You're Allowed Cynical Beliefs But Not Cynical Reactions

Society rewards cynical beliefs and optimistic reactions while at the same time it punishes optimistic beliefs and cynical reactions. 

Consider that a politician is given wide latitude to sow distrust in the system and the powers that be but would be viewed as naïve for believing things work by and large pretty well and our default position should be charitable benefit of the doubt. Similarly a politician would be expected to embrace a development as beneficial to his side while being seen as a sour puss or exhibiting sour grapes to downplay a successful event.

This is not just a political phenomenon. CEOs must be grounded realists who only crack a smile when championing an outcome. Otherwise, they should be on the lookout for the next problem. Yet if a problem arises, they get no credit for being dismissive.

Perhaps the biggest exemplification can be found in everyday life where nobody wants to hear about the downside after a positive moment and at the same time nobody wants to hear how it will probably all be okay in the face of fear. Rather one should doubt the future and champion any moment of progress while rejecting hope and brushing aside any consideration that ulterior motives may be at play.

Social media amplifies these truths orders of magnitude due to the network and feedback-amplification effects. 

I am a bit ambivalent on this in general. I both fight and embrace my personal tendency toward cynicism. It can negatively bias one's thought process like a disease, but it can also provide healthy critical analysis. A good journalist has a proper balance in regard to cynicism. They are not a cheerleader for their beat nor a pure curmudgeon. 

We are all and always have been journalists in one way or another to greatly varying degrees of quality. Today's technology makes this more apparent, but it has always been the case. We gather facts, analyze data, and relate stories. Some are better than others and some do it for pay while others do it for pleasure (or shear necessity of living in a society). 

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2021-11-11 Addendum: As a personal example of this, I offer how as a fan of OU football any optimistic outlook I hold is seen as being a “homer”, a derisive label. At the same time a cynical take on the team’s prospects is seen as wise and level-headed. Further, if the team does well, it is widely viewed as uncouth to not give them credit for their success. Even more so, if they do poorly, one is not allowed to point out ways the opponent got lucky, etc.

I do not find these social norms to be desirable, tbs.

What You Think Versus How You Think

What is more important: what you think or how you think? 

To what degree is it fair to hold people accountable for what they think. Cognitive dissonance should be relative to rational ignorance. It seems unfair to hold people highly accountable for beliefs and other thoughts they shouldn't have legitimately thought much about or simply haven't had much exposure to. Further, what you think is subject to social desirability bias and group identity--factors that are so ingrained as to be a bit out of our immediate control. I think of that not as a pure get-out-of-jail card for bad thoughts (or thinking--see below) but rather as a relaxation of culpability.

How someone thinks implies an examination of reasoning, and that seems to be a much more legitimate way to evaluate thinking. What someone thinks should ultimately be governed by how they think not the other way around. Unfortunately we tend to give a very shallow evaluation of others including leaders especially politicians by getting hung up on what they think.

Consider this 2x2 analysis:

In this framework there should be high stakes if the thinking that went into an eventual thought was thorough (deep/rich), but low stakes if the thinking was not. We are rewarding good thoughts and punishing bad thoughts, but the degree to which we do so is dependent on the thinking (process) that created and supported the thought (conclusion). One implication is that more intelligent people should bear a greater burden for their thoughts. 

Another is that a bad conclusion from a thorough process should carry higher blame than would a bad conclusion from a shallow process--the bigger the inconsistency, the bigger the crime. Don't confuse that with allowing a thinker to get off easy for a bad thought when they should have thought more deeply before forming a conclusion. For that we have to change the framework.

To wit: the framework is transposed a bit when we switch from considering thought accuracy (is the thought right, correct, good, moral, etc.) to considering thought significance.

Now the framework assigns greater scrutiny to the interaction of the level of thinking and the meaningfulness of the thought rather than the level of thinking given the ultimate outcome. One obvious implication is that thoughts of trivial/minor significance deserve low stakes regardless of the reasoning level that goes into forming them. 

It is easy but false to assume all thinking should be deep/rich. That is simply not possible. It is out of our grip most of the time. We either don't have the time or the mental faculty or both. Therefore, one implication is don't hold confidently to high-significance thoughts if you did not employ deep/rich thinking in deriving them. Another implication is don't put deep/rich thinking into trivial/minor thoughts. 

How does this compare to the real world experience? I think level of reasoning is generally a non factor in most people's framework most of the time. Rather it all comes down to does it feel good and is it me or like me:

My claim is that reasoning is given very little credit for most people most of the time. Perhaps this is defensible to a degree given the vast ulterior motives we all possess. While that is an apt explanation, it is not a reasonable justification. 

Related: See Arnold Kling's review of The Mind Club.  

Justifying Bitcoin (and Crypto) Prices

Steve Landsburg recently asked on his blog for anyone to offer plausible reasons for why cryptocurrency should have any value at all beyond just being in a speculative bubble. (Aside, you can tell how behind I am in my reading, etc. by the date of this reply.) 

Here is what I left as a comment serving as my attempts.

Attempt #1: Suppose Steve decides he wants to retire and move to Paradise Island. He plans to liquidate his assets including current real estate to purchase a dream place on the beach. He is not alone as many are contemplating and acting toward just such a move. At the same time current real estate owners on Paradise Island are looking to cash in on the land run by selling existing places including raw land. Unfortunately, many scamsters abound looking to take advantage of a key information asymmetry--namely, that it is extremely difficult to determine who actually holds title to actual land. Fortunately, there is one source (a cryptocurrency ledger) that can validate with complete certainty which of these are legitimate sellers and therefore legitimate potential transactions giving Steve (and all others) good title to any purchase. [Note: While this is an extreme case, adjusting for real-world frictions and the availability of alternative solutions simply lowers rather than extinguishes the value of the ledger.]

Attempt #2: Octan Corporation is a multinational firm with extensive interests throughout the globe. As such it has continual needs to transfer liquid assets (call it money) between subsidiary accounts and with arms-length third-parties all of which can be domiciled in different states and nations with custody at various third-party firms. In the current/old world this is costly in a number of respects: It has limited availability since banking systems are open only at certain times and days of the week, it is slow since the clearing process is built on old architecture with a cumbersome and time-intensive trust/verification procedure, and it is explicitly expense in fees as a result of these prior two reasons as well as the regulatorily-driven limited competition for these services. In the world of cryptocurrency these costs are substantially reduced. Literally Octan can send $1,000,000,000 across the world at 11:59 PM on a Saturday completing the transaction in 10 minutes for <1/100th of current wire costs in fees.

Attempt #3: Steve has many opinions and predictions about the world. Unfortunately, talk is cheap. Many dispute his contentions with vigor. However, Steve is actually very often correct. To his frustration Steve's detractors seem to vanish once the reality plays out in Steve's favor. And even if they are around for Steve to claim victory, they usually move the goalposts rarely admitting defeat. This among so many other facts like lack of liquid collateral or basic counterparty risk means ex ante bets are rarely able to be made. Fortunately, cryptocurrency allows trustless contracts to be written between these parties creating vast potential markets and submarkets for predictions and hedging. 

Attempt #4: Steve loves using his credit and debit cards. He is a "points guy" who has the obsessive hobby of finding and exploiting all the various opportunities including arbitrages that exist for non-cash transaction rewards programs (e.g., frequent flyer miles bonuses, cash-back rewards, etc.). Steve is like all consumers, though, in that he doesn't like transactions fees. Fortunately for Steve, many of these fees for him are being cross-subsidized by naïve customers who are not maximizing their points if using credit/debit cards at all. The fees are transactions costs representing the true costs of validating and facilitating financial transactions. These add up to hundreds of billions of dollars annually. Fortunately, cryptocurrency offers the potential to cut these costs dramatically by creating "trustless" alternative clearing options. It is trustless in that the two or more parties to the transaction do not have to know each other as the network ledger validates the funds going from A to B are both good and compete (irreversible). [Note: While today transactions on various crypto networks like Bitcoin seem painfully slow (minutes or longer), there are options of subnetworks that can reduce these to seconds. Also in anticipation of a common objection, the price volatility risk can be eliminated by adding entry/exit transactions for both parties on both ends of the crypto exchange (e.g., dollars for Bitcoin for customer A, Bitcoin transfer from A to B, Bitcoin for dollars (or other) for seller B.).]

The Reopening - The View from Hawaii

Earlier this month my family and I spent a week in Maui. In case you haven't heard, it is really, really beautiful--a great vacation spot. Hot take, I know. Here are some observations:

• Two underappreciated qualities that give Hawaii its magical appeal are the remoteness in distance and time. You can go to lots of amazing islands in this world, but almost none are as physically remote as Hawaii. Related to this but not necessarily following except for the particular way our world is populated is the fact that it is very temporally remote. The rest of the world is asleep or done with their day when yours on the island is starting. This forces one to shrink their world down to a few mountains in the vast ocean abyss.
• The reopening from the perspective of Hawaii is perhaps unsurprisingly behind what I've otherwise experienced. Anecdotally this was supported by other travelers who came from places more locked down than Oklahoma such as New York and California. They too were surprised by the policy phase Hawaii was still in.
• Related to this was the part that both caused anxiety for me in preparing for the trip and frustration for me in navigating the travel. This is the Hawaiistan aspects whereby it was as if I were travelling to a third-world country. At the time when we were there (this policy was recently relaxed) the only vaccinations that were meaningful were those given on the island. The same shot from Pfizer, et al. given in another U.S. state gave no privilege--every entrant had to get the same COVID test done before arriving and not more than 72 hours before arrival. Testing in a pandemic is critical, but the various rules laid out for Hawaii, which I won't bother to fully go into here as others have covered this, and the way they were implemented had more to do with health theater and signaling than they did with science.
• This should probably not be a surprise given that the Maui mayor thought it helpful/necessary to beg airlines to bring fewer tourists to the island. I guess that's how they solve for the equilibria in banana republics.
• Speaking of banana republics and their policies, Hawaii generally and Maui specifically suffers from two self-imposed penalties--development restrictions and the Jones Act. 
• On development - I understand that there is a bootleggers (resorts, others in the tourist industry, and current homeowners/developers) and Baptists (current residents who in many cases are self-described natives and who don't want things to change) story going on. I'm not sure everyone close to this issue does understand that. I am sensitive to the good, bad, and sometimes ugly history of how Hawaii is now a U.S. state. Blanket restrictions on and impediments to development imposed by government are not the solution. They are economically harmful making Hawaii poorer than it would otherwise be, which of course harms the poor the most. They are also culturally destructive creating a hostile environment of us versus them as opposed to a constructive environment of negotiated compromise and agreement. Finally they are morally repugnant when they allow the politically powerful to violate property rights.
• On the Jones Act - this is "self-imposed" in that Hawaii is a U.S. state and this is a U.S. federal government policy. Hawaii itself is not responsible for it. However, why isn't the Hawaiian delegation to Washington and Hawaiians as a politically lobby effort not storming the Capitol on this one (figuratively speaking, of course)? 
• Enough griping. Hawaii is awesome. The people I encountered (Hawaiians and tourists alike) were delightful. Aloha is not just a slogan. It is a warm and wonderful way of life that is embraced and practiced everywhere you go. I felt welcomed and appreciated in Hawaii by virtually every person I had the pleasure of engaging with.

A few recommendations:

• Do some homework before travelling to decide how much of an activity vacation you want (there is plenty to do) and how much of a relaxation vacation you want (it is easy to not have enough as it takes time to drive, boat, walk to various destinations, everyone moves a bit slower than you might expect, and at every turn there is a siren call to spend more time).
• Because of the odd time zone Hawaii has been placed in (it "should" be a hour or two earlier there when compared to most places) and because of the typical jetlag for U.S. travelers, Hawaii wakes up early and you will too. So it follows that it turns in for the evening before you probably expect. Just chalk it up to following Ben Franklin's advice and hope that it adds some wisdom to your life.
• We stayed in Wailea on the southwestern shore. You can't probably go wrong between this area and the rival northwestern shore, but I do think it is easier to traverse from the SW part of the island. 
• We stayed at The Fairmont, which is highly recommended provided you want a resort experience and a resort bill at the end.
• The Road to Hana is highly demanding but can be highly rewarding. Planning here is key. There are good apps to guide your journey. You won't get it all in--the more you stop, the less distance you'll get. We actually went the entire loop around the "dangerous" undeveloped part of the island. It was truly treacherous at times but still doable for a minivan. Not sure if I'd recommend it as opposed to reversing course to head back home. But doing so wouldn't have saved us any time since I wanted to make it to the half-way point of The Pools at 'Ohe'o. 
• From a prior trip, I can highly recommend biking down Haleakalā. 
• Maui Pineapple Tour was very interesting and fun. I've never seen Dole's operation, but I image it to be on the other end of the production frontier--Maui Gold is charmingly but surprisingly a trip back to farming circa 1950.
• Iao Needle state park is underappreciated. For the intrepid, consider disobeying the signs and hiking the prohibited trails. It is an awesome scenic adventure. 
• Unfortunately I didn't get to try the many famous and/or recommended dining spots that are still on my Want To Go list. The two at the hotel, Kō and Nick's Fishmarket, were very good but . . . did I mention resort prices? The labor shortages were most acutely seen here as perhaps only 1/3rd of Ko was open and service in general throughout the island was poor.
• For the price of airfare (explicit cost, time in the air, and jetlag effects) plan to stay in Hawaii for as long as possible--at least one week. There is always more to do including doing nothing.

Aloha!

What Does NIL Imply for Parity in College Football?

The evil empire known as the NCAA has now finally relaxed its rules on amateurism allowing college athletes to earn compensation off of their name, image, and likeness rights (henceforth, NIL). How sweet of them. It only took a rare 9-0 shutout loss at the Supreme Court to get them to change their ways. 

Cue the pearl clutching as the latest moral fear becomes a moral panic--God forbid someone in America would make money off of their talent.

Yes, times they are a changin', and for the better. There will be losers, though. Eventually, it is likely the ones losing advantage will be all of those who have been profiting off of players not being compensated. This list somewhat in order includes: coaches, administrators, athletes in all sports other than football and men's basketball (mixed bag here as there will be lots of NIL opportunities for many of them), fans, and the universities in general.

For this post I'd like to briefly discuss how this might affect competitive balance (aka, "parity") in college football and men's basketball. 

If by parity we mean anybody can beat anybody (i.e., "any given Sunday"), then the initial and perhaps enduring apparent result will be increased parity.*

If by parity we mean league continuity, then the apparent result will be decreased parity.

Let me explain. Allowing NIL compensation adds a dimension along which teams can compete. A classic analogy is when the CAB under the Carter administration ended price controls allowing airlines to compete on price. This was very good for consumers in the long run and very disruptive to airlines in the short run. 

In this same way NIL comp will add a competitive dimension to the competition for college athletes and thereby increase variance in those athletes' sports. An increase in variance means instability. That instability will have two features:

1. It will give new and added opportunities for lesser, secondary teams to challenge incumbent blue bloods. Potentially Oklahoma State now has more opportunity to challenge Oklahoma in football.
2. It will open up more risk of failure especially for lesser, secondary teams. This failure can be in the more obvious form of shutdown but also in the harder-to-perceive version of loss of status. Hypothetically the difference is Temple dropping football altogether or going down to a lower, true-amateur level versus Penn State falling from prominence. 

The first case will look like more parity. The second case will look like less to the causal observer. This is why I referred above to these being the "apparent result". I would guess that the second will come to dominate the narrative as many will long for the good old days when anybody could compete in college football and men's basketball. You know, back when Alabama always played Clemson for the national title . . .

*If you think complete parity is in any way desirable in sports, you don't understand sports in the least. Nobody gathers around to watch guys flip coins.

The Reopening - The View from Las Vegas

As a reward to myself for blogging every day in May, I travelled to the place that is at the same time the most and the least American city, Las Vegas. It had been over two years since my last trip there, Super Bowl 2019. Some observations:

• It is largely unchanged at first appearance. The casinos are packed. Restaurants are hard to get into. Crowds are abundant.
• A studious observer will notice that even though casino open tables are full with high minimums, there are numerous ones, banks in fact, that are unopened. My guess as to the primary cause for this would be the labor shortage with depressed actual or forecasted demand as a secondary contributor. 
• Speaking of the labor shortage, the struggle is real. I can support Scott Sumner's prediction and observation that labor supply is low and as a result service is poor. Let's be clear, everyone I encountered from a service perspective (waitstaff, front desk, concierge, retail clerks, etc.) did a great, friendly job. But service is SLOW. Restaurant wait times are crazy (more on this in the business thought below) and reservations are required--we almost had to slum it one night at Shake Shack but fortunately got into Din Tai Fung (more on where I ate far below). There are empty tables at "full" restaurants--not a strategically spaced COVID thing. Some have yet to open. Calls to concierge and guest services had very long waits on hold. And note this: those enormous signs out front on the strip, very valuable advertising real estate, had in their rotation help wanted ads among show previews, featured restaurants, and "...the loosest slots on the strip...". 
• One of the reasons I went and took the whole family (more on this in the culture thought below) was to see the shows. Sadly, I was a bit early in my winter planning for this trip as the primary show draw for us, Cirque du Soleil, is not ready to open yet. This makes sense as it takes time to get the band back together so to speak. 
• Masks were sparsely seen among the patrons. Probably 10% wearing them at most. Various staff is more like 75%. This was different at the poker tables as only about 20% of dealers wore them, but also about 20% of players. For the players I think this was a combination of a desire to use masks strategically as well as California CDS (just anecdotal but supported by several examples--young poker players from California and elsewhere were masking even though they admitted they were vaccinated). 

Feel free to file several of the above under either or both 'lockdowns have long-term consequences' or 'pandemics have long-term consequences'.

Two more thoughts: one on culture and one on business.

1. People have always asked me when I tell them I'm taking my kids to Vegas "What is there for kids?". The answer is lots, but it is deeper than that for me. The world is for all of us. I don't subscribe to the idea that we should shelter kids in incubation chambers until they are ready for the real world. The real world gets them ready for the real world. Yes there are obvious limits. Yet this isn't simply a disagreement about a matter of degree. I think there are hard and soft lines between what a kid should and shouldn't be exposed to. People including if not especially kids are antifragile. We walked in the heat (108) as well as in the air conditioned resorts. We saw the beautiful people among the beautiful gardens of Bellagio as well as the desperately troubled on the decidedly rough sidewalks. Of course we did not attend a strip club. At the same time I did not hide their eyes at the scantily clad girls (and guys) selling groupie photo ops. Piff the Magic Dragon's show was excellent with the adult language that is not generally my 9-year-old daughter's vocabulary. I think my kids saw repeated great examples from me and my group and many others we encountered that a Las Vegas experience can be great fun while still being responsibly and reasonably behaved and coexisting with bad, excessive, undesired behavior all with the attendant consequences.
2. As mentioned above, there were long wait times for restaurants among other things. Some of this is a temporary phenomenon that will abate as the reopening completes. Yet some of it is an enduring problem. First some history: In the mid 1970s William Bennett and William Pennington began transforming Las Vegas by developing a more family-friendly environment and a more expanded idea on what the Vegas bundle should include. Add to this the innovations Steve Wynn developed. Gradually the idea that Vegas should be stingy rooms, cheap food, limited shows, and free drinks all with the desire to get gamblers gambling gave way to the idea that these other areas could be profit centers themselves and of greatly higher quality and variety. Then came the metric revolution advanced greatly by Harrah's so that the casinos could understand their customers better tailoring the experience more individually (profit maximizing price discrimination). For a long time I yearned for the casinos to recognize and reward me for not just my gaming but also for all the other revenue I was bringing with me (hotel room, restaurant spending, show attendance, etc.). Slowly this has finally been happening to where on this past trip almost all my high-end food spending is credited to my value as a customer. But there are still unclaimed chips laying on the casino floor. The OG business model dies hard. Our room at Aria was very nice, but still lacked some basic desires. I would have liked and used a minifridge that was not stocked with high-priced items with a hair-trigger system ready to charge me for an inadvertent nudging. Keep that there, but give me another one that is empty--maybe at an upcharge. How about a coffee maker or Nespresso in the room? Presumably the casino is thinking they want me out of that room on the casino floor or at the pool ordering drinks or in a restaurant. However, keep in mind they definitely do offer room service. More to the point think about the tradeoff. Instead of popping a K-cup right out of bed, I went downstairs to Starbucks in the Promenade waiting over 30 minutes in line. The wait outside the popular Salt & Ivy for brunch was >1 hour. This is not productive time for the hotel/casino. People who were not waiting right outside the restaurant looking at their phones instead were walking away to find another place probably in another property. Waiting on queue is a dead-weight loss in need of a creative, profitable solution.

Finally, here are the places where we ate with all being recommendable:

• Bardot Brasserie
• Din Tai Fung
• Salt & Ivy
• Gordon Ramsay Pub & Grill
• Mon Ami Gabi
• Eataly
• Hash House a Go Go

The Rules of Investing Club

1. Stay invested - Don’t time the market. Timing the market is not just impossible. It is multiplicatively destructive in two ways: bad decisions compound mathematically and the likelihood of mistake compounds with attempts.
• Sub-rule - Know what this means. It applies when the market is “down” and when it is “up”. What makes you think you can define these? What makes you think you’ll both get it right on the exit/entry (at least twice) and have the nerve to make the proper moves at that time. Also, wouldn’t timing imply buying low? So why are you bailing after a crash?... oh, because even though you didn’t see the downturn coming up until this point, you now can see definitively that a further decline lies ahead.
2. Keep a cash reserve equal to X months expenses - X is up to you. A typical rule is 6 months, but mileage will vary. Be sure to include access to credit as a buffer as long as you also take into account that the event that causes you to tap into this safety reserve might also be damaging your credit access. Notice how this rule helps with adhering to the first rule.
3. Diversify - The only "free lunch" in investing as it allows for (some) risk reduction without return reduction (up to a point) when done properly.
4. Outsource - SPIVA. You ain’t special and just about no one else is either. Therefore, use well-run, low-cost, TRUE index funds. (Besides Vanguard, Fidelity and Schwab are also typically good providers.)
5. Do what it takes to stay on plan - Employ dollar-cost averaging (DCA) or enroll in forced (passive) contribution increases or use a professional as a commitment partner.
• Sub-rule - Make sure the pro has incentives that are congruent with your own, has the right credentials (CFA and CFP being the gold standards but experience matters a lot too), and is cost competitive.