Patterns, Theories, Erroneous Data, Oh my!

Patterns, theories, systems and frameworks

Patterns

The human brain is an inherently lazy device. Tens of thousands of years of evolution have caused it to evolve to find every short cut possible- even ones that don’t exist. The reason for this is that the human brain consumes a lot of energy. A quick search of Google reveals that the human brain represents about 2% to 3% of our body weight but it uses about 20% to 25% of the body’s energy. (Random fact: the body mass to brain mass ratio of a human is about 40 to 1. The largest brain to body mass ratio of any mammal is that of the tree shrew. Its brain represents about 10% of its total body weight. A hippopotamus brain makes up about 1/2790 of its total weight).

The reason I bring this up is that one of the ways we save energy is by identifying patterns and then applying them to literally everything. And this same pattern recognition and recreation exists in our decision making processes. Have you ever made a mistake? I’m going to presume you have. Have you ever made a second mistake that wasn’t identical to the previously mentioned one but you thought, ‘I should have known that because…’. Then you go and make a third mistake that is different but follows a similar pattern or logic? We do it all the time. When we apply a bias or allow logical fallacies to intrude on our thoughts – it’s all a result of our brain using patterns. (Logical fallacies are flawed, deceptive, or false arguments that can be proven wrong with reasoning).

Don’t despair! There is an upside. In the same way we may make the same mistake repeatedly due to a pattern, we also take proper actions and make good decisions frequently because of certain patterns. I am now going to digress from patterns and discuss the greatest human invention (discovery?) of all time – scientific method.

Scientific Method

We are taught that the scientific method was an invention of the 19^th century but that is merely when it was first formalized. The principles underlying the scientific method have developed over the past 4,000 years or more. Here is my decidedly unscientific explanation of the scientific method. Don’t worry, we’re getting to the money part of the book soon – I just want to take a moment to ensure that we are all clear on the truthiness of the facts I am about to impart.

Scientific method is basically:

1. observe something (Look that apple fell and hit me on the head!),
2. create a hypothesis (There is some sort of thing that makes everything fall to the ground, watermelons will also fall when dropped, etc.)
3. test the hypothesis (Either by observation – look at all those other apples falling from the trees and those peaches and those cherries or experiment – every time I drop a cake or an anvil it falls to the ground.)
4. refine the experiment/observation to ensure accuracy and repeat as required
5. Analyze the data
6. If it doesn’t align with your hypothesis, change the hypothesis and try again
7. If it does align with the hypothesis share the results and allow others to replicate the results (Results have to be independently repeatable/verifiable for it to be part of the modern scientific method)

And this is how we arrive at the ‘truth.’ What we actually arrive at is ‘contingent truth’. Should evidence in the future prove our hypothesis wrong or imperfect we check the evidence and use it to create a new hypothesis which we then test. We continue testing these new hypotheses until we find one that is ‘provable’. And that becomes our new truth until new evidence replaces that.

“There’s nothing quite as frightening as someone who knows they are right.”

Michael Faraday

Remember the guy who got hit with the apple? (A story that we can presume is not in the least bit real). Well, he had an entire branch of physics named after him but then it became uncool to name it after him and it got renamed. Today we refer to it as classical mechanics but before that it was called Newtonian physics. This branch of science deals with movement, force, speed, velocity- that sort of stuff. It’s what we use to calculate how planes and cannons work, it is used in fluid dynamics, we intuit some of it when we play catch, it was an essential part of getting man to the moon and we still use it every time we turn on the GPS in our cars. It is everywhere. It is intuitive. It is core to our experience as modern humans. It is also, well, kind of, wrong.

Making Decisions, Comparing Options,

A Theory on Theories

Let me state that again. Newtonian physics, the very fabric of modern math and physics, a body of work that explains speed, time, movement, the most fundamental things in our physical existence, the same equations and theories that we use to send satellites to Mars, is not correct.

You see there was this German guy with curly hair name Albert and he came up with something called the Theory of Relativity. The theory of relativity disagrees with Newtonian physics. We have now conducted actual experiments which prove parts of the theory of relativity and disprove aspects of Newtonian physics. The story doesn’t end here.

We also have this theory called quantum mechanics. It predicts things like identical particles being linked and moving simultaneously despite them being unconnected and other ideas that are mind bending and counter intuitive. And bits of it are now being proved correct and disproving parts of relativity.

In psychology there are different schools of thought which have completely different theories and even contradict each other about fundamental facts. If you like sex and your mother, you are a Freudian. If you think that there is a collective, species unconscious from which spring various templates people adhere to, you’re a Jungian. If you think that the primary driver for survival is fulfilling a self-selected purpose, you are a Franklian. And those are just the primary Viennese schools of psychology.

So, what does this have to do with your choosing a mortgage, an RRSP or a life insurance policy? The ideas that we are going to discuss work. Some I would go as far as calling ‘universal truths’ but they are the best that we, that I, know at this time. And despite there being new ideas, theories or changes for your finances the scope of these ideas will work. The same way the same Newtonian calculations and methods work and are the best way to get a man on the moon or an aircraft to take off even today, these ideas will lead to predictable outcomes even in unpredictable times.

In direct contradiction to our discussion of the tooth fairy and working from false premises this illustrates that sometimes we don’t require a system or structure to be accurate for it to yield useful results. Note however that the accuracy of any system we use to predict outcomes is always correlated to the accuracy of the variables inputted.