Tag: negotiation

Cultural classes

Some of my readers asked me to explain how to get in control of one’s own emotions when starting their adventure as small investors in the stock market. The purely psychological side of self-control is something I leave to people smarter than me in that respect. What I do to have more control is the Wim Hof method (https://www.wimhofmethod.com/ ) and it works. You are welcome to try. I described my experience in that matter in the update titled ‘Something even more basic’. Still, there is another thing, namely, to start with a strategy of investment clever enough to allow emotional self-control. The strongest emotion I have been experiencing on my otherwise quite successful path of investment is the fear of loss. Yes, there are occasional bubbles of greed, but they are more like childish expectations to get the biggest toy in the neighbourhood. They are bubbles, which burst quickly and inconsequentially. The fear of loss is there to stay, on the other hand.    

This is what I advise to do. I mean this is what I didn’t do at the very beginning, and fault of doing it I made some big mistakes in my decisions. Only after some time (around 2 months), I figured out the mental framework I am going to present. Start by picking up a market. I started with a dual portfolio, like 50% in the Polish stock market, and 50% in the big foreign ones, such as US, Germany, France etc. Define the industries you want to invest in, like biotech, IT, renewable energies. Whatever: pick something. Study the stock prices in those industries. Pay particular attention to the observed losses, i.e., the observed magnitude of depreciation in those stocks. Figure out the average possible loss, and the maximum one. Now, you have an idea of how much you can lose in percentage. Quantitative techniques such as mean-reversion or extrapolation of the past changes can help. You can consult my update titled ‘What is my take on these four: Bitcoin, Ethereum, Steem, and Golem?’ to see the general drift.

The next step is to accept the occurrence of losses. You need to acknowledge very openly the following: you will lose money on some of your investment positions, inevitably. This is why you build a portfolio of many investment positions. All investors lose money on parts of their portfolio. The trick is to balance losses with even greater gains. You will be experimenting, and some of those experiments will be successful, whilst others will be failures. When you learn investment, you fail a lot. The losses you incur when learning, are the cost of your learning.

My price of learning was around €600, and then I bounced back and compensated it with a large surplus. If I take those €600 and compare it to the cost of taking an investment course online, e.g. with Coursera, I think I made a good deal.

Never invest all your money in the stock market. My method is to take some 30% of my monthly income and invest it, month after month, patiently and rhythmically, by instalments. For you, it can be 10% or 50%, which depends on what exactly your personal budget looks like. Invest just the amount you feel you can afford exposing to losses. Nail down this amount honestly. My experience is that big gains in the stock market are always the outcome of many consecutive steps, with experimentation and the cumulative learning derived therefrom.

General remark: you are much calmer when you know what you’re doing. Look at the fundamental trends and factors. Look beyond stock prices. Try to understand what is happening in the real business you are buying and selling the stock of. That gives perspective and allows more rational decisions.  

That would be it, as regards investment. You are welcome to ask questions. Now, I shift my topic radically. I return to the painful and laborious process of writing my book about collective intelligence. I feel like shaking things off a bit. I feel I need a kick in the ass. The pandemic being around and little social contacts being around, I need to be the one who kicks my own ass.

I am running myself through a series of typical questions asked by a publisher. Those questions fall in two broad categories: interest for me, as compared to interest for readers. I start with the external point of view: why should anyone bother to read what I am going to write? I guess that I will have two groups of readers: social scientists on the one hand, and plain folks on the other hand. The latter might very well have a deeper insight than the former, only the former like being addressed with reverence. I know something about it: I am a scientist.

Now comes the harsh truth: I don’t know why other people should bother about my writing. Honestly. I don’t know. I have been sort of carried away and in the stream of my own blogging and research, and that question comes as alien to the line of logic I have been developing for months. I need to look at my own writing and thinking from outside, so as to adopt something like a fake observer’s perspective. I have to ask myself what is really interesting in my writing.

I think it is going to be a case of assembling a coherent whole out of sparse pieces. I guess I can enumerate, once again, the main points of interest I find in my research on collective intelligence and investigate whether at all and under what conditions the same points are likely to be interesting for other people.

Here I go. There are two, sort of primary and foundational points. For one, I started my whole research on collective intelligence when I experienced the neophyte’s fascination with Artificial Intelligence, i.e. when I discovered that some specific sequences of equations can really figure stuff out just by experimenting with themselves. I did both some review of literature, and some empirical testing of my own, and I discovered that artificial neural networks can be and are used as more advanced counterparts to classical quantitative models. In social sciences, quantitative models are about the things that human societies do. If an artificial form of intelligence can be representative for what happens in societies, I can hypothesise that said societies are forms of intelligence, too, just collective forms.

I am trying to remember what triggered in me that ‘Aha!’ moment, when I started seriously hypothesising about collective intelligence. I think it was when I was casually listening to an online lecture on AI, streamed from the Massachusetts Institute of Technology. It was about programming AI in robots, in order to make them able to learn. I remember one ‘Aha!’ sentence: ‘With a given set of empirical data supplied for training, robots become more proficient at completing some specific tasks rather than others’. At the time, I was working on an article for the journal ‘Energy’. I was struggling. I had an empirical dataset on energy efficiency in selected countries (i.e. on the average amount of real output per unit of energy consumption), combined with some other variables. After weeks and weeks of data mining, I had a gut feeling that some important meaning is hidden in that data, only I wasn’t able to put my finger precisely on it.

That MIT-coined sentence on robots triggered that crazy question in me. What if I return to the old and apparently obsolete claim of the utilitarian school in social sciences, and assume that all those societies I have empirical data about are something like one big organism, with different variables being just different measurable manifestations of its activity?

Why was that question crazy? Utilitarianism is always contentious, as it is frequently used to claim that small local injustice can be justified by bringing a greater common good for the whole society. Many scholars have advocated for that claim, and probably even more of them have advocated against. I am essentially against. Injustice is injustice, whatever greater good you bring about to justify it. Besides, being born and raised in a communist country, I am viscerally vigilant to people who wield the argument of ‘greater good’.

Yet, the fundamental assumptions of utilitarianism can be used under a different angle. Social systems are essentially collective, and energy systems in a society are just as collective. There is any point at all in talking about the energy efficiency of a society when we are talking about the entire intricate system of using energy. About 30% of the energy that we use is used in transport, and transport is from one person to another. Stands to reason, doesn’t it?

Studying my dataset as a complex manifestation of activity in a big complex organism begs for the basic question: what do organisms do, like in their daily life? They adapt, I thought. They constantly adjust to their environment. I mean, they do if they want to survive. If I settle for studying my dataset as informative about a complex social organism, what does this organism adapt to? It could be adapting to a gazillion of factors, including some invisible cosmic radiation (the visible one is called ‘sunlight’). Still, keeping in mind that sentence about robots, adaptation can be considered as actual optimization of some specific traits. In my dataset, I have a range of variables. Each variable can be hypothetically considered as informative about a task, which the collective social robot strives to excel at.

From there, it was relatively simple. At the time (some 16 months ago), I was already familiar with the logical structure of a perceptron, i.e. a very basic form of artificial neural network. I didn’t know – and I still don’t – how to program effectively the algorithm of a perceptron, but I knew how to make a perceptron in Excel. In a perceptron, I take one variable from my dataset as output, the remaining ones are instrumental as input, and I make my perceptron minimize the error on estimating the output. With that simple strategy in mind, I can make as many alternative perceptrons out of my dataset as I have variables in the latter, and it was exactly what I did with my data on energy efficiency. Out of sheer curiosity, I wanted to check how similar were the datasets transformed by the perceptron to the source empirical data. I computed Euclidean distances between the vectors of expected mean values, in all the datasets I had. I expected something foggy and pretty random, and once again, life went against my expectations. What I found was a clear pattern. The perceptron pegged on optimizing the coefficient of fixed capital assets per one domestic patent application was much more similar to the source dataset than any other transformation.

In other words, I created an intelligent computation, and I made it optimize different variables in my dataset, and it turned out that, when optimizing that specific variable, i.e. the coefficient of fixed capital assets per one domestic patent application, that computation was the most fidel representation of the real empirical data.   

This is when I started wrapping my mind around the idea that artificial neural networks can be more than just tools for optimizing quantitative models; they can be simulators of social reality. If that intuition of mine is true, societies can be studied as forms of intelligence, and, as they are, precisely, societies, we are talking about collective intelligence.

Much to my surprise, I am discovering similar a perspective in Steven Pinker’s book ‘How The Mind Works’ (W. W. Norton & Company, New York London, Copyright 1997 by Steven Pinker, ISBN 0-393-04535-8). Professor Steven Pinker uses a perceptron as a representation of human mind, and it seems to be a bloody accurate representation.

That makes me come back to the interest that readers could have in my book about collective intelligence, and I cannot help referring to still another book of another author: Nassim Nicholas Taleb’s ‘The black swan. The impact of the highly improbable’ (2010, Penguin Books, ISBN 9780812973815). Speaking from an abundant experience of quantitative assessment of risk, Nassim Taleb criticizes most quantitative models used in finance and economics as pretty much useless in making reliable predictions. Those quantitative models are good solvers, and they are good at capturing correlations, but they suck are predicting things, based on those correlations, he says.

My experience of investment in the stock market tells me that those mid-term waves of stock prices, which I so much like riding, are the product of dissonance rather than correlation. When a specific industry or a specific company suddenly starts behaving in an unexpected way, e.g. in the context of the pandemic, investors really pay attention. Correlations are boring. In the stock market, you make good money when you spot a Black Swan, not another white one. Here comes a nuance. I think that black swans happen unexpectedly from the point of view of quantitative predictions, yet they don’t come out of nowhere. There is always a process that leads to the emergence of a Black Swan. The trick is to spot it in time.

F**k, I need to focus. The interest of my book for the readers. Right. I think I can use the concept of collective intelligence as a pretext to discuss the logic of using quantitative models in social sciences in general. More specifically, I want to study the relation between correlations and orientations. I am going to use an example in order to make my point a bit more explicit, hopefully. In my preceding update, titled ‘Cool discovery’, I did my best, using my neophytic and modest skills in programming, the method of negotiation proposed in Chris Voss’s book ‘Never Split the Difference’ into a Python algorithm. Surprisingly for myself, I found two alternative ways of doing it: as a loop, on the one hand, and as a class, on the other hand. They differ greatly.

Now, I simulate a situation when all social life is a collection of negotiations between people who try to settle, over and over again, contentious issues arising from us being human and together. I assume that we are a collective intelligence of people who learn by negotiated interactions, i.e. by civilized management of conflictual issues. We form social games, and each game involves negotiations. It can be represented as a lot of these >>

… and a lot of those >>

In other words, we collectively negotiate by creating cultural classes – logical structures connecting names to facts – and inside those classes we ritualise looping behaviours.

Cool discovery

Writing about me learning something helps me to control emotions involved into the very process of learning. It is like learning on the top of learning. I want to practice programming, in Python, the learning process of an intelligent structure on the basis of negotiation techniques presented in Chris Voss’s book ‘Never Split the Difference’. It could be hard to translate a book into an algorithm, I know. I like hard stuff, and I am having a go at something even harder: translating two different books into one algorithm. A summary, and an explanation, are due. Chris Voss develops, in the last chapter of his book, a strategy of negotiation based on the concept of Black Swan, as defined by Nassim Nicholas Taleb in his book ‘The black swan. The impact of the highly improbable’ (I am talking about the revised edition from 2010, published with Penguin Books, ISBN 9780812973815).

Generally, Chriss Voss takes a very practical drift in his method of negotiation. By ‘practical’, I mean that he presents techniques which he developed and tested in hostage negotiations with FBI, where he used to be the chief international hostage negotiator. He seems to attach particular importance to all the techniques which allow unearthing the non-obvious in negotiations: hidden emotions, ethical values, and contextual factors with strong impact on the actual negotiation. His method is an unusual mix of rigorous cognitive approach with a very emotion-targeting thread. His reference to Black Swans, thus to what we don’t know we don’t know, is an extreme version of that approach. It consists in using literally all our cognitive tools to uncover events and factors in the game which we even didn’t initially know were in the game.

Translating a book into an algorithm, especially for a newbie of programming such as I am, is hard. Still, in the case of ‘Never Split the Difference’, it is a bit easier because of the very game-theoretic nature of the method presented. Chriss Voss attaches a lot of importance to taking our time in negotiations, and to making our counterpart make a move rather than overwhelming them with our moves. All that is close to my own perspective and makes the method easier to translate into a functional sequence where each consecutive phase depends on the preceding phase.

Anyway, I assume that a negotiation is an intelligent structure, i.e. it is an otherwise coherent and relatively durable structure which learns by experimenting with many alternative versions of itself. That implies a lot. Firstly, it implies that the interaction between negotiating parties is far from being casual and accidental: it is a structure, it has coherence, and it is supposed to last by recurrence. Secondly, negotiations are supposed to be learning much more than bargaining and confrontation. Yes, it is a confrontation of interests and viewpoints, nevertheless the endgame is learning. Thirdly, an intelligent structure experiments with many alternative versions of itself and learns by assessing the fitness of those versions in coping with a vector of external stressors. Therefore, negotiating in an intelligent structure means that, consciously or unconsciously, we, mutual counterparts in negotiation, experiment together with many alternative ways of settling our differences, and we are essentially constructive in that process.

Do those assumptions hold? I guess I can somehow verify them by making first steps into programming a negotiation.  I already know two ways of representing an intelligent structure as an algorithm: in the form of a loop (primitive, tried it, does not fully work, yet has some interesting basic properties), or in the form of a class, i.e. a complex logical structure which connects names to numbers.

When represented as a loop, a negotiation is a range of recurrent steps, where the same action is performed a given number of times. Looping means that a negotiation can be divided into a finite number of essentially identical steps, and the endgame is the cumulative output of those steps. With that in mind, I can see that a loop is not truly intelligent a structure. Intelligent learning requires more than just repetition: we need consistent assessment and dissemination of new knowledge. Mind you, many negotiations can play out as ritualized loops, and this is when they are the least productive. Under the condition of unearthing Black Swans hidden in the contentious context of the negotiation, the whole thing can play out as an intelligent structure. Still, many loop-like negotiations which recurrently happen in a social structure, can together form an intelligent structure. Looks like intelligent structures are fractal: there are intelligent structures inside intelligent structures etc. Intelligent social structures can contain chains of ritualized, looped negotiations, which are intelligent structures in themselves.   

Whatever. I program. When I try to sift out the essential phenomenological categories out of the Chris Voss’s book ‘Never Split the Difference’, I get to the following list of techniques recommended by Chriss Voss:

>> Mirroring – I build emotional rapport by just repeating the last three words of each big claim phrased out by my counterpart.

 >> Labelling – I further build emotional rapport by carefully and impersonally naming emotions and aspirations in my counterpart.

>> Open-ended questions – I clarify claims and disarm emotional bottlenecks by asking calibrated open questions such as ‘How can we do X,Y, Z?’ or ‘What do we mean by…?’ etc.

>> Claims – I state either what I want or what I want my counterpart to think I want

Those four techniques can be used in various shades and combinations to accomplish typical partial outcomes in negotiation, namely: a) opportunities for your counterpart to say openly ‘No’ b) agreement in principle c) guarantee of implementation d) Black Swans, i.e. unexpected attributes of the situation which turn the negotiation in a completely different, favourable direction.

I practice phrasing it out as a class in Python. Here is what I came up with and which my JupyterLab compiler swallows nicely without yielding any errors:

Mind you, I don’t know how exactly it works, algorithmically. I am a complete newbie to programming classes in Python, and my first goal is to have the grammar right, and thus not to have to deal with those annoying, salmon-pink-shaded messages of error.

Before I go further into programming negotiation as a class, I feel like I need to go back to my primitive skills, i.e. to programming loops, in order to understand the mechanics of the class I have just created. Each ‘self’ in the class is a category able to have many experimental versions of itself. I try the following structure:

As you can see, I received an error of non-definition. I have not defined the dataset which I want to use for appending my lists. Such a dataset would contain linguistic strings, essentially. Thus, the type of datasets I am operating with, here, are sets of linguistic strings, thus sets of objects. An intelligent structure representative for negotiation is an algorithm for processing natural language. Cool discovery.