The Median is Not the Message | Reading Notes #9

This section of the book drives home an important message for anyone, regardless of profession or walk of life.

When I was reading this section, I was immediately thinking of the Steem blockchain. Anyone who’s invested in the Steem blockchain and who participates here regularly can benefit from learning this concept.

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Originally Posted on My Blog. Click Here to Read This Post on My Website!

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I’ve talked briefly about asymmetric upside in the past —> the idea that your upside has exponential potential when compared to your downside.

Risking $10 with the potential to earn $10,000, for example.

This is only a small part of the story. This is obviously an oversimplification, but the concept remains clear.

Taleb starts out this section by talking about essayist and scientist, Steven Jay Gould. He was diagnosed with a form of stomach cancer when he was in his forties and he was informed of his odds of surviving it.

He was told that the median survival rate was about eight months.

“Now, a medical diagnosis, particularly one of such severity, can motivate people to do intensive research, particularly those prolific writers like Gould who needed more time with us to complete a few book projects.” – Nassim Taleb, Fooled By Randomness

After doing some research of his own, Gould found that this median survival rate didn’t tell the full story. In fact, it was leaving out what could be considered the most important part of it!

Gould found that the median survival rate was based upon the following data:

50% of the people die before eight months and 50% survive longer than eight months. Those 50% that survive the eight months end up living, in general, about as long of a life as the average person (73.4 years).

“There is asymmetry. Those who die do so very early in the game, while those who live go on living very long. Whenever there is asymmetry in outcomes, the average survival has nothing to do with the median survival. This prompted Gould, who thus undderstood the hard way the concept of skewness, to write his heartfelt piece “The Median Is Not the Message.” His point is that the concept of median used in medical research does not characterize a probability distribution.” – Nassim Taleb, Fooled By Randomness

Applying This to Gambling… And Crypto!

Taleb goes on to apply this concept to gambling and he does a great job of driving the point home. I read this page once and then read it a few more times. This concept is so valuable to anyone. I believe that it carries a special value to those of us who are involved in crypto and the Steem blockchain.

“I will simplify Gould’s point by introducing the concept of mean (also called average or expectation) as follows, by using a less morbid example, that of gambling. I will give an example of both asymmetric odds and asymmetric outcomes to explain the point. Asymmetric odds means that probabilities are not 50% for each event, but that the probability on one side is higher than the probability on the other. Asymmetric outcomes mean that the payoffs are not equal.” – Nassim Taleb, Fooled By Randomness

Applying this concept similarly to crypto and more specifically to STEEM, we can understand that there is a lot of risk when it comes to investing in cryptocurrencies.

The frequency of people who lose money is quite high. There are so many people out there who bought Bitcoin at $5k or $10k or even $20k. It’s easy to spot these people in the downtrend.. They seem to be everywhere we look at the moment.

One thing that is of extreme importance is the magnitude of those who have won in cryptocurrencies. Those who have invested at great prices and who have held for the long-term. Especially those who have mined a stake in a variety of cryptos.

Many people don’t know this about Steem, but when you are making a post on the Steem blockchain, you are effectively mining for crypto. You are mining STEEM by earning a certain portion of the rewards pool which is magnified by the amount of upvotes you receive.

Writing great content, writing consistently and using a variety of tactics and apps on the Steem blockchain can allow you to mine more efficiently.

Holding STEEM for the long-term, to me, is the largest payoff of all. Sure, it carries with it a significant amount of risk. This is where some of Taleb’s ideas apply nicely, if you use a little creative thinking.

You must realize that there is a huge level of risk in any crypto, even STEEM. There is a risk that you lose all of the money that you have invested.

On the other hand, the potential upside is asymmetric.. There really is no limit to what you can earn in cryptocurrency. You can mine and increase your stake and then you can earn more crypto based on your stake (specifically on Steem).

This allows many Steemians (myself included) to be comfortable with the risk of losing all our money and time invested into the Steem blockchain. The potential upside is simply too amazing. The upside stems even beyond just financial rewards.

The upside also includes the potential of being a part of something much greater. To be a part of a revolution in the way creatives, entrepreneurs and users are rewarded for their attention, action and hard work.

Q&A:

Are you comfortable with the risks posed by being an investor/user/developer on the Steem blockchain? Leave a comment below telling us why you’re comfortable with the risks and why you believe the potential upside is worth it.