Thursday, June 13, 2013

If the World was Perfect, It Wouldn’t Be

Yogi Berra (Wikimedia Commons)

Yogi Berra as the Greatest Philosopher of the 20th Century (an Idea I stole from Nassim Taleb's book "The Black Swan")

by Leo Walsh

I am a Cleveland Indians fan.

Which means that I am a "glutton for punishment," as my dad used to say.

It also means that I pretty much hate the Yankees. Because they buy up the best players in the Bigs, offering them huge salaries. Which drives up the salaries of all players, forcing the league to increase their pay scale to keep up. Which, in turn, makes it near impossible for mid-market teams like Cleveland to keep their stars. Which, then, makes easier for the Yanks to pick off the best players, increasing their revenue... Which drives up the salaries of all players... Etc. Etc. Etc.

This is because the Yankees are a "black swan." But more on that later.

My biases aside, I've gotta admit that "I love Yogi Berra." He is famous for saying things that seem completely wrong until you think about them. Here is a list of some of my favorites...

  1. “If the world was perfect, it wouldn’t be.”
  2. “90% of the game is half mental.”
  3. “If you don’t know where you’re going, you might end up some place else.”
  4. “Half the lies they tell about me aren’t true.”
  5. “The future ain’t what it use to be.”
  6. “Nobody goes there anymore because it’s too crowded.”
  7. “When you come to a fork in the road, take it.”
  8.  “Always go to other people’s funerals, otherwise they won’t come to yours.”
Of course, some of these may be apocryphal. Which Yogi addresses, with typical grace and ease...
9. "I never said most of the things I said."
Yankee or not, Yogi had wisdom. And in his interesting, and often frustrating book on randomness,  The Black Swan, Nassim Taleb makes much about the wisdom of Yogi.

For instance, take this gem: "The future ain’t what it use to be.”

Taleb makes a lot of excellent points about the dismal track record both political & economic pundits have about predicting the future. The same, of course, applies to your financial adviser as well.

Most predictions about the world are based on what Taleb derisively refers to as "Platonic Models," which see the world as random. But attempts to constrain that randomness to a nice, tidy "bell curve." Which are regular, and easy to calculate.

However, the world tends to throw us big "curve balls" -- may as well keep the baseball metaphor going... These events are world-changing. And yet, it is impossible to see these changes coming before they hit.

For instance, before 9/11, was it ever anyone's serious conviction that terrorists would fly airplanes into the Twin Towers and the Pentagon? In fact, was Islamic terror even mentioned as a top policy priority?

The answer is simple -- "No."

And things get even more convoluted. Suppose that you did find a lone voice in the blogosphere that was predicting exactly that. What are the chances it was just dumb luck? And how many other voices were saying the exact opposite? Like insinuating that our cozy relationship with Saudis is making us more popular with the Sunnis -- the Islamic sect that gave rise to Al Qaeda.

These analyses were out there. And often in big, respect journals.

And, it that is not convoluted enough, consider this: If you look at that lone voice, and go back over his or her previous predictions, they will likely perform no better than chance. Because there is no way to predict these big, life-changing events.

These events occur outside the bell curve. They are disruptive. Taleb refers to these curve-balls as "black swans."

So, when we look at the pre-9/11 future, things looked different. America was looking for way to increase its prosperity. Bush was offering tax cuts to stimulate the economy. And Americans saw America as "the City on the Hill." And, since the fall of the Soviet Union and the gradual democratization of the world, as the natural leader to be emulated.

A group of extremists from Saudi Arabia, unfortunately, felt different.

And, looping back to Yogi Berra, "The future [on 9/12] ain’t what it use to be.” Because analysts were taking into account the huge black swan. And wondering how we missed it.

Easy. Try as we might, there are "knowns." And there are "known unknowns" -- like the odds on the blackjack table that the casinos exploit to stay open. These are probabilities that fit into the Platonic Bell Curve model.

But there is no way to uncover what you don;t know that you don't know. And Yogi, God rest his soul, put it so eloquently.

Now, if he just weren't a Yankee...

Which leads to my final. open-ended question -- "What makes the Yankees a black swan?" If you can answer that, you get a point. 

If you cannot, read Taleb's book, The Black Swan. It really is that good. Though you may often want to strangle the author.

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