and forecasting are a more complicated business than is commonly accepted, but it takes someone who knows mathematics to understand that. To accept it takes both understanding and courage.
In the 1960s the MIT meteorologist Edward Lorenz rediscovered Poincare’s results on his own – once again, by accident. He was producing a computer model of weather dynamics, and he ran a simulation that projected a weather system a few days ahead. Later he tried to repeat the same simulation with the exact same model and what he thought were the same input parameters, but he got wildly different results. He initially attributed these differences to a computer bug or a calculation error. Computers then were heavier and slower machines that bore no resemblance to what we have today, so users were severely constrained by time. Lorenz subsequently realized that the consequential divergence in his results arose not from error, but from a small rounding in the input parameters. This became known as the butterfly effect, since a butterfly moving its wings in India could cause a hurricane in New York, two years later. Lorenz’s findings generated interest in the field of chaos theory.
Naturally researchers found predecessors to Lorenz’s discovery, not only in the work of Poincare, but also in that of the insightful and intuitive Jacques Hadamard, who thought of the same point around 1898, and then went on to live for almost seven more decades – he died at the age of ninety-eight.[36]
Popper and Poincare’s findings limit our ability to see into the future, making it a very complicated reflection of the past – if it is a reflection of the past at all. A potent application in the social world comes from a friend of Sir Karl, the intuitive economist Friedrich Hayek. Hayek is one of the rare celebrated members of his “profession” (along with J.M. Keynes and G.L.S. Shackle) to focus on true uncertainty, on the limitations of knowledge, on the unread books in Eco’s library.
In 1974 he received the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, but if you read his acceptance speech you will be in for a bit of a surprise. It was eloquently called “The Pretense of Knowledge”, and he mostly railed about other economists and about the idea of the planner. He argued against the use of the tools of hard science in the social ones, and depressingly, right before the big boom for these methods in economics. Subsequently, the prevalent use of complicated equations made the environment for true empirical thinkers worse than it was before Hayek wrote his speech. Every year a paper or a book appears, bemoaning the fate of economics and complaining about its attempts to ape physics. The latest I’ve seen is about how economists should shoot for the role of lowly philosophers rather than that of high priests. Yet, in one ear and out the other.
For Hayek, a true forecast is done organically by a system, not by fiat. One single institution, say, the central planner, cannot
This disease is severely ingrained in our institutions. It is why I fear governments and large corporations – it is hard to distinguish between them. Governments make forecasts; companies produce projections; every year various forecasters project the level of mortgage rates and the stock market at the end of the following year. Corporations survive not because they have made good forecasts, but because, like the CEOs visiting Wharton I mentioned earlier, they may have been the lucky ones. And, like a restaurant owner, they may be hurting themselves, not us – perhaps helping us and subsidizing our consumption by giving us goods in the process, like cheap telephone calls to the rest of the world funded by the overinvestment during the dotcom era. We consumers can let them forecast all they want if that’s what is necessary for them to get into business. Let them go hang themselves if they wish.
As a matter of fact, as I mentioned in Chapter 8, we New Yorkers are all benefiting from the quixotic overconfidence of corporations and restaurant entrepreneurs. This is the benefit of capitalism that people discuss the least.
But corporations can go bust as often as they like, thus subsidizing us consumers by transferring their wealth into our pockets – the more bankruptcies, the better it is for us. Government is a more serious business and we need to make sure we do not pay the price for its folly. As individuals we should love free markets because operators in them can be as incompetent as they wish.
The only criticism one might have of Hayek is that he makes a hard and qualitative distinction between social sciences and physics. He shows that the methods of physics do not translate to its social science siblings, and he blames the engineering-oriented mentality for this. But he was writing at a time when physics, the queen of science, seemed to zoom in our world. It turns out that even the natural sciences are far more complicated than that. He was right about the social sciences, he is certainly right in trusting hard scientists more than social theorizers, but what he said about the weaknesses of social knowledge applies to all knowledge. All knowledge.
Why? Because of the confirmation problem, one can argue that we know very little about our natural world; we advertise the read books and forget about the unread ones. Physics has been successful, but it is a narrow field of hard science in which we have been successful, and people tend to generalize that success to all science. It would be preferable if we were better at understanding cancer or the (highly nonlinear) weather than the origin of the universe.
Let us dig deeper into the problem of knowledge and continue the comparison of Fat Tony and Dr. John in Chapter 9. Do nerds tunnel, meaning, do they focus on crisp categories and miss sources of uncertainty? Remember from the Prologue my presentation of Platonification as a top-down focus on a world composed of these crisp categories.[37]
Think of a bookworm picking up a new language. He will learn, say, Serbo-Croatian or !Kung by reading a grammar book cover to cover, and memorizing the rules. He will have the impression that some higher grammatical authority set the linguistic regulations so that nonlearned ordinary people could subsequently speak the language. In reality, languages grow organically; grammar is something people without anything more exciting to do in their lives codify into a book. While the scholastic-minded will memorize declensions, the a-Platonic nonnerd will acquire, say, Serbo-Croatian by picking up potential girlfriends in bars on the outskirts of Sarajevo, or talking to cabdrivers, then fitting (if needed) grammatical rules to the knowledge he already possesses.
Consider again the central planner. As with language, there is no grammatical authority codifying social and economic events; but try to convince a bureaucrat or social scientist that the world might not want to follow his “scientific” equations. In fact, thinkers of the Austrian school, to which Hayek belonged, used the designations
To clarify, Platonic is top-down, formulaic, closed-minded, self-serving, and commoditized; a-Platonic is bottom-up, open-minded, skeptical, and empirical.
The reason for my singling out the great Plato becomes apparent with the following example of the master’s thinking: Plato believed that we should use both hands with equal dexterity. It would not “make sense” otherwise. He considered favoring one limb over the other a deformation caused by the “folly of mothers and nurses”. Asymmetry bothered him, and he projected his ideas of elegance onto reality. We had to wait until Louis Pasteur to figure out that chemical molecules were either left– or right-handed and that this mattered considerably.
One can find similar ideas among several disconnected branches of thinking. The earliest were (as usual) the empirics, whose bottom-up, theory-free, “evidence-based” medical approach was mostly associated with Philnus of Cos, Serapion of Alexandria, and Glaucias of Tarentum, later made skeptical by Menodotus of Nicomedia, and currently well-known by its vocal practitioner, our friend the great skeptical philosopher Sextus Empiricus. Sextus who, we saw earlier, was perhaps the first to discuss the Black Swan. The empirics practiced the “medical art” without relying on reasoning; they wanted to benefit from chance observations by making guesses, and experimented and tinkered until they found something that worked. They did minimal theorizing.
Their methods are being revived today as evidence-based medicine, after two millennia of persuasion. Consider that before we knew of bacteria, and their role in diseases, doctors rejected the practice of hand washing
