Welcome back to the 1st Law Newsletter.

Extremistan and Mediocristan

Some metrics have extreme outliers while others do not. This is the differentiating characteristic between the two mental categories. If the outliers can be extreme, the metric belongs in Extremistan. If the metric falls around the mean, it belongs in Mediocristan. In other words, Mediocristan follows a bell curve distribution while Extremistan follows a power law distribution with fat tails. The utility of these two mental states lies in recognizing what environment you are in, and the subsequent risk/ reward.

For example, how many calories can you eat in a day? Maybe 10k? Will this day affect your yearly average of calories consumed daily? Barely. Calories consumed thus belongs in Mediocristan. Conversely, how much money can you lose in a day? All of it… in fact it is fairly trivial to lose all of your money in a day. Also, if you take the richest person in the world and compare them to 10 people of average wealth, the richest person will hold 99.999% of the total wealth. Wealth is a metric that belongs in Extremistan.

Extremistan can be summarized as winner take all environments. Others include: books sold by writers, number of streams by podcasters or artists, influencer views, startup success, and wars and pandemics. These events have massive winners and losers and the median does not correlate to the mean.

Dead people cant vote

Are there any reasons to pick a stable career over a scalable career with the possibility of great returns? The confirmation bias inherent in any professions that are scalable is that the people who failed greatly are not be around to tell their stories. And even if they are, no one will listen because no one listens to losers. For example, it seems like all traders make great money and that taking risks leads to success, but we only hear from successful traders. What about the ones who took risks and lost? What about all of the traders who blew up their accounts and now work at McDonalds?

Further, what is the difference between a successful and unsuccessful trader? Are they simply that much smarter and more talented? Possibly, but I think we underestimate the role of luck in these scalable careers. The power law distribution that dominates scalable careers results in massive winners who are compensated vastly more than may be warranted. Some writers get published based on nothing but luck and connections. How many great works of literature were never even published? Or published but barely sold?

Scalable careers have an understanding appeal, and seem to promise great riches, but dead people cant vote. We do not see the amount of people who tried and failed. Understanding the confirmation bias inherent in scalable careers gives us one good reason to stay in a stable occupation.

Zero day exploits

Some discoveries change the game. When a person, or a group of people, approach a problem or a task from a new angle. When they find a new exploit that drastically improves results, lowers the required effort, or simply changes the game. This is a zero day exploit.

Inherent characteristics of a zero day exploit include being the first mover and unrivaled (but temporary) results. Zero day exploits practically guarantee success… until others catch on. For example: padding on the ping pong paddle, jumping over the high jump backward, the first high frequency trading firms, and curved hockey sticks. Just thought it was interesting… obviously, if you discover a zero day exploit, massive success and results will follow.

Quote to go

Thanks for reading!

Lucas