Anecdotes, Data and Other Forms of Bloviation

Nassim Taleb is a bloviator, but he is often right.  His hedge fund, Empirica, which made money by placing bets on fat tails and black swans, finished far in the black when it wound up in 2005.  Taleb won big when equity markets tanked in 1987.  A successor fund to Empirica, to which Taleb was an advisor, cleaned up in 2008 and in early 2020, when indices got whacked by early Covid.  He is an arrogant prick, but he is doing something right.

In qualitative terms, his discourse often returns to two points.  The first is that the real world is not like a game of blackjack.  Results from a roll of dice or cards dealt from a randomly-shuffled deck of cards form a well-shaped bell-curve.  In real life, the curve often has ‘fat tails’, representing catastrophic events that happen more often than the models represent.  His father died, penniless, in exile in Athens.  Maybe he was a fan of Seferis –

But the country they’re chopping up and burning like a pine tree – you see it
either in the dark train, without water, the windows broken, night after night
or in the burning ship that according to the statistics is bound to sink –
this has taken root in the mind and doesn’t change.

(I understand that Taleb made his money by betting that black swan events will happen.  In the simplest form, you should be able to do this by buying puts.  In practice, it is difficult to do this, because out-of-the-money puts tend to be expensive – their implied volatility is higher than that of near-the-money options – and it is most likely that you will be bled dry before you hit it big.  The skill is in calculating expected return for the long positions and sizing your bets right.  It also involves collecting premium in certain contexts.  For example, a trader might put on a ratio spread, pursuant to which the trader shorts one ATM contract and buys two far OTM contracts, for a small net credit.  If the market stays put, the trader collects a small premium.  If the market moves against him a small or medium amount, he will lose an amount whose limit is defined but larger than the net credit that he collected.  If the market makes a big move, he hits it out of the park.)

The other thing that Taleb likes to say is, ‘We are swayed by anecdotes’.  People believe stories, because a story places you in the data.  Numbers, facts, tables and charts don’t do that.  Nothing else has the power of a story.  Facts are true, but stories get your dopamine going.  Because of this, everyone these days is a storyteller.  Take a random walk through LinkedIn.  You will find people who title themselves Brand Ambassador.  Influencer.  Storyteller.  Musician.  Teacher.  Storyteller.  Cook.  Lover.  Storyteller.  Real Estate Investor.  Pastor.  Storyteller.[1] 

I will avoid positing a functional explanation for this.  Some people say that we evolved to think this way because it facilitates the type of ‘fast thinking’ that is useful if you are fleeing a large animal on the savannah.  Functional explanations are inherently problematic, because they assume the existence of a need that is sometimes impossible to prove or disprove.  That said, the hypothesis is intuitively appealing.

Taleb does not think that our susceptibility to stories is a good thing.  That is because when slow, reflective thinking is needed, stories lie.  The truth lies in the data.  Stories are used by conspiracy theorists, car salesmen, anti-vaxxers, and Fox News commentators to twist the truth.  It doesn’t matter if one guy with a PhD from Cornell doesn’t like RNA vaccines.  It doesn’t matter if your great-uncle lived to the age of ninety-five and smoked a pack of unfiltered Marlboros every day.  It doesn’t matter if Jewish space lasers sound really cool and could, you know, explain forest fires in California.  If you want to find the truth in situations that require slow thinking, you divorce yourself from your emotions and look at the data.  Yes, Florida will be underwater in a generation.  Yes, the only plausible explanation for climate change is carbon emissions.  Yes, guns are a necessary but not sufficient condition for many homicides.  It doesn’t matter if a senator brought a snowball into the chamber, or if one civilian with a gun, once, used that gun to stop another guy from doing bad things.  Numbers don’t lie.  People with nefarious agendas lie.

The problem – says Taleb – is that the world is becoming more and more complex, but our capacity for transmitting stories that twist the truth has grown exponentially with the growth of social media.  Phenomena like the danger posed by rent regulations and climate change are difficult to explain using stories because the link between their causes and their effects are indirect and delayed.  They do not provide the dopamine zap that slogans like ‘The rent is too damn high’, or ‘The only way to stop a bad guy with a gun is yak, yak, yak’, or stories about residents of manufactured homes collecting their belongings, trundling their mother with diabetes and their son on the autism spectrum into their car, and searching for another place to live after the owner of their park sold the land to a developer who wants to build a Home Depot on it can provide.

A few days ago, a young person asked me, ‘Have you ever evicted a single mother?’  The question was meant to be a challenge.  How could you do something like that? was the subtext.  How could anyone do something so horrific?  I saw that I needed to show that the issue was more complex than the question, so I said, ‘Let me answer that with a story’.  The young person is dating my youngest child.  When I told him that a mobile home park owner was going to tell him a story about park ownership, his eyes got as big as saucers.

A story is a rhetorical trick.  The question was a fast-thinking grenade lobbed into a context better suited for slow thinking.  In a perfect world, I would have responded with charts and numbers, but I needed to fight fire with fire. 

‘Once upon a time’, I said, in my park in central New York, there lived a married couple with three children.  The couple’s neighbor ran an unlicensed day-care center.  The couple had their neighbor look after their eighteen-month-old son while they were at work.

One day, the boy was raped while he was at the daycare center.  The details are unknown by everyone except the perpetrator and the victim.  All we know is that the boy was bleeding from his anus when he got home and appeared to be traumatized.

When I found out about this, I called the woman who ran the daycare center.  She told me that the crime had been committed by her sixteen-year-old autistic nephew.  She swore that he would never visit the park again, and she begged me to allow her to stay in the park.  I told her that she needed to move immediately.  To save the time and evidentiary problems associated with an eviction proceeding, I told her that I would pay her five grand if she signed her home over to the park and moved out immediately.  The home was worth significantly less than that amount.  She protested and cried, but took the money and left.

Including repairs and opportunity cost, it cost me twelve grand to get her out of the park.  As a business matter, my behavior was irrational.  The easiest way for me to maximize my profit would have been to do nothing.   I spent the money because – call me crazy, if you will – I think that child sexual abuse is wrong, and I wanted it out of the park.

‘But where’s the single mother?’, the young person said.  ‘Where’s the eviction?’  I thought you were going to discuss’ –

‘Shut up’, I explained.  ‘I’ll get to that.’

After the neighbor left, the mother and her husband both pulled me aside and thanked me for what I had done.  ‘Aw shucks’, I said.  ‘I just hope your son is OK.’  They told me that he seemed to be doing as well as any child could, given the circumstances.  I said that I was glad to hear that.

A year later, the mother and her husband divorced.  He moved out and left her with three kids to take care of.  She started to have trouble paying the lot rent.  I told her, ‘We have an agreement.  I provide you with clean, safe and affordable housing and you pay me a fee.  I have gone above and beyond in keeping my side of the bargain.  You need to keep yours.’

‘It’s tight’, she said.  ‘I am short on funds.  I will pay you the middle of next month.’

‘Pay on time’, I said.  She started to tell me a story about why she was having trouble.  ‘No stories’, I said.  ‘I care about the result, not the process.’

She struggled.  I told her that I would use every available remedy to enforce my contractual rights.  She realized that I was playing for keeps and, with effort, she got back on track.

‘So that’s it?’, the callow youth asked me.

‘No, I said.  ‘If you want to date my kid, listen.’

A year after this happened, the mother missed a payment, and then another.  I sent her a dunning text and she texted me back, ‘I’m GOING INTO LABOR NOW.  I will have your money when I have it.’  The manager of that park, Dee Dee, told me that the mother had told her that she was going to have some trouble making rent because she was pregnant with her fourth child, she lived alone, and the state was dragging its feet in paying her maternity leave benefits.  That made me lose it.  ‘What the fuck’, I said.  ‘She was already struggling with three kids, alone.  Where does she get off using a fourth kid as an excuse?’

I had gotten in Dee Dee’s face.  ‘I’m just the messenger’, she said.  ‘Don’t spit on me.’

‘Where does she get off?  I said.  ‘I have bent over backwards to help her, but she has blown off our agreement!  She can have as many kids as she wants!  I like kids!  But she was having trouble paying the bills already!  Why the hell does she think having the bad judgment to give birth to another kid when she is broke is reason for me to cut her slack?’

Dee Dee was rolling her eyes.

‘It would be one thing if she were sixteen and got knocked up!  She’s not!  She’s thirty-two!  She knows what goes where, for fuck’s sake!  It’s not like this just happened without her participation!  She is an agent, not a victim!  This is New York!  Birth control is legal and widely available!  Abortions are free, safe and legal here, as they should be everywhere!’

Dee Dee was awaiting instructions.  I collected myself and said,

‘Tell her that she will get a thirty day notice at the end of the month.  If she does not pay up in thirty days, she will get a notice of petition and request to appear in court in a summary proceeding.  If she does not pay before the hearing, the judge will issue a warrant and she will be evicted.’

By this time, the callow young person’s eyes were permanently stretched open and his tongue was hanging out.  ‘So – what happened?’, he asked.

‘She got current’, I said.  ‘She saw I was still playing for keeps.  Sometimes you use the carrot, sometimes you use the stick.  You proceed empirically.  Whatever works, you use.’

I thought, briefly, of starting a PE fund that would invest in distressed mobile home parks in red states.  I could call it Empirica Manufactured Housing Fund, LLC, and I could tell investors that, although past performance is no guarantee of future results, funds with that name have had a good track record so far.  Then, I snapped out of my reverie and remembered that I am too cranky to own anything less than the whole capital stack.  As my eyes came back into focus, I heard the callow youth saying,

‘So – you didn’t evict her?’

‘No – but I was ready, willing and able.  I had done more than my fair share under our contract.  Some people won’t do theirs, unless you flex your legal remedy.  If you do not hold people to their agreements, you will not remain in business.  If you don’t stay in business, you will not be able to provide clean, safe and affordable housing to the people who play by the rules.  Sometimes you have to break heads to save heads.  It is an ugly but true fact.’

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[1]To mutare the mutanda, substitute ‘Bullshit Artist’ for ‘Storyteller’.