Certain Uncertainty

Uncertainty is the nature of the universe. Get used to it.

Change is the only constant.

Those are far more profound statements than they appear to most people. Once we introduce time into the three-dimensional realm of space and matter, change is inevitable and with change we get the unpredictable nature of the future. Mankind is merely a bystander in this universe of uncertain change and it’s really the puzzle that has confounded the most brilliant minds in history: from Ptolemy to Copernicus to Einstein to Hawking.

The puzzle becomes more salient when we realize how uncertainty has shaped natural biology with biodiversity, adaptation, and the survival instincts that help species perpetuate in an uncertain environment of constant change. Humans are different only in that we are cognitively aware of the uncertainty. Together with our naturally endowed survival instincts, this awareness helps determine our behavioral adaptations. It applies to individual behavior and aggregate social behavior.

The social sciences, especially economics and finance, have now started to focus on this uncertain nature of the universe and how it determines how we cohere and interact in social communities characterized by economic exchange and social and political organization.

We can perhaps appreciate the extent that uncertainty infuses our lives by noting its influence on shaping our cultures and institutions. Religion, for example, is a faith-based belief system that not only shapes social behavior through doctrine, but also offers succor through prayer for the fears that uncertainty provokes. Modern democratic government has been called upon to manage the societal and economic risks of uncertainty through social insurance programs for retirement and healthcare, welfare, income maintenance, environmental risk and national defense.

A few authors have explicated a world characterized by uncertainty, most notably Nassim Nicholas Taleb with his compendium of books, including The Black Swan and Antifragile, as well as John Kay and Mervyn King with their collaboration, Radical Uncertainty.

I highly recommend these books, along with Peter Bernstein’s classic, Against the Gods. These frameworks for analysis help us understand the nature of uncertainty, risk and reward, and the imperatives of risk and loss aversion. Then we can decide how best to manage its inevitable effect on our lives.

Link to an excellent podcast of a symposium at the London School of Economics with the two authors of Radical Uncertainty:

https://www.lse.ac.uk/lse-player?id=4867

Taleb on Uncertainty, Predictability, Risk and Fragility

This presentation sounds esoteric, but the basic analogy to nature is fairly simple. Nature survives by organizing itself through decentralization and diversification. Uncertainty then, does not often result in catastrophes (the dinosaurs are the principal exception). We should be organizing our society the same way – by using markets to decentralize and diversify. Our political institutions too. For example, health care cannot be centralized without dehumanizing the patient.