Beating the Average

Staving off death is a thing that you have to work at. Left to itself – and that is what it is when it dies – the body tends to revert to a state of equilibrium with its environment. If you measure some quantity such as the temperature, the acidity, the water content or the electrical potential in a living body, you will typically find that it is markedly different from the corresponding measure in the surroundings. Our bodies, for instance, are usually hotter than our surroundings, and in cold climates they have to work hard to maintain the differential. When we die the work stops, the temperature differential starts to disappear, and we end up the same temperature as our surroundings. Not all animals work so hard to avoid coming into equilibrium with their surrounding temperature, but all animals do some comparable work. For instance, in a dry country, animals and plants work to maintain the fluid content of their cells, work against a natural tendency for water to flow from them into the dry outside world. If they fail they die. More generally, if living things didn’t work actively to prevent it, they would eventually merge into their surroundings, and cease to exist as autonomous beings. That is what happens when they die. — Richard Dawkins, The Blind Watchmaker

Paul Graham wrote a post, Beating the Averages (2001), about the advantages that he had at his startup, Viaweb, since it was written in Lisp. Yet, maybe it was less the language (Facebook was written in PHP) and more the type of people that were attracted to Lisp. Developers that were avid Lisp enthusiasts lived outside the average (probably positively). 

Some lessons on beating the average:

• You can’t choose every esoteric option. An index of highly volatile stocks can have low volatility.

• Regression to the mean is real

• Signaling works in asymmetric markets (Mike Spence won the Nobel prize for this paper in 2001)

• Decisions that have low (or negative) short-term value and extreme long-term value are often underpriced relative to their NPV. Hire for slope, not y-intercept, is a corollary.