Why A Complex World Needs Simpler Rules, And Absolute Metrics: Have You Ever Owned A Motorcycle?

Why A Complex World Needs Simpler Rules, And Absolute Metrics: Have You Ever Owned A Motorcycle?

By: greenbackd

In a great article The Wiki Man: If you want to diet, I’m afraid you really do need one weird rule Rory Sutherland argues that we require a “black-and-white, binary approach” to things we find psychologically difficult to follow. Sutherland says, “And as the world’s religions have known for thousands of years, abstinence is far easier than the continuous exercise of self-restraint. Or, as the neuroscientist V.S. Ramachandran suggests, “humans may not have free will but they do have free won’t.”

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More


Absolute rules (if X, then Y) work with the grain of human nature. We feel far more guilt running a red light than breaking a speed limit. Notice that almost all religious laws are absolute: no food is half kosher; it is or it isn’t. No Old Testament prophet proposed something as daft as the French 35-hour ‘working-time directive’: they invented the Sabbath instead.

In a more complex world weighed down by Big Data, convoluted tax structures and impenetrable legislation, do we actually need more of what religion once gave us: simple, unambiguous, universal absolutes? In law such rules are known as Bright Line Rules: rather than 20 million words of tax law, you simply declare ‘any financial transaction whose only conceivable motivation is the avoidance of tax is by definition illegal’.

Does a complex world need simpler rules? And simpler metrics?The temptation is that because we have gigabytes of data, we feel the need to use all of it. Perhaps all you need is a few bits of the right information?

During the second world war, experts needed to decide whom to train as RAF fighter pilots. Today this would mean a battery of complex tests. Back then they used two simple questions: 1) Have you ever owned a motorcycle? 2) Do you own one now? The ideal recruits were those who answered 1) Yes and 2) No. They wanted people who had been brave enough to ride a motorbike but were sane enough to abandon the habit.

How many of the world’s problems could be solved if we abandoned this pretence of perfect rationality and fell back on simple, heuristic rules of thumb? According to the brilliant German decision-scientist Gerd Gigerenzer, quite a few.

The investing corollaries are easy to find. I’ll expand on that later this week.

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My name is Tobias Carlisle. I am the founder and managing member of Eyquem Investment Management LLC, and portfolio manager of Eyquem Fund LP. Eyquem Fund LP pursues a deep value, contrarian, Grahamite investment strategy based on the research featured in Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (hardcover, 288 pages, Wiley Finance, December 26, 2012), and discussed on Greenbackd. I have extensive experience in activist investment, company valuation, public company corporate governance, and mergers and acquisitions law. Prior to founding Eyquem, I was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions I have advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam, ranging in value from $50 million to $2.5 billion. I am a graduate of the University of Queensland in Australia with degrees in law and business (management). Contact me I can be contacted at greenbackd [at] gmail [dot] com. I welcome all feedback. Connect on LinkedIn, where we’re Friends.