Platonic Fold

8¾ LBS LATER

Four and a half years after my graduation from Wharton (and 8¾ pounds heavier), on October 19, 1987, I walked home from the offices of the investment bank Credit Suisse First Boston in Midtown Manhattan to the Upper East Side. I walked slowly, as I was in a bewildered state.

That day saw a traumatic financial event: the largest market drop in (modern) history. It was all the more traumatic in that it took place at a time when we thought we had become sufficiently sophisticated with all these intelligent-talking Platonified economists (with their phony bell curve-based equations) to prevent, or at least forecast and control, big shocks. The drop was not even the response to any discernible news. The occurrence of the event lay outside anything one could have imagined on the previous day—had I pointed out its possibility, I would have been called a lunatic. It qualified as a Black Swan, but I did not know the expression then.

I ran into a colleague of mine, Demetrius, on Park Avenue, and, as I started talking to him, an anxiety-ridden woman, losing all inhibitions, jumped into the conversation: “Hey, do the two of you know what’s going on?” People on the sidewalk looked dazed. Earlier I had seen a few adults silently sobbing in the trading room of First Boston. I had spent the day at the epicenter of the events, with shell-shocked people running around like rabbits in front of headlights. When I got home, my cousin Alexis called to tell me that his neighbor committed suicide, jumping from his upper-floor apartment. It did not even feel eerie. It felt like Lebanon, with a twist: having seen both, I was struck that financial distress could be more demoralizing than war (just consider that financial problems and the accompanying humiliations can lead to suicide, but war doesn’t appear to do so directly).

I feared a Pyrrhic victory: I had been vindicated intellectually, but I was afraid of being too right and seeing the system crumble under my feet. I did not really want to be that right. I will always remember the late Jimmy P. who, seeing his net worth in the process of melting down, kept half-jokingly begging the price on the screen to stop moving.

But I realized then and there that I did not give a hoot about the money. I experienced the strangest feeling I have ever had in my life, this deafening trumpet signaling to me that I was right, so loudly that it made my bones vibrate. I have never had it since and will never be able to explain it to those who have never experienced it. It was a physical sensation, perhaps a mixture of joy, pride, and terror.

And I felt vindicated? How?

During the one or two years after my arrival at Wharton, I had developed a precise but strange specialty: betting on rare and unexpected events, those that were on the Platonic fold, and considered “inconceivable” by the Platonic “experts.” The Platonic fold is where our representation of reality ceases to apply—but we do not know it.

For I was early to embrace, as a day job, the profession of “quantitative finance.” I became a “quant” and trader at the same time—a quant is a brand of industrial scientist who applies mathematical models of uncertainty to financial (or socioeconomic) data and complex financial instruments. Except that I was a quant exactly in reverse: I studied the flaws and the limits of these models, looking for the Platonic fold where they break down. Also I engaged in speculative trading, not “just tawk,” which was rare for quants since they were prevented from “taking risks,” their role being confined to analysis, not decision making. I was convinced that I was totally incompetent in predicting market prices—but that others were generally incompetent also but did not know it, or did not know that they were taking massive risks. Most traders were just “picking pennies in front of a streamroller,” exposing themselves to the high-impact rare event yet sleeping like babies, unaware of it. Mine was the only job you could do if you thought of yourself as risk-hating, risk-aware, and highly ignorant.

Also, the technical baggage that comes with being a quant (a mixture of applied mathematics, engineering, and statistics), in addition to the immersion in practice, turned out to be very useful for someone wanting to be a philosopher.* First, when you spend a couple of decades doing mass-scale empirical work with data and taking risks based on such studies, you can easily spot elements in the texture of the world that the Platonified “thinker” is too brainwashed, or threatened, to see. Second, it allowed me to become formal and systematic in my thinking instead of wallowing in the anecdotal. Finally, both the philosophy of history and epistemology (the philosophy of knowledge) seemed inseparable from the empirical study of time series data, which is a succession of numbers in time, a sort of historical document containing numbers instead of words. And numbers are easy to process on computers. Studying historical data makes you conscious that history runs forward, not backward, and that it is messier than narrated accounts. Epistemology, the philosophy of history, and statistics aim at understanding truths, investigating the mechanisms that generate them, and separating regularity from the coincidental in historical matters. They all address the question of what one knows, except that they are all to be found in different buildings, so to speak.