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Critique of Daniel Kahneman – Decision Making Theories

That’s a very bad heading but I could not think of anything else .

What is evil — “ Evil is Knowing Better but doing worse “

Mr. Daniel Kahneman(the nobel winner) is one the most amazing   thinkers of modern era who has just completely changed the way we look at the world and the decisions taken by people in the world. His brilliant book(http://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374275637 )  is a 20 times read. You can just keep reading again and again and again – discovering new things every time you do that. It makes you understand why probably you took a decision when ideally/rationally you should not have done so. So why the critique post ??

Well having read the brilliant book Thinking Fast and Slow by Mr. Daniel Kahneman I noticed something strange in every single question he had ever asked for framing his theories mostly related to monetary gambles/chance/risk taking . They  will NOT  apply completely to the thousands of Bankers, Traders, Lenders, Insurance Sellers(who are or should I say were too big) –who are taking decision under risk . The reason the theories will NOT apply is NOT because decisions are complex or theories completely wrong or they are using System 1 instead of System 2 but because the crucial elements (situations/conditions) are almost always neglected in almost all questionnaires for any psychology/logic tests undertaken by any researcher.

I searched for various of his articles and the references he himself used for writing those and  I could not find the most important factors which affect decision making under risk in real life organization/situation .

The choice of picking a decision using rational calculations or System 1(intuitive) based on prospect theory or whatever is secondary to the conditions surrounding the decision making. The conditions surrounding decision making are NEVER extraneous or too unimportant in real life.

This analysis will look at the financial risk taking while showing that  prospect theory(http://en.wikipedia.org/wiki/Prospect_theory)  cannot explain the decision making in financial world today when complete picture of conditions which leads to reckless risk taking is taken into account i.e. the incentives (bonuses), Superiors’ orders, managing other peoples’ money, too big to fail and implicit guarantee from all Central Banks around the world that you will be saved even if you completely screw up (the whole firm or consequently even the economy).

I would love if Mr. Daniel Kahneman applies all his theories of decision making to the bankers and financial industry as we know today to show how effectively it predicts the actual actions of these Lords of Finance. I am sure the theories cannot be applied to decision making of bankers which have brought terrible misery to millions around the world and amazing riches to bankers and financial institutions.(if you do not believe this stop reading!!)

I argue that what happens in REAL world more than 99% of the time when real people (almost all in some sort of organizational set up) are taking real decisions in organizations which can be observed by anybody is not explainable completely by theories like prospect/certainty effect/loss aversion/utility/System 1 or 2,  etc.

I am not a professor who can catch 50 students and give them a sheet of paper with 5 logic questions (each with 2 choices) and then extrapolate them to real life decision making. I will ask the same questions which have been asked in the book Thinking Fast and Slow  at the end of the write up. The only difference will be – I will use context/surrounding events before anyone has to decide which option to choose. The responses I am sure will be exactly normal as what happens in real life but the responses will violate most of the existing theories regarding decision making under risk.

Continue reading “Critique of Daniel Kahneman – Decision Making Theories”

Charlie Munger and Robinhood — 97 years and still going

This is the video where Charlie Munger on RobinHood and sees that the retail people have been lured into free trading thinking they are investing. but this is a sign of financial excess.

I am a fan of Charlie Munger of course because of his intellect and results good used over 40 years of different market conditions.

But today I suddenly realized I should become his even stronger fan because the person is performing what it does best at 97 years. 97 freaking years of age.

I mean I Will be 97 years of age in 2077. Holy Molly. if at that time I am alive which I hope so I should be doing something productive with my life.

We should really learn from Charlie Munger how to be healthy at 97 years of age. Seriously like all of his physical abilities seem to be pretty OK at 97 years of age. I see people at 44 years of age burnt out and look like they literally don’t want to live. how on earth is that person still performing at 97 years of age and is doing what he loves doing not because of money but because of the love of the work which does.

I hope I find out what I want to do for the next 57 years of my life sooner than later. And as a reader of the block you should to aim to be at 97 years of age and do what you love to do and perform and schedule your days accordingly it’s a long journey.

Large US Banks/Fintech Number of Employees and Market Cap

From viewpoints of employees working in the companies above if your company is in bottom 4 you are on a treadmill thinking you are moving ahead(unless you’re in actual trading/Sales division where you are directly able to leverage your trading/Sales skills for Profit and loss attributed directly to you).

Life in Cold winters like NY, Boston Canada Vs Nice weather of SF, Florida,Miami

Everything in the world has pros and cons. Depends on how you choose to view Aspects of a particular fact. It’s like which story do you want to tell yourself to convince of your actions your likes your dislikes and most importantly your feelings for the same facts. And story can be completely different at different points of time for the same fact. And of course totally different feelings for the same fact by two different people.

So let’s start with the fact where there can be no debate. A lot of developed countries like Canada and large parts of United States(NY, Boston,etc)have very cold winter. By that I mean consistently below 0°C for at least 3 to 5 months. A number of tea is consistently below -10°C Maybe with lot of snow. The amount of sunshine per day during winter is very low as well compared to other places say India or Florida, San Francisco.

Sunshine is directly linked to feeling good. It’s not me who is saying it’s a fact. You can Google your life and you will hopefully not come across reliable reliable source which says otherwise.

Growing up in India where summer is hot winter is well mild compared to Canada I never put too much emphasis on sunlight. It was like always there. And there was a special religious Puja Chath where people actually workshipped Sun God. In fact offering water to sun daily is the ritual which lord of Indian people to even today. Someone might say it’s just some old illogical religious belief probably with no connection with science. Maybe,,,

But having lived in Canada for just three years basically three winters I am now slowly realizing the importance of sunlight daily in our life. This is my opinion but it derives from the fact that sun sunlight essentially dries human happiness. No sun from morning to evening it’s just gloomy. No sunlight on your bare skin for five months boy that’s torture.

I used to wonder why the worst in people become so happy that Summer was coming. now I realize. Somewhere in India was hot with electricity not there and everybody inside their homes because it was too damn hot outside. What is the cold summer in Canada or New York or Boston it’s essentially the February or March season in India. Mild below 30°C temperature every day for at least two months. It’s the happiest days which people in Canada and cold countries get.

Happiness is when you have people whom you love unlike and it’s compounded if you are outside in the sun in the fresh air and you can run around freely. Without having a burden off gloves boots parka and all that crap which winter brings.

Do an experiment right now pick out your phone either the Google photos or the Apple photos page to zoom and check out which months you have taken the most number of pictures. Most number of pictures where you’re happy you’re laughing you’re outside you have sunlight. You have all around the people – happy families- happy, kids happy. Neighbourhoods where kids are cycling others are playing without fear of cold wintry conditions. Freedom it’s taken away by the winter. Remain locked in your home or go to the supposed enjoyable winter sports. Yea ,,, seriously, But in summer(or in SF/TX) you don’t need to go to any resort to enjoy. You just go out of your home and enjoyment begins.

You’ll be surprised or probably not surprised that the happiest moments are not within the confines of air-conditioned home. It’s when you’re outside near the sun or in the shade but at least outside. When going out doesn’t need checking out the temperature and the number of jackets you need to carry. When going out means you just go out whatever you were wearing. Go whenever you can without the fear without limitation without condition. Sunlight with mild temperature assures you you will be happy free and enjoy your life.

I envy the people who live in SF , Florida or large parts of Texas where they’re not confined for 4 to 5 months in the crap air conditions of the home.

People say that you should change what you don’t like if you can. Maybe I’m working on it.

Biggest Learning About Food From Dilbert Maker

The book by Scott Adams how to fillet almost everything and still win is a brilliant book in a lot of aspects and it’s a must read for literally anybody who is not a billionaire yet.

One of the most important learnings I have from that book is related to food which I have been eating for all my life close to 35+ years. this is not a diet book it’s just a general compilation of how the author has gone through life and learned how to change it for the better.

He emphasizes that you should track your problem-solving ability and your body energy level to what you just recently had as a food. For almost everyone I know and at least for myself answer has been – what ? Food is related to Mood? We just think our mood is caused by what is happening in our life our boss or why something is wrong in America maybe even if I don’t live in America. We never attribute our mood to food.

Stop right now check how you’re feeling and make a mental note of what you just ate?

Don’t take anybody’s word for it – even afternoon sleepiness is not really because you just had a meal and you are primed for sleep. What you had for the meal has more capability to impact your energy and your laziness and your sleepiness than just the clock which hit 2 PM or 3 PM.

Experiment: for breakfast go and order pancakes and hashbrowns potatoes and check if you are able to be awake until after lunchtime. I’ll tell you it will not be easy. if you think the heaviness is because you eat more then you are only partially correct. Repeat the experiment but next time in the breakfast or in the lunch eat a combination of fruits veggies nuts salad fish or chicken. Now check after a few hours how do you feel.

The above paragraph has literally changed my life. It’s unbelievably feel good and good mood factor. Just shift away from fast burning carbohydrates to fruits veggies nice nuts salad fish or chicken and then you will have energy in your body which you probably felt only when you were below 20 years of age. And if you are able to do this for all the three basic meals of the day you will have a literal 16 hour energy in your body and you will not even know why your mood is so good.

Use the white rice as a sleeping pill. Of course figure out yourself what is working for you which food is making energetic and which one is making sleepy-avoid the bad increase the good and you will transform your life in the most spectacular fashion. Probably you’re locked down in your home and you have more control over the food you can eat.

That’s it try one day. You can thank me for reading the best food hack ever to transform your life.

Prediction On Lawsuits against Robinhood for GameStop and other stock ban- No considerable amount

There are gazillion articles on the Gamestop saga. Most directly allege Robinhood for its failure to do what is their basic reason for existence ie buy and sell. It failed and at worst possible time. Somehow a lot of other brokers too failed in exactly same way as Robinhood. Coincidence? Or some secret plan? Or just clearing and settlement illiquidity?

But the twitter anger was unbelievable. And rightly so.

And a number of lawsuits have come left right and center. But with TOS being the new commandment my guess is Robinhood will get Scot free, unscathed with no fine whatsoever. Don’t worry no one except lawyers have read it. IMPORTANT Part is right below!!

Robinhood Crucial TOS

Try searching the fines Robinhood paid for failing multiple times completely. You won’t find any reasonable fines. It’s of course how law is designed so that the typical low profit customer can’t really extract big money from companies easily especially

I hope they are fined and pay through their nose just like I hoped lot of big CEOs of banks and AIG would go to jail get their bonuses clawed back and so on ….. 😔😔😔 but reality is different than hope. Watch this Dirty Money on netflix where individuals do not get prosecuted for even abetting criminals.