Conversation with Adam Curtis

Jon Ronson interviewed Adam Curtis over email. Good stuff.

On social networks as echo chambers (a common lament about the internet):

But I do really agree with you about Twitter domestically. Twitter – and other social media – passes lots of information around. But it tends to be the kind of information that people know that others in that particular network will like and approve of. So what you get is a kind of mutual grooming. One person sends on information that they know others will respond to in accepted ways. And then, in return, those others will like the person who gave them that piece of information.

So information becomes a currency through which you buy friends and become accepted into the system. That makes it very difficult for bits of information that challenge the accepted views to get into the system. They tend to get squeezed out.

I think the thing that proves my point dramatically are the waves of shaming that wash through social media – the thing you have spotted and describe so well in your book. It's what happens when someone says something, or does something, that disturbs the agreed protocols of the system. The other parts react furiously and try to eject that destabilising fragment and regain stability.

...

I have this perverse theory that, in about ten years, sections of the internet will have become like the American inner cities of the 1980s. Like a John Carpenter film – where, among the ruins, there are fierce warrior gangs, all with their own complex codes and rules – and all shouting at each other. And everyone else will have fled to the suburbs of the internet, where you can move on and change the world. I think those suburbs are going to be the exciting, dynamic future of the internet. But to build them I think it will be necessary to leave the warrior trolls behind. And to move beyond the tech-utopianism that simply says that passing information around a network is a new form of democracy. That is naive, because it ignores the realities of power.

On the failings of modern journalism:

The thing that fascinates me about modern journalism is that people started turning away from it before the rise of the internet. Or, at least, in my experience that's what happened. Which has made me a bit distrustful of all that "blame the internet" rhetoric about the death of newspapers.

I think there was a much deeper reason. It's that journalists began to find the changes that were happening in the world very difficult to describe in ways that grabbed their readers' imagination.

It's intimately related to what has happened to politics, because journalism and politics are so inextricably linked. I describe in the film how, as politicians were faced with growing chaos and complexity from the 1980s onwards, they handed power to other institutions. Above all to finance, but also to computer and managerial systems.

But the politicians still wanted to change the world – and retain their status. So in response they reinvented other parts of the world they thought they could control into incredibly simplistic fables of good versus evil. I think Tony Blair is the clearest example of this – a man who handed power in domestic policy making over to focus groups, and then decided to go and invade Iraq.

And I think this process led journalism to face the same problem. They discovered that the new motors of power – finance and the technical systems that run it, algorithms that try and read the past to manage the future, managerial systems based on risk and "measured outcomes" – are not just obscure and boring. They are almost impossible to turn into gripping narratives. I mean, I find them a nightmare to make films about, because there is nothing visual, just people in modern offices doing keystrokes on computers.

Where I'm often most frustrated with modern journalism is in its coverage of areas it does not understand well, technology being one of them. I'm not saying you have to be a programmer to be a tech journalist or a filmmaker to be a movie critic, but not having domain knowledge limits the scope of your critique. One more layman's point of view isn't all that useful at the margins, and as with things like the last financial crisis, the lack of understanding from the financial press removed what we think of as one of the watchdogs of democracy, the fourth estate.

The one saving grace of the internet is that many technology domain experts can chime in. Still, for many reasons, most do not. They may be too busy, or they may bite their tongue for competitive or political reasons (technology is a heavily connected industry).

Given technology's growing political, economic, and cultural power, a vigilant and independent check is needed. A Gawker or Valleywag picks off just the most egregious and obvious of moral failings, but much of that is distraction from far more complex and significant issues.

Multiple testing

One of the potential pitfalls that arises now that it's easier and easier to test hundreds of variables to try to find correlations is the problem of multiple comparisons or multiple testing

The term "comparisons" in multiple comparisons typically refers to comparisons of two groups, such as a treatment group and a control group. "Multiple comparisons" arise when a statistical analysis encompasses a number of formal comparisons, with the presumption that attention will focus on the strongest differences among all comparisons that are made. Failure to compensate for multiple comparisons can have important real-world consequences, as illustrated by the following examples.

  • Suppose the treatment is a new way of teaching writing to students, and the control is the standard way of teaching writing. Students in the two groups can be compared in terms of grammar, spelling, organization, content, and so on. As more attributes are compared, it becomes more likely that the treatment and control groups will appear to differ on at least one attribute by random chance alone.
  • Suppose we consider the efficacy of a drug in terms of the reduction of any one of a number of disease symptoms. As more symptoms are considered, it becomes more likely that the drug will appear to be an improvement over existing drugs in terms of at least one symptom.
  • Suppose we consider the safety of a drug in terms of the occurrences of different types of side effects. As more types of side effects are considered, it becomes more likely that the new drug will appear to be less safe than existing drugs in terms of at least one side effect.

In all three examples, as the number of comparisons increases, it becomes more likely that the groups being compared will appear to differ in terms of at least one attribute. Our confidence that a result will generalize to independent data should generally be weaker if it is observed as part of an analysis that involves multiple comparisons, rather than an analysis that involves only a single comparison.

For example, if one test is performed at the 5% level, there is only a 5% chance of incorrectly rejecting the null hypothesis if the null hypothesis is true. However, for 100 tests where all null hypotheses are true, the expected number of incorrect rejections is 5. If the tests are independent, the probability of at least one incorrect rejection is 99.4%. These errors are called false positives or Type I errors.

A recent NBER paper argues that this problem invalidates most finance papers claiming to have found some formula for investing success. The abstract:

Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0. However, what hurdle should be used for current research? Our paper introduces a multiple testing framework and provides a time series of historical significance cutoffs from the first empirical tests in 1967 to today. Our new method allows for correlation among the tests as well as missing data. We also project forward 20 years assuming the rate of factor production remains similar to the experience of the last few years. The estimation of our model suggests that a newly discovered factor needs to clear a much higher hurdle, with a t-ratio greater than 3.0. Echoing a recent disturbing conclusion in the medical literature, we argue that most claimed research findings in financial economics are likely false.

Gaze deeply enough into the noise and you'll see some pattern.

[via Vox]

RELATED: Spurious correlations

Some Peter Thiel miscellany

A few Peter Thiel related links.

First, some bits from his Reddit AMA today, one of my favorites to date (I bolded the questions for easier reading).

What do you think about NSA/Snowden and the impact on cloud, security, and general startups in the USA?

It is a much-needed debate.

BTW, I don't agree with the libertarian description of the NSA as "big brother." I think Snowden revealed something that looks more like the Keystone Kops and very little like James Bond.

The first thing an intelligence agency should do is counter-intelligence, and the NSA could not even figure out that there was something suspicious about an IT person downloading all those files. And once they knew Snowden had done this, they apparently still couldn't figure out what all he had taken...

It was inappropriate that the US was tapping Angela Merkel's cell phone. But I suspect that this was news to Obama as well. And more generally: the NSA has been hovering up all the data in the world, because it has no clue what it is doing. "Big data" really means "dumb data."

...

Why do you think more wealthy people don't fund anti-aging research? What do you think could be done to encourage them to do more?

Most people deal with aging by some strange combination of acceptance and denial. I think the psychological blocks to thinking about aging run very deep, and we need to think about it in order to really fight it.

...

So, unrelated question, but I'm just curious--- What was your reaction to THE SOCIAL NETWORK movie?

The zero-sum world it portrayed has nothing in common with the Silicon Valley I know, but I suspect it's a pretty accurate portrayal of the dysfunctional relationships that dominate Hollywood.

...

what is one thing you believe to be true that most do not?
Most people believe that capitalism and competition are synonyms, and I think they are opposites. A capitalist accumulates capital, and in a world of perfect competition all the capital gets competed away: The restaurant industry in SF is very competitive and very non-capitalistic (e.g., very hard way to make money), whereas Google is very capitalistic and has had no serious competition since 2002.
...

Hi Peter.. if you were not from United states, do you believe you could reach the same position as you are now?

One can never run this experiment twice, but...

I was born in Germany and my parents emigrated to the US when I was 1 year old. I think Germany and California are in some ways extreme opposites -- Germany is pessimistic and complacent, California is optimistic and desperate. I suspect my life would have turned out very differently had we stayed in Germany.

...

Peter, what's the worst investment you've ever made? What lessons did you learn from it?

Biggest mistake ever was not to do the Series B round at Facebook.

General lesson: Whenever a tech startup has a strong up round led by a top tier investor (Accel counts), it is generally still undervalued. The steeper the up round, the greater the undervaluation.

...

What is your view on bitcoin? will it replace the current financial system we have?

PayPal built a payment system but failed in its goal in creating a "new world currency" (our slogan from back in 2000). Bitcoin seems to have created a new currency (at least on the level of speculation), but the payment system is badly lacking.

I will become more bullish on Bitcoin when I see the payment volume of Bitcoin really increase.

...

Can you comment on how you think artificial intelligence may change society in the coming decades? And what you think we can do to increase the chance that these changes will be positive?

I think AI is still a fair ways off. But the economic questions (e.g., how will this impact our work?) are secondary to the political questions (e.g., will AI be friendly?).

The development of AI would be as momentous as the landing of extraterrestrials on this planet. If aliens landed, the first question would not be about the economy!

...

You've spoken a great deal about stagnation and a fair amount about what institutions and individuals might do tocombat it. What advice do you have for adapting to it? Short of becoming an entrepreneur, what does the prospect of technological stagnation mean for how average individuals should invest and plan their lives?

If our great expectations about the future are not realized, then we need to save way more than we are doing today. China (with 40% savings) is perhaps more "rational" than the US (with about 0% savings), at least in a world of general stagnation.

...

I have heard stories about you at PayPal not wanting to hire MBA's. And now we all know your stance on college. I have 2 questions.

Why did you refuse to hire MBA's?Do you think there needs to be a change in K-12 education to lessen the demand for college?

1 no absolute ban, just think most MBA's tend to be high extrovert/low conviction people -- a combination that in my experience leads towards extremely herd-like thinking and behavior 2 yes, I think K-12 should give people enough skills to be able to contribute towards our society -- it is failing because it does not even come close to this

...

How do you combine your libertarian politics and your Christian faith? Is there a contradiction you struggle with or do you see no conflict at all?

To think of Christ as a politician might be the easiest way to get him all wrong.

The theological claim that Christ is the "son of God" is also the anti-political claim that Augustus Caesar (the son of the divine Julius Caesar) is not the "son of God." So I think that Christ should be thought of as the first "political atheist," who did not believe that the existing political order is divinely ordained.

Now, I think that there is lot of resonance between political atheism and libertarianism, even if they are not strictly identical...

...

Did Anton Chigurh kill Carla Jean Moss at the end of No Country for Old Men?

Probably. But the real issue is that Chigurh did not overcome chance himself.

"No Country for Old Men" is the movie that chapter 6 of my book is directed against.

...

You mentioned in the Tim Ferriss Podcast that you think when startups fail it is simply a tragedy. Do you think anything can be taken out of it when the unfortunate does happen?

Unfortunately, not very much... Failure is typically so overdetermined that people never learn all the reasons for which they failed.

...

How important do you feel social responsibility is as a contributing factor to a companies success?

A sense of mission is critical, but I think the word "social" is problematically ambiguous: it can mean either (1) good for society, or (2) seen as good by society.

In the second meaning, it leads to me-too copycat companies. I think the field of social entrepreneurship is replete with these, and that this is one of the reasons these businesses have not been that successful to date.
 

Second, Dan Wang summarizes some of Peter Thiel's key responses from this debate with Marc Andreessen. On energy:

Look at the Forbes list of the 92 people who are worth ten billion dollars or more in 2012. Where do they make money? 11 of them made it in technology, and all 11 were in computers. You’ve heard of all of them: It’s Bill Gates, it’s Larry Ellison, Jeff Bezos, Mark Zuckerberg, on and on. There are 25 people who made it in mining natural resources. You probably haven’t heard their names. And these are basically cases of technological failure, because commodities are inelastic goods, and farmers make a fortune when there’s a famine. People will pay way more for food if there’s not enough. 25 people in the last 40 years made their fortunes because of the lack of innovation; 11 people made them because of innovation.

...

One of the smartest investors in the world is considered to be Warren Buffett. His single biggest investment is in the railroad industry, which I think is a bet against technological progress, both in transportation and energy. Most of what gets transported on railroads is coal, and Buffett is essentially betting that after the 21st century, we’ll look more like the 19th rather than the 20th century. We’ll go back to rail, and back to coal; we’re going to run out of oil, and clean-tech is going to fail.
 

On finance:

Think about what happens when someone in Silicon Valley builds a successful company and sells it. What do the founders do with that money? Under indefinite optimism, it unfolds like this:

  • Founder doesn’t know what to do with the money. Gives it to large bank.
  • Bank doesn’t know what to do with the money. Gives it to portfolio of institutional investors in order to diversify.
  • Institutional investors don’t know what to do with money. Give it to portfolio of stocks in order to diversify.
  • Companies are told that they are evaluated on whether they generate money. So they try to generate free cash flows. If and when they do, the money goes back to investor on the top. And so on.

What’s odd about this dynamic is that, at all stages, no one ever knows what to do with the money.
 

On the technologically-accelerating civilization:

How big is the tech industry? Is it enough to save all Western Civilization? Enough to save the United States? Enough to save the State of California? I think that it’s large enough to bail out the government workers’ unions in the city of San Francisco.
 

Finally, a link to Thiel's new book Zero to One which releases next week. It's a collection of a lot of what he taught in CS183 at Stanford. For a taste, revisit notes from the class as compiled by Blake Masters.

How Apple deploys its cash

It's often said that Apple is sitting on too large a horde of cash, that if it can't come up with ways to deploy that cash that exceed its own internal rates of return or other such hurdles (to use finance speak), it should return that cash to shareholders.

On Quora, an anonymous account posted an interesting take on why Apple accumulates so much cash and how it deploys that as a strategic weapon.

When new component technologies (touchscreens, chips, LED displays) first come out, they are very expensive to produce, and building a factory that can produce them in mass quantities is even more expensive.  Oftentimes, the upfront capital expenditure can be so huge and the margins are small enough (and shrink over time as the component is rapidly commoditized) that the companies who would build these factories cannot raise sufficient investment capital to cover the costs.

What Apple does is use its cash hoard to pay for the construction cost (or a significant fraction of it) of the factory in exchange for exclusive rights to the output production of the factory for a set period of time (maybe 6 - 36 months), and then for a discounted rate afterwards.  This yields two advantages:

  1. Apple has access to new component technology months or years before its rivals.  This allows it to release groundbreaking products that are actually impossible to duplicate.  Remember how for up to a year or so after the introduction of the iPhone, none of the would-be iPhone clones could even get a capacitive touchscreen to work as well as the iPhone's?  It wasn't just the software - Apple simply has access to new components earlier, before anyone else in the world can gain access to it in mass quantities to make a consumer device.  One extraordinary example of this is the aluminum machining technology used to make Apple's laptops - this remains a trade secret that Apple continues to have exclusive access to and allows them to make laptops with (for now) unsurpassed strength and lightness.
  2. Eventually its competitors catch up in component production technology, but by then Apple has their arrangement in place whereby it can source those parts at a lower cost due to the discounted rate they have negotiated with the (now) most-experienced and skilled provider of those parts - who has probably also brought his production costs down too.  This discount is also potentially subsidized by its competitors buying those same parts from that provider - the part is now commoditized so the factory is allowed to produce them for all buyers, but Apple gets special pricing.

For me this recalls sushi restaurants. When I first graduated college and finally had enough money to eat sushi regularly, I'd sit at the bar at a sushi restaurant and watch the sushi chef cutting the fish and wonder what was so difficult about what they were doing. After watching a few of them, I felt like I could climb over the counter and assemble a reasonably good piece of sushi myself.

After watching Jiro Dreams of Sushi, I realized that watching a chef prepare a piece of sushi was just the tip of the iceberg, that much of what set one sushi restaurant apart from another was the supply chain, the relationships with the right buyers and suppliers and fishmongers that helped secure the best ingredients.

This strikes me as the same way most people underestimate Apple. They see the aesthetics of the final product, the software or hardware design of an iPhone or a MacBook air, and they don't see any sustainable competitive advantage. All of that can be copied, they think.

Leaving aside the fact that in hardware design if you have to copy someone else in technology you're already one generation behind, what people often fail to see (or can't, given Apple's secrecy) is the massive supply chain edifice below the water's surface. Scaling in software may be less of a problem for David than it once was, but in hardware it pays to be Goliath. 

The biology of risk

That was the title of a fascinating opinion piece by John Coates from back in early June in the NYTimes.

Most of us tend to believe that stress is largely a psychological phenomenon, a state of being upset because something nasty has happened. But if you want to understand stress you must disabuse yourself of that view. The stress response is largely physical: It is your body priming itself for impending movement.

As such, most stress is not, well, stressful. For example, when you walk to the coffee room at work, your muscles need fuel, so the stress hormones adrenaline and cortisol recruit glucose from your liver and muscles; you need oxygen to burn this fuel, so your breathing increases ever so slightly; and you need to deliver this fuel and oxygen to cells throughout your body, so your heart gently speeds up and blood pressure increases. This suite of physical reactions forms the core of the stress response, and, as you can see, there is nothing nasty about it at all.

Far from it. Many forms of stress, like playing sports, trading the markets, even watching an action movie, are highly enjoyable. In moderate amounts, we get a rush from stress, we thrive on risk taking. In fact, the stress response is such a healthy part of our lives that we should stop calling it stress at all and call it, say, the challenge response.
 

Coates notes that the challenge response in humans is particularly sensitive to uncertainty and novelty, causing an elevation in cortisol which reduces our appetite for risk.

Based on that thesis, Coates argues that in reducing uncertainty about upcoming interest rate movies, Greenspan and Bernanke have actually “one of the most powerful brakes on excessive risk taking in stocks was released,” leading to much greater stock market volatility and more dramatic stock market booms and busts.

It may seem counterintuitive to use uncertainty to quell volatility. But a small amount of uncertainty surrounding short-term interest rates may act much like a vaccine immunizing the stock market against bubbles. More generally, if we view humans as embodied brains instead of disembodied minds, we can see that the risk-taking pathologies found in traders also lead chief executives, trial lawyers, oil executives and others to swing from excessive and ill-conceived risks to petrified risk aversion. It will also teach us to manage these risk takers, much as sport physiologists manage athletes, to stabilize their risk taking and to lower stress.
 

I watched more soccer (I'd use football but most posts tagged football in my blog will be about the American rendition, so for disambiguation I'm going to use what soccer fans would consider the profane nomenclature) than I have in my entire life up until now this summer because of the World Cup. People put on the game in the office, and everywhere I went it seemed some American TV was dialed to a game.

[This is a topic for another post, but I am curious about what drove this noticeable uptick in interest in soccer in the U.S. this summer. Was it the greater build out of social media? The success of the U.S. team? Increased coverage on ESPN? The fact that games were in the U.S. timezone this time, unlike the next World Cup or this past Winter Olympics? The rise of MLS? All or none of the above?]

While I'm far from a soccer expert, I did detect a noticeable tightening of game play in overtime. This could purely be because of fatigue, but it led to a less interesting form of play in those periods.

Coates' theory of the relationship between risk-taking and uncertainty reminded me of one of my pet peeves about many sports: the many mental traps that reduce risk-taking in athletes and coaches. From a sports design perspective, I'd argue that fans would prefer greater daring from players and teams more often. Volatility, with dramatic boom and busts, may be not be desirable when it comes to your finances, but in sports and entertainment it's the building block for more compelling drama.

It's not just soccer. The reluctance of football coaches to go for it on fourth down more often is another example where reduced risk lowers entertainment value. The irony is that mathematically, what feels like riskier behavior may be the more rational play. The math supports going for it on fourth down most if not all the time. In soccer, ending overtime deadlocked leads to the randomness of penalty kicks. I'm not conversant on the statistics around soccer, but leaving your fate to penalty kicks feels less certain than just trying to win in overtime.

If the players and coaches won't behave rationally, however, they can have their hands forced by rule changes. What if the NFL just banned punting? Everyone would go for it on fourth down, and I'm confident that would be a more exciting game. What if soccer's overtime were sudden death?

My ideal sports design guiding philosophy: maximize entropy but still reward skilled play. That is, you can let the rough at the U.S. Open grow wild so golfers have to try to stay in the fairways or risk having to hack their way out of the weeds. You can shorten the first round 7 game series in the NBA to 5 games to give the underdog a greater chance.

Don't design a game so skill-based that the outcome is never in doubt. There's a reason why people don't watch televised checkers. But also don't design a game so random that every contestant has an equal chance of winning regardless of skill. You might as well watch two teams flip a coin.