Nassim Nicholas Taleb, who is supposedly a Popperian, blocked me on Twitter today for offering some helpful corrections of one of his articles. What a fool.

He admitted I was right and then told me to get lost...

Twitter doesn't offer any good way to link all my relevant tweets from today, but see:

https://twitter.com/nntaleb/status/1007850325066297344

Most of my relevant tweets are replies to that Taleb tweet. I wrote several.

https://twitter.com/curi42/status/1007875578089762817

My comments afterwards (two tweets, not replies to Taleb).

https://twitter.com/nntaleb/status/1007871153074049024

That's the link to Taleb telling me to get lost.

https://twitter.com/curi42/with_replies

That links my recent tweets. It won't be useful in the future but works well if you see this soon.

http://www.fooledbyrandomness.com/SmithBSVendor.html

That's Taleb's article, from his original tweet, which I wrote comments on.

Objectivism and Critical Rationalism present reasonable targets for criticism. The main content was developed by a single person who took responsibility for creating something reasonably well-defined and complete. This is typical of original work: a pioneer comes up with some new ideas, develops them, names them, and they mean something.

Libertarianism and Inductivism are difficult to criticize because they mean different things to different people. They are full of internal debates. The terms don't identify any particular system of ideas. Instead, the terms broadly refer to many different thinkers and ideas with some similarities – and also plenty of differences. Because of the failure of these terms to unambiguously identify any particular ideas, debate and progress are more difficult. (Sometimes ideas start out this way. Other times they start with a specific meaning and become vague as a defense mechanism because criticism refutes the original meaning.)

Some philosophical positions begin with a clear meaning, which can then be discussed. Others begin with group similarity between multiple inadequate ideas (or, worse, people) and then stay vague forever.

Comments on Lectures on Psychology: A Guide to Understanding Your Emotions by Edith Packer (Objectivist and wife of George Reisman).

So far I've read the first 3 chapters, which cover core evaluations (I think this chapter is worth reading, even though I think it exaggerates some things), "Obsessive-Compulsive Syndrome", and happiness.

Suppose a child concludes: “No one cares about me.” This apparently calls for another conclusion—this time, about the child himself. For example, that “There must be something wrong with me.” And then, if the child feels that there is something wrong with him, he may conclude that life has nothing to offer him.

If no one cares about you, that doesn't imply something is wrong with you. People might have no idea whether you're good, bad or neutral, and be focused on their own lives.

Being flawed doesn't mean life has nothing to offer. No one would conclude that without some other bad ideas playing a significant role.

Most children do not share many of their important thoughts and emotions with their parents. For these reasons, there are very few people who reach adulthood without having some core evaluations that are at least partially mistaken.

True.

You have heard people say about some person, “He overcame his terrible background and became a famous doctor.” This does indeed occur. There are some inspiring examples of people developing sound core evaluations even after many severe childhood injuries and becoming not only successful, but also happy, as adults. But in most cases, a child whose experiences lead him to feel continuous self-doubt, fear, guilt, and loneliness, will embrace some type of mistaken or irrational core evaluations.

The unstated premise here is that famous doctors have great core evaluations. Actually great doctors (or any other speciality) are usually just good at the one thing and pretty screwed up in general. It's more common that a great doctor has a conventional marriage full of standard flaws than that he has a great marriage.

The first thing that has to be done is for the patient to discover the original concrete experiences—usually painful ones—which caused him deep injury. Then the concrete experiences have to be reconnected with the evaluations that subsequently developed into the patient’s core evaluations.

No! Causes and solutions are different things. Knowing childhood causes often doesn't help much with solutions.

Now, in principle, an individual could go through this process [of identify and improving core evaluations] by himself. But, in my opinion, the process should in fact only be attempted with the aid of a competent psychotherapist.

This is authoritarian and really hostile to the capacity for individuals to act effectively to improve their own lives. It says to put your life in the hands of psychological authorities and don't dare to try to make progress on your own.

Being an authoritarian is normal in general, but it's worth pointing out coming from an Objectivist author who sat on the board of directors of the Ayn Rand Institute.

The second attitude the happy person developed as the result of his egoism, along with that of responsibility for his own happiness, is his acceptance of the fact that he must expend effort in the pursuit of what is important to him.

When he was little, the effort simply consisted of such things as persisting in trying to convince his parents to give him the toy he wanted or in trying to learn how the toy he has been given works. Later, it consisted of such things as making the discovery that if he wants to learn to ride a bicycle, he has to put some effort into learning how to keep his balance when riding it. Similarly, in school, when he began to study more difficult subjects, such as fractions and decimals, and later algebra and geometry, he realized that there is pleasure in being able to understand, but that the pleasure follows only after the expenditure of the necessary effort.

Eventually the happy person learns that the more effort he puts into something, the more expert he becomes at it and the more he can enjoy the activity. His repeated successful application of effort in thinking and action results in his discovery that the process of exerting effort is essential to enjoyment, even if in the beginning it feels like drudgery. This discovery leads him to realize that exerting effort is the key to his ability to achieve his values. And then, since he recognizes that effort is what achieves his values, he connects pleasure with exerting the necessary effort itself. Later, since the effort is usually expended in learning, he becomes able to connect pleasure with learning. Finally, expending the effort to acquire knowledge in general brings him a sense of enjoyment because he experiences knowledge as the key to achieving values. And his expenditure of effort is punctuated by jolts of happiness as his efforts bring him successes in learning new things. Thus effort, learning, and knowledge become values to the happy person—values that consistently provide him with joy in his everyday life.

This is my favorite passage so far. I added the italics.

if you know a person who claims to have a good, rational philosophy, but is unhappy, the likelihood is that his actions are not consistent with that philosophy.

No, the likelihood is that he's mistaken about having a good, rational philosophy. That's very rare. It's also rare for one's actions to be consistent with his stated philosophy (good or not), but it's a big mistake to simply accept claims that anyone (let alone an unhappy person) has a good, rational philosophy.

Update:

Obviously, the more severe cases of sexual self-doubt require the specialized knowledge of a therapist.

Another authoritarian comment which tells people they're incapable of solving their own problems and require experts to tell them what to think and do. And we're told this is obvious!

Update 2:

I finished the book. Parts are pretty good but it's also dangerous. Beware psychology! Even especially good pscyhology like this still contains major dangers.

You take an interest in learning something, X. Perhaps someone recommends it to you. What do you do next? Jump right in?

The first step is making a plan for how to learn X. It may be pretty rough, especially in later stages (for a complex X, you won’t understand how to learn part 5 until after learning part 3). But you need some kind of outline or overview of a plan that goes all the way to the end. You need a concept of how success is possible or you don’t even know which direction or immediate actions could lead to success.

The second step is evaluating the plan: Can you do it successfully? What resources does it require? What prior knowledge does the plan build on, and do you already have it or not?

Step 3 is commonly to expand the plan: you add some steps at the beginning to learn some other things first (prerequisites). These are plans themselves and you need to outline how they will work, evaluate if you’re prepared to do them, check what resources they require, and possibly add more plans before them to learn even earlier knowledge.

In this way, you can be like “I want to learn Atlas Shrugged” (AS) and end up with a big plan, in tree shape, with 500 parts. You don’t have the skills or background knowledge to learn AS right now, so the plan involves learning 8 things first. And for each of those 8 things, you are missing 3 things you need to learn first. And for some of those 3, you’re missing 1-4 things that come before it. And for some of those, you’re missing some prerequisite. Some of the chains could be a dozen or more things long from AS to the earliest knowledge you don’t have yet.

There isn’t one single canonical organization of which knowledge comes early and late, what order it goes in, etc. You can develop a plan and it’s not the only plan possible. What is early in your plan might be late in someone else’s, or vice versa, and both plans could still work. However, plans can’t be random. It’s not subjective or arbitrary. There are facts about what does and doesn’t work, and there are themes where some things (e.g. learning addition) are early or late in most good plans.

Sometimes it helps to start working on something a little to discover what prerequisites you’re missing. E.g. you might try reading a dozen pages of AS to find out that: you don’t understand it clearly enough, you don’t know how to discuss it well enough, you don’t know how to take notes as you go along well enough, you don’t know how to stop and think about a passage and figure out what it means very well, you don’t know how to follow logical arguments, and it’s going to take a lot of time and mental focus/energy to read. You would then recognize you need to get more resources to allocate to the project (more time and mental focus/energy) and you need to create and succeed at plans to improve at each of the skills you’re not great at which came up when you tried reading a bit of the book (reading skill, discussion skill, etc). Just one of those prerequisites is to be better at understanding logical arguments, and that itself needs its own plan which will need its own resources and prerequisites, which will need their own plans, and so on. If you are a young child you’ll end up with perhaps 50 things, arranged in a tree, for your plan to learn logic, its prerequisite plans, their prerequisite plans, and so on, in 8 layers. And it’s the same if you’re an adult who doesn’t know a lot about this stuff, which is typically because our parenting and schooling is in major ways sabotage rather than helpful.

So if someone suggests you should read AS or learn logic, that does not mean you should just immediately do it. You need to make a plan and check if the plan will work for you today. If you cannot do your plan you need a new plan or to work on some prior stuff to prepare for doing the plan.

Being like, “Well he said to read this book or learn that topic, so I was trying to do it” is pretty thoughtless if you’re not even close to being able to do it. It means you didn’t actually make a plan for how to succeed that you evaluated and thought would work with your current skills/resources/knowledge. And if you don’t know how to make plans or evaluate if they will work, that is itself a prerequisite for any complex learning project. You need to learn that before you learn anything that isn’t really basic. You can learn really basic stuff (which can be succeeded at like it’s a one-part plan, basically) and then you can use what you learned to help build up towards learning how to make two part plans, then three part plans, and so on. You can get better at gradually more complex planning and plan evaluation as you learn more stuff. You can build up planning related skills in parallel with building up knowledge of other stuff.

If you look at AS and go “I don’t even know how to plan that” then your plan should be “get better at planning, revisit AS later” and then you can make a plan for how to get better at planning. You can still look at that as a plan for how to read AS, since it involves AS at the end. In this way, you can start anywhere, including with AS, no matter how much of a beginner you are. However, if you’re bad at tracking plan hierarchies then you can simplify by just forgetting about AS and starting with something more basic.

people have lots of bad ideas they don’t understand much about, like that “inequality” is a major social problem.

what would it take to change their mind? not books with arguments refuting the books they believe. they didn’t get their ideas from structured arguments in serious books. they don’t have a clear idea in their mind for a refutation to point out the errors in. non-interactive refutation (like a book, essay, article) is very, very hard when you have to first tell people what they think (in a one-size-fits-all way, despite major variance between people) before trying to refute it. Books and essays work better to address clearly defined views, but not so well when you’re trying to tell the other side what they think b/c they don’t even know (btw that problem comes up all the time with induction).

to get someone to change their mind about “inequality”, what’d really help is if they thoughtfully considered things like:

what is “inequality”? why is it bad? are we talking about all cases of inequality being equally bad, or does the degree of badness vary? are we talking about all cases of inequality being bad at all, or are some neutral or even good? if the case against inequality isn’t a single uniform thing, applying equally to all cases, then what is the principle determining which cases are worse and why? what’s the reasoning for some inequality being evaluated differently than other inequality?

whatever one’s answers, what happens if we consider tons of examples? are the evaluations of all the examples satisfactory, do they all make sense and fit your intuitions, and reach the conclusions you intended? (cuz usually when people try to define any kind of general formula that says what they think, it gives answers they do not think in lots of example cases. this shows the formula is ad hoc crap, and doesn’t match their actual reasoning, and therefore they don’t even know what their reasoning is. so they are arguing for reasoning they don’t understand or misunderstand, which must be due to bias and irrationality, since you can’t reach a conscious, rational, positive evaluation of your ideas when you don’t even know what they are. you can sometimes reach a positive meta-evaluation where you acknowledge your confusion about the specifics of the ideas, but that’s different.).

anyway, the point is if people would actually think through the issue of inequality it’d change some of their minds. that’d be pretty effective at improving the situation. what stops this? the minor issue is: there are a lack of discussion partners to ask them good questions, guide them, push them for higher standards of clarity, etc. the major issue is: they don’t want to.

why don’t people want to think about “inequality”? broadly, they don’t want to think. also, more specifically, they accepted anti-inequality ideas for the purpose of fitting in. thinking about it may result in them changing their mind in some ways, big or small, which risks them fitting in less well. thinking threatens their social conformity which is what their “beliefs” about “inequality” are for in the first place.

this relates to overreaching. people’s views on inequality are too advanced for their ability to think through viewpoints. the views have a high error rate relative to their holder’s ability to correct error.

MYTH: "Well Regulated Militia" Only? (Second Amendment History) is a video by Steven Crowder. It has quotes from America's founding fathers to argue for his pro-gun-rights position (which I agree with). Crowder put up a webpage with his references which he links in the YouTube video description. The first quote on the page is:

“I ask, Sir, what is the militia? It is the whole people. To disarm the people is the best and most effectual way to enslave them.” – George Mason

Crowder's source link is a category at a blog (not even a specific post). The relevant blog post says:

.
“I ask, Sir, what is the militia? It is the whole people. To disarm the people is the best and most effectual way to enslave them.”

George Mason, Speech at the Virginia Ratifying Convention, 1788

~ ~ Grouchy ~ ~

Great, we have a source. It's from a speech at a particular convention in a particular year. It's easy to find a short transcript of the speech (second version) online which doesn't have this quote. I wanted to know where the quote was coming from, and if it was perhaps from another statement not included in those sources. I looked further and found the full book covering the convention. It doesn't contain the quote. So, I'm confident the quote is a fraud.

I didn't check the other quotes Crowder used. This is one fake quote out of just one quote checked.

The full book does have some similar statements from Mason (my emphasis):

I ask, Who are the militia? They consist now of the whole people, except a few public officers. But I cannot say who will be the militia of the future day.

and

An instance within the memory of some of this house will show us how our militia may be destroyed. Forty years ago, when the resolution of enslaving America was formed in Great Britain, the British Parliament was advised by an artful man,* who was governor of Pennsylvania, to disarm the people; that it was the best and most effectual way to enslave them; but that they should not do it openly, but weaken them, and let them sink gradually, by totally disusing and neglecting the militia. [Here Mr. Mason quoted sundry passages to this effect.] This was a most iniquitous project. Why should we not provide against the danger of having our militia, our real and natural strength, destroyed?

The fake quote is similar to two real quotes from the speech, but each part is changed. And, in the book, the two parts appear thousands of words apart, and in reverse order. So the fake quote is roughly representative of what Mason was saying, but it's not actually a quote.

When you do productive labor (like at a job), you are able to use what you produce (or some negotiated amount of payment related to what you produce). How you use your income can be broadly viewed in two ways: investment and consumption.

Investment fundamentally means capital accumulation – putting your income towards the accumulation of capital goods which raise the productivity of labor and thereby create a progressing economy which offers exponentially (like compound interest) more and more production each year. The alternative is to consume your income – spend it on consumer's goods like food, video games, lipstick, cars, etc.

People do a mix of savings/investment and consumption. the proportion of the mix determines how good the future is. A high rate of capital accumulation quickly leads to a much richer world which is able to support far more consumption than before while still maintaining a high rate of investment (the pie gets larger. Instead of consuming 80% of the original pie, one could soon be consuming 20% of a much larger pie which is also growing much faster, and that 20% of the larger pie will be more than 80% of the smaller pie.)

For more info on the economics of this, see the diagrams on pages 624 and 625 of George Reisman's book Capitalism: A Treatise on Economics and read some of the surrounding text.

The situation with your intellectual labor parallels the situation with laboring at a job for an income. Your intellectual labor is productive and this production can be directed in different ways – towards consumption, towards increasing the productivity of intellectual labor, or a mix. The more the mix favors increasing the productivity of your intellectual labor, the brighter your future.

Consumption in this case refers to things where you aren't investing in yourself and your education – where you aren't learning more and otherwise becoming more able to produce more in the future. For example, you might put a great deal of effort into writing a book which you hope will impress people, which you are just barely capable of writing. It takes a ton of intellectual labor while being only a little bit educational for you. Most of your intellectual labor is consumed and the result is the book. If you had foregone the book in the short term and invested more in increasing your productivity of intellectual labor, you could have written it at a later date while consuming a much smaller proportion of your intellectual output. This is because you'd be outputting more and even more so because your output would be more efficient – you'd be able to get more done per hour of intellectual labor (one of the biggest factors here would be making fewer mistakes, so you'd spend less labor redoing things). A good question to ask is whether you produced an intellectual work in order to practice or if instead you put a lot of work into polishing it so other people would like it more (that polishing is an inefficient way to learn). It's sad when people who don't know much put tons of effort into polishing what little they do know instead of learning more – and this is my description of pretty much everyone. (If you think you already know so much that you're largely done with further educating yourself, or at least ready to make education secondary, please contact me. I expect to be able to point out that you're mistaken, especially if you're under 50 years old.)

Consumption (rather than investment), in the realm of intellectual labor, primarily relates to going out of your way to try to accomplish things, to do things – like persuading people or creating finished works. It is possible to learn by doing, but it's also possible not to learn much by doing. If you're doing for the sake of learning, great. If you're doing for the sake of an accomplishment, that is expensive, especially if you're young, and you may be dramatically underestimating the expense while also fooling yourself about how educational it is (because you do learn something, but much less than you could have learned if you instead studied e.g. George Reisman's Program of Self-Education in the Economic Theory and Political Philosophy of Capitalism or my Fallible Ideas recommended reading list.)

Broadly, I see many people try to produce important intellectual works when they don't know much. They spend a lot of intellectual labor and produce material which is bad. They would have been far better served by learning more now, and producing more output (like essays) later on when they are able to make valuable intellectual products with a considerably lesser effort. This explains the theme I've stated elsewhere and put in the title of this piece: you should intellectually do (consume) when it's relatively easy and cheap, but be very wary of expensive intellectual projects which take tons of resources away from making intellectual progress.

Some people doubt the possibility of an accumulation of intellectual capital or its equivalent. They don't think they can increase the productivity of their intellectual labor substantially. These same people, by and large, haven't learned speed reading (or speed watching or speed listening). Nor have they fully learned the ideas of great intellectuals like Ayn Rand and Ludwig von Mises. Equipped with these great ideas, they'd avoid going down intellectual dead ends, and otherwise create high quality outputs from their intellectual labor. Even if the process of increasing the productivity of one's intellectual labor runs into limits which result in diminishing returns at some point, that is no excuse for stopping such educational self-investment long before reaching any such limits.

In the long run, the ongoing increase in the productivity of one's intellectual labor requires the ongoing creation of new and improved intellectual tools and methods, and supporting technologies. It requires ongoing philosophical progress. I believe philosophical progress can be unbounded if we work at it (without diminishing returns), but regardless of the far future there is massive scope for productive educational self-investment today. Unless you've exhausted what's already known about philosophy – that is, you are at the forefront of the field – and also spent some time unsuccessfully attempting to pioneer new philosophy ... then you have no excuse to stop investing in increasing the productivity of your intellectual labor (primarily with better and better methods of thinking – philosophy – but also with other things like learning to read faster). Further, until you know what is already known about philosophy, you are in no position to judge the far future of philosophical progress and its potential or lack of potential.

Note: the biggest determinants of the productivity of your intellectual labor are your rate of errors and your ability to find and correct errors. Doing activities where your error rate is below your error correction capacity is much more efficient and successful. You can increase your error correction effectiveness by devoting an unusually large amount of resources to it, but there are diminishing returns on that, so it's typically an inefficient (resource expensive) shortcut to doing a slightly more difficulty project slightly sooner.

The article is itself an example of what I can write in a few minutes without editing or difficulty. It's the fruits of my previous investment in better writing ability in order to increase the productivity of my intellectual labor. I aim primarily to get better at writing this way (cheaply and efficiently), rather than wishing to put massive polishing effort into a few works.

Update (2018-05-18):

What I say in this post is, to some extent, well known common sense. People get an education first and do stuff like a career second. Maybe they aren't life-long learners, but they have the general idea right (learn how to think/do/problem-solve/etc first, do stuff second after you're able to do it well and efficiently).

What goes wrong then? Parenting and schooling offer a bad, ineffective education. This discourages further education (the painfulness and uselessness of their education is the biggest thing preventing life-long learners). And it routinely puts people in a bad situation: trying to do things which they have been educated to be able to do well, but in fact cannot do well. The solution is not to give up on education, but to figure out how to pursue education effectively. A reasonable place to start would be the books of humanity's best thinkers since the start of western civilization. Some people have been intellectually successful and effective (as you can see from the existence of iPhones); you could look into what they did, how they thought, etc.

FI involves ideas that are actually good and effective, as against rivals offering similar overall stuff (rational ideas) but which are incorrect. FI faces the following major challenges: 1) people are so badly educated they screw up when trying to learn FI ideas 2) people are so badly educated they don't know how to evaluate if FI is working, how it compares to rivals, the state of debate between FI ideas and alternative ideas, etc.

Comments on A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market, by Edward Thorp. Bold formatting is added by me.

The professor, the son of a famous physicist, was himself a mediocrity. Because he was insecure and afraid of questions from the class, he copied his lectures from a stack of note cards onto the board, turning his back to the class to discourage interaction. Then we recopied them into our notebooks. He had been doing this for years, and the content seldom changed. This seemed stupid to me. Why not just hand out copies so we could read them in advance and come to class with intelligent questions? Of course, he was afraid someone might ask him a question he couldn’t answer.

...

By the time I met with the professor in his office to apologize [for criticizing his bad teaching], I realized I had behaved stupidly and rudely, and told him truthfully that what I did was improper and I regretted my actions. But there was still the more serious matter of what I had said about his teaching. I had damaged his self-esteem. He would never forgive this unless he felt I retracted what I had said. My own values and sense of self-worth made me unwilling to grovel and tell lies, despite the personal stakes. I had to find another way. I explained that I had come to realize that his teaching methods were unique and that students, though they may not always appreciate it, rarely encounter a professor of his caliber. What I said was true but allowed more than one interpretation. He picked the one I expected him to choose. He was beaming when I left, my career was saved, and I would become a better-behaved and somewhat more mature person.

Misleading people while making technically true statements is a silly game. I don't think it's honest.

Dominique Francon does something similar in her columns praising Howard Roark in The Fountainhead (the public reads them negatively).

While I was at UCLA, my PhD thesis adviser, Angus Taylor, suggested that I send some of my mathematical work to a well-known California mathematician for his comments. I got no response. But eleven months later at a Southern California meeting of the American Mathematical Society, Taylor and I heard the great man talk. The subject was my discovery, in detail, presented as part of his original work, and it was also about to appear under his name in print, in a well-known mathematical journal. Both of us were stunned. Taylor, who would later become academic vice president of the entire University of California system, was an ethical and experienced mathematician to whom I looked for guidance, but he didn’t know what to do. So neither of us did anything.

Academia is full of frauds.

When the screening committee received my abstract, their near-unanimous reaction was to reject it. I learned this later from John Selfridge, a number theorist whom I had known at UCLA and a member of the committee. For a while, he held the world’s record for finding the largest known prime number. (A prime is a positive whole number divisible only by itself and one. The first few are 2, 3, 5, 7, 11, 13…) Fortunately, Selfridge persuaded them that I was a legitimate mathematician and that if I said it was true, it likely was.

Why would the committee reject my talk? Professional mathematicians regularly receive claims that the sender has solved some famous problem, claims that almost always turn out to be from cranks, from the mathematically uneducated unaware of what’s already been done, or that include proofs containing simple errors....

... obviously, if the casinos could be beaten they would either change the rules of the game or go out of business. No wonder the committee was inclined to reject my abstract. Ironically, their reason for doing so—that mathematicians had apparently proven that winning gambling systems were impossible—was my strongest motivation for showing it could be done.

The academic screening committee was full of frauds. They didn't review the ideas, they just assumed there were simple errors. And they never changed their mind about judging math by reputation, they just changed their judgement of Thorp's reputation after Selfridge vouched for Thorp.

This trip taught me that while playing well, even with experts to warn me of dirty dealing, I could no longer openly win a significant amount. On future visits, I would need to change my appearance, be low-key, and generally avoid drawing attention to myself. Mickey MacDougall told the gaming control board that he saw more cheating in Nevada casinos while watching my eight days of play than he had seen in all his previous five years of working for the board. After his damning report he was never again asked to consult by them.

The Nevada gaming control board was full of fraud (in 1962). They turned a blind idea to casinos defrauding customers with methods like using dealers who cheat when shuffling and dealing. In one case in the book, the cheating dealer made a mistake with her physical dexterity and accidentally made it plainly visible that she was dealing the second card from the top to Thorp. An agent supposed to police cheating casinos was present, but pretended not to notice.

Karl Pearson (1857–1936) discovered that the roulette numbers being reported daily in a French newspaper showed exploitable patterns. The mystery was resolved when it was discovered that rather than spend hours watching the wheels, the people recording the numbers simply made them up at the end of each day. The statistical patterns Pearson detected simply reflected the failure of the reporters to invent perfectly random numbers.

Some newspaper employees committed fraud too.

In fifty-five and a half years of marriage I don’t ever remember her [Thorp's wife, Vivian] bragging. The closest she came was when I would admire the way she matched the hues of her outfits or furnished our household with a designer’s eye. She would look at me and matter-of-factly explain, “I have a good eye for color.”

It's common that women believe they're good at that, but aren't. It takes skill, but people who have done nothing to develop any serious expertise often think they're good at it. Maybe Vivian is a rare exception (or read books and took classes, which Thorp didn't mention). But I doubt it. I think she's bragging because it's culturally acceptable for women to think they're good at this without seeming arrogant (and this cultural situation, not actual skill, is the key factor). Thorp himself seems to be pleased that his wife wasn't arrogant in general – and also be OK with her bragging about this (which he refuses to even say is bragging, he says it only came close to bragging).

the Math Department [at the University of California at Irvine] was headed for serious trouble. Both the levels of grant money for research and funds from the state of California to support the university had declined. This led to fierce struggles among various factions in the department for what was left. To mediate the infighting, an outsider was brought in as a chairman. He was forced out after three turbulent years. For want of anyone else who might be acceptable to the warring groups, and against my better judgment, I was persuaded by the administration to act as temporary chairman.

The assignment was worse than I thought. I found that one assistant professor had stopped showing up to teach, dividing his time between his girlfriend four hundred miles to the north in the San Francisco Bay Area and the casinos in Reno and Lake Tahoe. A card counter, he even called me with blackjack questions! Another assistant professor was running up departmental phone bills of $2,000 per month versus a total of $200 for the other twenty-five professors combined. When I confronted him he claimed it was mathematical research. A review of the bills showed almost all the charges were for calls to two numbers in New York City. I dialed each, speaking in turn to his mother and to a store that sold musical recordings. He was enraged at me and not at all embarrassed when exposed.

Meanwhile, a full professor had stolen the confidential employment records of another full professor from the department files. When I discovered this and confronted him, he refused to return it. It turned out that the file contained a very nasty letter that he had written about his enemy. He feared that if I, as chairman, learned what he had done, I would expose him. When I asked the administration to initiate disciplinary action against these incorrigibles, they declined to act. I was stunned and stymied.

One problem in large bureaucracies is that many of the members decide it is better not to cross people, instead of standing on principle. I asked a good friend, whom I had helped to get an appointment in our department, to become my vice chairman and help me. Although he was now a full professor with tenure, he declined, saying, “I have to live in the same cage with these monkeys.” I did understand his point. On the other hand, I was not confined to the cage. I had PNP [Thorp's hedge fund]. I thought, Why try to fix this if no one will even back me up? I was in the Math Department by choice, not by necessity. It was time to move on.

This is a good indication of how bad academia is.

To my astonishment, I found that XYZ Corp was offering to sell me options at less than half my expected payoff! After I collected financial statements from my friendly salesman and examined them, I discovered that when XYZ Corp sold an option it counted the proceeds as income, but did not set aside any reserve to pay off the options if and when they were cashed in by the buyer. Since the correct reserves on each option they sold should have been more than twice what they were being paid, proper accounting would show their net worth becoming more negative every time they sold another option.

It was clear that they had to sell more and more options, using the increasing cash flow to pay off any early “investors” who might cash in. Classic Ponzi, and bound to end badly. What to do?

I decided on a little educational experiment. After reviewing the scanty information available on sales, options outstanding, and early redemption rates, I estimated the company would survive for at least eight more months. It turned out to be ten. Buying $4,000 worth of six-month options, I doubled my money in four months and cashed out. A few months later the offices were shuttered, the operators gone, and another fraud investigation was under way.

This time, Thorp profited from a fraud.

I figured out a solution. I called our head trader, who as a minor general partner was highly compensated from his share of our fees, and gave him this order: Buy $5 million worth of index futures at whatever the current market price happened to be (about 190), and place orders to sell short at the market, with the index then trading at about 220, not $5 million worth of assorted stocks—which was the optimal amount to best hedge the futures—but $10 million. I chose twice as much stock as I wanted, guessing only about half would actually be shorted because of the scarcity of the required upticks, thus giving me the proper hedge. If substantially more or less stock was sold short, the hedge would not be as good but the 15 percent profit cushion gave us a wide band of protection against loss.

I went through a detailed explanation of my outside-the-box analysis of why this trade was a windfall opportunity. But this day was beyond anything our trader had ever seen or imagined. Gripped by fear, he seemed frozen. He refused to execute the trades. I told him to do it for PNP and do it now, or else I wanted him to do it for my account. If that was his choice, I told him I would later tell all the other partners how the profit I made would have, but for him, belonged to the partnership rather than to me.

Here was my reasoning. If, because of the uptick rule, only about half the shorts got off, then we would be properly hedged and make about $750,000. If none got off (extremely improbable), we were buying the futures at an enormous discount—the index itself would have to fall more than another 13 percent before we began to lose. At the other extreme, especially in a market panic, there was virtually no chance all the shorts would go off. Even if all the orders to sell short were completed, the market would have to rise more than 14 percent for us to lose money. To protect against this possibility, I told my head trader that when we filled close to half the short-sale orders, he should cancel the rest. After he finally complied with my request and completed the first round, I ordered a second round of the same size. In the end we did get roughly half our shorts off for a near-optimal hedge. We had about $9 million worth of futures long and $10 million worth of stock short, locking in $1 million profit. If my trader hadn’t wasted so much of the market day refusing to act, we could have done several more rounds and reaped additional millions.

Thorp's hedge fund lost millions of dollars because their stock trader didn't do his job. It's interesting to me how much dealing with people played a role here. Thorp couldn't just decide what to buy and sell, he had to persuade someone to do it (by threats, because explaining why it was profitable didn't work), even though the trader would not be affected by the outcomes of the trades and it was his job to make the trades Thorp chose.

I also found it interesting how little control Thorp had over what he bought. He ordered twice what he wanted figuring it wouldn't all happen. Why not just tell the trader to keep going until he gets to the amount Thorp actually wants?

See also my previous post on the book, School Mistreated Edward Thorp.