Wisdom of #Aphorisms & #Metaphors (A&M)-
There is a lot of nuanced interpretation in A&Ms. They have contextual inferences. Often, on a stand alone basis, they give an incomplete picture and one needs to look at the context & the larger picture in which they are applicable...
There is a lot of nuanced interpretation in A&Ms. They have contextual inferences. Often, on a stand alone basis, they give an incomplete picture and one needs to look at the context & the larger picture in which they are applicable...
Also, often there are a set of A&Ms which are contradictory. In spite of the contradiction, they are both right. Again, one needs to understand the context and larger picture to go beyond the superficial prima facie contradiction.
It is one thing to know these A&Ms, and totally other to understand the nuances.
In due course of time, I intend to append a lot of examples to illustrate this.
In due course of time, I intend to append a lot of examples to illustrate this.
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Bird vs Marshmallows:
A Bird in hand is better than two in the Bush - This idiom is often used to confer the idea that it is better to be content with what you have rather then vying for more at the cost of losing it all.
Bird vs Marshmallows:
A Bird in hand is better than two in the Bush - This idiom is often used to confer the idea that it is better to be content with what you have rather then vying for more at the cost of losing it all.
At the other extreme is this famous Marshmallow Experiment – a study on delayed gratification. In follow-up studies, correlations were found between the results of the marshmallow experiment and the success of the children many years later....
...It showed that "preschool children who delayed gratification longer in the self-imposed delay paradigm, were described more than 10 years later by their parents as adolescents who were significantly more competent.
So, what is right…a bird in the hand, or double Marshmallows with delayed gratification. The answer, as I wish to illustrate, is nuanced. These are case specific. One needs to be careful in applying them in lives.
(4/17)
(4/17)
One factor that creates the nuance, is uncertainty. In domains of low uncertainty, the Marshmallow paradigm works. It was very certain to the child in the experiment, that the additional marshmallow will be given;
it was only a question of keeping patience (which effectively was keeping oneself busy, and not looking at the tempting Marshmallow at striking distance). Induce an element of uncertainty…tell the kid that he can have one marshmallow right away...
...But, if he is willing to wait for a 10 minute for a TT match between two players A & B – if A wins, he gets 3 marshmallow, if B wins, he gets none....
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...chances are under such uncertainty, the kid would gulp the single marshmallow initially on offer, before the 2nd condition is even fully explained.
Daniel Kahneman & Amos Tversky postulated “The Prospect Theory”
1) Under uncertainty, people tend to be risk averse in domains of gains.
2) People overweight outcomes that are certain over those that are merely probable....
1) Under uncertainty, people tend to be risk averse in domains of gains.
2) People overweight outcomes that are certain over those that are merely probable....
...Probabilistic changes in the mid ranges are undervalued relative to equal changes that transform an event from probable to certain.
(10/17)
(10/17)
Now, in the specific case of #Investing, you will find both paradigms been quoted & discussed. There are enough flag bearers for being content with the bird, while there are equally large number of investors imploring you to look for compounding the “marshmallows”.
The answer is (as you can guess by now!), nuanced. It makes sense to look for the additional marshmallow – more bang for the buck. But, only when you have a process to:
1) tell signal from noise; if you hear noise, wait for the additional marshmallow;...
1) tell signal from noise; if you hear noise, wait for the additional marshmallow;...
...if you hear signal, you pocket the bird in hand. Best of the systems (including our sensory system, for example), are designed almost exclusively to information (signal). They ignore predictable events, but orient rapidly to novel ones, a la Sherlock Homes.
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2) maintain a dynamic way to respond to evolving situation. Look for an additional marshmallow, but if the looking degenerates from view to hope, be swift to bag the bird in the hand
"There are three characteristics that are important in navigating uncertainty: resilience, developing options and acting quickly. At the end of the day, you need resilience to be able to survive your mistakes. You want optionality to change...
...your mind once more information comes in, and you need to act quickly once you know (your path). This is probably the most powerful combination to have when you’re facing unusual uncertainty - and has huge implications about how you think about the world." - Mohamed El-Erian
To conclude, it’s one thing to know these A&Ms; it’s another to comprehend the nuances, leave alone applying them in life! Next time you hear someone using these, watch out for the nuances.
More illustrations to follow...
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More illustrations to follow...
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