Lately, I’ve been watching Pirates of Finance episodes during my weekly cardio sessions. Jason and Corey are a special combination when they just riff on whatever pops in their head. A recent episode, The Gamification of People, provoked some musings.
Where Exactly Are We Racing To
The pirates revisit Malcolm Gladwell’s discovery that the best hockey players in Canada were disproportionally represented by athletes whose birthdays were just after the grade cutoff. So children who are the oldest in their class or hit puberty in their class first have an advantage.
If you are a summer birthday you understand this. The school year starts, and some student brings Rice Krispy treats for the class and you think “this mf is a whole year older than me”. Jason remarks that even though he has no kids, he has heard that parents in affluent suburbs hold their kids back at a young age so they can be swept up by the positive reinforcement loop of being a better athlete or student. A ”snowball effect” builds as a confident child draws more attention from coaches, gets into the higher track in class, and is even less likely to be diagnosed with ADHD.
Researchers found the youngest children in a grade — those born in August, just before the cutoff — were significantly more likely to be diagnosed with ADHD compared with those who were born the next month and became the oldest in their class.
Corey notes that as knowledge of Gladwell’s chapter in Outliers spread, the efficient market mechanism kicked in. Parents started holding their children back a grade. Jason, who admittedly has no kids, sounded skeptical. Jason, if I was in the comments section of the livecast, I would have told you — the practice is called “redshirting”. Like the NCAA athletes.
Our local school district is extremely strict about not allowing it. By making the date cut-off a redline, they don’t have to deal with every case-by-case plea to hold kids back. In fact this week, I was chatting to a mom of triplets at my kids’ school, who despite a totally valid reason (in my totally unqualified opinion) for holding the kids back, did not get an exception.
The impulse to redshirt your kid, even though you risk them being bored by playing “down” a level, for a competitive advantage is classic Moloch — a race to the bottom. If a parent doesn’t hold back their kid in such a community are they now doing them a disservice? I mean what a miserable question to entertain. But here we are.
A few years ago, schools in our area decided to move the scholastic calendar to start in early August. Why? So they can have more time in class to prepare for the end-of-year standardized state tests. What has been the cost of this intervention? Togetherness. My kids now go to school a full month earlier than their cousins in NJ. The end of August is a classic time for vacation with both camps and school out of session. I know, I know — violins. I won’t turn what amounts to a high-class problem into a crusade, but the point is the school is reaching for an artificial advantage. If every school adopts this calendar, the advantage goes away and we are just worse off. It’s all frustratingly familiar.
Let’s go back to Corey’s point about market efficiency. Mechanically speaking, he’s right. But it’s actually more interesting as a demonstration of the flaws in market-maximalist thinking. If you graduated from U of Chicago, turn back now. You’ve been warned.
The market is a servant of our collective values. If we choose the wrong values we are asking to be consumed by the “paper-clip maximizer”. This is exactly why AI research is so concerned with safety. We tell the system what to optimize for and it will do so faithfully — but without an appreciation for what we forget to tell it.
Market-based thinking needs to be accompanied by a responsible understanding of our values. This runs head-on into an accounting problem — “not everything that we measure matters, and not everything that matters can be measured”.
A specific instance of this is negative externalities. The textbook examples are companies that socialize the costs of pollution while capturing private profit. More oblique examples abound in Corey and Jason’s conversation. How does the UI of investment platforms “nudge” our behavior? Are those nudges good for the clients, the company, or both? They give the example of a robo-advisor that tells you the concrete tax cost of selling appreciated assets. It’s an effective speedbump because investors hate paying taxes. It seems like a win for both the advisor and client. But how do we compare the sure tax savings against the theoretical risk reduction that happens by cutting concentration? This is hardly straightforward. You don’t have to be THAT cynical to think that a tie goes to the robo-advisor’s interest. Would a more nuanced speedbump that considers the trade-offs of different actions fulfill fiduciary responsibility better? Is it worth the brain damage to clients?
I don’t have answers to any of this. One of my beliefs is that our dashboards of cost/benefit are woefully underpowered. Partially because of incentives — commercial interests talk their own book. But also because of irreducibly complicated chains of causation. Even if you could construct higher fidelity models of reality, internalize all the externalities, and identify the “best” values you’d still fail. Because on average people don’t really want the truth. We are cognitive misers. We either want the laziest solutions or we want to keep our delusions intact.
I’m pro-markets. But any platonic idea that they are “free” and not downstream from laws motivated by imperfect actors is an illusion. That markets do a generally effective job in allocating resources reminds me of that Twain bit: It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. Misplaced confidence is more dangerous than things we know are dangerous because things that appear safe become load-bearing. If a money-market account defaults, that is far scarier than BTC going to zero because we size our exposures in proportion to how safe they are.
We need to be careful about what values we ask markets to chase. Free market maxis love to cite the law of unintended consequences against nudgy top-down policy. That’s valid. But the sense that markets, whose guardrails emerge from human negotiation and therefore limited foresight, aren’t immune to unintended consequences is a fantasy.
No idealogy is so important that we can’t inquire — who’s serving who?
Corey and Jason struck another nerve. They get into the topic of sales. They acknowledge that while they have an idealistic aversion to sales, that’s not a practical position. Everything is sales because sales is persuasion. From getting clients to finding a mate. No controversy there.
Consider the used car dealer’s tactics — lying, creating urgency, and so on. Yes, it’s cringe, but…it’s also a strawman. The best salespeople don’t look like they are selling. And they often aren’t in the conventional sense. They aren’t trying to convert you, they just cater to your bias. That sounds nefarious but it doesn’t have to be. If I am in the market for an investment fund, tell me why I should want yours. I’m buying one either way, put your best foot forward. It’s hard to distinguish “talking your own book” from “the manager is employing strategy X because they believe in it”. They are already betting their career on it. Where does belief end, and conflicted interests begin? It’s a tough question. Sure, the benefit of a doubt needs to be earned but assuming everything is a scam will leave you in a cave.
Back to the tactics. The pirates mention “mirroring” and saying people’s names (“John Smith, let me tell you something about this car”) as examples of manipulation often found in sales guides or books like Cialdini’s Influence (brief notes from an interview with the author here). Corey acknowledges that some people do this naturally.
I felt seen.
If a server tells me their name, I use it. I tell myself this is a way to be kind. I take the Zeroth Commandment seriously. But am I post-rationalizing an adaptive behavior? Have I figured out that being kind is a way to get what I want? Am I manipulative?
I feel like I’m shooting airballs here because I just don’t f’n know. There are 2 kinds of people. Those that are full of shit and those that admit it. It’s a bit of a cope, but I’m old-fashioned in thinking intentions matter. It makes you sound smart to moan about the road to hell being paved with such intentions. It sounds smart because there’s truth to that. But it has less to do with intentions themselves and more to do with reality being sloppy spaghetti. The arrows of causality are far more bi-directional and recursive than our coherent explanations suggest. Well-intentioned people often come off looking like Steinbeck’s Lennie strangling the objects of their affection by not knowing any better.
Still, discounting intentions fully in deference to optimization is a cope of its own. Incentives are Oujia boards. They guide us to what we want while we tell ourselves stories about how our beliefs make sense. We spell out the letters of whatever serves us individually.
And then we look at one another “Did you move it? I wasn’t moving it. What does it spell?”