Prometheus and Epimetheus

PROMETHEUS AND EPIMETHEUS

In Greek legend, there were two Titan brothers, Prometheus and Epimetheus. Prometheus means “fore-thinker” while Epimetheus means “after-thinker,” equivalent to someone who falls for the retrospective distortion of fitting theories to past events in an ex post narrative manner. Prometheus gave us fire and represents the progress of civilization, while Epimetheus represents backward thinking, staleness, and lack of intelligence. It was Epimetheus who accepted Pandora’s gift, the large jar, with irreversible consequences.

Optionality is Promethean, narratives are Epimethean—one has reversible and benign mistakes, the other symbolizes the gravity and irreversibility of the consequences of opening Pandora’s box.

You make forays into the future by opportunism and optionality. Optionality offers an alternative way of doing things: taking opportunities whose asymmetry allows large benefits with limited harm. It is a way—the only way—to domesticate uncertainty, to work rationally without understanding the future, while reliance on narratives is the exact opposite: one is domesticated by uncertainty, and ironically set back. You cannot look at the future by naive projection of the past.

This brings us to the difference between doing and thinking. The point is hard to understand from the vantage point of intellectuals. As Yogi Berra said, “In theory there is no difference between theory and practice; in practice there is.” The danger is that intellectual methods can conflict with tinkering and introduce fragility. Options, by contrast, can express antifragility. Consider two kinds of knowledge: the formal and the Fat Tonyish, heavily grounded in the antifragility of trial and error and risk taking with less downside, barbell-style—a de-intellectualized form of risk taking (or, rather, intellectual in its own way). In an opaque world, that is the only way to go.

Table 4 contrasts narrating with tinkering. The table is not reproduced here; the source links to a larger image here.

All this does not mean that tinkering and trial and error are devoid of narrative: they are just not overly dependent on the narrative being true—the narrative is not epistemological but instrumental. For instance, religious stories might have no value as narratives, but they may get you to do something convex and antifragile you otherwise would not do, like mitigate risks. English parents controlled children with the false narrative that if they didn’t behave or eat their dinner, Boney (Napoleon Bonaparte) or some wild animal might come and take them away. Religions often use the equivalent method to help adults get out of trouble, or avoid debt. But intellectuals tend to believe their own b***t and take their ideas too literally, and that is vastly dangerous.

Consider the role of heuristic (rule-of-thumb) knowledge embedded in traditions. Simply, just as evolution operates on individuals, so does it act on these tacit, unexplainable rules of thumb transmitted through generations—what Karl Popper has called evolutionary epistemology. But let me change Popper’s idea ever so slightly (actually quite a bit): my take is that this evolution is not a competition between ideas, but between humans and systems based on such ideas. An idea does not survive because it is better than the competition, but rather because the person who holds it has survived! Accordingly, wisdom you learn from your grandmother should be vastly superior (empirically, hence scientifically) to what you get from a class in business school (and, of course, considerably cheaper). My sadness is that we have been moving farther and farther away from grandmothers.

Expert problems (in which the expert knows a lot but less than he thinks he does) often bring fragilities, and acceptance of ignorance the reverse.[3] Expert problems put you on the wrong side of asymmetry. Let us examine the point with respect to risk. When you are fragile you need to know a lot more than when you are antifragile. Conversely, when you think you know more than you do, you are fragile (to error).

My argument is that classroom education comes from wealth more than it creates wealth—an epiphenomenon. Similarly, I argue that antifragile risk taking—not education and formal, organized research—is largely responsible for innovation and growth, while the story is dressed up by textbook writers. It does not mean that theories and research play no role; it is that just as we are fooled by randomness, so we are fooled into overestimating the role of good-sounding ideas. We will look at the confabulations committed by historians of economic thought, medicine, technology, and other fields that tend to systematically downgrade practitioners and fall into the green lumber fallacy.

[1] The halo effect is largely the opposite of domain dependence.

[2] At first I thought that economic theories were not necessary to understand short-term movements in exchange rates, but it turned out that the same limitation applied to long-term movements as well. Many economists toying with foreign exchange have used the notion of “purchasing power parity” to try to predict exchange rates...

[3] Overconfidence leads to reliance on forecasts, which causes borrowing, then to the fragility of leverage. Further, there is convincing evidence that a PhD in economics or finance causes people to build vastly more fragile portfolios...

15. History Written by the Losers

The birds may perhaps listen—Combining stupidity with wisdom rather than the opposite—Where we look for the arrow of discovery—A vindication of trial and error

Because of a spate of biases, historians are prone to epiphenomena and other illusions of cause and effect. To understand the history of technology, you need accounts by nonhistorians, or historians with the right frame of mind...

...Long before I knew of the results in Table 5... I was sitting in a Chicago restaurant with the late Fred A., an economist... He recognized that the demand for these products was going to be very large, but he wondered “how traders could handle these complicated exotics if they do not understand the Girsanov theorem.”...

...We had proof after proof that traders had vastly, vastly more sophistication than the formula. And their sophistication preceded the formula by at least a century...

Traders trade → traders figure out techniques and products → academic economists find formulas and claim traders are using them → new traders believe academics → blowups (from theory-induced fragility)

...Practitioners don’t write; they do. Birds fly and those who lecture them are the ones who write their story. So it is easy to see that history is truly written by losers with time on their hands and a protected academic position.

No, we don’t put theories into practice. We create theories out of practice. That was our story, and it is easy to infer from it—and from similar stories—that the confusion is generalized. The theory is the child of the cure, not the opposite—ex cura theoria nascitur.