This is in fact the incoherence that Kurt Gödel (the grandmaster of logical rigor) detected in the United States Constitution while taking the naturalization exam. Legend has it that Gödel started arguing with the judge, and Einstein, who was his witness during the process, saved him. The philosopher of science Karl Popper independently discovered the same inconsistency in democratic systems.
I wrote about people with logical flaws asking me if one should be “skeptical about skepticism”; I used a similar answer as Popper when I was asked if “one could falsify falsification.” I just walked away.
We can answer these points using the minority rule. Yes, an intolerant minority can control and destroy democracy. Actually, it will eventually destroy our world.
So, we need to be more than intolerant with some intolerant minorities. Simply, they violate the Silver Rule. It is not permissible to use “American values” or “Western principles” in treating intolerant Salafism (which denies other peoples’ right to have their own religion). The West is currently in the process of committing suicide.
IRREVERENCE OF MARKETS AND SCIENCE
Now consider markets. We can say that markets aren’t the sum of market participants, but price changes reflect the activities of the most motivated buyer and seller. Yes, the most motivated rules. Indeed this is something that only traders seem to understand: why a price can drop by ten percent because of a single seller. All you need is a stubborn seller. Markets react in a way that is disproportional to the impetus. The overall stock markets currently represent more than thirty trillion dollars, but a single order in 2008, only fifty billion, that is, less than two-tenths of a percent of the total, triggered a drop of close to 10 percent, causing losses of around three trillion dollars. As retold in Antifragile, it was an order activated by the Parisian bank Société Générale, which discovered a hidden acquisition by a rogue trader and wanted to reverse the purchase. Why did the market react so disproportionately? Because the order was one-way—stubborn: they had to sell and there was no way to convince the management otherwise. My personal adage is:
The market is like a large movie theater with a small door.
And the best way to detect a sucker is to see if his focus is on the size of the theater rather than that of the door. Stampedes happen in cinemas—say, when someone shouts “fire”—because those who want to be out do not want to stay in, exactly the same unconditionality we saw with kosher observance or panic selling.
Science acts similarly. As we saw earlier, the minority rule is behind Karl Popper’s thinking. But Popper is too stern, so let us leave him for later and, for now, discuss the more entertaining and jovial Richard Feynman, the most irreverent and playful scientist of his day. His book of anecdotes, What Do You Care What Other People Think?, conveys the idea of the fundamental irreverence of science, which proceeds through a similar mechanism as the kosher asymmetry. How? Science isn’t the sum of what scientists think, but exactly as with markets, it is a procedure that is highly skewed. Once you debunk something, it is now wrong. Had science operated by majority consensus, we would be still stuck in the Middle Ages, and Einstein would have ended as he started, a patent clerk with fruitless side hobbies.
UNUS SED LEO: ONLY ONE BUT A LION
Alexander said that it was preferable to have an army of sheep led by a lion than an army of lions led by a sheep. Alexander (or whoever produced this probably apocryphal saying) understood the value of the active, intolerant, and courageous minority. Hannibal terrorized Rome for a decade and a half with a tiny army of mercenaries, winning twenty-two battles against the Romans, battles in which he was outnumbered each time. He was inspired by a version of this maxim. For, at the battle of Cannae, he remarked to Gisco, who was concerned that the Carthaginians were outnumbered by the Romans: “There is one thing that’s more wonderful than their numbers…in all that vast number there is not one man called Gisgo.”*5
This large payoff from stubborn courage is not limited to the military. “Never doubt that a small group of thoughtful citizens can change the world. Indeed, it is the only thing that ever has,” wrote Margaret Mead. Revolutions are unarguably driven by an obsessive minority. And the entire growth of society, whether economic or moral, comes from a small number of people.
SUMMARY AND NEXT
So we summarize this chapter and link it to hidden asymmetries, the subtitle of the book. Society doesn’t evolve by consensus, voting, majority, committees, verbose meetings, academic conferences, tea and cucumber sandwiches, or polling; only a few people suffice to disproportionately move the needle. All one needs is an asymmetric rule somewhere—and someone with soul in the game. And asymmetry is present in about everything.*6
We promised in the Prologue to explain that slavery is more widespread than anticipated—actually, quite a bit more. Let us see next, after the Appendix.
*1 To put it in technical terms, it was a best worse-case divergence from expectations: a lower variance and lower mean.
*2 There is a also current controversy in the United Kingdom as the Normans left more texts and pictures in history books than genes there.
*3 There are some minor variations across regions and Islamic sects. The original rule is that if a Muslim woman marries a non-Muslim man, he needs to convert. But in practice, in many countries, both need to do so.
*4 It is a fact that while Christianity eradicated previous records, it may also have eradicated…its own history. For we are discovering that branches such as the Gnostics had a quite different record of the early religion. But the Gnostics were largely a secret religion—closed to outsiders and secret about their own records. And secret religions, well, bury their secrets.
*5 The Carthaginians seem to be short in name variety: there are plenty of Hamilcars and Hasdrupals confusing historians. Likewise there appear to be many Giscos, including the character in Flaubert’s Salambo.
*6 All it takes is, say, a 3 percent minority, for “Merry Christmas” to become “Happy Holidays.” But I suspect that should the minority rise in numbers, the effect would go away, as diverse societies are more syncretic. I grew up in Lebanon at the time when the population was about half Christian: people greeted one another in the Roman pagan way of sharing one another’s holidays. Today Shiites (and some Sunnis not yet brainwashed by Saudi Arabia) would wish a Christian “Merry Christmas.”
Antifragile has been about the failure of the average to represent anything in the presence of nonlinearities and asymmetries similar to the minority rule. So let us go beyond:
The average behavior of the market participant will not allow us to understand the general behavior of the market.
You can examine markets as markets and individuals as individuals, but markets are not sums of average individuals (a sum is an average multiplied by a constant so they are both equally affected). These points now appear clear thanks to our discussion about renormalization. But to show how claims by the entire field of social science may fall apart, take one step further:
The psychological experiments on individuals showing “biases” do not allow us to automatically understand aggregates or collective behavior, nor do they enlighten us about the behavior of groups.
Human nature is not defined outside of transactions involving other humans. Remember that we do not live alone, but in packs, and almost nothing of relevance concerns a person in isolation—which is what is typically done in laboratory-style works.*1
Groups are units on their own. There are qualitative differences between a group of ten and a group of, say, 395,435. Each is a different animal, in the literal sense, as different as a book is from an office building. When we focus on commonalities, we get confused, but, at a certain scale, things become different. Mathematically different. The higher the dimension, in other words, the higher the number of possible interactions, and the more disproportionally difficult it is to understand
the macro from the micro, the general from the simple units. This disproportionate increase of computational demands is called the curse of dimensionality. (I have actually found situations where, in the presence of small random errors, a single additional dimension may more than double some aspect of the complexity. Going from 1,000 to 1,001 may cause complexity to be multiplied by a billion times.)
Or, in spite of the huge excitement about our ability to see into the brain using the so-called field of neuroscience:
Understanding how the subparts of the brain (say, neurons) work will never allow us to understand how the brain works.
A group of neurons or genes, like a group of people, differs from the individual components—because the interactions are not necessarily linear. So far we have no f***ing idea how the brain of the worm C. elegans works, which has around three hundred neurons. C. elegans was the first living unit to have its genes sequenced. Now consider that the human brain has about one hundred billion neurons, and that going from 300 to 301 neurons, because of the curse of dimensionality, may double the complexity. So the use of never here is appropriate. And if you also want to understand why, in spite of the trumpeted “advances” in sequencing the DNA, we are largely unable to get information except in small isolated pockets for some diseases, same story. Monogenic diseases, those for which a single gene plays a role, are quite tractable, but anything entailing higher dimensionality falls apart.
Understanding the genetic makeup of a unit will never allow us to understand the behavior of the unit itself.
A reminder that what I am writing here isn’t an opinion. It is a straightforward mathematical property.
The mean-field approach is when one uses the average interaction between, say, two people, and generalizes to the group—it is only possible if there are no asymmetries. For instance, Yaneer Bar-Yam has applied the failure of mean-field to evolutionary theory of the selfish-gene narrative trumpeted by such aggressive journalistic minds as Richard Dawkins and Steven Pinker, with more mastery of English than probability theory. He shows that local properties fail and the so-called mathematics used to prove the selfish gene are woefully naive and misplaced. There has been a storm around work by Martin Nowack and his colleagues (which include the biologist E. O. Wilson) about the terminal flaws in the selfish gene theory.*2
The question is: could it be that much of what we have read about the advances in behavioral sciences is nonsense? Odds are it is. Many people have been accused of racism, segregationism, and somethingism without merit. Using cellular automata, a technique similar to renormalization, the late Thomas Schelling showed a few decades ago how a neighborhood can be segregated without a single segregationist among its inhabitants.
ZERO-INTELLIGENCE MARKETS
The underlying structure of reality matters much more than the participants, something policymakers fail to understand.
Under the right market structure, a collection of idiots produces a well-functioning market.
The researchers Dhananjay Gode and Shyam Sunder came to a surprising result in 1993. You populate markets with zero intelligence agents, that is buying and selling randomly, under some structure such that a proper auction process matches bids and offers in a regular way. And guess what? We get the same allocative efficiency as if market participants were intelligent. Friedrich Hayek has been, once again, vindicated. Yet one of the most cited ideas in history, that of the invisible hand, appears to be the least integrated into modern psyche.
Furthermore:
It may be that be that some idiosyncratic behavior on the part of the individual (deemed at first glance “irrational”) may be necessary for efficient functioning at the collective level.
More critically for the “rationalist” crowd,
Individuals don’t need to know where they are going; markets do.
Leave people alone under a good structure and they will take care of things.
*1 What I just said explains the failure of the so-called field of behavioral economics to give us any more information than orthodox economics (itself rather poor) on how to play the market or understand the economy, or generate policy.
*2 It is worth mentioning names here as these people acted as attack dogs against those who discounted the selfish-gene theory, without addressing the mathematics provided (they can’t), yet kept barking.
Even the church had its hippies—Coase does not need math—Avoid lawyers during Oktoberfest—The expat life ends one day—People who have been employees are signaling domestication
In its early phase, as the church was starting to get established in Europe, there was a group of itinerant people called the gyrovagues. They were gyrating and roaming monks without any affiliation to any institution. Theirs was a freelance (and ambulatory) variety of monasticism, and their order was sustainable, as the members lived off begging and from the good graces of townsmen who took interest in them. It was a weak form of sustainability, as one can hardly call sustainable a group of a people with vows of celibacy: they cannot grow organically, and would need continuous enrollment. But they managed to survive thanks to help from the population, who provided them with food and temporary shelter.
Until sometime around the fifth century, when they started disappearing—they are now extinct. The gyrovagues were unpopular with the church, banned by the Council of Chalcedon in the fifth century, then banned again by the second Council of Nicaea about three hundred years later. In the West, Saint Benedict of Nursia, their greatest detractor, favored a more institutional brand of monasticism, and ended up prevailing with his rules that codified the activity, with a hierarchy and strong supervision by an abbot. For instance, Benedict’s rules, put together in a sort of instruction manual, stipulate that a monk’s possessions should be in the hands of the abbot (Rule 33), and Rule 70 bans angry monks from hitting other monks.
Why were they banned? They were, simply, totally free. They were financially free, and secure, not because of their means but because of their lack of wants. Ironically, by being beggars, they had the equivalent of f*** you money, which we can more easily get by being at the lowest rung than by joining the income-dependent classes.
Complete freedom is the last thing you want if you have an organized religion to run. Total freedom for your employees is also a very, very bad thing if you have a firm to run, so this chapter is about the question of employees and the nature of the firm and other institutions.
Benedict’s instruction manual aims explicitly at removing any hint of freedom from the monks under the principles of stabilitate sua et conversatione morum suorum et oboedientia—“stability, conversion of manners, and obedience.” And of course monks are put through a probation period of one year to see if they are sufficiently obedient.
In short, every organization wants a certain number of people associated with it to be deprived of a certain share of their freedom. How do you own these people? First, by conditioning and psychological manipulation; second, by tweaking them to have some skin in the game, forcing them to have something significant to lose if they disobey authority—something hard to do with gyrovague beggars who flout their scorn for material possessions. In the orders of the mafia, things are simple: made men (that is, ordained) can be whacked if the capo suspects a lack of allegiance, with a transitory stay in the trunk of a car—and a guaranteed presence of the boss at their funerals. For other professions, skin in the game comes in more subtle forms.
TO OWN A PILOT
Let us say that you own a small airline company. You are a very modern person; having attended many conferences and spoken to consultants, you believe that the traditional company is a thing of the past: everything can be organized through a web of contractors. It is more efficient to do so, you are certain.
Bob is a pilot with whom you have entered into a specific contract, in a well-defined drawn-out legal agreement
, for precise flights, commitments made a long time in advance, which includes a penalty for nonperformance. Bob supplies the co-pilot and an alternative pilot in case someone is sick. Tomorrow evening you will be operating a scheduled flight to Munich as part of an Oktoberfest special. The flight is full with motivated budget passengers, some of whom went on a preparatory diet; they have been waiting a whole year for this Gargantuan episode of beer, pretzels, and sausage in laughter-filled hangars.
Bob calls you at five P.M. to let you know that he and the copilot, well, they love you…but, you know, they will not fly the plane tomorrow. You know, they had an offer from a Saudi Arabian Sheikh, a devout man who wants to take a special party to Las Vegas, and needs Bob and his team to run the flight. The Sheikh and his retinue were impressed with Bob’s manners, the fact that Bob had never had a drop of alcohol in his life, his expertise in fermented yoghurt drinks, and told him that money was no object. The offer is so generous that it covers whatever penalty there is for a breach of a competing contract by Bob.
You kick yourself. There are plenty of lawyers on these Oktoberfest flights, and, worse, retired lawyers without hobbies who love to sue as a way to kill time, regardless of outcome. Consider the chain reaction: if your plane doesn’t take off, you will not have the equipment to bring the beer-fattened passengers back from Munich—and you will most certainly miss many round trips. Rerouting passengers is costly and not guaranteed.
Skin in the Game Page 10
