Wednesday, April 19, 2017

"How to Choose With Less Than Perfect Information"

Following up on yesterday's "Paul Tudor Jones On 'Imperfect Information'", a repost from 2014:

Less-than-perfect-information is a term from decision theory.
From Aeon:

How to choose?
When your reasons are worse than useless, sometimes the most rational choice is a random stab in the dark

We could start with birds, or we could start with Greeks. Each option has advantages.
Let’s flip a coin. Heads and it’s the Greeks, tails and it’s the birds.

In the 1970s, a young American anthropologist named Michael Dove set out for Indonesia, intending to solve an ethnographic mystery. Then a graduate student at Stanford, Dove had been reading about the Kantu’, a group of subsistence farmers who live in the tropical forests of Borneo. The Kantu’ practise the kind of shifting agriculture known to anthropologists as swidden farming, and to everyone else as slash-and-burn. Swidden farmers usually grow crops in nutrient-poor soil. They use fire to clear their fields, which they abandon at the end of each growing season.

Like other swidden farmers, the Kantu’ would establish new farming sites ever year in which to grow rice and other crops. Unlike most other swidden farmers, the Kantu’ choose where to place these fields through a ritualised form of birdwatching. They believe that certain species of bird – the Scarlet-rumped Trogon, the Rufous Piculet, and five others – are the sons-in-law of God. The appearances of these birds guide the affairs of human beings. So, in order to select a site for cultivation, a Kantu’ farmer would walk through the forest until he spotted the right combination of omen birds. And there he would clear a field and plant his crops.

Dove figured that the birds must be serving as some kind of ecological indicator. Perhaps they gravitated toward good soil, or smaller trees, or some other useful characteristic of a swidden site. After all, the Kantu’ had been using bird augury for generations, and they hadn’t starved yet. The birds, Dove assumed, had to be telling the Kantu’ something about the land. But neither he, nor any other anthropologist, had any notion of what that something was.

He followed Kantu’ augurers. He watched omen birds. He measured the size of each household’s harvest. And he became more and more confused. Kantu’ augury is so intricate, so dependent on slight alterations and is-the-bird-to-my-left-or-my-right contingencies that Dove soon found there was no discernible correlation at all between Piculets and Trogons and the success of a Kantu’ crop. The augurers he was shadowing, Dove told me, ‘looked more and more like people who were rolling dice’.

Stumped, he switched dissertation topics. But the augury nagged him. He kept thinking about it for ‘a decade or two’. And then one day he realised that he had been looking at the question the wrong way all the time. Dove had been asking whether Kantu’ augury imparted useful ecological information, as opposed to being random. But what if augury was useful precisely because it was random?
For the Kantu’, the best option was one familiar to any investor when faced with an unpredictable market: they needed to diversify
Tropical swidden agriculture is a fundamentally unpredictable enterprise. The success of a Kantu’ swidden depends on rainfall, pest outbreaks and river levels, among other factors. A patch of forest that might yield a good harvest in a rainy year could be unproductive in a drier year, or in a year when a certain pest spreads. And things such as pest outbreaks or the weather are pretty much impossible to predict weeks or months in the future, both for humans and for birds.

In the face of such uncertainty, though, the human tendency is to seek some kind of order – to come up with a systematic method for choosing a field site, and, in particular, to make decisions based on the conditions of the previous year.

Neither option is useful. Last year’s conditions have pretty much no bearing on events in the years ahead (a rainy July 2013 does not have any bearing on the wetness of July 2014). And systematic methods can be prey to all sorts of biases. If, for example, a Kantu’ farmer predicted that the water levels would be favourable one year, and so put all his fields next to the river, a single flood could wipe out his entire crop. For the Kantu’, the best option was one familiar to any investor when faced with an unpredictable market: they needed to diversify. And bird augury was an especially effective way to bring about that kind of diversification.

It makes sense that it should have taken Dove some 15 years to realise that randomness could be an asset. As moderns, we take it for granted that the best decisions stem from a process of empirical analysis and informed choice, with a clear goal in mind. That kind of decision-making, at least in theory, undergirds the ways that we choose political leaders, play the stock market, and select candidates for schools and jobs. It also shapes the way in which we critique the rituals and superstitions of others. But, as the Kantu’ illustrate, there are plenty of situations when random chance really is your best option. And those situations might be far more prevalent in our modern lives than we generally admit....MORE
Tangentially related:
"Using Chaos Theory to Predict and Prevent Catastrophic ‘Dragon King’ Events"
Think a coin toss has a 50-50 chance? Think again.
Gamblers Take Note: The Odds in a Coin Flip Aren't Quite 50/50