Brian Keng

  • Russian Roulette (or Luck Vs Skill)

    Imagine this scenario [1] and see if there is something off about it:

    You get a chance to meet the world champion in Russian roulette.  He has traveled across the globe, putting a gun to his own head and skillfully not shooting himself.  He’s faced hundreds of opponents from every country you can name, including the big five: America, Brazil, China, India and, of course, Russia.  Still no challenger seems to match his skill.  Time and time again, his skill surpasses those around him as his opponents drop like flies while he stands victorious around them with nothing more than the faint smell of gun powder that dispersed from his opponent’s mortal wounds.  There is no man (or woman) who dares challenge him for his title.  When you finally get to meet him, you stand in awe of the unimaginable amount of skill he possesses.

    Sounds a bit ridiculous right?  Let’s try that again but this time replacing “skill” with “luck”:

    You get a chance to meet the world champion in Russian roulette.  He has traveled across the globe, putting a gun to his own head and luckily not shooting himself.  He’s faced hundreds of opponents from every country you can name, including the big five: America, Brazil, China, India and, of course, Russia.  Still no challenger seems to match his luck.  Time and time again, his luck surpasses those around him as his opponents drop like flies while he stands victorious around them with nothing more than the faint smell of gun powder that dispersed from his opponent’s mortal wounds.  There is no man (or woman) who dares challenge him for his title.  When you finally get to meet him, you stand in awe of the unimaginable amount of luck he possesses.

    Sound a bit better?  This story is a great illustration of why skill sometimes gets mistaken for luck.  And it’s an easy mistake to make because we usually only get to observe the outcome, not how the outcome was produced.  Let’s look at some more scenarios:

    • A lucky idiot buys a lottery ticket every week and wins the lottery — twice in a row.
    • A lucky amateur goes all in with a two-seven off suit and wins a premier Poker tournament.
    • A lucky investor aggressively loads up on leverage and makes out like a bandit.

    In all these examples, it’s easy to confuse luck and skill.  The lottery winner won twice in a row, he must have a system.  The poker amateur must have excelled at reading other players that’s why he was able to win with a two-seven off suit.  And the investor, he must have had some good insight to leverage up.  What’s not said is what would be said of these people if they did not succeed.  Probably something like this:

    • A man buys a lottery ticket every week and keeps losing.
      He’s probably an ignorant fool who doesn’t understand probability.
    • An amateur poker player goes all in with a two-seven off suit and loses all his money. 
      Stupid mistake, any half decent poker player doesn’t bet the farm on a terrible hand in that situation.
    • An investor aggressively loads up on leverage and goes bankrupt.
      He’s a careless risk taker who never should have been using leverage in the first place.

    It’s important what kind of outcome you get (because what good is any of this if you get hit by a bus?), but what’s also equally important is how you got that outcome.  Given the information you had at that time, was that the best decision you could have made — even if events unfolded differently?  It matters because most people aren’t as lucky as the hypothetical world champion in Russian roulette — most need at least a little bit of skill to succeed [2].

    I once commented to a friend that I seem to have “average luck”.  Looking back, I think I was mistaken, I have a great luck — just not the kind that wins raffles and lotteries.  My luck is more along the lines of having the amazing opportunities that have come up time and time again in my life.  Skill then, I suppose, is about making the most of those opportunities.

    Speaking of which, there’s an opportunity to win the lottery coming up.  Better use my skill to make the most of it.  I think that’s how it works, right?

    1. [1] This little story was inspired by Taleb’s analogy of Russian Roulette in Fooled By Randomness, crossed with Buffett’s hypothetical of a national coin flipping contest in The Superinvestors of Graham-and-Doddsville.[↩]
    2. [2] I actually think you need some skill but also a lot of luck to succeed.  Think about it this way, if you live a stable country, have a good education and have no life threatening diseases, you’re probably luckier than more than half the people on the planet.  Factor in having a roof to live under, ample food and people who support you, you’re probably among the luckiest in the world.[↩]

  • Invert

    “All I want to know is where I’m going to die so I’ll never go there.”
    – Charlie Munger

    This is one of my favourite quotes from Charlie.  It’s apparently an old farmer’s maxim and perfectly sums up one of Charlie’s most beloved ideas for approaching life in a witty, paradoxical statement.  Its spirit follows that of Jacobi [1] who used to say “Invert, always invert”, a phrase Charlie often quotes.  The big idea here is that hard problems should be looked at backwards in order to gain insight into the solution.  If you’ve ever tried solving one of these puzzles, you’ll immediately recognize the benefit of this approach.

    The genius of this approach is that it can be generalized to so many different situations.  In Charlie’s pithy quote, he sums up how to live a happy life.  Working backwards: “How would I live a terrible life?”  Not too difficult to imagine that: drug addiction, sexually transmitted disease, tragic totally avoidable death/injury due to dangerous activities, I’m sure you can think of some more big ones.  So if you can avoid those things in life, you’re on you way!  Of course, there are many more things to avoid like unreliability, sloth, envy, greed, jealousy, lack of passion, lack of sleep etc.  But this approach gives some new insight on how to lead your life: just avoid things that will make it terrible!  Obvious when you put it like that but if you think about it, it’s much more actionable than generic advice like “thinking outside the box”.

    Here’s a related anecdote from my earlier days of being a student.  When I was in high school and university, I was really good at taking tests — especially math based ones.  I was diligent in following the typical advice of doing your homework and working through all the problems but I think one big distinguishing feature that got me really high marks was using this idea of “inverting”.  The thinking goes like this: “How would I do terribly on this test?”  Obviously not studying but more precisely by making mistakes.  So I learned how to avoid making mistakes on the test.  This one idea drove much of how I studied.  I would work through a problem, find out what mistakes I made, mentally take note of it, and then re-work through the same problem until no more mistakes were made.  And by “mistakes” I mean not just calculation errors but also misunderstandings and holes in concepts and ideas of how to approach the problem.  The result was that when I was actually taking the test, it was much easier to get a really high mark simply because I had gone through all the ways I would have likely made mistakes [2].

    This general approach can be applied in so many various ways such as relationships, resumes, pot roasts, you name it.  It can even be applied to writing.  For example, the avoidance of using bad puns.  Let me say once you start inverting, it’s hard to stop.  It’s like reading a book about anti-gravity. It’s impossible to put down.

    1. You might recognize this name from the “Jacobian” matrix.[↩]
    2. Of course, what I don’t emphasize it that it requires a great deal of work, especially when you’re not particularly adept at the subject.[↩]

  • Worldly Wisdom

    Inspired by one of my heroes, Charlie Munger, I decided to attempt to document my “lattice work” of wordly wisdom — both learned and to be learned.  Hopefully this will give me a chance to internalize it and put it to good use.  What is worldly wisdom?  Let’s hear it straight from Charlie:

    “What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.  You’ve got to have models in your head. And you’ve got to array your experience—both vicarious and direct—on this latticework of models.”
    – A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business, Charles Munger, 1994.

    The way I’m approaching this is to write a blog post on each topic and listing all of them on separate page of “Worldly Wisdom“.  So far I went back through all my old blog posts and compiled them into a somewhat sensible list of ideas.  Turns out that I’ve already documented quite a bit from my previous posts!  Still many more to go but at least this theme can give me some fresh ideas when I just don’t know what to write about.  Enjoy!

  • Luck or Passion?

    Preface: I wrote a post a while back titled: Lucky or Smart?  Along those same lines, I pose another question: Luck or Passion?  (hint: luck wins every time.)

    A very common piece of advice that keeps coming up, over and over again, is “follow your passion” [1].  While this advice is always well intentioned, and perhaps useful in certain circumstances, it may not be as useful as the people giving the advice think.  Scott Adams (creator of the Dilbert comic) has some interesting things to say about this:

    “In hindsight, it looks as if the projects that I was most passionate about were also the ones that worked. But objectively, my passion level moved with my success. Success caused passion more than passion caused success.” (emphasis mine)
    – Scott Adams, Scott Adams’ Secret of Success: Failure

    An interesting idea.  What if passion isn’t something hidden inside of you but instead something that grows in you (presumably with success)?  This might explain why all those super successful people you (and I) idolize are always going on and on about how you need to follow your passion.  Easy for them!  They were already super successful with what they were passionate about.  Success feels good!

    So let’s stay with this train of thought.  Success leads to passion, so what leads to success?  Ay, there’s the rub.  No easy answer to that question [2].  Well… except for one: luck.  But it’s a bit more nuanced than that:

    “I have a friend who is a gifted salesman […] His biggest problem in life is that he keeps trading his boat for a larger one, and that’s a lot of work.

    Observers call him lucky. What I see is a man who accurately identified his skill set and chose a system that vastly increased his odds of getting “lucky.” In fact, his system is so solid that it could withstand quite a bit of bad luck without buckling. How much passion does this fellow have for his chosen field? Answer: zero. What he has is a spectacular system, and that beats passion every time.” (emphasis mine)
    – Scott Adams, Scott Adams’ Secret of Success: Failure

    What Scott Adams is saying here is that you want a system that maximizes your luck.  We know we can’t control luck but we can control our situation [3].  In other words, developing a system where you’re in more situations where success depends on a mere coin flip rather than the winning lottery ticket.  Luck plays a big role in either situation but the system determines which situation you are in.

    There usually aren’t many easy answers in life except for one: luck wins every time.  The secret is figuring out how to maximize luck.  With that, I’m feeling lucky.  I think it’s time to buy a lottery ticket…

    1. In fact, I’ve given this advice many, many times myself.[↩]
    2. And why should there be?  Everyone’s situation is unique and everyone’s path to success is different.  Nature doesn’t have many free lunches or else there would be no one to make lunch![↩]
    3. This is reminiscent of optimizing for expected value rather than a high payoff with a low probability of occurrence.  Probability has more life applications than just learning how to gamble properly.[↩]

  • We Are Mere Animals

    One of the greatest fallacies that we’ve been fooled into thinking is that we’re so different from animals.  Sure an animal can’t drive (or can it?), do long division, or understand the complex social interactions in Keeping Up with the Kardashians, but we’re not as far from them as one might think.  We still share many of the same characteristics of animals like eating, sleeping, mating, and socializing.  We potty train our young just like we potty training our dogs, yet just because we have a higher level of reasoning we think we can ignore the same basic biological instincts that all animals (including us) share.   Let’s take a look at at some examples of how our “higher level” of reasoning supposedly help us overcome our more basic instincts.

    Many people want to stay at a healthy weight [1].  What are the two ingredients we need to solve this problem?  Easy, regular exercise and a balanced diet.  How many people do you think follow this “obvious” solution?  Probably a lot fewer than those who overeat and live a sedentary lifestyle.  It’s not easy for your brain to turn down a deliciously engineered fast food meal with a side of sugary soda pop [2].

    How about smoking?  It has been clearly established that smoking can dramatically reduce your lifespan, cause lung cancer and a whole bag of other nasty things such as heart disease, infertility, and among other things nasty teeth.  So you think those most informed would definitely swear it off?  Yet, you can walk down to any major hospital and see a surprisingly high amount of doctors and nurses — professionals who treat patients for the deadly effects of smoking on a daily basis — smoking outside the building.  It’s so easy to say you should quit smoking because it is bad for you and causes cancer but it’s something every single smoker already knows (it’s written on the label).  Even for the most enlightened of thinkers, the biochemical processes of addiction are usually too strong to overcome.

    What it all comes down to is not that we have big brains, thus we are not animals.  But more like we are animals and have big brains.  Taleb put it eloquently in way that really struck a chord with me:

    “One of the most irritating conversations I’ve had is with people who lecture me on how I should behave.  Most of us know pretty much [know] how we should behave.  It is the execution that is the problem, not the absence of knowledge.  I am tired of the moralizing slow-thinkers who pound me with platitudes like I should floss daily, eat my regular apple, and visit the gym outside of the New Year’s resolution… We need tricks to get us there but before that we need to accept that fact that we are mere animals in need of lower forms of tricks, not lectures.”
    – Fooled By Randomness, Nassim Nicholas Taleb

    Taleb has the right idea here of how we can deal with our “animal”-selves: tricks.  In other words, playing off our built-in biological and psychological tendencies to accomplish what we should be doing.  Understanding our natural tendencies can go a long way to overcoming many difficult problems — large and small — that we deal with in our lives.  One example that stands out in my mind is weight watchers.  Weight watchers doesn’t use some fad diet to cause some sudden onset of weight loss.  Instead, among other things, they act as a support group (i.e. a means to utilize influence tactics such as consistency and commitment, liking and social proof) to ensure that their members follow the common sense guidelines that we all know.

    So know you all know what you should be doing, whether or not you actually do it is another story.  As for me, I’d better finish this post off soon because I should be cleaning up, doing laundry and washing the dishes today; translation: I’m going to take a nap.

     

    1. As a side note, I just joined Twitter for a project at work and this type of problem is what is colloquially known as a #FirstWorldProblem.  Funny enough, it seems that this hashtag is used primarily by teenagers who, by my estimation, have so little worldliness that it seems unlikely they understand the full depth of this phrase.[↩]
    2. Not to mention the positive psychological associations that mass marketing has programmed in you.  In a similar way, we ignore (or are ignorant) of how effective this marketing truly is.[↩]

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Lucky or smart?July 28, 2013

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