Ideas

  • The OODA Loop: Making Fast Decisions

    I recently came across an interesting technique that fighter pilots use to make fast and accurate decisions in high-stakes situations. 

    The Air Force calls it an OODA Loop.

    It is an iterative feedback model designed by Colonel John Boyd that serves as a foundation for rational thinking in chaotic situations like dogfights.

    It stands for Observe, Orient, Decide, Act. 

    OODA.Boyd

    via Wikipedia

    Why do people use decision models?  Obviously, to make better decisions.  But really, they use models to create a process that avoids many of the mistakes or constraints that prevent good decisions.

    You make countless decisions every day – and at a certain point, you reach decision fatigue. It can be harder to make decisions when you are tired, after you've made too many, or when the intensity of the environment distracts or drains you. 

    It's one of the reasons I rely on artificial intelligence. Here are some others. 

    • Best practice becomes standard practice. 
    • It accounts for signal and noise.
    • It attempts to quantify or otherwise make objective assessments, comparisons, and choices. 
    • And, it often gives you a better perspective by letting you apply and compare different models or decision techniques to achieve the desired outcome.

    Nonetheless, many algorithms are dynamic and adaptive automation of processes or strategies that humans have used successfully before.

    So, let's take a closer look at the OODA Loop, which stemmed from analyzing many interactions between and among fighter pilots during battle and training. 

    Observe

    The first step is to observe the situation to build the most accurate and comprehensive picture possible. The goal is to take in the whole of the circumstances and environment. It's not enough to observe and collect information, you must process the data and create useful meaning. 

    It's the same with data collection for an AI system. Ingesting or collecting data isn't enough. You have to be able to apply the data for it to become useful. 

    Orient

    This step is less intuitive but very important. When you orient yourself, you're recognizing strength, weakness, opportunity, and threat to identify how changing the dimensionality or perspective alters the outcome. 

    It's reconnecting with reality in the context of your cognitive biases, your recent decisions, and more. Have you received new information since starting?

    I think of this as carrying a map and pulling out a compass while exploring new lands. Sometimes you need to remember where you started, and sometimes you need to make sure you're going where you think you are. 

    Decide

    The last two steps provide the foundation for taking action. When there are multiple decisions in front of you, observing and orienting help you choose wisely. 

    In business and with AI, you can go through these loops multiple times. 

    Act 

    The best-made plans mean nothing if you don't act on them. Once you've taken action, you can reobserve, reorient, and keep moving forward. 

    Conclusion

    Like most good mental models, The OODA loop works in many situations and industries.

    Speed is often a crucial competitive advantage. For example, knowing (and taking decisive action) while others are still guessing (and taking tentative action) is something I call time arbitrage. 

    Said another way, you make progress faster by walking in the right direction than by running in the wrong direction. 

    These processes (and technology) also help us grow more comfortable with uncertainty and uncomfortableness. Markets are only getting more volatile. Uncertainty is increasing. But, when you have the ability to adapt and respond, you can survive and thrive in any climate. 

  • The Intersection of Fintech, AI, and Analytics

    At the beginning of the pandemic, I participated in a series of webinars for IBM. The focus was on building smart and secure financial services. My talk was about advanced computing and the new world of trading.

    Challenging times drive advancement – and what better time to talk about advancements in technology (and their applications) than in the midst of a global pandemic. 

    You can watch a replay of the Fintech webinar here. There are several interesting presentations.  If you just want to watch my presentation, it starts at the 5:16 mark.

    In addition, I've uploaded a different version of just my talk that you can watch directly here.

     

    IBM and Capitalogix via YouTube

    In the past, trading used to be about people trading with people. Markets represented the collective fear and greed of populations. So, price patterns and other technical analysis measures represented the collective fear and greed of a population. If you could capture that data and figure out certain statistical probabilities, you might have had an edge. The keywords are "might have". 

    If you had more information than your competitors – meaning, an information asymmetry – you had an amazing edge. At one time, that was being able to print out reports on stocks from that new-fangled technology called the internet. As time passed, it became harder to gain an asymmetric information advantage (because people had access to more and better data). 

    Each generation of traders finds new ways to play the game and generate "Alpha" (the excess return generated by manager skill, rather than luck or excess risk). As soon as enough people adopt a strategy (or figure out a way to combat it), the edge begins to decay.

    When computerized data became available, simply understanding how to download and use it generated Alpha. The same could be said for each later evolution – the adoption of complex algorithms, access to massive amounts of clean data, or the adoption of AI strategies.

    Each time a new shift happens, traders pivot or fail – it's not that active trading stopped working – it's that the tools, speed, and styles necessary to play that game evolved.

    Said another way, the rules, the players, and the game (itself) have all changed. Today, technological asymmetry is a significant factor, and your edges come from things like bigger and faster servers, low latency connections to markets, or the ability to calculate the odds better or faster than others.

    In the future, I see those edges combining as artificial intelligence starts to leverage exponential technologies and new data sources (like alternative data and metadata feedback loops). It is easy to imagine a time when information is the "fuel," but your ability to digest and parse that information is the "engine." 

    Playing a New Game

    Historically, most active traders don't beat the S&P in any given year … and even less beat it with any semblance of consistency.  But those that do – the ones that have been doing it for long enough that it's not chance … exercise a willingness (and a skill) to adapt quickly. 

    One of Charles Darwin's best-known concepts is: It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.

    While computers have made information accessible to everyone, they've also created a massive asymmetric information advantage for those who have both the access and the skill to best use the massive amounts of data now available.  This is more complicated than it seems.  You need the information, the technology, the process, and the people.  There is so much data available now that figuring out what to ignore is probably more important than what to use.  Likewise, the ability to ingest, clean, validate and curate the data is a huge hurdle that most can't clear.

    I talk about much more in the video but boiling down the main points, ask yourself (in business, in trading, in life) are you separating the "signal" from the "noise?"

    A technological advantage doesn't mean anything if you're plugging in inaccurate or biased data into it … just like with the news. 

    But, even with those skills, it's harder than ever to take advantage of inefficiencies (edges) than ever before.  The edges are smaller, more fleeting, and surrounded by more volatility and noise.  It's like finding a needle in a haystack.  That being said – finding a needle in a haystack is easy when you have a metal detector. 

    That's where A.I. has come in for us. We use A.I. to develop algorithms, analyze markets, and create meaning where humans can't find any. 

    Wisdom Comes From Making Finer Distinctions_GapingVoid

    We live in exciting times. 

    Onwards!

  • Happy Mother’s Day

     To those of you with young children, here's a peek into your future.A37b6a9dd32e9ed1bc3a2d0797fa492b

    After years of hard work and your best efforts (OK, mostly your best efforts) … I predict that your adorable bundles of joy will someday wish they could send you this card.

    So, take a moment to think about your Mom … and remember that she was very young when she did those things to you …

    … and what you make them mean is up to you.

    Here's a funny clip from SNL in honor of Mother's Day.

     

    via SNL

    Hope you celebrated all the important mothers in your life. And, to the mothers, I hope the people around you recognize how much you sacrificed for them. 

    Happy Mother's Day. 

  • Here Are Some Links For Your Weekly Reading – May 1st, 2022

    262534

    Here are some of the posts that caught my eye. Hope you find something interesting.

    Lighter Links:

    Trading Links:

  • How Tech Giants Make Their Money

    In 2021, the Big Five – Alphabet (Google), Amazon, Apple, Meta (Facebook), and Microsoft – generated over $1.4 trillion in revenue.

    How did they generate that revenue? We know they sell products … but we also know that we're often the product they sell. 

    Google and Facebook each make a lot of money selling you (or data about you) to advertisers. 

    The image below shows how Alphabet generated its revenue.   The full infographic shows that breakdown for each of the Big Five.

    Screen Shot 2022-05-01 at 3.49.00 PMClick to view the other companies via visualcapitalist

    Apple, Amazon, and Microsoft, primarily sell products (like more traditional businesses). On the other hand, almost 98% of Meta's revenue (and 81% of Google's revenue) comes from advertising. 

    Unsurprisingly, all five companies saw significant growth during the pandemic. 

    Though the economy shrank in the past two years, societal changes continued to push demand for big tech's products and services. 

    Will growth continue or slow down? 

    I'm curious what you think.

  • How I Got Started In Artificial Intelligence

    Recently, I've had several people ask about how I got into AI. 

    There are a couple of different answers, but I shot a video to go through the main points. 

     

    Click here for a transcript

    You could argue that I got my start in AI with my most recent company – Capitalogix – which started almost 20 years ago. You could also say that my previous company – IntellAgent Control – was an early AI company, and that's where I got my start.  By today's standards, the technology we used back then was too simple to call AI … but at the time, we were on the cutting edge.

    You could go further back and say it started when I became the first lawyer in my firm to use a computer, and I fell in love with technology. 

    As I look back, I've spent my whole life on this path.  My fascination with making better decisions, taking smarter actions, and a commitment to getting better results probably started when I was two years old (because of the incident discussed in the video).

    Ultimately, the starting point is irrelevant. Looking back, it seems inevitable. The decisions I made, the people I met, and my experiences … they all led me here.

    However, at any point in the journey, if you asked, "Is this where you thought you'd end up?" I doubt that I'd have said yes. 

    I've always been fascinated by what makes people successful and how to become more efficient and effective. In a sense, that's what AI does. It's a capability amplifier. 

    When I switched from being a corporate securities lawyer to an entrepreneur, I intended to go down that path. 

    Artificial Intelligence happened to be the best vehicle I found to do that. It made sense then, and it makes sense now.

    I wouldn't have it any other way. 

    Onwards!

  • A Few Graphs On The State Of AI

    Every year, Stanford puts out an AI Index with a massive amount of data attempting to sum up the current state of AI. 

    It's 190 pages that detail where research is going and covers current specs, ethics, policy, and more. 

    It is super nerdy … yet, it's probably worth a skim. 

    Here are a few things that caught my eye and might help set some high-level context for you. 

    Investments In AI 

    A-bar-chart-of-global-corporate-investment-in-ai-by-investment-activity-2013-2021

     

    via AI Index 2022

    In 2021, private investments in AI totaled over $93 billion – which was double the investments made in 2020. However, fewer companies received investments. The number of companies receiving funding dropped from 1051 in 2019 to 746 in 2021.

    At extremes, putting greater resources in fewer hands increases the danger of monopolies.  But we are early in the game, and it is safe to interpret this consolidation as separating the wheat from the chaff. As these companies become more mature, you're seeing a drop-off similar to when the web began its exponential growth. 

    With investment increasing, and the number of companies consolidating, you can expect to see massive improvements in the state of AI over the next few years.

    We knew that already – but following the money is a great way to identify a trend. 

    Increased regulation is another trend you should expect as AI matures and proliferates.

    Ethical AI 

    A-chart-showing-number-of-ai-related-bills-passed-into-law-in-25-select-countries-2016-2021 A-chart-showing-number-of-ai-related-policy-papers-by-u-s-based-organizations-by-topic-2021

    via AI Index 2022

    Research on the ethics of AI is becoming much more widespread – while the research influences papers, it is also a catalyst for new laws.

    AI's academic and philosophical implications are being taken much more seriously across the board. Many people recognize that AI has the potential to impact the world in unprecedented ways.  As a result, its promise and peril are under constant scrutiny.

    The adoption of AI might seem slow … but like electricity (or the internet), it only seems slow until it's suddenly ubiquitous.

    As you find AI in more domains, the ethics of its use becomes a more pressing concern. There is a lot of potential for abuse of technologies like facial recognition and deepfakes.  Likewise, people worry about mistakes, judgment, and who's liable for errors in technologies like self-driving cars.

    Luckily, you have many of the world's greatest minds working on the subject – including the Hastings Center.  

    Many factors contribute to the speed of AI's maturation and adoption.  Here are three of the obvious reasons. First, hardware and software are getting better.  Second, we have access to more and better data than ever before.  And third, more people are actively seeking to leverage these capabilities for their benefit.

    Technical ImprovementsScreen Shot 2022-03-31 at 2.01.17 PM

    via AI Index 2022

    Top-performing hardware systems can reach baseline levels of performance in task categories like recommendation, light-weight objection detection, image classification, and language processing in under a minute.

    Not only that, but the cost to train systems is also decreasing. By one measure, training costs for image classification systems have dropped by a factor of 223 since 2017. 

    When people think of advancements in AI, they often think of the humanization of technology. While that may eventually happen, most of the progress in AI comes from more practical improvements and applications. Think of these as discrete capabilities (like individual Lego blocks) that help you do something better than before.  These capabilities are easily stacked to create prototypes that do more.  Prototypes mature into products when the capabilities are robust and reliable enough to allow new users to achieve desired results.  The next stage happens when the capabilities mature to the point that people use them as the foundation or platform to do a whole new class of things.

    We're past the trough of disillusionment and are on the slope to enlightenment.

    Practical use cases abound.  Meaning, these technologies aren't only for giant companies anymore.

    AI is ready for you to use.

    If I think of a seasonal metaphor, it is "springtime" for AI (a time of rapid growth).  But not for you unless you plant the seeds, water them, and start to build your capabilities to understand and use what sprouts.

    As a reminder, it isn't really about the AI … it is about understanding the results you want, the competitive advantages you need, and the data you're feeding it (or getting from it) so that you know whether something is working.

    You've probably heard the phrase "garbage-in-garbage-out."  This is especially true with AI. Top results across technical benchmarks have increasingly relied on extra training data for combinatorial and dimensional reasons. Another reason this is important is to compound insights to continue learning and growing.  As of 2021, 9 state-of-the-art AI systems out of the 10 benchmarks in this report are trained with extra data. 

    To read more of my thoughts about these topics, you can check out this article on data and this article on alternative datasets. 

    Conclusion

    Artificial Intelligence capabilities are becoming much more robust and more able to transfer their learnings to new domains. They're taking in broader data sets and producing better results (while taking less investment to do so). 

    It isn't a question of "If" … it is a question of "when." 

    AI is exciting and inevitable!

    Let me know if you have questions or comments.

  • Spring and Rebirth

    For Jews, Friday was the first night of Passover, a family-centric holiday that recounts the biblical story of the Exodus of the ancient Israelites from Egypt into the Promised Land. For me, it's a reminder to appreciate what we have – and how we stand on the shoulders of those who came before us. 

    6a00e5502e47b288330263e999fff2200b-600wi

    For Christians, today is Easter – the holiday honoring Jesus's resurrection. 

    The overlap can be seen in DaVinci's Last Supper, a Passover Seder, and Jesus's last meal before his Crucifixion.  

    6a00e5502e47b288330240a454f862200c-600wi

    For Jews, a notable part of the ritual dinner is recounting each of the ten plagues inflicted upon Biblical Egypt and saying, "Never again."

    Last year, I joked that maybe COVID-19 should be added to the list. 

    And, just like the Jews making it through slavery, the plagues, and 40 years wandering through the wilderness and desert before entering the Promised Land … We are finally approaching the promise of life post-COVID.

    Of course, other global events remind us that while the world and our capabilities continue to improve and expand … human nature stays maddeningly the same.

    With the coming of spring, the return to normalcy, and the reminders from the stories of Exodus and Easter - it's a great time to do a mental and physical "spring cleaning". Mine your experiences for the things you want to keep doing (or continue not doing) as things go back to "normal".  

    Hope you celebrated with family, food, and a reverence for all the blessings around you. 

  • Global Happiness Levels in 2022

    Happiness is a complex concept comprised of conditions that highlight positive emotions over negative ones – bolstered by the support of comfort, freedom, wealth, and other things people aspire to experience. 

    Regardless of how hard it is to describe (let alone quantify) … humans strive for happiness.

    Likewise, it is hard to imagine a well-balanced and objective "Happiness Report" because so much of the data required to compile it seems subjective and requires self-reporting. 

    Nonetheless, the World Happiness Report takes an annual look at quantifiable factors (like health, wealth, GDP, and life expectancy) and more intangible factors (like social support, generosity, emotions, and perceptions of local government and businesses).  Click the image below to view the Report.

    OC_GlobalHappiness_Main-1via visualcapitalist

    In their 2021 report, there was a significant focus on the effect of COVID-19 on happiness levels and mental health. Much of that continued into the 2022 report. 

    As you might expect, the pandemic caused a significant increase in negative emotions reported. Specifically, there were substantial increases in reports of worry and sadness across the ninety-five countries surveyed.  The decline in mental health was higher in groups prone to disenfranchisement or other particular challenges – e.g., women, young people, and poorer people. 

    It is remarkable how resilient and stable the scores have been globally considering the amount of uncertainty, stress, and disruption households experienced this past year.

    Ultimately, humans persevered in the face of economic insecurity, anxiety, and challenges to mental and physical health. 

    This year, the average score improved slightly compared to 2021 – though worry and stress have continued to rise. 

    There has been a decrease in overall happiness compared to pre-pandemic scores.  Yet, the relative balance demonstrated in the face of such adversity may point towards the existence of a hedonic treadmill – or a set-point of happiness.

    Regardless of the circumstances, people can focus on what they choose, define what it means to them, and choose their actions.

    I'm still surprised by what people can get used to … and how some people find pockets of joy in even the hardest of times.  Conversely, other people use the same ability to feel profound unhappiness, even when they have seemingly everything. 

    It's an oddly beautiful reminder that happiness comes from within.

    Another bright spot, worth mentioning, has been the massive global upsurge in benevolence. People are supporting others, communities have stepped up, more money is being donated to charity, and more people are volunteering. 

    Onwards!

  • Will Robots Take Your Job?

    The fear of a robot-dominated future is mounting … But, is there a basis for that fear?

    It's a common trope in film, but as we all know, media is meant to capture attention – not emulate reality. 

    Michael Osborne and Carl Frey, from Oxford University, calculated how susceptible various jobs are to automation. They based their results on nine key skills:

    • social perceptiveness
    • negotiation
    • persuasion
    • assisting and caring for others
    • originality
    • fine arts
    • finger dexterity
    • manual dexterity
    • and the need to work in a cramped area

    6a00e5502e47b288330240a4b2c074200d-600wi

    via Michael Osborne & Carl Frey (Click For A Comprehensive Infographic)

    There are various statistics about the rate of change for robots taking jobs. Many expect that ~50% of current jobs will be automated by 2035.  Turns out, that statistic is from Michael and Carl, and the numbers were 47% by 20341. 

    Realize that statistic actually refers to the risk of them being automated. That number doesn't take into account the realities of cost, regulation, politics, social pressure, preference, or the actual work and progress necessary to automate something – so it's unlikely the full 47% will be realized. 

     

    6a00e5502e47b288330240a4b2c15f200d-600wi

    via The Economist

    Nonetheless, many use that quote to point toward a dystopian future of joblessness and an increasing lack of middle-class mobility.  

    Mr. Frey isn't a proponent of that belief … and neither am I.  

    Automation and innovation free us to focus on what matters most (or what can create the most value). The goal is not to have machines let us be fat, dumb, and lazy … it is to free us to focus on bigger and better things.

    Industrialization created short-term strife – but vastly increased the economic pie over the long term. So did electricity or the internet. It's likely that future automation will have similar effects, but it's possible to minimize the pain and potential negative impacts if we learn from previous iterations of this cycle. The fact that we're so far along technologically in comparison to previous revolutions means we're in a better position to proactively handle the transition periods.

    New tech comes with both “promise” and “peril”. We must manage the short-term consequences of the new tech – because it is inevitable. With that said, by embracing innovation, we can make sure it is a boon to the middle-class (and all of society) and not the bane of their existence.

    Throughout history, technology has always created more jobs than it has destroyed.

    Progress means the restructuring of society’s norms … not the destruction of society.

    When we first started using technology, that progress allowed humans to stop acting like robots (think farming and manufacturing). As technology improved, we have "robots" that seem to act more like humans. They can play chess, or shoot a basketball, etc.

    The truth is that humans didn’t act like robots. They did what they had to to survive. As technology improved, we look back and have trouble imagining a time when humans had to do those things. Technology often focuses on the most pressing “constraint” or “pain." It isn’t getting more human, it is simply more capable … which frees us to ascend as well.
    There are many aspects of humanity that robots can't yet replace. But as we move forward, technology will continue to free us to be more human (which I assume means to be more creative, more caring, more empathetic, and more original).

    Doom and gloom sell. It's much easier to convince people something's going to be painful than amazing (because we're creatures of habit, and our monkey brains fear pain much more than they enjoy pleasure).

    Our attitudes and actions play a pivotal role in how the world impacts us.

    We are positioned not only to survive the revolution but to take advantage of it.

    AI is a gold rush, but you don't have to be a miner to strike it rich. You can provide the picks and shovels, the amenities, or a map that helps people find treasures.

    Onwards!

    _________________

    [1] Frey, Carl & Osborne, Michael. (2013). The Future of Employment: How Susceptible Are Jobs to Computerisation?