# Thread: How do you decide what you call "True"?

1. ## How do you decide what you call "True"?

I am curious what set answers we will get from this question.

Note, I am nat asking the the more static "What is truth?" question.

I am asking from a day-to-day, minute-to-minute decision making, how do you decide what you consider "true" (in practical, theoretical, or sptitual matters)?

How do time constraints on those decisions effect your desicions in this matter?

How would you like to improve your day-to-day desicion making process about what is true?

2. Interesting question. True to me is predictive. When I do research, I'm attempting to build a predict model so that I can base my next actions upon it. Anything that fails to be predictive is inherently false.

Of course, that gets into the whole probability thing, which makes it difficult. In cases where probability is low (like 50/50), I either need a large sampling of trial events or I don't consider it true.

In logical models, which I'll give an example of, I will use historical data to validate it as much as possible. In those cases, I also tend to try to use as many sets of data as possible;

For instance, one of the recent problems I'm facing is how to invest money - logically, it follows that taking all of you home equity (interest only loan) and investing it in the market, and then leveraging that money as much as possible, is the correct decision. The reason is that inflation adds to your earning power while the loan remains fixed, and the assets you buy are generally inflationary as well.

However, that is data-free. As such, I would pull out as much historical data (such as bank stock prices, broad indexes, foreign markets) and run the same calculation on each market - I would write the full calculation, work out the risk of ruin, and then calculate it over multiple periods of time (ie; 5, 10, 25 yrs) and output the average return, average risk of ruin, etc. No only would this data either support or deny the logical solution, it would provide variation and other data (ie: objective risk of ruin rather than just the mathematical model).

Only after that would I consider the theory true. That goes for nearly anything I do.

Of course, when it comes to acting, I use as much "true" (ie: validated) information as possible, but I will make my best guess as to the rest and move on. No one has unlimited time!

3. Originally Posted by ptgatsby
For instance, one of the recent problems I'm facing is how to invest money - logically, it follows that taking all of you home equity (interest only loan) and investing it in the market, and then leveraging that money as much as possible, is the correct decision. The reason is that inflation adds to your earning power while the loan remains fixed, and the assets you buy are generally inflationary as well.
Reasoning like this is why I think loss aversion is a really good human bias (No offence). You are not already doing this are you?

Your risk of ruin analysis makes more sense. I think the utility of money deteriorates as you have more of it (So it actually makes more sense to me to be loss averse).

Consider the following two gambling situations, would you choose to proceed?:
1. On a flip of a coin you will either get your own networth in money plus \$1, or you will loose your networth in money.
2. On the flip of a coin, you will gain \$1 and a \$1/(your net-worth) or lose \$1.

Expected value analysis makes sense in one case, probabablity or ruin in the other, but value at risk analysis, I think, makes sense in both, and lets you know what sort of analysis to do going forward.

Anyway, I don't mean to be judgemental, but I have friends who were burned by investing too agressively.

4. I tend to just assume what I see in front of me is true.

If I hear something from other people,I tend to figure it is true unless I have some reason to think otherwise.

5. Originally Posted by Zergling
I tend to just assume what I see in front of me is true.

If I hear something from other people,I tend to figure it is true unless I have some reason to think otherwise.
I do too, usually. Is this a good thing? Would you like to improve?

I have become better about remember who told me what, so that I can start knowing how well to trust my sources over time.

But in trickier situations, I do have too look beyond the surface and theorize and test. I'm sure you do too. Consider when you have to "fix" something. The first thing I do is to check if the thing is actually broken (I have actually that in most cases when someone asks me to fix something, it is simply in a weird mode, not actually broken).

6. Originally Posted by ygolo
Reasoning like this is why I think loss aversion is a really good human bias (No offence). You are not already doing this are you?
No, I haven't completed my analysis yet.

Your risk of ruin analysis makes more sense. I think the utility of money deteriorates as you have more of it (So it actually makes more sense to me to be loss averse).
That depends on your goals - the ROR is tied into the whole model. I operate on the principle that you figure out what you need to know, then how you can objectively find out, then build the model, then test the model, then apply the model.

I'm currently at the "build the model" stage.

Consider the following two gambling situations, would you choose to proceed?:
1. On a flip of a coin you will either get your own networth in money plus \$1, or you will loose your networth in money.
2. On the flip of a coin, you will gain \$1 and a \$1/(your net-worth) or lose \$1.
Yes, I know what you are saying. FWIW, I'd take the first regardless, because I do not have time for infinite iterations of the second. The second would offer roughly me less than 0.0005% benefit if iterated daily for the next 10 years (I'm basing this upon my current projection using excel), while a single iteration that was in my advantage would reduce my currently time from by nearly two years (and, as such, only increase my respective time frame by a few years; the relative value says I wouldn't do either). To put that in perspective, it'd take thousands upon thousands of iterations early on, to have any significant impact... as such, the second doesn't even factor into it at all and as such, holds no interest to me.

Model first, then determine what will achieve your goals. The logical model needs to be proven, then feasibility needs to be shown.

Anyway, I don't mean to be judgemental, but I have friends who were burned by investing too agressively.
I was using it as an illustration on how I make decisions and how I support them - I haven't concluded anything.

FWIW, the inflation argument is also more similar to your second example the the first... although pruchasing power and asset inflation is like rolling doubly weighted dice, which is why the risk of ruin is the most important factor in determining proper leverage. It is the length of time that has the most significant impact on the viability of the strategy.

(But not to derail the thread - I'm more than willing to talk all about this if you are interested... or anyone for that matter.)

7. bachelors are unmarried men - true

8. Originally Posted by nocturne
bachelors are unmarried men - true
How do you know someone is a bachelor (or an unmarried man)?

9. Originally Posted by ptgatsby
How do you know someone is a bachelor (or an unmarried man)?
I didn't claim to.

10. Originally Posted by nocturne
I didn't claim to.
So you don't know if anyone is married, then? This is not a group you ever identify?

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