The Sunday Brew #111
In this brew - Millionaire Migration in 2024 in a picture | Shifting Baseline Syndrome & Goodhart's Law | Terraforma co-founder extradited, AGI target by financial lense and Banking Lobby sues Feds
Welcome to The Sunday Brew, weekly 1-2-3 newsletter by The Percolator. Every Sunday we drop in your inbox 1 story in a picture, 2 concepts, ideas or frameworks to expand your horizons and 3 news from the week, to keep you updated.
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ONE STORY IN A PICTURE
TWO IDEAS, FRAMEWORKS OR CONCEPTS
This week we bring to you two concepts - Shifting Baseline Syndrome & Goodhart's Law
Shifting Baseline Syndrome
Shifting Baseline Syndrome (SBS) is a concept that describes how each generation perceives the environmental conditions they experience during their formative years as the baseline for what is considered normal. This phenomenon leads to a gradual acceptance of ecological decline, as individuals and communities become accustomed to diminished natural resources, biodiversity, and ecosystem health without recognizing the extent of change that has occurred over time.
The term was first introduced by the fisheries scientist Daniel Pauly in the 1990s, who observed that fishermen often accepted lower fish populations as normal because they had no memory of the more abundant marine life that existed in the past.
To counteract Shifting Baseline Syndrome , it is essential to maintain a clear vision of what success looks like and to regularly reassess goals against historical achievements and aspirations.
By fostering a culture of continuous improvement and encouraging individuals to challenge their assumptions about what is possible, organizations and individuals can avoid the pitfalls of complacency. This proactive approach not only promotes growth and resilience but also helps maintain high standards that inspire innovation and fulfillment.
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Goodhart's Law
Goodhart's Law, articulated by economist Charles Goodhart in 1975, states, "When a measure becomes a target, it ceases to be a good measure." This principle highlights the unintended consequences that arise when specific metrics are prioritized over broader objectives.
For instance, if a company focuses solely on increasing call volume in a call center, employees may prioritize speed over customer service, leading to poor interactions despite improved performance metrics.
The law illustrates how incentivizing specific behaviors can distort actual outcomes. A historical example is the British colonial government's attempt to reduce the cobra population in India by offering bounties for cobra skins, which led to citizens breeding cobras instead.
Goodhart's Law serves as a cautionary reminder that reliance on single metrics can result in gaming the system and ultimately undermine the original goals. Therefore, using multiple metrics is often recommended to capture a more comprehensive view of performance and avoid these pitfalls.
THREE NEWS FROM THE WEEK
Montenegro Approves Extradition of Do Kwon to the U.S. Amid Legal Turmoil
Montenegro's Justice Minister, Bojan Božović, has officially sanctioned the extradition of Do Kwon, co-founder of Terraform Labs, to the United States.
This decision culminates a protracted legal saga involving competing extradition requests from both the U.S. and South Korea, following Kwon's arrest in March 2023 while attempting to flee using forged documents.Kwon faces serious federal fraud charges in the U.S., linked to the catastrophic collapse of TerraUSD and Luna tokens, which collectively wiped out about $40 billion in investor funds. The Montenegrin authorities determined that legal criteria favored the U.S. request, leading to the rejection of South Korea's extradition plea.
The extradition process has been complicated by Montenegro's lack of formal extradition agreements with either country, resulting in numerous court rulings and reversals over the past year. Despite his legal team's claims that the decision violates European conventions on extradition, the Ministry of Justice has emphasized that most legal conditions supported the U.S. request.
Kwon's lawyers have indicated plans to appeal the decision, arguing against its legality. The timeline for Kwon's transfer remains uncertain as he awaits further legal developments. His case highlights ongoing scrutiny within the cryptocurrency sector, particularly concerning regulatory compliance and investor protection in light of significant financial losses experienced globally.
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Microsoft and OpenAI Set $100 Billion Profit Benchmark for AGI
Microsoft and OpenAI have defined Artificial General Intelligence (AGI) through a financial lens, establishing a requirement for OpenAI to generate $100 billion in profits to validate its achievement of AGI.
This definition diverges from traditional views that prioritize cognitive capabilities, instead focusing on economic success as a benchmark for AGI's value.
The agreement, signed in 2023, stipulates that until OpenAI meets this profit target, Microsoft retains access to its advanced AI technologies. Currently, OpenAI is projected to experience significant financial losses, with expectations of unprofitability until 2029. This raises concerns about the feasibility of achieving such a lofty profit goal in the near future, particularly given the high operational costs associated with developing advanced AI models.
Critics argue that this profit-centric approach may undermine the foundational goals of AI innovation, which traditionally aimed at enhancing human capabilities rather than merely generating revenue. However, proponents assert that tying AGI to measurable financial outcomes could drive investment and competition within the sector.
As OpenAI navigates its path toward this ambitious profit target, Microsoft is exploring diversification strategies in its AI partnerships, potentially investing in competitors like Anthropic. This strategic maneuver aims to reduce reliance on OpenAI while fostering broader advancements in AI technologies. The implications of this agreement could redefine how success in AI is measured, shifting the focus from intellectual achievements to financial viability in an increasingly competitive landscape.
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Banking Lobby Sues Federal Reserve Over Stress Test Transparency
In a significant legal move, major banks and business groups have filed a lawsuit against the Federal Reserve, challenging the opacity of its annual stress tests.
The plaintiffs, including the Bank Policy Institute and the American Bankers Association, argue that the Fed's testing criteria are developed in secrecy, resulting in inconsistent capital requirements that hinder financial services costs in the U.S.
The lawsuit, filed in U.S. District Court in Columbus, Ohio, claims that the Fed's methodology for evaluating banks against hypothetical economic crises violates proper administrative procedures. The groups demand public access to the models and scenarios used in these assessments, asserting that transparency is essential for accountability.
While the Fed announced plans to enhance transparency ahead of the 2025 exams, banking leaders believe these changes may be insufficient to address their concerns about burdensome capital requirements. Rob Nichols, CEO of the American Bankers Association, emphasized that the current opaque nature of the tests undermines their effectiveness in assessing bank resilience.
This lawsuit reflects a broader trend among banks to contest regulatory practices amid evolving legal landscapes and recent Supreme Court rulings that limit agency authority. The outcome could reshape how stress tests are conducted and influence capital requirements for major U.S. banks moving forward.
The Sunday Brew by The Percolator brings to you curated news on tech, business & entrepreneurship, from across the internet to give your week a perfect start.
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