Luca Dellanna - Ergodicity

Ergodicity: Definition, Examples,
And Implications,
As Simple As Possible

Luca Dellanna
@DellAnnaLuca
Luca-dellanna.com

Second edition
January 2022

Luca DellAnna 2022 All Rights Reserved

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Advance praise

This is one of the most important books Ive read, period. Its short, articulate and expansive on a singular subject matter ergodicity which is really the key ingredient to success in life, marriage, business, family, happiness, health, etc. Its mathematical in origin but ubiquitous in application. High performance only matters if you survive
Blake Janover

Definitely worth reading! What I appreciate the most is that the author chose to explain the practical applications of ergodicity in layman terms, thereby making the topic accessible to a wide audience.
Silvia Brumana

Practical, easy-to-understand explanation of a complex issue. The examples the author uses make the definitions come to life
Scott Miller

Other books by Luca Dellanna:

The Pandemic Guidebook (2021)

Teams Are Adaptive Systems (2021)

100 Truths You Will Learn Too Late, Second Edition (2020)

The Control Heuristic, Second Edition (2020)

Best Practices for Operational Excellence (2019)

The Power of Adaptation (2018)

The World Through a Magnifying Glass (2018)

Introduction

Part 1 Losses absorb future gains

Chapter 1.1 It is not the fastest skier that wins races15

Chapter 1.2 Performance vs. survival16

Chapter 1.3 Russian Roulette24

Chapter 1.4 The law of large numbers29

Chapter 1.5 Much of life is a Russian Roulette32

Chapter 1.6 Population and lifetime outcomes34

Chapter 1.7 Risk aversion38

Chapter 1.8 What you see is not all there is42

Chapter 1.9 The point so far45

Part 2 What works on average can still fail locally

Chapter 2.1 One vs. many47

Chapter 2.2 The average returns arent your returns55

Chapter 2.3 The gambler and the gamble58

Chapter 2.4 The point so far67

Part 3 Ergodicity

Chapter 3.1 Defining ergodicity69

Chapter 3.2 Ergodicity and irreversibility73

Chapter 3.3 Ergodicity and exposure76

Chapter 3.4 Ergodicity as a non-binary property79

Chapter 3.5 In search of ergodicity86

Part 4 Reducing exposure

Chapter 4.1 The barbell strategy88

Chapter 4.2 The Kelly Criterion94

Chapter 4.3 The Kelly Criterion in nature96

Chapter 4.4 The Precautionary Principle104

Chapter 4.5 Natural selection and Fractalization109

Chapter 4.6 Summary of the first strategy, reducing exposure115

Part 5 Ensure that the dangerous gets removed

Chapter 5.1 Skin in the game reduces the moral hazard119

Chapter 5.2 Skin in the game removes sources of irreversibility120

Chapter 5.3 Skin in the game prevents dangerous behaviors from spreading125

Chapter 5.4 Summary of the second strategy, skin in the game127

Part 6 Redistribution

Chapter 6.1 Load redistribution130

Chapter 6.2 Financial redistribution139

Chapter 6.3 Summary of the third strategy, redistribution155

Part 7 The hidden side of non-ergodicity

Part 8 Other examples of non-ergodicity

Chapter 8.1 Behavioral change160

Chapter 8.2 Ergodicity and the pandemic162

Chapter 8.3 Narrowness, broadness, and ergodicity165

Chapter 8.4 Sustaining performance172

Chapter 8.5 The tragedy of the commons176

Conclusions

Quotable bits182

About the Author

Other books by Luca Dellanna

Acknowledgments203

Last July, I got diagnosed with malignant eye cancer. Thankfully, it was early stage, and as Im writing these lines, Im undergoing medical therapy with extremely high chances of success.

The clich is that this brief encounter with death would have led me to live every day as if it were the last. It didnt. It never does.

People who are reminded of their mortality are often shaken up from their routine, yes, but never really live their day as if it were the last one. Because doing so would be suboptimal if theres more than one day left.

In fact, all our decisions are underpinned by an implicit assumption of a time horizon to optimize for. Whether to do unpaid work is influenced by how long we think a work relationship will last. Whether to marry our romantic partner is influenced by how long we believe our love will last.

Time horizons are the bases of our decisions and of our regrets. Live as if you would die tomorrow, and you will regret not having pursued long-term engagements (such as fulfilling professional ambitions, building a family, and so on); and live as if you couldnt die and you will regret not having done what you cant do anymore.

Getting the time horizon right is fundamental for a life with few regrets. Sadly, theres too much variance and too many unknowns for us to get it reliably right. However, we can improve our outcomes by understanding the effect of time and variance on our choices and taking choices that dont need our guess to be exact to work out.

Ergodicity explains that; and reading this book will help you take better decisions decisions that dont ignore time but leverage it, decisions that minimize regret and yet maximize long-term potential.

I wrote this book to explain the relevance of ergodicity to readers interested in its practical applications but not in its mathematical foundations.

This book is not a comprehensive guide on ergodicity. Other manuscripts do a better job on the dimensions of precision and theoretical completeness. They are meant for the academic public. Instead, I chose to let a different readership enjoy an understanding of ergodicity.

In the inevitable tradeoff between formal precision and accessibility, I favored the latter. Therefore, this book contains sentences that are correct in their practical meaning but technically imprecise. I use footnotes to reference justifications and more precise formulations.

Sometimes, I edited quotes for punctuation. Emphasis is always mine.

Enjoy this book!

Feel free to email me at

Its okay, encouraged even, to share on social media quotes or screenshots of a few paragraphs from this book (mentioning the author and title). That said, its obviously not okay to share full chapters or the full book.

This book wouldnt have seen the light without the previous work on ergodicity of many scholars. Ole Peters, who perhaps more than anyone else advanced the understanding of this topic, Nassim Nicholas Taleb, who wrote the books that brought the topic to my attention, Alexander Adamou, Murray Gell-Mann, Ed Thorp, John Larry Kelly Jr., and all the other scholars who worked on the topic. This book stands on the shoulders of giants. The end of this book contains a selected list of their works.

Always use common sense. Nothing in this book is financial advice or advice of any other kind. The author shall not be held liable for the application or misapplication of the contents of this book. You can find a link to my full disclaimer at Luca-dellanna.com

Ever since a young age, we are taught that a cost-benefit analysis determines whether it is a good idea to do something. If the gains are larger than the losses, then go ahead.

The real world begs to differ. There are cases in which it is a terrible idea to do something whose gains are larger than its losses. The next chapter tells the story of how my cousin learned this lesson during his short-lived career as a professional skier.