Determinism and Free Will

My first reading in Introduction to Philosophy comes from Galen Strawson’s article for The Stone, Your Move: The Maze of Free Will.

Determinism is the theory that everything that occurs in the world has a cause, all the way back to the beginning of the universe. As an illustration, the reason that you’re reading this now is that somehow you chanced upon a link to my blog/already know about my blog/happen to be beside a friend reading my blog, etc., which in turn happened because you were either randomly surfing the net/feeling bored and decided to see if my blog is still alive, etc, which in turn happened because … of a whole causal chain of events that can be traced back to your birth, your ancestors’ births, your ancestors’ ancestors’ births… so on and so forth. The corollary to this theory is that if we know all the causal laws governing the world, we can predict exactly all future events in the universe. This was the idea conceived by the French mathematician Pierre-Simon Laplace, the idea which we now know as Laplace’s demon.

At first glance, determinism sounds a little outlandish. But no – in fact the opposite would be completely inconceivable. Suppose your door creaks open all of a sudden. What would you think made it happen? It could be a gust of wind. No, maybe someone is trying to play a prank on you. No, there’s no one at home. Maybe it’s gravity – the door isn’t hung level. Wait, the door is dead level. So why exactly did the door creak?

Notice something: you need a reason for why the door creaked open. Whatever it may be, a ghost, the wind, a prank, gravity… whatever it is, you feel the need to attribute this to some cause. Would you accept that the creaking of the door “just happened”? This was the 18th century philosopher David Hume’s argument: that whether or not we admit to believing in the idea of determinism, we do in fact believe in it, that there is a sufficient cause for everything.*

So why do we care whether determinism is true or not? For us to have free will, we must be in ultimate control of what we do. We do what we do because of who we are, which is a product of prior causes over which we have no control, such as upbringing, genetics, etc. If we do not have control over such factors, we cannot claim to have ultimate control over what we do. Therefore: we do not have free will.

You may or may not buy this argument, but the implications are huge. If you do, the next time somebody upsets you (say by talking very loudly in the library or barging into the MRT before you can get out, causing you to miss your stop), you have to remind yourself that he did not choose to do so freely; rather, his actions were caused by factors beyond his control, and had you been in his situation, with the exact same upbringing, genetics, etc., you would have done exactly the same.

Alternatively, even if you do (I do), you can choose to be illogical and hold that person morally responsible (I do too).

*Example taken from Bruce N. Waller’s Consider Philosophy.

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The Black Swan: The Impact of the Highly Improbable

This is my attempt to review the first edition of Nassim Nicholas Taleb’s The Black Swan: The Impact of the Highly Improbable.

I want to start with Taleb’s tone in the book: This is not trivial, because whether or not you can finish the book depends quite a bit on whether you can stomach his… idiosyncratic writing style. I’m accustomed to reading his style of writing having read his earlier book, Fooled by Randomness: The Hidden Role of Chance in Markets and in Life. But a reader new to Taleb should be warned: Taleb is rude. He loathes most economists, mathematicians, and statisticians – and he does not mince his words. Whether or not his dislike for them and their ideas is founded is beyond my ability to evaluate. He may have a point, and a very good one at that, but his no-holds-barred attacks on many people (again, I don’t know if they deserve it. Maybe, but his rants are often overboard and unprofessional*) and his very poorly veiled attempts to portray himself as a humble (definitely not) and deep thinker (definitely so) can come across as annoying.

On to the real stuff, I’d like to make a quick summary of his ideas; a very risky business because I don’t want to misrepresent any ideas, but I shall attempt to do so because the ideas are valuable.

The Black Swan Problem

The title is The Black Swan because of what he calls the Black Swan Problem, otherwise known as Hume’s problem of induction (after David Hume, the 18th century philosopher): Can we be certain that all swans are white simply based on the fact that all the swans we have seen are white? We may be tempted to make that inference if all our lives we’ve only seen white swans, but all it takes is one black swan to prove us wrong.

This asymmetry underlies his argument that much of the forecasting we see in financial markets is useless. If we accept that knowledge by induction is flawed, then statistical techniques like regression analysis, which involves extrapolating data points to forecast the future, has limited use. Having seen so many white swans, we naturally assume that the swans we see in the future will also be white. But when we bank our entire fortune on it – as many banks did in the recent subprime mortgage crisis – we may, one day, be in for a surprise.

Capitalizing on the asymmetry

When I first heard the idea of the black swan problem, my first thought was, yes Taleb is right, but if we constantly fear the occurrence of the black swan, aren’t we letting go of what can reasonably work with, i.e. swans are most likely to be white? In other words, should we just do nothing?

No. Taleb has a way around it: limit our downside risk as far as possible, and maximize our exposure to unforeseen benefits, or serendipity. A good example of exposing ourselves to positive consequences is Pascal’s wager. Blaise Pascal said that in deciding whether or not to believe in God, one should choose the latter because he has everything to gain if God exists and nothing to lose if God does not.

In the financial world, derivatives serve the purpose of exposing the buyer to positive consequences (or negative consequences if you happen to be the seller). The seller of a call option gives the buyer the right to buy a share at the exercise price, and the seller of a put option gives the buyer the right to sell a share back to him at the exercise price.

So suppose I have a stock worth $20 now. Thinking that stock prices are likely to fall since the economy doesn’t look too good, I want to make a quick buck by selling an American call option with an exercise price of $25. I do this for $2. This gives the buyer the right but not the obligation to buy my stock for $25 at any time before expiration, say in 6 months’ time. 6 months later, if my stock price indeed falls, then I have nothing to fear: I’ve made an easy profit on the sale of the call option. But if the price of the stock rises beyond $25, then the buyer can exercise the option and buy the stock from me for only $25.  What is the most he can lose? $2. But what he can earn is virtually unlimited – limited only by the final price of the stock. By buying out-of-money call and put options, he can only “bleed” slowly to death, but cannot “blow up” because of a sudden unexpected event such as a financial crisis. During unexpected events favorable to him, his profits are immense.

The Gaussian Distribution – Great Intellectual Fraud (GIF)?

Taleb makes one final claim in this book: that the ubiquitous bell curve is an intellectual fraud when employed in areas such as finance. Here, he makes the distinction between Mediocristan and Extremistan. Mediocristan is the land in which variables are “mediocre”, i.e. they fluctuate mildly around a certain average, and outliers are rare – if they exist, they do not significantly change the aggregate. Such variables include physical quantities such as height, weight, and IQ, which follow a Gaussian distribution. Extremistan on the other hand, is the land where variables can be extreme, and outliers can exert a massive influence. Examples include wealth (Bill Gates can greatly distort the distribution of wealth), use of words in the vocabulary (see Zipf’s law), and they do not follow the Gaussian.

So why Great Intellectual Fraud? Harsh words, and very unfair, but Taleb makes it clear within the book that the Gaussian distribution is rightly used in places where we are looking for a Yes/No answer. For example, statistical testing in psychology uses the bell curve appropriately. But when it comes to financial markets, creating sophisticated models based on the Gaussian is akin to living in your own world because the models simply don’t fit the facts.

Instead, empirical findings by the late Benoit Mandelbrot (who developed the Mandelbrot Set used in fractal geometry and Chaos Theory) showed that stock market returns exhibit memory effects, an observation which goes against one fundamental assumption of the Gaussian distribution – that of independence between trials. With that, Mandelbrot came up with the idea that stock returns exhibit fractal or wild randomness, instead of mild and controllable randomness.

Whether or not stock returns follow a Gaussian distribution makes a world of a difference, because sophisticated models taught in finance are all largely based on the Gaussian, which does not adequately measure the probability of extreme events. In fact, the Gaussian tells us that the probability that we observe a deviation from the mean decreases exponentially as this deviation increases. For example, the probability of observing a four-sigma event, or one that is four standard deviations from the mean, is 1 in 32,000. The corresponding probabilities for five- and six-sigma events are 1 in 3.5 million and 1 in a billion respectively: an exponential increase.

Indeed, if we believe that stock returns are normally distributed and consequently apply models such as the capital asset pricing model (CAPM), we would greatly underestimate the true risk of extreme events. On the other hand, fractal randomness attributes more accurate probabilities to extreme events, an issue discussed in greater depth in Mandelbrot’s book, The (Mis)Behavior of Markets: A Fractal View of Risk, Ruin, and Reward.

Conclusion

I’ve only presented the main ideas that jumped out at me when I was reading the book. There are some other valuable ones pertaining to how we process information and make decisions, but again, these are better discussed in books on cognitive psychology and behavioral economics. This is a book that will change the way you view the world, and in particular, the role of randomness in our lives. If you can stomach his arrogant tone (and that is a big If), this is a great read.

*Taleb has on a few occasions traded public attacks with Myron Scholes (of the Black-Scholes formula, which Taleb condemns). After Long-Term Capital Management blew up, he commented that Scholes would be better off doing sudoku in a retirement home instead of giving advice on risk management.

Plato and a Platypus Walk into a Bar…

If philosophy interests you, do get this book – I absolutely adore it. Here are some excerpts from the book:

Deductive logic reasons from the general to the particular. The bare-bones deductive argument is the syllogism “All men are mortal; Socrates is a man, therefore Socrates is mortal.” It’s amazing how often people screw this up and argue something like “All men are mortal; Socrates is mortal; therefore Socrates is a man,” which doesn’t logically follow. That would be like saying, “All men are mortal; my kid’s hamster is mortal; therefore my kid’s hamster is a man.” Another way to screw up a deductive argument is by arguing from a false premise.

An old cowboy goes into a bar and orders a drink. As he sits there sipping his whiskey, a young lady sits down next to him. She turns to the cowboy and asks him, “Are you a real cowboy?”

He replies, “Well, I’ve spent my whole life on the ranch, herding horses, mending fences, and branding cattle, so I guess I am.”

She says, “I’m a lesbian. I spend my whole day thinking about women. As soon as I get up in the morning, I think about women. When I shower or watch TV, everything seems to make me think of women.”

A little while later, a couple sits down next to the old cowboy and asks him, “Are you a real cowboy?”

He replies, “I always thought I was, but I just found out I’m a lesbian.”

Perhaps it would be fun to analyze where exactly the cowboy went wrong. Perhaps not. But we’re going to do it anyhow. In his first answer to the question of whether he is a real cowboy, he reasoned,

1. If someone spends all his time doing cowboy-type things, then he is a real cowboy.

2. I spend all my time doing cowboy-like things.

3. Therefore, I am a real cowboy.

The woman reasoned,

1. If a woman spends all her time thinking about other women, then she is a lesbian.

2. I am a woman.

3. I spend all my time thinking about women.

4. Therefore, I am a lesbian.

When the cowboy then reasons to the same conclusion, he assumes a premise that in his case is false: namely (2) I am a woman.

The authors also discuss why arguments from analogies often produce unsatisfying outcomes. In the process, they mention a contest run by The Washington Post, titled “Worst Analogies Ever Written in a High School Essay”.

1. “Long separated by cruel fate, the star-crossed lovers raced across the field toward each other like two freight trains, one having left Cleveland at 6:36 pm travelling at 55 m.p.h, the other having left Topeka at 7:47 travelling at 35 m.p.h.”

2. “John and Mary had never met. They were like two hummingbirds who had also never met.”

3. “The little boat gently drifted across the pond the way a bowling ball wouldn’t.”

Yours zanily,

Tim

On philosophy

Bertrand Russell encapsulates perfectly the purpose of philosophy:

“Philosophy, though unable to tell us with certainty what is the true answer to the doubts which it raises, is able to suggest many possibilities which enlarge our thoughts and free them from the tyranny of custom. Thus, while diminishing our feeling of certainty as to what things are, it greatly increases our knowledge as to what they may be; it removes the somewhat arrogant dogmatism of those who have never travelled into the region of liberating doubt, and it keeps alive our sense of wonder by showing familar things in an unfamiliar aspect.”

delayed gratification: overrated?

Walter Mischel, professor at Columbia University (then Stanford University), conducted a now famous experiment observing the relationship between impulse control and success in life. From Wikipedia:

In the 1960s, a group of four year olds were given a marshmallow and promised another if they could wait 20 minutes before eating the first one. Some children could wait and others could not. The researchers then followed the progress of each child into adolescence, and demonstrated that those with the ability to wait were better adjusted and more dependable (determined via surveys of their parents and teachers), and scored an average of 210 points higher on the Scholastic Aptitude Test.

The study suggests that there is a strong correlation between our ability to defer gratification and our success. It requires no stretch of the imagination to see why: a greater ability to exert self-restraint translates to more hard work (studying instead of watching the TV), as well as greater willpower. Jonah Lehrer elaborates in an article in the New Yorker:

At the time, psychologists assumed that children’s ability to wait depended on how badly they wanted the marshmallow. But it soon became obvious that every child craved the extra treat. What, then, determined self-control? Mischel’s conclusion, based on hundreds of hours of observation, was that the crucial skill was the “strategic allocation of attention.” Instead of getting obsessed with the marshmallow—the “hot stimulus”—the patient children distracted themselves by covering their eyes, pretending to play hide-and-seek underneath the desk, or singing songs from “Sesame Street.” Their desire wasn’t defeated—it was merely forgotten. “If you’re thinking about the marshmallow and how delicious it is, then you’re going to eat it,” Mischel says. “The key is to avoid thinking about it in the first place. In adults, this skill is often referred to as metacognition, or thinking about thinking, and it’s what allows people to outsmart their shortcomings. (When Odysseus had himself tied to the ship’s mast, he was using some of the skills of metacognition: knowing he wouldn’t be able to resist the Sirens’ song, he made it impossible to give in.)

But I wonder: Is delayed gratification overrated? Too much of what we’re doing now appears to be in preparation for the future – studying for a degree to secure a good job, joining activities to build up a more substantial CV, networking etc. When we go out to work, we typically go for the jobs that pay well (even if they do not exactly offer a healthy work-life balance), hoping to retire peacefully and enjoy the fruits of our labor then. It is almost akin to factory production: as kids, we’re put into machines with a predetermined mold; some settings are tweaked as we enter adulthood, before we finally exit as old people: the finished products. It’s the Industrial Revolution all over again.

At sixty, if we’ve managed to plough through successfully, we get to enjoy the fruits of our labor. But is that too late? By then, a good deal of opportunities would already have passed us. And by then, it’d be too late to turn back the clock.

That saying, I’m not advocating an “eat, drink, and be merry, for tomorrow we may die” mindset. I’m not even saying that our system of living is too practical and results-oriented. In fact, I do think it’s a privilege to receive education here and – truth be told – lots of us prefer staying in our comfort zone. It’s nice (and convenient) to have a third of your life mapped out for you.

All I’m saying is: it pays to delay gratification, but at times, living for the moment isn’t such a bad idea.

Yours myopically,

Tim

The lovers’ paradox

My interests lie heavily in decision making, and what better place to start than… love? From Peter Cave’s this sentence is false:

Larry loves Ludmilla – ‘it’s just you whom I love’ – yet Larry’s love must be because of Ludmilla’s various characteristics. If that is so, then Larry ought to love anyone possessed of those characteristics . So in truth, does he not love anyone like Ludmilla, rather than Ludmilla in particular?

This provokes several interesting questions, first of all:

Do you need a reason to love someone? (or rather, choose someone.)

It should be pretty clear to all of us that we must have a reason for loving someone – many, in fact. But try to verbalize all these reasons: say you’re in love with that someone because she’s pretty, smart, and nice etc. If someone prettier, smarter, nicer comes along, would you go for her?

The late Nobel Laureate, Herbert Simon, first introduced the concept of bounded rationality and coined the term satisfice – taken from the words “satisfy” and “suffice” – to describe how we often search for adequate, near-optimal solutions in decision making rather than seek to maximize our satisfaction (as neoclassical economics suggests). Applied to love, that would mean that we take our resources (such as time) into consideration and stop searching for a partner once we find someone that satisfies our requirements. In Prof David’s words, when you get married, it’s not really “I do” that you’re saying, it’s you’ll do.

Let’s go back to our question of whether you’ll leave your current squeeze for the better girl. One way to decide is to weigh the costs of losing her and the benefits of getting the better girl. If the rewards justify the risks, you go for the new girl. Or you might not if you’re really lazy and the inertia’s too much to overcome. If the risks exceed the rewards, then you stick. So far, so rational.

This brings us to our second question: What does it mean to say that you love someone for the very fact that she is her? Does it simply mean that you love her because of her traits, or are we looking at something deeper? If you indeed think that she’s the one for you, what happens when someone similar or better comes along?

As you might agree, love isn’t an area where rational thought can be applied easily. Take a look at the following and see if there’s truth in it:

I suspect that’d be a yes for some of us.

And our third: If we have reasons for loving someone, what happens when these reasons collapse? As an example, people often say: I love her because she loves me. I don’t have anything against that personally, but some might recognize that this reason is an inherently unstable one – what happens if she stops loving you?

I was having a chat with Adeline that day, and we talked about how we tend to change unconsciously when we fall in love. It could be for the better or the worse;  or even at once for the better (perhaps you become more caring) and for the worse (you might become overly sensitive and make her feel insecure). The point is: do you inevitably lose a part of yourself when you love? More importantly, do you lose what she loved you for in the first place?

The cloak of social responsibility

Stephen Dubner writes on altruism.

This doesn’t mean that “impure altruism” is at all a bad thing; if the deed gets done, then the deed gets done. But, as with anything in life, it is good to understand the true incentives at work.

And here’s my earlier post on altruism.

A few months back, whenever I walked into HSS Library, I would see many books on corporate social responsibility. Titles such as Corporate Social Responsibility: A Stakeholder’s Approach were everywhere. Not long after, I noticed an interesting trend: as new books came in, these titles were gradually replaced by titles such as Corporate Social Responsibility: The Competitive Advantage.

Which made me wonder: In the business world, is CSR nothing more than just a Potemkin strategy? Check out Milton Friedman’s classic here: The Social Responsibility of Business is to Increase its Profits.

I agree with Dubner. At the end of the day, perhaps all that matters is that society benefits from this “altruistic” actions. But it’d certainly be nice to explore the forces behind such behavior.

Yours “altruistically”,

Tim