Friday, March 28, 2008

The Black Swan Giveth, and the Black Swan Taketh Away

On the 1000th day of its life, Bertrand Russell's turkey felt fat and happy. The next day, Thanksgiving, he was stuffed with bread and eaten to the great satisfaction of the Russell family. Russell's turkey met a black swan.[1]

A black swan was an idea put forward by the Enlightenment philosopher, David Hume, to represent the unexpected, the stuff you know you don't know or don’t know that you don't know. It was a play on the popular idea in the 17th century that the only color of swan found in nature was white. Hume argued that although no one had ever seen a black swan, their existence was not logically ruled out by their lack of being observed, at least by Europeans, as Europeans would soon find out. In fact, black swans do exist, but they weren't recorded in natural histories until Europeans (also) discovered Australia. As native Australians already knew, black swans are quite numerous indeed.[2]

Russell’s turkey met a black swan. We’ve all met black swans. Two good friends of mine met a familiar black swan this past Christmas, the one few of us ever anticipate. Both friends had enjoyed decades long careers at a single employer. Suddenly, they were let go, seemingly out of the blue. Sometimes black swans bear teeth.

But black swans sometimes bear gifts, too. Another friend of mine experienced a virtuous swan just after the new year. He was waiting for his privately held company to go through it’s quarterly valuation and release its updated stock price. If one followed the price history of the company’s stock and believed that past performance indicated future performance, one would reasonable expect an increase of $1 to $5. Imagine his surprise when he opened his email to learn that the company’s stock had jumped $17 per share, an increase of 107%! The value of the ownership he held in the company doubled in one day.

This beautiful bird is about to wreak havoc on those who fail to comprehend its predatory ambitions, or it may deliver a golden egg.

Now both sets of friends face more potential black swans. Will my former example set of friends continue to believe that employment always means stability, or will they take more proactive steps to manage their careers? Will my latter friend be honest enough to understand that his company’s stock price can go back down just as dramatically as it went up?

These surprises are the most general grist for consideration in Nassim Nicholas Taleb’s most recent book, The Black Swan: The Impact of the Highly Improbable,

a more thorough and extensive consideration than his previous book, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets.

Taleb, literary essayist, Dean’s Professor of Uncertainty at the University of Massachusetts, and mathematical options trader, lays out the foundation for his ideas from his experiences in the financial markets. These experiences lead him to discuss three interrelated themes that he ultimately broadens to an understanding of uncertainty in general.
  1. The Ludic Fallacy: The word "ludic" comes from the Latin ludus, for “games.” Most of us were taught to think about systems that involve uncertainty and chance using structured, discrete symmetries like those found in games of chance, such as craps, card games, etc. Unfortunately, these analogies don’t frequently hold up into real world situations; but because it’s comfortable and expected to do so, we persist in their use. Use of binomial distributions are often a result of ludic framing, as is its continuous cousin, the bell curve (or Normal Gaussian for those more trained in quantitative analysis). These distributions have appropriate applications, but they do not apply to all cases of uncertainty.
  2. Mediocristan/Extremistan: Most of us live in Mediocristan, a land not governed so much by mediocrity, but by a persistent belief in the applicability of a characteristic median to all types of uncertainty. When most of us think of uncertainty in some domain, we have been taught to think about that in terms of the bell curve. Taleb demonstrates that many types of uncertainty can be thought of in this way (Class I uncertainty), but not all of them. One characteristic of uncertainties described by a bell curve is that they do not scale, that is, the probability of occurrence of outcomes far from the mean (and median) fall exponentially fast. In this world, no one event outweighs the significance of all the other events. Many physical processes with natural physical constraints are accurately described by such distributions. Black swans can show up here, but they are extremely rare. Unfortunately, most black swans live in Extremistan, the land where uncertainty scales according to a power law (Class II uncertainty), where it is possible for a single event in a domain to outweigh the significance of all the others. Extremistan exists beyond the Platonic fold, where our typical representations of reality fail to apply. The processes that govern such distributions tend to be social, emergent, financial, maybe not entirely physical. This will have an important bearing on seeing the applicability to maneuver conflict.
  3. Confirmation Bias: Oftentimes we become inebriated with hope, that outcomes will go the way we wish and hope. To convince ourselves that such is the case, we develop narratives from cherry-picked data and information that confirm our bias. Using these narratives as a guide to decision making, we are disabused of our fallacious reasoning in sometimes spectacular ways. Yet we still fail to learn if we are still alive to face the next black swan. “Beware the scalable,” Taleb enjoins.
The scandalous malpractice, as Taleb shouts, is that the rules that apply to Mediocristan are too often misappropriated to understand and manage systems that don’t obey such laws, often at the expense of lives and immense fortunes. The most pointed cases involve applications of options and modern portfolio theory in which billions of dollars of investors’ fortunes are lost by the malpractice of Nobel “intellectuals” who should know better (anyone remember the tragedy of the Amaranth fund or the trading company Long-Term Capital Management?); the poignant disaster of the unsinkable Titanic; the current woes of Bear Stearns and the sub-prime lending industry; and, in Taleb’s case, the decade and a half long civil war in his centuries-long peaceful Lebanon, a war that he and all too many others sadly believed would end soon after it started.

How does understanding the black swan inform our understanding of maneuver conflict? Consider the martial arts version of the Ludic Fallacy offered by Mark Spitznagel.
Organized competitive fighting trains the athlete to focus on the game and, in order not to dissipate his concentration, to ignore the possibility of what is not specifically allowed by the rules, such as kicks to the groin, a surprise knife, et cetera. So those who win the gold medal might be precisely those who will be most vulnerable in real life. (Black Swan, pg. 127)
John Boyd leads us to understand that conflict is often a non-cooperative contest for limited resources by novelty generating agents. Novelty is the black swan of conflict. When we become convinced that our side will win on the basis of strength or numbers, when we believe that the other side will follow our rules of engagement, we will be exposed to cruel novelty. This is precisely what Chet Richards describes as a disease of orientation called fixation: “...attachments to appearances, conclusions, institutional positions, dogmas, ideologies — pretty much anything that keeps the people inside the organization from recognizing that the world is changing or being changed by competitors.”

How do we escape the tyranny of the black swan? We have to learn to do at least two things. First, we have to learn how to really learn, always looking for disconfirming evidence to the self-justifying narratives we generate from the first cousins of confirmation & my-side bias, availability bias, and anchoring that keep us from considering a wide range of possible outcomes, their appropriate degrees of likelihood, and their consequences. We have to learn that images in the mirror tell us scant little about the road ahead. To do this, next, we have to learn how to properly discern systems governed by the laws of Mediocristan from those governed by the laws of Extremistan, and act accordingly.

Nassim Nicholas Taleb delivers what may be the only book on epistemology that I would describe as both a blustery and a rollicking good read. If only all the other text books in philosophy of knowledge I read in school had been so fun. If only all the others had been so honest. In that sense, Taleb's book is its own black swan.

[1] The reader should almost immediately recognize that Bertrand Russell was English and did not observe Thanksgiving. In fact, as Russell himself tells this story, he uses a chicken as the example of the doomed bird. Taleb acknowledges this, but adapts the story to an American audience. [back]

[2] I am reminded of an event in my 9th grade year in which my algebra teacher convinced a sizable portion of our class that the state of Nevada did not exist, that it was a ruse invented by the US Air Force to deter investigation into super secret military programs. His “proof” was a simple question: “Have you ever seen a car tag from Nevada?” For kids in rural mid-Georgia, his scam was based on a rather safe bet that Nevadans rarely drove to our sleepy little town. [back]

Wednesday, March 26, 2008

Spring is here, and we're a little Boyd crazy

George P. Burdell recently called my attention to this article, about how John Boyd's theories of maneuver conflict could be employed in the management of a library. "Wow! Who knew the Dewey Decimal System could be so fun," I exclaimed.

George P. Burdell (a man known by many for his agility and maneuverability) and I have been reading about and participating in discussions about the ideas of the late Col John Boyd since the publication of Boyd: The Fighter Pilot Who Changed the Art of War by Robert Coram in 2004. We're relative newbies to this stuff, so we're still learning.

"You know, George, as I was reading this article, I recalled that you said that the author didn't quite get the OODA Loop, even though he discusses its use quite well."

George closed his eyes and nodded. "Yes, you should check out his resources. he actually points back to an article by Fred Thompson on our friend's, Chet Richards, website as the source for his understanding. The discussion is good, but the depiction of the OODA loop is what bothers me.

As I read the article by Fred Thompson, I had to admit, with George P. Burdell's guidance, that he didn't seem quite to capture graphically the essence of the Boyd Cycle either.

"Maybe Chet needs to provide some gentle counseling to them."

I continued. "So, as I've been thinking about the OODA loop and reading Chet's Neither Shall the Sword, it occurs to me that possibly the best way to describe the OODA loop is not a process loop but as a feedback loop, a type of cybernetic control function."

"In a very simplistic way, I can think of my thermostat-heating system as a kind of OODA loop. The slowest possible configuration I can imagine might involve my running up and down the stairs from my bedroom to my basement to turn my heater off and on in response to temperature measurements I take. In this case, exhaustion and the elements are likely to win since they are always on and relentless. However, if I create an electric feedback loop (as opposed to my running kind) from a thermometer in my bedroom to the switch on my heater in the basement, my heater will respond to the variance in measured temperature to desired temperature faster than before and respond accordingly. In other words, there isn't really a process cycle taking place in the thermostat-heater system in which some agent steps through various commands, that is
  1. Measure temp
  2. Compare to desired temp
  3. Turn on heater for x minutes
  4. Return to 1
The electric thermostat-heater system is actually always on (This is certainly true for analog systems in which measurement is continuous. Digital systems do step through a measure-test process, but so fast that it is essentially continuous. Regardless, the benefit is derived from how fast information is transferred.) The benefit of this configuration is not really related to how fast it goes through process steps, but how fast information (measurements, observations) can be reconciled with the environment and acted upon. Since the transfer of electric signals are faster than heat diffusion, my system 'wins' in that it effectively manages the variance from a desired set point of temperature."

George seemed to go into a trance at this point, and he began to channel the disembodied spirit of Chet Richards, which is odd not so much because Chet is still very much active right here in Atlanta, but because George totally disavows such voodoo-like stuff. "This is a very important observation - it's a dynamic process (for lack of a better word) - like a whirlpool.  It's always 'on.'  Boyd was strongly influenced by the ideas of the late Ilya Prigogine, who used the phrase 'dissipative structures,' of which a whirlpool is a classic example. Absent the continual flow of energy provided by moving water, it can't exist at all. It's either 'on' or it isn't there. Similar thing in biology.  As I understand it, even at rest, nerve cells are firing at a basal rate of around 60 Hz.  To send a signal, that rate shoots up.  So orientation is continuously sending 'signals' to / controlling action via the implicit guidance and control link."

"Your feedback loop analogy is interesting.  To work, the system must not only transmit signals faster than the room heats or cools (decide / act), but the thermostat must register changes much faster than the temperature in the room is actually changing (observe / orient).  This is, of course, the classic control problem:  Make it too sensitive and the pilot will skitter around all over the sky.  If it isn't sensitive enough, or if there are significant lags between input and effect, the pilot can induce uncontrollable oscillations."

I continued with my own thoughts, staring curiously at George, who was now levitating in a rigid prone position above the floor. "In more complex and dramatic human contests, the winner is the one who can process measured information (which metrology tells us is always less than absolutely certain) about the environment, interpret the observation, and reconcile the interpretation with reality in such a way that allows transition from one state to another faster than the opponent who is also doing the same thing. Again, it's not that the winner went through process steps faster, but that the winner was able to measure and interpret information faster to allow for faster, more unpredictable transitions from one state space to another such that its measured state space by an opponent is increasingly variant from reality. In other words, it's not speed along a given dimension that makes me a more effective contender, but the ability to accelerate between dimensions unpredictably."

"Hold on a minute! I think we can describe this mathematically. If we think of a state space as a vector of dimensions of concern of an agent X, representing it as {X}, we can represent the measure (observation) of X's state space by another agent as {X*}. The absolute variance could be given by Vx= |{X-X*}| . X's opponent Y has a state space {Y}, and X's measure of Y's state space is {Y*}. Then X is most likely to win over Y if Vx'' > Vy''. In words, X is most likely to win over Y if the second order time rate of change of the variance between the actual state of X and its measured state space (as observed by Y) is greater than the second order time rate of change of the variance between the actual state of Y and its measured state space (as observed by X). In conflict, you're more likely to win over me if you are able to switch position faster than I can accurately measure and respond to."

Suddenly, the phone rang. George floated over to the phone and answered it. "It's for you. It's Col Chet Richards." Now I really felt like I was in the Twilight Zone. George rotated around his waist-line axis into a head-down position now, arms outstretched, feet pointing to the sky, suspended, unattached to any of his acrobatic wires, four feet above the floor.

"That's a very perceptive observation, Rob, and I think you've penetrated to the heart of the concept - 'broken the code,' as Boyd would say.  Using airplanes, which was the original inspiration, define the state vector to be its altitude, airspeed, and direction.  'Maneuverability' is the ability to change the state vector relative to time, that is to climb/descend, accelerate/decelerate, or turn in any combination.  'Agility' is the ability to change maneuver state, which is the second derivative of the state vector function.  Boyd said that the most agile aircraft wins." Chet's voice was nonchalant.

"And that's true, IF (big 'if') the pilot of the more agile aircraft knows how to use this agility advantage to end the engagement on favorable terms (i.e., shoot the other guy down).  That's really the problem Boyd addresses in his Discourse on Winning and Losing."

"So it's as you said, change your position - or 'state' however defined - more rapidly than the other side can comprehend.  And keep doing this until you create some type of advantage that you can exploit to end the situation on favorable terms.  And you can be sure that you will reach such a position because by operating inside the opponent's OODA loop, you're degrading the ability of your opponent to function as an organic whole. Very shortly, he's going to start fracturing into 'many non-cooperative centers of gravity' that begin to pull and push in different directions (e.g., split into cliques that bicker among themselves).  You'll sense that he's having ever more problems responding effectively - in the business world, products are late and seem outdated when they do arrive (Vista, anyone?), proposals don't correspond to what the client wants, huge amounts of time and money are written off time and again (GM / Fiat) and so on."

"It's knowing what to do...which sounds so simple, doesn't it? AND being able to do it, more rapidly than your opponent can understand.  So that by the time he does kind of understand, you're already doing something else.  It won't take too long before he starts coming physically, mentally, and morally unglued."

"One point - it's not 'more likely to win.'  If one can keep this flow going, one will win.  Hence the title of my book -- Certain To Win: The Strategy Of John Boyd, Applied To Business."

At that point, Chet unceremoniously hung up the phone. George maneuvered his way to the floor, rotating as he did into a supine position.

"Whoa. What just happened?" George mumbled, still groggy from the trans-corporeal channeling.

"I think it's spring, and you've gone a little Boyd crazy."

Global Alarming

The theory of evolution has an interesting relationship to the concept of “global warming.” There is very little public policy debate about evolution these days that has the potential to affect all of us the way the debate about global warming does. In fact, regardless of whether the theory of evolution is true or not (I tend to believe it's mostly true, but that's another discussion for another time), we mitigate against the mechanism. The most strident form of public policy debate regarding evolution is whether it ought to be taught in public schools. I’m sure it does creep into other discussions. But the point is, no one is running around saying that if we don’t do something about evolution soon, we as a species are going to be wiped out. If evolution is true, we ARE going to be wiped out. Our species will evolve into something different over time. We don’t know whether it will be something better or worse. Interestingly enough, attempts to control disease and predation may slow the rate at which our evolution occurs. But the reason that occurs is secondary to the belief in the reality of evolution itself. We just simply don’t like to be eaten and we like to live with as few privations as possible. We attempt to control those things to our immediate preferences.

The theory of global warming is different. The people who are pushing for its acceptance are also saying without much equivocation that it is all bad, that we are doomed because of it. Global warming is not just viewed as a part of the phenomenon of nature, like evolution. It’s all man-made, and worse, it’s all made by evil, greedy capitalist European-descendent men of the West. This is not something that nurturing women like Oprah Winfrey contribute to. The driving political agenda behind this almost deters us from actual serious inquiry because it focuses more on the assignment of blame as opposed to the assignment of cause. We might be able to learn something of importance and respond responsibly if it weren’t for the Chicken Little and Boy Who Cried Wolf nature of the rhetoric employed by the current driving forces of the political agenda.

Personally, I’ve never had to deal with the emotionally traumatic idea that global warming might be true like some people who come to the conclusion that evolution might be true in contrast to specific Biblical interpretations or in contrast to right-leaning platforms. It just seems evident to me that the earth goes through cycles of warming and cooling. It happened before. It will reverse itself again. It will happen yet again. I believe that global warming is occurring. The questions that remain to be answered are:
  • What (or in the current up-cycle, who) is causing global warming? 
  • Is global warming bad for everyone? 
  • Do we understand why it is occurring?
  • Is CO2 the actual physical substance that drives the mechanism?
  • If CO2 does, does that make CO2 a pollutant, even though a significant portion of life breathes it and relies on it for life?
  • If CO2 is not the culprit at the chemical layer, and water vapor is, will we declare water vapor to be a pollutant? Should we outlaw clouds?
  • How long will global warming last (...again. This isn’t the first time it’s happened.)? 
  • If we observe the phenomena but can’t accurately explain the mechanism, will attempts to control it produce even worse unforeseen effects? 
  • How long will it take us to observe the effects of our efforts? 
  • Who specifically should pay for the mitigation? 
  • How much should they pay?

Here’s an interesting op-ed written by a guy who claims he was an atmospheric scientist. I think he might have been. So he might be qualified to make some publicly distributed informed opinion about the issue. In other words, he’s not a second rate politician using this as a platform to advance a comeback in his career. He has some actual training in interpreting the data. Admittedly, I don’t think he is currently conducting primary research.

It’s long, so if you don’t want to read the whole thing, just scroll down to the bottom third entitled “Summary - ...” and read from there. Down near the bottom is another addendum entitled “You’re going to love this.” It’s a picture of skin-layer (top 1 mm) thermal activity surrounding the Antarctic ice shelf. In today’s news at National Geographic there is an ominous story about the ice shelf breaking off with this opening statement: “New satellite images reveal what scientists call the ‘runaway’ collapse of an enormous ice shelf in Antarctica as the result of global warming.” I guess National Geographic forgot to compare their hypotheses against this data set from NASA. If you look at the NASA photographs, you can see that the warming occurs most intensely around the peninsula only and that the interior cooling occurs all the way out to the edges of the continent. There may also be some contributing effects caused by increased local geothermal activity. National Geographic didn’t inform you of that information, though. It’s “...the result of global warming.”

Of course we can all go to our cherished links of editorials and data that prove our position without regard to the disconfirming rationale and data of other sites, much like second rate Bible students do to support some special theological position supported by isolated verses. Of course I want to avoid that. But National Geographic's conclusions compared against the NASA data seems specious. Consider this:
  • The most intense warming trend is around the peninsula, where the ice shelf broke off this morning.
  • The right side of the continent experiences gentle warming.
  • The majority of the continent is cooling or unchanged.
  • The middle is cooling as rapidly as the left peninsula is warming.
  • The left side of the peninsula doesn’t even warm up gradually to the intense area. It’s unchanged! The heat is not accumulating from remote locations.
  • In other words, the intense warming is almost entirely due to something local, not global.

So I’m all for serious debate and inquiry about the cause of global warming as a climatic phenomenon. I think it’s a good thing to know how and why our earth behaves the way it does. But I am totally put out with hysterical rants and false assignment of every significant phenomenon to global warming, especially when those who make the loudest rants and obvious non-sequiturs are the people who have been revealed over and over to have a political/economic agenda that potentially will hurt you and me much sooner than we know with any certainty that the effects of global warming ever will.

That’s the deal, man.

Friday, March 21, 2008