How do we cope with total uncertainty? The precautionary principle enjoins us not to do things unless certain of their consequences. But no one can live their life this way. Avoid uck and gure and remember the Copernican and anthropic principle.
Was the zip fastener invented before 1920? How deep is the deepest ocean? These questions have correct answers, but few people know what they are. With problems such as “was Aristotle born before Buddha?” chance will give you the right answer half the time. This performance level is achieved by people who say they are 75 per cent confident they know. People who are 100 per cent certain that they know the answer get it right a little more than two-thirds of the time.
This tendency to over-confidence is also prevalent when answers cannot be found in encyclopaedias, as with questions such as “how will the internet affect the structure of business?” Unfortunately, English lacks a word to describe things people “know” that aren’t so. “Bullshit” is not a scientific term. I propose two terms: “uck” – unwarranted certainty in knowledge; and “gure” – for the stock in trade of gurus, statements that have no substantive content. Uck and gure contribute to political success but business failure.
To escape uck, we must live with unavoidable uncertainty. The precautionary principle, beloved of technophobes and environmentalists, enjoins us not to do things unless certain of their consequences. But no one can live their life that way, and to try puts you at the mercy of people who are full of uck – clairvoyants, consultants, economic forecasters. The Copernican and the anthropic principles will serve you better.
Copernicus realised that the earth is not the centre of the universe. That is why the general notion that things are not usually special was named after him by Richard Gott, the American astrophysicist. There is a 50 per cent chance that trends and buildings are in neither the initial nor the final 25 per cent of their lifespan. To modify an example of Prof Gott’s, the reasonable man would have concluded that the Berlin Wall was likely to fall in his lifetime but that the Great Wall of China was not. This prediction has proved closer to the mark than expert forecasts based on uck and gure.
Similar thinking leads to “stopping rules”. When sampling from an unknown population – finding potential employees or business partners, looking for mates or houses – you should appraise a fixed number and take the best. Copernicus also directs us to look to the centre, to focal points such as the sun. Tests among Harvard students, instructed to meet a colleague in New York but denied further information, showed that they often got together at midday beneath the clock at Grand Central Station.
The Copernican principle works in physical environments characterised by randomness: the anthropic principle, on the other hand, says that where selection is at work – in the jungle or the marketplace – there is a unique relationship between what we observe and the environment in which we observe it. We are able to study life because we live on one of the very few planets that can support it. And we do research on equities because equities have been the most successful asset class in the past century. But what is special tends to revert to the mean. That warns us that returns in the next hundred years will probably be lower.
In the uncertain world of business strategy, the anthropic principle tells us that those companies that have thrived are indeed uniquely suited to their environment – but the Copernican principle warns us that, among successful companies, no one company should believe its strategic vision is unique. In finance, your starting point should be that the future prospects for all assets are equally good, and that the performance of those that have done well recently will revert to the mean. These principles offer a better foundation for decision- making in an unpredictable world than tomes of uck and hours of gure.
And how deep is the deepest ocean? You might begin with the Copernican assumption that the appearance of the earth’s crust below sea level is probably not very different from the appearance of the earth’s crust above sea level. But, for anthropic reasons, we live on the less than half of that crust that is not submerged. You should conjecture that the deepest point under the oceans is deeper than Mount Everest is high, but not much deeper. The southern Marianas trench is about 36,000 feet below sea level. And Buddha was born before Aristotle, and the zip fastener was invented in 1917.