The Black Swan: The Impact of the Highly Improbable

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.

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 York-area 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 head-hijacking 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 automatic 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?