

Pay attention to power law distributions - jackaltman
http://jackealtman.com/2013/01/03/pay-attention-to-power-law-distributions/

======
bede
I agree with the point of you are making, but feel the need to question your
use of the term 'wonder drug' when describing accutane, also known as
isotretinoin. HN readers should know that isotretinoin is a profoundly
dangerous chemotherapy drug which was only by coincidence discovered to cure
acne. The side effects of isotretinoin can be permanent [1] to the extent that
the drug's inventor Hoffman-La Roche stopped selling it in 2009 because it was
losing so many lawsuits. Yet the FDA (and all the rest) refuses to withdraw
this drug from market. It is a modern pharmaceutical scandal which is still in
progress.

If a woman becomes pregnant while taking isotretinoin, her children WILL have
birth defects. The drug also causes depression in far more cases than Roche's
data suggest. The side effects are as diverse as they are serious – there
exist entire forums dedicated to sufferers of this drug's permanent adverse
effects.

This drug cures acne like nothing else we know. However, the same poorly
understood mechanism that enables it to dry out one's skin also systematically
dries one's joints of the hyaluronic acid that is so necessary for their
lubrication. Since ceasing my treatment four months ago after researching
causes for the cartilage damage in my right kneecap, I have been transformed
from a healthy and sport-playing science undergraduate to finding even typing
this message uncomfortable because of pains in my fingers. So much that I have
taken for granted as a 21 year old has been taken away from me by this drug,
and I'm not alone in this. I don't like to overdramatise things, and my
situation should improve to some extent given time, but taking this drug is
the worst decision I have ever made, and the young, impressionable people who
are all-too-readily prescribed this drug must be made more aware of its risks.

Remarkably effective acne cure, yes. Wonderdrug, absolutely not. Calling it
one is just disrespectful to those who have killed themselves [2] and whose
lives it has damaged [3].

[1]
[http://en.wikipedia.org/wiki/Isotretinoin#Permanent_side_eff...](http://en.wikipedia.org/wiki/Isotretinoin#Permanent_side_effects)

[2] <http://rense.com/general32/scu.htm>

[3] [http://jacquelinefox.wordpress.com/2011/04/01/ibs-
sufferers-...](http://jacquelinefox.wordpress.com/2011/04/01/ibs-sufferers-
agree-to-settlements-with-hoffman-la-roche/)

~~~
Gmo
I've taken this drug, the potential side effects are definitely scary. I was
lucky enough to only suffer from dry skin and increase sun sensitivity (which
is still existing to this day).

I know that when I was taking it (that was 12 years ago), the dermatologist
would only prescribe it as a last resort, and, in case of a girl/woman, would
always proceed with a pregnancy test first.

I personally am happy I took this drug but I can fully understand it's not
your case.

~~~
bede
I'm genuinely happy for you. I know what it's like. When isotretinoin works —
and it usually does — it has an amazingly powerful effect on one's self
esteem.

Since you took the drug 12 years ago, Roche has been quite aggressive in its
marketing of accutane for treating more mild acne – not necessarily as the
last resort that you describe. I think it's reasonably well prescribed here in
the UK, but I get the impression that it is handed out somewhat too readily in
many nations, including even the USA.

------
jcsmja
I am the dermatologist referred to here. I am sorry this poster had such a bad
experience with this medication, but I want to correct some things he/she
said. First of all Accutane was not found by coincidence - it was very
intentionally synthesized in the mid-late 60s. It has been known for years
that high dose Vitamin A clears acne, but at doses so high it was harmful to
the liver. So Accutane was developed to maintain the good effect on acne
(which is to shrink sebaceous/oil glands) and get rid of the hepatotoxity (ill
effect on liver). But like high-dose Vitamin A it is a teratogen, which is a
medication that has a bad effect on an embryo. Lots of drugs have this same
issue - when you pick them up at the pharmacy they come with a sticker or
insert that says "don't take if you are or may become pregnant" but the focus
is on Accutane because acne is such a common condition and mostly occurs in
teens and early twenties, a sexually active child-bearing population. Many of
the other drugs with this same issue are used for less common conditions in
much older patients. And yes, it can be sun-sensitizing, like many meds. As
for the mood effects: lots of studies looking at this - all designed as
retrospective studies comparing group of adolescent acne patients treated with
Accutane with acne kids treated with antibiotics (NOT compared to kids who
have NO acne, and so have one less thing to be unhappy about). Studies
consistently show the Accutane treated groups have LESS negative mood issues
than their antibiotic-treated counterparts - basically because their acne is
gone for junior high/high school/college. AND this prevents scarring - we can
always prevent scarring, and can never really undo it. In fact , there are
recent reports of patients suing for scarring that resulted from NOT being
prescribed Accutane! I am sorry about all the lawyer trolling of the internet
for business and am aware of all the online support groups around purported
ill effects of various drugs - nothing I can do about it. It is true that
Hoffman LaRoche stopped making name brand Accutane in 2009 - but only because
they couldn't compete financially with the four other companies who entered
the market with branded generics. And in fact a fifth company has just come
out with another competitor this past month.

After the patient and parent watch the video, I go back in the room and spend
as much time as they need with whatever questions they may have - and then for
girls I excuse the mom/parent to the waiting room for a careful and
confidential contraception discussion!

------
noelwelsh
Hmmmm... I think the post is a bit fast and loose. I recall reading one study
of happiness that concluded small purchases/investments were best because one
some gets used to new things. Can't find a link right now, unfortunately.

Power laws have become a kind of popular science meme, but I don't think they
are as common or powerful an explanatory tool as some would like I to believe.
Or perhaps I've just been reading too much of Cosima Shalizi's blog.

~~~
minimax
"Power laws have become a kind of popular science meme..."

The blog post is essentially restating the Pareto (80/20) principle, first
espoused by management consultant Joseph Juran in 1941. In the blog post he
calls it a power law -- the Pareto distribution is a a power law distribution
-- but it's an observation that has been made before and is known by many.

~~~
jackaltman
Power law and the pareto principle are definitely very related, but I think
one is an instance of the other. I'd argue that power law is one manifestation
under the umbrella of pareto principle, as compared to a stepwise function
where 80% of actions/people/whatever act one way, and then another class of
20% act dramatically different from the 80% but similar to each other.

VC fund returns aren't driven by 80/20 (although they may fit that
description), but by the much smaller number of outliers.

~~~
minimax
You have it backwards. The Pareto principle is based on a Pareto distribution
with specific coefficients. The Pareto distribution is a power law
distribution. Ergo the Pareto principle is based on a power law distribution.
There is nothing stepwise about a Pareto distribution.

Maybe VC returns follow 80/20 and maybe they don't. It isn't exactly a public
dataset that we can readily get our hands on. The point I was trying to make
in my original comment was that although power law distributions seem to be a
popular topic of conversation for the past few years, they aren't exactly a
new discovery. Given that wealth and income follow a Pareto distribution,
perhaps it isn't that surprising that VC returns do too.

~~~
jackaltman
You're right, we shouldn't be surprised that VC returns looks like this, and
it's well known that they do. The point I'm making in the post is that more
mundane things our lives may look like this than we expect.

Pareto power laws can't be stepwise, the point I was trying to make is that
80/20 distribution can be, and they are related to but not necessarily the
same as power laws.

------
gus_massa
To: johnconroy [dead] (I can't reply to that comment.)

Hi! I'm not a site administrator, so I don't know why you were hellbanned. I
read your comments history list to see if I could found a cause (for example
an extremely offensive comment, or spam) but I couldn't find anything
annoying. [ _]

I saw that a lot of your comments are oneliners. In this community we
generally don't like them and they can get you a downvote. Try to expand them
and add more details. This information may be useful for the other members and
it's more probable to get a few upvotes.

For example: <http://news.ycombinator.com/item?id=4161475>

Says: "Bookmarked ..."

A better comment could be for example: (It depends a lot on your background.)
"I work as a web designer. We have a giant banner with the html symbols at the
office, but it's a pain in the back to find the correct one. We were tried to
make short versions with the most used symbols but that wasn't useful. I will
bookmark this right now."

Or sometimes it is good enough to upvote to the history (without any comment).

[_]There are (probably) other reasons for hellbanning that can't be found
reading the comments, for example massive sockpuppets.

------
SilasX
I was left wondering:

\- What the hell can be so complicated about "explaining an acne medication to
a patient"? It can't be hard to use. Is it the risks associated? How to
respond to numerous reactions and side effects?

\- Why did it take a dermatologist (which would put her in the ~90th
percentile of intelligence) so long to realize she was repeating the same
thing over and over and over, and that this could therefore be automated?

\- If a video -- not interactive tutorial -- fully replaces everything her in-
person explanation provides, then she must not have been getting questions
from patients, which makes me wonder how much of it they were actually
following and was informative to them.

~~~
Zikes
> Why did it take a dermatologist (which would put her in the ~90th percentile
> of intelligence) so long to realize she was repeating the same thing over
> and over and over, and that this could therefore be automated?

IANAL & IANAD, but I'd wager small sums of real money that there are tons of
legal implications around a doctor explaining how to use a medicine vs handing
it off to a machine or even a nurse or other medical practitioner. Think: "my
doctor didn't properly explain how this medicine would interact with this
other medicine and as a result I was harmed, now I feel that my doctor should
be held liable." Were I a doctor, that would probably be the very first
thought in my mind immediately following how to automate an otherwise time-
consuming process.

There are also considerations about ease of access. To a technologically lay
person, the perceived complication and costs around a professionally edited
instructional video can seem insurmountable or not cost-effective.

------
ryah
A recent article in nytimes discussed research that estimates the cost of some
government regulations on businesses. It's done by first noticing that company
size follows a power-law distribution and then measuring deviations. I wonder
if you were able to get enough data on investment returns if you would find
any interesting deviations?

[http://economix.blogs.nytimes.com/2013/01/02/why-49-is-a-
mag...](http://economix.blogs.nytimes.com/2013/01/02/why-49-is-a-magic-
number/)

------
mfrisbie
Both Steven Johnson's "Where Good Ideas Come From" and Steven Pinker's "Better
Angels of our Nature" have fantastic discussions on many other occurrences of
power law distributions.

~~~
IgniteTheSun
This book [1] also goes through a quite a few examples of power law
distributions. It also goes through a large number of examples of random walks
and the associated concept of Lévy flights [2].

[1] Barabási, Albert-László (2010). Bursts : the hidden pattern behind
everything we do. New York N.Y.: Dutton.

[2] <http://en.wikipedia.org/wiki/L%C3%A9vy_flight>

------
asimjalis
The hard part is figuring out which 1% of our investments will yield 99% of
our returns.

~~~
vannevar
I would argue that no one actually figures that out. The obvious implication
of the fact that VC returns follow a power law is that VCs have no real
expertise in picking winners, but are merely riding along on the underlying
structure of the market. They invest in X number of companies and one of them
hits so big for reasons no one can consistently explain that it covers the
losses on the remainder. The rest is just ritual and hand waving.

~~~
SatvikBeri
This is a really interesting question. Humans tend to be pretty good at
accepting things that are mostly random, or mostly skill-based, but have a
surprisingly hard time with things that involve a combination of skill and
luck. For a great example of this, watch amateur poker players.

This is just as true in investing-people tend to espouse either "all skill"
(e.g. Warren Buffett") or "all luck" (one common interpretation of the
Efficient Market Hypothesis.) Even defining skill in investing is difficult.
High-risk investments tend to have a high return, so skill is getting an
outsized return compared to the amount of risk involved. But the simple
measures of risk (e.g. Beta) are not good _actual_ measure of risk. For
example, a company whose stock price suddenly plummeted is often a good
investment since the market tends to overreact to bad news. Furthermore, the
stock is now lower-risk because it has less to lose. But it will appear
extremely high risk by most common measures.

I think it's a decent assumption in VC to treat all investments at stage X as
equally risky. E.g. angel investments are one category, series A as another.
This is obviously not 100% perfect but is a decent approximation.

Then we can ask the following question: how did Sequoia Capital's series A
investments in a certain time period (say 2000-2005) perform compared to all
other series A investments? It's important that you look at all of a VC's
investments and not just a particular fund, because firms will often bury
their bad funds.

I have no idea if that kind of data is available anywhere, though.

~~~
vannevar
That's a good start, but even if no firm outperformed the average, there might
still be skill involved. The question is, what is the a priori probability of
success for a given class of investment? To answer that, you'd have to account
for investment opportunities that weren't taken by anybody. But of course
there's no way to know whether an unfunded startup would have been successful.
So the VC community can rest easy knowing that they are insulated from
objective evaluation, unless a VC emerges whose sole criterion for funding is
that everyone else turned the investment down.

------
csense
PG has a name for trying to capture the potential of the large-payoff
potential of investments: "Farming black swans" [1].

[1] <http://www.paulgraham.com/swan.html>

