May 2023 BenGoldhaber.com Newsletter
Thinking about fraud and how it's all in the Game
#links
Lying for Money: The book is a great taxonomy of fraud and case studies; I’ve obviously only read the linked review and not the book, but I found it useful for both thinking about how trust works in societies and also how fraud is, in some sense, endemic to any high trust community.
If Lying For Money's most important idea can be described in a single line, it's that fraud is an equilibrium phenomenon – or, as Davies likes to put it, "It is highly unlikely that the optimal level of fraud is zero."
The taxonomies of frauds are a good mental model for thinking about the problem:
The Long Firm. (Of the white collar frauds that Davies describes, the "long firm" is the easiest to understand from a conceptual standpoint, but the hardest to understand semantically, because it has nothing to do with lengths or firms: etymologically, it comes from the Anglo-Saxon “galang” – fraudulent – and the Latin “firma” – signature). "The most basic kind of fraud is simply to borrow some money and not pay it back, or alternatively buy some goods and not pay for them. … A long firm makes you question whether you can trust anyone."
Counterfeiting. "The only practical way to do many types of business is to trust that, for the most part, documents are what they appear to be, and that they prove what they claim to prove. Abusing this trust by creating false documents to verify false claims is counterfeiting. … A counterfeit makes you question the evidence of your eyes."
Control Fraud. "A control fraud differs from the simpler kind because the means by which the value is extracted to the criminal is generally legitimate – high salaries, bonuses, stock options and dividends, but the legitimate payments are made on the basis of fictitious profits and unreal assets, and the manager tends to take vastly higher risks than those which would be taken by an honest businessman. … A control fraud makes you question your trust in the institutions of society."
Market Crimes. Davies admits that "market crimes'' are the most abstract, and difficult to define: "More than any other, this kind of crime is a matter of judgment, local convention and practice, rather than one of cut and dried criminality. A blatant market crime in one jurisdiction could be considered aggressive but legal practice in another, and the definition of good business somewhere else. A long firm clearly falls under ‘Thou shalt not steal’, and a counterfeit under ‘Thou shalt not bear false witness’, but where’s the commandment ‘Thou shalt not trade securities while in possession of material non-public information’?" Still, even if norms may not be universal across time and geography, the existence of norms implies the existence of norm violations, and people don't like it when they see a violation of the way they think the world (or markets) are supposed to work. "* market crime makes you question society itself."
Another excellent interview by Dwarkesh Patel of Richard Rhodes, discussing the Making of the Atomic Bomb and the nuclear age:
Again, a part of the story that most people have never really heard. In the 50s, before the development and signing of the Nuclear Non-Proliferation Treaty, which was 1968 and it took effect in 1970, a lot of countries that you would never have imagined were working on nuclear weapons. Sweden, Norway, Japan, South Korea. They had the technology. They just didn't have the materials. It was kind of dicey about what you should do. But I interviewed some of the Swedish scientists who worked on their bomb and they said, well, we were just talking about making some tactical nukes that would slow down a Russian tank advance on our country long enough for us to mount a defense. I said, so why did you give it up? And they said, well, when the Soviets developed hydrogen bombs, it would only take two to destroy Sweden. So we didn't see much point.
I remain in awe of Dwarkesh’s interview questions and the… value of information per question. Having listened to a lot of his episodes, I think fundamentally he’s practicing the Teller, of Penn & Teller, philosophy: “sometimes magic is just someone spending more time on something than anyone else might reasonably expect”.
The Heroes We’re Allowed: A cultural criticism essay that describes the full demise of the ‘Great Man’ in TV and Films. Heroes are only allowed to react, and never have meaningful positive visions:
We are not allowed to peer into the Will to Power... we live in a Christian morality world that denigrates the Nietzschean Superman. This is the moral framework we demand and the framework that is sold to us. It’s the water we swim in.
Data based personality quizzes: A fun thread from Spencer Greenberg. The hidden meaning of sounds test is my favorite.
An impressive example of skin in the game by 19th century DuPont:
LintRule: An AI tool that lets you program automated code review checks through natural language. Not everyone does code reviews, in part because it can be a costly social practice, especially for small shops. Enforcing social rules through smart automation and good UX seems like a trend that can be generalized across sectors.
Inject my PDF: Make your resume stand out with prompt injection, and in the process strike a blow against our future LLM overlords.
To escape a deluge of generated content, companies are screening your resumes and documents using AI. But there is a way you can still stand out and get your dream job: Prompt Injection. This website allows you to inject invisible text into your PDF that will make any AI language model think you are the perfect candidate for the job.
Related: I half seriously think someone should make an anarchist cookbook of prompt injection attacks and fun ideas of how to use them.
I’m happy to learn that Einstein had a hustle mindset:
#good-content
The Wire: It’s been 21 years since The Wire, maybe the all time best representation of institutional power dynamics, was released. I rewatched Season 1 with a friend who hadn’t seen it before, and two decades later it’s still the king. Related: this twitter account tweeting great clips from The Wire.
Jury Duty: A mockumentary, ‘prank show’ following a jury trying to deliberate on a case where only one of the jurors is a real person. Very fun.
xoxo,
Ben
p.s. Intrusive Thoughts