Sunday, July 24, 2016

Survivalship in a world of dis-information: information, signals and noise (part 1)

Figure 1: if you can read the pattern inside, you are not daltonic :-)

Today I am gonna talk about some key terms that you hear from the TV news, or read on the newspapers, especially when they are misplaced.
Bear in mind that this blog is meant for a family father or a curious guy who wants to understand what is really going on in the world of economics to protect his wealth, or to increase its assets, with the aim of providing his family with:
1. a good education
2. a nice house, worth its price
3. an understanding why the eurozone is a complete fail, no matter what the newspaper may write
4. why on average you are getting poorer and poorer if you are employed and you live in the Western Countries.
5. ideas on how to invest your money, or not to waste it, to improve your well-being

The aforementioned examples are only a few cases I have been covering: I will expand examples and studies as long as I go on writing on this blog. Of course, before you start to invest, it is important to understand what money is, what credit is, and how to avoid epic mistakes by getting into debt without knowing the risk associated.

As you may have guessed, I like having the  complete picture clear in my mind before writing. There are bloggers who are very good in keeping up to date with news and decisions from Central Banks or the European Parliament. I prefer a long term approach, and explanations that can be applied for years and years and can help you identify a trend, that is a path inside a large deal of information, quite often contradictory.
TV news and papers copy the news from each other (I will cover the reason for this in a dedicated post, because it is a very important and interesting topic), so it is very difficult to build a good opinion from information which is the same wherever the direction you look in: in other terms, it is difficult to get information with an acceptable degree of diversification.

  • whatever you political orientation is (left-wing or right-wing), 
  • whatever your education level or kind is (graduated, under-graduated, technical or humanistic)
  • whatever your personal interests are
  • whatever your personal attitudes may be

you take your decisions on the basis of the information you get from the world around you, that is friends, relatives, children, tv news, radio, books etc.

What your ears hear, what your eyes see, your mind is inclined to believe. You cannot escape this: you are a human being and yout brain correctly take decisions on the basis of the inputs it gets from the surrounding world.

The problem is:
what if the inputs are biased, wrong or incomplete? 

There have been cases of philosophers who so strongly believed in what there schemes about the world were, that they preferred to end up losing their mind or their physical faculties than recognizing that the experiences coming from the outer world were contradicting their sophisticated architectures. In philosophy, this attitude is called solipsism and, in a moderate doses, it is extensively valuable to live better and to focus on the right news and right signals.

NOTE: have you read the book "The big short" or watched the homonymous movie taken from the novel? In the movie, which is very close to the book, the character of Michael Burry, an investor who took huge profits from the american subrime crisis, was wonderfully played by Christian Bale. The guy was an man who, thanks to his genius and especially to his sickness - he suffered from autism- could see hidden patterns in million data that nobody was looking into and that no one else would have gut a clue from in any case!

Figure 2: gifted autistic for "unusual" pattern recognition

There is a drawback, or a risk, in this attitude:  if you look for hidden patterns everywhere, and every time, you end up going out of your mind in the worst case, or becoming a permanent conspiracy theorist in the best case.
In both cases, you get your feet off the ground and look only for evidences to confirm your theories: you become biased, and you are unable to look at the world with a detached view.

Typically, the more sophisticated and educated you are, the more you look for a general "scheme" behind things and you tend to isolate your mind from the daily noise coming from the customers in a bar, the chronicle, the economic and social complains from your neighbor etc.
You try to look at signals that are worthy to you, valuable to help you take decisions (change house, change job, change country) with the minimum risk and the best outcome.

So, we have three key terms here, that I have emphasized:
  • information,
  • signals, and 
  • noise.
In some of the next posts, I will cover the meaning of these three terms, and I will make examples taken from today's world and news to show up how information is rigged, especially in Europe's press. I will try to provide you with the means of understanding when information sounds "strange" or "rigged".

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