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12 / Fleeting Thoughts on Rationality and Climate Change

12 / Fleeting Thoughts on Rationality and Climate Change
Photo by Matt Palmer / Unsplash

I've recently been consumed by the Conservative Party leadership race in the UK. In the midst of all the negativity there (cost of living crisis, heatwaves, etc.), there is some positive news: the next Prime Minister will either be a woman or one with a racial minority background.

Nobody seems to be talking about it, but I wonder what a brown PM might mean for the UK, if anything. Maybe I'll publish some thoughts later.

Anyway,

This week's doses of finance, the world and sources of interest.


#1. Doses of Finance đź’°

We Cannot Be Rational

At the basis of traditional finance theories is the assumption that people are consistently rational. However, this is far from the truth. Here's one quick story to illustrate.

In 1997, Richard Thaler, the (2017) Nobel Prize winner in Economics conducted an experiment. He placed an ad in the Financial Times inviting people to play a simple game...

Thaler asked readers to choose a number between 0 and 100. The person whose number is the closest to two thirds of the average of everyone else's choice would be the winner.

What number would you choose?

What would be the best choice?

Logically, the best choice would be 0.

If all guesses average to 50, then 33 is actually the best guess as it is two thirds of this average. Thus, a lot of people might decide intuitively to choose 33 instead of 50. However, that will make 22 the best guess.

So, if you carry this through to its logical end, you’ll eventually see that 0 is the optimal answer.


If we lived in a world where people consistently used information rationally and optimally, everybody would choose 0. Of course, that didn’t happen in Thaler's experiment. The average of all guesses was 18.9, with the winning entry being 13.

In Forecast by Mark Buchanan, he questions if absolute rationality can exist at all. When we carry a supposedly “rational” process through to its logical conclusion, we see an absurd chain of events that reveals rationality to be an illusion.

Let’s say that a fund you’ve invested in is crashing, and you’re thinking of selling it. But before making a decision (and without being emotional), you have to carry out research and gather information, so that you’ll ultimately be able to take the best course of action: to sell or not.

Most investors know that trying to time the market is contrary to achieving their long-term goals, but knowing that to be true doesn't necessarily keep you from making the wrong decisions when markets are slumping.

If you were fully rational, you’d spend the optimal amount of time on research and then make a decision. But how can you possibly know what that amount of time is? To determine it, you’d have to decide how much time to spend on thinking about the optimal amount of time for research – which presents the problem of how much time you should take for that step. Absurd, right?

Countless experiments show humans as incapable of making the right decisions. We are emotional, myopic, and easily confused. Even if we are capable of being rational, we certainly don’t behave rationally all the time.

Maybe it's impossible to be completely rational about making financial decisions.

Maybe the point here is that the choice isn’t between making a rational or irrational decision, but rather a question about how best to manage the tensions between these two forces.

Maybe recognising when you are not being as rational as you can be might help you slow down. The more time you take, the less likely you are to make a bad decision.


#2. In the (Burning) World 🔥

The Writing's on the Wall

We have all seen the likes of Greta Thunberg scream at the UN: "How dare you". We have all read books like David Wallace-Well's The Uninhabitable Earth. We have all watched the most famous of actors and actresses play in a disaster movie about us humans being complacent. But it seems nothing has worked and we are now seeing climate change play out before our eyes.

More than 100 million Americans now live in places that are under some sort of extreme heat warning. Whilst record temperatures and voracious wildfires are familiar in the U.S., the UK is in a national emergency, with unprecedented heatwaves and forecasts of over 40°C  - hotter than 98% of the planet's surface. Meanwhile, France, Greece, Italy, Spain and Portugal are sustaining heat waves and raging wildfires.

This should be a 'real' wake-up call for governments, businesses and ordinary people (including myself). The science is clear, the crisis is real.

Our lifestyles and infrastructure is not adapted to what is coming.

Heat waves will happen sooner, more frequently and with more severity.

2°C of warming is bad, but 2.01°C of warming is really bad.

If we surpass 2°C of global warming, 1.7 billion more people could experience severe heatwaves at least once every five years, and millions of people in urban areas could be exposed to severe drought.

The writing's on the wall.

+ How we will fight climate change. "The most important single factor in the fight against climate change is technology…[N]ow that these technologies are becoming cheaper than fossil fuels…fighting climate change is becoming economically easy, or even advantageous"... "As technologies develop, they get cheaper. As they get cheaper, more companies adopt them. As more companies adopt them, their leaders grow more comfortable with climate policy generally—and more supportive of pro-technology policy in particular. As more corporate leaders support climate policy, coalitions change, governments can pass more aggressive measures, and the cycle expands and begins again." [Noahpinion]

+ Why disasters are getting more severe but killing fewer people. An important but overlooked piece of good news about climate change. [Vox]

+ Not Too Late. A one-pager (+ FAQ) to share. It’s a simple reminder that no matter how bad things will get, it’s never too late to become more educated and engaged in the issue. [Not Too Late]


#3. Sources of Interest đź’ˇ

Read:

  • The Hidden History of Tehran’s Red-Light District. "After a revolutionary mob torched Shahrinaw in 1979, the Iranian authorities erased all traces of the neighbourhood that had served as Tehran’s red-light district since the turn of the century. Simply retelling its story represents an important intervention in the ever-present struggle to claim public space for women." [Failed Architecture]

Watch:

  • How to Change Your Mind. A new Netflix documentary series based on a book about psychedelic therapy. A thoughtful look at psychedelics, their uneasy history in modern society, centuries-long sacramental use and the ways in which they are being used to treat patients with maladies including post-traumatic stress disorder, addiction, depression, anxiety and obsessive-compulsive disorder. See the trailer here. "True science probes the very frontiers of human knowledge. And that's where psychedelic research is right now". Three interesting facts from the series:
  1. The co-founder of Alcoholics Anonymous, Bill Wilson, quit drinking after being administered psychedelics and having a spiritual awakening.
  2. A J.P. Morgan banker in the 50's was responsible for inspiring scientists to take up the study of psilocybin, the active ingredient in magic mushrooms.
  3. The indigenous peoples of Mexico used mushrooms as part of an age old tradition and as sacred medicine until the Spaniards came along and crushed it 400 years ago as the Catholic Church systematically condemned it.
  • Video for the case of a 4 day week, narrated by Stephen Fry, arguing that the world would be a happier and even a more productive place with a shorter working week. Research shows that remote workers put in 3 more extra weeks of work every year:

I hope that some of these passages gave you something to think about.

Reply to this and let me know which links or comments resonate with you, what you think of the newsletter, and if there’s anything I can support you with.

Happy Weekend.