that the sterilized randomness of games does not resemble randomness in
real life. Look again at Figure 7 in Chapter 15. The dice average out so
quickly that I can say with certainty that the casino will beat me in the
very near long run at, say, roulette, as the noise will cancel out, though not
the skills (here, the casino's advantage). The more you extend the period
(or reduce the size of the bets) the more randomness, by virtue of averaging,
drops out of these gambling constructs.
The ludic fallacy is present in the following chance setups: random
walk, dice throwing, coin flipping, the infamous digital "heads or tails"
expressed as 0 or 1, Brownian motion (which corresponds to the movement
of pollen particles in water), and similar examples. These setups genTHE
UNCERTAINTY OF T H E PHONY 2 8 7
erate a quality of randomness that does not even qualify as randomness—
protorandomness would be a more appropriate designation. At their core,
all theories built around the ludic fallacy ignore a layer of uncertainty.
Worse, their proponents do not know it!
One severe application of such focus on small, as opposed to large, uncertainty
concerns the hackneyed greater uncertainty principle.
Find the Phony
The greater uncertainty principle states that in quantum physics, one cannot
measure certain pairs of values (with arbitrary precision), such as the
position and momentum of particles. You will hit a lower bound of measurement:
what you gain in the precision of one, you lose in the other. So
there is an incompressible uncertainty that, in theory, will defy science and
forever remain an uncertainty. This minimum uncertainty was discovered
by Werner Heisenberg in 1927. I find it ludicrous to present the uncertainty
principle as having anything to do with uncertainty. Why? First, this
uncertainty is Gaussian. On average, it will disappear—recall that no one
person's weight will significantly change the total weight of a thousand
people. We may always remain uncertain about the future positions of
small particles, but these uncertainties are very small and very numerous,
and they average out—for Pluto's sake, they average out! They obey the
law of large numbers we discussed in Chapter 15. Most other types of randomness
do not average out! If there is one thing on this planet that is not
so uncertain, it is the behavior of a collection of subatomic particles!
Why? Because, as I have said earlier, when you look at an object, composed
of a collection of particles, the fluctuations of the particles tend to
balance out.
But political, social, and weather events do not have this handy property,
and we patently cannot predict them, so when you hear "experts"
presenting the problems of uncertainty in terms of subatomic particles,
odds are that the expert is a phony. As a matter of fact, this may be the
best way to spot a phony.
I often hear people say, "Of course there are limits to our knowledge,"
then invoke the greater uncertainty principle as they try to explain that
"we cannot model everything"—I have heard such types as the economist
Myron Scholes say this at conferences. But I am sitting here in New York,
in August 2006, trying to go to my ancestral village of Amioun, Lebanon.
Beirut's airport is closed owing to the conflict between Israel and the Shi2
8 8 THOSE GRAY SWANS OF EXTREMISTAN
ite militia Hezbollah. There is no published airline schedule that will inform
me when the war will end, if it ends. I can't figure out if my house
will be standing, if Amioun will still be on the map—recall that the family
house was destroyed once before. I can't figure out whether the war is
going to degenerate into something even more severe. Looking into the
outcome of the war, with all my relatives, friends, and property exposed to
it, I face true limits of knowledge. Can someone explain to me why I
should care about subatomic particles that, anyway, converge to a Gaussian?
People can't predict how long they will be happy with recently acquired
objects, how long their marriages will last, how their new jobs will
turn out, yet it's subatomic particles that they cite as "limits of prediction."
They're ignoring a mammoth standing in front of them in favor of
matter even a microscope would not allow them to see.
Can Philosophers Be Dangerous to Society?
I will go further: people who worry about pennies instead of dollars can
be dangerous to society. They mean well, but, invoking my Bastiat argument
of Chapter 8, they are a threat to us. They are wasting our studies of
uncertainty by focusing on the insignificant. Our resources (both cognitive
and scientific) are limited, perhaps too limited. Those who distract us increase
the risk of Black Swans.
This commoditization of the notion of uncertainty as symptomatic of
Black Swan blindness is worth discussing further here.
Given that people in finance and economics are seeped in the Gaussian
to the point of choking on it, I looked for financial economists with philosophical
bents to see how their critical thinking allows them to handle this
problem. I found a few. One such person got a PhD in philosophy, then,
four years later, another in finance; he published papers in both fields, as
well as numerous textbooks in finance. But I was disheartened by him: he
seemed to have compartmentalized his ideas on uncertainty so that he had
two distinct professions: philosophy and quantitative finance. The problem
of induction, Mediocristan, epistemic opacity, or the offensive assumption
of the Gaussian—these did not hit him as true problems. His
numerous textbooks drilled Gaussian methods into students' heads, as
though their author had forgotten that he was a philosopher. Then he
promptly remembered that he was when writing philosophy texts on
seemingly scholarly matters.
T H E U N C E R T A I N T Y O F T H E P H O N Y 2 89
The same context specificity leads people to take the escalator to the
StairMasters, but the philosopher's case is far, far more dangerous since he
uses up our storage for critical thinking in a sterile occupation. Philosophers
like to practice philosophical thinking on me-too subjects that other
philosophers call philosophy, and they leave their minds at the door when
they are outside of these subjects.
The Problem of Practice
As much as I rail against the bell curve, Platonicity, and the ludic fallacy,
my principal problem is not so much with statisticians—after all, these are
computing people, not thinkers. We should be far less tolerant of philosophers,
with their bureaucratic apparatchiks closing our minds. Philosophers,
the watchdogs of critical thinking, have duties beyond those of
other professions.
HOW MANY WITTGENSTEINS CAN DANCE ON THE HEAD OF A PIN?
A number of semishabbily dressed (but thoughtful-looking) people gather
in a room, silently looking at a guest speaker. They are all professional
philosophers attending the prestigious weekly colloquium at a New Yorkarea
university. The speaker sits with his nose drowned in a set of typewritten
pages, from which he reads in a monotone voice. He is hard to
follow, so I daydream a bit and lose his thread. I can vaguely tell that the
discussion revolves around some "philosophical" debate about Martians
invading your head and controlling your will, all the while preventing you
from knowing it. There seem to be several theories concerning this idea,
but the speaker's opinion differs from those of other writers on the subject.
He spends some time showing where his research on these headhijacking
Martians is unique. After his monologue (fifty-five minutes of
relentless reading of the typewritten material) there is a short break, then
another fifty-five minutes of discussion about Martians planting chips and
other outlandish conjectures. Wittgenstein is occasionally mentioned (you
can always mention Wittgenstein since he is vague enough to always seem
relevant).
Every Friday, at four P . M . , the paychecks of these philosophers will hit
their respective bank accounts. A fixed proportion of their earnings, about
16 percent on average, will go into the stock market in the form of an au2
9 0 THOSE GRAY SWANS OF EXTREMISTAN
tomatic investment into the university's pension plan. These people are
professionally employed in the business of questioning what we take for
granted; they are trained to argue about the existence of god(s), the definition
of truth, the redness of red, the meaning of meaning, the difference
between the semantic theories of truth, conceptual and nonconceptual
representations . . . Yet they believe blindly in the stock market, and in the
abilities of their pension plan manager. Why do they do so? Because they
accept that this is what people should do with their savings, because "experts"
tell them so. They doubt their own senses, but not for a second do
they doubt their automatic purchases in the stock market. This domain
dependence of skepticism is no different from that of medical doctors (as
we saw in Chapter 8).
Beyond this, they may believe without question that we can predict societal
events, that the Gulag will toughen you a bit, that politicians know
more about what is going on than their drivers, that the chairman of the
Federal Reserve saved the economy, and so many such things. They may
also believe that nationality matters (they always stick "French," "German,"
or "American" in front of a philosopher's name, as if this has something
to do with anything he has to say). Spending time with these people,
whose curiosity is focused on regimented on-the-shelf topics, feels stifling.
Where Is Popper When You Need Him?
I hope I've sufficiently drilled home the notion that, as a practitioner, my
thinking is rooted in the belief that you cannot go from books to problems,
but the reverse, from problems to books. This approach incapacitates
much of that career-building verbiage. A scholar should not be a
library's tool for making another library, as in the joke by Daniel Dennett.
Of course, what I am saying here has been said by philosophers before,
at least by the real ones. The following remark is one reason I have inordinate
respect for Karl Popper; it is one of the few quotations in this book
that I am not attacking.
The degeneration of philosophical schools in its turn is the consequence
of the mistaken belief that one can philosophize without having
been compelled to philosophize by problems outside philosophy. . . .
Genuine philosophical problems are always rooted outside philosophy
and they die if these roots decay. . . . [emphasis mine] These roots are
THE UNCERTAINTY OF T H E PHONY 2 9 1
easily forgotten by philosophers who "study" philosophy instead of
being forced into philosophy by the pressure of nonphilosophical
problems.
Such thinking may explain Popper's success outside philosophy, particularly
with scientists, traders, and decision makers, as well as his relative
failure inside of it. (He is rarely studied by his fellow philosophers;
they prefer to write essays on Wittgenstein.)
Also note that I do not want to be drawn into philosophical debates
with my Black Swan idea. What I mean by Platonicity is not so metaphysical.
Plenty of people have argued with me about whether I am against "essentialism"
(i.e., things that I hold don't have a Platonic essence), if I
believe that mathematics would work in an alternative universe, or some
such thing. Let me set the record straight. I am a no-nonsense practitioner;
I am not saying that mathematics does not correspond to an objective
structure of reality; my entire point is that we are, epistemologically
speaking, putting the cart before the horse and, of the space of possible
mathematics, risk using the wrong one and being blinded by it. I truly believe
that there are some mathematics that work, but that these are not as
easily within our reach as it seems to the "confirmators."
The Bishop and the Analyst
I am most often irritated by those who attack the bishop but somehow fall
for the securities analyst—those who exercise their skepticism against religion
but not against economists, social scientists, and phony statisticians.
Using the confirmation bias, these people will tell you that religion was
horrible for mankind by counting deaths from the Inquisition and various
religious wars. But they will not show you how many people were killed
by nationalism, social science, and political theory under Stalinism or during
the Vietnam War. Even priests don't go to bishops when they feel ill:
their first stop is the doctor's. But we stop by the offices of many pseudoscientists
and "experts" without alternative. We no longer believe in papal
infallibility; we seem to believe in the infallibility of the Nobel, though, as
we saw in Chapter 17.
2 9 2 THOSE GRAY SWANS OF EXTREMISTAN
Easier Than You Think: The Problem of Decision Under Skepticism
I have said all along that there is a problem with induction and the Black
Swan. In fact, matters are far worse: we may have no less of a problem
with phony skepticism.
a. I can't do anything to stop the sun from nonrising tomorrow (no
matter how hard I try),
b. I can't do anything about whether or not there is an afterlife,
c. I can't do anything about Martians or demons taking hold of my
brain.
But I have plenty of ways to avoid being a sucker. It is not much more
difficult than that.
I conclude Part Three by reiterating that my antidote to Black Swans is
precisely to be noncommoditized in my thinking. But beyond avoiding
being a sucker, this attitude lends itself to a protocol of how to act—not
how to think, but how to convert knowledge into action and figure out
what knowledge is worth. Let us examine what to do or not do with this
in the concluding section of this book.
part à
THE EN"
Chapter Nineteen
HALF AND HALF, OR HOW TO GET EVEN
WITH THE BLACK SWAN
The other half—Remember Apelles—When missing a train can be painful
