Wednesday, December 07, 2005

Probability

I recently read the free book "God's Debris" by Scott Adams, and I must admit, it presented some interesting viewpoints. As Scott himself admits, there are holes to it, but some of the basic axioms presented hold some truth.

One that I found intriguing was the notion that probability ruled all. That if you flip a coin long enough, it WILL land heads up about 50% of the time. No one can change that, no one can beat that, it is immutable.

Suppose someone wanted to build a time machine, not so much for traveling through time, but rather to simply see into the future. Could it be done?

I think the more important question is, would it need to be done? Since we don't have the tools to predict the future, probability is our closest friend. We know that certain events can occur (on the average) with certain regularity. For example, 99.9% of the time that I tie my left shoelaces, I'll also tie my right shoelaces. Sometimes I might not tie the right shoelaces. If someone were to bet on my shoelaces, there is a risk that I could tie only the left shoelace.

Is it an acceptable risk to say that I will tie my right shoelace if I tie my left? I'd say yes. You won't be wrong often.

If we notice patterns, and we identify probabilities for future events, we can essentially see into the future. Not a specific future, but an averaged future.

Pattern recognition is probably one of the most valuable skills someone can have. If the right elements are being observed, and a pattern can be conjured up, the probabilities associated with that pattern can provide an edge that no one else possesses.

We can see this all around us. Patent lawyers make a living off submarine patents (as in, patent something, wait for someone to implement/invent it, then force them to licence your patent if they want to take it to market: check out the Blackberry or Eolas fiasco for examples). Casinos thrive off of the edge they create--even though their customers are well aware of the tilted scales. They may not know the outcome of each poker hand or pull of a slot machine, but they know that overall, they're going to win. Venture capitalists, too, know that the "next big thing" has to come from somewhere, and that losing 10 and winning 1 happens sometimes. But when that 1 wins big, that takes care of the 10 losses.

Losses happen. We can't change that. All we can do is find an edge and ride it long enough for probability to play out. That means (1) you must be able to identify patterns/edges and (2) they must exist in a long enough time frame.

So do we need a time machine that shows the future? I'd say no. All we need is a machine that can make good enough observations of the past, find good enough patterns, and produce probabilities for future events. Factor in learning to identify changing trends, and you're close enough to a time machine--who needs the real thing?

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