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A Plunge and Squish View of the Mind

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How can we bring our knowledge to bear on a problem? Does this resemble how we accumulate knowledge in the first place? A thoughtful passage by David Gelernter in Mirror Worlds: or the Day Software Puts the Universe in a Shoebox…How It Will Happen and What It Will Mean explores these questions.

In your mind particulars turn into generalities gradually, imperceptibly—like snow at the bottom of a drift turning into ice. If you don’t know any general rules, if you’ve merely experienced something once, then that once will have to do. You may remember one example, or a collection of particular examples, or a general rule. These states blend together: When you’ve mastered the rule, you can still recall some individual experiences if you need to. Any respectable mind simulation must accommodate all three states. Any one of them might be the final state for some particular (perfectly respectable) mind. (Many people have been to Disneyland once, a fair number have been there a couple of times, and a few, no doubt, have been to Disneyland so often that the individual visits blend together into a single melted ice-cream puddle of a visit to Disneyland rule or script or principle or whatever. All three states are real.)

Plunge-and-squish adapts to whatever you have on hand. If there is a single relevant memory, plunge finds it. If there are several, squish constructs a modest generalization, one that captures the quirks of its particular elements. If there are many, squish constructs a sound, broad-based generalization. You may even wind up with a perma-squish abstraction, if this particular squish happens frequently enough and the elements blend smoothly together. It all happens automatically.

You need plunge and squish.

It’s worth pausing here to explain in a little more detail plunge and squish. Plunge is when you take a new case—”one attribute or many attributes, doesn’t matter”—and plunge it into the memory pool. “The plunged-in case attracts memories from all over: The ‘force fields’ inside the system get warped in such a way that every stored memory (every case in the database) is re-oriented with respect to the plunged-in “bait.” The most relevant memories approach closest; and the less-relevant ones recede into the distance.” Squish, on the other hand, means “to look at the closest cases that are attracted by a plunge, and compact them together into a single ‘super case.’ We take all these nearby memories (in other words) and superimpose them.”

One more point: Whatever stack of memories you have on hand, you can cut the deck in a million ways. You can reshuffle it endlessly. You can, if you need to, synthesize a general rule at a moment’s notice. You see an asphalt spreader on the next block. You develop an expectation: The next block will smell like [the smell of fresh asphalt…}. What happened—did you wrack your brain for that important general principle, squirrelled away for just such an occasion—fact number three million twenty-one thousand and seven—fresh asphalt usually smells like…? Or did you synthesize this rule by doing a plunge-and-squish on the spot?

Clearly you can cobble together an abstraction, a category or an expectation at a moment’s notice. You can create new categories to order whenever they are needed. (Unpleasant vacations? Objects that look like metal but aren’t?…) Any realistic mind simulation must know how to do this.

Gotta have plunge; gotta have squish.

And so we arrive, finally, at two radically different pictures of the mind. In the mind-map view, there is a dense intertwined superstructure of categories, rules and generalizations, with the odd specific, particular fact hanging from the branches like the occasional bird-pecked apple. In the plunge-and-squish view, there are slowly-shifting, wandering and reforming snowdrifts instead, built without superstructure out of a billion crystal flakes—a billion particular experiences. New experiences sift constantly downwards onto the snowscape and old ones settle imperceptibly into ice-clear universal, and the whole scene is alive and constantly, subtly changing.

It’s too soon to say which view is right. Both approaches need a lot more work. Both have produced interesting results. …

Galilean Relativity and the Invasion of Scotland

A few centuries ago, when Galileo (1564-1642) was trying to make a couple of points about how our world really works, one of the arguments that frequently came up in response to his ‘the earth orbits the sun’ theory was “if the earth is moving through space, how come I don’t notice?”

Not that I have much to begin with, but I don’t feel the wind constantly in my hair, I don’t get orbit-induced motion sickness, so why, Galileo, don’t I notice this movement as the earth is spinning around over 100,000 km per hour?

His answer is known as Galilean Relativity and it contains principles that have broad application in life.

Understanding Galilean Relativity allows you to consider your perspective in relation to results. Are you really achieving what you think you are?

First, an explanation of the theory.

Imagine you are on a ship that has reached constant velocity (meaning without a change in speed or direction). You are below decks and there are no portholes. You drop a ball from your raised hand to the floor. To you, it looks as if the ball is dropping straight down, thereby confirming gravity is at work. You are able to perceive this vertical shift as the ball changed its location by about three feet.

Now imagine you are a fish (with special x-ray vision) and you are watching this ship go past. You see the scientist inside, dropping a ball. You register the vertical change in the position of the ball. But you are also able to see a horizontal change. As the ball was pulled down by gravity it also shifted its position east by about 20 feet. The ship moved through the water and therefore so did the ball. The scientist on board, with no external point of reference, was not able to perceive this horizontal shift.

This analogy helped Galileo explain why we don’t notice the earth moving — because we’re at the same constant velocity, moving with our planet.

It can also show us the limits of our perception. And how we must be open to other perspectives if we truly want to understand the results of our actions. Despite feeling that we’ve got all the information, if we’re on the ship, the fish in the ocean has more he can share.

History offers an illuminating example of this principle at work.

In the early fourteenth century, two English kings (Edwards I and II) were repeatedly in conflict with Scotland over Scottish independence.

Nationalism wasn’t as prevalent as an identity characteristic as it is today. Lands came and went with war, marriage, and papal edicts, and the royal echelons of Europe spent a lot of time trying to acquire and hold on to land, as that is where their money ultimately came from.

There were a lot of factors that led Edward I, King of England, to decide that Scotland should be his. It has to do with how William the Conqueror divided things up in the area in 1066, the constant struggle by the English for the strategic upper hand against France, and more generally, the fact that the King of England was at the head of a feudal system that, “by enlarging a class of professional soldiers who owed military service in payment for land, it enabled it,” says William Rosen in his book The Third Horseman: Climate Change and the Great Famine of the 14th Century.

Edward I wanted to rule Scotland. The Scots weren’t interested. He invaded half a dozen times and succeeded only in giving birth to a separate Scottish identity. His desire for Scotland became his Galilean ship. He couldn’t see beyond that desire to understand how his actions were actually fundamentally undermining his goals.

History regards Edward I as a decent king. Strategic in battle, a good administrator, and so one can assume that what he generally wanted was to rule over a prosperous and powerful country. In his mind then it may have been a very simple equation – since prosperity in the middle ages was tied up with land, then to have more of it must be good. And Scotland was in a convenient location, as opposed to, say, Mongolia.

What Edward I did not see was that the repeated invasion of Scotland was undermining the very prosperity and power he was hoping to augment. It was costing tons of money, money that had to be raised from the nobility that supported his monarchy, which in turn had to be raised via the peasants from the land. People were getting sick of watching their taxes go up in flames on the Scottish border. And, as Rosen claims, “A king’s authority depends utterly on the loyalty and faith of his people.” Lose your popular support and you lose everything.

When Edward I died, his son, Edward II, inherited his father’s quest to own Scotland. He too repeatedly invaded with no lasting success. And he had it even worse. The beginning of his reign coincided with a major famine that decimated the population. This was followed by diseases that swept through the agricultural animal populations. So there was less money to support war.

But Edward II kept taxing and invading Scotland anyway, indifferent to the plight of his people. This contributed to widespread disgust with his reign and eventually led to his being disposed of, and likely murdered, in favor of his son. A cautionary tale on what happens when you lose the loyalty of the people you are meant to be leading!

This all begs the question, was Scotland really such a great prize to justify the repeated attempts to conquer it?

The answer is no. As Rosen writes, “the conquest of medieval Scotland was, by any rational economic calculus, a poor bargain for both of England’s King Edwards, who together spent more than the entire value of the country in one failed expedition after another.”

They certainly did not see this.

It is important to know that in Galilean relativity, neither the perspective of the scientist on the ship nor the fish in the ocean is incorrect. Both perspectives are true for those doing the observing. Because the scientist has no external frame of reference, he is not mistaken when he says that the ball moved only vertically, and not horizontally.

You aren’t always going to be able to adjust for Galilean relativity. Given the roles, expectations, and mythology surrounding kings, both Edwards were acting according to the viewpoint they had.

So discussing the attempted conquest of Scotland by both Kings is not about revealing that their assumptions were incorrect. From their perspective acquiring land was always a good thing. But by failing to consider other perspectives they didn’t achieve their intended results – control of Scotland – and, more importantly, were unable to appreciate the results they were affecting. More land cannot come at the expense of support for your leadership.

It is likely that at least one advisor might have said to the Edwards, ‘hey, maybe you should spend some more money on preventing the starvation of the population that pays you taxes and take a break on this Scottish thing’. This is where understanding Galilean relativity is useful – you won’t shoot the messenger.

You will know that sometimes you are on the ship, and the limitations this entails, and so be open when the fish shares his perspective with you.

A Discussion on the Work of Daniel Kahneman

Edge.org asked the likes of Christopher Chabris, Nicholas Epley, Jason Zweig, William Poundstone, Cass Sunstein, Phil Rosenzweig, Richard Thaler & Sendhil Mullainathan, Nassim Nicholas Taleb, Steven Pinker, and Rory Sutherland among others: “How has Kahneman’s work influenced your own? What step did it make possible?”

Kahneman’s work is summarized in the international best-seller Thinking, Fast and Slow.

Here are some select excerpts that I found interesting.

Christopher Chabris (author of The Invisible Gorilla)

There’s an overarching lesson I have learned from the work of Danny Kahneman, Amos Tversky, and their colleagues who collectively pioneered the modern study of judgment and decision-making: Don’t trust your intuition.

Jennifer Jacquet

After what I see as years of hard work, experiments of admirable design, lucid writing, and quiet leadership, Kahneman, a man who spent the majority of his career in departments of psychology, earned the highest prize in economics. This was a reminder that some of the best insights into economic behavior could be (and had been) gleaned outside of the discipline

Jason Zweig (author of Your Money and Your Brain)

… nothing amazed me more about Danny than his ability to detonate what we had just done.

Anyone who has ever collaborated with him tells a version of this story: You go to sleep feeling that Danny and you had done important and incontestably good work that day. You wake up at a normal human hour, grab breakfast, and open your email. To your consternation, you see a string of emails from Danny, beginning around 2:30 a.m. The subject lines commence in worry, turn darker, and end around 5 a.m. expressing complete doubt about the previous day’s work.

You send an email asking when he can talk; you assume Danny must be asleep after staying up all night trashing the chapter. Your cellphone rings a few seconds later. “I think I figured out the problem,” says Danny, sounding remarkably chipper. “What do you think of this approach instead?”

The next thing you know, he sends a version so utterly transformed that it is unrecognizable: It begins differently, it ends differently, it incorporates anecdotes and evidence you never would have thought of, it draws on research that you’ve never heard of. If the earlier version was close to gold, this one is hewn out of something like diamond: The raw materials have all changed, but the same ideas are somehow illuminated with a sharper shift of brilliance.

The first time this happened, I was thunderstruck. How did he do that? How could anybody do that? When I asked Danny how he could start again as if we had never written an earlier draft, he said the words I’ve never forgotten: “I have no sunk costs.”

William Poundstone (author of Are Your Smart Enough To Work At Google?)

As a writer of nonfiction I’m often in the position of trying to connect the dots—to draw grand conclusions from small samples. Do three events make a trend? Do three quoted sources justify a conclusion? Both are maxims of journalism. I try to keep in mind Kahneman and Tversky’s Law of Small Numbers. It warns that small samples aren’t nearly so informative, in our uncertain world, as intuition counsels.

Cass R. Sunstein (Author, Why Nudge?)

These ideas are hardly Kahneman’s most well-known, but they are full of implications, and we have only started to understand them.

1. The outrage heuristic. People’s judgments about punishment are a product of outrage, which operates as a shorthand for more complex inquiries that judges and lawyers often think relevant. When people decide about appropriate punishment, they tend to ask a simple question: How outrageous was the underlying conduct? It follows that people are intuitive retributivists, and also that utilitarian thinking will often seem uncongenial and even outrageous.

2. Scaling without a modulus. Remarkably, it turns out that people often agree on how outrageous certain misconduct is (on a scale of 1 to 8), but also remarkably, their monetary judgments are all over the map. The reason is that people do not have a good sense of how to translate their judgments of outrage onto the monetary scale. As Kahneman shows, some work in psychophysics explains the problem: People are asked to “scale without a modulus,” and that is an exceedingly challenging task. The result is uncertainty and unpredictability. These claims have implications for numerous questions in law and policy, including the award of damages for pain and suffering, administrative penalties, and criminal sentences.

3. Rhetorical asymmetry. In our work on jury awards, we found that deliberating juries typically produce monetary awards against corporate defendants that are higher, and indeed much higher, than the median award of the individual jurors before deliberation began. Kahneman’s hypothesis is that in at least a certain category of cases, those who argue for higher awards have a rhetoric advantage over those who argue for lower awards, leading to a rhetorical asymmetry. The basic idea is that in light of social norms, one side, in certain debates, has an inherent advantage – and group judgments will shift accordingly. A similar rhetorical asymmetry can be found in groups of many kinds, in both private and public sectors, and it helps to explain why groups move.

4. Predictably incoherent judgments. We found that when people make moral or legal judgments in isolation, they produce a pattern of outcomes that they would themselves reject, if only they could see that pattern as a whole. A major reason is that human thinking is category-bound. When people see a case in isolation, they spontaneously compare it to other cases that are mainly drawn from the same category of harms. When people are required to compare cases that involve different kinds of harms, judgments that appear sensible when the problems are considered separately often appear incoherent and arbitrary in the broader context. In my view, Kahneman’s idea of predictable coherence has yet to be adequately appreciated; it bears on both fiscal policy and on regulation.

Phil Rosenzweig

For years, there were (as the old saying has it) two kinds of people: those relatively few of us who were aware of the work of Danny Kahneman and Amos Tversky, and the much more numerous who were not. Happily, the balance is now shifting, and more of the general public has been able to hear directly a voice that is in equal measures wise and modest.

Sendhil Mullainathan (Author of Scarcity: Why Having Too Little Means So Much)

… Kahneman and Tversky’s early work opened this door exactly because it was not what most people think it was. Many think of this work as an attack on rationality (often defined in some narrow technical sense). That misconception still exists among many, and it misses the entire point of their exercise. Attacks on rationality had been around well before Kahneman and Tversky—many people recognized that the simplifying assumptions of economics were grossly over-simplifying. Of course humans do not have infinite cognitive abilities. We are also not as strong as gorillas, as fast as cheetahs, and cannot swim like sea lions. But we do not therefore say that there is something wrong with humans. That we have limited cognitive abilities is both true and no more helpful to doing good social science that to acknowledge our weakness as swimmers. Pointing it out did it open any new doors.

Kahneman and Tversky’s work did not just attack rationality, it offered a constructive alternative: a better description of how humans think. People, they argued, often use simple rules of thumb to make judgments, which incidentally is a pretty smart thing to do. But this is not the insight that left us one step from doing behavioral economics. The breakthrough idea was that these rules of thumb could be catalogued. And once understood they can be used to predict where people will make systematic errors. Those two words are what made behavioral economics possible.

Nassim Taleb (Author of Antifragile)

Here is an insight Danny K. triggered and changed the course of my work. I figured out a nontrivial problem in randomness and its underestimation a decade ago while reading the following sentence in a paper by Kahneman and Miller of 1986:

A spectator at a weight lifting event, for example, will find it easier to imagine the same athlete lifting a different weight than to keep the achievement constant and vary the athlete’s physique.

This idea of varying one side, not the other also applies to mental simulations of future (random) events, when people engage in projections of different counterfactuals. Authors and managers have a tendency to take one variable for fixed, sort-of a numeraire, and perturbate the other, as a default in mental simulations. One side is going to be random, not the other.

It hit me that the mathematical consequence is vastly more severe than it appears. Kahneman and colleagues focused on the bias that variable of choice is not random. But the paper set off in my mind the following realization: now what if we were to go one step beyond and perturbate both? The response would be nonlinear. I had never considered the effect of such nonlinearity earlier nor seen it explicitly made in the literature on risk and counterfactuals. And you never encounter one single random variable in real life; there are many things moving together.

Increasing the number of random variables compounds the number of counterfactuals and causes more extremes—particularly in fat-tailed environments (i.e., Extremistan): imagine perturbating by producing a lot of scenarios and, in one of the scenarios, increasing the weights of the barbell and decreasing the bodyweight of the weightlifter. This compounding would produce an extreme event of sorts. Extreme, or tail events (Black Swans) are therefore more likely to be produced when both variables are random, that is real life. Simple.

Now, in the real world we never face one variable without something else with it. In academic experiments, we do. This sets the serious difference between laboratory (or the casino’s “ludic” setup), and the difference between academia and real life. And such difference is, sort of, tractable.

… Say you are the manager of a fertilizer plant. You try to issue various projections of the sales of your product—like the weights in the weightlifter’s story. But you also need to keep in mind that there is a second variable to perturbate: what happens to the competition—you do not want them to be lucky, invent better products, or cheaper technologies. So not only you need to predict your fate (with errors) but also that of the competition (also with errors). And the variance from these errors add arithmetically when one focuses on differences.

Rory Sutherland

When I met Danny in London in 2009 he diffidently said that the only hope he had for his work was that “it might lead to a better kind of gossip”—where people discuss each other’s motivations and behaviour in slightly more intelligent terms. To someone from an industry where a new flavour-variant of toothpaste is presented as being an earth-changing event, this seemed an incredibly modest aspiration for such important work.

However, if this was his aim, he has surely succeeded. When I meet people, I now use what I call “the Kahneman heuristic”. You simply ask people “Have you read Danny Kahneman’s book?” If the answer is yes, you know (p>0.95) that the conversation will be more interesting, wide-ranging and open-minded than otherwise.

And it then occurred to me that his aim—for better conversations—was perhaps not modest at all. Multiplied a millionfold it may very important indeed. In the social sciences, I think it is fair to say, the good ideas are not always influential and the influential ideas are not always good. Kahneman’s work is now both good and influential.

Information Without Context

Information without context is falsely empowering and incredibly dangerous.

As an adult, have you ever picked up a child’s shape-sorter and tried to put the square item through the round hole? Of course not. Adults know better — or at least we’re supposed to. Yet we often take square solutions and cram them into round problems.

Consider, for example, a project that falls behind schedule. A project manager is apt to adopt whatever solution worked the last time a project was falling behind schedule. If more people were added last time and that produced a successful outcome why not do it again? Our tendency to stick with what has worked in the past, regardless of why it worked, creates a powerful illusion that we are solving the problem or doing the right thing.

When posed a difficult question by an informed reporter, politicians often answer something related but simpler. The politician treats what should be a complex topic as something black and white and portrays the topic as simpler than it really is (reductive bias). In the corporate world we do the same thing when we take something that worked previously (or somewhere else) and blindly apply it to the next problem without giving due consideration to why it worked.

Maybe we’re just becoming an intellectually lazy society constantly looking for then next soundbite from “experts” on how to do something better.  We like the easy solution.

In Think Twice, Michael Mauboussin writes: “Consultants, researchers, and practitioners often observe some success, seek common attributes among them and proclaim that those attributes can lead others to succeed. This simply does not work.”

Our brains may be adult, yet we demonstrate a very childlike level of consideration. Decision makers often fail to ask key questions, such as: What’s different about this project? Under which circumstances is adding more people likely to work? and, Am I doing this because someone else is doing it?

Adopting best practices has become the reason to do something in and of itself.  It is, after all, hard to challenge logic of best practices. But what do best practices mean? Whom are they best for? What makes them successful? Can we replicate them in our company? Culture? Circumstance? Do we have the necessary skills? What are the side effects? What are the incentives? … More often than not, we embrace a solution without understanding under which conditions it succeeds or fails.

I think there are some parallels between business decision making and medicine. In Medicine our understanding of the particulars can never be complete: misdiagnosing a patient is common so doctors look at each patient as a new mystery.

A doctor, applying the same thoughtlessness spewed by management consultants might, reasonably, determine that all people with a fever have a cold. However, we know people are more complex than this simple correlation. Medical practitioners know the difference between correlation and cause. A fever by itself tells the doctor something but not everything. It could indicate a cold and it could be something more serious. Doctors, like good decision makers, check the context and seek out information that might disprove their diagnosis.

William Deresiewicz on Learning To Lead and the Ills of Exposing Yourself to a Constant Stream of Other People’s Thoughts

William Deresiewicz delivered a stunning lecture on Solitude and Leadership to the United States Military Academy at West Point.

In the lecture, Deresiewicz convincingly argues that

  1. We don’t teach leadership;
  2. Excellence doesn’t get you up the greasy pole of bureaucracy;
  3. We constantly bombard ourselves with the opinions of others; and
  4. Leaders need to spend some time alone with their thoughts and ideas so they know why and where they are leading.

While a contradiction to a lot of today’s common practice, it’s also an antidote to many of our ills.

Here are two parts to whet your appetite.

My title must seem like a contradiction. What can solitude have to do with leadership? Solitude means being alone, and leadership necessitates the presence of others-the people you’re leading. When we think about leadership in American history we are likely to think of Washington, at the head of an army, or Lincoln, at the head of a nation, or King, at the head of a movement-people with multitudes behind them, looking to them for direction. And when we think of solitude, we are apt to think of Thoreau, a man alone in the woods, keeping a journal and communing with nature in silence.

Leadership is what you are here to learn-the qualities of character and mind that will make you fit to command a platoon, and beyond that, perhaps, a company, a battalion, or, if you leave the military, a corporation, a foundation, a department of government. Solitude is what you have the least of here, especially as plebes. You don’t even have privacy, the opportunity simply to be physically alone, never mind solitude, the ability to be alone with your thoughts. And yet I submit to you that solitude is one of the most important necessities of true leadership. This lecture will be an attempt to explain why.

and

The very rigor and regimentation to which you are quite properly subject here naturally has a tendency to make you lose touch with the passion that brought you here in the first place. I saw exactly the same kind of thing at Yale. It’s not that my students were robots. Quite the reverse. They were in­tensely idealistic, but the overwhelming weight of their practical responsibilities, all of those hoops they had to jump through, often made them lose sight of what those ideals were. Why they were doing it all in the first place.

… Here’s the other problem with Facebook and Twitter and even The New York Times. When you expose yourself to those things, especially in the constant way that people do now—older people as well as younger people—you are continuously bombarding yourself with a stream of other people’s thoughts.

***

If you liked this, you’ll love:

Learning how to think — The journey of learning requires patience, concentration, and most importantly time for thinking.

Basically, It’s Over: A Parable About How One Nation Came To Financial Ruin

An excellent parable by Charlie Munger on how one nation came to financial ruin.

In the early 1700s, Europeans discovered in the Pacific Ocean a large, unpopulated island with a temperate climate, rich in all nature’s bounty except coal, oil, and natural gas. Reflecting its lack of civilization, they named this island “Basicland.”

The Europeans rapidly repopulated Basicland, creating a new nation. They installed a system of government like that of the early United States. There was much encouragement of trade, and no internal tariff or other impediment to such trade. Property rights were greatly respected and strongly enforced. The banking system was simple. It adapted to a national ethos that sought to provide a sound currency, efficient trade, and ample loans for credit-worthy businesses while strongly discouraging loans to the incompetent or for ordinary daily purchases.

Moreover, almost no debt was used to purchase or carry securities or other investments, including real estate and tangible personal property. The one exception was the widespread presence of secured, high-down-payment, fully amortizing, fixed-rate loans on sound houses, other real estate, vehicles, and appliances, to be used by industrious persons who lived within their means. Speculation in Basicland’s security and commodity markets was always rigorously discouraged and remained small. There was no trading in options on securities or in derivatives other than “plain vanilla” commodity contracts cleared through responsible exchanges under laws that greatly limited use of financial leverage.

In its first 150 years, the government of Basicland spent no more than 7 percent of its gross domestic product in providing its citizens with essential services such as fire protection, water, sewage and garbage removal, some education, defense forces, courts, and immigration control. A strong family-oriented culture emphasizing duty to relatives, plus considerable private charity, provided the only social safety net.

The tax system was also simple. In the early years, governmental revenues came almost entirely from import duties, and taxes received matched government expenditures. There was never much debt outstanding in the form of government bonds.

As Adam Smith would have expected, GDP per person grew steadily. Indeed, in the modern area it grew in real terms at 3 percent per year, decade after decade, until Basicland led the world in GDP per person. As this happened, taxes on sales, income, property, and payrolls were introduced. Eventually total taxes, matched by total government expenditures, amounted to 35 percent of GDP. The revenue from increased taxes was spent on more government-run education and a substantial government-run social safety net, including medical care and pensions.

A regular increase in such tax-financed government spending, under systems hard to “game” by the unworthy, was considered a moral imperative—a sort of egality-promoting national dividend—so long as growth of such spending was kept well below the growth rate of the country’s GDP per person.
Basicland also sought to avoid trouble through a policy that kept imports and exports in near balance, with each amounting to about 25 percent of GDP. Some citizens were initially nervous because 60 percent of imports consisted of absolutely essential coal and oil. But, as the years rolled by with no terrible consequences from this dependency, such worry melted away.

Basicland was exceptionally creditworthy, with no significant deficit ever allowed. And the present value of large “off-book” promises to provide future medical care and pensions appeared unlikely to cause problems, given Basicland’s steady 3 percent growth in GDP per person and restraint in making unfunded promises. Basicland seemed to have a system that would long assure its felicity and long induce other nations to follow its example—thus improving the welfare of all humanity.

But even a country as cautious, sound, and generous as Basicland could come to ruin if it failed to address the dangers that can be caused by the ordinary accidents of life. These dangers were significant by 2012, when the extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland’s citizens more and more whiled away their time in the excitement of casino gambling. Most casino revenue now came from bets on security prices under a system used in the 1920s in the United States and called “the bucket shop system.”

The winnings of the casinos eventually amounted to 25 percent of Basicland’s GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos (many of whom were engineers needed elsewhere). So much time was spent at casinos that it amounted to an average of five hours per day for every citizen of Basicland, including newborn babies and the comatose elderly. Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called “financial derivatives.”

Many people, particularly foreigners with savings to invest, regarded this situation as disgraceful. After all, they reasoned, it was just common sense for lenders to avoid gambling addicts. As a result, almost all foreigners avoided holding Basicland’s currency or owning its bonds. They feared big trouble if the gambling-addicted citizens of Basicland were suddenly faced with hardship.

And then came the twin shocks. Hydrocarbon prices rose to new highs. And in Basicland’s export markets there was a dramatic increase in low-cost competition from developing countries. It was soon obvious that the same exports that had formerly amounted to 25 percent of Basicland’s GDP would now only amount to 10 percent. Meanwhile, hydrocarbon imports would amount to 30 percent of GDP, instead of 15 percent. Suddenly Basicland had to come up with 30 percent of its GDP every year, in foreign currency, to pay its creditors.

How was Basicland to adjust to this brutal new reality? This problem so stumped Basicland’s politicians that they asked for advice from Benfranklin Leekwanyou Vokker, an old man who was considered so virtuous and wise that he was often called the “Good Father.” Such consultations were rare. Politicians usually ignored the Good Father because he made no campaign contributions.

Among the suggestions of the Good Father were the following. First, he suggested that Basicland change its laws. It should strongly discourage casino gambling, partly through a complete ban on the trading in financial derivatives, and it should encourage former casino employees—and former casino patrons—to produce and sell items that foreigners were willing to buy. Second, as this change was sure to be painful, he suggested that Basicland’s citizens cheerfully embrace their fate. After all, he observed, a man diagnosed with lung cancer is willing to quit smoking and undergo surgery because it is likely to prolong his life.

The views of the Good Father drew some approval, mostly from people who admired the fiscal virtue of the Romans during the Punic Wars. But others, including many of Basicland’s prominent economists, had strong objections. These economists had intense faith that any outcome at all in a free market—even wild growth in casino gambling—is constructive. Indeed, these economists were so committed to their basic faith that they looked forward to the day when Basicland would expand real securities trading, as a percentage of securities outstanding, by a factor of 100, so that it could match the speculation level present in the United States just before onslaught of the Great Recession that began in 2008.

The strong faith of these Basicland economists in the beneficence of hypergambling in both securities and financial derivatives stemmed from their utter rejection of the ideas of the great and long-dead economist who had known the most about hyperspeculation, John Maynard Keynes. Keynes had famously said, “When the capital development of a country is the byproduct of the operations of a casino, the job is likely to be ill done.” It was easy for these economists to dismiss such a sentence because securities had been so long associated with respectable wealth, and financial derivatives seemed so similar to securities.

Basicland’s investment and commercial bankers were hostile to change. Like the objecting economists, the bankers wanted change exactly opposite to change wanted by the Good Father. Such bankers provided constructive services to Basicland. But they had only moderate earnings, which they deeply resented because Basicland’s casinos—which provided no such constructive services—reported immoderate earnings from their bucket-shop systems. Moreover, foreign investment bankers had also reported immoderate earnings after building their own bucket-shop systems—and carefully obscuring this fact with ingenious twaddle, including claims that rational risk-management systems were in place, supervised by perfect regulators. Naturally, the ambitious Basicland bankers desired to prosper like the foreign bankers. And so they came to believe that the Good Father lacked any understanding of important and eternal causes of human progress that the bankers were trying to serve by creating more bucket shops in Basicland.

Of course, the most effective political opposition to change came from the gambling casinos themselves. This was not surprising, as at least one casino was located in each legislative district. The casinos resented being compared with cancer when they saw themselves as part of a long-established industry that provided harmless pleasure while improving the thinking skills of its customers.

As it worked out, the politicians ignored the Good Father one more time, and the Basicland banks were allowed to open bucket shops and to finance the purchase and carry of real securities with extreme financial leverage. A couple of economic messes followed, during which every constituency tried to avoid hardship by deflecting it to others. Much counterproductive governmental action was taken, and the country’s credit was reduced to tatters. Basicland is now under new management, using a new governmental system. It also has a new nickname: Sorrowland.

Human Misjudgment and the American Revolution

We try to look at mental models in history through the lens of people who got it right, but once in a while, it’s beneficial to examine a model through the lens of those who got it wrong.

In this case, let’s take a look at the remarkable series of misjudgments that resulted in the British losing their American colonies.

Our list of mental models includes 24 models in the human nature + judgment category, and at least seven of those were a factor in the British being driven out of America. Sometimes it helps to understand how great the consequences of these very human tendencies can be. And, perhaps more significantly, how a large group of people can succumb to them at the same time.

Bias from Incentives

Money, the root of stupidity.

In the mid-18th century, the British had a parliament, but it was very different from what exists today. As Barbara W. Tuchman describes in The March of Folly, the House of Commons was made up mostly of second sons of the nobility – the landowning class. Urban centers such as London were poorly represented, and not surprisingly Parliament tended to pass laws that were primarily good for its members.

A lot of the issues which ultimately led to the revolution were about money.

The British wanted to tax the colonies, as Tuchman explains, so they would at least pay for their own defense, which was costly. The colonists felt that, with the exception of trade tariffs, the British had no right to tax those who were not represented in Parliament.

So part of the reason Parliament passed incendiary legislation, taxing, for example, stamps and tea, was so that the members of parliament, the landowners, could pay less tax. This was short-sighted — an incentive that could never be realized. As Tuchman describes, some more thoughtful dissenters pointed out that the cost of collecting the taxes from the hostile colonists was more than what the taxes would bring in.

Tendency to distort due to disliking/hating

We have written before that “Our inability to examine the situation from all sides and shake our beliefs, together with self-justifying behavior, can lead us to conclude that others are the problem. Such asymmetric views, amplified by strong perceived differences, often fuel hate.”

One of the things that Tuchman points out a few times is the complete ignorance of the British when it came to the sensibilities and interests of the Americans. And we can’t blame this on the distance or comparative slow speed of communication. Tuchman highlights what is most startling is those in positions of power in the Parliament literally had no desire to understand the colonists’ position. “That the British were invincibly uninformed – and stayed uninformed – about the people they insisted on ruling was a major problem of the imperial-colonial relationship.”

Parliament did not seek the advice or opinion of those Brits who had spent time in the colonies as Administrators, nor did it interview the well-educated and thoughtful Americans who were in London, such as Benjamin Franklin.

Due to their own sense of superiority, the British nobility believing they were the pinnacle of humanity, allowed their dislike of the colonists to distort the policies they pursued. (Remember history doesn’t repeat but it rhymes.) As Tuchman writes, “Attitude was again the obstacle; the English could not visualize Americans in terms of equality.”

You certainly don’t declare war on people you admire and respect.

Denial Tendency

To stubbornly pursue a course of action in the face of evidence that it will eventually blow up in your face is denial. We all do it, but to do it as a political group can lose you a war.

The American revolution did not start without warning. There were years of attempts by the British to assert control over the colonies. As Tuchman describes, they would institute taxes then rescind them, only to reinstate them later. The colonists had the same response every time. They rejected the ability of the British to tax them. It was total denial that kept the British trying.

The British passed a series of acts, called the Coercive Acts that seemed designed to piss off the Americans. But in reality, it was more about the total inability of the British to see the situation clearly. Tuchman says, “if Britain had really been pursuing a plan to goad the colonies to insurrection in order to subjugate them, then her conduct of policy becomes rational. Unhappily for reason, that version cannot be reconciled to the repeals, the backings and fillings, the haphazard or individual decisions.”

As we mentioned earlier, the cost of bringing in the tax was more than the tax itself. And if taxation was the issue that was driving the colonies to war, then why keep doing it? Denial is likely part of the answer.

Social Proof

“When we feel uncertain, we all tend to look to others for answers as to how we should behave, what we should think and what we should do.”

This is social proof.

The House of Commons was not a homogenized unit; there were dissenters to the British approach in the American colonies, though these voices were always in the minority. Some people argued against the taxes and the war, offering alternatives to Parliament to act in the interest of keeping the colonies part of the empire. But the majority followed their peers.

Added to this was the fact that, as Tuchman describes, the situation in America wasn’t a hot issue for most British. The nobility of the House of Commons was frequently more occupied with the various social scandals that occurred in their ranks.

What this helped to create was a situation of largely uninformed people responsible for voting on legislation that could have significant impacts. It is a human tendency to look to the majority for guidance on behavior when we are unsure about what to do. It is always easier to go with the majority than to oppose it. In the House of Commons, it was easier to vote with the majority than to take a stand against it, particularly if one wasn’t all that interested in the issue.

First-Conclusion Bias

We tend to stick with the first conclusion we reach. Because of our commitment to our own narrative, it becomes very hard for us to change our minds once we form a definite opinion. This involves us admitting we made a mistake — something we avoid, as it can challenge our very sense of self.

The core issue that started the conflict between Britain and the American colonies, which eventually led to the war, was, as Tuchman describes, the absolute conviction of the British that they had a right to directly tax the colonies, and the equal conviction of the American that no right existed.

At the beginning, the Americans did attempt some compromise. The British, however, never did.

Despite the dissent, the cost, and the effects, the British never reexamined their first conclusion. It became layered with other issues but remained at the core of their position. Tuchman demonstrates that “they persisted in first pursuing, then fighting for an aim whose result would be harmful whether they won or lost.”

Their first conclusion, the right of the British state to tax the American colonies, was never abandoned or modified in light of what enforcing it would actually result in. Even if it were true, the absolute nature of their position prevented them from finding a compromise. This bias was a contributing factor in the result the British finally had to accept. The loss of the war.

Commitment and Consistency Bias

Partnered with the first conclusion bias, this one essentially reinforces the pain. This is what causes us to “stick with our original decision, even in the face of new information.”

Although consistency is generally perceived to be good, uncompromising consistency is more synonymous with ignorance and fear. If torpedos are aimed at your boat, your crew might appreciate you turning it around, giving yourself time to regroup.

The British made attempts to solve their problems, but these were halfhearted at best. Tuchman actually depicts the British policy as not being consistent at all. The levied taxes, then they repealed them. They eventually sent a peace delegation but gave it no power to actually come to a compromise.

But they were fully committed to their overall attitude, which was, as Tuchman writes, “a sense of superiority so dense as to be impenetrable. A feeling of this kind leads to ignorance of the world and of others because it suppresses curiosity. [All] ministries went through a full decade of mounting conflict with the colonies without any of them sending a representative, much less a minister, across the Atlantic to make acquaintance, to discuss, to find out what was spoiling, even endangering, the relationship and how it might be better managed. They were not interested in Americans because they considered them rabble or at best children whom it was inconceivable to treat – or even fight – as equals.”

Given that this attitude of superiority was so entrenched, is it any wonder that the decisions made were those that reinforced this image?

Tendency to Want to Do Something

Busyness signals productivity. The faster you are walking the more important you are. Having time on your hands means you aren’t doing enough, not seizing the day, not contributing anything of value. Slow walkers are assumed to be seniors, students, or those who have nothing going on.

We can see the same trends in governments. Strong governments defend their position at all costs, while those who value negotiating or finding common ground are perceived as weaker. Powerful governments go to war. Those with less power find a compromise.

Tuchman claims, “Confronted by menace, or what is perceived as menace, governments will usually attempt to smash it, rarely to examine it, understand it, define it.”

So many times during the decade of conflict between the British and the Americans, the British might have put themselves in a better position if they had been willing to pause, regroup, or even walk away. Given some space, they might have compensated for the load of biases they were operating under and better defined and focused on a win-win solution.

But all the misjudgments flying around, combined with the innate human tendency to do something, led to chasing bad decisions with even worse ones.

If there is a silver lining, it’s that we can learn from our mistakes so as to not be perpetual victims of our misjudgment tendencies.

Tuchman concludes that the British did learn from their experiences during the American Revolution.

“Fifty years later, after a period of troubled relations with Canada, Commonwealth status began to emerge from the Durham Report, which resulted from England’s recognition that any other course would lead to a repetition of the American rebellion.”

The Swerve: How the World Became Modern

In The Swerve: How the World Became Modern, Stephen Greenblatt tells the story of the most important person you’ve probably never heard of: Poggio Bracciolini.

Although Bracciolini’s contribution to society can’t be measured directly, we feel the effects of it to this day. He was, perhaps, the greatest book hunter in the world. And one of his finds would significantly alter the course of history. Located in a German monastery, Bracciolini found the last surviving manuscript of Lucretius’ poem On The Nature Of Things, which had been lost for more than a thousand years. It’s survival was pure luck.

What is astonishing is that one magnificent articulation of the whole philosophy—the poem whose recovery is the subject of this book—should have survived. Apart from a few odds and ends and secondhand reports, all that was left of the whole rich tradition was contained in that single work. A random fire, an act of vandalism, a decision to snuff out the last trace of views judged to be heretical, and the course of modernity would have been different.

The twin pillars of the poem were the denial of the afterlife and the denial of Providence. To Christians the book was filled with scandalous ideas.

…the recovery and recirculation of Lucretius’ On the Nature of Things had succeeded in linking the very idea of atoms, as the ultimate substrate of all things that exists, with a house of other, dangerous claims. Detached from any text, the idea that all things might consist of innumerable invisible particles did not seem particularly disturbing. After all, the world had to consist of something. But Lucretius’ poem restored to atoms their missing context, and the implications—for morality, politics, ethics, and theology—were deeply upsetting.

“In a universe so constituted,” Greenblatt writes, “Lucretius argued, there is no reason to think that the earth or its inhabitants occupy a central place, no reason to set humans apart from all other animals, no hope of bribing or appeasing the gods, no place for religious fanaticism, no call for ascetic self-denial, no justification for dreams of limitless power or perfect security, no rationale for wars of conquest or self-aggrandizement, no possibility of triumphing over nature, no escape from the constant making and remaking of forms.”

Anyone arguing “there is no master plan, no divine architect, no intelligent design,” could not expect a warm welcome in ancient Rome. “The difficulty was not in reading the poem but in discussing its content openly or taking its ideas seriously.” Bracciolini, without having read the poem, had “unleashed something that threatened his whole mental universe,” something that helped abate the power of the very institution he once served.

By the time the clergymen prohibited the reading of the poem it was too late. Editions began popping up all over from Paris to Bologna. And the rest, as they say, is history. Today, much of what Lucretius claimed in On The Nature Of Things seems deeply familiar.

How Williams Sonoma Inadvertently Sold More Bread Machines

Paying attention to what your customers and clients see can be a very effective way to increase your influence and, subsequently, your business.

Steve Martin, co-author of Yes! 50 Secrets from the Science of Persuasion, tells the story:

A few years ago a well-known US kitchen retailer released its latest bread-making machine. Like any company bringing a new and improved product to market, it was excited about the extra sales revenues the product might deliver. And, like most companies, it was a little nervous about whether it had done everything to get its product launch right.

It needn’t have worried. Within a few weeks, sales had almost doubled. Surprisingly, though, it wasn’t the new product that generated the huge sales growth but an older model.

Yet there was no doubt about the role that its brand new product had played in persuading customers to buy its older and cheaper version.

Persuasion researchers suggest that when people consider a particular set of choices, they often favour alternatives that are ‘compromise choices’. That is, choices that compromise between what is needed at a minimum and what they could possibly spend at a maximum.

A key factor that often drives compromise choices is price. In the case of the bread-making machine, when customers saw the newer, more expensive product, the original, cheaper product immediately seemed a wiser, more economical and attractive choice in comparison.

Paying attention to what your customers and clients see first can be a very effective way to increase your influence and, subsequently, your business. It is useful to remember that high- end and high-priced products provide two crucial benefits. Firstly, they often serve to meet the needs of customers who are attracted to high-price offerings. A second, and perhaps less recognised benefit is that the next-highest options are often seen as more attractively priced.

Bars and hotels often present wine lists in the order of their cheapest (most often the house wine) first. But doing so might mean that customers may never consider some of the more expensive and potentially more profitable wines towards the end of the list. The ‘compromise’ approach suggests that reversing the order and placing more expensive wines at the top of the list would immediately make the next most expensive wines a more attractive choice — potentially increasing sales.

Original source: http://www.babusinesslife.com/Tools/Persuasion/How-compromise-choices-can-make-you-money.html

Mental Model: Feedback Loops

Feedback loops are created when reactions affect themselves and can be positive or negative.

Consider a thermostat regulating room temperature. This is an example of a negative feedback loop. As the temperature rises, the thermostat turns off the furnace allowing the room to rest at a predetermined temperature. When the temperature falls below that predetermined temperature the furnace reignites to return the room to its equilibrium state. Other examples include body temperature and financial markets.

Referring to the credit problems in 2008/2009, Vice Chairman of Berkshire Hathaway, Charlie Munger explained:

By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A free-fall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. — and much of the world — became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.

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In The Education of a Speculator, Victor Niederhoffer says:

One of the common features that all life possesses is a mechanism for maintaining orderly conditions. This tendency is called homeostasis. In system theory, it is called negative feedback … A Common homeostatic behavior in humans is temperature regulation. If the temperature rises above the 98.6 F optimum for normal human activity, sensors on the skin detect it and signal the brain that a rise has occurred. The brain relays the information to the effectors that increase blood flow to the skin. This induces perspiration. The loss in head, caused by evaporation, lowers the body temperature. When the body cools below a certain point, a comparable mechanism is set off, this time reducing blood flow and causing shivering. This activity generates heat through physical activity thus raising the body temperature.

In Universal Principles of Design, William Lidwell, Jill Butler, and Kritina Holden write:

Every action creates an equal and opposite reaction. When reactions loop back to affect themselves, a feedback loop is created. All real-world systems are composed of many such interacting feedback loops — animals, machines, businesses, and ecosystems, to name a few. There are two types of feedback loops: positive and negative. Positive feedback amplifies system output, resulting in growth or decline. Negative feedback dampers output, stabilizes the system around an equilibrium point.

Positive feedback loops are effective for creating change, but generally result in negative consequences if not moderated by negative feedback loops. For example, in response to head and neck injuries in football in the late 1950s, designers created plastic football helmets with internal padding to replace leather helmets. The helmets provided more protection, but induced players to take increasingly greater risks when tackling. More head and neck injuries occurred (after the introduction of plastic helmets) than before. By concentrating on the problem in isolation (e.g., not considering changes in player behavior designers inadvertently created a positive feedback loop in which players used their head and neck in increasingly risky ways. This resulted in more injuries which resulted in additional redesigns that made the helmet shells harder and more padded and so on.

Negative feedback loops are effective for resisting change. For example, the Segway Human Transported uses negative feedback lops to maintain equilibrium. As a rider leans forward or backward, the Segway accelerates or decelerates to keep the system in equilibrium. To achieve this smoothly, the Segway makes hundreds of adjustments every second. Given the high adjustment rate, the oscillations around the point of equilibrium are so small as to not be detectable. However, if fewer adjustments were made per second, the oscillations would increase in size and the ride would become increasingly jerky.

A key lesson of feedback lops is that things are connected—changing one variable in a system will affect other variables in that system and other systems. This is important because it means that designers must not only consider particular elements of a design, but also their relation to the design as a whole and to the greater environment.

From Graph Algebra by Courtney Brown:

Feedback loops are typically used to accomplish regulation and control. A feedback loop is like an input, but its origin is from within the system itself, not from outside the system. In many systems, the output reenters the system as another input. This is exactly what happens with a microphone and speakers when the sound from the speakers feed back into the microphone, often causing a loud squeal.

Sanjay Bakshi, a visiting professor at MDI wrote an email to one of his students on positive feedback:

In my view, its not correct to always view positive feedback loops in business as destructive, though they well might be. For example a run on a bank can bring it down on its knees in a very short time period and it can spread (systemic risk) to other banks. Similarly stock market bubbles can be thought of positive feedback loops – high prices feed optimism which feeds high prices – it does not last for ever, but it can last for a long long time.

I think you’re on the right track when you visualize a positive feedback loop as a mechanism which is nested inside a negative feedback loop. To illustrate, why do bear markets follow bull markets? Because over the long run, markets operate inside a negative feedback loop with built-in corrective mechanisms. When prices run too far away from underlying values, there are forces that pull them back. For example, when stocks become too cheap in relation to the replacement cost of the underlying assets, there is no incentive to create new capacity and industry consolidation is likely to take place wherein the strong players in an industry, instead of creating new capacity, buy out competitors.

Conversely, when stock prices rise so high that they become much more than the replacement cost of the underlying assets, strong incentives are created by those high prices, to create fresh capacity. So shortages follow gluts follow shortages…. – hence a negative feedback loop.

But what caused the speculative bubble in the first place? Why do people suddenly become euphoric about an industry or a sector and invest in it in unison? That part of the answer is better explained by positive feedback loops.

Its also important to view positive feedback loops as means of explaining some of the extreme business successes. I gave two examples in class of the dominant newspaper, and Wal-Mart. But one can think of others. For example, in some industries, the first mover has a big advantage. He goes and captures a very large part of the market and obtains scale economics. And once he’s done that, it becomes very difficult to dislodge him.

In 2005 Michael Mauboussin, Chief Investment Strategist at Legg Mason Capital Management offered:

The last idea has to do with systems that exhibit super-linear behavior vs. those that exhibit sub-linear behavior. In the super-linear systems, when you add more, you create more: there’s a positive feedback loop. One of the most direct uses of this in markets is network effects—the value of a good or service increases as more people use that good or service.The prototypical example would be eBay. They started out with their basic auction business which has very clear network effects. Then they moved into PayPal which is a payment business. It also derived benefits from network effects. Last week they announced the acquisition of Skype. Once again it’s a network effects business.

Sub-linear systems are concerned with maximizing efficiency per unit in industries that are relatively mature. Using capital to innovate may not be the best path for these types of companies: they should work on efficiency instead.

In 2002, Mauboussin offered an example of ants and positive feedback:

The power of this collective effect has not been lost on nature. This is where Johnson’s stories about ants come in. How do the ants do it? Foraging ants depart the nest with one job in mind, to find and retrieve food. They also have the ability to leave and follow chemical trails. At first, they disperse randomly. When the ants that find food come back to the nest, they leave a chemical trail that their sisters can follow. Studies show that this process allows ants to consistently find the shortest path to the food.

Once researchers understood this collective ability, they decided to play a trick on the ants. In a controlled setting, the scientists placed two food sources at identical path lengths from the nest. As it turned out, the ants ended up using just one of the paths, although which one they chose was random. Why? Because they follow chemical trails, a couple more ants going down one path will attract other ants, triggering a positive feedback loop. So instead of finding an optimal solution, the ants have one crowded path and an equidistant, empty path. Amazingly, though, nature anticipated this problem as well. As it turns out, ants periodically break from the main path and begin a random search process again. The ants are programmed to strike a balance between exploiting a known food source and exploring for the next food source. The ants are hard-wired to seek diversity.

In Earth in the Balance, Al Gore writes:

When I was flying over the Amazon rain forest in small place i was struck by what happened immediately after a thunderstorm moved across an area of the forest: as soon as the rain stopped, clouds of moisture began to rise from the trees to form new rain clouds that moved west, driven by the wind, where they provided the water for new rain falling out of new thunderstorms. Any interruption of this natural process can have a magnificent impact. When large areas of rain forest are burned, the amount of rainfall recycled to adjacent areas is sharply reduced, depriving those areas of the rain they need to maintain their healthy condition. If the deforested area is large enough, the amount of rainfall removed from adjacent areas will be enough to cause a reinforcing drought cycle, which slowly kills more trees, thus further reducing rainfall recycling and accelerating the death of the forest in turn.

From Thomas Goetz in Wired:

…So feedback loops work. Why? Why does putting our own data in front of us somehow compel us to act? In part, it’s that feedback taps into something core to the human experience, even to our biological origins. Like any organism, humans are self-regulating creatures, with a multitude of systems working to achieve homeostasis. Evolution itself, after all, is a feedback loop, albeit one so elongated as to be imperceptible by an individual. Feedback loops are how we learn, whether we call it trial and error or course correction. In so many areas of life, we succeed when we have some sense of where we stand and some evaluation of our progress. Indeed, we tend to crave this sort of information; it’s something we viscerally want to know, good or bad. As Stanford’s Bandura put it, “People are proactive, aspiring organisms.” Feedback taps into those aspirations.

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Richard Koch:

In the absence of feedback loops, the natural distribution of phenomena would be 50/50–inputs of a given frequency would lead to commensurate results. It is only because of positive and negative feedback loops that causes do not have equal results. Yet it also seems to be true that powerful positive feedback loops only affect a small minority of the inputs.

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How Do Excellent Performers Differ from the Average?
Practice activities are worthless without useful feedback about the results.

Feedback loops are part of the Farnam Street Latticework of Mental Models.