Slack and Barbells

I.
Another excellent post from Scott Alexander on the concept of slack. I'll try to summarize: Slack is a low competitive environment that allows for weird ideas or mutations to emerge that might become useful in the long run.

In what Elizer Yudkowsky calls Inadequate Equilibria, poorly designed systems are ones without enough slack; any dime spent innovating for the long term is wasting a dime spent competing now, and that loss will drive you out of business.

I'm trying to figure out why Nassim Taleb's barbell investment strategy seems to rely on slack and yet doesn't crumble in what should be a highly competitive environment: trading.

Writing on Slack, Scott notes:

"Imagine an alien planet that gets hit with a solar flare once an eon, killing all unshielded animals. Sometimes unshielded animals spontaneously mutate to shielded, and vice versa. Shielded animals are completely immune to solar flares, but have 1% higher metabolic costs...When the flare comes, only the few spontaneous mutants survive."

So there is enough slack in the imagined scenario for the shielded animals to survive. But their mutation only comes into play once an eon.

Taleb's strategy says to make 80-90 percent of one's portfolio investments in low risk, low return bonds. The rest should be put in high risk/reward stocks. In the short term, this strategy will underperform portfolios with more stock. If you're an investment manager with this strategy, you should be outcompeted by more aggressive investors who get their customers higher returns.

In order for the barbell strategy to work, you have to hit on one of those stocks in the 10-20 percent of your portfolio. (And you'll beat your competition when a recession hits and most of your money is tied up in safe investments while most of their's vanishes in risky stocks.)

II.
So what are low slack, inadequate environments? Both Yudkowsky and Alexander mention academic research and its "publish or perish" ethos. If we apply the barbell method, 10-20 percent of research projects would be put toward projects with a low chance of publication but a reward that is extremistan.

This puts the onus on academia to create rewards and incentives for publication. One publication of groundbreaking research should be worth five papers about who-gives-a-shit.

What else is low slack? How about criminal justice? One of the main themes of The Wire is that investigators are pressured to make low-level arrests instead of taking the time necessary to build cases that take down whole drug organizations.

Here again, the onus should be on the policymakers to create incentives to make these bigger arrests. So you spend time making busts on the street, but allocate a small percent of resources to building a big case that will yield the proper reward when the time comes.

Sometimes funding is the issue. Similar to detectives, think of investigative reporting. The unfortunte change in the media is that they get paid by web visits, incentivizing them to produce click-baity content.

The work of the Boston Globe's Spotlight team was great, but not every piece is getting turned into a Hollywood movie. Winning awards is great, but they don't pay the bills. Some combination of the government or private philanthropists should create greater monetary prizes for journalism deep dives. It should be enough that it is worth the investment of publishers to allocate 10 to 20 percent of their resources on the off chance it might win them a prize.

III.
It seems like we could fix a lot if we just got the right incentives in place. But some systems just won't budge, like housing.

The first locality to allow for new housing developments will take a hit to the local tax base (since residential development is a net negative) and be outcompeted by neighboring towns and their zoning restrictions.

I guess the longterm benefit is that you don't have a bunch of disillusioned Gen Zers who start voting in socialists because they can't find affordable housing. This is more like the solar flare where most people today will take the hit of increased costs of new housing and not benefit from absence anti-capitalist politicians.

Still, I don't know how to fix it. You can't create a great enough incentive to convince people to allow more housing, especially low income. It's not like there is a spectrum of options; it's build vs. don't build.