Non-expiring information

I liked this line from this piece at Farnam Street:

A lot of us are on the treadmill of consuming expiring information.

Expiring information is not the same as trivia, which can be useful and interesting. It is instead knowledge which has a short shelf-life.

A lot of talk about Brexit has been expiring information. We are no nearer today to knowing what type of Brexit we’ll get (or even if or when we’ll get it) than we were on June 24^th 2016. All the effort expended over the last 32 months on wondering what will happen has therefore been largely wasted. News which looked useful at the time turned out not to be. It was more noise than signal.

Much the same is true in stock markets. It’s very easy to spend your life accumulating lots of detailed factoids about individual companies which give the impression that you are an expert but which are otherwise useless. Either they have no ability (pdf) to predict future returns, or if they had it once they might not have it now or in future. Such factoids are expiring information: in fact, insofar as the efficient market hypothesis is correct, the expiry date has passed.

What can we do about this? I have two responses.

First, I ask of any claim or fact: so what? Why should I care?   In stock markets, we have a handful of factors which have (at least in the past) been good lead indicators of returns on the aggregate market. These include: the dividend yield; foreign buying of US equities (a great indicator of investor sentiment) and – yes – the time of year. The rest is noise.

Similarly, if I want to know whether the US will experience a recession soon, I look at the yield curve and consumption-wealth ratios (pdf) and discount heavily most other information.

This point probably generalizes to fields other than finance.

Warren Buffet, I suspect, does much  the same thing. Despite Farnam Street’s portrayal of him as a gatherer of useful facts, his success has rested largely upon exploiting two big things: an ability to raise very cheap finance; and the buying of defensive stocks, a category of share we’ve known since 1972 to be under-priced.

Secondly, I try to collect examples and counter-examples of general purpose knowledge. For me, there are two big sets here.

One set is of cognitive biases – mistakes we make and which we should avoid in future decisions.

The other set is of mechanisms. As Jon Elster said, the social sciences are essentially a collection of mechanisms. Sometimes, for example, there are mechanisms through which markets work well to allocate resources and sometimes there are ones (pdf) through which they work badly.

What I’m doing here is blurring the distinction Ernest Rutherford (probably) made when he said that all sciences were either physics or stamp-collecting. It’s true that the social sciences don’t have the handful of powerful predictive laws that physics does. But this doesn’t mean we must content ourselves merely with gathering disparate unrelated facts. Facts can be organized into examples and counter-examples of mechanisms – although we might never have a complete inventory of these.

I’m also doubting the relevance of the ancient distinction between foxes (which know many things) and hedgehogs (which know one big thing). The important thing isn’t whether you know one thing or many things, but whether you what what’s relevant and what’s not.

Comments

[Roy Lonergan]

Chris

The better version of the alleged Rutherford quote is from Lord Kelvin:

“I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be.”

Quite a strong claim epistemologically, but more charitable than the Rutherford version.

Roy

[Mike W]

Roy,Chris

Rutherford/Kelvin quote.

I'm not sure they are the same form. The 'Merely stamp collecting' jibe is/was aimed at 19th Biology - classification etc, as much as modern Social Science or History.

In fact,the Kelvin quote would, for example, remove Darwin from his 'Scientific', as great as Newton position, and the stunning, first three chapters of 'Origins' (Variation Under Domestication, etc, as non-maths, 'non-science'. Clearly not a very sensible view to adopt.

Modern Econ seems to adopt a version of this fake 'maths' 'Ideal Type', apriori starting position as its most satisfactory 'demarcation criteria' from the other Social Sciences. As you say, 'Quite a strong claim epistemologically': far to strong, unless used to support an ideological position and you can get away with it!

As it happens, Darwin I recall, was once forced to give an estimate of number of years evolution needed to take place on our planet for the press. He had no real idea, but felt he should say something - so made a best guess, and stated this 'solid number' of years. Lord Kelvin jumped on this best guess and argued that his own estimate of the Earth's age didn't in fact allow for the millions of years Darwin had claimed.

So Kelvin's numbers showed Darwin's theory plain falsified by best practice 19th century Physics and Maths? At the time yes, but as we now know, Er.. no. (Darwin to his credit withdraw from the discussion)

Numbers - figures - natural language are all open to error, and like Kelvin's argument against Darwin itself, open to revision later. Maths equals Progress in Kuhn's 'Normal Science' for sure. But Genius like Darwin's uses all tools that can be found, well beyond an Econ 101, type understanding of our social world I fear.

[georgesdelatour]

A big problem is figuring how much relative weight to give to a series of facts, all of which are true.

Are you aware of George Friedman, of STRATFOR? Friedman frequently comes to conclusions about the world which seem bizarre and unlikely to me, even though nothing in his analyses is obviously based on false or out-of-date data. For instance, he thinks China’s long term prospects are really bad, and the Chinese state may even break apart within the next few decades. He’s not just talking about friction with the Uighurs and Tibetans, but between solidly Han-majority regions. He’s right that wealth disparities between the prosperous coastal cities and the poorer interior are growing. But my guess would be that the Chinese government would intervene and redistribute wealth aggressively if such disparities looked like they could lead to political dissolution.

[Robert Mitchell]

Physics couldn't even predict the orbital speed of stars in galaxies correctly, nor the accelerating expansion of the universe. Physics too is noisy. According to Fischer Black in Noise, everything human is noisy. So we should stop listening to economists telling us to fear inflation.

[Andrew S]

Yes, but... It seems to me that expiring information would focus on a process and non-expiring information is about an outcome. And if we don't get interested in, and engage with, a process, we might not like the outcome. Brexit is a case in point, but in other terms, if Arsenal are 1-0 up after 30 minutes, that is clearly expiring information. Do we just do something else until the final whistle? No, we cheer the team, swear at the referee and jeer the opponents to try and get the outcome we want