It starts with is a discussion between Kahneman and Taleb. A psychologist and empiricist. Taleb is quite known for his criticism towards psychologists but Kahneman seems to one he respects.

I believe his chief criticism is that they conduct unrepeatable experiments (some say this is why social science cannot be a science) with a controlled environment and use those “findings” to generalize to the greater masses. An example is loss aversion.

Many of us have heard about how people find losing money more painful than winning money. This is dubbed irrational because it leads people to shy away from bets where one might have a statistical advantage. Like doing coin toss experiments where if you get heads you win $250 but if it’s tails you lose $100. Given the positive expected payoff, you should play. But most don’t and psychologists say this is irrational.

Taleb makes a point that these experiments ignore context. The context that most of these researchers limit subjects to university students. You know, the people who are in debt early and go bonkers over events with free food.

It’s true, I wouldn’t play that coin toss game either if I was in the first year of university again. Because $100 would be a lot of money for me and screw what the statistical advantage is. It’s rational for me given my financial circumstances….life circumstances to not take that bet. It would be irrational to take it in fact. To gamble on chance with money that is material.

One can thus imagine this experiment might yield strikingly different results if the university professors only had a sample size of millionaires. Some will say it’s a random sample but is it truly random? No, it is not. It probably will never be.

The fact is, most (if not all) psychology research will ignore the chaos that surrounds everyday life. But without being able to account for the complexity of everyday life….such findings on whether people are rational or irrational are questionable.

Kahneman wonderfully turns this on Taleb by referencing the turkey story from the Black Swan book. The turkey story refers to the life of a turkey. The turkey is fed every day by the farmer. It is treated extremely well every day. The turkey thinks it is living a wonderful life because it is taken care of and treated like a king. Then one day…..the farmer comes and kills the fattened turkey for Thanksgiving.

Taleb uses this as the analogy for negative Black Swan events we should want to avoid. That people will irrationally prefer a constant amount of pleasures and risk a massive negative event that will cause ruin. Naturally, I thought to myself “oh yeah I don’t want that. Yep. If you want to play the game you first need to survive.”

But Kahneman suggests to Taleb that people might actually prefer to live like the turkey. That even knowing the end, people will still choose to live like that. It makes me think this too can be a rational choice for the person in question.

It’s true….if I proposed to my friend that you’ll live a life where you will just get money. A steady stream of money and you can live a comfortable life. But you might meet this really shitty ending where maybe you’ll die or you’ll lose everything. I wouldn’t be surprised if someone said that sounds like a neat life because “we’ve all got to die eventually.”

This connected with a thought about certainty vs uncertainty. Because we love certainty. That’s why people like having a salary. It gives a feeling of certainty (even if it is merely an illusion of it).

An interview with Mike Green, a quant investor, pointed out how we actually live in a life that is as certain as it has ever been. When compared to human history it is true.

I live with relatively high certainty I won’t be randomly murdered, robbed, kidnapped tomorrow. I know where I’ll sleep the next day. I know where I can go for food, healthcare, etc… I know I can reach the important people in my life with all kinds of tools.

Compared to 1,000, 100, or even 50 years ago…..we live with more certainty in this world. We also live in a world where conventional wisdom tells people to specialize because that’s what keeps on employable. Also, we can outsource many facets of life to others who specialize.

Specialization becomes a self-fulfilling cycle and creates greater certainty. In many ways, globalization is…the result? Or is it the cause? Or a sibling?…. to specialization. They just go hand in hand. And that creates higher fragility to the entire system.

In many ways, people’s awareness of the greater connectedness of the world (or how it has become so through globalization/specialization) has created a mindset that things are more uncertain than ever before….when in fact we have the highest degree of certainty now and we just had higher levels of ignorance before.

On the other side, the psychologists/researchers who advise governments and leaders based on studies of certainty are based on strict parameters….that can’t be replicated in the real world and don’t actually convey what is truly rational/irrational but it’s being applied with certainty.