Feb 9, 2013

Signal vs. Noise: swimming in the Sea of Randomness

Last summer, after realizing it's a professional necessity to share and express ideas beyond my daily human interactions, I decided (yet again) to reapply myself to this blog. I developed a nice general content strategy, managed to slot 20 mins or so each week, started jotting down notes more regularly, etc. Truly, I really meant it.

Then something odd happened: I started reading Nassim Nicholas Taleb's "Fooled by Randomness".

Of the many interesting topics he discusses with regard to chance and randomness in the financial markets, one specific idea broke through and effectively froze me in my tracks: most of the information coursing through our lives is effectively meaningless, "noise" vs. "signal," and we're better off reading nothing at all. Taleb actively discourages himself from consuming media because so much of it is detrimental to his investing goals. He derides the common person who pores over the Wall Street Journal each morning trying to decipher the current market patterns as akin to reading the remains of a cup of strong coffee; you will see what you want to see and miss what's actually happening.

Faced with that, I begin to doubt my own ability to add something useful to the info stream. Basically, I got discouraged by thinking that I'd just be adding more noise, and as I searched and consumed information on a daily basis, the hopeless ubiquity of the Internet overwhelmed me. It's the most amazing noise generator of all time, a timesuck of epic proportions if you're not careful about how you search and which threads you follow.

Back in the early 2000's, lots of people, myself included, we're saying, "This is fantastic! ANYONE can share their ideas!" But change the inflection on "anyone" just a bit, and you can see my point. Unlimited access to publishing and accessing information is a beautiful thing, yet it also creates a messy jumble, for which search algorithms and human aggregators only provide a partial fix. Did I really want to add to the cacophony?

Over the summer and fall I finished "Randomness" and read it again in short sessions each evening before bed. And finally, the book provided a clear way out of my content generation cul de sac: signal isn't hierarchical or pre-ordained, it actually lies in the eye of the beholder, or as Taleb might say, in the eye of the person analyzing the right data in the right time series. In fact, perhaps the Internet actually provides more signal because it generates that much more noise. If you buy into randomness, it's not a leap to see it as the source of all signal, since you can't sift for gold w/out a stream.

There's much, much more to think about in Taleb's book, and I have his second and third ones waiting for me. But with regard to this forum, I'm keeping one idea firmly in mind:

"Go forth and generate content with abandon! With any luck, someone, somewhere, will find some signal in it, and you'll contribute to the beautiful, random jumble of human understanding. If not, don't worry, there's virtually no expiration date on ideas."


Anonymous said...

Funny-I was just planning on sending you this: http://www.policymic.com/articles/19909/anti-fragile-book-why-we-should-eat-like-cavemen-embrace-religion-and-hate-bankers

Good luck with "Black Swan"-if you can finish half of it without wanting to strangle him, you're a better man than I. Talk about unchecked ego and a frightened (aka "nonexistent") editor.

Reading about him and his theories is much more interesting (and I confess much easier) than reading him.

And you'll be thrilled to learn that he purports to deadlift and eat paleo, while of course claiming that he can kick everyone's ass.

Anyway-best of luck tackling those two books. I expect a full report, and most importantly: please tell me what actionable financial guidance you discover.


Tim said...

It would appear that Taleb is a bit of a character...a contradictory character even. Sometimes it's worth suffering through someone's assholery if s/he brings the goods, and I believe he does...but to be clear, I'm not a trader or academic or economist, so my view is rather shallow.

After reading "Randomness" and another book about risk, "Against the Gods," I'm prone to seeing variability and uncertainty everywhere. As the author of "Gods," Peter Bernstein puts it: "A system that cannot rely on the frequency distribution of past events is peculiarly vulnerable to surprise and is inherently volatile." That's pretty much Taleb's point in a nutshell. Anyway, his counter-current system of investing relies 100% on the majority following trends (otherwise what would be bet against?), so it's totally true to say that he owes his success and fame to all the lemmings out there, many of whom have actually garnered great returns over the years.

His new book "Antifragile," apparently talks about systems that thrive on uncertainty. He categorizes things as Fragile (unable to survive randomness), Robust (strong enough to withstand randomness)_and Antifragile. I have opted for Robustness in financial matters.

When it comes to business, I do think there's something to the idea that new technologies can allow you to build antifragility. Distributed knowledge systems or adaptive software seem to thrive on that, but again, I'm not an expert and am only looking in from the cheap seats.