A Society Robust to Error

A SOCIETY ROBUST TO ERROR

I will only very briefly discuss the crisis of 2008 (which took place after the publication of the book, and which was a lot of things, but not a Black Swan, only the result of fragility in systems built upon ignorance—and denial—of the notion of Black Swan events. You know with near certainty that a plane flown by an incompetent pilot will eventually crash).

Why briefly? Primo, this is not an economics book, but a book on the incompleteness of knowledge and the effects of high-impact uncertainty—it just so happens that economists are the most Black-Swan-blind species on the planet. Secundo, I prefer to talk about events before they take place, not after. But the general public confuses the prospective with the retrospective. The very same journalists, economists, and political experts who did not see the crisis coming provided abundant ex-post analyses about its inevitability. The other reason, the real one, is that the crisis of 2008 was not intellectually interesting enough to me—there is nothing in the developments that had not happened before, at a smaller scale (for example, banks losing in 1982 every penny they ever made). It was merely a financial opportunity for me, as I describe elsewhere. Really, I reread my book and saw nothing to add to the text, nothing we had not already encountered at some point in history, like the earlier debacles, nothing I had learned from. Alas, nothing.

The corollary is obvious: since there is nothing new about the crisis of 2008, we will not learn from it and we will make the same mistake in the future. And the evidence is there at the time of writing: the IMF continues to issue forecasts (not realizing that previous ones did not work and that the poor suckers relying on them are—once again—going to get in trouble); economics professors still use the Gaussian; the current administration is populated with those who are bringing model error into industrial proportion, making us rely on models even more than ever before.*

But the crisis provides an illustration for the need for robustness, worth discussing here.

Over the past twenty-five hundred years of recorded ideas, only fools and Platonists (or, worse, the species called central bankers) have believed in engineered utopias. The idea is not to correct mistakes and eliminate randomness from social and economic life through monetary policy, subsidies, and so on. The idea is simply to let human mistakes and miscalculations remain confined, and to prevent their spreading through the system, as Mother Nature does. Reducing volatility and ordinary randomness increases exposure to Black Swans—it creates an artificial quiet.

My dream is to have a true Epistemocracy—that is, a society robust to expert errors, forecasting errors, and hubris, one that can be resistant to the incompetence of politicians, regulators, economists, central bankers, bankers, policy wonks, and epidemiologists. We cannot make economists more scientific; we cannot make humans more rational (whatever that means); we cannot make fads disappear. The solution starts with isolating harmful errors.

So I am currently torn between (a) my desire to spend time mulling my ideas in European cafés and in the tranquility of my study, or looking for someone who can have a conversation while walking slowly in a nice urban setting, and (b) the feeling of obligation to engage in activism to robustify society, by talking to uninteresting people and being immersed in the cacophony of the unaesthetic journalistic and media world, going to Washington to watch phonies in suits walking around the streets, having to defend my ideas while making an effort to be smooth and hide my disrespect. This proved to be very disruptive to my intellectual life. But there are tricks. One useful trick, I discovered, is to avoid listening to the question of the interviewer, and answer with whatever I have been thinking about recently. Remarkably, neither the interviewers nor the public notices the absence of correlation between question and answer.

I was once selected to be one of a group of a hundred who went to Washington to spend two days discussing how to solve the problems of the crisis that started in 2008. Almost all the biggies were included. After an hour of meeting, and during a speech by the prime minister of Australia, I walked out of the room because my pain became intolerable. My back would start hurting upon looking at the faces of these people. The center of the problem is that none of them knew the center of the problem.

This makes me convinced that there is a unique solution for the world, to be designed along very simple lines of robustness to Black Swans—it will explode otherwise.

So now I am disengaged. I am back in my library. I am not even experiencing any frustration, I don’t even care about how forecasters can blow up society, and I am not even capable of being annoyed by fools of randomness (to the contrary), perhaps thanks to another discovery linked to a particular application of the study of complex systems, Extremistan, and that science of long walks.

* Lehman Brothers was a financial institution with great-looking offices that abruptly went bust during the crisis of 2008.

* Empiricism is not about not having theories, beliefs, and causes and effects: it is about avoiding being a sucker, having a decided and preset bias about where you want your error to be—where the default is. An empiricist facing series of facts or data defaults to suspension of belief (hence the link between empiricism and the older skeptical Pyrrhonian tradition), while others prefer to default to a characterization or a theory. The entire idea is to avoid the confirmation bias (empiricists prefer to err on the side of the disconfirmation/falsification bias, which they discovered more than fifteen hundred years before Karl Popper).

* Clearly the entire economics establishment, with about a million people on the planet involved in some aspect of economic analysis, planning, risk management, and forecasting, turned out to be turkeys owing to the simple mistake of not understanding the structure of Extremistan, complex systems, and hidden risks, while relying on idiotic risk measures and forecasts—all this in spite of past experience, as these things have never worked before.