Links to Consider, 1/27

Kevin Corcoran/Jeffrey Friedman on social complexity; a homeopath's perspective on COVID and fear; Aswath Damodaran on the stock market outlook; Virginia Postrel on charitable giving and EA.

Kevin Corcoran continues to explicate Jeffrey Friedman’s Power Without Knowledge.

Why should human behavior be so difficult to predict? The difficulty lies in the fact that each individual human’s behavior is shaped by their own ideas and interpretations of their circumstances – and those ideas and interpretations are unique to each person.

Human society is a complex system that we do not fully understand. Friedman suggests that this is because each of us has different ideas. Everyone is interpreting the world slightly differently, and unless we can get into everyone’s head to know these interpretations, we cannot predict outcomes.

Consider the stock market. Economist’s often model it as if a single individual investor were making decisions of when to buy and sell. This modeling strategy rules out the possibility that every investor has somewhat different ideas of how conditions are evolving in individual businesses and the economy as a whole. It is probably the case that these different investors have different reaction to events, and this fact is important for market dynamics.

Can we imagine a society in which everyone sees the same facts and has the same interpretation of those facts? Would such a society be much more predictable and controllable than our existing society? Or are there other determinants of social complexity?

A year ago, Amy Lansky, author of a book on homeopathy, wrote,

a series of unusual circumstances led Steve to create and maintain — for over 20 years — the most popular search engine for the CDC’s vaccine injury data (VAERS). You can check it out here: medalerts.org.  Over the years, Steve’s site has been used heavily by both pro-vaxxers and anti-vaxxers alike. And over the course of just 2021, vaccine injuries, hospitalizations, and deaths from the COVID vaccines grew to outnumber those from all other vaccines combined cumulatively for over 30 years.

I was forwarded this recently. I say that we decide what we believe by deciding who to believe, and feel free to doubt the source here. On the vaccine, I am more inclined to believe the Zvi. But you should read Lansky’s observations regarding the sociology of COVID fear.

Aswath Damodaran writes,

In nominal terms, i.e., before taking into account inflation, 2022 ranks as the seventh worst year, over the 95-year time period, and in real terms, it moves up to being the sixth worst year, with real returns of -23.48%. No matter how you slice it, there is no denying that 2022 was the worst year for US equity investors since 2008, and the magnitude of the damage is even more staggering, if you consider it in market value terms. During the course of 2022, US equities collectively lost $11.6 trillion in market capitalization

Last year, when friends or family members asked me for investment advice, I pleaded ignorance, saying that this was the most difficult investment environment of my lifetime. Where could you turn? Nominal interest rates were going up, so if you were in long-term bonds you took capital losses. Real interest rates (nominal rates minus the rate of inflation) were going up, so on inflation-indexed bonds you took capital losses.

What about today? Domodaran writes,

At 5.94%, the implied equity risk premium is closer to top of the range of historical risk premiums, but the most striking feature of 2022 is that the expected return on stocks, at 9.82%, is now at its highest level since 1995. 

Collectively, investors believe in a rosy scenario, as shown by the 10% expected returns. But they are quite concerned about other possible scenarios, as shown by the 6 percent risk premium.

Virginia Postrel writes,

diversified giving helps correct for the limitations of our knowledge. We don’t know today what will matter tomorrow, how, or to whom. The human enterprise depends on many different, often incommensurable values, not all of which can be plugged into a spreadsheet.

In her essay, she puts her finger on what bothers me about Effective Altruism. The rationalist community assumes that it has found the One True Way to spend money in a way that improves humanity. Better to let allow people to believe in and act upon different ways.

Substacks mentioned above:

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On the Effectiveness of Charitable Giving

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Data Update 2 for 2023: A Rocky Year for Equities