The Black Swan: The Impact of the Highly Improbable

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.

How Not to Be a Nerd

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 tacit or implicit precisely for that part of knowledge that cannot be written down, but that we should avoid repressing. They made the distinction we saw earlier between “know-how” and “know-what”—the latter being more elusive and more prone to nerdification.

To clarify, Platonic is top-down, formulaic, closed-minded, self-serving, and commoditized; a-Platonic is bottom-up, open-minded, skeptical, and empirical.