Optionality and Economic Change

The book America 3.0 (available for purchase from Amazon and Barnes & Noble) describes three long economic periods, based on agriculture, industry, and information, as driving profound social change.


When we fought the Revolution against Britain, America’s economy was based on agriculture and the hydrological cycle. Along with the constants of soil and sun, water (where it fell, how it needed to be diverted, where it ran) determined American economic life. Know a man’s relationship to water, and you knew his realtionship to wealth.


Around the time of the Civil War against the southern rebels, sun, soil, and water were surprased by coal and rail as the foundation of power and privilege. The great rail network, centered around Chicago, enabled greater economies of scale than had ever been seen before in history. The story of the next century, from the racial strife of the 1860s to the racial strife of the 1960s, was the story of industrialization, scale, and how the benefits of coal would be shared.


We’re now changing again. “Information” appears to be valuable, and the economic giants of the day are information racketeers such as Google, Apple, Amazon, and Facebook. The world is becoming much less heavy, and manufacturing on demand (from computer-driven milling to 3D printing) may accelerate the acceleration the eclipse of coal by data.


We do not know what is next. The industrial age seemed to come to an apogee in the late 1940s, as economies around the world (the US, the UK, France, Germany, the USSR, China, Taiwan, both Koreas, and Japan) established bureaucratic-industrial welfare states managed by experts, with only quixotic variations based on national culture and ideology. But that was a false sunlight, as phony as the widespread popularity of the concentration camps (brought to the US by Franklin Delano Roosevelt) of the 1930s.

We know the world is changing. We know now what comes next.

In this environment, we should focus on giving learners many low cost opportunities and few high-cost high-risk paths. In other words, we should give students “optionality,” where they have many opportunities and few long-term costs. We’re not in an industrial age where we know economies of scale will rule the day, nor even in the long hydraulic age where water was the great idol. Students will have to find their own ways. We should help them.

To do this we should (except for core majors that are needed for national security — say science, technology, engineering, and mathematics) make much of the curriculum optional, and allow students “low-risk” trials in different career paths.

As Tren Griffen and Nassim Taleb posted:

If you ‘have optionality,’ you don’t have much need for what is commonly called intelligence, knowledge, insight, skills, and these complicated things that take place in our brain cells. For you don’t have to be right that often. All you need is the wisdom to not do unintelligent things to hurt yourself (some acts of omission) and recognize favorable outcomes when they occur. (The key is that your assessment doesn’t need to be made beforehand, only after the outcome.)” Being able to make decisions which do not require correctly forecasting the future is a wonderful thing. Not one of the great value investors identified in the series of posts in this blog relies on macro forecasts of the future. Instead, value investors use the optionality of cash to buy after the outcome exists (i.e., a significant drop in intrinsic value). Regarding venture capital, Warren Buffett believes: “If significant risk exists in a single transaction, overall risk should be reduced by making that purchase one of many mutually- independent commitments. Thus, you may consciously purchase a risky investment – one that indeed has a significant possibility of causing loss or injury – if you believe that your gain, weighted for probabilities, considerably exceeds your loss, comparably weighted, and if you can commit to a number of similar, but unrelated opportunities. Most venture capitalists employ this strategy.

It is certainly evil to trick an 18 year old into non-bankruptable loans of tens of thousands of dollars on a worthless major. A 16 year old would be better off learning a trade than learning Shakespeare, especially if that student could learn Shakespeare later. An 18 year old would surely be better off selling drugs (say from a pharmacy, an alcohol ball, a tobacconist shop, or so on) and learning that part of the economy than borrowing money to study political science.

Help our students prepare for an uncertain future, for America’s next stage of economic development. Give them low-cost opportunity and easy failures. Not non-bankruptable student loans.

Optionality and Education

This post introduces optionality, optionality in the context of foresight and then raises implications for education.

Discussing Optionality

A bit ago, both Tren Griffen and Nassim Taleb discussed “optionality” on their blogs.

“Optionality” refers to an investment decision where the reasonable upside is much larger than the reasonable downside.

Here are some of Tren’s thoughts on optionality:

Optionality is lost when you’re initial investments are so large, you cannot afford to abandon your initial plans:

“A rigid business plan gets one locked into a preset invariant policy, like a highway without exits —hence devoid of optionality.” I am at my self-imposed 999 word limit so what follows including this quotation must largely stand on its own without commentary…

“Optionality… explains why top-down centralized decisions tend to fail” …

“Like Britain in the Industrial Revolution, America’s asset is, simply, risk taking and the use of optionality, this remarkable ability to engage in rational forms of trial and error, with no comparative shame in failing again, starting again, and repeating failure.” Entrepreneurs harvest optionality when they tinker and experiment as they run their businesses and as a positive externality benefit their city/region/nation/the world in the aggregate by generating productivity and genuine growth in the economy even if legions of entrepreneurs may fail. Taleb: “Most of you will fail, disrespected, impoverished, but we are grateful for the risks you are taking and the sacrifices you are making for the sake of the economic growth of the planet and pulling others out of poverty. You are the source of our antifragility. Our nation thanks you.”

Optionality in the Context of Foresight

Unlike rigidly planned investment strategies, optionality emphasizes only maintaining flexibility and recognizing success when it happens:

“If you ‘have optionality,’ you don’t have much need for what is commonly called intelligence, knowledge, insight, skills, and these complicated things that take place in our brain cells. For you don’t have to be right that often. All you need is the wisdom to not do unintelligent things to hurt yourself (some acts of omission) and recognize favorable outcomes when they occur. (The key is that your assessment doesn’t need to be made beforehand, only after the outcome.)” Being able to make decisions which do not require correctly forecasting the future is a wonderful thing. Not one of the great value investors identified in the series of posts in this blog relies on macro forecasts of the future. Instead, value investors use the optionality of cash to buy after the outcome exists (i.e., a significant drop in intrinsic value). Regarding venture capital, Warren Buffett believes: “If significant risk exists in a single transaction, overall risk should be reduced by making that purchase one of many mutually- independent commitments. Thus, you may consciously purchase a risky investment – one that indeed has a significant possibility of causing loss or injury – if you believe that your gain, weighted for probabilities, considerably exceeds your loss, comparably weighted, and if you can commit to a number of similar, but unrelated opportunities. Most venture capitalists employ this strategy.”

“Optionality” is related to the career advise given by Jim Collins. Instead of simply cataloging your skills, and applying for high-paying jobs in which those skills are required, Collins recommended first looking at (a) what you love, (b) what you can be great at, and (c) what you can make money doing. The goal isn’t to aim for some perfect job sometime later in your life, but to set yourself up in an area where you enjoy practicing and you adaptable for those opportunities that appear.


Implications for Education

Optionality is an investment choice that has a small potential downside but large potential upside. You don’t need a strict plan, lots of foresight, or even great environmental awareness to look for investment choices that have optionality. You simply need to keep from making bad decisions, and need to tolerate “getting it wrong” (which means simply starting over).

So what does this mean for education?

Student loans are an anti-optionality catastrophe.

Student loans are impossible to get rid of in bankruptcy. They also require a lot of foresight and planning — and worst of all, require it of 18 year old idiots (that is, virtually all 18 year olds).

Being an idiot isn’t a bad thing — if you have optionality, you try, fail, and learn from experience. But being an idiot with debt is a horrible fate.

At the very least, non-bankruptable student loans should never be offered for non-Science/Technology/Engineering/Mathematics majors. To force someone with no work history to take ten thousand, twenty thousand, or more in non-forgivable debt for a worthless English literature degree is horrid. It is the closest thing to “usury” that exists in our world outside of organized crime.

Not only do non-bankruptable student loans kill optionality by making education have a big potential downside, they make that downside more likely. Student loans for non-STEM majors encourage failure by getting students to loan up to enter a ghetto of low wages and few jobs. This is the opposite of encouraging wise investments.

We need to close the on-ramp to the ghetto by discouraging youth from making choices that don’t have optionality. We need to end non-STEM student loans.


It’s better for an 18 year old to be a drug dealer or go-go-dancer than to take non-bankruptable loans to study sociology. Those options may have optionality. Sociology doesn’t.

Closing off the Ghetto

The teaching ranks are loboomized. Administrators are bullies. We interpret and give tests in the wrong way. Our test scores are stagnant, and our bad schools trap parents in stressful jobs and expensive neighborhoods.

Our low performing students (low-socio-economic status and under-represented-minorities) do very badly, but others are merely average. Helping low-performing students is a different tasks, but we can help mediocre-performing students by fixing not just K-12 education, but also colleges.

One reason mediocre students get mediocre outcomes is the presence of the humanities ghetto: a nowhereville of few jobs and little income where most political scientists, historians, and sociologists end up. High school students are famously stupid, and see this ghetto as a promised land where they will make more money than they do in high school, have a socially acceptable job, only have to do fun stuff, and (most importantly) can actually reach.


So our goal should be to dissuade students away from the humanities ghetto, and into outcomes with greater return-on-investment that are more socially beneficial (or at least less socially harmful), like marijuana distribution or go-go-dancing.


To do this, we need to make the on-ramp to humanities ghetto a ghost ramp. It’s already a road to nowhere, but if we can severe it we can divert the flow of students to other places.


We need to decrease the visible attraction and increase the visible costs of getting onto the humanities ghetto on-ramp. To decrease attraction, we should make any humanities courses in high schools optional, and allow students to work in those hours instead. To increase costs, we should either end federal student loan all together, or at least for non-STEM majors. (Both of these approaches are imperfect, but they definitely tilt the playing field away from ghetto majors).

Education reform isn’t merely about better teachers and better tests, but changing the context in which education takes place. Demagogues like Diane Ravitch are right when they say teachers can’t do it all. Policy makers need to do their part, too.

Stagnant Test Scores, Ten Years Later

In spite of a decade of high stakes testing at our free public schools, our international test scores are stagnant and comfortably mediocre.


One reason is that high stakes testing is a terrible idea.

Even if it wasn’t, we use the wrong type of tests.

Even if we didn’t, we don’t have free public education.

No Child Left Behind, in spite of hopes, has not yet worked.

The plus side is our international test scores show that white and Asian students do pretty good. White Americans do as well as the Swiss. In school systems were whites and Asians or middle- and upper- classes are a large majority, we basically can experiment with ways of introducing more STEM (science, technology, engineering, and mathematics) courses, through things like programmatic learning.

In URM (under-represented minority) and low-SES (socio-econoimc status) schools, we do really badly. There parents are very risk conscious, and basically only want baby-sitters.

But the good news is because of the “great sort,” there are less and less high-achievement-capable students in URM and low-SES schools each year (apart from immigrant communities). In URM and low-SES schools, we should castrate the ranks of teachers and administrators as quickly as possible, and find some way of putting those schools under the controls of large local employers, such as light manufacture or semi-skilled clerical work.

Instead of leaving “no child behind,” we should have a system of trade education to leave some children behind — but not far enough behind that they hurt our society or economy.

The Future of Educational Administrators

What do educational administrators do? And what will happen to them?

Unlike teachers — who may provide value by educating and/or babysitting children — administrators do not provide any direct value. At best they help teachers be better, but I am unaware of evidence this is happening.

Unlike executives of private companies, administrators cannot be fired for not making revenue or profit targets. And the problems with Value Added Testing apply all-the-more to administrators: it is very hard to see what, if anything, administrators do, or how they are held responsible for doing it. Administrators don’t even appear to be politically relevant.

In spite of their superfluous role, administrators matter in all three dimension of force of education reform. They divert money for themselves, they exercise power, and they provide childcare services. Given the capped salaries of educational administrators, but definite power of petty tyranny over teachers, administrator teachers are probably more power-hungry than average members of society.

There are three possible future for educational administrators

1. Teaching becomes a profession, and educational administrators become professional managers, with a focus on improving employee quality and career growth. This is unlikely as teachers are already lobotomized and deskilled
2. Administrators maneuver to maintain their petty power regardless of the direction of education reform. This is possible. If administrators desire power as opposed to educational achievement for children, they can negotiate a position to allow them to inflict misery on teachers whatever educational pedagogy is actually used.
3. Administrators are castrated. This could happen if other stakeholders turn on administrators, and split up the money and power that accrues to administrators among themselves. This is possible. As a political force teachers have been encircled, and a similar fate could befall their nearby rivals.

Value Added Testing

Value Added Testing (VAT) is a method of teacher assessment where educators are compared on how much the “value” the “add” thru “tests” (hence the name).

Instead of simply giving students of teachers tests, and comparing the average scores of the teachers’ students to find out the best teachers, VAT looks at how students performan before, during, and after their time under a teacher. Good teachers are expected to make students do better than they would have in the future. Bad teachers are expected to make students do less better than they would have otherwise.

It’s easy to see how VAT can be more far than traditional approaches to interpretting test scores, as far as evaluating teachers. Under old methods of evaluating teachers, the system could be easily rigged by giving favored teachers better students. Those better students would of course do better, regardless of the teacher, because a teacher’s influence is limited. Under VAT, however, such a favored teacher’s influence in retarding future performance of studnets should show up.

VAT’s have a major flaw though that is ignored by anti-testing demagogues, but rarely addressed by supporters. The flaw is not with the VAT itself, but with how the tests are written.

VAT’s come from econometrics, the measure of the economy, where there is a common currency (such as the dollar, the euro, or the yen). A CEO may be evaluated thru a VAT by the board of directors: sure, the value of our company went up 26% under you, but if we look what we should have expected, it should have gone up 30%! VAT is an interesting way of forcing company executives to think long term: if you keep paying executives after you fire them based on a VAT, you can reward executives who were unfairly fired, and punish those who were unfairly kept on, without giving up the ability to rapidly hire and fire

But it is very rare for “common” tests to be used across grade levels. Tests for third graders do not measure “learning,” they typically measure “third grade proficiency.” Tests for fourth graders do not measure “learning,” they measure “fourth grade proficiency.” Thus it’s very hard to compare learning across levels using these tests.

For example, imagine a very good fifth-grader teacher who focuses on each individual student, Miss Smith. Miss Smith tailors instruction for each child. Whether a child is a year behind, at, or a year above grade level, the child gains two grade levels of knowledge under Miss Smith. What a great teacher!

But the VAT model, if used with normal proficiency testing, will not show this. Take the student who was at a 1st grade level. Now that student is as a 3rd grade level. But many tests instead will accurately identify the student as far below grade level. Thus there may be no VAT model. (A bad teacher could have gamed the system, focusing on teaching a few superficial skills measured on the fifth grade tests, instead of helping the student develop across the board.) Likewise, a student who is now at the 7th grade level will till be accurately shown to be at or above grade level. Because a fifth-grade proficiency exam is not designed to measure 7th grade skills, the benefits this student gained from Miss Smith will not show up.

The VAT model is a big improvement on old models of testing. But when combined with inappropriate or archaic tests, VAT can provide deceptive results. Teacher advocates should focus on these, real, drawbacks of VAT-based teacher assessments so the assessments should be improved.

Review of “The Thomas Ligotti Reader,” edited by Darrell Schweitzer

I’ve been a fan of Thomas Ligotti for some time. My friend Michael Lotus (of America 3.0 fame) first recommended I read him when I checked out Songs of a Dead Dreamer from the college library. Teatro Grottesco and The Nightmare Factory are Ligotti at his intellectual best, while My Work Is Not Yet Done is laugh-out loud hilarious.


But my appreciation for Ligotti dramatically increased after reading The Thomas Ligotti Reader. Like the book H.P. Lovecraft: Against the World, Against Life by Michel Houllebecq or the documentary, Lovecraft: Fear of the Unknown, The Thomas Ligotti Reader provides a context for stories, emphasizing their themes and ideas, and making the body of work seem like an organic whole.

I was particularly surprised at the central role The Shadow at the Bottom of the World plays in Ligotti’s writings. Before reading the Reader, I know of Ligotti’s philosophical horror and non-fiction work (both Ligotti’s The Conspiracy Against the Human Race and David Benatar’s Better Never To Have Been) which are non-fictional expression’s of Ligotti’s nihilophilia. But several piecesin the Reader emphasize unusual aspects of Shadow, including its final position in Grimscribe, its use of the first-person plural “We” as narrator, and the text and symbolism in the story to argue it a high water mark of a gnostic writer.

To me, this last element made Ligotti’s writing more sensible. Ligotti has long struck me as someone who is accurately describing what a Godless universe, by philosophical necessity, would be like. A pandemonium he describes in The Cult of the Idol is a more cynical, and perhaps more wise, view of the pantheism much appreciated by intellectually lazy hippies. But Ligotti’s view is not just that the universe is indifferent, but actively hostile. Thus, atheism ends not in indifference, but in Catharism.

I read The Thomas Ligotti Reader in dead-tree edition.

Review of “The Treasure of Rennes le Chateau” by Bill Putnam and John Edwin Wood

There’s a chapter of my life, that began when I played Gabriel Knight 3 and read Holy Blood, Holy Grail, that ended when I read this book. That game — and from that game, that book — were gateways too so much. My love of Dark Ages history (including great books of real history, like Before France and Germany, Mohammad and Charlemagne, and The Long-Haired Kings, an affection for the idea of the Mediterranean (I stayed in Italy for several weeks after high school), a consideration of how a conspiracy would actually have to be structured (my dream of secret war and a a book, and so on.

The part of my life ended with reading The Treasure of Rennes le Chateau.

But that’s the end. Here’s the beginning.



The facts as we know them: Around a hundred years ago, Father Berenger Sauniere in rural southern France became suspiciously wealthy, with a cumulative lifetime income estimated at a few million dollars (after accounting for inflation). He had a number of visitors at his house, was investigated by the local Bishop, and eventually lost his power to lead Mass at the local Church. He died before the ecclesiastical trial reached a resolution.


The story is much more interesting, because its also inarguable that there’s an actual conspiracy with actual forged documents, layered on top of this. Whether or not there is a treasure, there are documents that contain cyphers, references to ancient societies, and bizarre false clues and dead-ends.

What the world knows about Rennes le Chateau was primarily filtered thru Henry Lincoln, who encountered a real group (albeiet with a fraudulent history) that called itself the “Priory of Sion,” and which has an unusual fixation on the Merovingian Dynasty and King St. Dagobert II (feast day December 23) — a sainted boy king


Henry Lincoln also added a new layer to the mystery, much (apparently) to the bemusement of the actual conspiracy he nearly uncovered. Dusting off his early French, he translates “Sangraal” not as “San Graal” (Holy Grail) but “Sang Raal” (Royal Blood), and from there reconstructs an improbable chronology where the Dagobert II was a blood-descendent of Jesus Chrst, and that secrets to this extent were buried in southern rural France — the discovery of which by Priest Berenger Sauniere led to his millions. Lincoln also added some geometric interpretations, which lead themselves to a reconstruction of the history of the mile (among even less probably claims)


This stuff later spawned a pretty good video game…


And a film series you may have heard of. (Lincoln’s co-authors lost their lawsuit on The DaVinci Code.)

Putnam’s and Wood’s book is an exhaustive, well researched, extremely well document demolition of nearly every conspiracy theory associated with Rennes le Chateau, and the persuasive presentation of evidence of a more mundane conspiracy (Sauniere was illicitly selling masses, and may have engaged in some light grave-robbing.) Even elements which struck me as probable enough (such as the location of certain church-sites) are addressed, with everything from first-person research, to cryptographic analysis, to computer simulations of the probability of certain features appearing by chance.


The number of myths the authors systematically demolish is impressive. Rennes-le-Chateau wasn’t the Visigothic cty of Rhedae. The placing of churches around Rennes doesn’t fit any sort of pattern, mundane or not. Berenger Sauniere supported his (real) generosity by scamming those seeking prayers for the dead. The inflection point of the entire story seems to have been a small remodeling task, which made the priest as power mad as one who is content in a small, remote town can be.

The Treasure of Rennes le Chateau is certainly not the first book you should read about this maze of facts and secrets. But if you’ve encountered any of it, and you are interested in any bit of bit, The Treasure of Rennes le Chateau is a must read.

No Freedom in the Ghetto

The academic ghetto (composed of the humanities, International Relations, sociology, and so on) is a place of low-employment and low-wages. There are four types of people in the academic ghetto:

  • Pimps who run the game. They are the professors.
  • Escapees who are about to get out. They are (graduates who leave the field but use their skills.
  • Losers, who those sucked into the system until their time, youth, and money desert them. They are non-tenure track instructors.
  • Disaster tourists, who get a thrill out of the place. They are students or others who for whatever reason don’t need the degree for employment.


Pimps are in zero-sum competition with each other. This conflict leads all pimps to give up freedom in exchange for safety.

Pimps act tough, but only because they are in a dangerous environment.  They are prisoners of the lack of jobs and opportunities.  There is no freedom in the ghetto.

A pimp may lord it over losers and strut for disaster tourists, but his life is essentially one of fear. Signs of weakness are pounced on. The only safe approach is to stay within your square block, not venture outside, and avoid conflict (while appearing not to). Original thinkers are weeded out, punished, or otherwise compelled to keep their heads down.

A sad example of this occurred this year at the formerly interesting group blog, Duck of Minerva. As I described it in a post from August

An example of this was at The Duck of Minerva, a blog dedicated to celebrating one alley in the academic ghetto (International Relations). A humorous post on identifying and infiltrating old boys networks by a professor at a research university, Brian Rathburn, entitled “Intellectual Jailbait: Networking at APSA” was taken down, all comments on that post were deleted ,Brian was forced to issue a self-criticism, Brian’s post became a non-entity (substantively replaced by Steve Saideman‘s post “Networking is Hard Work“), and two thinly veiled attacks on Brian were posted, (Daniel Nexon‘s “Sexual Harassment in Political Science and International Studies and Laura Sjoberg’s Let’s talk about sex). .

To go back to the analogy, Brian, Daniel, and Laura were pimps who engaged in a turf war. Steve instead gave in to the system, avoiding conflict with the most generic post possible.

The results?

But Steve — who wrote a generic and grey post, who kept his head down — he’s still there. He even said he likes his job. Brave stuff.

If you are young and thinking of entering the humanities ghetto — don’t. If you’re already there — run.

The tDAxp eXPerience