TGA Foundations: Frequency Of Exposure
Level 1...And That's Okay
Before we dive in, I'd like you to consider this fundamental question:
What’s the point of data?
In this core principle article from The Guardian Academy (TGA), we will unravel the intricacies of data and illuminate some of its potential pitfalls in its current applications.
We contend that those who claim to be "data-driven" are often not as data-centric as they believe themselves to be. They tend to act on impulses and then seek data to rationalize their impulsive decisions. The concept of "Frequency of Exposure" will shed light on why so many individuals struggle with tasks like making money, investing wisely, or achieving weight loss goals.
So, how can we utilize data appropriately to increase the probability that we actually get closer to what we want in life?
“If you think you can control your emotions, think that some people also believe that they can control their heartbeat or hair growth.”
Nassim Nicholas Taleb
We often overestimate our ability to control our emotions and, at the same time, frequently act impulsively while using data as a shield to mask our impulsivity.
In our experience, most individuals who claim to be "data-driven" are, in reality, driven by their impulses and employ data as a post hoc justification for their actions.
Data And “Data Driven” People
The common belief is that being data-driven implies that more data leads to better decisions. In practice, this is rarely the case. In truth, an excessive exposure to data often results in poorer decisions.
We believe that data should be collected, but not looked at frequently. If we don't intend to use the data, what is its purpose?
The Purpose Of Data
In order to truly determine the purpose of data, we need to reason from our foundational principles:
We only take asymmetric bets (to the upside). Which means we aren’t going to bet $1 to win $1 (symmetric) or bet $1 to win fifty cents (asymmetric to the downside). The potential upside must outweigh the initial bet, and we seek an expected value higher than our initial wager.
We must accept that all decisions we make involve some level of uncertainty. There are no absolutes or certainties—only probabilities and risks (the adaptive dilemma).1
This is what we refer to in The Guardian Academy as “Engineering luck”2; keeping time and randomness on our side by understanding the odds and having an appropriate time preference.
Given the principle above and the fact that outcomes are a byproduct of behavior…
The Sole Purpose Of Data Is To Inform Behavior
If you cannot or are unwilling to change your behavior, data can only change your emotions or feelings.
Before exposing yourself to data, ask yourself:
Is this going to change or modify my behavior? Am I willing to modify my behavior based on what I see?
If not, exposure to the data only has downside. For instance, consider the question:
“I wonder how much I weigh?”
“If I don’t like what I see, am I willing to do something about it?”
Remember, benefits arise only from changing your behavior. If the answer is no, focusing on your weight is unproductive, as stepping on the scale will only evoke negative emotions with no potential upside.
Exposing yourself to data without the willingness or ability to act upon it results in potential downsides and no possible benefits.
If you are willing and able to address a specific aspect of your life, data can provide valuable insights on how to modify your behavior.
Consider another example from Nassim Taleb:
Imagine you are in the following investment: 15% return with 10% volatility per annum.
If you look at this investment once a year, 93% of the time you will have a positive exposure. This is clearly a winning investment.
If you look at this investment once a month, 67% of the time you will have a positive exposure.
If you look at it daily? 54% of the time you will have a positive exposure.
If you were to look at it every minute? 50.17% of the time you would have a positive exposure.
If you are viewing on the minute time frame - a high frequency of exposure -half the time it will be up, half the time it will be down.
The problem lies in the fact that losses hurt more than equivalent gains bring pleasure. Consequently, frequent exposure to a winning strategy can make you feel like a consistent loser, leading to poor decisions.
This phenomenon is what we refer to as being "data-driven," and what's worse is that we often convince ourselves of its validity.
The purpose of data, in the Guardian Academy is to inform behavior. The only way it can properly inform behavior is by having an appropriate timeline and frequency of exposure.
To be clear, we believe data should be tracked as often and accurately as possible so that when it is time to modify a specific behavior, the data has already been compiled and a trend has formed.
Tracking data and being constantly exposed to it are distinct concepts.
Making emotional decisions based on an inappropriate frequency of exposure is not being data driven. It’s being impulsive and justifying your impulsivity with data.
An Appropriate Frequency Of Exposure
So what is the appropriate frequency of exposure? This depends on your Solvable Problem™3, macro belief, and understanding of yourself.
Solvable Problem™– If you have a goal that you need to fund in 6 months you will have a different strategy and appropriate frequency of exposure compared to if you had a goal 15 years out.
You have to know your time preference. Your time preference will likely inform your strategy. If you’re on a two year timeline, something like real estate with longer cycles will not make for a good macro belief.
Macro belief– What is your belief in? If you have a belief that real estate in Arizona is going to 10x over the next 10 years, it doesn’t make much sense to look at your real estate portfolio every day. This inappropriate frequency of exposure might cause you to abandon a strategy developed in a state of sobriety due to an emotional decision.
Understanding Yourself– Some people are inoculated to data - they know how to analyze it without emotion. Most are impulsive. Develop a strategy that fits your personality and your Solvable Problem™.
Do not copy or models other without understanding their time preference, macro belief and unique disposition. If any of those things are different for you, you will need a modified strategy.
Do not stare at charts all day. What you are doing is seeking cheap dopamine and exposing yourself to massive emotional deficits - greatly increasing the probability of making poor decisions.
6WU- Wisdom Comes From Multiple Perspectives
Can you condense your thoughts into six words to summarize what you learned? Leave yours and read through others so that you can gain wisdom from multiple perspectives about the same concept.