Ration information and avoid news

I am rereading Nassim Taleb’s Antifragile: Things That Gain from Disorder. The first time I read it was during a series of long-haul flights, so some parts of the book are almost unfamiliar.

The below passage is among my favourites. I try to avoid getting sucked into the news cycle and am constantly looking for useful ways to control the flow of information I consume.

[T]hose in corporations or in policy making (like Fragilista Greenspan) who are endowed with a sophisticated data-gathering department and are therefore getting a lot of “timely” statistics are capable of overreacting and mistaking noise for information—Greenspan kept an eye on such fluctuations as the sales of vacuum cleaners in Cleveland to, as they say, “get a precise idea about where the economy is going,” and of course he micromanaged us into chaos.

In business and economic decision making, reliance on data causes severe side effects—data is now plentiful thanks to connectivity, and the proportion of spuriousness in the data increases as one gets more immersed in it. A very rarely discussed property of data: it is toxic in large quantities—even in moderate quantities. …

The more frequently you look at data, the more noise you are disproportionally likely to get (rather than the valuable part, called the signal); hence the higher the noise-to-signal ratio. And there is a confusion which is not psychological at all, but inherent in the data itself. Say you look at information on a yearly basis, for stock prices, or the fertilizer sales of your father-in-law’s factory, or inflation numbers in Vladivostok. Assume further that for what you are observing, at a yearly frequency, the ratio of signal to noise is about one to one (half noise, half signal)—this means that about half the changes are real improvements or degradations, the other half come from randomness. This ratio is what you get from yearly observations. But if you look at the very same data on a daily basis, the composition would change to 95 percent noise, 5 percent signal. And if you observe data on an hourly basis, as people immersed in the news and market price variations do, the split becomes 99.5 percent noise to 0.5 percent signal. That is two hundred times more noise than signal—which is why anyone who listens to news (except when very, very significant events take place) is one step below sucker. …

There is a biological dimension to this story. I have been repeating that in a natural environment, a stressor is information. Too much information would thus be too much stress, exceeding the threshold of antifragility. In medicine, we are discovering the healing powers of fasting, as the avoidance of the hormonal rushes that come with the ingestion of food. Hormones convey information to the different parts of our system, and too much of them confuses our biology. Here again, as with news received at too high a frequency, too much information becomes harmful—daily news and sugar confuse our system in the same manner. …

To conclude, the best way to mitigate interventionism is to ration the supply of information, as naturalistically as possible. This is hard to accept in the age of the Internet. It has been very hard for me to explain that the more data you get, the less you know what’s going on, and the more iatrogenics you will cause. People are still under the illusion that “science” means more data.

As a random personal story, in 2010 when mineral and energy prices were having a slight post-GFC decline (before climbing up to new highs over the following couple of years), a lot of Perth-based mining firms were shutting down projects, cutting costs and generally panicking.

I asked a friend who was working for a major oil and gas producer whether the shifts in prices were affecting his world. He replied that as they were building an asset with a 40-year life, with another five years before it would start production, why would they even look at the day-to-day fluctuations in energy prices? A lot of the firms caught in the panic of the time had projects of a similar lifespan, but they were drowning in noise.

One comment

  1. Was re-reading Nassim Taleb recently. Incredibly deep thinker and master of weeding out bullsh!t.

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