western and Eastern respond in quite different ways to contradiction between two propositions.

Eastern and Western approaches to history are very different.

Western thought has been influenced substantially by Eastern thought in recent decades.

Reasoning about social conflict by younger Japanese is wiser than that of younger Americans. American gain in wisdom over their lifespan and Japanese do not and undoubtedly other eastern are taught about how to avoid and resolve social conflict. Americans are taught less about it and have more to gain they grow older.

Explanations should be kept simple (KISS)

Reductionism in the service of simplicity is a virtue, reductionism for its own sake cab e a vice.

We don’t realize how easy it is for us to generate plausible theories.

Our approach to hypothesis testing flawed in that we are inclined to search only for evidence that would tend to confirm a theory while failing to search for evidence that would tend to disconfirm it.

A theorist who can’t specify what kind of evidence would be disconfirmatory should be distrusted.

Falsifiability of a theory is only one virtue; conformability is even more important.

We should suspicious of theoretical contrivances that are proposed merely to handle apparently disconfirmatory evidence but are not intrinsic to the theory.

Science is based not only on evidence and well-justified theories - faith and hunches may cause scientists to ignore established scientific hypotheses agreed-upon facts.

The paradigms that underlie a given body of scientific work, as well as those that form the basis for technologies, industries and commercial enterprises, are subject to change without notice.

Different cultural practice and beliefs can produce different scientific theories, paradigms and even forms of reasoning.

Quasi-rational practices by scientists are cultural influences on belief systems and reasoning patterns, may have encouraged postmodernist and deconstructionist to press the view that there are no facts, only socially agreed-upon interpretations of reality.

Books referred:
The American poet Brewster Ghiselin collected into one volume a number of essays on the creative process by a variety of highly inventive people from Poincare to Picasso.

January 23, 2016

Peers Inc by Robin Chase

Peers Inc by Robin Chase
How people and platform are inventing the collaborative economy and reinventing capitalism

The sharing economy of this transformation of capitalism, enabled by Web 2.0 - crowd-sourcing, collaborative production, collaborative consumption, and network effects are simply terms we have created along the way in an effort to capture what is going on. There is one structure that underlies all these - excess capacity + a platform for participation + diverse peers - and it is fundamentally changing the way we work, build business and shape economies.

Peer inc combines the best of people power with the best of corporate power. The ‘Inc’ delivers only on industrial strengths and the ‘Peers’ deliver on their individual strengths (localization, specialization, customization). When Inc and Peers focus only on what they do best, each handling what is difficult, annoying, or just plain impossible for the other, the resulting collaboration is compelling and sometimes miraculous.

In a world of scarcity, Peers Inc organization creates abundance. Peers Inc is driving the transition from the industrial to the collaborative economy. In our volatile world, Peers Inc collaborations can create change with a pace, scale, and quality we previously thought impossible.

My three most fundamental beliefs, which gave me faith Zipcar would work, gave most investors and business reports pause.

  1. People are willing to ‘share’ cars instead of owning them because the economies make sense
  2. A technology platform leveraging the internet and wireless technologies makes sharing effortless.
  3. The company can trust people to pick up and drop off the cars without supervision, fill them up with gas using the company credit card, and take their trash when they go.

Some of the attributes of collaborative economy:

Diversity, Distributed, Experiments-learns-adapts-evolves,. Seeks to maximize participation, thrives of economics of free (excess capacity), idea exchange & open standards, and intangibles are visible and valued.

Different ways platforms use excess capacity:
  • Slicing or aggregating it for right sizing supply
Both Zipcar and Airbnb are examples of access platforms that through slicing or aggregation of excess capacity, enable users to get more values out of an asset by using it more conveniently and cheaply than they could before.

  • Opening up: enabling co-creators to generate entirely new ideas, process and products & services: inviting new value creation.
President Reagan freeing up Geo satellites for public use that created many GSP based solution globally (GPS enabled Map, GPS enabled apps: Uber)

FOSS - The free and open source software - movement taps into excess capacity in all multiple ways. FOSS aggregates engineers and their work. Coders volunteer their efforts and work on thousands of projects around the world (e.g. GitHub, Drupal). While aggregating m, FOSS also lets you slice the code you are interested in working on into very small pieces.

Companies like Uber & Airbnb created freedom and joy to people by providing empowerment, which they never knew they had. Airbnb has tapped into the enthusiasm felt by people doing what they want to do on their own terms, rather than what they are assigned to do. As per Reid Hoffman, co-founder and former CEO of LinkedIn, “ I actually think every individual is now an entrepreneur,whether they recognize it or not”.

Three miracles:
  1. Excess capacity let us defy the laws of physics
  2. Smart platform produce exponential learning
  3. Diverse networked peers means instant access to the right mind

“You cannot solve exponential problems with linear solutions”, says Banny Banerjee, director of Stanford's Change lab and professor of mechanical engineering.

Consider the Hilton Hotels has been in the business for more than 95 years and has amassed only 610K room in 3,800 hotels in 88 countries. Yet Airbnb did it just four years - by business standards, this is a miracle. Airbnb’s platform unlocked excess capacity, built a compelling platform for participation and the peers collaborated to provide the service in almost every place where people live. This pace of growth could not have happened in any other way.

Elinor Ostrom won the Nobel Prize in economics in 2009 for her analysis of economic governance esp., for commons. Lots of us have heard about the tragedy of commons: when people share a resource but don’t own it, everything goes to hell because they don’t care. Ostrom identifies ‘common pool resources’ which have two characteristics : they produce a steady stream of benefits accruing from the resource and it is very difficult to exclude individuals.

Barbara Van Schewick - professor of law at Stanford Law School and also an associate professor of electrical engineering in Stanford University), identifies four key factors underlying the internet’s success, all of which must be present:

  1. Users get to choose which applications they want to use, without influence by the network providers
  2. Innovation on the network does not require permission from the network providers
  3. The network itself is blind to applications or use. it does not know or care how it is used
  4. The costs of innovation on the network are low.

For example, these four factors were the foundations of GPS’s success.

The STANDARD & POOR’s 500 lists the 500 most valuable companies in the USA, based on market capitalization. Dick Foster, retired McKinsey consultant, studied their average life span. In 1937, the average tenure of companies on the list was 75 years, By 1960, it was sixty-one years. In 1980, 37 years. In 2000, 26 years. Today, it is an average of 15 years.

The new companies’ attributes: innovate, and adapt or disappear. That disappearance might be the result of bankruptcy, or it might come about because of acquisition.

Recent research used the last 40 years of financial data for the S&P 500 to examine how business models have evolved over time, and which were the most successful. The researchers compared four business models, Asset Builders, Service providers, Technology creators and network orchestrators, which closely mirrors Peers Inc. Their findings were published in the HBR: “Our analysis indicates that as of 2013, Network orchestrators receive valuation 2 to 4 times higher on average, than companies with the other business models. We also found that Network orchestras outperform companies with other business models on both compound annual growth and profit margin>

What happens to economy as Peers Inc structures expand and grow? If we take the case of Airbnb, we see that many mid range hotels might go out of business as people opt for Airbnb for everything except luxury market. Full-time jobs in hotels will be lost, and the wealth will be distributed between homeowners making additional money in independent contractors and Airbnb, the platform operator, sitting in the center making a healthy profit. In the future, these kinds of collaborations between efficient platform and participants peers will spread to all walks of life. Let’s see what Roxanne Googin, a leading technology analyst who advises fund managers, who move billions of dollars, said in a recent issue of her newsletter, High Tech Observer, about where this will lead us.

“The concentrations effect is extreme. The centralized processing engine is a bear to develop, but once it works, the next transaction is effectively free. It therefore devours all the less efficient and smaller scale operations because it is both cheaper and more effective. Then, the profits of all the failed companies, along with the difference in efficiency between the manual and the automated business, accrue to center. And, it leans. If managed correctly, it because a recursive learning machine that just gets more effective with every measures mistake.”

the principles of the collaborative economy:

  1. Open accessible assets > closed assets:
Open assets deliver more value than closed assets because they are more efficiently used and let us continually uncover new valuable uses

2. More networked minds > fewer walled-in minds
More people are smarter than fewer people, but only when they are networked together

3. Benefits of openness > problems of openness
Collectively the upside opportunities of innovation and shared learning are much larger than the downside problems such as bad behavior, which we can identify and address with rating, comment and trust networks

4. I get > I give
As individuals, each person who contributes assets to a platform necessarily gets more than she gives this is how Wikipedia, potluck dinners, and taxes that pay for public libraries and national defense work.

Following are the governance based my conclusions:

  • Gov. must create and open up assets for value extractions by all
  • We need to tax heavily at the platform level because most everything will be turned into a platform and we want to keep fluidity within the peers
  • Gov. regulations need to protect autonomous individuals against the power of the platform and benefits need to be tied to people and not jobs
  • Everyone should be an independent contractor to give maximum flexibility and resilience to both companies and workers to match the rate of change
  • We must have a minimum basic income so that the enormous productivity gains are spread throughout the economy instead of increasing the unemployment
  • We should emulate the potential and promise of the free and open-source software movement and the block chain to create and govern by communities themselves.