Thursday, April 2, 2015

From the Specific to the General and Back Again

Fractal Flame via Pixabay
Generalization is the primary natural learning method for humans. When we experience an event followed by another event, we assume the second event was caused by the first.  When we observe a series of similar events with similar patterns, we can generalize a rule that guides our behavior. This process is the basis behind the maxim "experience is the best teacher."

There are serious flaws with the process of generalization.  Because we are designed to look for patterns of correlation and causality, we often see them where they don't exist. An inability to sort out the signal from the noise leads to strange superstitions and false expectations.

We also value recent experience and personally observed experience more highly than historical perspective.  This is the cause of most financial bubbles.  In 2007, when housing values were soaring and everyone had a neighbor who had sold their house at a great profit, it was easy to overlook that the prices would eventually collapse back to the historical trend line.

Even with these tendencies to overgeneralize, the method generally works at the macro level. It is pretty easy to view the time savings and weight reductions from additive manufacturing in the aerospace industry and predict that additive manufacturing will continue to be a growth industry.  The necessity of reducing the cost of sensors and communications as more and more consumer products become connected to the internet predicts that the printed electronics industry will experience explosive growth.

Bringing the general back to the specific is the gigantic challenge. Additive manufacturing may boom, but which companies have the right technology and management team to lead the charge? Bioprinting will transform medicine, but will Organovo stay in the lead or be eclipsed by some other upstart organization? Will Thin Film Electonics ASA tranform their technical lead in printed electronics into a profitable future?

The difficulty in answering these types of questions is what keeps tech investing interesting. The roller coaster changes in valuations are also both thrilling and frightening.

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