these intelligent-talking Platonified economists (with their phony bell
curve-based equations) to prevent, or at least forecast and control, big
shocks. The drop was not even the response to any discernible news. The
occurrence of the event lay outside anything one could have imagined on
the previous day—had I pointed out its possibility, I would have been
called a lunatic. It qualified as a Black Swan, but I did not know the expression
then.
I ran into a colleague of mine, Demetrius, on Park Avenue, and, as I
started talking to him, an anxiety-ridden woman, losing all inhibitions,
jumped into the conversation: "Hey, do the two of you know what's going
on?" People on the sidewalk looked dazed. Earlier I had seen a few adults
silently sobbing in the trading room of First Boston. I had spent the day at
the epicenter of the events, with shell-shocked people running around like
rabbits in front of headlights. When I got home, my cousin Alexis called
to tell me that his neighbor committed suicide, jumping from his upperfloor
apartment. It did not even feel eerie. It felt like Lebanon, with a twist:
having seen both, I was struck that financial distress could be more demoralizing
than war (just consider that financial problems and the accompaTHE
A P P R E N T I C E S H I P OF AN E M P I R I C A L S K E P T I C 19
nying humiliations can lead to suicide, but war doesn't appear to do so directly).
I feared a Pyrrhic victory: I had been vindicated intellectually, but I
was afraid of being too right and seeing the system crumble under my feet.
I did not really want to be that right. I will always remember the late
Jimmy P. who, seeing his net worth in the process of melting down, kept
half-jokingly begging the price on the screen to stop moving.
But I realized then and there that I did not give a hoot about the
money. I experienced the strangest feeling I have ever had in my life, this
deafening trumpet signaling to me that I was right, so loudly that it made
my bones vibrate. I have never had it since and will never be able to
explain it to those who have never experienced it. It was a physical sensation,
perhaps a mixture of joy, pride, and terror.
And I felt vindicated? How?
During the one or two years after my arrival at Wharton, I had developed
a precise but strange specialty: betting on rare and unexpected
events, those that were on the Platonic fold, and considered "inconceivable"
by the Platonic "experts." Recall that the Platonic fold is where our
representation of reality ceases to apply—but we do not know it.
For I was early to embrace, as a day job, the profession of "quantitative
finance." I became a "quant" and trader at the same time—a quant is
a brand of industrial scientist who applies mathematical models of uncertainty
to financial (or socioeconomic) data and complex financial instruments.
Except that I was a quant exactly in reverse: I studied the flaws and
the limits of these models, looking for the Platonic fold where they break
down. Also I engaged in speculative trading, not "just tawk," which was
rare for quants since they were prevented from "taking risks," their role
being confined to analysis, not decision making. I was convinced that I
was totally incompetent in predicting market prices—but that others were
generally incompetent also but did not know it, or did not know that they
were taking massive risks. Most traders were just "picking pennies in
front of a streamroller," exposing themselves to the high-impact rare event
yet sleeping like babies, unaware of it. Mine was the only job you
could do if you thought of yourself as risk-hating, risk-aware, and highly
ignorant.
Also, the technical baggage that comes with being a quant (a mixture
of applied mathematics, engineering, and statistics), in addition to the immersion
in practice, turned out to be very useful for someone wanting to
20 UMBERTO E C O ' S A N T I L I B R A RY
be a philosopher. * First, when you spend a couple of decades doing massscale
empirical work with data and taking risks based on such studies, you
can easily spot elements in the texture of the world that the Platonified
"thinker" is too brainwashed, or threatened, to see. Second, it allowed me
to become formal and systematic in my thinking instead of wallowing in
the anecdotal. Finally, both the philosophy of history and epistemology
(the philosophy of knowledge) seemed inseparable from the empirical
study of times series data, which is a succession of numbers in time, a sort
of historical document containing numbers instead of words. And numbers
are easy to process on computers. Studying historical data makes you
conscious that history runs forward, not backward, and that it is messier
than narrated accounts. Epistemology, the philosophy of history, and statistics
aim at understanding truths, investigating the mechanisms that generate
them, and separating regularity from the coincidental in historical
matters. They all address the question of what one knows, except that
they are all to be found in different buildings, so to speak.
The Four-Letter Word of Independence
That night, on October 19, 1987,1 slept for twelve hours straight.
It was hard to tell my friends, all hurt in some manner by the crash,
about this feeling of vindication. Bonuses at the time were a fraction of
what they are today, but if my employer, First Boston, and the financial
system survived until year-end, I would get the equivalent of a fellowship.
This is sometimes called "f*** you money," which, in spite of its coarseness,
means that it allows you to act like a Victorian gentleman, free from
slavery. It is a psychological buffer: the capital is not so large as to make
you spoiled-rich, but large enough to give you the freedom to choose a
* I specialized in complicated financial instruments called "derivatives," those that
required advanced mathematics—but for which the errors for using the wrong
mathematics were the greatest. The subject was new and attractive enough for me
to get a doctorate in it.
Note that I was not able to build a career just by betting on Black Swans—
there were not enough tradable opportunities. I could, on the other hand, avoid
being exposed to them by protecting my portfolio against large losses. So, in order
to eliminate the dependence on randomness, I focused on technical inefficiencies
between complicated instruments, and on exploiting these opportunities without
exposure to the rare event, before they disappeared as my competitors became
technologically advanced. Later on in my career I discovered the easier (and less
randomness laden) business of protecting, insurance-style, large portfolios against
the Black Swan.
THE A P P R E N T I C E S H I P OF AN E M P I R I C A L S K E P T I C 21
new occupation without excessive consideration of the financial rewards.
It shields you from prostituting your mind and frees you from outside
authority—any outside authority. (Independence is person-specific: I have
always been taken aback at the high number of people in whom an astonishingly
high income led to additional sycophancy as they became more
dependent on their clients and employers and more addicted to making
even more money.) While not substantial by some standards, it literally
cured me of all financial ambition—it made me feel ashamed whenever I
diverted time away from study for the pursuit of material wealth. Note
that the designation /"*** you corresponds to the exhilarating ability to
pronounce that compact phrase before hanging up the phone.
These were the days when it was extremely common for traders to
break phones when they lost money. Some resorted to destroying chairs,
tables, or whatever would make noise. Once, in the Chicago pits, another
trader tried to strangle me and it took four security guards to drag him
away. He was irate because I was standing in what he deemed his "territory."
Who would want to leave such an environment? Compare it to
lunches in a drab university cafeteria with gentle-mannered professors discussing
the latest departmental intrigue. So I stayed in the quant and trading
businesses (I'm still there), but organized myself to do minimal but
intense (and entertaining) work, focus only on the most technical aspects,
never attend business "meetings," avoid the company of "achievers" and
people in suits who don't read books, and take a sabbatical year for every
three on average to fill up gaps in my scientific and philosophical culture.
To slowly distill my single idea, I wanted to become a flaneur, a professional
meditator, sit in cafés, lounge, unglued to desks and organization
structures, sleep as long as I needed, read voraciously, and not owe any explanation
to anybody. I wanted to be left alone in order to build, small
steps at a time, an entire system of thought based on my Black Swan idea.
Limousine Philosopher
The war in Lebanon and the crash of 1987 seemed identical phenomena.
It became obvious to me that nearly everyone had a mental blindspot in
acknowledging the role of such events: it was as if they were not able to
see these mammoths, or that they rapidly forgot about them. The answer
was looking straight at me: it was a psychological, perhaps even biological,
blindness; the problem lay not in the nature of events, but in the way
we perceived them.
22 UMBERTO E C O ' S A N T I L I B R A RY
I end this autobiographical prelude with the following story. I had no
defined specialty (outside of my day job), and wanted none. When people
at cocktail parties asked me what I did for a living, I was tempted to answer,
"I am a skeptical empiricist and a flaneur-reader, someone committed
to getting very deep into an idea," but I made things simple by saying that
I was a limousine driver.
Once, on a transatlantic flight, I found myself upgraded to first class
next to an expensively dressed, high-powered lady dripping with gold and
jewelry who continuously ate nuts (low-carb diet, perhaps), insisted on
drinking only Evian, all the while reading the European edition of The
Wall Street Journal. She kept trying to start a conversation in broken
French, since she saw me reading a book (in French) by the sociologistphilosopher
Pierre Bourdieu—which, ironically, dealt with the marks of
social distinction. I informed her (in English) that I was a limousine driver,
proudly insisting that I only drove "very upper-end" cars. An icy silence
lasted the whole flight, and, although I could feel the tension, it allowed
me to read in peace.
Chapter Two
YEVGENIA'S BLACK SWAN
Pink glasses and success—How Yevgenia stops marrying philosophers—I told
you so
Five years ago, Yevgenia Nikolayevna Krasnova was an obscure and unpublished
novelist, with an unusual background. She was a neuroscientist
with an interest in philosophy (her first three husbands had been philosophers),
and she got it into her stubborn Franco-Russian head to express
her research and ideas in literary form. She dressed up her theories as stories,
and mixed them with all manner of autobiographical commentary.
She avoided the journalistic prevarications of contemporary narrative
nonfiction ("On a clear April morning, John Smith left his house. . . . " ) .
Foreign dialogue was always written in the original language, with translations
appended like movie subtitles. She refused to dub into bad English
conversations that took place in bad Italian.*
No publisher would have given her the time of day, except that there
was, at the time, some interest in those rare scientists who could manage
to express themselves in semi-understandable sentences. A few publishers
agreed to speak with her; they hoped that she would grow up and write a
"popular science book on consciousness." She received enough attention
* Her third husband was an Italian philosopher.
24 UMBERTO E C O ' S A N T I L I B R A RY
to get the courtesy of rejection letters and occasional insulting comments
instead of the far more insulting and demeaning silence.
Publishers were confused by her manuscript. She could not even answer
their first question: "Is this fiction or nonfiction?" Nor could she respond
to the "Who is this book written for?" on the publishers' book
proposal forms. She was told, "You need to understand who your audience
is" and "amateurs write for themselves, professionals write for others."
She was also told to conform to a precise genre because "bookstores
do not like to be confused and need to know where to place a book on the
shelves." One editor protectively added, "This, my dear friend, will only
sell ten copies, including those bought by your ex-husbands and family
members."
She had attended a famous writing workshop five years earlier and
came out nauseated. "Writing well" seemed to mean obeying arbitrary
rules that had grown into gospel, with the confirmatory reinforcement of
what we call "experience." The writers she met were learning to retrofit
what was deemed successful: they all tried to imitate stories that had appeared
in past issues of The New Yorker—not realizing that most of what
is new, by definition, cannot be modeled on past issues of The New
Yorker. Even the idea of a "short story" was a me-too concept to Yevgenia.
The workshop instructor, gentle but firm in his delivery, told her
that her case was utterly hopeless.
Yegvenia ended up posting the entire manuscript of her main book, A
Story of Recursion, on the Web. There it found a small audience, which included
the shrewd owner of a small unknown publishing house, who wore
pink-rimmed glasses and spoke primitive Russian (convinced that he was
fluent). He offered to publish her, and agreed to her condition to keep her
text completely unedited. He offered her a fraction of the standard royalty
rate in return for her editorial stricture—he had so little to lose. She accepted
since she had no choice.
