People From Lebanon

"[A]t any point in time, the richest traders are often the worst traders. This I will call the cross-sectional problem: At a given time... the most successful traders are likely to be those fit for the latest cycle."

"Professor Karl Pearson... devised the first test of nonrandomness... He examined millions of runs of what was called a Monte Carlo (the old name for a roulette wheel)... He discovered... the runs were not purely random. ...Philosophers of statistics call this the reference case problem to explain that there is no true attainable randomness in practice, only in theory."

"Veteran trader Marty O'Connell calls this the firehouse effect. ...[F]iremen ...who talk to each other for too long come to agree on many things that an outside, impartial observer would find ludicrous..."

"I do not dispute that arguments should be simplified to their maximum... but people often confuse complex ideas that cannot be simplified into a media-friendly statement as symptomatic of a confused mind. ...MBAs tend to blow up in financial markets, as they are trained to simplify... beyond... requirement. (...I am myself the unhappy holder of the degree.)"

"It does not matter how frequently something succeeds if failure is too costly to bear."

"Even the fathers of statistical science forgot that a random series is bound to exhibit some pattern... Pearson was among the first scholars interested in creating artificial random number generators, tables one could use as inputs for... simulations (precursors of our Monte Carlo simulator). ...[T]hey did not want these tables to exhibit... regularity. Yet real randomness does not look random! ...A single random run is bound to exhibit some pattern ..."

"At no point during his ordeal did Nero think of himself as 72% alive and 28% dead."

"Probability is not about the odds, but about the belief in the existence of an alternative outcome, cause, or motive."

"We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract."

"Wittgenstein's ruler: "Unless you have confidence in the ruler's reliability, if you use a ruler to measure a table you may also be using the table to measure the ruler." (page 224)"

"[E]conomists are evaluated on how intelligent they sound, not on a scientific measure of their knowledge of reality. (page 85)"

"[E]conomics is a narrative discipline, and explanations are easy to fit retrospectively. (page 257)"

"The information that a person derived some profit in the past... by itself, is neither meaningful nor relevant. We need to know the size of the population from which he came. If the initial population is 10,000 managers, I would ignore the results."

"Let us use 10,000 fictional investment managers... [O]nce a manager has a single bad year, he is thrown out of the sample. ...[T]oss a coin; heads and the manager will make $10,000 over the year, tails and he will lose $10,000. ...We have, in a fair game, 313 managers who made money five years in a row. ...[I]f we throw one of these ...into the real world we would get ...comments on his remarkable style, his incisive mind... His biographer will dwell on ...a great mind in the making. ...[S]hould he stop performing (...his odds ...have stayed at 50%) they would start ...finding fault with his dissipated lifestyle. They will find something he stopped doing, and attribute his failure... The truth ...he simply ran out of luck."

"A trader's mental construction should direct him to do precisely what other people do not do."

"Optimism, it is said, is predictive of success. ...It can also be predictive of failure. Optimistic people... take more risks as they are overconfident of the about the odds; those who win show up among the rich and famous, others fail and disappear from the analysis."

"[B]ecoming more rational, or not feeling the emotions of social slights, is not part of the human race... not with our current biology. There is no solace to be found from reasoning..."

"[N]ews... is full of noise and... history is largely stripped of it."

"Mixing forecast and prophecy is symptomatic of randomness-foolishness..."

"The major problem with inference... is that those whose profession it is to derive conclusions from data often fall into the trap faster and more confidently... The more data we have, the more likely we are to drown in it. For common wisdom... is to base... decision making on the following principle: It is very unlikely for someone to perform... well in a consistent fashion without doing something right. ...[I]f someone performed better... in the past then there is a great[er] chance of performing better than the crowd in the future... But... [a] small knowledge of probability can lead to worse results than no knowledge at all."

"I try to make money infrequently, as infrequently as possible simply because I believe that rare events are not fairly valued, and that the rarer the event, the more undervalued it will be in price."

"Over a short time increment, one observes the variability of the portfolio, not the returns. ...[O]ne sees the variance, little else. ...Our emotions are not designed to understand the point. ...I deal with it by having no access to information. ...I prefer to read poetry."

"I always remind myself that what one observes is at best a combination of variance and returns, not just returns."

"A mistake is not something to be determined after the fact, but in the light of the information until that point."

"I... found a significant advantage in selecting aged traders, using as a selection criterion their cumulative years of experience rather than their absolute success... [O]lder people have been exposed longer to the rare event and can be, convincingly, more resistant to it."

"[T]he epic poet did not judge heroes by the result... their fate depended on totally external forces... Heroes are heroes because they are heroic in behavior, not because they won or lost."

"Delivering advice assumes that our cognitive apparatus rather than our emotional machinery exerts some meaningful control over our actions."

"It is now the scientific consensus that our risk-avoidance mechanism is not mediated by the cognitive modules of our brain, but rather by the emotional ones. This may have made us fit for the Pleistocene era. Our risk machinery is designed to run away from tigers; it is not designed for the information-laden modern world."

"I will use statistics and inductive methods to make aggressive bets, but I will not use them to manage my risks and exposure. ...[A]ll the surviving traders I know seem to have done the same. ...[T]hey make sure the cost of being wrong is limited ...they know ...which events would prove their conjecture wrong and allow for it ...They would then terminate their trade. This is called a stop loss ...I find it rarely practiced."

"What is easier to remember, a collection of facts glued together, or a story, something that offers a series of logical links? Causality is easier to commit to memory. ...What is induction exactly? ...It is very handy, as the general takes much less room in onel's memory than a collection of particulars. The effect of such compression is the reduction in the degree of detected randomness."

"There are hordes of thoughtful journalists... [I]t is just that prominent media journalism is a thoughtless process of providing the noise that captures people's attention and there exists no mechanism for separating the two."

"[W]e like to emit logical and rational ideas but we do not enjoy this execution."

"Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab."

"Maximizing the probability of winning does not lead to maximizing the expectation from the game when one's strategy may include , i.e., a small chance of a large loss and a large chance of a small win. If you engaged in a Russian Roulette-type strategy... you are likely to show up as the winner in almost all samples—except in the year when you are dead."

"[A]ge is beauty. ...[M]y instinct is to value distilled thought over newer thinking, regardless of its apparent sophistication—another reason to accumulate the hoary volumes by my bedside... For an idea to have survived so many cycles is indicative of its relative fitness. Noise, at least some noise, was filtered out. ...[P]rogress means that some new information is better than past information, not that the average of new information will supplant past information..."

"Unlike a well-defined, precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality."

"Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence.” Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them."

"Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control)."

"An idea starts to be interesting when you get scared of taking it to its logical conclusion."

"Academia is to knowledge what prostitution is to love."

"In science you need to understand the world; in business you need others to misunderstand it."

"Using, as an excuse, others’ failure of common sense is in itself a failure of common sense."

"Procrastination is the soul rebelling against entrapment."

"When we want to do something while unconsciously certain to fail, we seek advice so we can blame someone else for the failure."

"It’s harder to say no when you really mean it."

"Asking science to explain life and vital matters is equivalent to asking a grammarian to explain poetry."

"You exist if and only if you are free to do things without a visible objective, with no justification and, above all, outside the dictatorship of someone else’s narrative."

"People used to wear ordinary clothes weekdays, and formal attire on Sunday. Today it is the exact reverse."

"The book is the only medium left that hasn’t been corrupted by the profane."

"It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards."