What are you optimistic about: The Birth of Stochastic Science

…the environment for manmade discoveries is governed by a far, far more severe, wilder form of processes, those called “fat tailed”… Against what one might expect, this makes me extremely optimistic about the future in several selective research-oriented domains, those in which there is an asymmetry in outcomes favoring the positive over the negative — like evolution.

“Skeptical empiricist” Nassim Nicholas Taleb [Wikipedia] is optimistic – but for reasons that are likely to be surprising to most readers. I first encountered Taleb as the author of “Fooled by Randomness“, recommended to me by a hedge fund manager as “the most important book I’ve ever read”.

Taleb’s little essay for The World Question 2007 surprised me — proving that I had not generalized what I had learned from “Fooled by Randomness” to arenas outside the financial markets.

Herein Taleb’s theme is essentially this, that growth in research experiments/projects, and increasing variance of results – will lead to more positive “Black Swans”. Taleb discounts cause/effect as the source for important discoveries/inventions – favoring a view that is closer to evolution:

…These domains thrive on randomness. The higher the uncertainty in such environments, the rosier the future — since we only select what works and discard the rest. With unplanned discoveries, you pick what’s best; as with a financial option, you do not have any obligation to take what you do not like. Rigorous reasoning applies less to the planning than to the

selection of what works.

A corollary of the Taleb model is advantage America, where the high-variance new stuff gets generated onshore, while the drone jobs get outsourced:

…I am convinced that the future of America is rosier than people claim …It fosters entrepreneurs and creators, not exam takers, bureaucrats or, worse, deluded economists… it produces “doers”, Black Swan hunting, dream-chasing entrepreneurs, or others with a tolerance for risk-taking which attracts aggressive tinkering foreigners. And globalization allowed the U.S. to specialize in the creative aspect of things, the risk-taking production of concepts and ideas, that is, the scalable and fat-tailed part of the products, and, increasingly, by exporting jobs, separate the less scalable and more linear components and assign them to someone in more mathematical and “cultural” states happy to be paid by the hour and work on other people’s ideas.

Another factor favoring America over say, Germany, is more small bets instead of allocating the same budget to a few big-company projects:

But if the success rate is very low, the more we search, the more likely we are to find things “by accident”, outside the original plan — or the more an unspecified original “plan” is likely to succeed. Looking at the swelling pipeline, something tells me that the discovery of cures, or near-cures for unspecified diseases is about to happen — except that I do not know which one, nor do I know where it is coming from. More technically, I see the sign of fractal randomness in these payoffs from the fact that results are more linear to the number of investments than they are to quantities invested — thus favoring the multiplication of small bets.

…This idea applies to so many other technological domains. The only bad news is that we can’t really tell where the good news are going to be about, except that we can locate it in specific locations, those with a high number of trials. More tinkering equals more Black Swans. Go look for the tinkerers.

Highly recommended. And for me, it is time to reread Fooled by Randomness. And if you care to know more about “fat tailed” distributions, see “Mandelbrot makes sense” [PDF].

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