This is the last time I will ever connect the dots.*
connecting.the.dots began as a news filter for my supervisors at work. Basically, my job was to sift through the junk and pick out the important stuff. This was a bit daunting for a guy still struggling to explain the difference between stocks and bonds.
At first I was thrilled by all the exciting new things I was learning. Poring over the financial news every day was like learning a new language for me. I actually took a print copy of the Wall Street Journal on my first day and highlighted every word I didn’t know so I could look it up later on Google (ps. the paper was glowing).
Somewhere along the way things started to make sense. I was connecting the dots with sharpie instead of pencil. I was connecting more and more dots, and paragraphs started to form.
And then there were images, symbols, memories of movies and pop culture references that somehow seemed appropriate. This giant scattering of dots started to actually look like something…the stories were developing.
And then something funny happened: I started resenting the connection of the dots.
It began around the time I read Thinking, Fast And Slow by Daniel Kahneman, a psychologist cum behavioral economist who has even better things to say about happiness than either psychology or economics. Nearly all of Kahneman’s ideas fit within a “two agent” metaphor which he uses for describing how the mind works. These are System 1 and System 2. He writes:
System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control. System 2 allocates attention to the effortful mental activities that demand it, including complex calculations.
System 1 continuously generates suggestions for System 2: impressions, intuitions, intentions and feelings. If endorsed by System 2, impressions and intuitions turn into beliefs, and impulses turn into voluntary actions.
System 1 is not prone to doubt. It suppresses ambiguity and spontaneously constructs stories that are as coherent as possible…System 1 runs ahead of the facts in constructing a rich image on the basis of scraps of evidence. A machine for jumping to conclusions…will produce a representation of reality that makes too much sense.
Suddenly I was not so thrilled about all of the connecting going on with these dots. I worried that I was spontaneously constructing stories on scraps of evidence in the hopes of producing a quick representation of reality.
I could see connecting.the.dots for what it was: System 1 run amok. The solution, it seemed, was to simply stop drawing lines between the dots. In other words, turn off the noise.
But there is an interesting feature of System 1 that we can’t control:
One further limitation of System 1 is that it cannot be turned off.
And yet System 2 is almost always off. This is for the same reason that we are almost always in a state of physical rest (or at least a slow pace). We don’t like to sprint to work, do jumping jacks up the stairs or push-ups in between meetings because it’s exhausting. Similarly, the mental effort required to constantly check our assumptions about what is happening and why is straight up hard.
When System 1 runs into difficulty, it calls on System 2 to support more detailed and specific processing that may solve the problem of the moment…System 2 is activated when an event is detected that violates the model of the world that System 1 maintains.
The goal, then, is to find a way to encourage System 2, that lazy, thoughtful slob, to get off the couch and tinker with our reality (i.e. put our beliefs and assumptions through the wringer). And this seems to occur only when we observe a violation of the model System 1 has created.
Which brings me to noise cancellation.
How Active Noise Cancellation Technology Works
“Noise, as we know, is a mixture of compression and refraction phases of waves. Active noise cancellation technology creates what is known as antiphase, which is a wave of amplitude similar to that of the outside noise; but with an inverted phase. This antiphase wave, created by the internal circuitry, comes out of the speakers and mixes with the noise…this phenomenon is known as destructive interference…by wearing these headsets, you can have a peaceful sleep in a noisy environment.”
Point: silence (in this case) is not the absence of sound. Noise cancellation may be experienced as if there is an absence of sound, however noise cancellation does not work by subtraction; it works by addition.
In other words, silence is generated. By deliberately introducing an antiphase wave, we can generate silence out of noise.
This dynamic (destructive interference) is essentially what we need to help encourage System 2. When we observe violations (antiphase waves) to the model our System 1 has built, we call on System 2.
System 1 is always on, always listening, always interpreting and always making decisions in the background. It requires no effort. System 2, on the other hand, is intentional, thoughtful, rigorous, deliberate and careful. But it requires effort. It must be turned on in order to reap its benefits.
Once activated, System 2 monitors and challenges the assumptions made by System 1. Activating System 2 can lead to better decision making and, hopefully, peaceful sleep in a noisy environment.
This is what I hope you experienced by reading connecting.the.dots. I hope your System 1 was rattled at least once. I hope you observed at least one antiphase wave that encouraged your System 2 into action. I hope your beliefs and conclusions about markets, economics, asset prices, monetary policy, demographics…the future…
I hope they were tested. Otherwise, I apologize for contributing to the cacophony.